<PAGE>
As filed with the Securities and Exchange Commission on June 3, 1997
Registration No. 333-24681
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
AMENDMENT NO. 1
TO
Form SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ON STAGE ENTERTAINMENT, INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C> <C>
Nevada 7929 88-0214292
(State or other jurisdiction of (Primary Standard Industrial) (I.R.S.
incorporation or organization) Employer Classification No.) Identification No.)
</TABLE>
4625 West Nevso Drive
Las Vegas, NV 89103
(702) 253-1333
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
Christopher R. Grobl, Esq.
On Stage Entertainment, Inc.
4625 West Nevso Drive
Las Vegas, NV 89103
(702) 253-1333
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies of all communications to:
JAMES W. McKENZIE, JR., ESQ. ROBERT J. MITTMAN, ESQ.
Morgan, Lewis & Bockius LLP Tenzer Greenblatt LLP
2000 One Logan Square The Chrysler Building
Philadelphia, PA 19103-6993 405 Lexington Avenue
Telephone: (215) 963-5000 New York, NY 10174
Facsimile: (215) 963-5299 Telephone: (212) 885-5000
Facsimile: (212) 885-5001
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Secur ities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
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=====================================================================================================================
Proposed
Maximum Offering Proposed Maximum Amount of
Title of Each Class of Amount to Price Per Aggregate Offering Registration
Securities to be Registered be Registered Security(1) Price (1) Fee
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share ........................... 2,300,000(2) $5.00 $11,500,000 $ 3,484.85
- ---------------------------------------------------------------------------------------------------------------------
Warrants, each to purchase one
share of Common Stock ......... 2,300,000(2) $.10 $230,000 $69.70
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per
share, issuable upon exercise of
the Warrants (3) ............... 2,300,000(2) $5.50 $12,650,000 $ 3,833.33
- ---------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants, each to
purchase one share of Common
Stock (4) ..................... 200,000 $.001 $200 (5)
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per
share, issuable upon exercise of
the Underwriter's Warrants ...... 200,000 $8.25 $1,650,000 $500.00
- ---------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants, each to
purchase one warrant (4) ...... 200,000 $.0001 $20 (5)
- ---------------------------------------------------------------------------------------------------------------------
Warrants issuable upon exercise of
the Underwriter's Warrants ...... 200,000 $.165 $33,000 $10.00
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per
share, issuable upon exercise of
the warrants underlying the
Underwriter's Warrants (3) ...... 200,000 $7.76 $1,552,000 $470.30
- ---------------------------------------------------------------------------------------------------------------------
Total Registration Fee .......................................................................... $ 8,368.18
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Assumes the Underwriter's over-allotment option to purchase up to 300,000
additional shares of Common Stock and/or 300,000 Warrants is exercised in
full.
(3) Pursuant to Rule 416, there are also being registered such indeterminable
additional shares of Common Stock as may become issuable pursuant to
anti-dilution provisions contained in the Warrants and the Underwriter's
Warrants.
(4) Represents warrants to be issued by the Company to the Underwriter at the
time of delivery and acceptance of the securities to be sold by the
Company to the public hereunder.
(5) None, pursuant to Rule 457(g).
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securites
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PRELIMINARY PROSPECTUS DATED JUNE 3, 1997
SUBJECT TO COMPLETION
ON STAGE ENTERTAINMENT, INC.
2,000,000 Shares of Common Stock and
Redeemable Warrants to Purchase 2,000,000 Shares of Common Stock
Of the 2,000,000 shares (the "Shares") of common stock, par value $.01 per
share (the "Common Stock"), and redeemable warrants to purchase 2,000,000
shares of Common Stock (the "Warrants") offered hereby, 1,400,000 Shares and
2,000,000 Warrants are being offered by the Company and 600,000 Shares are
being offered by John W. Stuart, the Company's Chairman, Chief Executive
Officer and principal stockholder (the "Selling Stockholder"). The Shares and
Warrants may be purchased separately and will be separately transferrable
immediately upon issuance. Each Warrant entitles the registered holder thereof
to purchase one share of Common Stock at a price of $5.50, subject to
adjustment in certain circumstances, at any time commencing , 1998 (or such
earlier date as to which the Underwriter consents) through and including ,
2002. The Warrants are redeemable by the Company, at any time, commencing ,
1998, upon notice of not less than 30 days, at a price of $.10 per Warrant,
provided that the closing bid quotation of the Common Stock on all 20 trading
days ending on the third trading day prior to the day on which the Company
gives notice (the "Call Date") has been at least 150% (currently $8.25, subject
to adjustment) of the then effective exercise price of the Warrants and the
Company obtains the written consent of the Underwriter to such redemption prior
to the Call Date. See "Principal and Selling Stockholders" and "Description of
Securities."
Prior to this offering, there has been no public market for the Common
Stock or Warrants and there can be no assurance that any such market will
develop. It is anticipated that the Shares and Warrants will be quoted on the
Nasdaq SmallCap Market ("Nasdaq") under the symbols "ONST" and "ONSTW,"
respectively. The offering prices of the Shares and Warrants and the exercise
price of the Warrants were determined pursuant to negotiation between the
Company and the Underwriter and do not necessarily relate to the Company's book
value or any other established criteria of value. For a discussion of the
factors considered in determining the offering prices of the Shares and
Warrants, see "Underwriting."
------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO
CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
COMMENCING ON PAGE 9 AND "DILUTION" ON PAGE 19.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================
Price Underwriting Discounts Proceeds Proceeds
to and to to Selling
Public Commissions(1) Company (2) Stockholders (3)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share ......... $5.00 $.50 $4.50 $4.50
- ----------------------------------------------------------------------------------------------
Per Warrant ...... $.10 $.01 $.09 --
- ----------------------------------------------------------------------------------------------
Total (4) ......... $10,200,000 $1,020,000 $6,480,000 $2,700,000
==============================================================================================
</TABLE>
(1) In addition, the Company and the Selling Stockholder have agreed to pay to
the Underwriter a 3% nonaccountable expense allowance, and the Company has
agreed to sell to the Underwriter warrants (the "Underwriter's Warrants")
to purchase up to 200,000 shares of Common Stock and/or 200,000 Warrants.
The Company and the Selling Stockholder have also agreed to indemnify the
Underwriter against certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses, including the Company's portion of the
Underwriter's nonaccountable expense allowance in the amount of $216,000
($261,900 if the Underwriter's over-allotment option is exercised in
full), estimated at $760,000, payable by the Company.
(3) Before deducting the Selling Stockholder's portion of the Underwriter's
nonaccountable expense allowance in the amount of $90,000.
(4) The Company has granted to the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to an additional
300,000 shares of Common Stock and/or 300,000 Warrants on the same terms
set forth above, solely for the purpose of covering over-allotments, if
any. If the Underwriter's over-allotment option is exercised in full, the
total price to public, underwriting discounts and commissions, and
proceeds to Company will be $11,730,000, $1,173,000 and $7,857,000,
respectively. See "Underwriting."
------------------
The Shares and Warrants are being offered, subject to prior sale, when, as
and if delivered to and accepted by the Underwriter and subject to approval of
certain legal matters by counsel and to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify the offering and
to reject any order in whole or in part. It is expected that delivery of
certificates representing the Shares and Warrants will be made against payment
therefor at the offices of the Underwriter, 650 Fifth Avenue, New York, New
York 10019, on or about , 1997.
Whale Securities Co., L.P.
The date of this Prospectus is , 1997
<PAGE>
[PICTURE OF COMPANY LOGO AND SHOWGIRL]
On Stage Entertainment, Inc. is a developer and producer of live theatrical
productions. Its flagship production, "Legends in Concert - A Tribute to the
Superstars of Yesterday and Today," is a live tribute show featuring recreations
of past and present music and motion picture superstars. Since its debut in
1983, Legends has run continuously at the Imperial Palace in Las Vegas and has
been performed in over 17 countries.
[INSIDE FLAP -- CAST OF LEGENDS]
Legends In Concert
Tribute To The Superstars
AVAILABLE INFORMATION
As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith, will file reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). The Company intends to furnish its stockholders with annual
reports containing audited financial statements and such other periodic reports
as the Company deems appropriate or as may be required by law.
------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS,
ON NASDAQ, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE, WHICH STABILIZE,
MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE COMMON STOCK AND WARRANTS.
SPECIFICALLY, THE UNDERWRITER MAY OVER- ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK AND WARRANTS IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Each prospective investor is
urged to read this Prospectus in its entirety. Except as otherwise noted, all
information contained in this Prospectus, including per share data and
information relating to the number of shares outstanding, gives retroactive
effect to the 1-for-1.814967 reverse split of the Common Stock effected on
March 18, 1997 (the "Reverse Split") and assumes no exercise of the
Underwriter's over-allotment option to purchase up to 300,000 additional shares
of Common Stock and/or 300,000 additional Warrants from the Company. See
"Underwriting" and Note 9 of Notes to Financial Statements.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
The Company
The Company develops and produces live theatrical productions for domestic
and international audiences. The Company markets its productions, directly and
through ticket wholesalers, to audiences at theaters in resort and urban
tourist locations. The Company also markets its productions to commercial
clients, which include casinos, corporations, fairs and expositions, theme and
amusement parks, and cruise lines. The Company's flagship Legends in Concert(R)
production ("Legends") is a live tribute show featuring recreations of past and
present music and motion picture superstars through the use of impersonators
and is the longest running independently produced production in Las Vegas. The
Company currently has resident Legends productions at the Imperial Palace Hotel
and Casino (the "Imperial Palace") in Las Vegas, Nevada; Bally's Park Place
Hotel and Casino ("Bally's Park Place") in Atlantic City, New Jersey; and the
Surfside Theater in Myrtle Beach, South Carolina; and on two Premier Cruise
Lines ships (the Atlantic and the Oceanic) which sail out of Cape Canaveral,
Florida. In addition, the Company will have a resident Legends production at
the Coliseum Theater in Daytona Beach, Florida, beginning in the Summer of
1997. The Company also produces limited-run Legends shows and corporate events
and has performed in locations such as the Illinois State Fair, MGM Theme Park
and Dollywood Theme Park; in locations as far away as Australia, Russia, China,
Africa, Japan and the Philippines; and for major corporate clients such as
McDonald's Corporation ("McDonald's"), Hewlett Packard, Inc. ("Hewlett
Packard"), Pitney Bowes, Inc. ("Pitney Bowes"), Levi Strauss Associates, Inc.
("Levi Strauss") and Texaco Inc. ("Texaco"). For the years ended December 31,
1995 and 1996, and for the three months ended March 31, 1997, net revenue
attributable to Legends productions (including both resident and limited-run
engagements) and the sale of related Legends merchandise represented
approximately 86%, 98% and 94%, respectively, of the Company's net revenue.
Full-scale Legends shows utilize state-of-the-art sound, lighting, and
special effects, incorporate backup singers and dancers and feature live
orchestras. Smaller-scale Legends shows, such as those performed for corporate
events, typically use taped orchestra music. Vocals, however, are performed
live in all Legends shows; there is no lip-synching nor are any vocal tapes
utilized. In addition to Legends, the Company has developed and produced 15
other theatrical productions since its founding in 1985, including other
tribute-type shows and a variety of musical reviews, magic, ice and specialty
shows. All of the Company's shows are designed to appeal to a broad spectrum of
attendees by offering affordable, quality entertainment incorporating
experienced talent and state-of-the-art special effects and staging. By
offering multiple productions in addition to Legends, the Company seeks to run
more than one show in highly visited tourist markets, thereby generating both
increased operating margins and greater market share. In addition, since the
Company currently has access to over 70 different Legends tribute acts
(including tributes to Elvis Presley, Marilyn Monroe, Michael Jackson, Barbara
Streisand, the Blues Brothers and Madonna, to name but a few), it can tailor
each tribute show to suit the unique demographics of any audience and the size
of any venue, and has been able to attract repeat business by varying regularly
the composition of the acts in its shows.
3
<PAGE>
In addition to benefitting from what the Company believes to be the
expanding market for live entertainment, the Company is seeking to grow by
increasing its market share. The Company has identified several ways to achieve
this additional growth, including opening resident Legends shows in new
markets, acquiring other brand-name theatrical productions and acquiring small
independent production companies. The Company's objective is to become a
leading worldwide producer of affordable live theatrical productions which have
mass market appeal by the implementation of both a "roll-out" and "roll-up"
strategy. The key elements of this business expansion strategy include:
o Roll-Out of Legends into New Tourist Markets -- The Company has experienced a
high degree of success to date with its Legends production and, as part of
its "roll-out" strategy, has identified over 30 additional resort and urban
tourist locations worldwide where it believes the potential exists for the
Company to successfully produce and market new resident Legends shows. In
connection with its proposed roll-out of Legends in new tourist venues, the
Company generally intends to utilize, what is referred to in the industry
as, a "four-wall" operating structure. With such a structure, the Company
assumes responsibility for all of the expenses associated with the show,
including the cost of the theater (whether leased or purchased), as well as
the costs associated with the show's "four walls", i.e. (i) front of house
(box office, food and beverage, maintenance, ushers), (ii) promotion
(marketing, advertising), (iii) stage (stage hands, technicians) and (iv)
production show (performers, orchestra, dancers). Under such a structure,
the Company is also the sole recipient of the show's potential revenues,
profits and/or losses. The Company's resident "four-wall" production in
Myrtle Beach has demonstrated the benefits of such operating structure; it
opened in March 1995 and, for the year ended December 31, 1996, generated
gross profits of over $1,900,000 and a 44% gross margin.
o Acquiring Brand-Name Theatrical Productions -- As part of its "roll-up"
strategy, the Company intends to acquire additional brand-name shows with
"roll-out" potential through joint ventures or other arrangements with other
production companies (such as An Evening at the Improv(R) Spectacular, which
the Company is currently co-producing with Improv West, Inc.) and has
identified several variety, magic, ice and interactive dinner and other
theater productions which it believes have, like Legends, the quality,
versatility and broad appeal necessary to succeed under the "four-wall"
operating structure and in multiple markets.
o Acquiring Independent Production Companies -- As part of its "roll-up"
strategy, the Company will also seek to acquire small, independent
production companies with show concepts which it believes have the potential
to develop into brand-name shows or with existing commercial customer bases
to which it can market Legends and other shows. By leveraging its in-house
production expertise and infrastructure, the Company believes it can improve
the quality of acquired show concepts and the efficiency of acquired
production companies, and, by capitalizing upon its already established
Legends name and reputation, the Company believes it can improve and/or
hasten the marketability of new show concepts.
o Penetrating Commercial Markets through Expansion of Direct Sales Network --
Shows sold to corporations, fair and expositions, theme and amusement parks
and cruise lines are typically limited-run engagements, ranging from one
night to several months, and are usually guaranteed or "low-risk" shows
where the client pays the Company a guaranteed fee. Shows sold to casinos,
both resident and limited-run productions, are operated using either the
"two-wall" method, where the casino and the Company each assume certain
aspects of the production's costs and a designated percentage of its revenues,
or a guaranteed show arrangement. To further penetrate all of these commercial
markets, the Company plans to expand its national sales network, both in terms
of staffing and geographically, in order to target new clients and effectively
service, and sell additional guaranteed and "two-wall" shows to, existing
commercial clients. The Company recently hired a Vice President of Sales and
intends to open several regional sales offices by the end of 1998.
o Expanding and Centralizing Merchandising Program -- The Company believes that
it can increase its merchandise sales, which, to date, have accounted for
less than 6% per annum of the Company's rev-
4
<PAGE>
enues, by introducing new products and designing more effective point of sale
displays. In addition, during 1997, the Company intends to hire a
Merchandising Director and implement centralized purchasing and marketing to
achieve economies of scale, ensure consistent product quality, and obtain
sales data in a timely manner.
The Company's on stage talent consists primarily of impersonators, variety
acts, singers, dancers, musicians and musical directors. The Company has
significant experience in talent recruitment, development and retention and has
featured 184 impersonators and over 239 other performers in its productions. In
order to maintain logistical and budgetary control over all aspects of its
productions, the Company maintains in-house choreography, wardrobe, lighting,
sound, staging, scenery, multimedia and special effects capabilities and
utilizes the Hollywood Inventory Tracking System ("H.I.T.S.") to manage its
theatrical assets.
The Company was incorporated on October 30, 1985 under the laws of the
State of Nevada as Legends in Concert, Inc. Subsequently, on August 7, 1996,
the Company changed its name to On Stage Entertainment, Inc. The Company's
principal executive offices are located at 4625 West Nevso Drive, Las Vegas,
Nevada 89103, and its telephone number is (702) 253-1333. Unless the context
otherwise indicates, use herein of the term "the Company" gives reference also
to the Company's three wholly-owned subsidiaries: Legends in Concert, Inc., a
Nevada corporation; On Stage Marketing, Inc., a Nevada corporation; and
Interactive Events, Inc., a Georgia corporation.
Recent Developments
Recent and Pending Debt Forgiveness
As of December 31, 1996, John W. Stuart, the Chairman, Chief Executive
Officer and principal stockholder of the Company, owed the Company a total of
$1,637,413 in principal amount under an 8% promissory note due in January 1998,
plus accrued interest thereon of $143,011. On December 31, 1996, the Company
forgave all $1,780,424 of such indebtedness (the "Stuart Debt Forgiveness"),
which has been accounted for as part of principal stockholder compensation in
the Company's Statements of Operations in the amounts of $920,913 and $859,511
for the years ended December 31, 1995 and 1996, respectively. In addition,
immediately prior to the consummation of this offering, the Company intends to
forgive up to an additional principal amount of $200,000 borrowed by Mr. Stuart
since January 1, 1997, plus interest accrued thereon at the rate of 8% per
annum. As of April 1 1997, Mr. Stuart was indebted to the Company in the amount
of $103,235 as a result of loans extended to him by the Company since January
1, 1997. Pursuant to a Placement Agent Agreement entered into between the
Company and the Underwriter in connection with the Bridge Financing (as defined
below), the Company has agreed with the Underwriter that, other than such
$200,000, it will not, in the future, either loan or advance any further sums
to or on behalf of Mr. Stuart. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Stuart Debt Forgiveness" and "Certain Transactions."
Warrant Exchange
On March 17, 1997, the Company exchanged all of its then outstanding
warrants for 440,755 shares (the "Warrant Exchange Shares") of Common Stock
(the "Warrant Exchange"). The Warrant Exchange had no effect upon the Company's
earnings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Warrant Exchange."
Bridge Financing
On March 26, 1997, the Company completed the sale of 20 investment units
(the "Bridge Units") to 21 private investors, at a price of $50,000 per Bridge
Unit, for total gross proceeds of $1,000,000 (the "Bridge Financing"). Each
Bridge Unit consisted of (i) a 9% promissory note of the Company in the
principal amount of $50,000, maturing upon the consummation, and payable out of
the proceeds, of this offering (each, a "Bridge Note"), (ii) 10,000 shares of
Common Stock (the "Bridge Shares") and (iii) 12,500 warrants, each to purchase
one share of Common Stock at an exercise price of $4.00 per share (the "Bridge
5
<PAGE>
Warrants"). None of the securities issued in connection with the Bridge
Financing may be transferred until 12 months following the date of this
Prospectus. The Company has agreed to include the Bridge Shares and the shares
underlying the Bridge Warrants (the "Bridge Warrant Shares") in a registration
statement filed with the Commission within 15 months following the date of this
Prospectus. After the payment of $125,000 in placement fees to the Underwriter,
who acted as placement agent for the Company with respect to the sale of the
Bridge Units, and other offering expenses of approximately $75,000, the Company
received net proceeds of approximately $800,000 in connection with the Bridge
Financing. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Bridge Financing," "Description of Securities -- Bridge Warrants"
and " -- Registration Rights."
Pending Debt Conversion
Immediately prior to the consummation of this offering, all $1,714,064
principal amount currently outstanding under the Company's 8% Amended and
Restated Convertible Subordinated Debentures due in January 1999 (the
"Debentures") will be converted (the "Pending Debt Conversion") into 505,649
shares of Common Stock (the "Debenture Shares"). Such conversion will result in
a one time, non-recurring, interest expense charge to the Company in the amount
of $194,228 (based on an imputed value of $4.00 per Debenture Share). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Debentures and Pending Debt
Conversion."
The Offering
Securities offered ... 2,000,000 shares of Common Stock and Warrants to
purchase 2,000,000 shares of Common Stock. See
"Description of Securities."
By the Company......... 1,400,000 shares of Common Stock and Warrants to
purchase 2,000,000 shares of Common Stock.
By the Selling
Stockholder.......... 600,000 shares of Common Stock.
Common Stock to be
outstanding after this
offering(1)(2)......... 6,588,980 shares.
Warrants (3)
Number to be outstanding
after this offering... 2,000,000 Warrants.
Exercise terms......... Exercisable commencing, 1998 (one year
following the date of this Prospectus), or such
earlier date as to which the Underwriter consents,
each to purchase one share of Common Stock at a
price of $5.50, subject to adjustment in certain
circumstances. See "Description of Securities --
Public Warrants."
Expiration date ...... , 2002 (five years following the date of this
Prospectus).
Redemption ............ Redeemable by the Company, upon the consent of the
Underwriter, at any time commencing on , 1998
(one year following the date of this Prospectus),
upon notice of not less than 30 days, at a price of
$.10 per Warrant, provided that the closing bid
quotation of the Common Stock on all 20 trading days
ending on the third trading day prior to the Call
Date has been at least 150% (currently $8.25,
subject to adjustment) of the then effective
exercise price of the Warrants and the Company
obtains the written consent of the
6
<PAGE>
Underwriter to such redemption prior to the Call
Date. The Warrants will be exercisable until the
close of business on the date fixed for redemption.
See "Description of Securities -- Public Warrants."
Use of Proceeds ...... The Company intends to use the net proceeds of
this offering for new show openings; the repayment
of indebtedness; the hiring of additional
administrative and sales personnel; and the balance
for working capital and general corporate purposes.
See "Use of Proceeds."
Risk Factors ......... The securities offered hereby are speculative and
involve a high degree of risk and immediate
substantial dilution and should not be purchased by
investors who cannot afford the loss of their entire
investment. See "Risk Factors" and "Dilution."
Proposed Nasdaq symbols.. Common Stock -- "ONST"
Warrants -- "ONSTW"
- ------------
(1) Includes the 505,649 Debenture Shares which will be issued immediately prior
to the consummation of this offering in connection with the Pending Debt
Conversion. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
(2) Does not include: (i) 2,000,000 shares of Common Stock reserved for
issuance upon exercise of the Warrants; (ii) an aggregate of 400,000
shares of Common Stock reserved for issuance upon exercise of the
Underwriter's Warrants and the warrants included therein; (iii) 250,000
Bridge Warrant Shares; (iv) 11,020 shares of Common Stock reserved in
connection with the Company's November 1996 acquisition of Interactive
Events, Inc. (the "Interactive Events Acquisition") for issuance in
November 1997 (the "Interactive Events Shares"); (v) 617,403 shares of
Common Stock reserved for issuance upon exercise of options granted, and
167,597 shares of Common Stock reserved for issuance upon the exercise of
options available for future grant, under the Company's 1996 Stock Option
Plan (the "Option Plan"); (vi) 15,000 shares of Common Stock reserved for
issuance upon exercise of an outstanding non-plan option; and (vii) an
indeterminable number of shares of Common Stock reserved for issuance in
the event the Company fails under certain circumstances to register, or to
maintain an effective registration statement with respect to, the
Debenture Shares and certain securities issued in connection with the
Bridge Financing. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Liquidity and Capital Resources,"
"Management -- 1996 Stock Option Plan," "Description of Securities" and
"Underwriting."
(3) Does not include any of the warrants referred to in clauses (ii) and (iii)
of footnote (2) above.
7
<PAGE>
Summary Financial Information
(Dollars in thousands except per share data)
The following table sets forth, for the periods and at the dates
indicated, certain summary financial information for the Company. Such data
have been derived from, and should be read in conjunction with, the financial
statements of the Company, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included elsewhere in this Prospectus.
Statement of Operations Data:
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
--------------------------- -------------------
1995 1996 1997
------------ ------------ -------------------
<S> <C> <C> <C>
Net revenue ....................................... $12,775 $14,278 $ 2,719
Gross profit ....................................... 3,141 5,832 816
Principal stockholder compensation .................. 1,286 1,110 63
Operating income (loss) ........................... (1,079) 1,070 (401)
Net income (loss) ................................. (1,333) 901 (517)
Net income (loss) per share. ........................ (.32) .22 (.12)
Weighted average number of shares outstanding ...... 4,112,643 4,115,865 4,161,284
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
December 31, 1996 March 31, 1997
------------------- --------------------------------------------
As
Actual Pro Forma(1) Adjusted(1)(2)
--------- -------------- ---------------
<S> <C> <C> <C> <C>
Working capital (deficit) ............ $ (103) $ (351) $ (351) $4,078
Total assets ........................ $ 3,954 $ 4,332 $ 4,332 $7,547
Total liabilities .................. $ 4,177 $ 4,544 $ 2,830 $1,524
Stockholders' equity (deficit) ...... $ (223) $ (212) $ 1,502 $6,023
</TABLE>
- ------------
(1) Gives retroactive effect to the Pending Debt Conversion, which will occur
immediately prior to the consummation of this offering. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
-- Liquidity and Capital Resources" and "Management Employment Contracts."
(2) Adjusted to give retroactive effect to the Company's sale of 1,400,000 of
the Shares and the 2,000,000 Warrants offered hereby and the anticipated
application of the estimated net proceeds therefrom, including for the
repayment of the Bridge Notes and the Company's loan (the "DYDX Loan")
from DYDX Legends Group L.P. ("DYDX"). See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources."
8
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk. Each prospective investor should carefully consider the following risk
factors inherent in and affecting the business of the Company and this offering
before making an investment decision.
Prior Losses. Although the Company had net income of $900,998 for the year
ended December 31, 1996, the Company incurred net losses of $1,331,084 and
$517,372 for the year ended December 31, 1995 and the three months ended March
31, 1997, respectively. Further, the Company has agreed to loan Mr. Stuart up
to $200,000 aggregate principal amount during the period commencing January 1,
1997 and ending as of the date of this Prospectus and intends to forgive all
such indebtedness, including interest thereon, prior to the consummation of
this offering, and during 1997, the Company will also have a one-time,
non-recurring interest expense charge of approximately $194,228 resulting from
the Pending Debt Conversion, both of which events will decrease any potential
profits or increase any losses which the Company might have during the year
ending December 31, 1997. Moreover, increased operating expenses in connection
with the Company's proposed expansion plans, delays in the introduction of new
productions and factors adversely affecting the Company's current productions,
could have a material adverse effect on the Company's future operating results.
There can be no assurance that the Company will continue to generate
significant net income in the future or that the Company's future operations
will be profitable. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Certain Transactions" and Financial
Statements.
Dependence on Legends. To date, the Company's revenue has been limited
largely to the production of Legends. Revenue attributable to Legends
productions (including both resident and limited-run engagements) and the sale
of related Legends merchandise represented approximately 86%, 98% and 94% of
the Company's net revenue for the years ended December 31, 1995 and 1996, and
for the three months ended March 31, 1997, respectively. The future success of
the Company will depend, to a significant extent, on its ability to
successfully produce and market Legends shows in other venues. To the extent
the Company is unsuccessful in expanding the production of Legends, or to the
extent the Legends production concept ceases to be successful or profitable for
the Company, there will be a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Expansion
Strategy" and "-- Show Offerings."
Reliance on Principal Production Venues; Contractual Arrangements.
Revenues attributable to the Company's three largest revenue producing show
sites for the years ended December 31, 1995 and 1996, and for the three months
ended March 31, 1997, represented approximately 68%, 73% and 68% of the
Company's net revenue, respectively, for such periods. The Company anticipates
that it will continue to rely upon its three current largest revenue producing
show sites, i.e., its resident Legends productions in Las Vegas, Atlantic City
and Myrtle Beach, for the substantial majority of its revenues through at least
the middle of fiscal 1998. The loss of all or a substantial portion of the
business resulting from these relationships would have a material adverse
effect on the Company. Although the Company has entered into contractual
arrangements with the owners of each of its three largest revenue producing
show sites, the Imperial Palace in Las Vegas, Bally's Park Place in Atlantic
City and the Surfside Theater in Myrtle Beach, the first two contracts are
terminable with advance written notice to the Company ranging from only eight
weeks to six months. In addition, the Imperial Palace contract is immediately
terminable in the event of the death of Mr. Stuart. There can be no assurance
that these contracts will not be terminated and, in the event that one or all
of the contracts are terminated or not renewed, such an event could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, if any one of these contracts is terminated
unforeseeably, it may take at least six months for the Company to locate and
secure a similar site in the same venue, conceptualize a new show concept for
such site and complete show implementation. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business --
Resident Production Contracts."
Risks Relating to Proposed Expansion Plans; Possible Inability to Manage
Growth. The Company's continued growth depends, to a significant degree, on its
ability to produce and market new theatrical productions on a profitable basis.
The Company's expansion plans include increasing both the number of productions
in operation at any given time and the rate at which such productions open.
Such expansion strategy contemplates the opening of approximately nine
additional "four-wall" resident productions over the next 24 months, which
strategy, if successful, will place significant pressures on the Company's
personnel, as such growth will require
9
<PAGE>
development and operation of a significantly larger business over a broader
geographical area. The success of the Company's expansion strategy will depend
upon a number of factors, including, among others, the Company's ability to
hire and retain additional skilled management, marketing, technical and
performing arts and theatrical production personnel, its ability to secure
suitable venues for new productions on a timely basis and on commercially
reasonable terms, and its ability to successfully manage its growth (which will
require it to develop and improve upon its operational, management and
financial systems and controls). The Company's prospects and future growth will
also be largely dependent upon the ability of its Legends productions to
achieve significant market share in targeted tourist and gaming markets and the
ability of the Company to develop and/or acquire and commercialize additional
productions. There can be no assurance that the Company will be able to achieve
its expansion goals or that, if it is able to expand its operations, it will be
able to effectively manage its growth, anticipate and satisfy all of the
changing demands and requirements that such growth will impose upon it or
achieve greater operating income or profitability. Moreover, in light of (i)
the significant up-front capital expenditures and pre-opening costs (estimated
to be approximately $400,000 to $800,000 in the case of a leased theater and up
to $1,000,000 in the case of a purchased theater) associated with the
establishment of a new "four-wall" resident production, (ii) the length of time
required to prepare for the opening of a new resident production (typically 3
to 6 months) and (iii) the significant time required before a new resident
production can achieve the market acceptance and name recognition required for
local ticket wholesalers and tour specialists to promote it, the
discontinuation of any such new production (whether due to inadequate advance
marketing, inadequate performances, poor site selection or otherwise) would
have a material adverse effect on the Company. For instance, during 1995, the
Company had to discontinue its resident production of Country Stars on Ice in
Pigeon Forge, Tennessee and its resident production of Glitz -- A Tribute to
the History of Las Vegas ("Glitz") in Las Vegas due to a lack of capital for
adequate pre-opening market research, site development and advertising,
resulting in less than optimal ticket sales in the start-up phases of both
shows and an aggregate estimated loss to the Company for fiscal 1995, from such
shows, of at least $411,000. See "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business --
Expansion Strategy" and "-- Show Financial Structures."
Working Capital and Stockholders' Deficits; Possible Need for Additional
Financing. As of December 31, 1996 and March 31, 1997, the Company had working
capital deficits of $103,000 and $350,521, respectively, resulting, primarily,
from advances paid to Mr. Stuart during the year ended December 31, 1996 in the
amount of $716,500 and during the three month period ending March 31, 1997 in
the amount of $103,235, respectively. In addition, as of December 31, 1996 and
March 31, 1997, the Company had stockholders' deficits of $222,640 and
$211,583, respectively, resulting from prior losses. There can be no assurance
that the Company's future operations will be profitable. Although the Company
believes, based on its currently proposed plans and assumptions relating to its
operations (and on the fact that it has agreed with the Underwriter that, other
than the $200,000 which may be advanced to Mr. Stuart by the Company since
January 1, 1997, it will no longer make any advances to Mr. Stuart), that the
proceeds from this offering and the Bridge Financing, together with the
Company's cash and cash equivalent balances and anticipated revenues from
operations, will be sufficient to fund its current expansion strategy, as well
as its operating requirements for the next 24 months, there can be no assurance
that such funds will not be expended prior thereto due to unanticipated
financial shortfalls in the Company's results of operations, changes in
economic conditions or other unforeseen circumstances. In the event the
Company's plans change or its assumptions change or prove to be inaccurate, the
Company could be required to seek additional financing following this offering
in order to continue implementation of its proposed expansion plans. The
Company has no current arrangements with respect to, or potential sources of,
additional financing, and any inability to obtain such financing, if and when
needed, could cause the Company to curtail, delay or eliminate certain
anticipated productions, or to fund such productions through arrangements with
third parties that may require the Company to relinquish rights to substantial
portions of its revenues, and could possibly cause the Company to cease its
expansion plans. See "Use of Proceeds," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Certain Transactions."
Substantial Use of Proceeds to Repay Indebtedness; Proceeds Used to
Benefit Related Parties. The Company intends to use approximately $1,775,000
(31%) of the estimated net proceeds of this offering to repay the DYDX Loan and
the Bridge Notes, including interest accrued thereon, and, as a consequence,
such proceeds will be unavailable to fund future growth. The indebtedness to be
repaid with proceeds from this offering includes,
10
<PAGE>
among other things, Bridge Notes in the principal amount of $50,000, $25,000
and $12,500 payable to Kenneth Berg, a director of the Company, David Hope, the
President, Chief Operating Officer and a director of the Company, and Kiranjit
S. Sidhu, the Senior Vice President and Chief Financial Officer of the Company,
respectively. See "Use of Proceeds" and "Certain Transactions."
Risks Associated with Proposed Acquisition Strategy. As part of its
expansion plans, the Company intends to pursue strategic acquisitions of, or
joint ventures with, independent production companies, and to market Legends to
the established customer bases of any such acquired companies, in order to
increase its revenues and market share. In addition, the Company intends to
acquire established, brand-name shows which it believes have the potential to
be successful in new markets. The Company currently intends to enter into such
arrangements on a shared revenue and/or profit basis (such as its joint venture
arrangement with Improv West, Inc.) and to make such acquisitions in a manner
similar to that used in its Interactive Events Acquisition, i.e., through
limited equity distributions rather than through cash payments or investments.
Nonetheless, there may, in the future, be attractive acquisition candidates for
which cash funding is the Company's only choice, in which case, any such
acquisitions may be contingent upon the Company acquiring additional financing
in excess of the proceeds from this offering. There can be no assurance that
the Company will be able to acquire such financing or, even with additional
financing, that it will be able to acquire acceptable production companies or
shows, nor can there be any assurance that the Company will be able to enter
into beneficial joint ventures, on commercially reasonable terms or in a timely
manner. Furthermore, the Company can provide no assurance that any acquired
customer bases will be receptive to Legends or Legends-type productions or that
the Company will be able to successfully develop any acquired shows. Moreover,
under Nevada law, various forms of business combinations can be effected
without stockholder approval. Accordingly, investors in this offering will, in
all likelihood, neither receive nor otherwise have the opportunity to evaluate
any financial or other information which may be made available to the Company
in connection with any potential acquisition or joint venture and will be
dependent upon the Company's management to select, structure and consummate any
such acquisitions and/or arrangements in a manner consistent with the Company's
business objectives. There can be no assurance that the Company will properly
ascertain or assess all significant and pertinent risk factors prior to its
consummation of such a transaction. Moreover, to the extent the Company does
effect an acquisition or joint venture, there can be no assurance that the
Company will be able to successfully integrate into its operations any business
or productions which it may acquire. Any inability to do so, particularly in
instances in which the Company has made significant capital investments, could
have a material adverse effect on the Company. In addition, there can be no
assurance that any acquired business will increase the revenues and/or market
share of the Company or otherwise improve the financial condition of the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Acquisition of
Interactive Events, Inc.," "Business -- Expansion Strategy" and "-- Show
Acquisition and Development."
Control by Principal Stockholder. Upon the consummation of this offering,
John W. Stuart, the Company's Chairman, Chief Executive Officer and principal
stockholder, will beneficially own approximately 51.3% of the outstanding
Common Stock. Accordingly, Mr. Stuart will be able to control the Company and
direct its affairs, including the election of all of the Company's directors,
and cause an increase in the Company's authorized capital or the dissolution,
merger or sale of the Company or substantially all of its assets. See
"Principal and Selling Stockholders."
Competition. The leisure and entertainment market, which includes the
market for live theatrical productions, is highly competitive, and many of the
Company's markets contain a large number of competing live theatrical
productions. In resort and urban tourist locations, the Company competes for
ticket sales with the producers of other live productions, many of whom have
greater financial and other resources than the Company and/or feature
productions and headline stars with greater name recognition than those of the
Company. In addition, the Company competes with other production companies for
the most desirable commercial and tourist venues and for talent and production
personnel. The Company's inability to secure such venues or personnel could have
a material adverse effect on the Company's expansion plans and results of
operations. In addition, one or more of the commercial venues in which the
Company currently has, or plans to have, a live production show could decide to
self-produce its live entertainment needs. There can be no assurance that the
Company will be able to secure alternative venues for displaced productions or
that such alternative venues could be secured under similar or favorable terms.
See "Business -- Competition."
11
<PAGE>
Availability of Talent. The Company's future success will depend largely
upon its ability to attract and retain personnel sufficiently trained in
performing arts and theatrical production, including singers, dancers,
musicians, choreographers and technical personnel. The Company maintains
rigorous standards with respect to the abilities and level of experience of
such personnel in order to ensure consistency, quality and professionalism in
its productions, which may make it more difficult for the Company to obtain
qualified personnel. Moreover, any such difficulty is compounded by the fact
that Legends, the Company's flagship production, features impersonators of past
and present superstar vocalists. Because such headline performers must look,
sound and act like specific celebrities, the pool of performers from which the
Company can chose is significantly reduced. In addition, while the Company's
musicians, singers, dancers and production personnel are generally employees of
the Company, its headline acts are independent contractors who enter into new
contracts with the Company for each new show or venue in which they perform. The
Company does not maintain any long-term contracts with its performers. The
Company will need to hire additional performers and production technicians as
it continues to open new productions, as well as to supplement personnel in its
existing productions. The Company's inability to attract and retain such
personnel, for either new or existing productions, could have a material
adverse effect on the Company's expansion plans, business, financial condition
and results of operations. See "Business -- Talent."
Fluctuations in Quarterly Operating Results; High Seasonality. The Company
has experienced, and expects to continue to experience, fluctuations in
quarterly results of operations. The Company's live theatrical production
business is highly seasonal and the Company has historically generated (i)
negative cash flow from operations, and a net loss, for its first quarter and
(ii) less revenue in its first and fourth quarters than in its second and third
quarters. The Company expects such seasonal trends to continue. Additionally,
the Company typically spends significant resources on new resident theatrical
productions up to six months in advance of show openings, and believes that, as
the Company emphasizes pre-opening market research and development as part of
its expansion plan, both the amount of pre-opening expenditures and the lag
between the time in which the Company incurs such expenditures and the receipt
of post-opening revenue will increase. Accordingly, the Company's operating
results may also vary significantly from quarter to quarter or year to year due
to the opening and timing of new shows and the fluctuations associated with the
pre-opening and start-up phases of new productions in new and varying venues.
Consequently, revenues as well as profits and losses may vary significantly
from quarter to quarter and the results in any one period will not necessarily
be indicative of results in subsequent periods. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Seasonality
and Quarterly Results."
Effect of Recession on Live Entertainment Industry; Changing Trends. The
live entertainment industry is cyclical, with consumer spending tending to
decline during recessionary periods when disposable income is low. Although the
Company believes that its moderate ticket prices may enhance the appeal of its
productions to consumers in a recessionary environment, there can be no
assurance that a poor general economic climate will not have an adverse impact
on the Company's ability to compete for limited consumer resources. The live
entertainment industry is also subject to changing consumer demands and trends
and while the markets for live entertainment have grown significantly over the
past several years, there can be no assurance that such growth will continue or
that these trends will not be reversed. For instance, the rate of growth in the
casino gaming industry has recently begun to decrease due to consolidation
within the industry. The Company's success will depend on the Company's ability
to anticipate and respond to changing consumer demands and trends and other
factors affecting the live entertainment industry, including new artists and
musicians, as well as general trends affecting the music industry and its
performers. Failure to respond to such factors in a timely manner could have a
material adverse effect on the Company. See "Business -- Industry Background."
Dependence on the Casino Gaming Industry. Although the Company has
recently shifted its primary emphasis away from gaming markets and towards the
resort and urban tourist markets, the Company's success has been, and will
continue to be, highly dependent on the casino gaming industry. For the years
ended December 31, 1995 and 1996, and for the three months ended March 31,
1997, approximately 57%, 40% and 64%, respectively, of the Company's net
revenue was attributable to shows produced at casino gaming venues.
Consequently, a change in the laws or regulations governing the casino gaming
industry, or a significant decline in casino gaming in the United States could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Industry Background."
12
<PAGE>
Intellectual Property. The Company's success depends to a large extent on
its ability to reproduce the performance, likeness and voice of various
celebrities without infringing on the publicity rights of such celebrities or
their estates. Although the Company believes that its productions do not
violate such intellectual property rights under applicable state and Federal
laws, in the event such a claim were made against the Company, such litigation,
regardless of the outcome, could be expensive and time consuming for the
Company to defend. Additionally, if the Company were determined to be
infringing any intellectual property rights in the production of its
performances, the Company could be required to pay damages (possibly including
treble and/or statutory damages), costs and attorney fees, alter its
productions, obtain licenses or cease certain activities, all of which,
individually or collectively, could have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
if the Company were required to obtain licenses from the celebrities it
impersonates, there can be no assurance that the Company would be able to
acquire such licenses on commercially favorable terms, if at all. In addition,
an element of the Company's business strategy is to expand its merchandising
program by introducing a wider variety of clothing items and new products such
as compact discs, and audio and video tapes. The Company has filed trademark
applications in the United States and anticipates filing trademark applications
in certain foreign countries, as necessary, in order to protect its rights in
the products that it sells. There can be no assurance that the Company will be
able to obtain any such trademarks on terms and conditions acceptable to the
Company. The Company's inability to obtain such rights could have a material
adverse effect on the Company's ability to successfully implement its
merchandising strategy. See "Business -- Expansion Strategy," "-- Show
Merchandising" and "-- Intellectual Property."
Government Regulation. Providing entertainment to the casino gaming
industry may subject the Company to various licensing regulations. For
instance, the Casino Control Commission of the State of New Jersey requires
that the Company obtain a Casino Service Industry License to perform its shows
at its Atlantic City venues. Although the Company has obtained this license,
there may be other licenses or permits which may be required in order for the
Company to perform its shows in casinos in other areas. In addition, pursuant
to the Company's expansion program, the Company plans to lease or purchase
some, if not all, of the theaters for its new Legends or other brand-name
resident productions, thereby absorbing all costs and risks associated with
producing the show in order to retain 100% of the show's profits (referred to
as a "four-wall" production). Producing shows on this basis may require the
Company to obtain and maintain certain business, professional, retail and local
licenses and permits (as the Company was required to obtain for the opening of
its Myrtle Beach show, a "four-wall" production). Difficulties or failure in
obtaining required licenses or regulatory approvals could delay or prevent the
opening of a new show or, alter, delay or hinder the Company's expansion plans.
In addition, the suspension of, or inability to renew, a license needed to
operate any of the Company's currently running productions would adversely
affect the operations of the Company. See "Business -- Government Regulation."
Dependence on Key Personnel. The Company's future success will depend
largely on the efforts and abilities of its existing senior management,
particularly Mr. Stuart, the Company's Chairman, Chief Executive Officer and
principal stockholder, and David Hope, the Company's President and Chief
Operating Officer. The loss of the services of such officers or other members
of the Company's management team could have a material adverse effect on the
Company's business, financial condition and results of operations. Although the
Company currently maintains a key-man life insurance policy on the life of Mr.
Stuart in the amount of $5,000,000 and on the life of Mr. Hope in the amount of
$2,500,000, such proceeds may not be sufficient to compensate the Company for
the loss of their services. In particular, Mr. Stuart's death would result in
the loss of his creative contribution to the Company and would give the owner
of the Imperial Palace the right to terminate its contract with the Company
relating to the Company's resident Legends production in Las Vegas (one of the
Company's largest revenue producing venues). In addition, while Messrs. Stuart
and Hope have entered into non-competition agreements restricting their ability
to work for a competitor of the Company during the term of their employment
agreements (which expire on May 31, 2000) and thereafter for periods of up to
five and two years, respectively, there can be no assurance that such
non-competition agreements will be enforceable. Finally, there can be no
assurance that the Company will be able to attract and retain the additional
qualified senior management personnel necessary to manage its planned growth.
See "Business -- Resident Production Contracts" and "Management."
Risk of Employment Tax Liability. Pursuant to industry standards, the
Company has, since its inception, treated, and expects to continue to treat,
the headline acts of its productions as independent contractors rather
13
<PAGE>
than as employees. In making the determination that it is qualified to
characterize its headline acts as independent contractors, the Company, in
addition to following industry precedent, made an independent review of, and
analyzed, the applicable guidelines issued by the Internal Revenue Service.
There can be no assurance, however, that the Company is qualified to treat the
headline acts as independent contractors. In the event that the Company has
improperly classified the headline acts as independent contractors, the Company
would be liable for the payment of employment taxes for those periods in which
the headline acts were incorrectly characterized as independent contractors. If
imposed, such employment tax liability could have a material adverse effect on
the Company's financial condition and results of operations. See "Business --
Talent."
Litigation. The Company is involved in certain pending and threatened
lawsuits in which the adverse parties are seeking damages from the Company.
There can be no assurance that any of the instituted or threatened lawsuits
will be settled or decided in favor of the Company. Moreover, regardless of the
outcome of such lawsuits and claims, in the event the Company were to be
engaged in protracted litigation the costs of such litigation could be
substantial. Even in situations where the Company is fully indemnified by third
parties, the time and effort expended by the Company's personnel in connection
with such matters could be significant, leaving them with less time and energy
for the pursuit of the Company's strategic goals. The Company may utilize a
portion of the proceeds of this offering allocated to working capital in
connection with these litigation matters or settlements thereof. Although the
Company does not anticipate that a material portion of the proceeds of this
offering will be required to be used in connection with such litigation
matters, in the event that a material portion is required, the Company will
have less financial resources available to it for other purposes which could
adversely affect the Company. See "Use of Proceeds" and "Business -- Legal
Proceedings."
Immediate and Substantial Dilution to New Investors -- Over 80%. This
offering involves an immediate and substantial dilution of approximately $4.13
per share (83%) between the pro forma net tangible book value per share after
this offering and the initial public offering price per Share of $5.00. See
"Dilution."
Benefits of Offering to Existing Stockholders. Upon the consummation of
this offering, the existing stockholders of the Company will receive
substantial benefits, including the creation of a public trading market for
their securities (although, other than the 600,000 Shares of the Selling
Stockholder being offered hereby, all of such shares are subject to a lock-up
agreement with the Underwriter and will not be registered for sale in
connection with this offering) and the corresponding facilitation of sales by
such stockholders of their shares of Common Stock in the secondary market, as
well as an immediate increase in net tangible book value of $.80 per share to
such stockholders based upon the adjusted net tangible book value per share
after this offering and the initial public offering price per Share offered
hereby. If, at the time the existing stockholders are able to sell their shares
of Common Stock in the public market, the market price per share remains at the
$5.00 initial public offering price (of which there can be no assurance) such
stockholders would realize an average gain of $4.50 per share on the sale of
their existing shares. See "Use of Proceeds," "Dilution," "Shares Eligible for
Future Sale" and "Underwriting."
Limitations on Liability of Directors and Officers. The Company's Articles
of Incorporation include provisions to eliminate, to the full extent permitted
by Nevada General Corporation Law as in effect from time to time, the personal
liability of directors of the Company for monetary damages arising from a
breach of their fiduciary duties as directors. The Company's Articles of
Incorporation also include provisions to the effect that the Company shall, to
the maximum extent permitted from time to time under the law of the State of
Nevada, indemnify and, upon request, advance expenses to any director or
officer to the extent that such indemnification and advancement of expense is
permitted under such law, as it may from time to time be in effect. See
"Description of Securities -- Nevada Law and Articles of Incorporation and
By-Law Provisions Affecting Stockholders."
Possible Restrictions on Market-Making Activities in the Company's
Securities. The Company believes that the Underwriter intends to make a market
in the Company's securities and may be responsible for a substantial portion of
the market making-activities in such securities. Regulation M under the
Exchange Act may prohibit the Underwriter from engaging in any market-making
activities with regard to the Company's securities for (i) the period from five
business days (or such other applicable period as Regulation M may provide)
prior to any solicitation by the Underwriter of the exercise of outstanding
Warrants until the termination (by waiver or otherwise) of any right that the
Underwriter may have to receive a fee for the exercise of the Warrants
following such solicitation, and (ii) any period during which the Underwriter,
or any affiliated parties, participate
14
<PAGE>
in a distribution of any securities of the Company for the account of the
Underwriter or any such affiliate. As a result, the Underwriter may be unable
to provide a market for the Company's securities during certain periods,
including while the Warrants are exercisable. Any temporary cessation of such
market-making activities could have an adverse effect on the liquidity for the
Company's securities. See "Underwriting."
No Dividends. The Company has never paid any dividends on its Common Stock
and does not anticipate paying cash dividends in the foreseeable future. The
Company currently intends to retain all earnings for use in connection with the
expansion of its business and for general corporate purposes. The declaration
and payment of future dividends, if any, will be at the sole discretion of the
Company's Board of Directors and will depend upon the Company's profitability,
financial condition, cash requirements, future prospects, and other factors
deemed relevant by the Board of Directors. See "Dividend Policy."
Possible Adverse Effects of Authorization of Preferred Stock. The
Company's Articles of Incorporation authorize the Company's Board of Directors
to issue up to 1,000,000 shares of "blank check" preferred stock (the
"Preferred Stock") with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors will be empowered, without stockholder approval, to issue
Preferred Stock with dividend, liquidation, conversion, voting, or other
rights, which could adversely affect the voting power of the holders of Common
Stock and, under certain circumstances, could make it difficult for a third
party to gain control of the Company, prevent or substantially delay a change
in control, discourage bids for the Common Stock at a premium, or otherwise
adversely affect the market price of the Common Stock. Although the Company has
no current plans to issue any shares of Preferred Stock, there can be no
assurance that the Board will not decide to do so in the future. See
"Description of Securities -- Capital Stock -- Preferred Stock."
No Assurance of Public Market; Determination of Offering Price; Possible
Volatility of Market Price of Common Stock and Warrants. Prior to this
offering, there has been no public trading market for the Common Stock or
Warrants. Consequently, the initial public offering price of the Common Stock
and Warrants and exercise price of the Warrants has been determined by
negotiations between the Company and the Underwriter and do not necessarily
reflect the Company's book value or other established criteria of value. There
can be no assurance that a regular trading market for the Common Stock or
Warrants will develop after this offering or that, if developed, it will be
sustained. The market prices of the Company's securities following this
offering may be highly volatile as has been the case with the securities of
other emerging companies. Factors such as the Company's operating results,
announcements by the Company or its competitors of new production contracts,
and various factors affecting the entertainment industry generally, may have a
significant impact on the market price of the Company's securities. In
addition, in recent years, the stock market has experienced a high level of
price and volume volatility and market prices for the stock of many companies,
particularly of small and emerging growth companies, the common stock of which
trade in the over-the-counter market, have experienced wide price fluctuations
which have not necessarily been related to the operating performance of such
companies. See "Underwriting."
Current Prospectus and State Registration Required to Exercise
Warrants. Holders of the Warrants will be able to exercise the Warrants only if
(i) a current prospectus under the Securities Act relating to the securities
underlying the Warrants, is then in effect and (ii) such securities are
qualified for sale or exempt from qualification under the applicable securities
laws of the states in which the various holders of Warrants reside. Although
the Company has undertaken and intends to use its best efforts to maintain a
current prospectus covering the securities underlying the Warrants following
the consummation of this offering, to the extent required by federal securities
laws, there can be no assurance that the Company will be able to do so. The
value of the Warrants may be greatly reduced if a prospectus covering the
securities issuable upon the exercise of the Warrants is not kept current or if
the securities are not qualified, or exempt from qualification, in the states
in which the holders of Warrants reside. Persons holding Warrants who reside in
jurisdictions in which such securities are not qualified and in which there is
no exemption will be unable to exercise their Warrants and would either have to
sell their Warrants in the open market or allow then to expire unexercised. See
"Description of Securities -- Public Warrants."
Potential Adverse Effect of Redemption of Warrants. The Warrants are
subject to redemption by the Company, at any time commencing one year following
the date of this Prospectus, upon notice of not less than 30
15
<PAGE>
days, at a price of $.10 per Warrant, provided that the closing bid quotation
of the Common Stock on all 20 trading days ending on the third trading day
prior to the Call Date has been at least 150% (currently $8.25, subject to
adjustment) of the then effective exercise price of the Warrants and the
Company obtains the written consent of the Underwriter to such redemption prior
to the Call Date. Redemption of the Warrants could force the holders to
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for the holders to do so, to sell the Warrants at the then
current market price when they might otherwise wish to hold the Warrants, or to
accept the redemption price, which is likely to be substantially less than the
market value of the Warrants at the time of redemption. See "Description of
Securities -- Public Warrants."
Unaffiliated Bankruptcy. A real estate partnership (unaffiliated with the
Company) of which Mr. Stuart, the Chairman, Chief Executive Officer and
principal stockholder of the Company, was a partner, Maze Stone Canyon Estates
Partnership, filed for bankruptcy under Chapter 11 in December 1991 in the
United States Bankruptcy Court, Central District of California (the "Bankruptcy
Court"). The partnership is currently in reorganization pursuant to the Plan of
Reorganization adopted by the Bankruptcy Court in August 1992. See
"Management."
Shares Eligible for Future Sale; Registration Rights. Upon consummation of
this offering, the Company will have 6,588,980 shares of Common Stock
outstanding, of which the 2,000,000 Shares offered hereby will be freely
tradable without restriction or further registration under the Securities Act.
The remaining 4,588,980 shares of Common Stock outstanding are deemed to be
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act, and may only be sold (i) pursuant to an effective
registration under the Securities Act, (ii) in compliance with the exemption
provisions of Rule 144 or (iii) pursuant to another exemption under the
Securities Act. Such restricted shares of Common Stock will become eligible for
sale, under Rule 144, at various times commencing 90 days following the date of
this Prospectus, subject to certain volume limitations prescribed by Rule 144
and to the agreements set forth below. In connection with the Bridge Financing,
the investors agreed that their Bridge Shares (as well as their Bridge Warrants
and Bridge Warrant Shares) may not be sold for a period of 12 months following
the date of this Prospectus, under any circumstances, and the holders of the
4,388,980 other restricted shares have agreed not to sell any of their
securities of the Company for periods of between 10 and 12 months following the
date of this Prospectus without the Underwriter's prior written consent
(subject in certain cases to earlier release upon the Company's achievement of
certain performance targets). No prediction can be made as to the effect, if
any, that sales of shares of Common Stock or even the availability of such
shares for sale will have on the market prices prevailing from time to time. In
addition, the Company has granted certain demand and piggyback registration
rights relating to 1,165,688 of the restricted shares, as well as to the
250,000 Bridge Warrant Shares and to the securities underlying the
Underwriter's Warrants. The possibility that substantial amounts of Common
Stock may be sold in the public market may adversely affect prevailing market
prices for the Common Stock and Warrants and could impair the Company's ability
to raise capital through the sale of its equity securities. See "Description of
Securities -- Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
Possible Delisting of Securities from the Nasdaq SmallCap Market; Risks
Relating to Penny Stocks. It is currently anticipated that the Company's Common
Stock and Warrants will be eligible for listing on the Nasdaq SmallCap Market
upon the completion of this offering. In order to continue to be listed on the
Nasdaq SmallCap Market, however, the Company must maintain $2,000,000 in total
assets, a $200,000 market value of the public float and $1,000,000 in total
capital and surplus. In addition, continued inclusion requires two
market-makers and a minimum bid price of $1.00 per share; provided, however,
that if the Company falls below such minimum bid price, it will remain eligible
for continued inclusion on the Nasdaq SmallCap Market if the market value of
the public float is at least $1,000,000 and the Company has $2,000,000 in
capital and surplus. Nasdaq has recently proposed new maintenance criteria
which, if implemented, would eliminate the foregoing exception to the minimum
bid price requirement and require, among other things, $2,000,000 in net
tangible assets, $1,000,000 market value of the public float and adherence to
certain corporate governance provisions. The failure to meet these maintenance
criteria in the future may result in the delisting of the Company's securities
from the Nasdaq SmallCap Market, and trading, if any, in the Company's
securities would thereafter be conducted in the non-Nasdaq over-the-counter
market. As a result of such delisting, an investor could find it more difficult
to dispose of, or to obtain accurate quotations as to the market value of, the
Company's securities.
16
<PAGE>
In addition, if the Common Stock were to become delisted from trading on
the Nasdaq SmallCap Market and the trading price of the Common Stock were to
fall below $5.00 per share, trading in the Common Stock would also be subject
to the requirements of certain rules promulgated under the Exchange Act, which
require additional disclosure by broker-dealers in connection with any trades
involving a stock defined as a penny stock (generally, any non-Nasdaq equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions). Such rules require the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established
customers and accredited investors (generally institutions). For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to sale. The additional burdens imposed upon broker-dealers
by such requirements may discourage broker-dealers from effecting transactions
in the Common Stock, which could severely limit the market liquidity of the
Common Stock and the ability of purchasers in this offering to sell the Common
Stock in the secondary market.
