<PAGE>
As filed with the Securities and Exchange Commission on August 6, 1997
Registration No. 333-24681
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
AMENDMENT NO. 3
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>
<CAPTION>
<S> <C> <C>
Nevada 7929 88-0214292
(State or other jurisdiction of (Primary Standard Industrial) (I.R.S. Employer
incorporation or organization) 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.
===============================================================================
<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 AUGUST 6, 1997
SUBJECT TO COMPLETION
ON STAGE ENTERTAINMENT, INC.
1,400,000 Shares of Common Stock and
Redeemable Warrants to Purchase 1,400,000 Shares of Common Stock
On Stage Entertainment, Inc. (the "Company") is offering hereby 1,400,000
shares (the "Shares") of the common stock, par value $.01 per share, of the
Company (the "Common Stock") and redeemable warrants to purchase 1,400,000
shares of Common Stock (the "Warrants"). 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 "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 and the exercise price of the 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.
===============================================================================
Price Underwriting Discounts Proceeds
to and to
Public Commissions(1) Company(2)
- -------------------------------------------------------------------------------
Per Share ......... $5.00 $.50 $4.50
- -------------------------------------------------------------------------------
Per Warrant ...... $.10 $.01 $.09
- -------------------------------------------------------------------------------
Total (3) ......... $7,140,000 $714,000 $6,426,000
===============================================================================
(1) In addition, the Company has agreed to pay to the Underwriter a 3%
nonaccountable expense allowance and to sell to the Underwriter warrants
(the "Underwriter's Warrants") to purchase up to 114,500 shares of Common
Stock and/or 140,000 Warrants. In addition, an aggregate of 25,500 shares of
Common Stock issued in connection with the Company's bridge financing have
been included as compensation to the Underwriter. The Company has also
agreed to indemnify the Underwriter against certain liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, including the
Underwriter's nonaccountable expense allowance in the amount of $214,200
($246,330 if the Underwriter's over-allotment option is exercised in full),
estimated at $706,000.
(3) 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
210,000 shares of Common Stock and/or 210,000 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 $8,211,000, $821,100 and $7,389,900, respectively. See
"Underwriting."
<PAGE>
------------------
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>
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>
PHOTO
[Company Logo and pictures of seven sites
at which legends is preformed]
<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 210,000 additional shares
of Common Stock and/or 210,000 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; the
Surfside Theater in Myrtle Beach, South Carolina; and the Coliseum Theater in
Daytona Beach, Florida; and on a Premier Cruise Lines ship which sails out of
Cape Canaveral, Florida. In addition, the Company will have a resident Legends
production at the Estrel Residence and Congress Hotel in Berlin, Germany,
beginning September 12, 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 recently co-produced with Improv West, Inc. at the Trump Taj
Mahal in Atlantic City, New Jersey) 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 an additional $220,000 (including principal and interest) borrowed by
Mr. Stuart since December 31, 1996. 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, following the date of this Prospectus, the Company will
neither loan nor 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. In August 1997, an aggregate of 4,500 Bridge Shares and 37,500
Bridge Warrants were returned to the Company by two investors in the Bridge
Financing for no compensation. 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 ....... 1,400,000 shares of Common Stock and Warrants to
purchase 1,400,000 shares of Common Stock. See
"Description of Securities."
Common Stock to be outstanding
after this offering(1)(2).. 6,584,480 shares.
Warrants (3)
Number to be outstanding
after this offering....... 1,400,000 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 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."
6
<PAGE>
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) 1,400,000 shares of Common Stock reserved for
issuance upon exercise of the Warrants; (ii) an aggregate of 254,500
shares of Common Stock reserved for issuance upon exercise of the
Underwriter's Warrants and the warrants included therein; (iii) 212,500
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) 657,403 shares of
Common Stock reserved for issuance upon exercise of options granted, and
127,597 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.
---------------------
Notice to California Investors. Each purchaser of Common Stock and
Warrants in California must be an "accredited investor" as that term is defined
in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), or satisfy one of the following suitability
standards: (i) minimum annual gross income of $65,000 and a net worth
(exclusive of home, home furnishings and automobiles) of $250,000; or (ii)
minimum net worth (exclusive of home, home furnishings and automobiles) of
$500,000.
Notice to Washington Investors. Each purchaser of Common Stock and
Warrants in Washington must be an "accredited investor," as that term is
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
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) $ (356) $4,078
Total assets ........................ 3,954 4,332 4,332 7,547
Total liabilities .................. 4,177 4,544 2,835 1,524
Stockholders' equity (deficit) ...... (223) (212) 1,497 6,023
</TABLE>
- ------------
(1) Gives retroactive effect to (i) the Pending Debt Conversion and (ii) the
return to the Company and cancellation of 4,500 Bridge Shares, each of
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 the Shares and
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."
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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 loaned Mr. Stuart $220,000
(including principal and interest) since December 31, 1996 and intends to
forgive such indebtedness 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, it probably would 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
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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 ended March 31, 1997 in
the amount of $103,235. 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, as of
the date of this Prospectus, 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,
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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 60.5% 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 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."
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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."
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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
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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 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
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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 them 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 6,584,480 shares of Common Stock
outstanding, of which the 1,400,000 Shares offered hereby will be freely
tradable without restriction or further registration under the Securities Act.
The remaining 5,184,480 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
4,988,980 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 1,161,188 of the restricted shares, as well as to the
212,500 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 1,400,000 Warrants offered by the Company hereby are
estimated to be approximately $5,720,000 (approximately $6,651,770 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 were 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 $931,770. If the 1,400,000
Warrants offered hereby are exercised, the Company will realize proceeds
relating thereto of $7,700,000 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 (i) the Pending Debt Conversion and (ii) the return to the Company
and cancellation of 4,500 Bridge Shares, the pro forma net tangible book value
of the Company as of March 31, 1997 would have been $343,348 or $.07 per share.
After also giving effect to the sale of the 1,400,000 Shares and 1,400,000
Warrants offered hereby 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), 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 adjustment ...... $(.31)
Increase attributable to pro forma adjustment ........................ .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 ...... 5,184,480 78.7% $2,592,765 27.0% $ .50
New investors ............... 1,400,000 21.3 7,000,000 73.0 $5.00
---------- ------ ----------- ------
Total .................. 6,584,480 100.0% $9,592,765 100.0%
========== ====== =========== ======
</TABLE>
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
$8,050,000 for 1,610,000 shares of Common Stock offered by the Company,
representing approximately 75.6% of the total consideration, for 23.7% 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
212,500 Bridge Warrant Shares at $4.00 per share and options to purchase
672,403 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 the return to the
Company and cancellation of 4,500 Bridge Shares; and (iii) as further adjusted
to give effect to the sale of the 1,400,000 Shares and 1,400,000 Warrants
offered 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 $ 561,000(2) $ -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 $ 746,273 $ 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); 5,184,480 shares issued and
outstanding (pro forma); 6,584,480 shares
issued and outstanding (as adjusted)(1) ............ 46,833 51,845(2) 65,845(3(c))
Additional paid-in capital ........................... 642,640 2,540,920(2) 7,589,119(3(d))
Accumulated deficit ................................. (901,056) (1,095,284)(2) (1,631,584)(3(e))
---------- -------------- ----------------
Total stockholders' equity (deficit) ............... (211,583) 1,497,481 6,023,380
---------- -------------- ----------------
Total capitalization .............................. $2,433,834 $ 2,428,834 $ 6,204,733
========== ============== ================
</TABLE>
- ------------
(1) Does not include (i) 1,400,000 shares of Common Stock reserved for issuance
upon exercise of the Warrants; (ii) an aggregate of 254,500 shares of
Common Stock reserved for issuance upon exercise of the Underwriter's
Warrants and the warrants included therein; (iii) 212,500 Bridge Warrant
Shares; (iv) 11,020 Interactive Events Shares; (v) 657,403 shares of
Common Stock reserved for issuance upon exercise of options granted, and
127,597 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 return to the Company and cancellation of
4,500 Bridge Shares, 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 related to the conversion.
Also, 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 the 1,400,000 Shares offered hereby.
(d) To reflect the Company's sale of the 1,400,000 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 $536,300 related to the loan
discount and debt issuance costs of the Bridge Financing.
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 .......................................... $ 12,775 $ 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) $ (356) $4,078
Total assets ........................ 3,954 4,332 4,332 7,547
Total liabilities .................. 4,177 4,544 2,835 1,524
Stockholders' equity (deficit) ...... (223) (212) 1,497 6,023
</TABLE>
- ------------
(1) Gives retroactive effect to (i) the Pending Debt Conversion and (ii) the
return to the Company and cancellation of 4,500 Bridge Shares, each of
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 the 1,400,000
Shares and the 1,400,000 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:
Three Months Ended
Years Ended December 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.
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 attractive opportunities for future growth. However, the
Company has now implemented a policy of opening
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<PAGE>
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 five administrative offices: its corporate
headquarters in Las Vegas and branch offices in Atlantic City, Atlanta, Myrtle
Beach and Daytona 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>
Three Months Ended
Years Ended December 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>
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<PAGE>
Net income for the year ended December 31, 1996 was $900,998, as compared
to a net loss of $1,333,034 for the year ended December 31, 1995. The Company
incurred a net loss of $517,372 for the three months ended March 31, 1997, as
compared to a net loss of $68,316 for the three months ended March 31, 1996.
The Company anticipates that net income for the three months ended June 30,
1997 will be approximately $200,000, as compared to $708,692 for the three
months ended June 30, 1996.
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.
25
<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
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 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.
26
<PAGE>
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.
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 $15,800 at December
31, 1996 related to other state and local income taxes.
Seasonality and Quarterly Results
The Company's business has been, and is expected to remain, highly
seasonal, generating the majority of revenues from April through October. Part
of the Company's business strategy is to increase sales in tourist markets that
experience their peak seasons from November through March, such as Florida and
Arizona, domestically, and Australia, South Africa, China, Singapore, New
Zealand, and Hong Kong, abroad, which the Company believes will help mitigate
this seasonality.
The following table sets forth the Company's net revenue for each of the
last nine quarters ended March 31, 1997:
Net Revenues
($ 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 revenue and a decrease
in direct and indirect production costs offset by an increase in general and
administrative costs. For the quarter 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."
27
<PAGE>
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,
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. The Company anticipates that long-term debt
will increase from $1,895,417 as of March 31, 1997 to approximately $2,360,000
as of June 30, 1997.
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.
In May 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 has drawn $122,000 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
28
<PAGE>
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.
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
29
<PAGE>
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, 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.
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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 the amounts of
$920,923 and $859,511 for the years ended December 31, 1995 and 1996,
respectively. In addition, the Company has advanced an additional $220,000
(including principal and interest) to Mr. Stuart since December 31, 1996 and
intends to forgive all of such indebtedness prior to the consummation of this
offering. In connection with the Bridge Financing, the Company agreed that,
other than such $220,000, the Company will neither loan nor advance any further
sums to or on behalf of Mr. Stuart in the future. 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 were 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. In
August 1997, an aggregate of 4,500 Bridge Shares and 37,500 Bridge Warrants
were returned to the Company by two investors in the Bridge Financing for no
consideration. 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,
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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 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, the Surfside Theater in Myrtle Beach and
the Coliseum Theater in Daytona Beach and on a Premier Cruise Lines ship which
sails out of Cape Canaveral. In addition, the Company will have a resident
Legends production at the Estrel Residence & Congress Hotel in Berlin, Germany,
beginning September 12, 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 June 1997, the Company commenced
operation of the Coliseum Theater in Daytona Beach where it produces a
full-scale resident Legends production under a "four-wall" operating structure.
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 relocated Legends
to the OFT Theater where it is presenting 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, 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
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Place. The Company also co-produced a comedy show entitled An Evening at the
Improv(R) Spectacular at the Xanadu Theater at the Trump Taj Mahal Casino
Resort in Atlantic City, which ran from March 1997 through July 1997, which was
replaced with Camouflage Aux Folles which will run through September 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 co-produced 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 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, Myrtle
Beach and Daytona Beach and on a Premier Cruise Lines ship. 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 BOX 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
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Company and the remaining 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 a Premier Cruise Lines ship 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 vessel which sails 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.
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 commenced operation of a full-scale Legends production at the
Coliseum Theater in Daytona Beach, Florida in June 1997. The Company has a
lease arrangement with the Theater'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 November 1, 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 Estrel Residence & Congress Hotel - Berlin, Germany
The Company will begin producing and presenting a full-scale Legends
production at the Estrel Residence & Congress Hotel in Berlin, Germany on
September 12, 1997. The Company has an agreement with Kurz Management, the
hotel's entertainment management which terminates on December 31, 1997, but may
be extended for five successive two-year periods by Kurz management upon ninety
days notice and subject to an increase in compensation to the Company under the
agreement. The agreement provides that the Legends show be performed a maximum
of six days per week for eight performances per week. The Estrel Residence &
Congress Hotel agreement is a "guaranteed" arrangement under which the Company
receives a guaranteed weekly fee.
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
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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% 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 ran from March 1997 through July 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,
Myrtle Beach and Daytona 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
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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.
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 20% on individual ticket purchases, and offers
volume discounts of up to 46% 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.
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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 addition, the Company 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.
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 month, 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 August 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 Seattle. 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.
47
<PAGE>
Employees
As of August 1, 1997, the Company employed approximately 208 full-time
employees, including 47 singer/dancers, 20 musicians, 54 operational personnel,
14 administrative personnel, 15 marketing personnel, 53 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 has filed an answer to the plaintiff's complaint. The
matter is currently in the discovery stage of litigation.
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 by a shareholder of Grand Strand
Entertainment, Inc. ("Grand Strand"), a South Carolina corporation in which Mr.
Stuart is a majority shareholder, against the Company, John Stuart and Grand
Strand, alleging misappropriation of corporate opportunity and breach of
contract. Grand Strand, which was formed solely for the purpose of establishing
a Legends production in Myrtle Beach, South Carolina, was granted a license by
the Company to use the "Legends in Concert" trademark in connection with such
production. The license was contingent upon Grand Strand raising sufficient
capital to fund pre-production costs associated with establishing the Legends
production which was 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 plaintiff
seeks for (i) a receiver to manage the Legends show produced by Grand Strand;
(ii) an accounting of all assets and profits of Grand Strand; (iii) the Company
to be prevented from diverting profits to itself or from diminishing the value
of Grand Strand's property or other contractual rights; (iv) 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; and (v) actual
damages for loss of earnings. The Company filed an answer to the plaintiff's
complaint, as well as a motion to stay and a motion to compel arbitration. On
June 2, 1997, the Court of Common Pleas for Horry County, South Carolina
granted such motions. Mr. Stuart, at the request of the Underwriter, has
entered into an Indemnification Agreement with the Company and Grand Strand
dated February 27, 1997, whereby Mr. Stuart shall indemnify the Company against
any liability for any judgments or settlement payments, expenses and or legal
fees in connection with any proceeding relating to the grant of the license to
Grand Strand. Mr. Stuart has also entered into a Security and Pledge Agreement
with the Company dated February 27, 1997 whereby he has pledged and granted a
security interest to the Company in 400,000 of his shares of Common Stock of
the Company to secure his obligations and performances under the
Indemnification Agreement.
48
<PAGE>
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 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's east coast office consists of approximately 600 square feet
of space located at Flightwinds in Atlantic City, New Jersey. The lease, which
is currently on a month to month basis, provides for monthly rent in the amount
of $460. 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, 1998. 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 the President and Chief Operating Officer of King
World Productions, a leading syndicator of television programs including shows
such as OPRAH!, JEOPARDY! and Wheel of Fortune. 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
51
<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.
53
<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 $220,000 until
April 14, 1998, after which time he may receive annual salary increases of up
to 10% of his base salary amount contingent upon meeting reasonable financial
performance goals as determined between Mr. Hope and 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 up to $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 657,403 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 an aggregate of 80,000 shares
granted, as of the date of this Prospectus, to 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 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 offered hereby, 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>
Percentage of
Outstanding Shares
Beneficially Owned(2)
Number of ----------------------
Name and Address of Shares Beneficially Before After
Beneficial Owner(1) Owned(2) Offering Offering
- ------------------------------------------------ --------------------- ---------- ---------
<S> <C> <C> <C>
John W. Stuart (3) ........................... 3,982,760 76.8% 60.5%
David Hope (4) ................................. 154,378 2.9% 2.3%
Neil H. Foster (5) ........................... -0- -- --
Kiranjit S. Sidhu (6) ........................ 131,157 2.5% 2.0%
Kenneth Berg (7) .............................. 158,756 3.1% 2.4%
James L. Nederlander (8) ..................... -0- -- --
Mark Tratos (9) .............................. -0- -- --
Jules Haimovitz (10) ........................... -0- -- --
All executive officers and directors as a group
(9 persons) (11) .............................. 4,427,051 81.5% 64.8%
</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
5,184,480 shares of Common Stock outstanding prior to this offering
(including the 505,649 Debenture Shares) and a base of 6,584,480 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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(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 20,000 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 20,000 shares of Common Stock issuable upon exercise of
Director Options. See "Management -- Director Compensation."
(10) Does not include 30,000 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 the date of this Prospectus, the Company has advanced an
additional $220,000 (including principal and interest) to Mr. Stuart since
December 31, 1996 and intends to forgive all of such amount immediately prior
to the consummation of this offering. The Company has agreed with the
Underwriter that 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 4,678,831 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 6,584,480 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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<PAGE>
Bridge Warrants
There are currently outstanding 212,500 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 1,161,188 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 212,500 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 195,500 Bridge Shares and the 212,500 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 254,500 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. The Company's Bylaws 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
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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.
64
<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 6,584,480
shares of Common Stock outstanding, of which the 1,400,000 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 5,184,480 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 195,500 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 4,988,980 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 5,184,480 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 the
1,400,000 Shares and 1,400,000 Warrants offered hereby. 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 210,000
additional Shares and/or 210,000 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 has 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 $128.50, the Underwriter's Warrants to purchase up to 114,500
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 140,000 warrants (each to
purchase one share of Common Stock at $9.075 per share), at a purchase price of
$.165 per warrant (165% of the public offering price per Warrant). In addition,
an aggregate of 25,500 of the Bridge Shares have been included as compensation
to the Undewriter. 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.
66
<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, pledge, hypothecate 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 has 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
67
<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.
Index to Financial Statements
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 connection with
the Bridge Financing (unaudited) (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
-------------------------------------------- ---------------------------
Weighted Average Weighted Average
Exercise Price -------------------------------------------- ---------------------------
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
-------------------------------------------- ---------------------------
Weighted Average Weighted Average
Exercise Price -------------------------------------------- ---------------------------
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>
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.
<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
---------------------------- ---------------------------
1995 1996 1996 1997
------ ------ ------------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
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%
==== === ==== ====
</TABLE>
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:
Three months ended
Years ended December 31, March 31,
---------------------- ----------------------------
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.
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 1,400,000 shares of the common stock of
the Company for anticipated aggregate gross proceeds of approximately
$7,140,000.
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>
===============================================================================
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
Selected Financial Data .................. 22
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>
===============================================================================
[LOGO]
1,400,000 Shares
of Common Stock
and
Redeemable Warrants to
Purchase 1,400,000 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>
<CAPTION>
<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 .............................. 100,000.00
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 ................................................ 6,670.30
------------
Total ................................................... $491,800.00
============
</TABLE>
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 reserve such A or 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.
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
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------- -----------
<S> <C>
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* Entertainment Production Agreement between the Registrant, Imperial Palace, Inc. and John W.
Stuart dated December 8, 1995
10.15* Agreement between the Registrant and Bally's Park Place, Inc. dated September 1, 1994 and
subsequent renewal letters
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.
10.19+ Show Production Agreement between the Registrant and Kurz Management
10.20+ Lease between the Registrant and Burgoyne Properties, Limited
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.
* Filed herewith 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.
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
II-4
<PAGE>
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 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 August 5, 1997.
ON STAGE ENTERTAINMENT, INC.
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 August 5, 1997
- --------------------------- Director (principal executive officer)
John W. Stuart
/s/ DAVID HOPE President, Chief Operating Officer and August 5, 1997
- --------------------------- Director
David Hope
* Chief Financial Officer (principal financial and August 5, 1997
- --------------------------- accounting officer) and Treasurer
Kiranjit S. Sidhu
* Executive Vice President, Chief Operating August 5, 1997
- --------------------------- Officer and Director
Neil H. Foster
* Director August 5, 1997
- ---------------------------
Jules Haimovitz
* Director August 5, 1997
- ---------------------------
James L. Nederlander
* Director August 5, 1997
- ---------------------------
Mark Tratos
* Director August 5, 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* Entertainment Production Agreement between the Registrant, Imperial Palace, Inc. and John W.
Stuart dated December 8, 1995
10.15* Agreement between the Registrant and Bally's Park Place, Inc. dated September 1, 1994 and
subsequent renewal letters
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.
10.19+ Show Production Agreement between the Registrant and Kurz Management
10.20+ Lease between the Registrant and Burgoyne Properties, Limited
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.
* Filed herewith 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>
ON STAGE ENTERTAINMENT, INC.
1,400,000 Shares of Common Stock
(Par Value $.01 Per Share)
and
Warrants to Purchase 1,400,000 Shares of Common Stock
UNDERWRITING AGREEMENT
Whale Securities Co., L.P. _______________, 1997
650 Fifth Ave
New York, New York 10019
Dear Sirs:
On Stage Entertainment, Inc. a Nevada corporation (the
"Company"), proposes to issue and sell to Whale Securities Co., L.P. (the
"Underwriter") an aggregate of One Million Four Hundred Thousand (1,400,000)
shares (the "Offered Shares") of the common stock, par value $.01 per share, of
the Company (the "Common Stock"), which Offered Shares are presently authorized
but unissued shares of Common Stock (individually, a "Common Share" and
collectively the "Common Shares"), and One Million Four Hundred Thousand
(1,400,000) Common Share purchase warrants (individually, an "Offered Warrant"
and collectively the "Offered Warrants"), entitling the holder of each Offered
Warrant to purchase, at any time, commencing _________, 1998 (or such earlier
date as to which the Underwriter consents) until _________, 2002, one (1) Common
Share, at an exercise price of Five Dollars Fifty Cents ($5.50) (subject to
adjustment in certain circumstances). The Company shall have the right to call
each Offered Warrant for redemption upon not less than thirty (30) days' written
notice at any time commencing twelve (12) months from the Effective Date (as
hereinafter defined) at a redemption price of Ten Cents ($.10) per Offered
Warrant; provided, that the closing bid quotation of the Common Stock on all
twenty (20) of the trading days ending on the third trading day prior to the day
on which the Company gives notice (the "Call Date") of redemption 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 with respect to such redemption prior to the Call Date. In
addition, the Underwriter, in order to cover over-allotments in the sale of the
Offered Shares and/or Offered Warrants, may purchase up to an aggregate of Two
Hundred Ten Thousand (210,000) Common Shares (the "Optional Shares") and/or Two
Hundred Ten Thousand (210,000) Common Share purchase warrants (the "Optional
Warrants") entitling the holder of each Optional
<PAGE>
Warrant to purchase one (1) Common Share on the same terms as the Offered
Warrants. The Offered Shares and the Optional Shares are hereinafter sometimes
collectively referred to as the "Shares"; and the Offered Warrants and the
Optional Warrants are hereinafter sometimes collectively referred to as the
"Warrants." The Warrants will be issued pursuant to a Warrant Agreement (the
"Warrant Agreement") to be dated as of the Closing Date (as hereinafter defined)
by and among the Company, the Underwriter and American Stock Transfer & Trust
Company, as warrant agent (the "Warrant Agent").
The Company also proposes to issue and sell to the
Underwriter, for its own account and the accounts of its designees, warrants
(the "Underwriter's Warrants") to purchase up to an aggregate of One Hundred
Fourteen Thousand Five Hundred (114,500) Common Shares (collectively, the
"Underlying Shares") and/or One Hundred Forty Thousand (140,000) warrants
similar but not identical to the Warrants (collectively, the "Underlying
Warrants"), which sale will be consummated in accordance with the terms and
conditions of the form of Underwriter's Warrant Agreement filed as an exhibit to
the Registration Statement (as hereinafter defined). The Underlying Shares, the
Common Shares issuable upon exercise of the Warrants and the Common Shares
issuable upon exercise of the Underlying Warrants are hereinafter sometimes
referred to as the "Warrant Shares". The Shares, the Warrants, the Underwriter's
Warrants, the Underlying Warrants and the Warrant Shares (collectively, the
"Securities") are more fully described in the Registration Statement and the
Prospectus, as defined below.
The Company hereby confirms its agreement with the Underwriter
as follows:
1. Purchase and Sale of Offered Shares and Offered Warrants.
On the basis of the representations and warranties herein contained, but subject
to the terms and conditions herein set forth, the Company hereby agrees to sell
the Offered Shares and Offered Warrants to the Underwriter, and the Underwriter
agrees to purchase the Offered Shares and Offered Warrants from the Company, at
a purchase price of $4.50 per Offered Share and $.09 per Offered Warrant. The
Underwriter plans to offer the Offered Shares and Offered Warrants to the public
at a public offering price of $5.00 per Offered Share and $.10 per Offered
Warrant.
2. Payment and Delivery.
(a) Payment for the Offered Shares and Offered Warrants
will be made to the Company by wire transfer or certified or official bank check
or checks payable to its order in New York Clearing House funds, at the offices
of the Underwriter, 650 Fifth Avenue, New York, New York 10019, against delivery
of the Offered Shares and Offered Warrants to the
-2-
<PAGE>
Underwriter. Such payment and delivery will be made at 10:00 A.M., New York City
time, on the third business day following the Effective Date (the fourth
business day following the Effective Date in the event that trading of the
Offered Shares and Offered Warrants commences on the day following the Effective
Date), the date and time of such payment and delivery being herein called the
"Closing Date." The certificates representing the Offered Shares and Offered
Warrants to be delivered will be in such denominations and registered in such
names as the Underwriter may request not less than two full business days prior
to the Closing Date, and will be made available to the Underwriter for
inspection, checking and packaging at the office of the Company's transfer agent
or correspondent in New York City, American Stock Transfer & Trust Company, 40
Wall Street, New York, New York 10005 not less than one full business day prior
to the Closing Date.
(b) On the Closing Date, the Company will sell the
Underwriter's Warrants to the Underwriter or to the Underwriter's designees,
limited to officers and partners of the Underwriter and/or members of the
selling group and/or their officers, directors or partners (collectively, the
"Underwriter's Designees"). The Underwriter's Warrants will be in the form of,
and in accordance with, the provisions of the Underwriter's Warrant Agreement
attached as an exhibit to the Registration Statement. The aggregate purchase
price for the Underwriter's Warrants is One Hundred Twenty-Eight Dollars and
Fifty Cents ($128.50). The Underwriter's Warrants will be restricted from sale,
transfer, assignment or hypothecation for a period of one (1) year from the
Effective Date, except to the Underwriter's Designees. Payment for the
Underwriter's Warrants will be made to the Company by check or checks payable to
its order on the Closing Date against delivery of the certificates representing
the Underwriter's Warrants. The certificates representing the Underwriter's
Warrants will be in such denominations and such names as the Underwriter may
request prior to the Closing Date.
3. Option to Purchase Optional Shares and/or Optional
Warrants.
(a) For the purposes of covering any over- allotments in
connection with the distribution and sale of the Offered Shares and Offered
Warrants as contemplated by the Prospectus, the Underwriter is hereby granted an
option to purchase all or any part of the Optional Shares and/or Optional
Warrants from the Company. The purchase price to be paid for the Optional Shares
and Optional Warrants will be the same price per Optional Share and Optional
Warrant as the price per Offered Share or Offered Warrant, as the case may be,
set forth in Section 1 hereof. The option granted hereby may be exercised by the
Underwriter as to all or any part of the Optional Shares and/or the Optional
Warrants at any time within 45 days after the Effective Date. The Underwriter
will not be under any obligation
-3-
<PAGE>
to purchase any Optional Shares or Optional Warrants prior to the exercise of
such option.
(b) The option granted hereby may be exercised by the
Underwriter by giving oral notice to the Company, which must be confirmed by a
letter, telex or telegraph setting forth the number of Optional Shares and
Optional Warrants to be purchased, the date and time for delivery of and payment
for the Optional Shares and Optional Warrants to be purchased and stating that
the Optional Shares and Optional Warrants referred to therein are to be used for
the purpose of covering over-allotments in connection with the distribution and
sale of the Offered Shares and Offered Warrants. If such notice is given prior
to the Closing Date, the date set forth therein for such delivery and payment
will not be earlier than either two full business days thereafter or the Closing
Date, whichever occurs later. If such notice is given on or after the Closing
Date, the date set forth therein for such delivery and payment will not be
earlier than two full business days thereafter. In either event, the date so set
forth will not be more than 15 full business days after the date of such notice.
The date and time set forth in such notice is herein called the "Option Closing
Date." Upon exercise of such option through the Underwriter's delivery of the
aforementioned notice, the Company will become obligated to convey to the
Underwriter, and, subject to the terms and conditions set forth in Section 3(d)
hereof, the Underwriter will become obligated to purchase, the number of
Optional Shares and Optional Warrants specified in such notice.
(c) Payment for any Optional Shares and Optional Warrants
purchased will be made to the Company by wire transfer or certified or official
bank check or checks payable to its order in New York Clearing House funds, at
the office of the Underwriter, against delivery of the Optional Shares and
Optional Warrants purchased to the Underwriter. The certificates representing
the Optional Shares and Optional Warrants to be delivered will be in such
denominations and registered in such names as the Underwriter requests not less
than two full business days prior to the Option Closing Date, and will be made
available to the Underwriter for inspection, checking and packaging at the
aforesaid office of the Company's transfer agent or correspondent not less than
one full business day prior to the Option Closing Date.
(d) The obligation of the Underwriter to purchase and pay
for any of the Optional Shares or Optional Warrants is subject to the accuracy
and completeness (as of the date hereof and as of the Option Closing Date) of
and compliance in all material respects with the representations and warranties
of the Company herein, to the accuracy and completeness of the statements of the
Company or its officers made in any certificate or other document to be
delivered by the Company pursuant to this Agreement, to the performance in all
material respects by the Company of its obligations hereunder, and to the
delivery to the
-4-
<PAGE>
Underwriter of opinions, certificates and letters dated the Option Closing Date
substantially similar in scope to those specified in Sections 5 and 6 hereof,
but with each reference to "Offered Shares," "Offered Warrants" and "Closing
Date" to be, respectively, to the Optional Shares, Optional Warrants and the
Option Closing Date.
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada, with full
corporate power and authority to own or lease, as the case may be, and operate
its properties and to conduct its business as described in the Registration
Statement and to execute, deliver and perform this Agreement, the Warrant
Agreement and the Underwriter's Warrant Agreement and to consummate the
transactions contemplated hereby and thereby. The Company has no subsidiaries
other than Legends in Concert, Inc., a corporation duly organized and validly
existing under the laws of the State of Nevada, On Stage Marketing, Inc., a
corporation duly organized and validly existing under the laws of the State of
Nevada, and Interactive Events, Inc., a corporation duly organized and validly
existing under the laws of the State of Georgia (together, the "Subsidiaries").
The Company owns all of the issued and outstanding shares of capital stock of
each Subsidiary, free and clear of all liens, security interests and other
encumbrances of any nature whatsoever, except as set forth in the Registration
Statement, and all of such shares have been duly authorized and validly issued
and are fully paid and nonassessable. Other than the Subsidiaries, the Company
has no equity interests in any entity. Unless the context otherwise requires,
all references to the "Company" in this Agreement shall include the
Subsidiaries. Each of the Company and each Subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
wherein such qualification is necessary and where failure so to qualify could
have a material adverse effect on the financial condition, results of
operations, business or properties of the Company or any Subsidiary. Each of the
Subsidiaries has full corporate power and authority to own or lease, as the case
may be, and operate its properties and to conduct its business as described in
the Registration Statement.
There are no options or warrants for the purchase of, or other
rights to purchase, or outstanding securities convertible into or exchangeable
for, any capital stock or other securities of any Subsidiary.
(b) This Agreement has been duly executed and delivered by
the Company and constitutes the valid and binding obligation of the Company, and
each of the Warrant Agreement and
-5-
<PAGE>
the Underwriter's Warrant Agreement, when executed and delivered by the Company
on the Closing Date, will be the valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
subject, as to enforcement of remedies, to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the rights of creditors
generally and the discretion of courts in granting equitable remedies and except
that enforceability of the indemnification provisions set forth in Section 7
hereof and the contribution provisions set forth in Section 8 hereof may be
limited by the federal securities laws or public policy underlying such laws.
The execution, delivery and performance of this Agreement, the Warrant Agreement
and the Underwriter's Warrant Agreement by the Company, the consummation by the
Company of the transactions herein and therein contemplated and the compliance
by the Company with the terms of this Agreement, the Warrant Agreement and the
Underwriter's Warrant Agreement have been duly authorized by all necessary
corporate action and do not and will not, with or without the giving of notice
or the lapse of time, or both, (i) result in any violation of the Certificate of
Incorporation, Articles of Incorporation or By-Laws, as the case may be, each as
amended, of the Company or any Subsidiary; (ii) result in a breach of or
conflict with any of the terms or provisions of, or constitute a default under,
or result in the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any Subsidiary pursuant to any indenture,
mortgage, note, contract, commitment or other agreement or instrument to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective properties or assets are or may be bound
or affected; (iii) violate any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any Subsidiary or any of their
respective properties or business; or (iv) have any material adverse effect on
any permit, certification, registration, approval, consent, order, license,
franchise or other authorization (collectively, "Permits") necessary for the
Company or any Subsidiary to own or lease and operate their respective
properties and to conduct their respective businesses or the ability of the
Company to make use thereof.
(c) No Permits of any court or governmental agency or body,
other than under the Securities Act of 1933, as amended (the "Act"), the
Regulations (as hereinafter defined) and applicable state securities or Blue Sky
laws, are required for (i) the valid authorization, issuance, sale and delivery
of the Shares and Warrants to the Underwriter, or (ii) the consummation by the
Company of the transactions contemplated by this Agreement, the Warrant
Agreement or the Underwriter's Warrant Agreement.
-6-
<PAGE>
(d) The conditions for use of a registration statement on
Form SB-2 set forth in the General Instructions to Form SB-2 have been satisfied
with respect to the Company and the transactions contemplated in the
Registration Statement. The Company has prepared in conformity with the
requirements of the Act and the rules and regulations (the "Regulations") of the
Securities and Exchange Commission (the "Commission") and filed with the
Commission a registration statement (File No. 333-24681) on Form SB-2 and has
filed one or more amendments thereto, covering the registration of the
Securities under the Act, including the related preliminary prospectus or
preliminary prospectuses (each thereof being herein called a "Preliminary
Prospectus") and a proposed final prospectus. Each Preliminary Prospectus was
endorsed with the legend required by Item 501(a)(5) of Regulation S-B of the
Regulations and, if applicable, Rule 430A of the Regulations. Such registration
statement including any documents incorporated by reference therein and all
financial schedules and exhibits thereto, as amended at the time it becomes
effective, and the final prospectus included therein are herein, respectively,
called the "Registration Statement" and the "Prospectus," except that, (i) if
the prospectus filed by the Company pursuant to Rule 424(b) of the Regulations
differs from the Prospectus, the term "Prospectus" will also include the
prospectus filed pursuant to Rule 424(b), and (ii) if the Registration Statement
is amended or such Prospectus is supplemented after the date the Registration
Statement is declared effective by the Commission (the "Effective Date") and
prior to the Option Closing Date, the terms "Registration Statement" and
"Prospectus" shall include the Registration Statement as amended or
supplemented.
(e) Neither the Commission nor, to the best of the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the best of the Company's knowledge, threatened to institute any
proceedings with respect to such an order.
(f) The Registration Statement when it becomes effective,
the Prospectus (and any amendment or supplement thereto) when it is filed with
the Commission pursuant to Rule 424(b), and both documents as of the Closing
Date and the Option Closing Date, will contain all statements which are required
to be stated therein in accordance with the Act and the Regulations and will in
all material respects conform to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, on such dates, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements or omissions made in
reliance upon and in
-7-
<PAGE>
conformity with information furnished in writing to the Company in connection
with the Registration Statement or Prospectus or any amendment or supplement
thereto by the Underwriter expressly for use therein.
(g) The Company had at the date or dates indicated in the
Prospectus a duly authorized and outstanding capitalization as set forth in the
Registration Statement and the Prospectus under the captions "Capitalization"
and "Description of Securities." Based on the assumptions stated in the
Registration Statement and the Prospectus, the Company will have on the Closing
Date the adjusted stock capitalization set forth therein. Except as set forth in
the Registration Statement or the Prospectus, on the Effective Date and on the
Closing Date, there will be no options to purchase, warrants or other rights to
subscribe for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell shares of the Company's capital stock
or any such warrants, convertible securities or obligations. Except as set forth
in the Prospectus, no holders of any of the Company's securities has any rights,
"demand," "piggyback" or otherwise, to have such securities registered under the
Act.
(h) The descriptions in the Registration State- ment and
the Prospectus of contracts and other documents are accurate and present fairly
the information required to be disclosed, and there are no contracts or other
documents required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement under the
Act or the Regulations which have not been so described or filed as required.
(i) BDO Seidman, LLP, the accountants who have certified
certain of the financial statements filed and to be filed with the Commission as
part of the Registration Statement and the Prospectus, are independent public
accountants within the meaning of the Act and Regulations. The financial
statements and schedules and the notes thereto filed as part of the Registration
Statement and included in the Prospectus are complete, correct and present
fairly the financial position of the Company as of the dates thereof, and the
results of operations and changes in financial position of the Company for the
periods indicated therein, all in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved except
as otherwise stated in the Registration Statement and the Prospectus. The
selected financial data set forth in the Registration Statement and the
Prospectus present fairly the information shown therein and have been compiled
on a basis consistent with that of the audited and unaudited financial
statements included in the Registration Statement and the Prospectus.
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(j) The Company and each Subsidiary has filed with the
appropriate federal, state and local governmental agencies, and all appropriate
foreign countries and political subdivisions thereof, all tax returns, including
franchise tax returns, which are required to be filed or has duly obtained
extensions of time for the filing thereof and has paid all taxes shown on such
returns and all assessments received by it to the extent that the same have
become due; and the provisions for income taxes payable, if any, shown on the
consolidated financial statements filed with or as part of the Registration
Statement are sufficient for all accrued and unpaid foreign and domestic taxes,
whether or not disputed, and for all periods to and including the dates of such
consolidated financial statements. Except as disclosed in writing to the
Underwriter, neither the Company nor any Subsidiary has executed or filed with
any taxing authority, foreign or domestic, any agreement extending the period
for assessment or collection of any income taxes and is not a party to any
pending action or proceeding by any foreign or domestic governmental agency for
assessment or collection of taxes; and no claims for assessment or collection of
taxes have been asserted against the Company or any Subsidiary.
(k) The outstanding Common Shares and outstanding options
and warrants to purchase Common Shares have been duly authorized and validly
issued. The outstanding Common Shares are fully paid and nonassessable. The
outstanding options and warrants to purchase Common Shares constitute the valid
and binding obligations of the Company, enforceable in accordance with their
terms. None of the outstanding Common Shares or options or warrants to purchase
Common Shares has been issued in violation of the preemptive rights of any
shareholder of the Company. None of the holders of the outstanding Common Shares
is subject to personal liability solely by reason of being such a holder. The
offers and sales of the outstanding Common Shares and outstanding options and
warrants to purchase Common Shares were at all relevant times either registered
under the Act and the applicable state securities or Blue Sky laws or exempt
from such registration requirements. The authorized Common Shares and
outstanding options and warrants to purchase Common Shares conform to the
descriptions thereof contained in the Registration Statement and Prospectus.
Except as set forth in the Registration Statement and the Prospectus, on the
Effective Date and the Closing Date, there will be no outstanding options or
warrants for the purchase of, or other outstanding rights to purchase, Common
Shares or securities convertible into Common Shares.
(l) No securities of the Company have been sold by the
Company or by or on behalf of, or for the benefit of, any person or persons
controlling, controlled by, or under common control with the Company within the
three years prior to the date hereof, except as disclosed in the Registration
Statement.
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(m) The issuance and sale of the Shares and the Warrant
Shares have been duly authorized and, when the Shares and the Warrant Shares
have been issued and duly delivered against payment therefor as contemplated by
this Agreement, the Underwriter's Warrant Agreement or the Warrant Agreement, as
the case may be, the Shares and the Warrant Shares will be validly issued, fully
paid and nonassessable. The holders of the Securities will not be subject to
personal liability solely by reason of being such holders and none of the
Securities will be subject to preemptive rights of any shareholder of the
Company.
(n) The issuance and sale of the Warrants, the
Underwriter's Warrants and the Underlying Warrants have been duly authorized
and, when issued, paid for and delivered pursuant to the terms of this
Agreement, the Underwriter's Warrant Agreement or the Warrant Agreement, as the
case may be, the Warrants, the Underwriter's Warrants and the Underlying
Warrants will constitute valid and binding obligations of the Company,
enforceable as to the Company in accordance with their terms. The Warrant Shares
have been duly reserved for issuance upon exercise of the Warrants, the
Underwriter's Warrants and the Underlying Warrants in accordance with the
provisions of the Warrant Agreement and the Underwriter's Warrant Agreement. The
Warrants, Underwriter's Warrants and Underlying Warrants will conform to the
descriptions thereof contained in the Registration Statement and the Prospectus.
(o) Neither The Company nor any Subsidiary is in violation
of, or in default under, (i) any term or provision of its Certificate of
Incorporation, Articles of Incorporation or By-Laws, as the case may be, each as
amended; (ii) any material term or provision or any financial covenants of any
indenture, mortgage, contract, commitment or other agreement or instrument to
which it is a party or by which it or any of its property or business is or may
be bound or affected; or (iii) any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any Subsidiary or any of the
Company's or any Subsidiary's properties or business. Each of the Company and
each Subsidiary owns, possesses or has obtained all governmental and other
Permits necessary to own or lease, as the case may be, and to operate its
properties and to conduct its business and operations as presently conducted.
All such Permits are outstanding and in good standing, and there are no
proceedings pending or, to the best of the Company's knowledge, threatened (nor,
to the best of the Company's knowledge, is there any basis therefor), which
seeking to cancel, terminate or limit such Permits.
