<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 1997
REGISTRATION NO. 333-
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------
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)
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<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 Securities Act, please check the
following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same
offering. [ ]______________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_______________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------
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>
CALCULATION OF REGISTRATION FEE
==============================================================================
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Proposed Proposed
Maximum Offering Maximum Amount of
Title of Each Class of Amount to Price Per Aggregate Offering Registration
Securities to be Registered be Registered Security(1) Price (1) Fee
________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share ........................... 2,300,000(2) $5.00 $11,500,000 $3,484.85
________________________________________________________________________________________________________
Warrants, each to purchase one
share of Common Stock ........... 2,300,000(2) $.10 $230,000 $69.70
________________________________________________________________________________________________________
Common Stock, par value $.01 per
share, issuable upon exercise of
the Warrants (3) ................ 2,300,000(2) $5.50 $12,650,000 $3,833.33
________________________________________________________________________________________________________
Underwriter's Warrants, each to
purchase one share of Common
Stock (4) ....................... 200,000 $.001 $200 (5)
________________________________________________________________________________________________________
Common Stock, par value $.01 per
share, issuable upon exercise of
the Underwriter's Warrants ...... 200,000 $8.25 $1,650,000 $500.00
________________________________________________________________________________________________________
Underwriter's Warrants, each to
purchase one warrant (4) ........ 200,000 $.0001 $20 (5)
________________________________________________________________________________________________________
Warrants issuable upon exercise of
the Underwriter's Warrants ...... 200,000 $.165 $33,000 $10.00
________________________________________________________________________________________________________
Common Stock, par value $.01 per
share, issuable upon exercise of
the warrants underlying the
Underwriter's Warrants (3) ...... 200,000 $7.76 $1,552,000 $470.30
________________________________________________________________________________________________________
Total Registration Fee ................................................................ $8,368.18
</TABLE>
===============================================================================
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Assumes the Underwriter's over-allotment option to purchase up to 300,000
additional shares of Common Stock and/or 300,000 Warrants is exercised in
full.
(3) Pursuant to Rule 416, there are also being registered such indeterminable
additional shares of Common Stock as may become issuable pursuant to
anti-dilution provisions contained in the Warrants and the Underwriter's
Warrants.
(4) Represents warrants to be issued by the Company to the Underwriter at the
time of delivery and acceptance of the securities to be sold by the
Company to the public hereunder.
(5) None, pursuant to Rule 457(g).
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securites in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
PRELIMINARY PROSPECTUS DATED APRIL 7, 1997
SUBJECT TO COMPLETION
ON STAGE ENTERTAINMENT, INC.
2,000,000 SHARES OF COMMON STOCK AND
REDEEMABLE WARRANTS TO PURCHASE 2,000,000 SHARES OF COMMON STOCK
Of the 2,000,000 shares (the "Shares") of common stock, par value $.01 per
share (the "Common Stock"), and redeemable warrants to purchase 2,000,000
shares of Common Stock (the "Warrants") offered hereby, 1,400,000 Shares and
2,000,000 Warrants are being offered by the Company and 600,000 Shares are
being offered by John W. Stuart, the Company's Chairman, Chief Executive
Officer and principal stockholder (the "Selling Stockholder"). The Shares and
Warrants may be purchased separately and will be separately transferrable
immediately upon issuance. Each Warrant entitles the registered holder
thereof to purchase one share of Common Stock at a price of $5.50, subject to
adjustment in certain circumstances, at any time commencing , 1998 (or
such earlier date as to which the Underwriter consents) through and including
, 2002. The Warrants are redeemable by the Company, at any time,
commencing , 1998, upon notice of not less than 30 days, at a price of
$.10 per Warrant, provided that the closing bid quotation of the Common Stock
on all 20 trading days ending on the third trading day prior to the day on
which the Company gives notice (the "Call Date") has been at least 150%
(currently $8.25, subject to adjustment) of the then effective exercise price
of the Warrants and the Company obtains the written consent of the
Underwriter to such redemption prior to the Call Date. See "Principal and
Selling Stockholders" and "Description of Securities."
Prior to this offering, there has been no public market for the Common
Stock or Warrants and there can be no assurance that any such market will
develop. It is anticipated that the Shares and Warrants will be quoted on the
Nasdaq SmallCap Market ("Nasdaq") under the symbols "ONST" and "ONSTW,"
respectively. The offering prices of the Shares and Warrants and the exercise
price of the Warrants were determined pursuant to negotiation between the
Company and the Underwriter and do not necessarily relate to the Company's
book value or any other established criteria of value. For a discussion of
the factors considered in determining the offering prices of the Shares and
Warrants, see "Underwriting."
------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY
INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE
"RISK FACTORS" COMMENCING ON PAGE 9 AND "DILUTION" ON PAGE 18.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
<TABLE>
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========================================================================================================
Underwriting Discounts
and Proceeds to Selling
Price to Public Commissions(1) Proceeds to Company (2) Stockholders (3
________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Per Share ... $5.00 $.50 $4.50 $4.50
________________________________________________________________________________________________________
Per Warrant . $.10 $.01 $.09 --
________________________________________________________________________________________________________
Total (4) ... $10,200,000 $1,020,000 $6,480,000 $2,700,000
</TABLE>
==============================================================================
(1) In addition, the Company and the Selling Stockholder have agreed to pay
to the Underwriter a 3% nonaccountable expense allowance, and the Company
has agreed to sell to the Underwriter warrants (the "Underwriter's
Warrants") to purchase up to 200,000 shares of Common Stock and/or
200,000 Warrants. The Company and the Selling Stockholder have also
agreed to indemnify the Underwriter against certain liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses, including the Company's portion of the
Underwriter's nonaccountable expense allowance in the amount of $216,000
($261,900 if the Underwriter's over-allotment option is exercised in
full), estimated at $760,000, payable by the Company
(3) Before deducting the Selling Stockholder's portion of the Underwriter's
nonaccountable expense allowance in the amount of $90,000.
(4) The Company has granted to the Underwriter an option, exercisable within
45 days from the date of this Prospectus, to purchase up to an additional
300,000 shares of Common Stock and/or 300,000 Warrants on the same terms
set forth above, solely for the purpose of covering over-allotments, if
any. If the Underwriter's over-allotment option is exercised in full, the
total price to public, underwriting discounts and commissions, and
proceeds to Company will be $11,730,000, $1,173,000 and $7,857,000,
respectively. See "Underwriting."
------
The Shares and Warrants are being offered, subject to prior sale, when, as
and if delivered to and accepted by the Underwriter and subject to approval
of certain legal matters by counsel and to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify the offering and
to reject any order in whole or in part. It is expected that delivery of
certificates representing the Shares and Warrants will be made against
payment therefor at the offices of the Underwriter, 650 Fifth Avenue, New
York, New York 10019, on or about , 1997.
WHALE SECURITIES CO., L.P.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[PICTURES]
AVAILABLE INFORMATION
As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith, will file reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). The Company intends to furnish its stockholders with
annual reports containing audited financial statements and such other
periodic reports as the Company deems appropriate or as may be required by
law.
------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS,
ON NASDAQ, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE, WHICH STABILIZE,
MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE COMMON STOCK AND WARRANTS.
SPECIFICALLY, THE UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK AND WARRANTS IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Each prospective investor is
urged to read this Prospectus in its entirety. Except as otherwise noted, all
information contained in this Prospectus, including per share data and
information relating to the number of shares outstanding, gives retroactive
effect to the 1-for-1.814967 reverse split of the Common Stock effected on
March 18, 1997 (the "Reverse Split") and assumes no exercise of the
Underwriter's over-allotment option to purchase up to 300,000 additional
shares of Common Stock and/or 300,000 additional Warrants from the Company.
See "Underwriting" and Note 9 of Notes to Financial Statements.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
THE COMPANY
The Company develops and produces live theatrical productions for domestic
and international audiences. The Company markets its productions, directly
and through ticket wholesalers, to audiences at theaters in resort and urban
tourist locations. The Company also markets its productions to commercial
clients, which include casinos, corporations, fairs and expositions, theme
and amusement parks, and cruise lines. The Company's flagship Legends in
Concert(R) production ("Legends") is a live tribute show featuring
recreations of past and present music and motion picture superstars through
the use of impersonators and is the longest running independently produced
production in Las Vegas. The Company currently has resident Legends
productions at the Imperial Palace Hotel and Casino (the "Imperial Palace")
in Las Vegas, Nevada; Bally's Park Place Hotel and Casino ("Bally's Park
Place") in Atlantic City, New Jersey; and the Surfside Theater in Myrtle
Beach, South Carolina; and on two Premier Cruise Lines ships (the Atlantic
and the Oceanic) which sail out of Cape Canaveral, Florida. In addition, the
Company will have a resident Legends production at the Coliseum Theater in
Daytona Beach, Florida, beginning in the Summer of 1997. The Company also
produces limited-run Legends shows and corporate events and has performed in
locations such as the Illinois State Fair, MGM Theme Park and Dollywood Theme
Park; in locations as far away as Australia, Russia, China, Africa, Japan and
the Philippines; and for major corporate clients such as McDonald's
Corporation ("McDonald's"), Hewlett Packard, Inc. ("Hewlett Packard"), Pitney
Bowes, Inc. ("Pitney Bowes"), Levi Strauss Associates, Inc. ("Levi Strauss")
and Texaco Inc. ("Texaco"). For the years ended December 31, 1995 and 1996,
revenue attributable to Legends productions (including both resident and
limited-run engagements) and the sale of related Legends merchandise
represented approximately 86% and 97%, respectively, of the Company's net
revenue.
Full-scale Legends shows utilize state-of-the-art sound, lighting, and
special effects, incorporate backup singers and dancers and feature live
orchestras. Smaller-scale Legends shows, such as those performed for
corporate events, typically use taped orchestra music. Vocals, however, are
performed live in all Legends shows; there is no lip-synching nor are any
vocal tapes utilized. In addition to Legends, the Company has developed and
produced 15 other theatrical productions since its founding in 1985,
including other tribute-type shows and a variety of musical reviews, magic,
ice and specialty shows. All of the Company's shows are designed to appeal to
a broad spectrum of attendees by offering affordable, quality entertainment
incorporating experienced talent and state-of-the-art special effects and
staging. By offering multiple productions in addition to Legends, the Company
seeks to run more than one show in highly visited tourist markets, thereby
generating both increased operating margins and greater market share. In
addition, since the Company currently has access to over 70 different Legends
tribute acts (including tributes to Elvis Presley, Marilyn Monroe, Michael
Jackson, Barbara Streisand, the Blues Brothers and Madonna, to name but a
few), it can tailor each tribute show to suit the unique demographics of any
audience and the size of any venue, and has been able to attract repeat
business by varying regularly the composition of the acts in its shows.
3
<PAGE>
In addition to benefitting from what the Company believes to be the
expanding market for live entertainment, the Company is seeking to grow by
increasing its market share. The Company has identified several ways to
achieve this additional growth, including opening resident Legends shows in
new markets, acquiring other brand-name theatrical productions and acquiring
small independent production companies. The Company's objective is to become
a leading worldwide producer of affordable live theatrical productions which
have mass market appeal by the implementation of both a "roll-out" and
"roll-up" strategy. The key elements of this business expansion strategy
include:
o Roll-Out of Legends into New Tourist Markets -- The Company has
experienced a high degree of success to date with its Legends production
and, as part of its "roll-out" strategy, has identified over 30 additional
resort and urban tourist locations worldwide where it believes the
potential exists for the Company to successfully produce and market new
resident Legends shows. In connection with its proposed roll-out of
Legends in new tourist venues, the Company generally intends to utilize,
what is referred to in the industry as, a "four-wall" operating structure.
With such a structure, the Company assumes responsibility for all of the
expenses associated with the show, including the cost of the theater
(whether leased or purchased), as well as the costs associated with the
show's "four walls", i.e. (i) front of house (box office, food and
beverage, maintenance, ushers), (ii) promotion (marketing, advertising),
(iii) stage (stage hands, technicians) and (iv) production show
(performers, orchestra, dancers). Under such a structure, the Company is
also the sole recipient of the show's potential revenues, profits and/or
losses. The Company's resident "four-wall" production in Myrtle Beach has
demonstrated the benefits of such operating structure; it opened in March
1995 and, for the year ended December 31, 1996, generated gross profits of
over $1,900,000 and a 44% gross margin.
o Acquiring Brand-Name Theatrical Productions -- As part of its "roll-up"
strategy, the Company intends to acquire additional brand-name shows with
"roll-out" potential through joint ventures or other arrangements with
other production companies (such as An Evening at the Improv(R)
Spectacular, which the Company is currently co-producing with Improv West,
Inc.) and has identified several variety, magic, ice and interactive
dinner and other theater productions which it believes have, like Legends,
the quality, versatility and broad appeal necessary to succeed under the
"four-wall" operating structure and in multiple markets.
o Acquiring Independent Production Companies -- As part of its "roll-up"
strategy, the Company will also seek to acquire small, independent
production companies with show concepts which it believes have the
potential to develop into brand-name shows or with existing commercial
customer bases to which it can market Legends and other shows. By
leveraging its in-house production expertise and infrastructure, the
Company believes it can improve the quality of acquired show concepts and
the efficiency of acquired production companies, and, by capitalizing upon
its already established Legends name and reputation, the Company believes
it can improve and/or hasten the marketability of new show concepts.
o Penetrating Commercial Markets through Expansion of Direct Sales Network --
Shows sold to corporations, fair and expositions, theme and amusement parks
and cruise lines are typically limited-run engagements, ranging from one
night to several months, and are usually guaranteed or "low-risk" shows where
the client pays the Company a guaranteed fee. Shows sold to casinos, both
resident and limited-run productions, are operated using either the
"two-wall" method, where the casino and the Company each assume certain
aspects of the production's costs and a designated percentage of its
revenues, or a guaranteed show arrangement. To further penetrate all of these
commercial markets, the Company plans to expand its national sales network,
both in terms of staffing and geographically, in order to target new clients
and effectively service, and sell additional guaranteed and "two-wall" shows
to, existing commercial clients. The Company recently hired a Vice President
of Sales and intends to open several regional sales offices by the end of
1998.
o Expanding and Centralizing Merchandising Program -- The Company believes
that it can increase its merchandise sales, which, to date, have accounted
for less than 6% per annum of the Company's rev-
4
<PAGE>
enues, by introducing new products and designing more effective point of
sale displays. In addition, during 1997, the Company intends to hire a
Merchandising Director and implement centralized purchasing and marketing
to achieve economies of scale, ensure consistent product quality, and
obtain sales data in a timely manner.
The Company's on stage talent consists primarily of impersonators, variety
acts, singers, dancers, musicians and musical directors. The Company has
significant experience in talent recruitment, development and retention and
has featured 184 impersonators and over 239 other performers in its
productions. In order to maintain logistical and budgetary control over all
aspects of its productions, the Company maintains in-house choreography,
wardrobe, lighting, sound, staging, scenery, multimedia and special effects
capabilities and utilizes the Hollywood Inventory Tracking System
("H.I.T.S.") to manage its theatrical assets.
The Company was incorporated on October 30, 1985 under the laws of the State
of Nevada as Legends in Concert, Inc. Subsequently, on August 7, 1996, the
Company changed its name to On Stage Entertainment Inc. The Company's principal
executive offices are located at 4625 West Nevso Drive, Las Vegas, Nevada 89103,
and its telephone number is (702) 253-1333. Unless the context otherwise
indicates, use herein of the term "the Company" gives reference also to the
Company's three wholly-owned subsidiaries: Legends in Concert, Inc., a Nevada
corporation; On Stage Marketing, Inc., a Nevada corporation; and Interactive
Events, Inc., a Georgia corporation.
RECENT DEVELOPMENTS
RECENT AND PENDING DEBT FORGIVENESS
As of December 31, 1996, John W. Stuart, the Chairman, Chief Executive
Officer and principal stockholder of the Company, owed the Company a total of
$1,637,413 in principal amount under an 8% promissory note due in January
1998, plus accrued interest thereon of $143,011. On December 31, 1996, the
Company forgave all $1,780,424 of such indebtedness (the "Stuart Debt
Forgiveness"), as a result of which, the Company's net loss for the year
ended December 31, 1996 was $19,915, even though the Company had operating
income at December 31, 1996 of $1,929,296. In addition, immediately prior to
the consummation of this offering, the Company intends to forgive an
additional principal amount of $200,000 borrowed by Mr. Stuart since January
1, 1997, plus interest accrued thereon at the rate of 8% per annum. The
Company has agreed with the Underwriter that, other than such $200,000, it
will not, in the future, either loan or advance any further sums to or on
behalf of Mr. Stuart. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources --
Stuart Debt Forgiveness" and "Certain Transactions."
WARRANT EXCHANGE
On March 17, 1997, the Company exchanged all of its then outstanding
warrants for 440,755 shares of Common Stock (the "Warrant Exchange Shares")
on a cashless basis (the "Warrant Exchange"). The Warrant Exchange had no
effect upon the Company's earnings. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Warrant Exchange."
BRIDGE FINANCING
On March 26, 1997, the Company completed the sale of 20 investment units (the
"Bridge Units") to 21 private investors, at a price of $50,000 per Bridge Unit,
for total gross proceeds of $1,000,000 (the "Bridge Financing"). Each Bridge
Unit consisted of (i) a 9% promissory note of the Company in the principal
amount of $50,000, maturing upon the consummation, and payable out of the
proceeds, of this offering (each, a "Bridge Note"), (ii) 10,000 shares of Common
Stock (the "Bridge Shares") and (iii) 12,500 warrants, each to purchase one
share of Common Stock at an exercise price of $4.00 per share (the "Bridge
5
<PAGE>
Warrants"). None of the securities issued in connection with the Bridge
Financing may be transferred until 12 months following the date of this
Prospectus. The Company has agreed to include the Bridge Shares and the shares
underlying the Bridge Warrants (the "Bridge Warrant Shares") in a registration
statement filed with the Commission within 15 months following the date of this
Prospectus. After the payment of $125,000 in placement fees to the Underwriter,
who acted as placement agent for the Company with respect to the sale of the
Bridge Units, and other offering expenses of approximately $75,000, the Company
received net proceeds of approximately $800,000 in connection with the Bridge
Financing. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital Resources
- -- Bridge Financing," "Description of Securities -- Bridge Warrants" and " --
Registration Rights."
PENDING DEBT CONVERSION
Immediately prior to the consummation of this offering, all $1,714,064
principal amount currently outstanding under the Company's 8% Amended and
Restated Convertible Subordinated Debentures due in January 1999 (the
"Debentures") will be converted (the "Pending Debt Conversion") into 505,649
shares of Common Stock (the "Debenture Shares"). Such conversion will result
in a one time, non-recurring, interest expense charge to the Company in the
amount of $194,228 (based on an imputed value of $4.00 per Debenture Share).
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources -- Debentures and Pending
Debt Conversion."
THE OFFERING
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<S> <C>
Securities offered ............ 2,000,000 shares of Common Stock and
Warrants to purchase 2,000,000 shares of
Common Stock. See "Description of
Securities."
By the Company............... 1,400,000 shares of Common Stock and
Warrants to purchase 2,000,000 shares of
Common Stock.
By the Selling Stockholder... 600,000 shares of Common Stock.
Common Stock to be outstanding
after this offering(1)(2).... 6,588,980 shares.
Warrants (3) ..................
Number to be outstanding
after this offering ....... 2,000,000 Warrants.
Exercise terms .............. Exercisable commencing , 1998 (one year
following the date of this Prospectus), or
such earlier date as to which the
Underwriter consents, each to purchase one
share of Common Stock at a price of $5.50,
subject to adjustment in certain
circumstances. See "Description of
Securities -- Public Warrants."
Expiration date ............. , 2002 (five years following the date of
this Prospectus).
Redemption................... Redeemable by the Company, upon the consent of
the Underwriter, at any time commencing on ,
1998 (one year following the date of this
Prospectus), upon notice of not less than 30
days, at a price of $.10 per Warrant, provided
that the closing bid quotation of the Common
Stock on all 20 trading days ending on the
third trading day prior to the Call Date has
been at least 150% (currently $8.25, subject to
adjustment) of the then effective exercise
price of the Warrants and the Company obtains
the written consent of the
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Underwriter to such redemption prior to
the Call Date. The Warrants will be
exercisable until the close of business on
the date fixed for redemption. See
"Description of Securities -- Public
Warrants."
Use of Proceeds ............... The Company intends to use the net proceeds
of this offering for new show openings; the
repayment of indebtedness; the hiring of
additional administrative and sales
personnel; and the balance for working
capital and general corporate purposes. See
"Use of Proceeds."
Risk Factors .................. The securities offered hereby are
speculative and involve a high degree of
risk and immediate substantial dilution and
should not be purchased by investors who
cannot afford the loss of their entire
investment. See "Risk Factors" and
"Dilution."
Proposed Nasdaq symbols ....... Common Stock -- "ONST"
Warrants -- "ONSTW"
</TABLE>
- ------
(1) Includes the 440,755 Warrant Exchange Shares, the 200,000 Bridge Shares
and the 40,532 shares of Common Stock which were issued to the Company's
Chief Financial Officer in March 1997 pursuant to the terms of his
employment agreement (the "CFO Shares"), as well as 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" and "Management --
Employment Contracts."
(2) Does not include: (i) 2,000,000 shares of Common Stock reserved for
issuance upon exercise of the Warrants; (ii) an aggregate of 400,000
shares of Common Stock reserved for issuance upon exercise of the
Underwriter's Warrants and the warrants included therein; (iii) 250,000
Bridge Warrant Shares; (iv) 11,020 shares of Common Stock reserved in
connection with the Company's November 1996 acquisition of Interactive
Events, Inc. (the "Interactive Events Acquisition") for issuance in
November 1997 (the "Interactive Events Shares"); (v) 581,453 shares of
Common Stock reserved for issuance upon exercise of options granted, and
203,547 shares of Common Stock reserved for issuance upon the exercise of
options available for future grant, under the Company's 1996 Stock Option
Plan (the "Option Plan"); (vi) 15,000 shares of Common Stock reserved for
issuance upon exercise of an outstanding non-plan option; and (vii) an
indeterminable number of shares of Common Stock reserved for issuance in
the event the Company fails under certain circumstances to register, or
to maintain an effective registration statement with respect to, the
Debenture Shares and certain securities issued in connection with the
Bridge Financing. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Liquidity and Capital Resources,"
"Management -- 1996 Stock Option Plan," "Description of Securities" and
"Underwriting."
(3) Does not include any of the warrants referred to in clauses (ii) and
(iii) of footnote (2) above.
7
<PAGE>
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The following table sets forth, for the periods and at the dates
indicated, certain summary financial information for the Company. Such data
have been derived from, and should be read in conjunction with, the financial
statements of the Company, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1995 1996
----------- ----------
<S> <C> <C>
Net revenue ....................................................... $ 12,346 $ 13,814
Gross profit ...................................................... 2,712 5,368
Operating profit (loss) ........................................... (158) 1,930
Pre-tax income (loss) before write-off of note receivable from
principal stockholder ............................................ (410) 1,776
Net loss. ......................................................... (412) (20)
Net loss per share. ............................................... (.10) (.00)
Weighted average number of shares outstanding ..................... 4,112,643 4,115,865
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------
As
Actual Pro Forma(1) Adjusted(1)(2)
-------- ------------ ------------
<S> <C> <C> <C>
Working capital (deficit) ..... $ (103) $ 260 $4,689
Total assets .................. $3,954 $4,874 $8,089
Total liabilities ............. $4,177 $3,019 $1,713
Stockholders' equity (deficit) $ (223) $1,855 $6,377
</TABLE>
- ------
(1) Gives retroactive effect to the Warrant Exchange, the Bridge Financing
and the issuance of the CFO Shares, each of which was effected in March
1997, and to the Pending Debt Conversion, which will occur immediately
prior to the consummation of this offering. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Management Employment Contracts."
(2) Adjusted to give retroactive effect to the Company's sale of 1,400,000 of
the Shares and the 2,000,000 Warrants offered hereby and the anticipated
application of the estimated net proceeds therefrom, including for the
repayment of the Bridge Notes and the Company's loan (the "DYDX Loan")
from DYDX Legends Group L.P. ("DYDX"). See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources."
8
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk. Each prospective investor should carefully consider the following risk
factors inherent in and affecting the business of the Company and this
offering before making an investment decision.
Prior Losses. For the years ended December 31, 1995 and 1996, the Company
had net losses of $412,121 and $19,915, respectively. Although the Company
had operating income of $1,929,296 at December 31, 1996 and, thus, would not
have had a loss for fiscal 1996 if it had not, as of December 31, 1996,
forgiven an aggregate amount of $1,780,424 of indebtedness owed to the
Company by John W. Stuart, the Company's Chairman, Chief Executive Officer
and principal stockholder, there can be no assurance that the Company will
continue to generate significant operating income in the future. Further, the
Company has agreed to loan Mr. Stuart up to an additional $200,000 aggregate
principal amount during the period commencing January 1, 1997 and ending as
of the date of this Prospectus and may forgive all such indebtedness,
including interest thereon, during fiscal 1997. In addition, during 1997, the
Company will have one-time, non-recurring interest expense charges of
approximately $541,300 and $194,228 resulting from the Bridge Financing and
Pending Debt Conversion, respectively, and compensation expense of
approximately $162,128 relating to the issuance of the CFO Shares, all of
which 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. Consequently, while
the Company has agreed with the Underwriter that it will not, following the
date of this Prospectus, either loan or advance any further sums to or on
behalf of Mr. Stuart, there can be no assurance 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% and 97% of
the Company's net revenue for the years ended December 31, 1995 and 1996,
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, represented
approximately 68% and 72% 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. 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
9
<PAGE>
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
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 Deficit; Possible Need for Additional Financing. As of
December 31, 1996, the Company had a working capital deficit of $103,000
resulting, primarily, from advances paid to Mr. Stuart during 1996 of
$859,511. Although the Company believes, based on its currently proposed
plans and assumptions relating to its operations (and on the fact that it has
agreed with the Underwriter that, other than the $200,000 advanced to Mr.
Stuart by the Company since January 1, 1997, it will no longer make any
advances to Mr. Stuart), that the proceeds from this offering and the Bridge
Financing, together with the Company's cash and cash equivalent balances and
anticipated revenues from operations, will be sufficient to fund its current
expansion strategy, as well as its operating requirements for the next 24
months, there can be no assurance that such funds will not be expended prior
thereto due to unanticipated financial shortfalls in the Company's results of
operations, changes in economic conditions or other unforeseen circumstances.
In the event the Company's plans change or its assumptions change or prove to
be inaccurate, the Company could be required to seek additional financing
following this offering in order to continue implementation of its proposed
expansion plans. The Company has no current arrangements with respect to, or
potential sources of, additional financing, and any inability to obtain such
financing, if and when needed, could cause the Company to curtail, delay or
eliminate certain anticipated productions, or to fund such productions
through arrangements with third parties that may require the Company to
relinquish rights to substantial portions of its revenues, and could possibly
cause the Company to cease its expansion plans. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Transactions."
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 lim-
10
<PAGE>
ited equity distributions rather than through cash payments or investments.
Nonetheless, there may, in the future, be attractive acquisition candidates
for which cash funding is the Company's only choice, in which case, any such
acquisitions may be contingent upon the Company acquiring additional
financing in excess of the proceeds from this offering. There can be no
assurance that the Company will be able to acquire such financing or, even
with additional financing, that it will be able to acquire acceptable
production companies or shows, nor can there be any assurance that the
Company will be able to enter into beneficial joint ventures, on commercially
reasonable terms or in a timely manner. Furthermore, the Company can provide
no assurance that any acquired customer bases will be receptive to Legends or
Legends-type productions or that the Company will be able to successfully
develop any acquired shows. Moreover, under Nevada law, various forms of
business combinations can be effected without stockholder approval.
Accordingly, investors in this offering will, in all likelihood, neither
receive nor otherwise have the opportunity to evaluate any financial or other
information which may be made available to the Company in connection with any
potential acquisition or joint venture and will be dependent upon the
Company's management to select, structure and consummate any such
acquisitions and/or arrangements in a manner consistent with the Company's
business objectives. There can be no assurance that the Company will properly
ascertain or assess all significant and pertinent risk factors prior to its
consummation of such a transaction. Moreover, to the extent the Company does
effect an acquisition or joint venture, there can be no assurance that the
Company will be able to successfully integrate into its operations any
business or productions which it may acquire. Any inability to do so,
particularly in instances in which the Company has made significant capital
investments, could have a material adverse effect on the Company. In
addition, there can be no assurance that any acquired business will increase
the revenues and/or market share of the Company or otherwise improve the
financial condition of the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Acquisition of Interactive Events, Inc.," "Business -- Expansion
Strategy" and "-- Show Acquisition and Development."
Control by Principal Stockholder. Upon the consummation of this offering,
John W. Stuart, the Company's Chairman, Chief Executive Officer and principal
stockholder, will beneficially own approximately 51.3% of the outstanding
Common Stock. Accordingly, Mr. Stuart will be able to control the Company and
direct its affairs, including the election of all of the Company's directors,
and cause an increase in the Company's authorized capital or the dissolution,
merger or sale of the Company or substantially all of its assets. See
"Principal and Selling Stockholders."
Competition. The leisure and entertainment market, which includes the
market for live theatrical productions, is highly competitive, and many of
the Company's markets contain a large number of competing live theatrical
productions. In resort and urban tourist locations, the Company competes for
ticket sales with the producers of other live productions, many of whom have
greater financial and other resources than the Company and/or feature
productions and headline stars with greater name recognition than those of
the Company. In addition, the Company competes with other production
companies for the most desirable commercial and tourist venues and for talent
and production personnel. The Company's inability to secure such venues or
personnel could have a material adverse effect on the Company's expansion
plans and results of operations. In addition, one or more of the commercial
venues in which the Company currently has, or plans to have, a live
production show could decide to self-produce its live entertainment needs.
There can be no assurance that the Company will be able to secure alternative
venues for displaced productions or that such alternative venues could be
secured under similar or favorable terms. See "Business -- Competition."
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. 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."
11
<PAGE>
Fluctuations in Quarterly Operating Results; 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, approximately 60% and 41%,
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."
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
12
<PAGE>
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 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
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<PAGE>
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. 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
$4.06 per share (81%) 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."
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, 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."
Benefits of Offering to Existing Stockholders. Upon the consummation of
this offering, the existing stockholders of the Company will receive
substantial benefits, including the creation of a public trading market for
their securities (although, other than the 600,000 Shares of the Selling
Stockholder being offered hereby, all of such shares are subject to a lock-up
agreement with the Underwriter and will not be registered for sale in
connection with this offering) and the corresponding facilitation of sales by
such stockholders of their shares of Common Stock in the secondary market, as
well as an immediate increase in net tangible book value of $.75 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 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
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<PAGE>
connection with the expansion of its business and for general corporate
purposes. The declaration and payment of future dividends, if any, will be at
the sole discretion of the Company's Board of Directors and will depend upon
the Company's profitability, financial condition, cash requirements, future
prospects, and other factors deemed relevant by the Board of Directors. See
"Dividend Policy."
Possible Adverse Effects of Authorization of Preferred Stock. The
Company's Articles of Incorporation authorize the Company's Board of
Directors to issue up to 1,000,000 shares of "blank check" preferred stock
(the "Preferred Stock") with such designations, rights and preferences as may
be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors will be empowered, without stockholder approval, to issue
Preferred Stock with dividend, liquidation, conversion, voting, or other
rights, which could adversely affect the voting power of the holders of
Common Stock and, under certain circumstances, could make it difficult for a
third party to gain control of the Company, prevent or substantially delay a
change in control, discourage bids for the Common Stock at a premium, or
otherwise adversely affect the market price of the Common Stock. Although the
Company has no current plans to issue any shares of Preferred Stock, there
can be no assurance that the Board will not decide to do so in the future.
See "Description of Securities -- Capital Stock -- Preferred Stock."
No Assurance of Public Market; Determination of Offering Price; Possible
Volatility of Market Price of Common Stock and Warrants. Prior to this
offering, there has been no public trading market for the Common Stock or
Warrants. Consequently, the initial public offering price of the Common Stock
and Warrants and exercise price of the Warrants has been determined by
negotiations between the Company and the Underwriter and do not necessarily
reflect the Company's book value or other established criteria of value.
There can be no assurance that a regular trading market for the Common Stock
or Warrants will develop after this offering or that, if developed, it will
be sustained. The market prices of the Company's securities following this
offering may be highly volatile as has been the case with the securities of
other emerging companies. Factors such as the Company's operating results,
announcements by the Company or its competitors of new production contracts,
and various factors affecting the entertainment industry generally, may have
a significant impact on the market price of the Company's securities. In
addition, in recent years, the stock market has experienced a high level of
price and volume volatility and market prices for the stock of many
companies, particularly of small and emerging growth companies, the common
stock of which trade in the over-the-counter market, have experienced wide
price fluctuations which have not necessarily been related to the operating
performance of such companies. See "Underwriting."
Current Prospectus and State Registration Required to Exercise
Warrants. Holders of the Warrants will be able to exercise the Warrants only
if (i) a current prospectus under the Securities Act relating to the
securities underlying the Warrants, is then in effect and (ii) such
securities are qualified for sale or exempt from qualification under the
applicable securities laws of the states in which the various holders of
Warrants reside. Although the Company has undertaken and intends to use its
best efforts to maintain a current prospectus covering the securities
underlying the Warrants following the consummation of this offering, to the
extent required by federal securities laws, there can be no assurance that
the Company will be able to do so. The value of the Warrants may be greatly
reduced if a prospectus covering the securities issuable upon the exercise of
the Warrants is not kept current or if the securities are not qualified, or
exempt from qualification, in the states in which the holders of Warrants
reside. Persons holding Warrants who reside in jurisdictions in which such
securities are not qualified and in which there is no exemption will be
unable to exercise their Warrants and would either have to sell their
Warrants in the open market or allow then to expire unexercised. See
"Description of Securities -- Public Warrants."
Potential Adverse Effect of Redemption of Warrants. The Warrants are
subject to redemption by the Company, at any time commencing one year
following the date of this Prospectus, upon notice of not less than 30 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
15
<PAGE>
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."
Shares Eligible for Future Sale; Registration Rights. Upon consummation of
this offering, the Company will have 6,588,980 shares of Common Stock
outstanding, of which the 2,000,000 Shares offered hereby will be freely
tradable without restriction or further registration under the Securities
Act. The remaining 4,588,980 shares of Common Stock outstanding are deemed to
be "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act, and may only be sold (i) pursuant to an
effective registration under the Securities Act, (ii) in compliance with the
exemption provisions of Rule 144 or (iii) pursuant to another exemption under
the Securities Act. Such restricted shares of Common Stock will become
eligible for sale, under Rule 144, at various times commencing 90 days
following the date of this Prospectus, subject to certain volume limitations
prescribed by Rule 144 and to the agreements set forth below. In connection
with the Bridge Financing, the investors agreed that their Bridge Shares (as
well as their Bridge Warrants and Bridge Warrant Shares) may not be sold for
a period of 12 months following the date of this Prospectus, under any
circumstances, and the holders of the 4,388,980 other restricted shares have
agreed not to sell any of their securities of the Company for periods of
between 10 and 12 months following the date of this Prospectus without the
Underwriter's prior written consent (subject in certain cases to earlier
release upon the Company's achievement of certain performance targets). No
prediction can be made as to the effect, if any, that sales of shares of
Common Stock or even the availability of such shares for sale will have on
the market prices prevailing from time to time. In addition, the Company has
granted certain demand and piggyback registration rights relating to
1,165,688 of the restricted shares, as well as to the 250,000 Bridge Warrant
Shares and to the securities underlying the Underwriter's Warrants. The
possibility that substantial amounts of Common Stock may be sold in the
public market may adversely affect prevailing market prices for the Common
Stock and Warrants and could impair the Company's ability to raise capital
through the sale of its equity securities. See "Description of Securities --
Registration Rights," "Shares Eligible for Future Sale" and "Underwriting."
Possible Delisting of Securities from Nasdaq System; Risks Relating to
Low-Priced Stocks. It is currently anticipated that the Company's Common
Stock and Warrants will be eligible for listing on Nasdaq upon the completion
of this offering. In order to continue to be listed on Nasdaq, 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 Nasdaq
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 Nasdaq, 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.
In addition, if the Common Stock were to become delisted from trading on
Nasdaq 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.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,400,000 Shares and 2,000,000 Warrants offered by the Company hereby are
estimated to be approximately $5,720,000 (approximately $7,051,100 if the
Underwriter's over-allotment option is exercised in full) after deducting
underwriting discounts and commissions and estimated offering expenses
payable by the Company. The Company expects to use the net proceeds (assuming
no exercise of the Underwriter's over-allotment option) approximately as
follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage of
Application of Proceeds Dollar Amount Net Proceeds
--------------------------------------------- --------------- ---------------
<S> <C> <C>
New show openings (1) ....................... $3,000,000 52.45%
Repayment of indebtedness (2) ............... 1,775,000 31.03
Hiring of additional administrative and sales
personnel (3) .............................. 600,000 10.49
Working capital and general corporate
purposes(4) ................................ 345,000 6.03
--------------- ---------------
Total ................................ $5,720,000 100.00%
=============== ===============
</TABLE>
- ------
(1) The Company's current expansion strategy contemplates the opening of
approximately nine new resident "four-wall" productions by May 1999,
which the Company intends to accomplish with proceeds from the Bridge
Financing and this offering and revenues generated from its current and,
as they open, new productions (for instance, by the end of 1995, the
Company's Surfside Theatre production, a resident "four-wall" production
opened in March 1995, had already generated approximately $300,000 in
gross profits after deducting all pre-opening costs). Costs associated
with the opening (typically a three- to six-month process after the
theater site is secured) of new resident "four-wall" productions in
resort and urban tourist markets, include lease deposits and down
payments; costs associated with leasehold improvements and signage; the
lease and/or purchase of capital equipment, such as lighting, sound and
concession equipment and computer ticketing systems; pre-opening
advertising launch campaigns; merchandising and inventory; purchase and
physical loading of sets, costumes and props; pre-show rehearsals and
staffing; and estimated running cost floats for expected two- to
four-week initial operating deficits. The Company expects that such
opening costs will be between $400,000 and $800,000 for productions in
leased locations (the Company's primary focus) and up to $1,000,000 for
productions in purchased locations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Expansion
Plans" and "Business."
(2) Represents the repayment of the Bridge Notes in the aggregate principal
amount of $1,000,000, including Bridge Notes in the principal amounts of
$50,000, $25,000 and $12,500 payable to Kenneth Berg, a director of the
Company, David Hope, the President, Chief Operating Officer and a
director of the Company, and Kiranjit S. Sidhu, the Senior Vice President
and Chief Financial Officer of the Company, respectively, and the
repayment of the DYDX Loan in the principal amount of $750,000, plus
interest accrued thereon (in each case, at the rate of 9% per annum)
through and until the anticipated date of repayment in the estimated
aggregate amount of $25,000. The proceeds from the Company's recent
Bridge Financing are being used for the payment of outstanding trade
payables, pre-opening expenditures on the Daytona Beach show and the
seasonal Branson show, certain pre-offering expenses related to this
offering and for working capital and general corporate purposes. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources" and "Certain
Transactions."
(3) The Company intends to hire a Vice President of Marketing, a Vice
President of Operations, 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."
17
<PAGE>
If the Underwriter exercises the over-allotment option in full, the
Company will realize additional net proceeds of $1,331,100. If the 2,000,000
Warrants offered hereby are exercised, the Company will realize proceeds
relating thereto of $11,000,000 before any solicitation fees which may be
paid in connection therewith. Such additional proceeds, if received, are
expected to be used primarily for additional new show openings and for
working capital and general corporate purposes. See "Underwriting."
The allocation of the net proceeds to be received by the Company from this
offering as set forth above represents the Company's best estimates based
upon its currently proposed plans and assumptions relating to its operations
and expansion strategy and certain assumptions regarding general economic
conditions. The Company anticipates, based on management's internal forecasts
and assumptions relating to its operations (including the anticipated
timetable of new show openings and the costs associated therewith), that the
net proceeds of this offering and the Bridge Financing, together with its
current cash and cash equivalent balances and anticipated revenues from
operations, will be sufficient to funds its current expansion strategy, as
well as its other cash and operating requirements for 24 months following the
consummation of this offering. In the event that the Company's plans change,
its assumptions change or prove inaccurate, or if the proceeds of this
offering and cash flow otherwise prove to be insufficient to fund the
Company's plans (due to unanticipated financial shortfalls in the Company's
results of operations, changes in economic conditions or other unforeseen
circumstances), the Company could be required to seek additional financing
following this offering in order to continue implementation of its proposed
expansion plans. There can be no assurance, however, that additional
financing will be available to the Company if and when needed, on
commercially reasonable terms or at all.
Proceeds not immediately required for the purposes described above will be
invested principally in short-term investment grade debt obligations, bank
certificates of deposit, United States Government money market instruments or
other short-term interest bearing investments.
DILUTION
The difference between the initial public offering price per Share and net
tangible book value per share of Common Stock after this offering constitutes
the dilution to investors in this offering. Net tangible book value per share
is determined on any given date by dividing the net tangible book value of
the Company (total tangible assets less total liabilities) on such date by
the number of then outstanding shares of Common Stock.