Contractual Obligations to the Underwriter. The Company will have certain
ongoing contractual obligations to the Underwriter following the consummation
of this offering, such as the Company's agreement to pay to the Underwriter a
fee of 5% of the exercise price for each Warrant exercised (provided the
Warrant exercise is solicited by the Underwriter and certain other conditions
are met) commencing one year after the date of this Prospectus; to use its best
efforts to elect a designee of the Underwriter as a member of the Company's
Board of Directors, if requested to do so by the Underwriter, for a period of
three (3) years from the date of this Prospectus; and, subject to certain
limitations and exclusions, to register, at the Company's expense, the
Underwriter's Warrants and the securities underlying such warrants under the
Securities Act on one occasion during their exercise term and to include such
securities in any appropriate registration statement which is filed by the
Company during the seven years following the date of this Prospectus. See
"Underwriting."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,400,000 Shares and 2,000,000 Warrants offered by the Company hereby are
estimated to be approximately $5,720,000 (approximately $7,051,100 if the
Underwriter's over-allotment option is exercised in full) after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company. The Company expects to use the net proceeds (assuming no
exercise of the Underwriter's over-allotment option) approximately as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage of
Application of Proceeds Dollar Amount Net Proceeds
- ------------------------------------------------------ --------------- --------------
<S> <C> <C>
New show openings (1) ........................ $3,000,000 52.45%
Repayment of indebtedness (2) ............... 1,775,000 31.03
Hiring of additional administrative and sales
personnel (3) .............................. 600,000 10.49
Working capital and general corporate
purposes(4) .............................. 345,000 6.03
----------- --------
Total ................................................ $5,720,000 100.00%
=========== ========
</TABLE>
- ------------
(1) The Company's current expansion strategy contemplates the opening of
approximately nine new resident "four-wall" productions by May 1999, which
the Company intends to accomplish with proceeds from the Bridge Financing
and this offering and revenues generated from its current and, as they
open, new productions (for instance, by the end of 1995, the Company's
Surfside Theatre production, a resident "four-wall" production opened in
March 1995, had already generated approximately $300,000 in gross profits
after deducting all pre-opening costs). Costs associated with the opening
(typically a three- to six-month process after the theater site is
secured) of new resident "four-wall" productions in resort and urban
tourist markets, include lease deposits and down payments; costs
associated with leasehold improvements and signage; the lease and/or
purchase of capital equipment, such as lighting, sound and concession
equipment and computer ticketing systems; pre-opening advertising launch
campaigns; merchandising and inventory; purchase and physical loading of
sets, costumes and props; pre-show rehearsals and staffing; and estimated
running cost floats for expected two- to four-week initial operating
deficits. The Company expects that such opening costs will be between
$400,000 and $800,000 for productions in leased locations (the Company's
primary focus) and up to $1,000,000 for productions in purchased
locations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Expansion Plans" and "Business."
(2) Represents the repayment of the Bridge Notes in the aggregate principal
amount of $1,000,000, including Bridge Notes in the principal amounts of
$50,000, $25,000 and $12,500 payable to Kenneth Berg, a director of the
Company, David Hope, the President, Chief Operating Officer and a director
of the Company, and Kiranjit S. Sidhu, the Senior Vice President and Chief
Financial Officer of the Company, respectively, and the repayment of the
DYDX Loan in the principal amount of $750,000, plus interest accrued
thereon (in each case, at the rate of 9% per annum) through and until the
anticipated date of repayment in the estimated aggregate amount of
$25,000. The proceeds from the February 1996 DYDX Loan were used for the
payment of outstanding trade payables, capital improvements to the
Surfside Theater, working capital and general corporate purposes. The
proceeds from the Company's recent Bridge Financing are being used for the
payment of outstanding trade payables, pre-opening expenditures on the
Daytona Beach show and the seasonal Branson show, certain pre-offering
expenses related to this offering and for working capital and general
corporate purposes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources"
and "Certain Transactions."
(3) The Company intends to hire an Executive Vice President of Production, a
Management Information Systems Director and a Merchandising Director over
the next year, as well as several regional corporate event salespersons by
the end of 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and "Business --
Expansion Strategy."
(4) Includes costs associated with the Company's plan to expand and improve its
information technology system and to further develop the use of the
Hollywood Inventory Tracking System ("H.I.T.S."), an asset management
system, throughout the Company. See "Business -- Show Merchandising" and
"-- Operations and Show Implementation."
18
<PAGE>
If the Underwriter exercises the over-allotment option in full, the
Company will realize additional net proceeds of $1,331,100. If the 2,000,000
Warrants offered hereby are exercised, the Company will realize proceeds
relating thereto of $11,000,000 before any solicitation fees which may be paid
in connection therewith. Such additional proceeds, if received, are expected to
be used primarily for additional new show openings and for working capital and
general corporate purposes. See "Underwriting."
The allocation of the net proceeds to be received by the Company from this
offering as set forth above represents the Company's best estimates based upon
its currently proposed plans and assumptions relating to its operations and
expansion strategy and certain assumptions regarding general economic
conditions. The Company anticipates, based on management's internal forecasts
and assumptions relating to its operations (including the anticipated timetable
of new show openings and the costs associated therewith), that the net proceeds
of this offering and the Bridge Financing, together with its current cash and
cash equivalent balances and anticipated revenues from operations, will be
sufficient to funds its current expansion strategy, as well as its other cash
and operating requirements for 24 months following the consummation of this
offering. In the event that the Company's plans change, its assumptions change
or prove inaccurate, or if the proceeds of this offering and cash flow
otherwise prove to be insufficient to fund the Company's plans (due to
unanticipated financial shortfalls in the Company's results of operations,
changes in economic conditions or other unforeseen circumstances), the Company
could be required to seek additional financing following this offering in order
to continue implementation of its proposed expansion plans. There can be no
assurance, however, that additional financing will be available to the Company
if and when needed, on commercially reasonable terms or at all.
Proceeds not immediately required for the purposes described above will be
invested principally in short-term investment grade debt obligations, bank
certificates of deposit, United States Government money market instruments or
other short-term interest bearing investments.
DILUTION
The difference between the initial public offering price per Share and net
tangible book value per share of Common Stock after this offering constitutes
the dilution to investors in this offering. Net tangible book value per share
is determined on any given date by dividing the net tangible book value of the
Company (total tangible assets less total liabilities) on such date by the
number of then outstanding shares of Common Stock.
At March 31, 1997, the net tangible book value (deficit) of the Company
was $(1,463,016), or $(.31) per share of Common Stock. After giving retroactive
effect to the Pending Debt Conversion, the pro forma net tangible book value of
the Company as of March 31, 1997 would have been $348,348 or $.07 per share.
After also giving effect to the sale of the 1,400,000 Shares and 2,000,000
Warrants being offered hereby by the Company and the receipt and application
(including for the repayment of the Bridge Notes and the DYDX Loan) of the
estimated net proceeds therefrom (less underwriting discounts and commissions
and estimated offering expenses payable by the Company), the as adjusted net
tangible book value of the Company as of March 31, 1997 would have been
$5,737,482 or $.87 per share, representing an immediate increase in net tangible
book value of $.80 per share to existing stockholders and an immediate dilution
of $4.13 (83%) per share to new investors.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price .......................................... $5.00
Net tangible book value (deficit) before pro forma adjustments ...... $(.31)
Increase attributable to pro forma adjustments ..................... .38
-------
Pro forma net tangible book value before this offering ............ .07
Increase attributable to investors in this offering .................. .80
-------
As adjusted net tangible book value after this offering ............... .87
------
Dilution to new investors in this offering ........................... $4.13
======
</TABLE>
19
<PAGE>
The following table sets forth a comparison between the Company's existing
stockholders (giving effect to the Pending Debt Conversion) and new investors
in this offering, with respect to the number of shares of Common Stock acquired
from the Company, the percentage ownership of such shares, the total
consideration paid, the percentage of total consideration paid and the average
price per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
----------------------- ------------------------ --------------
Number Percent Amount Percent Per Share
----------- --------- ------------ --------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1) ...... 5,188,980 78.8% $2,597,764 27.1% $0.50
New investors .................. 1,400,000 21.2% 7,000,000 72.9% $5.00
---------- ------- ----------- -------
Total ..................... 6,588,980 100.0% $9,597,764 100.0%
</TABLE>
- ------------
(1) The sale by the Selling Stockholder of 600,000 Shares in this offering will
reduce the number of shares of Common Stock held by existing stockholders
to 4,588,980, or approximately 69.6% (approximately 66.6% if the
over-allotment option is exercised in full) of the total number of shares
of Common Stock outstanding after this offering, and will increase the
number of shares of Common Stock acquired by investors in this offering to
2,000,000, or approximately 30.4% (approximately 33.3% if the
over-allotment option is exercised in full), of the total number of shares
of Common Stock outstanding after this offering.
The above table assumes no exercise of the Underwriter's over-allotment
option. If such option is exercised in full, the new investors will have paid
$8,500,000 for 1,700,000 shares of Common Stock offered by the Company,
representing approximately 76.6% of the total consideration, for 24.7% of the
total number of shares of Common Stock outstanding. In addition, the above
table also assumes no exercise of outstanding stock options and warrants. As of
the date of this Prospectus, there are outstanding Bridge Warrants to purchase
250,000 Bridge Warrant Shares at $4.00 per share and options to purchase
617,403 shares of Common Stock at exercise prices ranging from $3.99 to $5.00
per share. There are also 11,020 Interactive Events Shares reserved for
issuance in November 1997 for no further consideration. To the extent that such
options and warrants are exercised, and such shares issued, there will be
further dilution to new investors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Acquisition of Interactive Events, Inc.," "Management -- 1996
Stock Option Plan," "Description of Securities - Bridge Warrants" and
"Underwriting."
DIVIDEND POLICY
To date, the Company has not paid any cash dividends on its Common Stock
and does not expect to declare any cash dividends in the future. Payments of
dividends, if any, will be at the discretion of the Board of Directors after
taking into account various factors, including the Company's financial
condition, results of operations and current and anticipated cash needs and
other factors the Board of Directors may deem relevant.
20
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company as of March 31, 1997: (i) on an actual basis; (ii) on a pro forma
basis, giving effect to the Pending Debt Conversion; and (iii) as further
adjusted to give effect to the sale of the 1,400,000 Shares and 2,000,000
Warrants offered by the Company hereby and to the anticipated application of
the estimated net proceeds therefrom, including for the repayment of the Bridge
Notes and the DYDX Loan:
<TABLE>
<CAPTION>
March 31, 1997
---------------------------------------------------------------------
Actual Pro Forma As Adjusted
------------- ----------------------- ---------------------------
<S> <C> <C> <C>
Short-term debt:
Bridge Notes .......................................... $ 556,000 $ 556,000 $ -0-(3(a))
Bank debt ............................................. 106,682 106,682 106,682
Current portion of capital lease obligations ......... 78,591 78,591 78,591
----------- -------------- --------------
Total short-term debt .............................. $ 741,273 $ 741,273 $ 185,273
=========== ============== ==============
Long-term debt:
DYDX Loan ............................................. $ 750,000 $ 750,000 $ -0-(3(b))
Debentures .......................................... 1,714,064 -0-(2) -0-
Capital lease obligations, less current portion ...... 181,353 181,353 181,353
----------- -------------- --------------
Total long-term debt .............................. 2,645,417 931,353 181,353
----------- -------------- --------------
Stockholders' equity (deficit):
Preferred Stock, par value $1.00; 1,000,000 shares
authorized; no shares issued and outstanding ......... -- -- --
Common Stock, par value $.01; 25,000,000 shares
authorized; 4,683,331 shares issued and out-
standing (actual); 5,188,980 shares issued and
outstanding (pro forma); 6,588,980 shares
issued and outstanding (as adjusted)(1) ............ 46,833 51,890(2) 65,890(3(c))
Additional paid-in capital ........................... 642,640 2,545,875(2) 7,594,074(3(d))
Accumulated deficit ................................. (901,056) (1,095,284) (2) (1,636,584)(3(e))
----------- -------------- --------------
Total stockholders' equity (deficit) ............... (211,583) 1,502,481 6,023,380
----------- -------------- --------------
Total capitalization .............................. $ 2,433,834 $ 2,433,834 $ 6,204,733
=========== ============== ==============
</TABLE>
- ------------
(1) Does not include (i) 2,000,000 shares of Common Stock reserved for issuance
upon exercise of the Warrants; (ii) an aggregate of 400,000 shares of
Common Stock reserved for issuance upon exercise of the Underwriter's
Warrants and the warrants included therein; (iii) 250,000 Bridge Warrant
Shares; (iv) 11,020 Interactive Events Shares; (v) 617,403 shares of
Common Stock reserved for issuance upon exercise of options granted, and
167,397 shares of Common Stock reserved for issuance upon the exercise of
options available for future grant, under the Option Plan; (vi) 15,000
shares of Common Stock reserved for issuance upon exercise of an
outstanding non-plan option; and (vii) an indeterminable number of shares
of Common Stock reserved for issuance in the event the Company fails under
certain circumstances to register, or to maintain an effective
registration statement with respect to, the Debenture Shares and certain
securities issued in connection with the Bridge Financing. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operation -- Liquidity and Capital Resources," "Management -- 1996
Stock Option Plan," "Description of Securities" and "Underwriting."
(2) Gives retroactive effect to the pending Debt Conversion (i.e., the
conversion of $1,714,064 principal amount of Debentures into 505,649
Debenture Shares) and an additional interest charge of $194,228 (through
May 31, 1997) related to the conversion and reflects the aggregate par
value of the Debenture Shares of $5,056.
(3) As Adjusted Adjustments
(a) To reflect the payoff of the Bridge Notes with proceeds of the offering.
(b) To reflect the payoff of the DYDX Loan with the proceeds of the offering.
(c) To reflect the Company's sale of 1,400,000 of the Shares offered hereby.
(d) To reflect the Company's sale of 1,400,000 of the Shares offered hereby,
assuming net proceeds of $5,720,000, less the par value of such shares in
the amount of $14,000, and the write-off of $657,801 of previously
capitalized offering costs.
(e) To reflect a charge to operations of $541,300 related to the loan
discount and debt issuance costs of the Bridge Financing (through May 31,
1997).
21
<PAGE>
SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
The following selected financial data for each of the two years in the
period ended December 31, 1995 and at December 31, 1996 are derived from, and
should be read in conjunction with, the Company's audited financial statements,
including the notes thereto, included elsewhere in this Prospectus. The
selected financial data for the three months ended March 31, 1996 and 1997, as
well as the pro forma and as adjusted balance sheet data, are derived from the
unaudited financial statements of the Company and, in the opinion of
management, include all adjustments that are necessary to present fairly the
results of operations and financial position of the Company for those periods
in accordance with generally accepted accounting practices. The selected
financial data for the three months ended March 31, 1997 are not necessarily
indicative of the results to be expected for the full year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Statement of Operations Data:
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
------------------------ ---------------------------
1995 1996 1996 1997
----------- ----------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net revenue .......................................... $ 12,755 $ 14,278 $ 2,347 $ 2,719
Gross profit ....................................... 3,141 5,832 733 816
Principal stockholder compensation .................. 1,286 1,110 63 63
Operating income (loss) .............................. (1,079) 1,070 13 (401)
Net income (loss) .................................... (1,333) 901 (68) (517)
Net income (loss) per share ........................ (.32) .22 (.02) (.12)
Weighted average number of shares outstanding ...... 4,112,643 4,115,865 4,112,643 4,161,284
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
March 31, 1997
December 31, 1996 (unaudited)
------------------- --------------------------------------------
As
Actual Pro Forma(1) Adjusted(1)(2)
--------- -------------- ---------------
<S> <C> <C> <C> <C>
Working capital (deficit) ............ $ (103) $ (351) $ (351) $4,078
Total assets ........................ $ 3,954 $ 4,332 $ 4,332 $7,547
Total liabilities .................. $ 4,177 $ 4,544 $ 2,830 $1,524
Stockholders' equity (deficit) ...... $ (223) $ (212) $ 1,502 $6,023
</TABLE>
- ------------
(1) Gives retroactive effect to the Pending Debt Conversion, which will occur
immediately prior to the consummation of this offering. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
-- Liquidity and Capital Resources" and "Management-Employment
Agreements."
(2) Adjusted to give retroactive effect to the Company's sale of 1,400,000 of
the Shares and the 2,000,000 Warrants offered hereby and the anticipated
application of the estimated net proceeds therefrom, including for the
repayment of the Bridge Notes and the DYDX Loan. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
-- Liquidity and Capital Resources."
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company derives the majority of its net revenue from the sale of its
theatrical productions to audiences at venues in urban and resort tourist
locations and to commercial clients, which include casinos, corporations, theme
and amusement parks and cruise lines. In addition, the Company generates
revenue from the sale of merchandise, food and beverages in certain of its
venues, and, from time to time, from the sale of technical equipment and
services to commercial clients. The following table sets forth the various
components of the Company's revenue as a percentage of net revenue for the
periods indicated:
Years Ended December Three Months Ended
31, March 31,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
Theatrical productions:
Legends ..................... 83.1% 93.4% 92.9% 90.9%
Other ........................ 12.4 0.8 1.6 5.0
------- ------- ------- -------
Total ..................... 95.5 94.3 94.5 95.9
------- ------- ------- -------
Merchandise (all Legends) ...... 3.0 4.8 1.9 3.2
Other ........................... 1.5 0.9 3.6 0.8
------- ------- ------- -------
TOTAL ..................... 100.0% 100.0% 100.0% 100.0%
======= ======= ======= =======
Legends opened at the Imperial Palace in Las Vegas in 1983. The Company
began actively producing additional tribute and specialty shows in 1994 and
currently produces resident Legends shows in Las Vegas (since May 1983),
Atlantic City (since October 1994) and Myrtle Beach (since March 1995), and
aboard a Premier Cruise Line ship sailing out of Cape Canaveral (since June
1990).
The Company classifies its productions (both its resident and limited-run
engagements) into two main categories: "at-risk" shows and "low-risk" shows.
"At-risk" shows classify any of the Company's resident or longer term
limited-run productions where the amount of the revenue to be obtained by the
Company in connection with the show is uncertain (as is typical in the case of
shows produced by the Company at theaters leased and or purchased directly by
the Company in urban and resort tourist locations and of shows produced by the
Company in, and for, large casinos). "Low-risk" shows are contracted
productions in which the client guarantees a fee (typical of shows produced by
the Company in, and for, smaller casinos and for other commercial clients such
as corporations, cruise lines and theme parks). Revenues attributable to
"at-risk" shows for the years ended December 31, 1995 and 1996 and the three
months ended March 31, 1996 and 1997 represented approximately 64%, 72%, 63%
and 56% of the Company's net revenues, respectively, for such periods. See
"Business -- Show Financial Structures."
During late 1994 and early fiscal 1995, the Company opened three new
resident "at-risk" shows: Legends at the Surfside Theater in Myrtle Beach;
Country Stars on Ice at the Coliseum Theater in Pigeon Forge, Tennessee; and
Glitz at the Sands Hotel in Las Vegas. The Company's Legends production in
Myrtle Beach, which opened in March 1995, generated approximately $2,685,000
and $528,000 in revenue and gross profit, respectively, in fiscal 1995 and
$4,386,000 and $1,916,000, respectively, in fiscal 1996. The Company believes
that this represents very attractive results for an "at-risk" show's first two
years of operation. In 1995, Country Stars on Ice and Glitz, however, generated
aggregate revenue and gross loss of approximately $881,000 and $411,000,
respectively, and were discontinued in December 1995 and August 1995,
respectively. If the 1995 results of Country Stars on Ice and Glitz were
excluded from the Company's 1995 results of operations, the Company would have
shown operating income (loss) and net income (loss) for such year of
approximately $618,000 and $(1,000), respectively, instead of its actual
results of $(157,663) and $(412,121), respectively.
The Company believes that the operating performance of Country Stars on
Ice and Glitz suffered from a lack of capital for adequate pre-opening market
research, site development and advertising, resulting in less than optimal
ticket sales in the start-up phase of both shows. The lower than anticipated
revenue levels, combined with high indirect production costs associated with
the shows' risky "four-wall" cost structures, resulted in losses for both
shows. The Company continues to believe that emerging tourist markets, such as
Pigeon Forge, offer
23
<PAGE>
attractive opportunities for future growth. However, the Company has now
implemented a policy of opening only proven, branded shows, like Legends, and
identifying, where possible, local marketing partners in similar "at-risk"
situations to increase its likelihood of success. Furthermore, if the Company
determines that the risk profile of a new attractive market is too high, it
will seek a "low-risk" deal structure such as a minimum seat guarantee or fixed
fee structure.
During 1996 the Company only opened one new "at-risk" Legends show at the
Grand Palace in Branson, Missouri which opened in April and ran through the
middle of October and generated approximately $1,610,000 and $476,000 in
revenue and gross profit. The Company focused its efforts on consolidating and
streamlining its existing productions which is reflected in the significant
improvement in the Company's gross margin. The Company also initiated expansion
of operations in anticipation of future sales growth. Since December, 1995 the
Company has hired four senior executives and their related support staff: a
Vice President of Marketing in December, 1995; a President and Chief Operating
Officer in April, 1996; a Corporate Controller in July, 1996; and a Vice
President of Sales in October, 1996. The Company also added a new branch office
in Atlanta through its acquisition of Interactive Events as well as in house
wardrobe, lighting, scenery and multimedia departments.
During the first quarter of 1997 the Company opened three new "low risk"
shows: the Improv(R) Spectacular at Trump's Taj Mahal Hotel and Casino in
Atlantic City for a sixteen week run which opened in March, for a weekly fee of
approximately $33,000; a Legends show at the Fireside Theater, Fort Atkinson,
Wisconsin, which opened in January for approximately eleven weeks for a weekly
fee of approximately $24,000; a Legends show at the Empress Casino in Joliet,
Illinois which opened in March for approximately sixteen weeks for a weekly fee
of $15,000. These three shows along with the addition of the Atlanta branch
office significantly increased special events and limited engagement business.
However, selling, general & administrative costs also increased as a direct
result of the Company's expansion of operations and a one time charge of
approximately $164,000 resulting from the issuance of the 40,532 shares of
Common Stock to the Company's Chief Financial Officer in March 1997 pursuant to
the terms of his employment agreement (the "CFO Shares"). See "Management --
Employment Contracts."
The Company currently maintains four administrative offices: its corporate
headquarters in Las Vegas and branch offices in Atlantic City, Atlanta and
Myrtle Beach. As part of its business strategy, the Company intends to open
several regional sales offices by the end of 1998. Potential sites for these
sales offices include New Orleans, Chicago, Dallas, New York, Minneapolis and
Los Angeles. In addition, over the next year, the Company plans to hire an
Executive Vice President of Production, a Management Information Systems
Director and a Merchandising Director.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of the Company's net revenues represented by certain income statement data:
<TABLE>
<CAPTION>
Years Ended December Three months ended
31, March 31,
---------------------- ------------------------
1995 1996 1996 1997
------------ -------- ------------ ----------
<S> <C> <C> <C> <C>
Net revenue .............................. 100.0% 100.0% 100.0% 100.0%
Direct production costs .................. 57.2% 42.5% 49.2% 53.8%
Indirect production costs ............... 18.2% 16.6% 19.6% 16.2%
--------- ------- --------- ---------
Gross profit .............................. 24.6% 40.8% 31.2% 30.0%
Selling, general and administrative ...... 18.9% 20.8% 22.7% 37.1%
Depreciation and amortization ............ 4.1% 4.7% 5.3% 5.4%
--------- ------- --------- ---------
Principal stockholder compensation ...... 10.1% 7.8% 2.7% 2.3%
--------- ------- --------- ---------
Operating profit (loss) .................. (8.4%) 7.5% 0.6% (14.8%)
Interest expense, net ..................... 2.0% 1.1% 3.5% 4.2%
Pre-tax income (loss) ..................... (10.4%) 6.4% (2.9%) (18.9%)
Income taxes .............................. 0.0% 0.1% 0.0% 0.1%
--------- ------- --------- ---------
Net income (loss) ........................ (10.4%) 6.3% (2.9%) (19.0%)
========= ======= ========= =========
</TABLE>
24
<PAGE>
Quarter Ended March 31, 1996 versus Quarter Ended March 31, 1997
Net Revenues. Net revenue consists of sales of the Company's theatrical
productions, concession sales, photo sales, management fees and income from
equipment rental, less discounts, allowances and refunds. Net
revenue for the quarter ended March 31, 1997 increased by $372,000, or 16% from
$2,347,000 to $2,719,000, as compared to the quarter ended March 31, 1996.
Contributing to this increase were increases of approximately: (i) $123,000
attributable to the resident Legends show in Myrtle Beach; (ii) $460,000
attributable to limited engagements and corporate events which includes limited
engagements of the Legends show at Empress Casino in Joliet, Illinois and
Trump's Taj Mahal Hotel and Casino in Atlantic City which ran in 1997 but not
in 1996; and (iii) $25,000 in management fees from the Legends show in Hawaii.
These increases were offset by: (a) $121,000 attributable to the Legends show
at the Imperial Palace in Las Vegas; (b) $35,000 attributable to the Legends
show at Bally's Park Place in Atlantic City; (c) $7,000 attributable to the
Legends show on Premier Cruise Lines; (d) $10,000 attributable to the
discontinuation of the Legends show at the Grand Palace in Branson; and (e)
$63,000 attributable to other revenue.
Direct Production Costs. Direct production costs include salaries for
impersonators, stars, singers, dancers, musicians, choreographers, technical
operators, wardrobe personnel, production managers and concessions personnel,
license fees, electronic supplies, lighting, sound, wardrobe, sets, props, and
the cost of goods for merchandise and food and beverage. Direct production
costs for the quarter ended March 31, 1997 increased by $308,000, or
approximately 27%, as compared to the quarter ended March 31, 1996. Direct
production costs increased to 54% of net revenue for the quarter ended March
31, 1997, as compared to 49% for the quarter ended March 31, 1996. This
increase was primarily attributable to increased special events and limited
engagement business which has higher direct production costs relative to the
Company's other businesses.
Indirect Production Costs. Indirect production costs include salaries for
operations, box office, finance and marketing personnel, advertising and
promotion, insurance, rent, utilities, property taxes, housing, legal,
accounting and travel. Indirect production costs for the quarter ended March
31, 1997 decreased by $19,000, or 4%, as compared to the quarter ended March
31, 1996. Indirect production costs decreased to 16% of net revenue for the
quarter ended March 31, 1997, as compared to 20% for the quarter ended March
31, 1996. This decrease was primarily attributable to increased special events
and limited engagement business which has lower indirect production costs
relative to the Company's other businesses.
Selling, General and Administrative. Selling, general and administrative
expenses include officers, finance, operations, development, sales commissions,
marketing and technical salaries, office supplies, rent, utilities and legal
expenses. Selling, general and administrative expense for the quarter ended
March 31, 1997 increased by $474,000, or 89%, as compared to the quarter ended
March 31, 1996. Selling, general and administrative expense as a percent of net
revenues was 37% for the quarter ended March 31, 1997, as compared to 23% for
the quarter ended March 31, 1996. The significant increase was due to the
Company's preparation for future expansion by increasing the number of
employees, adding several senior executives and a new branch office in
Atlanta, and developing in house wardrobe, lighting, scenery and multimedia
departments as well as a one time charge of approximately $164,000 resulting
from the issuance of the 40,532 CFO Shares.
Depreciation and Amortization. Depreciation and amortization for the
quarter ended March 31, 1997 increased by $24,000, or 19%, as compared to the
quarter ended March 31, 1996. The increase was due primarily to new capital
additions in existing shows and purchases of computers, office equipment and
furniture for new employees.
Interest Expense, Net. Interest expense for the quarter ended March 31,
1997 increased by $33,000, or 40%, as compared to the quarter ended March 31,
1996. This significant increase was primarily attributable to the Bridge
Financing which resulted in a charge of $37,000 during March, 1997.
Income Taxes. The Company is a Nevada corporation with a substantial
portion of both revenue and income derived in Nevada. There are no state or
local income taxes in Nevada. The Company accrued no federal income tax for the
quarters ended March 31, 1997 and 1996. The Company paid state income tax for
the quarter ended March 31, 1997 of approximately $2,000.
Year Ended December 31, 1995 versus Year Ended December 31, 1996
Net Revenue. Net revenue consists of sales of the Company's theatrical
productions, concession sales, photo sales and income from equipment rental,
less commissions and rental fees. Net revenue for the year ended
25
<PAGE>
December 31, 1996 increased by $1,503,000, or 12% from $12,775,000 to
$14,278,000, as compared to the year ended December 31, 1995. Contributing to
this increase were increases of approximately: (i) $1,676,000, attributable to
the resident Legends show in Myrtle Beach; (ii) $106,000, attributable to the
Legends shows in Atlantic City; (iii) $1,615,000, attributable to the Legends
show in Branson, which ran for only one month (July) in the year ended December
31, 1995 as opposed to six months in the year ended December 31, 1996 (from
April 1996 to October 1996); and (iv) $205,000 attributable to limited-run
engagements of Magic, Magic, Magic! at the ShowBoat Hotel and Casino in Atlantic
City and at Players Island Resort and Casino in Mesquite, Nevada. These
increases were offset by: (a) $75,000 attributable to the Legends show at the
Imperial Palace; (b) $38,000 attributable to the Legends shows on Premier Cruise
Lines; (c) $1,923,000 attributable to (1) the discontinuation during the year
ended December 31, 1996 of the resident productions of Country Stars on Ice and
Glitz and the previously recurring limited-run engagements of Legends at the
Riverside Casino in Laughlin, Nevada and the Silver Smith Casino in Wendover,
Nevada; (2) the early cancellations during such period of Atlantic City
Experience at Bally's Park Place and Rock Around the Clock at the MGM Theme Park
in Las Vegas; and (3) $63,000 attributable to the decrease of other revenues.
Direct Production Costs. Direct production costs include salaries for
impersonators, stars, singers, dancers, musicians, choreographers, technical
operators, wardrobe personnel, production managers and concessions personnel,
license fees, electronic supplies, lighting, sound, wardrobe, sets, props, and
the cost of goods for merchandise and food and beverage. Direct production
costs for the year ended December 31, 1996 decreased by $1,242,000, or
approximately 17%, as compared to the year ended December 31, 1995. Direct
production costs decreased to 43% of net revenue for the year ended December
31, 1996, as compared to 57% for the year ended December 31, 1995. The
improvement was due primarily to cost controls initiated in late 1995 through
the first quarter of 1996 that significantly reduced discretionary direct
production cost expenditures by production managers and technicians for items
such as wardrobe, lighting and scenery.
Indirect Production Costs. Indirect production costs include salaries for
operations, box office, finance and marketing personnel, advertising and
promotion, insurance, rent, utilities, property taxes, housing, legal,
accounting and travel. Indirect production costs for the year ended December
31, 1996 increased by $54,000, or 2%, as compared to the year ended December
31, 1995. Indirect production costs decreased to 17% of net revenue for the
year ended December 31, 1996, as compared to 18% for the year ended December
31, 1995. The decrease was attributable primarily to the discontinuation of
resident productions of Glitz and Country Stars on Ice in August 1995 and
December 1995, respectively.
Selling, General and Administrative. Selling, general and administrative
expenses include officers, finance, operations, development, marketing and
technical salaries, office supplies, rent, utilities and legal expenses.
General and administrative expense for the year ended December 31, 1996
increased by $568,000, or 24%, as compared to the year ended December 31, 1995.
Selling, general and administrative expense as a percent of net revenue was 21%
for the year ended December 31, 1996, as compared to 19% for the year ended
December 31, 1995. The increase in total dollars was due primarily to an
increase in the number of employees, the addition of several senior executives,
and the development of wardrobe, lighting and scenery departments, in order to
prepare for future expansion.
Depreciation and Amortization. Depreciation and amortization for the year
ended December 31, 1996 increased by $151,000, or 29%, as compared to the year
ended December 31, 1995. The increase was due primarily to new capital
additions in existing shows and the installation of a new computer system and
associated software programs, including H.I.T.S.
Principal Stockholder Compensation. Principal stockholder compensation
includes all monies paid to John Stuart, the Company's Chairman and Chief
Executive Officer. Principal stockholder compensation for the year ended
December 31, 1996 decreased by $177,000 or 14% as compared to the year ended
December 31, 1995.
Interest Expense, Net. Interest expense for the year ended December 31,
1996 decreased by $100,000, or 39%, as compared to the year ended December 31,
1995. The decrease was due to an increase in the level of borrowing, primarily
as a result of the DYDX Loan, which was funded on February 29, 1996, offset by
$143,000 of interest income attributable to advances made to Mr. Stuart.
26
<PAGE>
Income Taxes. The Company is a Nevada corporation with a substantial
portion of both revenue and income derived in Nevada. There are no state or
local income taxes in Nevada. The Company accrued no federal income tax for the
year ended December 31, 1996 and 1995. The Company accrued $15,800 at December
31, 1996 related to other state and local income taxes.
Seasonality and Quarterly Results
The Company's business has been, and is expected to remain, highly
seasonal, generating the majority of revenues from April through October. Part
of the Company's business strategy is to increase sales in tourist markets that
experience their peak seasons from November through March, such as Florida and
Arizona, domestically, and Australia, South Africa, China, Singapore, New
Zealand, and Hong Kong, abroad, which the Company believes will help mitigate
this seasonality.
The following table sets forth the Company's net revenue for each of the
last nine quarters ended March 31, 1997:
Net Revenue
($ in thousands)
March 31 June 30 September 30 December 31
---------- --------- -------------- ------------
Fiscal 1995 ...... $2,319 $2,747 $4,388 $3,320
Fiscal 1996 ...... $2,347 $4,264 $4,591 $3,076
Fiscal 1997 ...... $2,719
Liquidity and Capital Resources
General
The Company has historically met its working capital and capital
expenditure requirements through a combination of cash flow from operations, a
series of debt offerings, and through traditional bank financing.
For the year ended December 31, 1995, the Company had a net cash deficit
from operations of $939,000. This operating deficit was primarily attributable
to an increase in direct and indirect production costs resulting from new show
openings in October 1994 (Country Stars on Ice in Pigeon Forge) and March 1995
(Glitz in Las Vegas) and general and administrative costs offset by an increase
in revenues. For the year ended December 31, 1996, the Company had net cash
provided by operations of approximately $1,154,000. The cash provided from
operations was primarily attributable to an increase in revenues and a decrease
in direct and indirect production costs offset by an increase in general and
administrative costs. For the three months ended March 31, 1997, the Company
had a net cash deficit from operations of $629,000. This operating deficit was
primarily attributable to business seasonality and increased selling, general
and administrative expense related to the Company's preparation for future
expansion. As of March 31, 1997, the Company had approximately $314,000 in cash
and cash equivalents.
Net cash used in investing activities for the years ended December 31,
1995 and 1996 of $932,000, and $942,000, respectively, and for the quarters
ended March 31, 1996 and 1997 of $301,000 and $197,000, respectively, was
primarily due to capital expenditures and advances (which were subsequently
written off at December 31, 1996) on notes receivable to Mr. Stuart, the
Company's principal stockholder, Chairman and Chief Executive Officer. See
"Certain Transactions."
Net cash provided by financing activities for the years ended December 31,
1995 and 1996 of $1,892,000, and $58,000, respectively, and for the quarters
ended March 31, 1996 and 1997 of $753,000 and $849,000, respectively, was
primarily attributable to a series of debt and bank financings.
At December 31, 1995 and 1996, the Company had a working capital deficit
of approximately $447,000 and $103,000, which resulted, primarily, from
advances paid to Mr. Stuart. Such advances (including principal and interest)
amounted to approximately $920,913 and $859,511 for the years ended December
31, 1995 and 1996, respectively. The improvement in the Company's working
capital position at December 31, 1996 is primarily attributable to the
Company's receipt of the DYDX Loan and positive operating results. At March 31,
27
<PAGE>
1997, the Company had a working capital deficit of approximately $351,000,
which resulted primarily from business seasonality, increased selling, general
and administrative costs (primarily in 1997), and advances paid to Mr. Stuart.
Such advances (including principal and interest) amounted to approximately
$123,000 and $103,000 for the three months ended March 31, 1996 and 1997,
respectively.
As of March 31, 1997, the Company had outstanding a bank term loan in the
principal amount of $106,682, Debentures in the principal amount of $1,714,064,
the DYDX Loan in the principal amount of $750,000 and the Bridge Notes in the
principal amount of $1,000,000.
Bank Financings
On March 10, 1995, First Security Bank of Nevada ("First Security") issued
a term loan to the Company (the "Term Loan") in the principal amount of
$400,000. The Term Loan bears interest at 11.5% per annum and is payable in 29
monthly installments of $15,405, plus a final payment in the estimated amount
of $18,160 due upon the loan's maturity in September 1997. The Term Loan was
secured by three (now two) of the Company's contracts, including its contracts
with MGM Movieworld, Inc. (subsequently terminated in October 1995), its
contract with Premier Cruise Lines, Ltd. and its contract with Bally's Park
Place, Inc. The Term Loan is also secured by Mr. Stuart's personal disability
insurance policy in the amount of $600,000, as well as his personal guaranty.
As of March 31, 1997, there was $106,682 outstanding under the Term Loan.
On March 10, 1995, First Security also issued a revolving line of credit
to the Company for up to $200,000. Borrowings under such facility bore interest
at 2% over the First Security Bank of Idaho's Index (11% per year as of the
facility's inception) and were due on demand. The line of credit was originally
scheduled to expire on March 25, 1996, but was subsequently extended until, and
expired on, June 25, 1996. All of the Company's borrowings under such facility
were paid in full in February 1996 and no further borrowings were accrued
thereafter. The line of credit was cross-collateralized with the security
provided under the Term Loan.
On May 16, 1997, First Security issued a revolving line of credit to the
Company for up to $250,000. Borrowings under such facility bear variable
interest at 1.5% over the First Security Bank of Idaho's Index (10% per year as
of the facility's inception) and are due on demand. The line of credit is
scheduled to expire on May 19, 1998. The line of credit is cross-collateralized
with the security provided under the Term Loan and borrowings under the line of
credit are guaranteed by John W. Stuart. As of the date of this Prospectus, the
Company had not drawn on the line of credit.
The Debentures and the Pending Debt Conversion
From June through November 1995, the Company conducted a private placement
of units of its securities (the "Debenture Units"), each $50,000 Debenture Unit
consisting of (i) a $50,000 principal amount 8% convertible subordinated
debenture of the Company due on August 31, 1997, with interest payable monthly
(the "Original Debentures") and (ii) the right, under certain circumstances, to
receive an A and a B Warrant of the Company, for aggregate proceeds of
$1,989,064 (the "1995 Private Placement"). If issued, the A and B Warrants were
to have a term of five years and would have entitled the holders thereof to
purchase one share of Common Stock at a strike price of $4.94 and $6.33,
respectively. In order for the Original Debentures to be converted into shares
of Common Stock and for the investors to acquire their A and B Warrants, Joseph
D. Kowal, a former director of the Company, and his affiliated company, JDK &
Associates (together "JDK"), who assisted the Company with the 1995 Private
Placement, had to accomplish certain objectives (the "JDK Financing
Objectives") set forth in their consulting agreement with the Company dated
February 17, 1995 and amended on March 14, 1995 (the "JDK Agreement"). The JDK
Financing Objectives required that JDK: (1) provide the Company with $1,500,000
of financing by no later than May 17, 1995; (2) provide the Company with an
additional $500,000 of financing by no later than June 17, 1995; (3) assist and
advise the Company in the public offering process; (4) assist and counsel the
Company in obtaining a market capitalization of at least $25,000,000; and (5)
assist the Company in developing a business plan. If such objectives were
accomplished, each $100,000 principal amount of the Original Debentures would
automatically be converted into a .75% equity interest in the Company, based on
an assumed valuation of the Company of $13,333,333.
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<PAGE>
Subsequently, the Company and JDK had a dispute as to whether JDK had
successfully accomplished the JDK Financing Objectives. The Company maintained
that, among other things, JDK had failed to provide the Company with the
$2,000,000 of financing that JDK was to obtain. JDK took the position that
while it had not satisfied all of the JDK Financing Objectives, it had
substantially satisfied several of the conditions. To resolve the dispute, the
Company and JDK entered into a Settlement and Termination Agreement (the "JDK
Settlement Agreement") on September 6, 1995, pursuant to which the rights to any
A and B Warrants were terminated. Neither the Company nor JDK has any current
obligations under the Settlement and Termination Agreement. In July 1996, in
order to (i) extend the maturity date of the Original Debentures and (ii)
eliminate certain covenants in the Original Debentures that were disadvantageous
to the Company, the Company offered to either (a) exchange the outstanding
Debenture Units for Debentures due January 4, 1999, or (b) to repurchase the
Debenture Units upon the terms and subject to the conditions set forth in an
Offer to Exchange or Repurchase the Debenture Units, dated July 24, 1996 (the
"Exchange or Repurchase Offer"). The Debentures issued in connection with the
Exchange or Repurchase Offer bear interest at the rate of 8% per annum, payable
monthly, and, when issued, were convertible at the option of their holders into
shares of Common Stock at the rate of 266.67 shares per each $1,000 principal
amount of Debenture at any time prior to maturity. There are no warrants
attached to the Debentures. In connection with the Exchange or Repurchase Offer,
the holders of $1,714,064 principal amount of the Original Debentures tendered
their Debenture Units in exchange for Debentures in the same principal amount
and holders of $275,000 principal amount of the Original Debentures opted to
have them repurchased. Consequently, the Company currently has outstanding
$1,714,064 principal amount of Debentures. In February 1997, the Company and the
Debenture holders entered into an agreement pursuant to which all of the
Debentures will automatically be converted into an aggregate of 505,649 shares
of Common Stock (the "Debenture Shares") immediately prior to the consummation
of this offering, in connection with the Pending Debt Conversion, based on a
conversion ratio of 295 shares per each $1,000 principal amount of Debenture.
The Pending Debt Conversion will result in a one time, non-recurring, interest
expense charge to the Company in the estimated amount of $194,228 (based on an
imputed value of $4.00 per Debenture Share).
In September 1995, pursuant to the JDK Settlement Agreement, the Company
issued as compensation for all services performed by JDK for, or on behalf of,
the Company, warrants to purchase an aggregate of 355,378 shares of Common
Stock at an exercise price of $3.76 per share to JDK and its designees,
including Kenneth Berg (an investor in the 1995 Private Placement and a
director of the Company). In addition, the Company issued to Harry S. Stahl
warrants to purchase an aggregate of 11,019 shares of Common Stock at an
exercise price of $3.76 per share in payment for certain legal services
provided to the Company by Mr. Stahl with respect to the preparation of the
1995 Private Placement offering documents, and the Company issued to Lance Hall
warrants to purchase an aggregate of 27,549 shares of Common Stock at an
exercise price of $3.76 per share for certain financial consulting services
provided to the Company by Mr. Hall with respect to the 1995 Private Placement,
all in September 1995. These warrants were exchanged for an aggregate of
190,312 of the Warrant Exchange Shares in connection with the Warrant Exchange.
See "-- Warrant Exchange" and "Certain Transactions."
DYDX Loan Transactions
On February 29, 1996, the Company entered into a loan agreement with DYDX
(the "Original DYDX Agreement") pursuant to which the Company borrowed
$1,000,000 from DYDX. Proceeds of the DYDX Loan were used by the Company to
fulfill existing obligations to trade vendors, pay legal and accounting fees,
make capital expenditures on existing shows, finance operating expenses on new
shows, pay and/or advance up to $150,000 to Mr. Stuart and satisfy existing
indebtedness. Under the Original DYDX Agreement, the DYDX Loan accrued interest
at a rate of 8% per annum, was to mature on January 1, 1998 and was secured by
a security agreement pursuant to which DYDX had a lien on substantially all of
the present and future assets of the Company. In addition, under the terms of
the Original DYDX Agreement, if the Company did not file an initial public
offering registration statement by June 30, 1996 it would be in default under
the DYDX Loan. In connection with the Original DYDX Agreement, the Company
issued to DYDX a warrant to purchase 550,974 shares of Common Stock exercisable
for a period of 60 months commencing upon the consummation of an initial public
offering and at a price per share equal to the initial public offering price of
the Common Stock. In connection with their assistance to the Company in its
securing of the DYDX Loan, Mr. Stuart, the Chairman,
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Chief Executive Officer and principal stockholder of the Company, granted
options in February 1996 to JDK, Kenneth Berg (a director of the Company),
Senna Venture Capital Holdings, Inc., an affiliate of DYDX ("Senna"), Southwest
Marketing I, LLC (a Debenture holder) and Lance Hall, to acquire an aggregate
of 140,498 of his shares of Common Stock at an exercise price of $4.54 per
share. The term of these options is two years commencing on the first
anniversary of the first to occur of the following: (i) the Company becomes a
public company pursuant to Federal securities laws, through merger or
otherwise; (ii) more than 50% of the Common Stock is acquired by a public
company; or (iii) an initial public offering registration statement is declared
effective by the SEC. See "Principal and Selling Stockholders" and "Certain
Transactions."
On June 27, 1996, the Company and DYDX entered into an Extension
Agreement, whereby the Company had to either file an initial public offering
registration statement or release a private placement memorandum to potential
investors by July 15, 1996 or it would be in default under the DYDX Loan. The
Extension Agreement also changed the exercise price of the DYDX warrant to the
imputed price per share of Common Stock as of the closing date, if any, of the
next debt or equity financing of the Company as determined by the placement
agent for such financing. Subsequently, on November 19, 1996, the Company and
DYDX entered into a Second Extension Agreement, whereby the date by which the
Company had to file a registration statement was extended until February 14,
1997. In connection with this Second Extension, the Company repaid $250,000
principal amount of the DYDX Loan, leaving an outstanding loan balance of
$750,000. On February 9, 1997, the Company and DYDX entered into a Third
Extension Agreement, whereby the Company's filing date was extended until March
31, 1997. In connection with the Third Extension, the Company split the
original DYDX warrant into two warrants, one in the name of DYDX for the
purchase of 440,779 shares of Common Stock and the other in the name of Senna,
an affiliate of DYDX, for the purchase of 110,195 shares of Common Stock, and
reduced the exercise price of both warrants to $3.99 per share. These warrants
were exchanged for an aggregate of 250,443 of the Warrant Exchange Shares in
connection with the Warrant Exchange. In addition, Mr. Stuart, in consideration
for the Third Extension Agreement and DYDX's agreement in connection with such
extension to allow the Stuart Debt Forgiveness, granted to Senna an option to
purchase 142,292 of his shares of Common Stock at an exercise price of $5.00
per share, exercisable for a period of three years commencing as of February 9,
1998. See "-- Warrant Exchange," "Principal and Selling Stockholders" and
"Certain Transactions."
In order to effect the Bridge Financing, the Company and DYDX entered into
an Amended and Restated Loan Agreement as of March 19, 1997 in connection with
which the security agreement executed in connection with the Original DYDX
Agreement and DYDX's security interest in the Company's assets were terminated,
the maturity date of the DYDX Loan was extended to coincide with that of the
Bridge Notes and its interest rate was raised to 9% per annum. The Company
intends to repay the DYDX Loan in full upon the consummation, and using
proceeds from, this offering.
Acquisition of Interactive Events, Inc.
On November 1, 1996, the Company purchased all of the outstanding capital
stock of Interactive Events, Inc., a small Atlanta - based corporate events
producer, from Richard S. Kanfer, as well as the rights to two interactive
dinner shows created and written by Mr. Kanfer, Frankie and Angie Get Married
and Wake Up Shamus O'Reilly, in exchange for (i) the delivery to Mr. Kanfer on
such date of (a) 19,284 shares of Common Stock and (b) a non-plan stock option
to purchase 15,000 shares of Common Stock at a price per share equal to the
initial public offering price of the Common Stock and (ii) the Company's
agreement to deliver 11,020 additional shares of Common Stock (the "Interactive
Events Shares") to Mr. Kanfer on November 30, 1997, for a total purchase price
of $121,216 based on the fair value of the Common Stock at the date of
purchase. Mr. Kanfer began working for the Company in September 1996 while the
Interactive Events Acquisition was pending. See "Business -- Show Acquisition
and Development" and Note 5 of Notes to Financial Statements.
Stuart Debt Forgiveness
As of December 31, 1996, Mr. Stuart owed the Company an aggregate of
$1,780,424 (including principal and interest at the rate of 8% per annum) for
his outstanding advances, all of which was forgiven by the Company in
connection with the Stuart Debt Forgiveness as of December 31, 1996. The Stuart
Debt Forgiveness has been accounted for as part of principal stockholder
compensation in the Company's Statements of Operations in
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the amounts of $920,923 and $859,511 for the years ended December 31, 1995 and
1996, respectively. In connection with the Bridge Financing, the Company agreed
that, commencing retroactively to January 1, 1997, no more than an additional
$200,000 in aggregate principal amount would be advanced to Mr. Stuart in the
future and no more than an aggregate of $220,000 (in principal and interest)
borrowed by Mr. Stuart will be forgiven by the Company in the future. As of
April 1, 1997, Mr. Stuart was indebted to the Company in the amount of $103,235
as a result of loans extended to him by the Company since January 1, 1997. See
"Certain Transactions."
Warrant Exchange
In February 1997, the Company and all of the holders of its then
outstanding warrants entered into an agreement pursuant to which, on March 17,
1997, prior to the Reverse Split and the initial closing of the Bridge
Financing, all of the Company's then outstanding warrants were exchanged for
440,755 (on a post-reverse split basis) shares of Common Stock, in connection
with the Warrant Exchange. The number of shares issued to each warrantholder in
the Warrant Exchange was equal to the number of warrants held by such holder
divided by the exercise price of the holder's warrants. The Warrant Exchange
had no effect upon the Company's earnings.
Bridge Financing
In connection with the Bridge Financing, the Company borrowed an aggregate
of $1,000,000 from 21 private investors in March 1997, in return for which the
Company issued to such investors Bridge Notes in the aggregate principal amount
of $1,000,000, an aggregate of 200,000 Bridge Shares and an aggregate of
250,000 Bridge Warrants, each to purchase one Bridge Warrant Share at an
exercise price of $4.00 per share. After payment of $125,000 in placement fees
to the Underwriter, which acted as placement agent for the Company in
connection with the Bridge Financing, and other offering expenses of
approximately $75,000, the Company received net proceeds of approximately
$800,000 in connection with the Bridge Financing, which are being used for the
payment of outstanding trade payables, pre-opening expenditures on the Daytona
Beach show and the seasonal Branson show, certain pre-offering expenses related
to this offering and for working capital and general corporate purposes. The
Company intends, upon consummation of this offering, to use approximately
$1,015,000 of the proceeds from this offering to repay the Bridge Notes,
including interest accrued thereon through and until such repayment date.
Employment Contracts
The Company has employment contracts with certain executive officers and
employees, the terms of which expire at various dates through May 2000. Such
agreements provide for minimum salary levels and incentive bonuses based on
prescribed formulas over their terms. The minimum annual commitments related to
these contracts range from $780,442 for the year ending December 31, 1997 to
$384,167 for the year ending December 31, 1999. In addition, the employment
agreement between the Company and Kiranjit Sidhu, the Chief Financial Officer,
will extend automatically until May 31, 2000 upon the consummation of this
offering, increasing commitments under employment agreements by $496,000. See
"Management."
---------------------
The Company is dependent on the proceeds of this offering or other
financing to open new resident productions and expand its operations. The
Company anticipates, based on its currently proposed plans and assumptions
relating to its operations (including assumptions regarding the anticipated
timetable of its new show openings and the costs associated therewith) that the
proceeds of this offering and the Bridge Financing, together with the Company's
current cash and cash equivalent balances and anticipated revenues from
operations, will be sufficient to fund its current expansion strategy and
contemplated capital requirements (including those associated with the opening
of up to nine new resident "four-wall" productions) for 24 months following the
consummation of this offering. In the event that the Company's plans change, or
its assumptions change or prove to be incorrect, or if the foregoing proceeds,
cash balances and anticipated revenues otherwise prove to be insufficient, the
Company would be required to revise its expansion strategy (which revision
could include the curtailment, delay or elimination of certain of its
anticipated productions or the funding of such productions through arrangements
with third parties which require it to relinquish rights to substantial
portions of its revenues) and/or seek additional financing prior to the end of
such period.
Furthermore, while the Company intends to use a substantial portion of the
proceeds of this offering to implement the next phase of its business strategy
in an effort to expand its current level of operations and grow
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the Company's business, the Company's future performance will be subject to a
number of business factors, including those beyond the Company's control, such
as economic downturns and changing consumer demands and trends, as well as to
the level of the Company's competition and the ability of the Company to
successfully market its productions and effectively monitor and control its
costs. While the Company believes that increases in revenue sufficient to
offset its expenses and result in its profitability could be derived from its
currently proposed plans, there can be no assurance that the Company will be
able to successfully implement its expansion strategy, that either its revenues
will increase or its rate of revenue growth will continue or that it will be
able to achieve profitable operations.
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BUSINESS
General
The Company develops and produces live theatrical productions for domestic
and international audiences. The Company markets its productions, directly and
through ticket wholesalers, to audiences at theaters in resort and urban
tourist locations. The Company also markets its productions to commercial
clients, which include casinos, corporations, fairs and expositions, theme and
amusement parks, and cruise lines. The Company's flagship Legends production is
a live tribute show featuring recreations of past and present music and motion
picture superstars through the use of impersonators and is the longest running
independently produced production in Las Vegas. The Company currently has
full-scale, resident Legends productions at the Imperial Palace in Las Vegas,
Bally's Park Place in Atlantic City and the Surfside Theater in Myrtle Beach
and on two Premier Cruise Lines ships (the Atlantic and the Oceanic) which sail
out of Cape Canaveral. In addition, the Company will have a resident Legends
production at the Coliseum Theater in Daytona Beach, Florida, beginning in the
Summer of 1997. The Company also produces limited-run Legends shows and
corporate events and has performed in locations such as the Illinois State
Fair, MGM Theme Park and Dollywood Theme Park; in locations as far away as
Australia, Russia, China, Africa, Japan and the Philippines; and for major
corporate clients such as McDonald's, Hewlett Packard, IBM, Pitney Bowes, Levi
Strauss and Texaco.
In addition to Legends, the Company has developed and produced 15 other
theatrical productions since its founding in 1985, including other tribute-type
shows, and a variety of musical reviews, magic, ice and specialty shows. All of
the Company's shows are designed to appeal to a broad spectrum of attendees by
offering affordable, quality entertainment incorporating experienced talent and
state-of-the-art special effects and staging. By offering multiple productions
in addition to Legends, the Company seeks to run more than one show in highly
visited live entertainment markets, thereby generating both increased operating
margins, due to economies of scale resulting from shared fixed costs, and
greater market share. In addition, since the Company currently has access to
over 70 different Legends tribute acts, it can tailor each tribute show to suit
the unique demographics of any audience and the size of any venue, and has been
able to attract significant repeat business by varying regularly the
composition of the acts in its shows.
For the years ended December 31, 1995 and 1996, approximately 26% and 44%,
respectively, of the Company's net revenue was generated from resort and urban
tourist markets; approximately 57% and 40%, respectively, of the Company's net
revenue was generated in gaming markets, predominantly Las Vegas and Atlantic
City; and approximately 15% and 15%, respectively, of the Company's net revenue
was generated primarily from various theme and amusement parks, fairs and
expositions, meetings and conventions, and cruise lines. Such percentages
reflect the Company's growing focus on the establishment of "four-wall"
productions in resort and urban tourist markets, over which the Company has
greater control and, in connection with which, it has more choices available to
it. In addition, the profit potentials, while riskier, are substantially
greater with such "four-wall" tourist productions than those associated with
shows produced by the Company for its casino gaming clients.
Industry Background
Resort and Urban Tourist Markets
In 1995, approximately 92 million Americans planned to take a family
vacation trip 100 miles or more away from home. While the most popular
destinations for these vacationers included the top gaming sites, Las Vegas and
Atlantic City, and the top theme park sites, Orlando and Los Angeles, several
emerging resort locations such as Myrtle Beach, Daytona Beach and Virginia
Beach were also included.
Myrtle Beach, which has 97 golf courses and 11 live entertainment venues,
was one of the five most popular destinations during the summer of 1995,
according to a survey reported by the American Automobile Association. In
addition, while Myrtle Beach has only 25,000 hotel rooms, versus Las Vegas'
104,000 rooms, tourism-related construction reached $221 million for the first
six months of 1995, and, what has historically been a warm weather,
golf-oriented resort, is emerging quickly as a year-round resort. The Company's
resident Legends production at the Surfside Theater in Myrtle Beach opened in
March 1995, with successful results to date.
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Daytona Beach, Florida is similarly a popular tourist destination with
approximately 8 million visitors annually. In March 1997, the Company entered
into a lease agreement with the owner of the Coliseum Nightclub in Daytona
Beach and is currently in the process of converting the Coliseum Nightclub into
a 700-seat theater to be renamed the "Coliseum Theater." The Company intends to
open, and begin producing a "four-wall" resident Legends production at, the
theater in the Summer of 1997.
In some emerging tourist markets, like Branson, Missouri, live
entertainment is actually the primary tourist activity. In 1994, Branson
attracted 5.8 million visitors to 34 live theater venues and was The National
Tour Association's number one domestic tour destination, followed by
Washington, DC and New York City. Live entertainment in Branson, predominantly
a retiree "day-tripper" market, is atypical of other theater districts, with
shows beginning mid-morning and continuing throughout the day and into the
evening. The Company began producing Legends at the OFT Theater in Branson in
1995 (two shows per day in July 1995 and a breakfast show each day in October
and November 1995), subsequently performed one Legends show per day at the
Grand Palace in Branson from April through October 1996, and has agreed to
relocate Legends to the OFT Theater with a commitment to produce two shows per
day in June, July and August 1997.
Pigeon Forge, Tennessee, home to the Dollywood Theme Park and nine live
entertainment theaters, is similarly gaining popularity as an emerging
"day-tripper" live entertainment venue. The Company produced Country Stars on
Ice at the Coliseum Theater in Pigeon Forge for the first ten months of 1995
and believes that emerging tourist markets like Pigeon Forge offer attractive
opportunities for future growth. Furthermore, many urban destinations have
theater districts and concert halls which already serve as primary tourist
attractions and the Company is seeking to expand its operations into certain of
these urban markets. For instance, the Company is currently seeking a theater
location in Toronto, Ontario, Canada, the third largest English language
theater center in the world, following New York and London, and the most highly
visited tourist destination in Canada.