(p) Except as set forth in the Prospectus, there are no
claims, actions, suits, proceedings, arbitrations, investigations or inquiries
before any governmental agency, court or tribunal, domestic or foreign, or
before any private
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arbitration tribunal, pending, or, to the best of the Company's knowledge,
threatened against the Company or any Subsidiary or involving the Company's or
any Subsidiary's properties or business which, if determined adversely to the
Company or any Subsidiary, would, individually or in the aggregate, result in
any material adverse change in the financial position, stockholders' equity,
results of operations, properties, business, management or affairs or business
prospects of the Company or any Subsidiary or which question the validity of the
capital stock of the Company or this Agreement or of any action taken or to be
taken by the Company pursuant to, or in connection with, this Agreement; nor, to
the best of the Company's knowledge, is there any basis for any such claim,
action, suit, proceeding, arbitration, investigation or inquiry. There are no
outstanding orders, judgments or decrees of any court, governmental agency or
other tribunal naming the Company or any Subsidiary and enjoining the Company or
any Subsidiary from taking, or requiring the Company or any Subsidiary to take,
any action, or to which the Company or any Subsidiary, or any of their
respective properties or businesses are bound or subject, which would be
material to the Company or any Subsidiary.
(q) Other than payments to the Underwriter, neither the
Company nor any of its affiliates has incurred any liability for any finder's
fees or similar payments in connection with the transactions herein
contemplated.
(r) Each of the Company and each of the Subsidiaries owns
or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights, rights, trade secrets,
confidential information, processes and formulations used or proposed to be used
in the conduct of their businesses as described in the Prospectus (collectively
the "Intangibles"); except as disclosed in the Prospectus, to the best of the
Company's knowledge, neither the Company nor any Subsidiary has infringed nor is
infringing upon the rights of others with respect to the Intangibles; and
neither the Company nor any Subsidiary has received any notice of conflict with
the asserted rights of others with respect to the Intangibles which could,
singly or in the aggregate, materially adversely affect its business as
presently conducted or the prospects, financial condition or results of
operations of the Company or any Subsidiary, and the Company knows of no basis
therefor; and, to the best of the Company's knowledge, no others have infringed
upon the Intangibles of the Company or any Subsidiary.
(s) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus and the Company's latest
financial statements, neither the Company nor any Subsidiary has incurred any
material liability or obligation, direct or contingent, or entered into any
material transaction, whether or not incurred in the ordinary
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course of business, and has not sustained any material loss or interference with
its business from fire, storm, explosion, flood or other casualty, whether or
not covered by insurance, or from any labor dispute or court or governmental
action, order or decree; and since the respective dates as of which information
is given in the Registration Statement and the Prospectus, there have not been,
and prior to the Closing Date there will not be, except as disclosed in the
Prospectus, any changes in the capital stock or any material increases in the
long-term debt of the Company or any material adverse change in or affecting the
general affairs, management, financial condition, stockholders' equity, results
of operations or prospects of the Company or any Subsidiary, otherwise than as
set forth or contemplated in the Prospectus.
(t) Each of the Company and each Subsidiary has good title
in fee simple to all real property and material personal property (tangible and
intangible) owned by it, free and clear of all security interests, charges,
mortgages, liens, encumbrances and defects, except such as are described in the
Registration Statement and Prospectus or such as do not materially affect the
value or transferability of such property and do not interfere with the use of
such property made, or proposed to be made, by the Company or any Subsidiary.
The leases, licenses or other contracts or instruments under which the Company
and each Subsidiary leases, holds or is entitled to use any property, real or
personal, are valid, subsisting and enforceable only with such exceptions as are
not material and do not interfere with the use of such property made, or
proposed to be made, by the Company or any Subsidiary, and all rentals,
royalties or other payments accruing thereunder which became due prior to the
date of this Agreement have been duly paid, and neither the Company nor any
Subsidiary, nor, to the best of the Company's knowledge, any other party is in
default thereunder and, to the best of the Company's knowledge, no event has
occurred which, with the passage of time or the giving of notice, or both, would
constitute a default thereunder. Neither the Company any Subsidiary has received
notice of any violation of any applicable law, ordinance, regulation, order or
requirement relating to its owned or leased properties. Each of the Company and
each Subsidiary has adequately insured its properties against loss or damage by
fire or other casualty and maintains, in adequate amounts, such other insurance
as is usually maintained by companies engaged in the same or similar businesses.
(u) Each contract or other instrument (however
characterized or described) to which the Company or any Subsidiary is a party or
by which their properties or businesses is or may be bound or affected and to
which reference is made in the Prospectus has been duly and validly executed by
the Company or any Subsidiary and, assuming that such contracts or other
instruments have been properly executed by parties other than the Company or any
Subsidiary, is in full force and effect in all
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material respects and is enforceable against the parties thereto in accordance
with its terms, subject, as to enforceability of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
rights of creditors generally and the discretion of courts in granting equitable
remedies and none of such contracts or instruments has been assigned by the
Company or any Subsidiary, and neither the Company nor any Subsidiary, nor, to
the best of the Company's knowledge, any other party, is in default thereunder
and, to the best of the Company's knowledge, no event has occurred which, with
the lapse of time or the giving of notice, or both, would constitute a default
thereunder.
None of the material provisions of such contracts or
instruments violates any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court having jurisdiction over the
Company or any Subsidiary or any of their respective assets or businesses.
(v) The employment, consulting, confidentiality and
non-competition agreements between the Company and between each Subsidiary and
its officers, employees and consultants, described in the Registration
Statement, are binding and enforceable obligations upon the respective parties
thereto in accordance with their respective terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, moratorium or other similar
laws or arrangements affecting creditors' rights generally and subject to
principles of equity.
(w) Except as set forth in the Prospectus, the Company has
no employee benefit plans (including, without limitation, profit sharing and
welfare benefit plans) or deferred compensation arrangements that are subject to
the provisions of the Employee Retirement Income Security Act of 1974.
(x) To the best of the Company's knowledge, no labor
problem exists with any of the Company's or any Subsidi- ary's employees or is
imminent which could materially adversely affect the Company or any Subsidiary.
(y) The Company has not, directly or indirectly, at any
time (i) made any contributions to any candidate for political office, or failed
to disclose fully any such contribution in violation of law or (ii) made any
payment to any state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
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<PAGE>
(z) The Shares and Warrants have been approved for listing
on the Nasdaq SmallCap Market of the National Association of Securities Dealers,
Inc. ("NASDAQ").
(aa) The Company has provided Tenzer Greenblatt LLP,
counsel to the Underwriter ("Underwriter's Counsel"), all agreements,
certificates, correspondence and other items, documents and information
requested by such counsel's Corporate Review Memorandum dated December 30, 1997.
Any certificate signed by an officer of the Company or of
any Subsidiary and delivered to the Underwriter or to Underwriter's Counsel
shall be deemed to be a representation and warranty by the Company to the
Underwriter as to the matters covered thereby.
5. Certain Covenants of the Company. The Company covenants
with the Underwriter as follows:
(a) The Company will not at any time, whether before the
Effective Date or thereafter during such period as the Prospectus is required by
law to be delivered in connection with the sales of the Shares and Warrants by
the Underwriter or a dealer, file or publish any amendment or supplement to the
Registration Statement or Prospectus of which the Underwriter has not been
previously advised and furnished a copy, or to which the Underwriter shall
object in writing.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective and will advise the Underwriter
immediately, and, if requested by the Underwriter, confirm such advice in
writing, (i) when the Registration Statement, or any post-effective amendment to
the Registration Statement or any supplemented Prospectus is filed with the
Commission; (ii) of the receipt of any comments from the Commission; (iii) of
any request of the Commission for amendment or supplementation of the
Registration Statement or Prospectus or for additional information; and (iv) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use of
any Preliminary Prospectus, or of the suspension of the qualification of the
Shares and/or the Warrants for offering or sale in any jurisdiction, or of the
initiation of any proceedings for any of such purposes. The Company will use its
best efforts to prevent the issuance of any such stop order or of any order
preventing or suspending such use and to obtain as soon as possible the lifting
thereof, if any such order is issued.
(c) The Company will deliver to the Underwriter, without
charge, from time to time until the Effective Date, as many copies of each
Preliminary Prospectus as the Underwriter may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by the
Act. The Company will
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deliver to the Underwriter, without charge, as soon as the Registration
Statement becomes effective, and thereafter from time to time as requested, such
number of copies of the Prospectus (as supplemented, if the Company makes any
supplements to the Prospectus) as the Underwriter may reasonably request. The
Company has furnished or will furnish to the Underwriter one signed copy of the
Registration Statement as originally filed and of all amendments thereto,
whether filed before or after the Registration Statement becomes effective, two
copies of all exhibits filed therewith and one signed copy of all consents and
certificates of experts.
(d) The Company will comply with the Act, the Regulations,
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations thereunder so as to permit the continuance of sales of and
dealings in the Offered Shares and Offered Warrants, in any Optional Shares and
Optional Warrants which may be issued and sold, and in the Warrant Shares
underlying such Warrants. If, at any time when a prospectus relating to any of
the Securities is required to be delivered under the Act, any event occurs as a
result of which the Registration Statement and Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it shall be
necessary to amend or supplement the Registration Statement and Prospectus to
comply with the Act or the regulations thereunder, the Company will promptly
file with the Commission, subject to Section 5(a) hereof, an amendment or
supplement which will correct such statement or omission or which will effect
such compliance.
(e) The Company will furnish such proper informa- tion as
may be required and otherwise cooperate in qualifying the Securities for
offering and sale under the securities or Blue Sky laws relating to the offering
in such jurisdictions as the Underwriter may reasonably designate, provided that
no such qualification will be required in any jurisdiction where, solely as a
result thereof, the Company would be subject to service of general process or to
taxation or qualification as a foreign corporation doing business in such
jurisdiction.
(f) The Company will make generally available to its
security holders, in the manner specified in Rule 158(b) under the Act, and
deliver to the Underwriter and Underwriter's Counsel as soon as practicable and
in any event not later than 45 days after the end of its fiscal quarter in which
the first anniversary date of the effective date of the Registration Statement
occurs, an earning statement meeting the requirements of Rule 158(a) under the
Act covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement.
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<PAGE>
(g) For a period of five years from the Effective Date, the
Company will deliver to the Underwriter and to Underwriter's Counsel on a timely
basis (i) a copy of each report or document, including, without limitation,
reports on Forms 8-K, 10-C, 10-K (or 10-KSB) and 10-Q (or 10-QSB) and exhibits
thereto, filed or furnished to the Commission, any securities exchange or the
National Association of Securities Dealers, Inc. (the " NASD") on the date each
such report or document is so filed or furnished; (ii) as soon as practicable,
copies of any reports or communications (financial or other) of the Company
mailed to its security holders; (iii) as soon as practicable, a copy of any
Schedule 13D, 13G, 14D-1 or 13E-3 received or prepared by the Company from time
to time; (iv) monthly statements setting forth such information regarding the
Company's results of operations and financial position (including balance sheet,
profit and loss statements and data regarding outstanding purchase orders) as is
regularly prepared by management of the Company; and (v) such additional
information concerning the business and financial condition of the Company as
the Underwriter may from time to time reasonably request and which can be
prepared or obtained by the Company without unreasonable effort or expense. The
Company will furnish to its stockholders annual reports containing audited
financial statements and such other periodic reports as it may determine to be
appropriate or as may be required by law.
(h) Neither the Company nor any person that controls, is
controlled by or is under common control with the Company will take any action
designed to or which might be reasonably expected to cause or result in the
stabilization or manipulation of the price of the Common Shares or Warrants.
(i) If the transactions contemplated by this Agreement are
consummated, the Underwriter shall retain the $50,000 previously paid to it, and
the Company will pay or cause to be paid the following: all costs and expenses
incident to the performance of the obligations of the Company under this
Agreement, including, but not limited to, the fees and expenses of accountants
and counsel for the Company; the preparation, printing, mailing and filing of
the Registration Statement (including financial statements and exhibits),
Preliminary Prospectuses and the Prospectus, and any amendments or supplements
thereto; the printing and mailing of the Selected Dealer Agreement; the issuance
and delivery of the Shares and Warrants to the Underwriter; all taxes, if any,
on the issuance of the Shares and Warrants; the fees, expenses and other costs
of qualifying the Shares and Warrants for sale under the Blue Sky or securities
laws of those states in which the Shares and Warrants are to be offered or sold,
including the fees and disbursements of Underwriter's Counsel in connection
therewith, and including those of such local counsel as may have been retained
for such purpose; the cost of printing and mailing the "Blue Sky Survey;" and
the filing fees incident to securing any required review by the NASD and either
the Boston Stock Exchange or Pacific Stock Exchange;
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the cost of furnishing to the Underwriter copies of the Registration Statement,
Preliminary Prospectuses and the Prospectus as herein provided; the costs of
placing "tombstone advertisements" in any publications which may be selected by
the Underwriter; and all other costs and expenses incident to the performance of
the Company's obligations hereunder which are not otherwise specifically
provided for in this Section 5(i).
In addition, at the Closing Date or the Option Closing
Date, as the case may be, the Underwriter will deduct from the payment for the
Offered Shares and Offered Warrants or any Optional Shares and/or Optional
Warrants purchased three percent (3%) of the gross proceeds of the offering
(less the sum of $50,000 previously paid to the Underwriter), as payment for the
Underwriter's nonaccountable expense allowance relating to the transactions
contemplated hereby, which amount will include the fees and expenses of
Underwriter's Counsel (other than the fees and expenses of Underwriter's Counsel
relating to Blue Sky qualifications and registrations, which, as provided for
above, shall be in addition to the three percent (3%) nonaccountable expense
allowance and shall be payable directly by the Company to Underwriter's Counsel
on or prior to the Closing Date).
(j) If the transactions contemplated by this Agreement or
related hereto are not consummated because the Company decides not to proceed
with the offering for any reason or because the Underwriter decides not to
proceed with the offering as a result of a breach by the Company of its
representations, warranties or covenants in the Agreement or as a result of
adverse changes in the affairs of the Company, then the Company will be
obligated to reimburse the Underwriter for its accountable out-of-pocket
expenses up to the sum of $75,000, inclusive of $50,000 previously paid to the
Underwriter by the Company. In all cases other than those set forth in the
preceding sentence, if the Company or the Underwriter decide not to proceed with
the offering, the Company will only be obligated to reimburse the Underwriter
for its accountable out-of-pocket expenses up to $50,000, and inclusive of,
$50,000 previously paid to the Underwriter by the Company. In no event, however,
will the Underwriter, in the event the offering is terminated, be entitled to
retain or receive more than an amount equal to its actual accountable
out-of-pocket expenses.
(k) The Company intends to apply the net proceeds from the
sale of the Shares and Warrants for the purposes set forth in the Prospectus. No
portion of the net proceeds from the sale of the Shares and Warrants will be
used to repay any indebtedness, except that the Company may use a portion of the
net proceeds to repay the [$1,000,000] principal amount Bridge Notes and the
$750,000 DYDX Note (each as defined in the Prospectus), plus accrued and unpaid
interest on such notes. The Company will file with the Commission all required
reports on Form S-R in accordance with the provisions of Rule 463
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promulgated under the Act and will provide a copy of each such report to the
Underwriter and its counsel.
(l) During the period of twelve (12) months from the date
hereof, (i) the Company will not, and will use its best efforts to ensure that
none of the Company's officers, directors or security holders will, offer for
sale or sell, pledge, hypothecate or otherwise dispose of, directly or
indirectly, any securities of the Company, in any manner whatsoever, whether
pursuant to Rule 144 of the Regulations or otherwise, and (ii) the Company will
use its best efforts to ensure that no holder of registration rights relating to
any securities of the Company will exercise any such registration rights, in
either case, without the prior written consent of the Underwriter, except to the
extent and as provided for in the Prospectus under "Description of Securities -
Registration Rights" and the ninth paragraph of "Underwriting." In addition,
notwithstanding anything else contained herein, Mr. John 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, as determined by the Company's independent auditors in connection
with their audit of the Company's financial statements for such year and in
accordance with generally accepted accounting principles.
(m) Except as set forth in the Prospectus under
"Description of Securities - Registration Rights", the Company will not file any
registration statement relating to the offer or sale of any of the Company's
securities, including any registration statement on Form S-8, during the twelve
(12) months following the Effective Date, without the Underwriter's prior
written consent.
(n) The Company maintains and will continue to maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that: (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(o) The Company will use its best efforts to maintain the
listing of the Shares and Warrants on NASDAQ and, if so qualified, list the
Shares and Warrants, and maintain such listing for so long as qualified, on the
Nasdaq National Market System.
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(p) The Company will, concurrently with the Effective Date,
register the class of equity securities of which the Shares are a part under
Section 12(g) of the Exchange Act and the Company will maintain such
registration for a minimum of five (5) years from the Effective Date.
(q) Subject to the sale of the Offered Shares and Offered
Warrants, the Underwriter and its successors will have the right to designate a
nominee for election, at its or their option, either as a member of or a
non-voting advisor to the Board of Directors of the Company, and the Company
will use its best efforts to cause such nominee to be elected and continued in
office as a director of the Company or as such advisor until the expiration of
three (3) years from the Effective Date. Each of the Company's current officers,
directors and stockholders has agreed to vote all of the Common Shares owned by
such person or entity so as to elect and continue in office such nominee of the
Underwriter. Following the election of such nominee as a director or advisor,
such person shall receive no more or less compensation than is paid to other
non-officer directors of the Company for attendance at meetings of the Board of
Directors of the Company and shall be entitled to receive reimbursement for all
reasonable costs incurred in attending such meetings including, but not limited
to, food, lodging and transportation. The Company agrees to indemnify and hold
such director or advisor harmless, to the maximum extent permitted by law,
against any and all claims, actions, awards and judgments arising out of his
service as a director or advisor and, in the event the Company maintains a
liability insurance policy affording coverage for the acts of its officers and
directors, to include such director or advisor as an insured under such policy.
The rights and benefits of such indemnification and the benefits of such
insurance shall, to the extent possible, extend to the Underwriter insofar as it
may be or may be alleged to be responsible for such director or advisor.
If the Underwriter does not exercise its option to
designate a member of or advisor to the Company's Board of Directors, the
Underwriter shall nonetheless have the right to send a representative, at the
Underwriter's expense (who need not be the same individual from meeting to
meeting), to observe each meeting of the Board of Directors. The Company agrees
to give the Underwriter notice of each such meeting and to provide the
Underwriter with an agenda and minutes of the meeting no later than it gives
such notice and provides such items to the directors.
(r) Subject to the provisions of applicable law, the
Underwriter shall be entitled to receive a warrant solicitation fee of five
percent (5%) of the aggregate exercise price of the Warrants for each Warrant
exercised during the period commencing one year after the Effective Date;
provided, however, that the Underwriter will not be entitled to receive
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such compensation in Warrant exercise transactions in which (i) the market price
of the Common Shares at the time of 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 the Registration
Statement and in documents provided to holders of Warrants at the time of
exercise; (iv) the holder thereof has not confirmed in writing that the
Underwriter solicited the exercise of the Warrants; or (v) the solicitation or
exercise of the Warrants was in violation of Regulation M promulgated under the
Exchange Act.
(s) The Company shall retain a transfer agent for the
Common Shares and Warrants, reasonably acceptable to the Underwriter, for a
period of five (5) years from the Effective Date. In addition, for a period of
five (5) years from the Effective Date, the Company, at its own expense, shall
cause such transfer agent to provide the Underwriter with copies of the
Company's daily transfer sheets, and, when requested by the Underwriter, a
current list of the Company's security holders, including a list of the
beneficial owners of securities held by a depository trust company and other
nominees.
(t) The Company hereby agrees, at its sole cost and
expense, to supply and deliver to the Underwriter and Underwriter's Counsel,
within a reasonable period from the date hereof, four bound volumes, including
the Registration Statement, as amended or supplemented, all exhibits to the
Registration Statement, the Prospectus and all other underwriting documents.
(u) The Company shall, as of the date hereof, have applied
for listing in Standard & Poor's Corporation Records Service (including annual
report information) or Moody's Industrial Manual (Moody's OTC Industrial Manual
not being sufficient for these purposes) and shall use its best efforts to have
the Company listed in such manual and shall maintain such listing for a period
of five (5) years from the Effective Date.
(v) For a period of five (5) years from the Effective Date,
the Company shall provide the Underwriter, on a not less than annual basis, with
internal forecasts setting forth projected results of operations for each
quarterly and annual period in the two (2) fiscal years following the respective
dates of such forecasts. Such forecasts shall be provided to the Underwriter
more frequently than annually if prepared more frequently by management, and
revised forecasts shall be prepared and provided to the Underwriter when
required to reflect more current information, revised assumptions or actual
results that differ materially from those set forth in the forecasts.
(w) For a period of five (5) years from the Effective Date,
or until such earlier time as the Common Shares and Warrants are listed on the
New York Stock Exchange or the American Stock Exchange, the Company shall cause
its legal
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counsel to provide the Underwriter with a list, to be updated at least annually,
of those states in which the Common Shares and Warrants may be traded in
non-issuer transactions under the Blue Sky laws of the 50 states.
(x) For a period of five (5) years from the Effective Date,
the Company shall continue to retain BDO Seidman, LLP (or such other nationally
recognized accounting firm as is reasonably acceptable to the Underwriter) as
the Company's independent public accountants.
(y) For a period of five (5) years from the Effective Date,
the Company, at its expense, shall cause its then independent certified public
accountants, as described in Section 5(x) above, to review (but not audit) the
Company's financial statements for each of the first three fiscal quarters prior
to the announcement of quarterly financial information, the filing of the
Company's 10-Q (or 10-QSB) quarterly report (or other equivalent report) and the
mailing of quarterly financial information to stockholders.
(z) So long as any Warrants are outstanding, the Company
shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act as shall
be necessary to enable the sale of the Common Shares underlying the Warrants and
cause a copy of each Prospectus, as then amended, to be delivered to each holder
of record of a Warrant as they request and as otherwise required by law and, to
furnish to the Underwriter and dealers as many copies of each such Prospectus as
the Underwriter or dealer may reasonably request. In addition, for so long as
any Warrant is outstanding, the Company will promptly notify the Underwriter of
any material change in the financial condition, business, results of operations
or properties of the Company.
(aa) For a period of twenty-five (25) days from the
Effective Date, the Company will not issue press releases or engage in any other
publicity without the Underwriter's prior written consent, other than normal and
customary releases issued in the ordinary course of the Company's business or
those releases required by law.
(ab) As per the employment agreements entered into between
the Company and each of Messrs. Stuart, Hope and Sidhu, dated as of February 1,
1997 and described in the Prospectus, the Company will not increase the salary
paid to any of Messrs. Stuart, Hope and Sidhu prior to February 1, 1998, April
14, 1997 and July 31, 1997, respectively (the "First Increase Dates"), nor,
commencing as of the First Increase Dates, more than 10% per year prior to the
expiration of their employment agreements on May 31, 2000, without the prior
written consent of the Underwriter. In addition, the Company will not grant
bonuses (i) to any of its executive officers for the year
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ended December 31, 1996, except David Hope who may receive a bonus for such year
in accordance with the terms of his February 1, 1997 employment agreement, or
(ii) to any of its executive officers for the years ended December 31, 1997,
1998 or 1999, without the Underwriter's prior written consent, unless the
Company achieves pre-tax earnings after original issue discount, interest
expense and compensation charges ("Pre-Tax Earnings") for such years of
$1,850,000, $5,000,000 and $8,700,000, respectively, as determined by the
Company's independent auditors in connection with their audit of the Company's
financial statements for such year and in accordance with generally accepted
accounting principles, in which case, the Company may grant bonuses to its
executive officers (other than Mr. Stuart), for each of such years in which the
respective Pre-Tax Earnings target is achieved, equal in the aggregate
(including bonuses granted to Mr. Hope) of up to 5% of the respective year's
Pre-Tax Earnings.
(ac) For a period of five (5) years from the Effective
Date, the Company will promptly submit to the Underwriter copies of accountant's
management reports and similar correspondence between the Company's accountants
and the Company.
(ad) For a period of three (3) years from the Effective
Date, the Company will not offer or sell any of its securities pursuant to
Regulation S promulgated under the Act without the prior written consent of the
Underwriter.
(ae) For a period of five (5) years from the Effective
Date, the Company will provide to the Underwriter ten day's written notice prior
to any issuance by the Company or its subsidiaries of any equity securities or
securities exchangeable for or convertible into equity securities of the
Company, except for (i) shares of Common Stock issuable upon exercise of
currently outstanding options and warrants or conversion of currently
outstanding convertible securities and (ii) options available for future grant
pursuant to any stock option plan in effect on the Effective Date and the
issuance of shares of Common Stock upon the exercise of such options.
(af) Prior to the Effective Date and for a period of three
(3) years thereafter, the Company will retain a financial public relations firm
reasonably acceptable to the Underwriter.
(ag) For a period of three (3) years, (i) the number of
members constituting the entire Board of Directors shall not exceed seven (7),
(ii) the composition of the Board of Directors shall be satisfactory to the
Underwriter, (iii) a majority of the Board of Directors shall be independent
persons, not otherwise affiliated with the Company, and (iv) meetings of the
Board of Directors shall be held at least quarterly.
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(ah) For a period of three (3) years from the Effective
Date, the Company will hold a shareholder's meeting at least once per annum.
(ai) Upon the Effective Date, the Company will have
obtained Director's and Officer's insurance naming the Underwriter as an
additional insured party in an amount equal to $2,500,000, and the Company will
maintain such insurance coverage for a period of three (3) years from the
Closing Date.
(aj) In the future, without the prior written consent of
the Underwriter, the Company will not advance any monies to Mr. John W. Stuart
and, other than up to $220,000 aggregate amount of indebtedness (including
principal and interest) incurred by Mr. Stuart during the period commencing as
of January 1, 1997 and ending as of the date of this Agreement, will not forgive
any indebtedness incurred by Mr. Stuart.
6. Conditions of the Underwriter's Obligation to Purchase the
Offered Shares and Offered Warrants from the Company. The obligation of the
Underwriter to purchase and pay for the Offered Shares and Offered Warrants
which it has agreed to purchase from the Company is subject (as of the date
hereof and the Closing Date) to the accuracy of and compliance in all material
respects with the representations and warranties of the Company herein, to the
accuracy of the statements of the Company or its officers made pursuant hereto,
to the performance in all material respects by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement will have become effective
not later than __ .M., New York City time, on the day following the date of this
Agreement, or at such later time or on such later date as the Underwriter may
agree to in writing; prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement will have been issued and no
proceedings for that purpose will have been initiated or will be pending or, to
the best of the Underwriter's or the Company's knowledge, will be contemplated
by the Commission; and any request on the part of the Commission for additional
information will have been complied with to the satisfaction of Underwriter's
Counsel.
(b) At the time that this Agreement is executed and at the
Closing Date, there will have been delivered to the Underwriter signed opinions
of Morgan Lewis & Bockius LLP, Chris Grobl, Esq. and Quirk & Tratos, counsels
for the Company (together, "Company Counsels"), dated as of the date hereof or
the Closing Date, as the case may be (and any other opinions of counsel referred
to in such opinions of Company Counsels or relied upon by Company Counsels in
rendering their opinion), reasonably satisfactory to Underwriter's Counsel, to
the effect that:
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(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada,
with full corporate power and authority, and with all Permits necessary, to own
or lease, as the case may be, and operate its properties and to conduct its
business as described in the Registration Statement. To the best of Company
Counsels' knowledge, the Company has no subsidiaries other than Legends in
Concert, Inc., a corporation duly incorporated and validly existing under the
laws of the State of Nevada, On Stage Marketing, Inc., a corporation duly
incorporated and validly existing under the laws of the State of Nevada, and
Interactive Events, Inc., a corporation duly incorporated and validly existing
under the laws of the State of Georgia (together, the "Subsidiaries"). To the
best of Company Counsels' knowledge, the Company owns all of the capital stock
of each Subsidiary, free and clear of all liens, security interests and other
encumbrances of any nature whatsoever, except as set forth in the Registration
Statement. To the best of Company Counsels' knowledge, other than the
Subsidiaries, the Company has no equity interests in any other entity. Unless
the context otherwise requires, all references to the "Company" in this
Agreement shall include the Subsidiaries. Each of the Company and each
Subsidiary is duly qualified to do business as a foreign corporation and is in
good standing in all jurisdictions set forth on Schedule A hereto. Each of the
Subsidiaries has full corporate power and authority, with all Permits, to own or
lease, as the case may be, and operate its properties and to conduct its
business as described in the Registration Statement.
(ii) The Company has full corporate power and authority
to execute, deliver and perform this Agreement, the Warrant Agreement and the
Underwriter's Warrant Agreement and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance of this Agreement,
the Warrant Agreement and the Underwriter's Warrant Agreement by the Company,
the consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms of this Agreement,
the Warrant Agreement and the Underwriter's Warrant Agreement have been duly
authorized by all necessary corporate action, and this Agreement has been duly
executed and delivered by the Company. This Agreement is (assuming for the
purposes of this opinion that it is valid and binding upon the other party
thereto), and each of the Warrant Agreement, the Underwriter's Warrant
Agreement, when executed and delivered by the Company on the Closing Date, will
be, valid and binding obligations of the Company, enforceable in accordance with
their respective terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
rights of creditors generally and the discretion of courts in granting equitable
remedies and except that enforceability of the indemnification provisions set
forth in Section 8 hereof and the contribution provisions set forth in Section 9
hereof may be limited by the federal securities laws or public policy underlying
such laws.
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(iii) The execution, delivery and performance of this
Agreement, the Warrant Agreement and the Underwriter's Warrant Agreement by the
Company, the consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms of this Agreement,
the Warrant Agreement and the Underwriter's Warrant Agreement do not, and will
not, with or without the giving of notice or the lapse of time, or both, (A)
result in a violation of the Certificate of Incorporation, Articles of
Incorporation or By-Laws, as the case may be, each as amended, of the Company or
any Subsidiary, (B) to the best of Company Counsels' knowledge, result in a
breach of or conflict with any terms or provisions of, or constitute a default
under, or result in the modification or termination of, or result in the
creation or imposition of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company or any Subsidiary pursuant
to any indenture, mortgage, note, contract, commitment or other material
agreement or instrument to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary or any of the Company's or any Subsidiary's
properties or assets are or may be bound or affected; (C) violate any existing
applicable law, rule or regulation to which the Company is subject, (D) to the
best of Company Counsels' knowledge, violate any judgment, order or decree of
any governmental agency or court, domestic or foreign, having jurisdiction over
the Company or any Subsidiary or any of the Company's or any Subsidiary's
properties or business; or (E) to the best of Company Counsels' knowledge have
any effect on any Permit necessary for the Company or any Subsidiary to own or
lease, as the case may be, and operate their respective properties or conduct
their businesses or the ability of the Company or any Subsidiary to make use
thereof.
(iv) To the best of Company Counsels' knowledge, no
Permits of any court or governmental agency or body (other than under the Act,
the Regulations and applicable state securities or Blue Sky laws) are required
on the part of the Company under any law, rule or regulation that Company
Counsels, exercising customary professional due diligence, would reasonably
recognize as being applicable to the Company or the transactions contemplated by
this Agreement for the valid authorization, issuance, sale and delivery of the
Shares and Warrants or the Underwriter's Warrants to the Underwriter, and the
consummation by the Company of the transactions contemplated by this Agreement,
the Warrant Agreement or the Underwriter's Warrant Agreement.
(v) The Registration Statement has become effective
under the Act; to the best of Company Counsels' knowledge, no stop order
suspending the effectiveness of the
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Registration Statement has been issued, and no proceedings for that purpose have
been instituted or are pending, threatened or contemplated under the Act or
applicable state securities laws.
(vi) The Registration Statement and the Prospectus, as
of the Effective Date, and each amendment or supplement thereto as of its
effective or issue date (except for the financial statements and other financial
data included therein or omitted therefrom, as to which Company Counsels need
not express an opinion) comply as to form in all material respects with the
requirements of the Act and Regulations and the conditions for use of a
registration statement on Form SB-2 have been satisfied by the Company.
(vii) The descriptions in the Registration Statement
and the Prospectus of statutes, regulations, government classifications,
contracts and other documents (including opinions of such counsel); and the
response to Item 13 of Form SB-2 have been reviewed by Company Counsels, and,
based upon such review, are accurate in all material respects and present fairly
the information required to be disclosed, and there are no material statutes,
regulations or government classifications, or, to the best of Company Counsels'
knowledge, material contracts or documents, of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement, which are not so described or filed as
required.
To the best of Company Counsel's knowledge, none of the
material provisions of the contracts or instruments described above violates any
existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court having jurisdiction over the Company or any
Subsidiary or any of their assets or businesses.
(viii) The outstanding Common Shares and outstanding
options and warrants to purchase Common Shares have been duly authorized and
validly issued. The outstanding Common Shares are fully paid and nonassessable.
The outstanding options and warrants to purchase Common Shares constitute the
valid and binding obligations of the Company, enforceable in accordance with
their terms. None of the outstanding Common Shares or options or warrants to
purchase Common Shares has been issued in violation of any statutory preemptive
rights, any preemptive rights set forth in the Company's or any Subsidiary's
Articles of Incorporation, Certificate of Incorporation or By-Laws, as the case
may be, or to the best of Company Counsels' knowledge, any contractual
preemptive rights of any shareholder of the Company. None of the holders of the
outstanding Common Shares is subject to personal liability solely by reason of
being such a holder.
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To the best of Company Counsels' knowledge, the offers and sales of the
outstanding Common Shares and outstanding options and warrants to purchase
Common Shares were at all relevant times either registered under the Act and the
applicable state securities or Blue Sky laws or exempt from such registration
requirements. The authorized Common Shares and outstanding options and warrants
to purchase Common Shares conform to the descriptions thereof contained in the
Registration Statement and Prospectus. To the best of Company Counsels'
knowledge, except as set forth in the Prospectus, no holders of any of the
Company's securities has any rights, "demand", "piggyback" or otherwise, to have
such securities registered under the Act.
(ix) The issuance and sale of the Shares and the
Warrant Shares have been duly authorized and, when the Shares and the Warrant
Shares have been issued and duly delivered against payment therefor as
contemplated by this Agreement, the Underwriter's Warrant Agreement or the
Warrant Agreement, as the case may be, the Shares and the Warrant Shares will be
validly issued, fully paid and nonassessable, and the holders thereof will not
be subject to personal liability solely by reason of being such holders. Neither
the Shares nor the Warrant Shares are subject to statutory preemptive rights,
any preemptive rights set forth in the Company's or any Subsidiary's Articles of
Incorporation, Certificate of Incorporation or By-Laws, as the case may be, or,
to the best of Company Counsels' knowledge, any contractual preemptive rights of
any shareholder of the Company. The certificates representing the Securities are
in proper legal form.
(x) The issuance and sale of the War- rants, the
Underwriter's Warrants and the Underlying Warrants have been duly authorized
and, when paid for, issued and delivered pursuant to the terms of this
Agreement, the Underwriter's Warrant Agreement and the Warrant Agreement, as the
case may be, the Warrants, the Underwriter's Warrants and the Underlying
Warrants will constitute the valid and binding obligations of the Company,
enforceable in accordance with their terms, to issue and sell the Warrant Shares
and/or Underlying Warrants. The Warrant Shares have been duly reserved for
issuance upon exercise of the Underwriter's Warrants and the Warrants in
accordance with the provisions of the Underwriter's Warrant Agreement and the
Warrant Agreement, as the case may be. The Warrants, Underwriter's Warrants and
Underlying Warrants conform to the descriptions thereof contained in the
Registration Statement and Prospectus.
(xi) Upon delivery of the Offered Shares and Offered
Warrants to the Underwriter against full payment therefor as provided in this
Agreement, the Underwriter (assuming
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it is a bona fide purchaser within the meaning of the Uniform Commercial Code)
will acquire good title to the Offered Shares and Offered Warrants, free and
clear of all liens, encumbrances, equities, security interests and claims.
(xii) Assuming that the Underwriter exer- cises the
over-allotment option to purchase any of the Optional Shares and Offered
Warrants and makes full payment therefor in accordance with the terms of this
Agreement, upon delivery of the Optional Shares and Optional Warrants so
purchased to the Underwriter hereunder, the Underwriter (assuming it is a bona
fide purchaser within the meaning of the Uniform Commercial Code) will acquire
good title to such Optional Shares and Optional Warrants, free and clear of any
liens, encumbrances, equities, security interests and claims.
(xiii) To the best of Company Counsels' knowledge,
there are no claims, actions, suits, proceedings, arbitrations, investigations
or inquiries before any governmental agency, court or tribunal, foreign or
domestic, or before any private arbitration tribunal, pending or threatened
against the Company or any Subsidiary, or involving its or any Subsidiary's
properties or business, other than as described in the Prospectus, such
description being accurate, and other than litigation incident to the kind of
business conducted by the Company which, individually and in the aggregate, is
not material.
(xiv) The Company and each Subsidiary each owns or
possesses adequate and enforceable rights to use all trademarks and service
marks used or proposed to be used in the conduct of its business as described in
the Prospectus (collectively the "Intangibles"). To the best of Company
Counsels' knowledge, the Company does not own any patents nor does it have any
application for patents pending. Company Counsels have not received any notice,
and to the best of Company Counsels' knowledge, neither the Company nor any
Subsidiary has received any notice, to the effect that the Company or any
Subsidiary has infringed, or is infringing upon, the patents, patent
applications, trademarks, servicemarks, copyrights, trade secrets, confidential
information, processes and formulations of others, except as described in the
Prospectus.
(xv) Company Counsels have participated in reviews and
discussions in connection with the preparation of the Registration Statement and
the Prospectus, and in the course of such reviews and discussions and such other
investigation as Company Counsels deemed necessary, no facts came to its
attention which lead it to believe that (A) the Registration Statement (except
as to the financial statements and other financial data
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contained therein, as to which Company Counsels need not express an opinion), on
the Effective Date, contained any untrue statement of a material fact required
to be stated therein or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or that (B) the
Prospectus (except as to the financial statements and other financial data
contained therein, as to which Company Counsels need not express an opinion)
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Each counsel giving an
opinion must give the opinion set forth in this Section 6(b)(xv) as to the
subject matter of its opinion.
In rendering its opinion pursuant to this Section 6(b),
Company Counsels may rely upon the certificates of government officials and
officers of the Company as to matters of fact, provided that any such Company
Counsel shall state that they have no reason to believe, and do not believe,
that they are not justified in relying upon such opinions or such certificates
of government officials and officers of the Company as to matters of fact, as
the case may be.
The opinion letters delivered pursuant to this Section 6(b)
shall state that any opinion given therein qualified by the phrase "to the best
of our knowledge" is being given by such Company Counsel after due investigation
of the matters therein discussed.
(c) At the Closing Date, there will have been delivered to
the Underwriter a signed opinion of Underwriter's Counsel, dated as of the
Closing Date, to the effect that the opinions delivered pursuant to Section 6(b)
hereof appear on their face to be appropriately responsive to the requirements
of this Agreement, except to the extent waived by the Underwriter, specifying
the same, and with respect to such related matters as the Underwriter may
require.
(d) At the Closing Date (i) the Registration Statement and
the Prospectus and any amendments or supplements thereto will contain all
material statements which are required to be stated therein in accordance with
the Act and the Regulations and will conform in all material respects to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; (ii)
since
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the respective dates as of which information is given in the Registration
Statement and the Prospectus, there will not have been any material adverse
change in the financial condition, results of operations or general affairs of
the Company from that set forth or contemplated in the Registration Statement
and the Prospectus, except changes which the Registration Statement and the
Prospectus indicate might occur after the Effective Date; (iii) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there shall have been no material transaction, contract or
agreement entered into by the Company, other than in the ordinary course of
business, which would be required to be set forth in the Registration Statement
and the Prospectus, other than as set forth therein; and (iv) no action, suit or
proceeding at law or in equity will be pending or, to the best of the Company's
knowledge, threatened against the Company which is required to be set forth in
the Registration Statement and the Prospectus, other than as set forth therein,
and no proceedings will be pending or, to the best of the Company's knowledge,
threatened against the Company before or by any federal, state or other
commission, board or administrative agency wherein an unfavorable decision,
ruling or finding would materially adversely affect the business, property,
financial condition or results of operations of the Company, other than as set
forth in the Registration Statement and the Prospectus. At the Closing Date,
there will be delivered to the Underwriter a certificate signed by the Chairman
of the Board or the President or a Vice President of the Company, dated the
Closing Date, evidencing compliance with the provisions of this Section 6(d) and
stating that the representations and warranties of the Company set forth in
Section 4 hereof were accurate and complete in all material respects when made
on the date hereof and are accurate and complete in all material respects on the
Closing Date as if then made; that the Company has performed all covenants and
complied with all conditions required by this Agreement to be performed or
complied with by the Company prior to or as of the Closing Date; and that, as of
the Closing Date, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
initiated or, to the best of his knowledge, are contemplated or threatened. In
addition, the Underwriter will have received such other and further certificates
of officers of the Company as the Underwriter or Underwriter's Counsel may
reasonably request.
(e) At the time that this Agreement is executed and at the
Closing Date, the Underwriter will have received a signed letter from BDO
Seidman, LLP, dated the date such letter is to be received by the Underwriter
and addressed to it, confirming that it is a firm of independent public
accountants within the meaning of the Act and Regulations and stating that:
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(i) insofar as reported on by them, in their opinion, the financial statements
of the Company included in the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the Act and the
applicable Regulations; (ii) on the basis of procedures and inquiries (not
constituting an examination in accordance with generally accepted auditing
standards) consisting of a reading of the unaudited interim financial statements
of the Company appearing in the Registration Statement and the Prospectus and
the latest available unaudited interim financial statements of the Company, if
more recent than that appearing in the Registration Statement and Prospectus,
inquiries of officers of the Company responsible for financial and accounting
matters as to the transactions and events subsequent to the date of the latest
audited financial statements of the Company, and a reading of the minutes of
meetings of the stockholders, the Board of Directors of the Company and any
committees of the Board of Directors, as set forth in the minute books of the
Company, nothing has come to their attention which, in their judgment, would
indicate that (A) during the period from the date of the latest financial
statements of the Company appearing in the Registration Statement and Prospectus
to a specified date not more than three business days prior to the date of such
letter, there have been any decreases in net current assets or net assets as
compared with amounts shown in such financial statements or decreases in net
sales or decreases [increases] in total or per share net income [loss] compared
with the corresponding period in the preceding year or any change in the
capitalization or long-term debt of the Company, except in all cases as set
forth in or contemplated by the Registration Statement and the Prospectus, and
(B) the unaudited interim financial statements of the Company, if any, appearing
in the Registration Statement and the Prospectus, do not comply as to form in
all material respects with the applicable accounting requirements of the Act and
the Regulations or are not fairly presented in conformity with generally
accepted accounting principles and practices on a basis substantially consistent
with the audited financial statements included in the Registration Statement or
the Prospectus; and (iii) they have compared specific dollar amounts, numbers of
shares, numerical data, percentages of revenues and earnings, and other
financial information pertaining to the Company set forth in the Prospectus
(with respect to all dollar amounts, numbers of shares, percentages and other
financial information contained in the Prospectus, to the extent that such
amounts, numbers, percentages and information may be derived from the general
accounting records of the Company, and excluding any questions requiring an
interpretation by legal counsel) with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance
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with generally accepted auditing standards) set forth in the letter, and found
them to be in agreement.
