<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1998
REGISTRATION NO. 333-43287
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
- -----------------------------------------------------------------------------
SFX ENTERTAINMENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
DELAWARE 7922 13-3977880
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
Incorporation or Organization) Classification Code Number)
</TABLE>
650 MADISON AVENUE, 16TH FLOOR
NEW YORK, NEW YORK 10022
(212) 838-3100
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
ROBERT F.X. SILLERMAN, EXECUTIVE CHAIRMAN
SFX ENTERTAINMENT, INC.
650 MADISON AVENUE, 16TH FLOOR
NEW YORK, NEW YORK 10022
(212) 838-3100
(Name, Address, Including Zip Code, and Telephone Number, Including Area
Code, of Agent For Service)
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Copy to:
AMAR BUDARAPU
BAKER & MCKENZIE
805 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 751-5700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective and all
other conditions to the distribution under the Distribution Agreement
described in the Prospectus have been satisfied or waived, and from time to
time thereafter pursuant to the exercise of certain warrants of SFX
Broadcasting, Inc.
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, 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
- -----------------------------------------------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES 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.
SUBJECT TO COMPLETION, DATED FEBRUARY 11, 1998
PROSPECTUS ANNEX D
[SFX LOGO]
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
($.01 PAR VALUE PER SHARE)
SFX Broadcasting, Inc. ("SFX") currently operates in two principal lines
of business: radio broadcasting and live entertainment. In August 1997, SFX
entered into an agreement (as amended, the "SFX Merger Agreement") to merge
(the "SFX Merger") its radio business with a subsidiary of SBI Holdings
Corporation ("SFX Buyer"). If the SFX Merger is consummated, then, among
other things, holders of SFX's Class A common stock will have the right to
receive $75.00 per share, holders of SFX's Class B common stock will have the
right to receive $97.50 per share, and holders of SFX's Series D preferred
stock will have the right to receive $82.40 per share, subject to certain
adjustments. In the SFX Merger Agreement, SFX retained the right to spin off
its live entertainment business to its stockholders (the "Spin-Off"). At a
special meeting to be held on March 26, 1998, SFX's stockholders will vote
on, among other things, the SFX Merger and an amendment to SFX's certificate
of incorporation regarding the voting rights of stock to be received by two
members of management in the Spin-Off. If this amendment is approved (whether
or not the SFX Merger occurs) and if the other conditions to the Spin-Off are
satisfied or waived, SFX will consummate the Spin-Off by issuing shares of
SFX Entertainment, Inc. ("SFX Entertainment"), which holds SFX's live
entertainment operations, to SFX's stockholders as a dividend in a taxable
transaction. See "Certain Federal Income Tax Consequences." Based on the
number of SFX's shares and interests in its director deferred stock ownership
plan outstanding, and assuming the exercise of outstanding options and
warrants of SFX before the record date for the Spin-Off, SFX will distribute
approximately 14,200,000 shares of SFX Entertainment's Class A Common Stock
and 1,047,037 shares of its Class B Common Stock in the Spin-Off. This
Prospectus is SFX Entertainment's prospectus relating to those shares.
If the Pending Acquisitions (as defined herein), the Spin-Off and the SFX
Merger are consummated, then, among other things:
SFX ENTERTAINMENT WILL:
o continue to own and operate SFX's live entertainment venue operation,
promotion, production and marketing and consulting business (the
"Entertainment Business"), representing approximately 22% of SFX's revenues
for the nine months ended September 30, 1997 and 9% of SFX's assets as of
that time (before the Pending Acquisitions); and
o own and operate the businesses acquired in the Pending Acquisitions.
SFX WILL BE WHOLLY-OWNED BY SBI HOLDINGS CORPORATION AND WILL:
o continue to own and operate SFX's radio broadcasting business,
representing approximately 78% of SFX's revenues for the nine months ended
September 30, 1997 and 91% of SFX's assets as of that time (before the
Pending Acquisitions); and
o at the time of the SFX Merger, make a payment to SFX Entertainment, or
receive a payment from SFX Entertainment, for Working Capital (as defined in
"Agreements Between SFX Entertainment and SFX--Distribution Agreement").
Before the Spin-Off, SFX Entertainment and SFX will enter into a
Distribution Agreement, which will govern the terms and conditions of the
Spin-Off (the "Distribution Agreement"). A form of the Distribution Agreement
is Annex F to the attached Proxy Statement. See "Agreements Between SFX
Entertainment and SFX--Distribution Agreement" and Annex F to the Proxy
Statement.
In the Spin-Off, for each share of SFX's Class A common stock held on the
record date for the Spin-Off to be set by SFX's board of directors (the
"Spin-Off Record Date"), the holder will receive one share of SFX
Entertainment's Class A common stock, par value $.01 per share, which has 1
vote in most matters (the "SFX Entertainment Class A Common Stock"). For each
share of SFX's Class B common stock owned on the Spin-Off Record Date, the
holder will receive one share of SFX Entertainment's Class B common stock,
par value $.01 per share, which has 10 votes in most matters (the "SFX
Entertainment Class B Common Stock" and, with the SFX Entertainment Class A
Common Stock, the "SFX Entertainment Common Stock"). Holders of SFX's Series
D preferred stock will receive the number of shares of SFX Entertainment
Class A Common Stock obtained by multiplying the number of shares held by
1.0987 (rounded down to the next whole share). For each share of SFX's Class
A common stock credited under SFX's director deferred stock ownership plan,
the holder of that interest will receive one share of SFX Entertainment Class
A Common Stock. In addition, persons who exercise certain warrants of SFX
after the Spin-Off Record Date will be entitled to receive, among other
things, up to 636,289 shares of SFX Entertainment Class A Common Stock.
Holders will not receive cash in lieu of fractional shares. After the
Spin-Off and certain other transactions described in this Prospectus, Robert
F.X. Sillerman, the Executive Chairman of SFX Entertainment, will
beneficially own approximately 45.7%, and all directors and executive
officers together will beneficially own approximately 52.3%, of the combined
vote of the SFX Entertainment Common Stock. Accordingly, these individuals
will generally be able to control the election of a majority of SFX
Entertainment's board of directors, as well as stockholder votes on most
other matters. See "Risk Factors--Control by Management," "Management,"
"Principal Stockholders of SFX Entertainment" and "Certain Relationships and
Related Transactions."
SFX Entertainment presently owns, leases or operates 20 venues in five
states, and engages in concert and live entertainment promotion, production
and marketing activities. SFX Entertainment has agreed to acquire the
following five additional live entertainment businesses (the "Pending
Acquisitions"): PACE Entertainment Corporation ("PACE"); Contemporary Group
("Contemporary"); BG Presents, Inc. ("BGP"); Album Network, Inc., SJS
Entertainment Corporation and The Network 40, Inc. (collectively, "Network");
and Concert/Southern Promotions ("Concert/Southern"). The aggregate
consideration to be paid in the Pending Acquisitions is expected to be
approximately $352.8 million in cash, the assumption and repayment of $75.3
million of debt and the issuance of 4,216,680 shares of SFX Entertainment
Class A Common Stock. SFX Entertainment intends to finance the cash portion
of the Pending Acquisitions through a combination of a recently completed
private placement of $350.0 million of 9 1/8% Senior Subordinated Notes due
2008 (the "Notes") and borrowings under an anticipated $300.0 million senior
credit facility (the "Proposed Credit Facility" and, together with the Notes,
the "Financing"). See "Business," "Agreements Related to the Pending
Acquisitions," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Description of Indebtedness." Although SFX
Entertainment anticipates consummating the Pending Acquisitions during the
first quarter of 1998, there can be no assurance that any or all of the
Pending Acquisitions will be consummated during that time period, or at all.
The Spin-Off is not conditioned on the prior consummation of the Financing,
any of the Pending Acquisitions or the SFX Merger.
SFX stockholders will not pay any consideration for receiving SFX
Entertainment Common Stock in the Spin-Off. The SFX Entertainment Class A
Common Stock does not currently trade publicly. SFX Entertainment has applied
to list it on the Nasdaq Stock Market's National Market (the "Nasdaq National
Market") but may seek listing on an exchange.
PLEASE READ THIS PROSPECTUS AND THE ATTACHED PROXY STATEMENT CAREFULLY,
SINCE EACH CONTAINS IMPORTANT INFORMATION. ALSO, PAY PARTICULAR ATTENTION TO
THE "RISK FACTORS" BEGINNING ON PAGE D-14.
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.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
PROSPECTUS TABLE OF CONTENTS
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PAGE
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<S> <C>
SUMMARY .................................... D-4
SFX Entertainment.......................... D-4
Overview of the Spin-Off and the SFX
Merger.................................... D-7
The Spin-Off............................... D-8
Summary Consolidated Financial Data of SFX
Entertainment ............................ D-12
RISK FACTORS................................ D-14
Absence of Combined Operating History;
Potential Inability to Integrate
Acquisition Businesses.................... D-14
Risks Related to Pending Acquisitions .... D-14
Control of Motor Sports and Theatrical
Businesses ............................... D-17
BGP Right of First Refusal................. D-17
Control of Delsener/Slater................. D-18
Future Acquisitions........................ D-18
Expansion Strategy; Need for Additional
Funds .................................... D-18
Substantial Leverage....................... D-18
Economic Conditions and Consumer Tastes ... D-19
Availability of Artists and Events ........ D-20
Control of Venues ......................... D-20
Restrictions Imposed by SFX
Entertainment's Indebtedness ............. D-20
No Prior Market for SFX Entertainment
Stock .................................... D-21
Working Capital Adjustments and Repayment
of Advances............................... D-21
Control by Management; Stock Issued to
Management................................ D-21
Dependence on Key Personnel ............... D-22
Potential Conflicts of Interest ........... D-22
Indemnification Arrangements .............. D-23
Seasonality ............................... D-24
Competition ............................... D-24
Regulatory Matters ........................ D-24
Environmental Matters...................... D-24
Fraudulent Conveyance...................... D-25
Anti-Takeover Effects ..................... D-25
OVERVIEW OF THE LIVE ENTERTAINMENT INDUSTRY D-27
Concert Promotion Industry ................ D-27
Theatrical Industry ....................... D-27
Motor Sports Industry ..................... D-28
BUSINESS ................................... D-29
General ................................... D-29
Current and Historical Operations ........ D-29
SFX Entertainment's Live Entertainment
Activities................................ D-30
Operating Strategy......................... D-37
Pending Acquisitions....................... D-39
Properties................................. D-43
Employees.................................. D-44
Litigation................................. D-44
Potential Conflicts of Interest ........... D-44
Seasonality................................ D-45
Competition ............................... D-45
Regulatory Matters ........................ D-45
Forward-Looking Statements................. D-45
THE SPIN-OFF................................ D-47
Background and Reasons for the Spin-Off ... D-47
Manner of Effecting the Spin-Off........... D-48
Regulatory Matters......................... D-49
AGREEMENTS BETWEEN SFX ENTERTAINMENT AND
SFX ....................................... D-50
Distribution Agreement..................... D-50
Tax Sharing Agreement ..................... D-55
Employee Benefits Agreement ............... D-55
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ... D-56
AGREEMENTS RELATED TO THE PENDING
ACQUISITIONS .............................. D-58
PACE Acquisition........................... D-58
Contemporary Acquisition................... D-65
BGP Acquisition ........................... D-69
Network Acquisition........................ D-71
Concert/Southern Acquisition............... D-73
D-2
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PAGE
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LISTING AND TRADING OF SFX ENTERTAINMENT
CLASS A COMMON STOCK....................... D-76
DIVIDEND POLICY............................. D-76
CAPITALIZATION.............................. D-77
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS....................... D-79
SELECTED CONSOLIDATED FINANCIAL DATA OF
SFX ENTERTAINMENT.......................... D-100
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................. D-102
Recent Acquisitions........................ D-101
Pending Acquisitions....................... D-101
Spin-Off and SFX Merger ................... D-103
Results of Operations...................... D-104
Historical Results......................... D-105
Liquidity and Capital Resources............ D-108
MANAGEMENT.................................. D-114
Directors and Executive Officers........... D-114
Executive Compensation .................... D-118
Employment Agreements and Arrangements
with Certain Officers and Directors ...... D-118
PRINCIPAL STOCKHOLDERS OF SFX ENTERTAINMENT D-120
Possible Change in Control................. D-122
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS .............................. D-123
Agreements with SFX........................ D-123
SFX Entertainment Common Stock to Be
Received in the Spin-Off ................. D-123
Issuance of Stock to Holders of SFX's
Options and SARs ......................... D-123
Employment Agreements...................... D-123
Delsener/Slater Employment Agreements .... D-124
Assumption of Employment Agreements;
Certain Change of Control Payments ....... D-125
Indemnification of Mr. Sillerman .......... D-125
Potential Conflicts of Interest ........... D-125
Relationship Between Howard J. Tytel and
Baker & McKenzie ......................... D-126
Arrangement Between Robert F.X. Sillerman
and Howard J. Tytel ...................... D-126
Triathlon Fees ............................ D-126
Relationships and Transactions with SFX ... D-126
SHARES ELIGIBLE FOR FUTURE SALE ............ D-127
DESCRIPTION OF CAPITAL STOCK .............. D-128
Common Stock............................... D-128
Preferred Stock............................ D-130
Warrants and Other Securities of SFX ..... D-130
DESCRIPTION OF INDEBTEDNESS................. D-132
Proposed Notes ............................ D-132
Proposed Senior Credit Facility ........... D-133
Other Debt ................................ D-136
ADDITIONAL INFORMATION...................... D-137
LEGAL MATTERS............................... D-137
EXPERTS..................................... D-137
INDEX OF DEFINED TERMS ..................... D-139
INDEX TO FINANCIAL STATEMENTS............... D-F-1
</TABLE>
D-3
<PAGE>
SUMMARY
The following is a summary of the information contained elsewhere in this
Prospectus. This summary does not purport to be complete and is qualified in
its entirety by, and is subject to, the more detailed information and
financial statements, including the notes thereto, set forth in this
Prospectus. Unless otherwise indicated, all information in this Prospectus
assumes consummation of (a) the Spin-Off (including recapitalizing SFX
Entertainment to increase its authorized capital stock and to increase the
number of shares of SFX Entertainment Common Stock outstanding) and the SFX
Merger described in "The Spin-Off" and in the accompanying Proxy Statement
and (b) the entering into and borrowing under the Proposed Credit Facility as
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." However, there can
be no assurance that any or all of these transactions will be consummated on
the terms described herein or at all. This Prospectus is Annex D to the Proxy
Statement. PLEASE READ THIS PROSPECTUS AND THE PROXY STATEMENT CAREFULLY IN
THEIR ENTIRETIES.
SFX ENTERTAINMENT
SFX Entertainment, Inc. is a leading promoter of, and operator of venues
for, live entertainment events, including music concerts. Upon acquisition of
the businesses to be acquired in the Pending Acquisitions (the "Acquisition
Businesses"), management believes that SFX Entertainment will be the largest
diversified promoter and producer of live entertainment, including music
concerts, theatrical shows and specialized motor sports events. After
consummation of the Pending Acquisitions, SFX Entertainment (which currently
owns or operates 20 venues) believes that it will own and/or operate the
largest network of venues used principally for music concerts and other live
entertainment events in the United States, with 40 venues either directly
owned or operated under lease or exclusive booking arrangements in 21 of the
top 50 markets, including 9 amphitheaters in 6 of the top 10 markets. Through
its large number of venues, its strong market presence and the long operating
histories of SFX Entertainment and the businesses to be acquired pursuant to
the Pending Acquisitions, SFX Entertainment will operate an integrated
franchise that will promote and produce a broad variety of live entertainment
events locally, regionally and nationally. During 1997, approximately 1.4
million people attended approximately 210 events promoted and/or produced by
SFX Entertainment, including approximately 200 music concerts. During the
same year, approximately 25 million people attended 9,100 events promoted
and/or produced by SFX Entertainment and the Acquisition Businesses,
including approximately 3,880 music concerts, 4,850 theatrical shows and 188
specialized motor sports events. These events included: (a) music concerts
featuring artists such as The Rolling Stones, Phish, Fleetwood Mac, Ozzy
Osbourne and Alanis Morissette, (b) music festivals such as Lollapalooza and
the George Strait Country Music Festival, (c) touring theatrical productions
such as The Phantom of the Opera, Jekyll & Hyde, Rent and The Magic of David
Copperfield, and (d) specialized motor sports events, such as Truck Fest and
American Motorcycle Association Supercross racing events.
SFX Entertainment's core business is the promotion and production of live
entertainment events, most significantly for concert and other music
performances in venues owned and/or operated by SFX Entertainment and in
third-party venues. As promoter, SFX Entertainment typically markets events
and tours, sells tickets, rents or otherwise provides event venues and
arranges for local production services (such as stage, set, sound and
lighting). As producer, SFX Entertainment, upon consummation of the Pending
Acquisitions, will (a) create tours for music concert, theatrical,
specialized motor sports and other events, (b) develop and manage
Broadway-style touring theatrical shows ("Touring Broadway Shows") and (c)
develop specialized motor sports and other live entertainment events. In
connection with its live entertainment events, SFX Entertainment also derives
related revenue streams, including from the sale of corporate sponsorships
and advertising, the sale of concessions and the merchandising of a broad
range of products. On a pro forma basis giving effect to the Pending
Acquisitions, SFX Entertainment's music and ancillary businesses would have
comprised approximately 77%, theater would have comprised approximately 17%
and specialized motor sports would have comprised approximately 6% of SFX
Entertainment's total net revenues for the 12 months ended September 30,
1997.
SFX Entertainment currently owns and/or operates under lease or exclusive
booking arrangement a total of 20 venues, including two amphitheaters and two
theaters in the New York--Northern New
D-4
<PAGE>
Jersey--Long Island market; an amphitheater and a theater/ballroom in the
Indianapolis market; an amphitheater in the Columbus market; an amphitheater
in the Hartford market; and an amphitheater in the Rochester market. SFX
Entertainment believes that, upon consumation of the Pending Acquisitions, it
will own and/or operate the largest number of venues in the United States
used principally for music concerts and other live entertainment events. The
following table summarizes the amphitheaters, theaters and other venues to be
owned and/or operated under lease or exclusive booking arrangement by SFX
Entertainment on a pro forma basis after giving effect to the Pending
Acquisitions. There can be no assurance that any or all of the Pending
Acquisitions will be consummated on the terms described in this Prospectus or
at all. See "Risk Factors--Risks Related to the Pending Acquisitions" and
"Business--Pending Acquisitions."
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NUMBER OF TOTAL
MARKET NUMBER OF THEATERS AND TOTAL SEATING
MARKET RANK(1)AMPHITHEATERS(2) CLUBS(2) VENUES(2) CAPACITY
- ------------------------------ -------- -------------- ------------------- --------- ---------------
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New York--Northern New
Jersey--
Long Island................... 1 2 2 4 37,570
Los Angeles--Riverside--
Orange County................. 2 2 -- 2 40,500(3)
San Francisco--Oakland--San
Jose.......................... 5 2 4 6 49,499(4)
Philadelphia-Wilmington--
Atlantic City................. 6 1 -- 1 25,000
Dallas--Fort Worth............. 9 1 -- 1 20,100
Houston--Galveston--Brazoria .. 10 1 1 2 15,800
Atlanta........................ 12 2 2 4 28,250
St. Louis...................... 17 1 2 3 24,100
Phoenix--Mesa.................. 18 1 -- 1 20,000
Pittsburgh..................... 19 1 -- 1 22,500
Kansas City.................... 24 1 2 3 30,000
Sacramento--Yolo............... 26 1 1 2 14,500(4)
Indianapolis................... 28 1 1 2 23,700
Columbus....................... 30 1 -- 1 20,000
Charlotte--Gastonia--Rock
Hill.......................... 32 1 -- 1 18,000
Hartford....................... 36 1 -- 1 25,000
Rochester...................... 39 1 -- 1 12,700
Nashville...................... 41 1 -- 1 20,100
Oklahoma City.................. 43 1 -- 1 9,000
Raleigh--Durham--Chapel Hill .. 47 1 -- 1 20,000
West Palm Beach--Boca Raton ... 50 1 -- 1 20,000
Reno........................... 119 1 -- 1 8,500
-------------- ------------------- --------- ---------------
Total......................... 26 15 41 504,819(3),(4)
</TABLE>
- ------------
(1) Based on the July 1994 population of metropolitan statistical areas as
set forth in the 1996 Statistical Abstracts of the United States.
(2) Does not include venues in the 31 markets where PACE sells
subscriptions for Touring Broadway Shows. See "Business--SFX
Entertainment's Live Entertainment Activities--Production."
(3) Additional seating of approximately 40,000 is available for certain
events.
(4) Club seating, which cannot be accurately determined because clubs
typically have either open or reserved seating for any given event, is
not reflected.