In addition, the Company believes that there are numerous other emerging
urban and resort tourist markets, both in the United States and abroad, where
the need exists for quality, affordable live entertainment. The Company is
currently researching the suitability of the following urban and resort tourist
locations for the production and marketing of resident and/or limited-run
Legends shows:
North America -- San Diego and San Francisco, California; Destin, Miami and
Orlando, Florida; New Orleans, Louisiana; New York City and
Niagara Falls, New York; and Montreal, Toronto and
Vancouver, Canada.
International -- Australia, China, England, France, Germany, Japan, Korea,
Malaysia, Mexico and Singapore.
Gaming Markets
There are currently over 600 gaming venues in North America ranging in
size from single gaming rooms to large casino hotels. Las Vegas, in Clark
County, Nevada, is the largest gaming market in the United States with 63
casino hotels. Thirty of these casino hotels have showrooms featuring live
entertainment and actively promote their shows as a means to generate traffic
to increase their gaming revenues. In addition, every major hotel and many
tourist and visitor centers have in-house ticket reservation services, and tour
operators in this market frequently buy blocks of tickets to include in package
tours. Legends has been playing at the Imperial Palace in Las Vegas since 1983
and the Company has produced numerous limited engagements and other shows in
Las Vegas, including Glitz at the Sands Hotel and Casino from April through
August 1995. The Company is aware of at least seven new casino hotel projects
in development in Clark County, Nevada and believes that several of these will
also contain showrooms suitable for live entertainment.
The second largest gaming market in the United States is Atlantic City,
with 13 casino hotels. All of these casino hotels contain showrooms which
feature live entertainment and provide complimentary tickets to visitors in an
attempt to retain them during the evening hours. Furthermore, since casino
visitors in this market do not typically expect to pay to attend a live
theatrical production, casino executives are often willing to "guarantee" a
weekly revenue stream to a producer of live entertainment, which the casino
then offers free of charge or at a reduced rate to its customers. The Company
currently produces Legends at Bally's Park Place in Atlantic City,
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having previously produced it at Bally's Grand Hotel, Harrah's Hotel and
Casino, and Caesars Atlantic City, and has produced numerous other shows in
this market including Magic, Magic, Magic! at the Showboat Hotel and Casino,
Cabaret on Ice at Trump's Castle, and Bon Voyage and The Atlantic City
Experience at Bally's Park Place. In addition, the Company began the
co-production of a comedy show entitled An Evening at the Improv(R) Spectacular
at the Xandu Theater at the Trump Taj Mahal Casino Resort in Atlantic City in
March 1997 which will run through July 1997. Furthermore, the Company is aware
of at least four new casino hotel projects under development in Atlantic City
and believes that several of these will also contain showrooms for live
entertainment.
As of the Spring of 1996, 24 states allowed casino gambling, an increase
from only two states in 1988. As the number of casino markets has grown, both
the number of entertainment venues and the dollars spent on entertainment in
these markets has grown as well. This growth is particularly significant since
the actual time and dollars spent gambling in these markets has declined. For
example, according to a July 1996 article in Forbes, visitors to Las Vegas in
1995 spent 4.1 hours and $114 per day gambling, down from 5.0 hours and $120
per day in 1989, while spending on shows, sightseeing and other activities
tripled over this same period to $97 per day per visitor. The Company believes
that casinos will increase the entertainment options offered in order to
attract visitors and that the continued emergence of new gaming markets,
combined with the increasing need for affordable, non-gaming entertainment in
such markets, will result in multiple opportunities for new Legends and other
shows. While there is currently a consolidation trend within the casino gaming
industry, it has not, as of yet, resulted in a reduction in the number of
casinos currently operating.
Internationally, there are numerous emerging gaming jurisdictions in which
Las Vegas-style casino hotels with live entertainment showrooms are under
construction. For example, the Pacific Rim, one of the most recent areas to
legalize gaming, is experiencing new construction in the resort locations of
Malaysia, Philippines, New Zealand and Australia. In addition, while several
Mediterranean islands have had legal gaming jurisdictions for many years, it is
anticipated that gaming will soon be legalized in Cyprus.
The Company is currently researching the suitability of existing and
potential gaming markets for the production and marketing of new shows,
including, in particular:
North America -- Reno, Nevada; Atlantic City, New Jersey; Biloxi and Tunica,
Mississippi; Lake Charles and New Orleans, Louisiana; Prior
Lake, Minnesota; Rising Sun, Indiana; and St. Louis and
Kansas City, Missouri.
International -- Auckland, New Zealand; Burswood and Darwin, Australia;
and Sun City, South Africa.
While the Company will continue to market its productions to the casino
gaming industry, and depend upon it for a significant portion of its revenues,
the Company has begun to shift its primary focus away from the casino gaming
industry and towards the resort and urban tourist market, as evidenced by the
changing composition of the Company's net revenues over the last three years
(during such period its revenues from gaming markets decreased from 72% to 41%
of its total net revenues and its revenues from resort and urban tourist
markets increased from 10% to 43% of its total net revenues). This shift in the
Company's primary focus began as a hedge against the declining growth in the
casino gaming industry which has resulted from emerging consolidation trends.
If the consolidation trends continue in the casino gaming industry, the
Company's exposure to such decreasing growth may be reduced as a result of its
shift in primary focus.
Other Commercial Client Markets
The Company has also produced limited-run Legends shows (and, in the case
of Premier Cruise Lines, resident Legends shows) in the last five years for
other types of commercial clients, such as theme parks (Six Flags, MGM Theme
Park, Lotte World in Korea), on cruise ships (Viking, Premier Cruise Lines,
Star Cruises), and at major fairs (Dade County Youth Fair, Illinois State
Fair). In addition, in 1995 and 1996, the Company produced approximately 40 and
80 events, respectively, for such diverse clients as McDonald's, Hewlett
Packard, IBM, Levi Strauss and Texaco.
Expansion Strategy
The Company's objective is to become a leading worldwide producer of
affordable live theatrical productions, which have mass market appeal, by the
implementation of both a "roll-out" and "roll-up" strategy. The key elements of
this business expansion strategy include:
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o Roll-Out of Legends into New Tourist Markets -- The Company has been
successful with its production of Legends in Myrtle Beach and Branson and
believes that it can be equally successful in other, similar markets. As
part of its "roll-out" strategy, the Company has identified over 30 resort
and urban tourist locations worldwide where it believes the potential
exists for the Company to successfully produce and market new resident
Legends shows. In connection with its proposed roll-out of Legends in new
tourist venues, the Company generally intends to utilize a "four-wall"
operating structure. With such a structure, the Company assumes
responsibility for all of the expenses associated with the show, including
the cost of the theater (whether leased or purchased) and is also the sole
recipient of the show's potential revenues, profits and/or losses. The
Company's resident Legends production in Myrtle Beach, a "four-wall"
production, has demonstrated to the Company the benefits of such operating
structure; it opened in March 1995 and, for the year ended December 31,
1996, generated gross profits of $1,900,000 and a 44% gross margin. The
Company currently anticipates that it will open approximately nine new
resident "four-wall" Legends productions within the next 24 months. The
Company intends to hire an Executive Vice President of Production during
1997 to oversee the implementation of its proposed Legends "roll-out"
strategy. In addition, prior to entering any new tourist market, the
Company generally intends to seek a local marketing partner, as it did in
Myrtle Beach, and undertake a comprehensive analysis of market
demographics, competition and available media in order to improve each new
show's opportunity to succeed.
o Acquiring Brand-Name Theatrical Productions -- The Company believes it
has developed worldwide market awareness of its Legends production and
that the long-term success of Legends has contributed to the Company's
credibility as a producer of affordable live entertainment. The Company
believes that Legends, and similar brand-name shows, are more easily
marketed and efficiently implemented in new markets than new show concepts
due to their built-in recognition among ticket and tour wholesalers. Thus,
as part of its "roll-up" strategy, the Company intends to acquire
additional brand-name shows with "roll-out" potential through joint
ventures or other arrangements with other production companies, such as An
Evening at the Improv(R) Spectacular which the Company is co-producing
with Improv West, Inc. The Company has identified several other variety,
magic, ice, and interactive dinner and other theater productions which it
believes have, like Legends, the quality, versatility and broad appeal
necessary to succeed under the "four-wall" operating structure and in
multiple markets.
o Acquiring Independent Production Companies -- The live theatrical
entertainment industry is highly fragmented and contains many small,
independent producers with attractive show concepts and/or client bases.
Consequently, as part of its "roll-up" strategy, the Company will also
seek to acquire production companies with show concepts which it believes
have the potential to develop into brand-name shows (such as Frankie and
Angie Get Married, which the Company recently acquired in connection with
the Interactive Events Acquisition) or with existing commercial customer
bases to which it can market Legends and other shows. By leveraging its
in-house production expertise and infrastructure, the Company believes it
can improve the quality of acquired show concepts and the efficiency of
acquired production companies, and, by capitalizing upon its already
established Legends name and reputation, the Company believes it can
improve and/or hasten the marketability of new show concepts.
o Penetrating Commercial Markets through Expansion of Direct Sales Network
-- Shows sold to corporations, fairs and expositions, theme and amusement
parks and cruise lines are typically limited-run engagements, ranging from
one night to several months, and are usually guaranteed or "low-risk"
shows where the client pays the Company a guaranteed fee. Shows sold to
casinos, both resident and limited-run productions, are operated using
either the "two-wall" method, where the casino and the Company each assume
certain aspects of the production's costs and a designated percentage of
its revenues, or a guaranteed show arrangement. Historically, the Company
has not aggressively marketed its shows to any of these potential
commercial clients, instead relying upon its reputation and word-of-mouth
to generate new business from such markets. To further penetrate all of
these commercial markets, the Company plans to expand its national sales
network both in terms of staffing and geographically. The Company recently
hired a Vice President of Sales and intends to open several new regional
sales offices by the end of 1998. Potential sites for such offices include
New Orleans, Chicago, New York, Dallas, Minneapolis, and Los Angeles. An
expanded regional sales network should allow the Company to target new
casinos, corporations and other commercial clients, and effectively
monitor, and sell additional shows to, existing clients.
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o Expanding and Centralizing Merchandising Program -- The Company believes
that it can increase its merchandise sales, which, to date, have accounted
for less than 6% per annum of the Company's revenues, by introducing new
products such as compact discs, audio and video tapes and a wider variety
of clothing items, and by designing more effective point of sale displays.
In addition, the Company intends to hire a Merchandising Director during
1997 and to implement centralized purchasing and marketing to achieve
economies of scale, ensure consistent quality of product, and obtain sales
data in a timely manner.
Show Offerings
The Company has developed and produced 16 different theatrical productions
since its founding in 1985, including Legends and other tribute shows, and a
variety of musical reviews, magic, ice and specialty shows.
Legends
The Company's flagship production "Legends In Concert -- A Tribute to the
Superstars of Yesterday and Today," is a live tribute show featuring
re-creations of past and present music and motion picture superstars. Conceived
by the Company's Chairman, Chief Executive Officer and principal stockholder,
John W. Stuart, Legends has run continuously at the Imperial Palace in Las
Vegas since its debut in 1983 and, since that date, has been performed in over
17 countries. The Company believes it is the premier worldwide producer of
superstar tribute shows and has featured 184 impersonation artists portraying
over 72 different legends in its 13-year history. In 1996 alone, Legends shows
were seen by approximately one million people. In addition to Las Vegas, the
Company currently has resident Legends productions in Atlantic City and Myrtle
Beach and on two Premier Cruise Lines ships. For the years ended December 31,
1995 and 1996, revenues attributable to Legends productions (including both
resident and limited-run engagements) and the sale of related Legends
merchandise accounted for approximately 86% and 98%, respectively, of the
Company's net revenue.
The Company's full-scale Legends shows utilize state-of-the-art sound,
lighting, and special effects and incorporate numerous backup singers and
dancers and feature live orchestras. Smaller-scale Legends shows, such as those
performed for corporate events, typically use taped orchestra music. Vocals,
however, are performed live in all Legends shows; there is no lip-synching nor
are any vocal tapes utilized during any show. Superstars from the past, such as
Elvis Presley, Marilyn Monroe and the Beatles, who have maintained their high
level of popularity since the time when they performed, are selected for
tributes. In addition, the Company selects present superstars who it believes
will have similar long-lasting appeal, such as Madonna, Michael Jackson and
Dolly Parton. The Legends shows are also versatile in that a casino, hotel,
resort or convention has the luxury of selecting the stars it wants to have
portrayed, as well as the actual composition of the show, and star lineups can
periodically be rotated to accommodate seasonal changes and the unique
demographics of any audience. In addition, the size of any Legends show can be
tailored to accommodate the budget constraints and profitability goals of most
showrooms.
Other Productions
In addition to Legends, in 1994, the Company began developing a variety of
other tribute and non-tribute show offerings incorporating the same
versatility and professionalism as the original Legends production. Non-
Legends productions accounted for 12% and 1% of the Company's net revenue for
the years ended December 31, 1995 and 1996, respectively, and include, among
others, the following:
"The Heroes Of Rock And Roll -- A Tribute To The Musical Artists Of The
'50s & '60s." -- a salute to the great musical rock and roll artists of
the fifties and sixties such as Richie Valens, Buddy Holly, The Big
Bopper, Chuck Berry, Jerry Lee Lewis, Sonny and Cher, The Beach Boys,
Aretha Franklin, and John Lennon. Heroes performed in the fall of 1995
at the Primadonna Hotel and Casino in Stateline, Nevada.
"Glitz -- A Tribute To The History Of Las Vegas." -- a musical revue
chronicling the development of Las Vegas from Frank Sinatra and his
contemporaries to the rise of modern revue shows, which featured
celebrity hosts Marty Allen and Steve Rossi and Australian singer Greg
Bonham. Glitz completed a five-month engagement in the summer of 1995
at the Sands Hotel and Casino in Las Vegas.
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"Magic, Magic, Magic!" -- combines master magicians and illusionists
with special visual effects, comedy, music and dance. Each magician
principal, complemented by a troupe of singers and dancers, performs
several different components of magic: sleight-of-hand, comedy magic
and grand scale illusion. Magic, Magic, Magic! completed an eleven-week
engagement at the Showboat Hotel and Casino in Atlantic City in May
1996 and completed an eight-week engagement at Players Island Casino in
Mesquite, Nevada in September 1996.
"Country Stars On Ice" -- combines performances by World Class skaters
with comedic skits by skating clowns and ensemble skating. Country
Stars On Ice was performed at the Coliseum Theater in Pigeon Forge
during the first 10 months of 1995 and at Trump's Castle (where it was
renamed "Cabaret on Ice") in Atlantic City during the last two months
of 1995.
"Atlantic City Experience" -- a 30-minute, five-screen multimedia
history chronicling the founding, development and growth of Atlantic
City from the 1600's through the introduction of gaming. Atlantic City
Experience ran through the summer of 1995 at Bally's Park Place and is
an excellent showcase of the Company's multimedia video production
capability.
Show Financial Structures
The types of financial structures inherent in the live entertainment
industry can be differentiated by which revenue and expense responsibilities
are borne by the producer and which are borne by the client. Most financial
structures for productions in theaters in resort and urban tourist markets and
in large casinos are based on what is known in the industry as the "wall"
method of expense and revenue allocation between the producer and the client,
while those produced for smaller casinos and other commercial clients, such as
corporations, fairs, cruise lines and theme parks, are "guaranteed deals" where
the client pays the producer a fixed fee.
The four "walls" of any live theatrical production can be illustrated as
follows:
FRONT OF HOUSE
Ticket Sellers
Food & Beverage Servers
Cleaning & Maintenance
Maitre d', Captains, Ushers
PRODUCTION SHOW |--------------------------------| PROMOTION
Performers | | Marketing
Orchestra | | Community &
Dancers | | Media Relations
| | Advertising
|--------------------------------| Group Sales
STAGE
Stage Hands
Technicians
The Company intends generally to operate its resident productions in
resort and urban tourist markets and in large casinos under a "four-wall"
arrangement (where the Company assumes the responsibility for the cost of the
theater, whether leased or purchased, and the expenses associated with all four
of the "walls" depicted and is the recipient of all of the show's potential
revenues, profits and/or losses) or a "two-wall" arrangement (where the client
owns or manages the theater and each of the Company and the client assumes
responsibility for two of the "walls" depicted and retains certain designated
percentages of the show's revenues). The Company's resident Legends show at the
Surfside Theater in Myrtle Beach is structured as a "four-wall" arrangement and
its resident Legends show at the Imperial Palace in Las Vegas is structured as
a "two-wall" arrangement.
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The Company refers to those shows which it operates under a "wall"
structure as "at-risk" shows. The Company expects to realize steady state
economics for new "at-risk" shows generally in their second full year of
operation, due to the amortization of pre-opening costs in the year of opening
and a typical one-year revenue ramp-up as tour operators and visitors become
familiar with the show.
While the Company believes that the potential benefits associated with the
"four-wall" operating structure are enormous, it is, by far, the riskiest type
of financial arrangement for the Company. Consequently, as part of the
Company's planned roll-out of "four-wall" resident productions in new tourist
venues, the Company intends to limit such roll-out to Legends productions or
other brand-name shows. Additionally, the Company will often attempt to team up
with a local marketing partner, like Calvin Gilmore Productions, a division of
International Family Entertainment, the Company's marketing partner in Myrtle
Beach, for additional sales and marketing support.
The balance of the Company's shows are guaranteed or "low-risk" shows
where the client is responsible for all non-production-related expenses and
retains all revenue generated from ticket sales, and the Company is responsible
for all production related expenses (performers, orchestra and dancers) and
receives a guaranteed weekly fee. This is a typical structure for shows sold to
commercial clients such as corporations, fairs and theme and amusement parks
(which are typically limited-run engagements ranging from one night to several
months), as well as shows sold to cruise lines and smaller casinos (both
resident and limited-run engagements, where audiences do not typically expect
to pay to attend a live theatrical production), and is the type of arrangement
governing the Company's resident Legends production at Bally's Park Place in
Atlantic City and its resident Legends productions on board two Premier Cruise
Lines ships.
Resident Production Contracts
The Surfside Theater, Myrtle Beach, South Carolina
The Company has presented a full-scale Legends show at the Surfside
Theater in Myrtle Beach, South Carolina since March 1995 under a "four-wall"
arrangement. The original term of the Company's lease with the theater's owner,
Great American Entertainment Company ("Great American"), expired on December
31, 1995, subject thereafter to three successive renewal options (one year, one
year and seven years) extending through February 2004. To date, the Company has
exercised the first two of such options and intends to exercise the third.
Under the lease, the Company pays rent in the amount of $330,000 per year. In
addition, the lease provides that (i) within a 50-mile radius of the Myrtle
Beach show and until February 1998, the Company may not lease another location
for the purpose of operating a Legends show, (ii) Great American has a right of
first refusal to rent space to the Company to operate a production other than
Legends and (iii) the Company has a right of first refusal to purchase the
Surfside Theater from Great American.
The Company's "four-wall, at-risk" production at the Surfside Theater
generated a 44% gross margin for the year ended December 31, 1996.
The Imperial Palace Hotel and Casino - Las Vegas, Nevada
The Company has produced and presented a full-scale Legends show at the
Imperial Palace since May 1983. The Company has a "two-wall" arrangement with
Imperial Palace, Inc. ("Imperial"), the owner of the casino, pursuant to which
Imperial is responsible for the front of house and promotion "walls" and the
Company is responsible for the production show and stage "walls." The Company's
agreement with Imperial continues indefinitely but may be terminated earlier by
Imperial (i) on eight weeks notice, (ii) if the number of paying customers
falls below 2,400 persons per week (based on six evening shows per week) for
three consecutive weeks, (iii) immediately, in the event of the death of Mr.
Stuart, or (iv) if there is an accident, fire, explosion or any other event
beyond the parties' control which interferes with the performance of the
production for seven consecutive days.
The Imperial Palace agreement provides that Legends be performed twice
each day, six days a week, and that the admission fee per show remain at
$29.50. After amounts are withheld for taxes, gratuities and beverage costs, a
substantial percentage of the proceeds of such admission fees are paid to the
Company and the remain-
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ing proceeds are paid to Imperial. The parties receive the same percentage of
net profits on all Legends merchandise sold by the Company at the Imperial
Palace, except for merchandise sold by Imperial's gift shop. Net profits from
merchandise sold at Imperial's gift shop are divided equally by the parties.
The Company's "two-wall, at-risk" production at the Imperial Palace
generated a 38% gross margin for the year ended December 31, 1996.
Bally's Park Place Hotel and Casino - Atlantic City, New Jersey
The Company has produced and presented a full-scale Legends production at
Bally's Park Place since October 1994, prior to which time, from July 1993 to
September 1994, the Company presented Legends at its sister hotel, Bally's
Grand Hotel and Casino, also in Atlantic City. The Company recently extended
the term of its agreement (which is renewable each six months at the option of
the casino) with the casino's owner, Bally's Park Place, Inc., until September
1997. The agreement provides that the Company will present its Legends show
twice each day and six days each week. The Bally's Park Place agreement is a
"guaranteed" arrangement under which the Company receives a guaranteed weekly
fee. The agreement also contains a provision which prohibits the Company from
presenting Legends within a radius of 150 miles of Bally's Park Place.
The Company's "low-risk", guaranteed arrangement at Bally's Park Place
generated a 31% gross margin for the year ended December 31, 1996.
Premier Cruise Lines (the Atlantic and the Oceanic)
The Company has produced and presented a smaller-scale Legends production
on board two Premier Cruise Lines ships since June 1990. The Company has a
"guaranteed" arrangement with Premier Cruise Lines, Inc. ("Premier") to provide
Premier with three principal Legends tribute acts to perform year-round on
board its Atlantic and Oceanic vessels which sail out of Cape Canaveral,
Florida. Under its agreement with Premier, the Company receives a guaranteed
weekly fee. The Company's agreement with Premier terminates in January 1999 but
may be terminated earlier by either party upon six-months written notice.
The Company's "low-risk," guaranteed arrangement with Premier Cruise Lines
generated a 6% gross margin for the year ended December 31, 1996.
The Coliseum Theater - Daytona Beach, Florida
The Company is currently in the process of converting the Coliseum
Nightclub in Daytona Beach, Florida into a 700 seat theater. The Company has a
lease arrangement with the Nightclub's owner, Burgoyne Properties, Limited,
which expires on April 30, 1998, subject thereafter to two successive renewal
options for one year and eight years extending through April 30, 2007. The
lease provides for rent of $10,000 per month commencing on the earlier of the
date the Company opens the theater or May 15, 1997. In the event one or both of
the Company's renewal options are exercised by the Company, the rent shall
increase at the rate of 5% per year for each year of the renewal term. In
addition, the lease provides that the Company may use the location for the
operation of a theater, bar, club with a restaurant and cafe and a gift shop.
The Company intends to open the theater as the Coliseum Theater and begin
producing a "four-wall, at-risk" resident Legends production at the theater in
the Summer of 1997.
Show Acquisition and Development
Most shows in tourist locations like Myrtle Beach are structured as
"four-wall" arrangements, the riskiest type of financial arrangement for the
Company. Since the Company believes that Legends and similar brand-name shows
are more easily marketed, and can be implemented more efficiently, than new show
concepts in these riskier markets, due to their built-in recognition among
ticket and tour wholesalers, it generally intends to implement its "roll-out"
strategy in new resort and urban tourist markets only with Legends and similar
brand-name shows. As part of its "roll-up" strategy, the Company intends to
acquire additional brand-name shows with "roll-out" potential through joint
ventures and other arrangements with other production companies. For instance,
in October 1996, the Company entered into an agreement with Improv West, Inc. to
co-produce a conceptual show entitled An Evening at the Improve(R) Spectacular.
Pursuant to the terms of the agreement, Improv West, Inc. granted to the Company
the right to use its federally registered trademark and brand-name "Improv(R)"
and agreed to assume 50% of the show's pre-production costs in return for
co-production billing rights and 50%
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of all profits, if any, generated by the show. In March 1997, the Company began
performing An Evening at the Improv(R) Spectacular for Trump's Taj Majal in
Atlantic City, where it will run through July 6, 1997. The Company has also
identified certain variety, magic, ice and interactive dinner and other theater
productions which it believes, like Legends, have the quality, versatility and
broad appeal necessary to succeed in multiple markets.
In addition to acquiring brand-name shows, the Company, as part of its
"roll-up" strategy, will also seek to acquire production companies with show
concepts which it believes have the potential to develop into brand-
name shows. By leveraging its in-house production expertise and infrastructure,
the Company believes it can improve the quality of acquired show concepts, and,
by capitalizing upon its already established Legends name and reputation, the
Company believes it can improve and/or hasten the marketability of new show
concepts.
In keeping with this "roll-up" strategy, on November 1, 1996, the Company
purchased all of the outstanding capital stock of Interactive Events, Inc., a
small Atlanta - based corporate events producer, as well as the rights to two
interactive dinner shows, Frankie and Angie Get Married and Wake Up Shamus
O'Reilly, in exchange for the Company's delivery, on the closing date of the
acquisition, of 19,284 shares of Common Stock, a non-plan option to purchase
15,000 shares of Common Stock, at a price per share equal to the initial public
offering price of the Common Stock, and its promise to deliver 11,020
additional shares of Common Stock, on November 1, 1997. Interactive Events,
Inc. specializes in producing audience participation theme parties for
corporate clients which it anticipates rolling out to the general public. For
example, Frankie and Angie Get Married is a mock New York/Italian wedding in
which the audience participates as guests of the wedding families, and Wake Up
Shamus O'Reilly is a mock Irish wake with a funeral service. In addition,
Interactive Events, Inc. has produced several other audience participation
theme parties including its Las Vegas Spectacular in which a casino is created
and participants are allowed to gamble as if they were in a Las Vegas casino.
Interactive Events, Inc. has held these types of theme parties for such
corporate clients as the City of Las Vegas, Hyatt Hotels Worldwide, Six Flags
Over Georgia, The National Football League, IBM, Xerox and Conoco.
In addition, the Company periodically conceives of new show ideas, and if
it cannot adapt an existing show to suit a client's needs, it may develop a new
show to meet a client's requirements. Depending on the client's budget, the
Company may hire a development team and/or consultation team to augment its
in-house capabilities. In most instances, the Company self-produces its shows,
and when possible, uses performers in the Company's database. Budgets are
prepared as part of the show development process, and the Company targets a 30%
average gross margin on each of its productions.
Sales and Marketing
The Company currently markets its productions to commercial clients, which
include casinos, corporations, fairs and expositions, theme and amusement
parks, and cruise lines, from its offices in Las Vegas, Atlantic City, Atlanta
and Myrtle Beach. However, historically, the Company has not aggressively
marketed its shows to potential commercial clients, relying instead upon its
reputation and word-of-mouth to generate business. Part of the Company's
business strategy is to become more proactive in the commercial market and it
plans to expand its national sales network in order to target, on a regional
basis, new commercial clients and effectively service, and sell additional
shows to, existing clients. Potential regional sales office sites include New
Orleans, Chicago, New York, Dallas, Minneapolis, and Los Angeles.
In the casino, theme and amusement park, and cruise markets, the Company
markets its shows directly to clients' entertainment directors and senior
executives or through agents that have long-standing relationships with the
client. The Company has historically marketed its productions to fairs and
expositions through a network of agents, and has recently started to augment
its efforts in this segment by marketing through trade publications, trade
shows, direct mail and telemarketing. The Company has also started to market
directly to the meeting and convention market through direct mail, trade shows
and trade advertisements and intends to form alliances with small independent
event planners and collectively market to corporate clients. The Company
intends to augment its efforts in this segment by acquiring event planners in
urban centers, focusing primarily on events with larger entertainment budgets
(in excess of $10,000), and marketing to catering managers in large
metropolitan hotels.
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The Company markets its productions to audiences at venues in resort and
urban tourist locations directly through its own box offices and through ticket
wholesalers and tour operators. Since many people do not plan to attend a
specific live performance prior to leaving for vacation, unless they have
purchased the show as part of a packaged tour or group outing, the Company also
relies on focused show promotion and word-of-mouth to attract additional
"walk-up" traffic to its box office. In addition, the Company aggressively
markets to tour operators and ticket wholesalers, through partnerships with
entities such as Calvin Gilmore Productions in Myrtle Beach, for additional
sales and marketing support.
The Company generally targets mass market audiences with average prices
for its productions ranging from $20.00 to $40.00 per adult ticket. Show
pricing is determined by competition in the local marketplace and is typically
neither the lowest nor the highest in a particular market. Once ticket pricing
has been determined, the composition of the show (number of principals,
singers, dancers, orchestra, technicians, etc.) and facility and equipment
requirements are adjusted so that each show will generate profits based upon
projected attendance. The Company distributes, from time to time, show coupons
offering discounts of up to 10% on individual ticket purchases, and offers
volume discounts of up to 15% to ticket and tour wholesalers buying large
blocks of tickets.
Advertising and Promotion
The Company provides publicity support and seeks major ongoing media
coverage for all of its shows through its network of media contacts. Exposure
on television and radio, and in national periodicals, major metropolitan
newspapers, and local tourist entertainment guides has served to promote the
Company's shows both regionally and nationally. Over the last year, publicity
exposure for the Company included impersonator appearances at the 1996 Miss
Universe Pageant, on Jay Leno's Tonight Show from Las Vegas, and on VH1's Route
96.
Prior to the opening of each new "four-wall" show produced by the Company
in the resort and urban tourist market, the Company, as an integral part of its
"roll-out" strategy, intends to undertake a detailed analysis of market
demographics, available media and the various transportation modes to the
theater site. In addition, the Company prepares press kits for dissemination to
the local and regional media, which include a show synopsis, biographies of all
principals and production personnel, an opening press release, photographs and
support materials. A "press night" is typically held during the first week
after the opening of a new show and many show principals actively participate
as goodwill ambassadors at community and charitable events. The Company
maintains an in-house video, photo and press clipping library and is capable of
producing promotional videos and commercials upon client request.
Advertising designed to target the individual tourist includes newspaper
and magazine print ads, television and radio commercials, airport videos and
signage, billboard and outdoor advertising, transit advertising, and brochures
placed in areas with a high concentration of tourists (such as visitor and
tourist welcome centers). In some resort markets, such as Myrtle Beach and
Branson, advertising commences up to one year in advance of a show's opening,
and includes direct mail campaigns, attendance at consumer and travel trade
shows, and placement of print ads in travel and trade publications. Within
casinos and hotels, table tent cards, coupons, flyers and brochures are placed
in each guest room, restaurant and lounge, and promotional show videos are
broadcast on in-house television systems.
Show Merchandising
The Company sells Legends merchandise at all of its shows in tourist
locations and, if permitted, in client venues. Merchandise includes Legends
logo clothing, keychains, magnets, pins, canvas tote bags and coffee mugs, plus
specialty merchandise featuring the Company's more popular Legends acts such as
Elvis, the Blues Brothers and Marilyn Monroe. In Myrtle Beach, the Company also
sells autographed photographs of impersonators posing with audience members,
for which it pays nominal royalties to featured performers. For the year ended
December 31, 1995 and 1996, and for the three months ended March 31, 1997 sales
of merchandise accounted for approximately 3%, 5% and 3% of the Company's net
revenue, respectively.
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Part of the Company's business strategy is to increase its merchandise
sales by introducing new products such as compact discs, audio and video tapes
and a wider variety of clothing items, and by designing more effective point of
sale displays. In addition, the Company intends to implement centralized
purchasing and marketing to achieve economies of scale, ensure consistent
quality of product, and obtain sales data in a timely manner. See " --
Intellectual Property."
Talent
The Company has featured 184 impersonators and numerous variety acts
(magicians, dancers, aerial acts, jugglers, clowns, comedians), singers,
dancers, musicians and musical directors in its productions, and regularly
receives promotional materials from individuals who are eager for work. An
average of 30 inquiries are received per week, and for every working performer,
the Company has access to three potential performers. The Company periodically
holds auditions for new impersonators, singers, and dancers in Las Vegas,
Atlantic City, Myrtle Beach and Los Angeles, and often views acts in outside
show environments and clubs.
All performers receive creative and professional support from the
Company's various in-house personnel. The Company employs choreographers and
contracts with a professional vocal coach to work with new and existing
entertainers to develop their skills and improve their confidence on stage.
Utilizing the Company's in-house music library, musical arrangements are
developed for new and existing performers and digital audio tapes are developed
for principal acts. The Company's in-house wardrobe personnel, together with
several well established costume designers, create new performers' wardrobes
and update the wardrobes of existing talent. The Company contracts with an
independent photographer to provide promotional photographs of the principals
and employs a writer to prepare professional biographies and press releases.
The Company believes it is the premier producer of impersonator shows
worldwide and has the ability to offer a variety of consistent work to its acts
by rotating them among its different shows and events. The Company offers
compensation which is competitive with market standards and, for certain long
production runs, offers housing to principal acts. The Company's musicians,
singers, dancers and production personnel are generally employees of the
Company, while headline acts, including the impersonators utilized in the
Company's tribute shows, are treated as independent contractors in accordance
with industry practice. An in-house attorney handles the negotiation of
contracts with all entertainers, and each impersonator enters into a new
contract for each new show or venue. The contracts provide for the term of the
engagement, the compensation to be paid to the impersonator, the
responsibilities and obligations of the parties, confidentiality and
noncompetition provisions and other general terms.
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The following is a list of Legends tribute acts available to the Company as
of May 1, 1997:
LEGENDS TRIBUTE ACTS
Individual Number of Individual Number of
Legends Acts Impersonators Legends Acts Impersonators
- ------------- ------------- ------------ --------------
1. Alan Jackson 1 38. Kenny Rogers 2
2. Andrew Sisters 1 39. Laurel & Hardy 2
3. Barbara Streisand 3 40. Liberace 3
4. Barry Manilow 1 41. Little Richard 1
5. Beatles Group 3 42. Liza Minelli 1
6. Bette Midler 2 43. Loretta Lynn 1
7. Billy Ray Cyrus 2 44. Louis Armstrong 1
8. Bing Crosby 1 45. Madonna 6
9. Blues Brothers 7 46. Marilyn Monroe 5
10. Bobby Darin 2 47. Mario Lanza 1
11. Bonnie Raitt 1 48. Michael Bolton 1
12. Buddy Holly 2 49. Michael Jackson 6
13. Charlie Chaplin 1 50. Nat King Cole 1
14. Charlie Daniels 2 51. Neil Diamond 5
15. Cher 2 52. Olivia Newton-John 1
16. Conway Twitty 2 53. Patsy Cline 2
17. Diana Ross 3 54. Paul McCartney 3
18. Dean Martin 2 55. Prince 2
19. Dolly Parton 3 56. Reba McIntyre 5
20. Elton John 2 57. Richie Valens 1
21. Elvis Presley 18 58. Ricky Nelson 1
22. The Four Tops 1 59. Righteous Brothers 1
23. Frank Sinatra 3 60. Robin Williams 1
24. Franki Valle 1 61. Rod Stewart 4
25. Garth Brooks 6 62. Roy Orbison 4
26. Hank Williams Jr. 2 63. Sammy Davis Jr. 1
27. Jackie Wilson 1 64. Stevie Wonder 2
28. Janet Jackson 2 65. Tanya Tucker 2
29. Janis Joplin 2 66. The Temptations 1
30. Jay Leno 1 67. Tina Turner 5
31. Jerry Lee Lewis 2 68. Tom Jones 2
32. Joan Rivers 1 69. Tony Bennett 1
33. John Lennon 2 70. Wayne Newton 1
34. John Wayne 1 71. Whitney Houston 5
35. Johnny Cash 1 72. Willie Nelson 2
36. Johnny Mathis 1 73. Wynonna Judd 1
37. Judy Garland 1 -----
Total 173
=====
Operations and Show Implementation
The Company has developed a centralized operation capable of producing
multiple shows of varying complexity simultaneously. See "Production Flow
Chart" on the following page. The Company's team of professionals, including
sound, lighting, multimedia, costume and scenic personnel, have over 70 years
of collective experience in the live entertainment industry. The key personnel
necessary to implement a show include: (i) entertainers - principal acts,
singers, dancers and musicians; (ii) choreographer - assisted by a dance
captain; (iii) technical director - assisted by a lighting designer, a master
electrician, and audio and video engineers; (iv) stage manager - assisted by
stage hands; (v) wardrobe personnel; and (vi) production manager - directs the
show and ensures that schedules and budgets are satisfied.
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On Stage Entertainment, Inc. Production Flow Chart
----------------------- *treatments
| Concept | *schematics
| Developed | *run down
----------------------- *casting
|
----------------------- *monthly cash flow
| Production | *monthly profit/loss
| Budgeted | *IRR analysis
-----------------------
|
------------------- *script
| Concept | *music
| Finalized | *performers
| | *technicians
| | *choreography
-------------------
|
------------------- *staging
| Show | *set & props
| Designed | *lighting
| | *sound
| | *costumes
-------------------
| |
*testing ------------------ -------------------- *dance
*programming | Equipment | | Rehearsals | *performers
*configuration | Staged | | Conducted | *score
------------------ --------------------
| |
*packing ------------------ -------------------- *principals
*manifest | Equipment | | Costumes | *singers
*transport | Shipped | | Fitted | *dancers
| | | | *musicians
------------------ --------------------
| |
*inspection ------------------ -------------------- *leases
*unpacking | Show | | Housing & Travel | *tickets
| Load-In | | Coordinated | *allowances
------------------ --------------------
| |
*set-up ------------------ -------------------- *check-in
*hanging | Configuration | | Venue | *review
*checks | | | Walk Through | *scheduling
*programming ------------------ --------------------
| |
--------------------
| Dress Rehearsals |
| Conducted |
--------------------
|
--------------------
| SHOW OPENS! |
--------------------
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New productions are conceptualized in detail before any implementation
begins. Renderings of sets, scenery, and costumes are executed, and lighting
plots and staging layouts are generated using computer programs such as WYSIWYG
(lighting design), AutoCad13 (set and prop design), LiteWrite (lighting
programmer) and Corel Draw. Each new venue must be evaluated to determine the
availability of in-house equipment, the projected cost of shipping
supplementary equipment, and the estimated cost of transporting and housing
personnel. In 1996, the Company began to utilize H.I.T.S., used by the major
motion picture studios and theatrical equipment rental companies, to ensure
efficient pre-production technical planning and avoid unnecessary pre-opening
and capital costs. After final Company-wide implementation (expected in late
1997), the H.I.T.S. system will contain an up-to-date list of all Company
assets (equipment, sets, costumes), historical cost, availability, and current
location of each asset, how often each asset has been used and serviced, and
the asset's estimated life expectancy. Timely access to this information will
allow the Company to identify props or costumes that need to be built and
additional lighting or sound equipment that needs to be purchased or rented
prior to opening a new show. In addition, in order to manage the logistics of
multiple shows in multiple markets, the Company intends to install a
Company-wide computer network whereby all sales offices and production venues
would have access to a central database containing real-time show scheduling,
inventory and revenue information.
Competition
The leisure and entertainment market, which includes the market for live
theatrical productions, is highly competitive and many of the Company's markets
contain a large number of competing live theatrical productions. In resorts and
urban tourists locations, the Company competes for ticket sales with other live
productions and headline stars, many of whom have better name recognition and
greater financial and other resources than the Company. The pricing for the
Company's productions is based upon local market conditions, including the
level of competition, and is typically neither the lowest nor the highest in
any given market.
The live theatrical entertainment industry is highly fragmented and
contains many small, independent production companies and numerous large
production companies. The Company competes with these production companies for
the most desirable commercial and tourist venues, and for talent and production
personnel. Major production companies in the Company's markets include Feld
Entertainment Productions, Blair Farrington Productions and Dick Foster
Productions in Las Vegas, Calvin Gilmore Productions in Myrtle Beach and Greg
Thompson Productions in Atlantic City. In addition to competition from major
production companies who produce other forms of live theatrical shows, the
Company also competes directly against a large number of smaller independent
producers who sometimes produce impersonators or impersonator shows. However,
the Company believes that only one of these competitors, Spring Time
Productions, produces such shows on a continuous basis in more than one
location, and therefore presently offers any real competition to the Company.
Spring Time Productions currently produces its American Superstars impersonator
shows at the Stratosphere Hotel and Casino in Las Vegas, at the Flamingo Hilton
Hotel and Casino in Reno, Nevada and at the Grand Casinos in Gulfport,
Mississippi.
Intellectual Property
On October 7, 1986, the name "Legends in Concert" was registered as a
federal service mark by Mr. Stuart in the United States. In late 1986, Mr.
Stuart granted to the Company the non-exclusive right to produce and otherwise
use the Legends service mark for all of its productions within and outside of
the United States. Subsequent to his grant of such right, Mr. Stuart formed Las
Vegas/Hawaii Entertainment, Inc., a Nevada subchapter S corporation ("LVHE")
and granted LVHE or any successor entity the right to use the Legends service
mark in the state of Hawaii. In August, 1994, Mr. Stuart and LVHE granted
R.B.L.S, Ltd. ("R.B.L.S."), a Nevada limited liability company in which LVHE
owns a 40% membership interest, the exclusive right to produce Legends
(including the use of the Legends service mark) in the state of Hawaii,
contingent upon their continuous operation of the Legends show in Hawaii. On
December 11, 1996, Mr. Stuart assigned all of his rights to the Legends concept
and his federally registered rights in Legends, including the Legends service
mark, to the Company, subject to R.B.L.S.'s exclusive rights to the use thereof
in Hawaii as described above. See "Certain Transactions."
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The Legends service mark was also registered in the United Kingdom in
November 1996 and an application for its registration in Canada is currently
pending. The Company anticipates filing applications for protection of its
Legends service mark in Japan, France and several other foreign countries, as
well. The Legends United States service mark registration expires in the year
2006 and its United Kingdom service mark registration expires in the year 2005.
The United States Copyright Law specifies that copyrighted musical works
cannot be performed publicly without obtaining the permission of the copyright
owner. Permission can be obtained from either the copyright owner directly, or
from another person or entity entitled to license said right on the copyright
owner's behalf. Currently, the two primary entities that are entitled to
license copyrighted musical works are Broadcast Music, Inc. ("BMI") and the
American Society of Composers, Authors and Publishers ("ASCAP"). The Company
believes that it either owns or has appropriately licensed all of the
intellectual property rights required to perform its shows in the manner in
which they are currently produced, including, but not limited to, the right to
publicly present and otherwise perform all non-dramatic copyrighted musical
compositions pursuant to BMI and ASCAP licenses. The Company believes that
Legends does not infringe any intellectual property rights of any third
parties, including the celebrities portrayed in the show.
In connection with its merchandising strategy, the Company filed two
Legends trademark applications in the United States and anticipates filing
trademark applications in certain foreign countries, as necessary, to cover the
various goods to be sold by the Company. As the Company develops its
merchandising program, the Company also intends to conduct the due diligence
reasonably necessary to ensure that its merchandise does not infringe the
intellectual property rights, including the publicity rights, of any third
parties, including the celebrities portrayed in its shows. In the event that
such due diligence indicates that the unlicensed sale of any merchandise would
infringe the rights of any third party, the Company intends to obtain the
necessary licenses prior to selling the merchandise in question.
The Company typically requires its independent contractors, employees,
consultants and advisors to execute appropriate confidentiality agreements in
connection with their employment, consulting or advisory relationship with the
Company.
Government Regulation
The Company currently has full-scale Legends productions in two casinos:
Bally's Park Place in Atlantic City and the Imperial Palace in Las Vegas. The
Company is currently researching the suitability of existing and potential
casino gaming markets for the production and marketing of new shows. Providing
entertainment to the casino gaming industry may subject the Company to various
licensing regulations. The Company is regulated and required to obtain a casino
industry license from the New Jersey Casino Control Commission pursuant to the
New Jersey Casino Control Act. The Company's current casino service industry
license from the New Jersey Casino Control Commission was issued on January 17,
1997 and expires on September 30, 1999. In connection with the license
application, the New Jersey Division of Gaming Enforcement conducted an
investigation of the Company to determine its suitability for licensure.
Management believes that the Company is not required to obtain a license to
provide its services to casinos in Nevada or in any other jurisdictions in
which it operates, other than New Jersey. The Nevada Gaming Control Board and
similar authorities in other jurisdictions, however, have broad authority to
order providers of services to casinos to file applications, be investigated,
have their suitability determined, obtain licenses and cease providing their
services, if they find the service providers to be unfit. In addition, pursuant
to the Company's expansion program, the Company plans to lease or purchase
some, if not all, of the theaters for its new Legends or other brand-name
resident productions, thereby absorbing all costs and risks associated with
producing the show in order to retain 100% of the show's profits. Producing
shows under this "four-wall" arrangement, may require the Company to obtain
and maintain certain local licenses and permits (as the Company was required to
obtain for the opening of its Myrtle Beach show, a "four-wall" production).
Such licenses and permits could include, among others, amusement licenses,
music licenses, i.e., BMI or ASCAP, business licenses, liquor licenses, retail
licenses, food and beverage licenses and a health inspection rating (if dairy
products and/or hot food, other than popcorn, is to be sold). Difficulties or
failure in obtaining required licenses or regulatory approvals could delay or
prevent the opening of a new show or, alter, delay or hinder the Company's
expansion plans. In addition, the suspension of, or inability to renew, a
license needed to operate any of the Company's currently running productions
would adversely affect the operations of the Company.
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<PAGE>
Employees
As of May 1, 1997, the Company employed approximately 155 full-time
employees, including 28 singer/dancers, 17 musicians, 43 operational personnel,
10 administrative personnel, 12 marketing personnel, 40 box office/concession
personnel and its 5 executive officers. In addition, the Company retains
impersonators on an independent contractor basis as needed for its productions.
None of the Company's current employees are covered by a collective bargaining
agreement. The Company believes that its relationship with its employees is
good.
Legal Proceedings
In May 1996, a former performer in the Company's Legends production aboard
a vessel owned and operated by Premier Cruise Lines filed a lawsuit in a
Florida Circuit Court against the Company alleging bodily injury, pain and
suffering, disability, disfigurement, mental anguish and pain, loss of
earnings, loss of ability to earn money, and reimbursement for medical expenses
and treatment and care for any amount in excess of $15,000 as a result of an
injury suffered in the course of his performance. The case was recently
dismissed for improper venue and has been refiled by the plaintiffs in another
jurisdiction. The Company is in the process of preparing an answer.
In July 1996, an impersonator of Hank Williams, Sr. who performed for the
Company, filed suit against the Company in the Circuit Court of Taney County,
Missouri. The plaintiff asserts that during one of his performances with the
Company, a photograph was taken of him by the Company while in costume and
surrounded by dancers and that the picture has been reproduced and published in
a Company scrapbook along with other photographs of the Company's
impersonators. The plaintiff alleges that the Company misappropriated his name,
image and likeness for commercial purposes by publishing and selling the
booklets and is claiming damages in the amount of $2,000,000. The Company
believes that the plaintiff's claim is without merit since the Company utilized
the plaintiff's photograph in its booklets for ten years with the plaintiff's
knowledge and without objection. The Company intends to defend this action by
asserting that the appropriation was de minimis in that the picture is only
approximately 2" x 4" in size, contains two of the Company's showgirls,
identifies the plaintiff as an impersonator of Hank Williams, Sr. and is only
one of approximately 50 other photographs contained in the brochure. The
Company has filed its answer to the plaintiff's complaint. The matter is
currently in the discovery stage of litigation.
In March 1997, a complaint was filed against the Company by the
stockholders of Grand Strand Entertainment, Inc. ("Grand Strand") alleging
misappropriation of corporate opportunity and breach of contract. The
stockholders seek for the Company to pay to Grand Strand all sums found to be
due from an accounting of the profits and the losses of Grand Strand caused by
the Company's actions. Grand Strand was granted a license to use the "Legends in
Concert" trademark contingent upon Grand Strand raising sufficient capital to
fund pre-production costs associated with establishing a Legends show scheduled
to take place at the Surfside Theater in Myrtle Beach. However, since the
contingency was not met in a timely manner and the Company was responsible for
the lease of the property, the Company rescinded the license and funded and
operated the production on its own. The Company has filed an answer to the
plaintiff's complaint, as well as a motion to stay and a motion to compel
arbitration. The motions are currently pending.
In May 1996, a complaint was filed by three of the Company's employees in
a Nevada District Court for injuries sustained by each of the employees while
they were attempting to complete lighting and staging work for a version of the
Company's Legends show at the Consumer Electronics Show. The employees
initially filed suit against GES Exposition Services, Inc. ("GES"), the company
which had constructed the trussing for the show. In June 1996, the Court
granted GES' motion to add the Company as a cross-defendant in this action. The
Company's position is that the employees already recovered by receiving
worker's compensation and should not be entitled to recover any other damages
from the Company. The plaintiffs in this action are seeking, in aggregate,
damages in excess of $10,000. The Company has filed an answer to the
plaintiff's complaint and the matter is currently in the discovery stage of
litigation.
Although the Company believes that it has meritorious defenses with
respect to all of the foregoing matters which it will vigorously pursue, there
can be no assurance that the ultimate outcome of such actions will be
48
<PAGE>
resolved favorably to the Company or that such litigation will not have an
adverse effect on the Company's liquidity, financial condition and results of
operation. To the extent that the Company is required to use the proceeds of
this offering in connection with such litigation, the Company will have less
resources available to it for other purposes.
Facilities
The Company's corporate headquarters consists of approximately 16,000
square feet of office and warehouse space located at 4625 West Nevso Drive, Las
Vegas, Nevada. The lease will expire on February 28, 1999 and the total rent
for the premises is approximately $14,000 per month. The Company has an option,
exercisable until July 1997, to purchase the building in which the headquarters
is located for $1,300,000.
The Company's east coast office consists of approximately 600 square feet
of space located at Flightwinds in Atlantic City, New Jersey. The lease, which
will expire in April 1997, provides for monthly rent in the amount of $380. In
addition, the Company leases seven condominium units for use by its performers
in Atlantic City from Mr. Stuart and his wife. The aggregate rent for such
apartments is currently $7,833 per month. The current lease term expires on
June 30, 1997. See "Certain Transactions."
The Company has leased the OFT Theater located in Branson, Missouri for
the three-month period from June through August 1997 for aggregate rent of
$90,000, all of which has been prepaid.
The Company leases and operates the Surfside Theater and related office
space in Myrtle Beach, South Carolina. The Company has the option to extend
this lease until December 31, 2004 and the current monthly rent for the
premises is $27,500.
The Company leases and operates the Coliseum Theater and related office
space located in Daytona Beach, Florida. The lease, which will expire in April
1998, provides for monthly rent in the amount of $10,000. The Company has the
option to extend this lease until April 2007.
The Company leases apartments in Branson and Myrtle Beach for its
performers. Dancers and musicians reimburse the Company for its actual cost of
maintaining the leases, while the impersonators are provided accommodations at
no cost. In addition, the Company from time to time leases from third parties
apartments and condominiums for use by its performers and production crew, and
storage space for its equipment, props and costumes.
The Company's Atlanta, Georgia office consists of 6,000 square feet of
office and warehouse space. The lease expires on October 31, 1998 and the total
rent for the premises is approximately $1,000 per month.
49
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- ----- --------
<S> <C> <C>
John W. Stuart ............... 54 Chairman and Chief Executive Officer
David Hope (1) ............... 38 President, Chief Operating Officer and Director
Neil H. Foster ............... 64 Executive Vice President and Director
Kiranjit S. Sidhu ............ 32 Senior Vice President, Chief Financial Officer and Treasurer
Christopher R. Grobl ......... 29 General Counsel and Secretary
Kenneth Berg (2) ............... 71 Director
Jules Haimovitz (1)(2) ......... 46 Director
James L. Nederlander (2) ...... 37 Director
Mark Tratos (1) ............... 45 Director
</TABLE>
- ------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
John W. Stuart has served as the Chairman and Chief Executive Officer of
the Company since April 1996 and also was the President of the Company from
October 1985 through March 1996. He founded the Company in 1985. He has been
involved in the theatrical business since age seven and has produced or
appeared in over 200 theater productions and several feature films. Mr. Stuart
received a Bachelor of Arts degree in 1967 from California State University at
Fullerton. A real estate partnership (unaffiliated with the Company) of which
Mr. Stuart was a partner, Maze Stone Canyon Estates Partnership, filed for
bankruptcy under Chapter 11 in December 1991 in the United States Bankruptcy
Court, Central District of California (the "Bankruptcy Court"). The partnership
is currently in reorganization pursuant to the Plan of Reorganization adopted
by the Bankruptcy Court in August 1992.
David Hope has served as the President and Chief Operating Officer of the
Company since joining the Company in April 1996. For ten years prior to that
time, Mr. Hope served in various capacities, including most recently as
Executive Vice President and Chief Operating Officer, for ITC Entertainment
Group ("ITC"), a major independent producer and worldwide distributor of
feature films, television movies and mini-series and a subsidiary of Polygram
N.V., where, as Chief Operating Officer, he was responsible for day-to-day
operations, as well as strategic and corporate development and acquisitions.
Prior to that time, Mr. Hope was a production manager with Hinchcliffe
Productions, a United Kingdom-based producer and distributor of documentaries
and motor sport events. Mr. Hope received a degree in Management Science in
1981 from the Loughborough University in England.
Neil H. Foster has been the Executive Vice President of the Company since
October 1985 and a director of the Company since February 1995. Mr. Foster met
Mr. Stuart in 1964 when they performed together in "Gentlemen Prefer Blondes"
starring Jayne Mansfield. His television credits include "Combat," "Gunsmoke,"
"Honey West," and "Fridays." From 1977 to 1983, Mr. Foster worked as a producer
for the American Broadcasting Companies, Inc. ("ABC"), where he assisted in the
production of "ABC's Wide World of Sports," the Grammy Awards, "Soap" and
"Barney Miller."
Kiranjit S. Sidhu has been the Company's Senior Vice President, Chief
Financial Officer and Treasurer since joining the Company in August 1995. Prior
to joining the Company, Mr. Sidhu served as Chief Financial Officer and
Corporate Secretary for Aspen Technologies, a computer peripheral manufacturer,
from July 1994 to July 1995. From January 1993 to June 1994, Mr. Sidhu served
as President and a director for Aspen Peripherals, a computer peripheral
reseller. From February 1992 to June 1993, Mr. Sidhu served as a financial
consultant to ITC. From January 1992 to July 1993, Mr. Sidhu served as Vice
President of Finance and a director for Nuvo Holdings of America, a computer
peripheral manufacturer. From January 1991 to March 1992, Mr. Sidhu served as a
financial consultant for Integrated Voice Solutions, a health care computer
software developer. From
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April 1989 to November 1990, Mr. Sidhu was an associate with Merrill Lynch
Capital Markets (Mergers and Acquisitions Division) and, from August 1987 to
March 1989, was a senior associate and manager with Price Waterhouse's
Strategic Consulting Group. Mr. Sidhu holds a Masters degree in Business
Administration from the Wharton School of Business and a Bachelor of Arts in
Computer Science from Brown University.
Christopher R. Grobl has been the General Counsel and Secretary of the
Company since November 1994. Mr. Grobl received a Bachelor of Arts in 1990 from
the University of Illinois and a Juris Doctor in 1994 from the John Marshall
Law School in Chicago, Illinois.
Kenneth Berg has been a director of the Company since August 1995. He has
also been the Chairman and Chief Executive Officer of Koo Koo Roo, Inc., a
publicly traded restaurant company, since July 1992. He was Co-Chairman of the
Board and Co-Chief Executive Officer of Koo Koo Roo, Inc. from March 1992 until
July 1992, and from August 1990 until March 1992, he served as its Chairman of
the Board. Since January of 1990, Mr. Berg has also served as Chairman of the
Board and President of Berg Enterprises, Inc. ("Berg Enterprises"), a holding
company of which Mr. Berg is the sole stockholder. From 1969 to December 1989,
Mr. Berg served as Chairman of the Board and President of the original Berg
Enterprises, Inc., a company chiefly involved in the mortgage banking business
called Margaratten (renamed Margco Holdings, Inc. in 1990), which was listed on
the New York Stock Exchange until May 1985 and which subsequently became a
subsidiary of Primerica Corporation.
Jules Haimovitz has been a director of the Company since March 1997. Mr.
Haimovitz currently serves as a consultant to Polygram Films Entertainment, an
international producer and distributor of feature films and television
programming. From January 1995 to March 1997, he served as the Chief Executive
Officer of ITC after it was sold to PolyGram N.V., one of the world's leading
global music and entertainment companies. Prior to such time, from April 1993
to January 1995, Mr. Haimovitz served as ITC's President and Chief Executive
Officer while it was owned by Midland Montague Ventures. Mr. Haimovitz was also
acting President of Video Jukebox Network Inc., a publicly traded interactive
music video service, from October 1992 through August 1993, and a director of
such company from August 1990 to November 1995. From March 1989 to January
1992, Mr. Haimovitz was President, Chief Operating Officer and a director of
Spelling Entertainment Inc. ("Spelling"), a company he helped found by
engineering the acquisitions of Worldvision Enterprises Inc. and Laurel
Entertainment Inc. by, and the merger of such companies with, Spelling's
predecessor, Aaron Spelling Productions, Inc. ("Aaron Productions"). From
December 1987 until Spelling's formation in January 1992, he served in the same
capacities for Aaron Productions.
James L. Nederlander has been a director of the Company since August 1996.
He has also been the Chairman of the Nederlander Producing Company of America,
a producer of live entertainment shows, since August 1996 and prior to such
time, commencing in 1980, he was Executive Vice President of such organization.
Mr. Nederlander was the associate producer of Peter Brooks' "The Tragedy of
Carmen," which won a special Tony Award in 1984, and was a co-producer of such
shows as Natalia's "Little Voice," the Royal Shakespeare Company's "A Midsummer
Night's Dream," and "Cafe Crown," and musical concerts such as Billy Joel, U2,
Harry Connick, Jr., Pink Floyd, Ray Davies and Yanni.
Mark Tratos has been a director of the Company since March 1997. Mr.