At December 31, 1996, the net tangible book value (deficit) of the Company
was $(1,071,744), or $(.27) per share of Common Stock. After giving
retroactive effect to the Warrant Exchange, the Bridge Financing, the
issuance of the CFO Shares and the Pending Debt Conversion, the pro forma net
tangible book value of the Company as of December 31, 1996 would have been
$1,006,270 or $.19 per share. After also giving effect to the sale of the
1,400,000 Shares and 2,000,000 Warrants being offered hereby by the Company
and the receipt and application (including for the repayment of the Bridge
Notes and the DYDX Loan) of the estimated net proceeds therefrom (less
underwriting discounts and commissions and estimated offering expenses
payable by the Company), the as adjusted net tangible book value of the
Company as of December 31, 1996 would have been $6,184,970 or $.94 per share,
representing an immediate increase in net tangible book value of $.75 per
share to existing stockholders and an immediate dilution of $4.06 (81%) per
share to new investors.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price ................................ $5.00
Net tangible book value (deficit) before pro forma
adjustments ........................................... $(.27)
Increase attributable to pro forma adjustments .......... .46
--------
Pro forma net tangible book value before this offering .. .19
Increase attributable to investors in this offering ..... .75
--------
As adjusted net tangible book value after this offering ...... .94
-------
Dilution to new investors in this offering ................... $4.06
=======
</TABLE>
18
<PAGE>
The following table sets forth a comparison between the Company's existing
stockholders (giving effect to the Pending Debt Conversion) and new investors
in this offering, with respect to the number of shares of Common Stock
acquired from the Company, the percentage ownership of such shares, the total
consideration paid, the percentage of total consideration paid and the
average price per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
------------------------ ------------------------- ---------------
Number Percent Amount Percent Per Share
----------- --------- ------------ --------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1) 5,188,980 78.8% $2,597,764 27.1% $0.50
New investors .......... 1,400,000 21.2% 7,000,000 79.2% $5.00
----------- --------- ------------ --------- ---------------
Total ........... 6,588,980 100.0% $9,597,764 100.0%
</TABLE>
- ------
(1) The sale by the Selling Stockholder of 600,000 Shares in this offering
will reduce the number of shares of Common Stock held by existing
stockholders to 4,588,980, or approximately 69.6% (approximately 66.6% if
the over-allotment option is exercised in full) of the total number of
shares of Common Stock outstanding after this offering, and will increase
the number of shares of Common Stock acquired by investors in this
offering to 2,000,000, or approximately 30.4% (approximately 33.3% if the
over-allotment option is exercised in full), of the total number of
shares of Common Stock outstanding after this offering.
The above table assumes no exercise of the Underwriter's over-allotment
option. If such option is exercised in full, the new investors will have paid
$8,500,000 for 1,700,000 shares of Common Stock offered by the Company,
representing approximately 76.6% of the total consideration, for 24.7% of the
total number of shares of Common Stock outstanding. In addition, the above
table also assumes no exercise of outstanding stock options and warrants. As
of the date of this Prospectus, there are outstanding Bridge Warrants to
purchase 250,000 Bridge Warrant Shares at $4.00 per share and options to
purchase 596,453 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.
19
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of December 31, 1996: (i) on an actual basis; (ii) on a pro forma
basis, giving effect to the Warrant Exchange, the Bridge Financing, the issuance
of the CFO Shares and the Pending Debt Conversion; and (iii) as further adjusted
to give effect to the sale of the 1,400,000 Shares and 2,000,000 Warrants
offered by the Company hereby and to the anticipated application of the
estimated net proceeds therefrom, including for the repayment of the Bridge
Notes and the DYDX Loan:
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------
Actual Pro Forma As Adjusted
------------ -------------- --------------
<S> <C> <C> <C>
Short-term debt:
Bridge Notes .................................. $ -0- $ 556,000 $ -0-
Bank debt ..................................... 149,721 149,721 149,721
Current portion of capital lease obligations .. 78,789 78,789 78,789
------------ -------------- --------------
Total short-term debt ........................ $ 228,510 $ 913,327 $ 228,510
============ ============== ==============
Long-term debt:
DYDX Loan ..................................... $ 750,000 $ 750,000 $ -0-
Debentures .................................... 1,714,064 -0- -0-
Capital lease obligations, less current portion 163,327 163,327 163,327
------------ -------------- --------------
Total long-term debt ......................... 2,627,391 913,327 163,327
------------ -------------- --------------
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; 4,002,044 shares issued and
outstanding (actual); 5,188,980 shares
issued and outstanding (pro forma);
6,588,980 shares issued and outstanding (as
adjusted)(1) ............................... 40,020 51,890 65,890
Additional paid-in capital .................... 121,023 2,545,875(2) 7,594,074(3)
Accumulated deficit ........................... (383,684) (742,390) (1,283,690)
------------ -------------- --------------
Total stockholders' equity (deficit) ....... (222,641) 1,855,375 6,376,274
------------ -------------- --------------
Total capitalization ...................... $2,404,750 $ 2,768,702 $ 6,539,601
============ ============== ==============
</TABLE>
- ------
(1) Does not include (i) 2,000,000 shares of Common Stock reserved for
issuance upon exercise of the Warrants; (ii) an aggregate of 400,000
shares of Common Stock reserved for issuance upon exercise of the
Underwriter's Warrants and the warrants included therein; (iii) 250,000
Bridge Warrant Shares; (iv) 11,020 Interactive Events Shares; (v) 581,453
shares of Common Stock reserved for issuance upon exercise of options
granted, and 203,547 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) Reflects the compensation expense of $164,478 related to the issuance of
the CFO Shares and the additional interest expense charge of $194,228
related to the Pending Debt Conversion.
(3) Reflects a charge to operations of $541,300 related to the loan discount
and debt issuance costs of the Bridge Financing.
20
<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 31,1996 and at December 31, 1996 are derived from, and
should be read in conjunction with, the Company's financial statements,
including the notes thereto, audited by BDO Seidman, LLP, independent
certified public accountants, included elsewhere in this Prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1995 1996
----------- ----------
<S> <C> <C>
Net revenue .................................. $ 12,346 $ 13,814
Gross profit ................................. 2,712 5,368
Operating profit (loss) ...................... (158) 1,929
Pre-tax income (loss) before write-off of note
receivable from principal stockholder ....... (410) 1,776
Net income (loss) ............................ (412) (20)
Net income (loss) per share .................. (.10) (.00)
Weighted average number of shares outstanding 4,112,643 4,115,865
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------
As
Actual Pro Forma(1) Adjusted(1)(2)
-------- ------------ ------------
<S> <C> <C> <C>
Working capital (deficit) .... $ (103) $ 260 $4,689
Total assets ................. $3,954 $4,874 $8,089
Total liabilities ............ $4,177 $3,019 $1,713
Stockholders' equity (deficit) $ (223) $1,855 $6,377
</TABLE>
- ------
(1) Gives retroactive effect to the Warrant Exchange, the Bridge Financing
and the issuance of the CFO Shares, each of which was effected in March
1997, and to the Pending Debt Conversion, which will occur immediately
prior to the consummation of this offering. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Management-Employment Agreements."
(2) Adjusted to give retroactive effect to the Company's sale of 1,400,000 of
the Shares and the 2,000,000 Warrants offered hereby and the anticipated
application of the estimated net proceeds therefrom, including for the
repayment of the Bridge Notes and the DYDX Loan. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
-- Liquidity and Capital Resources."
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company derives the majority of its 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 Company deducts commissions paid to
agents, wholesalers, distributors, ticketing agencies and other
representatives from gross revenues to determine net revenue. The following
table sets forth the various components of the Company's revenue as a
percentage of net revenue for the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1995 1996
-------- --------
<S> <C> <C>
Theatrical productions:
Legends ............ 83.1% 91.1%
Other .............. 12.2 2.5
-------- --------
Total ............ 95.3 93.6
-------- --------
Merchandise (all Legends) 3.1 5.5
Other ................... 1.6 .9
-------- --------
TOTAL ............... 100.0% 100.0%
======== ========
</TABLE>
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 two Premier Cruise Line ships 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). See "Business -- Show
Financial Structures."
During late 1994 and early fiscal 1995, the Company opened three new
resident "at-risk" shows: Legends at the Surfside Theater in Myrtle Beach;
Country Stars on Ice at the Coliseum Theater in Pigeon Forge, Tennessee; and
Glitz at the Sands Hotel in Las Vegas. The Company's Legends production in
Myrtle Beach, which opened in March 1995, generated approximately $2,685,000
and $528,000 in revenue and gross profit, respectively, in fiscal 1995 and
$4,386,000 and $1,916,000, respectively, in fiscal 1996. The Company believes
that this represents very attractive results for an "at-risk" show's first
two years of operation. In 1995, Country Stars on Ice and Glitz, however,
generated aggregate revenue and gross loss of approximately $881,000 and
$411,000, respectively, and were discontinued in December 1995 and August
1995, respectively. If the 1995 results of Country Stars on Ice and Glitz
were excluded from the Company's 1995 results of operations, the Company
would have shown operating income (loss) and net income (loss) for such year
of approximately $618,000 and $(1,000), respectively, instead of its actual
results of $(157,663) and $(412,121), respectively.
The Company believes that the operating performance of Country Stars on
Ice and Glitz suffered from a lack of capital for adequate pre-opening market
research, site development and advertising, resulting in less than optimal
ticket sales in the start-up phase of both shows. The lower than anticipated
revenue levels, combined with high indirect production costs associated with
the shows' risky "four-wall" cost structures, resulted in losses for both
shows. The Company continues to believe that emerging tourist markets, such
as Pigeon Forge, offer
22
<PAGE>
attractive opportunities for future growth. However, the Company has now
implemented a policy of opening only proven, branded shows, like Legends, and
identifying, where possible, local marketing partners in similar "at-risk"
situations to increase its likelihood of success. Furthermore, if the Company
determines that the risk profile of a new attractive market is too high, it
will seek a "low-risk" deal structure such as a minimum seat guarantee or
fixed fee structure.
The Company currently maintains four administrative offices: its corporate
headquarters in Las Vegas and branch offices in Atlantic City, Atlanta and
Myrtle Beach. As part of its business strategy, the Company intends to open
several regional sales offices by the end of 1998. Potential sites for these
sales offices include New Orleans, Chicago, Dallas, New York, Minneapolis and
Los Angeles. In addition, over the next year, the Company plans to hire a
Vice President of Marketing, a Vice President of Operations, a Management
Information Systems Director and a Merchandising Director.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of the Company's net revenues represented by certain income statement data:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1996
-------- --------
<S> <C> <C>
Net revenue ................................. 100.0% 100.0%
Direct production costs ..................... 59.2 43.9
Indirect production costs ................... 18.8 17.2
-------- --------
Gross profit ................................ 22.0 38.9
General and administrative .................. 19.0 20.0
Depreciation and amortization ............... 4.3 4.9
-------- --------
Operating profit (loss) ..................... (1.3) 14.0
Interest expense, net ....................... 2.0 1.1
Write-off of note receivable from stockholder -- 12.9
-------- --------
Pre-tax income (loss) ....................... (3.3) --
Income taxes ................................ 0.0 .1
-------- --------
Net loss .................................... (3.3)% (.1)%
======== ========
</TABLE>
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 $1,468,000, or 12% from $12,346,000 to $13,814,000, as
compared to the year ended December 31, 1995. Contributing to this increase
were increases of approximately: (i) $1,745,000, attributable to the resident
Legends show in Myrtle Beach; (ii) $148,000, attributable to the Legends
shows in Atlantic City; (iii) $1,590,000, 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) $186,000 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) $76,000 attributable to the Legends show
at the Imperial Palace; (b) $33,000 attributable to the Legends shows on
Premier Cruise Lines; (c) $2,012,000 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) $80,000 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
23
<PAGE>
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 44% of net revenue for the year
ended December 31, 1996, as compared to 59% 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 $53,822, 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 19% 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.
General and Administrative. 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
$417,937, or 18%, as compared to the year ended December 31, 1995. General
and administrative expense as a percent of net revenue was 20% 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 $151,337, 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.
Interest Expense, Net. Interest expense for the year ended December 31,
1996 decreased by $99,510, 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 $143,011 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 $15,789 at
December 31, 1996 related to other state and local income taxes.
SEASONALITY AND QUARTERLY RESULTS
The Company's business has been, and is expected to remain, highly
seasonal, generating the majority of revenues from April through October.
Part of the Company's business strategy is to increase sales in tourist
markets that experience their peak seasons from November through March, such
as Florida and Arizona, domestically, and Australia, South Africa, China,
Singapore, New Zealand, and Hong Kong, abroad, which the Company believes
will help mitigate this seasonality.
The following table sets forth the Company's net revenue for each of the
last eight quarters ended December 31, 1996:
NET REVENUE
($ IN THOUSANDS)
<TABLE>
<CAPTION>
March 31 June 30 September 30 December 31
---------- --------- -------------- -------------
<S> <C> <C> <C> <C>
Fiscal 1995 . $2,243 $3,154 $4,260 $2,689
Fiscal 1996 . $2,265 $4,124 $4,471 $2,954
</TABLE>
24
<PAGE>
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 $18,000. 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 $2,014,000. The cash
provided from operations was primarily attributable to an increase in
revenues and a decrease in direct and indirect production costs offset by an
increase in general and administrative costs. As of December 31, 1996, the
Company had approximately $291,000 in cash and cash equivalents.
Net cash used in investing activities for the years ended December 31,
1995 and 1996 of $1,853,000, and $1,802,000, respectively, was primarily due
to capital expenditures and advances (which were subsequently written off at
December 31, 1996) on notes receivable to Mr. Stuart, the Company's principal
stockholder, Chairman and Chief Executive Officer. See "Certain
Transactions."
Net cash provided by financing activities for the years ended December 31,
1995 and 1996 of $1,892,000, and $58,000, respectively, 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.
As of December 31, 1996, the Company had outstanding a bank term loan in
the principal amount of $149,721, Debentures in the principal amount of
$1,714,064 and the DYDX Loan in the principal amount of $750,000, each
described below.
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 December 31, 1996, there was $149,721
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 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.
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"). 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
25
<PAGE>
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 set forth in their consulting
agreement with the Company dated February 17, 1995 and amended on March 14,
1995 (the "JDK Agreement"). 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, and the A and B Warrants would be
issued, entitling the holder to purchase one share of Common Stock at an
assumed valuation of the Company of $17,500,000 and $22,500,000,
respectively.
Subsequently, the JDK Agreement was terminated pursuant to a Settlement
and Termination Agreement dated September 6, 1995 (the "JDK Settlement
Agreement") before all of the objectives were met and, in July 1996, in order
to (i) extend the maturity date of the Original Debentures and (ii) eliminate
certain covenants in the Original Debentures that were disadvantageous to the
Company, the Company offered to either (a) exchange the outstanding Debenture
Units for Debentures due January 4, 1999, or (b) to repurchase the Debenture
Units upon the terms and subject to the conditions set forth in an Offer to
Exchange or Repurchase the Debenture Units, dated July 24, 1996 (the
"Exchange or Repurchase Offer"). The Debentures issued in connection with the
Exchange or Repurchase Offer bear interest at the rate of 8% per annum,
payable monthly, and, when issued, were convertible at the option of their
holders into shares of Common Stock at the rate of 266.67 shares per each
$1,000 principal amount of Debenture at any time prior to maturity. There are
no warrants attached to the Debentures. In connection with the Exchange or
Repurchase Offer, the holders of $1,714,064 principal amount of the Original
Debentures tendered their Debenture Units in exchange for Debentures in the
same principal amount and holders of $275,000 principal amount of the
Original Debentures opted to have them repurchased. Consequently, the Company
currently has outstanding $1,714,064 principal amount of Debentures. In
February 1997, the Company and the Debenture holders entered into an
agreement pursuant to which all of the Debentures will automatically be
converted into an aggregate of 505,649 shares of Common Stock (the "Debenture
Shares") immediately prior to the consummation of this offering, in
connection with the Pending Debt Conversion, based on a conversion ratio of
295 shares per each $1,000 principal amount of Debenture. The Pending Debt
Conversion will result in a one time, non-recurring, interest expense charge
to the Company in the estimated amount of $194,228 (based on an imputed value
of $4.00 per Debenture Share).
In September 1995, pursuant to the JDK Settlement Agreement, the Company
issued as compensation for all services performed by JDK for, or on behalf
of, the Company, warrants to purchase an aggregate of 355,378 shares of
Common Stock at an exercise price of $3.76 per share to JDK and its
designees, including Kenneth Berg (an investor in the 1995 Private Placement
and a director of the Company). In addition, the Company issued to Harry S.
Stahl warrants to purchase an aggregate of 11,019 shares of Common Stock at
an exercise price of $3.76 per share in payment for certain legal services
provided to the Company by Mr. Stahl with respect to the preparation of the
1995 Private Placement offering documents, and the Company issued to Lance
Hall warrants to purchase an aggregate of 27,549 shares of Common Stock at an
exercise price of $3.76 per share for certain financial consulting services
provided to the Company by Mr. Hall with respect to the 1995 Private
Placement, all in September 1995. These warrants were exchanged for an
aggregate of 190,312 of the Warrant Exchange Shares in connection with the
Warrant Exchange. See "-- Warrant Exchange" and "Certain Transactions."
DYDX LOAN TRANSACTIONS
On February 29, 1996, the Company entered into a loan agreement with DYDX
(the "Original DYDX Agreement") pursuant to which the Company borrowed
$1,000,000 from DYDX. Proceeds of the DYDX Loan were used by the Company to
fulfill existing obligations to trade vendors, pay legal and accounting fees,
make capital expenditures on existing shows, finance operating expenses on
new shows, pay and/or advance up to $150,000 to Mr. Stuart and satisfy
existing indebtedness. Under the Original DYDX Agreement, the DYDX Loan
accrued interest at a rate of 8% per annum, was to mature on January 1, 1998
and was secured by a security agreement pursuant to which DYDX had a lien on
substantially all of the present and future assets of the Company. In
addition, under the terms of the Original DYDX Agreement, if the Company did
not file an initial public offering registration statement by June 30, 1996
it would be in default under the DYDX Loan. In connection with the Original
DYDX Agreement, the Company issued to DYDX a warrant to purchase 550,974
26
<PAGE>
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.
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 Com-
27
<PAGE>
pany in connection with the Stuart Debt Forgiveness as of December 31, 1996.
As a result of the Stuart Debt Forgiveness, the Company had a net loss for
the year ended December 31, 1996 of $19,915 even though the Company had
operating income for such period of $1,929,296. In connection with the Bridge
Financing, the Company agreed that, commencing retroactively to January 1,
1997, no more than an additional $200,000 in aggregate principal amount would
be advanced to Mr. Stuart in the future and no more than an aggregate of
$220,000 (in principal and interest) borrowed by Mr. Stuart will be forgiven
by the Company in the future. 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
what are now 440,755 Warrant Exchange Shares, on a cashless basis, in
connection with the Warrant Exchange. The number of shares issued to each
warrantholder in the Warrant Exchange was equal to the number of warrants
held by such holder divided by the exercise price of the holder's warrants.
The Warrant Exchange had no effect upon the Company's earnings.
BRIDGE FINANCING
In connection with the Bridge Financing, the Company borrowed an aggregate
of $1,000,000 from 21 private investors in March 1997, in return for which
the Company issued to such investors Bridge Notes in the aggregate principal
amount of $1,000,000, an aggregate of 200,000 Bridge Shares and an aggregate
of 250,000 Bridge Warrants, each to purchase one Bridge Warrant Share at an
exercise price of $4.00 per share. After payment of $125,000 in placement
fees to the Underwriter, which acted as placement agent for the Company in
connection with the Bridge Financing, and other offering expenses of
approximately $75,000, the Company received net proceeds of approximately
$800,000 in connection with the Bridge Financing, which are being used for
the payment of outstanding trade payables, pre-opening expenditures on the
Daytona Beach show and the seasonal Branson show, certain pre-offering
expenses related to this offering and for working capital and general
corporate purposes. The Company intends, upon consummation of this offering,
to use approximately $1,015,000 of the proceeds from this offering to repay
the Bridge Notes, including interest accrued thereon through and until such
repayment date.
--------------------
The Company is dependent on the proceeds of this offering or other
financing to open new resident productions and expand its operations. The
Company anticipates, based on its currently proposed plans and assumptions
relating to its operations (including assumptions regarding the anticipated
timetable of its new show openings and the costs associated therewith) that
the proceeds of this offering and the Bridge Financing, together with the
Company's current cash and cash equivalent balances and anticipated revenues
from operations, will be sufficient to fund its current expansion strategy
and contemplated capital requirements (including those associated with the
opening of up to nine new resident "four-wall" productions) for 24 months
following the consummation of this offering. In the event that the Company's
plans change, or its assumptions change or prove to be incorrect, or if the
foregoing proceeds, cash balances and anticipated revenues otherwise prove to
be insufficient, the Company would be required to revise its expansion
strategy (which revision could include the curtailment, delay or elimination
of certain of its anticipated productions or the funding of such productions
through arrangements with third parties which require it to relinquish rights
to substantial portions of its revenues) and/or seek additional financing
prior to the end of such period.
Furthermore, while the Company intends to use a substantial portion of the
proceeds of this offering to implement the next phase of its business
strategy in an effort to expand its current level of operations and grow 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.
28
<PAGE>
BUSINESS
GENERAL
The Company develops and produces live theatrical productions for domestic
and international audiences. The Company markets its productions, directly
and through ticket wholesalers, to audiences at theaters in resort and urban
tourist locations. The Company also markets its productions to commercial
clients, which include casinos, corporations, fairs and expositions, theme
and amusement parks, and cruise lines. The Company's flagship Legends
production is a live tribute show featuring recreations of past and present
music and motion picture superstars through the use of impersonators and is
the longest running independently produced production in Las Vegas. The
Company currently has full-scale, resident Legends productions at the
Imperial Palace in Las Vegas, Bally's Park Place in Atlantic City and the
Surfside Theater in Myrtle Beach and on two Premier Cruise Lines ships (the
Atlantic and the Oceanic) which sail out of Cape Canaveral. In addition, the
Company will have a resident Legends production at the Coliseum Theater in
Daytona Beach, Florida, beginning in the Summer of 1997. The Company also
produces limited-run Legends shows and corporate events and has performed in
locations such as the Illinois State Fair, MGM Theme Park and Dollywood Theme
Park; in locations as far away as Australia, Russia, China, Africa, Japan and
the Philippines; and for major corporate clients such as McDonald's, Hewlett
Packard, IBM, Pitney Bowes, Levi Strauss and Texaco.
In addition to Legends, the Company has developed and produced 15 other
theatrical productions since its founding in 1985, including other
tribute-type shows, and a variety of musical reviews, magic, ice and
specialty shows. All of the Company's shows are designed to appeal to a broad
spectrum of attendees by offering affordable, quality entertainment
incorporating experienced talent and state-of-the-art special effects and
staging. By offering multiple productions in addition to Legends, the Company
seeks to run more than one show in highly visited live entertainment markets,
thereby generating both increased operating margins, due to economies of
scale resulting from shared fixed costs, and greater market share. In
addition, since the Company currently has access to over 70 different Legends
tribute acts, it can tailor each tribute show to suit the unique demographics
of any audience and the size of any venue, and has been able to attract
significant repeat business by varying regularly the composition of the acts
in its shows.
For the years ended December 31, 1994, 1995 and 1996, approximately 10%,
24% and 43%, respectively, of the Company's net revenue was generated from
resort and urban tourist markets; approximately 72%, 60% and 41%,
respectively, of the Company's net revenue was generated in gaming markets,
predominantly Las Vegas and Atlantic City; and approximately 18%, 18% and
16%, respectively, of the Company's net revenue was generated primarily from
various theme and amusement parks, fairs and expositions, meetings and
conventions, and cruise lines. Such percentages reflect the Company's growing
focus on the establishment of "four-wall" productions in resort and urban
tourist markets, over which the Company has greater control and, in
connection with which, it has more choices available to it. In addition, the
profit potentials, while riskier, are substantially greater with such
"four-wall" tourist productions than those associated with shows produced by
the Company for its casino gaming clients.
INDUSTRY BACKGROUND
Resort and Urban Tourist Markets
In 1995, approximately 92 million Americans planned to take a family
vacation trip 100 miles or more away from home. While the most popular
destinations for these vacationers included the top gaming sites, Las Vegas
and Atlantic City, and the top theme park sites, Orlando and Los Angeles,
several emerging resort locations such as Myrtle Beach, Daytona Beach and
Virginia Beach were also included.
Myrtle Beach, which has 97 golf courses and 11 live entertainment venues,
was one of the five most popular destinations during the summer of 1995,
according to a survey reported by the American Automobile Association. In
addition, while Myrtle Beach has only 25,000 hotel rooms, versus Las Vegas'
104,000 rooms, tourism-related construction reached $221 million for the
first six months of 1995, and, what has historically been a warm weather,
golf-oriented resort, is emerging quickly as a year-round resort. The
Company's resident Legends production at the Surfside Theater in Myrtle Beach
opened in March 1995, with successful results to date.
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Daytona Beach, Florida, is similarly a popular tourist destination with
approximately 8 million visitors annually. In March 1997, the Company entered
into a lease agreement with the owner of the Coliseum Nightclub in Daytona Beach
and is currently in the process of converting the Coliseum Nightclub into a
700-seat theater to be renamed the "Coliseum Theater." The Company intends to
open, and begin producing a "four-wall" resident Legends production at, the
theater in the Summer of 1997.
In some emerging tourist markets, like Branson, Missouri, live
entertainment is actually the primary tourist activity. In 1994, Branson
attracted 5.8 million visitors to 34 live theater venues and was The National
Tour Association's number one domestic tour destination, followed by
Washington, DC and New York City. Live entertainment in Branson,
predominantly a retiree "day-tripper" market, is atypical of other theater
districts, with shows beginning mid-morning and continuing throughout the day
and into the evening. The Company began producing Legends at the OFT Theater
in Branson in 1995 (two shows per day in July 1995 and a breakfast show each
day in October and November 1995), subsequently performed one Legends show
per day at the Grand Palace in Branson from April through October 1996, and
has agreed to relocate Legends to the OFT Theater with a commitment to
produce two shows per day in June, July and August 1997.
Pigeon Forge, Tennessee, home to the Dollywood Theme Park and nine live
entertainment theaters, is similarly gaining popularity as an emerging
"day-tripper" live entertainment venue. The Company produced Country Stars on
Ice at the Coliseum Theater in Pigeon Forge for the first ten months of 1995
and believes that emerging tourist markets like Pigeon Forge offer attractive
opportunities for future growth. Furthermore, many urban destinations have
theater districts and concert halls which already serve as primary tourist
attractions and the Company is seeking to expand its operations into certain
of these urban markets. For instance, the Company is currently seeking a
theater location in Toronto, Ontario, Canada, the third largest English
language theater center in the world, following New York and London, and the
most highly visited tourist destination in Canada.
In addition, the Company believes that there are numerous other emerging
urban and resort tourist markets, both in the United States and abroad, where
the need exists for quality, affordable live entertainment. The Company is
currently researching the suitability of the following urban and resort
tourist locations for the production and marketing of resident and/or
limited-run Legends shows:
North America -- San Diego and San Francisco, California; Destin, Miami
and Orlando, Florida; New Orleans, Louisiana; New York
City and Niagara Falls, New York; and Montreal, Toronto
and Vancouver, Canada.
International -- Australia, China, England, France, Germany, Japan, Korea,
Malaysia, Mexico and Singapore.
Gaming Markets
There are currently over 600 gaming venues in North America ranging in
size from single gaming rooms to large casino hotels. Las Vegas, in Clark
County, Nevada, is the largest gaming market in the United States with 63
casino hotels. Thirty of these casino hotels have showrooms featuring live
entertainment and actively promote their shows as a means to generate traffic
to increase their gaming revenues. In addition, every major hotel and many
tourist and visitor centers have in-house ticket reservation services, and
tour operators in this market frequently buy blocks of tickets to include in
package tours. Legends has been playing at the Imperial Palace in Las Vegas
since 1983 and the Company has produced numerous limited engagements and
other shows in Las Vegas, including Glitz at the Sands Hotel and Casino from
April through August 1995. The Company is aware of at least seven new casino
hotel projects in development in Clark County, Nevada and believes that
several of these will also contain showrooms suitable for live entertainment.
The second largest gaming market in the United States is Atlantic City,
with 13 casino hotels. All of these casino hotels contain showrooms which
feature live entertainment and provide complimentary tickets to visitors in
an attempt to retain them during the evening hours. Furthermore, since casino
visitors in this market do not typically expect to pay to attend a live
theatrical production, casino executives are often willing to "guarantee" a
weekly revenue stream to a producer of live entertainment, which the casino
then offers free of charge or at a reduced rate to its customers. The Company
currently produces Legends at Bally's Park Place in Atlantic City,
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having previously produced it at Bally's Grand Hotel, Harrah's Hotel and
Casino, and Caesars Atlantic City, and has produced numerous other shows in
this market including Magic, Magic, Magic! at the Showboat Hotel and Casino,
Cabaret on Ice at Trump's Castle, and Bon Voyage and The Atlantic City
Experience at Bally's Park Place. In addition, the Company began the
co-production of a comedy show entitled An Evening at the Improv(R)
Spectacular at the Xandu Theater at the Trump Taj Mahal Casino Resort in
Atlantic City in March 1997 which will run through July 1997. Furthermore,
the Company is aware of at least four new casino hotel projects under
development in Atlantic City and believes that several of these will also
contain showrooms for live entertainment.
As of the Spring of 1996, 24 states allowed casino gambling, an increase
from only two states in 1988. As the number of casino markets has grown, both
the number of entertainment venues and the dollars spent on entertainment in
these markets has grown as well. This growth is particularly significant
since the actual time and dollars spent gambling in these markets has
declined. For example, according to a July 1996 article in Forbes, visitors
to Las Vegas in 1995 spent 4.1 hours and $114 per day gambling, down from 5.0
hours and $120 per day in 1989, while spending on shows, sightseeing and
other activities tripled over this same period to $97 per day per visitor.
The Company believes that casinos will increase the entertainment options
offered in order to attract visitors and that the continued emergence of new
gaming markets, combined with the increasing need for affordable, non-gaming
entertainment in such markets, will result in multiple opportunities for new
Legends and other shows. While there is currently a consolidation trend
within the casino gaming industry, it has not, as of yet, resulted in a
reduction in the number of casinos currently operating.
Internationally, there are numerous emerging gaming jurisdictions in which
Las Vegas-style casino hotels with live entertainment showrooms are under
construction. For example, the Pacific Rim, one of the most recent areas to
legalize gaming, is experiencing new construction in the resort locations of
Malaysia, Philippines, New Zealand and Australia. In addition, while several
Mediterranean islands have had legal gaming jurisdictions for many years, it
is anticipated that gaming will soon be legalized in Cyprus.
The Company is currently researching the suitability of existing and
potential gaming markets for the production and marketing of new shows,
including, in particular:
North America -- Reno, Nevada; Atlantic City, New Jersey; Biloxi and
Tunica, Mississippi; Lake Charles and New Orleans,
Louisiana; Prior Lake, Minnesota; Rising Sun, Indiana;
and St. Louis and Kansas City, Missouri.
International -- Auckland, New Zealand; Burswood and Darwin, Australia;
and Sun City, South Africa.
While the Company will continue to market its productions to the casino
gaming industry, and depend upon it for a significant portion of its revenues,
the Company has begun to shift its primary focus away from the casino gaming
industry and towards the resort and urban tourist market, as evidenced by the
changing composition of the Company's net revenues over the last three years
(during such period its revenues from gaming markets decreased from 72% to 41%
of its total net revenues and its revenues from resort and urban tourist markets
increased from 10% to 43% of its total net revenues). This shift in the
Company's primary focus began as a hedge against the declining growth in the
casino gaming industry which has resulted from emerging consolidation trends. If
the consolidation trends continue in the casino gaming industry, the Company's
exposure to such decreasing growth may be reduced as a result of its shift in
primary focus.
Other Commercial Client Markets
The Company has also produced limited-run Legends shows (and, in the case
of Premier Cruise Lines, resident Legends shows) in the last five years for
other types of commercial clients, such as theme parks (Six Flags, MGM Theme
Park, Lotte World in Korea), on cruise ships (Viking, Premier Cruise Lines,
Star Cruises), and at major fairs (Dade County Youth Fair, Illinois State
Fair). In addition, in 1995 and 1996, the Company produced approximately 40
and 80 events, respectively, for such diverse clients as McDonald's, Hewlett
Packard, IBM, Levi Strauss and Texaco.
EXPANSION STRATEGY
The Company's objective is to become a leading worldwide producer of
affordable live theatrical productions, which have mass market appeal, by the
implementation of both a "roll-out" and "roll-up" strategy. The key elements
of this business expansion strategy include:
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o Roll-Out of Legends into New Tourist Markets -- The Company has been
successful with its production of Legends in Myrtle Beach and Branson
and believes that it can be equally successful in other, similar
markets. As part of its "roll-out" strategy, the Company has identified
over 30 resort and urban tourist locations worldwide where it believes
the potential exists for the Company to successfully produce and market
new resident Legends shows. In connection with its proposed roll-out of
Legends in new tourist venues, the Company generally intends to utilize
a "four-wall" operating structure. With such a structure, the Company
assumes responsibility for all of the expenses associated with the
show, including the cost of the theater (whether leased or purchased)
and is also the sole recipient of the show's potential revenues,
profits and/or losses. The Company's resident Legends production in
Myrtle Beach, a "four-wall" production, has demonstrated to the Company
the benefits of such operating structure; it opened in March 1995 and,
for the year ended December 31, 1996, generated gross profits of
$1,900,000 and a 44% gross margin. The Company currently anticipates
that it will open approximately nine new resident "four-wall" Legends
productions within the next 24 months. The Company intends to hire a
Vice President of Marketing during 1997 to oversee the implementation
of its proposed Legends "roll-out" strategy. In addition, prior to
entering any new tourist market, the Company generally intends to seek
a local marketing partner, as it did in Myrtle Beach, and undertake a
comprehensive analysis of market demographics, competition and
available media in order to improve each new show's opportunity to
succeed.
o Acquiring Brand-Name Theatrical Productions -- The Company believes it
has developed worldwide market awareness of its Legends production and
that the long-term success of Legends has contributed to the Company's
credibility as a producer of affordable live entertainment. The Company
believes that Legends, and similar brand-name shows, are more easily
marketed and efficiently implemented in new markets than new show
concepts due to their built-in recognition among ticket and tour
wholesalers. Thus, as part of its "roll-up" strategy, the Company
intends to acquire additional brand-name shows with "roll-out"
potential through joint ventures or other arrangements with other
production companies, such as An Evening at the Improv(R) Spectacular
which the Company is co-producing with Improv West, Inc. The Company
has identified several other variety, magic, ice, and interactive
dinner and other theater productions which it believes have, like
Legends, the quality, versatility and broad appeal necessary to succeed
under the "four-wall" operating structure and in multiple markets.
o Acquiring Independent Production Companies -- The live theatrical
entertainment industry is highly fragmented and contains many small,
independent producers with attractive show concepts and/or client
bases. Consequently, as part of its "roll-up" strategy, the Company
will also seek to acquire production companies with show concepts which
it believes have the potential to develop into brand-name shows (such
as Frankie and Angie Get Married, which the Company recently acquired
in connection with the Interactive Events Acquisition) or with existing
commercial customer bases to which it can market Legends and other
shows. By leveraging its in-house production expertise and
infrastructure, the Company believes it can improve the quality of
acquired show concepts and the efficiency of acquired production
companies, and, by capitalizing upon its already established Legends
name and reputation, the Company believes it can improve and/or hasten
the marketability of new show concepts.
o Penetrating Commercial Markets through Expansion of Direct Sales Network
-- Shows sold to corporations, fairs and expositions, theme and amusement
parks and cruise lines are typically limited-run engagements, ranging from
one night to several months, and are usually guaranteed or "low-risk"
shows where the client pays the Company a guaranteed fee. Shows sold to
casinos, both resident and limited-run productions, are operated using
either the "two-wall" method, where the casino and the Company each assume
certain aspects of the production's costs and a designated percentage of
its revenues, or a guaranteed show arrangement. Historically, the Company
has not aggressively marketed its shows to any of these potential
commercial clients, instead relying upon its reputation and word-of-mouth
to generate new business from such markets. To further penetrate all of
these commercial markets, the Company plans to expand its national sales
network both in terms of staffing and geographically. The Company recently
hired a Vice President of Sales and intends to open several new regional
sales offices by the end of 1998. Potential sites for such offices include
New Orleans, Chicago, New York, Dallas, Minneapolis, and Los Angeles. An
expanded regional sales network should allow the Company to target new
casinos, corporations and other commercial clients, and effectively
monitor, and sell additional shows to, existing clients.
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o Expanding and Centralizing Merchandising Program -- The Company
believes that it can increase its merchandise sales, which, to date,
have accounted for less than 6% per annum of the Company's revenues, by
introducing new products such as compact discs, audio and video tapes
and a wider variety of clothing items, and by designing more effective
point of sale displays. In addition, the Company intends to hire a
Merchandising Director during 1997 and to implement centralized
purchasing and marketing to achieve economies of scale, ensure
consistent quality of product, and obtain sales data in a timely
manner.
SHOW OFFERINGS
The Company has developed and produced 16 different theatrical productions
since its founding in 1985, including Legends and other tribute shows, and a
variety of musical reviews, magic, ice and specialty shows.
Legends
The Company's flagship production "Legends In Concert -- A Tribute to the
Superstars of Yesterday and Today," is a live tribute show featuring
re-creations of past and present music and motion picture superstars.
Conceived by the Company's Chairman, Chief Executive Officer and principal
stockholder, John W. Stuart, Legends has run continuously at the Imperial
Palace in Las Vegas since its debut in 1983 and, since that date, has been
performed in over 17 countries. The Company believes it is the premier
worldwide producer of superstar tribute shows and has featured 184
impersonation artists portraying over 72 different legends in its 13-year
history. In 1996 alone, Legends shows were seen by approximately one million
people. In addition to Las Vegas, the Company currently has resident Legends
productions in Atlantic City and Myrtle Beach and on two Premier Cruise Lines
ships. For the years ended December 31, 1995 and 1996, revenues attributable
to Legends productions (including both resident and limited-run engagements)
and the sale of related Legends merchandise accounted for approximately 86%
and 97%, 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 13% and 2% of the Company's net revenue for
the years ended December 31, 1995 and 1996, respectively, and include, among
others, the following:
"The Heroes Of Rock And Roll -- A Tribute To The Musical Artists Of
The '50s & '60s." -- a salute to the great musical rock and roll
artists of the fifties and sixties such as Richie Valens, Buddy
Holly, The Big Bopper, Chuck Berry, Jerry Lee Lewis, Sonny and Cher,
The Beach Boys, Aretha Franklin, and John Lennon. Heroes performed
in the fall of 1995 at the Primadonna Hotel and Casino in Stateline,
Nevada.
"Glitz -- A Tribute To The History Of Las Vegas." -- a musical revue
chronicling the development of Las Vegas from Frank Sinatra and his
contemporaries to the rise of modern revue shows, which featured
celebrity hosts Marty Allen and Steve Rossi and Australian singer
Greg Bonham. Glitz completed a five-month engagement in the summer
of 1995 at the Sands Hotel and Casino in Las Vegas.
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"Magic, Magic, Magic!" -- combines master magicians and illusionists
with special visual effects, comedy, music and dance. Each magician
principal, complemented by a troupe of singers and dancers, performs
several different components of magic: sleight-of-hand, comedy magic
and grand scale illusion. Magic, Magic, Magic! completed an
eleven-week engagement at the Showboat Hotel and Casino in Atlantic
City in May 1996 and completed an eight-week engagement at Players
Island Casino in Mesquite, Nevada in September 1996.
"Country Stars On Ice" -- combines performances by World Class
skaters with comedic skits by skating clowns and ensemble skating.
Country Stars On Ice was performed at the Coliseum Theater in Pigeon
Forge during the first 10 months of 1995 and at Trump's Castle
(where it was renamed "Cabaret on Ice") in Atlantic City during the
last two months of 1995.
"Atlantic City Experience" -- a 30-minute, five-screen multimedia
history chronicling the founding, development and growth of Atlantic
City from the 1600's through the introduction of gaming. Atlantic
City Experience ran through the summer of 1995 at Bally's Park Place
and is an excellent showcase of the Company's multimedia video
production capability.
SHOW FINANCIAL STRUCTURES
The types of financial structures inherent in the live entertainment
industry can be differentiated by which revenue and expense responsibilities
are borne by the producer and which are borne by the client. Most financial
structures for productions in theaters in resort and urban tourist markets
and in large casinos are based on what is known in the industry as the "wall"
method of expense and revenue allocation between the producer and the client,
while those produced for smaller casinos and other commercial clients, such
as corporations, fairs, cruise lines and theme parks, are "guaranteed deals"
where the client pays the producer a fixed fee.
The four "walls" of any live theatrical production can be illustrated as
follows:
FRONT OF HOUSE
Ticket Sellers
Food & Beverage Servers
Cleaning & Maintenance
Maitre d', Captains, Ushers
PRODUCTION SHOW PROMOTION
Performers Marketing
Orchestra Community &
Dancers Media Relations
Advertising
Group Sales
STAGE
Stage Hands
Technicians
The Company intends generally to operate its resident productions in
resort and urban tourist markets and in large casinos under a "four-wall"
arrangement (where the Company assumes the responsibility for the cost of the
theater, whether leased or purchased, and the expenses associated with all
four of the "walls" depicted and is the recipient of all of the show's
potential revenues, profits and/or losses) or a "two-wall" arrangement (where
the client owns or manages the theater and each of the Company and the client
assumes responsibility for two of the "walls" depicted and retains certain
designated percentages of the show's revenues). The Company's resident
Legends show at the Surfside Theater in Myrtle Beach is structured as a
"four-wall" arrangement and its resident Legends show at the Imperial Palace
in Las Vegas is structured as a "two-wall" arrangement.