D-5
<PAGE>
SFX Entertainment was formed as a subsidiary of SFX in 1997. SFX acquired
Delsener/Slater Enterprises, Ltd. ("Delsener/Slater"), a New York-based
concert promotion company, in January 1997. Delsener/Slater has long-term
leases or is the exclusive promoter for several of the major concert venues
in the New York City metropolitan area, including the Jones Beach
Amphitheater, a 14,000-seat complex located in Wantagh, New York, and the PNC
Bank Arts Center (formerly known as the Garden State Arts Center), a
17,500-seat complex located in Holmdel, New Jersey. In March 1997,
Delsener/Slater acquired a 37-year lease to operate the Meadows Music
Theater, a 25,000-seat indoor/outdoor complex located in Hartford,
Connecticut. In June 1997, SFX acquired Sunshine Promotions, Inc., a concert
promoter in the Midwest, and certain other related companies ("Sunshine
Promotions" and, together with the acquisitions of Delsener/Slater and the
Meadows Music Theater lease, the "Recent Acquisitions"). As a result of the
acquisition of Sunshine Promotions, SFX Entertainment owns the Deer Creek
Music Theater, a 21,000-seat complex located in Indianapolis, Indiana, and
the Polaris Amphitheater, a 20,000-seat complex located in Columbus, Ohio,
and has a long-term lease to operate the Murat Centre, a 2,700-seat theater
and 2,200-seat ballroom located in Indianapolis, Indiana.
In December 1997, SFX Entertainment agreed to consummate the Pending
Acquisitions, consisting of the acquisition of the operations of PACE and
Pavilion Partners (the "PACE Acquisition"), Contemporary (the "Contemporary
Acquisition"), BG Presents, Inc. (the "BGP Acquisition"), Network (the
"Network Acquisition") and Concert/Southern (the "Concert/Southern
Acquisition"). The aggregate purchase price of the Pending Acquisitions is
expected to be approximately $484.3 million, consisting of approximately
$352.8 million in cash, $75.3 million in repaid debt and the issuance of
approximately 4.2 million shares of SFX Entertainment Common Stock
(approximately 21% of the outstanding shares of SFX Entertainment Common
Stock, after the Spin-Off and other issuances described in this Prospectus)
with an attributed negotiated value of $56.2 million. There can be no
assurance that the value attributed by the parties to SFX Entertainment's
capital stock will approximate the actual trading price of the stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
SFX Entertainment intends to finance the Pending Acquisitions through the
Financing, consisting of the Notes and borrowings under the Proposed Credit
Facility. SFX Entertainment has received commitments from a group of lenders
for the Proposed Credit Facility, and expects to enter into the definitive
agreement with respect to the facility before consummating the Pending
Acquisitions (other than the PACE Acquisition). Under the expected terms of
the Proposed Credit Facility, the maximum amount of funding available on a
pro forma basis for the twelve months ended September 30, 1997 would have
been approximately $175.0 million. This amount, plus the net proceeds from
the proposed sale of debt securities, would be sufficient to (i) consummate
the Pending Acquisitions (approximately $484.3 million), (ii) pay certain
fees and expenses related to the Spin-Off, the Pending Acquisitions, the
Financing and certain consents related thereto (approximately $40.5 million),
(iii) fund certain planned capital expenditures (approximately $39.0
million), (iv) make various other payments in connection with the Pending
Acquisitions, certain change-of-control provisions contained in the
employment agreeements being assumed by SFX Entertainment and the exercise of
an option to acquire an office building and related property from Network
(approximately $12.7 million). However, pursuant to the expected terms of the
Proposed Credit Facility, pro forma for the twelve months ended September 30,
1997, the maximum amount of borrowing availability under the facility would
have been insufficient to fund the approximately $8.3 million payable in
connection with the Meadows Repurchase (as defined) or to make certain
contingent payments which may arise, as more fully described below. While SFX
Entertainment believes that expected improvements in its cash flows will
permit it to borrow sufficient funds under the Proposed Credit Facility to
fund the Meadows Repurchase, there can be no assurance that SFX Entertainment
will be able to achieve such increased cash flow levels, or that other
available sources of financing will be available under terms acceptable to
SFX Entertainment or permitted under the terms of SFX Entertainment's
applicable debt instruments or that additional contingent amounts will not
become payable. See "Risk Factors--Risk Related to the Pending
Acquisitions--Financing Matters" and "Working Capital Adjustments and
Repayment of Advances" and "Description of Indebtedness." In addition, the
information relating to fees and expenses is based on management's estimates,
and may not be indicative of, and are likely to vary from, the actual fees
and expenses incurred by SFX Entertainment relating to the Financing, the
Pending Acquisitions, the Spin-Off and the SFX Merger.
D-6
<PAGE>
Certain agreements of SFX Entertainment, including the Distribution
Agreement, the Tax Sharing Agreement, certain employment agreements and the
agreements relating to the Pending Acquisitions provide for tax and other
indemnities, purchase price adjustments and future contingent payments in
certain circumstances, including an increase in the cash purchase price for
the Pending Acquisitions if SFX Entertainment is unable to issue shares of
its capital stock to certain of the sellers and, in the case of the PACE
Acquisition, a potential requirement to advance to PACE up to $25.0 million
pursuant to an acquisition facility, and certain other cash payments, in each
case which could be material. These obligations of SFX Entertainment,
contingent or otherwise, will reduce Working Capital should they become
payable, and there can be no assurance that SFX Entertainment will have
sufficient sources of liquidity at the time of any such payments to satisfy
such obligations. See "Risk Factors--Pending Acquisitions," "Management's
Discussion and Analysis of Financing Condition and Results of
Operations--Pending Acquisitions," "--Liquidity and Capital
Resources--Pending Acquisitions," "Agreements Related to the Pending
Acquisitions," "Certain Relationships and Related
Transactions--Indemnification of Mr. Sillerman" and "Agreements Between SFX
Entertainment and SFX--Distribution Agreement" and "--Tax Sharing Agreement."
SFX Entertainment may also be responsible for certain other payments in
connection with, and to be made contemporaneously with or prior to, the
consummation of the SFX Merger and/or the Spin-Off, including approximately
$8.3 million payable in connection with the Meadows Repurchase and the amount
of any shortfall in Working Capital. See "Risk Factors--Working Capital
Adjustments and Repayment of Advances" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
On a pro forma basis, as of September 30, 1997 and for the nine months
then ended, the Pending Acquisitions represented 83% of SFX Entertainment's
revenues, 82% of assets and 29% of stockholders' equity. SFX Entertainment
anticipates consummating the Pending Acquisitions in the first quarter of
1998. However, the timing and completion of the Pending Acquisitions are
subject to a number of conditions, certain of which are beyond SFX
Entertainment's control (including availability of sufficient financing) and
there can be no assurance that any Pending Acquisitions will be consummated
during that period, on the terms described herein, or at all. See "Risk
Factors--Risks Related to Pending Acquisitions" and "Agreements Related to
the Pending Acquisitions."
The address and telephone number of SFX Entertainment's principal
executive offices are: 650 Madison Avenue, 16th Floor, New York, New York
10022; (212) 838-3100.
OVERVIEW OF THE SPIN-OFF AND THE SFX MERGER
In August 1997, SFX entered into the SFX Merger Agreement among SFX Buyer,
a wholly-owned subsidiary of SFX Buyer ("SFX Buyer Sub") and SFX. On the
terms and subject to the conditions set forth in the SFX Merger Agreement,
SFX will be merged with SFX Buyer Sub, with SFX surviving the SFX Merger and
becoming a wholly-owned subsidiary of SFX Buyer. As a waivable condition to
and in order to facilitate the SFX Merger, SFX has agreed to effect the
Spin-Off (or an alternative transaction to dispose of SFX Entertainment)
prior to consummation of the Merger. The Spin-Off will separate the
Entertainment Business from SFX's radio broadcasting business and will enable
SFX Buyer to acquire only SFX's radio broadcasting business in the SFX
Merger. It will also allow SFX's stockholders to continue their equity
participation in the Entertainment Business.
On February 10, 1998, SFX obtained consents under the indenture governing
certain of its notes and the Certificate of Designations of its Series E
preferred stock that were required to consummate the Spin-Off and to permit
SFX Entertainment to consummate the Financing. On January 7, 1998, SFX sent
to holders of certain of its securities (including its common stock) an
information statement (and on January 28, 1998, SFX sent those holders a
supplement to the information statement), which contained information
relevant to those holders with respect to the granting of consents.
At or prior to the Spin-Off, pursuant to the Distribution Agreement, SFX
will contribute to SFX Entertainment all of its assets relating to the
Entertainment Business. Immediately after the Spin-Off, SFX will pay to SFX
Entertainment an allocation of working capital in an amount estimated by
SFX's
D-7
<PAGE>
management to be consistent with the proper operation of SFX Entertainment,
and SFX Entertainment will assume all of SFX's liabilities related to the
Entertainment Business, as well as certain other liabilities. At the time of
the SFX Merger, SFX will contribute its positive Working Capital to SFX
Entertainment. If Working Capital is negative, SFX Entertainment must pay the
amount of the shortfall to SFX. As of September 30, 1997, SFX Entertainment
estimates that Working Capital to be received by SFX Entertainment would have
been approximately $2.1 million (excluding the Series E Adjustment), and that
approximately $135.5 million of additional assets and $34.1 million of
liabilities would have been contributed to SFX Entertainment. The actual
amount of Working Capital as of the closing of the SFX Merger may differ
substantially from the amount as of September 30, 1997, and will be a
function of, among other things, the operating results of SFX through the
date of the SFX Merger, the actual cost of consummating the SFX Merger and
the related transactions and other obligations of SFX, including the payment
of dividends and interest on SFX's debt. SFX is also likely to incur
significant expenses that will reduce Working Capital, including
approximately $8.3 million payable in connection with the Meadows Repurchase.
Working Capital will also be reduced by at least $2.1 million pursuant to the
Series E Adjustment. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." In
addition, at the time of the Spin-Off, SFX Entertainment must repay sums
advanced to SFX Entertainment by SFX for certain acquisitions or capital
expenditures subsequent to the date of the SFX Merger Agreement and which
have not been repaid. As of January 31, 1998, SFX had advanced approximately
$8.0 million to SFX Entertainment for use in connection with certain
acquisitions and capital expenditures. SFX Entertainment intends to repay
these amounts from the proceeds of the private placement of Notes or
borrowings under the Proposed Credit Facility. SFX may advance additional
amounts to SFX Entertainment for these purposes before the consummation of
the Spin-Off. See "The Spin-Off," "Agreements Between SFX Entertainment and
SFX" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
In the Spin-Off, shares of SFX Entertainment Common Stock will be
distributed pro rata to holders on the Spin-Off Record Date of SFX's Class A
common stock, Class B common stock, Series D preferred stock and interests in
SFX's director deferred stock ownership plan, and the remaining shares will
be placed in escrow to be issued upon the exercise of certain warrants of
SFX. Pursuant to the SFX Merger Agreement, when the SFX Merger is
consummated, each outstanding share (except for shares of holders who
exercise dissenters' appraisal rights) of SFX's (a) Class A common stock will
convert into the right to receive $75.00 (subject to increase under certain
circumstances), (b) Class B common stock will convert into the right to
receive $97.50 (subject to increase under certain circumstances), (c) Series
D preferred stock will convert into the right to receive $82.40 (subject to
increase or decrease under certain circumstances) and (d) Series C preferred
stock will convert into the right to receive $1,000.00 plus any accrued but
unpaid dividends, as described under "The Merger Agreement--The Merger" in
the attached Proxy Statement.
THE SPIN-OFF
The following is a brief summary of certain terms of the Spin-Off. The
Spin-Off and the Distribution Agreement are more fully described under "The
Spin-Off" and "Agreements Between SFX Entertainment and SFX," and a form of
the Distribution Agreement is attached as Annex F to the attached Proxy
Statement.
DISTRIBUTING COMPANY .......... SFX. References to SFX include its
subsidiaries, except where the context
otherwise requires.
DISTRIBUTED COMPANY ........... SFX Entertainment, which will hold the
assets and be responsible for the
liabilities of SFX relating to the
Entertainment Business, as well as certain
other liabilities. In connection with the
SFX Merger, SFX Entertainment will be
required to make or entitled to receive
certain payments of Working Capital of SFX.
References to SFX Entertainment include its
subsidiaries
D-8
<PAGE>
and assume completion of the transfer of
assets and liabilities, except where the
context otherwise requires. See "Business"
and "The Spin-Off."
SHARES TO BE ISSUED IN THE
PENDING ACQUISITIONS ......... 4,216,680 shares of SFX Entertainment Class
A Common Stock.(1)
SHARES TO BE DISTRIBUTED IN THE
SPIN-OFF ..................... Approximately 14,200,000 shares of SFX
Entertainment Class A Common Stock and
1,047,037 shares of SFX Entertainment Class
B Common Stock.(2)
CONDITIONS TO THE SPIN-OFF .... Stockholder approval of Proposal 3 in the
accompanying Proxy Statement; acceptance for
listing or trading of SFX Entertainment
Class A Common Stock; receipt of all
necessary third-party and stockholder
consents; and others. The Spin-Off is not
conditioned on the entry into the Proposed
Credit Facility or the prior consummation of
any of the Pending Acquisitions or the SFX
Merger. Management believes that it will
consummate the Spin-Off early in the second
quarter of 1998, although there can be no
assurance that the Spin-Off will be
consummated during that time period, on the
terms described herein or at all. See
"Agreements Between SFX Entertainment and
SFX--Distribution Agreement--Conditions to
the Spin-Off."
DISTRIBUTION RATIO TO SFX
STOCKHOLDERS ................. For each share owned on the Spin-Off Record
Date of: (a) SFX's Class A common stock, 1
share of SFX Entertainment Class A Common
Stock; (b) SFX's Class B common stock, 1
share of SFX Entertainment Class B Common
Stock; and (c) SFX's Series D preferred
stock, approximately 1.0987 shares of SFX
Entertainment Class A Common Stock, rounded
down to the nearest whole number for each
holder. In addition, participants in SFX's
director deferred stock ownership plan will
receive 1 share of SFX Entertainment Class A
Common Stock per share of SFX's Class A
common stock credited to their accounts.
Shares of SFX Entertainment Class A Common
Stock will also be placed in escrow for
issuance upon exercise of certain warrants
of SFX. See "The Spin-Off--Manner of
Effecting the Spin-Off."
- ------------
(1) If SFX Entertainment is unable to issue these shares of its capital
stock in certain of the Pending Acquisitions, then the cash portion of
the purchase price in those acquisitions will increase. See "Risk
Factors--Risks Related to the Pending Acquisitions," "Agreements
Related to the Pending Acquisitions" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources."
(2) Assumes that all presently outstanding and exercisable options and
warrants of SFX are exercised prior to the Spin-Off Record Date.
Includes the issuance of (i) 793,633 shares of SFX Entertainment Class
A Common Stock upon the exercise of options under SFX's option plans,
(ii) 804,384 shares of SFX Entertainment Class A Common Stock upon the
exercise of certain warrants of SFX and (iii) 2,766 shares issuable
pursuant to SFX's director deferred stock ownership plan. See "The
Spin-Off--Manner of Effecting the Spin-Off." Does not include shares
anticipated to be issued in the Pending Acquisitions and pursuant to
certain employment agreements after the Spin-Off. See "Agreements
Related to the Pending Acquisitions" and"Management--Employment
Agreements and Arrangements with Certain Officers and Directors."
D-9
<PAGE>
FEDERAL INCOME TAX
CONSEQUENCES ................. The receipt of stock of SFX Entertainment in
the Spin-Off will be a taxable event for the
stockholder for U.S. federal income tax
purposes and may also be taxable events
under applicable local, state and foreign
tax laws. See "Certain Federal Income Tax
Consequences."
TRADING MARKET ................ There is currently no public market for SFX
Entertainment Class A Common Stock. SFX
Entertainment has applied to list the SFX
Entertainment Class A Common Stock on the
Nasdaq National Market but may seek listing
on an exchange. See "Listing and Trading of
SFX Entertainment Class A Common Stock."
ASSETS AND LIABILITIES OF SFX
ENTERTAINMENT ................ SFX will transfer to SFX Entertainment all
of its assets relating to the Entertainment
Business, and SFX Entertainment will assume
all of SFX's Entertainment Business
liabilities, as well as certain other
liabilities. SFX Entertainment will also
hold the assets and liabilities purchased in
the Pending Acquisitions, and will have
consummated the Financing, which is
anticipated to consist of the recent private
placement of $350.0 million of Notes and
borrowings under the Proposed Credit
Facility. See "Business," "The Spin-Off,"
"Agreements Between SFX Entertainment and
SFX," "Agreements Related to the Pending
Acquisitions," "Management's Discussion and
Analysis of Financial Condition and Results
of Operations" and "Description of
Indebtedness."
WORKING CAPITAL ............... At the time of the SFX Merger, SFX will pay
to SFX Entertainment any positive Working
Capital; if Working Capital is negative, SFX
Entertainment must pay the amount of the
shortfall to SFX. As of September 30, 1997,
SFX Entertainment estimates that Working
Capital payable by SFX to SFX Entertainment
would have been approximately $2.1 million
(excluding the Series E Adjustment), and
that approximately $135.5 million of
additional assets and $34.1 million of
liabilities would have been apportioned to
SFX Entertainment. However, certain
transactions contemplated by SFX may
significantly reduce Working Capital. See
"Risk Factors--Working Capital Adjustments
and Repayment of Advances" and "The
Spin-Off," "Agreements Between SFX
Entertainment and SFX," "Agreements Related
to the Pending Acquisitions" and
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations--Liquidity and Capital
Resources."
EFFECT OF THE SPIN-OFF ........ SFX will deliver to Chase Mellon Shareholder
Services, L.L.C., as the distribution agent
(the "Distribution Agent") and as escrow
agent (the "Escrow Agent"), shares of SFX
Entertainment Class A Common Stock
representing all of the outstanding shares
of SFX Entertainment Class A Common Stock
and SFX Entertainment Class B Common Stock.
The Distribution Agent will distribute
shares of SFX Entertainment Class A Common
Stock to the holders of SFX's Class A common
stock, Series D preferred stock and
interests in SFX's director de-
D-10
<PAGE>
ferred stock ownership plan, and will
distribute shares of SFX Entertainment Class
B Common Stock to the holders of SFX's Class
B common stock, in each case to the holders
as of the close of business on the Spin-Off
Record Date. Holders of certain warrants of
SFX who exercise their warrants after the
Spin-Off Record Date will be entitled to
receive from the Escrow Agent shares of SFX
Entertainment Class A Common Stock, in
addition to stock of SFX or cash in lieu
thereof. See "The Spin-Off--Manner of
Effecting the Spin-Off."
RELATIONSHIP WITH SFX AFTER THE
SPIN-OFF ..................... After the Spin-Off, SFX Entertainment and
SFX will be separate companies. However,
until the consummation of the SFX Merger,
they will share their boards of directors,
senior management and administrative
functions. SFX Entertainment and SFX have
agreed to indemnify each other after the
Spin-Off for liabilities arising from
various matters, including from the other
company's assets and operations. SFX
Entertainment may also be responsible for
certain taxes resulting from the Spin-Off.
See "Agreements Between SFX Entertainment
and SFX" and "Management."
SPIN-OFF RECORD DATE .......... It is expected that the Spin-Off Record Date
will be established on a date subsequent to
March 26, 1998 (the date of SFX's
stockholder meeting), but no later than the
date of consummation of the SFX Merger.
However, there can be no assurance that the
Spin-Off will occur.
DATE OF THE SPIN-OFF .......... If the conditions to the Spin-Off set forth
in the Distribution Agreement are fulfilled
or waived, the Spin-Off will be effected on
a date to be determined by the board of
directors of SFX, which, in any event, will
be before the closing of the SFX Merger.
DISTRIBUTION AGENT, TRANSFER
AGENT AND REGISTRAR .......... Chase Mellon Shareholder Services, L.L.C.
RISK FACTORS .................. Stockholders should carefully review the
matters discussed under the section titled
"Risk Factors" in this Prospectus.
D-11
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF SFX ENTERTAINMENT
(in thousands, except per share amounts)
The Summary Consolidated Financial Data of SFX Entertainment includes the
historical financial statements of Delsener/Slater and affiliated companies,
the predecessor of SFX Entertainment, for each of the five years ended
December 31, 1996 and the nine months ended September 30, 1996, and the
historical financial statements of SFX Entertainment for the nine months
ended September 30, 1997. The statement of operations data with respect to
Delsener/Slater for the years ended December 31, 1992 and 1993, and the
balance sheet data as of December 31, 1993 and 1994 is unaudited. The
financial information presented below should be read in conjunction with the
information set forth in "Unaudited Pro Forma Condensed Combined Financial
Statements" and the notes thereto and the historical financial statements and
the notes thereto of SFX Entertainment, the Recent Acquisitions and the
Pending Acquisitions included herein. The financial information has been
derived from the audited and unaudited financial statements of SFX
Entertainment, the Recent Acquisitions and the Pending Acquisitions. The pro
forma summary data as of September 30, 1997 and for the year ended December
31, 1996 and the nine months ended September 30, 1997 are derived from the
unaudited pro forma condensed combined financial statements, which, in the
opinion of management, reflect all adjustments necessary for a fair
presentation of the transactions for which such pro forma financial
information is given. Operating results for the nine months ended September
30, 1997 are not necessarily indicative of the results that may be achieved
for the fiscal year ending December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
PREDECESSOR (ACTUAL)
----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue................ $38,017 $46,526 $92,785 $47,566 $50,362
Operating expenses .... 36,631 45,635 90,598 47,178 50,687
Depreciation &
amortization.......... 758 762 755 750 747
Corporate
expenses (2).......... -- -- -- -- --
--------- --------- --------- --------- ---------
Operating income
(loss)................ 628 129 1,432 (362) (1,072)
Interest expense....... (171) (148) (144) (144) (60)
Other income, net .... 74 85 138 178 198
Equity income (loss)
from investments ..... -- -- (9) 488 525
--------- --------- --------- --------- ---------
Income (loss) before
income taxes.......... 531 66 1,417 160 (409)
Income tax (provision)
benefit............... (32) (57) (5) (13) (106)
--------- --------- --------- --------- ---------
Net income (loss)...... $ 499 $ 9 $ 1,412 $ 147 $ (515)
========= ========= ========= ========= =========
Accretion on temporary
equity (3)............