(f) There shall have been duly tendered to the Underwriter
certificates representing the Offered Shares and the Offered Warrants to be sold
on the Closing Date.
(g) The NASD shall have indicated that it has no objection
to the underwriting arrangements pertaining to the sale of the Shares and
Warrants by the Underwriter.
(h) No action shall have been taken by the Commission or
the NASD the effect of which would make it improper, at any time prior to the
Closing Date or the Option Closing Date, as the case may be, for any member firm
of the NASD to execute transactions (as principal or as agent) in the Shares or
Warrants, and no proceedings for the purpose of taking such action shall have
been instituted or shall be pending, or, to the best of the Underwriter's or the
Company's knowledge, shall be contemplated by the Commission or the NASD. The
Company represents at the date hereof, and shall represent as of the Closing
Date or Option Closing Date, as the case may be, that it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD.
(i) The Company meets the current and any existing and
proposed criteria for inclusion of the Shares and Warrants in NASDAQ.
(j) All proceedings taken at or prior to the Closing Date
or the Option Closing Date, as the case may be, in connection with the
authorization, issuance and sale of the Shares or Warrants shall be reasonably
satisfactory in form and substance to the Underwriter and to Underwriter's
Counsel, and such counsel shall have been furnished with all such documents,
certificates and opinions as they may request for the purpose of enabling them
to pass upon the matters referred to in Section 6(c) hereof and in order to
evidence the accuracy and completeness of any of the representations, warranties
or statements of the Company, the performance of any covenants of the Company,
or the compliance by the Company with any of the conditions herein contained.
(k) As of the date hereof, the Company will have delivered
to the Underwriter the written undertakings of its officers, directors and
security holders and/or registration rights holders, as the case may be, to the
effect of the matters set forth in Sections 5(l) and (q).
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If any of the conditions specified in this Section 6 have not
been fulfilled, this Agreement may be terminated by the Underwriter on notice to
the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriter, each officer, director, partner, employee and agent of the
Underwriter, and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and
against any and all losses, claims, damages, expenses or liabilities, joint or
several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Underwriter
and each such person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions, whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained
(i) in the Registration Statement, in any Preliminary Prospectus or in the
Prospectus (or the Registration Statement or Prospectus as from time to time
amended or supplemented) or (ii) in any application or other document executed
by the Company, or based upon written information furnished by or on behalf of
the Company, filed in any jurisdiction in order to qualify the Shares and
Warrants under the securities laws thereof (hereinafter "application"), or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, in light of the circumstances under which
they were made, unless such untrue statement or omission was made in such
Registration Statement, Preliminary Prospectus, Prospectus or application in
reliance upon and in conformity with information furnished in writing to the
Company in connection therewith by the Underwriter or any such person through
the Underwriter expressly for use therein; provided, however, that the indemnity
agreement contained in this Section 7(a) with respect to any Preliminary
Prospectus will not inure to the benefit of the Underwriter (or to the benefit
of any other person that may be indemnified pursuant to this Section 7(a)) if
(A) the person asserting any such losses, claims, damages, expenses or
liabilities purchased the Shares and/or Warrants which are the subject thereof
from the Underwriter or other indemnified person; (B) the Underwriter or other
indemnified person failed to send or give a copy of the Prospectus to such
person at or prior to the written confirmation of the sale of such Shares and/or
Warrants to such person; and (C) the Prospectus did not contain any untrue
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statement or alleged untrue statement or omission or alleged omission giving
rise to such cause, claim, damage, expense or liability.
(b) The Underwriter agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from
and against any and all losses, claims, damages, expenses or liabilities, joint
or several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Company and
each such director, officer or controlling person for any legal or other
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in any
Preliminary Prospectus or in the Prospectus (or the Registration Statement or
Prospectus as from time to time amended or supplemented) or (ii) in any
application (including any application for registration of the Shares and
Warrants under state securities or Blue Sky laws), or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading, in light of the circumstances under which they were made, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company in connection
therewith by the Underwriter expressly for use therein.
(c) Promptly after receipt of notice of the commencement of
any action in respect of which indemnity may be sought against any indemnifying
party under this Section 7, the indemnified party will notify the indemnifying
party in writing of the commencement thereof, and the indemnifying party will,
subject to the provisions hereinafter stated, assume the defense of such action
(including the employment of counsel satisfactory to the indemnified party and
the payment of expenses) insofar as such action relates to an alleged liability
in respect of which indemnity may be sought against the indemnifying party.
After notice from the indemnifying party of its election to assume the defense
of such claim or action, the indemnifying party shall no longer be liable to the
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
if, in the reasonable judgment of the indemnified party or parties, it is
advisable for the indemnified party or parties to be represented by separate
counsel, the indemnified party or
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parties shall have the right to employ a single counsel to represent the
indemnified parties who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the indemnified parties thereof
against the indemnifying party, in which event the fees and expenses of such
separate counsel shall be borne by the indemnifying party. Any party against
whom indemnification may be sought under this Section 7 shall not be liable to
indemnify any person that might otherwise be indemnified pursuant hereto for any
settlement of any action effected without such indemnifying party's consent,
which consent shall not be unreasonably withheld.
8. Contribution. To provide for just and equitable
contribution, if (i) an indemnified party makes a claim for indemnification
pursuant to Section 7 hereof (subject to the limitations thereof) and it is
finally determined, by a judgment, order or decree not subject to further
appeal, that such claim for indemnification may not be enforced, even though
this Agreement expressly provides for indemnification in such case; or (ii) any
indemnified or indemnifying party seeks contribution under the Act, the Exchange
Act, or otherwise, then the Company (including, for this purpose, any
contribution made by or on behalf of any director of the Company, any officer of
the Company who signed the Registration Statement and any controlling person of
the Company) and the Underwriter (including, for this purpose, any contribution
by or on behalf of each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and each
officer, director, partner, employee and agent of the Underwriter) as a second
entity, shall contribute to the losses, liabilities, claims, damages and
expenses whatsoever to which any of them may be subject, so that the Underwriter
is responsible for the proportion thereof equal to the percentage which the
underwriting discount per Share and per Warrant set forth on the cover page of
the Prospectus represents of the initial public offering price per Share and per
Warrant set forth on the cover page of the Prospectus and the Company is
responsible for the remaining portion; provided, however, that if applicable law
does not permit such allocation, then, if applicable law permits, other relevant
equitable considerations such as the relative fault of the Company and the
Underwriter in connection with the facts which resulted in such losses,
liabilities, claims, damages and expenses shall also be considered. The relative
fault, in the case of an untrue statement, alleged untrue statement, omission or
alleged omission, shall be determined by, among other things, whether such
statement, alleged statement, omission or alleged omission relates to
information supplied by the Company or by the Underwriter, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Company and the Underwriter agree that it would be unjust and inequitable if the
respective obligations of the Company and the Underwriter for contribution were
determined by pro rata or per
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capita allocation of the aggregate losses, liabilities, claims, damages and
expenses or by any other method of allocation that does not reflect the
equitable considerations referred to in this Section 8. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
will be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person, if
any, who controls the Underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and each officer, director, partner, employee
and agent of the Underwriter will have the same rights to contribution as the
Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who has signed the Registration Statement and each
director of the Company will have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 8. Anything in
this Section 9 to the contrary notwithstanding, no party will be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 9 is intended to supersede, to the
extent permitted by law, any right to contribution under the Act or the Exchange
Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
Underwriter, the Company or any of its directors and officers, or any
controlling person referred to in said Sections, and shall survive the delivery
of, and payment for, the Shares and the Warrants.
10. Termination of Agreement.
(a) The Company, by written or telegraphic notice to the
Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriter, after the Registration Statement becomes
effective, releases the Offered Shares and Offered Warrants for public offering.
The time when the Underwriter "releases the Offered Shares and Offered Warrants
for public offering" for the purposes of this Section 11 means the time when the
Underwriter releases for publication the first newspaper advertisement, which is
subsequently published, relating to the Offered Shares and Offered Warrants, or
the time when the Underwriter releases for delivery to members of a selling
group copies of the Prospectus
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<PAGE>
and an offering letter or an offering telegram relating to the Offered Shares
and Offered Warrants, whichever will first occur.
(b) This Agreement, including without limitation, the
obligation to purchase the Offered Shares and the Offered Warrants and the
obligation to purchase the Optional Shares and/or Optional Warrants after
exercise of the option referred to in Section 3 hereof, are subject to
termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and payment for all the Offered Shares and
Offered Warrants or such Optional Shares and Optional Warrants, as the case may
be, if, prior to such time, any of the following shall have occurred: (i) the
Company withdraws the Registration Statement from the Commission or the Company
does not or cannot expeditiously proceed with the public offering; (ii) the
representations and warranties in Section 4 hereof are not materially correct or
cannot be complied with; (iii) trading in securities generally on the New York
Stock Exchange or the American Stock Exchange will have been suspended; (iv)
limited or minimum prices will have been established on either such Exchange;
(v) a banking moratorium will have been declared either by federal or New York
State authorities; (vi) any other restrictions on transactions in securities
materially affecting the free market for securities or the payment for such
securities, including the Offered Shares and Offered Warrants or the Optional
Shares and Optional Warrants, will be established by either of such Exchanges,
by the Commission, by any other federal or state agency, by action of the
Congress or by Executive Order; (vii) trading in any securities of the Company
shall have been suspended or halted by any national securities exchange, the
NASD or the Commission; (viii) there has been a materially adverse change in the
condition (financial or otherwise), prospects or obligations of the Company;
(ix) the Company will have sustained a material loss, whether or not insured, by
reason of fire, flood, accident or other calamity; (x) any action has been taken
by the government of the United States or any department or agency thereof
which, in the judgment of the Underwriter, has had a material adverse effect
upon the market or potential market for securities in general; or (xi) the
market for securities in general or political, financial or economic conditions
will have so materially adversely changed that, in the judgment of the
Underwriter, it will be impracticable to offer for sale, or to enforce contracts
made by the Underwriter for the resale of, the Offered Shares and Offered
Warrants or the Optional Shares and Offered Warrants, as the case may be.
(c) If this Agreement is terminated pursuant to Section 6
hereof or this Section 10 or if the purchases provided for herein are not
consummated because any condition of the Underwriter's obligations hereunder is
not satisfied or because
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of any refusal, inability or failure on the part of the Company to comply with
any of the terms or to fulfill any of the conditions of this Agreement, or if
for any reason the Company shall be unable to or does not perform all of its
obligations under this Agreement, the Company will not be liable to the
Underwriter for damages on account of loss of anticipated profits arising out of
the transactions covered by this Agreement, but the Company will remain liable
to the extent provided in Sections 5(j), 7, 8 and 9 of this Agreement.
11. Information Furnished by the Underwriter to the Company.
It is hereby acknowledged and agreed by the parties hereto that for the purposes
of this Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and
8 hereof, the only information given by the Underwriter to the Company for use
in the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
page __ with respect to stabilizing the market price of Shares and Warrants, the
information in the __ paragraph on page __ with respect to concessions and
reallowances, and the information in the ___ paragraph on page ___ with respect
to the determination of the public offering price, as such information appears
in any Preliminary Prospectus and in the Prospectus.
12. Notices and Governing Law. All communications hereunder
will be in writing and, except as otherwise provided, will be delivered at, or
mailed by certified mail, return receipt requested, or telegraphed to, the
following addresses: if to the Underwriter, to Whale Securities Co., L.P., 650
Fifth Avenue, New York, New York 10019, Attention: Mr. William G. Walters, with
a copy to Tenzer, Greenblatt LLP, Attention: Robert J. Mittman, Esq., 405
Lexington Avenue, New York, New York 10174; if to the Company, addressed to it
at 4625 West Nevso Drive #2, Las Vegas, Nevada 89103, Attention: John W. Stuart,
Chairman, with a copy to Morgan, Lewis & Bockius, LLP, 2000 One Logan Square,
Philadelphia, Pennsylvania 19103-6993, Attention: James W. McKenzie, Jr., Esq.
This Agreement shall be deemed to have been made and delivered
in New York City and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company (1) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York, (2) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (3) irrevocably consents to the jurisdiction of
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the New York State Supreme Court, County of New York, and the United States
District Court for the Southern District of New York in any such suit, action or
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York and agrees that service of
process upon the Company mailed by certified mail to the Company's address shall
be deemed in every respect effective service of process upon the Company, in any
such suit, action or proceeding.
13. Parties in Interest. This Agreement is made solely for the
benefit of the Underwriter, the Company and, to the extent expressed, any person
controlling the Company or the Underwriter, each officer, director, partner,
employee and agent of the Underwriter, the directors of the Company, its
officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Shares or
Warrants from the Underwriter, as such purchaser.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very truly yours,
ON STAGE ENTERTAINMENT, INC.
By:_________________________
Name:
Title:
Confirmed and accepted
in New York, N.Y., as of the date
first above written:
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By:_______________________________________________
Name:
Title:
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<PAGE>
AMENDED AND RESTATED BYLAWS
OF
ON STAGE ENTERTAINMENT, INC.
(a Nevada Corporation)
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF ON STAGE ENTERTAINMENT, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
ARTICLE I - STOCKHOLDERS..........................................................................................1
SECTION 1.1. Place of Stockholders' Meetings...............................................1
SECTION 1.2. Day and Time of Annual Meetings of Stockholders...............................1
SECTION 1.3. Purposes of Annual Meetings...................................................1
SECTION 1.4. Special Meetings of Stockholders..............................................2
SECTION 1.5. Notice of Meetings of Stockholders............................................2
SECTION 1.6. Quorum of Stockholders........................................................2
SECTION 1.7. Chairman and Secretary of Meeting.............................................3
SECTION 1.8. Voting by Stockholders........................................................3
SECTION 1.9. Proxies.......................................................................3
SECTION 1.10. Inspectors....................................................................4
SECTION 1.11. List of Stockholders..........................................................4
SECTION 1.12. Confidential Voting...........................................................5
SECTION 1.13. No Action by Written Consent..................................................5
ARTICLE II - DIRECTORS............................................................................................5
SECTION 2.1. Powers of Directors...........................................................5
SECTION 2.2. Number, Method of Election....................................................5
SECTION 2.3. Term of Office................................................................6
SECTION 2.4. Vacancies on Board............................................................7
SECTION 2.5. Meetings of the Board.........................................................7
SECTION 2.6. Quorum and Action.............................................................8
SECTION 2.7. Presiding Officer and Secretary of Meeting....................................8
SECTION 2.8. Action by Consent without Meeting.............................................8
SECTION 2.9. Standing Committees...........................................................8
SECTION 2.10. Other Committees..............................................................9
SECTION 2.11. Compensation of Directors.....................................................9
ARTICLE III - OFFICERS............................................................................................9
SECTION 3.1. Officers, Titles, Elections, Terms............................................9
SECTION 3.2. General Powers of Officers...................................................10
SECTION 3.3. Powers and Duties of the Chairman............................................11
SECTION 3.4. Powers and Duties of the President...........................................10
SECTION 3.5. Powers and Duties of Executive Vice Presidents,
Senior Vice Presidents and Vice Presidents.................................11
SECTION 3.6. Powers and Duties of the Chief Financial Officer.............................11
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
SECTION 3.7. Powers and Duties of the Treasurer...........................................11
SECTION 3.8. Powers and Duties of the Secretary...........................................12
ARTICLE IV - INDEMNIFICATION.....................................................................................12
SECTION 4.1. (a) Right to Indemnification.....................................................12
SECTION 4.2. Insurance, Contracts and Funding.............................................13
SECTION 4.3. Indemnification; Not Exclusive Right.........................................13
SECTION 4.4. Advancement of Expenses; Procedures; Presumptions
and Effect of Certain Proceedings; Remedies.................................13
SECTION 4.5. Indemnification of Employees and Agents......................................17
SECTION 4.6. Severability.................................................................17
ARTICLE V - CAPITAL STOCK........................................................................................18
SECTION 5.1. Stock Certificates...........................................................18
SECTION 5.2. Record Ownership.............................................................18
SECTION 5.3. Transfer of Record Ownership.................................................19
SECTION 5.4. Lost, Stolen or Destroyed Certificates.......................................19
SECTION 5.5. Transfer Agent; Registrar; Rules Respecting
Certificates................................................................19
SECTION 5.6. Fixing Record Date for Determination of Stockholders of Record...............19
ARTICLE VI - SECURITIES HELD BY THE CORPORATION..................................................................20
SECTION 6.1. Voting.......................................................................20
SECTION 6.2. General Authorization to Transfer Securities Held by the Corporation.........20
ARTICLE VII - DEPOSITARIES AND SIGNATORIES.......................................................................21
SECTION 7.1. Depositaries.................................................................21
SECTION 7.2. Signatories..................................................................21
ARTICLE VIII - SEAL..............................................................................................21
ARTICLE IX - FISCAL YEAR.........................................................................................21
ARTICLE X - WAIVER OF OR DISPENSING WITH NOTICE..................................................................22
ARTICLE XI - AMENDMENT OF BY-LAWS................................................................................22
ARTICLE XII - APPLICATION OF CERTAIN SECTIONS OF NEVADA REVISED
STATUTES................................................................................................23
ARTICLE XIII - OFFICES AND AGENT.................................................................................23
</TABLE>
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AMENDED AND RESTATED
B Y L A W S
OF
ON STAGE ENTERTAINMENT (A NEVADA CORPORATION)
ARTICLE I
STOCKHOLDERS
SECTION 1.1. Place of Stockholders' Meetings. All meetings of the
stockholders of the Corporation shall be held at such place or places, within or
outside the state of Nevada, as may be fixed by the Corporation's Board of
Directors (the "Board", and each member thereof a "Director") from time to time
or as shall be specified in the respective notices thereof.
SECTION 1.2. Day and Time of Annual Meetings of Stockholders. An annual
meeting of stockholders shall be held at such place (within or outside the state
of Nevada), date and hour as shall be determined by the Board and designated in
the notice thereof. Failure to hold an annual meeting of stockholders at such
designated time shall not affect otherwise valid corporate acts or work a
forfeiture or dissolution of the Corporation.
SECTION 1.3. Purposes of Annual Meetings. At each annual meeting, the
stockholders shall elect the members of the Board for the succeeding year. At
any such annual meeting any business properly brought before the meeting may be
transacted. To be properly brought before an annual meeting, business must be
(i) specified in the notice of the meeting (or any supplement thereto) given by
or at the direction of the Board, (ii) otherwise properly brought before the
meeting by or at the direction of the Board or (iii) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given written
notice thereof, either by personal delivery or by United States mail, postage
prepaid, to the Secretary, not later than 90 days in advance of the anniversary
date of the immediately preceding annual meeting. Any such notice shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting and in the
event that such business includes a proposal to amend either the Articles of
Incorporation or By-laws of the Corporation, the language of the proposed
amendment, (b) the name and address of the stockholder proposing such business,
(c) a representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to propose such
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business, and (d) any material interest of the stockholder in such business. No
business shall be conducted at an annual meeting of stockholders except in
accordance with this Section 1.3, and the chairman of any annual meeting of
stockholders may refuse to permit any business to be brought before an annual
meeting without compliance with the foregoing procedures. Notwithstanding the
foregoing provisions, if the Corporation becomes a publicly held corporation, a
stockholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder with respect to
any matters to be brought before a meeting of stockholders.
SECTION 1.4. Special Meetings of Stockholders. Except as otherwise
expressly required by applicable law, special meetings of the stockholders or of
any class or series entitled to vote may be called for any purpose or purposes
by the Chairman, President, stockholders holding at least 10% or more of the
outstanding stock entitled to vote at a stockholders meeting, or by a majority
vote of the entire Board, to be held at such place (within or outside the state
of Nevada), date and hour as shall be determined by the Board and designated in
the notice thereof. Only such business as is specified in the notice of any
special meeting of the stockholders shall come before such meeting.
SECTION 1.5. Notice of Meetings of Stockholders. Except as otherwise
expressly required or permitted by applicable law, not less than ten days nor
more than sixty days before the date of every stockholders' meeting the
Secretary shall give to each stockholder of record entitled to vote at such
meeting written notice stating the place, day and time of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called. Except as provided in Section 1.6(d) or as otherwise expressly required
by applicable law, notice of any adjourned meeting of stockholders need not be
given if the time and place thereof are announced at the meeting at which the
adjournment is taken. Any notice, if mailed, shall be deemed to be given when
deposited in the United States mail, postage prepaid, addressed to the
stockholder at the address for notices to such stockholder as it appears on the
records of the Corporation.
SECTION 1.6. Quorum of Stockholders.
(a) Unless otherwise expressly required by applicable law, at any
meeting of the stockholders, the presence in person or by proxy of stockholders
entitled to cast a majority of votes thereat shall constitute a quorum for the
entire meeting, notwithstanding the withdrawal of stockholders entitled to cast
a sufficient number of votes in person or by proxy to reduce the number of votes
represented at the meeting below a quorum. Shares of the Corporation's stock
belonging to the Corporation or to another corporation, if a majority of the
shares entitled to vote in an election of the directors of such other
corporation is held by the Corporation, shall neither be counted for the purpose
of determining the presence of a quorum nor entitled to vote at any meeting of
the stockholders.
(b) At any meeting of the stockholders at which a quorum shall be
present, a majority of those present in person or by proxy may adjourn the
meeting from time to time without notice
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<PAGE>
other than announcement at the meeting. In the absence of a quorum, the officer
presiding thereat shall have power to adjourn the meeting from time to time
until a quorum shall be present. Notice of any adjourned meeting other than
announcement at the meeting shall not be required to be given, except as
provided in Section 1.6(d) below and except where expressly required by
applicable law.
(c) At any adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting
originally called, but only those stockholders entitled to vote at the meeting
as originally noticed shall be entitled to vote at any adjournment or
adjournments thereof unless a new record date is fixed by the Board.
(d) If an adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given in the manner specified in Section 1.5 to
each stockholder of record entitled to vote at the meeting.
SECTION 1.7. Chairman and Secretary of Meeting. The Chairman or, in his
or her absence, another officer of the Corporation designated by the Chairman,
shall preside at meetings of the stockholders. The Secretary shall act as
secretary of the meeting, or in the absence of the Secretary, an Assistant
Secretary shall so act, or if neither is present, then the presiding officer may
appoint a person to act as secretary of the meeting.
SECTION 1.8. Voting by Stockholders.
(a) Except as otherwise expressly required by applicable law, at every
meeting of the stockholders each stockholder shall be entitled to the number of
votes specified in the Articles of Incorporation, in person or by proxy, for
each share of stock standing in his or her name on the books of the Corporation
on the date fixed pursuant to the provisions of Section 5.6 of these By-laws as
the record date for the determination of the stockholders who shall be entitled
to receive notice of and to vote at such meeting.
(b) When a quorum is present at any meeting of the stockholders, all
questions shall be decided by the vote of a majority in voting power of the
stockholders present in person or by proxy and entitled to vote at such meeting,
unless a question is one upon which by express provision of law, the Articles of
Incorporation or these By-laws, a different vote is required, in which case such
express provision shall govern and control the decision of such question.
(c) Except as required by applicable law, the vote at any meeting of
stockholders on any question need not be by ballot, unless so directed by the
chairman of the meeting. On a vote by ballot, each ballot shall be signed by the
stockholder voting, or by his or her proxy, if there be such proxy, and shall
state the number of shares voted.
SECTION 1.9. Proxies. Any stockholder entitled to vote at any meeting
of stockholders may vote either in person or by his or her attorney-in-fact.
Every proxy shall be in
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writing and shall be subscribed by the stockholder or his or her duly authorized
attorney-in-fact, but need not be sealed, witnessed or acknowledged.
SECTION 1.10. Inspectors.
(a) The election of Directors and any other vote by ballot at any
meeting of the stockholders shall be supervised by at least two inspectors. Such
inspectors may be appointed by the Chairman before or at the meeting. If the
Chairman shall not have so appointed such inspectors or if one or both
inspectors so appointed shall refuse to serve or shall not be present, such
appointment shall be made by the officer presiding at the meeting. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability.
(b) The inspectors shall (i) ascertain the number of shares of the
Corporation outstanding and the voting power of each, (ii) determine the shares
represented at any meeting of stockholders and the validity of the proxies and
ballots, (iii) count all proxies and ballots, (iv) determine and retain for a
reasonable period a record of the disposition of any challenges made to any
determination by the inspectors, and (v) certify their determination of the
number of shares represented at the meeting, and their count of all proxies and
ballots. The inspectors may appoint or retain other persons or entities to
assist the inspectors in the performance of the duties of the inspectors.
SECTION 1.11. List of Stockholders.
(a) At least ten days before every meeting of stockholders, the
Secretary shall cause to be prepared and made a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order and
showing the address of each stockholder and the number of shares registered in
the name of each stockholder.
(b) During ordinary business hours for a period of at least ten days
prior to the meeting, such list shall be open to examination by any stockholder
for any purpose germane to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the Corporation's registered office.
(c) The list shall also be produced and kept at the time and place of
the meeting during the whole time of the meeting, and it may be inspected by any
stockholder who is present.
(d) The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
Section 1.11 or the books of the Corporation, or to vote in person or by proxy
at any meeting of stockholders.
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SECTION 1.12. Confidential Voting.
(a) Proxies and ballots that identify the votes of specific
stockholders shall be kept in confidence by the tabulators and the inspectors of
election unless (i) there is an opposing solicitation with respect to the
election or removal of Directors, (ii) disclosure is required by applicable law,
(iii) a stockholder expressly requests or otherwise authorizes disclosure, or
(iv) the Corporation concludes in good faith that a bona fide dispute exists as
to the authenticity of one or more proxies, ballots or votes, or as to the
accuracy of any tabulation of such proxies, ballots or votes.
(b) The tabulators and inspectors of election and any authorized agents
or other persons engaged in the receipt, count and tabulation of proxies and
ballots shall be advised of this By-law and instructed to comply herewith.
(c) The inspectors of election shall certify, to the best of their
knowledge based on due inquiry, that proxies and ballots have been kept in
confidence as required by this Section 1.12.
SECTION 1.13. No Action by Written Consent. Any action required or
permitted to be taken by the stockholders of the Corporation must be effected at
a duly called annual or special stockholders' meeting and may not be effected by
consent in writing by such stockholders.
ARTICLE II
DIRECTORS
SECTION 2.1. Powers of Directors. The business and affairs of the
Corporation shall be managed by or under the direction of the Board, which may
exercise all the powers of the Corporation except such as are by applicable law,
the Articles of Incorporation or these By-laws required to be exercised or
performed by the stockholders.
SECTION 2.2. Number and Method of Election. The number of Directors
which shall constitute the whole Board shall be such as from time to time shall
be determined by resolution adopted by a majority of the entire Board, but the
number shall not be less than seven nor more than twenty-five, provided that the
tenure of a Director shall not be affected by any decrease in the number of
Directors so made by the Board. Directors need not be stockholders of the
Corporation or citizens of the United States of America.
Nominations of persons for election as Directors may be made by the
Board or by any stockholder entitled to vote for the election of Directors. Any
stockholder entitled to vote for the election of Directors may nominate a person
or persons for election as Directors only if written notice of such
stockholder's intent to make such nomination is given in accordance with the
procedures for bringing business before the meeting set forth in Section 1.3 of
these By-laws,
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either by personal delivery or by United States mail, postage prepaid, to the
Secretary not later than (i) with respect to an election to be held at an annual
meeting of stockholders, 90 days in advance of the anniversary date of the
immediately preceding annual meeting and (ii) with respect to an election to be
held at a special meeting of stockholders for the election of Directors, the
close of business on the seventh day following the date on which notice of such
meeting is first given to stockholders. Each such notice shall set forth: (a)
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had each nominee been nominated,
or intended to be nominated, by the Board; and (e) the consent of each nominee
to serve as a Director if so elected. The chairman of any meeting of
stockholders to elect Directors and the Board may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
At each meeting of the stockholders for the election of Directors at
which a quorum is present, the persons receiving the greatest number of votes,
up to the number of Directors to be elected, shall be the Directors.
SECTION 2.3. Term of Office.
(a) The board of directors shall be divided into three classes, which
shall be as nearly equal in number as possible. Directors of each class shall
serve for a term of three years and until their successors shall have been
elected and qualified, except in the event of death, resignation or removal. The
three initial classes of directors shall be comprised as follows:
(1) 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.
(2) 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.
(3) 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.
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SECTION 2.4. Vacancies on Board.
(a) Any Director may resign from office at any time by delivering a
written resignation to the Chairman or the Secretary. The resignation will take
effect at the time specified therein, or, if no time is specified, at the time
of its receipt by the Corporation. The acceptance of a resignation shall not be
necessary to make it effective, unless expressly so provided in the resignation.
(b) Any Director may be removed from office without cause by the vote
of stockholders representing a majority of the issued and outstanding stock
entitled to voting power at a meeting duly called for that purpose at any time.
(c) Any vacancy and any newly created Directorship resulting from any
increase in the authorized number of Directors may be filled by vote of a
majority of the Directors then in office, though less than a quorum, and any
Director so chosen shall hold office until the next annual election of Directors
by the stockholders and until a successor is duly elected and qualified or until
his or her earlier death, retirement, resignation or removal. If there are no
Directors in office, then an election of Directors may be held in the manner
provided by applicable law.
SECTION 2.5. Meetings of the Board.
(a) The Board may hold its meetings, both regular and special, either
within or outside the state of Nevada, at such places as from time to time may
be determined by the Board or as may be designated in the respective notices or
waivers of notice thereof.
(b) Regular meetings of the Board of Directors shall be held quarterly,
with one meeting as soon as practicable following the annual meeting of
shareholders, at the place where such meeting of the shareholders is held or at
such other place and time as determined by the Board of Directors in office
after the annual meeting of shareholders may designate. At the Board of
Directors meeting that takes place immediately after the annual meeting of
shareholders, the Board of Directors shall elect officers of the Corporation. In
addition to such regular meetings, the Board of Directors shall have the power
to fix by resolution the place and time of other regular meetings of the Board.
(c) Special meetings of the Board shall be held whenever called by
direction of the Chairman or at the request of Directors constituting one-third
of the number of Directors then in office.
(d) Members of the Board or any Committee of the Board may participate
in a meeting of the Board or Committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
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(e) The Secretary, or an Assistant Secretary designated by the
Secretary, shall give notice to each Director of any meeting of the Board by
mailing the same at least five days before the meeting or by faxing or
delivering the same not later than the day before the meeting. Such notice need
not include a statement of the business to be transacted at, or the purpose of,
any such meeting. Any and all business may be transacted at any meeting of the
Board. No notice of any adjourned meeting need be given. No notice to or waiver
by any Director shall be required with respect to any meeting at which the
Director is present.
SECTION 2.6. Quorum and Action. Except as otherwise expressly required
by applicable law, the Articles of Incorporation or these By-laws, at any
meeting of the Board, the presence of at least a majority of the entire Board
shall constitute a quorum for the transaction of business; but if there shall be
less than a quorum at any meeting of the Board, a majority of those present may
adjourn the meeting from time to time. Unless otherwise provided by applicable
law, the Articles of Incorporation or these By-laws, the vote of a majority of
the Directors present (and not abstaining) at any meeting at which a quorum is
present shall be necessary for the approval and adoption of any resolution or
the approval of any act of the Board.
SECTION 2.7. Presiding Officer and Secretary of Meeting. The Chairman
or, in the absence of the Chairman, a member of the Board selected by the
members present, shall preside at meetings of the Board. The Secretary, or an
Assistant Secretary designated by the Secretary, shall act as secretary of the
meeting, but in the absence of the Secretary, or an Assistant Secretary
designated by the Secretary, the presiding officer may appoint a secretary of
the meeting.
SECTION 2.8. Action by Consent without Meeting. Any action required or
permitted to be taken at any meeting of the Board or of any Committee thereof
may be taken without a meeting if all members of the Board or Committee, as the
case may be, consent thereto in writing and the writing or writings are filed
with the minutes of proceedings of the Board or the Committee.
SECTION 2.9. Standing Committees. By resolution adopted by a majority
of the entire Board, the Board shall elect, from among its members, individuals
to serve on the Standing Committees established by this Section 2.9. Each
Standing Committee shall be comprised of such number of Directors, not less than
two, as shall be elected to such Committee, provided that no officer or employee
of the Corporation shall be eligible to serve on the Audit, Compensation or
Nominating Committees and provided further that no officer or employee of the
Corporation, other than the Chairman and the President, shall be eligible to
serve on the Executive Committee. Each Committee shall keep a record of all its
proceedings and report the same to the Executive Committee and/or the Board. A
majority of the members of a Committee, but not less than two, shall constitute
a quorum, and the act of a majority of the members of a Committee present at any
meeting at which a quorum is present shall be the act of the Committee. Each
Standing Committee shall meet at the call of its chairman or any two of its
members. The chairman of any Committee shall preside, when present, at all
meetings of such Committee, and shall have such
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powers and perform such duties as the Board may from time to time prescribe. The
Standing Committees of the Board, and functions of each, are as follows:
(a) Executive Committee. The Executive Committee shall, during the
intervals between the meetings of the Board, possess and exercise all of the
powers of the Board in the management of the business and affairs of the
Corporation, except as otherwise provided by applicable law, the Articles of
Incorporation or these By-laws.
(b) Compensation Committee. The Compensation Committee shall exercise
the power of oversight of the compensation and benefits of the employees of the
Corporation, and shall be charged with evaluating management performance, and
establishing executive compensation.
(c) Audit Committee. The Audit Committee shall recommend the selection
of the independent auditors for the Corporation, confirm the scope of audits to
be performed by such auditors, review audit results and internal accounting and
control procedures and policies, review the fees paid to the Corporation's
independent auditors, and review and recommend the approval of the audited
financial statements of the Corporation and the annual reports to stockholders.
(d) Nominating Committee. The Nominating Committee shall make
recommendations as to the organization, size and composition of the Board and
Committees thereof, select candidates for election to the Board and the
Committees thereof, and consider the qualifications, compensation and retirement
of Directors.
SECTION 2.10. Other Committees. By resolution passed by a majority of
the entire Board, the Board may also appoint from among its members such other
Committees, Standing or otherwise, as it may from time to time deem desirable
and may delegate to such Committees such powers of the Board as it may consider
appropriate, consistent with applicable law, the Articles of Incorporation and
these By-laws.
SECTION 2.11. Compensation of Directors. Unless otherwise restricted by
the Articles of Incorporation or these By-laws, Directors shall receive for
their services on the Board or any Committee thereof such compensation and
benefits, including the granting of options, together with expenses, if any, as
the Board may from time to time determine. The Directors may be paid a fixed sum
for attendance at each meeting of the Board or Committee thereof and/or a stated
annual sum as a Director, together with expenses, if any, of attendance at each
meeting of the Board or Committee thereof. Nothing herein contained shall be
construed to preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor.
ARTICLE III
OFFICERS
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SECTION 3.1. Officers, Titles, Elections, Terms.
(a) The Board may from time to time elect a Chairman, a President, one
or more Executive Vice Presidents, one or more Senior Vice Presidents, one or
more Vice Presidents, a Chief Financial Officer, a Controller, a Treasurer, a
Secretary, a General Counsel, one or more Assistant Controllers, one or more
Assistant Treasurers, one or more Assistant Secretaries, and one or more
Assistant General Counsels, to serve at the pleasure of the Board or otherwise
as shall be specified by the Board at the time of such election and until their
successors are elected and qualified or until their earlier death, retirement,
resignation or removal.
(b) The Board may elect or appoint at any time such other officers or
agents with such duties as it may deem necessary or desirable. Such other
officers or agents shall serve at the pleasure of the Board or otherwise as
shall be specified by the Board at the time of such election or appointment and,
in the case of such other officers, until their successors are elected and
qualified or until their earlier death, retirement, resignation or removal. Each
such officer or agent shall have such authority and shall perform such duties as
may be provided herein or as the Board may prescribe. The Board may from time to
time authorize any officer or agent to appoint and remove any other such officer
or agent and to prescribe such person's authority and duties.
(c) Any vacancy in any office may be filled for the unexpired portion
of the term by the Board. Each officer elected or appointed during the year
shall hold office until the next annual meeting of the Board at which officers
are regularly elected or appointed and until his or her successor is elected or
appointed and qualified or until his or her earlier death, retirement,
resignation or removal.
(d) Any officer or agent elected or appointed by the Board may be
removed at any time by the affirmative vote of a majority of the entire Board.
(e) Any officer may resign from office at any time. Such resignation
shall be made in writing and given to the President or the Secretary. Any such
resignation shall take effect at the time specified therein, or, if no time is
specified, at the time of its receipt by the Corporation. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
SECTION 3.2. General Powers of Officers. Except as may be otherwise
provided by applicable law or in Article VI or Article VII of these By-laws, the
Chairman, the President, any Executive Vice President, any Senior Vice
President, any Vice President, the Chief Financial Officer, the General Counsel,
the Controller, the Treasurer and the Secretary, or any of them, may (i) execute
and deliver in the name of the Corporation, in the name of any Division of the
Corporation or in both names any agreement, contract, instrument, power of
attorney or other document pertaining to the business or affairs of the
Corporation or any Division of the Corporation, including without limitation
agreements or contracts with any government or governmental department, agency
or instrumentality, and (ii) delegate to any employee or agent
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the power to execute and deliver any such agreement, contract, instrument, power
of attorney or other document.
SECTION 3.3. Powers and Duties of the Chairman. The Chairman, if there
is one, shall be the chief executive officer of the Corporation and shall report
directly to the Board. Except in such instances as the Board may confer powers
in particular transactions upon any other officer, and subject to the control
and direction of the Board, the Chairman shall be responsible for the general
management of the affairs of the Corporation and shall perform all duties
incidental to his office which may be required by law and all such other duties
as are properly required of him by the board of Directors. He or she may do and
perform all acts on behalf of the Corporation and shall preside at meetings of
the Board and the stockholders.
SECTION 3.4. Powers and Duties of the President. The President shall
have such powers and perform such duties as the Board or the Chairman may from
time to time prescribe or as may be prescribed in these By-laws. The President
shall act in a general executive capacity and shall assist the Chairman of the
Board in the administration and operation of the Corporation's business and
general supervision of its policies and affairs. The President shall, in the
absence of or because of the inability to act of the Chairman of the Board,
perform all duties of the Chairman of the Board and preside at all meetings of
stockholders and of the Board of Directors.
SECTION 3.5. Powers and Duties of Executive Vice Presidents, Senior
Vice Presidents and Vice Presidents. Executive Vice Presidents, Senior Vice
Presidents and Vice Presidents shall have such powers and perform such duties as
the Board or the President may from time to time prescribe or as may be
prescribed in these By-laws.
SECTION 3.6. Powers and Duties of the Chief Financial Officer. The
Chief Financial Officer shall assist the President in the general supervision of
the Corporation's financial policies and affairs and shall have such powers and
perform such duties as the Board or the President may from time to time
prescribe or as may be prescribed in these By-laws.
SECTION 3.7. Powers and Duties of the Treasurer.
The Treasurer shall exercise general supervision over the receipt,
custody and disbursement of corporate funds. The Treasurer shall cause the funds
of the Corporation to be deposited in such banks as may be authorized by the
Board of Directors, or in such banks as may be authorized by the Board of
Directors, or in such banks as may be designated as depositaries in the manner
provided by resolution of the Board of Directors. He shall have such further
powers and duties and shall be subject to such directions as may be granted or
imposed upon him from time to time by the Board of Directors, the Chairman of
the Board or the President.
SECTION 3.8. Powers and Duties of the Secretary.
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The Secretary shall keep or cause to be kept in one or more books
provided for that purpose, the minutes of all meetings of the Board, the
committees of the Board and the stockholders; he shall see that all notices are
duly given in accordance with the provisions of these By-Laws and as required by
law; he shall be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal; and he shall see that the
books, reports, statements, certificates and other documents and records
required by law to be kept and filed are properly kept and filed; and in
general, he shall perform all the duties incident to the office of Secretary and
such other duties as from time to time may be assigned to him by the Board, the
Chairman of the Board or the President.
ARTICLE IV
INDEMNIFICATION
SECTION 4.1. (a) Right to Indemnification. The Corporation, to the
fullest extent permitted by applicable law as then in effect, shall indemnify
any person who is or was a Director or officer of the Corporation and who is or
was involved in any manner (including, without limitation, as a party or a
witness) or is threatened to be made so involved in any threatened, pending or
completed investigation, claim, action, suit or proceeding, whether civil,
criminal, administrative or investigative (including, without limitation, any
action, suit or proceeding by or in the right of the Corporation to procure a
judgment in its favor) (a "Proceeding") by reason of the fact that such person
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,
fiduciary or agent of another corporation, partnership, joint venture, trust or
other enterprise (including, without limitation, any employee benefit plan) (a
"Covered Entity"), against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such Proceeding. Any Director or officer of the
Corporation entitled to indemnification as provided in this Section 4.1(a) is
hereinafter called an "Indemnitee". Any right of an Indemnitee to
indemnification shall be a contract right and shall include the right to
receive, prior to the conclusion of any Proceeding, payment of any expenses
incurred by the Indemnitee in connection with such Proceeding, consistent with
the provisions of applicable law as then in effect and the other provisions of
this Article IV.
(b) Effect of Amendments. Neither the amendment or repeal of, nor the
adoption of a provision inconsistent with, any provision of this Article IV
(including, without limitation, this Section 4.1(b)) shall adversely affect the
rights of any Director or officer under this Article IV: (i) with respect to any
Proceeding commenced or threatened prior to such amendment, repeal or adoption
of an inconsistent provision or (ii) after the occurrence of a Change in
Control, with respect to any Proceeding arising out of any action or omission
occurring prior to such amendment, repeal or adoption of an inconsistent
provision, in either case without the written consent of such Director or
officer.
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SECTION 4.2. Insurance, Contracts and Funding. The Corporation may
purchase and maintain insurance to protect itself and any indemnified person
against any expenses, judgments, fines and amounts paid in settlement as
specified in Section 4.1(a) or Section 4.5 of this Article IV or incurred by any
indemnified person in connection with any Proceeding referred to in such
Sections, to the fullest extent permitted by applicable law as then in effect.