Tratos has been the managing partner of the law firm Quirk & Tratos of Las
Vegas, Nevada since 1983. He received his J.D. from Lewis and Clark Law School
in 1979, where he was a member of the Law Review and the Editor-in-Chief of the
Lewis and Clark Law Forum. He is admitted to the Nevada and California state
bars and to the United States District Courts for the Districts of Nevada and
each of Central and Southern California. Since 1982, Mr. Tratos has also served
as a member of the adjunct faculty of the University of Nevada Las Vegas
teaching a variety of subjects in the areas of fine and performing arts and
entertainment and business law. He has also written numerous articles,
including "Intellectual Property Considerations in Licensing Pre-Existing Works
for Use in Multimedia" (1995), "Rights in Publicity: Laws Vary from State to
State" (1996), and "Gaming on the Internet" (to be published in May 1997) and
co-authored the Nevada Chapter of the United States Trademark Association's
State Trademark Law Handbook, for the years 1987 to 1995.
The Board of Directors is divided into three classes, with Class I having
a term expiring in 1998, Class II having a term expiring in 1999, and Class III
having a term expiring in 2000. All directors hold office until the
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<PAGE>
annual meeting of stockholders in the year in which their respective terms
expire or until their respective successors are duly elected and qualified.
After the expiration of a class's initial term, any director elected to such
class shall serve for a period of three years. Currently, Class I is comprised
of Messrs. Foster and Nederlander, Class II is comprised of Messrs. Berg and
Tratos, and Class III is comprised of Messrs. Haimovitz, Hope and Stuart.
Executive officers of the Company serve at the discretion of the Board and
until their successors are duly elected and qualified.
In connection with this offering, the Company has agreed that it will, for
a period of three years following the date of this Prospectus, upon the request
of the Underwriter, nominate and use its best efforts to elect a designee of
the Underwriter (which designee may change from time to time) as a director of
the Company or, at the Underwriter's option, appoint such designee as a
non-voting advisor to the Company's Board of Directors. The Underwriter has not
yet exercised its rights to designate such a person. See "Underwriting."
The Company has obtained key-man life insurance on the life of Mr. Stuart
in the amount of $5,000,000 and on the life of Mr. Hope in the amount of
$2,500,000.
Committees of the Board
The Board of Directors has established a Compensation Committee and an
Audit Committee. The Compensation Committee determines salaries, bonuses and
other compensation matters for officers of the Company, determines employee
health and benefit plans, and administers the Company's stock option plans. The
Audit Committee recommends the appointment of the Company's independent public
accountants and reviews the scope and results of audits, internal accounting
controls, and tax and other accounting-related matters. Pursuant to the terms
of the Company's Bylaws, a majority of the members of the Audit Committee, and
all of the members of the Compensation Committee, must be non-employee
directors of the Company.
Director Compensation
Directors of the Company currently are not paid a fee for their services,
but are reimbursed for all reasonable expenses incurred in attending Board
meetings. In addition, each non-employee director will receive options under
the 1996 Stock Option Plan to purchase an aggregate of 10,000 shares of Common
Stock each year that the director serves as such a director (each such year, a
"Grant Year"), partially contingent upon the director's attendance at the
Company's four scheduled Board of Directors meetings during the Grant Year.
One-quarter of the annual option grant will vest as of each of the Grant Year's
first three scheduled Board of Director meetings and the remainder of such
option grant will vest as of the fourth scheduled meeting; provided, in the
latter case, that the director has attended all four of that Grant Year's
scheduled Board meetings.
Executive Compensation
Summary Compensation Table
The following table sets forth the cash compensation paid by the Company
for services rendered during the fiscal year ended December 31, 1996 to each
executive officer who received total compensation in excess of $100,000 (the
"Named Executive Officers"):
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
--------------------------------------------------- ----------------------------------
Securities
Other Annual Underlying All Other
Name and Principal Position Salary Bonus Compensation Options/SARs Compensation ($)
- --------------------------------- ---------- ---------------- ------------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
John W. Stuart, Chairman and
Chief Executive Officer ...... $250,000 -- $ 1,786,448(1) -- --
David Hope, President and Chief
Operating Officer(2) ......... $130,769 $ 42,155(3) $ 23,673(4) -- --
Kiranjit S. Sidhu, Senior Vice
President, Chief Financial
Officer and Treasurer ......... $123,461 -- $ 10,500(5) -- --
</TABLE>
52
<PAGE>
- ------------
(1) Represents a health insurance allowance of $6,024 and $1,780,424 in
compensation related to the Stuart Debt Forgiveness.
(2) Mr. Hope began his employment with the Company on April 15, 1996.
(3) Represents a bonus to be paid to Mr. Hope in 1997 for services rendered in
1996.
(4) Includes $9,212 representing car and health insurance allowances and
$14,461 representing non-recurring relocation-related expenses.
(5) Includes $3,500 representing car and health insurance allowances and $7,000
representing non-recurring relocation-related expenses.
Option Grants in Last Fiscal Year
The following table sets forth certain information regarding stock options
granted during the year ended December 31, 1996 to each of the Named Executive
Officers:
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Price Expiration
Name Granted (#)(1) Fiscal Year Per Share Date(1)
- ------------------------- ---------------- -------------- ---------------- -----------
<S> <C> <C> <C> <C>
John W. Stuart ......... -- -- -- --
David Hope ............ 311,300(2) 57.5% $ 3.99(3) 8/6/05
Kiranjit S. Sidhu ...... 24,794(4) 4.6% $ 5.00 8/6/05
</TABLE>
- ------------
(1) These options were granted under the Option Plan, and have a term of ten
years, subject to earlier termination in certain events related to the
termination of employment or a change in control.
(2) Of such shares, 236,168 shares underlie non-qualified stock options which
vest as follows: 50% on the date of grant, 25% one year thereafter, and
25% two years thereafter. The 75,132 remaining shares underlie qualified
stock options which vest as follows: 33.3% on the date of grant, 33.3% one
year thereafter, and 33.3% two years thereafter.
(3) Represents the fair market value of the underlying Common Stock as
determined by the Board of Directors on the date of grant.
(4) All of such shares underlie qualified stock options which vest as follows:
33.3% on the first anniversary of the date of grant, 33.3% one year
thereafter and 33.3% two years thereafter. Does not include immediately
exercisable stock options to purchase 85,000 shares of Common Stock at
$4.00 per share which were granted to Mr. Sidhu in February 1997.
Fiscal Year-End Option Values
The following table sets forth certain information regarding options held
as of December 31, 1996 by each of the Company's Named Executive Officers. None
of the Named Executive Officers exercised options during the year ended
December 31, 1996:
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-The-Money Options
at Fiscal Year End (#) at Fiscal Year-End($)(1)
------------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
John W. Stuart ......... -- -- -- --
David Hope ............ 143,128 168,172 -- --
Kiranjit S. Sidhu ...... -- 24,794 -- --
</TABLE>
- ------------
(1) There was no public trading market for the Common Stock as of December 31,
1996.
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<PAGE>
Employment Contracts
John W. Stuart. On February 1, 1997, the Company entered into an
employment agreement with Mr. Stuart to employ him as its Chairman of the
Board and Chief Executive Officer until May 31, 2000. In accordance with this
employment agreement, Mr. Stuart receives an annual salary of $250,000 and may
receive annual salary increases of up to 10% of his base salary amount at the
discretion of the Compensation Committee of the Board of Directors. Mr. Stuart
will not be eligible to receive any bonuses during the initial term of his
employment agreement. Mr. Stuart is provided with a family health insurance
allowance of up to $600 per month and a $1,500 monthly automobile allowance.
The Company has the right to terminate Mr. Stuart's employment at any time,
without cause, provided that the Company pays Mr. Stuart a lump sum payment
equal to one year's base salary, car allowance and insurance allowance.
David Hope. On February 1, 1997, the Company entered into an amended
employment agreement with Mr. Hope to employ him as the President and Chief
Operating Officer of the Company until May 31, 2000. In accordance with this
employment agreement, Mr. Hope receives an annual salary of $200,000 until
April 14, 1997, after which time he may receive annual salary increases of up
to 10% of his base salary amount at the discretion of the Compensation
Committee of the Board of Directors. For the years ended December 31, 1997,
1998 and 1999, Mr. Hope shall be entitled to receive a bonus equal to 2% of the
Company's audited pre-tax earnings, after deduction for non-recurring charges
such as original issue discount, compensation and interest expense charges for
each such year, provided that the Company achieves certain designated financial
goals for the respective year. See "-- Executive Bonus Plan." Mr. Hope is
currently provided with a family health insurance allowance of $600 per month
and a $500 monthly automobile allowance. In addition, the Company has granted
Mr. Hope 311,300 stock options under its Option Plan. Mr. Hope has elected to
classify 75,132 of said stock options as incentive stock options of which
one-third vest immediately, one-third vest on the first anniversary of such
grant, and the balance vest on the second anniversary of such grant. The
remaining 236,168 are to be classified as non-qualified options, of which
one-half vest immediately, one-quarter vest on the first anniversary of such
grant, and the balance vest on the second anniversary of such grant. The
exercise price of the options, whether they are qualified or non-qualified, has
been set at $3.99 per option which was the fair market value thereof at the
date Mr. Hope commenced his employment with the Company. All other terms of Mr.
Hope's option will be governed by the Option Plan and/or his employment
agreement, at the option of Mr. Hope. The Company shall have the right to
terminate Mr. Hope's employment agreement at any time, without cause, provided
that the Company pays Mr. Hope a lump sum payment on the date of such
termination equal to the greater of (i) his base salary, car allowance and
insurance allowance due from the date of termination up until April 1999, plus
any accrued bonus up until his date of termination and (ii) one year's base
salary, car allowance and insurance allowance, plus any accrued bonus up until
the date of termination. In addition, upon termination of Mr. Hope's
employment, without cause, Mr. Hope's non-vested options shall immediately
vest.
Kiranjit S. Sidhu. On February 1, 1997, the Company entered into an
amended employment agreement with Mr. Sidhu to employ him as its Senior Vice
President, Chief Financial Officer and Treasurer. Upon the consummation of this
offering, Mr. Sidhu's contract will extend until May 31, 2000; his annual
salary will be $150,000 until July 31, 1997, after which, he may receive annual
salary increases of up to 10% of his base salary amount at the discretion of
the Compensation Committee of the Board of Directors; he may receive a bonus
under the Executive Bonus Plan, at the discretion of the Board of Directors;
and, in addition to his salary, Mr. Sidhu will continue to receive a $300
monthly health insurance allowance and a $500 monthly automobile allowance. In
the event his employment is terminated, without cause, Mr. Sidhu will be
entitled to a lump sum payment equal to one year's base salary, car allowance
and insurance allowance and the vesting of all of his stock options. In
connection with his employment agreement, the Company has also granted to Mr.
Sidhu stock options to purchase a total of 109,794 shares of Common Stock under
the Option Plan. Of such options, options to purchase 85,000 shares were issued
in February 1997 and are immediately exercisable at $4.00 per share, and
options to purchase 24,794 shares were issued in August 1996 and will become
exercisable in accordance with the vesting parameters set forth in the Option
Plan, at the initial public offering price per share of the Common Stock. The
Company also issued to Mr. Sidhu the 40,532 CFO Shares pursuant to the terms of
his employment agreement in March 1997.
In connection with each of their respective employment agreements, each of
Messrs. Stuart, Hope and Sidhu also entered into a Confidentiality and
Non-Compete Agreement with the Company, which, in addition to
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<PAGE>
the obligations of confidentiality imposed upon each, provides that in the
event of the termination of an employment agreement for any reason, the Company
shall have the option to pay the respective employee at the date of termination
50% of such employee's base salary for five years (in the case of Mr. Stuart)
and two years (in the case of Messrs. Hope and Sidhu) in consideration for such
employee's covenant not to compete with the Company during such five-year and
two-year periods, respectively. In the case of Mr. Stuart, such non-compete
relates to any business associated with the live entertainment industry and, in
the case of each of Messrs. Hope and Sidhu, such non-compete relates to any
business associated with the theatrical segment of the live entertainment
industry.
1996 Stock Option Plan
The Option Plan was approved by the Board of Directors and the Company's
then sole stockholder on August 7, 1996. Pursuant to an amendment to the Option
Plan, the maximum number of shares of Common Stock available for issuance upon
exercise of options granted and available for grant under the Option Plan is
785,000 shares. The Option Plan is designed to further the interests of the
Company by strengthening the desire of employees to continue their employment
with the Company and by securing other benefits for the Company.
Under the Option Plan, a committee (the "Committee") has been appointed by
the Board of Directors to administer the Option Plan and is authorized, in its
discretion, to grant options thereunder to all eligible employees of the
Company, including certain officers and directors of the Company as well as to
others providing services to the Company. The Option Plan provides for the
granting of both (i) "incentive stock options" as defined in Section 422 of the
Internal Revenue Code of 1986, as amended, which are intended to qualify for
special federal income tax treatment ("ISOs") to employees (including officers
and employee directors) and (ii) "non-qualified stock options" ("NQSOs") to
employees (including officers and employee directors) and consultants. Options
can be granted under the Option Plan on such terms and at such prices as
determined by the Committee, except that in the case of ISOs, the per share
exercise price of such options cannot be less than the fair market value of the
Common Stock on the date of grant. In the case of an ISO granted to a 10%
stockholder (a "10% Stockholder"), the per share exercise price cannot be less
than 110% of such fair market value. To the extent that the grant of an option
results in the aggregate fair market value of the shares with respect to which
incentive stock options are exercisable by a grantee for the first time in any
calendar year exceed $100,000, such option will be treated under the Option Plan
as an NQSO.
Options granted under the Option Plan will become exercisable after the
vesting period or periods specified in each option agreement. Except as
otherwise determined by the Committee, options become exercisable as to
one-third of the shares subject to the option on each of the first, second and
third anniversaries of the date of grant of the option. Options are not
exercisable, however, after the expiration of ten years from the date of grant
(or five years from such date in the case of an ISO granted to a 10%
Stockholder) and are not transferable other than by will or by the laws of
descent and distribution. Except as the Committee may determine with respect to
NQSOs, if the holder of an option granted under the Option Plan ceases to be an
employee, options granted to such holder shall terminate three months (12
months if the termination is a result of the death or disability of the
employee) from the date of termination of employment and shall be exercisable
as to only those options exercisable as of the date of termination.
As of the date of this Prospectus, options to purchase 617,403 shares have
been granted under the Option Plan, including options to purchase 311,300,
109,794, 18,000 and 13,224 shares granted to Messrs. Hope, Sidhu, Foster and
Grobl, respectively, and options to purchase 10,000 shares granted, as of the
date of this Prospectus, to each of the Company's four non-employee directors,
Messrs. Berg, Haimovitz, Nederlander and Tratos. See "Principal and Selling
Stockholders."
Executive Bonus Plan
In March 1997, the Company implemented a three-year Executive Bonus Plan,
which is administered by the Compensation Committee. Under the Executive Bonus
Plan, an annual bonus pool of up to 5% of the Company's audited pre-tax
earnings, after non-recurring charges such as original issue discount,
compensation and interest expense charges and excluding extraordinary items
("Pre-Tax Earnings"), may be established for distribution at the discretion of
the Company's Board of Directors, to the Company's executive officers (other
than
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Mr. Stuart, who is not eligible for bonuses under the plan) in 1998, 1999 and
2000, provided that the Company achieves at least minimum Pre-Tax Earnings for
the respective preceding fiscal year as follows:
Year Minimum Pre-Tax Earnings
------ -------------------------
1997 $1,850,000
1998 $5,000,000
1999 $8,700,000
The terms of the Executive Bonus Plan, including the minimum Pre-Tax
Earnings requirements set forth above, were determined by negotiations between
the Company and the Underwriter, and should not be construed to imply or
predict any future earnings of the Company.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus (giving
effect to the Pending Debt Conversion, which will occur immediately prior to
the consummation of this offering), and as adjusted to reflect the sale of the
1,400,000 Shares and 600,000 Shares offered hereby by the Company and the
Selling Stockholder, respectively, certain information known to the Company
regarding the beneficial ownership of the Common Stock by: (i) each person
known by the Company to own beneficially more than 5% of the outstanding Common
Stock; (ii) each director of the Company; (iii) each Named Executive Officer;
and (iv) all officers and directors of the Company as a group:
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Number Owned
Prior to Offering(2) of After Offering(2)
Name and Address of ----------------------- Shares ----------------------
Beneficial Owner(1) Number Percent Offered Number Percent
- ------------------------------------- ----------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
John W. Stuart (3) .................. 3,982,760 76.8% 600,000 3,382,760 51.3%
David Hope (4) ..................... 154,378 2.9% -0- 154,378 2.3%
Neil H. Foster (5) .................. -0- -- -0- -0- --
Kiranjit S. Sidhu (6) ............... 131,157 2.5% -0- 131,157 2.0%
Kenneth Berg (7) .................. 158,756 3.1% -0- 158,756 2.4%
James L. Nederlander (8) ............ -0- -- -0- -0- --
Mark Tratos (9) ..................... -0- -- -0- -0- --
Jules Haimovitz (10) ............... -0- -- -0- -0- --
All executive officers and directors
as a group (9 persons) (11) ...... 4,427,051 81.4% 600,000 3,827,051 56.0%
</TABLE>
- ------------
(1) Unless otherwise indicated, the address for each named individual or group
is in care of the Company at the Company's address.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to community
property laws where applicable. In accordance with the rules of the
Commission, a person is deemed to be the beneficial owner of Common Stock
that can be acquired by such person within 60 days from the date of this
Prospectus upon the exercise of options or warrants. Each beneficial
owner's percentage ownership is determined by assuming that options and
warrants that are held by such person (but not those held by any other
person) and which are exercisable within 60 days of the date of this
Prospectus have been exercised. Percentages herein assume a base of
5,188,980 shares of Common Stock outstanding prior to this offering
(including the 505,649 Debenture Shares) and a base of 6,588,980 shares of
Common Stock outstanding immediately after this offering.
(3) Includes 382,790 shares of Common Stock issuable by Mr. Stuart to third
parties upon the exercise of options granted by him to such persons,
including 35,813 shares of Common Stock issuable upon exercise of options
granted to Kenneth Berg, a director of the Company, none of which options
are currently exercisable.
(4) Includes 143,128 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options granted under the Option Plan and
6,250 Bridge Warrant Shares. Does not include 168,172 shares issuable upon
the exercise of stock options granted under the Option Plan that are not
currently exercisable.
(5) Does not include 18,000 shares of Common Stock issuable upon exercise of
stock options granted under the Option Plan that are not currently
exercisable.
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<PAGE>
(6) Includes 85,000 shares of Common Stock issuable upon exercise of
immediately exercisable stock options granted under the Option Plan and
3,125 Bridge Warrant Shares. Does not include 24,794 shares of Common
Stock issuable upon exercise of stock options granted under the Option
Plan that are not currently exercisable.
(7) Includes 12,500 Bridge Warrant Shares. Does not include 35,813 shares of
Common Stock issuable upon the exercise of options granted to Mr. Berg by
Mr. Stuart and 10,000 shares of Common Stock issuable upon the exercise of
stock options granted under the Option Plan as director compensation
("Director Options"), none of which are currently exercisable. See
"Management -- Director Compensation" and "Certain Transactions."
(8) Does not include 10,000 shares of Common Stock issuable upon the exercise
of Director Options. See "Management -- Director Compensation."
(9) Does not include 10,000 shares of Common Stock issuable upon exercise of
Director Options. See "Management -- Director Compensation."
(10) Does not include 10,000 shares of Common Stock issuable upon exercise of
Director Options. See "Management -- Director Compensation."
(11) Includes 21,875 Bridge Warrant Shares and 228,128 shares of Common Stock
issuable upon exercise of immediately exercisable stock options granted
under the Option Plan. Does not include 390,025 shares issuable upon
exercise of stock options granted under the Option Plan, including 80,000
Director Options, that are not currently exercisable.
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<PAGE>
CERTAIN TRANSACTIONS
Kenneth Berg, a director of the Company, purchased four Debenture Units
for a total price of $200,000 in connection with the 1995 Private Placement and
subsequently exchanged them for Debentures in the principal amount of $200,000
in connection with the Exchange or Repurchase Offer. Such Debentures will be
converted into 59,000 Debenture Shares in connection with the Pending Debt
Conversion.
Pursuant to the September 1995 JDK Settlement Agreement, as compensation
for all of the services performed by JDK for, or on behalf of, the Company, the
Company issued to JDK and its designees, five-year warrants (the "JDK
Warrants") to purchase an aggregate of 337,609 shares of Common Stock at an
exercise price of $3.76 per share, which, as of the date of the JDK Settlement
Agreement, approximated the fair market value of the Common Stock. All of such
warrants were exchanged in the Warrant Exchange. Mr. Berg, who was one of the
largest investors in the 1995 Private Placement, received a portion of the JDK
Warrants and consequently received 77,256 of the Warrant Exchange Shares in the
Warrant Exchange.
In February 1996, John W. Stuart, the Chairman, Chief Executive Officer
and principal stockholder of the Company, granted options to acquire an
aggregate of 140,498 of his shares of Common Stock at an exercise price of
$4.54 per share to several persons and/or entities, including Mr. Berg, in
consideration for their assistance to the Company in its securing of the DYDX
Loan. Of such options, Mr. Berg received options to purchase 35,813 shares of
Common Stock. The term of such options is two years commencing on the first
anniversary of the first to occur of the following: (a) the Company becomes a
public company pursuant to Federal securities laws, through merger or
otherwise; (b) more than 50% of the Common Stock is acquired by a public
company; or (c) a registration statement registering the Common Stock is
declared effective by the Commission.
As of December 31, 1996, Mr. Stuart owed the Company a total of $1,637,413
principal amount under an 8% promissory note due in January 1998, plus accrued
interest thereon of $143,011. On, and as of such date, the Company forgave all
$1,780,424 of such indebtedness in connection with the Stuart Debt Forgiveness.
In addition, as of April 1, 1997, the Company had advanced an additional
$103,325 principal amount to Mr. Stuart since January 1, 1997 and intends to
forgive all of such amount plus up to an additional $96,675 which may be loaned
to Mr. Stuart by the Company, immediately prior to the consummation of this
offering. The Company has agreed with the Underwriter that, as of the date of
this Prospectus, it will not advance any further sums to or on behalf of Mr.
Stuart in the future.
In February 1997, Mr. Stuart granted to Senna, an affiliate of DYDX, an
option to purchase 142,292 of his shares of Common Stock at an exercise price
of $5.00 per share, in consideration for the Third Extension Agreement of the
DYDX Loan and DYDX's agreement in connection with such extension to allow the
Stuart Debt Forgiveness. Such option is exercisable for a period of three years
commencing as of February 9, 1998.
Mr. Stuart, in addition to being the Chairman and Chief Executive Officer
of the Company, is also the President and sole owner of LVHE, a Nevada
subchapter S corporation, which owns 40% of, and is a member of R.B.L.S., a
Nevada limited liability company. R.B.L.S., in turn, owns a 99% interest in
R.B.L.S. Partnership, which operates a Legends production at the Royal Hawaiian
Shopping Center in Honolulu, Hawaii. Mr. Stuart has a Management Agreement with
R.B.L.S., pursuant to which R.B.L.S. pays him a monthly management consulting
fee of $3,000 per week, provided Mr. Stuart or an approved representative makes
at least one trip to Hawaii to evaluate the production every two months. In
addition, according to the operating agreement of R.B.L.S., all members are to
share ratably in the profits or losses of R.B.L.S. As such, LVHE is entitled to
receive a 40% membership interest in the profits of R.B.L.S. However, as a
result of a dispute between LVHE and R.B.L.S. as to which of the two entities
is responsible for certain litigation related liabilities (the "Disputed
Liabilities"), R.B.L.S. is currently withholding membership profit
distributions from LVHE. The Disputed Liabilities relate to lawsuits which are
based on events that took place prior to the formation of R.B.L.S. and R.B.L.S.
Partnership when the Legends show in Hawaii was owned by LVHE. LVHE and
R.B.L.S. dispute whether these lawsuits were retained by LVHE or assumed by
R.B.L.S. when it acquired the Hawaiian Legends show from LVHE. LVHE has been
informed by R.B.L.S. that R.B.L.S. is funding the defense of these suits with
LVHE's membership profits. LVHE and R.B.L.S. also dispute which of them would
ultimately be responsible for any settlement payments or judgments if
unsuccessful.
In February 1997, the Company agreed, pursuant to a duly authorized board
resolution, that the services provided by Mr. Stuart to R.B.L.S. and/or LVHE
will not place him in a conflict of interest with his employment
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<PAGE>
contract with the Company (which commenced as of February 1, 1997) on the
condition that all monies received by Mr. Stuart, either directly from R.B.L.S.
or through LVHE, are immediately paid to the Company as producer fees earned by
the Company for providing the services of Mr. Stuart. Simultaneously with such
board resolution, Mr. Stuart entered into the Stuart LVHE Agreement with the
Company pursuant to which he has agreed that, commencing as of February 25,
1997, he will pay any monies received by him from R.B.L.S., or through LVHE
from R.B.L.S., to the Company. The Company will book any such monies received
from Mr. Stuart, including both his R.B.L.S. membership profit and his
management consulting fees, as revenues in the form of producer's fees (in the
same manner that other such services are booked by the Company). As part of the
Stuart LVHE Agreement, Mr. Stuart has also agreed (i) to indemnify the Company
against any of the actions or liabilities of, or arising in connection with,
LVHE, R.B.L.S., R.B.L.S. Partnership or the other members of R.B.L.S.,
including their respective companies, which indemnity has been secured with
200,000 of his shares of Common Stock, and (ii) to contribute all of the
capital stock of LVHE (the "LVHE Stock"), as well as his rights under the
Management Agreement, to the Company whenever the Company deems such
contribution to be permissible under the terms of the R.B.L.S. operating
agreement (such a contribution may require the approval of the other members of
R.B.L.S.; however, LVHE is currently in disagreement with such members
vis-a-vis the Disputed Liabilities), which contribution pledge has been secured
with an additional 200,000 of Mr. Stuart's shares of Common Stock.
The Company leases from Mr. Stuart seven condominium units in Atlantic
City, New Jersey for use by the Company's performers. The current lease term
expires on June 30, 1997. The total lease payment to Mr. Stuart from the
Company is currently $7,833 per month, which amount the Company believes
approximates the fair market value for the use thereof. In addition, commencing
as of January 1, 1997, the Company is also paying, directly, the association
dues, insurance, taxes, maintenance and utilities on such apartments. The
Company paid aggregate rent to Mr. Stuart for such apartments of $47,000 and
$94,000 for the years ended December 31, 1995 and 1996, respectively.
Future transactions, if any, between the Company and any of its directors,
officers and/or 5% stockholders will be on terms no less favorable to the
Company than could be obtained from independent third parties and will be
approved by a majority of the independent, disinterested directors of the
Company.
DESCRIPTION OF SECURITIES
Capital Stock
General
The Company is authorized to issue 25,000,000 shares of Common Stock, par
value $.01 per share, and 1,000,000 shares of Preferred Stock, par value $1.00
per share. As of the date of this Prospectus, there are 4,683,331 shares of
Common Stock outstanding held by 29 stockholders and no shares of Preferred
Stock outstanding. Upon the consummation of this offering (assuming also the
consummation of the Pending Debt Conversion), there will be 6,588,980 shares of
Common Stock outstanding and no shares of Preferred Stock outstanding.
Common Stock
The holders of Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of stockholders. If dividends are
declared, whether payable in cash, property or securities of the Company,
holders of the Common Stock are entitled to share equally in such dividends,
subject to the rights, if any, of the holders of any series of Preferred Stock.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, after payment has been made to the holders of shares
of Preferred Stock, if any, for the full amount to which they are entitled,
each holder of Common Stock will be entitled to share equally in the assets
available for distribution.
Holders of shares of Common Stock have no preemptive rights to acquire any
additional shares of the Common Stock and have no cumulative voting rights. All
currently outstanding shares of Common Stock are duly authorized, validly
issued, fully paid and non-assessable.
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<PAGE>
Preferred Stock
The Board of Directors is authorized, without further action by the
stockholders, to issue up to 1,000,000 shares of Preferred Stock in one or more
series and to fix the designations, powers, preferences, privileges, and
relative participating, optional or special rights and the qualifications,
limitations or restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences, any or
all of which may be greater than the rights of the Common Stock. The Board of
Directors, without stockholder approval, can issue Preferred Stock with voting,
conversion or other rights that could adversely affect the voting power and
other rights of the holders of Common Stock. Preferred Stock could thus be
issued quickly with terms calculated to delay or prevent a change in control of
the Company or make removal of management more difficult. Additionally, the
issuance of Preferred Stock may have the effect of decreasing the market price
of the Common Stock, and may adversely affect the voting and other rights of
the holders of Common Stock.
Public Warrants
The Warrants offered hereby entitle the registered holder thereof (the
"Warrant Holders") to purchase one share of Common Stock at a price of $5.50,
subject to adjustment in certain circumstances at any time commencing ,
1998 (or such earlier date as to which the Underwriter consents) through and
including , 2000. The Warrants will be separately transferable immediately
upon issuance.
The Warrants are redeemable by the Company, upon the consent of the
Underwriter, at any time commencing on , 1998, upon notice of not less than
30 days, at a price of $.10 per Warrant, provided that the closing bid
quotation of the Common Stock on all 20 trading days ending on the Call Date
has been at least 150% (currently $8.25, subject to adjustment) of the then
effective exercise price of the Warrants and the Company obtains the written
consent of the Underwriter to such redemption prior to the Call Date. The
Warrant holders shall have the right to exercise their Warrants until the close
of business on the date fixed for redemption.
The Warrants will be issued in registered form under a warrant agreement
by and among the Company, American Stock Transfer & Trust Company, as warrant
agent (the "Warrant Agent"), and the Underwriter (the "Warrant Agreement"). The
exercise price and number of shares of Common Stock or other securities
issuable on exercise of the Warrants are subject to adjustment in certain
circumstances, including in the event of a stock dividend, recapitalization,
reorganization, merger or consolidation of the Company. However, the Warrants
are not subject to adjustment for issuances of Common Stock at prices below the
exercise price of the Warrants. Reference is made to the Warrant Agreement
(which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part) for a complete description of the terms and conditions
therein (the description herein contained being qualified in its entirety by
reference thereto).
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the Warrant Agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
certified check or bank draft payable to the Company) to the Warrant Agent for
the number of Warrants being exercised. The Warrant holders do not have the
rights or privileges of holders of Common Stock.
No Warrant will be exercisable unless, at the time of exercise, the
Company has filed a current registration statement with the Commission covering
the shares of Common Stock issuable upon exercise of such Warrant and such
shares have been registered or qualified or deemed to be exempt from
registration or qualification under the securities laws of the state of
residence of the holder of such Warrant. The Company will use its best efforts
to have all such shares so registered or qualified on or before the exercise
date and to maintain a current prospectus relating thereto until the expiration
of the Warrants, subject to the terms of the Warrant Agreement. While it is the
Company's intention to do so, there can be no assurance that the Company will
be successful in registering such shares.
No fractional shares will be issued upon exercise of the Warrants.
However, if a Warrant holder exercises all Warrants then owned of record by
such Warrant holder, the Company will pay to such Warrant holder, in lieu of
the issuance of any fractional share which is otherwise issuable, an amount in
cash based on the market value of the Common Stock on the last trading day
prior to the exercise date.
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Bridge Warrants
There are currently outstanding 250,000 Bridge Warrants, each to purchase
one Bridge Warrant Share at an exercise price of $4.00 per share. The Bridge
Warrants are exercisable until March 19, 2002; however, neither the Bridge
Warrants nor the Bridge Warrant Shares are transferable by the holders thereof
until 12 months following the date of this Prospectus. The investors in the
Bridge Financing have been granted certain registration rights relating to the
Bridge Warrant Shares. See "-- Registration Rights."
Registration Rights
Upon the consummation of this offering, the holders of 1,165,688 shares of
Common Stock and the holders of the Bridge Warrants will be entitled to certain
rights with respect to the registration of such shares and the 250,000 Bridge
Warrant Shares, respectively, under the Securities Act.
The holders of the 440,755 Warrant Exchange Shares may request that the
Company file one registration statement under the Securities Act (a "Demand
Registration") with respect to such shares beginning (a) one year following the
date of this Prospectus, or, (b) if earlier, 20 trading days after September
30, 1997, if the closing bid price of the Common Stock is at least $8.75 for 20
consecutive trading days after September 30, 1997 (the "Early Registration
Condition"). In addition, beginning at the same time as the foregoing Demand
Registration right, whenever the Company proposes to register any of its
securities under the Securities Act for its own account or for the account of
other security holders, the Company shall be required to promptly notify the
holders of the Warrant Exchange Shares of the proposed registration and include
all Warrant Exchange Shares which such holders may request to be included in
such registration, subject to certain limitations (a "Piggyback Registration").
The holders of an additional 19,284 shares of Common Stock have the right to
have such shares included in Piggyback Registrations commencing one year after
the consummation of this offering.
In connection with the Pending Debt Conversion, the Company has agreed to
file a registration statement under the Securities Act covering the 505,649
Debenture Shares by the first day of the tenth month following the date of this
Prospectus (the "Mandatory Registration"). In addition, if the Early
Registration Condition referred to above is met, the Company has agreed to file
a registration statement covering 25% of the Debenture Shares (an aggregate of
126,412 Debenture Shares) within one month following the completion of the
Early Registration Condition (the "Early Registration"). In the event the
Company does not file the Mandatory Registration or, if required pursuant to
the foregoing terms, an Early Registration, by the required dates, the Company
has agreed to issue to each holder of Debenture Shares five additional shares
of Common Stock for each 100 Debenture Shares held by such holder, on the first
day of each month that the respective registration statement continues not to
be filed.
In connection with the Bridge Financing, the Company has agreed to include
the 200,000 Bridge Shares and the 250,000 Bridge Warrant Shares (the
"Registrable Bridge Securities") in a registration statement which the Company
will prepare and file with, and use its best efforts to have declared effective
by, the Commission so as to permit the public trading of the Registrable Bridge
Securities pursuant thereto commencing no later than 15 months following the
consummation of this offering. If such registration statement is not declared
effective by the Commission within 15 months following the consummation of this
offering, then, commencing on the first day of the 16th month following the
consummation of this offering, the Company shall issue to each holder of
Registrable Bridge Securities, on the first day of each month that a
registration statement continues not to have been declared effective by the
Commission, such number of additional shares of Common Stock as is equal to 10%
of the number of Registrable Bridge Securities held by and/or issuable to each
holder thereof. In the event the Company fails to maintain the effectiveness of
a registration statement with respect to the Registrable Bridge Securities, the
Company is obligated to issue, on one occasion only, other added shares of
Common Stock.
In connection with this offering, the Company has agreed to grant to the
Underwriter certain demand and piggyback registration rights in connection with
the 400,000 shares of Common Stock issuable upon exercise of the Underwriter's
Warrants and the warrants included therein. See "Underwriting."
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock, and the Warrant
Agent for the Warrants, is American Stock Transfer & Trust Company, 40 Wall
Street, 46th Floor, New York, New York 10005.
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Nevada Law and Articles of Incorporation and Bylaws Provisions Affecting
Stockholders
The Company's Certificate of Incorporation, By-laws and the General
Corporation Law of the State of Nevada may have the effect, either alone or in
combination with each other, of making more difficult or discouraging a tender
offer, change in control or takeover attempt that is opposed by the Company's
Board of Directors.
Staggered Board
The Company's By-laws provide that the Board will be divided into three
classes of directors, with the classes to be as nearly equal in number as
possible. The By-laws provide that Class I shall be comprised of directors who
shall serve until the annual meeting of stockholders in 1998 and until their
successors shall have been elected and qualified. Class II shall be comprised
of directors who shall serve until the annual meeting of stockholders in 1999
and until their successors shall have been elected and qualified. Class III
shall be comprised of directors who shall serve until the annual meeting of
stockholders in 2000 and until their successors shall have been elected and
qualified. The classification of directors will have the effect of making it
more difficult for stockholders to change the composition of the Board of
Directors. The classification provisions could also have the effect of
discouraging a third party from initiating a proxy contest, making a tender
offer or otherwise attempting to obtain control of the Company.
Control Share Acquisitions
Pursuant to Sections 78.378 to 78.3793 of the Nevada Revised Statutes (the
"NGCL"), an "acquiring person," who acquires a "controlling interest" in an
"issuing corporation," may not exercise voting rights on any "control shares"
unless such voting rights are conferred by a majority vote of the disinterested
stockholders of the issuing corporation at a special meeting of such
stockholders held upon the request and at the expense of the acquiring person.
In the event that the control shares are accorded full voting rights and the
acquiring person acquires control shares with a majority or more of all the
voting power, any stockholder, other than the acquiring person, who did not
vote in favor of authorizing voting rights for the control shares, is entitled
to demand payment for the fair value of his or her shares, and the corporation
must comply with the demand. For purposes of the above provisions, "acquiring
person" means (subject to certain exceptions) any person who, individually or
in association with others, acquires or offers to acquire, directly or
indirectly, a controlling interest in an issuing corporation. "Controlling
interest" means the ownership of outstanding voting shares of an issuing
corporation sufficient to enable the acquiring person, individually or in
association with others, directly or indirectly, to exercise (i) one-fifth or
more but less than one-third, (ii) one-third or more but less than a majority,
and/or (iii) a majority or more of the voting power of the issuing corporation
in the election of directors. Voting rights must be conferred by a majority of
the disinterested stockholders as each threshold is reached and/or exceeded.
"Control shares" means those outstanding voting shares of an issuing
corporation which an acquiring person acquires or offers to acquire in an
acquisition or within 90 days immediately preceding the date when the acquiring
person became an acquiring person. "Issuing corporation" means a corporation
that is organized in Nevada, has 200 or more stockholders (at least 100 of whom
are stockholders of record and residents of Nevada) and does business in Nevada
directly or though an affiliated corporation. The above provisions do not apply
if the articles of incorporation or by-laws of the corporation in effect on the
10th day following the acquisition of a controlling interest by an acquiring
person provide that said provisions do not apply. As noted above, the Company's
Restated Articles of Incorporation and Bylaws do not exclude the Company from
the restrictions imposed by such provisions.
Certain Business Combinations
Sections 78.411 to 78.444 of the NGCL restrict the ability of a "resident
domestic corporation" to engage in any combination with an "interested
stockholder" for three years following the interested stockholder's date of
acquiring the shares that cause such stockholder to become an interested
stockholder, unless the combination or the purchase of shares by the interested
stockholder on the interested stockholder's date of acquiring the shares that
cause such stockholder to become an interested stockholder is approved by the
board of directors of the resident domestic corporation before that date. If
the combination was not previously approved, the interested stockholder may
effect a combination after the three-year period only if such stockholder
receives approval from a majority of the disinterested shares or the offer
meets certain fair price criteria. For purposes of the above
63
<PAGE>
provisions, "resident domestic corporation" means a Nevada corporation that has
200 or more shareholders. "Interested stockholder" means any person, other than
the resident domestic corporation or its subsidiaries, who is (i) the
beneficial owner, directly or indirectly, of 10% or more of the voting power of
the outstanding voting shares of the resident domestic corporation or (ii) an
affiliate or associate of the resident domestic corporation and, at any time
within three years immediately before the date in question, was the beneficial
owner, directly or indirectly, of 10% or more of the voting power of the then
outstanding shares of the resident domestic corporation. The above provisions
do not apply to any combination of a resident domestic corporation; (i) whose
current articles of incorporation expressly state that the corporation is not
to be governed by these provisions; or (ii) that amends its articles of
incorporation through a vote of a majority of its stockholders, excluding any
interested stockholders, so as to expressly elect not to be governed by these
provisions. However, in the event a corporation amends its articles of
incorporation in accordance with subsection (ii), above, such an amendment
would not become effective until eighteen (18) months after its passage and
would apply only to stock acquisitions occurring after its effective date. As
noted above, the Company's Amended and Restated Articles of Incorporation do
not exclude the Company from the restrictions imposed by such provisions.
Indemnification of Officers and Directors
Subsection 1 of Section 78.751 of Chapter 78 of the NGCL empowers a
corporation to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceedings, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, does not, of itself, create a presumption that
the person did not act in good faith in a manner which he reasonably believed
to be in or not opposed to the best interests of the corporation and that, with
respect to any criminal action or proceeding, he had reasonable cause to
believe his action was unlawful.
Subsection 2 of Section 78.751 of the NGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
he acted in any of the capacities set forth above, against expenses, including
amounts paid in settlement and attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in accordance with the standard set forth above, except that
no indemnification may be made in respect of any claim, issue or mater as to
which such person shall have been adjudged by a court of competent jurisdiction
after exhaustion of all appeals therefrom to be liable to the corporation or
for amounts paid in settlement to the corporation unless and only to the extent
that the court in which such action or suit was brought or other court of
competent jurisdiction determines that, in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
Section 78.751 of the NGCL further provides that, to the extent a director
or officer of a corporation has been successful on the merits or otherwise in
the defense of any action, suit or proceeding referred to in subsection (1) and
(2), or in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith; that indemnification
provided for by Section 78.751 of the NGCL shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled and that the scope
of indemnification shall continue as to directors, officers, employees or
agents who have ceased to hold such positions, and to their heirs, executors
and administrators. Finally, Section 78.752 of the NGCL empowers the
corporation to purchase and maintain insurance on behalf of a director,
officer, employee or agent of the corporation against any liability asserted
against him or incurred by him in any such capacity or arising out of his
status as such whether or not the corporation would have the authority to
indemnify him against such liabilities and expenses.
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<PAGE>
The Company's bylaws provide that directors, officers and certain other
persons may be indemnified to the fullest extent authorized by Nevada law. The
Nevada General Corporation Law provides that such indemnification would apply
if it were determined that the proposed indemnitee acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the Company and, with respect to any criminal proceeding, if he or
she had no reasonable cause to believe that the conduct was unlawful. In
actions brought by or in the right of the Company, such indemnification is
limited to reasonable expenses (including attorneys' fees) and amounts paid in
settlement, and applies if it is determined that the proposed indemnitee acted
in good faith and in a manner such person reasonably believed to be in, or not
opposed to, the best interests of the Company, except that no indemnification
may be made with respect to any matter as to which such person is adjudged
liable to the Company, unless, and only to the extent that, a court determines
upon application that, in view of all the circumstances of the case, the
proposed indemnitee is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper. To the extent that any Director, officer,
employee, or agent of the Company has been successful on the merits or
otherwise in defense of any of the foregoing actions, suits, or proceedings,
such person must be indemnified against reasonable expenses incurred by him in
connection with the defense of such action.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 6,588,980
shares of Common Stock outstanding, of which the 2,000,000 Shares offered
hereby will be freely tradable without restriction or further registration
under the Securities Act, except for any shares purchased by an "affiliate of
the Company" (in general, a person who has a controlling position with regard
to the Company), which will be subject to the resale limitations of Rule 144
promulgated under the Securities Act.
The remaining 4,588,980 shares of Common Stock outstanding are deemed to
be "restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act, and may only be sold pursuant to an effective
registration under the Securities Act, in compliance with the exemption
provisions of Rule 144 or pursuant to another exemption under the Securities
Act. Such restricted shares of Common Stock will become eligible for sale,
under Rule 144, subject to certain volume limitations prescribed by Rule 144
and to the agreements set forth below, at various times commencing 90 days
following the date of this Prospectus. In connection with the Bridge Financing,
the investors agreed that their 200,000 Bridge Shares (as well as their Bridge
Warrants and Bridge Warrant Shares) may not be sold for a period of 12 months
following the date of this Prospectus, under any circumstances, and the holders
of the 4,388,980 other restricted shares have agreed not to sell any of their
securities of the Company for periods of between 10 and 12 months following the
date of this Prospectus without the Underwriter's prior written consent.
Notwithstanding the preceeding, of the aggregate 4,388,980 restricted shares
currently outstanding, Mr. Stuart may sell up to 50,000 shares of Common Stock
owned by him, pursuant to Rule 144, in the event the Company achieves pre-tax
earnings (after original issue discount, interest expense and compensation
charges) for the year ended December 31, 1997 of $1,850,000.
In general, under Rule 144, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company (or persons whose
shares are aggregated with an affiliate) who has owned restricted shares of
Common Stock beneficially for at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1%
of the then outstanding shares of the issuer's Common Stock or the average
weekly trading volume during the four calendar weeks preceding such sale,
provided that certain public information about the issuer as required by Rule
144 is then available and the seller complies with certain other requirements.
A person who is not an affiliate, has not been an affiliate within three months
prior to sale, and has beneficially owned the restricted shares for at least
two years is entitled to sell such shares under Rule 144 without regard to any
of the limitations described above.
Prior to this offering, there has been no market for the Common Stock and
no prediction can be made as to the effect, if any, that market sales of Common
Stock or the availability of such shares for sale will have on
65
<PAGE>
the market price prevailing from time to time. Nevertheless, the possibility
that substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities.
UNDERWRITING
Whale Securities Co., L.P. (the "Underwriter") has agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase
1,400,000 of the Shares and all 2,000,000 Warrants offered hereby from the
Company and 600,000 of the Shares offered hereby from the Selling Stockholder.
The Underwriter is committed to purchase and pay for all of the Shares and
Warrants offered hereby if any of such securities are purchased. The Shares and
Warrants are being offered by the Underwriter subject to prior sale, when, as
and if delivered to and accepted by the Underwriter and subject to approval of
certain legal matters by counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the
Shares and Warrants to the public at the public offering prices set forth on
the cover page of this Prospectus. The Underwriter may allow to certain dealers
who are members of the National Association of Securities Dealers, Inc.
("NASD") concessions, not in excess of $ per Share and $ per Warrant,
of which not in excess of $ per Share and $ per Warrant may be
reallowed to other dealers who are members of the NASD.
The Company has granted to the Underwriter an option, exercisable for 45
days following the date of this Prospectus, to purchase up to 300,000
additional Shares and/or 300,000 additional Warrants at the respective public
offering prices set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. The Underwriter may exercise this
option in whole or, from time to time, in part, solely for the purpose of
covering over-allotments, if any, made in connection with the sale of the
Shares and/or Warrants offered hereby.
The Company and the Selling Stockholder have agreed to pay to the
Underwriter a nonaccountable expense allowance equal to 3% of the gross
proceeds of this offering, including the gross proceeds from the sale of any
Shares and Warrants sold pursuant to the Underwriter's exercise of its
over-allotment option, $50,000 of which has been paid as of the date of this
Prospectus. The Company has also agreed to pay all expenses in connection with
qualifying the Shares and Warrants offered hereby for sale under the laws of
such states as the Underwriter may designate, including expenses of counsel
retained for such purpose by the Underwriter.
The Company has agreed to issue to the Underwriter and its designees, for
an aggregate of $220, the Underwriter's Warrants to purchase up to 200,000
shares of Common Stock, at an exercise price of $8.25 per share (165% of the
public offering price per share), and/or up to 200,000 warrants (each to
purchase one share of Common Stock at $7.755 per share), at a purchase price of
$.165 per warrant (165% of the public offering price per Warrant). The
Underwriter's Warrants may not be transferred for one year following the date
of this Prospectus, except to the officers and partners of the Underwriter and
members of the selling group, and are exercisable at any time and from time to
time during the four-year period commencing one year following the date of this
Prospectus (the "Warrant Exercise Term"). During the Warrant Exercise Term, the
holders of the Underwriter's Warrants are given, at nominal cost, the
opportunity to profit from a rise in the market price of the Company's Common
Stock. To the extent that the Underwriter's Warrants are exercised, dilution to
the interests of the Company's stockholders will occur. Further, the terms upon
which the Company will be able to obtain additional equity capital may be
adversely affected since the holders of the Underwriter's Warrants can be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company
than those provided in the Underwriter's Warrants. Any profit realized by the
Underwriter on the sale of the Underwriter's Warrants, the underlying shares of
Common Stock or the underlying warrants, or the shares of Common Stock issuable
upon exercise of such underlying warrants, may be deemed additional underwriter
compensation. Subject to certain limitations and exclusions, the Company has
agreed, at the request of the holders of a majority of the Underwriter's
Warrants, at the Company's expense, to register the Underwriter's Warrants and
the underlying securities under the Securities Act on one occasion during the
Warrant Exercise Term and to include such Underwriter's Warrants and such
underlying securities in any appropriate registration statement which is filed
by the Company during the seven years following the date of this Prospectus.
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<PAGE>
The Company has agreed, for a period of three years following the date of
this Prospectus, if so requested by the Underwriter, to nominate and use its
best efforts to elect a designee of the Underwriter as a director of the
Company, or, at the Underwriter's option, as a non-voting advisor to the
Company's Board of Directors. The Company's officers, directors and
substantially all of its stockholders have agreed to vote their shares of
Common Stock in favor of such designee. The Underwriter has not yet exercised,
and does not currently intend to exercise in the near future, its right to
designate such a person.
The Company has also agreed, in connection with the exercise of the
Warrants pursuant to solicitation (commencing one year following the date of
this Prospectus), to pay to the Underwriter a fee of 5% of the exercise price
for each Warrant exercised; provided, however, that the Underwriter will not be
entitled to receive such compensation in Warrant exercise transactions in which
(i) the market price of Common Stock at the time of the exercise is lower than
the exercise price of the Warrants; (ii) the Warrants are held in any
discretionary account; (iii) disclosure of compensation arrangements is not
made, in addition to the disclosure provided in this Prospectus, in documents
provided to holders of the Warrants at the time of exercise; (iv) the holder of
the Warrants has not confirmed in writing that the Underwriter solicited such
exercise; or (v) the solicitation of exercise of the Warrants was in violation
of Rule 101 promulgated under the Exchange Act.
Regulation M under the Exchange Act may prohibit the Underwriter from
engaging in any market-making activities with regard to the Company's
securities for the period from five business days (or such other applicable
period as Regulation M may provide) prior to any solicitation by the
Underwriter of the exercise of outstanding Warrants until the termination (by
waiver or otherwise) of any right that the Underwriter may have to receive a
fee for the exercise of the Warrants following such solicitation; and any
period during which the Underwriter, or any affiliated parties, participate in
a distribution of any securities of the Company for the account of the
Underwriter of any such affiliate. As a result, the Underwriter may be unable
to provide a market for the Company's securities during certain periods,
including while the Warrants are exercisable.
All of the Company's current directors and officers and securityholders
have agreed that, without the Underwriter's prior written consent, for the
12-month period following the date of this Prospectus (10-month period, in the
case of the Debenture Shares), they will not sell or otherwise dispose of any
securities of the Company in any public market transaction (including pursuant
to Rule 144) or exercise any rights held by them to cause the Company to
register any shares of Common Stock for sale pursuant to the Securities Act;
provided, however, that the Warrant Exchange Shares and 126,412 of the
Debenture Shares may be earlier released from the foregoing lock-up in the
event the Early Registration Condition is met. See "Description of Securities
- -- Registration Rights."
The Underwriter has informed the Company that it does not expect sales to
discretionary accounts to exceed 1% of the securities offered hereby.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act.
Prior to this offering, there has been no public market for the Shares or
Warrants. Consequently, the initial public offering prices for the Shares and
Warrants and the exercise price and terms of the Warrants have been determined
by negotiation between the Company and the Underwriter and are not necessarily
related to the Company's asset value, net worth or other established criteria
of value. Among the factors considered in determining such prices and terms re
the Company's financial condition and prospects, management, market prices of
similar securities of comparable publicly-traded companies, certain financial
and operating information of companies engaged in activities similar to those
of the Company and the general condition of the securities market.
In order to facilitate the offering, the Underwriter may engage in
transactions that stabilize, maintain or otherwise affect the prices of the
Common stock and Warrants. Specifically, the Underwriter may over-allot in
connection with the offering, creating a short position in the Common Stock
and/or Warrants for its own account. In addition, to cover over-allotments or
to stabilize the price of the Common stock and Warrants, the Underwriter may
bid for, and purchase, shares of Common Stock and Warrants in the open market.
The Underwriter may also reclaim selling concessions allowed to a dealer for
distributing the Common Stock and Warrants in the offering, if the Underwriter
repurchases previously distributed Common Stock and Warrants in transactions to
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<PAGE>
cover short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Stock and
Warrants above independent market levels. The Underwriter is not required to
engage in these activities, and may end any of these activities at any time.
William G. Walters, the Chairman of Whale Securities Corp., the general
partner of the Underwriter, purchased one Debenture Unit for $50,000 in
connection with the 1995 Private Placement and subsequently exchanged it for a
Debenture in the principal amount of $50,000 in connection with the Exchange or
Repurchase Offer. Mr. Walter's Debenture will be converted into 14,750
Debenture Shares in connection with the Pending Debt Conversion.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Morgan, Lewis & Bockius
LLP, Philadelphia, Pennsylvania. Certain legal matters will be passed upon for
the Underwriter by Tenzer Greenblatt LLP, New York, New York.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form SB-2 under the
Securities Act with the Commission in Washington, D.C. with respect to the
securities offered hereby. This Prospectus, which is part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the securities offered hereby,
reference is hereby made to the Registration Statement and the exhibits and
schedules filed as a part thereof. Statements contained in this Prospectus as
to the contents of any agreement or any other document referred to are not
necessarily complete, and in each instance, if such agreement or document is
filed as an exhibit, reference is made to the copy of such agreement or
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference to such exhibit. The
Registration Statement, including exhibits and schedules thereto, may be
inspected and copied at the principal office of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at 7 World Trade Center, New York, New York 10048, and
Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material may also be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Company is required to file electronic
versions of these documents with the Commission through the Commission's
Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The
Commission maintains a World Wide Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
68
<PAGE>
On Stage Entertainment, Inc.
Contents
Page
------
Independent Certified Public Accountant's Report ...... F-2
Financial statements
Balance sheets .................................... F-3
Statements of operations ........................... F-4
Statements of stockholder's equity (deficit) ...... F-5
Statements of cash flows ........................... F-6
Summary of accounting policies ..................... F-7 - F-9
Notes to financial statements ..................... F-10 - F-20
F-1
<PAGE>
Independent Certified Public Accountant's Report
Board of Directors and Stockholders of
On Stage Entertainment, Inc.
We have audited the accompanying balance sheet of On Stage Entertainment, Inc.
as of December 31, 1996, and the related statements of operations, stockholder's
deficit and cash flows for the two years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of On Stage Entertainment, Inc. at
December 31, 1996, and the results of its operations and its cash flows for the
two years then ended, in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
Los Angeles, California
February 4, 1997, except for Notes 1, 3,
5 and 9 which is as of March 26, 1997
F-2
<PAGE>
On Stage Entertainment, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
-------------- ------------
(Unaudited)
<S> <C> <C>
Assets (Notes 3 and 9)
Current assets
Cash and cash equivalents .......................................... $ 290,751 $ 314,147
Accounts receivable ................................................ 490,465 319,866
Inventory ......................................................... 67,853 74,820
Deposits ......................................................... 231,601 353,571
Prepaid and other assets .......................................... 236,295 260,258
Pre-opening costs, net ............................................. 129,180 225,354
------------ ------------
Total current assets .......................................... 1,446,145 1,548,016
------------ ------------
Property, equipment and leasehold improvements (Notes 2 and 3) ...... 3,725,941 3,819,458
Less: Accumulated depreciation and amortization ..................... (1,937,718) (2,067,117)
------------ ------------
Property, equipment and leasehold improvements, net .................. 1,788,223 1,752,341
------------ ------------
Cost in excess of net assets acquired, net of accumulated amortization
of $1,053 and $2,632 (Note 5) ....................................... 62,123 60,544
Offering costs ...................................................... 657,801 868,235
Note receivable from stockholder (Note 7) ........................... -- 103,235
------------ ------------
$ 3,954,292 $ 4,332,371
============ ============
Liabilities and Stockholder's Deficit
Current liabilities
Accounts payable and accrued expenses .............................. $ 599,045 $ 592,422
Accrued payroll and other liabilities .............................. 621,986 564,842
Litigation settlement accrual .................................... 100,000 --
Current maturities of long-term debt (Note 3) ..................... 228,510 185,273
Bridge Notes (Note 9) ............................................. -- 556,000
------------ ------------
Total current liabilities ....................................... 1,549,541 1,898,537
------------ ------------
DYDX LP Loan (Note 3) ................................................ 750,000 750,000
Long-term debt, less current maturities (Note 3) ..................... 1,877,391 1,895,417
------------ ------------
Commitments and contingencies (Notes 4 and 9)
Stockholder's deficit (Notes 5 and 9)
Preferred stock, par value $1 per share, 1,000,000 shares autho-
rized; none issued and outstanding -- --
Common stock, par value $0.01 per share; authorized 25,000,000
shares; 4,002,044 and 4,683,331 shares issued and outstanding
(Note 9) ......................................................... 40,020 46,833
Additional paid-in-capital ....................................... 121,024 642,640
Accumulated deficit ................................................ (383,684) (901,056)
------------ ------------
Total stockholder's deficit .................................... (222,640) (211,583)
------------ ------------
$ 3,954,292 $ 4,332,371
============ ============
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-3
<PAGE>
On Stage Entertainment, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
--------------------------------- ----------------------------
1995 1996 1996 1997
----------------- ------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues .................................... $ 12,774,693 $14,278,082 $ 2,346,754 $ 2,718,777
Direct production costs ........................ 7,311,931 6,070,361 1,154,957 1,462,905
Indirect production costs ..................... 2,322,184 2,376,006 459,030 439,983
-------------- ------------ ----------- -----------
Gross profit ................................. 3,140,578 5,831,715 732,767 815,889
-------------- ------------ ----------- -----------
Operating expenses
Selling, general and administrative ......... 2,408,072 2,976,113 533,585 1,007,332
Depreciation and amortization (Note 2) ...... 524,969 676,306 123,701 147,241
Principal stockholder compensation
(Notes 7, 9) ................................. 1,286,113 1,109,511 62,500 62,500
-------------- ------------ ----------- -----------
Total operating expenses .................. 4,219,154 4,761,930 719,786 1,217,073
-------------- ------------ ----------- -----------
Operating income (loss) ........................ (1,078,576) 1,069,785 12,981 (401,184)
Interest, net ................................. 252,508 152,998 81,297 113,869
-------------- ------------ ----------- -----------
Net income (loss) before income taxes ......... (1,331,084) 916,787 (68,316) (515,053)
Income taxes (Note 8) ........................ 1,950 15,789 0 2,319
-------------- ------------ ----------- -----------
Net income (loss) .............................. $ (1,333,034) $ 900,998 $ (68,316) $ (517,372)
============== ============ =========== ===========
Net income (loss) per share .................. $ (0.32) $ 0.22 $ (0.02) $ (0.12)
============== ============ =========== ===========
Weighted average number of common and
common equivalent shares ..................... 4,112,643 4,115,865 4,112,643 4,161,284
============== ============ =========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-4
<PAGE>
On Stage Entertainment, Inc.