Net loss applicable to
common shares ........
Net loss
per common share......
Weighted average
common shares
outstanding (4).......
OTHER OPERATING DATA:
EBITDA (5)............. $ -- $ -- $ 2,187 $ 388 $ (325)
========= ========= ========= ========= =========
Cash flow from:
Operating activities . $ -- $ -- $ 2,959 $ (453) $ 4,214
Investing activities . -- -- 0 0 (435)
Financing activities . -- -- (477) (216) (1,431)
Ratio of earnings to
fixed charges (6)..... 4.1x 1.4x 11.3x 2.1x --
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------
PREDECESSOR
-----------
1996 (1) 1997 (1)
PRO FORMA 1996 1997 PRO FORMA
(UNAUDITED) ACTUAL ACTUAL (UNAUDITED)
----------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue................ $552,365 $41,609 $74,396 $500,843
Operating expenses .... 505,537 42,930 63,045 440,266
Depreciation &
amortization.......... 37,795 744 4,041 28,378
Corporate
expenses (2).......... 3,000 -- 1,307 2,807
----------- ------------- ---------- -----------
Operating income
(loss)................ 6,033 (2,065) 6,003 29,392
Interest expense....... (44,307) (60) (956) (33,186)
Other income, net .... 1,832 143 213 779
Equity income (loss)
from investments ..... 3,402 525 1,344 5,653
----------- ------------- ---------- -----------
Income (loss) before
income taxes.......... (33,040) (1,457) 6,604 2,638
Income tax (provision)
benefit............... (1,500) (80) (2,952) (3,500)
----------- ------------- ---------- -----------
Net income (loss)...... (34,540) $(1,537) $ 3,652 (862)
=========== ============= ========== ===========
Accretion on temporary
equity (3)............ (3,300) (2,475)
----------- -----------
Net loss applicable to
common shares ........ $(37,840) $ (3,337)
=========== ===========
Net loss
per common share...... $ (1.90) $ (.17)
=========== ===========
Weighted average
common shares
outstanding (4)....... 20,400 20,400
=========== ===========
OTHER OPERATING DATA:
EBITDA (5)............. $ 43,828 $(1,321) $10,044 $ 57,770
=========== ============= ========== ===========
Cash flow from:
Operating activities . $-- $2,761 $ 789 $ --
Investing activities . -- 0 (71,997) --
Financing activities . -- 684 78,302 --
Ratio of earnings to
fixed charges (6)..... -- -- 8.4x 1.0x
</TABLE>
D-12
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF SFX ENTERTAINMENT
(in thousands)
BALANCE SHEET DATA(7):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
PREDECESSOR (ACTUAL)
-------------------------------------
1993 1994 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Current assets.............. $1,823 $4,453 $3,022 $6,191
Property and equipment,
net........................ 4,484 3,728 2,978 2,231
Intangible assets, net ..... -- -- -- --
Total assets................ 6,420 8,222 6,037 8,879
Current liabilities......... 4,356 3,423 3,138 7,973
Long-term debt, including
current portion............ -- 1,830 -- --
Temporary equity(3)......... -- -- -- --
Stockholders' equity........ 6,420 2,969 2,900 907
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
PRO FORMA
ACTUAL (UNAUDITED)(8)
<S> <C> <C>
Current assets.............. $ 12,189 $117,326
Property and equipment,
net........................ 55,882 185,371
Intangible assets, net ..... 59,721 429.060
Total assets................ 135,470 773,614
Current liabilities......... 11,333 89,619
Long-term debt, including
current portion............ 16,453 498,822
Temporary equity(3)......... -- 16,500
Stockholders' equity........ 101,378 143,223(9)
</TABLE>
- ------------
(1) The Unaudited Pro Forma Statement of Operations Data for the year ended
December 31, 1996 and the nine months ended September 30, 1997 are
presented as if SFX Entertainment had completed the Recent
Acquisitions, the Financing, the Pending Acquisitions, the Spin-Off and
the SFX Merger as of January 1, 1996. There can be no assurance that
any of the Financing, the Pending Acquisitions, the Spin-Off and the
SFX Merger will be consummated on the terms assumed in preparing such
pro forma data or at all. See "Risk Factors--Risks Related to Pending
Acquisitions."
(2) Pro forma corporate expenses are reduced by $3,000,000 and $1,693,000
for fees earned from Triathlon Broadcasting Company ("Triathlon") for
the year ended December 31, 1996 and for the nine months ended
September 30, 1997, respectively. The right to receive such fees in the
future is to be assigned to SFX Entertainment by SFX in connection with
the Spin-Off. Future fees may vary, above the minimum fee of $500,000,
depending upon the level of acquisition and financing activities of
Triathlon. See "Certain Relationships and Related
Transactions--Triathlon Fees."
(3) The PACE Acquisition agreement provides that each PACE seller shall
have an option (a "Fifth Year Put Option"), exercisable during a period
beginning on the fifth anniversary of the closing of the PACE
Acquisition and ending 90 days thereafter, to require SFX Entertainment
to purchase up to one-third of the SFX Entertainment Class A Common
Stock received by that PACE seller (representing 500,000 shares in the
aggregate) for a cash purchase price of $33.00 per share. With certain
limited exceptions, the Fifth Year Put Option rights are not assignable
by the sellers. The maximum amount payable under all Fifth Year Put
Options ($16,500,000) has been presented as temporary equity on the pro
forma balance sheet.
(4) Includes 500,000 shares of SFX Entertainment Class A Common Stock to be
issued to the PACE sellers in connection with the Fifth Year Put
Option; these shares are not included in calculating the net loss per
common share.
(5) "EBITDA" is defined as earnings before interest, taxes, other income,
net, equity income (loss) from investments and depreciation and
amortization. Although EBITDA is not a measure of performance
calculated in accordance with generally accepted accounting principals
("GAAP"), SFX Entertainment believes that EBITDA is accepted by the
entertainment industry as a generally recognized measure of performance
and is used by analysts who report publicly on the performance of
entertainment companies. Nevertheless, this measure should not be
considered in isolation or as a substitute for operating income, net
income, net cash provided by operating activities or any other measure
for determining SFX Entertainment's operating performance or liquidity
which is calculated in accordance with GAAP.
There are other adjustments that could effect EBITDA but have not been
reflected herein. Had such adjustments been made, EBITDA as so adjusted
("Adjusted EBITDA") on a pro forma basis would have been approximately
$58,200,000 for the year ended December 31, 1996 and $67,300,000 for
the nine months ended September 30, 1997. These adjustments include the
elimination of non-recurring charges including a litigation settlement
recovered by PACE and Pavilion of $6,000,000 and $0, expected cost
savings in connection with the Pending Acquisitions associated with the
elimination of duplicative staffing and general and administrative
expenses of $5,000,000 and $3,800,000 and include SFX Entertainment's
pro rata share of equity income from investments of $3,400,000 and
$5,700,000, for the year ended December 31, 1996 and the nine months
ended September 30, 1997, respectively.
While management believes that such cost savings and the elimination of
non-recurring expenses are achievable, SFX Entertainment's ability to
fully achieve such cost savings and to eliminate the non-recurring
expenses is subject to numerous factors certain of which may be beyond
SFX Entertainment's control.
(6) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consists of earnings before income taxes and fixed charges.
"Fixed charges" consists of interest on all indebtedness. Earnings were
insufficient to cover fixed charges by $393,000 for the year ended
December 31, 1996, $1,605,000 for the nine months ended September 30,
1996 and $32,420,000 on a pro forma basis for the year ended December
31, 1996.
(7) The required 1992 balance sheet data for Delsener/Slater has not been
included herein due to the difficulty in preparing an accurate balance
sheet as of that date coupled with management's belief that such
information would not be of substantial use to a potential investor.
The difficulty in preparing an accurate balance sheet is due to the
fact that (i) Delsener/Slater was not audited at such time, (ii)
Delsener/Slater included a number of companies with different year
ends, and (iii) the unaudited balance sheets of Delsener/Slater and its
related entities were not prepared in strict accordance with the GAAP
reporting requirements as such entities were privately held. The lack
of usefulness of the information is due to the fact that (i)
Delsener/Slater is the predecessor of SFX Entertainment and therefore
its accounts were adjusted to a new basis upon its acquisition by SFX;
(ii) the balance sheet is principally comprised of cash, leasehold
improvements and accruals for bonuses to the prior owners and would not
include the operating lease for the Jones Beach Amphitheater, which
management believes is Delsener/Slater's most significant operating
agreement; and (iii) the balance sheet of Delsener/Slater as of
December 31 in any year contains a low level of assets relative to
operating income, as the concert business is seasonal (with most
concerts occurring in the summer), and the promotion business does not
require large amounts of capital investment.
(8) The Unaudited Pro Forma Balance Sheet Data at September 30, 1997 is
presented as if SFX Entertainment had completed the Financing, the
Pending Acquisitions, the Spin-Off and the SFX Merger as of September
30, 1997.
(9) Retained earnings on a pro forma basis for the Financing, the Pending
Acquisitions, the Spin-Off and the SFX Merger have not been adjusted
for future charges to earnings which will result from the issuance of
stock and options granted to certain executive officers and other
employees of SFX Entertainment. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources--Future Charges to Earnings."
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RISK FACTORS
Stockholders should carefully consider and evaluate the following risk
factors together with the other information set forth in this Prospectus.
Certain statements, estimates, predictions and projections contained in
this Prospectus under "Summary," "Risk Factors," "Business," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"The Spin-Off" and "Agreements Related to the Pending Acquisitions," in
addition to certain statements contained elsewhere in this Prospectus, are
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
although these sections do not apply to this offering. These forward-looking
statements are prospective, involving risks and uncertainties. While these
forward-looking statements, and any assumptions on which they are based, are
made in good faith and reflect SFX Entertainment's current judgment regarding
the direction of its business, actual results will almost always vary,
sometimes materially, from any estimates, predictions, projections,
assumptions or other future performance suggested herein. Some important
factors (but not necessarily all factors) that could affect SFX
Entertainment's revenues, growth strategies, future profitability and
operating results, or that otherwise could cause actual results to differ
materially from those expressed in or implied by any forward-looking
statement, include the following: lack of operating history as an independent
public company; failure to consummate any or all of the Pending Acquisitions;
inability to enter into and borrow under the Proposed Credit Facility;
inability to successfully implement operating strategies (including the
achievement of cost savings); failure to derive anticipated benefits from the
Pending Acquisitions; working capital adjustments; payments pursuant to
indemnification arrangements; seasonality of operations or financial results;
changes in economic conditions and consumer tastes; competition; regulatory
difficulties; and the other matters referred to under "Risk Factors" or
elsewhere in this Prospectus. Stockholders are urged to carefully consider
these factors in connection with the forward-looking statements. SFX
Entertainment does not undertake to release publicly any revisions to
forward-looking statements that may be made to reflect events or
circumstances after the date of this Prospectus or to reflect the occurrence
of unanticipated events.
ABSENCE OF COMBINED OPERATING HISTORY; POTENTIAL INABILITY TO INTEGRATE
ACQUISITION BUSINESSES
The business of SFX Entertainment has been developed principally through
the acquisition of established live entertainment businesses, which have all
been acquired since January 1997. Prior to their acquisition by SFX
Entertainment, these acquired companies operated independently. In addition,
each of the Acquisition Businesses currently operates independently, and the
Pending Acquisitions will significantly increase the size and operations of
SFX Entertainment. The Unaudited Pro Forma Condensed Combined Financial
Statements include the combined operating results of the recently acquired
businesses and the Acquisition Businesses during periods when they were not
under common control of management, and therefore may not necessarily be
indicative of the results that would have been attained had SFX Entertainment
and the acquired businesses operated on a combined basis during those
periods. SFX Entertainment's prospects should be considered in light of the
numerous risks commonly encountered in business combinations. Although the
anticipated management of SFX Entertainment has significant experience in
other industries, there can be no assurance that SFX Entertainment's
management group will be able to effectively integrate the Acquisition
Businesses. SFX Entertainment's business, financial condition and results of
operations could be materially adversely affected if SFX Entertainment is
unable to retain the key personnel that have contributed to the historical
performances of the Acquisition Businesses or SFX Entertainment. See
"--Dependence on Key Personnel," "Business" and "Agreements Related to the
Pending Acquisitions."
RISKS RELATED TO PENDING ACQUISITIONS
Although management believes that the consummation of the Pending
Acquisitions is in the best interests of SFX Entertainment, it will involve
substantial expenditures and risks on the part of SFX Entertainment. There
can be no assurance that the Pending Acquisitions will be completed
successfully or, if completed, will yield the expected benefits to SFX
Entertainment or will not materially adversely affect SFX Entertainment's
business, financial condition or results of operations.
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Financing Matters
The aggregate purchase price of the Pending Acquisitions is expected to be
approximately $484.3 million, consisting of approximately $352.8 million in
cash, repayment of $75.3 million in debt and the issuance of approximately
4.2 million shares of SFX Entertainment Class A Common Stock with a
negotiated value of $56.2 million. There can be no assurance that the value
attributed by the parties to SFX Entertainment's capital stock will
approximate the actual trading price of the stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." In
order to consummate the Pending Acquisitions, SFX Entertainment will require
significant additional financing, which it anticipates obtaining through
borrowings under the Proposed Credit Facility. Pursuant to the expected terms
of the proposed credit facility, pro forma for the 12 months ended September
30, 1997, the maximum amount of funding available to SFX Entertainment under
the facility as of September 30, 1997 would have been approximately $175.0
million. This amount, in addition to the recent private placement of $350.0
million in Notes, would be sufficient to (i) consummate the Pending
Acquisitions (approximately $428.1 million), (ii) pay certain fees and
expenses related to the Spin-Off, the Pending Acquisitions, the Financing and
certain consents related thereto (approximately $40.5 million), (iii) fund
certain planned capital expenditures (approximately $39.0 million), (iv) make
various other payments in connection with the Pending Acquisitions, certain
change-of-control provisions contained in the employment agreeements being
assumed by SFX Entertainment and the exercise of an option to acquire an
office building and related property from Network (approximately $12.7
million). However, pursuant to the expected terms of the credit facility, pro
forma for the twelve months ended September 30, 1997, the maximum amount of
borrowing availability under the facility would have been insufficient to
fund the approximately $8.3 million payable in connection with the Meadows
Repurchase (as defined) or to make certain contingent payments which may
arise, as more fully described below. While SFX Entertainment believes that
expected improvements in its cash flows will permit it to borrow sufficient
funds under the Proposed Credit Facility to fund the Meadows Repurchase,
there can be no assurance that SFX Entertainment will be able to achieve such
increased cash flow levels, or that other available sources of financing will
be available under terms acceptable to SFX Entertainment or permitted under
the terms of SFX Entertainment's applicable debt instruments or that
additional contingent amounts will not become payable. See "--Working Capital
Adjustments and Repayment of Advances" and "Description of Indebtedness." In
addition, the information relating to fees and expenses is based on
management's estimates, and may not be indicative of, and are likely to vary
from, the actual fees and expenses incurred by SFX Entertainment relating to
the Financing, the Pending Acquisitions, the Spin-Off and the SFX Merger.
Certain agreements of SFX Entertainment, including the Distribution
Agreement, the Tax Sharing Agreement, certain employment agreements and the
agreements relating to the Pending Acquisitions provide for tax and other
indemnities, purchase price adjustments and future contingent payments in
certain circumstances, including, if SFX Entertainment is unable to issue
shares of its capital stock to certain of the sellers by virtue of having
failed to consummate the Spin-Off or for any other reason. In that case, the
aggregate cash consideration that would be owed to the sellers in the Pending
Acquisitions would increase by approximately $56.2 million, resulting in a
corresponding increase in debt and decrease in stockholders' equity. Although
management believes that the Spin-Off is likely to occur, the Spin-Off is
subject to certain conditions, some of which are outside of management's
control, and there can be no assurance that the Spin-Off will be consummated
on the terms presently contemplated or at all. In addition, the agreements
relating to the Pending Acquisitions provide for certain other purchase price
adjustments and future contingent payments in certain circumstances. There
can be no assurance that SFX Entertainment will have sufficient sources of
available capital to pay any material increases in cash consideration or
satisfy future contingent cash payment obligations in connection with the
Pending Acquisitions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Pending Acquisitions and -- Liquidity
and Capital Resources" and "Agreements Related to the Pending Acquisitions,"
"Certain Relationships and Related Transactions--Indemnification of Mr.
Sillerman" and "Agreements Between SFX Entertainment and SFX--Distribution
Agreement" and "--Tax Sharing Agreement."
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SFX Entertainment may also be responsible for certain other payments in
connection with, and to be made contemporaneously with or prior to, the
consummation of the SFX Merger and/or the Spin-Off, including approximately
$8.3 million payable in connection with the Meadows Repurchase and the amount
of any shortfall in Working Capital. See "Risk Factors--Working Capital
Adjustments and Repayment of Advances" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
If the Pending Acquisitions are not consummated due to a material breach
by SFX Entertainment (such as an inability to obtain financing in a timely
fashion), then SFX Entertainment may lose deposits aggregating approximately
$2.0 million and be responsible for other damages resulting from any
potential breach of the agreements relating to the Pending Acquisitions. In
addition, if Proposal 3 in the attached Proxy Statement (a proposal that will
allow the Spin-Off to occur as currently structured) is not approved, that
failure could result in a "Change of Control" pursuant to the expected terms
of the credit facility. In that event, there can be no assurance that SFX
Entertainment would be able to obtain a waiver of that provision, and there
can be no assurance of the terms, if any, under which such a waiver could be
obtained. The failure to obtain such a waiver could result in a material
adverse effect to SFX Entertainment's business, results of operations and
financial condition. SFX Entertainment's ability to borrow under the Proposed
Credit Facility or to obtain other financing is restricted by the terms of
the indenture governing the Notes (the "Indenture"). See "Description of
Indebtedness."
Furthermore, consummation of the Pending Acquisitions will result in
substantial charges to earnings relating to interest expense and the
recognition and amortization of goodwill; these charges would increase SFX
Entertainment's losses or reduce or eliminate its earnings, if any. See
"Agreements Related to the Pending Acquisitions," "Unaudited Pro Forma
Condensed Combined Financial Statements" (including the notes thereto) and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
PACE Acquisition
The Pavilion Partners partnership agreement contains a provision (the
"Pavilion Exclusivity Provision") that restricts PACE and its affiliates from
directly or indirectly owning or operating amphitheaters outside of Pavilion
Partners, with certain limited exceptions. If SFX Entertainment consummates
the PACE Acquisition but not the acquisition of the remaining partnership
interests in Pavilion Partners (the "Pavilion Acquisition"), absent an
amendment to the partnership agreement, SFX Entertainment may be in breach of
the Pavilion Exclusivity Provision. The partnership agreement provides for
certain cumulative remedies available to the non-breaching partner, including
the right to (a) sue for damages, (b) seek an injunction, (c) deny the
breaching partner any of its voting, consent or approval rights under the
partnership agreement and (d) where the nature of the damages incurred by the
non-breaching partner is difficult or impossible to ascertain, purchase the
breaching partner's entire interest in Pavilion Partners for 75% of the
balance of the breaching partner's capital account. Management believes that
the Pavilion Acquisition will be consummated; however, there can be no
assurance that any portion of the Pavilion Acquisition will be consummated on
the terms described in this Prospectus or at all. In addition, if SFX
Entertainment consummates the PACE Acquisition but fails to consummate all of
the Pavilion Acquisition, the Pavilion Partners partnership agreement might
not be amended to remove the Pavilion Exclusivity Provision. See "Agreements
Related to the Pending Acquisitions--PACE Acquisition--Pavilion Acquisition."
SFX Entertainment has agreed to waive the condition to the closing of the
PACE Acquisition that the sellers deliver all of the outstanding shares of
PACE, if the sellers deliver 85% of the shares at closing. If only 85% of the
outstanding shares are delivered, SFX Entertainment intends to effect a
cash-out merger of the remaining stockholders of PACE. However, any cash-out
merger might not occur on terms as favorable to SFX Entertainment as those
contemplated in the PACE Acquisition agreement. Furthermore, pursuant to the
terms of the PACE Acquisition agreement, PACE provided a final bring down of
its representations and warranties to December 24, 1997. As a consequence, if
SFX Entertainment closes the PACE Acquisition, it will assume the risk of any
material adverse changes in the business of PACE subsequent to that date.