The Corporation may enter into contracts with any Director, officer, employee or
agent of the Corporation or any director, officer, employee, fiduciary or agent
of any Covered Entity in furtherance of the provisions of this Article IV and
may create a trust fund or use other means (including, without limitation, a
letter of credit) to ensure the payment of such amounts as may be necessary to
effect indemnification as provided in this Article IV.
SECTION 4.3. Indemnification; Not Exclusive Right. The right of
indemnification provided in this Article IV shall not be exclusive of any other
rights to which any indemnified person may otherwise be entitled, and the
provisions of this Article IV shall inure to the benefit of the heirs and legal
representatives of any indemnified person under this Article IV and shall be
applicable to Proceedings commenced or continuing after the adoption of this
Article IV, whether arising from acts or omissions occurring before or after
such adoption.
SECTION 4.4. Advancement of Expenses; Procedures; Presumptions and
Effect of Certain Proceedings; Remedies. In furtherance, but not in limitation,
of the foregoing provisions, the following procedures, presumptions and remedies
shall apply with respect to the advancement of expenses and the right to
indemnification under this Article IV:
(a) Advancement of Expenses. All reasonable expenses incurred by or on
behalf of an Indemnitee in connection with any Proceeding shall be advanced to
the Indemnitee by the Corporation within 20 days after the receipt by the
Corporation of a statement or statements from the Indemnitee requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Any such statement or statements shall
reasonably evidence the expenses incurred by the Indemnitee and shall include
any written affirmation or undertaking required by applicable law in effect at
the time of such advance.
(b) Procedures for Determination of Entitlement to Indemnification.
(i) To obtain indemnification under this Article IV,
an Indemnitee shall submit to the Secretary of the Corporation
a written request, including such documentation and
information as is reasonably available to the Indemnitee and
reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification (the "Supporting
Documentation"). The determination of the Indemnitee's
entitlement to indemnification shall be made not later than 60
days after receipt by the Corporation of the written request
for indemnification together with the Supporting
Documentation. The Secretary of the Corporation
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shall, promptly upon receipt of such a request for
indemnification, advise the Board in writing that the
Indemnitee has requested indemnification.
(ii) The Indemnitee's entitlement to indemnification
under this Article IV shall be determined in one of the
following ways: (A) by a majority vote of the Disinterested
Directors (as hereinafter defined), if they constitute a
quorum of the Board; (B) by a written opinion of Independent
Counsel (as hereinafter defined) if (x) a Change in Control
(as hereinafter defined) shall have occurred and the
Indemnitee so requests or (y) a quorum of the Board consisting
of Disinterested Directors is not obtainable or, even if
obtainable, a majority of such Disinterested Directors so
directs; (C) by the stockholders of the Corporation (but only
if a majority of the Disinterested Directors, if they
constitute a quorum of the Board, presents the issue of
entitlement to indemnification to the stockholders for their
determination); or (D) as provided in Section 4.4(c) of this
Article IV.
(iii) In the event the determination of entitlement
to indemnification is to be made by Independent Counsel
pursuant to Section 4.4(b)(ii), a majority of the
Disinterested Directors shall select the Independent Counsel,
but only an Independent Counsel to which the Indemnitee does
not reasonably object; provided, however, that if a Change in
Control shall have occurred, the Indemnitee shall select such
Independent Counsel, but only an Independent Counsel to which
a majority of the Disinterested Directors does not reasonably
object.
(c) Presumptions and Effect of Certain Proceedings. Except as otherwise
expressly provided in this Article IV, if a Change in Control shall have
occurred, the Indemnitee shall be presumed to be entitled to indemnification
under this Article IV (with respect to actions or failures to act occurring
prior to such Change in Control) upon submission of a request for
indemnification together with the Supporting Documentation in accordance with
Section 4.4(b) of this Article IV, and thereafter the Corporation shall have the
burden of proof to overcome that presumption in reaching a contrary
determination. In any event, if the person or persons empowered under Section
4.4(b) of this Article IV to determine entitlement to indemnification shall not
have been appointed or shall not have made a determination within 60 days after
receipt by the Corporation of the request therefor together with the Supporting
Documentation, the Indemnitee shall be deemed to be, and shall be, entitled to
indemnification unless (A) the Indemnitee misrepresented or failed to disclose a
material fact in making the request for indemnification or in the Supporting
Documentation or (B) such indemnification is prohibited by law. The termination
of any Proceeding described in Section 4.1 of this Article IV, or of any claim,
issue or matter therein, by judgment, order, settlement or conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, adversely
affect the right of the Indemnitee to indemnification or create a presumption
that the Indemnitee did not act in good faith and in a manner which the
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Corporation or, with respect to any criminal Proceeding, that the Indemnitee
had reasonable cause to believe that his or her conduct was unlawful.
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(d) Remedies of Indemnitee.
(i) In the event that a determination is made
pursuant to Section 4.4(b) of this Article IV that the
Indemnitee is not entitled to indemnification under this
Article IV, (A) the Indemnitee shall be entitled to seek an
adjudication of his or her entitlement to such indemnification
either, at the Indemnitee's sole option, in (x) an appropriate
court of the State of Nevada or any other court of competent
jurisdiction or (y) an arbitration to be conducted by a single
arbitrator pursuant to the rules of the American Arbitration
Association; (B) any such judicial proceeding or arbitration
shall be de novo and the Indemnitee shall not be prejudiced by
reason of such adverse determination; and (C) if a Change in
Control shall have occurred, in any such judicial proceeding
or arbitration the Corporation shall have the burden of
proving that the Indemnitee is not entitled to indemnification
under this Article IV (with respect to actions or failures to
act occurring prior to such Change in Control).
(ii) If a determination shall have been made or
deemed to have been made, pursuant to Section 4.4(b) or (c) of
this Article IV, that the Indemnitee is entitled to
indemnification, the Corporation shall be obligated to pay the
amounts constituting such indemnification within five days
after such determination has been made or deemed to have been
made and shall be conclusively bound by such determination
unless (A) the Indemnitee misrepresented or failed to disclose
a material fact in making the request for indemnification or
in the Supporting Documentation or (B) such indemnification is
prohibited by law. In the event that (x) advancement of
expenses is not timely made pursuant to Section 4.4(a) of this
Article IV or (y) payment of indemnification is not made
within five days after a determination of entitlement to
indemnification has been made or deemed to have been made
pursuant to Section 4.4(b) or (c) of this Article IV, the
Indemnitee shall be entitled to seek judicial enforcement of
the Corporation's obligation to pay to the Indemnitee such
advancement of expenses or indemnification. Notwithstanding
the foregoing, the Corporation may bring an action, in an
appropriate court in the State of Nevada or any other court of
competent jurisdiction, contesting the right of the Indemnitee
to receive indemnification hereunder due to the occurrence of
an event described in Subclause (A) or (B) of this Clause (ii)
(a "Disqualifying Event"); provided, however, that in any such
action the Corporation shall have the burden of proving the
occurrence of such Disqualifying Event.
(iii) The Corporation shall be precluded from
asserting in any judicial proceeding or arbitration commenced
pursuant to this Section 4.4(d) that the procedures and
presumptions of this Article IV are not valid, binding and
- 15 -
<PAGE>
enforceable and shall stipulate in any such court or before
any such arbitrator that the Corporation is bound by all the
provisions of this Article IV.
(iv) In the event that the Indemnitee, pursuant to
this Section 4.4(d), seeks a judicial adjudication of or an
award in arbitration to enforce his or her rights under, or to
recover damages for breach of, this Article IV, the Indemnitee
shall be entitled to recover from the Corporation, and shall
be indemnified by the Corporation against, any expenses
actually and reasonably incurred by the Indemnitee if the
Indemnitee prevails in such judicial adjudication or
arbitration. If it shall be determined in such judicial
adjudication or arbitration that the Indemnitee is entitled to
receive part but not all of the indemnification or advancement
of expenses sought, the expenses incurred by the Indemnitee in
connection with such judicial adjudication or arbitration
shall be prorated accordingly.
(e) Definitions. For purposes of this Article IV:
(i) "Change in Control" means a change in control of
the Corporation of a nature that would be required to be
reported in response to Item 6(e) (or any successor provision)
of Schedule 14A of Regulation 14A (or any amendment or
successor provision thereto) promulgated under the Securities
Exchange Act of 1934 (the "Act"), whether or not the
Corporation is then subject to such reporting requirement;
provided that, without limitation, such a change in control
shall be deemed to have occurred if (A) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Act) who is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Act) other than John W. Stuart, directly or indirectly, of
securities of the Corporation representing 20% or more of the
voting power of all outstanding shares of stock of the
Corporation entitled to vote generally in an election of
Directors without the prior approval of at least two-thirds of
the members of the Board in office immediately prior to such
acquisition; (B) the Corporation is a party to any merger or
consolidation in which the Corporation is not the continuing
or surviving corporation or pursuant to which shares of the
Corporation's common stock would be converted into cash,
securities or other property, other than a merger of the
Corporation in which the holders of the Corporation's common
stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving
corporation immediately after the merger; (C) there is a sale,
lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all,
the assets of the Corporation, or liquidation or dissolution
of the Corporation; (D) the Corporation is a party to a
merger, consolidation, sale of assets or other reorganization,
or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event
constitute less than a majority of the Board thereafter; or
(E) during any period of two consecutive
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<PAGE>
years, individuals who at the beginning of such period
constituted the Board (including for this purpose any new
Director whose election or nomination for election by the
stockholders was approved by a vote of at least two-thirds of
the Directors then still in office who were Directors at the
beginning of such period) cease for any reason to constitute
at least a majority of the Board.
(ii) "Disinterested Director" means a Director who is
not or was not a party to the proceeding in respect of which
indemnification is sought by the Indemnitee.
(iii) "Independent Counsel" means a law firm or a
member of a law firm that neither presently is, nor in the
past five years has been, retained to represent: (a) the
Corporation or the Indemnitee in any matter material to either
such party or (b) any other party to the Proceeding giving
rise to a claim for indemnification under this Article IV.
Notwithstanding the foregoing, the term "Independent Counsel"
shall not include any person who, under applicable standards
of professional conduct, would have a conflict of interest in
representing either the Corporation or the Indemnitee in an
action to determine the Indemnitee's rights under this Article
IV.
SECTION 4.5. Indemnification of Employees and Agents. Notwithstanding
any other provision of this Article IV, the Corporation, to the fullest extent
permitted by applicable law as then in effect, may indemnify any person other
than a Director or officer of the Corporation who is or was an employee or agent
of the Corporation and who is or was involved in any manner (including, without
limitation, as a party or a witness) or is threatened to be made so involved in
any threatened, pending or completed Proceeding by reasons of the fact that such
person is or was an employee or agent of the Corporation or, at the request of
the Corporation, a director, officer, employee, fiduciary or agent of a Covered
Entity against all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such Proceeding. The Corporation may also advance expenses
incurred by such employee, fiduciary or agent in connection with any such
Proceeding, consistent with the provisions of applicable law as then in effect.
SECTION 4.6. Severability. If any of this Article IV shall be held to
be invalid, illegal or unenforceable for any reason whatsoever: (i) the
validity, legality and enforceability of the remaining provisions of this
Article IV (including, without limitation, all portions of any Section of this
Article IV containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (ii) to the fullest extent
possible, the provisions of this Article IV (including, without limitation, all
portions of any Section of this Article IV containing any such provision held to
be invalid, illegal or unenforceable, that are not themselves invalid, illegal
or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
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<PAGE>
ARTICLE V
CAPITAL STOCK
SECTION 5.1. Stock Certificates.
(a) Every holder of stock in the Corporation shall be entitled to have
a certificate certifying the number of shares owned by him or her in the
Corporation and designating the class and series of stock to which such shares
belong, which certificate shall otherwise be in such form as the Board shall
prescribe and as provided in Section 5.1(d). Each such certificate shall be
signed by, or in the name of, the Corporation by the Chairman or the President
or any Vice President, and by the Treasurer or any Assistant Treasurer or the
Secretary or any Assistant Secretary.
(b) If such certificate is countersigned by a transfer agent other than
the Corporation or its employee, or by a registrar other than the Corporation or
its employee, the signatures of the officers of the Corporation may be
facsimiles, and, if permitted by applicable law, any other signature on the
certificate may be a facsimile.
(c) In case any officer who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer at the date of issue.
(d) Certificates of stock shall be issued in such form not inconsistent
with the Articles of Incorporation. They shall be numbered and registered in the
order in which they are issued. No certificate shall be issued until fully paid.
(e) All certificates surrendered to the Corporation shall be canceled
(other than treasury shares) with the date of cancellation and shall be retained
by the Secretary, together with the powers of attorney to transfer and the
assignments of the shares represented by such certificates, for such period of
time as such officer shall designate.
SECTION 5.2. Record Ownership. A record of the name of the person, firm
or corporation and address of such holder of each certificate, the number of
shares represented thereby and the date of issue thereof shall be made on the
Corporation's books. The Corporation shall be entitled to treat the holder of
record of any share of stock as the holder in fact thereof, and accordingly
shall not be bound to recognize any equitable or other claim to or interest in
any share on the part of any person, whether or not it shall have express or
other notice thereof, except as required by applicable law.
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<PAGE>
SECTION 5.3. Transfer of Record Ownership. Transfers of stock shall be
made on the books of the Corporation only by direction of the person named in
the certificate or such person's attorney, lawfully constituted in writing, and
only upon the surrender of the certificate therefor and a written assignment of
the shares evidenced thereby. Whenever any transfer of stock shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer if, when the certificates are presented to the Corporation for
transfer, both the transferor and transferee request the Corporation to do so.
SECTION 5.4. Lost, Stolen or Destroyed Certificates. Certificates
representing shares of the stock of the Corporation shall be issued in place of
any certificate alleged to have been lost, stolen or destroyed in such manner
and on such terms and conditions as the Board from time to time may authorize in
accordance with applicable law.
SECTION 5.5. Transfer Agent; Registrar; Rules Respecting Certificates.
The Corporation shall maintain one or more transfer offices or agencies where
stock of the Corporation shall be transferable. The Corporation shall also
maintain one or more registry offices where such stock shall be registered. The
Board may adopt such rules and regulations as it may deem proper concerning the
issue, transfer and registration of stock certificates in accordance with
applicable law.
SECTION 5.6. Fixing Record Date for Determination of Stockholders
of Record.
(a) The Board may fix, in advance, a date as the record date for the
purpose of determining the stockholders entitled to notice of, or to vote at,
any meeting of the stockholders or any adjournment thereof, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board, and which record date shall not be more than sixty days
nor less than ten days before the date of a meeting of the stockholders. If no
record date is fixed by the Board, the record date for determining the
stockholders entitled to notice of or to vote at a stockholders' meeting shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board may
fix a new record date for the adjourned meeting.
(b) The Board may fix, in advance, a date as the record date for the
purpose of determining the stockholders entitled to receive payment of any
dividend or other distribution or the allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or in order to make a determination of the stockholders for the purpose of any
other lawful action, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which record date
shall not be more than sixty calendar days prior to such action. If no record
date is fixed by the Board, the record date for
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<PAGE>
determining the stockholders for any such purpose shall be at the close of
business on the day on which the Board adopts the resolution relating thereto.
ARTICLE VI
SECURITIES HELD BY THE CORPORATION
SECTION 6.1. Voting. Unless the Board shall otherwise order, the
Chairman, the President, any Executive Vice President, any Senior Vice
President, any Vice President, the Chief Financial Officer, the Controller, the
Treasurer or the Secretary shall have full power and authority, on behalf of the
Corporation, to attend, act and vote at any meeting of the stockholders of any
corporation in which the Corporation may hold stock and at such meeting to
exercise any or all rights and powers incident to the ownership of such stock,
and to execute on behalf of the Corporation a proxy or proxies empowering
another or others to act as aforesaid. The Board from time to time may confer
like powers upon any other person or persons.
SECTION 6.2. General Authorization to Transfer Securities Held by the
Corporation.
(a) Any of the following officers, to wit: the Chairman, the President,
any Executive Vice President, any Senior Vice President, any Vice President, the
Chief Financial Officer, the Controller, the Treasurer, any Assistant
Controller, any Assistant Treasurer, and each of them, hereby is authorized and
empowered to transfer, convert, endorse, sell, assign, set over and deliver any
and all shares of stock, bonds, debentures, notes, subscription warrants, stock
purchase warrants, evidences of indebtedness, or other securities now or
hereafter standing in the name of or owned by the Corporation, and to make,
execute and deliver any and all written instruments of assignment and transfer
necessary or proper to effectuate the authority hereby conferred.
(b) Whenever there shall be annexed to any instrument of assignment and
transfer executed pursuant to and in accordance with the foregoing Section
6.2(a), a certificate of the Secretary or any Assistant Secretary in office at
the date of such certificate setting forth the provisions hereof and stating
that they are in full force and effect and setting forth the names of persons
who are then officers of the corporation, all persons to whom such instrument
and annexed certificate shall thereafter come shall be entitled, without further
inquiry or investigation and regardless of the date of such certificate, to
assume and to act in reliance upon the assumption that (i) the shares of stock
or other securities named in such instrument were theretofore duly and properly
transferred, endorsed, sold, assigned, set over and delivered by the
Corporation, and (ii) with respect to such securities, the authority of these
provisions of these By-laws and of such officers is still in full force and
effect.
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<PAGE>
ARTICLE VII
DEPOSITARIES AND SIGNATORIES
SECTION 7.1. Depositaries. The Chairman, the President, the Chief
Financial Officer and the Treasurer are each authorized to designate
depositaries for the funds of the Corporation deposited in its name or that of a
Division of the Corporation, or both, and the signatories with respect thereto
in each case, and from time to time, to change such depositaries and
signatories, with the same force and effect as if each such depositary and the
signatories with respect thereto and changes therein had been specifically
designated or authorized by the Board; and each depositary designated by the
Board or by the Chairman, the President, the Chief Financial Officer or the
Treasurer shall be entitled to rely upon the certificate of the Secretary or any
Assistant Secretary of the Corporation or of a Division of the Corporation
setting forth the fact of such designation and of the appointment of the
officers of the Corporation or of the Division or of both or of other persons
who are to be signatories with respect to the withdrawal of funds deposited with
such depositary, or from time to time the fact of any change in any depositary
or in the signatories with respect thereto.
SECTION 7.2. Signatories. All notes, drafts, checks, acceptances,
orders for the payment of money and all other negotiable instruments obligating
the Corporation for the payment of money shall be approved by the Controller or
the Chief Financial Officer and, depending on the amount involved, either the
President or the President and the Chief Executive Officer.
ARTICLE VIII
SEAL
The seal of the Corporation shall be in such form and shall have such
content as the Board shall from time to time determine.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall end on December 31 in each
year, or on such other date as the Board shall determine.
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<PAGE>
ARTICLE X
WAIVER OF OR DISPENSING WITH NOTICE
(a) Whenever any notice of the time, place or purpose of any meeting of
the stockholders is required to be given by applicable law, the Articles of
Incorporation or these By-laws, a written waiver of notice, signed by a
stockholder entitled to notice of a stockholders' meeting, whether by telegraph,
cable or other form of recorded communication, whether signed before or after
the time set for a given meeting, shall be deemed equivalent to notice of such
meeting. Attendance of a stockholder in person or by proxy at a stockholders'
meeting shall constitute a waiver of notice to such stockholder of such meeting,
except when the stockholder attends the meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting was not lawfully called or convened.
(b) Whenever any notice of the time or place of any meeting of the
Board or Committee of the Board is required to be given by applicable law, the
Articles of Incorporation or these By-laws, a written waiver of notice signed by
a Director, whether by telegraph, cable or other form of recorded communication,
whether signed before or after the time set for a given meeting, shall be deemed
equivalent to notice of such meeting. Attendance of a Director at a meeting
shall constitute a waiver of notice to such Director of such meeting.
(c) No notice need be given to any person with whom communication is
made unlawful by any law of the United States or any rule, regulation,
proclamation or executive order issued under any such law.
ARTICLE XI
AMENDMENT OF BY-LAWS
Except as otherwise provided in Section 2.8(b) of these By-laws, these
By-laws, or any of them, may from time to time be supplemented, amended or
repealed, or new By-laws may be adopted, by the Board at any regular or special
meeting of the Board, if such supplement, amendment, repeal or adoption is
approved by a majority of the entire Board. These By-laws, or any of them, may
from time to time be supplemented, amended or repealed, or new By-laws may be
adopted, by the stockholders at any regular or special meeting of the
stockholders at which a quorum is present, if such supplement, amendment, repeal
or adoption is approved by the affirmative vote of the holders of at least a
majority of the voting power of all outstanding shares of stock of the
Corporation entitled to vote generally in an election of directors; provided,
however, that, if any one stockholder owns a majority of the outstanding shares
of stock of the Corporation, then any such supplement, amendment, repeal or
adoption must also be approved by the majority of the voting powers of the
shares of stock of the Corporation not owned by such majority stockholder.
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<PAGE>
ARTICLE XII
APPLICATION OF CERTAIN SECTIONS OF
NEVADA REVISED STATUTES
Section 78.378 through Section 78.3793 of the Nevada Revised Statutes
(relating to control-share acquisitions), or any corresponding provision of
succeeding law, shall explicitly not be applicable to the Corporation.
ARTICLE XIII
OFFICES AND AGENT
(a) Registered Office and Agent. The registered office of the
Corporation in the State of Nevada shall be 4625 West Nevso Drive, Las Vegas, NV
89103. The name of the registered agent is Christopher R. Grobl, Esq. Such
registered agent has a business office identical with such registered office.
(b) Other Offices. The Corporation may also have offices at other
places, either within or outside the State of Nevada, as the Board of Directors
may from time to time determine or as the business of the Corporation may
require.
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<PAGE>
ON STAGE ENTERTAINMENT, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF NEVADA
CUSIP 68219Q 10 6
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
ON STAGE ENTERTAINMENT, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney, upon surrender of this Certificate properly
endorsed.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
<PAGE>
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
SECRETARY
PRESIDENT
<PAGE>
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS
THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
Additional abbreviations may also be used though not in the above list.
TEN COM -
TEN ENT -
JT TEN -
as tenants in common
as tenants by the entireties
as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT ? Custodian
(Cust) (Minor)
under Uniform Gifts to Minors Act
(State)
<PAGE>
For Value Received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Company with full
power of substitution in the premises.
Dated
NOTICE:
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
<PAGE>
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
VOID AFTER
WARRANT CERTIFICATE FOR PURCHASE OF
COMMON STOCK
ON STAGE ENTERTAINMENT, INC.
NUMBER
OSW
WARRANTS
CUSIP 68219Q 11 4
SEE REVERSE FOR STATEMENT OF RIGHTS
THIS IS TO CERTIFY THAT,
or registered assigns, is the owner of the number of warrants set forth above.
Each Warrant (subject to adjustments as hereinafter referred to) entitles the
owner hereof to purchase at any time from May 1, 1998 until 5:00 p.m. Eastern
Time on May 1, 2002 one fully paid and non-assessable share of common stock (the
"Common Stock") of On Stage Entertainment, Inc., a Nevada corporation (the
"Company") (such shares of Common Stock being hereinafter referred to as the
"Shares" or a "Share"), upon payment of the warrant price (as hereinafter
described), provided, however, that under certain conditions set forth in the
Warrant Agreement hereinafter mentioned, the number of Shares purchasable upon
the exercise of this Warrant may be increased or reduced and the warrant price
may be adjusted. Subject to adjustment as aforesaid, the warrant price per Share
(hereinafter called the "Warrant Price") shall be $5.50 per Share if exercised
on or before 5:00 p.m. Eastern Time on May 1, 2002. As provided in said Warrant
Agreement, the Warrant Price is payable upon the exercise of the Warrant, either
in cash or by certified check or bank draft to the order of the Company.
Under certain conditions set forth in the Warrant Agreement, this Warrant may
be called for redemption on or after May 1, 1998, at a redemption price of
$0.10 per Warrant upon 30 days' written notice.
<PAGE>
Upon the exercise of this Warrant, the form of election to purchase on the
reverse hereof must be properly completed and executed. In the event that this
Warrant is exercised in respect to less than all of such Shares, a new Warrant
for the remaining number of Shares will be issued on such surrender.
This Warrant is issued under and the rights represented hereby are subject to
the terms and provisions contained in a Warrant Agreement dated as of May 1,
1997, by and among the Company, American Stock Transfer & Trust Company, as
Warrant Agent (the "Warrant Agent") and Whale Securities Co., L.P., all the
terms and provisions of which the registered holder of this Warrant, by
acceptance hereof, assents. Reference is hereby made to said Warrant Agreement
for a more complete statement of the rights and limitations of rights of the
registered holders hereof, the rights and duties of the Warrant Agent and the
rights and obligations of the Company thereunder. Copies of said Warrant
Agreement are on file at the office of the Warrant Agent.
The Company shall not be required upon the exercise of this Warrant to issue
fractions of Shares, but shall make adjustment therefor in cash on the basis of
the current market value of any fractional interest as provided in the Warrant
Agreement.
This Warrant is transferable at the office of the Warrant Agent (or of its
successor as Warrant Agent) by the registered holder hereof in person or by
attorney duly authorized in writing, but only in the manner and subject to the
limitations provided in the Warrant Agreement and upon surrender of this Warrant
and the payment of any transfer taxes. Upon any such transfer a new Warrant, or
new Warrants of different denominations, of this tenor and representing in the
aggregate the right to purchase a like number of Shares will be issued to the
transferee in exchange for this Warrant.
This Warrant, when surrendered at the office of the Warrant Agent (or its
successor as Warrant Agent) by the registered holder hereof in person or by
attorney duly authorized in writing, may be exchanged in the manner and subject
to the limitations provided in the Warrant Agreement, for another Warrant, or
other Warrants of different denominations, of like tenor and representing in
the aggregate the right to purchase a like number of Shares equal to the number
of such Warrants.
<PAGE>
If this Warrant Certificate shall be surrendered for exercise within any period
during which the transfer books for the Company's Common Stock or other
securities purchasable upon the exercise of the Warrants are closed for any
purpose, the Company shall not be required to make delivery of certificates for
the securities purchasable upon such exercise until the date of the reopening
of said transfer books.
The holder of this Warrant shall not be entitled to any of the rights of a
shareholder of the Company prior to the exercise hereof.
This Warrant Certificate shall not be valid unless countersigned by the Warrant
Agent.
WITNESS the facsimile seal of the Company and the facsimile signature of its
duly authorized officers.
DATED:
SECRETARY
PRESIDENT
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NY)
WARRANT AGENT
BY:
AUTHORIZED OFFICER
<PAGE>
ON STAGE ENTERTAINMENT, INC.
ELECTION TO PURCHASE
To Be Executed by the Registered Holder in Order to Exercise Warrants
To: ON STAGE ENTERTAINMENT, INC.
c/o: American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant(s) for and to purchase thereunder, shares of
Common Stock provided for therein and tenders herewith payment of the
purchase price in full to the order of the Corporation and requests that
certificates for such shares shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
(Please Print or Typewrite)
and be delivered to
(Name)
at
(Street Address) (City) (State) (Zip Code)
and, if said number of shares shall not be all the shares purchasable
thereunder, that a new Warrant for the balance remaining of the shares
purchasable under the within Warrant be registered in the name of, and
delivered to, the undersigned at the address stated below.
<PAGE>
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
If not solicited by an NASD member, please write "unsolicited" in the space
below. Unless otherwise indicated by listing the name of another NASD member
firm, it will be assumed that the exercise was solicited by Whale Securities
Co., L.P.
Dated:
Name:
(Please Print or Typewrite)
Address:
(Street)
(City) (State) (Zip Code)
Signature:
Note: The above signature must correspond with the name as written upon the face
of this Warrant or with the name of the assignee appearing in the assignment
form below in every particular without alteration or enlargement or any change
whatever.
*Signature Guaranteed:
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
<PAGE>
ASSIGNMENT
For value received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
Please Print or typewrite name and address including postal zip code of assignee
( ) Warrants
represented by the within Warrant Certificate, together with all right, title
and interest therein, and do hereby irrevocably constitute and appoint attorney
to transfer said Warrant on the books of the within named Corporation, with
full power of substitution in the premises.
Dated ,
Signature:
Note: The above signature must correspond with the name as written upon the face
of this Warrant in every particular without alteration or enlargement or any
change whatever.
*Signature Guaranteed:
* In case of assignment, or if the Common Stock issued upon exercise is to be
registered in the name of a person other than the holder, the holder's
signature must be guaranteed by a commercial bank, trust company or an NASD
member firm.
<PAGE>
ON STAGE ENTERTAINMENT, INC.
a Nevada corporation
and
AMERICAN STOCK TRANSFER & TRUST COMPANY
Warrant Agent
and
WHALE SECURITIES CO., L.P.
Underwriter
WARRANT AGREEMENT
<PAGE>
TABLE OF CONTENTS
Page
----
Section
1 Appointment of Warrant Agent................................. 1
2 Form of Warrant.............................................. 2
3 Countersignature and Registration............................ 2
4 Transfers and Exchanges...................................... 3
5 Exercise of Warrants; Payment of Warrant
Solicitation Fee........................................... 4
6 Payment of Taxes............................................. 7
7 Mutilated or Missing Warrants................................ 8
8 Reservation of Common Stock.................................. 8
9 Warrant Price; Adjustments................................... 10
10 Fractional Interest.......................................... 16
11 Notices to Warrantholders.................................... 17
12 Disposition of Proceeds on Exercise of Warrants.............. 19
13 Redemption of Warrants....................................... 19
14 Merger or Consolidation or Change of
Name of Warrant Agent...................................... 20
15 Duties of Warrant Agent...................................... 20
16 Change of Warrant Agent...................................... 24
17 Identity of Transfer Agent................................... 25
18 Notices...................................................... 25
19. Supplements and Amendments................................... 27
20 New York Contract............................................ 27
21 Benefits of this Agreement................................... 27
22 Successors................................................... 27
Exhibit A - Form of Warrant..................................
<PAGE>
WARRANT AGENT AGREEMENT dated as of _________, 1997, by and
among On Stage Entertainment, Inc., a Nevada corporation (the "Company"), Whale
Securities Co., L.P. (the "Underwriter") and American Stock Transfer & Trust
Company, as warrant agent (hereinafter called the "Warrant Agent").
WHEREAS, the Company and certain selling shareholders propose
to issue and sell to the public up to 1,610,000 shares of the common stock of
the Company, par value $.01 per share (hereinafter, together with the stock of
any other class to which such shares may hereafter have been changed, called
"Common Stock"), and up to 1,610,000 Common Stock Purchase Warrants (the
"Warrants");
WHEREAS, each Warrant will entitle the holder to purchase one
share of Common Stock;
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer, exchange and exercise of the
Warrants;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereto agree as follows:
Section 1. Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act as Warrant Agent for the Company in accordance
with the instructions hereinafter set forth in this Agreement, and the Warrant
Agent hereby accepts such appointment.
<PAGE>
Section 2. Form of Warrant. The text of the Warrants and of
the form of election to purchase Common Stock to be printed on the reverse
thereof shall be substantially as set forth in Exhibit A attached hereto. Each
Warrant shall entitle the registered holder thereof to purchase one share of
Common Stock at a purchase price of Five Dollars Fifty Cents ($5.50), at any
time from ___________, 1998 (or such earlier date as to which the Underwriter
consents) until 5:00 p.m. Eastern time, on __________, 2002 (the "Warrant
Exercise Period"). The warrant price and the number of shares of Common Stock
issuable upon exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, all as hereinafter provided. The Warrants shall be
executed on behalf of the Company by the manual or facsimile signature of the
present or any future Chief Executive Officer, President or Vice President of
the Company, attested to by the manual or facsimile signature of the present or
any future Secretary or Assistant Secretary of the Company.
Warrants shall be dated as of the issuance by the Warrant
Agent either upon initial issuance or upon transfer or exchange.
In the event the aforesaid expiration dates of the Warrants
fall on a Saturday or Sunday, or on a legal holiday on which the New York Stock
Exchange is closed, then the Warrants shall expire at 5:00 p.m. Eastern time on
the next succeeding business day.
Section 3. Countersignature and Registration. The Warrant
Agent shall maintain books for the transfer and registration
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<PAGE>
of the Warrants. Upon the initial issuance of the Warrants, the Warrant Agent
shall issue and register the Warrants in the names of the respective holders
thereof. The Warrants shall be countersigned manually or by facsimile by the
Warrant Agent (or by any successor to the Warrant Agent then acting as warrant
agent under this Agreement) and shall not be valid for any purpose unless so
countersigned. Warrants may, however, be so countersigned by the Warrant Agent
(or by its successor as Warrant Agent) and be delivered by the Warrant Agent,
notwithstanding that the persons whose manual or facsimile signatures appear
thereon as proper officers of the Company shall have ceased to be such officers
at the time of such countersignature or delivery.
Section 4. Transfers and Exchanges. The Warrant Agent shall
transfer, from time to time, any outstanding Warrants upon the books to be
maintained by the Warrant Agent for that purpose, upon surrender thereof for
transfer properly endorsed or accompanied by appropriate instructions for
transfer. Upon any such transfer, a new Warrant shall be issued to the
transferee and the surrendered Warrant shall be cancelled by the Warrant Agent.
Warrants so cancelled shall be delivered by the Warrant Agent to the Company
from time to time upon request. Warrants may be exchanged at the option of the
holder thereof, when surrendered at the office of the Warrant Agent, for another
Warrant, or other Warrants of different denominations of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock.
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<PAGE>
Section 5. Exercise of Warrants; Payment of Warrant
Solicitation Fee.
(a) Subject to the provisions of this Agreement, each
registered holder of Warrants shall have the right, which may be exercised
commencing at the opening of business on the first day of the Warrant Exercise
Period, to purchase from the Company (and the Company shall issue and sell to
such registered holder of Warrants) the number of fully paid and non-assessable
shares of Common Stock specified in such Warrants upon surrender of such
Warrants to the Company at the office of the Warrant Agent, with the form of
election to purchase on the reverse thereof duly filled in and signed, and upon
payment to the Company of the warrant price, determined in accordance with the
provisions of Sections 9 and 10 of this Agreement, for the number of shares of
Common Stock in respect of which such Warrants are then exercised. Payment of
such warrant price shall be made in cash or by certified check or bank draft to
the order of the Company. Subject to Section 6, upon such surrender of Warrants
and payment of the warrant price, the Company shall issue and cause to be
delivered with all reasonable dispatch to or upon the written order of the
registered holder of such Warrants and in such name or names as such registered
holder may designate, a certificate or certificates for the number of full
shares of Common Stock so purchased upon the exercise of such Warrants. Such
certificate or certificates shall be deemed to have been issued, and any person
so designated to be named therein shall be deemed to have become a holder of
record of such
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<PAGE>
shares of Common Stock, as of the date of the surrender of such Warrants and
payment of the warrant price as aforesaid. The rights of purchase represented by
the Warrants shall be exercisable, at the election of the registered holders
thereof, either as an entirety or from time to time for a portion of the shares
specified therein and, in the event that any Warrant is exercised in respect of
less than all of the shares of Common Stock specified therein at any time prior
to the date of expiration of the Warrants, a new Warrant or Warrants will be
issued to the registered holder for the remaining number of shares of Common
Stock specified in the Warrant so surrendered, and the Warrant Agent is hereby
irrevocably authorized to countersign and to deliver the required new Warrants
pursuant to the provisions of this Section and of Section 3 of this Agreement
and the Company, whenever requested by the Warrant Agent, will supply the
Warrant Agent with Warrants duly executed on behalf of the Company for such
purpose. Anything in the foregoing to the contrary notwithstanding, no Warrant
will be exercisable unless at the time of exercise the Company has filed with
the Securities and Exchange Commission a registration statement under the
Securities Act of 1933, as amended (the "Act"), covering the shares of Common
Stock issuable upon exercise of such Warrant and such shares have been so
registered or qualified or deemed to be exempt under the securities laws of the
state of residence of the holder of such Warrant. The Company shall use its best
efforts to have all shares so registered or qualified on or before the date on
which the Warrants become exercisable.
-5-
<PAGE>
(b) If at the time of exercise of any Warrant after
________, 1998 (i) the market price of the Company's Common Stock is equal to or
greater than the then purchase price of the Warrant, (ii) the exercise of the
Warrant is solicited by the Underwriter at such time while the Underwriter is a
member of the National Association of Securities Dealers, Inc. ("NASD"), (iii)
the Warrant is not held in a discretionary account, (iv) disclosure of the
compensation arrangement is made in documents provided to the holders of the
Warrants; and (v) the solicitation of the exercise of the Warrant is not in
violation of Regulation M (as such regulation or any successor regulation or
rule may be in effect as of such time of exercise) promulgated under the
Securities Exchange Act of 1934, then the Underwriter shall be entitled to
receive from the Company upon exercise of each of the Warrant(s) so exercised a
fee of five percent (5%) of the aggregate price of the Warrants so exercised
(the "Exercise Fee"). The procedures for payment of the warrant solicitation fee
are set forth in Section 5(c) below.
(c) (1) Within five (5) days of the day of each month
commencing with _______, 1998, the Warrant Agent will notify the Underwriter of
each Warrant Certificate which has been properly completed for exercise by
holders of Warrants during the last month. The Company and Warrant Agent shall
determine, in their sole and absolute discretion, whether a Warrant Certificate
has been properly completed. The Warrant Agent will provide the Underwriter with
such information, in
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<PAGE>
connection with the exercise of each Warrant, as the Underwriter shall
reasonably request.
(2) The Company hereby authorizes and instructs the
Warrant Agent to deliver to the Underwriter the Exercise Fee promptly after
receipt by the Warrant Agent from the Company of a check payable to the order of
the Underwriter in the amount of the Exercise Fee. In the event that an Exercise
Fee is paid to the Underwriter with respect to a Warrant which the Company or
the Warrant agent determines is not properly completed for exercise or in
respect of which the Underwriter is not entitled to an Exercise Fee, the
Underwriter will promptly return such Exercise Fee to the Warrant Agent which
shall forthwith return such fee to the Company.
The Underwriter and the Company may at any time, after
____________, 1998, and during business hours, examine the records of the
Warrant Agent, including its ledger of original Warrant certificates returned to
the Warrant Agent upon exercise of Warrants. Notwithstanding any provision to
the contrary, the provisions of paragraphs 5(b) and 5(c) may not be modified,
amended or deleted without the prior written consent of the Underwriter.
Section 6. Payment of Taxes. The Company will pay any
documentary stamp taxes attributable to the initial issuance of Common Stock
issuable upon the exercise of Warrants; provided, however, that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of any certificates of shares of
Common Stock
-7-
<PAGE>
in a name other than that of the registered holder of Warrants in respect of
which such shares are issued, and in such case neither the Company nor the
Warrant Agent shall be required to issue or deliver any certificate for shares
of Common Stock or any Warrant until the person requesting the same has paid to
the Company the amount of such tax or has established to the Company's
satisfaction that such tax has been paid.
Section 7. Mutilated or Missing Warrants. In case any of the
Warrants shall be mutilated, lost, stolen or destroyed, the Company may, in its
discretion, issue and the Warrant Agent shall countersign and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest, but only
upon receipt of evidence satisfactory to the Company and the Warrant Agent of
such loss, theft or destruction and, in case of a lost, stolen or destroyed
Warrant, indemnity, if requested, also satisfactory to them. Applicants for such
substitute Warrants shall also comply with such other reasonable regulations and
pay such reasonable charges as the Company or the Warrant Agent may prescribe.
Section 8. Reservation of Common Stock. There have been
reserved, and the Company shall at all times keep reserved, out of the
authorized and unissued shares of Common Stock, a number of shares of Common
Stock sufficient to provide for the exercise of the rights of purchase
represented by the Warrants, and the transfer agent for the shares of Common
Stock and every
-8-
<PAGE>
subsequent transfer agent for any shares of the Company's Common Stock issuable
upon the exercise of any of the rights of purchase aforesaid are irrevocably
authorized and directed at all times to reserve such number of authorized and
unissued shares of Common Stock as shall be required for such purpose. The
Company agrees that all shares of Common Stock issued upon exercise of the
Warrants shall be, at the time of delivery of the certificates of such shares,
validly issued and outstanding, fully paid and non-assessable and listed on any
national securities exchange upon which the other shares of Common Stock are
then listed. So long as any unexpired Warrants remain outstanding, the Company
will file such post-effective amendments to the registration statement (Form
SB-2, Registration No. 333-24681) (the "Registration Statement") filed pursuant
to the Act with respect to the Warrants (or other appropriate registration
statements or post-effective amendment or supplements) as may be necessary to
permit it to deliver to each person exercising a Warrant, a prospectus meeting
the requirements of Section 10(a)(3) of the Act and otherwise complying
therewith, and will deliver such a prospectus to each such person. To the extent
that during any period it is not reasonably likely that the Warrants will be
exercised, due to market price or otherwise, the Company need not file such a
post-effective amendment during such period. The Company will keep a copy of
this Agreement on file with the transfer agent for the shares of Common Stock
and with every subsequent transfer agent for any shares of the Company's Common
Stock issuable upon the exercise of the rights of purchase represented by the
Warrants.
-9-
<PAGE>
The Warrant Agent is irrevocably authorized to requisition from time to time
from such transfer agent stock certificates required to honor outstanding
Warrants. The Company will supply such transfer agent with duly executed stock
certificates for that purpose. All Warrants surrendered in the exercise of the
rights thereby evidenced shall be cancelled by the Warrant Agent and shall
thereafter be delivered to the Company, and such cancelled Warrants shall
constitute sufficient evidence of the number of shares of Common Stock which
have been issued upon the exercise of such Warrants. Promptly after the date of
expiration of the Warrants, the Warrant Agent shall certify to the Company the
total aggregate amount of Warrants then outstanding, and thereafter no shares of
Common Stock shall be subject to reservation in respect of such Warrants which
shall have expired.
Section 9. Warrant Price; Adjustments.
(a) The warrant price at which Common Stock shall
be purchasable upon the exercise of the Warrants shall be $5.50 per share or
after adjustment, as provided in this Section, shall be such price as so
adjusted (the "Warrant Price").
(b) The Warrant Price shall be subject to adjustment from
time to time as follows:
(i) In case the Company shall at any time after the
date hereof pay a dividend in shares of Common Stock or make a distribution in
shares of Common Stock, then upon such dividend or distribution the Warrant
Price in effect immediately prior to such dividend or distribution shall
forthwith be reduced to a price determined by dividing:
-10-
<PAGE>
(A) an amount equal to the total number of
shares of Common Stock outstanding immediately prior to such dividend or
distribution multiplied by the Warrant Price in effect immediately prior to such
dividend or distribution, by
(B) the total number of shares of Common Stock
outstanding immediately after such issuance or sale.