Statements of Stockholder's Equity (Deficit)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ Paid-in Accumulated
Shares Amount Capital Deficit Total
----------- ---------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 ............... 3,982,760 $ 10,000 $ -- $ 78,180 $ 88,180
Net loss for the year .................. -- -- -- (1,333,034) (1,333,034)
---------- --------- ---------- ------------ ------------
Balance, December 31, 1995 ............... 3,982,760 10,000 -- (1,254,854) (1,244,854)
Effects of stock splits (Notes 5 and 9) . -- 29,828 -- (29,828) --
Acquisition of Interactive Events, Inc.
(Note 5) .............................. 19,284 192 121,024 -- 121,216
Net income for the year .................. -- -- -- 900,998 900,998
---------- --------- ---------- ------------ ------------
Balance, December 31, 1996 ............... 4,002,044 $ 40,020 $ 121,024 $ (383,684) $ (222,640)
Issuance of Common Stock in connec-
tion with the Bridge Financing (unau-
dited) (Note 9 200,000 2,000 364,300 -- 366,300
Issuance of Common Stock to CFO
(unaudited) (Note 9) ..................... 40,532 405 161,724 -- 162,129
Warrant exchange (unaudited)
(Note 9) ................................. 440,755 4,408 (4,408) -- --
Net loss for the period (unaudited) ...... -- -- -- (517,372) (517,372)
---------- --------- ---------- ------------ ------------
Balance, March 31, 1997 (unaudited) ...... 4,683,331 $ 46,833 $ 642,640 $ (901,056) $ (211,583)
========== ========= ========== ============ ============
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-5
<PAGE>
On Stage Entertainment, Inc.
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Three Months ended
Years ended December 31, March 31,
1995 1996 1996 1997
-------------- ------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) ....................................... $ (1,333,034) $ 900,998 $ (68,316) $ (517,372)
------------- ---------- ---------- -----------
Adjustments to reconcile net loss to net cash pro-
vided by (used in) operating activities:
Depreciation and amortization ........................ 524,969 676,306 123,701 147,241
Loss on disposal of property and equipment ............ -- 53,983
Issuance of Common Stock to CFO ........................ -- -- -- 162,129
Increase (decrease) from changes in operating
assets and liabilities, net of effect from pur-
chase of Interactive Events, Inc. (Note 5):
Accounts receivable ................................. 23,236 (262,341) (31,474) 170,599
Inventory .......................................... -- (67,853) -- (6,967)
Offering costs .................................... (313,279) (344,522) (96,178) (162,728)
Deposits .......................................... (76,347) (86,816) (27,389) (121,970)
Pre-opening costs ................................. (83,574) (61,483) (42,442) (112,457)
Prepaid and other assets ........................... (55,875) (125,988) (39,715) (23,963)
Accounts payable and accrued expenses ............... 343,518 56,302 (251,648) (6,623)
Accrued payroll and other liabilities ............... 31,459 415,651 245,077 (57,144)
------------- ---------- ---------- -----------
Litigation settlement accrual ..................... -- -- -- (100,000)
Total adjustments .............................. 394,107 253,239 (120,068) (111,883)
------------- ---------- ---------- -----------
Net cash provided by (used in) operating activities ...... (938,927) 1,154,237 (188,384) (629,255)
------------- ---------- ---------- -----------
Cash used in investing activities
Advances on note receivable from stockholder ............ (122,824) (103,235)
Capital expenditures .................................... (932,449) (987,355) (178,151) (93,517)
Acquisition of Interactive Events, Inc., net of cash
acquired ............................................. -- 45,272 -- --
-------------
Net cash used in investing activities ..................... (932,449) (942,083) (300,975) (196,752)
------------- ---------- ---------- -----------
Cash used in financing activities
Bank overdraft .......................................... (130,823) -- --
Borrowings/repayments under line of credit ............ 200,000 (200,000) (200,000) --
Proceeds from long-term borrowings ..................... 2,289,063 1,000,000 1,000,000 --
Repayments on long-term borrowings ..................... (92,448) (649,099) (46,617) (25,597)
Proceeds from short-term borrowings ..................... -- -- -- --
Repayments on short-term borrowings ..................... (374,318) (92,402) -- --
Proceeds from Bridge Financing ........................... -- -- -- 875,000
------------- ---------- ---------- -----------
Net cash provided by financing activities ............... 1,891,474 58,499 753,383 849,403
------------- ---------- ---------- -----------
Net increase in cash and cash equivalents ............... 20,098 270,653 264,024 23,396
Cash and cash equivalents at beginning of year ............ -- 20,098 20,098 290,751
------------- ---------- ---------- -----------
Cash and cash equivalents at end of year .................. $ 20,098 $ 290,751 $ 284,122 $ 314,147
============= ========== ========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest ................................................ $ 237,903 $ 287,047 $ 83,555 $ 67,072
Taxes ................................................... $ 1,950 $ 15,789 $ -- $ 2,319
============= ========== ========== ===========
</TABLE>
<PAGE>
Supplemental schedule of noncash investing and financing activities
During 1995 and 1996, $45,798 and $259,855 of lease assets and obligations
were capitalized.
On November 1, 1996, the Company issued 19,284 shares of common stock to
acquire all the net assets of Interactive Events, Inc. The stock was valued at
$121,216 on the date of the transaction. The total purchase price exceeded the
value of the net assets acquired by $63,176 which the Company has allocated to
cost in excess of net assets acquired.
During the three months ended March 31, 1997, the Company completed a
Bridge Financing of unsecured notes payable, common stock and warrants (Note 9).
The common stock was valued at $444,000. As no consideration was paid for the
common stock, this amount was considered an original issue discount. During the
three months ended March 31, 1997, the Company exchanged all of its outstanding
warrants for 440,755 shares of common stock.
See accompanying summary of accounting policies and notes to financial
statements.
F-6
<PAGE>
On Stage Entertainment, Inc.
Summary of Accounting Policies
Business Activity
On Stage Entertainment, Inc. (the "Company") is engaged in the
entertainment industry, producing and distributing live stage productions with
continuous running shows in gaming and resort venues in Nevada, Missouri, South
Carolina, New Jersey, and Florida. The Company was incorporated on October 30,
1985 in the state of Nevada.
Accounts Receivable
Accounts receivable and revenue are recorded as the stage productions are
run. Accounts receivable represents cash collected subsequent to the year end in
which the show ran.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent asset and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
Revenues are recognized as performances are completed.
Inventory
Inventory consists of various stage and lighting supplies and are stated at
cost on a first-in, first-out basis.
Property, Equipment and Leasehold Improvements
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Renewals or betterments of
significant items are capitalized. When assets are sold or otherwise disposed,
the cost and related accumulated depreciation or amortization are removed from
the respective accounts, and any resulting gain or loss is recognized.
Depreciation and amortization of property and equipment purchased prior to
January 1, 1996 are provided using accelerated methods while property and
equipment purchased from January 1, 1996 are depreciated on a straight line
basis over the estimated useful lives, as indicated below. Leasehold
improvements are amortized over the lesser of the useful life of the related
asset or the remaining lease term.
Years
------
Stage equipment ............ 5-7
Scenery and wardrobe ......... 5-7
Furniture and fixtures ...... 5-7
Vehicles ..................... 3
Leasehold improvements ...... 10
Fair Value of Financial Instruments
The Financial Accounting Standards Board issued SFAS No. 107, Disclosures
about Fair Value of Financial Statements, which is effective December 31, 1995.
This statement requires the disclosure of estimated fair values for all
financial instruments for which it is practicable to estimate fair value.
F-7
<PAGE>
The carrying amounts of financial instruments including cash, accounts
receivable, inventory, current maturities of long-term debt, accounts payable,
accrued expenses and accrued payroll and other liabilities approximate fair
value because of their short maturity.
The carrying amount of long-term debt approximates fair value because the
interest rates on these instruments approximate the rate the Company could
borrow at December 31, 1996 and March 31, 1997.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109
("SFAS No. 109"), Accounting for Income Taxes. SFAS No. 109 requires an asset
and liability approach to providing deferred income taxes and specifies that all
deferred tax balances be determined by using the tax rate expected to be in
effect when the taxes will actually be paid or refunds received.
Pre-opening Costs
Pre-opening expenses include the cost incurred to prepare a production for
show. These costs are capitalized and amortized over one year or the life of the
show for those shows which have a minimum guaranteed period.
Cash Equivalents
The Company considers all liquid assets with an initial maturity of three
months or less to be cash and cash equivalents.
Net Loss Per Common Share
Loss per share is based upon the weighted average number of common shares
and common stock equivalents outstanding during each period, as adjusted for the
effect of the application of Securities and Exchange Commission Staff Accounting
Bulletin (SAB) No. 83. Pursuant to SAB No. 83, common stock issued by the
Company at a price less than the initial public offering price during the twelve
months immediately preceding the initial filing of the offering together with
common stock options and convertible debt issued during such period with an
exercise price less than the initial public offering price, are treated as
outstanding for all periods presented. Loss per share is computed using a
treasury stock method, under which the number of shares outstanding reflects an
assumed use of the proceeds from the issuance of such shares and from the
assumed exercise of such options and convertible debts, to repurchase shares of
the Company's common stock at the initial public offering price. Except for the
provisions of SAB No. 83 described above, common stock equivalents have been
excluded in all years presented in the Statements of Operations when the effect
of their inclusion would be anti-dilutive.
Interim Financial Information:
The interim financial statements for the three months ended March 31, 1996
and 1997 are unaudited. In the opinion of management, such statements reflect
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the results of the interim period. The results of
operations for the three months ended March 31, 1997 are not necessarily
indicative of the results for the entire year.
New Accounting Standards
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121) issued by the FASB is effective for financial statements for
fiscal years beginning after December 15, 1995. The new standard establishes
guidelines regarding when impairment losses on long-lived assets, which include
plant and equipment, and certain identifiable intangible assets, should be
recognized and how impairment losses should be measured. The Company adopted
this accounting standard on January 1, 1996 and its effects on the financial
position and results of operations were immaterial.
F-8
<PAGE>
Statements of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
(SFAS No. 125) issued by the Financial Accounting Standards Board (FSAB) is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive applications is not permitted. The new
standard provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. The Company does not
expect adoption to have a material effect on its financial position or results
of operations.
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from nonemployees in exchange for equity
instruments. The Company adopted this accounting standard on January 1, 1996.
SFAS 123 also encourages, but does not require companies to record compensation
cost for stock-based employee compensation. The Company has chosen to continue
to account for stock-based compensation utilizing the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair market price of the Company's stock
at the date of grant over the amount an employee must pay to acquire the stock.
In February, 1997. the FASB issued Statement of Financial Accounting
Standards No. 128, Earnings per Share (SFAS 128). This pronouncement provides a
different method of calculating earnings per share than is currently used in
accordance with APB 15, Earnings per Share. SFAS 128 provides for the
calculation of Basic and Diluted earnings per share. Basic earnings per share
includes no dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution of securities
that could share in the earnings of an entity, similar to fully diluted earnings
per share. This pronouncement is effective for fiscal years and interim periods
ending after December 15, 1997; early adoption is not permitted. The Company has
not determined the effect, if any, of adoption on its EPS computations.
F-9
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements
(Information with respect to March 31, 1996 and 1997 is Unaudited)
1. Management Plans
The Company's continued growth depends on continued financing. Management's
plan for the Company includes raising additional working capital through equity
financing. The Company has completed a bridge financing of $1,000,000 in March,
1997 ("Bridge Financing") and has entered into a letter of intent with Whale
Securities Co., L.P. ("Underwriter") relating to a proposed initial public
offering of its securities ("IPO") (see Note 9).
2. Property, Equipment and Leasehold Improvements
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
--------------- ------------
(unaudited)
<S> <C> <C>
Stage equipment ....................................... $ 1,997,340 $ 2,124,060
Scenery and wardrobe .................................... 854,976 918,249
Furniture and fixtures ................................. 678,912 581,821
Vehicles ................................................ 6,434 6,434
Leasehold improvements ................................. 188,279 188,894
------------ ------------
3,725,941 3,819,458
Less accumulated depreciation and amortization ......... (1,937,718) (2,067,117)
------------ ------------
Total property, equipment and leasehold improvements, net $ 1,788,223 $ 1,752,341
============ ============
</TABLE>
3. Notes Payable and Long-Term Debt
In 1995, the Company negotiated bank financing of $600,000. Under the terms
of the financing agreements, the Company was granted a $200,000 line of credit
with an interest rate of 11.0% and a term loan of $400,000 with an interest rate
of 11.5%. Two performance contracts are pledged as collateral to these loans. As
of December 31, 1995, $200,000 had been drawn on the line of credit and was
repaid in full in 1996 and the line of credit expired in July 1996.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
------------ ------------
(unaudited)
<S> <C> <C>
8% convertible subordinated debentures payable ("Deben-
tures"), due in monthly installments of interest only (a) ... $ 1,714,064 $1,714,064
DYDX LP Loan (b) .......................................... 750,000 750,000
Bridge Notes (Note 9) ....................................... -- 556,000
11.5% note payable to bank, due in monthly installments of
$15,405, including interest through September 1997,
secured by two performance contracts ..................... 149,721 106,682
Capital lease obligations with interest ranging from 16.9%
to 20.8%, due in monthly installments ranging from
$102 to $1,633, including interest various maturities
dates through April 2000, secured by office and commu-
nication equipment 242,116 259,944
------------ -----------
Total long-term debt ....................................... 2,855,901 3,386,690
------------ -----------
Less current maturities .................................... 228,510 741,273
------------ -----------
$ 2,627,391 $2,645,417
============ ===========
</TABLE>
F-10
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements -- (Continued)
(Information with respect to March 31, 1996 and 1997 is Unaudited)
3. Notes Payable and Long-Term Debt -- (Continued)
Aggregate maturities of long-term debt are as follows:
Years ending
December 31, Amount
-------------- ------------
1997 ................. $ 228,510
1998 ................. 838,036
1999 ................. 1,786,625
2000 ................. 2,730
------------
$ 2,855,901
============
(a) From June through November 1995, the Company conducted a private
placement of units of its securities (the "Debenture Units"), each $50,000
Debenture Unit consisting of (i) a $50,000 principal amount 8% convertible
subordinated debenture of the Company due on August 31, 1997, with interest
payable monthly (the "Original Debentures") and (ii) the right, under certain
circumstances, to receive an A and a B Warrant of the Company, for aggregate
proceeds of $1,989,064 (the "1995 Private Placement"). The rights to receive
such A or B Warrants were subsequently terminated prior to the issuance of such
warrants.
In July 1996, in order to (i) extend the maturity date of the Original
Debentures and (ii) eliminate certain covenants in the Original Debentures that
were disadvantageous to the Company, the Company offered to either (a) exchange
the outstanding Debenture Units for Debentures due January 4, 1999, or (b) to
repurchase the Debenture Units upon the terms and subject to the conditions set
forth in an Offer to Exchange or Repurchase the Debenture Units, dated July 24,
1996 (the "Exchange or Repurchase Offer"). The Debentures issued in connection
with the Exchange or Repurchase Offer bear interest at the rate of 8% per annum,
payable monthly, and, when issued, were convertible at the option of their
holders into shares of Common Stock at the rate of 266.67 shares per each $1,000
principal amount of Debenture at any time prior to maturity. There are no
warrants attached to the Debentures. In connection with the Exchange or
Repurchase Offer, the holders of $1,714,064 principal amount of the Original
Debentures tendered their Debenture Units in exchange for Debentures in the same
principal amount and holders of $275,000 principal amount of the Original
Debentures opted to have them repurchased. Consequently, the Company currently
has outstanding $1,714,064 principal amount of Debentures. In February 1997, the
Company and the Debenture holders entered into an agreement pursuant to which
all of the Debentures will automatically be converted into an aggregate of
505,649 shares of Common Stock (the "Debenture Shares") immediately prior to the
consummation of an IPO, in connection with the Pending Debt Conversion, based on
a conversion ratio of 295 shares per each $1,000 principal amount of Debenture
(see Note 9).
(b) On February 29, 1996, the Company entered into a loan agreement with
DYDX (the "Original DYDX Agreement") pursuant to which the Company borrowed
$1,000,000 from DYDX. Under the Original DYDX Agreement, the DYDX Loan accrued
interest at a rate of 8% per annum, was to mature on January 1, 1998 and was
secured by a security agreement pursuant to which DYDX had a lien on
substantially all of the present and future assets of the Company. In addition,
under the terms of the Original DYDX Agreement, if the Company did not file an
initial public offering registration statement by June 30, 1996 it would be in
default under the DYDX Loan.
On June 27, 1996, the Company and DYDX entered into an Extension Agreement,
whereby the Company had to either file an initial public offering registration
statement or release a private placement memorandum to potential investors by
July 15, 1996 or it would be in default under the DYDX Loan. Subsequently, on
November 19, 1996, the Company and DYDX entered into a Second Extension
Agreement, whereby the date by which the Company had to file a registration
statement was extended until February 14, 1997. In connection with this Second
Extension, the Company repaid $250,000 principal amount of the DYDX Loan,
leaving an outstanding loan balance of $750,000. On February 9, 1997, the
Company and DYDX entered into a Third Extension Agreement, whereby the Company's
filing date was extended until March 31, 1997.
F-11
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements -- (Continued)
(Information with respect to March 31, 1996 and 1997 is Unaudited)
3. Notes Payable and Long-Term Debt -- (Continued)
In order to effect the Bridge Financing, the Company and DYDX entered into
an Amended and Restated Loan Agreement as of March 19, 1997 in connection with
which the security agreement executed in connection with the Original DYDX
Agreement and DYDX's security interest in the Company's assets were terminated,
the maturity date of the DYDX Loan was extended to coincide with that of the
Bridge Notes and its interest rate was raised to 9% per annum. The Company
intends to repay the DYDX Loan in full upon the consummation of, and using
proceeds from, the proposed IPO.
4. Commitments and Contingencies
Leases
The Company leases a theater in Myrtle Beach, South Carolina. The lease was
a one-year lease with two one-year options and one seven year option. If all
options are exercised, the lease will expire in December 2004. The Company
exercised the first and second options and intends to exercise the remaining
seven-year option. Lease expense escalates as follows, 1996, $300,000; 1997,
$330,000; 1998 through 2004, $350,000 each year.
The Company rents office and warehouse facilities under several operating
leases for $11,745 per month, all expiring February 1999. The leases have an
annual 5% escalation clause, effective each March. Monthly rents from March 1996
through February 1997 will be $12,332; from March 1997 through February 1998,
$12,949; and from March 1998 through February 1999, $13,596. The Company is
responsible for insurance, personal property taxes, and repairs on the property.
The Company has an option to purchase the building for $1,300,000. This option
expires July 19, 1997.
The Company rents warehouse facilities for $897 per month through March
1998. The lease has an annual 5% escalation clause, effective each March.
Monthly rents from March 1996 through February 1997 will be $933 and from March
1997 through February 1998 will be $986.
The Company leases office space in Atlantic City, New Jersey for $380 per
month, expiring April 30, 1997.
The Company leases condominiums in New Jersey from its principal
stockholder on a one-year lease for $7,833 per month through June 1997.
The Company leased condominiums in Myrtle Beach, South Carolina for $5,390
per month through March 1996. The leases were automatically extended on a
month-to-month basis after that date.
The Company leases various office equipment under operating leases in
monthly installments totalling $848 per month with maturity dates through March
2000.
The Company leases the Coliseum Theater and related office space located in
Daytona Beach, Florida. The lease, which will expire in April 1998, provides for
monthly rent in the amount of $10,000. The Company has the option to extend this
lease until April, 2007.
The Company's Atlanta office consists of 6,000 square feet of office and
warehouse space located in Atlanta, Georgia. The lease expires on October 31,
1998 and the total rent for the premises is approximately $1,000 per month.
Rent and lease expense included in production costs for the three months
ended March 31, 1996 and 1997 was $120,778 and $138,781. Rent and lease expense
included in selling, general and administrative expenses for the three months
ended March 31, 1996 and 1997 was $39,383 and $49,714.
F-12
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements -- (Continued)
(Information with respect to March 31, 1996 and 1997 is Unaudited)
4. Commitments and Contingencies -- (Continued)
The total minimum rental commitment at December 31, 1996 is as follows:
Year ending December 31, Amount
-------------------------- ------------
1997 .................. $ 761,530
1998 .................. 642,206
1999 .................. 497,218
2000 .................. 473,628
Thereafter ............ 1,523,628
------------
$ 3,898,210
============
Employment Contracts
The Company has employment agreements with certain executive officers and
employees, the terms of which expire at various dates through May, 2000. Such
agreements provide for minimum salary levels and incentive bonuses based on
prescribed formulas over their terms. These agreements were amended in February
1997 (see Note 9).
Aggregate commitments related to employment contracts are as follows:
Years ending December 31, Amount
--------------------------- ------------
1997 ..................... $ 780,442
1998 ..................... 652,850
1999 ..................... 384,167
2000 ..................... 132,292
------------
$ 1,949,751
============
Legal Proceedings
The Company is a party to various legal proceedings in the ordinary course
of its business. The Company believes that the nature of the proceedings are
typical for a company of its size and scope in the entertainment industry, and
that none of these proceedings are material to its financial position, results
of operations and changes in cash flows.
5. Stockholder's Equity
Interactive Purchase
On November 1, 1996, the Company entered into a common stock purchase with
Interactive Events, Inc. ("Interactive"). Interactive is in the business of
creating and implementing interactive events for parties and conventions. The
terms of the agreement were that the owner of Interactive would receive 30,304
shares of the Company's common stock and an option to acquire 15,000 shares at
the IPO price exercisable for a five year period beginning at the date of the
IPO for a total purchase price of $121,216 which was based on the fair value of
the common stock at the date of the purchase. The common shares issued were
19,284 at November 1, 1996 with the remaining shares of 11,020 to be issued on
November 1, 1997. The transaction was accounted for as a purchase transaction.
All the assets and liabilities of Interactive were recorded at their fair value
of $58,040 at the date of the purchase and the Company recorded $63,176 as the
excess of the purchase price over the net assets acquired which is being
amortized over ten years. Since this is recorded as a purchase transaction, the
operations for Interactive are included in the Company's operations as of the
date of the acquisition.
F-13
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements -- (Continued)
(Information with respect to March 31, 1996 and 1997 is Unaudited)
5. Stockholder's Equity -- (Continued)
Warrants
In September 1995, the Company granted warrants to purchase an aggregate of
382,927 shares of the Company's common stock for certain financial consulting
services and warrants to purchase an aggregate of 11,019 shares of the Company's
common stock for legal services, in each case provided in connection with the
1995 Private Placement. These warrants are exercisable at $3.76 per share, which
approximates fair market value at the date of grant.
In connection with the closing of the DYDX Loan and subsequent extensions
(see Note 3(b)), the lender was issued warrants to purchase 550,974 shares of
the Company's common stock in February 1996 at an original exercise price per
share equal to the initial public offering price of the Company's common stock.
In connection with the Third Extension, on February 9, 1997, the Company split
the original DYDX warrant into two warrants, one in the name of DYDX for the
purchase of 440,779 shares of Common Stock and the other in the name of an
affiliate of DYDX, for the purchase of 110,195 shares of Common Stock, and
reduced the exercise price of both warrants to $3.99 per share which
approximated the fair market value on the date of the reduction.
The Company exchanged all of its outstanding warrants into shares of the
Company's common stock, on a cashless basis on March 17, 1997 ("Warrant
Exchange") (see Note 9).
1996 Stock Option Plan
The Option Plan was approved by the Board of Directors and the Company's
then sole stockholder on August 7, 1996. Pursuant to an amendment to the Option
Plan, effected on March 19, 1997, an aggregate of 785,000 shares of Common Stock
have been reserved for issuance pursuant to options granted and available for
grant under the Option Plan. The Option Plan is designed to further the
interests of the Company by strengthening the desire of employees to continue
their employment with the Company and by securing other benefits of the Company.
Under the Option Plan, a committee (the "Committee") has been appointed by
the Board of Directors to administer the Option Plan and is authorized, to grant
options thereunder to all eligible employees of the Company, including certain
officers and directors of the Company as well as to others providing services to
the Company. The Option Plan provides for the granting of both (i) "incentive
stock options" as defined in Section 422 of the Internal Revenue Code of 1986,
as amended, which are intended to qualify for special federal income tax
treatment ("ISOs") to employees (including officers and employee directors) and
(ii) "non-qualified stock options" ("NQSOs") to employees (including officers
and employee directors) and consultants. Options can be granted under the Option
Plan on such terms and at such prices as determined by the Committee, except
that in the case of ISOs, the per share exercise price of such options cannot be
less than the fair market value of the Common Stock on the date of grant. In the
case of an ISO granted to a 10% stockholder (a "10% Stockholder"), the per share
exercise price cannot be less than 110% of such fair market value. To the extent
that the grant of an option results in the aggregate fair market value of the
shares with respect to which incentive stock options are exercisable by a
grantee for the first time in any calendar year exceed $100,000, such option
will be treated under the Option Plan as an NQSO.
Options granted under the Option Plan will become exercisable after the
vesting period or periods specified in each option agreement. Except as
otherwise determined by the Committee, options become exercisable as to
one-third of the shares subject to the option on each of the first, second and
third anniversaries of the date of grant of the option. Options are not
exercisable, however, after the expiration of ten years from the date of grant
(or five years from such date in the case of an ISO granted to a 10%
Stockholder) and are not transferable other than by will or by the laws of
descent and distribution.
F-14
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements -- (Continued)
(Information with respect to March 31, 1996 and 1997 is Unaudited)
5. Stockholder's Equity -- (Continued)
Except as the Committee may determine with respect to NQSOs, if the holder
of an option granted under the Option Plan ceases to be an employee, options
granted to such holder shall terminate three months (12 months if the
termination is a result of the death or disability of the employee) from the
date of termination of employment and shall be exercisable as to only those
options exercisable as of the date of termination.
Options
In March 1996, the Company hired a new President and Chief Operating
Officer (the "President"). As part of the new President's employment agreement,
the Company granted him options to purchase 311,300 shares of the Company's
common stock. The President has elected to classify 75,132 of the options as
ISOs which vest in three equal annual installments commencing on the date of the
grant. The remaining 236,168 are to be classified as NQSOs, of which one-half
vest immediately, one-quarter vest on the first anniversary of the grant date,
and the balance vest on the second anniversary of such grant. The exercise price
of all of the President's stock options is $3.99 per share, which is the fair
value at the date of grant.
In August 1995, the Company hired a new Chief Financial Officer ("CFO"). In
connection with his employment the CFO was granted 24,794 stock options in
August 1996 which will vest in accordance with the vesting parameters set forth
in the 1996 Stock Option Plan at an exercise price equal to the sale price of
the Company's shares to the public in the IPO.
In February 1997 the CFO entered into an amended employment agreement under
which he was granted 85,000 additional stock options (see Note 9). In August and
December 1996, the Company granted options to purchase a total of 120,359 shares
of the Company's common stock to certain other employees of the Company.
These options were granted under the Company's 1996 Stock Option Plan and
have an exercise price of $5.00 per share. Unless otherwise determined by the
Committee, the options have a term of ten years from the date of grant and are
subject to earlier termination in certain events related to the termination of
employment. The options vest in three equal annual installments commencing on
the first anniversary of the date of the grant.
The option activity during the years ended December 31, 1995 and 1996 and
the three months ended March 31, 1997 is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Options Price
----------- ---------
<S> <C> <C>
Outstanding at January 1, 1995 ........................ -- $ --
Granted ................................................ 24,794 $5.00
--------- -------
Outstanding at December 31, 1995 ..................... 24,794 $5.00
Granted ................................................ 431,659 $4.27
--------- -------
Outstanding at December 31, 1996 ..................... 456,453 $4.31
========= =======
Cancelled (unaudited) ................................. (26,535) $5.00
Granted (unaudited) .................................... 187,485 $4.55
--------- -------
Options Outstanding at March 31, 1997 (unaudited) ...... 617,403 $4.35
========= =======
Options exercisable at December 31, 1996 ............... 143,128 $3.99
========= =======
Options exercisable at March 31, 1997 (unaudited) ...... 228,128 $3.99
========= =======
</TABLE>
F-15
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements -- (Continued)
(Information with respect to March 31, 1996 and 1997 is Unaudited)
5. Stockholder's Equity -- (Continued)
Information relating to stock options and warrants at December 31, 1996
summarized by exercise price are as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------------------------- ---------------------------
Exercise Price Weighted Average Weighted Average
-------------------------------------------- ---------------------------
Per Share Shares Life (Year) Exercise Price Shares Exercise Price
- ---------------- --------- ------------- ---------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
$3.99 311,300 10 $3.99 143,128 $3.99
$4.00 85,000 10 $4.00 85,000 $4.00
$5.00 221,103 10 $5.00 -- --
-------- --- ----- -------- -------
617,463 10 $4.19 228,128 $3.99
======== === ===== ======== =======
</TABLE>
Information relating to stock options and warrants at March 31, 1997
summarized by exercise price are as follows (unaudited):
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------------------------- ---------------------------
Exercise Price Weighted Average Weighted Average
-------------------------------------------- ---------------------------
Per Share Shares Life (Year) Exercise Price Shares Exercise Price
- ---------------- --------- ------------- ---------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
$3.99 311,300 10 $3.99 143,128 $3.99
$4.00 187,485 10 $4.00 85,000 $4.00
$5.00 118,618 10 $5.00 -- --
-------- --- ----- -------- ------
617,403 10 $4.19 228,128 $3.99
======== === ===== ======== ======
</TABLE>
<PAGE>
All stock options issued to employees have an exercise price not less than
the fair market value of the Company's common stock on the date of grant, and in
accordance with accounting for such options utilizing the intrinsic value method
there is no related compensation expense recorded in the Company's financial
statements. Had compensation cost for stock-based compensation been determined
based on the fair value at the grant dates consistent with the method of SFAS
123, the Company's net income and earnings per share for the years ended
December 31, 1995 and 1996 and the three months ended March 31, 1997 would have
been reduced to the pro forma amounts presented below:
<TABLE>
<CAPTION>
Three months ended
March 31,
1995 1996 1996 1997
------------- -------------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss
As reported ...... $ (412,121) $ (19,915) $ (68,316) $ (517,372)
Pro forma ......... $ (419,833) $ (446,460) $ (68,316) $ (739,836)
Loss per share
As reported ...... $ (.10) $ (.00) $ (.02) $ (.12)
Pro forma ......... $ (.10) $ (.11) $ (.02) $ (.18)
</TABLE>
The fair value of option grants is estimated on the date of grants
utilizing the Black-Scholes option-pricing with the following weighted average
assumptions for the year ended December 31, 1996 and the three months ended
March 31, 1997, expected life of 10 years: expected volatility of 2.42%,
risk-free interest rates of 6.0%, and a 0% dividend yield. The weighted average
fair values at date of grant for options granted during 1996 and the three
months ended March 31, 1997, approximated $1.60 and $1.48 per option,
respectively.
Due to the fact that the Company's stock option programs vest over many
years and additional awards are made each year, the above proforma numbers are
not indicative of the financial impact had the disclosure provisions of FASB 123
been applicable to all years of previous option grants. The above numbers do not
include the effect of options granted prior to 1995 that vested in 1995 and
1996.
F-16
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements -- (Continued)
(Information with respect to March 31, 1996 and 1997 is Unaudited)
5. Stockholder's Equity -- (Continued)
Stock Split
In June 1996, the Company effected a 72,550-for-1 split of its common stock
and increased the number, and par value, of the authorized shares of common
stock, from 100,000 to 25,000,000 shares and from a par value of $1.00 per share
to $.01 per share. All common shares, common stock warrants, options and grants
and loss per share information disclosed in the financial statements and notes
have been adjusted to give retroactive effect for the stock split (see Note 9).
6. Significant Venues and Concentration of Credit Risk
Revenues from certain venues comprised 10% or more of total revenues. The
following table shows the percentage of revenues of these venues to total
revenues.
Years ended Three months ended
December 31, March 31,
--------------- ----------------------------
1995 1996 1996 1997
------ ------ ------------- ------------
(unaudited) (unaudited)
Venue A ...... 34% 29% 47% 36%
Venue B ...... 12 11 16 14
Venue C ...... 22 32 18 18
Venue D ...... -- 12 -- --
---- ---- ---- ----
68% 84% 81% 68%
==== ==== ==== ====
7. Note Receivable from CEO and Principal Stockholder
At December 31, 1995, the Company had a note receivable of $920,913 from
the Chief Executive Officer and principal stockholder of the Company. During the
year ended December 31, 1996, the Company advanced an additional $716,500
evidenced by three promissory notes. As of December 31, 1996, the total amount
due from the Chief Executive Officer and principal stockholder of the Company
was $1,780,424. The notes bore interest at 8% per annum and were due on June 30,
1997. At December 31, 1996 the note receivable balance included accrued interest
income of $143,011.
As of December 31, 1996, the Company agreed to forgive all $1,780,424 of
the outstanding amount due from the principal stockholder. Consequently,
$920,913 and $859,511 of such amount were included as part of principal
stockholder compensation in the Statement of Operations for the years ended
December 31, 1995 and 1996, respectively. In connection with the Company's
agreement with the Underwriter relating to the Bridge Financing, the Company
agreed not to advance more than an additional $200,000 to the principal
stockholder retroactively as of January 1, 1997 and that, in the future, it
will not forgive more than $220,000 aggregate amount of additional indebtedness
(including interest) incurred by the principal shareholder since December 31,
1996. As of March 31, 1997, the Company had advanced $103,235 to the principal
stockholder.
8. Income Taxes
Income taxes in the statement of operations consists of the following:
Years ended December 31, Three months ended
------------------------ ----------------------------
1995 1996 1996 1997
--------- ----------- ------------- ------------
(unaudited) (unaudited)
Current
Federal ...... $ -- $ -- $-- $ --
State ......... 1,950 15,789 -- 2,319
-------- --------- ---- -------
$ 1,950 $ 15,789 $-- $2,319
======== ========= ==== =======
F-17
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements -- (Continued)
(Information with respect to March 31, 1996 and 1997 is Unaudited)
8. Income Taxes -- (Continued)
Deferred taxes are as follows:
<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
1996 1997
-------------------------- -------------------
(unaudited)
<S> <C> <C>
Deferred tax assets:
Litigation accrual .................. $ 34,000 $ --
Net operating loss carryforward ...... 223,453 399,448
---------- ----------
Total deferred tax assets ............... 257,453 399,448
Deferred tax liability:
Pre-opening costs ..................... (43,921) (51,974)
---------- ----------
Net deferred tax assets ............... 213,532 347,474
Less: Valuation allowance ............... (213,532) (347,474)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
The net deferred tax assets have a 100% valuation allowance as management
cannot determine if it is more likely than not that the deferred tax assets will
be realized.
Income taxes in the statement of operations differs from the amount
computed by applying the U.S. Federal income tax rate (34%) because of the
effect of the following items:
<TABLE>
<CAPTION>
Three months
Years ended December 31, ended March 31,
----------------------------- ----------------------------
1995 1996 1996 1997
------------- ------------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
U.S. Federal statutory rate applied to pretax
income (loss) .................................... $ (453,232) $ 306,339 $(22,888) $(175,906)
Permanent differences ........................... 510 510 500 500
State income taxes, net of Federal benefit ...... 1,950 15,789 -- 2,319
Benefit of net operating loss carryforward ...... -- (306,849) -- --
Tax effect of unrecognized net operating loss
carryforward .................................... 452,722 -- 22,388 175,406
------------ ---------- ---------- -----------
$ 1,950 $ 15,789 $ -- $ 2,319
============ ========== ========== ===========
</TABLE>
At December 31, 1996 and March 31, 1997, the Company had Federal net
operating loss carryforwards of approximately $657,214 and $1,174,847,
respectively. Under Federal Tax Law IRC Section 382, certain significant changes
in ownership that the Company is currently undertaking may restrict the future
utilization of these tax loss carryforwards.
<PAGE>
9. Subsequent Events
Warrant Exchange
On March 17, 1997, the Company exchanged all of its outstanding warrants
for shares of its common stock (the "Warrant Exchange Shares") (the "Warrant
Exchange"). The number of Warrant Exchange Shares issued to each warrant holder
in the Warrant Exchange was equal to the number of warrants held by such holder
divided by the exercise price of the holder's warrants, based on the number and
price of the warrants prior to the Reverse Split. As a result of the Warrant
Exchange, all of the Company's currently outstanding warrants were canceled and
exchanged for a total of 799,956 Warrant Exchange Shares on a pre-Reverse Split
basis, which amount was reduced to 440,755 shares in connection with the Reverse
Split. The Warrant Exchange had no effect upon the Company's earnings.
F-18
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements -- (Continued)
(Information with respect to March 31, 1996 and 1997 is Unaudited)
9. Subsequent Events -- (Continued)
Reverse Stock Split and Other Stock Transactions
On March 18, 1997, the Company effectuated a 1 for 1.814967 reverse stock
split of the Company's common stock ("Reverse Split"). Accordingly, $29,828 was
transferred from retained earnings to common stock and the Company has retired
26,422 of the principal stockholder's shares of common stock. All common shares,
common stock warrants, options and grants and loss per share information
disclosed in the financial statements and notes have been adjusted to give
effect to the Reverse Split and the retirement of the principal stockholder
common stock.
Bridge Financing
On March 26, 1997, the Company completed a Bridge Financing of $1,000,000
of unsecured non-
negotiable notes, common stock and warrants through the Underwriter. Each Bridge
Unit consisted of (i) a 9% promissory note of the Company in the principal
amount of $50,000, maturing upon the consummation, and payable out of the
proceeds of the proposed IPO, (ii) 10,000 shares of Common Stock and (iii)
12,500 warrants, each to purchase one share of Common Stock at an exercise price
of $4.00 per share. None of the securities issued in connection with the Bridge
Financing may be transferred until 12 months following the proposed IPO. The net
proceeds to the Company after deducting the Placement Agent's commissions and
other offering expenses were $825,000. The Common Stock was assigned a value of
$444,000. As no consideration was paid for the Common Stock, this amount is
considered an original issue discount and will be amortized to interest expense
over the term of the related notes payable.
Debt Conversion
The Company currently has outstanding $1,714,064 principal amount of
Debentures. The conversion ratio for the Debentures is 266.67 shares of Common
Stock per each $1,000 principal amount of Debenture, which, if all of the
Debentures were converted, would result in the issuance of an aggregate of
457,092 shares of Common Stock (the "Debenture Shares"). In February 1997, the
Company and the Debenture holders entered into an agreement pursuant to which
all of the Debentures will be converted into 505,649 Debenture Shares, based on
an increased conversion ratio of 295 shares per each $1,000 principal amount of
Debenture, immediately prior to the consummation of the proposed IPO (the "Debt
Conversion"). If effected, the Debt Conversion will result in a one time,
non-recurring, interest expense charge to the Company in the estimated amount of
$194,228.
Proposed Initial Public Offering
The Company has a letter of intent with the Underwriter in connection with
its proposed underwriting of an IPO of 1,400,000 shares of the common stock of
the Company and warrants to purchase 2,000,000 shares of the common stock of the
Company for anticipated aggregate gross proceeds of approximately $7,200,000.
Employment Contracts
On February 1, 1997, the Company entered into an employment agreement with
the principal stockholder to employ him as its Chairman of the Board and Chief
Executive Officer until May 31, 2000. In accordance with this employment
agreement, the principal stockholder will receive an annual salary of $250,000
and may be entitled to receive an annual 10% increase of his base salary amount.
The Company has the right to terminate the principal stockholder's employment at
any time without cause, provided that the Company pays the principal stockholder
a lump sum payment equal to one year's base salary, car allowance and insurance
allowance. Also in February 1997, the Company amended the employment agreements
with the CFO and the President and extended their agreements to May 31, 2000. In
connection with each of their respective employment agreements, the CEO,
President and CFO also entered into a confidentiality and non-compete agreements
with the Company.
F-19
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements -- (Continued)
(Information with respect to March 31, 1996 and 1997 is Unaudited)
9. Subsequent Events -- (Continued)
In connection with the CFO's amended employment agreement the Company has
granted him options to purchase 85,000 shares of common stock, which are
immediately exercisable at $4.00 per share, which represented the fair market
value of the Common Stock on the date of grant. The Company also issued the CFO
40,532 shares of Common Stock upon the closing of the Bridge Financing. The
issuance of these shares will result as a one time compensation charge to the
Company of $162,128.
Non-employee Directors' Options
On or about January 1, 1997, (and again on March 17, 1997, when two new
non-employee directors were elected) the Company issued an aggregate of 80,000
options to its non-employee directors under the Company's 1996 Option Plan. The
Options have a strike price of $5.00 per share and vest at the rate of 2,500
options per board meeting actually attended, up to a maximum vesting of 10,000
options in any given year. These options are accounted for in accordance with
SFAS No. 123. Compensation expense in connection with the non- employee director
grants were not recorded in the accompanying financial statements as it was
considered immaterial.
Executive Bonus Plan
In March 1997, the Company implemented a three-year Executive Bonus Plan,
administered by the Compensation Committee. Under the Executive Bonus Plan an
annual bonus pool of up to 5% of the Company's audited pre-tax earnings, after
non-recurring charges such as original issue discount, compensation and interest
expense charges and excluding extraordinary items ("Pre-Tax Earnings"), may be
established for distributions at the discretion of the Company's Board of
Directors, to the Company's executive officers (other than the Chairman and CEO
who is not eligible for bonuses under the plan) in 1998, 1999 and 2000, provided
that the Company achieves at least minimum Pre-Tax Earnings for the respective
preceding fiscal year as follows:
Minimum
Pre-Tax
Year Earnings
------ ------------
1997 .................... $ 1,850,000
1998 .................... 5,000,000
1999 .................... 8,700,000
F-20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
[Picture of Imperial [Picture of Bally's Park [Picture of Taj Mahal
Palace Hotel & Place Casino Hotel & Casino Resort]
Casino] Tower]
IMPERIAL PALACE HOTEL & BALLY'S PARK PLACE CASINO TRUMP TAJ MAHAL
CASINO HOTEL & TOWER CASINO RESORT
Las Vegas, NV Atlantic City, NJ Atlantic City, NJ
[Picture of Osmond Family [Picture of Premier Cruise Lines] [Picture of Surfside Theater]
Theater] PREMIER CRUISE LINES SURFSIDE THEATER
OSMOND FAMILY THEATER Cape Canaveral, FL Myrtle Beach, SC
Branson, MO
[Picture of the Coliseum]
THE COLISEUM
Daytona Beach, FL
Planned Opening Summer, 1997
The Company currently has full-scale, resident Legends productions at the Imperial Palace in Las
Vegas, Bally's Park Place in Atlantic City, the Surfside Theater in Myrtle Beach and on two
Premier Cruise Line ships. In addition, the Company will have a resident Legends production
at the Coliseum Theater in Daytona Beach beginning in the Summer of 1997 and it will produce two
shows per day at the Osmond Family Theater in Branson during June, July and August 1997.
The Company is also currently co-producing a comedy show entitled An Evening at the Improv(registered mark)
Spectacular at the Trump Taj Mahal Casino Resort in Atlantic City. This production is scheduled
to run from March through July 1997.
On Stage Entertainment, Inc.
</TABLE>
<PAGE>
==============================================================================
No dealer, sales person or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or the Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any security other than the secur- ities offered by this Prospectus, or an
offer to sell or a solicitation of an offer to buy any securities by anyone in
any jurisdiction in which such offer or solicitation is not authorized or is
unlawful. The delivery of this Prospectus shall not, under any circumstances,
create any implication that the information contained herein is correct as of
any time subsequent to the date hereof.
--------------------------
TABLE OF CONTENTS
Page
-----
Prospectus Summary ..................... 3
Risk Factors ........................... 9
Use of Proceeds ........................ 18
Dilution ................................. 19
Dividend Policy ........................... 20
Capitalization ........................... 21
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ........................... 23
Business ................................. 33
Management .............................. 50
Principal and Selling Stockholders ...... 57
Certain Transactions ..................... 59
Description of Securities ............... 60
Shares Eligible for Future Sale ......... 65
Underwriting ........................... 66
Legal Matters ........................... 68
Experts ................................. 68
Additional Information .................. 68
Index to Financial Statements ............ F-1
--------------------------
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the shares of Common Stock offered hereby, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
==============================================================================
<PAGE>
==============================================================================
ON STAGE
ENTERTAINMENT, INC.
2,000,000 Shares
of Common Stock
and
Redeemable Warrants to
Purchase 2,000,000 Shares of
Common Stock
--------------------------
PROSPECTUS
--------------------------
Whale Securities Co., L.P.
, 1997
==============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Subsection 1 of Section 78.751 of Chapter 78 of the Nevada Revised Statutes
(the "NGCL") empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe his action was unlawful.
Subsection 2 of Section 78.751 of the NGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
acted in any of the capacities set forth above, against expenses, including
amounts paid in settlement and attorneys' fees, actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if he
acted in accordance with the standard set forth above, except that no
indemnification may be made in respect of any claim, issue or mater as to which
such person shall have been adjudged by a court of competent jurisdiction after
exhaustion of all appeals therefrom to be liable to the corporation or for
amounts paid in settlement to the corporation unless and only to the extent that
the court in which such action or suit was brought or other court of competent
jurisdiction determines that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court deems proper.
Section 78.751 of the NGCL further provides that, to the extent a director
or officer of a corporation has been successful on the merits or otherwise in
the defense of any action, suit or proceeding referred to in subsection (1) and
(2), or in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 78.751 of the NGCL shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled and that the scope of
indemnification shall continue as to directors, officers, employees or agents
who have ceased to hold such positions, and to their heirs, executors and
administrators. Finally, Section 78.752 of the NGCL empowers the corporation to
purchase and maintain insurance on behalf of a director, officer, employee or
agent of the corporation against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such whether or not
the corporation would have the authority to indemnify him against such
liabilities and expenses.
The Registrant's Bylaws provide a right to indemnification to the full
extent permitted by law, for expenses (including attorney's fees), damages,
punitive damages, judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by any director or officer whether or not the
indemnified liability arises or arose from any threatened, pending or completed
proceeding by or in the right of the Registrant (a derivative action) by reason
of the fact that such director or officer is or was serving as a director,
officer, employee or agent of the Registrant or, at the request of the
Registrant, as a director, officer, partner, fiduciary or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, unless the act or failure to act giving rise to the claim for
indemnification is financially determined by a court to have constituted willful
misconduct or recklessness. The Bylaws provide for the advancement of expenses
to an indemnified party upon receipt of an undertaking by the party to repay
those amounts if it is finally determined that the indemnified party is not
entitled to indemnification.
II-1
<PAGE>
The Registrant's Bylaws authorize the Registrant to take steps to ensure
that all persons entitled to the indemnification are properly indemnified,
including, if the Board of Directors so determines, purchasing and maintaining
insurance.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses payable by the Registrant* in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions and the Underwriter's non- accountable
expense allowance) are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ......... $ 8,368.18
NASD filing fee ............................................. 3,261.52
Nasdaq listing fee .......................................... 10,000.00
Printing and engraving expenses .............................. 75,000.00
Legal fees and expenses ....................................... 200,000.00
Accounting fees and expenses ................................. 100,000.00
Blue sky fees and expenses (including legal fees) ............ 60,000.00
Transfer agent, warrant agent and registrar fees and expenses 3,500.00
Miscellaneous ................................................ 83,870.30
------------
Total ................................................... $ 544,000.00
============
</TABLE>
- ------------
* Other than the underwriting discounts and commissions and the Underwriter's
nonaccountable expense allowance attributable to the 600,000 shares of Common
Stock being offered hereby by the Selling Stockholder, the Selling
Stockholder is not paying any of the expenses of this offering.
Item 26. Recent Sales of Unregistered Securities
Within the three years preceding the filing of this Registration Statement,
the Registrant has sold the following securities without registration under the
Securities Act of 1933 (the "Securities Act"). Unless otherwise indicated all
share numbers set forth below have been updated to reflect the Registrant's
1-for- 1.814967 reverse split of its Common Stock effected on March 18, 1997
reverse stock split (the "Reverse Split"):
(a) On a number of different dates between June and November 1995, the
Registrant sold, through a private placement with 15 investors (the "1995
Private Placement"), 39.78 debenture units (the "Debenture Units"), each
consisting of (i) an 8% convertible subordinated debenture in the principal
amount of $50,000 due on August 31, 1997 (the "Original Debentures") and (ii)
the right, under certain circumstances, to receive one Class A and one Class B
Warrant. The Registrant received net proceeds of $1,989,064 in connection with
the 1995 Private Placement. The Registrant completed the 1995 Private Placement
without the assistance of a placement agent. The rights to receive such A & B
Warrants were subsequently terminated prior to the issuance of such Warrants.
(b) In September 1995, the Registrant issued, as compensation for services
provided in connection with the 1995 Private Placement, warrants to purchase an
aggregate of (i) 355,378 shares of Common Stock at an exercise price of $3.76
per share to JDK & Associates (for financial consulting services provided ),
(ii) 11,019 shares of Common Stock at an exercise price of $3.76 per share to
Harry Stahl, Esquire (for legal services rendered) and (iii) 27,549 shares of
Common Stock at an exercise price of $3.76 per share to Lance Hall (for
financial consulting services provided).
(c) In February 1996, the Registrant borrowed $1,000,000 from DYDX LP (the
"DYDX Loan"). In connection with the DYDX Loan, the Registrant issued to DYDX LP
a warrant (the "DYDX Warrant") to purchase 550,974 shares of Common Stock at an
exercise price per share equal to the initial public offering price of the
Common Stock, exercisable for a period of 60 months commencing upon the
consummation of an initial public offering. In June 1996, the exercise price of
the DYDX Warrant was changed to the imputed price per share of the Common Stock
as of the closing date, if any, of the next debt or equity financing of the
Registrant. In February 1997, the exercise price of the DYDX warrant was reduced
to $3.99 per share and the Registrant, at the request of DYDX LP, split the DYDX
Warrant into two warrants, one in the name of DYDX LP for the purchase of
440,779 shares of Common Stock and the other in the name of Senna, an affiliate
of DYDX LP, for the purchase of 110,195 shares of Common Stock.
II-2
<PAGE>
(d) In July 1996, pursuant to an Offer to Exchange or Repurchase, the
holders of $1,714,064 in principal amount of the Original Debentures tendered
their Debenture Units in exchange for new Debentures due January 4, 1999 (the
"New Debentures") and holders of $275,000 in principal amount of the Original
Debentures opted to have such debentures repurchased by the Registrant.
(e) In March 1997, the Registrant exchanged all of its outstanding warrants
for shares of Common Stock (the "Warrant Exchange Shares") on a cashless basis
(the "Warrant Exchange"). Prior to the Warrant Exchange (and the Reverse Split)
there were warrants outstanding to purchase 1,000,000 shares of Common Stock at
$2.20 per share (550,974 shares of Common Stock at $1.21 per share on a
post-reverse split basis) and 715,000 shares of Common Stock at $2.07 per share
(393,947 shares of Common Stock at $1.14 per share on a post-reverse split
basis). As a result of the Warrant Exchange, all of the Registrant's outstanding
warrants as of March 17, 1997 were canceled and exchanged for a total of 799,956
Warrant Exchange Shares which amount was subsequently reduced to 440,755 shares
of Common Stock in connection with the Registrant's Reverse Split.
(f) In March 1997, the Registrant sold, through a private placement with 21
investors (the "Bridge Financing"), 20 investment units ("Bridge Units"), each
consisting of (i) a note in the principal amount of $50,000, (ii) 10,000 shares
of Common Stock and (iii) warrants to purchase an aggregate of 12,500 shares of
Common Stock at an exercise price of $4.00 per share. After payment of $125,000
in placement fees to Whale Securities Co., L.P., the placement agent for the
Registrant in connection with the Bridge Financing, and other offering expenses
of approximately $75,000, the Registrant received net proceeds of approximately
$800,000 in connection with the Bridge Financing. The 21 investors include the
following: 1. Avedon Construction & Design Corp., Peter M. Avedon, President; 2.
Kenneth Berg; 3. Steven H. Brooks; 4. Lance Hall; 5. David Hope; 6. Jim Huntley
and Melanie Huntley, JTWRS; 7. Daniel M. Keenan; 8. Alexander S. Mark, M.D. and
Thais R. Mark, JTWRS; 9. Michael Miller; 10. William J. Reese and Cheryl A.
Reese, JTWRS; 11. Kiranjit Sidhu; 12. Edward Weston and Ann Weston, JTWRS; 13.
Robert H. Winnerman; 14. Theodore Winston; 15. Dependable Contractors, Inc.; 16.
Baytree Associates, Inc. Retirement Plan; 17. Delaware Charter Guarantee & Trust
Co. FBO; Ronald I Heller, IRA; 18. Delaware Charter Guarantee & Trust FBO: David
S. Nagelbert, IRA; 19. Norton Herrick; 20. Westminster Capital, Inc.; and 21.
Minor Metals, Inc. Ramy Y. Weisfisch.
The issuances of the aforementioned securities were made in reliance upon
an exemption from the registration provision of the Securities Act afforded by
Section 4(2) thereof, as transactions by an issuer not involving a public
offering. The purchasers of the securities described above acquired them for
their own account and not with a view to any distribution thereof to the public.
The Registrant will place stop transfer instructions with its transfer agent
with respect to all such securities.
<PAGE>
Item 27. Exhibits.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------- ----------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1* Specimen stock certificate representing the Common Stock.
4.2* Specimen warrant certificate representing the Warrants.
4.3 Form of Public Warrant Agreement.
4.4 Form of Underwriter's Warrant Agreement.
5.1+ Opinion of Morgan, Lewis & Bockius LLP regarding legality of securities being registered.
10.1 Employment Agreement between the Registrant and John W. Stuart
10.2 Employment Agreement between the Registrant and David Hope
10.3 Employment Agreement between the Registrant and Kiranjit S. Sidhu
10.4 Confidentiality and Non-Competition Agreement between the Registrant and John W. Stuart
10.5 Confidentiality and Non-Competition Agreement between the Registrant and David Hope
10.6 Confidentiality and Non-Competition Agreement between the Registrant and Kiranjit S. Sidhu
10.7 Amended and Restated 1996 Stock Option Plan
10.8 Contribution Agreement between the Registrant and John W. Stuart
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------- ----------------
<S> <C>
10.9 Security and Pledge Agreement between the Registrant and John W. Stuart relating to contribution
of LVHE shares
10.10 Security and Pledge Agreement between the Registrant and John W. Stuart relating to LVHE
litigation indemnity
10.11 Indemnification Agreement between the Registrant, John W. Stuart and Grand Strand Entertainment, Inc.
10.12 Security and Pledge Agreement between the Registrant and John W. Stuart relating to Grand Strand
Entertainment, Inc. litigation indemnity
10.13+ Lease between the Registrant and Great American Entertainment Company
10.14** Agreement between the Registrant and Imperial Palace, Inc.
10.15** Agreement between the Registrant and Bally's Park Place, Inc.
10.16+ Agreement between Registrant and Improv West, Inc.
10.17+ Amended and Restated Loan Agreement between Registrant and DYDX Legends Group, L.P.
10.18+ Common Stock Purchase Agreement between Registrant and Interactive Events, Inc.
23.1+ Consent of Morgan, Lewis & Bockius LLP (included in its opinion filed as Exhibit 5.1)
23.2+ Consent of BDO Seidman, LLP
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ------
+ Filed herewith.
* To be filed by amendment.
** To be filed by amendment in redacted form pursuant to Rule 406 promulgated
under the Securities Act. Filed separately in unredacted form subject to a
request for confidential treatment pursuant to Rule 406 under the Securities
Act.
Item 28. Undertakings.
The undersigned registrant hereby undertakes to:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii) reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) include any additional or changed material information on the plan
of distribution;
(2) for determining liability under the Act, treat each such post-effective
amendment as a new registration of the securities offered, and the offering of
such securities at that time to be initial bona fide offering; and
(3) file a post-effective amendment to remove from registration any of the
securities that remain unsold at the termination of this offering.
<PAGE>
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the standby underwriting agreement
certificates in such denominations and registered in such names as required
II-4
<PAGE>
by the underwriters to permit prompt delivery to each purchaser; (2) that for
the purpose of determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in a prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act; as a part of this
Registration Statement as of the time the Securities and Exchange Commission
declares it effective; and (3) that for the purpose of determining any liability
under the Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement for the securities offered in
the Registration Statement therein, and treat the offering of the securities at
that time as the initial bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the city of Las
Vegas, State of Nevada on June 2, 1997.
ON STAGE ENTERTAINMENT, INC.
/s/ JOHN W. STUART
By: /s/ John W. Stuart
-----------------------------------
John W. Stuart, Chairman of the
Board and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
----------- -------- ------
<S> <C> <C>
/s/ JOHN W. STUART Chairman, and Chief Executive Officer and June 2, 1997
- --------------------------- Director (principal executive officer)
John W. Stuart
/s/ DAVID HOPE President, Chief Operating Officer and June 2, 1997
- --------------------------- Director
David Hope
* Chief Financial Officer (principal financial and June 2, 1997
- --------------------------- accounting officer) and Treasurer
Kiranjit S. Sidhu
* Executive Vice President, Chief Operating June 2, 1997
- --------------------------- Officer and Director
Neil H. Foster
* Director June 2, 1997
- ---------------------------
Jules Haimovitz
* Director June 2, 1997
- ---------------------------
James L. Nederlander
* Director June 2, 1997
- ---------------------------
Mark Tratos
* Director June 2, 1997
- ---------------------------
Kenneth Berg
*By: /s/ DAVID HOPE
-----------------------
David Hope, Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------- ----------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1* Specimen stock certificate representing the Common Stock.