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The PACE Acquisition agreement provides that each PACE seller will have a
Fifth Year Put Option, exercisable for 90 days after the fifth anniversary of
the closing of the PACE Acquisition, to require SFX Entertainment to
repurchase up to one-third of the SFX Entertainment Class A Common Stock
received by that seller (representing 500,000 shares in the aggregate) for
$33.00 in cash per share. With certain limited exceptions, these option
rights are not assignable by the sellers. In certain circumstances, if the
selling price of SFX Entertainment Class A Common Stock is less than $13.33
per share, SFX Entertainment may be required to make an offer to the sellers
to provide an additional cash payment or additional shares of SFX
Entertainment Class A Common Stock, which each seller will have the option of
taking. See "Agreements Related to the Pending Acquisitions--PACE
Acquisition."
Contemporary Acquisition
In addition, in the Contemporary Acquisition agreement, SFX Entertainment
agreed to make payments to any Contemporary sellers who own shares of SFX
Entertainment Class A Common Stock on the second anniversary of the closing
of the Contemporary Acquisition. These payments will be due only if the
average trading price of the SFX Entertainment Class A Common Stock during
the 20-day period ending on the anniversary date is less than $13.33 per
share. There can be no assurance that the average trading price of the SFX
Entertainment Class A Common Stock will be $13.33 per share at that time. See
"Agreements Related to the Pending Acquisitions--Contemporary Acquisition."
Closing Dates
The BGP Acquisition and the Contemporary Acquisition are scheduled to
close by February 12 and 15, 1998, respectively. However, SFX Entertainment
does not anticipate entering into the proposed credit facility by either of
those dates. Each acquisition agreement provides for a 30-day cure period.
Although there can be no assurance, management believes that either these
acquisitions will be consummated before the termination of the applicable
cure periods or SFX Entertainment will enter into amendments to the
acquisition agreements extending the closing date.
General
As a result of the foregoing, there can be no assurance as to when the
Pending Acquisitions will be consummated or that they will be consummated on
the terms described in this Prospectus or at all. Furthermore, the
consummation of the Pending Acquisitions may fail to conform to the
assumptions used in the preparation of the Unaudited Pro Forma Condensed
Combined Financial Statements included herein. Therefore, in analyzing the
Unaudited Pro Forma Condensed Combined Financial Statements and other
information, stockholders should consider that the Pending Acquisitions may
not be consummated at all or on the terms described in this Prospectus. In
addition, although SFX Entertainment and SFX have conducted a due diligence
investigation of the Acquisition Businesses, the scope of their investigation
has been limited. Although the agreements governing the Pending Acquisitions
generally provide for indemnification from the seller for a limited period of
time with respect to certain matters, the indemnification is subject to
thresholds and limitations, and it is possible that other material matters
not identified in due diligence will subsequently be identified or that the
matters heretofore identified will prove to be more significant than
currently expected. See "Agreements Related to the Pending Acquisitions."
Although none of the Pending Acquisitions (except one acquisition of an
interest in Pavilion Partners) is conditioned on the consummation of any
other Pending Acquisition, consummation of each of the Pending Acquisitions
is subject to the satisfaction or waiver of a number of closing conditions,
certain of which are beyond SFX Entertainment's control, including, approvals
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"). The failure to satisfy these conditions would permit each of
the parties to the acquisition agreements to refuse to consummate the
respective Pending Acquisitions. For a more complete description of the
closing conditions for each of the Pending Acquisitions, see "Agreements
Related to the Pending Acquisitions."
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CONTROL OF MOTOR SPORTS AND THEATRICAL BUSINESSES
Pursuant to the employment agreement entered into between Brian Becker and
SFX Entertainment in connection with the PACE Acquisition, Mr. Becker has the
option, exercisable within 15 days after the second anniversary of the
consummation of the PACE Acquisition, to acquire SFX Entertainment's then
existing motor sports line of business (or, if that line of business has
previously been sold, SFX Entertainment's then existing theatrical line of
business) at its then fair market value. Mr. Becker's exercise of this option
could have a material adverse effect on SFX Entertainment's business,
financial condition and results of operations. In addition, Mr. Becker also
has the right under certain circumstances to acquire the theatrical or motor
sports line of business at a price equal to 95% of the proposed purchase
price. See "Agreements Related to the Pending Acquisitions--PACE
Acquisition--Becker Employment Agreement." On a pro forma basis giving effect
to the Pending Acquisitions, specialized motor sports would have comprised
approximately 6%, and theater would have comprised approximately 17%, of SFX
Entertainment's total net revenues for the 12 months ended September 30,
1997.
BGP RIGHT OF FIRST REFUSAL
SFX Entertainment has agreed that it will not sell all, or substantially
all, of BGP's assets (as of December 11, 1997) for three years following the
consummation of the BGP Acquisition without offering the BGP sellers the
opportunity to purchase the assets on the same terms as those included in any
bona fide offer received by SFX Entertainment from any third party. See
"Agreements Related to the Pending Acquisitions--BGP Acquisition."
CONTROL OF DELSENER/SLATER
After the consummation of the Spin-Off or the SFX Merger, the senior
management of Delsener/ Slater may have the right pursuant to their
employment agreements (a) to purchase the outstanding capital stock of
Delsener/Slater for Fair Market Value (as defined in their employment
agreements) or (b) to receive a cash payment equal to 15% of the amount by
which the Fair Market Value of Delsener/Slater exceeds the fixed payment
portion of the cash purchase price of the acquisition of Delsener/Slater,
plus 20% interest thereon. The senior management of Delsener/Slater and SFX
have reach an agreement in principle to waive any of the above rights in
connection with the Spin-Off, the SFX Merger and related transactions;
however, there can be no assurance that the rights will be waived on terms
acceptable to SFX and SFX Entertainment or at all. In addition, although SFX
Entertainment is in the process of negotiating amendments to these
agreements, these and certain other rights described in the agreements may
continue to apply to transactions after, or unrelated to, the Spin-Off or the
SFX Merger. See "Certain Relationships and Related
Transactions--Delsener/Slater Employment Agreements."
FUTURE ACQUISITIONS
SFX Entertainment expects to pursue additional acquisitions of live
entertainment businesses in the future, although SFX Entertainment has no
present understandings, commitments or agreements with respect to any
acquisitions besides the Pending Acquisitions. Future acquisitions by SFX
Entertainment could result in (a) potentially dilutive issuances of equity
securities, (b) the incurrence of substantial additional indebtedness and/or
(c) the amortization of expenses related to goodwill and other intangible
assets, any or all of which could materially adversely affect SFX
Entertainment's business, financial condition and results of operations.
Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations, technologies, services and products of the
acquired companies and the diversion of management's attention from other
business concerns. If any acquisition occurs, SFX Entertainment's business,
financial condition and results of operations may be materially adversely
affected.
EXPANSION STRATEGY; NEED FOR ADDITIONAL FUNDS
SFX Entertainment intends to pursue additional expansion opportunities.
However, it may be unable to identify and acquire additional suitable
businesses or obtain the financing necessary to acquire the
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businesses. Each acquisition may also be subject to the prior approval of SFX
Entertainment's lenders. Any debt financing would require payments of
principal and interest and would adversely impact SFX Entertainment's cash
flow. Additional financing for future acquisitions may be unavailable and,
depending on the terms of the proposed acquisitions and financings, may be
restricted by the terms of the Proposed Credit Facility and the Indenture.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources." Furthermore, future
acquisitions may result in potentially dilutive issuances of equity
securities as well as charges to operations relating to interest expense or
the recognition and amortization of goodwill; these charges would increase
SFX Entertainment's losses or reduce or eliminate its earnings, if any.
Acquisitions also involve numerous risks, including difficulties in the
assimilation of operations, technologies, services and products of the
acquired companies and the diversion of management's attention from other
business concerns. If any additional acquisition occurs, SFX Entertainment's
business, financial condition and results of operations might be materially
adversely affected.
SUBSTANTIAL LEVERAGE
SFX Entertainment is a highly leveraged company. As of September 30, 1997,
on a pro forma basis giving effect to the Financing, the Pending Acquisitions
and the Spin-Off, SFX Entertainment's consolidated indebtedness would have
been approximately $498.8 million (of which $350.0 million would have
consisted of the Notes, and the balance would have consisted of $132.3
million in debt under the Proposed Credit Facility and $16.5 million in
pre-existing senior debt), its temporary equity would have been approximately
$16.5 million, and its stockholders' equity would have been approximately
$143.2 million. See "Unaudited Condensed Combined Pro Forma Financial
Statements." If SFX Entertainment is unable to issue shares of capital stock,
and thus is obligated to pay cash to the sellers in the Pending Acquisitions
in lieu of issuing shares of its common stock, then its total pro forma
indebtedness would increase by $56.2 million, and its pro forma stockholders'
equity would decrease by a similar amount. On a pro forma basis for the
Pending Acquisitions and the Financing, SFX Entertainment's ratio of total
debt to total capitalization as of September 30, 1997 would have been 1.3 to
1 (1.2 to 1 if SFX Entertainment is obligated to pay cash in lieu of issuing
shares), and its ratio of earnings to fixed charges for the nine months ended
September 30, 1997 would have been 1.0 to 1. Although management believes
that the Spin-Off is likely to occur, the Spin-Off is subject to certain
conditions, some of which are outside of management's control. The Spin-Off
might not be consummated on the terms presently contemplated, or at all.
Certain of the agreements relating to the Pending Acquisitions provide for
other purchase price adjustments and future contingent payments in certain
circumstances. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Pending Acquisitions." In addition, SFX
Entertainment may incur substantial additional indebtedness from time to time
to finance future acquisitions, for capital expenditures or for other
purposes. See "Capitalization" and "Unaudited Condensed Combined Pro Forma
Financial Statements."
SFX Entertainment's ability to make scheduled payments of principal of, to
pay interest on or to refinance its indebtedness, or to fund planned capital
expenditures, will depend on its future financial performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond its control, as well as the
success of the Acquisition Businesses and their integration into SFX
Entertainment's operations. Based on the current level of operations of SFX
Entertainment and the Acquisition Businesses and anticipated cost savings and
revenue growth, management believes that, following the consummation of the
Pending Acquisitions, cash flow from operations and available cash, together
with anticipated borrowings under the Proposed Credit Agreement, will be
adequate to meet SFX Entertainment's future liquidity needs until at least
the first quarter of 1999. However, SFX Entertainment may be unable to make
planned borrowings, including the Financing; SFX Entertainment's business and
the acquired businesses may not generate sufficient cash flow from
operations; anticipated improvements in operating results may not be
achieved; and future working capital borrowings may be unavailable in an
amount sufficient to enable SFX Entertainment to service its indebtedness, to
make necessary capital or other expenditures or to fund its other liquidity
needs. SFX Entertainment may be required to refinance a portion of the
principal amount of its indebtedness prior to their respective maturities.
However, SFX Entertainment may be unable to effect
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any refinancing on commercially reasonable terms or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The degree to which SFX Entertainment is and will be leveraged could have
material consequences to the holders of shares of SFX Entertainment's Common
Stock, including, but not limited to, (a) increasing SFX Entertainment's
vulnerability to general adverse economic and industry conditions, (b)
limiting SFX Entertainment's ability to obtain additional financing to fund
future acquisitions, working capital, capital expenditures and other general
corporate requirements, (c) requiring the dedication of a substantial portion
of SFX Entertainment's cash flow from operations to the payment of principal
of, and interest on, its indebtedness, thereby reducing the availability of
the cash flow to fund working capital, capital expenditures or other general
corporate purposes, (d) limiting SFX Entertainment's flexibility in planning
for, or reacting to, changes in its business and the industry and (e) placing
SFX Entertainment at a competitive disadvantage to less leveraged
competitors. In addition, the Indenture contains, and the Proposed Credit
Facility is likely to contain, financial and other restrictive covenants that
will limit the ability of SFX Entertainment to, among other things, borrow
additional funds. Failure by SFX Entertainment to comply with these covenants
could result in an event of default that, if not cured or waived, could have
a material adverse effect on SFX Entertainment's business, financial
condition and results of operations. SFX Entertainment anticipates that the
indebtedness to be incurred under the Proposed Credit Facility will be
secured by a pledge of the stock of its subsidiaries and by liens on
substantially all of its and its subsidiaries' tangible assets. In addition,
the Notes are, and borrowings under the Proposed Credit Facility are likely
to be, guaranteed by SFX Entertainment's subsidiaries. See "Description of
Indebtedness."
ECONOMIC CONDITIONS AND CONSUMER TASTES
SFX Entertainment's operations are affected by general economic conditions
and consumer tastes. The demand for live entertainment tends to be highly
sensitive to consumers' disposable incomes, and thus a decline in general
economic conditions that generally reduces consumers' disposable incomes can,
in turn, materially adversely affect SFX Entertainment's revenues. In
addition, the profitability of events promoted or produced by SFX
Entertainment is directly related to the ancillary revenues generated by
those events, and the ancillary revenues decrease with lower attendance
levels. The success of a music concert, theatrical show or motor sports event
depends on public tastes, which are unpredictable and susceptible to change,
and may also be significantly affected by the number and popularity of
competitive productions, concerts or events as well as other forms of
entertainment. It is impossible for SFX Entertainment to predict the success
of any music concert, theatrical show or motor sports event. In addition,
decreased attendance, a change in public tastes or an increase in competition
could have a material adverse effect on SFX Entertainment's business,
financial condition and results of operations.
AVAILABILITY OF ARTISTS AND EVENTS
SFX Entertainment's and the Acquisition Businesses' success and ability to
sell tickets (including subscriptions) are highly dependent on the
availability of popular musical artists, Touring Broadway Shows and
specialized motor sports talent, among other performers of live
entertainment. SFX Entertainment's and the Acquisition Businesses' results of
operations have been adversely affected in periods where fewer popular
musical artists and/or popular theatrical productions were available for
presentation. There can be no assurance that popular musical artists,
theatrical shows or specialized motor sports talent will be available to SFX
Entertainment in the future. The lack of availability of these artists and
productions could have a material adverse effect on SFX Entertainment's
business, financial condition and results of operations.
CONTROL OF VENUES
SFX Entertainment and the Acquisition Businesses operate a number of their
live entertainment venues under leasing or booking agreements, and
accordingly SFX Entertainment's long-term success will depend in part on its
ability to renew these agreements when they expire or terminate. There can be
no
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assurance that SFX Entertainment will be able to renew these agreements on
acceptable terms or at all, or that it will be able to obtain attractive
agreements with substitute venues. See "Business--SFX Entertainment's Live
Entertainment Activities--Venue Operations."
RESTRICTIONS IMPOSED BY SFX ENTERTAINMENT'S INDEBTEDNESS
The Indenture contains (and the Proposed Credit Facility will likely
contain) a number of significant covenants that, among other things, will
restrict the ability of SFX Entertainment and its subsidiaries to dispose of
assets, incur additional indebtedness, repay other indebtedness, pay
dividends, make certain investments or acquisitions, repurchase or redeem
capital stock, engage in mergers or consolidations, or engage in certain
transactions with subsidiaries and affiliates and otherwise restrict
corporate activities. These restrictions may adversely affect SFX
Entertainment's ability to finance its future operations or capital needs or
to engage in other business activities that may be in the interest of SFX
Entertainment. In addition, the Indenture requires (and the Proposed Credit
Facility will likely require) SFX Entertainment to maintain compliance with
certain financial ratios, such as a maximum total leverage ratio, a maximum
senior leverage ratio, a minimum fixed charges ratio, a minimum pro forma
interest expense ratio and a minimum debt service ratio. SFX Entertainment's
ability to comply with these ratios and limits may be affected by events
beyond its control. A breach of any of these covenants or the inability of
SFX Entertainment to comply with the required financial ratios or limits
could result in an event of default under any credit facility. Such an event
of default could permit the lenders to declare all borrowings outstanding to
be due and payable, to require SFX Entertainment to apply all of its
available cash to repay its borrowings or to prevent SFX Entertainment from
making debt service payments on certain portions of its outstanding
indebtedness. If SFX Entertainment were unable to repay any borrowings when
due, the lenders could proceed against their collateral. The Proposed Credit
Facility is likely to require SFX Entertainment and its subsidiaries to grant
the lenders thereunder a continuing security interest in all of their
tangible assets and in the capital stock of the guaranteeing subsidiaries. If
SFX Entertainment's indebtedness were to be accelerated, there can be no
assurance that the assets of SFX Entertainment would be sufficient to repay
its indebtedness in full. See "Description of Indebtedness."
In addition, if Proposal 3 in the attached Proxy Statement is not approved
and the Spin-Off or an alternative disposition of SFX Entertainment is
nevertheless consummated, then these events would likely result in a "Change
of Control" pursuant to the expected terms of the Proposed Credit Facility.
Futhermore, Mr. Sillerman has pledged certain shares of SFX Entertainment
Class B Common Stock that, if sold, could result in such a "Change of
Control." See "Principal Stockholders--Possible Change of Control." In the
event of such a "Change of Control," SFX Entertainment might be unable to
obtain a waiver of that provision of the credit facility, or might be
required to make substantial concessions to the lenders under the credit
facility in order to obtain such a waiver. The failure to obtain such a
waiver could result in a material adverse effect to SFX Entertainment's
business, results of operation and financial condition. See "Description of
Indebtedness--Proposed Senior Credit Facility."
NO PRIOR MARKET FOR SFX ENTERTAINMENT STOCK
There has been no prior trading market for any stock of SFX Entertainment.
Although SFX Entertainment intends to seek listing of the SFX Entertainment
Class A Common Stock on the Nasdaq National Market or on a national exchange,
there can be no assurance that it will be initially listed on the Nasdaq
National Market or elsewhere or will continue to be listed in the future.
Even if a trading market does develop in the SFX Entertainment Class A Common
Stock, there can be no assurance that trading would be sustained or that the
volume would be sufficient for trading to occur with any frequency. As a
result, it could be difficult to make purchases or sales of SFX Entertainment
Class A Common Stock in the market at any particular time. In addition, until
the SFX Entertainment Class A Common Stock is fully distributed and an
orderly market develops, the trading prices of SFX Entertainment Class A
Common Stock may fluctuate significantly. There can be no assurance as to the
trading prices of SFX Entertainment Class A Common Stock before or after the
Spin-Off. See "Shares Eligible for Future Sale."
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WORKING CAPITAL ADJUSTMENTS AND REPAYMENT OF ADVANCES
Pursuant to the Distribution Agreement, SFX Entertainment must pay SFX any
net negative Working Capital at the time of consummation of the SFX Merger.
Alternatively, SFX must pay to SFX Entertainment any net positive Working
Capital (excluding the Series E Adjustment). Therefore, the capitalization of
SFX Entertainment will depend, to a large extent, on the operating results of
SFX through the date of the SFX Merger. As of September 30, 1997, SFX
Entertainment estimates that Working Capital to be received by SFX
Entertainment would have been approximately $2.1 million (excluding the
Series E Adjustment). The actual amount of Working Capital as of the closing
of the SFX Merger may differ substantially from the amount as of September
30, 1997, and will be a function of, among other things, the operating
results of SFX through the date of the SFX Merger, the actual cost of
consummating the SFX Merger and the related transactions. SFX will also incur
certain other significant expenses prior to the consummation of the SFX
Merger that could reduce Working Capital, including the payment of dividends
and interest on SFX's debt and the Meadows Repurchase. Moreover, Working
Capital will be reduced by at least $2.1 million pursuant to the Series E
Adjustment (as defined herein). If SFX Entertainment is required to make
Working Capital payments to SFX, there can be no assurance that SFX
Entertainment will have the funds to do so or that it will have sufficient
funds to conduct its operations after making the required payments.
In addition, at the time of the Spin-Off, SFX Entertainment must repay
sums advanced to it by SFX for certain acquisitions or capital expenditures
after August 25, 1997 and not repaid at or before the closing of the
Spin-Off. As of January 31, 1998, SFX had advanced approximately $8.0 million
to SFX Entertainment for use in connection with certain acquisitions and
capital expenditures. SFX Entertainment intends to repay these amounts from
the proceeds of the private placement of Notes or borrowings under the
Proposed Credit Facility. SFX may advance additional amounts to SFX
Entertainment for these purposes before the consummation of the Spin-Off. See
"Agreements Between SFX Entertainment and SFX--Distribution Agreement" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
CONTROL BY MANAGEMENT; STOCK ISSUED TO MANAGEMENT
At the time of completion of the Spin-Off (assuming that Proposal 3 in the
attached Proxy Statement is approved), and after the grant of additional
shares as described in "Management--Employment Agreements and Arrangements
with Certain Officers and Directors" and "Certain Relationships and Related
Transactions--Issuance of Stock to Holders of SFX's Options and SARs," it is
anticipated that Mr. Sillerman will beneficially own approximately 45.7% of
the total voting power of the SFX Entertainment Common Stock, and that all
directors and executive officers together will beneficially own approximately
52.3% of the total voting power of the SFX Entertainment Common Stock.
Accordingly, these persons will have substantial influence over the affairs
of SFX Entertainment, including the ability to control the election of a
majority of the board of directors of SFX Entertainment (the "Board"), the
decision whether to effect or prevent a merger or sale of assets (except in
certain "going private transactions") and other matters requiring stockholder
approval. In addition, the issuance of these shares of SFX Entertainment
Common Stock to certain members of senior management of SFX Entertainment in
connection with their employment with SFX Entertainment will result in
substantial non-cash charges to operations, which could increase SFX
Entertainment's losses or reduce or eliminate its earnings, if any. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Management," "Principal Stockholders of SFX Entertainment" and
"Description of Capital Stock."