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The Company refers to those shows which it operates under a "wall"
structure as "at-risk" shows. The Company expects to realize steady state
economics for new "at-risk" shows generally in their second full year of
operation, due to the amortization of pre-opening costs in the year of
opening and a typical one-year revenue ramp-up as tour operators and visitors
become familiar with the show.
While the Company believes that the potential benefits associated with the
"four-wall" operating structure are enormous, it is, by far, the riskiest
type of financial arrangement for the Company. Consequently, as part of the
Company's planned roll-out of "four-wall" resident productions in new tourist
venues, the Company intends to limit such roll-out to Legends productions or
other brand-name shows. Additionally, the Company will often attempt to team
up with a local marketing partner, like Calvin Gilmore Productions, a
division of International Family Entertainment, the Company's marketing
partner in Myrtle Beach, for additional sales and marketing support.
The balance of the Company's shows are guaranteed or "low-risk" shows where
the client is responsible for all non-production-related expenses and retains
all revenue generated from ticket sales, and the Company is responsible for all
production related expenses (performers, orchestra and dancers) and receives a
guaranteed weekly fee. This is a typical structure for shows sold to commercial
clients such as corporations, fairs and theme and amusement parks (which are
typically limited-run engagements ranging from one night to several months), as
well as shows sold to cruise lines and smaller casinos (both resident and
limited-run engagements, where audiences do not typically expect to pay to
attend a live theatrical production), and is the type of arrangement governing
the Company's resident Legends production at Bally's Park Place in Atlantic City
and its resident Legends productions on board two Premier Cruise Lines ships.
RESIDENT PRODUCTION CONTRACTS
The Surfside Theater, Myrtle Beach, South Carolina
The Company has presented a full-scale Legends show at the Surfside
Theater in Myrtle Beach, South Carolina since March 1995 under a "four-wall"
arrangement. The original term of the Company's lease with the theater's
owner, Great American Entertainment Company ("Great American"), expired on
December 31, 1995, subject thereafter to three successive renewal options
(one year, one year and seven years) extending through February 2004. To
date, the Company has exercised the first two of such options and intends to
exercise the third. Under the lease, the Company pays rent in the amount of
$330,000 per year. In addition, the lease provides that (i) within a 50-mile
radius of the Myrtle Beach show and until February 1998, the Company may not
lease another location for the purpose of operating a Legends show, (ii)
Great American has a right of first refusal to rent space to the Company to
operate a production other than Legends and (iii) the Company has a right of
first refusal to purchase the Surfside Theater from Great American.
The Company's "four-wall, at-risk" production at the Surfside Theater
generated a 44% gross margin for the year ended December 31, 1996.
The Imperial Palace Hotel and Casino - Las Vegas, Nevada
The Company has produced and presented a full-scale Legends show at the
Imperial Palace since May 1983. The Company has a "two-wall" arrangement with
Imperial Palace, Inc. ("Imperial"), the owner of the casino, pursuant to
which Imperial is responsible for the front of house and promotion "walls"
and the Company is responsible for the production show and stage "walls." The
Company's agreement with Imperial continues indefinitely but may be
terminated earlier by Imperial (i) on eight weeks notice, (ii) if the number
of paying customers falls below 2,400 persons per week (based on six evening
shows per week) for three consecutive weeks, (iii) immediately, in the event
of the death of Mr. Stuart, or (iv) if there is an accident, fire, explosion
or any other event beyond the parties' control which interferes with the
performance of the production for seven consecutive days.
The Imperial Palace agreement provides that Legends be performed twice
each day, six days a week, and that the admission fee per show remain at
$29.50. After amounts are withheld for taxes, gratuities and beverage costs,
a substantial percentage of the proceeds of such admission fees are paid to
the Company and the remain-
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ing proceeds are paid to Imperial. The parties receive the same percentage of
net profits on all Legends merchandise sold by the Company at the Imperial
Palace, except for merchandise sold by Imperial's gift shop. Net profits from
merchandise sold at Imperial's gift shop are divided equally by the parties.
The Company's "two-wall, at-risk" production at the Imperial Palace
generated a 38% gross margin for the year ended December 31, 1996.
Bally's Park Place Hotel and Casino - Atlantic City, New Jersey
The Company has produced and presented a full-scale Legends production at
Bally's Park Place since October 1994, prior to which time, from July 1993 to
September 1994, the Company presented Legends at its sister hotel, Bally's
Grand Hotel and Casino, also in Atlantic City. The Company recently extended
the term of its agreement (which is renewable each six months at the option
of the casino) with the casino's owner, Bally's Park Place, Inc., until
September 1997. The agreement provides that the Company will present its
Legends show twice each day and six days each week. The Bally's Park Place
agreement is a "guaranteed" arrangement under which the Company receives a
guaranteed weekly fee. The agreement also contains a provision which
prohibits the Company from presenting Legends within a radius of 150 miles of
Bally's Park Place.
The Company's "low-risk", guaranteed arrangement at Bally's Park Place
generated a 31% gross margin for the year ended December 31, 1996.
Premier Cruise Lines (the Atlantic and the Oceanic)
The Company has produced and presented a smaller-scale Legends production
on board two Premier Cruise Lines ships since June 1990. The Company has a
"guaranteed" arrangement with Premier Cruise Lines, Inc. ("Premier") to
provide Premier with three principal Legends tribute acts to perform
year-round on board its Atlantic and Oceanic vessels which sail out of Cape
Canaveral, Florida. Under its agreement with Premier, the Company receives a
guaranteed weekly fee. The Company's agreement with Premier terminates in
January 1999 but may be terminated earlier by either party upon six-months
written notice.
The Company's "low-risk," guaranteed arrangement with Premier Cruise Lines
generated a 6% gross margin for the year ended December 31, 1996.
The Coliseum Theater - Daytona Beach, Florida
The Company is currently in the process of converting the Coliseum
Nightclub in Daytona Beach, Florida into a 700 seat theater. The Company has
a lease arrangement with the Nightclub's owner, Burgoyne Properties, Limited,
which expires on April 30, 1998, subject thereafter to two successive renewal
options for one year and eight years extending through April 30, 2007. The
lease provides for rent of $10,000 per month commencing on the earlier of the
date the Company opens the theater or May 15, 1997. In the event one or both
of the Company's renewal options are exercised by the Company, the rent shall
increase at the rate of 5% per year for each year of the renewal term. In
addition, the lease provides that the Company may use the location for the
operation of a theater, bar, club with a restaurant and cafe and a gift shop.
The Company intends to open the theater as the Coliseum Theater and begin
producing a "four-wall, at-risk" resident Legends production at the theater
in the Summer of 1997.
SHOW ACQUISITION AND DEVELOPMENT
Most shows in tourist locations like Myrtle Beach are structured as
"four-wall" arrangements, the riskiest type of financial arrangement for the
Company. Since the Company believes that Legends and similar brand-name
shows are more easily marketed, and can be implemented more efficiently, than
new show concepts in these riskier markets, due to their built-in recognition
among ticket and tour wholesalers, it generally intends to implement its
"roll-out" strategy in new resort and urban tourist markets only with Legends
and similar brand- name shows. As part of its "roll-up" strategy, the Company
intends to acquire additional brand-name shows with "roll-out" potential
through joint ventures and other arrangements with other production
companies. For instance, in October 1996, the Company entered into an
agreement with Improv West, Inc. to co-produce a conceptual show entitled An
Evening at the Improve(R) Spectacular. Pursuant to the terms of the
agreement, Improv West, Inc. granted to the Company the right to use its
federally registered trademark and brand-name "Improv(R)" and agreed to
assume 50% of the show's pre-production costs in return for co-production
billing rights and 50%
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of all profits, if any, generated by the show. In March 1997, the Company
began performing An Evening at the Improv(R) Spectacular for Trump's Taj
Majal in Atlantic City, where it will run through July 6, 1997. The Company
has also identified certain variety, magic, ice and interactive dinner and
other theater productions which it believes, like Legends, have the quality,
versatility and broad appeal necessary to succeed in multiple markets.
In addition to acquiring brand-name shows, the Company, as part of its
"roll-up" strategy, will also seek to acquire production companies with show
concepts which it believes have the potential to develop into brand-name
shows. By leveraging its in-house production expertise and infrastructure,
the Company believes it can improve the quality of acquired show concepts,
and, by capitalizing upon its already established Legends name and
reputation, the Company believes it can improve and/or hasten the
marketability of new show concepts.
In keeping with this "roll-up" strategy, on November 1, 1996, the Company
purchased all of the outstanding capital stock of Interactive Events, Inc., a
small Atlanta - based corporate events producer, as well as the rights to two
interactive dinner shows, Frankie and Angie Get Married and Wake Up Shamus
O'Reilly, in exchange for the Company's delivery, on the closing date of the
acquisition, of 19,284 shares of Common Stock, a non-plan option to purchase
15,000 shares of Common Stock, at a price per share equal to the initial
public offering price of the Common Stock, and its promise to deliver 11,020
additional shares of Common Stock, on November 1, 1997. Interactive Events,
Inc. specializes in producing audience participation theme parties for
corporate clients which it anticipates rolling out to the general public. For
example, Frankie and Angie Get Married is a mock New York/Italian wedding in
which the audience participates as guests of the wedding families, and Wake
Up Shamus O'Reilly is a mock Irish wake with a funeral service. In addition,
Interactive Events, Inc. has produced several other audience participation
theme parties including its Las Vegas Spectacular in which a casino is
created and participants are allowed to gamble as if they were in a Las Vegas
casino. Interactive Events, Inc. has held these types of theme parties for
such corporate clients as the City of Las Vegas, Hyatt Hotels Worldwide, Six
Flags Over Georgia, The National Football League, IBM, Xerox and Conoco.
In addition, the Company periodically conceives of new show ideas, and if
it cannot adapt an existing show to suit a client's needs, it may develop a
new show to meet a client's requirements. Depending on the client's budget,
the Company may hire a development team and/or consultation team to augment
its in-house capabilities. In most instances, the Company self-produces its
shows, and when possible, uses performers in the Company's database. Budgets
are prepared as part of the show development process, and the Company targets
a 30% average gross margin on each of its productions.
SALES AND MARKETING
The Company currently markets its productions to commercial clients, which
include casinos, corporations, fairs and expositions, theme and amusement
parks, and cruise lines, from its offices in Las Vegas, Atlantic City,
Atlanta and Myrtle Beach. However, historically, the Company has not
aggressively marketed its shows to potential commercial clients, relying
instead upon its reputation and word-of-mouth to generate business. Part of
the Company's business strategy is to become more proactive in the commercial
market and it plans to expand its national sales network in order to target,
on a regional basis, new commercial clients and effectively service, and sell
additional shows to, existing clients. Potential regional sales office sites
include New Orleans, Chicago, New York, Dallas, Minneapolis, and Los Angeles.
In the casino, theme and amusement park, and cruise markets, the Company
markets its shows directly to clients' entertainment directors and senior
executives or through agents that have long-standing relationships with the
client. The Company has historically marketed its productions to fairs and
expositions through a network of agents, and has recently started to augment
its efforts in this segment by marketing through trade publications, trade
shows, direct mail and telemarketing. The Company has also started to market
directly to the meeting and convention market through direct mail, trade
shows and trade advertisements and intends to form alliances with small
independent event planners and collectively market to corporate clients. The
Company intends to augment its efforts in this segment by acquiring event
planners in urban centers, focusing primarily on events with larger
entertainment budgets (in excess of $10,000), and marketing to catering
managers in large metropolitan hotels.
37
<PAGE>
The Company markets its productions to audiences at venues in resort and
urban tourist locations directly through its own box offices and through
ticket wholesalers and tour operators. Since many people do not plan to
attend a specific live performance prior to leaving for vacation, unless they
have purchased the show as part of a packaged tour or group outing, the
Company also relies on focused show promotion and word-of-mouth to attract
additional "walk-up" traffic to its box office. In addition, the Company
aggressively markets to tour operators and ticket wholesalers, through
partnerships with entities such as Calvin Gilmore Productions in Myrtle
Beach, for additional sales and marketing support.
The Company generally targets mass market audiences with average prices
for its productions ranging from $20.00 to $40.00 per adult ticket. Show
pricing is determined by competition in the local marketplace and is
typically neither the lowest nor the highest in a particular market. Once
ticket pricing has been determined, the composition of the show (number of
principals, singers, dancers, orchestra, technicians, etc.) and facility and
equipment requirements are adjusted so that each show will generate profits
based upon projected attendance. The Company distributes, from time to time,
show coupons offering discounts of up to 10% on individual ticket purchases,
and offers volume discounts of up to 15% to ticket and tour wholesalers
buying large blocks of tickets.
ADVERTISING AND PROMOTION
The Company provides publicity support and seeks major ongoing media
coverage for all of its shows through its network of media contacts. Exposure
on television and radio, and in national periodicals, major metropolitan
newspapers, and local tourist entertainment guides has served to promote the
Company's shows both regionally and nationally. Over the last year, publicity
exposure for the Company included impersonator appearances at the 1996 Miss
Universe Pageant, on Jay Leno's Tonight Show from Las Vegas, and on VH1's
Route 96.
Prior to the opening of each new "four-wall" show produced by the Company
in the resort and urban tourist market, the Company, as an integral part of
its "roll-out" strategy, intends to undertake a detailed analysis of market
demographics, available media and the various transportation modes to the
theater site. In addition, the Company prepares press kits for dissemination
to the local and regional media, which include a show synopsis, biographies
of all principals and production personnel, an opening press release,
photographs and support materials. A "press night" is typically held during
the first week after the opening of a new show and many show principals
actively participate as goodwill ambassadors at community and charitable
events. The Company maintains an in-house video, photo and press clipping
library and is capable of producing promotional videos and commercials upon
client request.
Advertising designed to target the individual tourist includes newspaper
and magazine print ads, television and radio commercials, airport videos and
signage, billboard and outdoor advertising, transit advertising, and
brochures placed in areas with a high concentration of tourists (such as
visitor and tourist welcome centers). In some resort markets, such as Myrtle
Beach and Branson, advertising commences up to one year in advance of a
show's opening, and includes direct mail campaigns, attendance at consumer
and travel trade shows, and placement of print ads in travel and trade
publications. Within casinos and hotels, table tent cards, coupons, flyers
and brochures are placed in each guest room, restaurant and lounge, and
promotional show videos are broadcast on in-house television systems.
SHOW MERCHANDISING
The Company sells Legends merchandise at all of its shows in tourist
locations and, if permitted, in client venues. Merchandise includes Legends
logo clothing, keychains, magnets, pins, canvas tote bags and coffee mugs,
plus specialty merchandise featuring the Company's more popular Legends acts
such as Elvis, the Blues Brothers and Marilyn Monroe. In Myrtle Beach, the
Company also sells autographed photographs of impersonators posing with
audience members, for which it pays nominal royalties to featured performers.
For the year ended December 31, 1995 and 1996, sales of merchandise accounted
for approximately 3% and 6% of the Company's net revenue, respectively.
38
<PAGE>
Part of the Company's business strategy is to increase its merchandise
sales by introducing new products such as compact discs, audio and video
tapes and a wider variety of clothing items, and by designing more effective
point of sale displays. In addition, the Company intends to implement
centralized purchasing and marketing to achieve economies of scale, ensure
consistent quality of product, and obtain sales data in a timely manner. See
" -- Intellectual Property."
TALENT
The Company has featured 184 impersonators and numerous variety acts
(magicians, dancers, aerial acts, jugglers, clowns, comedians), singers,
dancers, musicians and musical directors in its productions, and regularly
receives promotional materials from individuals who are eager for work. An
average of 30 inquiries are received per week, and for every working
performer, the Company has access to three potential performers. The Company
periodically holds auditions for new impersonators, singers, and dancers in
Las Vegas, Atlantic City, Myrtle Beach and Los Angeles, and often views acts
in outside show environments and clubs.
All performers receive creative and professional support from the
Company's various in-house personnel. The Company employs choreographers and
contracts with a professional vocal coach to work with new and existing
entertainers to develop their skills and improve their confidence on stage.
Utilizing the Company's in-house music library, musical arrangements are
developed for new and existing performers and digital audio tapes are
developed for principal acts. The Company's in-house wardrobe personnel,
together with several well established costume designers, create new
performers' wardrobes and update the wardrobes of existing talent. The
Company contracts with an independent photographer to provide promotional
photographs of the principals and employs a writer to prepare professional
biographies and press releases.
The Company believes it is the premier producer of impersonator shows
worldwide and has the ability to offer a variety of consistent work to its
acts by rotating them among its different shows and events. The Company
offers compensation which is competitive with market standards and, for
certain long production runs, offers housing to principal acts. The Company's
musicians, singers, dancers and production personnel are generally employees
of the Company, while headline acts, including the impersonators utilized in
the Company's tribute shows, are treated as independent contractors in
accordance with industry practice. An in-house attorney handles the
negotiation of contracts with all entertainers, and each impersonator enters
into a new contract for each new show or venue.
39
<PAGE>
The following is a list of Legends tribute acts available to the Company
as of March 1, 1997:
<TABLE>
<CAPTION>
LEGENDS TRIBUTE ACTS
INDIVIDUAL NUMBER OF Individual Number of
LEGENDS Acts Impersonators Legends Acts Impersonators
<C> <C> <C> <C>
1. Alan Jackson 1 37. Kenny Rogers 2
2. Andrew Sisters 1 38. Laurel & Hardy 2
3. Barbara Streisand 3 39. Liberace 3
4. Barry Manilow 1 40. Little Richard 1
5. Beatles Group 3 41. Liza Minelli 1
6. Bette Midler 2 42. Loretta Lynn 1
7. Billy Ray Cyrus 2 43. Louis Armstrong 1
8. Bing Crosby 1 44. Madonna 6
9. Blues Brothers 7 45. Marilyn Monroe 5
10. Bobby Darin 2 46. Mario Lanza 1
11. Bonnie Raitt 1 47. Michael Bolton 1
12. Buddy Holly 2 48. Michael Jackson 6
13. Charlie Chaplin 1 49. Nat King Cole 1
14. Charlie Daniels 2 50. Neil Diamond 5
15. Cher 2 51. Olivia Newton-John 1
16. Conway Twitty 2 52. Patsy Cline 2
17. Diana Ross 3 53. Paul McCartney 3
18. Dolly Parton 3 54. Prince 2
19. Elton John 2 55. Reba McIntyre 5
20. Elvis Presley 18 56. Richie Valens 1
21. The Four Tops 1 57. Ricky Nelson 1
22. Frank Sinatra 3 58. Righteous Brothers 1
23. Franki Valle 1 59. Rod Stewart 4
24. Garth Brooks 6 60. Roy Orbison 4
25. Hank Williams Jr. 2 61. Sammy Davis Jr. 1
26. Jackie Wilson 1 62. Stevie Wonder 2
27. Janet Jackson 2 63. Tanya Tucker 2
28. Janis Joplin 2 64. The Temptations 1
29. Jay Leno 1 65. Tina Turner 5
30. Jerry Lee Lewis 2 66. Tom Jones 2
31. Joan Rivers 1 67. Tony Bennett 1
32. John Lennon 2 68. Wayne Newton 1
33. John Wayne 1 69. Whitney Houston 5
34. Johnny Cash 1 70. Willie Nelson 2
35. Johnny Mathis 1 71. Wynonna Judd 1
36. Judy Garland 1 ------
Total 171
======
</TABLE>
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.
40
<PAGE>
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! |
--------------------
41
<PAGE>
New productions are conceptualized in detail before any implementation
begins. Renderings of sets, scenery, and costumes are executed, and lighting
plots and staging layouts are generated using computer programs such as
WYSIWYG (lighting design), AutoCad13 (set and prop design), LiteWrite
(lighting programmer) and Corel Draw. Each new venue must be evaluated to
determine the availability of in-house equipment, the projected cost of
shipping supplementary equipment, and the estimated cost of transporting and
housing personnel. In 1996, the Company began to utilize H.I.T.S., used by
the major motion picture studios and theatrical equipment rental companies,
to ensure efficient pre-production technical planning and avoid unnecessary
pre-opening and capital costs. After final Company-wide implementation
(expected in late 1997), the H.I.T.S. system will contain an up-to-date list
of all Company assets (equipment, sets, costumes), historical cost,
availability, and current location of each asset, how often each asset has
been used and serviced, and the asset's estimated life expectancy. Timely
access to this information will allow the Company to identify props or
costumes that need to be built and additional lighting or sound equipment
that needs to be purchased or rented prior to opening a new show. In
addition, in order to manage the logistics of multiple shows in multiple
markets, the Company intends to install a Company-wide computer network
whereby all sales offices and production venues would have access to a
central database containing real-time show scheduling, inventory and revenue
information.
COMPETITION
The leisure and entertainment market, which includes the market for live
theatrical productions, is highly competitive and many of the Company's
markets contain a large number of competing live theatrical productions. In
resorts and urban tourists locations, the Company competes for ticket sales
with other live productions and headline stars, many of whom have better name
recognition and greater financial and other resources than the Company. The
pricing for the Company's productions is based upon local market conditions,
including the level of competition, and is typically neither the lowest nor
the highest in any given market.
The live theatrical entertainment industry is highly fragmented and
contains many small, independent production companies and numerous large
production companies. The Company competes with these production companies
for the most desirable commercial and tourist venues, and for talent and
production personnel. Major production companies in the Company's markets
include Feld Entertainment Productions, Blair Farrington Productions and Dick
Foster Productions in Las Vegas, Calvin Gilmore Productions in Myrtle Beach
and Greg Thompson Productions in Atlantic City. In addition to competition
from major production companies who produce other forms of live theatrical
shows, the Company also competes directly against a large number of smaller
independent producers who sometimes produce impersonators or impersonator
shows. However, the Company believes that only one of these competitors,
Spring Time Productions, produces such shows on a continuous basis in more
than one location, and therefore presently offers any real competition to the
Company. Spring Time Productions currently produces its American Superstars
impersonator shows at the Stratosphere Hotel and Casino in Las Vegas, at the
Flamingo Hilton Hotel and Casino in Reno, Nevada and at the Grand Casinos in
Gulfport, Mississippi.
INTELLECTUAL PROPERTY
On October 7, 1986, the name "Legends in Concert" was registered as a
federal service mark by Mr. Stuart in the United States. In late 1986, Mr.
Stuart granted to the Company the non-exclusive right to produce and
otherwise use the Legends service mark for all of its productions within and
outside of the United States. Subsequent to his grant of such right, Mr.
Stuart formed Las Vegas/Hawaii Entertainment, Inc., a Nevada subchapter S
corporation ("LVHE") and granted LVHE or any successor entity the right to
use the Legends service mark in the state of Hawaii. In August, 1994, Mr.
Stuart and LVHE granted R.B.L.S, Ltd. ("R.B.L.S."), a Nevada limited
liability company in which LVHE owns a 40% membership interest, the exclusive
right to produce Legends (including the use of the Legends service mark) in
the state of Hawaii, contingent upon their continuous operation of the
Legends show in Hawaii. On December 11, 1996, Mr. Stuart assigned all of his
rights to the Legends concept and his federally registered rights in Legends,
including the Legends service mark, to the Company, subject to R.B.L.S.'s
exclusive rights to the use thereof in Hawaii as described above. See
"Certain Transactions."
42
<PAGE>
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.
43
<PAGE>
EMPLOYEES
As of March 1, 1997, the Company employed approximately 151 full-time
employees, including 29 singer/dancers, 17 musicians, 32 operational
personnel, 13 administrative personnel, 12 marketing personnel, 43 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 Company
has made a motion to dismiss the case under the belief that the safety of the
cruise ship is not its responsibility. The motion has not yet been argued.
In July 1996, an impersonator of Hank Williams, Sr. who performed for the
Company, filed suit against the Company in the Circuit Court of Taney County,
Missouri. The plaintiff asserts that during one of his performances with the
Company, a photograph was taken of him by the Company while in costume and
surrounded by dancers and that the picture has been reproduced and published
in a Company scrapbook along with other photographs of the Company's
impersonators. The plaintiff alleges that the Company misappropriated his
name, image and likeness for commercial purposes by publishing and selling
the booklets and is claiming damages in the amount of $2,000,000. The Company
believes that the plaintiff's claim is without merit since the Company
utilized the plaintiff's photograph in its booklets for ten years with the
plaintiff's knowledge and without objection. The Company intends to defend
this action by asserting that the appropriation was de minimis in that the
picture is only approximately 2" x 4" in size, contains two of the Company's
showgirls, identifies the plaintiff as an impersonator of Hank Williams, Sr.
and is only one of approximately 50 other photographs contained in the
brochure. The Company has filed its answer to the plaintiff's complaint. The
matter is currently in the discovery stage of litigation.
In March 1997, a complaint was filed against the Company by the
stockholders of Grand Strand Entertainment, Inc. ("Grand Strand") alleging
misappropriation of corporate opportunity and breach of contract. The
stockholders seek a share in the Company's Myrtle Beach production. Grand
Strand was granted a license to use the "Legends in Concert" trademark
contingent upon Grand Strand raising sufficient capital to fund pre-
production costs associated with establishing a Legends show scheduled to
take place at the Surfside Theater in Myrtle Beach. However, since the
contingency was not met in a timely manner and the Company was responsible
for the lease of the property, the Company rescinded the license and funded
and operated the production on its own. The Company has filed an answer to
the complaint.
In May 1996, a complaint was filed by three of the Company's employees in
a Nevada District Court for injuries sustained by each of the employees while
they were attempting to complete lighting and staging work for a version of
the Company's Legends show at the Consumer Electronics Show. The employees
initially filed suit against GES Exposition Services, Inc. ("GES"), the
company which had constructed the trussing for the show. In June 1996, the
Court granted GES' motion to add the Company as a cross-defendant in this
action. The Company's position is that the employees already recovered by
receiving worker's compensation and should not be entitled to recover any
other damages from the Company.
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.
44
<PAGE>
FACILITIES
The Company's corporate headquarters consists of approximately 16,000
square feet of office and warehouse space located at 4625 West Nevso Drive,
Las Vegas, Nevada. The lease will expire on February 28, 1999 and the total
rent for the premises is approximately $14,000 per month. The Company has an
option, exercisable until July 1997, to purchase the building in which the
headquarters is located for $1,300,000.
The Company's east coast office consists of approximately 600 square feet
of space located at Flightwinds in Atlantic City, New Jersey. The lease,
which will expire in April 1997, provides for monthly rent in the amount of
$380. In addition, the Company leases seven condominium units for use by its
performers in Atlantic City from Mr. Stuart and his wife. The aggregate rent
for such apartments is currently $7,833 per month. The current lease term
expires on June 30, 1997. See "Certain Transactions."
The Company has leased the OFT Theater located in Branson, Missouri for
the three-month period from June through August 1997 for aggregate rent of
$90,000, all of which has been prepaid.
The Company leases and operates the Surfside Theater and related office
space in Myrtle Beach, South Carolina. The Company has the option to extend
this lease until December 31, 2004 and the current monthly rent for the
premises is $27,500.
The Company leases and operates the Coliseum Theater and related office
space located in Daytona Beach, Florida. The lease, which will expire in
April 1998, provides for monthly rent in the amount of $10,000. The Company
has the option to extend this lease until April 2007.
The Company leases apartments in Branson and Myrtle Beach for its
performers. Dancers and musicians reimburse the Company for its actual cost
of maintaining the leases, while the impersonators are provided
accommodations at no cost. In addition, the Company from time to time leases
from third parties apartments and condominiums for use by its performers and
production crew, and storage space for its equipment, props and costumes.
The Company's Atlanta, Georgia office consists of 6,000 square feet of
office and warehouse space. The lease expires on October 31, 1998 and the
total rent for the premises is approximately $1,000 per month.
45
<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 ...... 31 Senior Vice President, Chief Financial Officer and Treasurer
Christopher R. Grobl ... 29 General Counsel and Secretary
Kenneth Berg (2) ....... 70 Director
Jules Haimovitz (1)(2) . 46 Director
James L. Nederlander (2) 38 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 April
46
<PAGE>
1989 to November 1990, Mr. Sidhu was an associate with Merrill Lynch Capital
Markets (Mergers and Acquisitions Division) and, from August 1987 to March
1989, was a senior associate and manager with Price Waterhouse's Strategic
Consulting Group. Mr. Sidhu holds a Masters degree in Business Administration
from the Wharton School of Business and a Bachelor of Arts in Computer
Science from Brown University.
Christopher R. Grobl has been the General Counsel and Secretary of the
Company since November 1994. Mr. Grobl received a Bachelor of Arts in 1990
from the University of Illinois and a Juris Doctor in 1994 from the John
Marshall Law School in Chicago, Illinois.
Kenneth Berg has been a director of the Company since August 1995. He has
also been the Chairman and Chief Executive Officer of Koo Koo Roo, Inc., a
publicly traded restaurant company, since July 1992. He was Co-Chairman of
the Board and Co-Chief Executive Officer of Koo Koo Roo, Inc. from March 1992
until July 1992, and from August 1990 until March 1992, he served as its
Chairman of the Board. Since January of 1990, Mr. Berg has also served as
Chairman of the Board and President of Berg Enterprises, Inc. ("Berg
Enterprises"), a holding company of which Mr. Berg is the sole stockholder.
From 1969 to December 1989, Mr. Berg served as Chairman of the Board and
President of the original Berg Enterprises, Inc., a company chiefly involved
in the mortgage banking business called Margaratten (renamed Margco Holdings,
Inc. in 1990), which was listed on the New York Stock Exchange until May 1985
and which subsequently became a subsidiary of Primerica Corporation.
Jules Haimovitz has been a director of the Company since March 1997. Mr.
Haimovitz currently serves as a consultant to Polygram Films Entertainment,
an international producer and distributor of feature films and television
programming. From January 1995 to March 1997, he served as the Chief
Executive Officer of ITC after it was sold to PolyGram N.V., one of the
world's leading global music and entertainment companies. Prior to such time,
from April 1993 to January 1995, Mr. Haimovitz served as ITC's President and
Chief Executive Officer while it was owned by Midland Montague Ventures. Mr.
Haimovitz was also acting President of Video Jukebox Network Inc., a publicly
traded interactive music video service, from October 1992 through August
1993, and a director of such company from August 1990 to November 1995. From
March 1989 to January 1992, Mr. Haimovitz was President, Chief Operating
Officer and a director of Spelling Entertainment Inc. ("Spelling"), a company
he helped found by engineering the acquisitions of Worldvision Enterprises
Inc. and Laurel Entertainment Inc. by, and the merger of such companies with,
Spelling's predecessor, Aaron Spelling Productions, Inc. ("Aaron
Productions"). From December 1987 until Spelling's formation in January 1992,
he served in the same capacities for Aaron Productions.
James L. Nederlander has been a director of the Company since August 1996.
He has also been the Chairman of the Nederlander Producing Company of
America, a producer of live entertainment shows, since August 1996 and prior
to such time, commencing in 1980, he was Executive Vice President of such
organization. Mr. Nederlander was the associate producer of Peter Brooks'
"The Tragedy of Carmen," which won a special Tony Award in 1984, and was a
co-producer of such shows as Natalia's "Little Voice," the Royal Shakespeare
Company's "A Midsummer Night's Dream," and "Cafe Crown," and musical concerts
such as Billy Joel, U2, Harry Connick, Jr., Pink Floyd, Ray Davies and Yanni.
Mark Tratos has been a director of the Company since March 1997. Mr.
Tratos has been the managing partner of the law firm Quirk & Tratos of Las
Vegas, Nevada since 1983. He received his J.D. from Lewis and Clark Law
School in 1979, where he was a member of the Law Review and the
Editor-in-Chief of the Lewis and Clark Law Forum. He is admitted to the
Nevada and California state bars and to the United States District Courts for
the Districts of Nevada and each of Central and Southern California. Since
1982, Mr. Tratos has also served as a member of the adjunct faculty of the
University of Nevada Las Vegas teaching a variety of subjects in the areas of
fine and performing arts and entertainment and business law. He has also
written numerous articles, including "Intellectual Property Considerations in
Licensing Pre-Existing Works for Use in Multimedia" (1995), "Rights in
Publicity: Laws Vary from State to State" (1996), and "Gaming on the
Internet" (to be published in May 1997) and co-authored the Nevada Chapter of
the United States Trademark Association's State Trademark Law Handbook, for
the years 1987 to 1995.
The Board of Directors is divided into three classes, with Class I having
a term expiring in 1998, Class II having a term expiring in 1999, and Class
III having a term expiring in 2000. All directors hold office until the
47
<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 $100,000 (the
"Named Executive Officers"):
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------------------------------- --------------------------------
Securities All Other
Other Annual Underlying Compensation
Name and Principal Position Salary Bonus Compensation Options/SARs ($)
------------------------------- ---------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
John W. Stuart, Chairman and
Chief Executive Officer ...... $250,000 -- $ 6,024(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>
48
<PAGE>
- ------
(1) Represents a health insurance allowance.
(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
Securities Percent of
Underlying Total Options
Options Granted to
Granted Employees in Exercise Price Expiration
Name (#)(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.
49
<PAGE>
EMPLOYMENT CONTRACTS
John W. Stuart. On February 1, 1997, the Company entered into an
employment agreement with Mr. Stuart to employ him as its Chairman of the
Board and Chief Executive Officer until May 31, 2000. In accordance with this
employment agreement, Mr. Stuart receives an annual salary of $250,000 and
may receive annual salary increases of up to 10% of his base salary amount at
the discretion of the Compensation Committee of the Board of Directors. Mr.
Stuart will not be eligible to receive any bonuses during the initial term of
his employment agreement. Mr. Stuart is provided with a family health
insurance allowance of up to $600 per month and a $1,500 monthly automobile
allowance. The Company has the right to terminate Mr. Stuart's employment at
any time, without cause, provided that the Company pays Mr. Stuart a lump sum
payment equal to one year's base salary, car allowance and insurance
allowance.
David Hope. On February 1, 1997, the Company entered into an amended
employment agreement with Mr. Hope to employ him as the President and Chief
Operating Officer of the Company until May 31, 2000. In accordance with this
employment agreement, Mr. Hope receives an annual salary of $200,000 until
April 14, 1997, after which time he may receive annual salary increases of up
to 10% of his base salary amount at the discretion of the Compensation
Committee of the Board of Directors. For the years ended December 31, 1997,
1998 and 1999, Mr. Hope shall be entitled to receive a bonus equal to 2% of
the Company's audited pre-tax earnings, after deduction for non-recurring
charges such as original issue discount, compensation and interest expense
charges for each such year, provided that the Company achieves certain
designated financial goals for the respective year. See "--Executive Bonus
Plan." Mr. Hope is currently provided with a family health insurance
allowance of $600 per month and a $500 monthly automobile allowance. In
addition, the Company has granted Mr. Hope 311,300 stock options under its
Option Plan. Mr. Hope has elected to classify 75,132 of said stock options as
incentive stock options of which one-third vest immediately, one-third vest
on the first anniversary of such grant, and the balance vest on the second
anniversary of such grant. The remaining 236,168 are to be classified as
non-qualified options, of which one-half vest immediately, one-quarter vest
on the first anniversary of such grant, and the balance vest on the second
anniversary of such grant. The exercise price of the options, whether they
are qualified or non-qualified, has been set at $3.99 per option which was
the fair market value thereof at the date Mr. Hope commenced his employment
with the Company. All other terms of Mr. Hope's option will be governed by
the Option Plan and/or his employment agreement, at the option of Mr. Hope.
The Company shall have the right to terminate Mr. Hope's employment agreement
at any time, without cause, provided that the Company pays Mr. Hope a lump
sum payment on the date of such termination equal to the greater of (i) his
base salary, car allowance and insurance allowance due from the date of
termination up until April 1999, plus any accrued bonus up until his date of
termination and (ii) one year's base salary, car allowance and insurance
allowance, plus any accrued bonus up until the date of termination. In
addition, upon termination of Mr. Hope's employment, without cause, Mr.
Hope's non-vested options shall immediately vest.
Kiranjit S. Sidhu. On February 1, 1997, the Company entered into an
amended employment agreement with Mr. Sidhu to employ him as its Senior Vice
President, Chief Financial Officer and Treasurer. Upon the consummation of
this offering, Mr. Sidhu's contract will extend until May 31, 2000; his
annual salary will be $150,000 until July 31, 1997, after which, he may
receive annual salary increases of up to 10% of his base salary amount at the
discretion of the Compensation Committee of the Board of Directors; he may
receive a bonus under the Executive Bonus Plan, at the discretion of the
Board of Directors; and, in addition to his salary, Mr. Sidhu will continue
to receive a $300 monthly health insurance allowance and a $500 monthly
automobile allowance. In the event his employment is terminated, without
cause, Mr. Sidhu will be entitled to a lump sum payment equal to one year's
base salary, car allowance and insurance allowance and the vesting of all of
his stock options. In connection with his employment agreement, the Company
has also granted to Mr. Sidhu stock options to purchase a total of 109,794
shares of Common Stock under the Option Plan. Of such options, options to
purchase 85,000 shares were issued in February 1997 and are immediately
exercisable at $4.00 per share, and options to purchase 24,794 shares were
issued in August 1996 and will become exercisable in accordance with the
vesting parameters set forth in the Option Plan, at the initial public
offering price per share of the Common Stock. The Company also issued to Mr.
Sidhu the 40,532 CFO Shares pursuant to the terms of his employment agreement
in March 1997.
In connection with each of their respective employment agreements, each of
Messrs. Stuart, Hope and Sidhu also entered into a Confidentiality and
Non-Compete Agreement with the Company, which, in addition to
50
<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 581,453 shares have
been granted under the Option Plan, including options to purchase 311,300,
109,794, 18,000 and 13,224 shares granted to Messrs. Hope, Sidhu, Foster and
Grobl, respectively, and options to purchase 10,000 shares granted, as of the
date of this Prospectus, to each of the Company's four non-employee
directors, Messrs. Berg, Haimovitz, Nederlander and Tratos. See "Principal
and Selling Stockholders."
EXECUTIVE BONUS PLAN
In March 1997, the Company implemented a three-year Executive Bonus Plan,
which is administered by the Compensation Committee. Under the Executive
Bonus Plan, an annual bonus pool of up to 5% of the Company's audited pre-tax
earnings, after non-recurring charges such as original issue discount,
compensation and interest expense charges and excluding extraordinary items
("Pre-Tax Earnings"), may be established for distribution at the discretion
of the Company's Board of Directors, to the Company's executive officers
(other than
51
<PAGE>
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:
<TABLE>
<CAPTION>
Year Minimum Pre-Tax Earnings
------ ------------------------
<S> <C>
1997 $1,850,000
1998 $5,000,000
1999 $8,700,000
</TABLE>
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.
52
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus (giving
effect to the Pending Debt Conversion, which will occur immediately prior to
the consummation of this offering), and as adjusted to reflect the sale of
the 1,400,000 Shares and 600,000 Shares offered hereby by the Company and the
Selling Stockholder, respectively, certain information known to the Company
regarding the beneficial ownership of the Common Stock by: (i) each person
known by the Company to own beneficially more than 5% of the outstanding
Common Stock; (ii) each director of the Company; (iii) each Named Executive
Officer; and (iv) all officers and directors of the Company as a group:
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Number Owned
Prior to Offering(2) of After Offering(2)
Name and Address of ------------------------ Shares ------------------------
Beneficial Owner(1) Number Percent Offered Number Percent
------------------------------------ ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
John W. Stuart (3) ................. 3,982,760 76.8% 600,000 3,382,760 51.3%
David Hope (4) ..................... 154,378 2.9% -0- 154,378 2.3%
Neil H. Foster (5) ................. -0- -- -0- -0- --
Kiranjit S. Sidhu (6) .............. 131,157 2.5% -0- 131,157 2.0%
Kenneth Berg (7) ................... 158,756 3.1% -0- 158,756 2.4%
James L. Nederlander (8) ........... -0- -- -0- -0- --
Mark Tratos (9) .................... -0- -- -0- -0- --
Jules Haimovitz (10) ............... -0- -- -0- -0- --
All executive officers and directors
as a group (9 persons) (11) ....... 4,427,051 81.4% 600,000 3,827,051 56.0%
</TABLE>
- ------
(1) Unless otherwise indicated, the address for each named individual or
group is in care of the Company at the Company's address.
(2) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable. In accordance with the rules of
the Commission, a person is deemed to be the beneficial owner of Common
Stock that can be acquired by such person within 60 days from the date of
this Prospectus upon the exercise of options or warrants. Each beneficial
owner's percentage ownership is determined by assuming that options and
warrants that are held by such person (but not those held by any other
person) and which are exercisable within 60 days of the date of this
Prospectus have been exercised. Percentages herein assume a base of
5,188,980 shares of Common Stock outstanding prior to this offering
(including the 505,649 Debenture Shares) and a base of 6,588,980 shares
of Common Stock outstanding immediately after this offering.
(3) Includes 382,790 shares of Common Stock issuable by Mr. Stuart to third
parties upon the exercise of options granted by him to such persons,
including 35,813 shares of Common Stock issuable upon exercise of options
granted to Kenneth Berg, a director of the Company, none of which options
are currently exercisable.