4.2* Specimen warrant certificate representing the Warrants.
4.3 Form of Public Warrant Agreement.
4.4 Form of Underwriter's Warrant Agreement.
5.1+ Opinion of Morgan, Lewis & Bockius LLP regarding legality of securities being registered.
10.1 Employment Agreement between the Registrant and John W. Stuart
10.2 Employment Agreement between the Registrant and David Hope
10.3 Employment Agreement between the Registrant and Kiranjit S. Sidhu
10.4 Confidentiality and Non-Competition Agreement between the Registrant and John W. Stuart
10.5 Confidentiality and Non-Competition Agreement between the Registrant and David Hope
10.6 Confidentiality and Non-Competition Agreement between the Registrant and Kiranjit S. Sidhu
10.7 Amended and Restated 1996 Stock Option Plan
10.8 Contribution Agreement between the Registrant and John W. Stuart
10.9 Security and Pledge Agreement between the Registrant and John W. Stuart relating to contribution
of LVHE shares
10.10 Security and Pledge Agreement between the Registrant and John W. Stuart relating to LVHE
litigation indemnity
10.11 Indemnification Agreement between the Registrant, John W. Stuart and Grand Strand
Entertainment, Inc.
10.12 Security and Pledge Agreement between the Registrant and John W. Stuart relating to Grand Strand
Entertainment, Inc. litigation indemnity
10.13+ Lease between the Registrant and Great American Entertainment Company
10.14** Agreement between the Registrant and Imperial Palace, Inc.
10.15** Agreement between the Registrant and Bally's Park Place, Inc.
10.16+ Agreement between Registrant and Improv West, Inc.
10.17+ Amended and Restated Loan Agreement between Registrant and DYDX Legends Group, L.P.
10.18+ Common Stock Purchase Agreement between Registrant and Interactive Events, Inc.
23.1+ Consent of Morgan, Lewis & Bockius LLP (included in its opinion filed as Exhibit 5.1)
23.2+ Consent of BDO Seidman, LLP
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ------------
+ Filed herewith.
* To be filed by amendment
** To be filed by amendment in redacted form pursuant to Rule 406 promulgated
under the Securities Act. Filed separately in unredacted form subject to a
request for confidential treatment pursuant to Rule 406 under the Securities
Act.
<PAGE>
June 2, 1997
On Stage Entertainment, Inc.
4625 West Nevso Drive
Las Vegas, NV 89103
Re: Registration Statement on Form SB-2; Registration No. 333-24681
Ladies and Gentlemen:
We have acted as counsel to On Stage Entertainment, Inc., a Nevada corporation
(the "Company"), in connection with the preparation of the aforementioned
registration statement on Form SB-2 (the "Registration Statement") filed with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Act"), relating to the offering by the Company of
(i) up to 2,300,000 shares of its Common Stock, par value $.01 per share, (the
"Common Stock"), of which 1,700,000 shares of Common Stock (the "Company
Shares"), including 300,000 shares purchasable by the underwriter, solely for
the purpose of covering overallotments, if any, are to be newly issued and sold
by the Company, and of which 600,000 shares of Common Stock (the "Selling
Stockholder Shares") are to be sold by the selling stockholder (the "Selling
Stockholder") identified in the Registration Statement under the heading
"Principal and Selling Stockholders," (ii) redeemable warrants (the "Warrants")
to purchase up to 2,000,000 shares of Common Stock, which includes 300,000
Warrants purchasable by the underwriter, solely for the purpose of covering over
allotments, if any, (iii) the Common Stock issuable upon exercise of the
Warrants, (iv) warrants issued to the Underwriter to purchase 200,000 shares of
Common Stock (the "Underwriter's Warrants"), (v) the Common Stock issuable upon
exercise of the Underwriter's Warrants, (vi) warrants issued to the Underwriter
to purchase 200,000 warrants each to purchase one share of Common Stock the
("Underlying Warrants"), (vii) the warrants issuable upon exercise of the
Underlying Warrants and (viii) the Common Stock issuable upon exercise of the
warrants issuable upon exercise of Underlying Warrants.
Capitalized terms used herein, unless defined herein or the context indicates
otherwise, shall have the meaning set forth in the Registration Statement.
<PAGE>
June 2, 1997
Page 2
In connection with this opinion, we have examined the Registration Statement and
the Exhibits thereto, the draft of the Underwriting Agreement, the Warrant
Agreement, the Underwriter's Warrant Agreement, the Company's Articles of
Incorporation and Bylaws, and certain of the Company's corporate proceedings as
reflected in its minute books. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as copies thereof. In addition, we have made such other examinations of law and
fact as we have deemed relevant in order to form a basis for the opinion
hereinafter expressed.
Based upon the foregoing, we are of the opinion that:
1. When issued by the Company in the manner contemplated in the
Registration Statement, the Company Shares will be validly issued,
fully paid and nonassessable.
2. The Selling Stockholder Shares are validly issued, fully paid and
nonassessable.
3. The Warrants have been duly and validly authorized by the Company and,
when and to the extent issued by the Company in the manner contemplated
in the Registration Statement, will constitute the valid and binding
obligation of the Company to issue and sell the Common Stock issuable
upon exercise of the Warrants.
4. The Common Stock issuable upon exercise of the Warrants has been duly
and validly authorized by the Company and, when and to the extent
issued by the Company upon the exercise of the Warrants in the manner
contemplated by the Warrant Agreement, will be legally issued, fully
paid and non-assessable shares of Common Stock of the Company.
5. The Underwriter's Warrants have been duly and validly authorized by the
Company and, when and to the extent issued by the Company as
contemplated by the Underwriting Agreement, will constitute the valid
and binding obligation of the Company to issue and sell the Common
Stock issuable upon exercise of the Underwriter's Warrants.
6. The Common Stock issuable upon exercise of the Underwriter's Warrants
has been duly and validly authorized by the Company and, when and to
the extent issued by the Company upon the exercise of the Underwriter's
Warrants, in the manner contemplated by the Underwriter's Warrant
Agreement, will be legally issued, fully paid and non-assessable shares
of Common Stock of the Company.
<PAGE>
June 2, 1997
Page 3
7. The Underlying Warrants have been duly and validly authorized by the
Company and, when and to the extent issued by the Company as
contemplated by the Underwriting Agreement, will constitute the valid
and binding obligation of the Company to issue and sell the warrants
issuable upon exercise of the Underlying Warrants.
8. The warrants issuable upon exercise of the Underlying Warrants have
been duly and validly authorized by the Company and, when and to the
extent issued by the Company upon the exercise of the Underlying
Warrants in the manner contemplated by the Underwriter's Warrant
Agreement, will constitute the valid and binding obligation of the
Company to issue and sell the Common Stock issuable upon exercise of
the warrants issuable upon exercise of the Underlying Warrants.
9. The Common Stock issuable upon exercise of the warrants issuable upon
exercise of the Underlying Warrants has been duly and validly
authorized by the Company and, when and to the extent issued by the
Company upon the exercise of such warrants in the manner contemplated
by the Underwriter's Warrant Agreement, will be legally issued, fully
paid and non-assessable shares of Common Stock of the Company.
We hereby consent to the use of this opinion as Exhibit 5 to the Registration
Statement and to all references to our firm in the Registration Statement. In
giving such consent, we do not thereby admit that we are acting within the
category of persons whose consent is required under Section 7 of the Act and the
rules and regulations of the Commission thereunder.
Very truly yours,
<PAGE>
LEASE AGREEMENT
BETWEEN
GREAT AMERICAN ENTERTAINMENT COMPANY
and
LEGENDS IN CONCERT, INC.
<PAGE>
1. PREMISES............................................................1
2. SECURITY DEPOSIT....................................................2
3. TERM................................................................2
4. OPTION TO EXTEND TERM...............................................2
5. RENT................................................................3
6. TICKET SALES........................................................3
7. TAXES...............................................................4
8. USE.................................................................5
9. QUIET ENJOYMENT.....................................................5
10. REPAIR, MAINTENANCE AND ASSESSMENT..................................5
12. ALTERATIONS AND IMPROVEMENTS........................................6
16. CASUALTY............................................................7
17. CONDEMNATION........................................................8
18. ASSIGNMENT AND SUBLEASING...........................................8
19. INDEMNIFICATION.....................................................9
20. COMPLIANCE WITH APPLICABLE LAWS.....................................9
21. LANDLORD'S RIGHT OF ENTRY...........................................9
22. NOTICES.............................................................9
23. OPTION TO PURCHASE.................................................10
24. EXCLUSIVE LOCATION AND LANDLORD'S RIGHT OF FIRST REFUSAL...........10
<PAGE>
25. GOVERNING LAW......................................................11
26. BINDING AGREEMENT..................................................11
27. LANDLORD'S REMEDIES................................................11
28. ENTIRE AGREEMENT...................................................11
29. NO JOINT VENTURE...................................................12
30. SUBORDINATION TO MORTGAGES.........................................12
31. JURISDICTION.......................................................12
32. ASSIGNMENT BY LANDLORD.............................................12
<PAGE>
STATE OF SOUTH CAROLINA )
) LEASE AGREEMENT
COUNTY OF HORRY )
THIS LEASE is made and entered into by and between GREAT
AMERICAN ENTERTAINMENT COMPANY, a Delaware corporation, hereinafter called the
"Landlord" and LEGENDS IN CONCERT, INC., a Nevada corporation, hereinafter
called the "Tenant", which terms "Landlord" and "Tenant" shall include wherever
the context admits or requires the heirs, legal representatives, successors and
assigns of the respective parties.
WITNESSETH:
1. PREMISES. The Landlord, for and in consideration of the
covenants of the Tenant, does hereby lease and demise unto the Tenant subject to
the reservations and conditions set forth herein and the Tenant hereby agrees to
take and lease from the Landlord, for the term hereinafter specified, the
premises described on Exhibit "A", attached hereto and made a part hereof, said
property hereinafter called the "Demised Premises".
Excepted from the Demised Premises and specifically reserved
by Landlord from the Demises Premises are the following:
(1) the exclusive use by Landlord, its employees,
agents, invitees and guests of all of the upstairs offices (except for the green
room, production office, men's dressing room, ladies' dressing room and landing
area at top of stairs) and non-exclusive right of ingress and egress thereto for
the period from the date hereof until February 10, 1995.
(2) A box office location and computer station
(computer provided by the Landlord) for one (1) person to operate as a ticket
outlet for Calvin Gilmore Productions, and
<PAGE>
(3) the non-exclusive use by Landlord, its agents and
employees of the parking lot and the non-exclusive right of ingress-egress to
the box office.
2. SECURITY DEPOSIT. The Tenant has deposited with the
Landlord the sum of Eighty-Six Thousand and No/100 ($86,000.00) Dollars as
security for Tenant's full and faithful performance of all the terms of this
Lease. Landlord shall return such sum when this Lease expires if Tenant has
fully and faithfully carried out all of its terms. Landlord may apply any part
of such deposit to cure any of Tenant's defaults. In such event, Tenant shall,
upon demand, deposit with Landlord the amount so applied so that Landlord shall
have the full security deposit on hand at all times during the term hereof. If
there is a sale of the property, Landlord may transfer the security deposit to
the Purchaser and Landlord shall be released from all liability for the return
of the security deposit and Tenant shall look solely to the new Landlord for its
return.
3. TERM. The term of this Lease shall begin on January 10,
1995, and shall end on December 31, 1995, (the "Initial Term").
4. OPTION TO EXTEND TERM. Provided that this Lease is then in
full force and effect and Tenant has fully performed all of its terms and
conditions, the Tenant may extend the term of this Lease upon the same terms and
conditions (except for the rent set forth in paragraph 5) for three (3) separate
and successive periods ("Extended Terms"), the first and second Extended Terms
being for one (1) year each and the third Extended Term being for seven (7)
years. Each option to extend shall be deemed automatically exercised unless
Tenant gives to the Landlord, no less than ninety (90) days prior to the
expiration of the then current term, written notice that the Lease shall not be
extended.
-2-
<PAGE>
5. RENT. The Tenant shall pay to the Landlord rent as follows:
a. Initial Term: For the Initial Term, rent in the
amount of Two Hundred Seventy-Eight Thousand and No/100 ($278,000.00) Dollars.
b. Extended Terms: For the Extended Terms, the annual
rent shall be:
(i) First Extended Term - $300,000
(ii) Second Extended Term - $330,000
(iii) Third Extended Term - $350,000 per year
c. Rent Payment. The rent shall be due and payable to
Landlord in equal monthly installments, on the first day of each month
commencing with the first month of this Lease.
6. TICKET SALES. Landlord and Tenant agree to reciprocally
sell each other's respective tickets as follows:
a. Tenant hereby grants to Landlord as a condition of
this Lease the non-exclusive right to book tickets to Tenant's shows at the
Demised Premises. Landlord shall receive the following fees for tickets for
Tenant's shows:
(i) Any tickets costing $17.00 or more booked by
Landlord (including taxes) $5.00 fee to
Landlord.
(ii) Any tickets costing $14.00 to $16.99
(including taxes) $4.00 fee per ticket to
Landlord.
(iii) Any tickets costing $11.00 to $13.99
(including taxes) $3.00 fee per ticket to
Landlord.
-3-
<PAGE>
(iv) Notwithstanding the above for any tickets
booked for motor coaches, Landlord shall
receive a fee of no less than $3.00 per
ticket.
These fees shall be deducted by Landlord if payment made to
Landlord by the purchaser and the balance of the payment for the ticket shall be
held in escrow by the Tenant until the respective performance. If payment made
to Tenant by the purchaser Tenant shall put the payments for such tickets in
escrow until the respective performance and pay Landlord at that time.
b. Landlord hereby grants the non-exclusive right to Tenant to
book tickets to Landlord's shows at The Caroline Opry and/or The Dixie Jubilee.
If payment for said booked tickets is made by the Purchaser to Tenant, Tenant
shall forward within seven (7) days said funds to Landlord. Landlord shall pay
Tenant a fee of $1.00 for each such ticket booked by Tenant which amount shall
be paid upon receipt of ticket payment and occurrence of performance. Provided,
however, Tenant shall not advertise the sale of tickets of The Carolina Opry or
The Dixie Jubilee without the prior written consent of Landlord.
c. Tenant shall not, without the prior written consent of
Landlord, sell tickets or advertise for any other show or performance except for
shows or performances on the Demised Premises and as set forth above.
7. TAXES. The Tenant shall pay any and all real estate taxes,
personal property, asset taxes, admission taxes, sales taxes, resale taxes and
all other taxes related to the Demised Premises and the operation of Tenant's
business on or before the first day of December each year and shall provide
Landlord with paid receipts of same on or before December 15th of each year.
-4-
<PAGE>
8. USE. The Tenant shall use the Demised Premises solely for
operating a live family-style performance theater, provided, however, Tenant
shall not use the Demised Premises for any form of adult entertainment,
striptease acts, night clubs, or similar types of performance nor shall there be
permitted any type of alcoholic beverage sales on the Demised Premises.
9. QUIET ENJOYMENT. The Tenant, upon paying the rent and
performing all other terms of this Lease, shall quietly have and enjoy the
leased property during the term of this Lease and any extensions thereof without
hindrance or interference by anyone claiming by or through the Landlord.
10. REPAIR, MAINTENANCE AND ASSESSMENT. During the Initial
Term only, Landlord warrants that the roof is in good order and repair and shall
not leak. Tenant shall pay for and make all other repairs and replacements to
the Demised Premises (including, without limitation, the theater's light system,
sound system, curtains, riggings, staging, seating and concession
gift/equipment) in good order and repair.
11. SURRENDER. Upon the termination of this Lease (whether by
expiration or otherwise) the Tenant shall immediately surrender the Demised
Premises in as good condition as it was in at the beginning of this Lease,
reasonable use and wear and damages by the elements expected. If the Tenant
fails to deliver the Demised Premises, Landlord shall have the right to retain
as liquidated rental the security deposit. Landlord, by accepting such
liquidated rental, shall not be deemed to waive any other right or privilege
under this Lease, but rather such right shall be considered as in addition to
and not in exclusion of such rights and privileges.
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<PAGE>
12. ALTERATIONS AND IMPROVEMENTS. Tenant shall make no
alterations, additions, or improvements of any nature to the Demised Premises
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld.
13. UTILITIES. Tenant shall be responsible for payment to the
respective utility companies for all electric, telephone, water, sewer, and
other utility service provided to the Demised Premises.
14. DEFAULT. If proceedings shall be commenced against the
Tenant in any Court under the Bankruptcy Act or for the appointment of a trustee
or receiver of the Tenant's property either before or after the commencement of
the lease term or any extension thereof, or if there shall be a default of the
payment of rent or any part thereof for more than ten (10) days after written
notice of such default by the Landlord, or if there shall be default in the
performance of any other covenant, agreement or conditions herein contained on
the part of the Tenant for more than thirty (30) days after written notice of
such default by the Landlord, this Lease (if the Landlord so elects), shall
thereupon become null and void, and the Landlord shall have the right to
re-enter or repossess the Demised Premises, either by force, summary
proceedings, surrender, or otherwise and dispossess and move therefrom the
Tenant or other occupants thereof, and their effects, without being liable for
any prosecution therefor. In such case the Landlord may, at its option, re-let
the Demised Premises or any part thereof, as the agent of the Tenant, and the
Tenant shall pay the Landlord the difference between the rent hereby reserved
and agreed to be paid by the Tenant for the portion of the term remaining at the
time of re-entry or repossession and the amount, if any, received or to be
received under such re-letting for such portion of the term.
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<PAGE>
In addition to any other remedies Landlord may have at law or
equity or under this Lease, Tenant shall pay upon demand all Landlord's costs,
expenses (including attorney's fees) in connection with the recovery of sums due
under this Lease or because of any breach of the terms of this Lease by Tenant.
15. INSURANCE. Tenant shall keep the Demised Premises insured
at its sole cost and expense against claim for personal injury or property
damage under a single limit policy of general public liability insurance of at
lease One Million and No/100 ($1,000,000.00) Dollars per person and Three
Million and No/100 ($3,000,000.00) Dollars per occurrence. Such policy shall be
issued by a financially responsible insurer licensed to do business in the State
of South Carolina and shall name the Landlord as an additional insured. Tenant
shall provide Landlord with a copy of said policy and all replacements thereto.
Tenant shall be responsible for maintaining insurance on its own personal
property.
Tenant shall at its own expense keep the building and contents
located on the Demised Premises insured against loss or damage by fire with
extended coverage endorsement in an amount not less than the full replacement
value of the building and contents which policy shall name the Landlord as the
insured.
16. CASUALTY. If the Demised Premises should be damaged during
the term by fire or other insurable casualty to the extent of less than 35% of
the replacement value of the Demised Premises, without the fault of Tenant,
Landlord shall, subject to the provisions hereof and subject to the time that
elapses due to adjustment of fire insurance, repaid and/or restore the same to
substantially the condition it was in immediately prior to such damage or
destruction, except as in this Article provided. All insurance proceeds received
by Landlord
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<PAGE>
pursuant to the provisions of this Lease shall be held in trust by the Landlord
and applied to the payment of such restoration. Landlord's obligation under this
Article shall in no event exceed the scope of the original construction and
contents of the building. Tenant shall with due dispatch, replace or restore
forthwith any trade fixtures, signs or other installations, theretofore
installed by Tenant. Rent payable under this Lease shall be abated during the
restoration period.
If the Demised premises are damaged by fire or other casualty
to the extent of greater than 35% of the replacement value of the Demised
Premises, Landlord shall repair and/or restore the Demised Premises in the same
manner as set forth in the preceding paragraph only upon the condition that
Tenant affirmatively exercises all of the options to extend the term of this
Lease and no less than four (4) years are still remaining in the term.
Otherwise, this Lease shall terminate upon the occurrence of such casualty and
neither party shall have any further rights or obligations hereunder.
17. CONDEMNATION. If the whole of the Demised Premises, or
such portion thereof as will make the leased property unsuitable for the
purposes herein leased, are taken by condemnation or eminent domain, this Lease
shall expire on the date when the Demised Premises shall be so taken, and the
rent shall be apportioned as of that date.
18. ASSIGNMENT AND SUBLEASING. The Tenant may not sublet all
or any portion of the Demised Premises or assign this Lease, except to a wholly
owned subsidiary of Tenant with the prior written approval of Landlord which
shall not be unreasonably withheld. Provided, however, no such assignment or
sublet shall relieve Tenant of its obligations hereunder and Tenant shall along
with such assignee or sublessee remain fully responsible for the performance
hereof.
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<PAGE>
19. INDEMNIFICATION. Tenant shall defend, indemnify and hold
Landlord harmless from and against any claim, loss, expense or damage to any
person or property in or upon the Demised Premises, arising out of Tenant's use
or occupancy of said premises or any act or neglect of Tenant or Tenant's
servants, employees or agents, or any change, alteration or improvement made by
Tenant in the Demised Premises.
20. COMPLIANCE WITH APPLICABLE LAWS. The Tenant, at its sole
expense, shall comply with all laws, orders and regulations of any governmental
authority and shall, at its own expense, obtain all required licenses or permits
for the operation of its business.
21. LANDLORD'S RIGHT OF ENTRY. The Landlord and its
representatives may, upon reasonable notice to Tenant, enter the Demised
Premises, during normal business, for the purpose of inspecting the Demised
Premises, performing any work the Landlord is to perform hereunder or elects to
undertake because of Tenant's failure to do so, or for exhibiting the property
to prospective purchasers, lessees, or mortgagees. Tenant shall have the right
to provide an escort during such entries hereunder.
22. NOTICES. Any notice under this Lease must be in writing
and must be sent by registered or certified mail to the last address of the
party to whom the notice is to be given, as designated by such party in writing.
The Landlord hereby designates its address as Great American Entertainment
Company President's Office, 8901-A North Kings Highway, Myrtle Beach, South
Carolina 29572. The Tenant hereby designates its address as John Stuart/Ben
Pittman, Legends In Concert, 4625 West Nevso Drive, Suite 10, Las Vegas, Nevada
89103.
-9-
<PAGE>
23. OPTION TO PURCHASE. At anytime within four (4) years from
the date hereof, Tenant may purchase the Demised Premises for a consideration to
be agreed upon with Landlord. The Tenant shall provide Landlord with notice of
its election to purchase hereunder and if the parties cannot agree on the
purchase price within thirty (30) days of such notice, the amount shall be
determined by appraisal by an MAI Appraiser mutually selected by Landlord and
Tenant. If the parties cannot agree on the selection of an MAI appraiser within
ten (10) days, a referral shall be obtained from the Horry County Board of
Realtors which shall be binding on both parties. The cost of the appraisal shall
be shared equally between Landlord and Tenant. Closing shall occur within thirty
(30) days of the agreement by Landlord and Tenant on the purchase price or
within thirty (30) days of the receipt of the appraisal from the MAI appraiser.
The Landlord and Tenant each agree to be responsible for the payment of the
respective closing cost customarily paid by the seller or by the buyer in a
transaction of this nature in Horry County, South Carolina. Except for prepaid
rent, there shall be no prorations since Tenant is responsible under the Lease
for the payment of all portable items.
24. EXCLUSIVE LOCATION AND LANDLORD'S RIGHT OF FIRST REFUSAL.
Tenant shall not lease another existing location within a fifty (50) mile radius
of the Demised Premises within three (3) years from the date hereof. If Tenant
desires to construct a new location within a fifty (50) mile radius of the
Demised Premises within three (3) years from the date hereof, Landlord shall
have the right of first refusal to construct the theater upon the same terms and
conditions Tenant deems acceptable from a third party. Tenant shall have the
option of being an equal partner with Landlord and shall advise Landlord of its
election when presenting the acceptable proposal to Landlord. Landlord shall
then have a period of thirty (30)
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<PAGE>
days to accept or reject Tenant's proposal. If rejected, Tenant may proceed upon
the same terms and conditions as rejected by Landlord.
25. GOVERNING LAW. This Lease shall be governed, construed and
enforced in accordance with the laws of the State of South Carolina.
26. BINDING AGREEMENT. The covenants, terms, conditions,
provisions and undertakings in this Lease or any extensions thereof, shall
extend to and be binding on the heirs, executors, administrators, successors and
assigns to the respective parties hereto, as if they were in every case named
and expressed and shall be construed as covenants running with the land; and
wherever reference is made to either of the parties hereto, it shall be held to
include and apply also to the heirs, executors, administrators, successors and
assigns of such party as if and in each and every case so expressed.
27. LANDLORD'S REMEDIES. The specified remedies to which the
Landlord may resort under the terms of this Lease are cumulative and are not
intended to be exclusive of any other remedies or means of redress to which the
Landlord may be lawfully entitled in case of any breach or threatened breach by
the Tenant of any provisions of this Lease.
28. ENTIRE AGREEMENT. This Lease contains the entire agreement
between the parties and shall not be modified in any manner except by an
instrument in writing executed by the parties. If any term or provision of this
Lease or the application of such term or provision to persons or circumstances
other than those to which is held invalid or unenforceable, shall not be
affected thereby and each term or provision of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
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<PAGE>
29. NO JOINT VENTURE. The parties have not created and do not
intend to create by this Lease a joint venture or partnership relation between
them.
30. SUBORDINATION TO MORTGAGES. This Lease is subject and
subordinate at all times to the lien of existing and future mortgages on the
Demises Premises. Although no instrument or act by Tenant shall be necessary to
effectuate such subordination, Tenant shall, nevertheless, executed and deliver
such further instruments subordinating this Lease to the lien of all such
mortgages when required by the respective mortgagees.
31. JURISDICTION. Tenant submits to any court of competent
jurisdiction in the state of South Carolina. Tenant agrees that any action
concerning this Lease, whether initiated by Landlord, Tenant or any other party
shall be tried only in a court of competent jurisdiction within the state of
South Carolina and Tenant waives all objections to such venue. All matters
arising hereunder shall be determined in accordance with the law and practice of
such South Carolina Court. Tenant further agrees to comply with all requirements
necessary to give such court in personam jurisdiction and agrees that service of
process may be accomplished by, in addition to any other lawful means, certified
mail, return receipt requested, to Tenant at Tenant's address set forth herein
or any new address of which Landlord has been notified in writing.
32. ASSIGNMENT BY LANDLORD. Landlord reserves the right to
sell, assign, or transfer this Lease. Upon any such sale, assignment, or
transfer, other than merely as security, Tenant agrees to look solely to the
assignee or transferee with respect to all matters in connection with this Lease
and Landlord shall be released from any further obligations hereunder. If Tenant
makes any security deposit by virtue of this Lease or otherwise, Landlord
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<PAGE>
may transfer the deposit to the assignee or transferee and thereupon Landlord
shall be discharged from any further liability in reference thereto.
IN WITNESS WHEREOF, the Landlord and Tenant have executed this
Lease, this ____ day of __________________ 199_.
IN THE PRESENCE OF: Landlord:
GREAT AMERICAN ENTERTAINMENT
COMPANY
_____________________________ By:_______________________________
_____________________________ Its:_______________________________
Tenant:
LEGENDS IN CONCERT, INC.
____________________________ By:_______________________________
____________________________ Its:_______________________________
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<PAGE>
STATE OF NEVADA )
) PROBATE
COUNTY OF CLARK )
PERSONALLY APPEARED BEFORE ME the undersigned witness, and made oath that s/he
saw the within GREAT AMERICAN ENTERTAINMENT COMPANY, INC., by David J. Olive its
President, sign, seal and as the Corporate act and deed deliver the within
written Lease Agreement and the s/he with the other undersigned witness,
witnessed the execution thereof.
___________________________________
SWORN to and subscribed before me
this ___ day of ______________, 199_.
_____________________________________
Notary Public for Nevada
My Commission Expires:______________
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<PAGE>
STATE OF NEVADA )
) PROBATE
COUNTY OF CLARK )
PERSONALLY APPEARED BEFORE ME the undersigned witness, and made oath that s/he
saw the within LEGENDS IN CONCERT, INC., by John Stuart its President, sign,
seal and as the Corporate act and deed deliver the within written Lease
Agreement and the s/he with the other undersigned witness, witnessed the
execution thereof.
___________________________________
SWORN to and subscribed before me
this ___ day of ______________, 199_.
_____________________________________
Notary Public for Nevada
My Commission Expires:______________
-15-
<PAGE>
ADDENDUM TO LEASE AGREEMENT
THIS LEASE ADDENDUM is made and entered into this ____ day of
______________, 199_ by and between GREAT AMERICAN ENTERTAINMENT COMPANY, a
Delaware corporation, hereinafter called the "Landlord" and LEGENDS IN CONCERT,
INC., a Nevada corporation, hereinafter referred to as the "Tenant."
RECITALS
The parties have previously drafted a Lease Agreement for the use of a
theater owned by the Landlord in Myrtle Beach, South Carolina.
After further negotiations, the parties wish to amend and augment the
terms contained in their draft of December 30, 1994 by entering into this
agreement which shall be executed contemporaneously with the execution of the
parties Lease Agreement.
1. PREMISES. The description of the Premises shall be augmented by
attaching to Exhibit "A" of the Lease an accurate scaled blueprint of the
theater. The Landlord will mark on said blueprint those areas of the theater
which it intends to maintain exclusive use and control over as provided for in
subsections (1) and (2) of the Premises provision.
The Landlord's non-exclusive use of the parking lot shall not
materially effect or impact the Tenant's use of the theater or the ingress or
egress of its guests or patrons to the Tenant's performances.
2. SECURITY DEPOSIT. The Tenant will deposit with the Landlord as a
security deposit the sum of EIGHTY SIX THOUSAND DOLLARS ($86,000), payable as
follows:
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<PAGE>
FIFTY THOUSAND DOLLARS ($50,000) within five (5) days of the execution of this
agreement with the balance to be paid on or before February 1, 1995.
The Landlord shall maintain the Tenant's security deposit in an
interest bearing account which shall pay interest of not less than that which
the Tenant could receive by placing the sums in a six (6) month Certificate of
Deposit, in a federally insured bank, in the Myrtle Beach, South Carolina area.
The Tenant alone shall be entitled to the interest generated from the security
deposit and shall be entitled to receive said interest at such dates and times
as the financial institution, wherein the deposit is held, shall pay.
In the event that the Landlord shall sell the property to a third
party, the Landlord agrees to place the security deposit in an interest bearing
escrow account to the benefit of the Tenant. The Landlord shall return to Tenant
TEN THOUSAND DOLLARS ($10,000) of the security deposit each year on the
anniversary date of this Lease Agreement. On the anniversary date of the eighth
year, the Landlord hereby agrees to return the remaining balance of the security
deposit to Tenant along with all returns and interest due upon said deposit.
3. TERM. The term of this Lease shall begin on February 1, 1995 and
shall end on December 31, 1995 (the initial term).
5. RENT.
(a) Initial Term. For the initial Term, rent in the amount of Two
hundred Sixty-Eight Thousand ($268,000) Dollars.
6. Ticket Sales.
(a) The ticket commissions paid to the Landlord pursuant to paragraph
6(a) of the parties Lease Agreement shall be in effect for the
initial term. Thereafter,
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<PAGE>
in the event the Tenant exercises its option to extend the
Term, the Tenant may negotiate the ticket commissions with the
Landlord provided, however, that the Tenant will pay the
Landlord no less than Three Dollars ($3.00) per ticket for
tickets sold during the second term.
All tickets sold by the Landlord under the third or
fourth term extension shall be based solely upon the
commission structure agreed upon by the parties during such
term.
The Landlord shall make a reasonable effort to sell
Tenant's tickets and will advise and consult in the area of
marketing and promotion of Tenant's shows.
10. REPAIR, MAINTENANCE AND ASSESSMENT. The Landlord represents and
warrants that the theater and all essential equipment in the theater including,
but not limited to the theaters light system, sound system, curtains, riggings,
staging, seating, concession and gift areas, fire safety systems and the like
are in good working order and are at present fully operable and serviceable. The
Landlord further represents and warrants that to the best of his knowledge there
are no latent defects with the theater building or its equipment which would
materially impair the Tenant's ability to open and operate his theatrical
production.
13. UTILITIES. In order to prevent the Tenant from being required to
post a new or additional security deposit, the Landlord hereby agrees to allow
the Tenant the use of the Landlord's security deposit that Landlord has
previously deposited with the utility company that provides the electrical
service to the Demised Premises The Tenant hereby expressly acknowledges that it
has no financial interest in said security deposit and that upon termination
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<PAGE>
of this Lease, for any reason, the security deposit is and shall remain
exclusively to the benefit of the Landlord.
14. DEFAULT. In the event of a re-entry and repossession of the
premises by the Landlord following a default, the Landlord agrees that it will
not rent the theater at substantially below current market values and that it
will use its good faith best efforts to Lease the theater at its full fair
market value or at the rate of rent anticipated by the Lease agreement,
whichever is greater.
19. INDEMNIFICATION. The Landlord shall de-fend, indemnify and hold
Tenant harmless from and against any claim, loss, expense or damage to any
person or property in or upon the Demised premises arising out of a 'Latent
defect in the building or permanent equipment of the building or any act of
negligence of the Landlord or the Landlord's servants, employees or agents.
21. LANDLORD'S RIGHT OF ENTRY. The Landlord and its representatives
shall provide the Tenant with reasonable notice of its wish to enter the
building, and in any event, not less than two (2) hours notice. Moreover, the
Landlord agrees that said entry shall not be made within an hour of or during
any theatrical performance.
23. OPTION TO PURCHASE. In addition of the option to purchase the
building, the Landlord hereby grants to the Tenant a right of first refusal to
acquire the building in the event that Landlord should solicit or receive a
purchase money offer from any third party. In the event that the Landlord
receives such an offer, the Landlord will communicate such offer to the Tenant
from the full written terms of the said offer. Thereafter, the Tenant shall have
thirty (30) days to communicate to the Landlord his willingness to purchase the
building on the same terms and
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<PAGE>
conditions as has been offered by any third party purchaser. The Tenant's right
of first refusal shall not be operative in the event that the Landlord is
selling his entire business operation, including shows and other theatrical
facilities.
24. EXCLUSIVE RIGHT AND LANDLORD'S RIGHT OF FIRST REFUSAL.
The Tenant shall not lease another location for the purposes of
operating a "Legends in Concert" production within a fifty (50) mile radius of
the Demised Premises within three (3) years from the date hereof. However, the
Tenant may lease a facility for purposes of operating another performance
provided, however, that the Landlord shall have a right of first refusal to rent
equivalent space to the Tenant, on equivalent terms, should the Tenant find
another facility in which it wishes to stage another production. The Landlord
shall then have a period of thirty (30) days to accept or match the Tenant's
proposed lease arrangement with another theater to house a non-"Legends in
Concert" production.
31. JURISDICTION. The parties agree that in any dispute arising under
the parties agreement, save and except a Landlord and Tenant dispute wherein the
Tenant is a holdover tenant, shall be submitted to binding arbitration in
accordance with the rules of the American Arbitration Association at a neutral
forum, as the parties may agree, outside the states of South Carolina and
Nevada. A Landlord and Tenant dispute arising as a result of the Tenant's
holding over of the premises may be resolved by any court of competent
jurisdiction in the state of South Carolina.
33. NON-PIRACY/NON-COMPETITION. During the term of this agreement, the
parties agree that they shall neither solicit or attempt to solicit or employ
technical personnel or
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<PAGE>
talent that is currently employed, or have been employed by the other party
within the last five (5) years. This covenant shall survive the term of this
agreement for a period of two (2) years.
34. CONTRACT CONSTRUCTION. For purposes of construction, the parties
agree that the Lease Agreement and Addendum should be read together and to the
extent that any term or condition of the Lease Agreement is in conflict with the
term or condition of this Addendum, the terms and conditions of this Addendum
shall take priority and the contradictory term or condition of the Lease
Agreement shall be rendered null and void and will have no practical effect
and/or purpose.
IN WITNESS WHEREOF, the Landlord and Tenant have executed this
Addendum, this ____ day of _____________, 199_.
IN THE PRESENCE OF: Landlord:
GREAT AMERICAN ENTERTAINMENT
COMPANY
_____________________________ By:_______________________________
_____________________________ Capacity:_________________________
Tenant:
LEGENDS IN CONCERT, INC.
____________________________ By:_______________________________
____________________________ Capacity:_________________________
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<PAGE>
VIA FACSIMILE
October 14, 1996
Mr. Budd Friedman
President
Improvisation, Inc.
RE: EVENING AT THE IMPROV SPECTACULAR
Dear Mr. Friedman:
The purpose of this letter is to memorialize our understandings with respect to
the co-production of the show and concept tentatively entitled Evening at the
Improv Spectacular (hereinafter collectively referred to as the "Show") between
On Stage Entertainment, Inc., a Nevada corporation ("On Stage") and Budd
Friedman, an individual and as President of Improvisation, Inc. (together
"Improvisation"). To this end, we are with the understanding that the following
terms and conditions will govern our co-production of the Show:
Name of Production (tentative): Evening at the Improv Spectacular.
Basic Show Content: Comedy show incorporating several
comedians, comedic skits, dancers, comedic
production numbers, sets, choreography
lighting, etc.
Capital Contribution: Actual pre-production costs to be
contributed equally (50/50) between On Stage
and Improvisation.
Asset Contribution: In the event either party contributes assets
(sets, props) to the Show, the value of
those assets contributed will be credited to
the respective parties 50% capital
contribution at such amount that is to be
mutually agreed upon between the parties
Division of Profits: Profits will be divided equally (50% to On
Stage/50% to Improvisation)
<PAGE>
Definition of Profits: For purposes of this agreement letter,
Profits shall be defined as gross revenues
minus actual costs incurred by each party,
which costs shall include the amortized
value of all capital and asset
contributions. Each party shall have the
right to reasonably request documentation in
support of the actual costs the other party
seeks reimbursement or credit for.
Billing Rights: An On Stage Entertainment and Improvisation
production.
Concept Ownership: As this Show and the underlying concept is
being developed as a joint venture, the
rights to the show and concept shall be
owned equally (50% by On Stage/50% by
Improvisation).
Term of Agreement: This Agreement will automatically expire if
no action is taken on this Co-Production
during any nine (9) month period.
If the above accurately represents your understandings with respect to the
material terms that will govern the Show, please acknowledge the same by
affixing your signature below. Upon execution hereof, please allow this letter
of understanding to serve as our agreement until such time as a more formal
agreement can be prepared which incorporates those terms and conditions which
are normally contained therein.
Very Truly Yours, Agreed and Accepted,
------------------------
Budd Friedman
an individual
David Hope
President
Legends in Concert, Inc.,
a wholly owned subsidiary of
On Stage Entertainment, Inc.
------------------------
Budd Friedman
President
Improv West, Inc.
<PAGE>
U.S. $750,000
AMENDED AND RESTATED
LOAN AGREEMENT
dated as of February 29, 1996,
amended and restated as of March __, 1997
between
ON STAGE ENTERTAINMENT, INC.,
(formerly named Legends in Concert, Inc.)
as Borrower
and
DYDX LEGENDS GROUP, L.P.,
as Lender
<PAGE>
AMENDED AND RESTATED
LOAN AGREEMENT
This Amended and Restated Loan Agreement ("Agreement") dated
as of February 29, 1996, as amended and restated as of March __, 1997, by and
between On Stage Entertainment, Inc. (formerly named Legends in Concert, Inc.),
a Nevada corporation ("Borrower") and DYDX Legends Group, L.P., a California
partnership ("Lender") hereby amends and restates in its entirety the Original
Loan Agreement (defined below).
RECITALS
A. Pursuant to a Loan Agreement (the "Original Loan
Agreement") dated as of February 29, 1996, by and between Borrower and Lender,
Lender made a loan (the "Original Loan") to Borrower of One Million Dollars
($1,000,000) in principal amount. The Original Loan was secured by all the
assets of the Borrower under the terms of a Security Agreement dated as of
February 29, 1996 (the "Security Agreement"), by and between Borrower and
Lender. As of the date hereof, Borrower is in compliance with all material terms
of the Original Loan Agreement other than the payment of $23,356.16 in accrued
interest which was outstanding as of March 14, 1997, the payment of which has
been waived by Lender until the earlier of (i) the date on which the Bridge
Financing (defined below) is closed or (ii) March 31, 1997.
B. Borrower and Lender extended the time for certain
conditions to be satisfied under the Original Loan Agreement under the terms of
an Extension Agreement dated as of June 27, 1996, a Second Extension Agreement
dated as of November 19, 1996 and a Third Extension Agreement dated as of
February 9, 1997 (collectively, the "Extension Agreements").
C. In connection with the Second Extension Agreement, Borrower
repaid $250,000 of the principal amount of the Original Loan, leaving a
principal balance of $750,000 (the "Loan"), excluding any accrued interest
thereon.
D. Borrower desires to issue a series of non-negotiable 9%
notes (the "Bridge Notes") pursuant to Borrower's Confidential Private Offering
Memorandum dated February 25, 1997, as supplemented by Supplement No. 1 dated
March ___, 1997 (the "Memorandum"), relating to Borrower's offering to
accredited investors of up to 20 Units (the "Bridge Financing"), each Unit
consisting of (i) a Bridge Note in the principal amount of $50,000, (ii) 10,000
shares of Common Stock of the Borrower, and (iii) warrants to purchase an
aggregate of 12,500 shares of Common Stock of the Borrower. The placement agent
for the Bridge Financing is Whale Securities Co., L.P.
(the "Agent").
E. Borrower and Lender desire to amend and restate the
Original Loan Agreement on the terms of this Agreement in order for Borrower to
effect the Bridge Financing.
<PAGE>
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PROMISES AND
UNDERTAKINGS HEREIN CONTAINED AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE
RECEIPT AND SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, THE PARTIES HERETO
AGREE AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
1.1 Defined Terms. As used in this Agreement (and in all other Loan
Documents, unless otherwise defined), the following capitalized terms shall have
the following meanings:
"Agreements" means this Agreement, including all amendments,
modifications and supplements hereto and any appendices, exhibits or schedules
to any of the foregoing, and shall refer to the Agreement as the same may be in
effect at the time such reference becomes operative.
"Ancillary Agreements" means any supplemental agreement,
undertaking, instrument, document or other writing executed by Borrower, in
connection herewith, including the DYDX Warrants, Loan Documents and all
amendments or supplements thereto.
"Assignee Lender" means any holder of the Note, other than
Lender, approved by Borrower.
"Business Day" means any day that is not a Saturday, a Sunday
or a day on which banks are required or permitted to be closed in the States of
New York or California.
"Closing Date" means February 29, 1996, which was the date
Lender made the Original Loan.
"Common Stock" means the common stock, $.01 par value per
share, of Borrower.
"Default" means any event which, with the passage of time or
notice or both, would, unless cured or waived, become an Event of Default.
"Fiscal Year" means the fiscal year of Borrower ending on
December 31 of each year. No subsequent change of the fiscal year of Borrower
shall change the term "Fiscal Year," unless Lender shall consent in writing to
such change.
"Last Computed Sales Price" shall mean the last price paid for
the Borrower's Common Stock in a bona fide purchase and sale transaction.
"Loan Documents" means this Agreement, the Note, those
Ancillary Agreements as to which Lender is a party or a beneficiary on the date
hereof, and all other agreements, instruments, documents and certificates,
including pledges, powers of attorney, consents, assignments, contracts
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and similar documents whether heretofore, now or hereafter executed by or on
behalf of Borrower and delivered to Lender, in connection with this Agreement or
the transactions contemplated hereby.
"Material Adverse Effect" means any material adverse effect on
(a) the business, assets, operations or financial
condition of Borrower; or
(b) Borrower's ability to pay the Obligations in
accordance with the terms thereof.
If Borrower does not achieve either of the IPO Conditions
(defined in Section 2.4), then "Material Adverse Effect" shall also mean any
material adverse effect on (i) the collateral covered by the new security
agreement referred to in Section 2.5 hereof, or (ii) Lender's liens on such
collateral or the priority of any such lien.
"Note" is defined in Section 2.2.
"Obligations" means all loans, advances, debts, liabilities
and obligations for monetary amounts (whether or not such amounts are liquidated
or determinable) owing by Borrower to Lender of any kind or nature, present or
future, whether or not evidenced by any note, agreement or other instrument,
arising under any of the Loan Documents, and includes all interest, all fees
payable pursuant to this Agreement, charges, expenses, attorneys' fees and any
other sum chargeable to Borrower under any of the Loan Documents.
"Termination Date" means the date on which all Obligations
hereunder have been completely discharged.
1.2 Singular and Plural Terms. Any defined term used in the plural in
any Loan Document shall refer to all members of the relevant class and any
defined term used in the singular shall refer to any number of the members of
the relevant class.
1.3 Accounting Principles. Any accounting term used and not
specifically defined in any Loan Document shall be construed in conformity with,
and all financial data required to be submitted under any Loan Document shall be
prepared in conformity with generally accepted accounting practices applied on a
consistent basis.
1.4 References. Any reference to any Loan Document or other document
shall include such document both as originally executed and as it may from time
to time be modified. References herein to Articles, Sections and Exhibits shall
be construed as references to this Agreement unless a different document is
named. References to subparagraphs shall be construed as references to the same
Section in which the reference appears.
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1.5 Other Terms. The term "document" is used in its broadest sense and
encompasses agreements, certificates, opinions, consents, instruments and other
written material of every kind. The terms "including" and "include" mean
"including (include) without limitation." The requirement that any party
"deliver" any item to another party shall be construed to require that the first
party "deliver or cause to be delivered" such item to the second party. The term
"any," as a modifier to a noun, shall be construed to mean "any and/or all"
preceding the same noun in the plural. The term "agreement" includes both
written and oral agreements. The terms "modify" and "modification," when used
with reference to any document or obligation, include amendments, supplements,
renewals, extensions, waivers, terminations and other modifications of every
kind. The terms "law" and "laws," unless otherwise modified, mean, collectively,
all applicable Federal, state and local laws, rules, regulations, codes and
administrative and judicial precedents. The terms "herein," "hereunder" and
other similar compounds of the word "here" refer to the entire document in which
the term appears and not to any particular provision or section of the document.
This Section 1.5 shall apply to all of the Loan Documents.
1.6 Conflicts. In the event of any conflict between the provisions of
this Agreement and those of any other Loan Document, this Agreement shall
prevail; provided, however, that with respect to any matter addressed in both
such documents, the fact that one document provides for greater, less or
different rights or obligations than the other shall not be deemed a conflict
unless the applicable provisions are inconsistent and could not be
simultaneously enforced or performed.
2. AMENDMENT AND RESTATEMENT
2.1 Loan Agreement. The Original Loan Agreement, together with the
Extension Agreements, is hereby amended and restated in its entirety to read as
set forth in this Agreement, except that Lender shall continue to be able to
rely on each of the deliveries by Borrower under Section 3.1 of the Original
Loan Agreement other than the deliveries under Sections 3.1(a) and 3.1(g) of the
Original Loan Agreement.
2.2 Note. The Original Note is hereby canceled and replaced by the
promissory note to be executed and delivered by Borrower to Lender on the date
hereof, the form of which is attached hereto and made a part hereof as Exhibit A
("Note"). Upon Lender's receipt of the duly executed and delivered Note, Lender
shall promptly return to Borrower the Original Note canceled hereby.
2.3 Termination of Security Interest Securing Original Loan. The
security interest in the assets of Borrower to secure the Original Loan is
hereby terminated, and, accordingly, the Security Agreement is hereby terminated
and of no further effect. Lender shall execute and deliver any and all such
further instruments and take such further action as Borrower may reasonably
desire to terminate the security interest to secure the Original Loan,
including, filing a UCC-3 termination statement to terminate any financing
statement filed with respect to such security interest.
2.4 Agreement to Grant Future Security Interest. If Borrower has not
filed a registration statement with the Securities and Exchange Commission
relating to an initial public
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offering of its Common Stock (an "IPO") by June 30, 1997 (the "First Condition")
or closed an IPO by July 31, 1997 (the "Second Condition" and, together with the
First Condition, the "IPO Conditions") then Borrower shall grant to Lender and
the holders of the Bridge Notes, on a pari passu basis, a security interest in
all the assets of the Borrower on terms and conditions substantially the same as
those set forth in the Security Agreement to secure Borrower's obligations under
the Note and the Bridge Notes.
2.5 Future Security Agreement. If Borrower does not achieve either the
First Condition or the Second Condition, then to evidence the security interest
described in Section 2.4, on July 1, 1997 (in the event the Borrower fails to
achieve the First Condition) or on August 1, 1997 (in the event the Borrower
achieves the First Condition but not the Second Condition), Borrower shall enter
into a security agreement with the Lender and the holders of the Bridge Notes
(the "New Security Agreement") in substantially the form of the Security
Agreement, with such changes as mutually agreed upon by Lender and Agent, and
shall execute and deliver such financing statements as reasonably requested by
Lender and Agent. If the Note is outstanding on June 1, 1997, then Borrower
shall deliver an executed copy of the New Security Agreement and all related
financing statements and other documents required under the New Security
Agreement to an escrow agent appointed by Lender and Agent, with instructions to
the escrow agent to immediately release the New Security Agreement and file the
financing statements if and when Borrower fails to achieve one of the IPO
Conditions.
3. AMOUNT AND TERMS OF CREDIT
3.1 Loan. Lender made the Original Loan under the Original Loan
Agreement to Borrower on February 29, 1996, which is as of the date of this
Agreement in the principal amount of $750,000. The Loan shall be evidenced by
the Note to be executed and delivered by Borrower to Lender on the date hereof.
3.2 Optional Prepayment. Borrower shall have the right at any time, on
three (3) days' prior written notice to Lender, to prepay voluntarily all or
part of the Loan (together with all accrued and unpaid interest thereon);
provided, however, that any such prepayment shall be applied on a pari passu
basis with the Bridge Notes.
3.3 Maturity. The Loan and all accrued interest thereon shall be due
and payable to Lender on the first to occur of the following dates: (i) the
earlier date (the "Maturity Date") to occur of: (a) March __, 1998 and (b) the
closing date of the initial public offering by Borrower of its securities
pursuant to an effective registration statement under the Securities Act of
1933, as amended; (ii) the date on which the outstanding principal amount of
this Note is prepaid in full as hereinafter permitted; and (iii) any date on
which any principal amount of, or accrued unpaid interest on, the Note or any
Bridge Note is declared to be, or becomes, due and payable pursuant to the terms
of the Note or such Bridge Note prior to the Maturity Date.
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3.4 Single Loan. Subject to Sections 2.4 and 2.5 above, the Loan and
all of the other Obligations of Borrower arising under this Agreement and the
other Loan Documents shall constitute one general unsecured obligation of
Borrower.
3.5 Interest on Loan.
(a) Borrower shall pay interest to Lender with respect to the
Loan in arrears on each June 30 and December 31, commencing June 30, 1996.
Interest shall be payable in an amount equal to the quotient of (i) an amount
equal to (A) the sum of the daily unpaid principal amount of the Loan
outstanding on each day during the period from the immediately preceding
interest payment date (or, in the case of June 30, 1996, interest payment,
during the period from the Closing Date through June 30, 1996) multiplied by (B)
a rate equal to 9% (provided that the rate applicable to the period prior to the
date of this Agreement shall be 8%) ("Stated Rate"), divided by (ii) 365.
(b) If any payment on the Loan becomes due and payable on a
day other than a Business Day, the maturity thereof shall be extended to the
next succeeding Business Day and, with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension.
(c) So long as an Event of Default shall be continuing the
Stated Rate applicable to the Loan shall be increased by 8% per annum ("Default
Interest Rate"), retroactive to the Closing Date and applicable to the total
amount of the Loan as of the Closing Date.
(d) Notwithstanding anything to the contrary set forth in this
Section, if at anytime until payment in full of all of the obligations in
respect of the Loan, the Default Interest Rate exceeds the highest rate of
interest permissible under any law which a court of competent jurisdiction
shall, in a final determination, deem applicable hereto ("Maximum Lawful Rate"),
then in such event and so long as the Maximum Lawful Rate would be so exceeded,
the rate of interest payable hereunder with respect to the Loan to which such
Default Interest Rate applies shall be equal to the Maximum Lawful Rate;
provided, however, that if at any time thereafter such Default Interest Rate is
less than the Maximum Lawful Rate, Borrower shall continue to pay interest
hereunder with respect to the Loan to which such Default Interest Rate applies
at the Maximum Lawful Rate until such time as the total interest received by
Lender hereunder is equal to the total interest which Lender would have received
had such Default Interest Rate been (but for the operation of this paragraph)
the interest rate payable since the Closing Date. Thereafter, the interest rate
payable hereunder shall be the Default Interest Rate unless and until such
Default Interest Rate again exceeds the Maximum Lawful Rate, in which event this
paragraph shall again apply. In no event shall the total interest received by
Lender pursuant to the terms hereof exceed the amount which Lender could
lawfully have received had the interest due hereunder been calculated for the
full term hereof at the Maximum Lawful Rate. In the event the Maximum Lawful
Rate is calculated pursuant to this paragraph, such interest shall be calculated
at a daily rate equal to the Maximum Lawful Rate divided by the number of days
in the year in which such calculation is made. In the event that a court of
competent jurisdiction, notwithstanding the provisions of this Section, shall
make a final
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determination that Lender has received interest hereunder or under any of the
Loan Documents in excess of the Maximum Lawful Rate, Lender shall, to the extent
permitted by applicable law, promptly apply such excess first to any interest
due and not yet paid on the Loan, then to any due and payable principal on the
Loan, then to other unpaid Obligations, and thereafter shall refund any excess
to Borrower or as a court of competent jurisdiction may otherwise order.
3.6 Receipt of Payments. Borrower shall make each payment under this
Agreement to Lender not later than 12:00 noon (Los Angeles time) on the day when
due in lawful money of the United States of America by cashier's check or by
wire transfer to such depositary of Lender as designated by Lender from time to
time for deposit in Lender's depositary account, in each case with appropriate
reference to Borrower. All payments by Borrower hereunder shall be deemed to be
made and shall be applied by Lender on the day payment has been received by
Lender or credited by Lender's depositary bank to Lender's account in
immediately available funds.
3.7 Access. Lender and each Assignee Lender and any of their officers,
employees and/or agents shall have the right, exercisable as frequently as
Lender or any Assignee Lender reasonably determines to be appropriate and at
Lender's expense, during normal business hours (or at such other times as may
reasonably be requested by Lender or any Assignee Lender) and, unless a Default
or an Event of Default shall have occurred and be continuing, upon reasonable
notice to Borrower, to inspect, audit and make copies of all of Borrower's
records, files and books of account. Borrower shall deliver copies of any
document or instrument reasonably necessary for Lender or any Assignee Lender,
as any of them may request, to obtain records from any service bureau
maintaining records for Borrower, and shall maintain duplicate records or
supporting documentation on media, including computer tapes and discs owned by
Borrower. Borrower shall instruct its banking and other financial institutions
to make available to Lender and each Assignee Lender such information and
records as Lender or any Assignee Lender may reasonably request.
3.8 Offset. In addition to and not in limitation of any rights of
Lender under applicable law, Lender shall, upon the occurrence of any Event of
Default, have the right, to the maximum extent permitted by law, to appropriate
and apply to the payment of the Obligations owing to it (whether or not then
due) any and all balances, credits, accounts or moneys of Borrower then or
thereafter with Lender.
4. COVENANTS. Borrower covenants and agrees that, so long as the Note
remains outstanding and unpaid, in whole or in part:
4.1 Borrower will not, and will not permit any of its subsidiaries to,
sell, transfer or in any other manner alienate or dispose of a material part of
its assets; provided, however, that Borrower or any of its subsidiaries may
effect such a transaction if (i) the transaction is a bona fide transaction in
which fair market value is received, (ii) no Event of Default (defined below) or
any condition or event which, with the giving of notice or the lapse of time or
both, would become an Event of Default has occurred or would occur after giving
effect to such transaction, and (iii) the payment of this Note is duly provided
for from such sale proceeds;
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4.2 Except as described in the Memorandum, Borrower will not, and will
not permit any of its subsidiaries to, make any loan to any person who is or
becomes a shareholder of Borrower, other than for reasonable advances for
expenses in the ordinary course of business;
4.3 Borrower will, and will cause each of its subsidiaries to, promptly
pay and discharge all lawful taxes, assessments and governmental charges or
levies imposed upon it, its income and profits, or any of its property, before
the same shall become in default, as well as all lawful claims for labor,
materials and supplies which, if unpaid, might become a lien or charge upon such
properties or any part thereof; provided, however, that Borrower or such
subsidiary shall not be required to pay and discharge any such tax, assessment,
charge, levy or claim so long as the validity thereof shall be contested in good
faith by appropriate proceedings and Borrower or such subsidiary, as the case
may be, shall set aside on its books adequate reserves with respect to any such
tax, assessment, charge, levy or claim so contested;
4.4 Borrower will, and will cause each of its subsidiaries to, do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence, rights and franchises and substantially comply
with all laws applicable to Borrower as its counsel may advise;
4.5 Borrower will, and will cause each of its subsidiaries to, at all
times maintain, preserve, protect and keep its property used or useful in the
conduct of its business in good repair, working order and condition and will,
from time to time, make all necessary and proper repairs, renewals,
replacements, betterments and improvements thereto;
4.6 Borrower will, and will cause each of its subsidiaries to, keep
adequately insured, by financially sound reputable insurers, all property of a
character usually insured by similar corporations and carry such other insurance
as is usually carried by similar corporations;
4.7 Borrower will, promptly following the occurrence of an Event of
Default or of any condition or event which, with the giving of notice or the
lapse of time or both, would constitute an Event of Default, furnish a statement
of Borrower's President or Chief Financial Officer to Lender setting forth the
details of such Event of Default or condition or event and the action which
Borrower intends to take with respect thereto;
4.8 Borrower will, and will cause each of its subsidiaries to, at all
times maintain books of account in which all of its financial transactions are
duly recorded in conformance with generally accepted accounting principles;
4.9 Borrower will not, and will not permit any of its subsidiaries to,
purchase or otherwise redeem any Common Stock;
4.10 Except with the prior written consent of Lender, Borrower will
not, and will not permit any of its subsidiaries to, create, incur, assume,
permit, guarantee or suffer to exist any indebtedness or any other obligations
for money borrowed except for (i) indebtedness existing on
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the date hereof, (ii) indebtedness under the Bridge Notes, (iii) trade
indebtedness, (iv) indebtedness or other obligations for money borrowed which
are subordinated in all respects, including, but not limited to, priority upon
liquidation, to the Loan, (v) indebtedness payable to a bank in an aggregate
amount equal to or less than $250,000, (vi) indebtedness between the Borrower
and its currently existing subsidiaries, (vii) the guarantee by Borrower of
indebtedness of a subsidiary of Borrower, which indebtedness Borrower itself
would be permitted to incur hereunder, (viii) equipment financing in the
ordinary course of business, and (ix) indebtedness incurred in connection with
Borrower's acquisition of the OFT Theater, as described in the Memorandum ("OFT
Indebtedness"), and the guarantee by Borrower of such indebtedness;
4.11 Except with the prior written consent of Lender, Borrower will
not, and will not permit any of its subsidiaries to, pay or prepay any amounts
under any outstanding indebtedness or other obligations for money borrowed or
under any indebtedness or other obligations for money borrowed incurred
subsequent to the date hereof, whether or not such indebtedness becomes due,
past due or accelerated, except for (i) all of the Bridge Notes and the Note on
a pro rata basis, (ii) payment when due of up to $110,000 of currently
outstanding bank indebtedness, as described in the Memorandum (the "Bank Debt"),
(iii) up to and including $250,000 of indebtedness payable to a bank incurred in
consideration of cash infused into the Borrower after the date hereof, (iv)
trade indebtedness incurred in the ordinary course of business, (v) indebtedness
between the Borrower and its currently existing subsidiaries, (vi) payment when
due of the OFT Indebtedness, and (vii) equipment financing in the ordinary
course of business; and
4.12 Except with the prior written consent of the Agent and Lender,
Borrower will not encumber or pledge any of its assets as security other than
(i) as provided for in Sections 2.4 and 2.5 above and as already pledged in
connection with the Bank Debt, (ii) assets generally in the form of tenant
improvements, furniture, fixtures and equipment and other assets located at the
theaters leased by Borrower, such assets to secure the obligation of Borrower as
lessee, (iii) the OFT Theater including any improvements, furniture, fixtures
and equipment and other assets located at the OFT Theater which may be mortgaged
to secure the OFT Indebtedness, and (iv) equipment that may be encumbered in
connection with any equipment financing in the ordinary course of business.