DEPENDENCE ON KEY PERSONNEL
The success of SFX Entertainment depends substantially on the abilities
and continued service of certain of its (and its subsidiaries') executive
officers and directors. In particular, SFX Entertainment will depend on the
continued services of Robert F.X. Sillerman, Michael G. Ferrel, Geoffrey
Armstrong, Howard J. Tytel and Thomas P. Benson. Although these individuals
have greater experience in the radio broadcasting business than the live
entertainment industry, they do have significant expertise in selecting,
negotiating and financing acquisitions and in operating and managing public
companies. In addition, most of SFX Entertainment's directors and executive
officers are also currently acting as directors and
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executive officers of SFX. Until the consummation of the SFX Merger, these
directors and executive officers can be anticipated to expend substantial
time and effort in managing the business of SFX (which may detract from their
performance with respect to SFX Entertainment). If the SFX Merger is not
consummated, there can be no assurance that SFX Entertainment will be able to
retain the services of these directors and executive officers. See "The
Spin-Off" and "Management." SFX Entertainment and Messrs. Sillerman and
Ferrel have reached agreements in principle that those individuals will serve
as officers and directors of SFX Entertainment. However, if Proposal 3 in the
attached Proxy Statement is not approved, there can be no assurance that they
will serve in that capacity, in which event SFX intends to pursue alternative
means of disposing of SFX Entertainment.
Messrs. Sillerman and Tytel are also officers and directors of, and have
an aggregate equity interest of approximately 9.2% in, The Marquee Group,
Inc. ("Marquee"), a company involved in various aspects of the sports, news
and other entertainment industries, and own a substantial equity interest in
Triathlon, a company that owns and operates radio stations. In addition, they
provide consulting services to both companies through an affiliated entity.
Messrs. Sillerman and Tytel devote time to both Marquee and Triathlon, and
the amount of time they continue to devote to those companies could detract
from their duties as officers and directors of SFX Entertainment. However,
neither Mr. Sillerman nor Mr. Tytel has an employment agreement with Marquee
or Triathlon, and they do not anticipate devoting significant amounts of time
to Marquee or Triathlon.
Furthermore, the operations of each of the businesses to be acquired in
the Pending Acquisitions are local in nature and depend to a significant
degree on the continued services of between one to three individuals at each
business, all of whom SFX Entertainment anticipates employing pursuant to
written employment agreements after the Pending Acquisitions are consummated.
See "Management" and "Certain Relationships and Related Transactions." SFX
Entertainment anticipates that each of these individuals will make
significant contributions to its business, and the loss of their services
could have a material adverse effect on SFX Entertainment's business,
financial condition and results of operations. There can be no assurance that
SFX Entertainment will be able to retain the services of these individuals.
See "Management."
POTENTIAL CONFLICTS OF INTEREST
Marquee is a publicly-traded company that, among other things, acts as
booking agent for tours and appearances for musicians and other entertainers.
Messrs. Sillerman and Tytel have an aggregate equity interest of
approximately 9.2% in Marquee; Mr. Sillerman is the chairman of the board of
directors, and Mr. Tytel is a director, of Marquee. See "Certain
Relationships and Related Transactions--Potential Conflicts of Interest." SFX
Entertainment anticipates that, from time to time, it will enter into
transactions and arrangements (particularly, booking arrangements) with
Marquee and Marquee's clients, and it may compete with Marquee for specific
concert promotion engagements. In any transaction or arrangement with
Marquee, Messrs. Sillerman and Tytel are likely to have conflicts of interest
as officers and directors of SFX Entertainment. Any such transaction or
arrangement will be subject to the approval of the independent committees of
SFX Entertainment and SFX, except that booking arrangements in the ordinary
course of business will be subject to periodic review but not the approval of
each particular arrangement.
In addition, Marquee acts as a promoter of various sporting events and
sports personalities. At the time of the consummation of the Contemporary
Acquisition, SFX Entertainment will produce ice skating and gymnastics events
that may compete with events in which Marquee is involved. See "Certain
Relationships and Related Transactions--Potential Conflicts of Interest."
In addition, prior to the consummation of the SFX Merger, Mr. Sillerman
and other members of SFX Entertainment's management team will have management
obligations to both SFX and Entertainment that may cause them to have certain
conflicts of interest. See "Management--Employment Agreements and
Arrangements with Certain Officers and Directors" and "Certain Relationships
and Related Transactions--Potential Conflicts of Interest."
Pursuant to the employment agreement entered into between Brian Becker and
SFX Entertainment, Mr. Becker has the option, exercisable within 15 days
after the second anniversary of the consummation
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of the PACE Acquisition, to acquire SFX Entertainment's then existing motor
sports line of business (or, if that line of business has previously been
sold, SFX Entertainment's then existing theatrical line of business) at its
then fair market value. Mr. Becker's option may present a conflict of
interest in his role as a director of SFX Entertainment in evaluating
proposals for the acquisition or development of either line of business. See
"--Control of Motor Sports and Theatrical Businesses" and "Agreements Related
to the Pending Acquisitions--PACE Acquisition."
INDEMNIFICATION ARRANGEMENTS
In the Distribution Agreement, SFX Entertainment will agree to indemnify,
defend and hold SFX and its subsidiaries harmless from and against certain
liabilities to which SFX or any of its subsidiaries may be or become subject.
These liabilities relate to the assets, business, operations, employees
(including under any employment agreement assumed by SFX Entertainment in the
Spin-Off), debts or liabilities of SFX Entertainment and its subsidiaries
(collectively, the "SFX Entertainment Group"). Although SFX Entertainment
does not anticipate that any material liabilities for which it has agreed to
indemnify SFX and its subsidiaries will arise, it is possible that SFX
Entertainment will become subject to these liabilities. Any of these
liabilities may have a material adverse effect on SFX Entertainment's
business, financial condition or results of operations.
In addition, pursuant to the tax sharing agreement to be entered into
between SFX Entertainment and SFX (the "Tax Sharing Agreement"), SFX
Entertainment also will be responsible for certain taxes resulting from the
Spin-Off, including any income taxes to the extent that the income taxes
result from gain on the distribution that exceeds the net operating losses of
SFX and SFX Entertainment available to offset gain resulting from the
Spin-Off. See "Agreements Between SFX Entertainment and SFX." The actual
amount of the indemnification payment by SFX Entertainment to SFX will be
based on the value of the SFX Entertainment Common Stock on the date of the
Spin-Off; this amount cannot be predicted with accuracy at this time. It is
possible that the amount of the indemnification payment will be significant
and will have a material adverse effect on SFX Entertainment.
Concurrently with the execution of the SFX Merger Agreement, Mr. Sillerman
waived his right to receive indemnification from SFX, its subsidiaries, SFX
Buyer Sub and SFX Buyer, after the effective time of the SFX Merger with
respect to claims or damages relating to the SFX Merger Agreement and the
transactions contemplated thereby, except to the extent that SFX can be
reimbursed under the terms of its directors' and officers' liability
insurance. It is anticipated that, after the Spin-Off, SFX Entertainment will
agree to indemnify (to the extent permitted by law) Mr. Sillerman for any
such claims or damages. In addition, pursuant to Messrs. Sillerman's and
Ferrel's existing employment agreements with SFX (which will be assumed by
SFX Entertainment pursuant to the SFX Merger Agreement), SFX Entertainment
will be obligated to indemnify them (to the extent permitted by law) for
one-half of the cost of any excise tax that may be assessed against them for
any change-of-control payments made to them by SFX in connection with the SFX
Merger. See "Certain Relationships and Related Transactions--Assumption of
Employment Agreements; Certain Change of Control Payments and
- --Indemnification of Mr. Sillerman."
SEASONALITY
SFX Entertainment's operations and revenues are largely seasonal in
nature, with generally higher revenue generated in the second and third
quarters of the year. For example, on a pro forma basis for the Recent
Acquisitions, SFX Entertainment generated approximately 70% of its revenues
in the second and third quarters for the 12 months ending September 30, 1997.
SFX Entertainment's outdoor venues are primarily utilized in the summer
months and do not generate substantial revenue in the late fall, winter and
early spring. Similarly, the musical concerts that SFX Entertainment promotes
largely occur in the second and third quarters. To the extent that SFX
Entertainment's entertainment marketing and consulting relate to musical
concerts, they also predominantly generate revenues in the second and third
quarters. Therefore, the seasonality of SFX Entertainment's business causes
(and will probably continue to cause) a significant variation in SFX
Entertainment's quarterly operating results. These variations in demand could
have a material adverse effect on the timing of SFX Entertainment's cash
flows and, therefore, on its ability to service its obligations with respect
to its indebtedness. However, SFX
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Entertainment believes that this variation may be somewhat offset with the
acquisition of typically non-summer seasonal businesses in the Pending
Acquisitions, such as motor sports (which is winter-seasonal) and Touring
Broadway Shows (which typically tour between September and May). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
COMPETITION
Competition in the live entertainment industry is intense, and competition
is fragmented among a wide variety of entities. SFX Entertainment competes on
a local, regional and national basis with a number of large venue owners and
entertainment promoters for the hosting, booking, promoting and producing of
music concerts, theatrical shows, motor sports events and other live
entertainment events. Moreover, SFX Entertainment's marketing and consulting
operations compete with advertising agencies and other marketing
organizations. SFX Entertainment and the Acquisition Businesses compete not
only with other live entertainment events, including sporting events and
theatrical presentations, but also with non-live forms of entertainment, such
as television, radio and motion pictures. A number of SFX Entertainment's
competitors may have greater operating and financial flexibility than SFX
Entertainment. In addition, many of these competitors also have long-standing
relationships with performers, producers and promoters and may offer other
services that are not provided by SFX Entertainment. There can be no
assurance that SFX Entertainment will be able to compete successfully in this
market or against these competitors. See "Business--Competition."
REGULATORY MATTERS
SFX Entertainment's business is not generally subject to material
governmental regulation. However, if SFX Entertainment seeks to acquire or
construct new venue operations, its ability to do so will be subject to
extensive local, state and federal governmental licensing, approval and
permit requirements, including approvals of state and local land-use and
environmental authorities, building permits, zoning permits and liquor
licenses. Significant acquisitions may also be subject to the requirements of
the HSR Act. Other types of licenses, approvals and permits from governmental
or quasi-governmental agencies might also be required for other opportunities
that SFX Entertainment may pursue in the future, although SFX Entertainment
has no agreements or understandings with respect to these opportunities at
this time. There can be no assurance that SFX Entertainment will be able to
obtain the licenses, approvals and permits it may require from time to time
in order to operate its business.
ENVIRONMENTAL MATTERS
SFX Entertainment has real property relating to its business, consisting
of fee interests, leasehold interests and other contractual interests. SFX
Entertainment's properties are subject to foreign, federal, state and local
environmental laws and regulations regarding the use, storage, disposal,
emission, release and remediation of hazardous and nonhazardous substances,
materials or wastes, including laws relating to noise emissions (which may
affect, among other things, the hours of operation of SFX Entertainment's
venues). Further, under certain of these laws and regulations, SFX
Entertainment could be held strictly, jointly and severally liable for the
remediation of hazardous substance contamination at its facilities or at
third-party waste disposal sites, and could also be held liable for any
personal or property damage related to any contamination. SFX Entertainment
believes that it is, and the properties to be acquired in the Pending
Acquisitions are, in substantial compliance with all of these laws and
regulations, and has performed preliminary environmental assessments of all
of the properties that are (or after consummating the Pending Acquisitions
will be) wholly-owned, without identifying material environmental hazards.
Although the level of future expenditures cannot be determined with
certainty, SFX Entertainment does not anticipate, based on currently known
facts, that its environmental costs are likely to have a material adverse
effect on SFX Entertainment's business, financial condition and results of
operations.
FRAUDULENT CONVEYANCE
The Board of Directors of SFX does not intend to consummate the Spin-Off
unless it is satisfied that SFX is solvent before and will be solvent
following the Spin-Off and that the Spin-Off is otherwise permissible under
applicable law. There is no certainty, however, that a court would find the
facts relied
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on and the judgments made by the Board of Directors of SFX to be binding on
creditors of SFX or that a court would reach the same conclusions as the
Board of Directors of SFX in determining that SFX is solvent at the time of,
and after giving effect to, the Spin-Off. If a court in a lawsuit filed by an
unpaid creditor or representative of unpaid creditors, such as a trustee in
bankruptcy, were to find that, at the time the Spin-Off is consummated or
after giving effect thereto, SFX (a) was insolvent, (b) was rendered
insolvent by reason of the Spin-Off, (c) was engaged in a business or
transaction for which the remaining assets of SFX constituted unreasonably
small capital or (d) intended to incur, or believed it would incur, debts
beyond its ability to pay as the debts matured, then the court might void the
Spin-Off (in whole or in part) as a fraudulent conveyance and require SFX's
stockholders to return the shares of SFX Entertainment distributed in the
Spin-Off (in whole or in part) to SFX or require SFX Entertainment to fund
certain liabilities of SFX for the benefit of SFX's creditors. If the assets
of SFX Entertainment were recovered as fraudulent transfers by a creditor or
trustee of SFX, the relative priority of right to payment between any
financing and any fraudulent transfer claimant would be unclear, and SFX
Entertainment could be rendered insolvent. In addition, under applicable
corporate law, a corporation generally makes distributions to its
stockholders only out of its surplus (net assets minus capital) and not out
of capital. The foregoing consequences would also apply were a court to find
that the Spin-Off was not made out of SFX surplus. Indebtedness of SFX
Entertainment is being incurred to finance the Pending Acquisitions, to
refinance certain indebtedness of SFX Entertainment and the Pending
Acquisitions, to pay related fees and expenses, and for general corporate
purposes. Management believes that the indebtedness of SFX Entertainment
represented by the Financing is being incurred for proper purposes and in
good faith, and that, based on present forecasts and other financial
information, after the consummation of the Spin-Off and the Pending
Acquisitions, SFX Entertainment will be solvent, will have sufficient capital
for carrying on its business and will be able to pay its debts as they
mature.
SFX Entertainment believes that, in accordance with the facts examined in
connection with the Spin-Off and the Financing, (a) SFX and SFX Entertainment
will be solvent at the time of the Spin-Off and the Financing, respectively,
and (b) the Spin-Off will be made entirely out of SFX surplus in accordance
with applicable law. However, SFX Entertainment cannot predict what standard
a court might apply in evaluating these matters, and it is possible that the
court would disagree with SFX Entertainment's conclusions.
ANTI-TAKEOVER EFFECTS
The Amended and Restated Certificate of Incorporation of SFX Entertainment
(the "SFX Entertainment Certificate"), the By-laws of SFX Entertainment (the
"SFX Entertainment By-laws") and the Delaware General Corporation Law (the
"DGCL") contain (or will contain) several provisions that could have the
effect of delaying, deferring or preventing a change of control of SFX
Entertainment in a transaction not approved by the Board. The SFX
Entertainment Certificate will provide for the issuance of shares of SFX
Entertainment Class B Common Stock (with 10 votes per share in most matters),
and the holders of these shares will generally be able to prevent a change of
control of SFX Entertainment if they so desire. In addition, the SFX
Entertainment Certificate will authorize the Board to issue up to 25,000,000
shares of preferred stock in one or more series and to fix the number of
shares and the relative designations and powers, preferences, and rights, and
qualifications, limitations, and restrictions thereof, without further vote
or action by the stockholders. Issuances of preferred stock could, under
certain circumstances, have the effect of delaying or preventing a change in
control of SFX Entertainment and may adversely affect the rights of holders
of SFX Entertainment Common Stock. Furthermore, SFX Entertainment is subject
to the anti-takeover provisions of Section 203 of the DGCL, which prohibit
SFX Entertainment from engaging in a "business combination" with an
"interested stockholder" for three years after the date of the transaction in
which the person became an interested stockholder (unless the business
combination is approved in a prescribed manner). The application of Section
203 could also have the effect of delaying or preventing a change in control
of SFX Entertainment. The Board has also adopted certain other programs,
plans and agreements with SFX Entertainment's management and/or employees
that may make a change of control more expensive. See "Management" and
"Description of Capital Stock."
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OVERVIEW OF THE LIVE ENTERTAINMENT INDUSTRY
CONCERT PROMOTION INDUSTRY
The concert promotion industry consists primarily of regional promoters
focused generally in one or two major metropolitan markets. According to
Amusement Business, industry gross box office receipts for North American
concert tours totaled $922 million in 1996, compared to $322 million in 1985,
representing a compounded annual growth rate of approximately 10%. SFX
Entertainment believes that overall increases in ticket sales during the last
several years are in part due to the increasing popularity of amphitheaters
as live entertainment venues, as well as an increasing number of tours that
attract older audiences who did not previously attend musical concerts.
Typically, in order to initiate a music concert or other live
entertainment event or tour, a booking agent contracts with a performer to
arrange a venue and date, or series of venues and dates, for the performer's
event. The booking agent in turn contacts a promoter or promoters in the
locality or region of the relevant venue or venues. The promoter markets the
event, sells tickets, rents or otherwise provides the event venue or venues,
and arranges for local production services (such as stage, set, sound and
lighting). In certain instances, particularly in connection with music
festivals, a promoter may also provide limited production services.
Individual industry participants, such as SFX Entertainment, often perform
more than one of the booking, promotion and venue operation functions.
The booking agent generally receives a fixed fee for its services, or in
some cases, a fee based on the success of the event or events, in each case
from the artist. The promoter typically agrees to pay the performer the
greater of a guaranteed amount and a profit-sharing payment based on gross
ticket revenues, therefore assuming the risk of an unsuccessful event. The
promoter sets ticket prices and advertises the event in order to cover
expenses and generate profits. In the case of an unprofitable event, a
promoter will sometimes renegotiate a lower guarantee in order to mitigate
the promoter's losses (in a process known as "settlement"). In some
instances, the promoter agrees to accept a fee from the booking agent for the
promoter's services, and the booking agent bears the financial risk of the
event.
A venue operator typically contracts with a promoter to rent its venue for
a specific event on a specific date or dates. The venue operator provides
services such as concessions, parking, security, ushers and ticket-takers,
and receives revenues from concessions, merchandise, sponsorships, parking
and premium box seats. A venue operator will typically receive (for each
event it hosts) a fixed fee or percentage of ticket sales for use of the
venue, as well as a fee representing between 40-50% of total concession sales
from the vendors and 10-25% of total merchandise sales from the performer.
Concert venues are generally comprised of stadiums (typically 32,000 seats
or more), amphitheaters or arenas (typically 5,000 to 32,000 seats), clubs
(typically less than 2,000 seats) and theaters (typically 100 to 5,000
seats). Amphitheaters are generally outdoor venues that are used primarily in
the summer season. They have become increasingly popular venues for concerts
because the seating configuration is designed specifically for concert
events, often resulting in more available seats, fewer obstructed seats,
better lines of sight to the stage and superior acoustics. In addition,
because they typically cost less to construct, maintain and operate than
traditional multi-purpose stadiums and arenas, amphitheaters often are able
to host concerts and other events that would not be profitable in a stadium
or arena.
THEATRICAL INDUSTRY
The audience for live professional theater has increased significantly in
the last two decades. According to Variety Magazine, gross ticket sales for
the entire industry of Touring Broadway Shows and Broadway shows have
increased from $431.5 million during the 1986-7 season to $1.3 billion during
the 1996-7 season, a compounded annual growth rate of 11.7%. During this
time, the number of touring weeks and markets where Touring Broadway Shows
could profitably be presented have expanded. Sales for Touring Broadway Shows
have grown as a percentage of total industry gross ticket sales, from
approximately 52% in the 1986-7 season to approximately 60% in the 1996-7
season. The growth of the national theatrical industry had resulted, in part,
from the development of local subscription series for Touring Broadway Shows,
the construction of new performing arts centers with seating capacities of
2,500 or more in many municipalities, and an increase in the quality of
Touring Broadway Shows and in the
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number of multiple-week engagements produced for presentation outside of New
York City. Touring Broadway Shows are typically revivals of previous
commercial successes or reproductions of theatrical shows currently playing
on Broadway in New York City ("Broadway Shows").
Live professional theater consists mainly of the production of existing
musical and dramatic works and the development of new works. In general,
musicals require more investment of time and capital than dramatic
productions. For an existing musical work (which is more likely to be
presented as a Touring Broadway Show), a period of 12 to 24 months typically
elapses between the time a producer acquires the theatrical stage rights and
the date when the musical is first performed before the public. During this
time, a touring company is assembled, and the show is readied for the road.
By comparison, dramatic productions typically have smaller production
budgets, shorter pre-production periods and lower operating costs, and tend
to occupy smaller theaters for shorter runs.
A producer of a Broadway Show or a Touring Broadway Show first acquires
the rights to the work from its owners, who typically receive royalty
payments in return. The producer then assembles the cast of the play, hires a
director and arranges for the design and construction of sets and costumes.