For the purposes of any computation to be made in accordance
with the provisions of this Section 9(b)(i), the following provisions shall be
applicable: Common Stock issuable by way of dividend or other distribution on
any stock of the Company shall be deemed to have been issued immediately after
the opening of business on the date following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution.
(ii) In case the Company shall at any time subdivide or
combine the outstanding Common Stock, the Warrant Price shall forthwith be
proportionately decreased in the case of subdivision or increased in the case of
combination to the nearest one cent. Any such adjustment shall become effective
at the time such subdivision or combination shall become effective.
(iii) Within a reasonable time after the close of each
quarterly fiscal period of the Company during which the Warrant Price has been
adjusted as herein provided, the Company shall:
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<PAGE>
(A) file with the Warrant Agent a certificate
signed by the Chief Executive Officer, President or Vice President of the
Company and by the Treasurer or Assistant Treasurer or the Secretary or an
Assistant Secretary of the Company, showing in detail the facts requiring all
such adjustments occurring during such period and the Warrant Price after each
such adjustment; and
(B) the Warrant Agent shall have no duty with
respect to any such certificate filed with it except to keep the same on file
and available for inspection by holders of Warrants during reasonable business
hours, and the Warrant Agent may conclusively rely upon the latest certificate
furnished to it hereunder. The Warrant Agent shall not at any time be under any
duty or responsibility to any holder of a Warrant to determine whether any facts
exist which may require any adjustment of the Warrant Price, or with respect to
the nature or extent of any adjustment of the Warrant Price when made, or with
respect to the method employed in making any such adjustment, or with respect to
the nature or extent of the property or securities deliverable hereunder. In the
absence of a certificate having been furnished, the Warrant Agent may
conclusively rely upon the provisions of the Warrants with respect to the Common
Stock deliverable upon the exercise of the Warrants and the applicable Warrant
Price thereof.
(iv) Notwithstanding anything contained
herein to the contrary, no adjustment of the Warrant Price shall be made if the
amount of such adjustment shall be less than $.05,
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<PAGE>
but in such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to not less than $.02.
(v) In the event that the number of
outstanding shares of Common Stock is increased by a stock dividend payable in
Common Stock or by a subdivision of the outstanding Common Stock, then, from and
after the time at which the adjusted Warrant Price becomes effective pursuant to
Subsection (b) of this Section by reason of such dividend or subdivision, the
number of shares of Common Stock issuable upon the exercise of each Warrant
shall be increased in proportion to such increase in outstanding shares. In the
event that the number of shares of Common Stock outstanding is decreased by a
combination of the outstanding Common Stock, then, from and after the time at
which the adjusted Warrant Price becomes effective pursuant to this Section 9(b)
by reason of such combination, the number of shares of Common Stock issuable
upon the exercise of each Warrant shall be decreased in proportion to such
decrease in the outstanding shares of Common Stock.
(vi) In case of any reorganization or
reclassification of the outstanding Common Stock (other than a change in par
value, or from par value to no par value, or as a result of a subdivision or
combination), or in case of any consolidation of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger in
which the Company
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<PAGE>
is the continuing corporation and which does not result in any reclassification
of the outstanding Common Stock), or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, the holder of each Warrant then outstanding shall
thereafter have the right to purchase the kind and amount of shares of Common
Stock and other securities and property receivable upon such reorganization,
reclassification, consolidation, merger, sale or conveyance by a holder of the
number of shares of Common Stock which the holder of such Warrant shall then be
entitled to purchase; such adjustments shall apply with respect to all such
changes occurring between the date of this Warrant Agreement and the date of
exercise of such Warrant.
(vii) Subject to the provisions of this
Section 9, in case the Company shall, at any time prior to the exercise of the
Warrants, make any distribution of its assets to holders of its Common Stock as
a liquidating or a partial liquidating dividend, then the holder of Warrants who
exercises its Warrants after the record date for the determination of those
holders of Common Stock entitled to such distribution of assets as a liquidating
or partial liquidating dividend shall be entitled to receive for the Warrant
Price per Warrant, in addition to each share of Common Stock, the amount of such
distribution (or, at the option of the Company, a sum equal to the value of any
such assets at the time of such distribution as determined by the Board of
Directors of the Company in good faith), which would have been payable to such
holder had he been the holder of record
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<PAGE>
of the Common Stock receivable upon exercise of its Warrant on the record date
for the determination of those entitled to such distribution.
(viii) In case of the dissolution,
liquidation or winding up of the Company, all rights under the Warrants shall
terminate on a date fixed by the Company, such date to be no earlier than ten
(10) days prior to the effectiveness of such dissolution, liquidation or winding
up and not later than five (5) days prior to such effectiveness. Notice of such
termination of purchase rights shall be given to the last registered holder of
the Warrants, as the same shall appear on the books of the Company maintained by
the Warrant Agent, by registered mail at least thirty (30) days prior to such
termination date.
(ix) In case the Company shall, at any time
prior to the expiration of the Warrants and prior to the exercise thereof, offer
to the holders of its Common Stock any rights to subscribe for additional shares
of any class of the Company, then the Company shall give written notice thereof
to the last registered holder thereof not less than thirty (30) days prior to
the date on which the books of the Company are closed or a record date is fixed
for the determination of the stockholders entitled to such subscription rights.
Such notice shall specify the date as to which the books shall be closed or
record date fixed with respect to such offer of subscription and the right of
the holder thereof to participate in such offer of subscription shall terminate
if the Warrant shall not be exercised on or before the date of such closing of
the books or such record date.
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<PAGE>
(x) Any adjustment pursuant to the aforesaid
provisions of this Section 9 shall be made on the basis of the number of shares
of Common Stock which the holder thereof would have been entitled to acquire by
the exercise of the Warrant immediately prior to the event giving rise to such
adjustment.
(xi) Irrespective of any adjustments in the
Warrant Price or the number or kind of shares purchasable upon exercise of the
Warrants, Warrants previously or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the similar Warrants
initially issuable pursuant to this Warrant Agreement.
(xii) The Company may retain a firm of
independent public accountants (who may be any such firm regularly employed by
the Company) to make any computation required under this Section 9, and any
certificate setting forth such computation signed by such firm shall be
conclusive evidence of the correctness of any computation made under this
Section 9.
(xiii) If at any time, as a result of an
adjustment made pursuant to Section 9(b)(vi) above, the holders of a Warrant or
Warrants shall become entitled to purchase any securities other than shares of
Common Stock, thereafter the number of such securities so purchasable upon
exercise of each Warrant and the Warrant Price for such shares shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
Sections 9(b)(ii) through (v).
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<PAGE>
Section 10. Fractional Interest. The Warrants may only be
exercised to purchase full shares of Common Stock and the Company shall not be
required to issue fractions of shares of Common Stock on the exercise of
Warrants. However, if a Warrant holder exercises all Warrants then owned of
record by it and such exercise would result in the issuance of a fractional
share, the Company will pay to such Warrant holder, in lieu of the issuance of
any fractional share otherwise issuable, an amount of cash based on the market
value of the Common Stock of the Company on the last trading day prior to the
exercise date.
Section 11. Notices to Warrantholders.
(a) Upon any adjustment of the Warrant Price and
the number of shares of Common Stock issuable upon exercise of a Warrant, then
and in each such case the Company shall give written notice thereof to the
Warrant Agent, which notice shall state the Warrant Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of a Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based. The Company shall also mail such notice to the holders of
the Warrants at their addresses appearing in the Warrant register. Failure to
give or mail such notice, or any defect therein, shall not affect the validity
of the adjustments.
(b) In case at any time:
(i) the Company shall pay dividends payable
in stock upon its Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock; or
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<PAGE>
(ii) the Company shall offer for subscription
pro rata to the holders of its Common Stock any additional shares of stock of
any class or other rights; or
(iii) there shall be any capital
reorganization or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with, or sale or substantially all of its
assets to, another corporation; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company; then in any one or more
of such cases, the Company shall give written notice in the manner set forth in
Section 11(a) of the date on which (A) a record shall be taken for such
dividend, distribution or subscription rights, or (B) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend, distribution or subscription rights, or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up as the case may be. Such notice shall be given at
least thirty (30) days prior to the action in question and not less than thirty
(30) days prior to the record date in respect thereof. Failure to give such
notice,
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<PAGE>
or any defect therein, shall not affect the legality or validity of any of the
matters set forth in this Section 11(b).
(c) The Company shall cause copies of all financial
statements and reports, proxy statements and other documents that are sent to
its stockholders to be sent by first-class mail, postage prepaid, on the date of
mailing to such stockholders, to each registered holder of Warrants at his
address appearing in the warrant register as of the record date for the
determination of the stockholders entitled to such documents.
Section 12. Disposition of Proceeds on Exercise of Warrants.
(i) The Warrant Agent shall promptly forward
to the Company all monies received by the Warrant Agent for the purchase of
shares of Common Stock through the exercise of such Warrants; provided, however,
that the Warrant Agent may retain an amount equal to the Exercise Fee, if any,
until the Company has satisfied its obligations under Section 5(c)(ii).
(ii) The Warrant Agent shall keep copies of
this Agreement available for inspection by holders of Warrants during normal
business hours.
Section 13. Redemption of Warrants. The Warrants are
redeemable by the Company, in whole or in part, on not less than thirty (30)
days' prior written notice at a redemption price of $.10 per Warrant at any time
commencing _________, 1998; provided that (i) the closing bid quotation of the
Common Stock on all twenty (20) trading days ending on the third trading day
prior to the day on which the Company gives notice (the "Call Date") of
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<PAGE>
redemption has been at least 150% of the then effective exercise price of the
Warrants (the "Target Redemption Price") and the Company obtains the written
consent of the Underwriter with respect to such redemption prior to the Call
Date and (ii) the Warrants are currently exercisable. The redemption notice
shall be mailed to the holders of the Warrants at their addresses appearing in
the Warrant register. Holders of the Warrants will have exercise rights until
the close of business on the date fixed for redemption.
Section 14. Merger or Consolidation or Change of Name of
Warrant Agent. Any corporation or company which may succeed to the corporate
trust business of the Warrant Agent by any merger or consolidation or otherwise
shall be the successor to the Warrant Agent hereunder without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible to serve as a successor Warrant
Agent under the provisions of Section 16 of this Agreement. In case at the time
such successor to the Warrant Agent shall succeed to the agency created by this
Agreement, any of the Warrants shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrants so countersigned.
In case at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrants shall have been countersigned but
not delivered, the Warrant Agent may adopt the countersignature under its prior
name and deliver Warrants so
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countersigned. In all such cases such Warrants shall have the full force
provided in the Warrants and in the Agreement.
Section 15. Duties of Warrant Agent. The Warrant Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Warrants, by their acceptance thereof, shall be bound:
(a) The statements of fact and recitals contained
herein and in the Warrants shall be taken as statements of the Company, and the
Warrant Agent assumes no responsibility for the correctness of any of the same
except such as describe the Warrant Agent or action taken or to be taken by it.
The Warrant Agent assumes no responsibility with respect to the distribution of
the Warrants except as herein expressly provided.
(b) The Warrant Agent shall not be responsible for
any failure of the Company to comply with any of the covenants in this Agreement
or in the Warrants to be complied with by the Company.
(c) The Warrant Agent may consult at any time with
counsel satisfactory to it (who may be counsel for the Company) and the Warrant
Agent shall incur no liability or responsibility to the Company or to any holder
of any Warrant in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or the advice of such
counsel.
(d) The Warrant Agent shall incur no liability or
responsibility to the Company or to any holder of any Warrant for
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any action taken in reliance on any notice, resolution, waiver, consent, order,
certificate or other instrument believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent
reasonable compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, to reimburse the Warrant Agent for all expenses,
taxes and governmental charges and other charges incurred by the Warrant Agent
in the execution of this Agreement and to indemnify the Warrant Agent and save
it harmless against any and all liabilities, including judgments, costs and
reasonable counsel fees, for anything done or omitted by the Warrant Agent in
the execution of this Agreement except as a result of the Warrant Agent's
negligence, willful misconduct or bad faith.
(f) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other action
likely to involve expenses unless the Company or one or more registered holders
of Warrants shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this provision
shall not affect the power of the Warrant Agent to take such action as the
Warrant Agent may consider proper, whether with or without any such security or
indemnity. All rights of action under this Agreement or under any of the
Warrants may be enforced by the Warrant Agent without the possession of any of
the Warrants or the production thereof at any trial or other proceeding,
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and any such action, suit or proceeding instituted by the Warrant Agent shall be
brought in its name as Warrant Agent, and any recovery of judgment shall be for
the ratable benefit of the registered holders of the Warrants, as their
respective rights and interests may appear.
(g) The Warrant Agent and any stockholder, director,
officer, partner or employee of the Warrant Agent may buy, sell or deal in any
of the Warrants or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested, or
contract with or lend money to or otherwise act as fully and freely as though it
were not the Warrant Agent under this Agreement. Nothing herein shall preclude
the Warrant Agent from acting in any other capacity for the Company or for any
other legal entity.
(h) The Warrant Agent shall act hereunder solely
as agent and its duties shall be determined solely by the provisions hereof.
(i) The Warrant Agent may execute and exercise any of
the rights or powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys, agents or employees, and the Warrant
Agent shall not be answerable or accountable for any such attorneys, agents or
employees or for any loss to the Company resulting from such neglect or
misconduct, provided reasonable care had been exercised in the selection and
continued employment thereof.
(j) Any request, direction, election, order or
demand of the Company shall be sufficiently evidenced by an
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instrument signed in the name of the Company by its Chief Executive Officer,
President or a Vice President or its Secretary or an Assistant Secretary or its
Treasurer or an Assistant Treasurer (unless other evidence in respect thereof be
herein specifically prescribed); and any resolution of the Board of Directors
may be evidenced to the Warrant Agent by a copy thereof certified by the
Secretary or an Assistant Secretary of the Company.
Section 16. Change of Warrant Agent. The Warrant Agent may
resign and be discharged from its duties under this Agreement by giving to the
Company notice in writing, and to the holders of the Warrants notice by mailing
such notice to the holders at their addresses appearing on the Warrant register,
of such resignation, specifying a date when such resignation shall take effect.
The Warrant Agent may be removed by like notice to the Warrant Agent from the
Company and the like mailing of notice to the holders of the Warrants. If the
Warrant Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of thirty (30) days
after such removal or after it has been notified in writing of such resignation
or incapacity by the resigning or incapacitated Warrant Agent or after the
Company has received such notice from a registered holder of a Warrant (who
shall, with such notice, submit his Warrant for inspection by the Company), then
the registered holder of any Warrant may apply to any court of competent
jurisdiction for the appointment of a
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successor to the Warrant Agent. Any successor Warrant Agent, whether appointed
by the Company or by such a court, shall be a bank or trust company, in good
standing, incorporated under New York or federal law. After appointment, the
successor Warrant Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed and the former Warrant Agent shall deliver and transfer to
the successor Warrant Agent all cancelled Warrants, records and property at the
time held by it hereunder, and execute and deliver any further assurance or
conveyance necessary for the purpose. Failure to file or mail any notice
provided for in this Section, however, or any defect therein, shall not affect
the validity of the resignation or removal of the Warrant Agent or the
appointment of the successor Warrant Agent, as the case may be.
Section 17. Identity of Transfer Agent. Forthwith upon the
appointment of any transfer agent for the shares of Common Stock or of any
subsequent transfer agent for the shares of Common Stock or other shares of the
Company's Common Stock issuable upon the exercise of the rights of purchase
represented by the Warrants, the Company will file with the Warrant Agent a
statement setting forth the name and address of such transfer agent.
Section 18. Notices. Any notice pursuant to this Agreement to
be given by the Warrant Agent, by the Underwriter or by the registered holder of
any Warrant to the Company, shall be sufficiently given if sent by first-class
mail, postage prepaid,
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addressed (until another is filed in writing by the Company with the Warrant
Agent) as follows:
On Stage Entertainment, Inc.
4625 West Nevro Drive #2
Las Vegas, Nevada 89103
Attention: Mr. John W. Stuart, President
and a copy thereof to:
Morgan, Lewis & Bockius, LLP
200 One Logan Square
Philadelphia, Pennsylvania 19103-6993
Attention: James M. McKenzie, Esq.
Any notice pursuant to this Agreement to be given by the
Company, by the Underwriter or by the registered holder of any Warrant to the
Warrant Agent shall be sufficiently given if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the Warrant
Agent with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Mr. George Karfunkel
Any notice pursuant to this Agreement to be given by the
Warrant Agent or by the Company to the Underwriter shall be sufficiently given
if sent by first-class mail, postage prepaid, addressed (until another address
if filed in writing with the Warrant agent) as follows:
Whale Securities Co., L.P.
650 Fifth Avenue
New York, New York 10019
Attention: Mr. William G. Walters
and a copy thereof to:
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attention: Robert J. Mittman, Esq.
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<PAGE>
Section 19. Supplements and Amendments. The Company and the
Warrant Agent may from time to time supplement or amend this Agreement in order
to cure any ambiguity or to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Warrant Agent may deem necessary or desirable and
which shall not be inconsistent with the provisions of the Warrants and which
shall not adversely affect the interest of the holders of Warrants.
Section 20. New York Contract. This Agreement and each Warrant
issued hereunder shall be deemed to be a contract made under the laws of the
State of New York and shall be construed in accordance with the laws of New York
applicable to agreements to be performed wholly within New York.
Section 21. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than the
Company, the Warrant Agent and the registered holders of the Warrants any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant Agent
and the registered holders of the Warrants.
Section 22. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company, the
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Warrant Agent or the Underwriter shall bind and inure to the benefit of their
respective successors and assigns hereunder.
IN WITNESS WHEREOF, the parties have entered into this
Agreement on the date first above written.
ON STAGE ENTERTAINMENT, INC.
By:____________________________________________
Name:
Title:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:____________________________________________
Name:
Title:
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By:____________________________________________
Name:
Title:
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<PAGE>
WARRANT AGREEMENT dated as of August __, 1997 between On Stage
Entertainment, Inc., a Nevada corporation (the "Company"), and Whale Securities
Co., L.P. (hereinafter referred to as the "Underwriter").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter
140,000 warrants (the "Warrants") to purchase up to 114,500 (as such number may
be adjusted from time to time pursuant to Article 8 of this Warrant Agreement)
shares (the "Shares") of Common Stock par value $.01 per share (the "Common
Stock"), of the Company, and up to 140,000 (as such number may be adjusted from
time to time pursuant to Article 8 of this Warrant Agreement) Common Stock
purchase warrants (the "Underlying Warrants"); and
WHEREAS, the Underwriter has agreed, pursuant to the
underwriting agreement (the "Underwriting Agreement") dated August __, 1997
between the Underwriter and the Company, to act as the underwriter in connection
with the proposed public offering (the "Public Offering") of up to 1,610,000
shares of Common Stock (the "Public Shares") at an initial public offering price
of $5.00 per Public Share and up to 1,610,000 warrants (the "Public Warrants")
at an initial public offering price of $.10 per Public Warrant; and
<PAGE>
WHEREAS, the Warrants issued pursuant to this Agreement are
being issued by the Company to the Underwriter or to its designees who are
officers and partners of the Underwriter or to members of the selling group
participating in the distribution of the Public Shares and Public Warrants to
the public in the Public Offering and/or their respective directors, officers or
partners (collectively, the "Designees"), in consideration for, and as part of
the Underwriter's compensation in connection with, the Underwriter acting as the
Underwriter pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Underwriter or its designees to the Company of One Hundred Twenty-Eight
Dollars and Fifty Cents ($128.50), the agreements herein set forth and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Grant. The Underwriter and/or the Designees are hereby
granted the right to purchase, at any time from August __, 1998 until 5:00 P.M.,
New York time, on August __, 2002 (the "Warrant Exercise Term"), up to 114,500
fully-paid and non-assessable Shares at an initial exercise price (subject to
adjustment as provided in Article 6 hereof) of $8.25 per Share and up to 140,000
Underlying Warrants at an initial exercise price (subject to adjustment as
provided in Article 6 hereof) of $.165 per Underlying Warrant. The Underlying
Warrants are each exercisable to purchase one fully-paid and non-assessable
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<PAGE>
share of Common Stock at a price of $9.075 per share (the "Underlying Warrant
Shares"). The Underlying Warrants are exercisable at any time commencing August
__, 1998 (or such earlier date as to which the Underwriter consents to the
exercise of the Public Warrants) until 5:00 P.M., New York City time on August
__, 2002. The Holder may purchase, upon exercise of this Warrant, either the
Shares or the Underlying Warrants or both. Except as provided in Article 13
hereof, the Shares and the Underlying Warrants are in all respects identical to
the Public Shares and Public Warrants being sold to the public pursuant to the
terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates delivered
and to be delivered pursuant to this Agreement (the "Warrant Certificates")
shall be, for the Warrants exercisable for the purchase of Underlying Shares, in
the form set forth in Exhibit A attached hereto and made a part hereof, and, for
the Warrants exercisable for the purchase of Underlying Warrants, in the form of
Exhibit B attached hereto and made a part hereof, each with such appropriate
insertions, omissions, substitutions and other variations as required or
permitted by this Agreement.
3. Exercise of Warrant.
3.1. Cash Exercise. The Warrants initially are
exercisable at a price of $8.25 per Share purchased and $.165 per Underlying
Warrant purchased, payable in cash or by check to the order of the Company, or
any combination thereof, subject to adjustment as provided in Article 8 hereof.
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<PAGE>
Upon surrender of the Warrant Certificate(s) with the annexed Form of Election
to Purchase duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the Shares and Underlying Warrants purchased, at the
Company's principal offices in Las Vegas, Nevada (currently located at 4625 West
Nevso Drive #2, Las Vegas, Nevada 89103) the registered holder of a Warrant
Certificate ("Holder" or "Holders") shall be entitled to receive a certificate
or certificates for the Shares so purchased and/or a certificate or certificates
for the Underlying Warrants so purchased. The purchase rights represented by
each Warrant Certificate are exercisable at the option of the Holder hereof, in
whole or in part (but not as to fractional Shares or fractional Underlying
Warrants). In the case of the purchase of less than all Shares or Underlying
Warrants purchasable under any Warrant Certificate, the Company shall cancel
said Warrant Certificate upon the surrender thereof and shall execute and
deliver a new Warrant Certificate of like tenor for the balance of the Shares or
Underlying Warrants purchasable thereunder.
3.2. Cashless Exercise. At any time during the
Warrant Exercise Term, the Holder may, at the Holder's option, exchange, in
whole or in part, the Warrants represented by such Holder's Warrant Certificate
which are exercisable for the purchase of Shares (a "Warrant Exchange"), into
the number of Shares and Underlying Warrants determined in accordance with this
Section 3.2, by surrendering such Warrant Certificate at the principal office of
the Company or at the office of its transfer agent, accompanied by a notice
stating such Holder's intent to
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<PAGE>
effect such exchange, the number of Warrants to be so exchanged and the date on
which the Holder requests that such Warrant Exchange occur (the "Notice of
Exchange"). The Warrant Exchange shall take place on the date specified in the
Notice of Exchange or, if later, the date the Notice of Exchange is received by
the Company (the "Exchange Date"). Certificates for the Shares issuable upon
such Warrant Exchange and, if applicable, a new Warrant Certificate of like
tenor representing the Warrants which were subject to the surrendered Warrant
Certificate and not included in the Warrant Exchange, shall be issued as of the
Exchange Date and delivered to the Holder within three (3) days following the
Exchange Date. In connection with any Warrant Exchange, the Holder shall be
entitled to subscribe for and acquire (i) the number of Shares (rounded to the
next highest integer) which would, but for such Warrant Exchange, then be
issuable pursuant to the provisions of Section 3.1 above upon the exercise of
the Warrants specified by the Holder in its Notice of Exchange (the "Total Share
Number") less (ii) the number of Shares equal to the quotient obtained by
dividing (a) the product of the Total Share Number and the existing Exercise
Price per Share (as hereinafter defined) by (b) the Market Price (as hereinafter
defined) of a Public Share on the day preceding the Warrant Exchange. "Market
Price" at any date shall be deemed to be the last reported sale price, or, in
case no such reported sale takes place on such day, the average of the last
reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities
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<PAGE>
exchange on which the Common Stock is listed or admitted to trading or as
reported in the NASDAQ National Market System, or, if the Common Stock is not
listed or admitted to trading on any national securities exchange or quoted on
the NASDAQ National Market System, the closing bid price as furnished by (i) the
National Association of Securities Dealers, Inc. through NASDAQ or (ii) a
similar organization if NASDAQ is no longer reporting such information.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of
certificates for the Shares purchased and certificates for the Underlying
Warrants purchased, and upon the exercise of the Underlying Warrants, the
issuance of certificates for the Underlying Warrant Shares purchased, shall be
made forthwith (and in any event within three (3) business days thereafter)
without charge to the Holder thereof including, without limitation, any tax
which may be payable in respect of the issuance thereof, and such certificates
shall (subject to the provisions of Article 5 hereof) be issued in the name of,
or in such names as may be directed by, the Holder thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Holder and the Company shall not
be required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of
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<PAGE>
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Warrant Certificates and the certificates representing the
Shares and the Underlying Warrants shall be executed on behalf of the Company by
the manual or facsimile signature of the present or any future Chairman or Vice
Chairman of the Board of Directors or Chief Executive Officer, President or Vice
President of the Company under its corporate seal reproduced thereon, attested
to by the manual or facsimile signature of the present or any future Secretary
or Assistant Secretary of the Company. Warrant Certificates and certificates
representing the Underlying Warrants shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
Upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares and the Underlying Warrants purchased, and
upon exercise, in whole or in part, of the Underlying Warrants, certificates
representing the Underlying Warrant Shares purchased (collectively, the "Warrant
Securities"), shall bear a legend substantially similar to the following:
"The securities represented by this certificate and the other
securities issuable upon exercise thereof have not been
registered for purposes of public distribution under the
Securities Act of 1933, as amended (the "Act"), and may not be
offered or sold except (i) pursuant to an effective
registration statement under the Act, (ii) to the extent
applicable, pursuant to Rule 144 under the Act (or any similar
rule under such Act relating to the
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<PAGE>
disposition of securities), or (iii) upon the delivery by the
holder to the Company of an opinion of counsel, reasonably
satisfactory to counsel to the Company, stating that an
exemption from registration under such Act is available."
5. Restriction on Transfer of Warrants.
The Holder of a Warrant Certificate, by the Holder's
acceptance thereof, covenants and agrees that the Warrants are being acquired as
an investment and not with a view to the distribution thereof, and that the
Warrants may not be sold, transferred, assigned, hypothecated or otherwise
disposed of, in whole or in part, for a period of one (1) year from the date
hereof [the Effective Date], except to the Underwriter or to the Designees.
6. Price.
6.1. Initial and Adjusted Exercise Price. The initial
exercise price of each Warrant shall be $8.25 per Share and $.165 per
Underlying Warrant. The adjusted exercise price per Share and the adjusted
exercise price per Underlying Warrant shall be the prices which shall result
from time to time from any and all adjustments of the initial exercise price per
Share or per Underlying Warrant, as the case may be, in accordance with the
provisions of Article 8 hereof.
6.2. Exercise Price. The term "Exercise Price"
herein shall mean the initial exercise price or the adjusted exercise price,
depending upon the context.
7. Registration Rights.
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<PAGE>
7.1. Registration Under the Securities Act of 1933. None of
the Warrants, the Shares, the Underlying Warrants, or the Underlying Warrant
Shares have been registered for purposes of public distribution under the
Securities Act of 1933, as amended (the "Act").
7.2. Registrable Securities. As used herein the term
"Registrable Security" means each of the Warrants, the Shares, the Underlying
Warrants, the Underlying Warrant Shares and any shares of Common Stock issued
upon any stock split or stock dividend in respect of such Shares or Underlying
Warrant Shares; provided, however, that with respect to any particular
Registrable Security, such security shall cease to be a Registrable Security
when, as of the date of determination, (i) it has been effectively registered
under the Act and disposed of pursuant thereto, (ii) registration under the Act
is no longer required for subsequent public distribution of such security, or
(iii) it has ceased to be outstanding. The term "Registrable Securities" means
any and/or all of the securities falling within the foregoing definition of a
"Registrable Security." In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure affecting
the Common Stock, such adjustment shall be made in the definition of
"Registrable Security" as is appropriate in order to prevent any dilution or
enlargement of the rights granted pursuant to this Article 7.
7.3. Piggyback Registration. If, at any time during the
seven years following the effective date of the Public
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<PAGE>
Offering, the Company proposes to prepare and file one or more post-effective
amendments to the registration statement filed in connection with the Public
Offering or any new registration statement or post-effective amendments thereto
covering equity or debt securities of the Company, or any such securities of the
Company held by its shareholders (in any such case, other than in connection
with a merger, acquisition or pursuant to Form S-8 or successor form) (for
purposes of this Article 7, collectively, the "Registration Statement"), it will
give written notice of its intention to do so by registered mail ("Notice"), at
least thirty (30) business days prior to the filing of each such Registration
Statement, to all holders of the Registrable Securities. Upon the written
request of such a holder (a "Requesting Holder"), made within twenty (20)
business days after receipt of the Notice, that the Company include any of the
Requesting Holder's Registrable Securities in the proposed Registration
Statement, the Company shall, as to each such Requesting Holder, use its best
efforts to effect the registration under the Act of the Registrable Securities
which it has been so requested to register ("Piggyback Registration"), at the
Company's sole cost and expense and at no cost or expense to the Requesting
Holders (except as provided in Section 7.5(b) hereof).
Notwithstanding the provisions of this Section 7.3, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.3 (irrespective of whether any written request
for inclusion of Registrable Securities shall have already been made) to elect
not to file any
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<PAGE>
such proposed Registration Statement, or to withdraw the same after the filing
but prior to the effective date thereof.
7.4. Demand Registration.
(a) At any time during the Warrant Exercise Term, any
"Majority Holder" (as such term is defined in Section 7.4(d) below) of the
Registrable Securities shall have the right (which right is in addition to the
piggyback registration rights provided for under Section 7.3 hereof),
exercisable by written notice to the Company (the "Demand Registration
Request"), to have the Company prepare and file with the Securities and Exchange
Commission (the "Commission") on one occasion, at the sole expense of the
Company (except as provided in Section 7.5(b) hereof), a Registration Statement
and such other documents, including a prospectus, as may be necessary (in the
opinion of both counsel for the Company and counsel for such Majority Holder) in
order to comply with the provisions of the Act, so as to permit a public
offering and sale of the Registrable Securities by the holders thereof. The
Company shall use its best efforts to cause the Registration Statement to become
effective under the Act, so as to permit a public offering and sale of the
Registrable Securities by the holders thereof. Once effective, the Company will
use its best efforts to maintain the effectiveness of the Registration Statement
until the earlier of (i) the date that all of the Registrable Securities have
been sold or (ii) the date the holders thereof receive an opinion of counsel to
the Company that all of the Registrable Securities may
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<PAGE>
be freely traded without registration under the Act, under Rule 144(k)
promulgated under the Act or otherwise.
(b) The Company covenants and agrees to
give written notice of any Demand Registration Request to all holders of the
Registrable Securities within ten (10) business days from the date of the
Company's receipt of any such Demand Registration Request. After receiving
notice from the Company as provided in this Section 7.4(b), holders of
Registrable Securities may request the Company to include their Registrable
Securities in the Registration Statement to be filed pursuant to Section 7.4(a)
hereof by notifying the Company of their decision to have such securities
included within ten (10) days of their receipt of the Company's notice.
(c) In addition to the registration rights
provided for under Section 7.3 hereof and subsection (a) of this Section 7.4, at
any time during the Warrant Exercise Term, any Majority Holder (as defined below
in Section 7.4(d)) of Registrable Securities shall have the right, exercisable
by written request to the Company, to have the Company prepare and file with the
Commission, on one occasion in respect of all holders of Registrable Securities,
a Registration Statement so as to permit a public offering and sale of such
Registrable Securities for nine (9) consecutive months, provided, however, that
all costs incident thereto shall be at the expense of the holders of the
Registrable Securities included in such Registration Statement. If a Majority
Holder shall give notice to the Company at any time of its or their desire to
exercise the
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<PAGE>
registration right granted pursuant to this Section 7.4(c), then within ten (10)
days after the Company's receipt of such notice, the Company shall give notice
to the other holders of Registrable Securities advising them that the Company is
proceeding with such registration and offering to include therein the
Registrable Securities of such holders, provided they furnish the Company with
such appropriate information in connection therewith as the Company shall
reasonably request in writing.
(d) The term "Majority Holder" as used in Section 7.4
hereof shall mean any holder or any combination of holders of Registrable
Securities, if included in such holders' Registrable Securities are that
aggregate number of shares of Common Stock (including Shares already issued,
Shares issuable pursuant to the exercise of outstanding Warrants, Underlying
Warrant Shares already issued and Underlying Warrant Shares issuable pursuant to
the exercise of outstanding Underlying Warrants) as would constitute a majority
of the aggregate number of shares of Common Stock (including Shares already
issued, Shares issuable pursuant to the exercise of outstanding Warrants,
Underlying Warrant Shares already issued and Underlying Warrant Shares issuable
pursuant to the exercise of outstanding Underlying Warrants) included in all the
Registrable Securities.
7.5. Covenants of the Company With Respect to Registration.
The Company covenants and agrees as follows:
(a) In connection with any registration under Section
7.4 hereof, the Company shall file the Registration Statement as expeditiously
as possible, but in any event no later
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<PAGE>
than twenty (20) business days following receipt of any demand therefor, shall
use its best efforts to have any such Registration Statement declared effective
at the earliest possible time, and shall furnish each holder of Registrable
Securities such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs, fees and
expenses (other than underwriting fees, discounts and nonaccountable expense
allowance applicable to the Registrable Securities and fees and expenses of
counsel retained by the holders of Registrable Securities) in connection with
all Registration Statements filed pursuant to Sections 7.3 and 7.4(a) hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, and blue sky fees and expenses.
(c) The Company will take all necessary action which
may be required in qualifying or registering the Registrable Securities included
in the Registration Statement, for offering and sale under the securities or
blue sky laws of such states as are reasonably requested by the holders of such
securities.
(d) The Company shall indemnify any holder of the
Registrable Securities to be sold pursuant to any Registration Statement and any
underwriter or person deemed to be an underwriter under the Act and each person,
if any, who controls such holder or underwriter or person deemed to be an
underwriter within the meaning of Section 15 of the Act or
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Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement to the same
extent and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify the Underwriter as set forth in Section 7 of the
Underwriting Agreement and to provide for just and equitable contribution as set
forth in Section 8 of the Underwriting Agreement.
(e) Any holder of Registrable Securities to be sold
pursuant to a registration statement, and such Holder's successors and assigns,
shall severally, and not jointly, indemnify, the Company, its officers and
directors and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss,
claim, damage or expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which they may become subject under the Act, the Exchange Act or otherwise,
arising from information furnished by or on behalf of such holder, or such
Holder's successors or assigns, for specific inclusion in such Registration
Statement to the same extent and with the same effect as the provisions pursuant
to which the Underwriter has agreed to indemnify the Company as set forth in
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Section 7 of the Underwriting Agreement and to provide for just and equitable
contribution as set forth in Section 8 of the Underwriting Agreement.
(f) Nothing contained in this Agreement shall be
construed as requiring any holder to exercise the Warrants or the Underlying
Warrants held by such Holder prior to the initial filing of any registration
statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Registrable Securities to be included in any
Registration Statement filed pursuant to Section 7.4 hereof, without the prior
written consent of the Majority Holders, which consent shall not be unreasonably
withheld.
(h) The Company shall promptly deliver copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the Registration Statement to each holder of Registrable Securities
included for registration in such Registration Statement pursuant to Section 7.3
hereof or Section 7.4 hereof requesting
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such correspondence and memoranda and to the managing underwriter, if any, of
the offering in connection with which such Holder's Registrable Securities are
being registered and shall permit each holder of Registrable Securities and such
underwriter to do such reasonable investigation, upon reasonable advance notice,
with respect to information contained in or omitted from the Registration
Statement as it deems reasonably necessary to comply with applicable securities
laws or rules of the National Association of Securities Dealers, Inc. Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
and as often as any such holder of Registrable Securities or underwriter shall
reasonably request.
8. Adjustments of Exercise Price and Number of Securities.
The following adjustments apply to the Exercise Price of the Warrants with
respect to the Shares and the number of Shares purchasable upon exercise of the
Warrants. In the event the Exercise Price per Share and/or the number of Shares
so purchasable is adjusted, then the Exercise Price of the Warrants relating to
the Underlying Warrants and the number of underlying Warrants purchasable
hereunder shall be adjusted in the same proportion.
8.1. Computation of Adjusted Price. In case the
Company shall at any time after the date hereof pay a dividend in shares of
Common Stock or make a distribution in shares of Common
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Stock, then upon such dividend or distribution the Exercise Price in effect
immediately prior to such dividend or distribution shall forthwith be reduced to
a price determined by dividing:
(a) an amount equal to the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution
multiplied by the Exercise Price in effect immediately prior to such dividend or
distribution, by
(b) the total number of shares of Common Stock
outstanding immediately after such issuance or sale.
For the purposes of any computation to be made in
accordance with the provisions of this Section 8.1, the Common Stock issuable by
way of dividend or other distribution on any stock of the Company shall be
deemed to have been issued immediately after the opening of business on the date
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution.
8.2. Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
8.3. Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Article 8,
the number of Shares issuable upon the exercise of each Warrant shall be
adjusted to the nearest full number by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
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Shares issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price,
provided, however, that if an event occurs that results in an adjustment of the
number and/or price of the shares of Common Stock issuable upon exercise of the
Public Warrants pursuant to Section 9 of the Warrant Agreement by and among the
Company, the Underwriter and American Stock Transfer & Trust Company dated as of
August __, 1997 ("Public Warrant Agreement"), resulting in automatic adjustment
in the number and/or price of the Underlying Warrant Shares issuable upon
exercise of the Underlying Warrants pursuant to Section 8.5 hereof, then the
adjustment provided for in this Section 8.3 shall not, in such instance, result
in any further adjustment in the aggregate number of shares of Common Stock
ultimately issuable upon exercise of the Underlying Warrants.
8.4. Reclassification, Consolidation, Merger, etc. In
case of any reclassification or change of the outstanding shares of Common Stock
(other than a change in par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation
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of the property of the Company as an entirety, the Holders shall thereafter have
the right to purchase the kind and number of shares of stock and other
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holders were the owners of
both the Shares and the Underlying Warrant Shares immediately prior to any such
events, at a price equal to the product of (x) the number of shares of Common
Stock issuable upon exercise of the Holders' Warrants and the Underlying
Warrants and (y) the exercise prices for the Warrants and the Underlying
Warrants in effect immediately prior to the record date for such
reclassification, change, consolidation, merger, sale or conveyance as if such
Holders had exercised the Warrants and the Underlying Warrants.
8.5. Determination of Outstanding Common Shares. The
number of Common Shares at any one time outstanding shall include the aggregate
number of shares issued and the aggregate number of shares issuable upon the
exercise of options, rights, warrants and upon the conversion or exchange of
convertible or exchangeable securities.
8.6. Adjustment of Underlying Warrants' Exercise
Price and Securities Issuable Upon Exercise of Underlying Warrants. With respect
to any of the Underlying Warrants, whether or not the Warrants have been
exercised and whether or not the Warrants are issued and outstanding, the
exercise price for, and the number of, Underlying Warrant Shares issuable upon
exercise of the Underlying Warrants shall be automatically adjusted in
accordance with Section 9 of the Public Warrant
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Agreement, upon the occurrence of any of the events described therein.
Thereafter, until the next such adjustment or until otherwise adjusted in
accordance with this Section 8, the Underlying Warrants shall be exercisable at
such adjusted exercise price and for such adjusted number of Underlying Warrant
Shares.
8.7. Dividends and Other Distributions with Respect
to Outstanding Securities. In the event that the Company shall at any time prior
to the exercise of all Warrants make any distribution of its assets to holders
of its Common Stock as a liquidating or a partial liquidating dividend, then the
holder of Warrants who exercises its Warrants after the record date for the
determination of those holders of Common Stock entitled to such distribution of
assets as a liquidating or partial liquidating dividend shall be entitled to
receive for the Warrant Price per Warrant, in addition to each share of Common
Stock, the amount of such distribution (or, at the option of the Company, a sum
equal to the value of any such assets at the time of such distribution as
determined by the Board of Directors of the Company in good faith) which would
have been payable to such holder had he been the holder of record of the Common
Stock receivable upon exercise of his Warrant on the record date for the
determination of those entitled to such distribution. At the time of any such
dividend or distribution, the Company shall make appropriate reserves to ensure
the timely performance of the provisions of this Subsection 8.7.
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8.8. Subscription Rights for Shares of Common Stock
or Other Securities. In the case that the Company or an affiliate of the Company
shall at any time after the date hereof and prior to the exercise of all the
Warrants issue any rights, warrants or options to subscribe for shares of Common
Stock or any other securities of the Company or of such affiliate to all the
shareholders of the Company, the Holders of unexercised Warrants on the record
date set by the Company or such affiliate in connection with such issuance of
rights, warrants or options shall be entitled, in addition to the shares of
Common Stock or other securities receivable upon the exercise of the Warrants,
to receive such rights, warrants or options shall be entitled, in addition to
the shares of Common Stock or other securities receivable upon the exercise of
the Warrants, to receive such rights at the time such rights, warrants or
options that such Holders would have been entitled to receive had they been, on
such record date, the holders of record of the number of whole shares of Common
Stock then issuable upon exercise of their outstanding Warrants (assuming for
purposes of this Section 8.8, that the exercise of the Warrants is permissible
immediately upon issuance).
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon
the surrender thereof by the registered Holder at the principal executive office
of the Company, for a new Warrant Certificate of like tenor and date
representing in the aggregate the right to purchase the same number of
securities in such
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denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrant Certificate, if mutilated, the Company will make and deliver a new
Warrant Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests.
The Company shall not be required to issue certificates
representing fractions of Shares or fractions of Underlying Warrants upon the
exercise of the Warrants, nor shall it be required to issue scrip or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of Shares and Underlying Warrants.
11. Reservation and Listing of Securities.
The Company shall at all times reserve and keep
available out of its authorized shares of Common Stock, solely for the purpose
of issuance upon the exercise of the Warrants and the Underlying Warrants, such
number of shares of Common Stock as shall be issuable upon the exercise thereof.