5. FINANCIAL STATEMENTS AND INFORMATION
5.1 Reports and Notices. Borrower covenants and agrees that from and
after the Closing Date and until the Termination Date, it shall deliver to
Lender:
(a) Within 20 days after the end of each fiscal month, a copy
of the unaudited statements of income and cash flow of Borrower as of the end of
such month and for that portion of the Fiscal Year ending as of the end of such
month, all prepared in accordance with generally accepted accounting practices.
(b) Within one week after the end of each fiscal week, a
report setting forth Borrower's receipts and expenditures (on a cash basis) for
such week.
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(c) As soon as practicable, but in any event within two
Business Days after an executive officer of Borrower becomes aware of the
existence of any Default or Event of Default, or any development or other
information which would have a Material Adverse Effect, telephonic or
telegraphic notice specifying the nature of such Default or Event of Default or
development or information, including the effect thereof, which notice shall be
promptly confirmed in writing within five days.
(d) If requested by Lender, copies of all Federal, state,
local and foreign tax returns and reports in respect of income, franchise or
other taxes on or measured by income (excluding sales, use or like taxes) filed
by Borrower.
(e) As soon as available, copies of all minutes of meetings
of the Board of Directors of Borrower.
(f) Such other information respecting Borrower's business,
financial condition or prospects as Lender or any Assignee Lender may, from time
to time, reasonably request.
5.2 Communicating with Accountants. Borrower authorizes Lender and each
Assignee Lender, at their respective expense, to discuss Borrower's business,
financial condition and other affairs directly with its independent certified
public accountants and authorizes those accountants to disclose to Lender and
each Assignee Lender any and all financial statements and other supporting
financial documents and schedules including copies of any management letter with
respect to the business, financial condition and other affairs of Borrower. At
or before the Closing Date, Borrower shall deliver a letter addressed to such
accountants instructing them to comply with the provisions of this Section.
Lender shall bear any expense in connection with such communication unless there
is an Event of Default in which cash such expense shall be borne by Borrower.
5.3 Quarterly Business Reviews. Borrower will cause its senior
executive management to participate in quarterly business review meetings with
representatives of Lender.
5.4 Asset List. On or before March 24, 1997, Borrower shall provide
Lender with a schedule of its material assets as of December 31, 1996.
6. EVENTS OF DEFAULT. If any of the following events (each an "Event of
Default") occurs:
6.1 The dissolution of Borrower or any subsidiary of Borrower or any
vote in favor thereof by the board of directors and shareholders of Borrower or
any subsidiary of Borrower; or
6.2 Borrower or any of its subsidiaries becomes insolvent, however
evidenced, or makes an assignment for the benefit of creditors, or files with a
court of competent jurisdiction an application for appointment of a receiver or
similar official with respect to it or any substantial part of its assets, or
Borrower or any of its subsidiaries files a petition seeking relief under any
provision
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of the Federal Bankruptcy Code or any other federal or state statute now or
hereafter in effect affording relief to debtors, or any such application or
petition is filed against Borrower or any of its subsidiaries, which application
or petition is not dismissed or withdrawn within thirty (30) days from the date
of its filing; or
6.3 Borrower fails to pay the principal amount of the Note or any of
the Bridge Notes, as and when the same becomes due and payable; or
6.4 Borrower fails to pay the interest on, or any other amount (other
than principal) payable under the Note or any of the Bridge Notes on or before
the 10th day following the date the same became due and payable; or
6.5 Borrower or any of its subsidiaries admits in writing its inability
to pay its debts as they mature; or
6.6 Borrower or any of its subsidiaries sells all or substantially all
of its assets (other than in compliance with Section 4.1 above) or merges or is
consolidated with or into another corporation (other than, in the case of a
subsidiary of Borrower, a sale of assets to another wholly-owned subsidiary of
Borrower or the merger or consolidation of such subsidiary with or into another
wholly-owned subsidiary of Borrower or into Borrower); or
6.7 A proceeding is commenced to foreclose a security interest or lien
in any property or assets of Borrower or of any subsidiary of Borrower as a
result of a default in the payment or performance of any debt (in excess of
$50,000 and secured by such property or assets) of Borrower or of any subsidiary
of Borrower; or
6.8 A final judgment for the payment of money in excess of $50,000 is
entered against Borrower or any subsidiary of Borrower by a court of competent
jurisdiction, and such judgment is not discharged (nor the discharge thereof
duly provided for) in accordance with its terms, nor a stay of execution thereof
procured, within thirty (30) days after the date such judgment is entered, and,
within such period (or such longer period during which execution of such
judgment is effectively stayed), an appeal therefrom has not been prosecuted and
the execution thereof caused to be stayed during such appeal; or
6.9 An attachment or garnishment is levied against the assets or
properties of Borrower or any subsidiary of Borrower involving an amount in
excess of $50,000 and such levy is not vacated, bonded or otherwise terminated
within thirty (30) days after the date of its effectiveness; or
6.10 Borrower defaults in the due observance or performance of any
covenant, condition or agreement on the part of Borrower to be observed or
performed pursuant to the terms of this Agreement (other than the defaults
specified in Sections 6.3 and 6.4 above) and such default continues uncured for
a period of thirty (30) days; or
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6.11 Borrower defaults in the payment (regardless of amount) when due
of the principal of, interest on, or any other liability on account of, any
indebtedness of Borrower or any of its subsidiaries (other than the Note or the
Bridge Notes, or any of them) having a face or principal amount in excess of
$50,000, or a default occurs in the performance or observance by Borrower of any
covenant or condition (other than for the payment of money) contained in any
note or agreement evidencing or pertaining to any such indebtedness, which
causes the maturity of such indebtedness to be accelerated or permits the holder
or holders of such indebtedness to declare the same to be due prior to the
stated maturity thereof;
then, upon the occurrence of any such Event of Default and at any time
thereafter, Lender shall have the right (at Lender's option) to declare the
principal of, accrued unpaid interest on, and all other amounts payable under
the Note to be forthwith due and payable, whereupon all such amounts shall be
immediately due and payable to Lender, without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived; provided,
however, that in case of the occurrence of an Event of Default under any of
Sections 6.1, 6.2 or 6.5 above, such amounts shall become immediately due and
payable without any such declaration by Lender.
7. SUITS FOR ENFORCEMENT AND REMEDIES. If any one or more Events of Default
shall occur and be continuing, Lender may proceed to (i) protect and enforce
Lender's rights either by suit in equity or by action at law, or both, whether
for the specific performance of any covenant, condition or agreement contained
in this Agreement or in any agreement or document referred to herein or in aid
of the exercise of any power granted in this Agreement or in any agreement or
document referred to herein, (ii) enforce the payment of the Note, or (iii)
enforce any other legal or equitable right of Lender. No right or remedy herein
or in any other agreement or instrument conferred upon Lender is intended to be
exclusive of any other right or remedy, and each and every such right or remedy
shall be cumulative and shall be in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or otherwise.
8. SURVIVAL OF OBLIGATIONS, ETC.
8.1 Survival of Obligations Upon Termination of Financing Arrangement.
Except as otherwise expressly provided for in the Loan Documents, no termination
or cancellation (regardless of cause or procedure) of any financing arrangement
under this Agreement shall in any way affect or impair the powers, obligations,
duties, rights and liabilities of Borrower or the rights of Lender relating to
any transaction or event occurring prior to such termination. Except as
otherwise expressly provided herein or in any other Loan Document, all
undertakings, agreements, covenants, warranties and representations contained in
the Loan Documents shall survive such termination or cancellation and shall
continue in full force and effect until such time as all of the Obligations have
been fully and finally paid in accordance with the terms of the agreements
creating such Obligations, at which time the same shall terminate.
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9. MISCELLANEOUS
9.1 Complete Agreement; Modification of Agreement; Sale of Interest.
The Loan Documents constitute the complete agreement among the parties with
respect to the subject matter hereof, supersede any prior agreements, written or
oral, with respect thereto and may not be modified, altered or amended except by
an agreement in writing signed by Borrower and Lender. Borrower may not sell,
assign or transfer any of the Loan Documents or any portion thereof, including
Borrower's rights, title, interests, remedies, powers and duties hereunder or
thereunder.
In the event Lender or any Assignee Lender assigns or otherwise
transfers all or any part of the Note, Borrower shall, upon the request of
Lender or such Assignee Lender, issue a new note to effectuate such assignment
or transfer.
No amendment or waiver of any provision of this Agreement or the Note
or any other Loan Document, no consent to any departure by Borrower therefrom,
shall in any event by effective unless the same shall be in writing and signed
by Lender, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by Lender and all Assignee Lenders affected thereby, do any of the
following: (i) subject Lender or any Assignee Lender to any additional
obligations, (ii) reduce the principal of, or interest on, the Note or other
amounts payable hereunder other than those payable only to the Lender which may
be reduced by Lender unilaterally, (iii) postpone any date fixed for any payment
of principal of, or interest on, the Note or other amounts payable hereunder,
other than those payable only to Lender which may be postponed by Lender
unilaterally, (iv) change the aggregate unpaid principal amount of the Note, (v)
release or discharge any person liable for the performance of any obligations of
Borrower hereunder or under any of the Loan Documents, or (vi) amend this
Section; and provided, further, however, that no amendment, or waiver or consent
shall, unless in writing and signed by Lender affect the rights or duties of
Lender under this Agreement, the Note or any Loan Document.
9.2 Fees and Expenses.
(a) If, at any time or times, regardless of the existence of
an Event of Default, Lender (or in the case of paragraphs (iii) and (iv) below,
any Assignee Lender) shall employ counsel for advice or other representation or
shall incur reasonable legal or other costs and expenses in connection with:
(i) any amendment, modification or waiver, or consent
with respect to, any of the Loan Documents;
(ii) any litigation, consent, dispute, suit,
proceeding or action (whether instituted by Lender or any
Assignee Lender, Borrower or any other Person) in any way
relating to the Collateral, any of the Loan Documents or any
other agreements to be executed or delivered in connection
herewith;
13
<PAGE>
(iii) any attempt to enforce any rights of Lender or
any Assignee Lender against Borrower or any other Person that
may be obligated to Lender by virtue of any of the Loan
Documents; or
(iv) any attempt to verify, protect, collect, sell,
liquidate or otherwise dispose of the Collateral:
then, and in any such event, the attorneys' fees arising from such services,
including those of any appellate proceedings, and all expenses, costs, charges
and other fees incurred by such counsel in any way or respect arising in
connection with or relating to any of the events or actions described in this
Section shall be payable, on demand, by Borrower to Lender (or as provided above
to an Assignee Lender) and shall be additional Obligations secured under this
Agreement and the other Loan Documents. Without limiting the generality of the
foregoing, such expenses, costs, charges and fees may include: paralegal fees,
costs and expenses; accountants' fees, costs and expenses; court costs and
expenses; photocopying and duplicating expenses; court reporter fees, costs and
expenses; long distance telephone charges; air express charges; telegram
charges; secretarial overtime charges; and expenses for travel, lodging and food
paid or incurred in connection with the performance of such legal services.
(b) Except as provided in subparagraph (a), in the event
either Borrower or Lender shall bring any action or proceeding for damages for
alleged breach of any provision of the Loan Documents, or to enforce, protect,
or establish any right or remedy of either party, the prevailing party shall be
entitled to recover as part of such action or proceedings reasonable legal
and/or other directly related costs and expenses incurred by the prevailing
party in connection with such an event.
9.3 No Waivers by Lender. No failure by Lender or any Assignee Lender,
at any time or times, to require strict performance by Borrower of any provision
of this Agreement and any of the other Loan Documents shall waive, affect or
diminish any right of Lender or any Assignee Lender thereafter to demand strict
compliance and performance therewith. Any suspension or waiver by Lender or any
Assignee Lender of an Event of Default by Borrower under the Loan Documents
shall not suspend, waive or affect any other Event of Default by Borrower under
this Agreement and any of the other Loan Documents whether the same is prior or
subsequent thereto and whether of the same or of a different type. none of the
undertakings, agreements, warranties, covenants and representations of Borrower
contained in this Agreement or any of the other Loan Documents and no Event of
Default under this Agreement and no defaults by Borrower under any of the other
Loan Documents shall be deemed to have been suspended or waived by Lender or any
Assignee Lender, unless such suspension or waiver is by an instrument in writing
signed by officers of Lender and directed to Borrower specifying such suspension
or waiver.
9.4. Remedies. The rights and remedies of Lender and each Assignee
Lender under this Agreement shall be cumulative and nonexclusive of any
other rights and remedies which Lender and Assignee Lenders may have under any
other agreement, including the Loan Documents, by operation of law or otherwise.
Recourse to the Collateral shall not be required.
14
<PAGE>
9.5. MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS TO THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR
REMEDIES UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS.
9.6 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
9.7 Parties. This Agreement and the other Loan Documents shall be
binding upon, and inure to the benefit of, the successors of Borrower, Lender
and any Assignee Lender and the assigns, transferees and endorsees of Lender and
each Assignee Lender.
9.8 Conflict of Terms. Except as otherwise provided in this Agreement
or any of the other Loan Documents by specific reference to the applicable
provisions of this Agreement, if any provision contained in this Agreement is in
conflict with, or inconsistent with, any provision in any of the other Loan
Documents, the provision contained in this Agreement shall govern and control.
9.9 Authorized Signatories. Until Lender shall be notified by Borrower
to the contrary, the signature upon any document or instrument delivered
pursuant hereto of an officer of Borrower shall bind Borrower and be deemed to
be the act of Borrower affixed pursuant to and in accordance with resolutions
duly adopted by Borrower's Board of Directors.
9.10 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF
THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS SHALL BE GOVERNED
BY, AND CONSTRUED AND ENFORCE IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE
OF NEVADA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT
REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. BORROWER CONSENTS TO PERSONAL
15
<PAGE>
JURISDICTION, WAIVES ANY OBJECTION AS TO JURISDICTION OR VENUE, AND AGREES NOT
TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE, IN THE COUNTY OF
CLARK, STATE OF NEVADA. SERVICE OF PROCESS ON BORROWER, LENDER OR ANY ASSIGNEE
LENDER IN ANY ACTION ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS
SHALL BE EFFECTIVE IF MAILED TO SUCH PARTY AT THE ADDRESS LISTED IN SECTION
9.11. NOTHING HEREIN SHALL PRECLUDE LENDER, ANY ASSIGNEE LENDER OR BORROWER FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION.
9.11 Notices. All notices and other communications provided for or
permitted hereunder shall be made by hand delivery, first class mail, telex or
telecopied, addressed as follows:
PARTY ADDRESS
----- -------
Lender DYDX Legends Group, L.P.
c/o Nightingale-Conant
7300 North Lehigh
Niles, Illinois 60714
Attn: Nikolas Konstant
Telecopier No.: (847) 647-7145
with a copy, which shall not constitute notice, to:
Harry S. Stahl, Esq.
McKenna & Stahl
2603 Main Street, Suite 1010
Irvine, California 92614
Telecopier No.: (714) 752-6723
Borrower On Stage Entertainment, Inc.
4625 West Nevso Drive, Suite 10
Las Vegas, Nevada 89103
Attn: John W. Stuart
Telecopier No.: (702) 253-1122
with a copy, which shall not constitute notice, to:
James W. Jennings, Esq.
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
Telecopier No.: (215) 963-5299
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered, five (5)
business days after deposit in any United States Post Office in the continental
United States, postage prepaid, if mailed; when answered back, if telexed; and
when receipt is acknowledged or confirmed, if telecopied.
16
<PAGE>
9.12 Survival. The representations and warranties of Borrower in this
Agreement shall survive the execution, delivery and acceptance hereof by the
parties hereto and the closing of transactions described herein or related
hereto.
9.13 Section Titles. The Section titles contained in this Agreement are
and shall be without substantive meaning or content of any kind whatsoever and
are not a part of the agreement between the parties hereto.
9.14 Cross-References. Unless otherwise specified, references in this
Agreement and in each other Loan Document to any Section are references to such
Section of this Agreement or such other Loan Document, as the case may be.
9.15 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which shall collectively and separately,
constitute one agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Amended
and Restated Loan Agreement as of the day and year first above written.
DYDX LEGENDS GROUP, L.P.
A California partnership
By: DYDX Corp., General Partner
By:________________________________
Nikolas Konstant
President
ON STAGE ENTERTAINMENT, INC.
A Nevada corporation
By:________________________________
Kiran Sidhu
Senior Vice President, CFO
and Treasurer
17
<PAGE>
COMMON STOCK PURCHASE AGREEMENT
by and among
ON STAGE ENTERTAINMENT, INC.
(a Nevada corporation),
INTERACTIVE EVENTS, INC.
(a Georgia corporation)
and
RICHARD S. KANFER
(an individual)
<PAGE>
TABLE OF CONTENTS
Page:
-----
ARTICLE I. DEFINITIONS................................................1
ARTICLE II. SALE AND PURCHASE OF INTERACTIVE SHARES....................4
2.01 Sale and Purchase of Interactive Shares....................4
2.02 Issuance and Transfer of Shares............................5
2.03 Closing....................................................5
2.04 Delivery to On Stage.......................................5
2.05 Delivery to Kanfer.........................................5
2.06 Further Assurances.........................................5
ARTICLE III. DELETED ..................................................5
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF INTERACTIVE..............6
4.01 Corporate Status...........................................6
4.02 Authorization..............................................6
4.03 Consents and Approvals.....................................6
4.04 Capitalization and Stock Ownership.........................6
4.05 Financial Statements.......................................6
4.06 Title to Interactive Assets and Related Matters............7
4.07 Real Property..............................................7
4.08 Certain Personal Property..................................7
4.09 Non-Real Estate Leases.....................................7
4.10 Sales Deposits.............................................8
4.11 Inventory..................................................8
4.12 Absence of Undisclosed Liabilities.........................8
4.13 Taxes......................................................8
4.14 Subsidiaries...............................................8
4.15 Legal Proceedings and Compliance with Law..................8
4.16 Contracts..................................................9
4.17 Patents and Other Intellectual Property...................10
4.18 Employee Relations........................................10
4.19 Benefit Plans.............................................10
4.20 Corporate Records.........................................10
4.21 Absence of Certain Changes................................10
4.22 Previous Sales; Warranties................................11
4.23 Customers and Actors......................................11
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4.24 Finder's Fees..............................................12
4.25 Purchase Entirely for Own Account..........................12
4.26 Qualified Investor.........................................12
4.27 Restricted Securities......................................12
4.28 Kanfer's Products or Events................................12
4.29 Accuracy of Information....................................12
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF ON STAGE.................13
5.01 Corporate Status...........................................13
5.02 Authorization..............................................13
5.03 Consents and Approvals.....................................13
5.04 Capitalization and Stock Ownership.........................13
5.05 Finder's Fees..............................................14
5.06 Goodwill...................................................14
5.07 Purchase Entirely for Own Account..........................14
5.08 Restricted Securities......................................14
ARTICLE VI. COVENANTS OF INTERACTIVE...................................14
6.01 Operation of the Interactive Business......................14
6.02 Agreement Not To Compete...................................15
6.03 Stockholder Meeting........................................15
6.04 Access.....................................................15
6.05 No Other Negotiations......................................15
6.06 Maintenance of the Interactive Assets......................15
6.07 Employees and Business Relations...........................16
6.08 Confidentiality............................................16
6.09 Fulfillment of Conditions..................................16
6.10 Disclosure of Certain Matters..............................16
6.11 Satisfaction of Liabilities................................17
6.12 No Violation of Securities Laws............................17
6.13 Expenses...................................................17
6.14 Lock-up....................................................17
6.15 Right of First Refusal.....................................17
ARTICLE VII. COVENANTS OF ON STAGE......................................18
7.01 Confidentiality............................................18
7.02 Expenses...................................................18
7.03 Fulfillment of Conditions..................................18
7.04 Board of Directors Meeting.................................18
7.05 Disclosure of Certain Matters..............................19
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7.06 No Violation of Securities Laws............................19
ARTICLE VIII. CONDITIONS PRECEDENT TO THE TRANSACTIONS...................19
8.01 Conditions to Obligations of On Stage......................19
8.02 Conditions to Obligations of Interactive and Kanfer........20
ARTICLE IX. INDEMNIFICATION............................................21
9.01 By Kanfer..................................................21
9.02 By On Stage................................................21
9.03 Procedure for Claims.......................................22
9.04 Third Party Claims.........................................22
ARTICLE X. TERMINATION................................................22
10.01 Grounds for Termination....................................22
10.02 Effect of Termination......................................23
ARTICLE XI. CONTENTS OF AGREEMENT, AMENDMENT, PARTIES IN
INTEREST, ASSIGNMENT, ETC..................................23
ARTICLE XII. INTERPRETATION.............................................24
ARTICLE XIII. NOTICES....................................................24
ARTICLE XIV. GOVERNING LAW..............................................25
ARTICLE XV. COUNTERPARTS...............................................25
ARTICLE XVI. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................25
ARTICLE XVII. REMEDIES CUMULATIVE........................................26
ARTICLE XVIII. SEVERABILITY...............................................26
ARTICLE XIX. BULK TRANSFER..............................................26
ARTICLE XX. ARBITRATION................................................26
ARTICLE XXI. TAX FREE EXCHANGE..........................................26
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EXHIBITS:
A Form of Agreement to Issue Additional Shares
B Form of Stock Option Agreement
C Assignment of Shows
D Kanfer Employment Agreement
SCHEDULES:
Interactive:
4.03 Consents
4.04 Capitalization and Stock Ownership
4.06 Assignment of Leases
4.07 Real Property
4.08 Personal Property
4.10 Sales Deposits
4.12 Liabilities
4.13 Taxes
4.15 Litigation
4.16 Contracts
4.16(b) Defaults
4.17 Intellectual Property
4.18 Employee Relations
4.20 Benefit Plans
4.21 Compensation
4.23 Customer and Cast Contracts and Lists
iv
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COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT is made as of November 1, 1996, by
and among ON STAGE ENTERTAINMENT, INC., a Nevada corporation ("On Stage"),
INTERACTIVE EVENTS, INC., a Georgia corporation ("Interactive") and RICHARD S.
KANFER, an individual ("Kanfer"). Certain terms are used herein as defined below
in Article I or elsewhere in this Agreement.
Background
Interactive is engaged in business activities that include the creation
and implementation of interactive events.
Kanfer owns all of the outstanding shares of Common Stock of
Interactive (the "Interactive Shares") and is the President of Interactive.
Kanfer desires to sell, and On Stage desires to purchase, the
Interactive Shares.
Witnesseth
NOW, THEREFORE, in consideration of the respective covenants contained
herein and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
For convenience, certain terms used in more than one part of this
Agreement are listed in alphabetical order and defined or referred to below
(such terms as well as any other terms defined elsewhere in this Agreement shall
be equally applicable to both the singular and plural forms of the terms
defined).
"Affiliates" means, with respect to a particular party, persons or
entities controlling, controlled by or under common control with that party,
including but not limited to any officers, directors of that party and of its
other Affiliates and any entity in which that party owns more than 5% of the
voting securities on a fully diluted basis.
"Agreement" means this Agreement and the exhibits and schedules hereto.
"Benefit Plans" means all employee benefit plans of a party within the
meaning of Section 3(3) of ERISA and any related or separate Contracts, plans,
trusts, programs, policies,
<PAGE>
arrangements, practices, customs and understandings, in each case whether formal
or informal, that provide benefits of economic value to any present or former
employee of a party, or present or former beneficiary, dependent or assignee of
any such employee or former employee.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Closing" means the Closing on the Transactions.
"Closing Date" is defined in Section 2.03.
"Code" means the Internal Revenue Code of 1986, as amended, and the
Regulations promulgated thereunder.
"Contract" means any written or oral contract, agreement, lease,
instrument or other commitment that is binding on any Person or its property
under applicable law.
"Court Order" means any judgment, decree, injunction, order or ruling
of any federal, state, local or foreign court or governmental or regulatory body
or authority that is binding on any Person or its property under applicable law.
"Default" means (i) a breach, default or violation or (ii) the
occurrence of an event that with the passage of time or the giving of notice, or
both, would constitute a breach, default or violation.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other claim, charge or
encumbrance of any nature whatsoever on any property or property interest.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"GAAP" means United States generally accepted accounting principles.
"GGCL" means the Georgia General Corporations Law.
"Governmental Permits" means all governmental permits, licenses,
registrations, certificates of occupancy, approvals and other authorizations.
"Intellectual Property" is defined in Section 4.17.
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<PAGE>
"Interactive Assets" means all of the assets, properties, claims,
contracts, goodwill and rights of every kind and description, real and personal,
tangible and intangible, wherever situated, whether or not reflected in the most
recent financial statements, that Interactive has a right, title or interest to
or in and whether or not used by Interactive in the Interactive Business.
"Interactive Balance Sheet" is defined in Section 4.05.
"Interactive Balance Sheet Date" is defined in Section 4.05.
"Interactive Business" means the entire business, operations and
facilities of Interactive unless otherwise specified.
"Interactive Common Stock" means the Common Stock, no par value per
share, of Interactive.
"Interactive Disclosure" means the Disclosure Schedule provided by
Interactive in connection with this Agreement.
"Interactive Financial Statements" is defined in Section 4.05.
"Interactive's knowledge" or "On Stage's knowledge" means the actual
knowledge of Interactive or On Stage, as the case may be, or of any director,
officer or other employee of Interactive or On Stage, respectively, and such
knowledge as any of the foregoing should have obtained upon reasonable inquiry.
"Interactive Shares" means all of the outstanding shares of Interactive
Common Stock.
"Interactive Stockholder Meeting" is defined in Section 6.03.
"IRS" means the Internal Revenue Service.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any Person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means a material adverse effect on the
financial condition, results of operations, liquidity, products, competitive
position, customers and customer relations of any Representing Party.
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<PAGE>
"Minor Contracts" is defined in Section 4.16(a).
"Non-Real Estate Leases" is defined in Section 4.09.
"On Stage Common Stock" means the Common Stock, no par value per share,
of On Stage.
"On Stage Shares" means the shares of On Stage Common Stock to be
provided in connection with the Transactions.
"Ordinary Course" or "ordinary course of business" means the ordinary
course of business that is consistent with past practices.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
"Real Property" is defined in Section 4.07.
"Regulation" means any statute, law, ordinance, regulation, order or
rule of any federal, state, local, foreign or other governmental agency or body
or of any other type of regulatory body, including those covering food and drug,
environmental, energy, safety, health, transportation, bribery, recordkeeping,
zoning, antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Required Consents" is defined in Section 4.03.
"Securities Act" means the Securities Act of 1933, as amended, and the
Regulations promulgated thereunder.
"Termination Date" is defined in Section 10.01(b).
"Transaction Documents" means this Agreement and the other agreements
and documents contemplated hereby and thereby.
"Transactions" means the transactions contemplated by the Transaction
Documents.
ARTICLE II.
SALE AND PURCHASE OF INTERACTIVE SHARES
II.1 Sale and Purchase of Interactive Shares. Subject to the terms and
conditions of this Agreement, at the Closing, Kanfer shall sell, transfer,
convey, assign and deliver to On Stage, and On Stage shall purchase, acquire and
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<PAGE>
accept from Interactive, all the Interactive Shares free and clear of all liens,
claims, charges, restrictions, equities and encumbrances of any kind.
II.2 Issuance and Transfer of Shares. In consideration for the
Interactive Shares On Stage shall (a) issue and deliver to Kanfer, thirty-five
thousand (35,000) On Stage Shares; (b) deliver an agreement, substantially in
the form of Exhibit A, to issue to Kanfer Twenty Thousand (20,000) On Stage
Shares on the date of the first anniversary of the Closing Date; and (c) an
option to acquire 27,225 On Stage Shares, substantially in the form of Exhibit
B.
II.3 Closing. Unless this Agreement shall have been terminated and the
Transactions abandoned pursuant to Article X, subject to satisfaction or waiver
of the conditions to the Transactions set forth in Article VIII, the Closing
shall take place as promptly as practicable (and in any event within five
business days) after satisfaction or waiver of the conditions to the
Transactions set forth in Article VIII, at the offices of On Stage, Las Vegas,
Nevada, unless the parties hereto agree in writing to another date or place. The
date on which the Closing occurs is referred to herein as the "Closing Date."
II.4 Delivery to On Stage. At the Closing, Kanfer or Interactive will
deliver to On Stage (i) certificates representing the Interactive Shares,
together with stock power duly endorsed, (ii) all such other endorsements,
assignments and other instruments as are necessary to vest in On Stage title to
the Interactive Shares free and clear of any adverse claims; and (iii) all other
previously undelivered documents required to be delivered by Kanfer or
Interactive to On Stage at or prior to the Closing in connection with the
Transactions, including those contemplated by Article VIII.
II.5 Delivery to Kanfer. At the Closing, On Stage shall deliver to
Kanfer the number of On Stage Shares referred to in Section 2.02. On Stage shall
also deliver to Kanfer all previously undelivered documents required hereunder
to be delivered by On Stage to Kanfer at or prior to the Closing, including
those contemplated by Article VIII.
II.6 Further Assurances. After the Closing, Kanfer, Interactive and On
Stage shall each from time to time, at the request of a party hereto and without
further cost or expense to the requesting party, execute and deliver such other
instruments of conveyance and transfer and take such other actions as the
requesting party may reasonably request, in order to more effectively consummate
the Transactions and to vest in On Stage or Kanfer, as the case may be, title to
the Interactive Shares or On Stage Shares, as the case may be, being transferred
hereunder.
ARTICLE III.
DELETED
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<PAGE>
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF INTERACTIVE
Interactive and Kanfer each hereby represents and warrants to On Stage
as follows:
IV.1 Corporate Status. Interactive is a corporation duly organized,
validly existing and in good standing under the laws under which it was
incorporated. Interactive is qualified to do business as a foreign corporation
in any jurisdiction where it is required to be so qualified, except where the
failure to so qualify would not have a Material Adverse Effect. The Charter
Documents and bylaws of Interactive that have been delivered to On Stage have
been duly adopted and are current, correct and complete.
IV.2 Authorization. Interactive has the requisite power and authority
to execute and deliver the Transaction Documents to which it is or will be a
party and to perform the Transactions to be performed by it. Such execution,
delivery and performance by Interactive has been duly authorized by all
necessary corporate action. The Transaction Documents executed on or before the
date hereof constitute, and the Transaction Documents to be executed after the
date hereof will constitute, valid and binding obligations of Interactive and
Kanfer, enforceable in accordance with their terms.
IV.3 Consents and Approvals. Except for the consents specified in
Schedule 4.03 (the "Required Consents"), neither the execution and delivery by
Interactive of the Transaction Documents to which it is or will be a party, nor
the performance of the Transactions to be performed by Interactive, will require
any filing, consent or approval or constitute a Default under (a) any Regulation
or Court Order to which Interactive or Kanfer is subject, (b) the Charter
Documents or bylaws of Interactive or (c) any Contract, Governmental Permit or
other document to which Interactive or Kanfer is a party.
IV.4 Capitalization and Stock Ownership. The total authorized capital
stock of Interactive consists of 1,000,000 shares of Interactive Common Stock,
1,000 shares of which are issued and outstanding on the date hereof and no
shares of which are issued and held by Interactive as treasury stock. There are
no issued shares of Preferred Stock. Except as specified
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<PAGE>
in Schedule 4.04, there are no existing options, warrants, calls, commitments or
other rights of any character (including conversion or preemptive rights)
relating to the acquisition of any issued or unissued capital stock or other
securities of Interactive ("Interactive Options"). All of the Interactive Shares
are duly and validly authorized and issued, fully paid and non-assessable.
Schedule 4.04 correctly lists the record owners of all of the Interactive Shares
and of all of the Interactive Options. Interactive complied with all applicable
Regulations in connection with the issuance of all of the Interactive Shares and
all of the Interactive Options.
IV.5 Financial Statements. Interactive has delivered to On Stage
correct and complete copies of Interactive's unaudited financial statements
consisting of (i) Balance Sheets of Interactive as of December 31, 1995, 1994
and 1993, and (ii) Income Statements for the Years Ended December 31, 1995,
1994, and 1993. In addition, Interactive has delivered to On Stage correct and
complete copies of Interactive's unaudited financial statements consisting of
the Balance Sheet as of June 30, 1996. All such unaudited financial statements
are referred to herein collectively as the "Interactive Financial Statements."
The balance sheet as of June 30, 1996, is referred to herein as the "Interactive
Balance Sheet," and the date thereof is referred to herein as the "Interactive
Balance Sheet Date."
IV.6 Title to Interactive Assets and Related Matters. To the best
knowledge of Interactive and Kanfer, Interactive has good and marketable title
to, or valid leasehold interests in, all of the Interactive Assets, free from
any Encumbrances except those specified in Schedule 4.06. The use of the
Interactive Assets is not subject to any Encumbrances (other than those
specified in the preceding sentence), and such use does not materially encroach
on the property or rights of anyone else. All Real Property and tangible
personal property of Interactive are suitable for the purposes for which they
are used, in good working condition and reasonable repair, free from any known
defects, except such minor defects that would not in the aggregate exceed
$1,000.
IV.7 Real Property. Schedule 4.07 describes all real estate used in the
operation of the Interactive Business as well as any other real estate that is
in the possession of or leased by Interactive and the improvements (including
buildings and other structures) located on such real estate (collectively, the
"Real Property"), and lists any leases under which any such Real Property is
possessed (the "Real Estate Leases"). Interactive is not currently in Default
under any of the Real Estate Leases, and Interactive is not aware of any Default
by any of the lessors thereunder. Excepted as listed on Schedule 4.07,
Interactive does not have an ownership interest in any Real Property. Schedule
4.07 also describes any real estate previously owned, leased or otherwise
operated by Interactive during the five years immediately preceding the date of
execution of this Agreement and the time periods of any such ownership, lease or
operation.
IV.8 Certain Personal Property. Schedule 4.08 is an asset schedule,
describing and specifying the location of all items of tangible personal
property that were included in the Interactive Balance Sheet. Since the
Interactive Balance Sheet Date, Interactive has not acquired or disposed of any
items of tangible personal property that have, in each case, a carrying value in
excess of $1,000. All of Interactive's tangible personal property is in good
operating condition, reasonable wear and tear excepted.
IV.9 Non-Real Estate Leases. Interactive is not currently in Default
under any of the Non-Real Estate Leases, and Interactive is not aware of any
Default by any of the lessors thereunder. There are no existing Non-Real Estate
Leases under which the obligations of Interactive exceed $1,000 with respect to
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any individual Non-Real Estate Lease. "Non-Real Estate Leases" refers to any and
all leases that relate to an asset or property (other than Real Property) used
in the operation of the Interactive Business or otherwise possessed by
Interactive, including but not limited to all trucks, automobiles, machinery,
equipment, furniture and computers.
IV.10 Sales Deposits. Schedule 4.10 lists all events to be performed
after the date hereof for which sales deposits have been received as of November
1, 1996.
IV.11 Inventory. All inventory of Interactive consists of items of
quality and quantity saleable in the ordinary course of business at regular
sales prices of Interactive in the ordinary course of its business. The
inventory records for Interactive that has been delivered to On Stage are
accurate with respect to the data contained therein.
IV.12 Absence of Undisclosed Liabilities. Except as specified in
Schedule 4.12, Interactive does not have any Liabilities, and none of the
Interactive Assets is subject to any Liabilities.
IV.13 Taxes. Except as disclosed in Schedule 4.13, Interactive has duly
filed all foreign, federal, state, local and other tax returns that are required
to be filed and that were due, and has paid all material taxes and assessments
that have become due pursuant to such returns or pursuant to any assessment
received. Except as disclosed in Schedule 4.13, all taxes and other assessments
and levies that Interactive has been required by law to withhold or to collect
have been duly withheld and collected and have been paid over to the proper
governmental authorities or are properly held by Interactive for such payment.
Except as disclosed in Schedule 4.13, there are no proceedings or other actions,
nor is there any basis for any proceedings or other actions, for the assessment
and collection of additional taxes of any kind for any period for which returns
have or should have been filed. To the best knowledge of Kanfer and Interactive,
Interactive is not being audited nor has any audit in the past five years
resulted in the claim or imposition of any penalty or additional tax on
Interactive.
IV.14 Subsidiaries. Interactive does not own, directly or indirectly,
any interest or investment (whether equity or debt) in any corporation,
partnership, business, trust, joint venture or other legal entity. Kanfer does
not own, directly or indirectly, any interest or investment (whether equity or
debt) in any corporation, partnership, business, trust, joint venture or other
legal entity, other than shares in a publicly traded company not exceeding 2% of
the voting securities of that company.
IV.15 Legal Proceedings and Compliance with Law. Except as disclosed in
Schedule 4.15, there is no Litigation that is pending or threatened against or
related to Interactive. There has been no Default under any Regulations
applicable to Interactive. There has been no Default with respect to any Court
Order applicable to Interactive.
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IV.16 Contracts.
(a) Schedule 4.16 lists each Contract of the following types to
which Interactive is a party, or by which it is bound, except for any Contract
under which the executory obligation of Interactive involves an amount of less
than $1,000 (such excepted Contracts are referred to collectively as "Minor
Contracts"):
(i) Contracts with any present or former stockholder,
director, officer, employee, partner or consultant of
Interactive or Affiliate thereof;
(ii) Contracts for the future purchase of, or payment for,
supplies or products, or for the lease of any Asset
from or the performance of services by a third party,
in excess of $1,000 in any individual case, or any
Contracts for the sale of inventory or products that
involve an amount in excess of $1,000 with respect to
any one supplier or other party;
(iii) Contracts to sell or supply products or to perform
services that involve an amount in excess of $1,000 in
any individual case;
(iv) Contracts to lease to or to operate for any other party
any Asset that involve an amount in excess of $1,000 in
any individual case;
(v) Any notes, debentures, bonds, conditional sale
agreements, equipment trust agreements, letter of
credit agreements, reimbursement agreements, loan
agreements or other Contracts for the borrowing or
lending of money (including loans to or from officers,
directors, partners, stockholders or Affiliates of
Interactive or any members of their immediate
families), agreements or arrangements for a line of
credit or for a guarantee of, or other undertaking in
connection with, the indebtedness of any other Person;
(vi) Any Contracts under which any Encumbrances exist with
respect to any Interactive Assets; and
(vii) Any other Contracts (other than Minor Contracts and
those described in any of (i) through (vi) above) not
made in the ordinary course of business.
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(b) Except as disclosed in Schedule 4.16(b), Interactive is
not in Default under any Contract, which Default could result in a Liability on
the part of Interactive in excess of $1,000 in any individual case, and the
aggregate Liabilities that could result from all such Defaults do not exceed
$1,000. Except as disclosed in Schedule 4.16(b), Interactive has not received
any communication from, or given any communication to, any other party
indicating that Interactive or such other party, as the case may be, is in
Default under any Contract where such Default could have a Material Adverse
Effect.
(c) The aggregate amount of all Minor Contracts does not
exceed $5,000.
IV.17 Patents and Other Intellectual Property. To the best knowledge of
Interactive and Kanfer, Interactive neither currently uses nor has used in the
operation of the Interactive Business during the three years immediately
preceding the execution of this Agreement (including in the development or
marketing of products and services) any patent, trademark, trade name, service
mark, copyright, trade secret or know-how, except for those listed in Schedule
4.17. Such items listed on the Interactive Disclosure Schedule are referred to
herein as the "Intellectual Property." All of the Intellectual Property, as
specified in the Interactive Disclosure Schedule, to the best knowledge of
Kanfer, are owned or otherwise lawfully used by Interactive, and, to the best
knowledge of Kanfer, Interactive is not infringing upon or unlawfully or
wrongfully using any patent, trademark, trade name, service mark, copyright or
trade secret owned or claimed by another Person. Interactive has not received
any notice of any claim of infringement or any other claim or proceeding, with
respect to any such patent, trademark, trade name, service mark, copyright or
trade secret. No current or former employee of Interactive and no other Person
owns or has any proprietary, financial or other interest, direct or indirect, in
whole or in part, in any of the Intellectual Property, or in any application
therefor.
IV.18 Employee Relations. Except as disclosed on Schedule 4.18,
Interactive is not (a) a party to, involved in or threatened by, any labor
dispute or unfair labor practice charge or (b) currently negotiating any
collective bargaining agreement, and Interactive has not experienced any work
stoppage during the three years immediately preceding the execution of this
Agreement. Schedule 4.18 is a complete and correct list of the names and
salaries, bonus and other cash compensation of all employees (including
officers) of Interactive whose total cash compensation for 1994 exceeded, or
whose total compensation for 1995 is expected to exceed, $20,000.
IV.19 Benefit Plans. Except as disclosed on Schedule 4.19, there are no
Benefit Plans sponsored or maintained by Interactive or under which Interactive
may be obligated.
IV.20 Corporate Records. The minute books of Interactive contain
complete, correct and current copies of its Charter Documents and bylaws and of
all minutes of meetings, resolutions and other proceedings of its Board of
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Directors or committees thereof and stockholders. The stock record book of
Interactive is complete, correct and current.
IV.21 Absence of Certain Changes. Since the Interactive Balance Sheet
Date, Interactive has conducted the Interactive Business in the ordinary course
and there has not been:
(a) any material adverse change in the Interactive Business or
its Liabilities;
(b) any distribution or payment declared or made in respect of
its capital stock by way of dividends, purchase or redemption of shares or
otherwise;
(c) except as disclosed in Schedule 4.21, any increase in the
compensation payable or to become payable to any director, officer, employee or
agent, except for merit and seniority increases for non-officer employees made
in the ordinary course of business, nor any other change in any employment or
consulting arrangement;
(d) any sale, assignment or transfer of the Interactive
Assets, or any additions to or transactions involving any Interactive Assets,
other than those made in the ordinary course of business;
(e) other than in the ordinary course of business, any waiver
or release of any claim or right or cancellation of any debt held; or
(f) any payments to any Affiliate of Interactive, except as
specified in Schedule 4.21.
IV.22 Previous Sales; Warranties. To the best knowledge of Interactive
and Kanfer, all goods sold or distributed and services performed by Interactive
were of merchantable and satisfactory quality, and Interactive has not breached
any express or implied warranties in connection with the sale or distribution of
such goods and performances of such services. Interactive has provided On Stage
with true and correct copies of all written warranties (a) made by all Persons
from whom Interactive has obtained any goods that have been resold or
distributed by Interactive, including any goods that constituted parts included
in other goods sold or distributed by Interactive and (b) made by Interactive
with respect to any goods that have been sold or distributed or services that
have been performed by Interactive. No oral guaranties were made by Interactive
with respect to any goods that have been sold or distributed or services that
have been performed by Interactive.
IV.23 Customers and Actors. Interactive has used commercially
reasonable efforts to maintain, and currently maintains, good working
relationships with all of its customers and actors. Schedule 4.23 lists any
Contracts with customers or former customers of Interactive that have been
terminated or canceled during the two years period prior to the date hereof.
Schedule 4.23 also contains a list of the names of each of Interactive's
customers during the past two years involving a Contract of $1,000 or more.
Except as disclosed in Schedule 4.23, none of such customers has given
Interactive notice terminating, canceling or threatening to terminate or cancel
any Contract or relationship with Interactive, and none of such customers is, or
has been during the two year period immediately preceding the execution of this
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Agreement, a related party to Interactive. Schedule 4.23 also contains a list of
the names of Interactive's actors used in its productions during the two years
preceding the date hereof. None of such actors has given Interactive notice
terminating, canceling or threatening to terminate or cancel any Contract or
relationship with Interactive. Schedule 4.23 lists any complaints or disputes
that resulted in the payment of any monetary amount by Interactive or Kanfer
during the three years preceding the date hereof.
IV.24 Finder's Fees. No Person retained by Interactive is or will be
entitled to any com mission or finder's or similar fee in connection with the
Transactions.
IV.25 Purchase Entirely for Own Account. This Agreement is made in
reliance upon Kanfer's representation to On Stage, which by Kanfer's execution
of this Agreement Kanfer hereby confirms, that the On Stage Shares will be
acquired for investment for Kanfer's own account, not as a nominee or agent, and
not with a view to distribution (as such term is defined under the Securities
Act of 1933, as amended (the "Act")) of any part thereof. Kanfer represents that
he has full power and authority to enter into this Agreement.
IV.26 Qualified Investor. Kanfer represents and warrants that he is an
"Accredited Investor" as such term is defined in Rule 501 under the Act. Kanfer
also represents and warrants that he could be reasonably assumed to have the
capacity to evaluate the merits and risks of an investment in the Company and to
protect his own interests in connection with these transactions.
IV.27 Restricted Securities. Kanfer understands that the On Stage
Shares are characterized as "restricted securities" under the federal securities
laws inasmuch as they are being acquired from On Stage in a transaction not
involving a public offering and that under such laws and applicable regulations
such shares may be resold without registration under the Act, only in certain
limited circumstances. It is understood that the On Stage Shares shall bear a
legend to such effect.
IV.28 Kanfer's Products or Events. Kanfer does not own or have any
rights to any product or event that is related to the business of Interactive
other than the shows entitled "Frankie and Angie Get Married" and "Wake-Up
Shamus O'Reilly."
IV.29 Accuracy of Information. No representation or warranty by
Interactive or Kanfer in any Transaction Document, and no information contained
therein or otherwise delivered to On Stage in connection with the Transactions,
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contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements contained herein or therein not
misleading. There is no fact known to Interactive or Kanfer that may materially
adversely affect the Interactive Assets or the Interactive Business that has not
been set forth in this Agreement or the other documents furnished to On Stage on
or prior to the date hereof in connection with the Transactions.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF ON STAGE
On Stage hereby represents and warrants to Interactive as follows:
V.1 Corporate Status. On Stage is a corporation duly organized, validly
existing and in good standing under the laws under which it was incorporated. On
Stage is qualified to do business as a foreign corporation in any jurisdiction
where it is required to be so qualified, except where the failure to so qualify
would not have a Material Adverse Effect. The Charter Documents and bylaws of On
Stage that have been delivered to Interactive have been duly adopted and are
current, correct and complete.
V.2 Authorization. On Stage has the requisite power and authority to
execute and deliver the Transaction Documents to which it is or will be a party
and to perform the Transactions to be performed by it. Such execution, delivery
and performance by On Stage has been duly authorized by all necessary corporate
action. The Transaction Documents executed on or before the date hereof
constitute, and the Transaction Documents to be executed after the date hereof
will constitute, valid and binding obligations of On Stage, enforceable against
On Stage in accordance with their terms.
V.3 Consents and Approvals. Neither the execution and delivery by On
Stage of the Transaction Documents to which it is or will be a party, nor the
performance of the Transactions to be performed by On Stage, will require any
filing, consent or approval or constitute a Default under (a) any Regulation or
Court Order to which On Stage is subject, (b) the Charter Documents or bylaws of
On Stage or (c) any Contract, Government Permit or other document to which On
Stage is a party or by which the properties or other assets of On Stage may be
subject.
V.4 Capitalization and Stock Ownership. The total authorized capital
stock of On Stage consists of 25,000,000 shares of On Stage Common Stock,
7,300,900 shares of which are issued and outstanding on the date hereof and
1,000,000 shares of Preferred Stock, no shares of which are issued and
outstanding as of the date hereof; however, On Stage is currently attempting to
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raise approximately $11,000,000 through the sale of its securities to the public
("IPO") and is contemplating undertaking a $750,000 bridge loan which will be
repaid from the proceeds of the IPO. On Stage does not have any shares of
capital stock that are issued and held by On Stage as treasury stock. All of the
outstanding shares of On Stage Common Stock are duly and validly authorized and
issued, fully paid and non-assessable. On Stage complied with all applicable
Regulations in connection with the issuance of all of the outstanding shares of
On Stage Common Stock. There are (i) options to acquire 787,092 shares of On
Stage Common Stock pursuant to the Company's 1996 Stock Option Plan, (ii) issued
and outstanding warrants to acquire 1,765,000 shares of On Stage Common Stock,
(iii) issued and outstanding debentures convertible into 829,607 shares of On
Stage Common Stock, and (iv) an additional 90,000 shares of On Stage Common
Stock reserved for issuance to an employee.
V.5 Finder's Fees. No Person retained by On Stage is or will be
entitled to any commission or finder's or similar fee in connection with the
Transactions.
V.6 Goodwill. On Stage represents and warrants that it was formerly
"Legends In Concert, Inc.", that the current "Legends In Concert, Inc." is a
subsidiary of On Stage and that On Stage is the owner of all goodwill associated
with Legends In Concert productions.
V.7 Purchase Entirely for Own Account. This Agreement is made in
reliance upon On Stage's representation to Kanfer and Interactive, which by On
Stage's execution of this Agreement On Stage hereby confirms, that the
Interactive Shares will be acquired for investment for On Stage's own account,
not as a nominee or agent, and not with a view to distribution (as such term is
defined under the Securities Act of 1933, as amended (the "Act")) of any part
thereof. On Stage represents that it has full power and authority to enter into
this Agreement.
V.8 Restricted Securities. On Stage understands that the Interactive
Shares are characterized as "restricted securities" under the federal securities
laws inasmuch as they are being acquired from Kanfer in a transaction not
involving a public offering and that under such laws and applicable regulations
such shares may be resold without registration under the Act, only in certain
limited circumstances. It is understood that the Interactive Shares shall bear a
legend to such effect.
ARTICLE VI.
COVENANTS OF INTERACTIVE
VI.1 Operation of the Interactive Business.
(a) From the date hereof to the Closing, Interactive and Kanfer
shall conduct the Interactive Business solely in the ordinary course, and shall
refrain from the following actions in furtherance of and in addition to such
restriction (except as contemplated by this Agreement): amending its Charter
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Documents or bylaws; merging or consolidating with, or acquiring all or
substantially all of, or otherwise acquiring any business operations of, any
Person; selling or otherwise disposing of any Interactive Assets other than in
the ordinary course; entering into any Contract or otherwise incurring any
Liability, even if in the ordinary course, if Interactive's executory obligation
in any such individual case, or series of related cases, exceeds $1,000, except
that entering into contracts to provide events is permitted without restriction;
discharging or satisfying any Encumbrance or paying or satisfying any material
Liability except pursuant to the terms thereof or compromising, settling or
otherwise modifying any material claim or litigation; or making any capital
expenditure involving in any individual case, or series of related cases, more
than $1,000.
(b) From and after the Closing, Interactive shall cease to
conduct any business in the field of producing and/or creating live production
shows except as a wholly owned subsidiary of On Stage.
VI.2 Agreement Not To Compete. Kanfer agrees that for a period of two
(2) years after termination of his employment with On Stage he will not directly
compete with On Stage in the field of producing and/or creating live production
shows. It is understood and agreed upon that direct competition means the
design, development, production, promotion, presentation, or sale of products or
services which are or could be considered a derivative of On Stage's shows
"Legends in Concert", "Frankie & Angie Get Married" or "Wake Up Shamus O'Reilly"
and any shows within the gaming casino market. Kanfer further agrees that he
will not directly or indirectly disclose to any third person any confidential
information or trade secrets, including, but not limited to, customer lists, as
to which he gained knowledge during his term of employment.
VI.3 Stockholder Meeting. Interactive shall cause a meeting of its
stockholders (the "Interactive Stockholder Meeting") to be duly called and held
as soon as reasonably practicable for the purpose of voting on the approval of
this Agreement and the Transactions. The directors of Interactive shall
unanimously recommend to Interactive's stockholders that they vote in favor of
the approval of such two matters. In connection with such meeting, Interactive
(a) will use all reasonable efforts to obtain the necessary approvals by its
stockholders of this Agreement and the Transactions and (b) will otherwise
comply with all legal requirements applicable to such meeting.
VI.4 Access. Interactive shall give On Stage and its accountants,
counsel and other representatives full access, without unreasonably interfering
with business operations, to all properties, books, Contracts and records of
Interactive and shall furnish to On Stage all such documents, records and
information as On Stage shall from time to time reasonably request.
VI.5 No Other Negotiations. Until the earlier of the Closing or the
termination of this Agreement, Interactive shall not (a) solicit, encourage,
directly or indirectly, any inquiries, discussions or proposals for, (b)
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continue, propose or enter into any negotiations or discussions looking toward
or (c) enter into any agreement or understanding providing for any acquisition
of any capital stock of Interactive or of any part of the Interactive Assets or
the Interactive Business, other than as contemplated or authorized hereby, nor
shall Interactive provide any information to any Person (other than as
contemplated by Section 6.04) for the purpose of evaluating or determining
whether to make or pursue any such inquiries or proposals with respect to any
such acquisition. Interactive shall immediately notify On Stage of any such
inquiries or proposals or requests for information for such purpose. Interactive
shall use commercially reasonable efforts to cause the directors, officers,
employees, agents and other representatives of Interactive to comply, with the
provisions of this Section 6.05.
VI.6 Maintenance of the Interactive Assets. Interactive and Kanfer
shall continue to maintain and service the Interactive Assets consistent with
past practice. Interactive and Kanfer shall not, directly or indirectly, sell or
encumber all or any part of the Interactive Assets, other than sales in the
ordinary course of business, or initiate or participate in any discussions or
negotiations or enter into any agreement to do any of the foregoing.
VI.7 Employees and Business Relations. Interactive and Kanfer shall use
commercially reasonable efforts to keep available the services of its current
employees, actors, independent contractors and agents and to maintain its
relations and goodwill with its suppliers, customers, distributors and any
others having business relations with it.
VI.8 Confidentiality. Prior to and after the Closing, Interactive and
Kanfer will hold, and will use commercially reasonable efforts to cause the
officers, directors, employees, accountants, counsel, consultants, advisors and
agents of Interactive and Kanfer to hold, in confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of law,
all confidential documents and information concerning On Stage furnished to
Interactive in connection with the Transactions, except to the extent that such
information can be shown to have been (a) previously known on a nonconfidential
basis by Interactive or Kanfer, (b) in the public domain through no fault of
Interactive or Kanfer or (c) later acquired by Interactive or Kanfer from
sources other than On Stage so long as, to the knowledge of Interactive or
Kanfer, such sources are not subject to a contractual or fiduciary duty of
confidentiality with respect to such information; provided that Interactive may
disclose such information to its officers, directors, employees, accountants,
counsel, consultants, advisors and agents in connection with the Transactions so
long as such Persons are informed by Interactive of the confidential nature of
such information and are directed by Interactive to treat such information
confidentially. The obligation of Interactive and Kanfer to hold any such
information in confidence shall be satisfied if it exercises the same care with
respect to such information as it would take to preserve the confidentiality of
its own similar information. If this Agreement is terminated, Interactive will,
and will use commercially reasonable efforts to cause the officers, directors,
employees, accountants, counsel, consultants, advisors and agents of Interactive
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to, destroy or deliver to On Stage all documents and other materials, and all
copies thereof, obtained by Interactive or on its behalf from On Stage in
connection with this Agreement that are subject to such confidence.
VI.9 Fulfillment of Conditions. Interactive and Kanfer shall use
commercially reasonable efforts to fulfill the conditions specified in Article
VIII to the extent that the fulfillment of such conditions is within its
control. The foregoing obligation includes (a) the execution and delivery of the
Transaction Documents and (b) taking or refraining from such actions as may be
necessary to fulfill such conditions (including conducting the Interactive
Business in such manner that on the Closing Date the representations and
warranties of Interactive contained herein shall be accurate as though then
made, except as contemplated by the terms hereof).
VI.10 Disclosure of Certain Matters. During the period from the date
hereof through the Closing Date, Interactive and Kanfer shall give On Stage
prompt written notice of any event or development that occurs that (a) had it
existed or been known on the date hereof would have been required to be
disclosed under this Agreement, (b) would cause any of the representations and
warranties of Interactive contained herein to be inaccurate or otherwise
misleading, (c) gives Interactive any reason to believe that any of the
conditions set forth in Article VIII will not be satisfied prior to the
Termination Date, or (d) is of a nature that is or may be materially adverse to
the operations, prospects or condition (financial or otherwise) of Interactive.