The producer of a Touring Broadway Show also must arrange transportation and
schedule the show with local promoters. The local promoter of a Touring
Broadway Show, who generally operates or has relationships with venues in
individual markets, provides all local services such as selling tickets,
hiring local personnel, buying advertising and paying a fixed guarantee
(typically between $100,000 and $400,000) to the producer of the show for
each week that the show is presented. The promoter is then entitled to
recover the amount of the guarantee plus its local costs from ticket
revenues. Any remaining ticket revenues are shared by the promoter and the
producer, with the producer typically receiving approximately 60% of the
profits. Although Touring Broadway Shows are generally substantially less
expensive to produce than Broadway Shows, they may be financed through a
limited partnership with third-party investors who receive a profit interest
in the production. Often, investors in Touring Broadway Shows will also
invest in the underlying Broadway Show, in part to help secure touring
rights. After investors have received the complete return of their
investment, net profits are split between the limited partners and the show's
producer. The amount of net profits allocated to the show's producer,
including fees and royalties, varies somewhat, but is normally in the range
of 50% after certain profit participations are deducted. After certain net
profits, a producer may also receive a production fee and royalties. A
typical Touring Broadway Show requires 45 playing weeks with a weekly
guarantee from the local promoter of approximately $250,000 to recoup
production and touring costs; more elaborate touring productions with larger
casts or sets, such as The Phantom of the Opera or Miss Saigon, generally
require significantly higher weekly revenues and additional playing weeks in
order to recoup production and touring costs.
Tickets for Touring Broadway Shows often are sold through "subscription
series," which are pre-sold season tickets for a defined package of shows to
be presented in a given venue.
MOTOR SPORTS INDUSTRY
Specialized motor sports events make up a growing segment of the live
entertainment industry. This growth has resulted from additional demand in
existing markets and new demand in markets where new arenas and stadiums have
been built. The increasing popularity of specialized motor sports over the
last several years has coincided with (and, in part, been due to) the
increased popularity of other professional motor sports events, such as
professional auto racing (including NASCAR, CART and Indy Car Racing). A
number of specialized motor sports events are televised on several of the
major television networks and are also shown on television in markets outside
of the United States.
In general, one to four motor sports events will be produced and presented
each year in a market, with larger markets hosting more performances.
Stadiums and arenas typically work with producers and promoters to manage the
scheduling of events to maximize each event's results and each season's
revenues. The cost of producing and promoting a typical single stadium event
ranges from $300,000 to $600,000, and the cost of producing and presenting a
typical single arena event ranges from $50,000 to $150,000. Monster trucks,
demolition derbies, thrill acts, air shows and other motor sports concepts
and events are typically created and financed by third parties and hired to
perform in an individual event or season of events. As in other motor sports,
corporate sponsorships and television exposure are important financial
components that contribute to the success of a single event or season of
events.
D-28
<PAGE>
BUSINESS
There can be no assurance that any or all of the Pending Acquisitions will
be consummated on the terms described herein, or at all. See "Risk
Factors--Risks Related to Pending Acquisitions."
GENERAL
SFX Entertainment, Inc. is a leading promoter of, and operator of venues
for, live entertainment events. Upon consummation of the Pending
Acquisitions, management believes that SFX Entertainment will be the largest
diversified promoter and producer of live entertainment, including music
concerts, theatrical shows and specialized motor sports events. After
consummation of the Pending Acquisitions, SFX Entertainment (which currently
owns or operates 20 venues) believes that it will own and/or operate the
largest network of venues used principally for music concerts and other live
entertainment events in the United States, with 40 venues either directly
owned or operated under lease or exclusive booking arrangements in 21 of the
top 50 markets, including 9 amphitheaters in 6 of the top 10 markets. Through
its large number of venues, its strong market presence and the long operating
histories of SFX Entertainment and the businesses to be acquired pursuant to
the Pending Acquisitions, SFX Entertainment will operate an integrated
franchise that will promote and produce a broad variety of live entertainment
events locally, regionally and nationally. During 1997, approximately 1.4
million people attended approximately 210 events promoted and/or produced by
SFX Entertainment, including approximately 200 music concerts. During the
same year, approximately 25 million people attended 9,100 events promoted
and/or produced by SFX Entertainment and the Acquisition Businesses,
including approximately 3,880 music concerts, 4,850 theatrical shows and 188
specialized motor sports events. These events included: (a) music concerts
featuring artists such as The Rolling Stones, Phish, Fleetwood Mac, Ozzy
Osbourne and Alanis Morissette, (b) music festivals such as Lollapalooza and
the George Strait Country Music Festival, (c) touring theatrical productions
such as The Phantom of the Opera, Jekyll & Hyde, Rent and The Magic of David
Copperfield, and (d) specialized motor sports events, such as Truck Fest and
American Motorcycle Association Supercross racing events.
SFX Entertainment's core business is the promotion and production of live
entertainment events, most significantly for concert and other music
performances in venues owned and/or operated by SFX Entertainment and in
third-party venues. As promoter, SFX Entertainment typically markets events
and tours, sells tickets, rents or otherwise provides event venues and
arranges for local production services (such as stage, set, sound and
lighting). As producer, SFX Entertainment, upon consummation of the Pending
Acquisitions, will (a) create tours for music concert, theatrical,
specialized motor sports and other events, (b) develop and manage Touring
Broadway Shows and (c) develop specialized motor sports and other live
entertainment events. In connection with its live entertainment events, SFX
Entertainment also derives related revenue streams, including from the sale
of corporate sponsorships and advertising, the sale of concessions and the
merchandising of a broad range of products. On a pro forma basis giving
effect to the Pending Acquisitions, SFX Entertainment's music and ancillary
businesses would have comprised approximately 77%, theater would have
comprised approximately 17% and specialized motor sports would have comprised
approximately 6% of SFX Entertainment's total net revenues for the 12 months
ended September 30, 1997.
CURRENT AND HISTORICAL OPERATIONS
SFX Entertainment, currently a wholly-owned subsidiary of SFX, was formed
in January of 1997 to acquire and hold SFX's live entertainment operations.
SFX acquired Delsener/Slater, a New York-based concert promotion company, in
January 1997. Delsener/Slater has long-term leases or is the exclusive
promoter for several concert venues in the New York City metropolitan area,
including the Jones Beach Amphitheater, a 14,000-seat complex located in
Wantagh, New York, and the PNC Bank Arts Center (formerly known as the Garden
State Arts Center), a 17,500-seat complex located in Holmdel, New Jersey. In
March 1997, Delsener/Slater acquired a 37-year lease to operate the Meadows
Music Theater, a 25,000-seat indoor/outdoor complex located in Hartford,
Connecticut. In June 1997, SFX acquired Sunshine Promotions, a concert
promoter in the Midwest. As a result of the acquisition of Sunshine
Promotions, SFX Entertainment owns the Deer Creek Music Theater, a
21,000-seat complex located in
D-29
<PAGE>
Indianapolis, Indiana and the Polaris Amphitheater, a 20,000-seat complex
located in Columbus, Ohio, and has a long-term lease to operate the Murat
Centre, a 2,700-seat theater and 2,200-seat ballroom located in Indianapolis,
Indiana. In certain cases, the senior management of Delsener/Slater have
certain rights to purchase the outstanding stock of Delsener/Slater, along
with certain other rights to receive additional cash payments. See "Risk
Factors--Control of Delsener/Slater" and "Certain Relationships and Related
Transactions--Delsener/Slater Employment Agreements." SFX Entertainment has
also acquired rights or ownership interests in various additional venues, as
set forth in "--SFX Entertainment's Live Entertainment Activities--Venue
Operation."
SFX was formed in 1992 principally to acquire and operate radio
broadcasting stations. In August 1997, SFX agreed to the SFX Merger and to
the Spin-Off of SFX Entertainment to the stockholders of SFX on a pro rata
basis. Before consummating the SFX Merger, SFX intends (a) to contribute its
concert and other live entertainment operations to SFX Entertainment and (b)
to distribute all of the outstanding shares of common stock of SFX
Entertainment to the holders of common stock, Series D preferred stock and
certain warrants of SFX in the Spin-Off. SFX Entertainment intends to borrow
under the Proposed Credit Facility and consummate the Pending Acquisitions
before the Spin-Off and the SFX Merger. SFX intends to consummate the
Spin-Off on or prior to the consummation of the SFX Merger. The Spin-Off is
subject to certain conditions, including (a) the acceptance for listing or
trading of the SFX Entertainment Class A Common Stock, subject to official
notice of issuance, on a national exchange or The Nasdaq Stock Market and (b)
the receipt of all necessary third-party and stockholder consents to the
Spin-Off as presently contemplated. There can be no assurance that the
conditions to the Spin-Off will be satisfied or that the Pending Acquisitions
will be consummated prior to the Spin-Off on the terms described herein or at
all. However, the Spin-Off is not conditioned on the prior consummation of
the Financing, any of the Pending Acquisitions or the SFX Merger. Management
believes that the Spin-Off is likely to be consummated early in the second
quarter of 1998, although there can be no assurance that the Spin-Off will be
consummated on the terms described herein or at all.
SFX ENTERTAINMENT'S LIVE ENTERTAINMENT ACTIVITIES
SFX Entertainment is, and after the consummation of the Pending
Acquisitions will be to a greater extent, engaged in (a) the booking,
promotion and production of live entertainment events and tours, (b) the
ownership and/or operation of concert and other entertainment venues and (c)
the sale of corporate sponsorships and advertising and provision of marketing
and consulting services to third parties.
Booking and Promotion
Currently, SFX Entertainment books and promotes music concert and other
live entertainment events, principally in the New York--Northern New
Jersey--Long Island, Indianapolis, Columbus, Hartford and Rochester markets.
SFX Entertainment and the Acquisition Businesses book and promote music
concert, theatrical, specialized motor sports and other live entertainment
events and tours such as music festivals, comedy tours, figure skating shows,
gymnastics tours, motivational speaking tours and other special events. SFX
Entertainment and the Acquisition Businesses book and promote events in a
number of types of venues (including amphitheaters, theaters, clubs, arenas
and stadiums) that are owned and/or operated by SFX Entertainment, by the
Acquisition Businesses or by third parties. See "--Venue Operations." SFX
Entertainment and the Acquisition Businesses primarily promote concerts
performed by newer groups having widespread popularity (e.g., Phish, Dave
Matthews and Hootie & the Blowfish) and by more established groups having
relatively long-standing and more stable bases of popularity (e.g., James
Taylor and Jimmy Buffet). Operating profit per show for concerts performed by
either type of group tends to be generally similar because the more popular
new groups command significantly higher ticket prices but also require higher
compensation, while more established groups may draw larger audiences.
Moreover, SFX Entertainment believes that its large distribution network upon
consummation of the Pending Acquisitions will enable it to set an aggregate
guarantee for a series of shows, mitigating the risk of loss associated with
a single show. SFX Entertainment also believes that the market research and
audience demographics database that it will acquire in the Pending
Acquisitions, when combined with its existing audience data collection
efforts, will permit highly-effective, targeted marketing, such as
D-30
<PAGE>
direct-mail and subscription series campaigns, which SFX Entertainment
believes will increase ticket pre-sales and overall sales in a cost-efficient
manner. In addition, Contemporary's Capital Tickets retail distribution
outlets and Dialtix interactive, voice-response automated phone ticket order
system are currently operating in three markets. SFX Entertainment believes
that expanding the markets where it can utilize its own ticketing sources
will permit SFX Entertainment to promote its live entertainment events more
effectively. The following table identifies artists whose events were
recently promoted by SFX Entertainment or the Acquisition Businesses:
<TABLE>
<CAPTION>
<S> <C> <C>
Aerosmith Elton John Phil Collins
Alabama Fleetwood Mac* Pink Floyd
Alanis Morissette James Taylor Phish
Bette Midler Jerry Seinfeld* R.E.M.
Billy Joel Jimmy Buffett Rod Stewart
Brooks & Dunn John Secada The Rolling Stones
Chris Rock* Live Seal
Clint Black Melissa Etheridge Sheryl Crow
Crosby, Stills & Nash Metallica Smashing Pumpkins
Dave Matthews Michael Bolton Stone Temple Pilots
Depeche Mode Ozzy Osbourne* Tim Allen*
The Eagles Pearl Jam Tina Turner
Earth, Wind & Fire Peter Gabriel U2
</TABLE>
* National tour produced.
Production
SFX Entertainment is currently involved in the creation of tours for music
concert and other live entertainment events. Upon consummation of the Pending
Acquisitions, SFX Entertainment's production activities will be broadened to
include (a) the creation of tours for music concert, theatrical, specialized
motor sports and other live entertainment events, (b) the development and
management of Touring Broadway Shows and (c) the development of specialized
motor sports shows, proprietary characters and television programming. The
Acquisition Businesses produce tours on a national or regional basis and, in
1997, structured national tours for Fleetwood Mac and Ozzy Osbourne, among
others. SFX Entertainment plans to increase its production of national music
tours. PACE also produces Touring Broadway Shows, acquiring the stage and
touring rights from a show's owner, assembling the touring cast, hiring a
director and arranging for the construction and design of sets and costumes.
Touring Broadway Shows are typically revivals of previous commercial
successes or reproductions of theatrical shows currently playing on Broadway
in New York City. PACE also produces and makes small investments (i.e., from
approximately $150,000 to $600,000) as a limited partner in the creation of a
small number of original Broadway Shows in exchange for obtaining touring
rights and favorable scheduling for those shows.
The Touring Broadway Show production and promotion industry is highly
fragmented. SFX Entertainment believes it will be, after consummating the
Pending Acquisitions, the largest of six multiple-market promoters of Touring
Broadway Shows in the United States, and that the remainder of the industry
is made up of single-market promoters. PACE competes with other producers and
promoters to obtain presentation arrangements with venues and performing arts
organizations in various markets, including in markets that have more than
one venue suitable for presenting a Touring Broadway Show. Upon consummation
of the Pending Acquisitions, SFX Entertainment's competitors, some of whom
have also been partners of PACE in certain theater investments from time to
time, will include a number of
D-31
<PAGE>
New York-based production companies that also promote Touring Broadway Shows
and a number of regional promoters. On a pro forma basis giving effect to the
Pending Acquisitions, SFX Entertainment would have had a producing interest
or investment in the following shows for 1997 and/or 1998:
<TABLE>
<CAPTION>
SHOW TITLE TYPE SFX ENTERTAINMENT'S INVOLVEMENT
- ------------------------------ ---------------------- -----------------------------------
<S> <C> <C>
Big Touring Production
Damn Yankees Touring Production
David Copperfield Touring Production
Death Trap Touring Production
Funny Girl Touring Production
Harmony Development Production
Jekyll & Hyde Broadway Production
Kiss of the Spiderwoman Touring Production
Man of La Mancha Touring Production
Smokey Joe's Cafe Touring Production
The Sound of Music Touring Production
West Side Story Touring Production
A Chorus Line Touring (US & UK) Investment
Annie Broadway Investment
Carousel Touring Investment
Cirque Ingenieux Touring Investment
Grease Broadway & Touring Investment
Chicago Broadway & Touring Investment
How to Succeed in Business Broadway & Touring Investment
Martin Guerre West End (UK) Investment
Rent Broadway & Touring Investment
Steel Pier Broadway Investment
Triumph of Love Broadway Investment
West Side Story Touring (UK) Investment
</TABLE>
SFX Entertainment believes that there are approximately 50 domestic
markets that can provide the potential audience and gross ticket revenues for
a full scale Touring Broadway Show to be profitable, and an additional 50
markets where smaller scale productions with shorter runs can be presented
profitably. In most of these cities, there are a limited number of venues
that can accommodate a Touring Broadway Show.
PACE currently sells subscription series for its Touring Broadway Shows in
the following 31 of the approximately 60 markets that maintain active touring
schedules:
<TABLE>
<CAPTION>
<S> <C> <C>
Atlanta, GA Long Beach, CA Palm Beach, FL
Austin, TX Louisville, KY Phoenix, AZ
Baltimore, MD Miami, FL Pittsburgh, PA
Chicago, IL Milwaukee, WI Portland, OR
Cincinnati, OH Minneapolis, MN San Antonio, TX
Columbus, OH Myrtle Beach, SC Seattle, WA
Dallas, TX Nashville, TN Tampa, FL
Ft. Lauderdale, FL New Orleans, LA Ottawa, Canada
Green Bay, WI Omaha, NE Edmonton, Canada
Houston, TX Orange County, CA
Indianapolis, IN Orlando, FL
</TABLE>
D-32
<PAGE>
Subscriptions historically have covered two-thirds of PACE's break-even
point for Touring Broadway Shows. In 1997, PACE had approximately 220,000
subscribers for its Touring Broadway Shows.
Certain of the Acquisition Businesses also produce motor sports events
such as monster truck events, tractor pulls, mud races, demolition derbies
and motocross races, and design tracks and other elements for those events.
Competition among producers in the specialized motor sports industry is
between three large companies and a number of smaller regional companies. SFX
Entertainment believes that, upon consummation of the Pending Acquisitions,
it will be the largest participant in the industry, on a pro forma basis
having produced 188 events in over 70 markets in 1997. SFX Entertainment's
two major specialized motor sports competitors produce approximately 40 and
55 events each year, respectively. SFX Entertainment also will compete with
several regional specialized motor sports companies, which each present only
a small number of events, as well as a number of local promoters that present
only one or two events per year.
In addition, SFX Entertainment and the Acquisition Businesses produce a
variety of other forms of live entertainment, including music festivals,
radio programs, air shows, figure skating shows, gymnastics tours, comedy
tours, motivational speaking tours and television programming based on
certain of their events and other events.
Venue Operations
SFX Entertainment's revenues from its venue operations are derived
primarily from corporate sponsorships and advertising, concessions,
merchandise, parking and other related items. A venue operator will typically
receive for each event it hosts a fixed fee or percentage of ticket sales for
use of the venue, as well as a fee representing between 40-50% of total
concession sales from the vendors and 10-25% of total merchandise sales from
the performer. As a venue owner, SFX Entertainment typically receives 100% of
sponsorship and advertising revenues. Since few artists will play in every
available market during a tour, SFX Entertainment competes with venues in
other markets for dates of popular national tours. The favorable cost
structure of amphitheaters and their ability to draw fans is often an
important factor in the decision of a performer to choose to perform in an
amphitheater market. In certain cities, SFX Entertainment also competes with
other venues to promote an artist in that city. SFX Entertainment currently
owns and/or operates under lease or exclusive booking arrangement a total of
20 venues, including two amphitheaters and two theaters in the New
York--Northern New Jersey--Long Island market, an amphitheater and a
theater/ballroom in the Indianapolis market, an amphitheater in the Columbus
market, an amphitheater in the Hartford market and an amphitheater in the
Rochester market. After consummation of the Pending Acquisitions, SFX
Entertainment (which currently owns or operates 20 venues) believes that it
will own and/or operate the largest network of venues used principally for
music concerts and other live entertainment events in the United States, with
40 venues either directly owned or operated under lease or exclusive booking
arrangements in 21 of the top 50 markets, including 9 amphitheaters in 6 of
the top 10 markets. The following chart sets forth certain information with
respect to the venues that will be owned and/or operated by SFX
Entertainment, after giving effect to the Pending Acquisitions:
<TABLE>
<CAPTION>
SFX TOTAL AVG. NO. OF TOTAL SEATS
MARKET TYPE OF ENTERTAINMENT'S SEATING ATTENDANCE EVENTS SOLD IN
MARKET AND VENUE RANK(1) VENUE INTEREST CAPACITY IN 1996 IN 1996 1996
- -------------------------- -------- -------------- ---------------------- ----------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
New York--Northern New 1
Jersey--Long Island:
PNC Bank Arts
Center(2)(formerly
Garden State Arts
Center)(Holmdel, NJ) .. amphitheater 22-year lease (expires 17,500(3) 6,512 48 312,595
October 31, 2017)
Jones Beach Marine
Amphitheater (Wantagh, amphitheater 10-year license 14,000(3) 8,712 44 383,314
NY) ................... agreement (expires
December 31, 1999)
Roseland Theater ....... theater exclusive booking 3,200 2,765 57 157,605
agent
Westbury Music Fair
(Westbury, NY) ........ theater 43-year lease (expires 2,870 2,026 190 384,917
December 31, 2034)
D-33
<PAGE>
SFX TOTAL AVG. NO. OF TOTAL SEATS
MARKET TYPE OF ENTERTAINMENT'S SEATING ATTENDANCE EVENTS SOLD IN
MARKET AND VENUE RANK(1) VENUE INTEREST CAPACITY IN 1996 IN 1996 1996
- -------------------------- -------- -------------- ---------------------- ----------- ------------ --------- -------------
Los Angeles--Riverside-- 2
Orange County:
Glen Helen Blockbuster
Pavilion(2)
(San Bernardino, CA) .. amphitheater 50% partnership 25,000(4) 9,842 25 246,039
interest in 25-year
lease (expires July 1,
2018)
Irvine Meadows
Amphitheater(2)
(Irvine, CA) .......... amphitheater 50% partnership 15,500 8,505 32 272,162
interest in 20-year
lease (expires
February 28, 2017)
San Francisco--Oakland-- 5
San Jose:
Shoreline amphitheater facility owned; 25,000 10,306 37 381,315
Amphitheater(5) ........ land leased for 35
years (expires
November 30, 2021)
Concord Pavilion(5) .... amphitheater 10-year exclusive 12,500 6,002 42 252,070
outside booking agent
(expires December 31,
2005)
Greek Theater(5) ....... theater 4-year lease (expires 8,500 5,572 10 55,718
October 31, 1998)
Warfield Theatre(5) .... theater 10-year lease (expires 2,250 1,727 56 96,726
May 31, 2008)
Fillmore Auditorium(5) . theater 10-year lease (expires 1,249 913 146 133,279
August 31, 2007)
Punchline Comedy Club(5) club 5-year lease (expires N/A N/A N/A N/A
September 15, 2001)
Philadelphia--Wilmington-- 6
Atlantic City:
Blockbuster/SONY Music
Entertainment Centre on
the Waterfront(2) ...... amphitheater 31-year lease (expires 25,000 7,111 48 341,319
February 9, 2025)
Dallas--Ft. Worth: 9
Starplex amphitheater 32.5% partnership 20,100 9,479 33 312,806
Amphitheater(2) ........ interest in 31 year
lease (expires
December 31, 2028)
Houston--Galveston--Brazoria: 10
Cynthia Woods Mitchell
Pavilion(2) ............ amphitheater 15-year management 13,000 9,178 36 258,364
contract (expires
December 31, 2009)
Bayou Place Performance theater 50% partnership 2,800 N/A N/A N/A
Hall(2) ................ interest in 10-year
lease (expires
December 31, 2007)
Atlanta: 12
Lakewood amphitheater 32.5% partnership 19,000 9,768 22 214,896
Amphitheater(2) ........ interest in 35-year
lease (expires January
1, 2019)
Chastain Park amphitheater 10-year lease (expires 7,000 5,732 28 160,492
Amphitheater(6) ........ December 31, 2000)
Roxy Theater(6) ........ theater 7-year lease (expires 1,600 673 92 61,960
March 31, 2004)
Cotton Club(6) ......... theater 5-year lease (expires 650 321 152 48,751
June 12, 2000)
St. Louis: 17
Riverport amphitheater 50% partnership 21,000 8,782 44 386,399
Amphitheater(7) ........ interest in
ownership(8)
American Theater(7) .... theater 10-year lease (expires 2,000 1,485 22 32,662
July 31, 2004)
D-34
<PAGE>
SFX TOTAL AVG. NO. OF TOTAL SEATS
MARKET TYPE OF ENTERTAINMENT'S SEATING ATTENDANCE EVENTS SOLD IN
MARKET AND VENUE RANK(1) VENUE INTEREST CAPACITY IN 1996 IN 1996 1996
- -------------------------- -------- -------------- ---------------------- ----------- ------------ --------- -------------
Westport Playhouse(7) .. theater 1-year lease 1,100 897 22 19,724
Phoenix--Mesa: 18
Desert Sky Blockbuster
Pavilion(2) ............ amphitheater 60-year lease (expires 20,000 8,165 32 261,284
June 30, 2049)
Pittsburgh: 19
Star Lake amphitheater 45-year lease (expires 22,500 9,471 44 416,733
Amphitheater(2) ........ December 31, 2034)
Kansas City: 24
Sandstone
Amphitheater(7)
(Kansas City, KS) ...... amphitheater 10-year lease 18,000 7,150 36 257,395
(expires December 31,
2002)
Starlight Theater(7) ... theater annual exclusive 9,000 2,908 10 29,083
booking agent contract
(1998 renewal under
negotiation)
Memorial Hall(7) ....... theater 1998 contract renewal 3,000 2,169 17 36,874
under negotiation
Sacramento--Yolo: 26
Cal Expo Theater(5) ..... amphitheater operating agreement 14,500 6,006 15(9) 90,091
(renewal under
negotiation)
Punchline Comedy Club(5) club 9-year lease (expires N/A N/A N/A N/A
December 17, 1999)
Indianapolis: 28
Deer Creek Music Center amphitheater owned 21,000 10,187 38 387,119
Murat Centre ........... theater and 50-year lease (expires 2,700 1,900 85 161,500(10)
ballroom August 31, 2045)
Columbus: 30
Polaris Amphitheater .... amphitheater owned 20,000 6,751 38 256,553
Charlotte--Gastonia--Rock 32
Hill:
Charlotte Blockbuster amphitheater owned 18,000 6,185 39 241,233
Pavilion(2) ...........