(4) Includes 143,128 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options granted under the Option Plan and
6,250 Bridge Warrant Shares. Does not include 168,172 shares issuable
upon the exercise of stock options granted under the Option Plan that are
not currently exercisable.
(5) Does not include 18,000 shares of Common Stock issuable upon exercise of
stock options granted under the Option Plan that are not currently
exercisable.
(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.
53
<PAGE>
(7) Includes 12,500 Bridge Warrant Shares. Does not include 35,813 shares of
Common Stock issuable upon the exercise of options granted to Mr. Berg by
Mr. Stuart and 10,000 shares of Common Stock issuable upon the exercise
of stock options granted under the Option Plan as director compensation
("Director Options"), none of which are currently exercisable. See
"Management -- Director Compensation" and "Certain Transactions."
(8) Does not include 10,000 shares of Common Stock issuable upon the exercise
of Director Options. See "Management -- Director Compensation."
(9) Does not include 10,000 shares of Common Stock issuable upon exercise of
Director Options. See "Management -- Director Compensation."
(10) Does not include 10,000 shares of Common Stock issuable upon exercise of
Director Options. See "Management -- Director Compensation."
(11) Includes 21,875 Bridge Warrant Shares and 228,128 shares of Common Stock
issuable upon exercise of immediately exercisable stock options granted
under the Option Plan. Does not include 264,190 shares issuable upon
exercise of stock options granted under the Option Plan, including
40,000 Director Options, that are not currently exercisable.
54
<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 $200,000 principal amount to Mr. Stuart since
January 1, 1997 and intends to forgive all of such amount following the
consummation of this offering. The Company has agreed with the Underwriter
that, as of the date of this Prospectus, it will not advance any further sums
to or on behalf of Mr. Stuart in the future.
In February 1997, Mr. Stuart granted to Senna, an affiliate of DYDX, an
option to purchase 142,292 of his shares of Common Stock at an exercise price
of $5.00 per share, in consideration for the Third Extension Agreement of the
DYDX Loan and DYDX's agreement in connection with such extension to allow the
Stuart Debt Forgiveness. Such option is exercisable for a period of three
years commencing as of February 9, 1998.
Mr. Stuart, in addition to being the Chairman and Chief Executive Officer
of the Company, is also the President and sole owner of LVHE, a Nevada
subchapter S corporation, which owns 40% of, and is a member of R.B.L.S., a
Nevada limited liability company. R.B.L.S., in turn, owns a 99% interest in
R.B.L.S. Partnership, which operates a Legends production at the Royal
Hawaiian Shopping Center in Honolulu, Hawaii. Mr. Stuart has a Management
Agreement with R.B.L.S., pursuant to which R.B.L.S. pays him a monthly
management consulting fee of $3,000 per week, provided Mr. Stuart or an
approved representative makes at least one trip to Hawaii to evaluate the
production every two months. In addition, according to the operating
agreement of R.B.L.S., all members are to share ratably in the profits or
losses of R.B.L.S. As such, LVHE is entitled to receive a 40% membership
interest in the profits of R.B.L.S. However, as a result of a dispute between
LVHE and R.B.L.S. as to which of the two entities is responsible for certain
litigation related liabilities (the "Disputed Liabilities"), R.B.L.S. is
currently withholding membership profit distributions from LVHE. The Disputed
Liabilities relate to lawsuits which are based on events that took place
prior to the formation of R.B.L.S. and R.B.L.S. Partnership when the Legends
show in Hawaii was owned by LVHE. LVHE and R.B.L.S. dispute whether these
lawsuits were retained by LVHE or assumed by R.B.L.S. when it acquired the
Hawaiian Legends show from LVHE. LVHE has been informed by R.B.L.S. that
R.B.L.S. is funding the defense of these suits with LVHE's membership
profits. LVHE and R.B.L.S. also dispute which of them would ultimately be
responsible for any settlement payments or judgments if unsuccessful.
In February 1997, the Company agreed, pursuant to a duly authorized board
resolution, that the services provided by Mr. Stuart to R.B.L.S. and/or LVHE
will not place him in a conflict of interest with his employment
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contract with the Company (which commenced as of February 1, 1997) on the
condition that all monies received by Mr. Stuart, either directly from
R.B.L.S. or through LVHE, are immediately paid to the Company as producer
fees earned by the Company for providing the services of Mr. Stuart.
Simultaneously with such board resolution, Mr. Stuart entered into the Stuart
LVHE Agreement with the Company pursuant to which he has agreed that,
commencing as of February 25, 1997, he will pay any monies received by him
from R.B.L.S., or through LVHE from R.B.L.S., to the Company. The Company
will book any such monies received from Mr. Stuart, including both his
R.B.L.S. membership profit and his management consulting fees, as revenues in
the form of producer's fees (in the same manner that other such services are
booked by the Company). As part of the Stuart LVHE Agreement, Mr. Stuart has
also agreed (i) to indemnify the Company against any of the actions or
liabilities of, or arising in connection with, LVHE, R.B.L.S., R.B.L.S.
Partnership or the other members of R.B.L.S., including their respective
companies, which indemnity has been secured with 200,000 of his shares of
Common Stock, and (ii) to contribute all of the capital stock of LVHE (the
"LVHE Stock"), as well as his rights under the Management Agreement, to the
Company whenever the Company deems such contribution to be permissible under
the terms of the R.B.L.S. operating agreement (such a contribution may
require the approval of the other members of R.B.L.S.; however, LVHE is
currently in disagreement with such members vis-a-vis the Disputed
Liabilities), which contribution pledge has been secured with an additional
200,000 of Mr. Stuart's shares of Common Stock.
The Company leases from Mr. Stuart seven condominium units in Atlantic
City, New Jersey for use by the Company's performers. The current lease term
expires on June 30, 1997. The total lease payment to Mr. Stuart from the
Company is currently $7,833 per month, which amount the Company believes
approximates the fair market value for the use thereof. In addition,
commencing as of January 1, 1997, the Company is also paying, directly, the
association dues, insurance, taxes, maintenance and utilities on such
apartments. The Company paid aggregate rent to Mr. Stuart for such apartments
of $47,000 and $94,000 for the years ended December 31, 1995 and 1996,
respectively.
Future transactions, if any, between the Company and any of its directors,
officers and/or 5% stockholders will be on terms no less favorable to the
Company than could be obtained from independent third parties and will be
approved by a majority of the independent, disinterested directors of the
Company.
DESCRIPTION OF SECURITIES
CAPITAL STOCK
GENERAL
The Company is authorized to issue 25,000,000 shares of Common Stock, par
value $.01 per share, and 1,000,000 shares of Preferred Stock, par value
$1.00 per share. As of the date of this Prospectus, there are 4,683,331
shares of Common Stock outstanding held by 29 stockholders and no shares of
Preferred Stock outstanding. Upon the consummation of this offering (assuming
also the consummation of the Pending Debt Conversion), there will be
6,588,980 shares of Common Stock outstanding and no shares of Preferred Stock
outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of stockholders. If dividends
are declared, whether payable in cash, property or securities of the Company,
holders of the Common Stock are entitled to share equally in such dividends,
subject to the rights, if any, of the holders of any series of Preferred
Stock. In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, after payment has been made to the holders of
shares of Preferred Stock, if any, for the full amount to which they are
entitled, each holder of Common Stock will be entitled to share equally in
the assets available for distribution.
Holders of shares of Common Stock have no preemptive rights to acquire any
additional shares of the Common Stock and have no cumulative voting rights.
All currently outstanding shares of Common Stock are duly authorized, validly
issued, fully paid and non-assessable.
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PREFERRED STOCK
The Board of Directors is authorized, without further action by the
stockholders, to issue up to 1,000,000 shares of Preferred Stock in one or
more series and to fix the designations, powers, preferences, privileges, and
relative participating, optional or special rights and the qualifications,
limitations or restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences, any
or all of which may be greater than the rights of the Common Stock. The Board
of Directors, without stockholder approval, can issue Preferred Stock with
voting, conversion or other rights that could adversely affect the voting
power and other rights of the holders of Common Stock. Preferred Stock could
thus be issued quickly with terms calculated to delay or prevent a change in
control of the Company or make removal of management more difficult.
Additionally, the issuance of Preferred Stock may have the effect of
decreasing the market price of the Common Stock, and may adversely affect the
voting and other rights of the holders of Common Stock.
PUBLIC WARRANTS
The Warrants offered hereby entitle the registered holder thereof (the
"Warrant Holders") to purchase one share of Common Stock at a price of $5.50,
subject to adjustment in certain circumstances at any time commencing ,
1998 (or such earlier date as to which the Underwriter consents) through and
including , 2000. The Warrants will be separately transferable
immediately upon issuance.
The Warrants are redeemable by the Company, upon the consent of the
Underwriter, at any time commencing on , 1998, upon notice of not less
than 30 days, at a price of $.10 per Warrant, provided that the closing bid
quotation of the Common Stock on all 20 trading days ending on the Call Date
has been at least 150% (currently $8.25, subject to adjustment) of the then
effective exercise price of the Warrants and the Company obtains the written
consent of the Underwriter to such redemption prior to the Call Date. The
Warrant holders shall have the right to exercise their Warrants until the
close of business on the date fixed for redemption.
The Warrants will be issued in registered form under a warrant agreement
by and among the Company, American Stock Transfer & Trust Company, as warrant
agent (the "Warrant Agent"), and the Underwriter (the "Warrant Agreement"). The
exercise price and number of shares of Common Stock or other securities issuable
on exercise of the Warrants are subject to adjustment in certain circumstances,
including in the event of a stock dividend, recapitalization, reorganization,
merger or consolidation of the Company. However, the Warrants are not subject to
adjustment for issuances of Common Stock at prices below the exercise price of
the Warrants. Reference is made to the Warrant Agreement (which has been filed
as an exhibit to the Registration Statement of which this Prospectus is a part)
for a complete description of the terms and conditions therein (the description
herein contained being qualified in its entirety by reference thereto).
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the Warrant Agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
certified check or bank draft payable to the Company) to the Warrant Agent
for the number of Warrants being exercised. The Warrant holders do not have
the rights or privileges of holders of Common Stock.
No Warrant will be exercisable unless, at the time of exercise, the
Company has filed a current registration statement with the Commission
covering the shares of Common Stock issuable upon exercise of such Warrant
and such shares have been registered or qualified or deemed to be exempt from
registration or qualification under the securities laws of the state of
residence of the holder of such Warrant. The Company will use its best
efforts to have all such shares so registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Warrants, subject to the terms of the Warrant Agreement.
While it is the Company's intention to do so, there can be no assurance that
the Company will be successful in registering such shares.
No fractional shares will be issued upon exercise of the Warrants.
However, if a Warrant holder exercises all Warrants then owned of record by
such Warrant holder, the Company will pay to such Warrant holder, in lieu of
the issuance of any fractional share which is otherwise issuable, an amount
in cash based on the market value of the Common Stock on the last trading day
prior to the exercise date.
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BRIDGE WARRANTS
There are currently outstanding 250,000 Bridge Warrants, each to purchase
one Bridge Warrant Share at an exercise price of $4.00 per share. The Bridge
Warrants are exercisable until March 19, 2002; however, neither the Bridge
Warrants nor the Bridge Warrant Shares are transferable by the holders
thereof until 12 months following the date of this Prospectus. The investors
in the Bridge Financing have been granted certain registration rights
relating to the Bridge Warrant Shares. See "-- Registration Rights."
REGISTRATION RIGHTS
Upon the consummation of this offering, the holders of 1,165,688 shares of
Common Stock and the holders of the Bridge Warrants will be entitled to
certain rights with respect to the registration of such shares and the
250,000 Bridge Warrant Shares, respectively, under the Securities Act.
The holders of the 440,755 Warrant Exchange Shares may request that the
Company file one registration statement under the Securities Act (a "Demand
Registration") with respect to such shares beginning (a) one year following
the date of this Prospectus, or, (b) if earlier, 20 trading days after
September 30, 1997, if the closing bid price of the Common Stock is at least
$8.75 for 20 consecutive trading days after September 30, 1997 (the "Early
Registration Condition"). In addition, beginning at the same time as the
foregoing Demand Registration right, whenever the Company proposes to
register any of its securities under the Securities Act for its own account
or for the account of other security holders, the Company shall be required
to promptly notify the holders of the Warrant Exchange Shares of the proposed
registration and include all Warrant Exchange Shares which such holders may
request to be included in such registration, subject to certain limitations
(a "Piggyback Registration"). The holders of an additional 19,284 shares of
Common Stock have the right to have such shares included in Piggyback
Registrations commencing one year after the consummation of this offering.
In connection with the Pending Debt Conversion, the Company has agreed to
file a registration statement under the Securities Act covering the 505,649
Debenture Shares by the first day of the tenth month following the date of
this Prospectus (the "Mandatory Registration"). In addition, if the Early
Registration Condition referred to above is met, the Company has agreed to file
a registration statement covering 25% of the Debenture Shares (an aggregate of
126,412 Debenture Shares) within one month following the completion of the Early
Registration Condition (the "Early Registration"). In the event the Company does
not file the Mandatory Registration or, if required pursuant to the foregoing
terms, an Early Registration, by the required dates, the Company has agreed to
issue to each holder of Debenture Shares five additional shares of Common Stock
for each 100 Debenture Shares held by such holder, on the first day of each
month that the respective registration statement continues not to be filed.
In connection with the Bridge Financing, the Company has agreed to include
the 200,000 Bridge Shares and the 250,000 Bridge Warrant Shares (the
"Registrable Bridge Securities") in a registration statement which the
Company will prepare and file with, and use its best efforts to have declared
effective by, the Commission so as to permit the public trading of the
Registrable Bridge Securities pursuant thereto commencing no later than 15
months following the consummation of this offering. If such registration
statement is not declared effective by the Commission within 15 months
following the consummation of this offering, then, commencing on the first
day of the 16th month following the consummation of this offering, the
Company shall issue to each holder of Registrable Bridge Securities, on the
first day of each month that a registration statement continues not to have
been declared effective by the Commission, such number of additional shares
of Common Stock as is equal to 10% of the number of Registrable Bridge
Securities held by and/or issuable to each holder thereof. In the event the
Company fails to maintain the effectiveness of a registration statement with
respect to the Registrable Bridge Securities, the Company is obligated to
issue, on one occasion only, other added shares of Common Stock.
In connection with this offering, the Company has agreed to grant to the
Underwriter certain demand and piggyback registration rights in connection
with the 400,000 shares of Common Stock issuable upon exercise of the
Underwriter's Warrants and the warrants included therein. See "Underwriting."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock, and the Warrant
Agent for the Warrants, is American Stock Transfer & Trust Company, 40 Wall
Street, 46th Floor, New York, New York 10005.
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NEVADA LAW AND ARTICLES OF INCORPORATION AND BYLAWS PROVISIONS AFFECTING
STOCKHOLDERS
The Company's Certificate of Incorporation, By-laws and the General
Corporation Law of the State of Nevada may have the effect, either alone or
in combination with each other, of making more difficult or discouraging a
tender offer, change in control or takeover attempt that is opposed by the
Company's Board of Directors.
STAGGERED BOARD
The Company's By-laws provide that the Board will be divided into three
classes of directors, with the classes to be as nearly equal in number as
possible. The By-laws provide that Class I shall be comprised of directors
who shall serve until the annual meeting of stockholders in 1998 and until
their successors shall have been elected and qualified. Class II shall be
comprised of directors who shall serve until the annual meeting of
stockholders in 1999 and until their successors shall have been elected and
qualified. Class III shall be comprised of directors who shall serve until
the annual meeting of stockholders in 2000 and until their successors shall
have been elected and qualified. The classification of directors will have
the effect of making it more difficult for stockholders to change the
composition of the Board of Directors. The classification provisions could
also have the effect of discouraging a third party from initiating a proxy
contest, making a tender offer or otherwise attempting to obtain control of
the Company.
CONTROL SHARE ACQUISITIONS
Pursuant to Sections 78.378 to 78.3793 of the Nevada Revised Statutes (the
"NGCL"), an "acquiring person," who acquires a "controlling interest" in an
"issuing corporation," may not exercise voting rights on any "control shares"
unless such voting rights are conferred by a majority vote of the
disinterested stockholders of the issuing corporation at a special meeting of
such stockholders held upon the request and at the expense of the acquiring
person. In the event that the control shares are accorded full voting rights and
the acquiring person acquires control shares with a majority or more of all the
voting power, any stockholder, other than the acquiring person, who did not vote
in favor of authorizing voting rights for the control shares, is entitled to
demand payment for the fair value of his or her shares, and the corporation must
comply with the demand. For purposes of the above provisions, "acquiring person"
means (subject to certain exceptions) any person who, individually or in
association with others, acquires or offers to acquire, directly or indirectly,
a controlling interest in an issuing corporation. "Controlling interest" means
the ownership of outstanding voting shares of an issuing corporation sufficient
to enable the acquiring person, individually or in association with others,
directly or indirectly, to exercise (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, and/or (iii) a
majority or more of the voting power of the issuing corporation in the election
of directors. Voting rights must be conferred by a majority of the disinterested
stockholders as each threshold is reached and/or exceeded. "Control shares"
means those outstanding voting shares of an issuing corporation which an
acquiring person acquires or offers to acquire in an acquisition or within 90
days immediately preceding the date when the acquiring person became an
acquiring person. "Issuing corporation" means a corporation that is organized in
Nevada, has 200 or more stockholders (at least 100 of whom are stockholders of
record and residents of Nevada) and does business in Nevada directly or though
an affiliated corporation. The above provisions do not apply if the articles of
incorporation or by-laws of the corporation in effect on the 10th day following
the acquisition of a controlling interest by an acquiring person provide that
said provisions do not apply. As noted above, the Company's Restated Articles of
Incorporation and Bylaws do not exclude the Company from the restrictions
imposed by such provisions.
CERTAIN BUSINESS COMBINATIONS
Sections 78.411 to 78.444 of the NGCL restrict the ability of a "resident
domestic corporation" to engage in any combination with an "interested
stockholder" for three years following the interested stockholder's date of
acquiring the shares that cause such stockholder to become an interested
stockholder, unless the combination or the purchase of shares by the
interested stockholder on the interested stockholder's date of acquiring the
shares that cause such stockholder to become an interested stockholder is
approved by the board of directors of the resident domestic corporation
before that date. If the combination was not previously approved, the
interested stockholder may effect a combination after the three-year period
only if such stockholder receives approval from a majority of the
disinterested shares or the offer meets certain fair price criteria. For
purposes of the above
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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.
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The Company's bylaws provide that directors, officers and certain other
persons may be indemnified to the fullest extent authorized by Nevada law.
The Nevada General Corporation Law provides that such indemnification would
apply if it were determined that the proposed indemnitee acted in good faith
and in a manner he or she reasonably believed to be in, or not opposed to,
the best interests of the Company and, with respect to any criminal
proceeding, if he or she had no reasonable cause to believe that the conduct
was unlawful. In actions brought by or in the right of the Company, such
indemnification is limited to reasonable expenses (including attorneys' fees)
and amounts paid in settlement, and applies if it is determined that the
proposed indemnitee acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
Company, except that no indemnification may be made with respect to any
matter as to which such person is adjudged liable to the Company, unless, and
only to the extent that, a court determines upon application that, in view of
all the circumstances of the case, the proposed indemnitee is fairly and
reasonably entitled to indemnity for such expenses as the court deems proper.
To the extent that any Director, officer, employee, or agent of the Company
has been successful on the merits or otherwise in defense of any of the
foregoing actions, suits, or proceedings, such person must be indemnified
against reasonable expenses incurred by him in connection with the defense of
such action.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 6,588,980
shares of Common Stock outstanding, of which the 2,000,000 Shares offered
hereby will be freely tradable without restriction or further registration
under the Securities Act, except for any shares purchased by an "affiliate of
the Company" (in general, a person who has a controlling position with regard
to the Company), which will be subject to the resale limitations of Rule 144
promulgated under the Securities Act.
The remaining 4,588,980 shares of Common Stock outstanding are deemed to
be "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act, and may only be sold pursuant to an
effective registration under the Securities Act, in compliance with the
exemption provisions of Rule 144 or pursuant to another exemption under the
Securities Act. Such restricted shares of Common Stock will become eligible
for sale, under Rule 144, subject to certain volume limitations prescribed by
Rule 144 and to the agreements set forth below, at various times commencing
90 days following the date of this Prospectus. In connection with the Bridge
Financing, the investors agreed that their 200,000 Bridge Shares (as well as
their Bridge Warrants and Bridge Warrant Shares) may not be sold for a period
of 12 months following the date of this Prospectus, under any circumstances,
and the holders of the 4,388,980 other restricted shares have agreed not to
sell any of their securities of the Company for periods of between 10 and 12
months following the date of this Prospectus (subject in certain cases to
earlier release upon the Company's achievement of certain performance
targets) without the Underwriter's prior written consent.
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 two years 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 three years is entitled to sell such shares under Rule
144 without regard to any of the limitations described above. The Commission
has approved changes to Rule 144 to be adopted as of April 29, 1997 reducing
the foregoing two-year period and three-year period to one and two years,
respectively.
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
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the market price prevailing from time to time. Nevertheless, the possibility
that substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities.
UNDERWRITING
Whale Securities Co., L.P. (the "Underwriter") has agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase
1,400,000 of the Shares and all 2,000,000 Warrants offered hereby from the
Company and 600,000 of the Shares offered hereby from the Selling
Stockholder. The Underwriter is committed to purchase and pay for all of the
Shares and Warrants offered hereby if any of such securities are purchased.
The Shares and Warrants are being offered by the Underwriter subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and
subject to approval of certain legal matters by counsel and to certain other
conditions.
The Underwriter has advised the Company that it proposes to offer the
Shares and Warrants to the public at the public offering prices set forth on
the cover page of this Prospectus. The Underwriter may allow to certain
dealers who are members of the National Association of Securities Dealers,
Inc. ("NASD") concessions, not in excess of $ per Share and $ per
Warrant, of which not in excess of $ per Share and $ per Warrant may
be reallowed to other dealers who are members of the NASD.
The Company has granted to the Underwriter an option, exercisable for 45
days following the date of this Prospectus, to purchase up to 300,000
additional Shares and/or 300,000 additional Warrants at the respective public
offering prices set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. The Underwriter may exercise this
option in whole or, from time to time, in part, solely for the purpose of
covering over-allotments, if any, made in connection with the sale of the
Shares and/or Warrants offered hereby.
The Company and the Selling Stockholder have agreed to pay to the
Underwriter a nonaccountable expense allowance equal to 3% of the gross
proceeds of this offering, including the gross proceeds from the sale of any
Shares and Warrants sold pursuant to the Underwriter's exercise of its
over-allotment option, $50,000 of which has been paid as of the date of this
Prospectus. The Company has also agreed to pay all expenses in connection
with qualifying the Shares and Warrants offered hereby for sale under the
laws of such states as the Underwriter may designate, including expenses of
counsel retained for such purpose by the Underwriter.
The Company has agreed to issue to the Underwriter and its designees, for
an aggregate of $220, the Underwriter's Warrants to purchase up to 200,000
shares of Common Stock, at an exercise price of $8.25 per share (165% of the
public offering price per share), and/or up to 200,000 warrants (each to
purchase one share of Common Stock at $7.755 per share), at a purchase price
of $.165 per warrant (165% of the public offering price per Warrant). The
Underwriter's Warrants may not be transferred for one year following the date
of this Prospectus, except to the officers and partners of the Underwriter
and members of the selling group, and are exercisable at any time and from
time to time during the four-year period commencing one year following the
date of this Prospectus (the "Warrant Exercise Term"). During the Warrant
Exercise Term, the holders of the Underwriter's Warrants are given, at
nominal cost, the opportunity to profit from a rise in the market price of
the Company's Common Stock. To the extent that the Underwriter's Warrants are
exercised, dilution to the interests of the Company's stockholders will
occur. Further, the terms upon which the Company will be able to obtain
additional equity capital may be adversely affected since the holders of the
Underwriter's Warrants can be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital on
terms more favorable to the Company than those provided in the Underwriter's
Warrants. Any profit realized by the Underwriter on the sale of the
Underwriter's Warrants, the underlying shares of Common Stock or the
underlying warrants, or the shares of Common Stock issuable upon exercise of
such underlying warrants, may be deemed additional underwriter compensation.
Subject to certain limitations and exclusions, the Company has agreed, at the
request of the holders of a majority of the Underwriter's Warrants, at the
Company's expense, to register the Underwriter's Warrants and the underlying
securities under the Securities Act on one occasion during the Warrant
Exercise Term and to include such Underwriter's Warrants and such underlying
securities in any appropriate registration statement which is filed by the
Company during the seven years following the date of this Prospectus.
62
<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
its right to designate such a person.
The Company has also agreed, in connection with the exercise of the
Warrants pursuant to solicitation (commencing one year following the date of
this Prospectus), to pay to the Underwriter a fee of 5% of the exercise price
for each Warrant exercised; provided, however, that the Underwriter will not
be entitled to receive such compensation in Warrant exercise transactions in
which (i) the market price of Common Stock at the time of the exercise is
lower than the exercise price of the Warrants; (ii) the Warrants are held in
any discretionary account; (iii) disclosure of compensation arrangements is
not made, in addition to the disclosure provided in this Prospectus, in
documents provided to holders of the Warrants at the time of exercise; (iv)
the holder of the Warrants has not confirmed in writing that the Underwriter
solicited such exercise; or (v) the solicitation of exercise of the Warrants
was in violation of Rule 101 promulgated under the Exchange Act.
Regulation M under the Exchange Act may prohibit the Underwriter from
engaging in any market-making activities with regard to the Company's
securities for the period from five business days (or such other applicable
period as Regulation M may provide) prior to any solicitation by the
Underwriter of the exercise of outstanding Warrants until the termination (by
waiver or otherwise) of any right that the Underwriter may have to receive a
fee for the exercise of the Warrants following such solicitation; and any
period during which the Underwriter, or any affiliated parties, participate
in a distribution of any securities of the Company for the account of the
Underwriter of any such affiliate. As a result, the Underwriter may be unable
to provide a market for the Company's securities during certain periods,
including while the Warrants are exercisable.
All of the Company's current directors and officers and securityholders
have agreed that, without the Underwriter's prior written consent, for the
12-month period following the date of this Prospectus (10-month period, in
the case of the Debenture Shares), they will not sell or otherwise dispose of
any securities of the Company in any public market transaction (including
pursuant to Rule 144) or exercise any rights held by them to cause the
Company to register any shares of Common Stock for sale pursuant to the
Securities Act; provided, however, that the Warrant Exchange Shares and
126,412 of the Debenture Shares may be earlier released from the foregoing
lock-up in the event the Early Registration Condition is met. See
"Description of Securities -- Registration Rights."
The Underwriter has informed the Company that it does not expect sales to
discretionary accounts to exceed 1% of the securities offered hereby.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act.
Prior to this offering, there has been no public market for the Shares or
Warrants. Consequently, the initial public offering prices for the Shares and
Warrants and the exercise price and terms of the Warrants have been
determined by negotiation between the Company and the Underwriter and are not
necessarily related to the Company's asset value, net worth or other
established criteria of value. Among the factors considered in determining
such prices and terms re the Company's financial condition and prospects,
management, market prices of similar securities of comparable publicly-traded
companies, certain financial and operating information of companies engaged
in activities similar to those of the Company and the general condition of
the securities market.
In order to facilitate the offering, the Underwriter may engage in
transactions that stabilize, maintain or otherwise affect the prices of the
Common stock and Warrants. Specifically, the Underwriter may over-allot in
connection with the offering, creating a short position in the Common Stock
and/or Warrants for its own account. In addition, to cover over-allotments or
to stabilize the price of the Common stock and Warrants, the Underwriter may
bid for, and purchase, shares of Common Stock and Warrants in the open
market. The Underwriter may also reclaim selling concessions allowed to a
dealer for distributing the Common Stock and Warrants in the offering, if the
Underwriter repurchases previously distributed Common Stock and Warrants in
transactions to
63
<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 reports.
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.
64
<PAGE>
ON STAGE ENTERTAINMENT, INC.
CONTENTS
Page
----
Independent Certified Public Accountant's report .... F-2
Financial statements
Balance sheet .................................. 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-19
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.
/s/ BDO Seidman, LLP
Los Angeles, California
February 4, 1997, except for Notes 1, 3, 5 and 9 which is as of March 19, 1997
F-2
<PAGE>
ON STAGE ENTERTAINMENT, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1996
----
<S> <C>
Assets (Notes 3 and 9)
Current assets
Cash and cash equivalents ...................................................... $ 290,751
Accounts receivable ............................................................ 490,465
Inventory ...................................................................... 67,853
Deposits ....................................................................... 231,601
Prepaid and other assets ....................................................... 236,295
Pre-opening costs, net ......................................................... 129,180
------------
Total current assets ...................................................... 1,446,145
------------
Property, equipment and leasehold improvements (Notes 2 and 3) ...................... 3,725,941
Less: Accumulated depreciation and amortization ..................................... (1,937,718)
------------
Property, equipment and leasehold improvements, net ................................. 1,788,223
------------
Cost in excess of net assets acquired, net of accumulated amortization of $1,053
(Note 5) .......................................................................... 62,123
Offering costs ...................................................................... 657,801
------------
$ 3,954,292
============
Liabilities and Stockholder's Deficit
Current liabilities
Accounts payable and accrued expenses .......................................... $ 599,045
Accrued payroll and other liabilities .......................................... 621,986
Litigation settlement accrual .................................................. 100,000
Current maturities of long-term debt (Note 3) .................................. 228,510
------------
Total current liabilities ................................................. 1,549,541
------------
DYDX LP Loan (Note 3) ............................................................... 750,000
Long-term debt, less current maturities (Note 3) .................................... 1,877,391
------------
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 authorized; none
issued and outstanding ....................................................... --
Common stock, par value $0.01 per share; authorized 25,000,000 shares; 4,002,044
shares issued and outstanding (Note 9) ....................................... 40,020
Additional paid-in-capital ..................................................... 121,024
Accumulated deficit ............................................................ (383,684)
------------
Total stockholder's deficit ............................................... (222,640)
------------
$ 3,954,292
============
</TABLE>
See accompanying summary of accounting policies and notes to
financial statements.
F-3
<PAGE>
ON STAGE ENTERTAINMENT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1996
---- ----
<S> <C> <C>
Revenues
Gross revenues .......................................... $12,774,693 $14,278,082
Less commissions ........................................ 429,044 463,948
------------ ------------
Net revenues ................................................. 12,345,649 13,814,134
Direct production costs ...................................... 7,311,931 6,070,361
Indirect production costs .................................... 2,322,184 2,376,006
------------ ------------
Gross profit ................................................. 2,711,534 5,367,767
------------ ------------
Operating expenses
General and administrative .............................. 2,344,228 2,762,165
Depreciation and amortization (Note 2) .................. 524,969 676,306
------------ ------------
Total operating expenses ........................... 2,869,197 3,438,471
------------ ------------
Operating income (loss) ...................................... (157,663) 1,929,296
Interest, net ................................................ 252,508 152,998
Write-off of note receivable from stockholder (Note 7) ....... -- 1,780,424
------------ ------------
Net loss before income taxes ................................. (410,171) (4,126)
Income taxes (Note 8) ........................................ 1,950 15,789
------------ ------------
Net loss ..................................................... $ (412,121) $ (19,915)
============ ============
Net loss per share ........................................... $ (.10) $ (.00)
============ ============
Weighted average number of common and common equivalent shares 4,112,643 4,115,865
============ ============
</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 .............. -- -- -- (412,121) (412,121)
---------- --------- -------- --------- ---------
Balance, December 31, 1995 ......... 3,982,760 10,000 -- (333,941) (323,941)
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 loss for the year .............. -- -- -- (19,915) (19,915)
---------- --------- -------- --------- ---------
Balance, December 31, 1996 ......... 4,002,044 $40,020 $121,024 $(383,684) $(222,640)
========== ========= ======== ========= =========
</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>
YEARS ENDED DECEMBER 31,
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss ......................................................... $ (412,121) $ (19,915)
----------- -----------
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization ............................ 524,969 676,306
Loss on disposal of property and equipment ............... -- 53,983
Write-off of note receivable from stockholder ............ -- 1,780,424
Increase (decrease) from changes in operating assets and liabilities,
net of effect from purchase of Interactive Events, Inc. (Note 5):
Accounts receivable ................................. 23,236 (262,341)
Inventory ........................................... -- (67,853)
Offering costs ...................................... (313,279) (344,522)
Deposits ............................................ (76,347) (86,816)
Pre-opening costs ................................... (83,574) (61,483)
Prepaid and other assets ............................ (55,875) (125,988)
Accounts payable and accrued expenses ............... 343,518 56,302
Accrued payroll and other liabilities ............... 31,459 415,651
----------- -----------
Total adjustments .............................. 394,107 2,033,663
----------- -----------
Net cash provided by (used in) operating activities ................ (18,014) 2,013,748
----------- -----------
Cash used in investing activities
Advances on note receivable from stockholder .................. (920,913) (859,511)
Capital expenditures .......................................... (932,449) (987,355)
Acquisition of Interactive Events, Inc., net of cash acquired . -- 45,272
----------- -----------
Net cash used in investing activities .............................. (1,853,362) (1,801,594)
----------- -----------
Cash used in financing activities
Bank overdraft ................................................ (130,823) --
Borrowings/repayments under line of credit .................... 200,000 (200,000)
Proceeds from long-term borrowings ............................ 2,289,063 1,000,000
Repayments on long-term borrowings ............................ (92,448) (649,099)
Proceeds from short-term borrowings ........................... -- --
Repayments on short-term borrowings ........................... (374,318) (92,402)
----------- -----------
Net cash provided by financing activities .......................... 1,891,474 58,499
----------- -----------
Net increase in cash and cash equivalents .......................... 20,098 270,653
Cash and cash equivalents at beginning of year ..................... -- 20,098
----------- -----------
Cash and cash equivalents at end of year ........................... $ 20,098 $ 290,751
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest ...................................................... $ 237,903 $ 287,047
Taxes ......................................................... $ 1,950 $ 15,789
=========== ===========
</TABLE>
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.
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.
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.
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.
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.
F-8
<PAGE>
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.
F-9
<PAGE>
ON STAGE ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
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:
December 31, 1996
- ------------ ----
Stage equipment ........................................ $ 1,997,340
Scenery and wardrobe ................................... 854,976
Furniture and fixtures ................................. 678,912
Vehicles ............................................... 6,434
Leasehold improvements ................................. 188,279
-----------
3,725,941
Less accumulated depreciation and amortization ......... (1,937,718)
-----------
Total property, equipment and leasehold improvements,
net ................................................... $ 1,788,223
===========
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:
December 31, 1996
- ------------ ----
8% convertible subordinated debentures payable
("Debentures"), due in monthly installments of interest
only (a) ................................................ $1,714,064
DYDX LP Loan (b) ......................................... 750,000
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
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
communication equipment ................................. 242,116
----------
Total long-term debt ..................................... 2,855,901
----------
Less current maturities .................................. 228,510
----------
$2,627,391
==========
F-10
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements - (Continued)
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").
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.
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
F-11
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements - (Continued)
3. Notes Payable and Long-Term Debt - (Continued)
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 years ended
December 31, 1995 and 1996 was $304,132 and $275,787. Rent and lease expense
included in general and administrative expenses for the years ended December 31,
1995 and 1996 was $75,848 and $198,512.
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
============
F-12
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements - (Continued)
4. Commitments and Contingencies - (Continued)
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
=============
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.
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, 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).
F-13
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements - (Continued)
5. Stockholder's Equity - (Continued)
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.
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.
F-14
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements - (Continued)
5. Stockholder's Equity - (Continued)
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 is as
follows:
Weighted
Average
Number of Exercise
Options Price
----------- ----------
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
========= ========
Options exercisable at December 31, 1996 143,128 $ 3.99
========= ========
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
5.00 145,153 10 5.00 -- --
-------- -- ----- ------- ------
456,453 10 $4.31 143,128 $ 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 would have been reduced to the pro forma amounts
presented below:
1995 1996
---- ----
Net loss
As reported .............. $ (412,121) $ (19,915)
Pro forma ................ $ (419,833) $ (446,460)
Loss per share
As reported .............. $ (.10) $ (.00)
Pro forma ................ $ (.10) $ (.11)
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 in 1996, 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 value
at date of grant for options granted during 1996 approximated $1.60 per option.
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-15
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements - (Continued)
5. Stockholder's Equity - (Continued)
STOCK SPLIT
In June 1996, the Company effected a 72,550-for-1 split of its common stock
and increased the number, and par value, of the authorized shares of common
stock, from 100,000 to 25,000,000 shares and from a par value of $1.00 per share
to $.01 per share. All common shares, common stock warrants, options and grants
and loss per share information disclosed in the financial statements and notes
have been adjusted to give retroactive effect for the stock split (see Note 9).
6. SIGNIFICANT VENUES AND CONCENTRATION OF CREDIT RISK
Revenues from certain venues comprised 10% or more of total revenues. The
following table shows the percentage of revenues of these venues to total
revenues.
Years ended December 31, 1995 1996
- ------------------------ ---- ----
Venue A .................... 34% 29%
Venue B .................... 12 11
Venue C .................... 22 32
Venue D .................... -- 12
-- --
68% 84%
== ==
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 of the outstanding
amounts due from the principal stockholder. 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 stockholder since December 31,
1996.
The Company recorded a $1,780,424 charge during 1996 for the forgiveness of
debt.
8. INCOME TAXES
Income taxes in the statement of operations consists of the following:
Years ended December 31, 1995 1996
------------------------ ---- ----
Current
Federal .............. $ --- $ --
State ................ 1,950 15,789
------ -------
$1,950 $15,789
====== =======
F-16
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements - (Continued)
8. Income Taxes - (Continued)
Deferred taxes are as follows:
Years ended December 31, 1996
------------------------ ----
Deferred tax assets:
Litigation accrual ........ $ 34,000
IRC section 481(A) election --
Net operating loss
carryforward ............ 223,453
-----------
Total deferred tax assets ...... 257,453
Deferred tax liability:
Pre-opening costs ............ (43,921)
-----------
Net deferred tax assets ........ 213,532
-----------
Less: Valuation allowance ...... (213,532)
-----------
$ --
===========
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>
Years ended December 31, 1995 1996
------------------------ ---- ----
<S> <C> <C>
U.S. Federal statutory rate applied to pretax income ..... $(140,121) $(12,139)
Permanent differences .................................... 510 510
State income taxes, net of Federal benefit ............... 1,950 15,789
Benefit of net operating loss carryforward ............... -- --
Tax effect of unrecognized net operating loss carryforward 139,611 11,629
--------- --------
$ 1,950 $ 15,789
========= ========
</TABLE>
At December 31, 1995 and 1996 the Company had Federal net operating loss
carryforwards of approximately $600,958 and $657,214, 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) on a cashless basis
(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.
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
F-17
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements - (Continued)
9. Subsequent Events - (Continued)
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. The net proceeds to the Company after deducting the Placement
Agent's commissions and other offering expenses were $825,000. The warrants were
assigned a value of $97,300. As no consideration was paid for the warrants, 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 IPO (the "Debt
Conversion"). If effected, the Debt Conversion will result in a one time,
non-recurring, interest expense charge to the Company in the estimated amount of
$194,228.
PROPOSED INITIAL PUBLIC OFFERING
The Company has a letter of intent with the Underwriter in connection with
its proposed underwriting of an IPO of 1,400,000 shares of the common stock of
the Company and warrants to purchase 2,000,000 shares of the common stock of the
Company for anticipated aggregate gross proceeds of approximately $7,200,000.
EMPLOYMENT CONTRACTS
On February 1, 1997, the Company entered into an employment agreement with
the principal stockholder to employ him as its Chairman of the Board and Chief
Executive Officer until May 31, 2000. In accordance with this employment
agreement, the principal stockholder will receive an annual salary of $250,000
and may be entitled to receive an annual 10% increase of his base salary amount.
The Company has the right to terminate the principal stockholder's employment at
any time without cause, provided that the Company pays the principal stockholder
a lump sum payment equal to one year's base salary, car allowance and insurance
allowance. Also in February 1997, the Company amended the employment agreements
with the CFO and the President and extended their agreements to May 31, 2000. In
connection with each of their respective employment agreements, the CEO,
President and CFO also entered into a confidentiality and non-compete agreements
with the Company.
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. 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
In March 1997, the Company provided for each non-employee director of the
Company to receive, in addition to reimbursement of expenses incurred in
attending Board meetings, an option to purchase 10,000 shares of Common Stock
each year that he or she serves as such a director (each such year, a "Grant
Year"), partially con-
F-18
<PAGE>
On Stage Entertainment, Inc.
Notes to Financial Statements - (Continued)
9. Subsequent Events - (Continued)
tingent upon the director's attendance at the Company's four scheduled Board of
Director meetings during the Grant Year. One-quarter of the annual option grant
shall vest as of each of the Grant Year's first three scheduled Board of
Director meetings and the remainder of such option 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 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-19
<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 securities
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
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary ...................... 3
Risk Factors ............................ 9
Use of Proceeds ......................... 17
Dilution ................................ 18
Dividend Policy ......................... 19
Capitalization .......................... 20
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ............................. 22
Business ................................ 29
Management .............................. 46
Principal and Selling Stockholders ...... 53
Certain Transactions .................... 55
Description of Securities ............... 57
Shares Eligible for Future Sale ......... 62
Underwriting ............................ 63
Legal Matters ........................... 65
Experts ................................. 65
Additional Information .................. 65
Index to Financial Statements ........... F-1
</TABLE>
------
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the shares of Common Stock offered hereby, whether
or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
==============================================================================
<PAGE>
==============================================================================
ON STAGE
ENTERTAINMENT, INC.