VI.11 Satisfaction of Liabilities. Except as otherwise prohibited
herein, prior to and after the Closing, Interactive and Kanfer will perform all
of its obligations, contractual or otherwise, and discharge all of its
Liabilities in accordance with the terms thereof.
VI.12 No Violation of Securities Laws. Kanfer will not sell, transfer
or otherwise dispose of any of the On Stage Shares in violation of the
Securities Act.
VI.13 Expenses. Kanfer shall pay all of the legal, accounting and other
expenses incurred by Interactive or Kanfer in connection with the Transactions.
VI.14 Lock-up. Kanfer will not sell or otherwise transfer any On Stage
Shares for a period of six months (or such other period of time as is determined
in the discretion of the lead underwriter) after the closing of an initial
public offering of On Stage Common Stock.
VI.15 Right of First Refusal. Until the earlier of On Stage Shares
being registered with the Securities and Exchange Commission or two years from
the Closing Date, if Kanfer desires to transfer any On Stage Shares to any
prospective purchaser, Kanfer shall give On Stage a Notice of any offer by such
prospective purchaser.
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The offer by the prospective purchaser must be in writing and must be
enforceable against the prospective purchaser. The Notice must have attached to
it a copy of the offer by the prospective purchaser that states the name and
address, the number of Shares to be purchased, the price per share, and the
other terms of the offer (the "Offer"). The price per share shall not include
any value attributable to any employment, consulting, noncompetition or other
agreement, contract or arrangement between the prospective purchaser and Kanfer.
Within 20 days after On Stage receives the Offer, On Stage will call a
special shareholders' meeting, to be held not more than 40 days after the call,
to decide whether On Stage should purchase some or all the offered Shares.
A Notice of acceptance of the Offer for the offered Shares by On Stage
shall be delivered to Kanfer within 75 days after the date of the Notice of the
Offer. Kanfer shall deliver to On Stage certificates for the Shares either duly
endorsed in blank for transfer, or with duly executed stock powers attached,
together with any applicable documentary tax stamps within 20 days after the
effective date of the Notice of acceptance.
If the Offer to purchase Shares pursuant to this Section 6.15 is not
accepted for all offered Shares, Kanfer may sell the remaining Shares pursuant
to the terms of the Offer during a period of 120 days after the end of the
period provided for acceptance of the offer by On Stage.
ARTICLE VII.
COVENANTS OF ON STAGE
VII.1 Confidentiality. Prior to the Closing, On Stage will hold, and
will use commercially reasonable efforts to cause the officers, directors,
employees, accountants, counsel, consultants, advisors and agents of On Stage to
hold, in confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law, all confidential documents and
information concerning Interactive furnished to On Stage in connection with the
Transactions, except to the extent that such information can be shown to have
been (a) previously known on a nonconfidential basis by On Stage, (b) in the
public domain through no fault of On Stage or (c) later acquired by On Stage
from sources other than Interactive so long as, to the knowledge of On Stage,
such sources are not subject to a contractual or fiduciary duty of
confidentiality with respect to such information; provided that On Stage may
disclose such information to its officers, directors, employees, accountants,
counsel, consultants, advisors and agents in connection with the Transactions so
long as such Persons are informed by On Stage of the confidential nature of such
information and are directed by On Stage to treat such information
confidentially. The obligation of On Stage to hold any such information in
confidence shall be satisfied if it exercises the same care with respect to such
information as it would take to preserve the confidentiality of its own similar
information. If this Agreement is terminated, On Stage will, and will use
commercially reasonable efforts to cause the officers, directors, employees,
accountants, counsel, consultants, advisors and agents of On Stage to, destroy
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or deliver to Interactive all documents and other materials, and all copies
thereof, obtained by On Stage or on its behalf from Interactive in connection
with this Agreement that are subject to such confidence.
VII.2 Expenses. On Stage shall pay all of the legal, accounting and
other expenses incurred by On Stage in connection with the Transactions.
VII.3 Fulfillment of Conditions. From the date hereof to the Closing,
On Stage shall use commercially reasonable efforts to fulfill the conditions
specified in Article VIII to the extent that the fulfillment of such conditions
is within its control. The foregoing obligation includes (a) the execution and
delivery of the Transaction Documents and (b) taking or refraining from such
actions as may be necessary to fulfill such conditions (including conducting the
business of On Stage in such manner that on the Closing Date the representations
and warranties of On Stage contained herein shall be accurate as though then
made).
VII.4 Board of Directors Meeting. On Stage shall cause a meeting of its
Board of Directors (the "On Stage Directors Meeting") to be duly called and held
as soon as reasonably practicable for the purpose of voting on the approval of
this Agreement and the Transactions.
VII.5 Disclosure of Certain Matters. During the period from the date
hereof through the Closing Date, On Stage shall give Interactive and Kanfer
prompt written notice of any event or development that occurs that (a) had it
existed or been known on the date hereof would have been required to be
disclosed under this Agreement, (b) would cause any of the representations and
warranties of On Stage contained herein to be inaccurate or otherwise misleading
or (c) gives On Stage any reason to believe that any of the conditions set forth
in Article VIII will not be satisfied prior to the Termination Date.
VII.6 No Violation of Securities Laws. On Stage will not sell, transfer
or otherwise dispose of any of the Interactive Shares in violation of the
Securities Act.
ARTICLE VIII.
CONDITIONS PRECEDENT TO THE TRANSACTIONS
VIII.1 Conditions to Obligations of On Stage. The obligations of On
Stage to consummate the Transactions shall be subject to the satisfaction or
waiver, on or before the Closing, of each of the following conditions:
(a) Interactive Stockholder Approval. The Transactions shall
have been approved and adopted by the stockholders of Interactive in accordance
with Interactive's Articles of Incorporation and the GGCL.
(b) Representations and Warranties True. The representations
and warranties of Interactive contained herein shall be true and correct in all
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material respects at and as of the date hereof and at and as of the Closing as
though such representations and warranties were made again at and as of the
Closing, except for changes contemplated by this Agreement.
(c) Performance. Interactive shall have performed and complied
in all material respects with the agreements contained in this Agreement
required to be performed or complied with by it on or prior to the Closing.
(d) Consents and Approvals. Interactive shall have obtained all
governmental and third party consents and approvals necessary, proper or
advisable to consummate the Transactions, except for those which would not have
a Material Adverse Effect. Such third party consents shall include the Required
Consents.
(e) No Governmental Order or Regulation. There shall not be in
effect any order, decree or injunction (whether preliminary, final or
appealable) of a United States federal or state court of competent jurisdiction,
and no Regulation shall have been enacted or promulgated by any governmental
authority or agency, that prohibits consummation of the Transactions.
(f) Other Documents. On Stage shall have received executed
copies of all Transaction Documents to which Interactive or any Interactive
stockholder is a party to the extent that they shall not have been received
prior to the Closing. On Stage shall have received all other documents required
under the terms of any of the Transaction Documents and any other documents
reasonably requested on or prior to the Closing Date.
(g) Certificates. Interactive shall have furnished to On Stage
a certificate of the chief executive officer and/or president of Interactive,
dated the Closing, certifying to the best of such officer's knowledge compliance
as of the Closing with the conditions set forth in paragraphs (a), (b) and (c)
of the Section 8.01 in all material respects.
(h) Tax Clearance. On Stage shall have received a Certificate
of Good Standing from the tax authorities of the State of Georgia.
(i) Assignment of Shows. Kanfer shall have executed the
Assignment regarding "Frankie and Angie Get Married" and "Wake-Up Shamus
O'Reilly" and other shows substantially in the form attached hereto as Exhibit C
and delivered the same to On Stage.
(j) Kanfer Employment Agreement. Kanfer shall have executed an
Employment Agreement with On Stage substantially in the form attached hereto as
Exhibit D and delivered the same to On Stage.
VIII.2 Conditions to Obligations of Interactive and Kanfer. The
obligations of Interactive and Kanfer to consummate the Transactions shall be
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subject to the satisfaction or waiver, on or before the Closing, of each of the
following conditions:
(a) Representations and Warranties True. The representations
and warranties of On Stage contained herein shall be true and correct in all
material respects at and as of the date when made and at and as of the Closing
as though such representations and warranties were made again at and as of the
Closing, except for changes contemplated by this Agreement.
(b) Performance. On Stage shall have performed and complied in
all material respects with the agreements contained in this Agreement required
to be performed or complied with by them on or prior to the Closing.
(c) No Governmental Order or Regulation. There shall not be in
effect any order, decree or injunction (whether preliminary, final or
appealable) of a United States federal or state court of competent jurisdiction,
and no Regulation shall have been enacted or promulgated by any governmental
authority or agency, that prohibits consummation of the Transactions.
(d) Other Documents. Interactive shall have received executed
copies of all Transaction Documents to which On Stage is a party to the extent
that they shall not have been received prior to the Closing. Interactive shall
have received all other documents required under the terms of any of the
Transaction Documents and any other documents reasonably requested on or prior
to the Closing Date.
(e) Certificates. On Stage shall have furnished to Interactive
a certificate of the chief executive officer of On Stage, dated the Closing,
certifying to the best of such officer's knowledge compliance as of the Closing
with the conditions set forth in paragraphs (a) and (b) of this Section 8.02 in
all material respects.
(f) Assignment of Shows. On Stage shall have executed the
Assignment regarding "Frankie and Angie Get Married" and "Wake-Up Shamus
O'Reilly" in the form attached hereto as Exhibit C and delivered the same to
Kanfer.
(g) Kanfer Employment Agreement. On Stage shall have executed
an Employment Agreement with On Stage substantially in the form attached hereto
as Exhibit D and delivered the same to On Stage.
(h) Director Approval. The Transactions shall have been
approved and adopted by the Board of Directors of On Stage in accordance with On
Stage's Bylaws.
ARTICLE IX.
INDEMNIFICATION
IX.1 By Kanfer. From and after the Closing Date, to the extent provided
in this Section 9, Kanfer shall indemnify and hold harmless On Stage and each
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Affiliate and Agent of On Stage from and against any liabilities, claims,
demands, judgments, losses, costs or damages whatsoever (collectively,
"Damages") that any such indemnified party may sustain, suffer or incur and that
result from, arise out of or relate to the operation of the business of
Interactive prior to the Closing; provided, however, that no claim for
indemnification shall be made unless and until the aggregate amount of Damages
sought under this Section 9.01 exceeds $5,000, in which case a claim for
indemnification can be made for the entire amount of Damages suffered; provided,
further, that indemnification for attorneys', consultants' and other
professional fees and disbursements of every kind, nature and description
incurred by them in connection therewith shall not exceed $5,001.
IX.2 By On Stage. From and after the Closing Date, to the extent
provided in this Section 9, On Stage shall indemnify and hold harmless
Interactive and each Affiliate and Agent of Interactive from and against any
Damages that any such indemnified party may sustain, suffer or incur and that
result from, arise out of or relate to any breach of any representation,
warranty, covenant or agreement of On Stage contained in this Agreement;
provided, however, that no claim for indemnification shall be made unless and
until the aggregate amount of Damages sought under this Section 9.02 exceeds
$5,000, in which case a claim for indemnification can be made for the entire
amount of Damages suffered.
IX.3 Procedure for Claims. A party seeking indemnification under this
Section 9 (an "Indemnified Party") shall give notice of the claim for Damages
and a brief explanation of the basis thereof to the party alleged to be
responsible for indemnification hereunder (an "Indemnitor").
IX.4 Third Party Claims. An Indemnified Party shall give any Indemnitor
prompt notice of the institution by a third party of any actions, suits or other
administrative or judicial proceedings at any time on or before the date one
year from the Closing Date if the Indemnified Party would be entitled to claim
indemnification under this Section 9 in connection with any such action, suit or
other proceeding. After such notice, any Indemnitor may, or if so requested by
the Indemnified Party, any Indemnitor shall, participate in any such action,
suit or other proceeding or assume the defense thereof, with counsel
satisfactory to the Indemnified Party; provided, however, that the Indemnified
Party shall have the right to participate at its own expense in the defense of
any such action, suit or other proceeding; and provided, further, that the
Indemnitor shall not consent to the entry of any judgment or enter into any
settlement, except with the written consent of the Indemnified Party, that (a)
fails to include as an unconditional term thereof the giving by the claimant or
plaintiff to the Indemnified Party of a release from all liability in respect of
any such action, suit or other proceeding or (b) grants the claimant or
plaintiff any injunctive relief against the Indemnified Party. Any failure to
give prompt notice under this Section 9.04 shall not bar an Indemnified Party's
right to claim indemnification under this Section 9, except to the extent that
an Indemnified Party shall have been harmed by such failure.
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ARTICLE X.
TERMINATION
X.1 Grounds for Termination. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by mutual written consent of On Stage, Interactive and
Kanfer;
(b) by either On Stage, Interactive or Kanfer, if the Closing
has not occurred by November 30, 1996 (such date, as it may be extended from
time to time by the written agreement of On Stage, Interactive and Kanfer, is
referred to herein as the "Termination Date"); provided, however, that the right
to terminate this Agreement under this paragraph (b) of Section 10.01 shall not
be available to any party that has breached any of its covenants,
representations or warranties in this Agreement;
(c) by Interactive or Kanfer, if On Stage shall have breached
any of its covenants hereunder in any material respect or if the representations
and warranties of On Stage contained in this Agreement shall not be true and
correct, except for such changes as are contemplated by this Agreement, in all
material respects, and in either event, if such breach is subject to cure, On
Stage has not cured such breach within 10 business days of Interactive's notice
of an intent to terminate;
(d) by On Stage, if Interactive or Kanfer shall have breached
any of its covenants hereunder in any material respect or if the representations
and warranties of Interactive contained in this Agreement shall not be true and
correct, except for such changes as are contemplated by this Agreement, in all
material respects, and in either event, if such breach is subject to cure,
Interactive has not cured such breach within 10 business days of On Stage's
notice of an intent to terminate; or
(e) by On Stage, if at the Interactive Stockholder Meeting
(including any adjournments thereof), this Agreement and the Transactions shall
fail to be approved and adopted by the affirmative vote of the holders of
Interactive Common Stock required under the GGCL.
X.2 Effect of Termination.
(a) If this Agreement is terminated pursuant to Section 10.01,
the agreements contained in Sections 6.08 and 7.01 shall survive the termination
hereof. In addition, any party may pursue any legal or equitable remedies that
may be available if such termination is based on a breach of another party.
(b) If the closing that is the subject of this Agreement has
not, for any reason, taken place on or before the 30th day of November, 1996,
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then On Stage and Kanfer shall each have the right to terminate this Agreement
or the employment agreement between On Stage and Kanfer (attached hereto as
Exhibit D) and none of the provisions of that Agreement shall apply to Kanfer
except that Kanfer shall be entitled to compensation as if terminated early
because of failure to meet budget requirements. Any termination of the
Employment Agreement under this Section must be made by written notice to the
other on or before the 30th day of November or such right shall be waived. In
the event the Employment Agreement is terminated under this Section, then all
rights to the Assignment of Shows pursuant to Exhibit C shall be assigned back
to Kanfer.
ARTICLE XI.
CONTENTS OF AGREEMENT, AMENDMENT,
PARTIES IN INTEREST, ASSIGNMENT, ETC.
This Agreement sets forth the entire understanding of the parties
hereto with respect to the subject matter hereof. This Agreement may be amended,
modified or supplemented only by a written instrument duly executed by each of
the parties hereto. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective heirs, legal representatives,
successors and permitted assigns of the parties hereto. No party hereto shall
assign this Agreement or any right, benefit or obligation hereunder. Any term or
provision of this Agreement may be waived at any time by the party entitled to
the benefit thereof by a written instrument duly executed by such party. The
parties hereto shall execute and deliver any and all documents and take any and
all other actions that may be deemed reasonably necessary by their respective
counsel to complete the Transactions.
ARTICLE XII.
INTERPRETATION
Unless the context of this Agreement clearly requires otherwise, (a)
references to the plural include the singular, the singular the plural, the part
the whole, (b) "or" has the inclusive meaning frequently identified with the
phrase "and/or" and (c) "including" has the inclusive meaning frequently
identified with the phrase "but not limited to." The section and other headings
contained in this Agreement are for reference purposes only and shall not
control or affect the construction of this Agreement or the interpretation
thereof in any respect. Section, subsection, schedule and exhibit references are
to this Agreement unless otherwise specified. Each accounting term used herein
that is not specifically defined herein shall have the meaning given to it under
GAAP.
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ARTICLE XIII.
NOTICES
All notices that are required or permitted hereunder shall be in
writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number set
forth below, unless such address or fax number is changed by notice to the other
party hereto:
If to On Stage:
c/o Legends In Concert, Inc.
4625 W. Nevso Drive, Suite 10
Las Vegas, Nevada 89103
Attention: Christopher Grobl, General Counsel
If to Interactive:
Hassett, Cohen, Beitchman and Goldstein
One Lakeside Commons
9090 Hammond Drive, Suite 990
Atlanta, Georgia 30328
Attention: Robert W. Hassett
If to Kanfer:
Richard S. Kanfer
4201 South Decatur #2197-15
Las Vegas, Nevada 89103
ARTICLE XIV.
GOVERNING LAW
This Agreement shall be construed and interpreted in accordance with
the laws of the State of Nevada, without regard to its provisions concerning
conflict of laws.
ARTICLE XV.
COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which shall be binding as of the date first written above, and all of which
shall constitute one and the same instrument. Each such copy shall be deemed an
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original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
ARTICLE XVI.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties made by any party in this Agreement
or pursuant hereto shall survive the Closing hereunder and any investigation at
any time made by or on behalf of the other party and for a period of one year
following the Closing.
ARTICLE XVII.
REMEDIES CUMULATIVE
The remedies provided herein shall be cumulative and shall not preclude
a party from asserting any other rights or seeking any other remedies against
the other party or its successors or assigns.
ARTICLE XVIII.
SEVERABILITY
The invalidity of any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall not affect the
enforceability of the remaining portions of this Agreement or any part thereof,
all of which are inserted conditionally on their being valid in law, and, in the
event that any one or more of the words, phrases, sentences, clause or sections
contained in this Agreement shall be declared invalid, this Agreement shall be
construed as if such invalid word or words, phrase or phrases, sentence or
sentences, clause or clauses, or section or sections had not been inserted. If
such invalidity is caused by length of time or size of area, or both, the
otherwise invalid provision will be considered to be reduced to a period or area
which would cure such invalidity.
ARTICLE XIX.
BULK TRANSFER
The parties hereto waive compliance with the requirements of the bulk
sales law of any jurisdiction in connection with the sale of the Interactive
Shares. Interactive and Kanfer shall indemnify and hold harmless On Stage
against all liabilities which may be asserted by third parties with respect to
assets sold by Interactive as a result of noncompliance with any such bulk sales
laws.
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ARTICLE XX.
ARBITRATION
The parties agree that all disputes, claims, and controversies between
or among them arising from or relating to this Agreement shall be arbitrated in
Clark County, Nevada, pursuant to the Rules of the American Arbitration
Association, upon the request of any party.
ARTICLE XXI.
TAX FREE EXCHANGE
It is understood that the parties intend that this transaction
represents a tax free exchange under the Internal Revenue Code. However, this
Agreement is not contingent upon a ruling from the Internal Revenue Service (the
"IRS") that the transactions contemplated herein constitute a tax free exchange
and the parties' agreements herein are effective and binding on them
irrespective of any favorable or negative ruling from the IRS.
(Signature page follows.)
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IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first written above.
ON STAGE ENTERTAINMENT, INC.
a Nevada corporation
By:/s/ David Hope
-----------------------
Name: David Hope
Title: President
INTERACTIVE EVENTS, INC.
a Georgia corporation
By: /s/ Richard Kanfer
-----------------------
Name: Richard Kanfer
Title: President
RICHARD S. KANFER,
an individual
/s/ Richard Kanfer
-----------------------
<PAGE>
EXHIBIT A
Form of Agreement to Issue
and Deliver Additional Shares
This Agreement is made as of December 30, 1996, by On Stage
Entertainment, Inc., a Nevada corporation ("On Stage"), in favor of Richard S.
Kanfer ("Kanfer").
On Stage hereby agrees pursuant to Section 2.02 of the Common Stock
Purchase Agreement by and among On Stage, Interactive Events, Inc., a Georgia
corporation, and Kanfer (the "Purchase Agreement") to issue and deliver Twenty
Thousand (20,000) shares of Common Stock of On Stage on the first anniversary of
the Closing Date (as defined in the Purchase Agreement).
Dated: December 30, 1996 ON STAGE ENTERTAINMENT, INC.
a Nevada corporation
By: /s/ David Hope
--------------------------
Name: David Hope
Title: President
<PAGE>
EXHIBIT B
Stock Option Agreement
----------------------
<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Option Agreement") is dated as of November
1, 1996, and is by and between ON STAGE ENTERTAINMENT, INC., a Nevada
corporation, (the "Company"), and RICHARD S. KANFER, an individual ("Kanfer").
RECITALS
WHEREAS, pursuant to that certain Common Stock Purchase Agreement of
even date herewith by and between the Company and Kanfer, the Company has agreed
to grant to Kanfer an irrevocable option to purchase certain shares of the
Company; and
WHEREAS, the Company desires to grant to Kanfer an irrevocable option
to purchase all of the Optioned Shares (as defined below) upon the terms and
conditions set forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements herein, and for other good and valuable consideration,
the adequacy and receipt of which is hereby acknowledged, the parties mutually
agree as follows:
1. Option. Kanfer is hereby granted an irrevocable option (the "Option") to
acquire, pursuant to the exercise thereof during the Option Term (as defined
below) in the manner described hereinafter, the Optioned Shares (as defined in
the next sentence), upon the terms and conditions of this Option Agreement. The
Optioned Shares shall mean 27,225 shares of the common stock, par value $.01 per
share, of the Company. Kanfer shall exercise the option as to all of the
Optioned Shares at one time, or not at all.
2. Consideration for Optioned Shares. The consideration for the Optioned Shares
shall be (i) Twenty Seven Thousand Two Hundred Twenty Five (27,225) multiplied
by (ii) the price shares of common stock of the Company are offered to the
public in the Company's initial public offering of its common stock. The
Optioned Shares that are the subject hereof are in addition to the 36,000 shares
referred to in Section 4.4.6 of Kanfer's Employment Agreement.
3. Manner of Exercise. To exercise the Option, Kanfer shall deliver to the
Company during the Option Term a written notice indicating Kanfer's election to
exercise the Option and purchase the Optioned Shares subject to the terms and
conditions of this Option Agreement. Any notice under this Section 3 shall be
given in accordance with the notice provisions hereof.
4. Option Term. The Option shall be exercisable during the period beginning on
the closing of the Company's initial public offering of its common stock (the
"IPO Closing Date")
<PAGE>
and ending on the date of five (5) years after the IPO Closing Date (the "Option
Term"), and after the Option Term this option and all rights hereunder shall
expire.
5. Limitation of Kanfer's Rights. Kanfer shall not have any of the rights or
privileges of a shareholder of the Company in respect of the Optioned Shares
unless and until those shares have been paid for in full.
6. Purchase for Investment. By accepting the Option or the Optioned Shares,
Kanfer represents, warrants and agrees that the same are acquired for his own
account, for investment and not with a view to their resale or distribution.
Kanfer understands and acknowledges that the certificate(s) representing the
Optioned Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT"). THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE PLEDGED OR HYPOTHECATED, AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SHARES
UNDER THE ACT OR AN EXEMPTION ESTABLISHED TO THE SATISFACTION OF THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT."
7. Additional Representations and Warranties of Kanfer. As a condition to
investing in the Company, Kanfer represents and warrants to the Company as
follows:
(a) Notwithstanding the receipt of the Option or the Optioned Shares
upon exercise of the Option, Kanfer has adequate means of providing for his
current needs and possible contingencies, and that he has no need for liquidity
from this investment.
(b) Kanfer is aware that no federal or state agency has made any
findings or determination as to the fairness for public or private investment or
any recommendation or endorsement of the Option or the Optioned Shares as an
investment.
(c) Kanfer is the sole party in interest and is acquiring the Option
and the Optioned Shares upon exercise of the option for Kanfer's own benefit and
not on behalf of any other person, trust, estate, corporation, partnership or
business organization.
(d) Kanfer, in making his decision regarding the Option and the
Optioned Shares upon exercise of the Option, has relied on independent
investigations made by him, and that Kanfer or any person acting on his behalf
has been given the opportunity to (i) examine all
<PAGE>
documents and to ask questions of and to receive answers from the Company or any
person acting on the Company's behalf regarding every aspect of the Company's
business and operations specifically with respect to the terms and conditions of
the Option and the Optioned Shares and (ii) obtain any additional information to
the extent the Company possesses such information necessary to verify the
accuracy of the information discussed with Kanfer.
(e) Kanfer has knowledge and experience in business and financial
matters and, in particular, investments generally comparable from an investment
point of view to the investment offered in the Company so as to enable him to
utilize such experience in evaluating the risks and merits of the proposed
investment in the Company and to make an informed investment decision.
8. Assignment. No assignment, transfer, sale, pledge, hypothecation or other
disposition of the Option, this Option Agreement or of any rights hereunder may
be made by Kanfer (by operation of law or otherwise) and any attempted
assignment, transfer, sale, pledge, hypothecation or other disposition in
violation hereof shall be void.
9. Counterparts. This Option Agreement may be executed in any number of
counterparts, each of which shall be an original, but which together constitute
one and the same instrument.
10. Headings and Interpretation. Headings are inserted for the convenience of
reference only and are not intended to be a part of or affect the meaning or
interpretation of this Option Agreement. Clerical and stenographic errors in the
construction of this document are subject to correction. The parties acknowledge
that the interpretation of any ambiguity in this Option Agreement shall not be
construed against either party.
11. Entire Agreement. The terms of this Option Agreement are intended by the
parties as a final expression of their agreement with respect to such terms as
are included in this Option Agreement and may not be contradicted by evidence of
any prior or contemporaneous agreement. The parties further intend that this
Option Agreement constitutes the complete and exclusive statement of their terms
and that no extrinsic evidence whatsoever may be introduced in any proceeding,
if any, involving terms of this Option Agreement.
12. Modifications and Amendments. This Option Agreement may not be modified,
changed or supplemented except in a writing signed by the Company and Kanfer.
13. Waivers. No waiver of any breach of any agreement or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach thereof
or of any other agreement or provision herein contained. No waiver may be made
except by written instrument signed by an authorized representative of the party
which is the beneficiary of the provision being waived.
14. Attorneys Fees. Should any party institute any action or proceeding to
enforce this Option Agreement or any provision hereof, or for a declaration of
rights hereunder, the prevailing party in any such action or proceeding shall be
entitled to receive from the other party all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party in connection with
such action or proceeding.
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15. Severability. If any provision of this Option Agreement is held to be void
and unenforceable, the remaining provisions shall continue in full force and
effect.
16. Notices.
(a) Any notice under this Option Agreement given by the Company to
Kanfer shall be personally delivered to him or sent by certified mail or
overnight express courier to the following address:
Richard S. Kanfer
4201 South Decatur #2197-15
Las Vegas, Nevada 89103
(b) Any notice by Kanfer to the Company shall be personally delivered
or sent by certified mail or overnight express courier to the following address:
On Stage Entertainment, Inc.
4625 West Nevso Drive, Suite 10
Las Vegas, Nevada 89103
(c) Any notice sent by certified mail shall be effective when mailed
and any notice personally delivered or sent by overnight express courier shall
be effective when received. Any party may change its address for purposes of
this Section by giving the other parties written notice of the new address in
the manner set forth above.
17. Governing Law; Arbitration. This Option Agreement shall be governed by and
interpreted and enforced in accordance with the substantive laws of the State of
Nevada without reference to the principles governing the conflicts of laws
applicable in that or any other jurisdiction. The parties agree that all
disputes, claims and controversies between them arising from or related to this
Option Agreement shall be arbitrated in Clark County, Nevada, pursuant to the
Rules of the American Arbitration Association, upon the request of any party.
IN WITNESS WHEREOF, the parties have duly executed this Option
Agreement as of the date first set forth above.
<PAGE>
ON STAGE ENTERTAINMENT, INC.
By: /s/ David Hope /s/ Richard S. Kanfer
------------------------ -------------------------
Name: David Hope RICHARD S. KANFER
Its: President
<PAGE>
EXHIBIT C
Assignment of Shows
-------------------
<PAGE>
ASSIGNMENT OF RIGHTS IN
"FRANKIE AND ANGIE GET MARRIED"
For and in consideration of the right to receive certain royalties (the
"Royalty Consideration") offered to me simultaneously herewith by On Stage
Entertainment, Inc., a Nevada corporation (herein called the "Assignee"),
I, Richard S. Kanfer, residing at 4201 S. Decatur # 2197-15, City of
Las Vegas, State of Nevada, do hereby unconditionally sell, transfer, assign and
set over unto the Assignee all my right, title and interest in and to a certain
play entitled "Frankie and Angie Get Married" (herein called the "Play"),
including (but not by way of limitation) (a) the copyright therein, and (b) any
and all moneys now or hereafter due me therefrom except for the Royalty
Consideration.
The Assignee shall have the unconditional right at any time hereafter
to sell, license or otherwise dispose of any and all rights in the Play, and to
retain the entire proceeds thereof for its exclusive benefit except for the
Royalty Consideration. Notwithstanding the foregoing, any sale, license or other
disposal shall be subject to the Royalty Consideration and credits referred to
below and the Assignee shall continue to be responsible for assuring that the
Royalty Consideration is paid and continues to be paid and that the credits
referred to below are given. Additionally, in the event of any proposed sale of
all of Assignee's rights in the Play, Kanfer shall have a first right of refusal
to acquire back such rights on the same terms and conditions proposed. In this
regard, prior to (and as a condition of) the proposed conveyance of such rights
other than to Kanfer, Assignee shall first give Kanfer notice in writing stating
the terms upon which Assignee intends to transfer said rights along with the
name, owners, and representatives of such party, and giving Kanfer sixty (60)
days to accept or reject the terms offered to such other party which respect to
such disposal. If Kanfer does not accept such offer within such sixty (60) day
period, Assignee shall then be permitted to enter into an agreement allowing
such other party to acquire such right under the same terms offered to Kanfer
provided the terms of such agreement are in writing and such agreement is signed
and a copy given to Kanfer within sixty (60) days of the rejection or expiration
of the offer to Kanfer. If such written agreement is not entered into with a
copy to Kanfer within such period, Assignee shall not enter into any such
arrangement with that party or any other party without first again going through
the above procedure giving Kanfer his first right of refusal.
Assignee agrees to pay Kanfer, in perpetuity, a Royalty Consideration
to me in an amount equal to 3% of the gross receipts, if any, actually received
by the Assignee for performances of the Play in productions that are open to the
general public. A production that is performed for a company event is not open
to the general public. Assignee will pay Kanfer the Royalty Consideration at the
end of each of Assignee's fiscal quarters.
It is agreed that Kanfer shall be given credits as follows which
credits shall be prominently displayed on all materials, including programs,
handed out at the Play and signs, posters and other materials displayed in
connection with the Play, including any theater, showroom or casino marquis. In
addition, credits will be given to Kanfer at each venue, and in all sales,
advertising and promotional materials relating to the Play on the same terms and
conditions as other credits are given, if any. The credit to be given will be
substantially in the form set forth below:
"Frankie and Angie Get Married" was created and written by Richard S.
Kanfer.
In the event that Assignee inadvertently fails to give Kanfer the
aforementioned credit(s), Kanfer agrees the same will not be a material breach
of this Assignment of Rights, provided Assignee cures the same within forty-five
(45) days of written notice from Kanfer specifically notifying Assignee of its
inadvertent failure thereof.
To induce the Assignee to accept this assignment, I hereby represent
and warrant (a) that I wrote all the scripted portions of the Play and the
related materials; (b) that the Play and its related materials are protected
under the common law of copyrights and/or can be duly registered for copyright
in the United States Copyright Office; (c) that I am the sole and exclusive
owner of the copyright and all rights in the Play herein assigned; (d) that such
copyrights and rights are in all respects free, clear and unencumbered; (e) that
I have made no commitment with respect to the Play that may
<PAGE>
or will impair the Assignee's rights hereunder; and (f) that I have the full
power and authority to make this assignment.
I agree to take any and all steps to execute, acknowledge and deliver
to the Assignee any and all further documents that may be necessary or desirable
to effectuate this assignment.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 24th day
of December, 1996.
--------------------------------
Richard S. Kanfer
Accepted and agreed to:
On Stage Entertainment, Inc.
By: David Hope
Its: President
Date: December 30, 1996
<PAGE>
ASSIGNMENT OF RIGHTS IN
"WAKE UP SHAMUS O'REILLY"
For and in consideration of the right to receive certain royalties (the
"Royalty Consideration") offered to me simultaneously herewith by On Stage
Entertainment, Inc., a Nevada corporation (herein called the "Assignee"),
I, Richard S. Kanfer, residing at 4201 S. Decatur # 2197-15, City of
Las Vegas, State of Nevada, do hereby unconditionally sell, transfer, assign and
set over unto the Assignee all my right, title and interest in and to a certain
play entitled "Wake Up Shamus O'Reilly" (herein called the "Play"), including
(but not by way of limitation) (a) the copyright therein, and (b) any and all
moneys now or hereafter due me therefrom except for the Royalty Consideration.
The Assignee shall have the unconditional right at any time hereafter
to sell, license or otherwise dispose of any and all rights in the Play, and to
retain the entire proceeds thereof for its exclusive benefit except for the
Royalty Consideration. Notwithstanding the foregoing, any sale, license or other
disposal shall be subject to the Royalty Consideration and credits referred to
below and the Assignee shall continue to be responsible for assuring that the
Royalty Consideration is paid and continues to be paid and that the credits
referred to below are given. Additionally, in the event of any proposed sale, of
all of Assignee's rights in the Play, Kanfer shall have a first right of refusal
to acquire back such rights on the same terms and conditions proposed. In this
regard, prior to (and as a condition of) the proposed conveyance of such rights
other than to Kanfer, Assignee shall first give Kanfer notice in writing stating
the terms upon which Assignee intends to transfer said rights along with the
name, owners, and representatives of such party, and giving Kanfer sixty (60)
days to accept or reject the terms offered to such other party which respect to
such disposal. If Kanfer does not accept such offer within such sixty (60) day
period, Assignee shall then be permitted to enter into an agreement allowing
such other party to acquire such right under the same terms offered to Kanfer
provided the terms of such agreement are in writing and such agreement is signed
and a copy given to Kanfer within sixty (60) days of the rejection or expiration
of the offer to Kanfer. If such written agreement is not entered into with a
copy to Kanfer within such period, Assignee shall not enter into any such
arrangement with that party or any other party without first again going through
the above procedure giving Kanfer his first right of refusal.
Assignee agrees to pay Kanfer, in perpetuity, a Royalty Consideration
in an amount equal to 3% of the gross receipts, if any, actually received by the
Assignee for performances of the Play in productions that are open to the
general public. A production that is performed for a company event is not open
to the general public. Assignee will Kanfer the Royalty Consideration at the end
of each of Assignee's fiscal quarters.
It is agreed that Kanfer shall be given credits as follows which
credits shall be prominently displayed on all materials, including programs,
handed out at the Play and signs, posters and other materials displayed in
connection with the Play, including any theater, showroom or casino marquis. In
addition, credits will be given to Kanfer at each venue, and in all sales,
advertising and promotional materials relating to the Play on the same terms and
conditions as other credits are given, if any. The credit to be given will be
substantially in the form set forth below:
"Wake Up Shamus O'Reilly" was created and written by Richard S. Kanfer.
In the event that Assignee inadvertently fails to give Kanfer the
aforementioned credit(s), Kanfer agrees the same will not be a material breach
of this Assignment of Rights, provided Assignee cures the same within forty-five
(45) days of written notice from Kanfer specifically notifying Assignee of its
inadvertent failure thereof.
To induce the Assignee to accept this assignment, I hereby represent
and warrant (a) that I wrote all the scripted portions of the Play and the
related materials; (b) that the Play and its related materials are protected
under the common law of copyrights and/or can be duly registered for copyright
in the United States Copyright Office; (c) that I am the sole and exclusive
owner of the copyright and all rights in the Play herein assigned; (d) that such
copyrights and rights are in all respects free, clear and unencumbered; (e) that
I have made no commitment with respect to the Play that may
<PAGE>
or will impair the Assignee's rights hereunder; and (f) that I have the full
power and authority to make this assignment.
I agree to take any and all steps to execute, acknowledge and deliver
to the Assignee any and all further documents that may be necessary or desirable
to effectuate this assignment.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 24th day
of December, 1996.
/s/ Richard S. Kanfer
--------------------------
Richard S. Kanfer
Accepted and agreed to:
On Stage Entertainment, Inc.
By: David Hope
Its: President
Date: December 20, 1996
<PAGE>
EXHIBIT D
Kanfer Employment Agreement
---------------------------
<PAGE>
EMPLOYMENT AGREEMENT
for
RICHARD KANFER
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this
10th day ofSeptember, 1996, by and between ON STAGE ENTERTAINMENT, INC., a
Nevada corporation ("Company"), and RICHARD KANFER, an individual ("Kanfer").
RECITALS
A. The Company desires to be assured of the association and services of
Kanfer for the Company.
B. Kanfer is willing and desires to be employed by the Company, and the
Company is willing to employ Kanfer, upon the terms, covenants and conditions
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING RECITALS ALONG WITH
THE MUTUAL PROMISES AND UNDERSTANDINGS HEREIN CONTAINED AND FOR OTHER GOOD AND
VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH IS HEREBY
ACKNOWLEDGED, THE PARTIES HERETO AGREE AS FOLLOWS:
1. RECITALS. The above-listed Recitals are incorporated into this Agreement in
their entirety and expressly made a part hereof.
2. EMPLOYMENT. The Company hereby employs Kanfer as the Vice President of Sales,
Corporate Events and Limited Engagements of ON STAGE ENTERTAINMENT, INC.,
subject to the supervision and direction of the Company's President or such
person(s) designated by the Board for that purpose.
3. TERM. Unless sooner terminated or extended as provided herein, the term of
this Agreement shall commence on the date hereof and shall continue through and
include December 31, 1998 (the "Term"). However, it should be noted that
Kanfer's obligation in Sections 6, 7.3, 7.5 and 8, as well as the Company's
obligations in Section 7.2, below, will continue in effect even after the
termination of this Agreement, whether the same be caused by the natural elapse
of time or otherwise.
<PAGE>
4. COMPENSATION; REIMBURSEMENT.
4.1 Base Salary. For all services rendered by Kanfer under this
Agreement, the Company shall pay Kanfer an annual base salary of One Hundred and
Ten Thousand Dollars ($110,000.00) per annum, payable every other week in 26
equal installments ("Base Salary").
4.2 Signing Bonus. Kanfer shall receive a one-time "signing bonus" of
Ten Thousand Dollars ($10,000.00) upon the execution of this Agreement.
4.3 Salary Bonus. Kanfer will be entitled to an annual bonus to be paid
in accordance with Schedule "A" ("Bonus"). Actual payment of said Bonus will be
made at the same time that all other corporate bonuses are paid, which is likely
to be within thirty (30) days of the date the Company publishes its financial
accounts for the year, but in no event shall said Bonus be paid later than April
15th of any respective year.
4.4 Additional Benefits. In addition to the Base Salary and Bonus,
Kanfer shall receive the following benefits during the period for which Kanfer
is employed by the Company:
4.4.1 Automobile Allowance: The Company shall reimburse Kanfer
his actual costs associated with purchasing or leasing one (1) vehicle
for Company use, up to Five Hundred Dollars ($500.00) per month.
4.4.2 Medical/Dental Coverage: Until such time as the Company
at its own discretion implements a Company wide Medical/Dental policy,
the Company will reimburse Kanfer his actual cost of his Medical/Dental
policy currently in effect up to Three Hundred Fifty Dollars ($350.00)
per month. At such time as the Company implements a Company wide
Medical/Dental policy, Kanfer will be provided with such coverage under
said policy which is commensurate with executives of similar status
(i.e. Vice President) in lieu of the aforementioned monthly
reimbursement.
4.4.3 Relocation Allowance: The Company will reimburse Kanfer
for all actual out-of pocket moving/relocation/transportation expenses
reasonably incurred by him in connection with his relocation to the
Company's headquarters, up to a maximum of $5,000.
4.4.4 Housing Allowance: The Company will pay the actual cost
of temporary housing for Kanfer for the first three (3) months of his
employment, up to a maximum allowance of $1,000 per month.
4.4.5 Expense Reimbursement: The Company shall reimburse
Kanfer for those expenses incurred by him in connection with the
performance of the duties on behalf of the Company that are in
accordance with the Company's expense reimbursement procedures then in
place; that such expenses are reasonable for an executive of Kanfer's
status and are appropriately documented.
<PAGE>
4.4.6 Stock Options. As of the date of the execution of this
Agreement, the Company agrees to reserve for Kanfer an option to
purchase thirty-six thousand (36,000) shares of the Company under the
Company's 1996 Stock Option Plan, contingent upon Kanfer's continued
employment with the Company ("Options"). The Options shall only accrue
and/or vest during the period in which Kanfer is actually employed by
the Company. In the event that Kanfer leaves the employ of the Company,
he shall only be entitled to those Options which have vested at that
time, and shall not be entitled to the remaining balance of the Options
which the Company reserved for Kanfer. The rate at which the Options
will vest is as follows:
(1) 12,000 on first anniversary date of Kanfer's employment; and
(2) 12,000 on second anniversary date of Kanfer's employment;
and
(3) Remaining 12,000 on the third anniversary date of Kanfer's
employment.
5. SCOPE OF DUTIES.
5.1 Assignment of Duties. Kanfer shall have such duties as may be
assigned to him from time to time by the Company's President, commensurate with
his experience and responsibilities in the position for which he is employed
pursuant to Section 2, above. Such duties shall be exercised subject to the
control and supervision of the President.
5.2 Kanfer's Devotion of Time. Kanfer hereby agrees to devote his
full-time, abilities and energy to the faithful performance of the duties
assigned to him and to the promotion and development of the business affairs of
the Company, and not to divert any business opportunities from the Company to
himself or to any other person or business entity.
5.3 Conflicting Activities.
5.3.1 Kanfer shall not, during the Term, be engaged in any
other business activity, regardless of whether such activity is or may
be competitive with the business of the Company, without the prior
written consent of the Board or such person(s) designated by the Board
for that purpose; provided, however, that this restriction shall not be
construed as preventing Kanfer from being a director of, or investing
his personal assets in passive investments in, business entities which
are not in competition with the Company or any of its affiliates, or
from pursuing business opportunities as permitted by paragraph 5.3.2,
below.
5.3.2 Kanfer hereby agrees to promote and develop all business
opportunities that come to his attention relating to current or
anticipated future business of the Company, in a manner consistent with
the best interests of the Company and with his duties under this
Agreement. Should Kanfer discover a business opportunity, whether or
not such business opportunity is related to the business of the
Company, he shall first offer such opportunity to the Company. In the
event that the Board of Directors of the Company elects not exercise
its right to pursue this business opportunity within a reasonable
period of time, not to exceed thirty (30)
<PAGE>
days, then Kanfer may develop the business opportunity for himself,
provided, however, that such development may in no way conflict or
interfere with the duties owed by Kanfer to the Company under this
Agreement. Further, Kanfer may develop such business opportunities only
on his own time, and may not use any service, personnel, equipment,
supplies, facility, or trade secrets of the Company in their
development. Notwithstanding anything contained herein to the contrary,
Kanfer may passively invest in publicly traded stocks, bonds or other
securities, provided that those investments do not conflict with
activities competitive with or are adverse to the business or welfare
of the Company, and that such passive investments are not to the extent
that Kanfer beneficially owns Ten Percent (10%) or more of any other
company.
6. CONFIDENTIALITY OF TRADE SECRETS AND OTHER MATERIALS.
6.1 Trade Secrets and Confidential Information. Kanfer agrees not to
disclose to others, or take or use for his own purposes or the purposes of
others, during or after his employment, any trade secrets, confidential
information, knowledge, data or the like that Kanfer acquires during the term of
this Employment Agreement. Kanfer agrees that these restrictions shall also
apply to (a) information, knowledge, trade secret, data or know-how belonging to
third parties in the Company's possession; and (b) information, knowledge, trade
secret, or data received, originated, discovered or developed by Kanfer during
the term of this Agreement. Kanfer recognizes that this obligation applies not
only to technical information, but also to any business, financial or marketing
information that the Company treats as confidential. Any information of the
Company which is not readily available to the public shall be considered to be a
trade secret unless the Company advises Kanfer otherwise in writing.
6.2 Ownership of Trade Secrets; Assignment of Rights. Kanfer hereby
agrees that all know-how, documents, reports, plans, proposals, marketing and
sales plans, client lists, client files and materials made by him or by the
Company are the property of the Company and shall not be used by him in any way
adverse to the Company's interests. Kanfer shall not deliver, reproduce or in
any way allow such documents or things to be delivered or used by any third
party without specific direction or consent of the Board of Directors of the
Company. Kanfer hereby assigns to the Company any rights which he or she may
have in any such trade secret or proprietary information.
Kanfer agrees that for a period of two (2) years immediately following
his termination (voluntary or with cause) with the Company, he shall not
interfere with the business of the Company by inducing an employee or associate
to leave the Company, or by inducing a consultant or other independent
contractor to sever that person's relationship with the Company, or disrupting
the Company's relationships with customers, agents, representatives or vendors.
6.3 Non-Solicitation of Company's Employees or Independent Contractors.
During the term of this Agreement and for a period of two (2) years thereafter,
Kanfer specifically agrees not to solicit or encourage or cause others to
solicit or encourage any full-time employees, impersonators and/or any other
administrative or managerial personnel, to terminate their employment with the
Company.
7. TERMINATION.
7.1 Basis for Termination.
-29-
<PAGE>
7.1.1 Kanfer's employment hereunder may be terminated at any
time by mutual agreement of the parties.
7.1.2 This Agreement shall automatically terminate on the last
day of the month in which Kanfer dies or becomes permanently
incapacitated. For purposes of this paragraph, "permanent incapacity"
shall mean mental or physical incapacity, or both, reasonably
determined by the Company's Board of Directors based upon a
certification of such incapacity by, in the discretion of the Company's
Board of Director's, either Kanfer's regularly attending physician or a
duly licensed physician selected by the Company's Board of Directors,
rendering Kanfer unable to perform substantially all of his duties
hereunder and which appears reasonably certain to continue for at least
six consecutive months without substantial improvement. Kanfer shall be
deemed to have "become permanently incapacitated" on the date the
Company's Board of Directors has determined that Kanfer is permanently
incapacitated and so notifies Kanfer based upon certification of the
same by a licensed physician.
7.1.3 Kanfer's employment may be terminated by the Company
"with cause," effective upon delivery of written notice to Kanfer given
at any time (without any necessity for prior notice) if any of the
following shall occur:
(a) In the event Kanfer's division fails to meet the
minimum budgetary targets during any calendar quarter computed
on a four quarter cumulative basis and/or cumulative yearly
total beginning in 1997 as set forth in Schedule "B" attached
hereto and incorporated herein by reference; or
(b) A material breach of this Agreement by Kanfer,
which breach has not been cured within thirty (30) days after
a written demand for such performance is delivered to Kanfer
by the Company that specifically identifies the manner in
which the Company believes that Kanfer has breached this
Agreement; or
(c) Any material acts or events which inhibit Kanfer
from fully performing his responsibilities to the Company in
good faith, such as (i) a felony criminal conviction; (ii) any
other criminal conviction involving Kanfer's lack of honesty
or Kanfer's moral turpitude; (iii) drug or alcohol abuse; or
(iv) acts of dishonesty, gross carelessness or gross
misconduct.
7.2 Payment Upon Termination. Upon termination under paragraph 7.1, the
Company shall pay to Kanfer within 10 days after termination an amount equal to
the sum of (a) Kanfer's Base Salary accrued to the date of termination; (b) any
Bonus accrued to date of termination for sales receipts that have been
collected; and (c) unreimbursed expenses accrued to the date of termination. The
Company shall pay Kanfer any Bonus amount(s) Kanfer may be entitled to hereunder
for events and shows procured and contracted by Kanfer's division on behalf of
the Company during the term of his employment, which the Company had not been
paid on as of the termination date, and will remit the same to Kanfer within
thirty (30) days of Company's actual receipt of the contracted amount. After any
<PAGE>
such termination, the Company shall not be obligated to compensate Kanfer, his
estate or representatives except for the forgoing compensation then due and
owing, nor provide benefits to Kanfer described in Section 4, above (except as
provided by law).
7.3 Return of Company Records. In the event of the termination of this
Agreement for any reason, Kanfer agrees to deliver promptly to the Company all
equipment, notebooks, documents, memoranda, reports, files, books, and the like,
relating to the Company's business, which are or have been in his possession or
under his control.
7.4 Dismissal from Premises. At the Company's option, Kanfer shall
immediately leave the Company's premises on the date notice of termination is
given by Kanfer.
7.5 Unfair Competition after Termination. Because of his employment by
the Company, Kanfer will have access to trade secrets and confidential
information about the Company, its products, its customers and its methods of
doing business. Kanfer agrees that for a period of two (2) years after
termination of his employment he will not directly compete with Company in the
field of producing and/or creating live production shows. It is understood and
agreed upon that direct competition means the design, development, production,
promotion, presentation, or sale of products or services which are or could be
considered a derivative of the Company's Shows "Legends in Concert", "Frankie &
Angie Get Married" or "Wake Up Shamus O'Reilly" and any Shows within the gaming
casino market. Kanfer further agrees that he will not directly or indirectly
disclose to any third person any confidential information or trade secrets,
including, but not limited to customer lists, as to which he gained knowledge
during the term of his employment.
8. INJUNCTIVE RELIEF.
The Company and Kanfer hereby acknowledge and agree that any breach or
default under Section 6 or 7, above, will cause damage to the Company in an
amount which is difficult, if not impossible, to ascertain. Accordingly, in
addition to any other relief to which the Company may be entitled, the Company
shall be entitled to such injunctive relief as may be ordered by any court of
competent jurisdiction including, but not limited to, an injunction restraining
any violation of Section 7 above.
9. MISCELLANEOUS.
9.1 Kanfer's Right to "Put" Vested Shares. Upon termination of this
Agreement, either by the natural passage of time or at any time and for any
reason precedent thereto, Kanfer will have the option to "put" (re-convey) to
the Company the 55,000 shares that were issued to him in connection with the
merger of Interactive Events, Inc. with On Stage Entertainment, Inc. In exchange
for the return of said 55,000 shares, the Company hereby agrees to do the
following: (i) pay Kanfer $100 as good an valuable consideration therefore; and
(ii) relieve Kanfer of his obligations contained herein that heretofore
prohibited Kanfer to compete with the Company by allowing Kanfer to solicit,
contact and otherwise provide services to his clients precedent to is employ
with the Company. Notwithstanding the above, Kanfer shall expressly not be
<PAGE>
relieved of his obligation not to complete with the Company by: (i) booking any
look-alike or other show containing impersonators; or (ii) booking any show
within the main showroom of any casino. In the event Kanfer elects to exercise
his right to put said shares to the Company in return for the right to compete
with the Company as set forth above, nothing contained herein shall be deemed as
a waiver of the Company's right to prohibit Kanfer, for a twelve (12) month
period from the date Kanfer elects to exercise his right herein, from
soliciting, providing services for, or otherwise competing with the Company via
contacting the Company's clients, which clients specifically include, but are
not limited to those that had contact with the Company, before, during and after
the effective termination date of this Agreement. It should be noted, however,
that if Kanfer should elect to exercise his right to put his shares on the
Company that the Company would continue to own Interactive Events, Inc.
9.2 Transfer and Assignment. This Agreement is personal to Kanfer and
shall not be assigned or transferred without the prior written consent of the
Company. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective pretermitted heirs, personal
representatives, successors and assigns.
9.3 Severability. If for any reason whatsoever, any one or more of the
provisions of this Agreement shall be held or deemed to be illegal, inoperative,
unenforceable or invalid as applied to any particular case or in all cases, such
circumstances shall not have the effect of rendering such provisions illegal,
inoperative, unenforceable or invalid in any other case or of rendering any
other provisions of this Agreement illegal, inoperative, unenforceable or
invalid. Nothing contained herein shall be construed to require the commission
of any act contrary to law. Should there be any conflict between any provisions
hereof and any present or future statute, law, ordinance, regulation, or other
pronouncement having the force of law, the latter shall prevail, but the
provision of this Agreement affected thereby shall be curtailed and limited only
to the extent necessary to bring it within the requirements of the law, and the
remaining provisions of this Agreement shall remain in full force and effect.
9.4 Governing Law. This Agreement is made under and shall be construed
in accordance with the laws of the State of Nevada.
9.5 Entire Agreement. This Agreement constitutes the entire agreement
and understanding of the parties with respect to the subject matter of the
parties with respect to the subject matter hereof and supersedes all prior or
written agreements, arrangements, and understandings with respect thereto. No
representation, promise, inducement, statement or intention has been made by any
party hereto that is not embodied herein, and no party shall be bound by or be
held liable for any alleged statement no so set forth herein.
9.6 Modification. This Agreement may be modified, amended, superseded,
or canceled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
parties to be bound by any such modification, amendment, supersession,
cancellation or waiver.
<PAGE>
9.7 Waiver. The waiver by either of the parties, express or implied, of
any right under this Agreement or any failure to perform under this Agreement by
the other party, shall not constitute or be deemed as a waiver of any other
right under this Agreement or of any other failure to perform under this
Agreement by the other party, whether of a similar or dissimilar nature.
9.8 Cumulative Remedies. Each and all of the several rights and
remedies provided in this Agreement, by law or in equity, shall be cumulative,
and no one of them shall be exclusive of any other right or remedy, and the
exercise of any one of such rights or remedies shall not be deemed a waiver of,
or an election to exercise, any other such right or remedy.
9.9 Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning and interpretation of this Agreement.
9.10 Survival. Any provision of this Agreement which imposes an
obligation after termination or expiration of this Agreement shall survive the
termination or expiration of this Agreement and be binding on Kanfer and the
Company.
9.11 Right to Set-Off. Upon termination or expiration of this
Agreement, the Company shall have the right to set-off against the amounts due
Kanfer hereunder the amount of any outstanding loan or advance from the Company
to Kanfer.
9.12 Notices. Any notice under this Agreement must be in writing, may
be telecopied, sent by express 24 hour guaranteed courier, or hand-delivered, or
may be served by depositing the same in the United States mail, addressed to the
party to be notified, postage pre-paid and registered or certified with a return
receipt requested. The address of the parties for the receipt of notice shall be
as follows:
PARTY ADDRESS
----- -------
Company ON STAGE ENTERTAINMENT, INC.
4625 W. NEVSO, SUITE 10
LAS VEGAS, NEVADA 89103
ATTN: CHRISTOPHER R. GROBL, ESQ.
Kanfer RICHARD KANFER
4201 SOUTH DECATUR, APT. 2197-15
LAS VEGAS, NEVADA 89103
Each notice given by registered or certified mail shall be deemed
delivered and effective on the date of delivery as shown on the return receipt,
and each notice delivered in any other manner shall be deemed to be effective as
of the time of actual delivery thereof. Each party may change its address for
notice by giving notice thereof in the manner provided for above.
9.13 Effective Date. This Agreement shall become effective as of the
date set forth on page 1 when signed by Kanfer and the Company.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed as of the date first set forth above.
By: /s/ David Hope By: /s/ Richard Kanfer
----------------- -------------------------
David Hope Richard Kanfer, an individual
President
On Stage Entertainment, Inc.
<PAGE>
<TABLE>
<CAPTION>
Schedule A -- Bonus
- -------------------------------- --------------------------- ----------------------------
1996 1997 1998
SEPT - DEC KANFER ANNUAL KANFER ANNUAL KANFER
PROFIT* BONUS PROFIT* BONUS PROFIT * BONUS
- -------------------------------- --------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
200,000 1,583 680,000 4,750 1,200,000 4,750
225,000 3,167 765,000 9,500 1,350,000 9,500
250,000 6,333 850,000 19,000 1,500,000 25,000
275,000 7,917 935,000 23,750 1,650,000 30,000
300,000 9,500 1,020,000 28,500 1,800,000 35,000
325,000 11,083 1,105,000 33,250 1,950,000 40,000
350,000 12,667 1,190,000 38,000 2,100,000 45,000
375,000 15,833 1,275,000 47,500 2,250,000 52,500
400,000 19,000 1,360,000 57,000 2,400,000 57,000
425,000 22,167 1,445,000 66,500 2,550,000 66,500
450,000 25,333 1,530,000 76,000 2,700,000 76,000
475,000 28,500 1,615,000 85,500 2,850,000 85,500
500,000 31,667 1,700,000 95,000 3,000,000 95,000
* Profit
defined as
set forth in
the attached
Sales Plan.
$31,667 250,000
$95,000 850,000
$95,000 1,500,000
</TABLE>
<PAGE>
% OF % OF
TARGET BONUS
80% 5%
90% 10%
100% 20%
110% 25%
120% 30%
130% 35%
140% 40%
150% 50%
160% 60%
170% 70%
180% 80%
190% 90%
200% 100%
<PAGE>
<TABLE>
<CAPTION>
Schedule B -- Minimum Budgetary Requirements
<S> <C> <C>
For Quarter Ended Minium Required Profit* - or - Cumulative Required Profit
Mar-97 40,000 40,000
Jun-97 90,000 130,000
Sep-97 150,000 280,000
Dec-97 570,000 850,000
Mar-98 300,000 300,000
Jun-98 200,000 500,000
Sep-98 350,000 850,000
Dec-98 650,000 1,500,000
* Profit defined as
set forth in the
attached Sales Plan.
</TABLE>
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
On Stage Entertainment, Inc.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated February 4, 1997, except
for notes 1, 3, 5 and 9 which are as of March 26, 1997, relating to the
financial statements of On Stage Entertainment, Inc., which are contained in
that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
-------------------------------------
BDO SEIDMAN, LLP
Los Angeles, California
June 2, 1997