Hartford: 36
Meadows Music Theater .. amphitheater facility owned; 25,000 6,914 38 262,741
land leased for 37
years (expires
September 13, 2034)
Rochester: 39
Finger Lakes amphitheater 3-year lease (expires 12,700 4,203 15 63,044
Amphitheater ........... in 1999)
Nashville: 41
Starwood amphitheater one-half ownership 20,100 6,970 27 188,187
Amphitheater(2) ........
Oklahoma City: 43
Zoo Amphitheatre(7) ..... amphitheater year-to-year exclusive 9,000 4,510 6 27,061
booking agent
D-35
<PAGE>
SFX TOTAL AVG. NO. OF TOTAL SEATS
MARKET TYPE OF ENTERTAINMENT'S SEATING ATTENDANCE EVENTS SOLD IN
MARKET AND VENUE RANK(1) VENUE INTEREST CAPACITY IN 1996 IN 1996 1996
- -------------------------- -------- -------------- ---------------------- ----------- ------------ --------- -------------
Raleigh--Durham--Chapel 50
Hill:
Walnut Creek amphitheater 66 2/3% partnership 20,000 8,476 43 364,489
Amphitheater(2) ........ interest in 40-year
lease (expires October
31, 2030)
West Palm Beach--Boca 50
Raton:
SONY Music/Blockbuster
Coral
Sky Amphitheater(2) .... amphitheater 75% partnership 20,000 9,417 26 244,835
interest in 10-year
lease (expires January
4, 2005)
Reno: 119
Reno Hilton amphitheater operating agreement 8,500 3,977 21 83,509
Amphitheater(5) ........ (renewal under
negotiation)
----------- ------------ --------- -------------
TOTAL .................... 504,819 5,833 1,716 7,888,844
</TABLE>
- ------------
(1) Based on the July 1994 population of metropolitan statistical areas as
set forth in the 1996 Statistical Abstracts of the United States. Does
not include venues where PACE sells subscriptions for Touring Broadway
Shows.
(2) After the consummation of the PACE Acquisition (including the Pavilion
Acquisition). There can be no assurance that SFX Entertainment will be
able to consummate the acquisition of either or both of the interests of
Charlotte Amphitheater Corporation and The Westside Amphitheater
Corporation (collectively, "Blockbuster Sub") and YM Corp. ("Sony Sub")
in Pavilion Partners; as a result, SFX Entertainment may not obtain 100%
ownership of Pavilion Partners.
(3) Assumes completion of current expansion projects, which are anticipated
to be completed by summer 1998.
(4) Additional seating of approximately 40,000 is available for certain
events.
(5) After the consummation of the BGP Acquisition.
(6) After the consummation of the Concert/Southern Acquisition.
(7) After the consummation of the Contemporary Acquisition.
(8) Contemporary currently owns a 50% interest in a partnership that owns
the Riverport Amphitheater. If Contemporary is unable to purchase the
remaining partnership interest prior to the consummation of the
Contemporary Acquisition, the purchase price for Contemporary will be
reduced. See "Agreements Related to the Pending
Acquisitions--Contemporary Acquisition."
(9) Does not include dates for the California State Fair.
(10) Numbers shown are for 1997. Numbers for 1996 are unavailable.
Because SFX Entertainment and the Acquisition Businesses operate a number
of their venues under leasing or booking agreements, SFX Entertainment's
long-term success will depend on its ability to renew these agreements when
they expire or terminate. There can be no assurance that SFX Entertainment
will be able to renew these agreements on acceptable terms or at all, or that
it will be able to obtain attractive agreements with substitute venues.
Sponsorships and Advertising; Marketing and Other Services
In order to maximize revenues, SFX Entertainment actively pursues the sale
of local, regional and national corporate sponsorships, including the naming
of venues (e.g., the PNC Bank Arts Center) and the designation of "official"
event or tour sponsors, concessions providers (e.g., beer and soda), credit
card companies, phone companies, film manufacturers and radio stations, among
others. Sponsorship arrangements can provide significant additional revenues
at negligible incremental cost, and many of SFX Entertainment's existing
venues and venues to be acquired in the Pending Acquisitions currently have
no sponsorship arrangements in many of the available categories (including
naming rights). SFX Entertainment believes that the national venue network
being assembled in the Pending Acquisitions will likely (a) attract a larger
number of major corporate sponsors and (b) enable SFX Entertainment to sell
national sponsorship rights at a premium over local or regional sponsorship
rights. SFX Entertainment also pursues the sale of corporate advertising at
its venues, and believes that it has substantial advertising space available
(e.g., billboard space) that it has not yet begun to utilize. SFX
Entertainment also believes that (a) its relationships with advertisers will
enable it to better utilize available advertising space and (b) the
aggregation of its audiences nationwide will create the opportunity for
advertisers to access a nationwide market.
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SFX Entertainment and the Acquisition Businesses provide a variety of
marketing and consulting services derived from or complementary to their live
entertainment operations, including (a) local, regional and national live
marketing programs and (b) subscription or fee based radio and music industry
data compilation and distribution. Live marketing programs are generally
specialized advertising campaigns designed to promote a client's product or
service by providing samples or demonstrations in a live format, typically
including at malls and college campuses. For example, Contemporary presents
live marketing events on behalf of AT&T for the purposes of demonstrating the
advantages of AT&T's long distance service over that of its competitors. This
program is in its third year, and Contemporary is now the primary vendor for
this service. Additionally, SFX Entertainment believes that Contemporary is
one of the leading producers of national mall touring events, producing over
65 events every year in the country's top-rated shopping malls. These events,
either in stores or mall congregation areas, are designed to promote brand
awareness and drive follow-up sales. Contemporary recently had mall tour
campaigns for Newsweek magazine (the Newsweek Technology Tour) and for Radio
Shack (The Rock and Roll Hall of Fame/Radio Shack Tour). SFX Entertainment
believes that, along with mall events, Contemporary is one of the industry
leaders in events produced on college campuses. Currently in its seventh
year, the CBS College Tour will appear at 40 colleges in the U.S. In addition
to promoting the image of the CBS Television Network, these tours also create
value-added tie-in promotions and marketing programs for the network's top
advertisers. During each year, Contemporary uses over 100 vehicles (including
semi-trailer trucks, vans and other vehicles) traveling nationwide in support
of these programs, and draws on over 1,000 independent marketing associates
across the country with respect to its marketing campaigns.
SFX Entertainment and the Acquisition Businesses are engaged in music
marketing, research and artist development activities, and Network is a
publisher of trade magazines for radio broadcasters, music retailers,
performers and record industry executives. Each of Network's magazines
focuses on research and insight common to a specific contemporary radio
format. Network also provides radio airplay and music retail research
services to record labels, artist managers, retailers and radio broadcasters.
Network gathers its information directly from nearly 1,100 radio programmers
and product buyers and in 1996 had more than 300 clients for these services.
Annual fees from these services during this period have ranged from $2,500 to
$250,000 per corporate client.
Network creates and distributes network radio special events and live
concert programming for over 400 music radio stations in the top 200 United
States radio markets. Additionally, Network produces eight daily radio "show
prep" services that stations use to supplement in-house content production.
In 1996, Network delivered these services to approximately 1,100 radio
stations in exchange for commercial inventory or airtime, which in turn was
sold to national network advertisers. Network also provides consulting and
entertainment marketing services to corporate clients with music business
interests.
OPERATING STRATEGY
SFX Entertainment's principal objectives are (a) to maximize revenue and
cash flow growth opportunities by being a leading promoter and producer of
live entertainment and (b) to own and/or operate leading live entertainment
venues in the United States. SFX Entertainment's specific strategies include
the following:
Own and/or Operate Leading Live Entertainment Venues in the Nation's Top 50
Markets
A key component of SFX Entertainment's strategy is to own and/or operate a
network of leading live entertainment venues in the nation's top 50 markets.
SFX Entertainment believes that this strategy will enable it to (a) utilize
its nationwide venue footprint, significant industry expertise and access to
a large aggregate audience to secure more events and distribute content on a
national scale, (b) sell additional products and maximize numerous other
related revenue sources, (c) position itself to produce national tours by
leading music performers in order to capture a greater percentage of revenues
from those tours and (d) encourage wider use by performers of SFX
Entertainment's venues by providing centralized access to a nationwide
network of venues. After consummation of the Pending Acquisitions, SFX
Entertainment (which currently owns or operates 20 venues) believes that it
will own and/or operate the largest network of venues used principally for
music concerts and other live entertainment events in the
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United States, with 40 venues either directly owned or operated under lease
or exclusive booking arrangements in 21 of the top 50 markets, including 9
amphitheaters in 6 of the top 10 markets.
Maximize Related Revenue Opportunities
SFX Entertainment intends to enhance revenues and cash flows by maximizing
revenue sources arising from and related to its leadership position in the
live entertainment business. These related revenues comprised approximately
17% of SFX Entertainment's total revenues for the nine months ended September
30, 1997. Management believes that these related revenue sources generally
have higher margins than promotion and production revenues and include, among
others, (a) the sale of corporate sponsorship, naming and other rights,
concessions, merchandise, parking and other products and services and (b) the
sale of rights to advertise to SFX Entertainment's large aggregate national
audience. Categories available for sponsorship arrangements include the
naming of the venue itself (e.g., the PNC Bank Arts Center) and the
designation of "official" event or tour sponsors, concessions providers
(e.g., beer and soda), credit card companies, phone companies, film
manufacturers and radio stations, among others. Sponsorship arrangements can
provide significant additional revenues at negligible incremental cost, and
many of SFX Entertainment's existing venues and venues to be acquired in the
Pending Acquisitions currently have no sponsorship arrangements in many of
the available categories (including naming rights). SFX Entertainment also
intends to maximize related revenues by developing and exploiting
intellectual property rights associated with (a) its production of musical
concert tours and themed events (such as regional music festivals) and (b)
branded characters created as an integral part of the content, marketing and
merchandising of certain motor sports events.
Exploit Synergies of the Acquisition Businesses
SFX Entertainment plans to maximize revenues by exploiting synergies among
its existing businesses and the Acquisition Businesses. SFX Entertainment
believes that it can utilize the best business practices of the respective
Acquisition Businesses on a national scale. For example, the Atlanta-based
regional Music Midtown Festival, created and promoted by Concert/Southern
(one of the Acquisition Businesses), is a highly successful music festival
concept that drew approximately 200,000 attendees in 1997; SFX Entertainment
believes that it can use the event as a model for other markets. In addition,
SFX Entertainment believes that the radio industry trade publications of
Network (another of the Acquisition Businesses) will enable SFX Entertainment
to introduce new acts and new musical releases to radio programming directors
nationwide. This exposure can enhance recorded music sales and, in turn,
music concert attendance, particularly for artists having relationships with
SFX Entertainment.
Increase Use of Venues; Diversification of Acts and Venues
Typically, a venue is not utilized for many of the dates available for
live entertainment events in any given season. SFX Entertainment believes
that it will be able to increase the utilization of its venues through its
ability to affect scheduling on a nationwide basis, its local knowledge,
relationships and expertise and its and the Acquisition Businesses'
presentation of a variety of additional events, including comedy acts, magic
acts, motivational speeches, national figure skating and gymnastics
competitions and exhibitions and bull riding competitions, among others. SFX
Entertainment believes that a diversified portfolio of performers, events and
venues reduces reliance on the commercial success of any one performer, event
or venue.
Innovative Event Marketing
SFX Entertainment plans to use innovative event marketing to increase
admissions, sponsorship and advertising revenues, and, to a limited extent,
average ticket prices at its venues. In particular, SFX Entertainment
believes that it can increase the profitability of its venues by offering
premium ticket packages, including (a) season ticket packages that include
amenities such as preferred seating, VIP parking, waiter service, private
club and/or "upscale" concession menus, (b) subscription series packages
allowing customers to purchase tickets for a set of performances and (c)
preferred seating, such as box seating and VIP seating areas, which typically
generate higher revenues per seat. Moreover, the market research and audience
demographics databases that SFX Entertainment will acquire through certain of
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the Pending Acquisitions, when combined with SFX Entertainment's existing
audience data collection efforts, will permit highly-effective targeted
marketing, such as direct-mail and subscription series campaigns, which SFX
Entertainment believes will increase ticket pre-sales and overall sales in a
cost-efficient manner.
Strict Cost Controls; Nationally Coordinated Booking, Marketing & Accounting
SFX Entertainment's senior management imposes strict financial reporting
requirements and expense budget limitations on all of its businesses,
enabling senior management to monitor the performance and operations of all
of its businesses, to eliminate duplicative administrative costs and to
realize expense savings. Moreover, SFX Entertainment believes that its size
after consummating the Pending Acquisitions will enable it to achieve
substantial economies of scale by (a) implementing a nationally coordinated
booking system (for contracting for and scheduling acts), while continuing to
utilize the substantial local expertise of the Acquisition Businesses, (b)
establishing a centralized marketing team to exploit ancillary revenue
streams on local, regional and national levels, including from sponsorship,
advertising and merchandising opportunities, and (c) implementing a
centralized accounting system.
Pursue Complementary Acquisition Opportunities
The live entertainment business is characterized by numerous participants,
including booking agents, promoters, producers, venue owners and venue
operators, many of which are entrepreneurial, capital-constrained local or
regional businesses that do not achieve significant economies of scale from
their operations. SFX Entertainment believes that the fragmented nature of
the industry presents attractive acquisition opportunities, and that its
larger size will provide it with improved access to the capital markets that
will give it a competitive advantage in implementing its acquisition
strategy. Through consolidation, SFX Entertainment will be better able to
coordinate negotiations with performer and talent agents, addressing what SFX
Entertainment believes is a growing desire among performers and talent agents
to deal with fewer, more sophisticated promoters. SFX Entertainment intends
to pursue additional strategic acquisitions of (a) amphitheater and other
live entertainment venues and (b) local and regional promoters and producers
of music concert, theatrical, specialized motor sports and other live
entertainment events. SFX Entertainment may also pursue acquisitions of other
related or complementary venues or businesses.
PENDING ACQUISITIONS
In December 1997, SFX Entertainment entered into agreements to acquire the
live entertainment businesses summarized in the following table. The
consummation of the Pending Acquisitions is subject to a variety of factors,
including compliance with numerous conditions precedent, some of which are
outside of SFX Entertainment's control. See "Agreements Related to the
Pending Acquisitions." There can be no assurance that the Pending
Acquisitions will be consummated on the terms described herein or at all. See
"Risk Factors--Risks Related to Pending Acquisitions."
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- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL
CONSIDERATION(1)
($ IN SELECTED
COMPANY MILLIONS) BUSINESS(ES) VENUES(2)
- --------------- -------------- ------------------------------------ ----------------------------------
<S> <C> <C> <C>
PACE (INCLUDING $245.9 Music, theater and specialized motor American Theater
PAVILION sports event promotion and Bayou Place Performance Hall
PARTNERS) production. PACE is one of the Blockbuster/SONY Music
largest diversified promoters and Entertainment Centre on the
producers of live entertainment in Waterfront
the United States, having what SFX Charlotte Blockbuster Pavilion
Entertainment believes is the Cynthia Woods Mitchell Pavilion
largest U.S. distribution network in Desert Sky Blockbuster Pavilion
each of its music, theater and Glen Helen Blockbuster Pavilion
specialized motor sports businesses. Irvine Meadows Amphitheater
Pavilion Partners is one of the Lakewood Amphitheater
leading owners of amphitheaters in PNC Bank Arts Center
the United States. SONY Music/Blockbuster Coral Sky
Amphitheater
Star Lake Amphitheater
Starplex Amphitheater
Starwood Amphitheater
Walnut Creek Amphitheater
- --------------- -------------- ------------------------------------ ----------------------------------
CONTEMPORARY $ 91.5 A fully-integrated live Memorial Hall
entertainment and special event Riverport Amphitheater
promoter and producer, venue owner Sandstone Amphitheater
and operator, ticket distributor and Starlight Theater
consumer marketer. West Fair Amphitheater
Westport Playhouse
Zoo Amphitheater
- --------------- -------------- ------------------------------------ ----------------------------------
BGP $ 68.3 One of the oldest producers and Cal Expo Theater
promoters of, and owner-operators of Concord Pavilion
venues for, live entertainment in Fillmore West Auditorium
the United States, and a leading Greek Theater
promoter of live entertainment in Punchline Comedy Club (Sacramento)
the San Francisco Bay area. Punchline Comedy Club
(San Francisco)
Seattle, WA--Under construction.
Shoreline Amphitheater
Warfield Theater
- --------------- -------------- ------------------------------------ ----------------------------------
NETWORK $ 62.0 Network Magazine Group ("Network N/A
MAGAZINE/ SJS Magazine"), a leading publisher of
trade magazines for the radio
broadcasting industry, and SJS
Entertainment Corporation ("SJS"), a
leading independent creator,
producer and distributor of
music-related programming, services
and research.
- --------------- -------------- ------------------------------------ ----------------------------------
CONCERT/ $ 16.6 A promoter of live music events in Chastain Park Amphitheater
SOUTHERN the Atlanta, Georgia metropolitan Cotton Club
area. Roxy Theater
- --------------- -------------- ------------------------------------ ----------------------------------
</TABLE>
(footnotes on next page)
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- ------------
(1) Includes the cash portion of purchase price, the negotiated value of SFX
Entertainment Class A Common Stock, if any, to be issued, and debt or
other liabilities, if any, to be repaid. Excludes certain potential
contingent consideration. See "Agreements Related to the Pending
Acquisitions." The approximately 4.2 million shares of SFX Entertainment
Class A Common Stock expected to be issued in connection with certain of
the Pending Acquisitions have been valued by the applicable parties at
$13.33 per share for purposes of calculating the consideration to be
given for the Pending Acquisitions. This valuation is based on financial
projections developed jointly by SFX Entertainment and the relevant
sellers. There is presently no trading market for the SFX Entertainment
Class A Common Stock, and there can be no assurance that the assumptions
underlying the valuation will, in fact, be correct or that the valuation
will approximate the actual trading price of the SFX Entertainment Class
A Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Pending Acquisitions."