The Company covenants and agrees that, upon exercise of the Warrants and payment
of the Exercise Price therefor, all Shares issuable upon such exercise shall be
duly and validly issued, fully paid, non-assessable
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and not subject to the preemptive rights of any shareholder. The Company further
covenants and agrees that upon exercise of the Underlying Warrants and payment
of the respective Underlying Warrant exercise price therefor, all Underlying
Warrant Shares issuable upon such exercise shall be duly and validly issued,
fully paid, non-assessable and not subject to the preemptive rights of any
shareholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts to cause all of the shares of Common Stock issuable upon the
exercise of the Warrants and the Underlying Warrants and all of the Underlying
Warrants to be listed on or quoted by NASDAQ or listed on such national
securities exchange, in the event the Common Stock is listed on a national
securities exchange.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as
conferring upon the Holder or Holders the right to vote or to consent or to
receive notice as a shareholder in respect of any meetings of shareholders for
the election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders
of its shares of Common Stock for the purpose of entitling
them to receive a dividend or
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distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of
current or retained earnings, as indicated by the accounting
treatment of such dividend or distribution on the books of
the Company; or
(b) the Company shall offer to all the holders of
its Common Stock any additional shares of capital stock of the
Company or securities convertible into or exchangeable for
shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its
property, assets and business as an entirety shall be
proposed; or
(d) reclassification or change of the outstanding
shares of Common Stock (other than a change in par value to no
par value, or from no par value to par value, or as a result
of a subdivision or combination), consolidation of the Company
with, or merger of the Company into, another corporation
(other than a consolidation or merger in which the Company is
the surviving corporation and which does not result in any
reclassification or change of the outstanding shares of Common
Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as
aforesaid), or a sale or conveyance to
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another corporation of the property of the Company as an
entirety is proposed; or
(e) The Company or an affiliate of the
Company shall propose to issue any rights to subscribe for
shares of Common Stock or any other securities of the Company
or of such affiliate to all the shareholders of the Company;
then, in any one or more of said events, the Company shall give written notice
to the Holder or Holders of such event at least fifteen (15) days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, options or
warrants, or entitled to vote on such proposed dissolution, liquidation, winding
up or sale. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to give such notice or any
defect therein shall not affect the validity of any action taken in connection
with the declaration or payment of any such dividend or distribution, or the
issuance of any convertible or exchangeable securities or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding up or
sale.
13. Underlying Warrants.
The form of the certificates representing the Underlying
Warrants (and the form of election to purchase shares of Common Stock upon the
exercise of the Underlying Warrants and the form of assignment printed on the
reverse thereof) shall be
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substantially as set forth in Exhibit "A" to the Public Warrant Agreement;
provided, however, (i) each Underlying Warrant issuable upon exercise of the
Warrants shall evidence the right to initially purchase one fully paid and
non-assessable share of Common Stock in respect of the Underlying Warrant at an
initial purchase price of $9.075 per share commencing August __, 1998 (or such
earlier date as to which the Underwriter consents to the exercise of the Public
Warrants) until August __, 2002 and (ii) the Target Redemption Price (as defined
in the Public Warrant Agreement) of the Underlying Warrants is 150% of the then
effective exercise price of the Underlying Warrants. As set forth in Section 8.5
of this Agreement, the exercise price of the Underlying Warrants and the number
of shares of Common Stock issuable upon the exercise of the Underlying Warrants
are subject to adjustment, whether or not the Warrants have been exercised and
the Underlying Warrants have been issued, in the manner and upon the occurrence
of the events set forth in Section 9 of the Public Warrant Agreement, which is
hereby incorporated herein by reference and made a part hereof as if set forth
in its entirety herein. Subject to the provisions of this Agreement and upon
issuance of the Underlying Warrants, each registered holder of such Underlying
Warrants shall have the right to purchase from the Company (and the Company
shall issue to such registered holders) up to the number of fully paid and
non-assessable Underlying Warrant Shares (subject to adjustment as provided
herein and in the Public Warrant Agreement), free and clear of all preemptive
rights of shareholders, provided that
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such registered holder complies, in connection with the exercise of such
holders' Underlying Warrants, with the terms governing exercise of the Public
Warrants set forth in the Public Warrant Agreement, and pays the applicable
exercise price, determined in accordance with the terms of the Public Warrant
Agreement. Upon exercise of the Underlying Warrants, the Company shall forthwith
issue to the registered holder of any such Underlying Warrants, in such holder's
name or in such name as may be directed by such holder, certificates for the
number of Underlying Warrant Shares so purchased. The Underlying Warrants shall
be transferable in the manner provided in the Public Warrant Agreement, and upon
any such transfer, a new Underlying Warrant shall be issued promptly to the
transferee. The Company covenants to, and agrees with, each Holder that without
the prior written consent of a majority of the Holders, the Public Warrant
Agreement will not be modified, or amended, cancelled, altered or superseded, in
such a way as to adversely affect the rights of the Holders and that the Company
will send to each Holder, irrespective of whether or not the Warrants have been
exercised, any and all notices required by the Public Warrant Agreement to be
sent to holders of the Public Warrants.
14. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
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(a) If to a registered Holder of the Warrants, to
the address of such Holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth in
Section 3 of this Agreement or to such other address as the
Company may designate by notice to the Holders.
15. Supplements and Amendments.
The Company and the Underwriter may from time to time
supplement or amend this Agreement without the approval of any Holders of the
Warrants and/or Warrant Securities in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and the Underwriter may deem
necessary or desirable and which the Company and the Underwriter deem not to
adversely affect the interests of the Holders of Warrant Certificates.
16. Successors.
All the covenants and provisions of this Agreement by or for
the benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
17. Termination.
This Agreement shall terminate at the close of business on
August __, 2005. Notwithstanding the foregoing, this Agreement will terminate on
any earlier date when all Warrants and Underlying Warrants have been exercised
and all Warrant Securities have been resold to the public; provided, however,
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that the provisions of paragraphs (d) and (e) of Section 7.5 shall survive any
termination pursuant to this Section 17 until the close of business on August
__, 2008.
18. Governing Law.
This Agreement and each Warrant Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the laws of said
State.
19. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Underwriter and any other
registered holder or holders of the Warrant Certificates or Warrant Securities
any legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Underwriter and any other holder or holders of the Warrant Certificates or
Warrant Securities.
20. Counterparts.
This Agreement may be executed in any number of counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
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Agreement to be duly executed, as of the day and year first above written.
[SEAL] ON STAGE ENTERTAINMENT, INC.
By:________________________________
Name:
Title:
Attest:
_________________________
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By:________________________________
Name:
Title:
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EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, August __, 2002
No. W- _______ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that ________
_____________________________ or registered assigns, is the registered holder of
__________ Warrants to purchase, at any time from August __, 1998 until 5:00
P.M. New York City time on August __, 2002 ("Expiration Date"), up to _______
fully-paid and non-assessable shares (the "Shares") of the common stock, par
value $.01 per share (the "Common Stock"), of On Stage Entertainment, Inc., a
Nevada corporation (the "Company"), at an initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $8.25 per Share, upon
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth herein
and in the warrant agreement dated as of August __, 1997 between the Company and
Whale Securities Co., L.P. ("Warrant Agreement"). Payment of the Exercise Price
may be made in cash, or by certified or official bank check in New York Clearing
House funds payable to the order of the Company, or any combination thereof.
No Warrant may be exercised after 5:00 P.M., New York City
time, on the Expiration Date, at which time all Warrants evidenced hereby,
unless exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to
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the Warrant Agreement, which Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to in a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events, the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax, or
other governmental charge imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
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IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated: August __, 1997 ON STAGE ENTERTAINMENT, INC.
[SEAL] By:__________________________
Name:
Title:
Attest:
______________________
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[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _________ Shares of
Common Stock and herewith tenders in payment for such securities, cash or a
certified or official bank check payable in New York Clearing House Funds to the
order of On Stage Entertainment, Inc. in the amount of $ , all in accordance
with the terms hereof. The undersigned requests that a certificate for such
securities be registered in the name of __________________________________,
whose address is __________________, and that such Certificate be delivered to
______________________________, whose address is _____________.
Dated: Signature: ________________________________________________
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate.)
______________________________________________
______________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
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[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _________________________________________
hereby sells, assigns and transfers unto ______________________________
______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________, Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature: ________________________________________________
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate.)
______________________________________________
______________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
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EXHIBIT B
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, August __, 2002
No. W- _________ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that _____________
____________________, or registered assigns, is the registered holder of
___________________________ (_______) Warrants to purchase, at any time from
August __, 1998 until 5:00 P.M. New York City time on August __, 2002
("Expiration Date"), an aggregate of up to ___________________________ (_______)
common stock purchase warrants, each common stock purchase warrant entitling the
holder thereof to purchase one share of common stock, par value $.01 per share
(collectively, the "Underlying Warrants"), of On Stage Entertainment Inc., a
Nevada corporation (the "Company"), at an initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $.165 per Underlying
Warrant, upon surrender of this Warrant Certificate and payment of the Exercise
Price at an office or agency of the Company, but subject to the conditions set
forth herein and in the warrant agreement dated as of August __, 1997 between
the Company and Whale Securities Co., L.P. (the "Underwriter") (the "Warrant
Agreement"). Payment of the Exercise Price may be made in cash, or by certified
or official bank check in New York Clearing House funds payable to the order of
the Company, or any combination thereof.
The Underlying Warrants issuable upon exercise of the Warrants
will be exercisable at any time from August __, 1998 (or such earlier date as to
which the Underwriter consents to the exercise of the Public Warrants (as
defined in the Warrant
-37-
<PAGE>
Agreement)) until 5:00 P.M. Eastern Time August __, 2002 each Underlying Warrant
entitling the holder thereof to purchase one fully-paid and non-assessable share
of common stock of the Company, at an initial exercise price, subject to
adjustment in certain events, of $9.075 per share. The Underlying Warrants are
issuable pursuant to the terms and provisions of a certain agreement dated as of
August __, 1997 by and among the Company, the Underwriter and American Stock
Transfer & Trust Company (the "Public Warrant Agreement"). The Public Warrant
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to (except as otherwise provided in the
Warrant Agreement) for a description of the rights, limitations of rights,
manner of exercise, anti-dilution provisions and other provisions with respect
to the Underlying Warrants.
No Warrant may be exercised after 5:00 P.M., New York City
time, on the Expiration Date, at which time all Warrants evidenced hereby,
unless exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to in a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that, upon the occurrence of
certain events, the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue
-38-
<PAGE>
to the holder hereof a new Warrant Certificate representing such number of
unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated: August __, 1997 ON STAGE ENTERTAINMENT, INC.
[SEAL] By:__________________________
Name:
Title:
Attest:
_____________________________
-39-
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _________ Underlying
Warrants and herewith tenders, in payment for such securities, cash or a
certified or official bank check payable in New York Clearing House Funds to the
order of On Stage Entertainment, Inc. in the amount of $ , all in accordance
with the terms hereof. The undersigned requests that a certificate for such
securities be registered in the name of _________________________________, whose
address is __________________, and that such Certificate be delivered to
__________________, whose address is _____________.
Dated: Signature: ________________________________________________
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate.)
______________________________________________
______________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
-40-
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ________________________________________
hereby sells, assigns and transfers unto ______________________________________
_______________________________________________________________________________
(Please print name and address of transferee) this Warrant Certificate, together
with all right, title and interest therein, and does hereby irrevocably
constitute and appoint _______________, Attorney, to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of
substitution.
Dated: Signature: ________________________________________________
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate.)
______________________________________________
______________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
-41-
<PAGE>
***THIS EXHIBIT HAS BEEN FILED IN REDACTED FORM PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT. A COMPLETE COPY OF THIS EXHIBIT HAS BEEN FILED IN
UNREDACTED FORM WITH THE SECURITIES AND EXCHANGE COMMISSION.
ENTERTAINMENT PRODUCTION AGREEMENT
THIS ENTERTAINMENT PRODUCTION AGREEMENT (the "Agreement"), made and
entered into this 8th day of December, 1995, at Las Vegas, Nevada by and between
IMPERIAL PALACE, INC., a Nevada corporation (hereinafter "IMPERIAL PALACE"), and
JOHN W. STUART, an individual ("STUART"), and LEGENDS IN CONCERT, INC., a Nevada
corporation (hereinafter referred to as "LEGENDS").
W I T N E S S E T H
WHEREAS, IMPERIAL PALACE is the owner of a resort hotel, now existing
in Clark County, Nevada, known as the IMPERIAL PALACE Hotel and Casino
(hereinafter "Hotel");
WHEREAS, on or about May 1, 1985, IMPERIAL PALACE entered into an
agreement with STUART under which STUART was permitted to use the Hotel's
Imperial Theater (the "Theater") for public presentation of the Production on an
ongoing basis;
WHEREAS, subsequently, STUART has assigned the May 1, 1985 agreement to
LEGENDS, and LEGENDS has assumed and agreed to perform each and all of the
obligations and responsibilities of STUART under the May 1, 1985 agreement, and
LEGENDS is currently the producer of the production show entitled "Legends in
Concert" (hereinafter "Production");
<PAGE>
WHEREAS, subsequent to May 1, 1985, STUART, and subsequently LEGENDS,
have used the Theater on a regular basis for a public presentation of the
Production;
WHEREAS, IMPERIAL PALACE, STUART and LEGENDS have subsequently modified
the May 1, 1985 agreement, both orally and in writing, on various occasions;
WHEREAS, it is the intent of the parties hereto, in executing this
Agreement, to restate, supersede, and replace the agreement of May 1, 1985, as
amended from time to time, to resolve any and all disagreements and disputes
that have arisen between IMPERIAL PALACE, on the one hand, and STUART and
LEGENDS, on the other hand, and to establish new terms and conditions for
LEGENDS' use of the Theater from the date of this Agreement forward;
NOW, THEREFORE, in consideration of the terms, covenants, conditions
and provisions hereafter set forth, and for other good and valuable
consideration, it is hereby agreed by and between IMPERIAL PALACE and LEGENDS as
follows:
1. Grant and Acceptance of Right to Use Theater. IMPERIAL PALACE hereby
grants to LEGENDS, during the term of this Agreement, the right to use the
Theater for purposes of publicly presenting the Production, subject to the
further terms and provisions of this Agreement. LEGENDS, in turn, hereby agrees
to accept and use the Theater in publicly presenting the Production, subject to
the further terms and provisions of this Agreement.
<PAGE>
2. Nature of Relationship. LEGENDS is, and shall be in the performance
of all duties and responsibilities arising under this Agreement, an independent
contractor. The right of LEGENDS to use the Theater as granted herein is in the
nature of a revocable non-exclusive license. No term or provision in this
Agreement, nor any method or manner of payment hereunder, shall be deemed to
create any relationship between LEGENDS and IMPERIAL PALACE, other than that
expressed in this paragraph. Under no circumstance shall this Agreement be
deemed or construed to create any relationship of the nature of a joint venture,
partnership, or landlord/tenant between IMPERIAL PALACE and LEGENDS. Neither
LEGENDS nor the staff and employees of LEGENDS shall be deemed or construed, at
any time, under any circumstances, or in any way, to be employees, agents,
representatives or personnel of IMPERIAL PALACE or the Hotel.
3. Attributes of the Production. The Production shall consist of a
tribute to the legends of American pop music, entitled "Legends In Concert", and
shall consist of artists impersonating or recreating such legendary superstars
as Elvis Presley, Cher, Madonna, Sammy Davis Jr., Whitney Houston, Neil Diamond,
and others with the prior approval of both IMPERIAL PALACE and LEGENDS. A seven
(7) piece orchestra will perform as a back-up group for the artists. Not less
than six (6) artists will perform in each showing of the Production, with each
featured artist being on stage for approximately fifteen (15) minutes. The
Production shall, with the prior approval of both IMPERIAL PALACE and LEGENDS,
employ special
<PAGE>
effects equipment including, but without limitation, mist machines, strobe
lights, accent lighting, and holographic effects. The Production will be
presented in a form, style, and format which meets or surpasses the generally
accepted quality and performance standards for variety shows and reviews
presented in Las Vegas, Nevada, in theaters of similar size.
4. Performance of Production. The Production shall be performed, in its
entirety, two (2) times each day, six (6) days a week. The first performance of
the Production will commence at approximately 7:30 o'clock p.m. The second
performance of the Production will commence at approximately 10:30 o'clock p.m.
Unless and until otherwise agreed, in writing, by and between IMPERIAL PALACE
and LEGENDS, there will be no showings of the Production on Sunday night.
5. Determination and Approval of the Production's Content. The content
of the Production shall be set and established by LEGENDS with the written
approval of IMPERIAL PALACE. LEGENDS may vary the format of the Production from
time to time to enhance the Production and further the interests of both LEGENDS
and IMPERIAL PALACE; however, material changes in the Production's content
and/or format shall be made only with the prior written consent and approval of
IMPERIAL PALACE. For purposes of this paragraph, material changes in the
Production's content and format shall be deemed to include, without limitation:
<PAGE>
a. The substitution or replacement of any artist who has been
engaged to impersonate or recreate a legendary superstar;
b. The addition of any legendary superstar to the Production
as performed for the public; and,
c. The deletion of any legendary superstar from the Production
as performed for the public.
It is understood and acknowledged by and between LEGENDS and IMPERIAL PALACE
that the purpose of the approval right that is granted to IMPERIAL PALACE in
this paragraph is to enable IMPERIAL PALACE to control the quality of the
Production that is being made available to its clientele and guests, so as to
preserve its reputation as a gaming hotel and resort in the eyes of the public.
6. Term. This Agreement shall be effective as of the date that it is
executed by both IMPERIAL PALACE, STUART and LEGENDS, and shall remain in full
force and effect until it is terminated pursuant to Paragraph 19 hereinbelow.
7. IMPERIAL PALACE'S DUTIES. IMPERIAL PALACE agrees to do the following
in order to facilitate the public presentation of the Production as contemplated
herein:
a. Make the Theater available to LEGENDS for
rehearsals, auditions, and public presentation of the Production during
the term of this Agreement. To that end, IMPERIAL PALACE shall provide,
at its own cost, a new sound system, but otherwise shall provide only
those fixtures customarily found in showrooms in Las Vegas, Nevada of a
size and type comparable to
<PAGE>
the Theater, including normal lighting, seating, and table facilities.
LEGENDS acknowledges that it is intimately familiar with the present
condition of the Theater, and, with the exception of the new sound
system, nothing herein shall be construed to require IMPERIAL PALACE to
further improve or equip the Theater beyond the condition, as provided
by IMPERIAL PALACE, that exists on the date this Agreement is executed.
b. Make available to LEGENDS such stage production
personnel as IMPERIAL PALACE determines are necessary for the efficient
preparation and presentation of the Production in the Theater. The term
"stage production personnel", as it is used in this Agreement, includes
stage hands, lighting crew personnel, sound crew personnel, and a stage
technical director ("Technical Director"). All costs incurred by
IMPERIAL PALACE in furnishing such stage production personnel,
including salaries, taxes, and benefits paid, shall be borne by LEGENDS
and shall be reimbursed to or deducted by IMPERIAL PALACE weekly from
proceeds that are otherwise distributable to LEGENDS from the
Production as calculated pursuant to paragraph 13 hereinbelow.
c. Provide beverage service in the Theater during the
presentation of the Production. Each holder of a ticket to the
Production shall be entitled to receive two (2) cocktails, beers, or
fruit juices, or one (1) polynesian cocktail, or one-half (1/2) share
of a bottle of wine during the presentation of
<PAGE>
the Production as a standard policy in the Theater. Additional
beverages will be made available for purchase at current showroom
beverage prices. All beverage costs shall be borne by IMPERIAL PALACE.
All beverage income shall belong exclusively to the IMPERIAL PALACE.
d. Provide such cocktail servers, captains, ushers,
maitre d', clean-up personnel, ticket sellers, cashiers, and bar
tenders as are reasonably necessary to assist and serve the needs of
patrons of the Production in connection with and during the public
presentation of the Production. All costs incurred by IMPERIAL PALACE
in furnishing the personnel referenced in this subparagraph shall be
borne by IMPERIAL PALACE.
e. Provide a showroom reservation booth which shall
be located in the Hotel's casino. IMPERIAL PALACE will instruct ticket
sellers at the showroom reservation booth to suggest the Production
before any other show unless the patron or customer requests a specific
show. All costs incurred by IMPERIAL PALACE in furnishing the
reservation booth and ticket sellers referenced in this subparagraph
shall be borne by IMPERIAL PALACE.
f. Provide, for LEGENDS' use, sufficient office space
upon the Hotel premises to accommodate two desks; provided, however,
LEGENDS shall bear all expense incurred in equipping the office space.
<PAGE>
g. Provide, for LEGENDS' use, up to two hotel rooms
at no cost to LEGENDS for the temporary use by cast members of the
Production in order to further promote and improve the Production at
the IMPERIAL PALACE. The hotel rooms shall not be used for the
convenience of those cast members who are to be used for other shows in
locations outside of the IMPERIAL PALACE or for the convenience or
promotion of other such shows or productions; however, the rooms may be
used for auditioning artists for the IMPERIAL PALACE show or for
temporary replacements of cast members during leaves and vacations for
the Production at the IMPERIAL PALACE.
h. Provide, for the performing artists and members of the
orchestra, one meal per working day in the IMPERIAL PALACE employees'
cafeteria for performing artists and orchestra members currently
performing or working in the Production.
8. LEGENDS' Duties. LEGENDS agrees to do the following in furtherance
of the public presentation of the Production as contemplated herein:
a. Present the Production for public viewing in the Theater in
the manner and at the times specified in paragraphs 3 and 4
hereinabove.
b. Revise the Production with the cooperation and the approval
of the IMPERIAL PALACE in order to provide a "fresh look" onstage by
way of updating, modernizing, repainting and freshening existing and by
adding new stage backdrops, staging
<PAGE>
aids and other facilities utilized in the Production for the purposes
of providing a "modernized" and "fresh" and "new" look to the
Production.
c. Provide all special effects equipment necessary to
the presentation of the Production (with the exception of the new sound
system to be provided by IMPERIAL PALACE), including, without
limitation, mist systems, strobe lights, accent lighting, lasers and
other special effects lighting, and holographic effects. LEGENDS shall
bear all costs and expenses incurred in procuring and providing the
balance of the special effects equipment. During the term of this
Agreement, LEGENDS shall make all of the aforesaid special effects
equipment available for IMPERIAL PALACE's use without charge when the
Theater is not being used by LEGENDS for rehearsals, auditions, and/or
the public presentation of the Production.
d. Retain, employ, and provide all artists,
musicians, cast members and choreographers, and purchase or otherwise
furnish all costumes, sets and other items of personal property and
equipment necessary to prepare and present the Production.
e. Bear sole responsibility for, and pay when due,
all federal income tax withholding, FICA, Social Security, worker's
compensation and payroll taxes incurred on behalf of or in connection
with LEGENDS' employees and personnel. Upon request, LEGENDS shall
provide evidence of a nature that is satisfactory to IMPERIAL PALACE
establishing that all of the
<PAGE>
foregoing payroll expenses have been and are being paid in a
timely manner.
f. Process for identification purposes, all persons
performing in or otherwise associated with the Production, including
all members of LEGENDS' staff, through IMPERIAL PALACE's personnel
office. All said persons shall then be provided identification badges
which shall be presented to IMPERIAL PALACE personnel upon request when
said persons are in any area restricted to employees or guests of the
Hotel. In order to enable IMPERIAL PALACE to maintain a consistent
level of service for Hotel patrons, LEGENDS shall take all steps
necessary to insure that LEGENDS's staff, employees and personnel abide
by all rules and codes of conduct imposed for Hotel employees while
upon the Hotel premises.
g. Subject to the provisions of paragraph 11
hereinbelow, promote and provide advertising for the Production.
h. Obtain, and present to IMPERIAL PALACE on request,
all licenses, permits, accounts, and other authorizations necessary for
LEGENDS to act as an employer and/or to present the Production in the
Theater in Las Vegas, Clark County, Nevada on an ongoing basis. Without
limitation, the foregoing shall specifically be deemed to include all
business licenses, federal identification numbers, State Industrial
Insurance System numbers and/or accounts, registration with the Nevada
<PAGE>
Employment Security Department, and all other acts necessary to achieve
full compliance with the regulations and requirements of any
governmental body or agency having jurisdiction over any aspect of the
presentation of the Production in the Theater.
i. Obtain, pay for and maintain, in full force and
effect, throughout the term of this Agreement all licenses, approvals
and royalties, including ASCAP, BMI and other similar licensing
entities, and all other rights necessary to the performance of the
Production without infringement upon or violation of estate property
rights, copyrights, patents and/or other ownership interests in or
affecting the legendary superstars and/or the subject matter of the
Production.
j. Obtain and maintain in full force and effect
throughout the term of this Agreement, at LEGENDS' sole expense, a
policy of liability insurance insuring IMPERIAL PALACE, as an
additional named insured, against liability to the public for injury or
damage to the persons or property of LEGENDS's employees and staff,
showroom personnel, stage crew members, patrons of the Production, and
all other persons who are on the premises of the Theater for any reason
during any audition for, or rehearsal or performance of the Production,
or at any other time that LEGENDS has access to and is using the
Theater. Said insurance coverage shall have policy limits of not less
than One Million Dollars ($1,000,000) per occurrence, and Two Million
Dollars ($2,000,000) per policy period. All
<PAGE>
insurance policies shall be written and issued by companies
satisfactory to IMPERIAL PALACE and licensed to transact business in
the State of Nevada, and all policies shall contain a waiver of
subrogation against IMPERIAL PALACE. The insurance policy required of
LEGENDS hereunder shall be written in such a manner as to protect the
interests of both IMPERIAL PALACE and LEGENDS. LEGENDS shall provide
IMPERIAL PALACE with either the original or a duplicate original of the
policy of insurance required hereunder. All policies of insurance
obtained pursuant to this paragraph shall not be subject to
cancellation by the insurer or LEGENDS unless and until IMPERIAL PALACE
has been given thirty (30) days advance written notice of such
cancellation. In the event that LEGENDS fails to obtain or maintain any
insurance required hereunder, IMPERIAL PALACE may obtain such
insurance, and the cost thereof shall be borne by LEGENDS and shall be
payable to IMPERIAL PALACE within ten (10) days following IMPERIAL
PALACE's submission of its invoice to LEGENDS for the insurance policy
premium. The foregoing notwithstanding, nothing herein shall be deemed
to require IMPERIAL PALACE to obtain the requisite insurance on
LEGENDS's behalf. IMPERIAL PALACE may purchase liability insurance in
excess of the amounts stated hereinabove, in the exercise of its
discretion.
k. Make the artists and other cast members of the
Production available to participate in promotional activities,
<PAGE>
and such other ceremonies or festivities as may be sponsored by
IMPERIAL PALACE in its discretion from time to time during the term of
this Agreement.
l. Unless otherwise specifically indicated in this
Agreement, assume responsibility for, and pay and satisfy all
costs and expenses that in any way relate to preparations for
and/or the public presentation of the Production in the Hotel's
Theater.
9. LEGENDS' Covenants, Representations, and Warranties. LEGENDS
covenants, warrants, and represents to IMPERIAL PALACE in connection with this
Agreement, as follows:
a. That LEGENDS has all power and authority necessary to enter
into this Agreement, and to render a full and complete performance
pursuant to the terms hereof.
<PAGE>
b. Except for claims arising from acts or omissions
of IMPERIAL PALACE employees which shall be the responsibility of
IMPERIAL PALACE, that LEGENDS will defend, indemnify, save and hold
IMPERIAL PALACE and the Hotel free, clear, and harmless from and
against any and all claims, liability, loss, and/or expenses arising
out of or by reason of the acts, omissions, or negligence of LEGENDS
and/or his agents, employees, servants, contractors, licensees,
customers, or business invitees which in any way relate to the
Production, or which arise from any accident, injury, or damage,
howsoever and by whomsoever caused, to any person or property
whatsoever, occurring in, upon or about the premises of the Theater, or
any portion thereof, during any audition for, or rehearsal or
performance of the Production, or at any other time when the Theater is
being used by LEGENDS. In the event that any suit, action or proceeding
is brought against IMPERIAL PALACE by reason of such claim, LEGENDS
shall, upon receipt of notice from IMPERIAL PALACE, resist or defend
such action or proceeding with the assistance of counsel chosen by
IMPERIAL PALACE, and LEGENDS shall bear all costs and expenses relating
thereto.
c. That LEGENDS has procured all licenses, rights, and
approvals necessary to performance of the Production without
<PAGE>
interference with or infringement upon estate property rights,
copyrights, patents, and/or any other compensable rights held by any
and all persons or entities whatsoever.
d. That LEGENDS will save, defend, indemnify, and hold
IMPERIAL PALACE and its officers, directors, agents, representatives,
employees, heirs, and assignees harmless from and against any and all
actions, demands, causes of action, judgments, liability, damages,
penalties, losses, and expenses (including attorneys' fees and costs)
which may be suffered by or asserted against IMPERIAL PALACE by reason
of any actions of STUART or LEGENDS hereunder or arising as a result
thereof or due to any breach of any express or implied warranty arising
hereunder.
10. Rehearsals and Auditions. LEGENDS' use of the Theater for
rehearsals and auditions shall be limited exclusively to rehearsals and
auditions for, and which relate to, the Production at the IMPERIAL PALACE.
LEGENDS shall cause that all rehearsals and auditions in the Theater be
conducted between the hours of 10:00 a.m. and 5:00 p.m., where possible, and in
every event said rehearsals and auditions shall be concluded no later than one
(1) hour before the time set for commencement of any showing of the Production.
Rehearsals, auditions and work on the Theater stage shall be scheduled through
and approved by the Showroom Manager. A minimum of one (1) day's advance notice
will be given by LEGENDS if the presence of any stage production personnel is
required for any scheduled
<PAGE>
rehearsal, audition or work on the Theater stage, and the decision of whether to
make IMPERIAL PALACE stage production personnel available for those purposes
will be in the Showroom Manager's sole discretion.
11. Advertising and Publicity. All advertising of the Production
created by LEGENDS during the term of this Agreement shall be subject to the
prior reasonable written consent and approval of IMPERIAL PALACE prior to public
dissemination of any such advertisement or publicity. The foregoing
notwithstanding, IMPERIAL PALACE is expressly granted a continuing right to use,
and to authorize others to use, with or without LEGENDS' consent, the name and
likeness of LEGENDS, the Production and/or any and all artists and other
Production cast members to advertise and publicize the Hotel and/or the
engagement of the Production at the Hotel in any and all media. It is agreed
that advertising of the Production will continue generally along the same lines
as in the past.
<PAGE>
12. Admission Price. The price of public admission to performances of
the Production in the Theater ("Admission Fee") will be set and established from
time to time with the prior written consent and approval of both IMPERIAL PALACE
and LEGENDS. Effective as of the date of this Agreement, and unless and until
modified, the Admission Fee shall be Twenty-Nine and 50/100 Dollars ($29.50),
including taxes and gratuities. It is understood and agreed by and between
LEGENDS and IMPERIAL PALACE that a discounted ticket price may be established
with the mutual consent of the parties for wholesale ticket sales. Provided,
however, every Admission Fee and discounted wholesale ticket price shall include
all applicable taxes, gratuities and cocktails.
13. Collection and Disbursement of Revenues. It shall be the sole right
and responsibility of IMPERIAL PALACE to collect Admission Fees, wholesale
ticket sales proceeds, beverage charges, and all other proceeds derived from or
in connection with the Production. IMPERIAL PALACE shall make accountings to
LEGENDS on a weekly basis summarizing the costs incurred and the gross revenues
derived from or in connection with the Production, the backup data for which
LEGENDS shall be entitled to examine and review in a reasonable manner. The
weekly accountings shall further disclose the manner of disbursement of all
proceeds derived from or in connection with the Production. By the execution of
this Agreement, the undersigned acknowledge their consent to disbursement of
Admission Fees, wholesale ticket sales
<PAGE>
proceeds, beverage charges, and other proceeds from the Production in
the following manner:
a. Admission Fees / Wholesale Ticket Sales Proceeds.
IMPERIAL PALACE is expressly authorized and empowered to deduct
and withhold the following sums from each Admission Fee and
from the proceeds from each wholesale ticket sale:
i. An amount equal to all applicable taxes imposed by
taxing authorities in connection with the sale of the ticket;
ii. An amount equal to the established gratuity; and,
iii. The sum of [***] to cover beverage service costs
that are included in the Admission Fee and wholesale ticket
price.
<PAGE>
The balance of the Admission Fees and/or proceeds
from wholesale ticket sales shall be distributed to LEGENDS and
IMPERIAL PALACE weekly on the basis of [***]for LEGENDS and [***]to
IMPERIAL PALACE. Provided, however, IMPERIAL PALACE shall be entitled
to deduct weekly, from funds available for distribution to LEGENDS
under this paragraph, an amount equal to all unreimbursed costs
incurred by IMPERIAL PALACE as contemplated in subparagraph 7(b) above.
By way of example, assuming a $29.50 Admission Fee and the taxing and
gratuity structure that exists as of the date of this Agreement, each
Admission Fee would be applied and disbursed as follows:
Total Admission Fee: $ 29.50
Less:
Amount withheld for taxes ( 2.65)
Amount withheld for gratuity ( 2.50)
Amount withheld for beverage cost ( 3.00)
--------
Total Proceeds Available
for Distribution $ 21.35
Proceeds Distributable to LEGENDS* $ [***]*
[***]
Proceeds Distributable to
IMPERIAL PALACE $ [***]
[***]
* Subject to reimbursement of costs incurred
by IMPERIAL PALACE for stage production personnel as
contemplated in subparagraph 7(b) above.
b. Beverage Charges. IMPERIAL PALACE shall be entitled to
[***] from beverage service and the sale of beverages in the Theater
during the Production.
c. Merchandising Proceeds. The net profit from the sale of
merchandise such as posters, tee-shirts and/or other apparel
<PAGE>
or souvenirs relating to or in connection with the Production shall be
divided and disbursed to IMPERIAL PALACE and LEGENDS as follows:
i. If the merchandise is sold by LEGENDS at the
Theater, the net profits will be divided on the basis of [***]
to LEGENDS and [***] to IMPERIAL PALACE.
ii. If the merchandise is sold by IMPERIAL PALACE
through the Hotel's gift shop or otherwise, the net profit
will be divided between LEGENDS and IMPERIAL PALACE equally.
For the purpose of this subparagraph, "net profit"
shall be calculated by deducting from gross sales the cost of goods
sold (including shipping costs if applicable) and all taxes collected
and incurred in connection with the sale of the merchandise.
Notwithstanding the foregoing, it is understood and agreed that LEGENDS
will not produce, market, distribute or cause to be distributed any
item or merchandise relating to the Production without IMPERIAL
PALACE's prior written consent and approval, both as to the nature of
the merchandise and as to pricing schedules. IMPERIAL PALACE shall have
the right to market any approved merchandise relating to the Production
in the Hotel's gift shop in accordance with the approved pricing
schedules.
d. Other Proceeds. All other proceeds derived from or
in connection with the production, if any, shall be divided
<PAGE>
between IMPERIAL PALACE and LEGENDS on the basis of [***] for
LEGENDS and [***] for IMPERIAL PALACE.
14. BMI/ASCAP. LEGENDS shall bear responsibility for payment and
satisfaction of all BMI and/or ASCAP charges and similar licensing and royalty
charges assessed as result of or in connection with the public presentation of
the Production.
15. Complimentary Covers. IMPERIAL PALACE and LEGENDS shall each be
entitled to issue up to two hundred forty (240) complimentary covers ("Comps")
for performances of the Production each week. If either party issues more than
two hundred forty (240) Comps in any week, the party issuing the excess Comps
shall pay for the same at the full Admission Fee. As used herein the term "week"
refers to seven (7) consecutive days commencing on Monday and running through
the following Sunday.
16. Exclusivity. During the term of this Agreement the Production,
including each and all of the acts in the Production, shall remain exclusive to
IMPERIAL PALACE for [***] unless IMPERIAL PALACE issues its prior written
consent, in each instance, to a waiver of the requirements of this paragraph.
a. The consent of the IMPERIAL PALACE shall not be
unreasonably withheld; however, LEGENDS agrees that in the event the
IMPERIAL PALACE requests that LEGENDS utilize or distribute coded
coupons to the audience at any such Production at a location other than
the Hotel premises, LEGENDS agrees to do so, so that the Hotel can
determine the potential benefits
<PAGE>
to the Hotel arising as a result of the presentation of the Production
at locations other than the Hotel premises. Without limitation, the
provisions of this paragraph shall be deemed to apply and preclude the
presentation of the Production, or any one or more of the acts from the
Production, at conventions, tradeshows, or other public gatherings at
locations other than on the Hotel premises, as well as the use of Hotel
stage hands or other employees for that purpose. Additionally, if this
Agreement is terminated by LEGENDS, LEGENDS will not, without IMPERIAL
PALACE's prior written consent, publicly present the Production or any
part thereof in [***] for a period of [***] following the termination
of this Agreement.
b. LEGENDS and STUART agree to cooperate in good
faith with Hotel and/or Hotel's subsidiaries, so long as it is in the
best interests of both LEGENDS and the Hotel, to create and present a
similar production under similar terms at the hotel and casino facility
presently under construction by Imperial Palace of Mississippi, Inc. in
Biloxi, Mississippi.
17. Remedies. Any failure, refusal or neglect on the part of LEGENDS
(other than because of death or incapacity of STUART or force majeure) to
perform the duties and obligations that are imposed under this Agreement,
whether then existing or prospective, including any declaration by LEGENDS of an
intention not to perform or present the Production as scheduled, shall render
LEGENDS in default of this Agreement. In the event of any such default, IMPERIAL
PALACE shall
<PAGE>
be entitled to exercise all rights and remedies available to it at law or in
equity, including, without limitation, the remedy of specific performance.
18. Termination of Agreement. This Agreement may be terminated as
follows:
a. By either IMPERIAL PALACE or LEGENDS if there is a
material default in performance of the duties and obligations arising
under this Agreement, and the default is not cured within ten (10) days
after the non-defaulting parties' service of written notice of default
and demand for cure upon the defaulting party.
b. By IMPERIAL PALACE, in its sole discretion:
i. Upon the giving of not less than eight
(8) weeks advance written notice of the intent to terminate to
LEGENDS; or,
ii. If the number of paying customers or
patrons of the Production, excluding complimentary covers,
falls below two thousand, four hundred (2,400) persons per
week, based on a six (6) show night week, for three (3)
consecutive weeks;
iii. In the event of the death of STUART;
iv. In the event of the incapacity of
STUART, if that incapacity precludes LEGENDS from performing
any duty or responsibility imposed hereunder for a period of
seven (7) consecutive days; or,
<PAGE>
v. If there is any accident, fire,
explosion, casualty, epidemic, Act of God, strike, lockout,
labor condition or unrest, unavailability of power or other
utility or commodity, civil disturbance, riot, war, armed
combat (whether or not there has been an official declaration
of war), enactment of any law, issuance of any judicial order
or decree, or any other occurrence beyond the parties control
in the nature of force majeure which interrupts or materially
hampers or interferes with the performance of the Production
for a period of seven (7) consecutive days or more (force
majeure).
Upon termination of this Agreement pursuant to this paragraph IMPERIAL
PALACE shall be released from all further obligations arising hereunder, with
the sole exception of its obligations to pay such compensation, if any, as may
have become due but was not paid prior to such termination.
19. Condition of Theater Upon Termination. LEGENDS shall repair any and
all deteriorations or injuries to the Theater occasioned by its failure to use
ordinary care during the term of this Agreement.
20. Removal of Personal Property. Any property which LEGENDS has
brought to or installed in the Theater during the term of this Agreement shall
be removed immediately upon the termination of this Agreement. In the event the
property is not so removed within seven (7) days following the date of
termination, IMPERIAL PALACE may have
<PAGE>
said property removed at a cost which will be borne by LEGENDS, or IMPERIAL
PALACE may in its sole discretion retain the property as its own.
21. Release. In consideration of the mutual execution of this
Agreement, IMPERIAL PALACE, on the one hand, and STUART and LEGENDS, on the
other hand, for themselves and each of them and their respective
representatives, heirs, successors and assigns, do hereby release, acquit and
discharge one another and their respective agents, employees, servants,
officers, directors, stockholders, successors and assigns, and each of them
where applicable, of and from any and all liability, claims, debts, demands,
accounts, accountings, costs, fees, charges, obligations, actions, causes of
action and claims for relief of every kind and nature, known and unknown,
anticipated and unanticipated, suspected and unsuspected, past, present or
future, which STUART, LEGENDS or IMPERIAL PALACE might otherwise have or have
had to assert arising out of duties imposed or performances rendered by either
LEGENDS or IMPERIAL PALACE in connection with the Production prior to the date
of this Agreement under the terms of the pre-existing agreement between STUART
and/or LEGENDS and IMPERIAL PALACE dated May 1, 1985, as amended from time to
time.
22. Compliance with Governing Law. In providing services hereunder,
LEGENDS agrees to comply with, and to cause all personnel associated with the
Production to comply with all applicable federal, state and local laws, rules,
and regulations. LEGENDS acknowledges
<PAGE>
that he is aware that in the ownership and operation of the Hotel, IMPERIAL
PALACE is subject to various business, regulatory and licensing authorities
including, but not limited to, the Nevada Gaming Commission, the Nevada Gaming
Control Board, and the Clark County Liquor and Gaming Licensing Board
(collectively, the "Nevada Gaming Authority"). LEGENDS agrees not to perform any
act or fail to perform any act which would be or may result in violation of any
law, rule or regulation of any of the Nevada Gaming Authorities. If there should
arise any matter of any kind whatsoever in connection with this Agreement, the
Production or LEGENDS which may, in the reasonable opinion of IMPERIAL PALACE
jeopardize any governmental authorization or license, IMPERIAL PALACE shall have
the right to terminate this Agreement immediately without any further obligation
or liability whatsoever. If the Nevada Gaming Authorities require LEGENDS or any
other personnel associated with the Production to submit applications for
findings of suitability, or other information or documentation, or otherwise
request LEGENDS or said personnel to respond pursuant to any investigation by
nevada Gaming Authorities, LEGENDS covenants and agrees that it will take any
actions which may be necessary and appropriate to respond timely to the Nevada
Gaming Authorities. Failure by LEGENDS or personnel associated with the
Production to respond as required by the Nevada Gaming Authorities shall
constitute grounds for immediate termination of this Agreement by IMPERIAL
PALACE, without any further obligation or liability whatsoever on the part of
IMPERIAL PALACE.