2,000,000 SHARES
OF COMMON STOCK
AND
REDEEMABLE WARRANTS TO
PURCHASE 2,000,000 SHARES OF
COMMON STOCK
------
PROSPECTUS
------
Whale Securities Co., L.P.
, 1997
==============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Subsection 1 of Section 78.751 of Chapter 78 of the Nevada Revised
Statutes (the "NGCL") empowers a corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation or enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceedings, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or
its equivalent, does not, of itself, create a presumption that the person did
not act in good faith in a manner which he reasonably believed to be in or
not opposed to the best interests of the corporation and that, with respect
to any criminal action or proceeding, he had reasonable cause to believe his
action was unlawful.
Subsection 2 of Section 78.751 of the NGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that he acted in any of the capacities set forth above, against
expenses, including amounts paid in settlement and attorneys' fees, actually
and reasonably incurred by him in connection with the defense or settlement
of such action or suit if he acted in accordance with the standard set forth
above, except that no indemnification may be made in respect of any claim,
issue or mater as to which such person shall have been adjudged by a court of
competent jurisdiction after exhaustion of all appeals therefrom to be liable
to the corporation or for amounts paid in settlement to the corporation
unless and only to the extent that the court in which such action or suit was
brought or other court of competent jurisdiction determines that, in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
Section 78.751 of the NGCL further provides that, to the extent a director
or officer of a corporation has been successful on the merits or otherwise in
the defense of any action, suit or proceeding referred to in subsection (1)
and (2), or in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith; that indemnification
provided for by Section 78.751 of the NGCL shall not be deemed exclusive of
any other rights to which the indemnified party may be entitled and that the
scope of indemnification shall continue as to directors, officers, employees
or agents who have ceased to hold such positions, and to their heirs,
executors and administrators. Finally, Section 78.752 of the NGCL empowers
the corporation to purchase and maintain insurance on behalf of a director,
officer, employee or agent of the corporation against any liability asserted
against him or incurred by him in any such capacity or arising out of his
status as such whether or not the corporation would have the authority to
indemnify him against such liabilities and expenses.
The Registrant's Bylaws provide a right to indemnification to the full
extent permitted by law, for expenses (including attorney's fees), damages,
punitive damages, judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by any director or officer whether or not
the indemnified liability arises or arose from any threatened, pending or
completed proceeding by or in the right of the Registrant (a derivative
action) by reason of the fact that such director or officer is or was serving
as a director, officer, employee or agent of the Registrant or, at the
request of the Registrant, as a director, officer, partner, fiduciary or
trustee of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, unless the act or failure to act giving
rise to the claim for indemnification is financially determined by a court to
have constituted willful misconduct or recklessness. The Bylaws provide for
the advancement of expenses to an indemnified party upon receipt of an
undertaking by the party to repay those amounts if it is finally determined
that the indemnified party is not entitled to indemnification.
II-1
<PAGE>
The Registrant's Bylaws authorize the Registrant to take steps to ensure
that all persons entitled to the indemnification are properly indemnified,
including, if the Board of Directors so determines, purchasing and
maintaining insurance.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses payable by the Registrant* in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions and the Underwriter's non-accountable
expense allowance) are as follows:
<TABLE>
<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 ............................ **
Legal fees and expenses .................................... **
Accounting fees and expenses ............................... **
Blue sky fees and expenses (including legal fees) .......... **
Transfer agent, warrant agent and registrar fees and
expenses .................................................. **
Miscellaneous .............................................. **
------------
Total ............................................... $544,000.00
============
</TABLE>
- ------
* Other than the underwriting discounts and commissions and the
Underwriter's nonaccountable expense allowance attributable to the 600,000
shares of Common Stock being offered hereby by the Selling Stockholder,
the Selling Stockholder is not paying any of the expenses of this
offering.
** To be filed by amendment.
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.
(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 and 715,000 shares of Common Stock
at $2.07 per share. 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 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
10.8 Contribution Agreement between the Registrant and John W. Stuart
10.9 Security and Pledge Agreement between the Registrant and John W. Stuart relating to contribution of LVHE shares
10.10 Security and Pledge Agreement between the Registrant and John W. Stuart relating to LVHE litigation indemnity
10.11 Indemnification Agreement between the Registrant, John W. Stuart and Grand Strand Entertainment, Inc.
10.12 Security and Pledge Agreement between the Registrant and John W. Stuart relating to Grand Strand Entertainment, Inc.
litigation indemnity
10.13** Lease between the Registrant and Great American Entertainment Company
10.14** Agreement between the Registrant and Imperial Palace, Inc.
10.15** Agreement between the Registrant and Bally's Park Place, Inc.
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>
- ------
* To be filed by amendment
** To be filed by amendment in redacted form pursuant to Rule 406 promulgated
under the Securities Act. Filed separately in unredacted form subject to a
request for confidential treatment pursuant to Rule 406 under the
Securities Act.
II-3
<PAGE>
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 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-4
<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 April 4, 1997.
ON STAGE ENTERTAINMENT, INC
By: /s/ JOHN W. STUART
-----------------------------------
John W. Stuart, Chairman of
the Board and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints John W. Stuart and David Hope, and each of
them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him and in his name, place and stead, in
any and all capacities (until revoked in writing) to sign any and all
amendments (including post-effective amendments and amendments thereto) to
this Registration Statement on Form SB-2 and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, acting alone or his
substitute, may lawfully do or cause to be done by virtue hereof.
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 Director April 4, 1997
- ----------------------------- (principal executive officer)
John W. Stuart
/s/ DAVID HOPE President, Chief Operating Officer and April 4, 1997
- ----------------------------- Director
David Hope
/s/ KIRANJIT S. SIDHU Chief Financial Officer (principal financial and April 4, 1997
- ----------------------------- accounting officer) and Treasurer
Kiranjit S. Sidhu
/s/ NEIL H. FOSTER Executive Vice President, Chief Operating Officer and April 4, 1997
- ----------------------------- Director
Neil H. Foster
/s/ JULES HAIMOVITZ Director April 4, 1997
- -----------------------------
Jules Haimovitz
/s/ JAMES L. NEDERLANDER Director April 4, 1997
- -----------------------------
James L. Nederlander
/s/ MARK TRATOS Director April 4, 1997
- -----------------------------
Mark Tratos
/s/ KENNETH BERG Director April 4, 1997
- -----------------------------
Kenneth Berg
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- --------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1* Specimen stock certificate representing the Common Stock.
4.2* Specimen warrant certificate representing the Warrants.
4.3 Form of Public Warrant Agreement.
4.4 Form of Underwriter's Warrant Agreement.
5.1* Opinion of Morgan, Lewis & Bockius LLP regarding legality of securities being registered.
10.1 Employment Agreement between the Registrant and John W. Stuart
10.2 Employment Agreement between the Registrant and David Hope
10.3 Employment Agreement between the Registrant and Kiranjit S. Sidhu
10.4 Confidentiality and Non-Competition Agreement between the Registrant and John W. Stuart
10.5 Confidentiality and Non-Competition Agreement between the Registrant and David Hope
10.6 Confidentiality and Non-Competition Agreement between the Registrant and Kiranjit S. Sidhu
10.7 Amended and Restated 1996 Stock Option Plan
10.8 Contribution Agreement between the Registrant and John W. Stuart
10.9 Security and Pledge Agreement between the Registrant and John W. Stuart relating to contribution of LVHE shares
10.10 Security and Pledge Agreement between the Registrant and John W. Stuart relating to LVHE litigation indemnity
10.11 Indemnification Agreement between the Registrant, John W. Stuart and Grand Strand Entertainment, Inc.
10.12 Security and Pledge Agreement between the Registrant and John W. Stuart relating to Grand Strand Entertainment, Inc.
litigation indemnity
10.13** Lease between the Registrant and Great American Entertainment Company
10.14** Agreement between the Registrant and Imperial Palace, Inc.
10.15** Agreement between the Registrant and Bally's Park Place, Inc.
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>
- ------
* To be filed by amendment
** To be filed by amendment in redacted form pursuant to Rule 406 promulgated
under the Securities Act. Filed separately in unredacted form subject to a
request for confidential treatment pursuant to Rule 406 under the
Securities Act.
<PAGE>
ON STAGE ENTERTAINMENT, INC.
2,000,000 Shares of Common Stock
(Par Value $.01 Per Share)
and
Warrants to Purchase 2,000,000 Shares of Common Stock
UNDERWRITING AGREEMENT
Whale Securities Co., L.P. _______________, 1997
650 Fifth Avenue
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 of common stock of the Company, par value $.01 per share (the "Company
Offered Shares"), and John W. Stuart (the "Selling Shareholder") proposes to
sell to the Underwriter an aggregate of Six Hundred Thousand Shares (the
"Selling Shareholder Offered Shares" and, together with the Company Offered
Shares, the "Offered Shares"), which Offered Shares are presently authorized but
unissued shares of the common stock, par value $.01 per share (individually, a
"Common Share" and collectively the "Common Shares"), of the Company, and Two
Million (2,000,000) Common Share purchase warrants (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
<PAGE>
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 Three Hundred Thousand (300,000) Common Shares (the "Optional
Shares") and/or Three Hundred (300,000) Common Share purchase warrants (the
"Optional Warrants") entitling the holder of each Optional 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 Two Hundred
Thousand (200,000) Common Shares (collectively, the "Underlying Shares") and/or
Two Hundred Thousand (200,000) 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 $_____ per Offered Share and $.___ 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-
<PAGE>
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 Underwriter.
Such payment and delivery will be made at ______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 Two Hundred Twenty Dollars ($220,000).
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
-3-
<PAGE>
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 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, 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
-4-
<PAGE>
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, to the satisfaction by the Company of the conditions, as of the date
hereof and as of the Option Closing Date, set forth in Section 3(b) hereof, and
to the delivery to the Underwriter of opinions, certificates and letters dated
the Option Closing Date substantially similar in scope to those specified in
Section 6 and 7 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 power and authority, corporate and other, to own or lease, as the case
may be, and operate its properties, whether tangible or intangible, 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 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
Memorandum. 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
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<PAGE>
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 Memorandum.
The Company owns all of the issued and outstanding shares of
capital stock of each Subsidiary, free and clear of any security interests,
liens, encumbrances, claims and charges, and all of such shares have been duly
authorized and validly issued and are fully paid and nonassessable. 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, 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. 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 or By-Laws, each as
amended, of the Company; (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 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
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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.
(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, the transactions contemplated herein
and 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-_____) 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
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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, referred to below, 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 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. 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 Statement
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.
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<PAGE>
(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.
(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
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<PAGE>
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.
(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.
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<PAGE>
(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 or By-Laws, 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 (including those obtainable from third
parties) Permits necessary to own or lease, as the case may be, and to operate
its properties, whether tangible or intangible, and to conduct any of the
business or operations of the Company as presently conducted, and 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 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,
shareholders' 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 the Company's or any Subsidiary's properties or businesses, is bound or
subject.
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<PAGE>
(q) 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 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"); 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 consolidated 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 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 referred to below there will
not be, 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, shareholders' 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 each Subsidiary has good and
marketable title in fee simple to all real property and good title to all
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
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<PAGE>
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 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 located in its geographic
area.
(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, is
in full force and effect in all material respects and is enforceable against the
parties thereto in accordance with its terms, 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
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<PAGE>
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 Subsidiary's employees or is
imminent which could 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.
(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 ___________, 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. Representations and Warranties of the Selling Shareholder. The
Selling Shareholder represents and warrants to the Underwriter that:
(a) The Selling Shareholder Offered Shares to be sold by the
Selling Shareholder are, and on the Closing Date will be,
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duly and validly authorized and validly issued, fully paid and nonassessable;
the certificates for such Selling Shareholder Offered Shares will be genuine;
the Selling Shareholder has on the date hereof and will have on the Closing Date
valid, marketable title to such Selling Shareholder Offered Shares, free and
clear of all liens, encumbrances, equities, security interests and claims
whatsoever, with full right and authority to sell and deliver such Selling
Shareholder Offered Shares; and upon the delivery of and payment for such
Selling Shareholder Offered Shares as herein contemplated the Underwriter will
receive valid, marketable title thereto, free and clear of all liens,
encumbrances, equities, security interests and claims, except any that may be
created by their own action.
(b) All information furnished to the Company in writing by the
Selling Shareholder for use in, or in connection with the preparation of, the
Registration Statement or the Prospectus does not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading. The Selling
Shareholder hereby furnishes to the Company for such use the statements with
respect to the Selling Shareholder under "Principal and Selling Shareholder" in
the Prospectus and in Item 26 for Form SB-2 of the Registration Statement.
(c) The Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or which might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Shares of the Company in connection with, or to facilitate, the
distribution of the Shares.
(d) The Selling Shareholder has duly authorized the Company to
act as attorney-in-fact (the "Attorney-in-Fact") for the Selling Shareholder
pursuant to a power of attorney executed by the Selling Shareholder (and, by the
execution by it of this Agreement on behalf of the Selling Shareholder, the
Attorney-in-Fact represents and warrants that it has been duly appointed as
Attorney-in-Fact by the Selling Shareholder) pursuant to which the
Attorney-in-Fact is authorized on behalf of the Selling Shareholder to execute
this Agreement and any other documents necessary or desirable in connection with
the sale of the Selling Shareholder Offered Shares, to make delivery of the
certificates for the Selling Shareholder Offered Shares, to receive the proceeds
of the sale of the Selling Shareholder Offered Shares and to give a receipt
therefor and to distribute the proceeds to the Selling Shareholder. The Selling
Shareholder has caused a certificate or certificates for the number of Selling
Shareholder Offered Shares to be sold by the Selling Shareholder hereunder to be
delivered to the Attorney-in-Fact with irrevocable authority
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to purchase all requisite stock transfer tax stamps and to hold such certificate
or certificates in custody for delivery, or for exchange for other certificates
in proper form for delivery, pursuant to the provisions hereof on the Closing
Date.
(e) This Agreement constitutes the valid and binding
obligation of the Selling Shareholder, enforceable against the Selling
Shareholder in accordance with its terms subject, as to enforcement of remedies,
to applicable bankruptcy, fraudulent conveyance, 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 United States federal and state securities laws or public policy underlying
such laws.
(f) All authorizations and consents necessary for the
execution and delivery by the Selling Shareholder of this Agreement and the sale
and delivery hereunder of the Selling Shareholder Offered Shares have been
obtained and are in full force and effect on the date hereof and will be in full
force and effect at the Closing Date.
(g) The sale of such Selling Shareholder Offered Shares by the
Selling Shareholder pursuant to this Agreement is not prompted by any material
information concerning the Company known by the Selling Shareholder which is not
set forth in the Prospectus.
Any certificate signed by the Selling Shareholder
and delivered to the Underwriter or to Underwriter's counsel shall be deemed to
be a representation and warranty by the Selling Shareholder as to the matters
covered thereby.
6. Certain Covenants of the Company and the Selling
Shareholder. Each of the Company and the Selling Shareholder 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.
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(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 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
two signed copies 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 two signed
copies 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
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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.
(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 shareholders annual reports containing
audited
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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 the Selling Shareholder
nor any person that controls, is controlled by or is under common control with
the Company or the Selling Shareholder 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; 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
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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 case 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, as well as to repay up to $110,000 of
bank indebtedness. The Company will file with the Commission all required
reports on Form S-R in accordance with the provisions of Rule 463 promulgated
under the Act and will provide a copy of each such report to the Underwriter and
its counsel.
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(l) During the period of twelve (12) months from the
date hereof, (i) none of the Company's officers, directors or security holders
will offer for sale or sell 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) 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.
Notwithstanding the foregoing, (a) 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, 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, (b) the parties to the Warrant
Exchange (as defined in the Prospectus) shall have one demand and unlimited
piggyback registration rights relating to the Warrant Exchange Shares (as
defined in the Prospectus) and the parties to the Pending Debenture Conversion
(as defined in the Prospectus) shall have unlimited piggyback registration
rights relating to 25% (126,412) of the Debenture Shares (as defined in the
Prospectus), exercisable (1) in either case, beginning twenty (20) trading days
after September 30, 1997 (and, once such shares are registered pursuant to an
effective registration statement, the holders thereof may sell such shares
without regard to the Underwriter's lock-up referred to in (ii) above), provided
that the closing bid quotation of the Common Stock shall have been at least
$8.75 for twenty (20) consecutive trading days after September 30, 1997, and (2)
in any event, in the case of the Warrant Exchange Shares, beginning one year
after the Effective Date, and (c) the parties to the Pending Debenture
Conversion shall have one demand and unlimited piggyback rights relating to all
of the Debenture Shares exercisable commencing nine (9) months following the
Effective Date.
(m) 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
from 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
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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.
(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 shareholders agrees 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,
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<PAGE>
the Underwriter shall nonetheless have the right to send a representative (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 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.
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<PAGE>
(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 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 6(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 shareholders.
(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.
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(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) The Company will not increase or authorize an
increase in the compensation of its Chairman, President or Chief Financial
Officer greater than those increases provided for in their employment agreements
with the Company in effect on the Effective Date and disclosed in the
Registration Statement without the prior written consent of the Underwriter, for
a period of three (3) years from the Effective Date.
(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) the By-Laws of the
Company shall provide that meetings of the Board 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.
7. 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., McKenna & Stahl, 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:
(i) The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada, with full power and authority, corporate and other, and with all Permits
necessary to own or lease, as the case may be, and operate its properties,
whether tangible or intangible, and to conduct its business as described in the
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Registration Statement. To the best of Company Counsels' knowledge, 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 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 Memorandum. To
the best of Company Counsels' knowledge, 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 Memorandum.
(ii) The Company has full power and
authority, corporate and other, 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 perfor-
mance 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 or
By-Laws, each as amended, of the Company or any Subsidiary, (B) 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, 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; or (D) have any effect on any Permit necessary for the Company or any
Subsidiary to own or lease and operate their respective properties or conduct
their businesses or the ability of the Company 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 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 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
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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.
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 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. 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.
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(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 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 Warrants,
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 payment therefor as provided in this
Agreement, the Underwriter (assuming 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
exercises the over-allotment option to purchase any of the Optional Shares and
Offered Warrants and makes 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.
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(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 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 its business as described in the Prospectus (collectively the
"Intangibles"); to the best of Company Counsels' knowledge, neither the Company
nor any Subsidiary has infringed nor is infringing upon the rights of others
with respect to the Intangibles; and, to the best of Company Counsels'
knowledge, neither the Company nor any Subsidiary has received any notice that
it has or may have infringed, is infringing upon or is conflicting with the
asserted rights of others with respect to the Intangibles which might, singly or
in the aggregate, materially adversely affect its business, results of
operations or financial condition and such counsel is not aware of any licenses
with respect to the Intangibles which are required to be obtained by the
Company.
(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 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
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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 16(b)(xv) as to the
subject matter of its opinion.
In rendering its opinion pursuant to this
Section 7(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 7(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.
(i) To the best of Company Counsels' knowledge, the Selling
Shareholder has valid and marketable title to the Selling Shareholder Offered
Shares to be sold by the Selling Shareholder, free and clear of any lien, claim,
security interest or other encumbrance, including, without limitation, any
restriction on transfer (except for those that have been waived), and the
Selling Shareholder is an adult individual having full legal capacity and power
to enter into the Agreement and his or her Power of Attorney (as hereinafter
defined).
(ii) The Selling Shareholder is an adult individual having
full legal capacity and power, and no approvals are required by law (other than
securities laws, as to which such counsel expresses no opinion), to sell,
transfer, assign and deliver the Selling Shareholder Offered Shares being sold
by the Selling Shareholder under the Agreement, and, assuming the Underwriter
purchases such Selling Shareholder Offered Shares in good faith without notice
of any adverse claim, the Underwriter will acquire valid and marketable title to
all of the Selling Shareholder Offered Shares being sold to the Underwriter by
such Selling Shareholder, free and clear of any liens, encumbrances, equities,
claims, restrictions on transfer or other defects whatsoever.
(iii) The Agreement has been duly and validly authorized,
executed and delivered by or on behalf of the Selling Shareholder and is a valid
and binding obligation of the Selling Shareholder.
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(iv) The Selling Shareholder has duly executed and delivered a
power of attorney (the "Power of Attorney") appointing ___________ and
___________, each of them, as attorney-in-fact (the "Attorneys-in-fact") with
authority to execute and deliver the Agreement on behalf of the Selling
Shareholder, to authorize the delivery of the Selling Shareholder Offered Shares
to be sold by the Selling Shareholder thereunder and otherwise to act on behalf
of the Selling Shareholder in connection with the transactions contemplated by
the Agreement (including any exercise of options and payment of the exercise
price with respect to the Selling Shareholder Offered Shares to be sold by such
Selling Shareholder under the Agreement).
(v) The Selling Shareholder has, by execution and delivery of
each of his or her respective Power of Attorney, created valid and binding
obligations of, or grants of authority by, the Selling Shareholder, enforceable
against the Selling Shareholder 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 of
the Agreement and the contribution provisions set forth in Section 9 of the
Agreement may be limited by the federal securities laws or public policy
underlying such laws.
(vi) To the best of Company Counsels' knowledge, the
performance of the Agreement and the Selling Shareholder's Power of Attorney,
and the consummation of the transactions contemplated by the Agreement and the
Powers-of-Attorney and the compliance by the Selling Shareholder with the terms
of this Agreement and the Selling Shareholder's Power-of-Attorney do not, and
will not, with or without the giving of notice or the lapse of time, or both,
(A) result in a breach of or default under an indenture, mortgage, note,
contract, commitment or other material agreement or instrument known to Company
Counsel to which the Selling Shareholder is a party or by which any the Selling
Shareholder or any of its properties may be bound or (B) violate any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Selling
Shareholders or any of his or her properties or business.
(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 7(b) hereof appear on their face to be appropriately responsive to the
requirements of this Agreement, except to the extent waived by the Underwriter,
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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 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 7(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,
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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: (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, if any, 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 shareholders, 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
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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 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
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7(b) 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 6(l) and (q).
If any of the conditions specified in this Section
7 have not been fulfilled, this Agreement may be terminated by the Underwriter
on notice to the Company.
8. 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
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Underwriter expressly for use therein; provided, however, that the indemnity
agreement contained in this Section 8(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 8(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
statement or alleged untrue statement or omission or alleged omission giving
rise to such cause, claim, damage, expense or liability.
(b) The Selling Shareholder agrees to indemnify and
hold harmless each Underwriter (including specifically each person that may be
substituted for an Underwriter as provided in Section 11 hereof), each officer,
director, partner, employee and agent of any Underwriter, the Company and each
of its directors, each of its officers who have signed the Registration
Statement and each person, if any, who controls any of the Underwriters of 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
each such indemnified persons 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
(A) 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 of Prospectus as from time to time
amended or supplemented) or (ii) in any application (including any applicable
for registration of the Shares 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 Selling Shareholder expressly for use
therein or (B) any action taken by the Selling Shareholder in connection with
the offering of the Selling Shareholder Offered Shares (including, without
limitation, the dissemination of any written materials or the making of any oral
statement).
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(c) 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 and the Selling Shareholder 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.
(d) 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 8, 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 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
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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 8 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.
9. Contribution. To provide for just and equitable
contribution, if (i) an indemnified party makes a claim for indemnification
pursuant to Section 8 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 Selling Shareholder as one entity 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 the Selling
Shareholder 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, the Selling
Shareholder 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 capita allocation of the aggregate losses,
liabilities, claims, damages and expenses or by any other
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method of allocation that does not reflect the equitable considerations referred
to in this Section 9. 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 9, 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 9. 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.
10. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company, the Selling Shareholder and the Underwriter contained in Sections 8 and
9 hereof, and the representations and warranties of the Company and the Selling
Shareholder 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 the Selling Shareholder or any controlling person
referred to in said Sections, and shall survive the delivery of, and payment
for, the Shares and the Warrants.
11. 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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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 7 hereof or this Section 11 or if the purchases provided for herein are
not consummated because any condition of the Underwriter's obligations hereunder
is not satisfied or because 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
-42-
<PAGE>
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
6(j), 8, 9 and 10 of this Agreement.
12. 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.
13. 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.;
if to the Selling Shareholder, addressed to him at _______________________, with
a copy to _________________.
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 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
-43-
<PAGE>
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.
14. Parties in Interest. This Agreement is made solely for the
benefit of the Underwriter, the Company, the Selling Shareholder 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:
_______________________________
Mr. John W. Stuart, as Selling
Shareholder
-44-
<PAGE>
Exhibit 3.1
CERTIFICATE OF AMENDED AND RESTATED
ARTICLES OF INCORPORATION
of
ON STAGE ENTERTAINMENT, INC.
The undersigned hereby certifies that they are the duly elected and
acting President and Secretary of On Stage Entertainment, Inc., a corporation
organized and existing under the laws of the State of Nevada, and that, for the
purpose of amending and restating its original Articles of Incorporation, which
were filed with the Secretary of State of the State of Nevada on October 30,
1985, pursuant to and by virtue of Chapter 78 of the Nevada Revised Statutes,
the following Restated Articles of Incorporation have been duly adopted in
accordance with the provisions of Chapter 78 of the Nevada Revised Statutes.
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
of
ON STAGE ENTERTAINMENT, INC.
ARTICLE I
The name of the corporation is On Stage Entertainment, Inc. (the
"Corporation").
ARTICLE II
The address of the registered office of the Corporation in the State of
Nevada is 4625 West Nevso Drive, Las Vegas, Nevada 89103. The name of the
registered agent of the Corporation at such address is Christopher R. Grobl.
<PAGE>
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the provisions of Chapter
78 of the Nevada Revised Statutes.
ARTICLE IV
SHARES OF STOCK
Section 1. Number and Class. The total number of shares of authorized
capital stock of the Corporation shall consist of Twenty Five Million
(25,000,000) shares of Common Stock with One Cent ($.01) par value and One
Million (1,000,000) shares of Preferred Stock with One Dollar ($1.00) par value.
The capital stock may be issued from time to time without action by the
stockholders. The capital stock may be issued for such consideration as may be
fixed from time to time by the Board of Directors. The Board of Directors may
issue such shares of capital stock in one or more series, with such voting
powers, designations, preferences and rights or qualifications, limitations or
restrictions thereof as shall be stated in the resolution or resolutions adopted
by them.
Section 2. No Preemptive Rights. Holders of the Common Stock of the
Corporation shall not have any preference, preemptive right, or right of
subscription to acquire any shares of the Corporation authorized, issued or
sold, or to be authorized, issued or sold, and convertible into shares of the
Corporation, nor to any right of subscription thereto, other than to the extent,
if any, the Board of Directors may determine from time to time.
Section 3. Non-Assessability of Shares. The capital stock of the
corporation, after the amount of the subscription price or par value has been
paid, in money, property or services, as the directors shall determine, shall
not be subject to any assessment to pay the debts of the Corporation, nor for
any other purpose, and no stock issued as fully paid shall ever be assessable or
assessed, and the Articles of Incorporation shall not be amended in this
particular.
ARTICLE V
The members of the governing board of the Corporation shall be styled
directors of the Corporation. The number of directors which shall constitute the
whole Board of Directors of the Corporation shall be increased or decreased from
time to time in such manner as shall be provided in the Bylaws of the
Corporation.
2
<PAGE>
ARTICLE VI
To the fullest extent permitted by applicable law as then in effect, no
director or officer shall be personally liable to the Corporation or any of its
stockholders for damages for breach of fiduciary duty as a director or officer,
except for liability (a) for acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law or (b) for the payment of
distributions to stockholders in violation of Section 78.300 of the Nevada
Revised Statutes. Any repeal or modification of this Article by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director or officer of the Corporation existing at the time of such repeal or
modification with respect to acts or omissions occurring prior to such repeal or
modification.
ARTICLE VII
The holders of the capital stock of the Corporation shall not be
personally liable for the payment of the Corporation's debts and the private
property of the holders of the capital stock of the Corporation shall not be
subject to the payment of debts of the Corporation to any extent whatsoever.
3
<PAGE>
The undersigned, being the President and Secretary of the Corporation,
hereby certify as follows:
1. On March 12, 1997, the Directors of the Corporation, by unanimous
consent, adopted and consented to the adoption of a resolution setting forth the
proposed Restated Articles of Incorporation of the Corporation as hereinabove
set forth, declaring the advisability thereof and calling a meeting of the
stockholders of the Corporation for the purpose of considering and voting upon
the proposed Restated Articles of Incorporation.
2. At a special meeting of the stockholders of the Corporation held on
March 12, 1997, the stockholders of the Corporation, having executed a written
waiver of notice pursuant to Section 78.375 of the Nevada Revised Statutes,
unanimously adopted and consented to the adoption of a resolution setting forth
the proposed Restated Articles of Incorporation of the Corporation as
hereinabove set forth.
3. The Articles of Incorporation of On Stage Entertainment, Inc. are
hereby amended and restated as set forth above, and the undersigned makes this
certificate pursuant to Section 78.385, Section 78.390 and Section 78.403 of the
Nevada Revised Statutes this 12th day of March, 1997.
/s/ David Hope
-------------------------------
Name: David Hope
Title: President
/s/ Christopher R. Grobl
-------------------------------
Name: Christopher R. Grobl
Title: Secretary
4
<PAGE>
ACKNOWLEDGMENT
STATE OF NEVADA )
) SS.
COUNTY OF CLARK )
On this 12th day of March, 1997, personally appeared before
me, a Notary Public (or judge or other authorized person, as the case may be),
David Hope and Christopher R. Grobl, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the persons whose name is subscribed
to the within instrument and acknowledged to me that he executed the same in
his/her authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ Henrietta K. Beaudoin
----------------------------------------------
NOTARY PUBLIC in and for said county and state
[Notary Public
State of Nevada
[Notary Seal] County of Clark
Henrietta K. Beaudoin
My Appointment Expires July 21, 1997]
5
<PAGE>
Exhibit 3.2
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>
<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, Terms of Office of Directors......................5
SECTION 2.3. Vacancies on Board............................................................6
SECTION 2.4. Meetings of the Board.........................................................7
SECTION 2.5. Quorum and Action.............................................................7
SECTION 2.6. Presiding Officer and Secretary of Meeting....................................7
SECTION 2.7. Action by Consent without Meeting.............................................8
SECTION 2.8. Standing Committees...........................................................8
SECTION 2.9. Other Committees..............................................................9
SECTION 2.10 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............................................10
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
SECTION 3.7. Powers and Duties of the Treasurer...........................................11
SECTION 3.8. Powers and Duties of the Secretary...........................................11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE IV - INDEMNIFICATION.....................................................................................11
SECTION 4.1. (a) Right to Indemnification.............................................11
SECTION 4.2. Insurance, Contracts and Funding.............................................12
SECTION 4.3. Indemnification; Not Exclusive Right.........................................12
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........................................................................................17
SECTION 5.1. Stock Certificates...........................................................17
SECTION 5.2. Record Ownership.............................................................18
SECTION 5.3. Transfer of Record Ownership.................................................18
SECTION 5.4. Lost, Stolen or Destroyed Certificates.......................................18
SECTION 5.5. Transfer Agent; Registrar; Rules Respecting
Certificates......................................................18
SECTION 5.6. Fixing Record Date for Determination of
Stockholders of Record............................................19
ARTICLE VI - SECURITIES HELD BY THE CORPORATION..................................................................19
SECTION 6.1. Voting .....................................................................19
SECTION 6.2. General Authorization to Transfer Securities Held
by the Corporation................................................19
ARTICLE VII - DEPOSITARIES AND SIGNATORIES.......................................................................20
SECTION 7.1. Depositaries.................................................................20
SECTION 7.2. Signatories..................................................................20
ARTICLE VIII - SEAL..............................................................................................21
ARTICLE IX - FISCAL YEAR.........................................................................................21
ARTICLE X - WAIVER OF OR DISPENSING WITH NOTICE..................................................................21
ARTICLE XI - AMENDMENT OF BY-LAWS................................................................................22
ARTICLE XII - OFFICES AND AGENT..................................................................................22
</TABLE>
<PAGE>
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.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 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
<PAGE>
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 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 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.
2
<PAGE>
(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 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
3
<PAGE>
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.
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.
4
<PAGE>
(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, 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
5
<PAGE>
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.
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 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
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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 shall be held at such times and
at such places as from time to time shall be determined by the Board.
(c) The first meeting of each newly elected Board shall be held as
soon as practicable after the annual meeting of the stockholders and shall be
for the election of officers and the transaction of such other business as may
come before it.
(d) 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.
(e) 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.
(f) 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.
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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 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.
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(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
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
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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 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
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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.
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
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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.
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
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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 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
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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.
(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
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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
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
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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 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
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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.
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
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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.
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
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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 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
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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.
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. Unless otherwise designated by the Board or
by the Chairman, the President, the Chief Financial Officer or the Treasurer,
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 (a) signed by the Treasurer or any Assistant Treasurer and (b)
countersigned by the Controller or any Assistant Controller, or (c) either
signed or countersigned by the Chairman, the President, any Executive Vice
President, any Senior Vice President or any Vice President in lieu of either the
officers designated in Clause (a) or the officers designated in Clause (b) of
this Section 7.2.
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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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 power of the shares
of stock of the corporation not owned by such majority stockholder.
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ARTICLE XII
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.
<PAGE>
WARRANT AGREEMENT dated as of __________, 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
200,000 warrants (the "Warrants") to purchase up to 200,000 (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 200,000 (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 _____________, 1997
between the Underwriter and the Company, to act as the underwriter in connection
with the proposed public offering (the "Public Offering") of 2,000,000 shares
(of which 1,400,000 shares are being offered by the Company and 600,000 shares
are being offered by a selling shareholder) of Common Stock (the "Public
Shares") at an initial public offering price of $5.00 per Public Share and
2,000,000 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 TWO HUNDRED TWENTY DOLLARS
($220.00), 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 _____________, 1997 until 5:00
P.M., New York time, on _________, 2002 (the "Warrant Exercise Term"), up to
200,000 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 200,000 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 shares of Common Stock at a price of $7.755 per share (the
"Underlying
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Warrant Shares"). The Underlying Warrants are exercisable at any time commencing
_________, 1988 (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
________, 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.
Upon surrender of the Warrant Certificate(s) with the annexed Form of Election
to Purchase duly executed, together with payment of the Exercise
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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 effect such exchange, the number of Warrants to
be so exchanged and the date on which the Holder requests that such Warrant
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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, than 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 sales 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 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
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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 such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
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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 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
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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.
7.1. Registration Under the Securities Act of 1933.
None of the Warrants, the Shares, the Underlying Warrants,
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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 Offering, the Company
proposes to prepare and file one or more post-effective amendments to the
registration statement filed in
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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 such proposed Registration Statement, or to withdraw the same
after the filing but prior to the effective date thereof.
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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 be freely traded without
registration under the Act, under Rule 144(k) promulgated under the Act or
otherwise.
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(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 registration right granted pursuant to this Section 7.4(c), then
within ten (10) days after the Company's receipt of such notice,
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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 than twenty (20) days
following receipt of any demand therefor, shall use its best efforts to have any
such Registration
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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 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
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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
Section 7 of the Underwriting Agreement and to provide for just and equitable
contribution as set forth in Section 8 of the Underwriting Agreement.
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(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) If the Company shall fail to comply with
the provisions of this Article 7, the Company shall, in addition to any other
equitable or other relief available to the holders of Registrable Securities, be
liable for any or all incidental, special and consequential damages sustained by
the holders of Registrable Securities, requesting registration of their
Registrable Securities.
(h) 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.
(i) 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 such registration in such Registration Statement
pursuant to Section 7.3 hereof or Section 7.4 hereof requesting such
correspondence and memoranda and to the managing underwriter, if any, of the
offering in connection with which
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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 Stock, then upon such
dividend or distribution the Exercise Price
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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
Shares issuable upon exercise of the Warrants immediately prior
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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 ___________, 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 of the
property of the Company as an entirety, the Holders
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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 Agreement, upon the occurrence
of any of the events described
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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.
8.8. Subscription Rights for Shares of Common Stock
or Other Securities. In the case that the Company or an
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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 denominations as shall be designated by the Holder thereof at
the time of such surrender.
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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 and not subject to the
preemptive rights of any shareholder. The Company further covenants and agrees
that upon exer-
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cise 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 shares
of Common Stock issuable upon the exercise of the Warrants and the Underlying
Warrants and all 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 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
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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 another corporation of
the property of the Company as an entirety is proposed; or
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(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 substantially as set forth in Exhibit "A" to
the Public Warrant Agreement; provided, however, (i) each Underlying Warrant
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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 $7.755 per share
commencing ________, 1998 (or such earlier date as to which the Underwriter
consents to the exercise of the Public Warrants) until __________, 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 such registered holder complies, in connection with the exercise
of such holders' Underlying Warrants, with the terms governing
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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 all the Holders, the
Public Warrant Agreement will not be modified, amended, cancelled, altered or
superseded, 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:
(a) If to a registered Holder of the Warrants, to
the address of such Holder as shown on the books of the
Company; or
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(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
_________, 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,
that the provisions of Section 7 shall survive any termination pursuant to this
Section 17 until the close of business on __________, 2008.
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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.
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IN WITNESS WHEREOF, the parties hereto have caused this
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, _______, 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 _______, 1997 until 5:00 P.M.
New York City time on _______, 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 _______, 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: _______, 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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<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)
-36-
<PAGE>
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, _______, 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
_______, 1997 until 5:00 P.M. New York City time on _______, 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 _______, 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 _______, 1998 (or such earlier date as to
which the Underwriter consents to the exercise of the Public Warrants (as
defined in the Warrant Agreement)) until 5:00 P.M. Eastern Time _______, 2002
each Underlying Warrant entitling the holder thereof to purchase one
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<PAGE>
fully-paid and non-assessable share of common stock of the Company, at an
initial exercise price, subject to adjustment in certain events, of $7.755 per
share. The Underlying Warrants are issuable pursuant to the terms and provisions
of a certain agreement dated as of _______, 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 to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
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<PAGE>
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: _______, 1997 ON STAGE ENTERTAINMENT, INC.
[SEAL] By:__________________________
Name:
Title:
Attest:
______________________________
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<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>
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 2,300,000 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 2,300,000 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 ome 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 registra-
-2-
<PAGE>
tion 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.
-3-
<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
-4-
<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 last 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
-6-
<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 sub-
-8-
<PAGE>
sequent 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-________) (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:
(A) file with the Warrant Agent a cer-
tificate signed by the Chief Executive Officer, President or Vice President of
the Company and by the Treasurer or Assistant
-11-
<PAGE>
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, 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,
-12-
<PAGE>
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 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
-13-
<PAGE>
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 of the Common Stock receivable upon
exercise of its Warrant on the record date for the determination of those
entitled to such distribution.
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<PAGE>
(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.
(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
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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).
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
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<PAGE>
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
(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
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<PAGE>
(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, 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
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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
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
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<PAGE>
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 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
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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 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.
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<PAGE>
(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, 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 reg-
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<PAGE>
istered 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 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
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<PAGE>
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 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
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<PAGE>
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, addressed (until another is filed in writing by the
Company with the Warrant Agent) as follows:
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<PAGE>
On Stage Entertainment, Inc.
4625 West Nevro Drive #2
Las Veas, 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 Warrant Agent or the
Underwriter shall bind and inure to the benefit of their respective successors
and assigns hereunder.
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<PAGE>
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:
<PAGE>
Exhibit 10-1
EMPLOYMENT AGREEMENT
FOR
JOHN W. STUART
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of the first day of February, 1997, between ON STAGE ENTERTAINMENT
CORPORATION, INC., a Nevada Corporation formally known as LEGENDS IN CONCERT,
INC., (the "Company"), and JOHN STUART, an individual ("Stuart").
RECITALS
WHEREAS, Stuart is the creator and founder of the Company and
is the producer of the world-famous Legends in Concert; and
WHEREAS, the Company is preparing to become a publicly traded
entity in order to increase its capitalization to fund expanded shows worldwide,
and this Agreement is undertaken to help facilitate such a public offering; and
WHEREAS, the Company desires to be assured of the ongoing
long-term association and services of Stuart for the Company; and
WHEREAS, Stuart agrees to be employed by the Company, and the
Company is willing to employ Stuart, upon the terms, covenants and conditions
hereinafter set forth; and
NOW, THEREFORE, in consideration of the mutual agreements
contained herein, the Company and Stuart agree as follows:
AGREEMENT
1. RECITALS. The above-listed Recitals are incorporated into
this Agreement in their entirety and expressly made a part hereof.
2. POSITION AND TITLE. The Company agrees to employ Stuart in
the position of Chairman of the Board and Chief Executive Officer, with
authority specified by the Board of Directors.
3. TERM AND TERMINATION.
(a) Term of Employment. Stuart's employment shall be
for a period of three years and four months commencing on the date of this
Agreement and ending on May 31, 2000, unless another date is agreed to in
writing by the parties.