<PAGE>
23. Notice. All notices required or permitted to be given hereunder
shall be in writing and shall be delivered in person or by certified mail,
return receipt requested, postage pre-paid and addressed as follows:
TO STUART or LEGENDS: TO IMPERIAL PALACE:
John W. Stuart IMPERIAL PALACE, Inc.
4625 W. Nevso Drive 3535 Las Vegas Blvd. South
Las Vegas, NV 89103 Las Vegas, NV 89109
or to such other address as such party may hereafter designate in writing.
Notices mailed as provided herein shall be deemed given on the third business
day following the date the notice is deposited in the United States mail.
24. Attorneys' Fees. In the event either IMPERIAL PALACE or LEGENDS
shall bring any action or proceeding for damages for an alleged breach of any
provision of this Agreement, to enforce, protect, or establish any right or
remedy of either party, the prevailing party shall be entitled to recover as a
part of such action or proceedings reasonable attorneys' fees and court costs.
25. Severability. If any portion of this Agreement is in conflict with
any applicable Federal or State law now in force or hereafter enacted, such
provisions shall become inoperative, but all other provisions of this Agreement
shall remain in full force and effect.
26. Interpretation. This Agreement shall be interpreted in accordance
with the laws of the State of Nevada.
<PAGE>
27. Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the matters covered herein, and no other
agreement, statement or promise made by any party or to any employee, officer,
or agent of any party, which is not contained in this Agreement shall be binding
or valid.
IN WITNESS WHEREOF, the parties described above enter into this
Agreement on the day and year first above written.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
LEGENDS IN CONCERT, INC. IMPERIAL PALACE, INC.
By: _________________________________ By:_______________________
JOHN W. STUART, President RALPH ENGELSTAD, President
____________________________
JOHN W. STUART, individually
<PAGE>
***THIS EXHIBIT HAS BEEN FILED IN REDACTED FORM PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT. A COMPLETE COPY OF THIS EXHIBIT HAS BEEN FILED IN
UNREDACTED FORM WITH THE SECURITIES AND EXCHANGE COMMISSION.
[Bally's Park Place Casino Hotel & Tower]
January 19, 1996
Mr. John Stuart
Legends in Concert
3535 Las Vegas Blvd., S.
Las Vegas, NV 89109
RE: SECOND OPTION FOR LEGENDS IN CONCERT
Dear Mr. Stuart:
As you are aware, the first option for the show Legends in Concert (the "Show")
is set to expire on March 31, 1996. This letter shall constitute the required
written notice pursuant to Section 5(a) of the Agreement dated September 1, 1994
and amended April 4, 1994, April 25, 1994 and September 8, 1995 ("the
Agreement") between Legends in Concert ("Promoter") and Bally's Park Place, Inc.
("Bally's") for the production of the Show, that Bally's wishes to continue the
Show for an additional six (6) month period commencing April 1, 1996 and
terminating September 30, 1996.
All other terms and conditions of the Agreement, not inconsistent with the
foregoing, shall apply.
Very truly yours,
Wallace R. Barr
President/COO
/jsd
CC: C. Patrick McKoy
Ken Condon
<PAGE>
[Bally's Park Place Casino Hotel & Tower]
July 15, 1996
Mr. John Stuart
Legends in Concert
3535 Las Vegas Blvd., S.
Las Vegas, NV 89109
RE: SECOND OPTION FOR LEGENDS IN CONCERT
Dear Mr. Stuart:
As you are aware, the second option for the show Legends in Concert (the "Show")
is set to expire on September 30, 1996. This letter shall constitute the
required written notice pursuant to Section 5(a) of the Agreement dated
September 1, 1994 and amended April 4, 1994, April 25, 1994, and September 8,
1995 (the Agreement") between Legends in Concert ("Promoter") and Bally's Park
Place, Inc. ("Bally's") for the production of the Show, that Bally's wishes to
continue the Show for an additional six (6) month period commencing October 1,
1996 and terminating March 31, 1997.
All other terms and conditions of the Agreement, not inconsistent with the
foregoing, shall apply.
Very truly yours,
Wallace R. Barr
President
LLK/chf
CC: C. Patrick McKoy
Ken Condon
Lynne Levin Kaufman
<PAGE>
[Bally's Park Place Casino Hotel & Tower]
January 9, 1997
Certified Mail - RRR
Mr. John Stuart
Legends in Concert
3535 Las Vegas Blvd., So.
Las Vegas, NV 89109
Re: Third Option For Legends In Concert
Dear Mr. Stuart:
As you are aware, the option of the show Legends In Concert (the "Show") is set
to expire on March 31, 1997. This letter shall constitute the required written
notice pursuant to Section 5(a) of the Agreement dated September 1, 1994 and
amended April 4, 1994, April 25, 1994 and September 8, 1995 (the "Agreement")
between Legends In Concert ("Promoter") and Bally's Park Place, Inc. ("Bally's")
for the production of the Show, that Bally's wishes to continue the Show for an
additional six (6) month period commencing April 1, 1997 and terminating
September 30, 1997.
All other terms and conditions of the Agreement not inconsistent with the
foregoing shall apply.
Very truly yours,
Wallace R. Barr
President
WRB/BD/chf
CC: Ken Condon
Bernard DeLury
<PAGE>
[Bally's Park Place Casino Hotel & Tower]
September 8, 1995
Mr. John Stuart
Legends in Concert
3535 Las Vegas Blvd., So.
Las Vegas, NV 89109
RE: OPTION FOR LEGENDS IN CONCERT
Dear Mr. Stuart:
This letter shall serve to modify the Agreement between Legends in Concern
("Promoter") and Bally's Park Place, Inc. ("Bally's") dated September 1, 1994
and amended April 4, 1994 and April 25, 1995 ("the Agreement") with respect to
the show Legends in Concert (the "Show") as follows:
1. The Weekly Fee, as defined in Section B (6)(a)(i) of the Agreement,
shall be [***]. Section B 6(a)(ii) shall be deleted from the Agreement
and as such the full and complete compensation to Promoter shall be
[***]. The increase in the Weekly Fee shall take effect on the date of
Promoter's acceptance of this Amendment.
2. The Weekly Fee shall remain in full force and effect for a two (2) year
period commencing October 2, 1995, in the event that Bally exercises
any additional options pursuant to Section B 5(a) of the Agreement.
Nothing contained herein shall constitute an agreement by Bally's to
continue the show beyond April 1, 1996 (the option period exercised by
Bally's pursuant to the letter by bally's to Promoter dated July 21,
1995).
3. Bally's may, at its sole discretion, request Promoter to perform an
additional matinee show on Mondays through Thursdays commencing at a to
be determined date in June and continuing through July and August. In
the event that Bally's requests Promoter to perform such additional
shows, and the number of shows per week exceeds twelve (12), the Weekly
Fee shall increase by [***] per show.
4. All other terms and conditions of the Agreement, to the extent not
inconsistent with the foregoing, shall remain in full force and effect.
5. This Amendment and the Agreement shall express the entire agreement
between Bally's and Promoter with respect tot he subject matter
hereof, and the draft of an Agreement between Bally's and Promoter
with respect to the Show sent to Promoter on July 21, 1995 shall be
null and void.
<PAGE>
AGREEMENT
THIS AGREEMENT made as of the 1st day of September, 1994, by and
between Bally's Park Place, Inc., a New Jersey corporation, located at Park
Place and the Boardwalk, Atlantic City, New Jersey ("Bally's"), and LEGENDS IN
CONCERT ("Promoter").
WITNESSETH
WHEREAS, Promoter is currently producing and presenting a show known as
Bon Voyage in the Park Cabaret at Bally's Park Place Casino Hotel and Tower; and
WHEREAS, Promoter and Bally's wish to cancel the Bon Voyage show; and
WHEREAS, Bally's desires that Promoter produce and present a Legends In
Concert show (the "Show") in the Park Cabaret at Bally's Park Place Casino Hotel
and Tower in Atlantic City, New Jersey (Park Cabaret"); and
WHEREAS, Bally's also desires that Promoter produce and present a show
to be called "The Ultimate Atlantic City Experience" (the "AC Experience"); and
WHEREAS, Promoter wishes to produce and present the Show and the AC
Experience in the Park Cabaret; and
WHEREAS, the parties hereto are entering into this Agreement to set
forth all of the terms and conditions upon which the show and the AC Experience
will be presented and produced.
NOW THEREFORE, the parties hereto, intending to be legally bound
hereby, and in consideration of the mutual covenants herein contained, agree as
follows:
A. BON VOYAGE
The Bon Voyage Show shall be canceled without penalty to
Bally's, effective with the last show on September 24, 1994. Compensation for
the final show week shall be prorated.
B. LEGENDS IN CONCERT
1. Production
Promoter shall produce and present the Show which will be
billed, promoted and advertised as "Legends In Concert." The Show shall be
presented in the Park Cabaret at Bally's Park Place Casino Hotel and Tower
pursuant tot the terms hereof. Promoter agrees that the set and props will be of
professional quality and of at least the quality of Promoter's productions of
Bon Voyage at Bally's and Legends In Concert at The Grand. Promoter agrees to
change cast members on a reasonable basis. Bally's has the right to request that
up to two (2) cast members be changed every six (6) weeks, all at Promoter's
expense. Any
<PAGE>
additional changes shall be mutually agreed upon by Bally's and Promoter. All
changes shall be subject to Bally's approval. The legends shall be new; i.e.,
not the legends which are currently appearing or who have appeared at The Grand
during the ten (10) weeks prior to the date hereof.
2. Responsibilities of Promoter
Promoter shall provide and be responsible for all aspects of
the production and presentation of the Show which are not expressly and
specifically designated herein as the responsibility of Bally's including, but
not limited to, the following:
(a) The cast and crew consisting of:
- Five (5) Legends (to be approved by Bally's);
- Six (6) singer/dancers; and
- One (1) production manager.
(b) Prerecorded digital track, keyboardist and key
board, only if there is no live orchestra.
(c) All required choreography.
(d) Any costumes and accessories necessary to make and
present a first class production, all of high design
and construction quality. Promoter shall be
responsible for replacing, cleaning, laundering and
maintaining all the above in a first-class and like
new condition during the duration of performances.
(e) All required scenery, wardrobe, backdrops, scenic
effects (including consumable materials for same),
props used for production of Show, any special
material necessary to make and present a first-class
production, including but not limited to:
- Decoration of entrance to Park Cabaret;
- Risers with Tivoli;
- 8 intellabeams;
- 14 track spots
- 8 data flashes
- Laser graphics and beam package, if permitted
by law;
- complete two remote camera video package
(3 cameras with the AC Experience);
- Miscellaneous special effect lighting package;
and
- Multi media screens and complimentary hardware.
(f) All required rehearsal.
(g) All required transportation.
<PAGE>
(h) All freight charges, including taxes.
(i) All required housing.
(j) All preproduction costs.
(k) Quality control.
(l) Additional musicians if desired by Promoter at no
additional cost to Bally's.
(m) Storage.
3. Responsibilities of Bally's
During the period of performance of the Show, Bally's shall
have the responsibility to provide the following:
(a) Use of the Park Cabaret for Show and for rehearsal
commencing September 25, 1994, or immediately
following removal of all Bon Voyage props and
equipment.
(b) Use of the existing lighting and sound equipment
owned by Bally's located in the Park Cabaret.
(c) Use of the Park Cabaret's existing dressing room.
(d) Use of the Park Cabaret's existing curtains and
curtain tracks.
(e) Such lighting and backstage crew as deemed necessary
by Bally's in its sole discretion, not to exceed
eight (8) persons per show, to be adjusted in the
event lasers are not utilized, including a lighting
technician for rehearsals when the Legends are
changed.
(f) Labor to set-up and take-out the Show.
(g) All advertising and publicity, as determined in
Bally's sole discretion.
(h) Ticket sellers and reservationist.
(i) A Maitre D' for seating if available.
(j) All required beverage personnel to service Park
Cabaret audiences during performances of the Show.
<PAGE>
(k) One meal per day for Producer's cast and crew in
Bally's Employee Cafeteria during the preproduction
period and on those days which the Show is performed.
(l) Parking spaces, including shuttle bus service, for
Producer's cast and crew at Bally's Atlantic City
Expressway lot or the equivalent on those days which
the Show is rehearsed and/or performed.
4. Engagement
(a) Promoter shall present the Show in the Park Cabaret
for a one (1) year period commencing October 1, 1994
and terminating October 1, 1995 (the "Engagement").
(b) During the Engagement, Promoter shall present a
minimum of twelve (12) shows per "Show Week."
(c) The Show will not be performed from December 11, 1994
through December 23, 1994, through December 23, 1994.
Promoter shall receive no compensation during such
period, and no "make-up" of such missed shows will
occur.
(d) The Show shall be performed six (6) days a week at
mutually agreed upon times. There will be two (2)
Shows per day except Friday when the Show will be
dark. Any schedule is subject to change by Bally's in
its sole discretion, and may, at Bally's sole
discretion, vary from week to week (i.e., there may
be three (3) performances per day one day and one (1)
performance per day another day). Furthermore, upon
request by Bally's, Promoter agrees to perform up to
fourteen (14) shows in a given week in the event that
less than twelve (12) shows are presented in a prior
week. There will be no carryover of shows after the
term of this Agreement.
(e) All performances shall be rendered in accordance with
Bally's general house policies including but not
limited to scheduling and length of performance.
Subject to the foregoing, each performance of the
Show shall be a minimum of one (1) hour and ten (10)
minutes long and a maximum of one (1) hour and thirty
(30) minutes long.
5. Option Periods
(a) Promoter hereby grants Bally's the option to continue
the Show after the Engagement for successive six (6)
month periods provided that Bally's shall notify
Promoter in writing of its exercise of any such
option not later than sixty (60) days prior to the
end of the Engagement or option period, as the case
may be.
<PAGE>
(b) The irrevocable option set forth in Paragraph 5(a) of
this Agreement is subject and pursuant to the same
terms and conditions applicable to the Engagement.
6. Compensation
(a) Promoter shall receive the following compensation
for the production and presentation of the Show:
(i) A weekly fee of [***]per week, payable
weekly on Friday of each week (the
"Weekly Fee").
(ii) In the event that the actual cash weekly
ticket sale proceeds for the Show, net of
taxes, Ticketmaster charges and other related
expenses exceed the Weekly Fee, [***] of the
balance, if any, of such net weekly ticket
sale proceeds shall be paid to Promoter as
additional compensation. No cash value shall
be attributed to any complimentaries, coupons
or other discounts off of the face value of
the tickets. Cast complimentaries will be
granted based on availability.
(b) Other than as stated in Section B, 6(a) hereof,
Bally's will [***] from ticket sales and [***] from
its provision of food and/or beverage service at all
of the performances of the Show.
(c) Pricing, beverage minimum and all other items with
respect to ticket sales, including complimetaries,
shall be [***].
C. THE ULTIMATE ATLANTIC CITY EXPERIENCE
1. Production
(a) Promoter shall also produce and present a show to be
called "The Ultimate Atlantic city Experience" (the
"AC Experience"). The AC Experience is a thirty (30)
minute multi-media event which consists of three (3)
films running simultaneously.
(b) The films will be supported by a sound track provide
by Promoter. Promoter will also provide special
effects including, but not limited to:
- Eight Intellibeams;
- 14 Track Spots;
- 8 Data Flashes;
- Pyro Flashes;
- Hazer Smoke Machines;
- Fiber Optic Curtain;
- Total Tivoli Accent;
<PAGE>
- Full Live Video System;
- Possibility of Full Graphic Laser System on
Ceiling; and
- Light Requirements and Variance Qualifications.
2. Term
(a) Promoter shall present the AC Experience for an
approximate six (6) month period commencing March 1,
1995 and ending September 6, 1995 (the "AC
Engagement"). Promoter hereby grants Bally's the
option to continue the AC Experience after the AC
Engagement for successive six (6) month periods
provided that Bally's shall notify Promoter in
writing of its exercise of any such option not later
than thirty (30) days prior to the end of the AC
Engagement or option period, as the case may be.
(b) The irrevocable option set forth in Paragraph 5(a) of
this Agreement is subject and pursuant tot he same
terms and conditions applicable to the AC Engagement.
3. Compensation
(a) Promoter shall receive a fee of [***] per week as
total compensation for the production and
presentation of the AC Experience.
(b) Bally's will provide two (2) technicians to operate
the AC Experience if it deems two (2) technicians
necessary; but in the event a laser is utilized,
Bally's will provide three (3) technicians if it
deems such technicians necessary.
(c) Bally's will [***]from ticket sales and [***] from
its provision of food and/or beverage service at all
of the performances of the AC Experience.
(d) Pricing, beverage minimum and all other items with
respect to ticket sales, including complimentaries,
shall be [***].
D. WARWICK CONDOMINIUMS
Promoter agrees to purchase seven (7) apartments at the
Warwick Condominiums in Atlantic City, New Jersey, from Bally's for Forty-Five
Thousand ($45,000.00) Dollars a unit for two (2), two-bedroom apartments and
Forty Thousand ($40,000.00) Dollars a unit for five (5) one-bedroom apartments.
Bally's agrees to waive all accrued unpaid rent to September 30, 1994 for the
units currently leased from Bally's by Promoter. Bally's and Promoter agree that
all leasehold improvements previously made or implemented in the future by
Promoter are the property of Promoter, and Promoter shall receive no
reimbursement from Bally's for such improvements.
<PAGE>
The above is subject to the execution of a formal agreement of
sale. In the event that closing for the seven (7) units is not held by December
31, 1994, Promoter shall continue to occupy the seven (7) units, subject to
Bally's ability to show and sell the units and rent retroactive to October 1,
1994 at the rate of $400.00 per month will be due and payable to Bally's
monthly.
E. GENERAL
1. Relationship Between Promoter and Bally's
It is understood by the parties that Promoter is performing
hereunder as an independent contractor and that no other relationship including,
but not limited to, joint venture, employer-employee or partnership, exists
between them. In addition, Promoter recognizes that it has no authority to act
as an agent for Bally's and has no express or implied power to contract for, or
in the name of Bally's or to hire persons as employees of Bally's or to
otherwise act on behalf of Bally's, and Promoter agrees that it will not make
any representations to third parties to the contrary. Promoter shall comply with
all applicable provisions of the Internal Revenue Code and any other applicable
laws, rules and regulations in its performance hereunder.
2. Advertising
Bally's shall supply and pay for all of the advertising and
public relations costs for the Show and the AC Experience. The Show shall be
billed as "Legends In Concert." The AC Experience shall be billed as " the
Ultimate Atlantic City Experience." In the event Promoter wishes to advertise
the Show or the AC Experience: (i) all such advertising shall include a
prominent reference to Park Cabaret at Bally's Park Place Casino Hotel and
Tower; and (ii) Bally's shall have the right of prior approval of any
advertising and promotional activities with respect to the Show and the AC
Experience. Promoter agrees to assist with the promotion of the Show and the AC
Experience and will have performers attend employee and/or patron functions,
promotional appearances and sessions as requested by Bally's. Bally's shall have
the right and may grant to others the right to reproduce, print, publish or
disseminate in any medium the Promoter's and the performers' names, portrait,
picture, likeness, voice and biographical material concerning Promoter and the
performers as news or information for the purposes of trade or for advertising
purposes, including but not limited to, the advertising or promotion of Bally's
Park Place Casino Hotel and Tower. Bally's expressly reserves the right to
publicize or advertise the appearance of Promoter and the performers in all
media, and shall have the right to take photographs during any performance
hereunder for said purposes.
3. Insurance
Promoter, at its sole cost and expense, shall provide,
throughout the term of this Agreement, General Public Liability Insurance in
form and with companies acceptable to Bally's, including contractual liability
endorsement, with limits of not less than $1,000,000 with respect to bodily
injury and death and $1,000,000 for property damage. Promoter, at its sole cost
and expense, shall also maintain, for the protection of all persons employed by
<PAGE>
Promoter, Worker's Compensation Insurance. All of the aforesaid insurance shall
be effected under an enforceable policy issued by an insurer of recognized
responsibility and licensed to do business in the State of New Jersey. Bally's
Park Place Casino Hotel and Tower and Bally Entertainment Corporation shall be
named as additional insureds under the policy of General Public Liability
Insurance. In addition, Bally's shall be furnished with a certificate of proof
of all of the insurance referred to above which shall provide for at least
thirty (30) days written notice to Bally's Park Place Casino Hotel and Tower and
Bally Entertainment Corporation of any modification or cancellation of such
insurance.
4. Production and Material
Promoter shall consult with Bally's with respect to all
elements of the show and the AC Experience, artistic or otherwise, during the
preproduction period, Engagement, AC Experience, and all have the right to
request changes to the content in the Show and the AC Experience. Promoter
agrees to abide by Bally's normal policy regarding the performance in accordance
with the provisions of the New Jersey Casino Control Act and Bally's internal
policies. Any decision or determinations made by Bally's regarding Promoter's
material shall be final and binding upon Promoter.
5. Rehearsal
Promoter shall receive adequate rehearsal time in Park
Cabaret. Such rehearsal shall take place at such times and pursuant to such
schedule as Bally's and Promoter shall mutually agree.
6. Sound
Bally's reserves the right to regulate the volume of the
sound. Such regulation will not be unreasonable, but will be based on guest
comfort.
7. Collateral Use
Neither Promoter nor Bally's shall make or permit others to
make any radio or television broadcast, any motion pictures or any sound
recordings of Promoter's performance hereunder, except with the other party's
prior written consent.
8. Rules
The promoter and it's cast, employees and other persons under
Promoter's control, if any, shall comply with any and all rules and regulations
established by Bally's in relation to the operation and function of Bally's Park
Place Casino Hotel and Tower and Park Cabaret. In this regard, and without
limiting any other provision hereof, Promoter will be fully responsible for such
cast, employees and other person, and will ensure that no actions are taken by
them which may reflect negatively upon Bally's, or which may harm, offend or
insult any guests, patrons or employees of Bally's.
<PAGE>
9. Promoter's Representative
Promoter agrees that throughout the term of this Agreement,
including any extensions hereof, Promoter will make available and provide to
Bally's a local representative of Promoter, which representative shall be
authorized by Promoter to resolve any problems or controversies which may arise
hereunder or otherwise in connection with Bally's with respect thereto. The
representative shall be John Wismar.
10. Representations and Warranties
Promoter represents and warrants to Bally's the following,
which representations and warranties shall survive the execution hereof:
(a) There are no fees, commissions or other payments or
other obligations of any kind due or owing from
Bally's to any agents, managers, licensors,
producers, authors, composers, distributors,
producers or other persons not party to this
Agreement on account of Promoter's entering into this
Agreement or producing or presenting all or any part
of the Show and the AC Experience (except for any
BMI, ASCAP or similar music license fees); and
(b) Neither the execution and delivery of this Agreement
nor the performance of all or any of Promoter's
obligations hereunder will constitute or result in a
violation, breach or default, or be in conflict with
any other obligation, understanding, judgment, order
or agreement, oral or written, express or implied, of
Promoter or by which Promoter is bound; and there
exists no agreements, judgments, orders,
understanding or obligations of Promoter, or by which
Promoter is bound; and there are no rights of any
third parties which will or may impede or impair
Promoter's ability to enter into this Agreement or
produce or present the Show and the AC Experience
contracted for hereunder; and
(c) No materials, or any use thereof, will violate any
law or infringe upon or violate the rights of any
third party. The terms "materials" as used in this
thereto and/or tapes, recordings or literary material
used or incorporated in the Show and the AC
Experience; (ii) the name of the Show and the AC
Experience; and (iii) all other materials, ideas,
other intellectual properties or elements used or
incorporated in the Show or the AC Experience or the
advertising, publicizing or other exploitation
thereof; and
(d) Promoter has not accepted or agreed to accept
(without first obtaining the approval of Bally's) any
money, service or other valuable consideration for
the inclusion of matter as a part of the performance
contemplated herein.
<PAGE>
11. Hold Harmless
(a) Promoter agrees to hold Bally's, its affiliates,
officers, shareholders, agents, directors and
employees harmless from, and to indemnify Bally's
against, any and all liability, damage, loss, or
expense, including attorney's fees, arising in any
way out of the breach of any provision hereof or way
out of the breach of any provision hereof or
representation or warranty contained herein, or
arising in any way, directly or indirectly, out of
the Promoter's acts or omissions or the acts or
omissions of any of Promoter's cast, employees,
agents or independent contractors, including, but not
limited to, any injury or damage to persons or
property. Promoter shall give Bally's notice in
writing of all claims and actions, and shall give
Bally's the right to participate in the defense
thereof at its own cost and the right to approve any
settlement, which approval shall not be unreasonably
any judgment finally awarded together with all
expenses and fees in any claim, suite or action which
is brought against Bally's and is within the
indemnification set forth herein, and shall pay any
amounts payable in settlement or compromise of any
such claim, suite or action. In the event that
Promoter refuses or fails to pay any amount pursuant
to this section, Bally's, without thereby waiving or
limiting any other rights or remedies available to
it, shall have the right (but not the obligation) to
pay such amount and to thereafter deduct any
equivalent amount from any amount which may be due
Promoter under this Agreement.
(b) The Promoter acknowledges and agrees that Bally's
shall not be held liable for any loss of or damage to
any property or equipment belonging to or rented by
the Promoter or its cast, employees or agents which
is used or to be used in connection with the Show or
otherwise, except due to the gross negligence of
Bally's or its employees or guests. The
responsibility to insure or otherwise bear the risk
of loss of such property and equipment is the
responsibility of the Promoter and covers, but is not
limited to, loss of or damage to any sound effects
systems or equipment or any scenery, costumes or
props.
12. Exclusivity
(a) Promoter shall not, within a radius of one hundred
and fifty (150) miles from Bally's Park Palace Casino
Hotel and Tower, except with the prior written
consent of Bally's directly or indirectly produce or
present the Show or the AC Experience or a show
similar to the Show or the AC Experience and shall
not, except with the prior written consent of
Bally's, be, or permit any of its management level
personnel to be, a principal, partner, stockholder
officer, director, employee, agent or manager of or
advisor or consultant to any other entity or person
which presents or produces or attempts to present or
<PAGE>
produce the Show or the AC Experience or a show
similar to the Show or the ACE Experience during the
period that the Show or the AC Experience is being
presented at Bally's Park Place Casino Hotel and
Tower.
(b) It is expressly acknowledged by the parties hereto
that Promoter's services hereunder are of a special
and unique character which gives them peculiar value,
and that in the event of a breach or threatened
breach by Promoter of any term, condition, covenant,
representation, warranty or provision hereof which
involves the failure or refusal to perform the Show
or the AC Experience or other material impairment
thereof, Bally's will be caused irreparable injury.
Promoter expressly agrees that Bally's shall be
entitled to injunctive and other equitable relief, as
permitted by law, to prevent a breach or threatened
breach of this Agreement, or any portion hereof,
which relief shall be in addition to any other rights
or remedies, for damages or otherwise, available to
Bally's.
13. Obligations
The obligations of the parties hereto are subject to delays
and failure of performance due to acts of God, strikes or other labor disputes
or troubles, accidents, fire, action by the state of New Jersey or any agency or
instrumentality thereof, or any other cause beyond the control or either party.
In the event any performance of the Show or AC Experience is missed due to any
such cause, neither party shall have any obligation to the other with respect to
such missed performance.
All services furnished hereunder shall comply with the
requirement of all federal, state or local governmental agencies,
instrumentality's and authorities having jurisdiction over the Promoter, Bally's
or this Agreement, including, but not limited to, the New Jersey Casino Control
Commission. Producer will be responsible for obtaining and paying for all
required permits and/or approvals. It is understood and agreed that if, at any
time either prior to subsequent to the initiation of services by Promoter under
this Agreement, the Casino Control Commission shall render a final determination
either disapproving the terms and conditions of this Agreement or denying the
application of Promoter for a Casino Service Industry License, that then and in
either of such events, this Agreement shall be deemed terminated and of no
further force or effect as of the date of such disapproval or denial, as though
such date were originally fixed herein for the termination of this Agreement. In
the event of termination under this paragraph, Bally's shall not be liable for
the payment to Promoter of any damages of any kind or amount whatsoever, whether
liquidated, consequential, actual or otherwise.
14. Severability
(a) Notwithstanding anything herein to the contrary, each
of the Show and the AC Experience may be individually
terminated as set forth in
<PAGE>
this Agreement, and the Agreement shall survive with
respect to the show which is not terminated.
(b) If any provision of this Agreement or any portion
thereof is in conflict with any applicable Federal
State or Local Law, ordinance or regulation now in
force or hereafter enacted, such provision or portion
of such provision shall be come I in operative, but
all other provisions of this Agreement shall remain
in full force and effect. To the full extent,
however, that the provisions of such applicable law,
ordinance or regulation may be waived, they are
hereby waived, to the end that this Agreement shall
be deemed to be a valid and binding agreement
enforceable in accordance with its terms. Moreover,
if any provision hereof shall be held to be
excessively broad as to duration, scope or activity,
it shall be construed by limiting and reducing it, as
to be enforceable to the extent compatible with
applicable law.
15. Assignment and Alteration of Performance or Schedule
This Agreement shall not be assigned by Promoter without the
prior written consent of Bally's. Furthermore, no material portion or aspect of
the Show or the AC Experience or schedule for the Show or the AC Experience
shall be altered or changed by either party without the prior written consent of
the other party.
16. Inspection of Stage and Related Areas
Promoter represents that it has inspected Park Cabaret and the
facilities and equipment referred to herein, and that all of said items are
acceptable to promoter and will adequate and appropriate for production and
presentation of the Show and the AC Experience as contemplated hereby. Promoter
expressly agrees to be responsible for inspecting the stage and related areas,
including any stairs, for unsafe or hazardous conditions prior to the start of
each performance of the Show and the AC Experience. Promoter shall immediately
notify Bally's of any potentially unsafe or hazardous conditions. Promoter shall
not commence or continue any performance while there exists any unsafe or
hazardous conditions on the stage or in an about the areas directly related to
the stage.
17. Notices
Any notice which either party is required or may desire to
give to the other under this Agreement shall be in writing and shall be given
either by hand or certified mail or express mail, return receipt requested, or
by telecopy followed by one of the other means stated herein, addressed as
follows:
To Bally's :
Bally's Park Place, Inc. Telecopy 609-340-2410
Park Place and Boardwalk
Atlantic City, NJ 08401
Attn: Wallace R. Barr
<PAGE>
President/COO
Copy to: Attn: Corporate Counsel
To Promoter:
Legends In Concert Telecopy 702-253-1122
3535 Las Vegas Blvd., S.
Las Vegas, NV 89109
Attn: John Stuart
or to such other address as either party hereto shall designate by notice in
writing. Notices mailed as aforesaid shall be deemed to have been given or
served for all purposes under this Agreement on the next business day following
the date on which they are deposited in the mail, or if telecopied upon receipt
of telecopy.
18. Interpretation
This Agreement shall be interpreted in accordance with, and
shall be governed by, the laws of the State of New Jersey, including, but not
limited to, the New Jersey Casino Control Act.
19. Section Headings
The section headings inserted in the Agreement are for
convenience only and shall not be used in interpreting this Agreement.
20. Entire Agreement
All understandings and agreements heretofore or simultaneously
had between the parties are merged into this Agreement and are contained herein,
and this Agreement fully and completely expresses the entire agreement between
the parties with respect to the subject matter hereof. This Agreement may not be
changed, modified or terminated orally, but only by an instrument in writing,
signed by the party against whom such change, modification or termination is to
be enforced.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
BALLY'S PARK PLACE, INC. LEGENDS IN CONCERT
By:____________________________ By:________________________
Wallace R. Barr John Stuart
President/COO
<PAGE>
SHOW PRODUCTION AGREEMENT
THIS CONTRACT is made by and between ON STAGE ENTERTAINMENT, INC., with
offices at 4625 West Nevso, Suite 9, Las Vegas, Nevada 89103 (hereinafter
referred to as "On Stage") KURZ MANAGEMENT, with offices at
Wilhelmshavenerstrasse 33, 10551, Berlin (hereinafter referred to as "Kurz")
this ___ day of May, 1997.
RECITALS
WHEREAS, On Stage is the creator, producer and federally registered
owner of the production show entitled "Legends in Concert" which is a tribute to
the superstars of yesterday and today through the use of impersonators who
perform live-recreations of those stars ("Legends" or the "Show"); and
WHEREAS, Kurz has solicited the services of On Stage to present and
otherwise stage its Legends in Concert production at the Estrel Residence &
Congress Hotel in Berlin, Germany (the "Venue"); and
WHEREAS, On Stage and Kurz have agreed upon certain terms and
conditions to govern the operation of the Show for the term of this Agreement;
and
WHEREAS, On Stage and Kurz have agreed to reduce these terms and
conditions to writing and to enter into this Agreement with the terms
hereinafter set forth.
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:
AGREEMENT
1. VENUE. The Estrel Residence & Congress Hotel in Berlin, Germany.
2. SHOW CONTENT. The Show shall be entitled "Legenden in Concert" (or such other
similar name as the parties shall mutually agree in writing) and will consist of
the following: five (5) Principal Acts, two (2) Singer/Dancers (one of which
will act as assistant choreographer); one (1) Musical Director/Production
Manager; one (1) Technician during the initial set-up of the Show; and three
additional (3) Musicians.
<PAGE>
3. TERM. The Show will be performed at the Venue in accordance with the terms
contained herein from September 12, 1997 through and including December 31, 1997
(the "Initial Term"). Kurz shall have the right to extend this Initial Term for
five (5) successive two (2) year periods (for a total extension period of ten
years), subject to an increase in compensation due On Stage hereunder in
accordance with the Consumer Price Index, so long as Kurz is not in breach of
any term of this Agreement and notifies On Stage of its intention to exercise
such right no later than ninety (90) days prior to the termination of the
preceding term.
4. NUMBER OF PERFORMANCES. The Show will be performed on a maximum of six (6)
days per week for a maximum of eight (8) performances per week at the Venue.
Kurz will determine the dates and times of each performance, but in no event
will the Show be presented more than two (2) times per day. Each Show will run
approximately ninety (90) minutes in length. The Show may be performed at
locations outside the Venue for promotional purposes only, provided Kurz
receives the prior written consent from On Stage, which consent shall not be
unreasonably withheld. Any performances at locations outside of the Venue as
well as any additional performance days or shows will require additional
compensation, the amount of the which will be reasonably determined between the
parties.
5. ON STAGE'S RESPONSIBILITIES. On Stage shall maintain joint creative control
of the Show including the exclusive right to modify and/or alter any and all
aspects of the same at its reasonable discretion, except as provided for herein,
and shall retain all rights to the Show. However, On Stage shall give
appropriate consideration to any reasonable requests of Kurz which may be caused
by the different environment for the Show at the Venue. The Show will be a
high-class impersonation show to be presented in a form, style, and format which
meets or exceeds the generally accepted quality and performance standards for
impersonation shows and reviews presented in the United States, in theaters of
similar size with similar equipment. On Stage hereby further agrees that it will
provide the following:
5.1 To provide the following performers: five (5) Principal Acts, two
(2) Singer/Dancers (one of which will act as assistant choreographer); one (1)
Musical Director/Production Manager (who will also play the keyboards); and one
(1) Technician during the initial set-up of the Show (hereinafter referred to as
the "Performers").
5.2 To co-produce and organize the Show together with Kurz.
5.3 To supply all necessary costumes for the principal acts and two
singer/dancers. In the event that Kurz decides to hire additional
singer/dancers, an additional rental fee will be charged for such extra costumes
required thereby and Kurz will further be responsible for all costs related to
choreograph the same (i.e. the choreographer's travel, room, food and salary
costs).
5.4 All accompanying musical charts and background tracks needed for
the performance of the Show provided, however, that any conversion or
transcription costs incurred through translating those materials from English to
German shall be borne exclusively by Kurz.
<PAGE>
5.5 To provide Kurz with a detailed list of the United States locations
from which each Performer will depart for Berlin.
5.6 All Performers shall arrive in Berlin and be prepared to rehearse
the Show from September 12 through 15, 1997 and to present the Show on September
16 and 17, 1997 for the purpose of pre-viewing the same the travel agents,
ticket offices, concierges, incentive agents, hotel staff and the like. Kurz
shall remain responsible for those same amenities provided to On Stage's
Performers as is to be provided to them during the run of the Show (i.e.
housing, meals, etc.).
5.7 During the Term of this Agreement, On Stage shall grant to Kurz the
right of first refusal to perform "Legends in Concert" for the countries of
Germany, Austria and Switzerland. In the event that On Stage is presented with
an opportunity to present "Legends in Concert" for another venue within the
territories listed above, On Stage shall submit the material terms of the offer
to Kurz at which time Kurz will have ten (10) days in which to either match the
offer or decline to match the offer. If Kurz fails to accept any offer and/or
declines to match any such offer within the time frame specified above, On Stage
shall be free to perform the Show at that respective venue without being in
violation of any provision herein to the contrary.
5.8 On Stage hereby warrants that it is the original producer, creator
and registered trademark and copyright owner of the name and show concept
entitled "Legends in Concert" and further warrants that it will indemnify Kurz
against all costs, claims or damages resulting from any breach of this covenant.
5.9 On Stage hereby warrants that its Performers will be made available
for all reasonable radio, television, film and photograph sessions held in
connection with promoting the Show and to allow Kurz to utilize the Performers
names and images for public promotional materials.
6.0 RESPONSIBILITIES OF KURZ. Kurz hereby agrees that it will provide the
following at its sole cost and expense:
6.1 Provide eleven (11) international round-trip airline tickets on a
regularly scheduled American flight carrier (USA/Berlin/USA) and domestic
transportation to the Venue and back.
6.2 Provide eight (8) hotel rooms at the Hotel Estrel and two (2) meals
per day per Performer in the Hotel's restaurant(s) during the Initial Term and
all subsequent terms thereof. Kurz will further provide three (3) additional
hotel rooms and two (2) meals per day for additional technicians during load- in
(pre-production), maintenance and load-out (closing) periods.
6.3 Kurz will pay for all cartage (i.e. shipping, handling and duties
of freight) for goods needed to be sent to the Venue by On Stage throughout the
term of this Agreement. Kurz shall be further responsible for any import or
export taxes levied on any costumes, props, promotional material, etc.
provided by On Stage in accordance with its responsibilities hereunder.
<PAGE>
6.4 Furnish a theater in good condition with contains therein such
sound and lighting equipment as is mutually agreed upon by the parties and
determined to be necessary to stage a first class production (See recommended
Equipment and Staging Rider). In the event that the parties agree that a
supplemental sound, lighting and/or equipment package needs to be brought into
the Hotel to effectively stage the Show, the parties shall mutually agree upon
what is needed and how to provide the same.
6.5 Procure and take financial responsibility for all required visa's
and handle the customs' formalities for On Stage and its Performers coming to
Berlin, Germany.
6.6 Kurz will cause the Theater or other adequate rehearsal area to be
available for all rehearsals reasonably requested by On Stage during the term of
this Agreement.
6.7 To provide rehearsal pay for the Performers at one-half the weekly
fee set forth in Section 7, below ($12,500.00).
6.8 To provide On Stage with all necessary liability insurance.
a)
6.9 In addition to the above, Kurz shall provide the following: (a) all
reasonably required technicians and stage hands; (b) all showroom personnel
(maitre' d, ushers, etc.); (c) general public liability, real property, and
personal property insurance(s) naming On Stage as an additional named insured
and specifically covering all On Stage personnel and property; (d) any and all
worker's compensation insurance, or the German equivalent thereof; (e)
maintenance on their own equipment, including service and the replacement of
disposables such as lamps and gels; (f) all technical support reasonably needed
to implement and otherwise install equipment; (g) all required music licensing
fees (BMI/ASCAP/SESAC or their equivalent such as GEMA); (h) all utilities,
license and organization fees, etc.; (i) all required staging, lighting and
sound equipment; (j) all other miscellaneous items needed to effectively
publicly stage the production not specifically mentioned herein including any
necessary permits to enable On Stage and Kurz to publicly perform the Show; and
(k) an on site German/English translator, if necessary.
7. PAYMENT INFORMATION. Kurz shall pay to On Stage TWENTY FIVE THOUSAND
DOLLARS ($25,000.00) per week in United States Currency in consideration for On
Stage's services contemplated hereunder. The schedule for the payment of said
monies will be as follows:
$12,500 To be received by On Stage by no later than September 12, 1997
(rehearsal pay); and
$25,000 To be receive by On Stage no later than September 24, 1997, and
every Wednesday thereafter for the duration of this Agreement.
In addition to the above, the parties hereto agree that all gross
receipts derived from the presentation of the Show above $50,000 USD per week
will be split between the parties as follows: 75% to Kurz and 25% to On Stage.
<PAGE>
All payments required by Kurz hereunder shall be paid in United States
Currency by automatic wire transfer into an account specified by On Stage. All
costs associated with these automatic wire transfers shall be borne by Kurz. All
payments required hereunder, shall be made via wire transfer directly into an
account specified by On Stage and shall be secured by an irrevocable stand-by
Letter of Credit issued by a German or United States bank approved by On Stage.
On Stage hereby pre-approves the Deutsche Bank for such transaction. Such
Letter of Credit to be issued no later than fifteen (15) business days of the
execution of this Agreement and must be in a form acceptable to both On Stage
and its bank.
8. MERCHANDISE. On Stage will make available its range of merchandise to Kurz
for resale at the Hotel at wholesale prices. In the event that Kurz intends to
market any merchandise related to the Show including, but not limited to
merchandise which features the name of the Show, name, image and likeness of the
impersonators, and general On Stage merchandise ("Show Merchandise") such Show
Merchandise will be subject to a separate agreement which will be mutually
agreed upon between the parties.
9. SOUVENIR PHOTO LOCATIONS. Kurz or On Stage may set up, operate and manage up
to two (2) "legends talent/guest souvenir photo locations" in the Hotel
("Souvenir Photo Locations"). The parties will mutually agree upon the costs for
the construction and operation of these Souvenir Photo Locations and the
division of revenues generated therefrom.
10. MATERIALITY OF TIMELY PAYMENTS. The payments listed in Paragraph 7, above,
are a material term of this Agreement. The failure of Kurz to make the payments
required hereunder in a timely manner shall release On Stage from its duty to
perform its responsibilities and obligations as required hereunder, but shall in
no event release Kurz from its responsibilities and obligations required of them
by this Agreement, including, but not limited to paying On Stage for services
rendered as well as for services contracted for, but not yet performed.