<PAGE>
(b) Causes for Termination. The Company shall have
the right to terminate this Agreement and Stuart's employment at any time for
Cause. "Cause" for termination shall include: (1) Stuart's material breach of
this Agreement; (2) conduct materially injurious to the Company; (3) fraud,
theft, embezzlement, misappropriation or similar activity; (4) conviction or
pleading guilty or no contest to any criminal offense, excluding minor offenses
such as traffic offenses; or (5) gross neglect of employment duties. However, if
the cause for termination is one of the reasons listed in (1), (2) or (5) above,
prior to terminating Stuart, the Company shall first notify Stuart in writing of
his offense and afford him 30 days to correct the problem. If Stuart has failed
to correct the situation to the reasonable satisfaction of the Board of
Directors within 30 days of such notification, the Company may terminate
Stuart's employment.
(c) Severance Pay. The Company shall have the right
to terminate this Agreement and Stuart's employment at any time without cause,
provided that the Company shall pay Stuart a lump sum payment (without
mitigation for subsequent employment) on the date of such termination in an
amount equal to one (1) year's Base Salary, car allowance and insurance
allowance plus reimburse Stuart for any accrued but unused vacation days as of
the date of Stuart's termination ("Severance Pay").
(d) Termination by Stuart. If, prior to an initial
public offering by the Company, there shall be a change in voting control of the
Company not caused by the sale of Stuart personal shares, then Stuart shall have
the right to terminate this Agreement and Stuart's employment at any time
without cause, and the Company shall pay Stuart the Severance Pay in a lump sum
payment (without mitigation for subsequent employment) on the date of such
termination.
5. COMPENSATION.
(a) Salary. As compensation for his services, Stuart
will receive $250,000 per annum (the "Base Salary"), payable in equal bi-monthly
installments. Stuart's annual Base Salary shall be increased by ten percent
(10%) of the previous year's Base Salary, contingent upon Stuart meeting
reasonable financial performance goals agreed to by the Board of Directors and
Stuart.
(b) Vacation. Stuart shall be eligible for 20 days of
paid vacation benefits each employment year, accrued on a pro rata basis.
(c) Insurance. The Company will reimburse Stuart for
the reasonable actual cost of his full family medical and dental policy now in
effect, or the equivalent, plus life and disability insurance, up to a cap of
$600 per month until such time as the Company establishes its own similar
medical, dental, life and disability insurance plans, at which time the Company
will provide the same to Stuart at no cost to him.
(d) Car Allowance. Stuart shall be paid a car
allowance of $1,500 per month.
(e) Cellular Telephone and Pager. The Company will
reimburse Stuart for a cellular telephone, a cellular car telephone, and a
2
<PAGE>
pager, together with all business related cellular telephone calls and for
standard monthly cellular telephone fees.
(f) Home Office. The Company will reimburse Stuart
for his reasonable actual out-of-pocket costs associated with Stuart keeping an
office at his home, including, but not limited to, a fax machine, a computer,
computer software, a copy machine and all office supplies and fax and phone toll
charges reasonably related to maintaining this office.
(g) Expense Reimbursement. The Company shall
reimburse Stuart for those expenses incurred by him in connection with the
performance of his duties on behalf of the Company that are in accordance with
the Company's expense reimbursement procedures currently in place; provided,
that such expenses are reasonable for an executive of Stuart's status and are
appropriately documented.
6. CONFIDENTIAL INFORMATION. Stuart acknowledges that during
his employment by the Company he will have access to various trade secrets and
other proprietary and confidential information. Stuart agrees as a material
condition of this Agreement to execute a confidentiality and non-competition
agreement in the form of the attached Exhibit A, immediately subsequent to the
signing of this Agreement.
7. ARBITRATION. Any disputes between Stuart and the Company
arising out of this agreement or Stuart's employment by the Company including
but not limited to alleged violations of federal, state and/or local statutes
(for example, claims for discrimination including but not limited to
discrimination based on race, sex, sexual orientation, religion, national
origin, age, marital status, handicap or disability; and claims relating to
leaves of absence mandated by state or federal law), breach of any contract or
covenant (express or implied), tort claims, violation of public policy or any
other alleged violation of Stuart's statutory, contractual or common law rights
(and including claims against the Company's officers, directors, employees or
agents), which Stuart and the Company or other party are unable to resolve
through direct discussion, regardless of the kind or type of dispute (excluding
claims for workers' compensation, unemployment insurance and any solely monetary
dispute within the jurisdiction of small claims court) shall be decided
exclusively by conclusive and binding arbitration in the State of Nevada in
accordance with the American Arbitration Association's ("AAA") Employment
Dispute Resolution Rules (the "Rules"). Except for those claims specifically
excluded from coverage under this arbitration provision, Stuart and the Company
hereby waive the right to pursue any claims, including but not limited to
employment termination-related claims, through civil litigation outside the
arbitration procedures of this provision, unless otherwise required by law.
Stuart and the Company each have the right to be represented by counsel with
respect to arbitration of any dispute pursuant to this paragraph. Each party
shall have the right to take depositions, make requests for production of
documents to any person or entity, and to subpoena witnesses and documents for
the arbitration. Additional discovery may be had only where the arbitrator so
orders, upon a showing of substantial need. The arbitrator shall be selected by
agreement between Stuart and the Company, but if they do not agree on the
selection of an arbitrator within 30 days after the date of the request for
arbitration, the arbitrator shall be selected pursuant to the Rules. Each party
shall pay its own expenses for the arbitration and the fee and expenses of the
arbitrator shall be shared equally.
8. ENTIRE AGREEMENT.This agreement contains the entire
understanding between Stuart and the Company and it supersedes any prior oral or
3
<PAGE>
written agreements and understandings between them. This agreement may be
modified only in writing signed by both parties.
9. SEVERABILITY. If a court of competent jurisdiction holds
that any provision of this agreement is void or unenforceable, the remaining
provisions shall continue in full force and effect.
10. NOTICES.
(a) Any notice under this agreement given by the
Company to Stuart shall be personally delivered to him or sent by certified mail
to his most recent home address as shown in the Company's records.
(b) Any notice by Stuart to the Company shall be sent
by certified mail to the following address:
On Stage Entertainment, Inc.
4625 West Nevso Drive
Las Vegas, Nevada 89103
Attn: Christopher R. Grobl
(c) Any notice sent by certified mail shall be
effective when mailed.
11. GOVERNING LAW. This Agreement shall be governed by and
interpreted and enforced in accordance with the substantive laws of the State of
Nevada without reference to the principles governing conflict of laws applicable
in that or any other jurisdiction.
Dated: February 1, 1997 /s/ John W. Stuart
-------------------------------
By: John W. Stuart
Dated: February 1, 1997 /s/ David Hope
-------------------------------
David Hope
President
On Stage Entertainment, Inc.
4
<PAGE>
Exhibit 10.2
AMENDED EMPLOYMENT AGREEMENT
FOR
DAVID HOPE
THIS AMENDED EMPLOYMENT AGREEMENT ("Agreement") is made and
entered into as of the first day of February, 1997, between ON STAGE
ENTERTAINMENT, INC., a Nevada Corporation formally known as LEGENDS IN CONCERT,
INC., (the "Company"), and DAVID HOPE, an individual "Hope").
RECITALS
WHEREAS, Hope has been employed by the Company since April 15,
1996, pursuant to the terms of an employment agreement and various amendments;
and
WHEREAS, Hope desires to continue to be employed by the
Company and the Company desires to continue to employ Hope; and
WHEREAS, the Company and Hope desire to clarify and amend
Hope's employment terms in a single document; and
NOW, THEREFORE, in consideration of the mutual agreements
contained herein, the Company and Hope agree as follows:
AGREEMENT
1. RECITALS. The above-listed Recitals are incorporated into
this Agreement in their entirety and expressly made a part hereof.
2. POSITION AND TITLE. The Company agrees to employ Hope in
the position of President and Chief Operating Officer, with authority specified
by the Board of Directors. Hope's duties and responsibilities shall include
day-to-day management and operation of the Company, profitability, strategic
direction and completion of monthly reports to the Board of Directors. Hope
shall supervise all Company employees, who shall report to him, except for
performers (i.e., impersonators, singers, dancers, musicians, etc.). Hope is
authorized to use the services of an Executive Secretary and Market Analyst.
Hope shall have the authority to hire and fire staff, subject to approval by the
Board of Directors, if required by law or by the Board. Hope accepts this
employment and agrees to devote his full work time, attention and energies to
the Company's business.
3. SUPERVISOR. Hope will report to the Chairman of the Board
and Chief Executive Officer, John W. Stuart.
<PAGE>
4. TERM AND TERMINATION.
(a) Length of Employment. Hope's employment shall be
for a period of three years and four months commencing on the date of this
Agreement and ending on May 31, 2000, unless another date is agreed to in
writing by the parties.
(b) Termination for Cause. The Company shall have the
right to terminate this Agreement and Hope's employment at any time for Cause.
"Cause" for termination shall include: (1) Hope's material breach of this
agreement; (2) conduct materially injurious to the Company; (3) fraud, theft,
embezzlement, misappropriation or similar activity; (4) conviction or pleading
guilty or no contest to any criminal offense, excluding minor offenses such as
traffic offenses; or (5) gross neglect of employment duties. However, if the
cause for termination is one of the reasons listed in (1), (2) or (5) above,
prior to terminating Hope, the Company shall first notify Hope in writing of his
offense and afford him 30 days to correct the problem. If Hope has failed to
correct the situation to the reasonable satisfaction of the Board of Directors
within 30 days of such notification, the Company may terminate Hope's
employment.
(c) Severance Pay. The Company shall have the right
to terminate this Agreement and Hope's employment at any time without cause,
provided that the Company shall: (1) pay Hope a lump sum payment (without
mitigation for subsequent employment) on the date of such termination in an
amount equal to the greater of (a) Hope's Base Salary, car allowance and
insurance allowance due from the date of termination up until April 30, 1999,
plus reimburse Hope for any accrued but unused vacation days as of the date of
termination; or (b) one year's Base Salary, car allowance and insurance
allowance, plus reimburse Hope for any accrued but unused vacation days as of
the date of termination; and (2) immediately vest all of Hope's non-vested
options. In addition, Hope shall in either case be entitled to any accrued bonus
due to Hope as of the termination date which will be paid to Hope no later than
sixty (60) days after the release of the Companies audited financial statements
for that respective year.
(d) Termination by Hope. If there shall be a change
in voting control in the Company, other than through an initial public offering
or subsequent secondary offerings, then Hope shall have the right to terminate
this Agreement and Hope's employment at any time without cause, and the Company
shall: (1) pay Hope a lump sum payment (without mitigation for subsequent
employment) on the date of such termination in an amount equal to the greater of
(a) Hope's Base Salary, car allowance and insurance allowance due from the date
of termination up until April 30, 1999, plus reimburse Hope for any accrued but
unused vacation days as of the date of termination; or (b) one year's Base
Salary, car allowance and insurance allowance, plus reimburse Hope for any
accrued but unused vacation days as of the date of termination; and (2)
immediately vest all of Hope's non-vested options. In addition, Hope shall in
either case be entitled to any accrued bonus due to Hope as of the termination
date which will be paid to Hope no later than sixty (60) days after the release
of the Companies audited financial statements for that respective year.
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5. COMPENSATION.
(a) Salary. As compensation for his services, Hope
will receive $200,000 per annum (the "Base Salary"), payable in equal bi-monthly
installments. On April 15 of each year, Hope's annual Base Salary shall be
increased by ten percent (10%) of the previous year's Base Salary, contingent
upon Hope meeting reasonable financial performance goals agreed to by the Board
of Directors and Hope. By the signing of this Agreement the Board of Directors
and Hope hereby agree that Hope did meet said financial performance goals for
the year ended December 31, 1996, and is therefore eligible for this ten percent
(10%) increase on April 15, 1997.
(b) Bonus. An annual bonus pool of five percent (5%)
of the Company's pre-tax earnings (excluding extraordinary items and
non-recurring charges including but not limited to the forgiveness of founder's
debt, and costs related to the Company's financing activities) ("Pre-tax
Earnings") will be established for key executives of the Company provided the
Company meets or exceeds it's projected pre-tax earnings for each year which has
been approved by the Board of Directors and is attached hereto as Exhibit 1. Any
bonus due to Hope for any year under this Agreement will be paid to Hope no
later than sixty (60) days after the release of the Companies audited financial
statements for the respective year. Hope is entitled to participate in the
annual bonus pool based on the following formula:
(i) For the year ended December 31, 1996, 1
1/2 percent of the first $1,000,000 in Pre-tax Earnings and then three percent
(3%) of Pre-tax Earnings thereafter; and
(ii) For the years ended December 31, 1997,
December 31, 1998, and December 31, 1999, two percent (2%) of the Company's
Pre-tax Earnings for each such year, provided the Company meets or exceeds their
projected Pre-tax Earnings for that year as listed on Exhibit 1.
(c) Vacation. Hope shall be eligible for 15 days of
paid vacation benefits each employment year, accrued on a pro rata basis.
(d) Insurance. The Company will reimburse Hope for
the reasonable actual cost of his full family medical and dental policy now in
effect, or the equivalent, up to a cap of $600 per month, until such time as the
Company establishes its own similar medical and dental plan, at which time the
Company will provide the same to Hope at no cost to him.
(e) Car Allowance. Hope shall be paid a car allowance
of $500 per month.
(f) Cellular Telephone. The Company will reimburse
Hope for business related cellular telephone calls and for standard monthly
cellular telephone fees.
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(g) Laptop Computer. The Company shall furnish Hope
with a laptop computer for his use.
(h) Stock Options. As of August 7, 1996, the Company
granted to Hope options to purchase 565,000 shares of Common Stock (pre-reverse
split) at an exercise price of $2.20 per share (the "Option") under the
Company's 1996 Stock Option Plan (the "Plan"). Subject to Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), Hope shall specify what
portion of the stock options granted to Hope shall be incentive stock options
and what portion shall be non-qualified stock options.
The Option provides that the right to exercise with
respect to the shares under option shall vest as follows: (1) for non-qualified
options 50% on the date of grant of the option; an additional 25% on the first
anniversary date of the date of the grant of the option; and an additional 25%
on the second anniversary date of the date of the grant of the option; (2) for
qualified options 33% on the date of grant of the option; an additional 34% on
the first anniversary date of the date of the grant of the option; and an
additional 33% on the second anniversary date of the date of the grant of the
option. The Option provides that in the event of any sale of 20% or more of the
Company's common stock (other than through an initial public offering), a
reverse merger, significant sale of assets (not in the ordinary course of
business) or a change in control (defined as a change in the voting control as
it existed on the date of the execution of this Agreement) all of Hope's
outstanding options shall vest immediately. Hope shall have a 10 (ten) year
period in which to exercise the Option, to the extend vested, from the date of
grant.
In the event Hope is terminated at a time when the
Company's stock is not publicly traded and such termination is for other than
"Cause" (as defined in Section 3(b)), Hope may "put" any shares he has obtained
through the exercise of the foregoing Options to the Company at a price equal to
the then-current fair market value of such stock, which amount shall be paid to
Hope within twenty-four (24) months, with interest on any unpaid balance at the
prime rate as announced in the Wall Street Journal on the date the Company
purchases the stock. The fair market value shall be agreed upon by Hope and the
Board of Directors of the Company. If no such agreement is reached within 30
days, fair market value shall be as determined by a valuation firm acceptable to
Hope and the Company.
(i) Expense Reimbursement. The Company shall
reimburse Hope for those expenses incurred by him in connection with the
performance of his duties on behalf of the Company that are in accordance with
the Company's expense reimbursement procedures currently in place; provided,
that such expenses are reasonable for an executive of Hope's status and are
appropriately documented.
(j) Executive Benefit Plan. If financial conditions
permit, the Company agrees to implement an executive benefit plan, which will
include life and disability insurance benefits. The Company may, at the sole
discretion of the Board of Directors, make contributions to an executive benefit
plan.
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6. CONFIDENTIAL INFORMATION. Hope acknowledges that during his
employment by the Company he will have access to various trade secrets and other
proprietary and confidential information. Hope agrees as a material condition of
this Agreement to execute a Confidentiality And Non-Competition Agreement in the
form of the attached Exhibit A, immediately subsequent to the signing of this
Agreement.
7. ARBITRATION. Any disputes between Hope and the Company
arising out of this agreement or Hope's employment by the Company including but
not limited to alleged violations of federal, state and/or local statutes (for
example, claims for discrimination including but not limited to discrimination
based on race, sex, sexual orientation, religion, national origin, age, marital
status, handicap or disability; and claims relating to leaves of absence
mandated by state or federal law), breach of any contract or covenant (express
or implied), tort claims, violation of public policy or any other alleged
violation of Hope's statutory, contractual or common law rights (and including
claims against the Company's officers, directors, employees or agents), which
Hope and the Company or other party are unable to resolve through direct
discussion, regardless of the kind or type of dispute (excluding claims for
workers' compensation, unemployment insurance and any solely monetary dispute
within the jurisdiction of small claims court) shall be decided exclusively by
conclusive and binding arbitration in the State of Nevada in accordance with the
American Arbitration Association's ("AAA") Employment Dispute Resolution Rules
(the "Rules"). Except for those claims specifically excluded from coverage under
this arbitration provision, Hope and the Company hereby waive the right to
pursue any claims, including but not limited to employment termination-related
claims, through civil litigation outside the arbitration procedures of this
provision, unless otherwise required by law. Hope and the Company each have the
right to be represented by counsel with respect to arbitration of any dispute
pursuant to this paragraph. Each party shall have the right to take depositions,
make requests for production of documents to any person or entity, and to
subpoena witnesses and documents for the arbitration. Additional discovery may
be had only where the arbitrator so orders, upon a showing of substantial need.
The arbitrator shall be selected by agreement between Hope and the Company, but
if they do not agree on the selection of an arbitrator within 30 days after the
date of the request for arbitration, the arbitrator shall be selected pursuant
to the Rules. Each party shall pay its own expenses for the arbitration and the
fee and expenses of the arbitrator shall be shared equally.
8. ENTIRE AGREEMENT.This agreement contains the entire
understanding between Hope and the Company and it supersedes any prior oral or
written agreements and understandings between them. This agreement may be
modified only in writing signed by both parties.
9. SEVERABILITY. If a court of competent jurisdiction holds
that any provision of this agreement is void or unenforceable, the remaining
provisions shall continue in full force and effect.
10. NOTICES.
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(a) Any notice under this agreement given by the
Company to Hope shall be personally delivered to him or sent by certified mail
to his most recent home address as shown in the Company's records.
(b) Any notice by Hope to the Company shall be sent
by certified mail to the following address:
On Stage Entertainment, Inc.
4625 West Nevso Drive
Las Vegas, Nevada 89103
Attn: Christopher R. Grobl
(c) Any notice sent by certified mail shall be
effective when mailed.
11. GOVERNING LAW. This Agreement shall be governed by and
interpreted and enforced in accordance with the substantive laws of the State of
Nevada without reference to the principles governing conflict of laws applicable
in that or any other jurisdiction.
Dated: February 1, 1997 /s/ David Hope
-------------------------------
By: David Hope
Dated: February 1, 1997 /s/ John W. Stuart
-------------------------------
John W. Stuart
Chief Executive Officer
On Stage Entertainment, Inc.
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Exhibit 10.3
AMENDED
EMPLOYMENT AGREEMENT
for
KIRAN SIDHU
THIS AMENDED EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of the first day of February, 1997, by and between ON STAGE
ENTERTAINMENT, INC., a Nevada Corporation formally known as LEGENDS IN CONCERT,
INC. (the "Company"), and KIRAN SIDHU, an individual ("Sidhu").
RECITALS
WHEREAS, Sidhu has been employed by the Company since August 1, 1995,
pursuant to the terms of various letters and other agreements;
WHEREAS, the Company has granted to Sidhu on August 8, 1996, 24,794
incentive stock options (post-reverse split) under the Company's 1996 Stock
Option Plan, the terms and conditions of this grant are to remain unchanged and
in force.
WHEREAS, Sidhu desires to continue to be employed by the Company and
the Company desires to continue to employ Sidhu;
WHEREAS, the Company and Sidhu desire to clarify and amend Sidhu's
employment terms in a single document;
WHEREAS, the Company and Sidhu desire to make this Agreement so as to
supersede any and all past agreements and/or understandings, whether written or
oral, and to make any such previous agreements and/or understandings void and no
longer of any force or effect; and
WHEREAS, the Company and Sidhu acknowledge that certain terms of this
Agreement are contingent upon the Company successfully having a registration
statement filed and declared effective by the Securities and Exchange Commission
for the sale of $5,000,000 of its securities to the public by no later than June
30, 1997 (the "Financing Objective").
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
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1. RECITALS. The above-listed Recitals are incorporated into this Agreement in
their entirety and expressly made a part hereof.
2. POSITION AND TITLE. The Company agrees to employ Sidhu for the position of
Senior Vice President, Chief Financial Officer and Treasurer, together with such
authority as is specified from time to time by the Board of Directors. Sidhu's
duties and responsibilities shall include, but shall not be limited to: (i)
performing the day-to-day management of the Company's financial affairs; (ii)
financial reporting; (iii) timely filing of corporate tax reports; (iv) fund
raising and strategic planning; and (v) completion and presentation of the
Company's monthly financial reports to the Board of Directors. Sidhu accepts
this employment and hereby agrees to devote his full-time, abilities and energy
to the faithful performance of the duties assigned to him and to the promotion
and development of the business affairs of the Company, and not to divert any
related business opportunities from the Company to himself or to any other
person or business entity.
3. SUPERVISOR. Sidhu will report to the President of the Company.
4. CONTINGENT TERMS. Subparagraphs A and B to this Section 4 shall commence on
February 1, 1997 and shall continue to be effective if and only if the Company
is able to meet the Financing Objective. If the Company meets the Financing
Objective, subparagraphs C and D to this Section 4 are void and shall not apply.
If the Company fails to meet the Financing Objective, then subparagraphs A and B
shall terminate and become void on June 1, 1997, and subparagraphs C and D shall
become effective on June 1, 1997.
A. Term and Termination.
(a) Length of Employment. Sidhu's employment shall be for a
period of three (3) years and four (4) months and four (4) months, commencing on
February 1, 1997, and continuing through and including MayMay 31January 31,
2000, unless terminated sooner as set forth herein. However, Sidhu's obligation
in Section 65, below, shall continue in full force and effect even after such
termination.
(b) Termination For Cause. The Company shall have the right
to terminate this Agreement and Sidhu's employment at any time for cause.
"Cause" for termination shall include: (1) Sidhu's breach of this Agreement; (2)
conduct materially injurious to the Company; (3) fraud, theft, embezzlement,
misappropriation or similar activity; (4) conviction or pleading guilty or no
contest to any criminal offense, excluding minor offenses such as traffic
offenses; or (5) gross neglect of employment duties or consistently poor job
performance. In the event the Company terminates Sidhu for cause, Sidhu shall
not be entitled to any further salary or other benefits provided under this
Agreement, and shall no longer have any rights to or under any non-vested
options.
(c) Severance Pay. The Company shall have the right to
terminate this Agreement and Sidhu's employment at any time without cause,
provided that the Company shall: (1) pay Sidhu a lump sum payment on the date of
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such termination in an amount equal to twelve months of Sidhu's (a) Base Salary,
(b) car allowance and , (c) insurance allowance, plus reimburse Sidhu for and
(d) any accrued but unused vacation days up until the date of
termination;vacation pay, and (2) immediately vest all of Sidhu's non-vested
options.
B. Compensation.
(a) Base Salary. As compensation for his services, Sidhu
will receive $150,000 per annum, the ("Base Salary") payable in equal bi-monthly
installments. On August 1 of each year, Sidhu's annual Base Salary shall be
increased by ten percent (10%) of the previous year's Base Salary, contingent
upon Sidhu meeting reasonable financial performance goals established by the
Board of Directors.
(b) Bonus. An annual bonus pool of five percent (5%) of the
Company's pre-tax earnings (excluding extraordinary items or non-recurring
charges) will be established for key executives of the Company provided the
Company meets or exceeds it's projected pre-tax earnings for each year as
approved by the Board of Directors. Sidhu shall be eligible to participate in
the bonus pool, if any, as determined by the Board of Directors.
(c) Vacation Pay. Sidhu shall be eligible for 15 days of paid
vacation benefits each employment year, accrued on a pro rata basis.
(d) Insurance. Sidhu shall be paid a medical allowance of
$300 per month until such time as the Company establishes its own similar
medical and dental plan, at which time the Company will provide the same to
Sidhu and his immediate family at no cost to him, but in no event shall such
cost exceed $300 per month.
(e) Car Allowance. Sidhu shall be paid a car allowance of $500
per month.
(f) Cellular Telephone. The Company will reimburse Sidhu for
business related cellular telephone calls and for reasonable standard monthly
cellular telephone fees.
(g) Laptop Computer. The Company shall furnish Sidhu with a
laptop computer for his use during the term of this Agreement.
(h) Stock Options. The Company is granting to Sidhu,
contemporaneous with this Agreement, options to purchase 85,000 shares of Common
Stock (post-reverse split) at an exercise price of $4.00 per share (the "Sidhu
Options"). The Sidhu1 Options are being granted under the 1996 Stock Option Plan
and will be vested and fully exercisable upon the execution of this Agreement.
The Sidhu Options will terminate on June 1, 2007.
(i) Expense Reimbursement. The Company shall reimburse Sidhu for those expenses
incurred by him in connection with the performance of his duties on behalf of
the Company that are in accordance with the Company's expense reimbursement
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procedures then in place; provided, that such expenses are reasonable for an
executive of Sidhu's status and are appropriately documented.
(j) Executive Benefit Plan. If financial conditions permit,
the Company agrees to implement an executive benefit plan, which will include
life and disability insurance benefits. The Company may, at the sole discretion
of the Board of Directors, make contributions to an executive benefit plan.
C. Term and Termination.
(a) Length of Employment. Sidhu's employment with the
Company will be at will. This means that Sidhu may resign at any time and the
Company may terminate his employment at any time, with or without cause and with
or without notice. This employment status may not be changed in any respect
except by written agreement signed by the President and Chief Executive Officer
of the Company.
(b) Severance Pay. In the event the Company terminates
Sidhu's employment other than for cause Sidhu shall be entitled to three (3)
months' Base Ssalary. Although cause is not required for termination, "cause"
shall be defined for the purposes of this subparagraph (b) to include: (1)
Sidhu's material breach of this Agreement; (2) conduct materially injurious to
the Company; (3) fraud, theft, embezzlement, misappropriation or similar
activity; (4) conviction or pleading guilty or no contest to any criminal
offense, excluding minor offenses such as traffic offenses; or (5) gross neglect
of employment duties or consistently poor job performance. If Sidhu is
terminated for cause he shall not be paid any severance.
D. Compensation.
(a) Salary. As compensation for his services, Sidhu will
receive $110,000 per anum, payable in equal bi-monthly installments.
(b) Insurance. The Company shall maintain Director's and
Officer's Liability insurance.
(c) Cellular Telephone. The Company will reimburse Sidhu for
business related cellular telephone calls and for reasonable standard monthly
cellular telephone fees up to a maximum of $99.00 per month.
5. STOCK GRANT.
(a) Stock Grant Upon Bridge Closing ("Bridge Grant"). As of
the date the Company is able to successfully complete a bridge financing with
Whale Securities Co., L.P. equal to or in excess of
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$250,000 in gross proceeds or March 31, 1997, whichever date is earlier, the
Company shall grant to Sidhu 40,532 shares of Common Stock (post-reverse split)
(the "Bridge Shares"). This stock grant shall be fully vested on the date of
grant.
(b) Buy-Back Provision. In the event that: (i) the Financing
Objective is not achieved; (ii) there is no change of control, merger, sale or
public offering of the Company by July 31, 1998; and (iii) Sidhu is terminated
by the Company or he resigns prior to July 31, 1998, then Sidhu shall
immediately tender all vested shares. Upon tender thereof, the Company will have
thirty (30) days to purchase said vested shares from Sidhu at a buy-back price
of $3.76 per share.
(c) Loan to Pay Tax Liability. In the event that any Bridge
Grant under this Employment Agreement creates a tax liability to Sidhu for the
tax year ending December 31, 1997, Company agrees to make a loan to Sidhu at an
8% annual interest rate, for a term not to exceed two (2) years, for the full
amount of said tax liability which shall be evidenced by a Promissory Note and
secured by Sidhu's shares of the Company's Common Stock. If Sidhu sells shares
of Common Stock, Sidhu agrees that the net proceeds from such sale shall first
be applied against any outstanding loan balance with the Company until such loan
and interest has been repaid in full.
6. CONFIDENTIAL INFORMATION. Sidhu acknowledges that during his employment by
the Company he will have access to various trade secrets and other proprietary
and confidential information. Sidhu agrees as a material condition of this
Agreement to execute a Confidentiality And Non-Competition Agreement in the form
of the attached Exhibit A, immediately upon the signing of this amendment.
7. ARBITRATION. Any disputes between Sidhu and the Company arising out of this
Agreement or Sidhu's compensation, stock or stock options, or Sidhu's employment
by the Company including but not limited to alleged violations of federal, state
and/or local statutes (for example, claims for discrimination including but not
limited to discrimination based on race, sex, sexual orientation, religion,
national origin, age, marital status, handicap or disability; and claims
relating to leaves of absence mandated by state or federal law), breach of any
contract or covenant (express or implied), tort claims, violation of public
policy or any other alleged violation of Sidhu's statutory, contractual or
common law rights (and including claims against the Company's officers,
directors, employees or agents), which Sidhu and the Company or other party are
unable to resolve through direct discussion, regardless of the kind or type of
dispute (excluding claims for workers' compensation, unemployment insurance and
any solely monetary dispute within the jurisdiction of small claims court) shall
be decided exclusively by conclusive and binding arbitration in the State of
Nevada in accordance with the American Arbitration Association's ("AAA")
Employment Dispute Resolution Rules (the "Rules"). Except for those claims
specifically excluded from coverage under this arbitration provision, Sidhu and
the Company hereby waive the right to pursue any claims, including but not
limited to employment termination-related claims, through civil litigation
outside the arbitration procedures of this provision, unless otherwise required
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by law. Sidhu and the Company each have the right to be represented by counsel
with respect to arbitration of any dispute pursuant to this Section. Each party
shall have the right to take depositions, make requests for production of
documents to any person or entity, and to subpoena witnesses and documents for
the arbitration. Additional discovery may be had only where the arbitrator so
orders, upon a showing of substantial need. The arbitrator shall be selected by
agreement between Sidhu and the Company, but if they do not agree on the
selection of an arbitrator within 30 days after the date of the request for
arbitration, the arbitrator shall be selected pursuant to the Rules. Each party
shall pay its own expenses for the arbitration and the fee and expenses of the
arbitrator shall be shared equally.
8. ENTIRE AGREEMENT. This Agreement contains the entire understanding between
Sidhu and the Company and it supersedes any prior oral or written agreements and
understandings between them. This Agreement may be modified only in writing
signed by both parties.
9. SEVERABILITY. If a court of competent jurisdiction holds that any provision
of this Agreement is void or unenforceable, the remaining provisions shall
continue in full force and effect.
10. NOTICES.
(a) Any notice under this Agreement given by the Company to Sidhu
shall be personally delivered to him or sent by certified mail to his most
recent home address as shown in the Company's records.
(b) Any notice by Sidhu to the Company shall be sent by certified mail
to the following address:
On Stage Entertainment, Inc.
4625 West Nevso Drive
Las Vegas, Nevada 89103
Attn: Christopher R. Grobl, Esq.
(c) Any notice sent by certified mail shall be effective when mailed.
11. GOVERNING LAW. This Agreement shall be governed by and interpreted and
enforced in accordance with the substantive laws of the State of Nevada without
reference to the principles governing conflict of laws applicable in that or any
other jurisdiction.
IN WITNESS WHEREOF, the parties hereto agree to the terms and
conditions contained herein and acknowledge the same by affixing their
signatures below the date and year first above written.
ON STAGE ENTERTAINMENT, INC.
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/s/ John W. Stuart
- ------------------------------
By: John W. Stuart
Its: Chief Executive Officer
/s/ Kiran Sidhu
- ------------------------------
KIRAN SIDHU
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Exhibit 10.4
CONFIDENTIALITY AND
NON-COMPETITION AGREEMENT
THIS AGREEMENT has been entered into this 1st day of February,
1997 by and between On Stage Entertainment, Inc., (hereinafter referred to as
"OSE" or the "Company"), and John W. Stuart, an individual (hereinafter referred
to as "Stuart").
In consideration of the mutual promises and covenants between the
parties in connection with Stuart's employment agreement executed and dated
February 1, 1997 (which is incorporated herein by reference and referred to as
the "Employment Agreement"), as well as Stuart's future involvement with OSE as
its Chairman, Chief Executive Officer, a member of its Board of Directors and
for other good and valuable consideration, the parties hereto agree as follows:
1. CONFLICTING ACTIVITIES.
1.1 Involvement in Business Opportunities. Stuart shall not, during the
term of his Employment Agreement, be engaged in any other business activity
which is or may be competitive with the business of the Company, without the
prior written consent of the Company's Board of Directors; provided, however,
that this restriction shall not be construed as preventing Stuart from being a
director of, or investing his personal assets in passive investments in,
business entities which are not in competition with the Company or any of its
affiliates, or from pursuing business opportunities as permitted by paragraph
1.2. The foregoing notwithstanding, Stuart may invest in a retail business of
which his wife will be actively involved therein.
1.2 Development of Business Opportunities. Stuart hereby agrees to
promote and develop all business opportunities that come to his attention
relating to current or reasonably anticipated future business of the Company, in
a manner consistent with the best interests of the Company and with his duties
under his Employment Agreement. Should Stuart discover a business opportunity
which is or may reasonably be anticipated to be related to the business of the
Company, he shall first offer such opportunity to the Company. Should the Board
of Directors of the Company not exercise its right to pursue this business
opportunity within a reasonable period of time, not to exceed sixty (60) days,
then Stuart may develop the business opportunity for himself, provided, however,
that such development may in no way conflict or interfere with the duties owed
by Stuart to the Company under his Employment Agreement. Further, Stuart may
develop such business opportunities only on his own time, and may not use any
service, personnel, equipment, supplies, facility, or trade secrets of the
Company in their development. As used herein, the term "business opportunity"
shall not include business opportunities involving investment in publicly traded
stocks, bonds or other securities, or similar passive investments.
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2. CONFIDENTIALITY OF TRADE SECRETS AND OTHER MATERIALS.
2.1 Trade Secrets. Stuart agrees not to disclose to others, or take or
use for his own purposes or the purposes of others, during or after his
employment, any trade secrets, confidential information, knowledge, data or the
like that Stuart acquires during his Employment Agreement and that is not
otherwise in the public domain. Stuart agrees that these restrictions shall also
apply to (a) information, knowledge, trade secret, data or know-how belonging to
third parties in the Company's possession; and (b) information, knowledge, trade
secret, or data received, originated, discovered or developed by Stuart during
the term of this Agreement. Stuart recognizes that this obligation applies not
only to technical information, but also to any business, financial or marketing
information that the Company treats as confidential. Any information of the
Company which is not readily available to the public shall be considered to be a
trade secret unless the Company advises Stuart otherwise.
2.2 Ownership of Trade Secrets; Assignment of Rights. Stuart hereby
agrees that all know-how, documents, reports, plans, proposals, marketing and
sales plans, client lists, client files and materials made by him or by the
Company during the term of his employment are the property of the Company and
shall not be used by him in any way adverse to the Company's interests. Stuart
shall not deliver, reproduce or in any way allow such documents or things to be
delivered or used by any third party without specific direction or consent of
the Board of Directors of the Company. Stuart hereby assigns to the Company any
rights which he or she may have in any such trade secret or proprietary
information.
Stuart agrees that for a period of five (5) years immediately
following his termination (voluntary or with cause) with the Company, he shall
not interfere with the business of the Company in any manner, including, without
limitation, by inducing an employee or associate to leave the Company, or by
inducing a consultant or other independent contractor to sever that person's
relationship with the Company, or disrupting the Company's relationships with
customers, agents, representatives or vendors or otherwise.
3. UNFAIR COMPETITION AFTER TERMINATION. Because of his employment by the
Company, Stuart will have access to trade secrets and confidential information
about the Company, its products, its customers and its methods of doing
business. In the event of the termination of his Employment Agreement for any
reason, the Company shall have the option to pay Stuart at the time of such
termination a lump sum payment of fifty percent (50%) of his Base Salary at the
date of termination (in addition to any payment otherwise due to Stuart in the
form of severance pay) for five (5) years, and in consideration therefore,
Stuart agrees that for a similar period of five (5) years after termination of
his employment he will not, directly or indirectly, compete with Company in the
field of live entertainment. Stuart understands and agrees that direct
competition means the design, development, production, promotion, presentation,
or sale of live entertainment shows competitive with those of the Company.
Indirect competition means the employment by any competitor or third party in a
role that involves Stuart in the design, development, production, promotion, or
sale of live entertainment shows competitive with those of the Company, and for
whom Stuart will perform the same or similar function as he performs for the
Company. Stuart further agrees that for a period of five (5) years after
termination of his employment, he will not directly or indirectly disclose to
any third person any confidential information or trade secrets not otherwise in
the public domain, and to which he gained knowledge during the term of his
employment.
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4. INJUNCTIVE RELIEF. The Company and Stuart hereby acknowledge and agree that
any default under Sections 1 through 3, above, will cause damage to the Company
in an amount which is difficult, if not impossible, to ascertain. Accordingly,
in addition to any other relief to which the Company may be entitled, the
Company shall be entitled to such injunctive relief as may be ordered by any
court of competent jurisdiction including, but not limited to, an injunction
restraining any violation of the above named Sections, and without proof of
actual damages
5. ATTORNEY'S FEES. If any party to this Agreement breaches any of the terms of
this Agreement, then that party shall pay to the non-defaulting party all of the
non-defaulting party's costs and expenses, including attorney's fees, incurred
by that party in enforcing the terms of this Agreement.
6. MEDIATION/ARBITRATION. If a dispute arises out of or relates to this
Agreement, the parties agree first to try in good faith to settle the dispute by
mediation under the commercial mediation rules of the American Arbitration
Association, before resorting to arbitration. Thereafter, any remaining
unresolved controversy or claim arising out of or relating to this Agreement
shall be settled by arbitration in Clark County, Nevada, in accordance with
commercial arbitration rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The prevailing party in any arbitration proceeding,
as determined by the arbitrator, shall be entitled to an award of reasonable
attorney's fees and the fees and costs arising out of the arbitration
proceedings, including, but not limited to the arbitration's fees and the
American Arbitration Association's administrative fee. The parties further agree
that the arbitrator, or such other person designated for the purpose by the
American Arbitration Association shall have jurisdiction over all matters
involving provisional remedies just as any court of competent jurisdiction
would, including but not limited to, the imposition of injunctive relief to
protect trade secrets and confidential information.
7. GOVERNING LAW. This Agreement shall be subject to and governed by the laws
of the State of Nevada.
Executed this 1st day of February, 1997.
/s/ John Stuart
- --------------------
John Stuart
3
<PAGE>
Exhibit 10.5
CONFIDENTIALITY AND
NON-COMPETITION AGREEMENT
THIS AGREEMENT has been entered into this 1st day of February, 1997 by
and between On Stage Entertainment, Inc., (hereinafter referred to as "OSE" or
the "Company"), and David Hope, an individual (hereinafter referred to as
"Hope").
In consideration of the mutual promises and covenants between the
parties in connection with Hope's employment agreement executed and dated March
3, 1996, as amended on January 9, 1997 and as further amended on February 1,
1997 (which are incorporated herein by reference and referred to collectively as
the "Employment Agreement"), as well as Hope's future involvement with OSE as
its President, Chief Operating Officer, a member of its Board of Directors and
for other good and valuable consideration, the parties hereto agree as follows:
1. CONFLICTING ACTIVITIES.
1.1 Involvement in Business Opportunities. Hope shall not, during the
term of his Employment Agreement, be engaged in any other business activity
which is or may be competitive with the business of the Company, without the
prior written consent of the Company's Board of Directors; provided, however,
that this restriction shall not be construed as preventing Hope from being a
director of, or investing his personal assets in passive investments in,
business entities which are not in competition with the Company or any of its
affiliates, or from pursuing business opportunities as permitted by paragraph
1.2. The foregoing notwithstanding, Hope may invest in a retail business of
which his wife will be actively involved therein.
1.2 Development of Business Opportunities. Hope hereby agrees to
promote and develop all business opportunities that come to his attention
relating to current or reasonably anticipated future business of the Company, in
a manner consistent with the best interests of the Company and with his duties
under his Employment Agreement. Should Hope discover a business opportunity
which is or may reasonably be anticipated to be related to the business of the
Company, he shall first offer such opportunity to the Company. Should the Board
of Directors of the Company not exercise its right to pursue this business
opportunity within a reasonable period of time, not to exceed sixty (60) days,
then Hope may develop the business opportunity for himself, provided, however,
that such development may in no way conflict or interfere with the duties owed
by Hope to the Company under his Employment Agreement. Further, Hope may develop
such business opportunities only on his own time, and may not use any service,
personnel, equipment, supplies, facility, or trade secrets of the Company in
their development. As used herein, the term "business opportunity" shall not
include business opportunities involving investment in publicly traded stocks,
bonds or other securities, or similar passive investments.
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2. CONFIDENTIALITY OF TRADE SECRETS AND OTHER MATERIALS.
2.1 Trade Secrets. Hope agrees not to disclose to others, or take or
use for his own purposes or the purposes of others, during or after his
employment, any trade secrets, confidential information, knowledge, data or the
like that Hope acquires during his Employment Agreement and that is not
otherwise in the public domain. Hope agrees that these restrictions shall also
apply to (a) information, knowledge, trade secret, data or know-how belonging to
third parties in the Company's possession; and (b) information, knowledge, trade
secret, or data received, originated, discovered or developed by Hope during the
term of this Agreement. Hope recognizes that this obligation applies not only to
technical information, but also to any business, financial or marketing
information that the Company treats as confidential. Any information of the
Company which is not readily available to the public shall be considered to be a
trade secret unless the Company advises Hope otherwise.
2.2 Ownership of Trade Secrets; Assignment of Rights. Hope hereby
agrees that all know-how, documents, reports, plans, proposals, marketing and
sales plans, client lists, client files and materials made by him or by the
Company during the term of his employment are the property of the Company and
shall not be used by him in any way adverse to the Company's interests. Hope
shall not deliver, reproduce or in any way allow such documents or things to be
delivered or used by any third party without specific direction or consent of
the Board of Directors of the Company. Hope hereby assigns to the Company any
rights which he or she may have in any such trade secret or proprietary
information.
Hope agrees that for a period of one (1) year immediately
following his termination (voluntary or with cause) with the Company, he shall
not interfere with the business of the Company in any manner, including, without
limitation, by inducing an employee or associate to leave the Company, or by
inducing a consultant or other independent contractor to sever that person's
relationship with the Company, or disrupting the Company's relationships with
customers, agents, representatives or vendors or otherwise.
3. UNFAIR COMPETITION AFTER TERMINATION. Because of his employment by the
Company, Hope will have access to trade secrets and confidential information
about the Company, its products, its customers and its methods of doing
business. In the event of the termination of his Employment Agreement for any
reason, the Company shall have the option to pay Hope at the time of such
termination a lump sum payment of fifty percent (50%) of his Base Salary at the
date of termination (in addition to any payment otherwise due to Hope in the
form of severance pay) for up to two (2) years, and in consideration therefore,
Hope agrees that for a similar period of up to two (2) years after termination
of his employment he will not, directly or indirectly, compete with Company in
the field of live theatrical entertainment. For example, if the Company pays to
Hope fifty percent (50%) of one years Base Salary in accordance with this
paragraph of this Agreement, then Hope agrees not to compete directly or
indirectly with the Company for a period of one year from the date of
termination.. Hope understands and agrees that direct competition means the
design, development, production, promotion, presentation, or sale of live
theatrical stage shows competitive with those of the Company. Indirect
competition means the employment by any competitor or third party in a role that
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involves Hope in the design, development, production, promotion, or sale of live
theatrical stage shows competitive with those of the Company, and for whom Hope
will perform the same or similar function as he performs for the Company. Hope
further agrees that for a period of two (2) years after termination of his
employment, he will not directly or indirectly disclose to any third person any
confidential information or trade secrets not otherwise in the public domain,
and to which he gained knowledge during the term of his employment.
4. INJUNCTIVE RELIEF. The Company and Hope hereby acknowledge and agree that any
default under Sections 1 through 3, above, will cause damage to the Company in
an amount which is difficult, if not impossible, to ascertain. Accordingly, in
addition to any other relief to which the Company may be entitled, the Company
shall be entitled to such injunctive relief as may be ordered by any court of
competent jurisdiction including, but not limited to, an injunction restraining
any violation of the above named Sections, and without proof of actual damages
5. ATTORNEY'S FEES. If any party to this Agreement breaches any of the terms of
this Agreement, then that party shall pay to the non-defaulting party all of the
non-defaulting party's costs and expenses, including attorney's fees, incurred
by that party in enforcing the terms of this Agreement.
6. MEDIATION/ARBITRATION. If a dispute arises out of or relates to this
Agreement, the parties agree first to try in good faith to settle the dispute by
mediation under the commercial mediation rules of the American Arbitration
Association, before resorting to arbitration. Thereafter, any remaining
unresolved controversy or claim arising out of or relating to this Agreement
shall be settled by arbitration in Clark County, Nevada, in accordance with
commercial arbitration rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The prevailing party in any arbitration proceeding,
as determined by the arbitrator, shall be entitled to an award of reasonable
attorney's fees and the fees and costs arising out of the arbitration
proceedings, including, but not limited to the arbitration's fees and the
American Arbitration Association's administrative fee. The parties further agree
that the arbitrator, or such other person designated for the purpose by the
American Arbitration Association shall have jurisdiction over all matters
involving provisional remedies just as any court of competent jurisdiction
would, including but not limited to, the imposition of injunctive relief to
protect trade secrets and confidential information.
7. GOVERNING LAW. This Agreement shall be subject to and governed by the laws
of the State of Nevada.
Executed this 1st day of February, 1997.
/s/ David Hope
- --------------------
David Hope
3
<PAGE>
Exhibit 10.6
CONFIDENTIALITY AND
NON-COMPETITION AGREEMENT
THIS AGREEMENT has been entered into this 1st day of February,
1997 by and between On Stage Entertainment, Inc., (hereinafter referred to as
"OSE" or the "Company"), and Kiran S. Sidhu, an individual (hereinafter referred
to as "Sidhu").
In consideration of the mutual promises and covenants between the
parties in connection with Sidhu's employment agreement executed and dated
December __, 1996 (which is incorporated herein by reference and referred to as
the "Employment Agreement"), as well as Sidhu's future involvement with OSE as
its Chief Financial Officer and Treasurer and for other good and valuable
consideration, the parties hereto agree as follows:
1. CONFLICTING ACTIVITIES.
1.1 Involvement in Business Opportunities. Sidhu shall not, during the
term of his Employment Agreement, be engaged in any other business activity
which is or may be competitive with the business of the Company, without the
prior written consent of the Company's Board of Directors; provided, however,
that this restriction shall not be construed as preventing Sidhu from being a
director of, or investing his personal assets in passive investments in,
business entities which are not in competition with the Company or any of its
affiliates, or from pursuing business opportunities as permitted by paragraph
1.2. The foregoing notwithstanding, Sidhu may invest in a retail business of
which his wife will be actively involved therein.
1.2 Development of Business Opportunities. Sidhu hereby agrees to
promote and develop all business opportunities that come to his attention
relating to current or reasonably anticipated future business of the Company, in
a manner consistent with the best interests of the Company and with his duties
under his Employment Agreement. Should Sidhu discover a business opportunity
which is or may reasonably be anticipated to be related to the business of the
Company, he shall first offer such opportunity to the Company. Should the Board
of Directors of the Company not exercise its right to pursue this business
opportunity within a reasonable period of time, not to exceed sixty (60) days,
then Sidhu may develop the business opportunity for himself, provided, however,
that such development may in no way conflict or interfere with the duties owed
by Sidhu to the Company under his Employment Agreement. Further, Sidhu may
develop such business opportunities only on his own time, and may not use any
service, personnel, equipment, supplies, facility, or trade secrets of the
Company in their development. As used herein, the term "business opportunity"
shall not include business opportunities involving investment in publicly traded
stocks, bonds or other securities, or similar passive investments.
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<PAGE>
2. CONFIDENTIALITY OF TRADE SECRETS AND OTHER MATERIALS.
2.1 Trade Secrets. Sidhu agrees not to disclose to others, or take or
use for his own purposes or the purposes of others, during or after his
employment, any trade secrets, confidential information, knowledge, data or the
like that Sidhu acquires during his Employment Agreement and that is not
otherwise in the public domain. Sidhu agrees that these restrictions shall also
apply to (a) information, knowledge, trade secret, data or know-how belonging to
third parties in the Company's possession; and (b) information, knowledge, trade
secret, or data received, originated, discovered or developed by Sidhu during
the term of this Agreement. Sidhu recognizes that this obligation applies not
only to technical information, but also to any business, financial or marketing
information that the Company treats as confidential. Any information of the
Company which is not readily available to the public shall be considered to be a
trade secret unless the Company advises Sidhu otherwise.
2.2 Ownership of Trade Secrets; Assignment of Rights. Sidhu hereby
agrees that all know-how, documents, reports, plans, proposals, marketing and
sales plans, client lists, client files and materials made by him or by the
Company during the term of his employment are the property of the Company and
shall not be used by him in any way adverse to the Company's interests. Sidhu
shall not deliver, reproduce or in any way allow such documents or things to be
delivered or used by any third party without specific direction or consent of
the Board of Directors of the Company. Sidhu hereby assigns to the Company any
rights which he or she may have in any such trade secret or proprietary
information.
Sidhu agrees that for a period of one (1) year immediately
following his termination (voluntary or with cause) with the Company, he shall
not interfere with the business of the Company in any manner, including, without
limitation, by inducing an employee or associate to leave the Company, or by
inducing a consultant or other independent contractor to sever that person's
relationship with the Company, or disrupting the Company's relationships with
customers, agents, representatives or vendors or otherwise.
3. UNFAIR COMPETITION AFTER TERMINATION. Because of his employment by the
Company, Sidhu will have access to trade secrets and confidential information
about the Company, its products, its customers and its methods of doing
business. In the event of the termination of his Employment Agreement for any
reason, the Company shall have the option to pay Sidhu at the time of such
termination a lump sum payment of fifty percent (50%) of his Base Salary at the
date of termination (in addition to any payment otherwise due to Sidhu in the
form of severance pay) for up to two (2) years, and in consideration therefore,
Sidhu agrees that for a similar period of up to two (2) years after termination
of his employment he will not, directly or indirectly, compete with Company in
the field of live theatrical entertainment. For example, if the Company pays to
Sidhu fifty percent (50%) of one years Base Salary in accordance with this
paragraph of this Agreement, then Sidhu agrees not to compete directly or
indirectly with the Company for a period of one year from the date of
termination. Sidhu understands and agrees that direct competition means the
design, development, production, promotion, presentation, or sale of live
theatrical stage shows competitive with those of the Company. Indirect
competition means the employment by any competitor or third party in a role that
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<PAGE>
involves Sidhu in the design, development, production, promotion, or sale of
live theatrical stage shows competitive with those of the Company, and for whom
Sidhu will perform the same or similar function as he performs for the Company.
Sidhu further agrees that for a period of two (2) years after termination of his
employment, he will not directly or indirectly disclose to any third person any
confidential information or trade secrets not otherwise in the public domain,
and to which he gained knowledge during the term of his employment.
4. INJUNCTIVE RELIEF. The Company and Sidhu hereby acknowledge and agree that
any default under Sections 1 through 3, above, will cause damage to the Company
in an amount which is difficult, if not impossible, to ascertain. Accordingly,
in addition to any other relief to which the Company may be entitled, the
Company shall be entitled to such injunctive relief as may be ordered by any
court of competent jurisdiction including, but not limited to, an injunction
restraining any violation of the above named Sections, and without proof of
actual damages
5. ATTORNEY'S FEES. If any party to this Agreement breaches any of the terms of
this Agreement, then that party shall pay to the non-defaulting party all of the
non-defaulting party's costs and expenses, including attorney's fees, incurred
by that party in enforcing the terms of this Agreement.
6. MEDIATION/ARBITRATION. If a dispute arises out of or relates to this
Agreement, the parties agree first to try in good faith to settle the dispute by
mediation under the commercial mediation rules of the American Arbitration
Association, before resorting to arbitration. Thereafter, any remaining
unresolved controversy or claim arising out of or relating to this Agreement
shall be settled by arbitration in Clark County, Nevada, in accordance with
commercial arbitration rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The prevailing party in any arbitration proceeding,
as determined by the arbitrator, shall be entitled to an award of reasonable
attorney's fees and the fees and costs arising out of the arbitration
proceedings, including, but not limited to the arbitration's fees and the
American Arbitration Association's administrative fee. The parties further agree
that the arbitrator, or such other person designated for the purpose by the
American Arbitration Association shall have jurisdiction over all matters
involving provisional remedies just as any court of competent jurisdiction
would, including but not limited to, the imposition of injunctive relief to
protect trade secrets and confidential information.
7. GOVERNING LAW. This Agreement shall be subject to and governed by the laws
of the State of Nevada.
Executed this 1st day of February, 1997.
/s/ Kiran S. Sidhu
- --------------------
Kiran S. Sidhu
3
<PAGE>
Exhibit 10.7
ON STAGE ENTERTAINMENT, INC.
AMENDED AND RESTATED 1996 STOCK OPTION PLAN
1. PURPOSE
The purpose of the Amended and Restated On Stage Entertainment, Inc.
1996 Stock Option Plan (the "Plan") is to further the interests of On Stage
Entertainment, Inc. (the "Company") by strengthening the desire of employees to
continue their employment with the Company and by securing other benefits for
the Company through stock options to be granted hereunder. Options granted under
the Plan are either options intending to qualify as "incentive stock options"
within the meaning of Section 422 of the Code or non-qualified stock options.
2. DEFINITIONS
Whenever used herein the following terms shall have the following
meanings, respectively:
(a) "Board" shall mean the Board of Directors of On Stage
Entertainment, Inc.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Compensation Committee appointed by the
Board of Directors of the Company, or if no committee has been appointed,
reference to "Committee" shall be deemed to refer to the Board of Directors of
the Company.
(d) "Common Stock" shall mean the Company's Common Stock as described
in the Company's Articles of Incorporation.
(e) "Company" shall mean On Stage Entertainment, Inc., a Nevada
corporation.
(f) "Employee" shall mean in connection with Non-Qualified Options and
the On Stage Entertainment, Inc. Non-Qualified Stock Option Agreement (i) any
director, officer, actual employee or independent contractor of the Company or
any Subsidiary or Parent of the Company, (ii) any individual in an effort to
induce said individual to become and remain an employee or independent
contractor of the Company, or (iii) any other individual or entity the Committee
may deem appropriate to receive a Non-Qualified Option (so long as the grant of
the Non-Qualified Option furthers a specific Company purpose and the Committee
deems it in the best interests of the Company to grant the Non-Qualified Option
to said individual or entity). In connection with Incentive Options and the On
Stage Entertainment, Inc. Incentive Stock Option Agreement, the term "Employee"
shall include only actual employees of the Company or of any Subsidiary or
Parent of the Company.
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(g) "Fair Market Value Per Share" of the Company's Common Stock shall
mean if the Company's Common Stock is publicly traded the mean between the
highest and lowest quoted selling prices of the Common Stock on the date of the
grant of the Option or, if not available, the mean between the bona fide and
asked prices of the Common Stock on the date of the grant of the Option. In any
situation not covered above or if there were no sales on the date of the grant
of an Option, the Fair Market Value Per Share shall be determined by the
Committee in accordance with Section 20.2031-2 of the Federal Estate Tax
Regulations. Notwithstanding the foregoing, if the Option is granted in
connection with an initial public offering of the Company's Common Stock, the
Fair Market Value Per Share shall be at the price at which the Common Stock is
sold in such public offering.
(h) "Incentive Option" shall mean an Option granted under the Plan
which is designated as and qualifies as an incentive stock option within the
meaning of Section 422 of the Code.
(i) "Non-Qualified Option" shall mean an Option granted under the Plan
which is designated as a non-qualified stock option and which does not qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(j) "Option" shall mean an Incentive Option, as defined in Section 2(h)
hereof, or a Non-Qualified Option, as defined in Section 2(i) hereof.
(k) "Optionee" shall mean any Employee who has been granted an
Incentive Option to purchase shares of Common Stock under the Plan and shall
mean any person (including an Employee) who has granted a Non-Qualified Option
under the Plan.
(l) "Parent" shall have the meaning set forth in Section 424(e) of the
Code.
(m) "Permanent Disability" shall mean termination of employment with
the Company or with the consent of the Company by reason of permanent and total
disability within the meaning of Section 22(e)(3) of the Code.
(n) "Plan" shall mean the On Stage Entertainment, Inc. 1996 Stock
Option Plan, as amended and restated.
(o) "Subsidiary" shall have the meaning set forth in Section 424(f) of
the Code.
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3. ADMINISTRATION
(a) The Plan shall be administered either (i) by the Board, or (ii) in
the discretion of the Board, by a Committee of at least three persons appointed
by the Board. The Board may from time to time appoint members of the Committee
in substitution for or in addition to members previously appointed and may fill
vacancies.
(b) Any action of the Committee with respect to the administration of
the Plan shall be taken by majority vote or by written consent of a majority of
its members.
(c) Subject to the provisions of the Plan, the Committee or the Board
shall have the authority to construe and interpret the Plan, to define the terms
used therein, to determine the time or times an Option may be exercised and the
number of shares which may be exercised at any one time, to prescribe, amend and
rescind rules and regulations relating to the Plan, to approve and determine the
duration of leaves of absence which may be granted to participants without
constituting a termination of their employment for purposes of the Plan, and to
make all other determinations necessary or advisable for the administration of
the Plan. All determinations and interpretations made by the Committee shall be
conclusive and binding on all Employees and on their guardians, legal
representatives and beneficiaries.
(d) The Company will indemnify and hold harmless the members of the
Board and the Committee from and against any and all liabilities, costs and
expenses incurred by such persons as a result of any act, or omission to act, in
connection with the performance of such persons' duties, responsibilities and
obligations under the Plan, other than such liabilities, costs and expenses as
may result from the negligence, gross negligence, bad faith, willful misconduct
and/or criminal acts of such person.
(e) The Company will provide financial information to the Optionees on
the same basis as the Company provides such information to its shareholders.
4. NUMBER OF SHARES SUBJECT TO PLAN
The stock to be offered under the Plan shall consist of up to 785,000
shares of Common Stock. If any Option granted hereunder shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for purposes of this Plan.
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5. ELIGIBILITY AND PARTICIPATION
(a) The Committee shall determine the Employees to whom Options shall
be granted, the time or times at which such Options shall be granted and the
number of shares to be subject to each Option. An Employee who has been granted
an Option may, if he is otherwise eligible, be granted an additional Option or
Options if the Committee shall so determine. An Employee may be granted
Incentive Options or Non-Qualified Options or both under the Plan; provided,
however, that the grant of Incentive Options and Non-Qualified Options to an
Employee shall be the grant of separate Options and each Incentive Option and
each Non-Qualified Option shall be specifically designated as such.
(b) In no event shall an Employee be granted in any calendar year,
under the Plan and all other plans of the Company and any Subsidiary or Parent
of the Company, Incentive Options that are first exercisable during any one
calendar year for stock with an aggregate fair market value (determined as of
the time the option was granted) in excess of $100,000.
6. PURCHASE PRICE
(a) The purchase price of each share covered by each Incentive Option
shall not be less than 100% of the Fair Market Value Per Share of the Common
Stock of the Company on the date the Incentive Option is granted; provided,
however, that if at the time an Incentive Option is granted the Optionee owns or
would be considered to own by reason of Section 424(d) of the Code more than 10%
of the total combined voting power of all classes of stock of the Company or any
Subsidiary or Parent of the Company, the purchase price of the shares covered by
such Incentive Option shall not be less than 110% of the Fair Market Value Per
Share of the Common Stock on the date the Incentive Option is granted.
(b) The purchase price of each share covered by each Non-Qualified
Option shall be determined by the Committee.
7. DURATION OF OPTIONS
The expiration date of each Option and all rights thereunder shall be
determined by the Committee. In the event the Committee does not specify the
expiration date of the Option, the expiration date shall be 10 years from the
date on which the Option is granted, and shall be subject to earlier termination
as provided herein; provided, however, that if at the time an Incentive Option
is granted the Optionee owns or would be considered to own by reason of Section
424(d) of the Code more than 10% of the total combined voting power of all
classes of stock of the Company or any Subsidiary or Parent of the Company, such
Incentive Option shall expire 5 years from the date the Incentive Option is
granted unless the Committee selects an earlier date.
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8. EXERCISE OF OPTIONS
Except as otherwise determined by the Committee, an Option shall be
exercisable as follows: (i) at any time after one year from the date of grant,
33 1/3% of the shares subject to the Option, or any part thereof; and (ii) at
any time after two years from the date of grant, an additional 33 1/3% of the
shares subject to the Option, or any part thereof; and (iii) at any time after
three years from the date of grant, an additional 33 1/3% of the shares subject
to the Option or any part thereof.
An Optionee may purchase less than the total number of shares for which
the Option is exercisable, provided that a partial exercise of an Option may not
be for less than 100 shares, unless the exercise is during the final year of the
Option, and shall not include any fractional shares. As a condition to the
exercise, in whole or in part, of any Option, the Committee may in its sole
discretion require the Optionee to pay, in addition to the purchase price of the
shares covered by the Option, an amount equal to any federal, state and local
taxes that the Committee has determined are required to be paid in connection
with the exercise of such Option in order to enable the Company to claim a
deduction or otherwise. Furthermore, if any Optionee disposes of any shares of
stock acquired by exercise of an Incentive Option prior to the expiration of
either of the holding periods specified in Section 422(a)(1) of the Code, the
Optionee shall pay to the Company, or the Company shall have the right to
withhold from any payments to be made to the Optionee, an amount equal to any
federal, state and local taxes the Committee has determined are required to be
paid in connection with the exercise of such Option, in order to enable the
Company to claim a deduction or otherwise.
9. METHOD OF EXERCISE
(a) To the extent that the right to purchase shares has accrued,
Options may be exercised from time to time by giving written notice to the
Company stating the number of shares with respect to which the Option is being
exercised, accompanied by payment in full, by cash or by certified or cashier's
check payable to the order of the Company or the equivalent thereof acceptable
to the Company, of the purchase price for the number of shares being purchased
and, if applicable, any federal, state or local taxes required to be paid in
accordance with the provisions of Section 8 hereof. The Company shall issue a
separate certificate or certificates with respect to each Option exercised by an
Optionee.
(b) In the Committee's discretion, payment of the purchase price for
the shares with respect to which the Option is being exercised may be made in
whole or in part with shares of Common Stock of the Company. If payment is made
with shares of Common Stock, the Optionee, or other person entitled to exercise
the Option, shall deliver to the Company certificates representing the number of
shares of Common Stock in payment for the shares being purchased, duly endorsed
for transfer to the Company. If requested by the Committee, prior to the
acceptance of such certificates in payment for such shares, the Optionee, or any
other person entitled to exercise the Option, shall supply the Committee with a
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representation and warranty in writing that he has good and marketable title to
the shares represented by the certificate(s), free and clear of all liens and
encumbrances. The value of the shares of Common Stock tendered in payment for
the shares being purchased shall be their Fair Market Value Per Share on the
date of the Optionee's exercise.
(c) Notwithstanding the foregoing, the Company shall have the right to
postpone the time of delivery of the shares for such period as may be required
for it to comply, with reasonable diligence, with any applicable listing
requirements of any national securities exchange or any federal, state or local
law. If an Optionee, or other person entitled to exercise an Option, fails to
accept delivery of or fails to pay for all or any portion of the shares
requested in the notice of exercise, upon tender of delivery thereof, the
Committee shall have the right to terminate his Option with respect to such
shares.
10. NON-TRANSFERABILITY OF OPTIONS
No Option granted under the Plan shall be assignable or transferable by
the Optionee, either voluntarily or by operation of law, otherwise than by will
or the laws of descent and distribution, and shall be exercisable during his
lifetime only by the Optionee.
11. CONTINUANCE OF EMPLOYMENT
Nothing contained in the Plan or in any Option granted under the Plan
shall confer upon any Optionee any rights with respect to the continuation of
his employment by the Company or interfere in any way with the right of the
Company at any time to terminate such employment or to increase or decrease the
compensation of the Optionee from the rate in existence at the time of the grant
of an Option.
12. TERMINATION OF EMPLOYMENT OTHER THAN BY
DEATH OR PERMANENT DISABILITY
Except as the Committee may determine otherwise with respect to any
Non-Qualified Options granted hereunder: If an Optionee ceases to be an Employee
for any reason other than his death or Permanent Disability, any Options granted
to him under the Plan shall terminate 3 months from the date on which such
Optionee terminates his employment (whether voluntarily or involuntarily) unless
such Optionee has been rehired by the Company and is an Employee on such date.
During such 3 month period, the Optionee may exercise any Option granted to him
but only to the extent such Option was exercisable on the date of termination of
his employment and provided that such Option has not expired or otherwise
terminated as provided herein. A leave of absence approved in writing by the
Committee shall not be deemed a termination of employment for purposes of this
Section, but no Option may be exercised during any such leave of absence, except
during the first 3 months thereof.
13. DEATH OR PERMANENT DISABILITY OF OPTIONEE
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Except as the Committee may determine otherwise with respect to any
Non-qualified Options granted hereunder:
If an Optionee shall die at a time when he is employed by the Company
or if the Optionee shall cease to be an Employee by reason of Permanent
Disability, any Options granted to him under this Plan shall terminate one year
after the date of his death or termination of employment due to Permanent
Disability unless by its terms it shall expire before such date or otherwise
terminate as provided herein, and shall only be exercisable to the extent that
it would have been exercisable on the date of his death or his retirement due to
Permanent Disability. In the case of death, the Option may be exercised by the
person or persons to whom the Optionee's rights under the Option shall pass by
will or by the laws of descent and distribution.
14. STOCK PURCHASE NOT FOR DISTRIBUTION
Each Optionee shall, by accepting the grant of an Option under the
Plan, represent and agree, for himself and his transferees by will or the laws
of descent and distribution, that all shares of stock purchased upon exercise of
the Option will be received and held without a view to distribution except as
may be permitted by the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder. After each notice of exercise of any portion
of an Option, if requested by the Committee, the person entitled to exercise the
Option must agree in writing that the shares of stock are being acquired in good
faith without a view to distribution except as may be permitted by the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.
15. PRIVILEGES OF STOCK OWNERSHIP
No person entitled to exercise any Option granted under the Plan shall
have any of the rights or privileges of a shareholder of the Company with
respect to any shares of Common Stock issuable upon exercise of such Option
until such person has become the holder of record of such shares. No adjustment
shall be made for dividends or distributions of rights in respect of such shares
if the record date is prior to the date on which such person becomes the holder
of record, except as provided in Section 16 hereof.
16. ADJUSTMENTS
(a) If the number of outstanding shares of Common Stock of the Company
are increased or decreased, or if such shares are exchanged for a different
number or kind of shares or securities of the Company through reorganization,
merger, reverse merger, recapitalization, reclassification, stock dividend,
stock split, reverse split, combination of shares or other similar transaction,
the aggregate number of shares of Common Stock subject to the Plan as provided
in Section 4 hereof and the shares of Common Stock subject to issued and
outstanding Options under the Plan shall be appropriately and proportionately
adjusted by the Committee. Any such adjustment in the outstanding Options shall
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be made without change in the aggregate purchase price applicable to the
unexercised portion of the Option but with an appropriate adjustment in the
price for each share or other unit of any security covered by the Option.
(b) Notwithstanding the provisions of subsection (a) of this section,
upon the dissolution or liquidation of the Company or upon any reorganization,
merger or consolidation with one or more corporations as a result of which the
Company is not the surviving corporation, or upon a sale of substantially all
the assets of the Company or of more than 50% of the then outstanding stock of
the Company to another corporation or entity, the Plan and each outstanding
Option shall terminate; provided, however, that: (i) each Option, for which no
option has been tendered by the surviving corporation in accordance with all of
the terms of provision (ii) immediately below shall become fully exercisable
subject to the provisions of Sections 9(b) and (c) hereof within thirty days
before the effective date of such dissolution, liquidation, merger,
consolidation or sale of stock or assets in which the Company is not the
surviving corporation; or (ii) in its sole and absolute discretion, the
surviving corporation may, but shall not be obligated to, tender to any Optionee
holding an Option an option or options to purchase shares of the surviving
corporation or acquiring corporation, and such new option or options shall
contain such terms and provisions as shall be required substantially to preserve
the rights and benefits of any Option then outstanding under this Plan.
(c) Adjustments under this section shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan or in connection with any such adjustment.
17. AMENDMENT AND TERMINATION OF PLAN
(a) The Board of Directors of the Company may from time to time, with
respect to any shares at the time not subject to Options, suspend or terminate
the Plan or amend or revise the terms of the Plan; provided that any amendment
to the Plan shall be approved by a majority of the shareholders of the Company
if the amendment would (i) materially increase the benefits accruing to
participants under the Plan; (ii) increase the number of shares of Common Stock
which may be issued under the Plan, except as permitted under the provisions of
Section 16 hereof; or (iii) materially modify the requirements as to eligibility
for participation in the Plan.
(b) No amendment, suspension or termination of the Plan shall, without
the consent of the Optionee, alter or impair any rights or obligations under any
Option theretofore granted to such Optionee under the Plan.
(c) The terms and conditions of any Option granted to an Optionee under
the Plan may be modified or amended only by a written agreement executed by the
Optionee and the Company; provided, however, that if any amendment or
modification of an Incentive Option would constitute a "modification, extension
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or renewal" within the meaning of Section 424(h) of the Code, such amendment
shall be null and void unless the amendment contains an acknowledgment by the
parties substantially in the following form: "The parties hereto recognize and
agree that this amendment constitutes a modification, renewal or extension,
within the meaning of Section 424(h) of the Code, of the option originally
granted ________."
18. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon adoption by the Board of
Directors of the Company and approval by the Company's shareholders; provided,
however, that prior to approval of the Plan by the Company's shareholders, but
after adoption by the Board of Directors, Options may be granted under the Plan
subject to obtaining such shareholders' approval. Notwithstanding the foregoing,
such shareholders' approval must occur no later than 12 months after the date of
adoption of the Plan by the Board of Directors.
19. TERM OF PLAN
No Option shall be granted pursuant to the Plan after 10 years from the
earlier of the date of adoption of the Plan by the Board of Directors of the
Company or the date of approval of the Plan by the Company's shareholders.
The date of adoption of the original On Stage Entertainment, Inc. 1996
Stock Option Plan by the Board of Directors was August 7, 1996 and the date of
the approval of such plan by the shareholders was August 7, 1996. The adoption
of this Amended and Restated On Stage Entertainment, Inc. 1996 Stock Option Plan
by the Board of Directors was effected on March 19, 1997.
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Exhibit 10.8
CONTRIBUTION AGREEMENT
This Contribution Agreement (this "Agreement"), dated as of
February 25, 1997, is made by and between On Stage Entertainment, Inc., a Nevada
corporation (the "Company"), and John W. Stuart, an individual ("Stuart").
RECITALS
WHEREAS, Stuart is the founder of the Company and owns
substantially all of the issued and outstanding common stock of the Company.
WHEREAS, Stuart is the founder and sole stockholder of Las
Vegas/Hawaii Entertainment, Inc., a Nevada corporation ("LVHE").
WHEREAS, LVHE owns a 40% membership interest (the "R.B.L.S.
Interest") in R.B.L.S., Ltd., a Nevada limited liability company ("R.B.L.S."),
as successor in interest to Legends in Concert, Hawaii Limited Partnership,
which was terminated on November 22, 1995.
WHEREAS, the members of R.B.L.S. are parties to an Operating
Agreement, dated August 3, 1994 (the "Operating Agreement").
WHEREAS, R.B.L.S., as limited partner, and Silver State
Property Management, Inc., a Nevada corporation, as general partner, formed
R.B.L.S. Partnership (the "R.B.L.S. Partnership"), which operates a Legends In
Concert production in Hawaii.
WHEREAS, pursuant to an Agreement dated on or about August 1,
1994, Stuart performs consulting services for R.B.L.S. and/or R.B.L.S.
Partnership in connection with the Legends In Concert production in Hawaii (the
"Consulting Services"), and receives therefor a weekly management consulting fee
from R.B.L.S. and/or R.B.L.S. Partnership in the amount of $3,000 per week (the
"Consulting Fee"), plus $1,000 in expense reimbursement per trip to Hawaii.
WHEREAS, Stuart desires that the Company complete a bridge
financing with Whale Securities Co., L.P. as placement agent (the "Placement
Agent") followed by an initial public offering to be underwritten by the
Placement Agent.
WHEREAS, Stuart has entered into an Employment Agreement dated
February 1, 1997 with the Company, as required by the Placement Agent in
connection with the bridge financing and the proposed initial public offering.
WHEREAS, the Board of Directors of the Company has determined
that Stuart's services to LVHE, R.B.L.S. and R.B.L.S. Partnership will not place
him in a conflict of interest with his Employment Agreement on the condition
that all monies received by Stuart for doing so are paid over to the Company.
<PAGE>
WHEREAS, the Placement Agent has required in connection with
the bridge financing and the proposed initial public offering that Stuart make
certain capital contributions to the Company in connection with the Board of
Directors determination.
NOW, THEREFORE, in consideration of the foregoing and the
agreements set forth below, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto agree
as follows:
ARTICLE I
CAPITAL CONTRIBUTIONS
1.1 Contribution of LVHE Stock. Stuart and the Company hereby
agree that Stuart shall make a capital contribution to the Company of all the
shares of Common Stock of LVHE beneficially owned by Stuart (the "LVHE Shares"),
which represents all of the issued and outstanding stock of LVHE, promptly, upon
the request of the Company, after it is permissible to do so under the Operating
Agreement without breaching any restriction or right of first refusal under the
Operating Agreement, for which purpose Stuart may rely on an opinion of counsel
that the contribution to the Company may be completed without breaching any
restriction or right of first refusal under the Operating Agreement (the date of
such contribution of the LVHE Shares shall be "Contribution Date").
1.2 Contribution of LVHE Income. Stuart hereby contributes,
grants, conveys, assigns, transfers and delivers to the Company as a capital
contribution all of Stuart's right, title and interest in and to any and all
economic benefit derived by Stuart from LVHE and Stuart's ownership of the LVHE
Shares. Stuart and the Company agree that the term "economic benefit" shall mean
cash or other consideration or benefit actually received by Stuart, and,
therefore, shall not include any amount for distributions made by R.B.L.S. to
LVHE that are withheld or used for reimbursement by R.B.L.S, including amounts
withheld to fund the defense of the Disputed Lawsuits (as defined in Section
5.1(b)).
1.3 Contribution of Consulting Fee. Stuart hereby contributes,
grants, conveys, assigns, transfers and delivers to the Company as a capital
contribution all of Stuart's right, title and interest in the Consulting Fee.
(a) Performance of Consulting Services. Stuart agrees to
continue to perform the Consulting Services for R.B.L.S. and/or R.B.L.S.
Partnership as an employee of the Company under the provisions of Stuart's
Employment Agreement.
<PAGE>
(b) Expense Reimbursement. The Company will reimburse or make
advances to Stuart for his reasonable costs and expenses in performing the
Consulting Services. Stuart will remit to the Company any amounts he receives
from R.B.L.S. and/or R.B.L.S. Partnership for the reimbursement of costs and
expenses that were paid or reimbursed by the Company.
ARTICLE II
VOTING AND ESCROW
2.1 Agreement to Vote. During the term of this Agreement,
Stuart shall vote all of the LVHE Shares in the manner directed by the Company.
2.2 Irrevocable Proxy. In furtherance of the purposes of this
Agreement, Shareholder shall deliver to the Company an irrevocable proxy in the
form of Exhibit A to this Agreement (the "Irrevocable Proxy") upon the execution
of this Agreement. The Irrevocable Proxy shall appoint the Company as Stuart's
true and lawful attorney and proxy, with full power of substitution, for and in
Stuart's name to vote and otherwise act with respect to all LVHE Shares at all
annual, special, and other meetings of stockholders of LVHE (or by written
consent in lieu thereof) and at any other time those shares are required to be,
or may be, voted or acted upon.
2.3 Escrow of LVHE Shares. Stuart hereby appoints the Company
as escrow agent, and the Company agrees to act as escrow agent, to hold the LVHE
Shares in escrow on behalf of Stuart until the Contribution Date, at which time
the LVHE Shares will be released from escrow.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Stuart represents and warrants to the Company as follows:
3.1 Organization of LVHE. LVHE is a corporation validly
existing and in good standing under the laws of the State of Nevada, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under the Operating Agreement.
3.2 Capitalization of LVHE. The authorized equity securities
of LVHE consist of 1,000 shares of common stock, no par value, of which 50
shares are issued and outstanding and constitute the LVHE Shares. Stuart is and
will be on the Contribution Date the record and beneficial owner and holder of
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the LVHE Shares, free and clear of all liens, encumbrances or other impairments
to title. The LVHE Shares have been duly authorized, validly issued and are
fully paid and nonassessable. There are no contracts, agreements, obligations,
promises or understandings of any kind relating to the LVHE Shares or to the
issuance, sale or transfer of any securities of LVHE other than the Operating
Agreement.
3.3 R.B.L.S. Interest. LVHE is and will be on the Contribution
Date the record and beneficial owner and holder, free and clear of all liens,
encumbrances or other impairments to title, of the R.B.L.S. Interest. The
R.B.L.S. Interest represents 40% of the membership interests of R.B.L.S. and
membership interests are the only issued and outstanding security of R.B.L.S.
3.4 Assets and Liabilities. LVHE has no assets, liabilities,
contracts, agreements, obligations, promises or understandings of any kind other
than the R.B.L.S. Interest and under the Operating Agreement.
ARTICLE IV
COVENANTS
4.1 Access and Investigation. Between the date of this
Agreement and the Contribution Date, Stuart will and will cause LVHE to afford
the Company and its representatives full and free access to LVHE's personnel,
assets, contracts, books and records and other documents and data.
4.2 Operation of LVHE. Between the date of this Agreement and
the Contribution Date, Stuart will and will cause LVHE to (a) conduct the
business of LVHE only in the ordinary course of business of owning the R.B.L.S.
Interest; (b) use best efforts to preserve intact the current business
organization; (c) confer with the Company concerning operational matters of a
material nature; and (d) otherwise report periodically to the Company concerning
the status of the business and finances of LVHE.
4.3 Negative Covenants. Between the date of this Agreement and
the Contribution Date, Stuart will not and will cause LVHE not to (a) take any
action inconsistent with Section 4.2 above; (b) incur any liabilities or
indebtedness; (c) acquire any assets; (d) sell, transfer, convey, assign,
contribute, or otherwise transfer the LVHE Shares or any asset of LVHE,
including the R.B.L.S. Interest; or (e) pledge, encumber or otherwise grant any
right or interest in the LVHE Shares or any assets of LVHE, including the
R.B.L.S. Interest.
4.4 Notification. Between the date of this Agreement and the
Contribution Date, Stuart will and will cause LVHE to promptly notify the
Company in writing if Stuart or LVHE becomes aware of any fact or condition that
causes or constitutes a breach of Stuart's representations and warranties as of
the date of this Agreement, or if Stuart or LVHE becomes aware of the occurrence
after the date of this Agreement of any fact or condition that would cause or or
constitute a breach of any representation or warranty or any covenant or
condition of this Agreement.
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ARTICLE V
INDEMNIFICATION
5.1 Indemnification.
(a) From and after the date of this Agreement Stuart shall
defend, indemnify and hold harmless the Company and its subsidiaries and each of
their officers, directors or employees from, against and in respect of any and
all damages, losses, deficiencies, liabilities, costs and expenses (including
reasonable expenses of investigation and litigation and reasonable attorneys',
accountants' and other professionals' fees and costs incurred in the
investigation or defense thereof or the enforcement of rights hereunder),
including consequential damages (collectively, "Damages"), resulting from or
arising out of, directly or indirectly: (i) any breach of the representations
and warranties of Stuart in this Agreement; (ii) any non-fulfillment of any
agreement or covenant by Stuart in this Agreement.
(b) From and after the date of this Agreement, Stuart shall
defend, indemnify and hold harmless the Company and its subsidiaries and each of
their officers, directors or employees from, against and in respect of any and
all Damages, resulting from or arising out of, directly or indirectly: any act,
omission, obligation, or liability prior to the Contribution Date of LVHE,
R.B.L.S. or the R.B.L.S. Partnership, or the other members of R.B.L.S. and their
respective companies. The indemnification under this subsection (b) shall
include the following lawsuits, and any additional lawsuits arising as a result
of these lawsuits (the "Disputed Lawsuits"): Chris Akau, Ray Brooks, Walter
Miura, et. al. vs. Las Vegas/Hawaii Entertainment, Inc. d.b.a. Legends in
Concert, et. al. Civil No. 94-1878-05; Las Vegas/Hawaii Entertainment, Inc., et.
al. vs. Ted Cook, Lorrin Lee, Lene Mualeave, Chandoor Mehra, et.al., Civil No.
94-2630-07; and Ted Cook, Mualeave Lene and Lorrin Lee, vs. Las Vegas/Hawaii
Entertainment, Inc., Paul Revere, John Stuart and Marvin Silverman, in the
Federal District Court Civil No. 95-00924.
(c) Liabilities arising out of, resulting from or relating to
any matters described in this Section 5.1 are hereinafter referred to as
"Liabilities."
5.2 Insurance Coverage. In the case of any Liability to be
indemnified by Stuart hereunder which is covered by a policy of insurance, the
Company shall cooperate with the insurers in the exercise of their rights to
investigate, defend, or compromise the Company as may be required to retain the
benefits of such insurance with respect to such Liability. Neither any failure
to cooperate that does not cause any material damage to Stuart, nor any
cooperation shall have any effect whatsoever on the obligations of Stuart to
indemnify the Company.