11. NON-TAXABILITY OF PAYMENTS. On Stage hereby understands that all payments of
salaries paid for services rendered in Germany are subject to a twenty five
percent (25%) withholding tax by the German government. As such On Stage agrees
to provide Kurz with a schedule of its Performers salaries once all act have
been confirmed. In addition, while Kurz has affirmed the fact that it will take
all actions to keep the taxes as low as possible, On Stage hereby authorizes
Kurz to withhold from any payment to On Stage, any sum required to be withheld
from said payment as is imposed by any law, statute or decree of the Federal
Republic of Germany. In the event On Stage is required to charge any value added
taxes of any description for the services provided under this Agreement, then
Kurz hereby agrees to pay such taxes to On Stage in addition to the amounts due
to On Stage under this Agreement.
12. CLEANING AND WARDROBE. On Stage shall be responsible for providing all
necessary wardrobe for its Performers. However, Kurz is responsible for the
cleaning and maintenance of all costumes which it shall provide at its sole cost
and expense.
<PAGE>
13. REPRESENTATIONS AND WARRANTIES OF KURZ. Kurz represents and warrants to On
Stage that it has full power and authority to execute and deliver this Agreement
and to carry out the transactions contemplated hereby. No consent, authorization
or approval of any third party is required to enable Kurz to enter into and
perform any of its respective obligations under this Agreement, and neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated thereby will violate the rules that govern the Kurz or
constitute a breach of any agreement to which the Kurz is a party or by which it
is bound.
On Stage represents and warrants to Kurz that it is the federally
registered trademark owner of "Legends in Concert" and therefore has the full
power and authority to publicly present the same under the laws of the United
States. On Stage further represents and warrants that it has the full power and
authority to execute and deliver this Agreement and to carry out the
transactions contemplated hereby. No consent, authorization or approval of any
third party is required to enable On Stage to enter into and perform any of its
respective obligations under this Agreement, and neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
thereby will violate the rules that govern the On Stage or constitute a breach
of any agreement to which On Stage is a party or by which it is bound.
14. ASSIGNABILITY. Kurz shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of On Stage.
Notwithstanding the above, Kurz may assign this Agreement to a new GmbH set up
for the exclusive purpose of running the Show in Berlin. However, Kurz may not
name this new GmbH "Legends in Concert" or any derivative thereof as this is the
registered trademark and copywritten name of On Stage.
15. RELATIONSHIP OF PARTIES. It is understood between the parties that Kurz and
On Stage are performing hereunder as independent contractors and that no other
relationship including, but not limited to, joint venture, employer-employee or
partnership, exists between them. In addition, both parties agree to comply with
all applicable provisions of the Internal Revenue Code and any other applicable
laws, rules and regulations relative to their respective performances hereunder.
Neither party shall be liable to the other for paying withholding taxes or the
payment of any other taxes imposed by any taxing authority, including Social
Security payments on the compensation agreed upon in Paragraph 7, hereof.
16. CONFIDENTIALITY. Kurz agrees to keep confidential, except as On Stage may
otherwise consent to in writing, and not to disclose, or make use of except for
the specific purposes mentioned hereunder, at any time either during or
subsequent to the term of this Agreement, any trade secrets, confidential
information, knowledge, data or other information of On Stage relating to
products, know-how, customer lists, business plans, marketing plans and
strategies, songs, routines, costumes, arrangements, price and strategies or
other subject matter pertaining to any business of On Stage or any of its
respective clients, customers, agents, licensees or affiliates, Kurz may
produce, obtain or
<PAGE>
otherwise acquire during the term of this Agreement, except as herein provided.
Kurz further agrees not to deliver, reproduce or in any way allow any such
confidential information or any documentation relating thereto, to be delivered
or used by any third parties without specific direction or consent in writing of
On Stage.
17. CONFLICTING EMPLOYMENT/RETURN OF CONFIDENTIAL MATERIAL. In the event of the
termination of this Agreement with On Stage for any reason whatsoever, Kurz
agrees to promptly surrender and deliver to the On Stage, all records, documents
and data of any nature pertaining to any confidential information of the On
Stage or to this Agreement. Kurz shall not take with him any description
containing or pertaining to any confidential information of On Stage which Kurz
may produce or obtain during the course of this Agreement.
18. COVENANT NOT TO COMPETE. Kurz acknowledges that its willingness to enter
into this Agreement constitutes a material inducement to On Stage to enter into
this written Agreement. Each party has carefully considered the nature and
extent of the restrictions upon him and the rights and revenues conferred upon
them under this Agreement. Each hereby acknowledges and agrees that: (1) the
same are reasonable in time and territory; (2) are designed to eliminate
competition which otherwise would be unfair to the other party; (3) do not
stifle the inherent skill and experience of such party; (4) would not operate as
a bar to such parties sole means of support; (5) are fully required to protect
the legitimate interest of such party; and (6) do not confer a benefit upon such
party disproportionate to the detriment to the other party.
Kurz agrees that during the continuance of this Agreement and for a
period of five (5) years thereafter, it will not, on behalf of itself or on
behalf of any other person, company, corporation, partnership, or other entity
or enterprise, directly or indirectly, as an employee, proprietor, stockholder,
partner, promoter or otherwise, engage in any performance of a Show which
contains the use of more than two (2) impersonators, except as provided for in
Section 5.7.
19. VIOLATION OF COVENANTS. If any of the covenants or agreements contained in
Paragraph 16 through 18 hereof are violated, the violating party agrees and
acknowledges that such violation or threatened violation will cause irreparable
injury to the non-violating party and/or the Show and that the remedy at law for
any such violation or threatened violation would be inadequate, and that the
non-violating party will be entitled, in addition to any other remedies, to
injunctive relief without the necessity of proving actual damages. Both parties
agree that the provisions of this Paragraph shall survive the expiration or
termination of this Agreement or any part thereof, without regard to the reason
therefore. The non-violating party would be entitled to an injunction to be
issued by any court of competent jurisdiction, restraining the violating party
from committing or continuing any such violation of this Agreement.
20. FAILURE TO PERFORM. If Kurz fails to perform as required under this contract
without just cause and fails to cure such non-performance within a reasonable
period of time, On Stage may
<PAGE>
terminate this Agreement and/or the services of Kurz immediately without notice
and without the payment of liquidated damages.
21. 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 provision illegal,
inoperative, unenforceable or invalid in any other case or of rendering any
other provisions of the Agreement illegal, inoperative, unenforceable or
invalid.
22. GOVERNING LAW. This Agreement, and all questions relating to its validity,
interpretation, performance and enforcement (including, but not limited to;
provisions concerning limitations of action), shall be governed by and construed
in accordance with the laws of the State of Nevada.
23. ATTORNEY'S FEES. If any legal action, including an action for declaratory
relief, is brought to enforce the provisions of this Agreement, the prevailing
party shall be entitled to recover reasonable attorney's fees in addition to any
other relief to which the prevailing party may be entitled.
24. NON-WAIVER. The waiver of failure of any party to enforce at any time any of
the provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce any such provision.
25. ENTIRE AGREEMENT: This Agreement constitutes a final written expression of
all the Agreements between the parties, and is the complete and exclusive
statement of those terms. It supersedes all understandings and negotiations
concerning the matters specified herein.
26. FORCE MAJEURE: The obligations of the parties hereto are subject to delays
and failure of performance due to Acts of Nature, strikes or other labor
disputes or troubles, unavailability of power or other utility or commodity,
civil disturbance, riot, war, armed combat (whether or not there has been an
official declaration of war), enactment of any law, issuance of any judicial
decree, announcement by any public official of a state of emergency, including
an action by the state in which this contract is to be performed or any other
occurrence beyond the parties control in the nature of force majeure which
interrupts or materially hampers or interferes with any performance of the Show.
If any of the aforementioned events should occur, neither party shall have any
obligation to the other with respect to such missed performance(s), including
but not limited to relieving On Stage of their duty to perform and relieving
Kurz of its duty to pay the compensation related to said non-performance.
27. FRUSTRATION OF PURPOSE. If all or any portion of the venue in which the
terms of this Agreement are to be performed, is destroyed by fire, earthquake,
storm or any other natural cause which prevents presentation of the Shows, Kurz
is excused from paying the contractual rates for
<PAGE>
missed performances on a pro-rata basis. This shall also apply to strikes,
boycotts, epidemics or disturbances not exclusively under the control of Kurz.
28. BINDING EFFECT: The contract shall be binding upon the heirs, executors,
administrators and assigns of Kurz and any successors in interest of On Stage.
29. MODIFICATION: No change or modification of this Agreement shall be valid
unless the same be in writing and signed by all parties hereto.
30. CAPTIONS: The captions contained herein are not a part of this Agreement.
They are only for the convenience of the parties and do not in any way modify,
amplify or give full notice of any of the terms, covenants or conditions of this
Agreement.
31. CONSTRUCTION. For purposes of this Agreement, the language of the contract
shall be deemed to be the language of both parties and neither party shall be
construed as the drafter.
32. INDEMNIFICATION. Kurz will defend, indemnify, save and hold On Stage
Entertainment, Inc., Legends in Concert, Inc., and any of its subsidiaries,
their officers, directors, agents, representatives, employees, heirs, and
assignees harmless from and against any and all actions, demands, causes of
action, judgments, liability, damages, penalties, losses, and expenses
(including attorneys' fees and costs) which may arise out of or by reason of the
negligent acts or omissions of Kurz and/or their agents, employees, servants,
contractors, licensees, customers, or business invitees which may arise under
this Agreement.
33. INTELLECTUAL PROPERTY. Kurz agrees that On Stage is only granting those
rights as are specifically mentioned herein and only for such period of time as
specifically stated herein. Upon the termination of this Agreement, whether
through the natural elapse of time or otherwise, all rights conferred by On
Stage hereunder will automatically revert back to On Stage without the necessity
of taking any affirmative action. The rights referred to herein shall include
all intellectual property of On Stage, including, but not limited to each of its
Show(s) as well as all aspects contained therein.
34. NOTICES. Any notice, consent, approval, request, demand or other
communication required or permitted hereunder must be in writing to be effective
and shall be deemed delivered and received when: (a) Personally delivered or if
delivered by facsimile, when electronic confirmation is actually received by the
party to whom notice was sent, or (b) If delivered by mail whether actually
received or not, at the close of business on the third (3rd) business day
following a day when placed in the United States Mail, postage prepaid,
certified or registered mail, return receipt requested, at the addresses set
forth below (or to such other address as any party shall specify by written
notice so given), and shall be deemed to have been delivered as of the date so
personally delivered or mailed. The address of On Stage for purposes of this
paragraph is as follows: Christopher R. Grobl, Esq., 4625 W. Nevso, Suite 9, Las
Vegas, Nevada 89103. Address for Kurz shall be as follows:
- ----------------------------------------.
<PAGE>
35. ORIGINALITY. Facsimile signatures hereon shall be deemed original for all
purposes. This Agreement may be executed in any number of counterparts.
IN WITNESS WHEREOF, the parties have executed this ____ day of May,
1997.
- ---------------------------- ---------------------------
John W. Stuart Bernhard Kurz
Chief Executive Officer President
Legends in Concert, Inc. Kurz Management
<PAGE>
The Estrel Residence & Congress Hotel - Berlin, Germany
The Company will begin producing and presenting a [full]-scale Legends
production at the Estrel Residence & Congress Hotel in Berlin, Germany on
September 12, 1997. The Company has a _______-wall agreement with Kurz
Management, the hotel's [owner?], which terminates on December 31, 1997, but may
be extended for five successive two year periods by Kurz management upon ninety
days notice and subject to an increase in compensation to the Company under the
agreement. The agreement provides that the Legends show be performed a maximum
of six days per week or eight performances per week. The Estrel Residence &
Congress Hotel agreement is a "guaranteed" arrangement under which the Company
receives a guaranteed weekly fee.
<PAGE>
LEASE AGREEMENT
This Lease is made as of the 1st day of March 1997, between Burgoyne
Properties, Limited, a Florida Limited Partnership (Landlord), and On Stage
Entertainment, Incorporated, a Nevada corporation (Tenant).
In consideration of the obligation of Tenant to pay rent, and of the other
terms, covenants and conditions hereof, Landlord leases to Tenant and Tenant
takes from Landlord the premises hereinafter described, for the period and upon
the terms and conditions as hereinafter set forth.
ARTICLE I
Demised Premises
Section 1.01 Description of Premises: Landlord leases to Tenant and
Tenant rents from Landlord the premises located at 176-184 North Beach Street,
Daytona Beach, Florida (the "Demised Premises").
ARTICLE II
Term
Section 2.01. Term: This Lease shall commence as of the 1st day of March,
1997, and shall end on the 30th day of April, 1998.
Section 2.02. Renewal Option: Tenant shall have two (2) successive renewal
options to extend the term of this Lease. The first renewal option shall be for
an additional term of one (1) year, commencing on May 1, 1998 and expiring on
April 30, 1999, and the second renewal option shall be for an additional term of
eight (8) years, commencing on May 1, 1999 and expiring on April 30, 2007.
Tenant shall notify Landlord, in writing, of its intention to exercise each
renewal option not less than ninety (90) days prior to the termination of the
expiring term. The rent for the renewal terms shall be as specified in Article
III.
ARTICLE III
Rent
Section 3.01. Payment of Rent: Tenant shall pay to Landlord, for the
Demised Premises, rent in the sum of one hundred twenty thousand dollars
($120,000) per year for the initial year of the term. The rent for each
succeeding year of the term, and for each year of the renewal terms shall be
increased at the rate of five percent (5%) per year. Rent shall be payable in
twelve (12) equal installments monthly in advance, on the first day of each
month, together with the Florida sales tax applicable thereto. Monthly rent
shall commence on the date the Demised Premises are opened for business, but in
any event, not later than May 15, 1997.
<PAGE>
Section 3.02. Additional Rent: Whenever, under the terms of this Lease,
any sum of money is required to be paid by Tenant in addition to the rent herein
provided, such sum, if not paid when due, shall be deemed additional rent.
Section 3.03. Net Lease: It is the purpose and intent of Landlord and
Tenant that the rent shall be absolutely net to Landlord, so that this Lease
shall yield, at all times and under all events and circumstances, net to
Landlord, the rent specified in Section 3.01 above, in each month during the
term of this Lease, and that all costs, fees, charges, utility bills, expenses
and obligations of every kind and nature whatsoever relating to the Demised
Premises, whether related to the ownership, operation, use, repair, maintenance
or management of the Premises or otherwise, which may arise or become due during
or out of the term of this Lease, (including, without limitation, any obligation
for Florida sales tax arising out of obligations of the Tenant pursuant to this
Lease), except as otherwise expressly provided in this Lease, shall be paid by
Tenant.
Section 3.04. Late Charges: If any installment of rent is not paid
within ten (10) days after the due date, or if any additional rent is not paid
when due, Tenant shall pay a late charge equal to one and one-half percent
(1 1/2%) of the amount of the outstanding balance due to Landlord. Additional
late charges will be payable by Tenant on the first day of each succeeding month
on all outstanding amounts, including previously assessed late charges. Late
charge assessments shall be without prejudice to any of Landlord's remedies
under this Lease.
Section 3.05. Place of Payment: All rent shall be payable at the office
of Landlord or at such other place as Landlord may designate in writing.
ARTICLE IV
Conduct of Business by Tenant
Section 4.01. Use of Premises: Tenant may occupy and use the Demised
Premises exclusively for the operation of a theatre, bar, club with restaurant
and cafe, and gift shop.
Section 4.02. Compliance with Laws and Rules: Tenant shall comply with
all laws, ordinances, and regulations of Federal, State, County and local
authorities, including the Daytona Beach Code Enforcement Board, the Daytona
Beach Redevelopment Agency, or by the Board of Fire Underwriters or like
organization, relating to the conduct of its business and affecting the Demised
Premises. Tenant shall not use or permit the use of the Demised Premises in any
manner that will tend to create a nuisance or tend to disturb other tenants in
the building or the adjacent buildings.
Section 4.03. Exterior Signs: Tenant shall have the right, with
Landlord's prior written approval, which shall not be unreasonably withheld, to
install and maintain exterior signs provided such signage has been first
approved by the Downtown Redevelopment Authority of Daytona Beach. Tenant may
maintain any other exterior advertising, or install awnings, exterior
decorations or paint or make any changes to the storefront, as is customary in
Tenant's course of business, with Landlord's prior written consent, which
consent shall not be unreasonably withheld.
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<PAGE>
ARTICLE V
Condition of Premises, Alterations
Section 5.01. Reprsentations: Landlord has made no representation,
covenant or warranty with respect to the Demised Premises except as expressly
set forth in this Lease.
Section 5.02. Alterations: Tenant shall not make any material
alterations or additions to the Demised Premises nor make any contract therefor
without first procuring Landlord's written consent, which shall not be
unreasonably withheld. No alteration shall be made by Tenant which will
jeopardize or adversely affect the structural integrity or structural components
of the Demised Premises. No alteration shall be undertaken until Tenant shall
have procured and paid for all required permits and authorizations of all
municipal departments and govenmental subdivisions having jurisdiction, and all
alterations shall be made in first class good and workmanlike manner in
compliance with such permits and authorizations. Tenant shall carry all
necessary Builders Risk, Worker's Compensation and other customary and
applicable insurance and funish Landlord with evidence of such coverage. All
additions and improvements made by Tenant to or upon the Demised Premises,
except furniture or other removable trade fixtures, shall be deemed to have been
attached to the freehold and to have become the property of the Landlord.
Notwithstanding the above, Landlord hereby grants Tenant the right to refurbish
the Demised Premises from a restaurant and club into a theatre, which includes
the right to make all related structural changes thereto.
Section 5.03. Mechanics Liens: The interest of the Landlord in the
Demised Premises shall not be subject to any liens incurred by the Tenant for
improvements made by the Tenant, and the Tenant agrees to notify any contractors
making such improvements of this provision of the Lease Agreement. Tenant
further agrees to execute a short form memorandum for recording in the public
records of Volusia County, setting forth the terms of this Section of the Lease
Agreement expressly prohibiting the incurring of liens by the Tenant in
accordance with the provisions of Florida Statutes, Section 713.10. If any
mechanic's or materialman's lien is filed against tenant's interest in the
Demised Premises, or Tenant's property located in the Demised Premises, the lien
shall be discharged by Tenant within twenty (20) days after filing of the lien.
If Tenant shall fail to discharge the lien, Landlord may bond or pay the lien or
claim for the account of Tenant.
Section 5.04. Surrender of Premises: Upon termination of this Lease,
Tenant shall surrender the Demised Premises broom clean and in good condition
and repair, reasonable wear and tear and damage by fire or other insured
casualty accepted, together with all alterations, fixtures, installations,
additions and improvements which may have been made in or attached on or to the
Demised Premises. Upon surrender, Tenant shall remove its personal property and
shall repair any damage to the Demised Premises caused thereby.
ART1CLE VI
Maintenance and Repairs
Section 6.01. Maintenance by Tenant: Except as expressly provided for
in Section 6.02, Tenant shall at all times keep the Demised Premises in good
order, condition and repair, subject to
3
<PAGE>
normal wear and tear, and damage by fire or other insured casualty, including,
but not limited to, the maintenance of exterior entrances, all glass and show
windows, molding, partitions, doors, fixtures, equipment and appurtenances, and
repair and replacement of all heating, lighting, electrical, air conditioning
systems, and plumbing fixtures and including reasonable periodic painting as may
be required.
Section 6.02. Maintenance by Landlord: Landlord shall keep the roof and
structural portion of the Demised Premises in good order, condition and repair,
except that, subject to the limitations expressed in Section 7.07 below, Tenant
shall make all such repairs, modifications or replacements which become
necessary by reason of the negligence of Tenant, its agents, servants,
employees, licensees or customers.
Section 6.03. Cleanliness and Waste: Tenant shall keep the Demised
Premises and the walks adjacent thereto at all times in a neat, clean and
sanitary condition, free from waste or debris and shall neither commit nor
permit any waste or nuisance thereon.
Section 6.04. Common Area Maintenance: Tenant shall pay the sum of one
hundred dollars ($100.00) monthly in advance for its share of the cost of
cleaning and maintaining the parking area behind and adjacent to the Demised
Premises which are used for parking by customers and employees of Tenant in
common with other tenants of adjacent premises. This amount shall increase each
year of the term and renewal terms at the same percentage increase as is
provided for rent in Section 3.01 above.
Section 6.05. Landlord's Right to Inspect: Landlord, and its agents,
shall have access to the Demised Premises during all reasonable and regular
business hours for the purpose of examining same and to ascertain if they are in
good repair, and to exhibit the same to prospective Tenants or purchasers,
provided Landlord gives Tenant twenty-four (24) hours notice of such intention.
When exercising the foregoing rights, Landlord shall use reasonable efforts to
minimize the disruption to Tenant's business operations within the Demised
Premises.
ARTICLE VII
Insurance and Indemnity
Section 7.01. Liability Insurance: Tenant shall provide, at its own
cost and expense, and continue in force, comprehensive public liability
insurance, including liquor liability endorsement, with respect to any and all
loss or damage resulting from accidents or occurrences on or about the Demised
Premises and all other matters related to the use and occupancy by Tenant of the
Demised Premises during the term of this Lease, in an amount not less than two
million dollars ($2,000,000) for injury or death to persons and property damage
in one accident. Such insurance shall name Landlord as additional insured and
shall be written by a company or companies satisfactory to Landlord authorized
to engage in the business of general liability insurance in the State of
Florida. A Certificate shall be furnished to Landlord evidencing the insurance
required hereunder and providing that the policies shall not be canceled without
at least ten (10) days prior written notice to Landlord.
4
<PAGE>
Section 7.02. Property Insurance: Tenant shall reimburse Landlord for
its proportionate share of the property insurance premium for the building in
which the Demised Premises are located. Tenant's proportionate share of such
property insurance premium shall be that fractional part of the total of such
property insurance as the square footage of the Demised Premises bears to the
total square footage of the building in which the Demised Premises are located.
Reimbursement by Tenant to Landlord for its proportionate share of the property
insurance premium shall be made within fifteen (15) days after written demand
therefor accompanied by a statement showing the total property insurance premium
and Tenant's proportionate share thereof. Tenant shall provide its own coverage
for personal property and contents.
Section 7.03. Plate Glass Insurance: Tenant shall keep all plate glass
in the Demised Premises insured against all risks for the benefit of Landlord
and Tenant in amounts and with a company satisfactory to Landlord.
Section 7.04. Destruction by Fire or Casualty: In the event the Demised
Premises shall be damaged by fire, explosion, windstorm or any other casualty so
as to render the premises untenantable for one hundred twenty (120) days or
longer, Landlord or Tenant may terminate the Lease by notice to the other party
within sixty (60) days from the date of such damage. If this Lease is not so
terminated, Landlord shall repair the damage and restore the Demised Premises to
substantially the same condition as existed prior to the damage. Tenant shall be
responsible for the repair and restoration of its improvements and its
furniture, equipment and trade fixtures. If Tenant is not actually open for
business by reason of the casualty, all rent shall be abated during such period.
Section 7.05. Indemnity: Tenant will protect, indemnify and hold
Landlord harmless against and from any penalty or damage or charges imposed for
any violation of any laws or ordinances whether occasioned by the neglect of
Tenant, its servants, agents, licensees or customers, and Tenant will at all
times protect, indemnify and hold Landlord harmless against and from any and all
loss, cost, damage or expense arising out of any failure of Tenant in any
respect to comply with and perform all the requirements and provisions of this
Lease.
Section 7.06. Landlord's Indemnity: Landlord will protect, indemnify
and hold Tenant harmless against and from any penalty or damage or charges
imposed for any violation of any laws or ordinances whether occasioned by the
neglect of Landlord, its servants, or agent, and Landlord will, at all time
protect, indemnify and hold Tenant harmless against and from any and all loss,
cost, damage or expense arising out of any failure of Landlord in any respect to
comply with and perform all the requirements and provisions of this Lease.
Section 7.07. Waiver of Subrogation Rights: Any provision of this Lease
to the contrary notwithstanding, Landlord and Tenant hereby release the other
from any and all liability or responsibility to the other or anyone claiming
through or under them by way of subrogation or otherwise; (i) from any and all
liability for any loss or damage to the property of the releasing party; (ii)
for any loss or damage that may result, directly or indirectly, from the loss or
damage to such property; and (iii) from legal liability for any loss or damage
to property (no matter who the owner of the property may be), all to the extent
that the releasing party's loss or damage is insured or, if not
5
<PAGE>
insured, was insurable under commercially available "all risk" property
insurance policies, including additional coverages typically obtained by owners
and tenants of comparable buildings in the area of the Demised Premises, even if
such loss or damage or legal liability shall be caused by or result from the
fault or negligence of the other party or anyone for whom such party may be
responsible, and even if the releasing party is self-insured or the amount of
the releasing party's insurance is inadequate to cover the loss or damage or
legal liability. It is the intention of the parties that Landlord and Tenant
shall look solely to their respective insurance carriers for recovery against
any such loss or damage or legal liability, without such insurance carriers
having any rights or subrogation against the other party.
Section 7.08. Limitation on Indemnities: All indemnity obligations of
Landlord and Tenant arising under this Lease, and all claims, demands, damages
and losses assertable by Landlord and Tenant against the other in any suit or
cause of action arising out of or relating to this Lease, the Demised Premises
or the use and occupancy thereof are limited as follows:
(i) By the releases and waivers expressed herein, including,
without limitation, the mutual releases and waivers of rights set forth
in Section 7.07;
(ii) All claims for indemnification and other recoveries shall
be limited to direct, proximately caused damages and exclude all
consequential or indirect damages, including, but not limited to,
business loss or interruption, suffered by the party asserting the
claim or seeking the recovery; and
(iii) In the event that Landlord and Tenant (or the persons
for whom they are liable as expressly set forth herein) are determined
to be contributorily responsible for the indemnified injury or loss,
each indemnitor's obligation is limited to the indemnitor's equitable
share of the losses, costs or expenses to be indemnified against based
on the relative culpability of each indemnifying person whose
negligence or willful acts or omissions contributed to the injury or
loss.
ARTICLE VIII
Title
Section 8.01. Quiet Enjoyment: Landlord covenants and warrants that it
has full right and authority to enter into this Lease for the full term hereof.
Landlord further covenants that Tenant, upon paying the rent provided for herein
and upon performing the covenants and agreements of this Lease to be performed
by said Tenant, will have, hold and enjoy quiet possession of the Demised
Premises.
Section 8.02. Assignment or Sublease: Tenant shall not assign or sublet
the Demised Premises except upon prior written consent of Landlord which consent
shall be in Landlord's sole discretion. Any such assignment or subleasing, even
with the approval of the Landlord, shall not relieve the Tenant from liability
for payment of the rental herein provided or from the obligation to keep and be
bound by the terms, conditions and covenants of this Lease. The acceptance of
rent from any other person shall not be deemed to be a waiver of any of the
provisions of this Lease or a consent to the assignment or subletting of the
Demised Premises.
6
<PAGE>
Section 8.03. Excess Rent: In the event any assignment of the Lease or
subletting of all or substantially all of the Premises by Tenant results in rent
which exceeds the Rent provided for in this Lease, then such excess rent
actually collected (minus any broker's commissions or other costs to Tenant for
such assignment or subletting) shall belong seventy-five percent (75%) to
Landlord and twenty-five percent (25%) to Tenant, and Tenant agrees to promptly
remit Landlord's share upon receipt thereof. Excess rent to be remitted to
Landlord by Tenant hereunder shall be reduced in an amount equal to any rent
payments which were not actually collected from a sub-tenant or assignee during
the term of their occupancy. Nothing herein contained shall relieve Tenant of
the obligation to pay rent to Landlord as provided in Article III above.
Section 8.04. Subordination: This Lease is subject and subordinate to
any mortgage, deed of trust, ground or underlying lease and all renewals,
modifications, consolidations, replacements and extensions thereof, which may
hereafter affect the Demised Premises or any part thereof. Tenant agrees to
execute any instrument or instruments which the Landlord may deem necessary to
effect the subordination of this Lease to any mortgage, deed of trust, ground or
underlying lease, providing such subordination instrument recognizes the rights
of Tenant to remain undisturbed under this Lease provided Tenant is not in
default. Notwithstanding the foregoing, Landlord shall use Landlord's best
efforts to obtain from all present and future holders of mortgages, deeds of
trust, ground leases and similar instruments to which this Lease is made
subordinate, and agreement not to disturb Tenant's possession of the Demised
Premises under the terms and conditions set forth in this Lease so long as
Tenant is not in default of its obligations hereunder beyond any applicable
notice and cure periods.
Section 8.05. Condemnation: In the event the Demised Premises, or any
part thereof, shall be taken or condemned for public purposes by any competent
authority, the entire compensation awarded therefor shall belong to the Landlord
without any deduction therefore for any present or future estate of Tenant. No
provision herein contained shall be deemed to preclude Tenant from filing a
claim against the condemning authority for the value of Tenant's installed
leasehold improvements and fixtures. If, after such taking, there is not
sufficient area suitable for the operation of Tenant's business, this Lease
shall be canceled as of the date on which the condemning authority takes
physical possession. In the event this Lease is not terminated as provided
herein, Landlord shall promptly restore the Demised Premises to a condition as
nearly comparable or practicable to the condition existing just before such
taking or appropriation and the rental payable shall be reduced in proportion to
the area taken. If Tenant is not actually open for business during all or any
part of the period from the date of such taking or appropriation until the date
of restoration, all rent shall be abated for such period as Tenant is not open
for business.
ARTICLE IX
Services and Utilities
Section 9.01. Utility Charges: Tenant shall pay for all electricity,
gas, water, sewer charges and any other utility charges imposed or incurred in
connection with the Demised Premises. Landlord shall not be required to supply
heat, hot water or air conditioning to Tenant.
7
<PAGE>
ARTICLE X
Taxes
Section 10.01. Real Estate Taxes: Tenant shall reimburse Landlord for
its proportionate share of all real property taxes and assessments levied upon
the land, buildings or other improvements of which the Demised Premises are a
part during the term hereof. Tenant's proportionate share of such taxes shall be
that fractional part of the total of such taxes as the square footage of the
Demised Premises bears to the total square footage of the building in which the
Demised Premises are located. Reimbursement by Tenant to Landlord for its
proportionate share of real property taxes shall be made within fifteen (15)
days after written demand therefor accompanied by a computation of the amount
claimed due.
Section 10.02. Personal Property Taxes: Tenant shall pay, before
delinquent, any and all taxes, licenses, fees and public charges levied,
assessed or imposed and which become payable during the term of the Lease upon
Tenant's fixtures, furniture, appliances and personal property located or
installed in the Demised Premises.
ARTICLE XI
Default
Section 11.01. Event Default: If Tenant shall default in the payment of
the rent herein reserved when due, and continue for more than ten (10) days
after written notice of such default shall have been given (it being understood
that Landlord shall not be obligated to give more than two (2) notices of
default to Tenant within any twelve (12) month period), or fail to perform any
of the other of the terms and conditions or covenants of this Lease for more
than thirty (30) days after written notice of such default shall have been
given, or to diligently pursue the cure of such failure if it cannot reasonable
be cured within thirty (30) days, then Landlord shall have the right, at its
election, then, or at any time thereafter, to pursue any one or more of the
following remedies:
(a) To terminate this Lease and re-enter and repossess the Demised
Premises in which event Tenant shall immediately surrender the Demised Premises
to Landlord, and to pay on demand the amount of all loss and damage that
Landlord may suffer by reason of the termination of the Lease.
(b) To relet the Demised Premises on behalf of Tenant and receive
directly the rent by reason of reletting. Tenant shall reimburse Landlord, on
demand, for any expenditures made by it in order to relet the Demised Premises,
including, without limitation, repossession costs, attorneys fees, brokerage
commissions, and remodeling or repair costs. Any deficiency in the amount of
rent, which may arise by reason of any reletting of the Demised Premises, shall
be paid by Tenant to the Landlord each month in advance, on the first day of
each month, together with the Florida sales tax applicable thereto (such payment
being subject to all other additional charges as set forth in Article III),
until such time as this Lease shall expire in accordance with Sections 2.01 and
2.02.
8
<PAGE>
(c) To exercise any remedies, whether at law or in equity, which may be
available to Landlord at the time of the default.
Section 11.02. Acceleration: In addition to all other rights and
remedies provided by law, Landlord may accelerate the remaining unpaid portion
of the rentals due hereunder and declare said sums immediately due and payable.
Notwithstanding the foregoing, Landlord shall credit against Tenant's
accelerated rent obligation any net proceeds that may arise by reason of any
reletting of the Demised Premises by Landlord.
Section 11.03. Bankruptcy of Tenant: In the event voluntary or
involuntary bankruptcy proceedings are instituted by or against Tenant
(including liquidation, reorganization, receivership, assignment for the benefit
of creditors or other insolvency proceedings), or if this Lease passes by
operation of law to any person other than Tenant, Landlord shall have the right
to terminate this Lease. In the event this Lease is assumed by Tenant's trustee
in bankruptcy pursuant to the Bankruptcy Code, this Lease may not be assigned by
the trustee to a third party unless such party (1) assumes and agrees to
discharge all obligations of Tenant under the Lease; (2) has a net worth and
operating experience comparable to that of Tenant; and (3) grants Landlord a
security interest in the merchandise inventory and personal property to be
located in the Demised Premises to secure performance of the obligations of this
Lease.
Section 11.04. Attorney Fees: In the event of default by either party
in the performance of any of the terms, covenants or conditions of this Lease,
the party in default shall pay, upon demand, all of the non-defaulting party's
costs, charges and expenses including, but not limited to, reasonable attorney
fees incurred by reason of such default.
Section 11.05. Landlord's Lien and Security Interest: Landlord shall
have a right of distress for rent and a lien on all of Tenants, fixtures,
furnishings and equipment in the Demised Premises as security for rent and all
other charges payable under this Lease. This right shall be in addition to all
other rights which Landlord may have pursuant to applicable law in the event of
default. Tenant further grants Landlord a security interest in all inventory,
equipment, furniture, furnishings and trade fixtures in the Demised Premises as
security for the performance by Tenant of its obligations hereunder. Tenant
agrees to execute a Financing Statement (UCC-1) to perfect this security
interest. Upon Tenant's written request, Landlord shall subordinate the security
interest provided for herein to the security interest of Tenant's lender for the
purpose of financing Tenant's equipment or improvements.
ARTICLE XII
Miscellaneous
Section 12.01. Notices: All notices provided for in this Lease shall be
in writing sent by certified or registered mail. Notices shall be addressed to
the Tenant at the Demised Premises and to Landlord at 1010 East Adams Street,
Jacksonville, Florida 32202. Either party may, by notice, at any time and from
time to time designate a different address to which notices shall be sent.
9
<PAGE>
Section 12.02. Radon Gas Notification: Pursuant to Florida Statute
Section 404.056(8), the Tenant is hereby notified as follows: "Radon is a
naturally occurring radioactive gas that, when it has accumulated in a building
in sufficient quantities, may present health risks to persons who are exposed to
it over time. Levels of radon that exceed federal and state guidelines have been
found in buildings in Florida. Additional information regarding radon and radon
testing may be obtained from your county public health unit."
Section 12.03. Estoppel Certificates: Upon request of Landlord or
Tenant, the other party, within ten (10) days of the date of such written
request, agrees to execute and deliver to the party requesting, without charge,
a written statement: (i) certifying that this Lease is in full force and effect,
if such is the case, and has not been modified, assigned, supplemented or
amended, except by such writings as shall be stated; (ii) certifying that all
conditions and agreements under this Lease to be satisfied and performed have
been satisfied and performed, except as shall be stated; (iii) certifying the
other party is not in default under this Lease or stating the defaults claims;
(iv) reciting the amount of advance rental, if any, paid by Tenant and the date
to which rental has been paid; and (v) other matters as may be reasonably
requested by Landlord's mortgagee.
Section 12.04. Waiver: One or more waivers of any covenant, term or
condition of this Lease by either party shall not be construed by the other
party as a waiver of a subsequent breach of the same covenant, term or
condition.
Section 12.05. Governing Law: The laws of the State of Florida shall
govern the validity, performance and enforcement of this Lease.
Section 12.06. Savings Clause: The invalidity or unenforceability of
any provision of this Lease shall not affect or impair the validity of any other
provision.
Section 12.07. Paragraph Headings: The paragraph titles herein are for
convenience only and do not define, limit or construe the contents of such
paragraph.
Section 12.08. Successors: The provisions, covenants and conditions of
this Lease shall be binding on the legal representatives, heirs, successors and
assigns of the respective parties hereto.
Section 12.09. Entire Agreement: This Lease, the Exhibits and Special
Conditions, if any, attached hereto, set forth all of the covenants, agreements,
conditions and understandings between Landlord and Tenant governing the Demised
Premises. There are no covenants, agreements, conditions or understandings,
either oral or written, between them other than those herein set forth. Except
as herein provided, no subsequent alterations, amendments, changes or additions
to this Lease shall be binding upon Landlord or Tenant unless and until reduced
to writing and signed by both parties.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day
and year first above written.
LANDLORD:
---------
Burgoyne Properties Limited
A F1orida Limited Partnership,
By Its General Partner,
ATTEST: Commodores Point Terminal Corporation
/s/ Gail Williams By: /s/ Carol B. Hertle
- ------------------------------- -------------------------------------
Gail Williams Carol B. Hertle, Vice President
Print Name
TENANT:
------
On Stage Entertainment, Incorporated
ATTEST:
/s/ Chris Grobl, By: /s/ David Hope
- ------------------------------- -------------------------------------
Chris Grobl, Secretary David Hope, President
Print Name Print Name/Title
11
<PAGE>
SPECIAL CONDITIONS
The following Special Conditions shall form a part of the Agreement
dated as of the 1st day of March, 1997, by and between Burgoyne Properties,
Limited, a Florida Limited Partnership (Landlord), and On Stage Entertainment,
Incorporated, a Nevada corporation (Tenant).
1. Landlord agrees to exercise its landlord lien rights to obtain title
by judicial sale to the personal property remaining in the Demised Premises
previously belonging to the prior tenant, The Coliseum of Daytona Beach, Inc.
(an inventory of which personal property is attached hereto), and to convey such
property to Tenant upon obtaining title. Tenant agrees to pay Landlord for the
property, an amount equal to the total costs incurred by Landlord in exercising
its lien rights, including legal fees, and the expenses of satisfying any liens
which have priority over Landlord's lien, in a total amount not to exceed
$22,000. In the event Landlord's total costs are less than $22,000, Tenant
agrees to pay Landlord the difference between the total costs incurred and
$22,000. In the event Landlord determines that the cost of exercising its lien
rights, and satisfying any liens, which have priority over Landlord's lien, will
exceed $22,000, then Landlord shall not be obligated to exercise its lien rights
and shall not be obligated to make the conveyance to Tenant, in which event the
property may be sold or otherwise disposed of to third parties at the judicial
sale. Simultaneously with the execution of this Lease, Tenant further agrees to
reimburse Landlord in the sum of $8,000 paid by Landlord for the expedited
vacating of the Demised Premises by The Coliseum of Daytona Beach, Inc.
2. Landlord represents and warrants that the air conditioning system
will be in serviceable condition as of the inception date of this Lease. In the
event repairs are required within six (6) months from the date of opening of
business by Tenant (but not later than October 31, 1997), Tenant shall notify
Landlord in writing of any deficiency, and Landlord shall be responsible for the
cost of restoring such equipment to serviceable condition. Except as
specifically provided in this paragraph, Tenant shall be responsible for the
maintenance, repair and replacement of the air conditioning system in accordance
with Section 6.02 of the Lease.
LANDLORD:
---------
Burgoyne Properties Limited
A F1orida Limited Partnership,
By Its General Partner,
ATTEST: Commodores Point Terminal Corporation
/s/ Gail Williams By: /s/ Carol B. Hertle
- ------------------------------- -------------------------------------
Gail Williams Carol B. Hertle, Vice President
Print Name
12
<PAGE>
TENANT:
------
On Stage Entertainment, Incorporated
ATTEST:
/s/ Christopher R. Grobl, By: /s/ David Hope
- ------------------------------- -------------------------------------
Print Name David Hope, President
Print Name/Title
13
<PAGE>
LEASE AMENDMENT
Amendment to Lease Agreement dated as of the 1st day of March 1997 (the
"Lease"), by and between Burgoyne Properties, Limited ("Landlord"), and On Stage
Entertainment, Incorporated ("Tenant"), covering the Demised Premises located at
176-184 North Beach Street, Daytona Beach, Florida.
The Lease is hereby amended as follows:
1. Article II is amended to read as follows:
Section 2.01. Term: This Lease shall commence as of the 1st day of March,
1997, and shall end on the 31st day of October, 1998.
Section 2.02 Renewal Option: Tenant shall have two (2) successive renewal
options to extend the term of this Lease. The first renewal option shall be
for an additional term of one (1) year, commencing on November 1, 1998 and
expiring on October 31, 1999, and the second renewal option shall be for an
additional term of eight (8) years, commencing on November 1, 1999 and
expiring on October 31, 2007. Tenant shall notify Landlord, in writing, of
its intention to exercise each renewal option not less than ninety (90)
days prior to the termination of the expiring term. The rent for the
renewal terms shall be as specified in Article III.
2. Section 3.01 is amended to read as follows:
Section 3.01. Payment of Rent: Tenant shall pay to Landlord, for the
Demised Premises, rent in the sum of One Hundred Twenty Thousand Dollars
($120,000) per year for the initial year of the term. The rent for each
succeeding year of the term, and for each year of the renewal terms shall
be increased at the rate of Five Percent (5%) per year. Rent shall be
payable in twelve (12) equal installments, monthly, in advance, on the
first day of each month, together with the Florida sales tax applicable
thereto. Monthly rent shall commence on November 1, 1997.
3. Special Condition 1 is amended to provide for a total purchase price in the
sum of Ten Thousand Dollars ($10,000) for the personal property to be
acquired by Tenant, inclusive of the amount paid for the expedited
vacating Demised Premises by the former tenant.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease
Amendment this _____ day of May, 1997.
LANDLORD:
---------
Burgoyne Properties, Limited
A Florida Limited Partnership,
By Its General Partner,
ATTEST: Commodores Point Terminal Corporation
/s/ Gail Williams By: /s/ Carol B. Hertle
- ------------------------------- -------------------------------------
Print Name Gail Williams Carol B. Hertle, Vice President
TENANT:
------
On Stage Entertainment, Incorporated
ATTEST:
/s/ Chris Grobl By: /s/ David Hope
- ------------------------------- -------------------------------------
Print Name Chris Grobl President
-------------------------------------
Print Name/Title
2
<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
August 5, 1997