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5.3 Control of Litigation. The Company shall promptly notify
Stuart of the commencement of any action, suit, or proceeding with respect to a
Liability or the assertion of any Liability, in each case as to which
indemnification is sought; provided, that the failure to provide such notice
shall not release Stuart from any of its obligations to indemnify hereunder to
the extent that such failure does not materially prejudice the rights of Stuart
in his ability to defend such Liability. Stuart shall, at his own expense,
assume or cause to be assumed the defense of any such Liability within thirty
(30) days after the Company shall have notified Stuart thereof. The Company,
upon reasonable notice by Stuart or the person assuming the defense shall
consult from time to time with respect to such Liability and provide Stuart or
the person assuming the defense with any documents or other items or access to
any witness which Stuart or the person assuming the defense deems in its
reasonable judgment to be necessary in connection with the defense of such
Liability, and Stuart shall pay or reimburse or cause to be paid or reimbursed,
any reasonable out-of-pocket costs therefor. The Company may participate in the
defense of any such Liability and employ separate counsel, at its own expense,
unless such Investor Indemnitee shall have reasonably determined that counsel
selected by Stuart or such person has a conflict of interest because of the
availability of different or additional defenses to the Company in which case
Stuart shall pay or cause to be paid the costs and expenses of counsel employed
by the Company. Stuart and his insurers may, in their sole discretion, defend,
settle, or compromise any such action, suit or proceeding; provided, that Stuart
and its insurers shall be liable in respect of all Liabilities relating thereto
(whether by payment of any judgment, settlement, amount or indemnity hereunder)
and no settlement or compromise shall be entered into unless the Company is
fully released or discharged from all such Liabilities. Participation by the
Company in any such action, suit, or claim shall not constitute a waiver of the
indemnification provided in this Article V. Nothing contained in this Article V
shall be deemed to require the Company to contest any Liability or to assume
responsibility for or control of any judicial proceeding with respect thereto.
5.4 Settlements. The Company shall not enter into a settlement
or other compromise with respect to any Liability without the prior written
consent of Stuart, which consent shall not be unreasonably withheld, unless the
Company waives its right to be indemnified with respect to such Liability under
this Article V.
5.5 Subrogation, Etc. To the extent that an Liability to be
indemnified by Stuart under this Article V is in fact paid by Stuart or any
other person, Stuart or such person shall be subrogated to the extent of such
payment to the rights and remedies of the Company with respect to the
transaction, event, or matter giving rise to such Liability. Should the Company
receive any refund, in whole or in part, with respect to any Liability paid by
Stuart or such person hereunder, it shall promptly pay over the amount refunded,
together with any interest received with respect to such amount, to Stuart or
such person.
5.6 Netting of Recoveries. In determining the amount of any
indemnification or other recovery available to the Company under this Article V,
with respect to any specific claim, such amount shall be reduced by any other
amount the Company has recovered with respect to such claim.
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ARTICLE VI
SECURITY AND PLEDGE AGREEMENTS
6.1 Security and Pledge Agreement for Contribution of LVHE
Shares . Stuart hereby agrees to secure his promises hereunder to contribute the
LVHE Shares to the Company under Section 1.1 by entering into a Security and
Pledge Agreement as of the date hereof.
6.2 Security and Pledge Agreement for Indemnity. Stuart hereby
agrees to secure Stuart's obligation to provide indemnification under Article V
by entering into a Security and Pledge Agreement as of the date hereof.
ARTICLE VII
MISCELLANEOUS
7.1 Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior written and oral and all contemporaneous oral agreements and
understandings with respect to the subject matter hereof and thereof.
7.2 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada without regard to
applicable conflicts of law principles.
7.3 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
7.4 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
in person, by telecopy, or by registered or certified mail (postage prepaid
return receipt requested) to the respective parties as follows:
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if to the Company
On Stage Entertainment, Inc.
4625 West Nevso Drive
Las Vegas, Nevada 89103
Telecopy: (702) 253-1122
Attention: Christopher Grobl, Esq.
General Counsel and Secretary
if to Stuart:
John W. Stuart
8213 Rancho Destino
Las Vegas, Nevada 89123
or to such other address as the party to whom notice is given may have
previously furnished to the others in writing in the manner set forth above. Any
notice or communication delivered in person shall be deemed effective on
delivery. Any notice or communication sent by telecopy shall be deemed effective
on the first business day at the place of which such notice or communication is
received following the day on which such notice or communication was sent. Any
notice or communication sent by registered or certified mail shall be deemed
effective on the fifth business day at the place from which such notice or
communication was mailed following the day in which such notice or communication
was mailed.
7.5 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
7.6 Binding Effect; Assignment. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective legal
representatives and successors. This Agreement may not be assigned by any party
hereto.
7.7 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties.
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IN WITNESS WHEREOF, each of the parties has caused this
Contribution Agreement to be executed on its behalf by its officers thereunto
duly authorized on the day and year first above written.
ON STAGE ENTERTAINMENT, INC.
By: /s/ Kiran S. Sidhu
-------------------------
Name: Kiran S. Sidhu
Title: SVP & CFO
/s/ John W. Stuart
----------------------------
John W. Stuart
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EXHIBIT A
TO CONTRIBUTION AGREEMENT
IRREVOCABLE PROXY
STATE OF NEVADA )
) SS.
COUNTY OF CLARK )
This Irrevocable Proxy is given by John W. Stuart ("Shareholder"), the
sole stockholder of Las Vegas/Hawaii Entertainment, Inc., a Nevada corporation
("LVHE") to On Stage Entertainment, Inc. (the "Proxyholder") pursuant to a
Contribution Agreement of this same date between Stuart and Proxyholder (the
"Contribution Agreement").
1. Irrevocable Proxy.
a. Stuart irrevocably appoints the Proxyholder as Stuart's
true and lawful attorney and proxy, with full power of substitution, for and in
Stuart's name to vote and otherwise act with respect to all of the shares of
stock of LVHE (the "LVHE Shares") at all annual, special, and other meetings of
stockholders of LVHE (or by written consent in lieu thereof) and at any other
time the LVHE Shares are required to be, or may be, voted or acted upon.
b. The appointment and proxy granted to the Proxyholder by
Section 1(a) of this Proxy is irrevocable and coupled with an interest and,
except as otherwise provided in Section 2 of this Proxy, shall not terminate by
operation of law, whether by reason of the death, bankruptcy, or adjudication of
incompetency of Proxyholder or otherwise, or by the occurrence of any other
event.
c. This Proxy relates to all voting rights (whether limited,
fixed, or contingent) with respect to the LVHE Shares and does not relate to any
other right incident to the ownership of the LVHE Shares (including, without
limitation, the right to receive dividends and any other distributions on the
LVHE Shares).
2. Term. This Proxy shall terminate only upon the termination of the
Contribution Agreement.
3. Legend on Stock. Each certificate evidencing the LVHE Shares shall
bear a conspicuous statement in substantially the following form:
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The shares evidenced by this certificate are subject to a
voting agreement and an irrevocable proxy (copies of which are
available for inspection at the principal office of the
company). The recipient of any interest in such shares shall
be deemed to have agreed to and shall become bound by all of
the provisions of said voting agreement and irrevocable proxy.
4. Benefit and Burden. This Proxy shall be binding upon the Stuart, and
shall inure to the benefit of Proxyholder, and his or her respective personal
representatives, executors, administrators, legal representatives, devisees,
distributees and heirs.
5. Modifications. This Proxy may be modified, waived, discharged, or
terminated only by an instrument in writing executed by Stuart and Proxyholder.
6. Waiver. The failure of Stuart or Proxyholder, or both, to comply, or
insist upon compliance, with any provision of this Proxy at any time shall not
be deemed (a) to affect the validity or enforceability of this Proxy, (b) to be
a waiver of any other provisions of this Proxy at that time, or (c) to be a
waiver of that provision or any other provisions of this Proxy at any other
time.
7. Governing Law. This Proxy shall be governed by and construed under
the laws of the State of Nevada, without reference to the conflict of laws
principles of such State.
8. Liability of Proxyholder. Proxyholder shall not be liable by reason
of any act or omission to act by Proxyholder in connection with any of the
rights specified in Section 1(a) of this Proxy, except for actual fraud, gross
negligence, or criminal conduct.
9. Proxy Binding upon Transferees. If, at any time or from time to
time, any shares of capital stock of LVHE now or hereafter held by the Stuart
are transferred to any party, the transferee shall take those shares pursuant to
all provisions, conditions, and covenants of this Proxy, and, as a condition
precedent to the transfer of those shares, the transferee shall become signatory
to this Proxy or to a new irrevocable proxy in the same form and agree (for and
on behalf of transferee, transferee's legal and personal representatives, and
subsequent transferees and assigns of such shares) in writing to be bound by all
provisions of this Proxy.
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<PAGE>
IN WITNESS WHEREOF, Stuart has executed this Irrevocable Proxy on the
date indicated below Stuart's signature.
WITNESS: JOHN W. STUART:
/s/ Kiran S. Sidhu /s/ John W. Stuart
- ------------------------- ------------------------------
Name: John W. Stuart
Date: February 25, 1997
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<PAGE>
Exhibit 10.9
SECURITY AND PLEDGE AGREEMENT
(Contribution of LVHE Shares)
THIS SECURITY AND PLEDGE AGREEMENT (the "Agreement") is made and
entered into this 25th day of February 1997, by and between John W. Stuart, an
individual (hereinafter referred to as "Debtor"), and On Stage Entertainment,
Inc., a Nevada corporation ("Secured Party').
RECITALS
WHEREAS, Debtor and the Secured Party have entered into a Contribution
Agreement dated the date of this Agreement (the "Contribution Agreement");
WHEREAS, in order to secure Debtor's payment and performance of its
obligations to Secured Party under Section 1.1 of the Contribution Agreement,
Debtor agrees to the terms and conditions hereof, including the pledge and
security interest as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, Debtor and Secured Party hereby agree as follows:
AGREEMENT
SECTION 1
PLEDGE AND SECURITY INTEREST
1.01 Pledge and Security Interest. In accordance with Article 9 of the
Nevada Uniform Commercial Code-Secured Transactions, Debtor hereby pledges,
assigns, transfers and grants to Secured Party a security interest in the
collateral described in Section 1.02, below, (the "Collateral") to secure the
payment and the performance of the obligations of Debtor under this Agreement.
1.02 Description of Collateral. The Collateral which is the subject of
the security interest granted herein is: (a) All Debtor's right, title and
interest in, to and under 200,000 of his shares of the common stock of On Stage
Entertainment, Inc. evidenced by stock certificate number ____ ("Pledged
Securities"); (b) all dividends and distributions in connection with the Pledged
Securities (whether consisting of cash, stock, or other property); and (c) all
substitutions for and proceeds of the foregoing.
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<PAGE>
1.03 Security for Secured Obligations. This Agreement secures the
Collateral for the prompt payment and performance of all obligations of Debtor
under Section 1.1 of the
Contribution Agreement.
1.04 Perfection of Security Interest. Debtor has delivered the Pledged
Securities to a representative of Secured Party ("Secured Party's
Representative") to be held by said representative at 4625 W. Nevso, Suite 9,
Las Vegas, Nevada 89103. Debtor agrees that Secured Party's Representative is a
person designated by Secured Party to acquire possession of the Collateral for
purposes of perfecting Secured Party's security interest therein. Debtor shall
promptly execute and deliver such other documents or take such other actions,
and provide such other information as may be reasonably requested by Secured
Party to perfect or continue the perfection of the security interest granted
pursuant to this Agreement.
SECTION 2
REPRESENTATIVES AND WARRANTIES
Debtor represents and warrants to Secured Party that Debtor has good
title to the Collateral and has not sold, assigned, or otherwise transferred any
interest in the Collateral to any person or entity other than Secured Party and
that the Collateral is free and clear of any and all liens, security interests
and other charges.
SECTION 3
COVENANTS
3.01 Prohibition Against Sale of Collateral. Debtor will not sell,
transfer or otherwise dispose of the Collateral or any rights therein until
after such time as the Collateral is released from the security interest as set
forth in Section 8 hereof.
3.02 Endorsement. Debtor will execute an appropriate endorsement in
blank relating to the Collateral in form and substance acceptable to Secured
Party.
SECTION 4
POWER OF ATTORNEY
4.01 Grant of Power-of-Attorney. Secured Party is hereby appointed
Debtor's attorney-in-fact, to take the following actions in the event of
Debtor's default hereunder in the sole discretion of Secured Party: (a) to do
any act which Debtor is obligated hereby to do; (b) to exercise such rights, as
Debtor might exercise; (c) to enforce all Debtor's rights under the Collateral;
(d) to collect the Collateral and proceeds thereof; (e) to execute and file in
Debtor's name any financing statements and amendments thereto required to
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<PAGE>
perfect Secured Party's security interest hereunder and such other documents as
may be necessary or appropriate to implement the provisions of this Agreement
for the benefit of Secured Party; and (f) to defend the Collateral against
claims of third parties.
4.02 Irrevocability. The power-of-attorney granted under this Section 4
is supported by adequate consideration and is irrevocable.
SECTION 5
CERTAIN RIGHTS OF SECURED PARTY
WITH RESPECT TO PLEDGED SECURITIES
5.01 Secured Party's Rights Under Contribution Agreement. Secured
Party's rights under this Agreement have been separately bargained for, and are
independent of the rights and obligations provided in the Contribution
Agreement. Secured Party's rights under the Contribution Agreement are in no way
impaired or limited by this Agreement.
5.02 Additional Rights of Secured Party. In addition to any other
rights provided under the Contribution Agreement, the Secured Party shall have
the following rights set forth in this Section with respect to the Collateral:
(a) Prior to the full payment and performance of all of Debtor's
obligations under this Agreement, Secured Party shall be entitled
to receive as additional Collateral any and all cash, additional
shares of stock or any other property of any kind payable to
Debtor or distributable on or by reason of the Pledged
Securities, whether in the form of or by way of dividends,
warrants, partial or complete liquidation, conversion,
prepayments or redemption's (in whole or in part), or otherwise.
If any of the foregoing property shall come into the possession
or control of Debtor, Debtor shall hold or control that property
in trust for the benefit of Secured Party and forthwith transfer
and deliver the same to Secured Party subject to the provisions
hereof.
(b) Debtor recognizes that Secured Party may be unable to effect a
sale to the public of all or part of the Pledged Securities by
reason of certain prohibitions or restrictions in federal or
state securities laws and regulation (herein collectively
referred to as "Securities Laws"), or the provisions of other
federal and state laws, regulations or rulings, but may be
compelled to resort to one or more sales to restricted group of
purchasers who will be required to agree to acquire the Pledged
Securities for their own account, for investment and not with a
view to the further distribution or resale thereof without
restriction. Debtor agrees that any sale(s) so made may be at
prices and on other terms less favorable to Debtor than if the
Pledged Securities were sole to the public, and that Debtor has
no obligation to delay the sale of the Pledged Securities for
-3-
<PAGE>
period(s) of time necessary to permit the issuer thereof to
register the Pledged Securities for sale to the public under any
of the Securities laws. Debtor agrees that negotiated sales
whether for cash or credit made under the foregoing circumstances
shall not be deemed for that reason not to have been made in a
commercially reasonable manner. Debtor shall cooperate with
Secured Party and shall satisfy any requirements under the
Securities laws applicable to the sale or transfer of the Pledged
Securities by Secured Party.
SECTION 6
DEFAULT
6.01 Events of Default. Debtor agrees that this Agreement shall be in
default if there is a breach of any covenant, representation or warranty
contained in this Agreement ("Event of Default").
6.02 Secured Party's Rights Upon Default. Upon the occurrence of an
Event of Default, Secured Party shall have the rights and remedies provided at
law, in equity and pursuant to this Agreement. Debtor agrees that any proceeds
of the Collateral that are received in connection with any liquidation of the
Collateral or otherwise may be applied by Secured Party to the satisfaction of
the Secured Obligations and that the surplus, if any, shall be returned to
Debtor.
SECTION 7
IRREVOCABLE PROXY
Debtor's execution of this Agreement constitutes Debtor's written
authorization that, upon the occurrence of any Event of Default, Secured Party
shall be entitled to exercise in Secured Party's discretion all voting rights,
if any, pertaining to the Pledged Securities pursuant to an exclusive proxy
authorized by this Section 7. This proxy is coupled with an interest and is
irrevocable.
SECTION 8
RELEASE OF SECURITY INTEREST
Upon the earlier of (i) satisfaction in full of the obligations secured
by this Agreement; (ii) the date it becomes permissible for Stuart to make the
capital contribution to the Company of the LVHE Shares under the Operating
Agreement without breaching any restriction or right of first refusal under the
Operating Agreement; and (iii) when the Secured Party has received cash in
excess of $3 million from Stuart as a result of the contribution of economic
benefit from the LVHE Shares under Section 1.2 of the Contribution Agreement and
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<PAGE>
from the Consulting Fee, then upon such event (a) the Collateral shall be
released from the security interest created hereby; and (b) Secured Party shall
execute such documentation as Debtor may reasonably request to document such
release. All capitalized terms used in this Section 8 that are not defined
elsewhere in this Agreement shall have the meanings of those terms as defined in
the Contribution Agreement.
SECTION 9
MISCELLANEOUS
9.01 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 Secured Party for purposes of this paragraph is as follows:
On Stage Entertainment, Inc.
4625 W. Nevso, Suite
Las Vegas, Nevada 89103
Attention: Christopher R. Grobl, Esq.
Address for Debtor shall be as follows:
John W. Stuart
8213 Rancho Destino
Las Vegas, Nevada 89123
9.02 Attorneys' Fees. In the event litigation is commenced to enforce
any of the provisions of this Agreement, to recover damages for breach of any of
the provisions of this Agreement, or to obtain declaratory relief in connection
with any of the provisions of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and costs, whether or not such
action proceeds to judgment.
9.03 Cumulative Remedies. The remedies of Secured Party as provided for
herein, or at law or in equity, shall be cumulative and concurrent, and may be
pursued singly, successfully, or together at the sole discretion of Secured
Party, and may be exercised as often as occasion therefore shall occur and the
failure to exercise any such right or remedy shall in no event be construed as a
waiver or release thereof.
-5-
<PAGE>
9.04 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 this Agreement illegal, inoperative, unenforceable or
invalid.
9.05 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.
9.06 Binding Effect. The contract shall be binding upon the heirs,
executors, administrators and assigns of the Debtor and any successors in
interest of Secured Party.
9.07 Modification. No change or modification of this Agreement shall be
valid unless the same be made in writing and signed by all parties hereto.
9.08 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.
9.09 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.
9.10 Counterparts/Facsimile Signatures. This Agreement may be executed
in any number of counterparts and each such counterpart as well as any facsimile
signatures thereon shall be deemed to be original for all purposes.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
DEBTOR: SECURED PARTY:
On Stage Entertainment, Inc.
/s/ John W. Stuart By: /s/ Kiran Sidhu
- ------------------------------ --------------------------
John W. Stuart, an individual Kiran Sidhu
-6-
<PAGE>
Exhibit 10.10
SECURITY AND PLEDGE AGREEMENT
(LVHE Litigation)
THIS SECURITY AND PLEDGE AGREEMENT (the "Agreement") is made and
entered into this 25th day of February 1997, by and between John W. Stuart, an
individual (hereinafter referred to as "Debtor"), and On Stage Entertainment,
Inc., a Nevada corporation ("Secured Party').
RECITALS
WHEREAS, Debtor and the Secured Party have entered into a Contribution
Agreement dated the date of this Agreement (the "Contribution Agreement");
WHEREAS, in order to secure Debtor's payment and performance of its
obligations to indemnify the Secured Party under Article V of the Contribution
Agreement, Debtor agrees to the terms and conditions hereof, including the
pledge and security interest as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, Debtor and Secured Party hereby agree as follows:
AGREEMENT
SECTION 1
PLEDGE AND SECURITY INTEREST
1.01 Pledge and Security Interest. In accordance with Article 9 of the
Nevada Uniform Commercial Code-Secured Transactions, Debtor hereby pledges,
assigns, transfers and grants to Secured Party a security interest in the
collateral described in Section 1.02, below, (the "Collateral") to secure the
payment and the performance of the obligations of Debtor under this Agreement.
1.02 Description of Collateral. The Collateral which is the subject of
the security interest granted herein is: (a) All Debtor's right, title and
interest in, to and under 200,000 of his shares of the common stock of On Stage
Entertainment, Inc. evidenced by stock certificate number ____ ("Pledged
Securities"); (b) all dividends and distributions in connection with the Pledged
Securities (whether consisting of cash, stock, or other property); and (c) all
substitutions for and proceeds of the foregoing.
-1-
<PAGE>
1.03 Security for Secured Obligations. This Agreement secures the
Collateral for the prompt payment and performance of all obligations of Debtor
under Article V of the Contribution Agreement.
1.04 Perfection of Security Interest. Debtor has delivered the Pledged
Securities to a representative of Secured Party ("Secured Party's
Representative") to be held by said representative at 4625 W. Nevso, Suite 9,
Las Vegas, Nevada 89103. Debtor agrees that Secured Party's Representative is a
person designated by Secured Party to acquire possession of the Collateral for
purposes of perfecting Secured Party's security interest therein. Debtor shall
promptly execute and deliver such other documents or take such other actions,
and provide such other information as may be reasonably requested by Secured
Party to perfect or continue the perfection of the security interest granted
pursuant to this Agreement.
SECTION 2
REPRESENTATIVES AND WARRANTIES
Debtor represents and warrants to Secured Party that Debtor has good
title to the Collateral and has not sold, assigned, or otherwise transferred any
interest in the Collateral to any person or entity other than Secured Party and
that the Collateral is free and clear of any and all liens, security interests
and other charges.
SECTION 3
COVENANTS
3.01 Prohibition Against Sale of Collateral. Debtor will not sell,
transfer or otherwise dispose of the Collateral or any rights therein until
after such time as the Collateral is released from the security interest as set
forth in Section 8 hereof.
3.02 Endorsement. Debtor will execute an appropriate endorsement in
blank relating to the Collateral in form and substance acceptable to Secured
Party.
SECTION 4
POWER OF ATTORNEY
4.01 Grant of Power-of-Attorney. Secured Party is hereby appointed
Debtor's attorney-in-fact, to take the following actions in the event of
Debtor's default hereunder in the sole discretion of Secured Party: (a) to do
any act which Debtor is obligated hereby to do; (b) to exercise such rights, as
Debtor might exercise; (c) to enforce all Debtor's rights under the Collateral;
(d) to collect the Collateral and proceeds thereof; (e) to execute and file in
Debtor's name any financing statements and amendments thereto required to
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<PAGE>
perfect Secured Party's security interest hereunder and such other documents as
may be necessary or appropriate to implement the provisions of this Agreement
for the benefit of Secured Party; and (f) to defend the Collateral against
claims of third parties.
4.02 Irrevocability. The power-of-attorney granted under this Section 4
is supported by adequate consideration and is irrevocable.
SECTION 5
CERTAIN RIGHTS OF SECURED PARTY
WITH RESPECT TO PLEDGED SECURITIES
5.01 Secured Party's Rights Under Contribution Agreement. Secured
Party's rights under this Agreement have been separately bargained for, and are
independent of the rights and obligations provided in the Contribution
Agreement. Secured Party's rights under the Contribution Agreement are in no way
impaired or limited by this Agreement.
5.02 Additional Rights of Secured Party. In addition to any other
rights provided under the Contribution Agreement, the Secured Party shall have
the following rights set forth in this Section with respect to the Collateral:
(a) Prior to the full payment and performance of all of Debtor's
obligations under this Agreement, Secured Party shall be entitled
to receive as additional Collateral any and all cash, additional
shares of stock or any other property of any kind payable to
Debtor or distributable on or by reason of the Pledged
Securities, whether in the form of or by way of dividends,
warrants, partial or complete liquidation, conversion,
prepayments or redemption's (in whole or in part), or otherwise.
If any of the foregoing property shall come into the possession
or control of Debtor, Debtor shall hold or control that property
in trust for the benefit of Secured Party and forthwith transfer
and deliver the same to Secured Party subject to the provisions
hereof.
(b) Debtor recognizes that Secured Party may be unable to effect a
sale to the public of all or part of the Pledged Securities by
reason of certain prohibitions or restrictions in federal or
state securities laws and regulation (herein collectively
referred to as "Securities Laws"), or the provisions of other
federal and state laws, regulations or rulings, but may be
compelled to resort to one or more sales to restricted group of
purchasers who will be required to agree to acquire the Pledged
Securities for their own account, for investment and not with a
view to the further distribution or resale thereof without
restriction. Debtor agrees that any sale(s) so made may be at
prices and on other terms less favorable to Debtor than if the
Pledged Securities were sole to the public, and that Debtor has
no obligation to delay the sale of the Pledged Securities for
-3-
<PAGE>
period(d) of time necessary to permit the issuer thereof to
register the Pledged Securities for sale to the public under any
of the Securities laws. Debtor agrees that negotiated sales
whether for cash or credit made under the foregoing circumstances
shall not be deemed for that reason not to have been made in a
commercially reasonable manner. Debtor shall cooperate with
Secured Party and shall satisfy any requirements under the
Securities laws applicable to the sale or transfer of the Pledged
Securities by Secured Party.
SECTION 6
DEFAULT
6.01 Events of Default. Debtor agrees that this Agreement shall be in
default if there is a breach of any covenant, representation or warranty
contained in this Agreement ("Event of Default").
6.02 Secured Party's Rights Upon Default. Upon the occurrence of an
Event of Default, Secured Party shall have the rights and remedies provided at
law, in equity and pursuant to this Agreement. Debtor agrees that any proceeds
of the Collateral that are received in connection with any liquidation of the
Collateral or otherwise may be applied by Secured Party to the satisfaction of
the Secured Obligations and that the surplus, if any, shall be returned to
Debtor.
SECTION 7
IRREVOCABLE PROXY
Debtor's execution of this Agreement constitutes Debtor's written
authorization that, upon the occurrence of any Event of Default, Secured Party
shall be entitled to exercise in Secured Party's discretion all voting rights,
if any, pertaining to the Pledged Securities pursuant to an exclusive proxy
authorized by this Section 7. This proxy is coupled with an interest and is
irrevocable.
SECTION 8
RELEASE OF SECURITY INTEREST
Upon final resolution satisfactory to the Company of (i) all the
Disputed Litigation (as defined in Section 5.1(b) of the Contribution
Agreement), whether by settlement, judgment, dismissal or other, and (ii) all
disputes with R.B.L.S. and R.B.L.S. Partnership about responsibility for any
obligations arising from the Disputed Litigation, then (a) the Collateral shall
be released from the security interest created hereby; and (b) Secured Party
shall execute such documentation as Debtor may reasonably request to document
such release.
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<PAGE>
SECTION 9
MISCELLANEOUS
9.01 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 Secured Party for purposes of this paragraph is as follows:
On Stage Entertainment, Inc.
4625 W. Nevso, Suite
Las Vegas, Nevada 89103
Attention: Christopher R. Grobl, Esq.
Address for Debtor shall be as follows:
John W. Stuart
8213 Rancho Destino
Las Vegas, Nevada 89123
9.02 Attorneys' Fees. In the event litigation is commenced to enforce
any of the provisions of this Agreement, to recover damages for breach of any of
the provisions of this Agreement, or to obtain declaratory relief in connection
with any of the provisions of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and costs, whether or not such
action proceeds to judgment.
9.03 Cumulative Remedies. The remedies of Secured Party as provided for
herein, or at law or in equity, shall be cumulative and concurrent, and may be
pursued singly, successfully, or together at the sole discretion of Secured
Party, and may be exercised as often as occasion therefore shall occur and the
failure to exercise any such right or remedy shall in no event be construed as a
waiver or release thereof.
9.04 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
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<PAGE>
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 this Agreement illegal, inoperative, unenforceable or
invalid.
9.05 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.
9.06 Binding Effect. The contract shall be binding upon the heirs,
executors, administrators and assigns of the Debtor and any successors in
interest of Secured Party.
9.07 Modification. No change or modification of this Agreement shall be
valid unless the same be made in writing and signed by all parties hereto.
9.08 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.
9.09 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.
9.10 Counterparts/Facsimile Signatures. This Agreement may be executed
in any number of counterparts and each such counterpart as well as any facsimile
signatures thereon shall be deemed to be original for all purposes.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
DEBTOR: SECURED PARTY:
On Stage Entertainment, Inc.
/s/ John W. Stuart By: /s/ Kiran Sidhu
- ----------------------------- -------------------------
John W. Stuart, an individual Kiran Sidhu
Chief Financial Officer
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<PAGE>
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT (this "Agreement"), dated as of this
27th day of February, 1997, is made by and between On Stage Entertainment, Inc.,
a Nevada corporation and all of its subsidiaries (collectively, the "Company")
and John W. Stuart, as an individual ("Stuart") and as a majority shareholder of
Grand Strand Entertainment, Inc., a South Carolina corporation ("Grand Strand").
RECITALS
--------
WHEREAS, in December of 1994, Grand Strand began negotiating with the
Company to obtain the non-exclusive license to present a "Legends in Concert"
production in Myrtle Beach, South Carolina; and
WHEREAS, on or about March 29, 1995, the Company entered into a
non-exclusive licensing agreement with Grand Strand to present a "Legends in
Concert" production in Myrtle Beach, South Carolina, which was contingent upon
certain conditions precedent (the "Licensing Agreement"); and
WHEREAS, subsequent to the issuance of the Licensing Agreement, Grand
Strand failed to fulfill the conditions precedent which the Licensing Agreement
was contingent upon; and
WHEREAS, on or about April 22, 1995 the Company revoked the Licensing
Agreement for Grand Strand's failure to meet the required conditions precedent;
and
WHEREAS, Ben R. Pittman, a shareholder of Grand Strand, has recently
threatened to file a shareholder derivative suit to enforce the rights of Grand
Strand alleging that the Company wrongfully revoked the Licensing Agreement and
thereby usurped the opportunity to operate the Legends in Concert production in
Myrtle Beach, South Carolina as its own; and
WHEREAS, in connection with a proposed bridge financing private
placement and subsequent public offering, Whale Securities Co., L.P. has
required that Stuart indemnify the Company for certain liabilities related to
the foregoing.
NOW, THEREFORE, in consideration of the foregoing recitals, the parties
hereto agree as follows:
AGREEMENT
---------
Stuart shall indemnify the Company in the event the Company is a party
to or threatened to be made a party to or otherwise involved in any proceeding
(including a proceeding by or in the name of the Company to procure a judgment
in its favor) by any reason relating to the grant and subsequent revocation of
<PAGE>
the Licensing Agreement or by reason of any act or inaction by Stuart and/or the
Company in relation to the Myrtle Beach production, against (i) any liability
for any judgments or settlement payment incurred by the Company, and (ii) if a
judgment is entered against the Company, Grand Strand or Stuart, then (a) any
and all expenses and liabilities of any type whatsoever in addition to judgments
and amounts paid in settlement), and (b) legal fees and court costs reasonably
incurred by the Company in connection with the investigation, defense,
settlement or appeal of such proceeding.
IN WITNESS WHEREOF, the undersigned have executed this Indemnification
Agreement as of the date first set forth above.
On Stage Entertainment, Inc.
/s/ John W. Stuart By: /s/ Kiran Sidhu
- ------------------------------ ----------------------------
John W. Stuart, an individual SVP&CFO
<PAGE>
Exhibit 10.12
SECURITY AND PLEDGE AGREEMENT
-----------------------------
(Grand Strand)
THIS SECURITY AND PLEDGE AGREEMENT (the "Agreement") is made and
entered into this 27th day of February, 1997, by and between John W. Stuart, an
individual (hereinafter referred to as "Debtor"), and On Stage Entertainment,
Inc., a Nevada corporation ("Secured Party').
RECITALS
--------
WHEREAS, Debtor and the Secured Party have entered into an
Indemnification Agreement dated February 27, 1997 (the "Indemnification
Agreement");
WHEREAS, in order to secure Debtor's payment and performance of its
obligations to indemnify the Secured Party under Indemnification Agreement,
Debtor agrees to the terms and conditions hereof, including the pledge and
security interest as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, Debtor and Secured Party hereby agree as follows:
AGREEMENT
SECTION 1
PLEDGE AND SECURITY INTEREST
1.01 Pledge and Security Interest. In accordance with Article 9 of the
Nevada Uniform Commercial Code-Secured Transactions, Debtor hereby pledges,
assigns, transfers and grants to Secured Party a security interest in the
collateral described in Section 1.02, below, (the "Collateral") to secure the
payment and the performance of the obligations of Debtor under this Agreement.
1.02 Description of Collateral. The Collateral which is the subject of
the security interest granted herein is: (a) All Debtor's right, title and
interest in, to and under 400,000 of his shares of the common stock of On Stage
Entertainment, Inc. evidenced by stock certificate number ____ ("Pledged
Securities"); (b) all dividends and distributions in connection with the Pledged
Securities (whether consisting of cash, stock, or other property); and (c) all
substitutions for and proceeds of the foregoing.
<PAGE>
1.03 Security for Secured Obligations. This Agreement secures the
Collateral for the prompt payment and performance of all obligations of Debtor
under the Indemnification Agreement.
1.04 Perfection of Security Interest. Debtor has delivered the Pledged
Securities to a representative of Secured Party ("Secured Party's
Representative") to be held by said representative at 4625 W. Nevso, Suite 9,
Las Vegas, Nevada 89103. Debtor agrees that Secured Party's Representative is a
person designated by Secured Party to acquire possession of the Collateral for
purposes of perfecting Secured Party's security interest therein. Debtor shall
promptly execute and deliver such other documents or take such other actions,
and provide such other information as may be reasonably requested by Secured
Party to perfect or continue the perfection of the security interest granted
pursuant to this Agreement.
SECTION 2
REPRESENTATIVES AND WARRANTIES
Debtor represents and warrants to Secured Party that Debtor has good
title to the Collateral and has not sold, assigned, or otherwise transferred any
interest in the Collateral to any person or entity other than Secured Party and
that the Collateral is free and clear of any and all liens, security interests
and other charges.
SECTION 3
COVENANTS
3.01 Prohibition Against Sale of Collateral. Debtor will not sell,
transfer or otherwise dispose of the Collateral or any rights therein until
after such time as the Collateral is released from the security interest as set
forth in Section 8 hereof.
3.02 Endorsement. Debtor will execute an appropriate endorsement in
blank relating to the Collateral in form and substance acceptable to Secured
Party.
SECTION 4
POWER OF ATTORNEY
4.01 Grant of Power-of-Attorney. Secured Party is hereby appointed
Debtor's attorney-in-fact, to take the following actions in the event of
Debtor's default hereunder in the sole discretion of Secured Party: (a) to do
any act which Debtor is obligated hereby to do; (b) to exercise such rights, as
Debtor might exercise; (c) to enforce all Debtor's rights under the Collateral;
(d) to collect the Collateral and proceeds thereof; (e) to execute and file in
Debtor's name any financing statements and amendments thereto required to
perfect Secured Party's security interest hereunder and such other documents as
-2-
<PAGE>
may be necessary or appropriate to implement the provisions of this Agreement
for the benefit of Secured Party; and (f) to defend the Collateral against
claims of third parties.
4.02 Irrevocability. The power-of-attorney granted under this Section 4
is supported by adequate consideration and is irrevocable.
SECTION 5
CERTAIN RIGHTS OF SECURED PARTY
WITH RESPECT TO PLEDGED SECURITIES
5.01 Secured Party's Rights Under Indemnification Agreement. Secured
Party's rights under this Agreement have been separately bargained for, and are
independent of the rights and obligations provided in the Indemnification
Agreement. Secured Party's rights under the Indemnification Agreement are in no
way impaired or limited by this Agreement.
5.02 Additional Rights of Secured Party. In addition to any other
rights provided under the Indemnification Agreement, the Secured Party shall
have the following rights set forth in this Section with respect to the
Collateral:
(a) Prior to the full payment and performance of all of Debtor's
obligations under this Agreement, Secured Party shall be entitled
to receive as additional Collateral any and all cash, additional
shares of stock or any other property of any kind payable to Debtor
or distributable on or by reason of the Pledged Securities, whether
in the form of or by way of dividends, warrants, partial or
complete liquidation, conversion, prepayments or redemption's (in
whole or in part), or otherwise. If any of the foregoing property
shall come into the possession or control of Debtor, Debtor shall
hold or control that property in trust for the benefit of Secured
Party and forthwith transfer and deliver the same to Secured Party
subject to the provisions hereof.
(b) Debtor recognizes that Secured Party may be unable to effect a sale
to the public of all or part of the Pledged Securities by reason of
certain prohibitions or restrictions in federal or state securities
laws and regulation (herein collectively referred to as "Securities
Laws"), or the provisions of other federal and state laws,
regulations or rulings, but may be compelled to resort to one or
more sales to restricted group of purchasers who will be required
to agree to acquire the Pledged Securities for their own account,
for investment and not with a view to the further distribution or
resale thereof without restriction. Debtor agrees that any sale(s)
so made may be at prices and on other terms less favorable to
-3-
<PAGE>
Debtor than if the Pledged Securities were sole to the public, and
that Debtor has no obligation to delay the sale of the Pledged
Securities for period(d) of time necessary to permit the issuer
thereof to register the Pledged Securities for sale to the public
under any of the Securities laws. Debtor agrees that negotiated
sales whether for cash or credit made under the foregoing
circumstances shall not be deemed for that reason not to have been
made in a commercially reasonable manner. Debtor shall cooperate
with Secured Party and shall satisfy any requirements under the
Securities laws applicable to the sale or transfer of the Pledged
Securities by Secured Party.
SECTION 6
DEFAULT
6.01 Events of Default. Debtor agrees that this Agreement shall be in
default if there is a breach of any covenant, representation or warranty
contained in this Agreement or the Indemnification Agreement ("Event of
Default").
6.02 Secured Party's Rights Upon Default. Upon the occurrence of an
Event of Default, Secured Party shall have the rights and remedies provided at
law, in equity and pursuant to this Agreement. Debtor agrees that any proceeds
of the Collateral that are received in connection with any liquidation of the
Collateral or otherwise may be applied by Secured Party to the satisfaction of
the Secured Obligations and that the surplus, if any, shall be returned to
Debtor.
SECTION 7
IRREVOCABLE PROXY
Debtor's execution of this Agreement constitutes Debtor's written
authorization that, upon the occurrence of any Event of Default, Secured Party
shall be entitled to exercise in Secured Party's discretion all voting rights,
if any, pertaining to the Pledged Securities pursuant to an exclusive proxy
authorized by this Section 7. This proxy is coupled with an interest and is
irrevocable.
SECTION 8
RELEASE OF SECURITY INTEREST
Upon final resolution satisfactory to the Company of all the Disputed
Claims (as defined in below), whether by settlement, release, judgment,
dismissal or other, or if, upon the seventh anniversary of this Agreement there
is no Disputed Claim, as determined by the Company, then (a) the Collateral
shall be released from the security interest created hereby; and (b) Secured
Party shall execute such documentation as Debtor may reasonably request to
document such release. "Disputed Claims" shall mean any pending or threatened
litigation that would be covered by the Indemnification Agreement.
-4-
<PAGE>
SECTION 9
MISCELLANEOUS
9.01 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 Secured Party for purposes of this paragraph is as follows:
On Stage Entertainment, Inc.
4625 W. Nevso, Suite
Las Vegas, Nevada 89103
Attention: Christopher R. Grobl, Esq.
Address for Debtor shall be as follows:
John W. Stuart
8213 Rancho Destino
Las Vegas, Nevada 89123
9.02 Attorneys' Fees. In the event litigation is commenced to enforce
any of the provisions of this Agreement, to recover damages for breach of any of
the provisions of this Agreement, or to obtain declaratory relief in connection
with any of the provisions of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and costs, whether or not such
action proceeds to judgment.
9.03 Cumulative Remedies. The remedies of Secured Party as provided for
herein, or at law or in equity, shall be cumulative and concurrent, and may be
pursued singly, successfully, or together at the sole discretion of Secured
Party, and may be exercised as often as occasion therefore shall occur and the
failure to exercise any such right or remedy shall in no event be construed as a
waiver or release thereof.
-5-
<PAGE>
9.04 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 this Agreement illegal, inoperative, unenforceable or
invalid.
9.05 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.
9.06 Binding Effect. The contract shall be binding upon the heirs,
executors, administrators and assigns of the Debtor and any successors in
interest of Secured Party.
9.07 Modification. No change or modification of this Agreement shall be
valid unless the same be made in writing and signed by all parties hereto.
9.08 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.
9.09 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.
9.10 Counterparts/Facsimile Signatures. This Agreement may be executed
in any number of counterparts and each such counterpart as well as any facsimile
signatures thereon shall be deemed to be original for all purposes.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
DEBTOR: SECURED PARTY:
On Stage Entertainment, Inc.
/s/ John W. Stuart /s/ Kiran Sidhu
- ------------------------------- ------------------------------
John W. Stuart, an individual By: Kiran Sidhu
Chief Financial Officer
<PAGE>
Exhibit 23.02
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 19, 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
Los Angeles, California
April 4, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 290,751
<SECURITIES> 0
<RECEIVABLES> 490,564
<ALLOWANCES> 0
<INVENTORY> 67,853
<CURRENT-ASSETS> 1,446,145
<PP&E> 3,725,941
<DEPRECIATION> 1,937,718
<TOTAL-ASSETS> 3,954,292
<CURRENT-LIABILITIES> 1,549,541
<BONDS> 0
0
0
<COMMON> 40,020
<OTHER-SE> (262,660)
<TOTAL-LIABILITY-AND-EQUITY> 3,954,292
<SALES> 13,814,134
<TOTAL-REVENUES> 13,814,134
<CGS> 8,446,367
<TOTAL-COSTS> 11,884,838
<OTHER-EXPENSES> 1,780,424
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 152,998
<INCOME-PRETAX> (4,126)
<INCOME-TAX> 15,789
<INCOME-CONTINUING> (19,915)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,915)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