(2) Includes venues owned and/or operated under lease or under exclusive
booking arrangements.
PACE
On December 12, 1997, SFX Entertainment executed an agreement (the "PACE
Agreement") to acquire PACE, for a total purchase price of $155.0 million
(including the issuance of stock of SFX Entertainment valued by the parties
at approximately $20.0 million and the repayment of $25.5 million of debt).
PACE is one of the largest diversified promoters and producers of live
entertainment in the United States, having what SFX Entertainment believes to
be the largest distribution network in each of its music concerts, theatrical
shows and motor sports events business segments. As part of its distribution
network for music concerts, PACE owns interests in and manages the largest
network of amphitheaters in the United States. During 1997, more than 15
million people attended approximately 5,700 events produced or presented by
PACE. These events included: (a) music concerts featuring artists such as Rod
Stewart, Jimmy Buffett and Ozzy Osbourne; (b) theatrical shows such as The
Phantom of the Opera, Jekyll & Hyde, Rent and The Magic of David Copperfield;
and (c) specialized motor sports events featuring AMA Supercross racing,
monster trucks, demolition derbies and thrill acts. In 1997, PACE Music
presented 491 amphitheater events in the United States, and 348
non-amphitheater events in over 40 markets. Its recently formed touring
division, PACE Touring, produces national tours of music events, having
produced two national music tours in 1997. In 1997, PACE Theatrical (a)
presented approximately 300 weeks of theater in over 30 markets, including 31
subscription markets with approximately 220,000 subscribers, and (b) produced
or had significant investments in the production of 19 Broadway Shows and
Touring Broadway Shows. In 1997, PACE Motor Sports presented over 188 events
in over 70 markets. In connection with the acquisition of PACE, SFX
Entertainment has contracted to obtain 100% of Pavilion Partners, a
partnership that owns interests in 10 of the 41 venues to be owned by SFX
Entertainment, by acquiring one-third of Pavilion Partners through the
acquisition of PACE and the remaining two-thirds of Pavilion Partners through
separate agreements with Sony Sub and Blockbuster Sub, for a combined
consideration of $90.9 million (including the repayment of $49.8 million of
debt related to the two-thirds interest). There can be no assurance that SFX
Entertainment will be able to consummate the acquisition of either or both of
Blockbuster Sub's and Sony Sub's interests in Pavilion partners; as a result,
SFX Entertainment may not obtain 100% ownership of Pavilion Partners. If SFX
Entertainment is unable to obtain 100% ownership of Pavilion Partners, then
SFX Entertainment may, among other things, be in breach of an exclusivity
provision contained in the Pavilion Partners partnership agreement, unless
that agreement can be amended. See "Risk Factors--Risks Related to the
Pending Acquisitions" and "Agreements Related to the Pending
Acquisitions--PACE Acquisition--Pavilion Acquisition."
Under certain circumstances, SFX Entertainment may be required to sell
either its motor sports or theatrical lines of business. See "Risk
Factors--Control of Motor Sports and Theatrical Businesses" and "Agreements
Related to the Pending Acquisitions--PACE Acquisition--Becker Employment
Agreement."
The agreement governing the partnership through which PACE holds its
interest in the Lakewood Amphitheater in Atlanta, Georgia contains a
provision that purports to restrict PACE and its affiliates from directly or
indirectly owning or operating another amphitheater in Atlanta. In
management's view, this provision will not materially affect the business or
prospects of SFX Entertainment. However, SFX Entertainment will acquire an
interest in the Chastain Park Amphitheater, also in Atlanta, in the
Concert/Southern Acquisition. SFX Entertainment intends to seek a waiver of
the restrictive provision; however, it is possible that SFX Entertainment
will be unable to obtain the waiver.
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Contemporary
On December 12, 1997, SFX Entertainment executed an agreement (the
"Contemporary Agreement") to acquire by merger and asset acquisition, the
music concert, live entertainment, event marketing, computerized ticketing
and related businesses of Contemporary for approximately $91.5 million
(including the issuance of stock of SFX Entertainment valued by the parties
at approximately $18.7 million). Contemporary is a vertically-integrated live
entertainment and special event promoter and producer, venue operator and
consumer marketer. Contemporary is also the leading promoter, producer and
tour developer of Christian performers (including Amy Grant and Michael W.
Smith) and is a major promoter and producer of comedy tours (including those
of Jerry Seinfeld, Tim Allen, Chris Rock and HBO's Def Comedy Jam).
Contemporary (through its Capital Tickets subsidiary) sells tickets for its
own events and events at its venues through a wide distribution of retail
outlets and a state-of-art interactive voice response phone system (operated
by its Dialtix affiliate) that permits automated ticket orders and credit
card payment. In addition to the venues controlled by Contemporary, clients
of Capital Tickets and Dialtix include the Kiel Center, a 20,000 seat arena
in St. Louis, Missouri (home arena of the National Hockey League's St. Louis
Blues), and Trans World Dome, a 60,000 seat stadium in St. Louis, Missouri
(home stadium of the National Football League's St. Louis Rams).
Contemporary is also one of the top special event sales promotion and
marketing companies in the country. Contemporary develops programs for
national consumer product companies and for demonstrating, sampling and
selling products to consumers. Contemporary's clients have included AT&T, CBS
TV, Radio Shack, Coca Cola USA, Reebok, Nabisco and the National Basketball
Association. See "Agreements Related to the Pending
Acquisitions--Contemporary Acquisition."
BGP
On December 11, 1997, SFX Entertainment executed an agreement (the "BGP
Agreement") to acquire BGP for total consideration of $68.3 million
(including the issuance of capital stock of SFX Entertainment valued by the
parties at $7.5 million or, at SFX Entertainment's option, an equivalent
amount in cash). Although SFX Entertainment has also agreed to repay $12.2
million of BGP debt, the sellers in the BGP Acquisition have agreed to have
working capital in BGP at closing at least equal to the amount of this
assumed debt. BGP is one of the oldest promoters and producers of live
entertainment in the United States and is the principal promoter of live
entertainment in the San Francisco Bay area. During 1997, more than 2.3
million people attended approximately 1,450 events promoted and/or produced
by BGP. Events recently promoted or produced by BGP include: (a) music
concerts featuring artists such as Alanis Morissette, Bruce Springsteen, Dave
Matthews, Gloria Estefan, James Taylor, Jimmy Buffett, Metallica, Neil
Diamond, Phish and The Who; and (b) theatrical shows such as Lord of the
Dance and The Magic of David Copperfield. In 1997, BGP promoted (a) 124
amphitheater events and (b) 1,199 non-amphitheater events in over 20 markets.
Divisions of BGP also produce and promote national gymnastic and ice-skating
tours and events as well as major corporate events for San Francisco and
Silicon Valley corporate customers. In 1997, BGP presented a total of 133
gymnastic, ice-skating and major corporate events for clients such as Adobe
Systems, Charles Schwab, Banana Republic, Oracle, PowerBar, Sterling Software
and Excite. BGP also acts as a talent manager for national acts including the
Neville Brothers, the Gin Blossoms, Taj Mahal and Cracker. See "Agreements
Related to the Pending Acquisitions--BGP Acquisition."
Network
On December 10, 1997, SFX Entertainment executed an agreement (the
"Network Agreement") to acquire Network for a total purchase price of $62.0
million (including the issuance of stock of SFX Entertainment valued by the
parties at approximately $10.0 million). In addition, SFX Entertainment has
the option to acquire an office building and related property for $2.4
million. Network Magazine is engaged in music marketing, research and artist
development activities and is a publisher of trade magazines for radio
broadcasters, music retailers, performers and record industry executives.
Each magazine is focused on research and insight common to a specific
contemporary radio format. These publications, Album Network, Network 40,
Urban Network, Virtually Alternative, Totally Adult, AggroActive and Educated
Guess, derive revenue from advertising sales and subscriptions. Network
Magazine
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also publishes The Yellow Pages of Rock, which is a reference book popular
with people and companies doing business in the broadcast music industry.
Network Magazine is currently developing a consumer music magazine that will
be distributed free to customers at music retail locations. Network Magazine
also provides radio airplay and music retail research services to record
labels, artist managers, retailers and radio broadcasters. Network Magazine
gathers its information directly from nearly 1,100 radio programmers and
product buyers and, in 1996, had more than 300 clients for these services.
Annual fees during this period ranged from $2,500 to $250,000 per corporate
client.
Network Magazine and SJS are both creators and distributors of network
radio special events and live concert programming for over 400 music radio
stations in the top 200 United States radio markets. Additionally, SJS is an
independent creator, producer and distributor of music related programming,
services and research. SJS produces eight daily radio "show prep" services
that stations use to supplement in-house content production. In 1996, SJS
delivered these services to approximately 1,100 radio stations. Together,
Network Magazine and SJS barter or exchange these programs and services to
radio broadcasters for commercial inventory or airtime, which is in turn sold
by SJS to national network advertisers. Network also provides consulting and
entertainment marketing services to corporate clients with music business
interests. See "Agreements Related to the Pending Acquisitions--Network
Acquisition."
Concert/Southern
On December 15, 1997, SFX Entertainment executed an agreement (the
"Concert/Southern Agreement") to acquire Concert/Southern Promotions for a
total cash purchase price of $16.6 million (including payment of the $1.6
million present value of a deferred liability). Concert/Southern is a
promoter of live entertainment in the Atlanta metropolitan area. During 1997,
more than 555,000 people attended approximately 370 events promoted or
produced by Concert/Southern. These events included concerts featuring
artists such as Celine Dion, James Taylor, Alanis Morissette, ZZ Top, Bruce
Springsteen, Bob Dylan, Harry Connick, Jr. and Greg Allman, in addition to a
week-long engagement of the Broadway Show Stomp. Concert/Southern also owns
the rights to the Music Midtown Festival in downtown Atlanta. This three day
multi-stage music festival presents over 80 bands, and in 1997 drew
approximately 200,000 people to the downtown Atlanta area. Concert/Southern
is currently developing a Music Midtown Festival for June 1998 in Charlotte,
North Carolina and has plans to export this festival to other sites in future
years. See "Agreements Related to the Pending Acquisitions--Concert/Southern
Acquisition."
SFX Entertainment expects to complete all of the Pending Acquisitions as
soon as practicable after completing the Financing and prior to the SFX
Merger. SFX Entertainment anticipates that it will consummate all of the
Pending Acquisitions in the first quarter of 1998. However, the timing and
completion of the Pending Acquisitions are subject to a number of conditions,
certain of which are beyond SFX Entertainment's control, and there can be no
assurance that the Pending Acquisitions will be completed during that time
period or on the terms described herein, or at all. See "Risk Factors--Risks
Related to Pending Acquisitions" and "Agreements Relating to the Pending
Acquisitions." In addition, there can be no assurance that the value
attributed by the parties to SFX Entertainment's capital stock will
approximate the actual trading price of the stock. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Pending Acquisitions."
PROPERTIES
SFX Entertainment's executive offices are at 650 Madison Avenue, 16th
Floor, New York, New York 10022. After the consummation of the Spin-Off and
the Pending Acquisitions, in addition to the properties described in "--SFX
Entertainment's Live Entertainment Activities--Venue Operations," SFX
Entertainment will lease office space in Austin and Houston, Texas; Atlanta,
Georgia; Chicago, Illinois; Miami, Florida; Gaithersburg, Maryland; Burbank
and Santa Monica, California; Seattle, Washington; London, England; and St.
Louis, Missouri. These properties are generally leased for terms of 1 to 10
years.
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EMPLOYEES
As of the date of the Spin-Off, SFX Entertainment expects to have
approximately 800 full-time employees. SFX Entertainment will also, from time
to time, hire or contract for part-time or seasonal employees or independent
contractors, although its staffing needs will vary. Pursuant to the SFX
Merger Agreement, SFX Entertainment has agreed to assume all obligations
rising under any employment agreements or arrangements between SFX or any of
its subsidiaries and the employees identified in the merger agreement. These
employees include the members of senior management and all other employees
currently employed in SFX's corporate headquarters in New York. See
"Management." Management believes that its relations with its employees are
good. A number of the employees to be retained by SFX Entertainment,
including those to be retained in connection with the Pending Acquisitions,
are covered by collective bargaining agreements.
LITIGATION
Although SFX Entertainment is involved in several suits and claims in the
ordinary course of business, it is not currently a party to any legal
proceeding that it believes would have a material adverse effect on its
business, financial condition or results of operations.
POTENTIAL CONFLICTS OF INTEREST
Marquee is a publicly-traded company that, among other things, acts as
booking agent for tours and appearances for musicians and other entertainers.
Messrs. Sillerman and Tytel have an aggregate equity interest of
approximately 9.2% in Marquee; Mr. Sillerman is the chairman of its board of
directors, and Mr. Tytel is one of its directors. SFX Entertainment
anticipates that, from time to time, it will enter into transactions and
arrangements (particularly, booking arrangements) with Marquee and Marquee's
clients, and it may compete with Marquee for specific concert promotion
engagements. In any transaction or arrangement with Marquee, Messrs.
Sillerman and Tytel are likely to have conflicts of interest as officers and
directors of SFX Entertainment. These transactions or arrangements will be
subject to the approval of the independent committees of SFX Entertainment
and SFX, except that booking arrangements in the ordinary course of business
will be subject to periodic review but not the approval of each particular
arrangement. Marquee also acts as a promoter of various sporting events and
sports personalities. After the consummation of the Contemporary Acquisition,
SFX Entertainment will produce ice skating and gymnastics events that may
compete with events in which Marquee is involved. See "Certain Relationships
and Related Transactions--Potential Conflicts of Interest."
In addition, prior to the consummation of the SFX Merger, Mr. Sillerman
and other members of SFX Entertainment's management team will have management
obligations to both SFX and SFX Entertainment that may cause them to have
conflicts of interest. See "Management--Employment Agreements and
Arrangements with Certain Officers and Directors" and "Certain Relationships
and Related Transactions--Potential Conflicts of Interest."
Pursuant to the employment agreement entered into between Brian Becker and
SFX Entertainment in connection with the PACE Acquisition, Mr. Becker has the
option, exercisable within 15 days after the second anniversary of the
consummation of the PACE Acquisition, to purchase SFX Entertainment's then
existing motor sports line of business (or, if that line of business has been
sold, SFX Entertainment's then existing theatrical line of business) at its
then fair market value. Mr. Becker's option may present a conflict of
interest in his role as a director of SFX Entertainment in evaluating
proposals for the acquisition of either line of business. See "Agreements
Related to the Pending Acquisitions--PACE Acquisition--Becker Employment
Agreement."
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SEASONALITY
SFX Entertainment's operations and revenues are largely seasonal in
nature, with generally higher revenue generated in the second and third
quarters of the year. For example, on a pro forma basis for the Recent
Acquisitions, SFX Entertainment generated approximately 70% of its revenues
in the second and third quarters for the 12 months ending September 30, 1997.
SFX Entertainment's outdoor venues are primarily utilized in the summer
months and do not generate substantial revenue in the late fall, winter and
early spring. Similarly, the musical concerts that SFX Entertainment promotes
largely occur in the second and third quarters. To the extent that SFX
Entertainment's entertainment marketing and consulting relate to musical
concerts, they also predominantly generate revenues in the second and third
quarters. Therefore, the seasonality of SFX Entertainment's business causes
(and will probably continue to cause) a significant variation in SFX
Entertainment's quarterly operating results. These variations in demand could
have a material adverse effect on the timing of SFX Entertainment's cash
flows and, therefore, on its ability to service its obligations with respect
to its indebtedness. However, SFX Entertainment believes that this variation
may be somewhat offset with the acquisition of typically non-summer seasonal
businesses in the Pending Acquisitions, such as motor sports (which is
winter-seasonal) and Touring Broadway Shows (which typically tour between
September and May). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
COMPETITION
Competition in the live entertainment industry is intense, and competition
is fragmented among a wide variety of entities. SFX Entertainment competes on
a local, regional and national basis with a number of large venue owners and
entertainment promoters for the hosting, booking, promoting and producing of
music concerts, theatrical shows, motor sports events and other live
entertainment events. Moreover, SFX Entertainment's marketing and consulting
operations compete with advertising agencies and other marketing
organizations. SFX Entertainment and the Acquisition Businesses compete not
only with other live entertainment events, including sporting events and
theatrical presentations, but also with non-live forms of entertainment, such
as television, radio and motion pictures. A number of SFX Entertainment's
competitors have substantially greater resources than SFX Entertainment.
Certain of SFX Entertainment's competitors may also operate on a less
leveraged basis, and have greater operating and financial flexibility, than
SFX Entertainment. In addition, many of these competitors also have long
standing relationships with performers, producers, and promoters and may
offer other services that are not provided by SFX Entertainment. There can be
no assurance that SFX Entertainment will be able to compete successfully in
this market or against these competitors.
REGULATORY MATTERS
The business of SFX Entertainment is not generally subject to material
governmental regulation. However, if SFX Entertainment seeks to acquire or
construct new venue operations, its ability to do so will be subject to
extensive local, state and federal governmental licensing, approval and
permit requirements, including, among other things, approvals of state and
local land-use and environmental authorities, building permits, zoning
permits and liquor licenses. Significant acquisitions may also be subject to
the requirements of the HSR Act. Other types of licenses, approvals and
permits from governmental or quasi-governmental agencies might also be
required for other opportunities that SFX Entertainment may pursue in the
future, although SFX Entertainment has no agreements or understandings with
respect to these opportunities at this time. There can be no assurance that
SFX Entertainment will be able to obtain the licenses, approvals and permits
it may require from time to time in order to operate its business.
FORWARD-LOOKING STATEMENTS
Many of the statements, estimates, predictions and projections contained
in this "Business" section of the Prospectus, in addition to certain
statements contained elsewhere in this Prospectus, are "forward-looking
statements" within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act, although those sections do not apply to this
offering. These forward-looking
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statements are prospective, involving risks and uncertainties. While these
forward-looking statements, and any assumptions on which they are based, are
made in good faith and reflect SFX Entertainment's current judgment regarding
the direction of its business, actual results will almost always vary,
sometimes materially, from any estimates, predictions, projections,
assumptions or other future performance suggested herein. Some important
factors (but not necessarily all factors) that could affect SFX
Entertainment's revenues, growth strategies, future profitability and
operating results, or that otherwise could cause actual results to differ
materially from those expressed in or implied by any forward-looking
statement, include the following: lack of operating history as an independent
public company; failure to consummate any or all of the Pending Acquisitions;
failure to derive anticipated benefits from the Pending Acquisitions; working
capital adjustments; payments pursuant to indemnification arrangements;
seasonality of operations or financial results; changes in economic
conditions and consumer tastes; competition; regulatory difficulties; and the
other matters referred to under "Risk Factors" or elsewhere in this
Prospectus. Stockholders are urged to carefully consider these factors in
connection with the forward-looking statements. SFX Entertainment does not
undertake to release publicly any revisions to forward-looking statements
that may be made to reflect events or circumstances after the date of this
Prospectus or to reflect the occurrence of unanticipated events.
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THE SPIN-OFF
BACKGROUND AND REASONS FOR THE SPIN-OFF
SFX was formed in 1992 to acquire, own and operate radio stations. SFX's
strategy was to enhance its stations' financial performance and exploit the
changing regulatory environment (which was evolving to allow companies to own
more radio stations) by acquiring stations at attractive prices. When SFX
completed its initial public offering of common stock in 1993, it became one
of only a few publicly traded companies solely devoted to owning and
operating radio stations. SFX continued to grow after its initial public
offering, from a company that owned or operated 10 stations in six markets to
a company that currently owns or programs 74 stations in 19 markets.
Despite escalating acquisition prices, SFX succeeded in its acquisition
strategy by identifying markets and radio stations with significant growth
potential and by employing management's expertise in operating radio stations
to improve financial performance. In addition, management developed and
assembled clusters of radio stations that, when combined in contiguous
regions, could justify the increased acquisition prices the market demanded.
Over time, however, identifying attractive acquisition opportunities
became increasingly difficult. In late 1996, SFX began to explore
opportunities in other entertainment-related industries where management
could employ its expertise and where significant growth opportunities might
exist. Management concluded that the live entertainment industry offers
attractive acquisition opportunities because it, like the radio industry in
1993, is highly fragmented and consists of mostly local or regional
companies. As a result, SFX began investing in the live entertainment
industry in early 1997, while continuing to pursue radio station acquisitions
and tax-free exchanges of radio stations that would be likely to increase
SFX's broadcast cash flow.
Despite its continuing activity in the radio industry, SFX explored the
option of maximizing shareholder value on a shorter time horizon through the
sale or merger of SFX under appropriate circumstances. During August 1997,
management discussed proposals with various potential acquirors.
After negotiations with the potential acquirors, the board of directors of
SFX determined that the SFX Merger was superior to the other proposals SFX
had received because (a) it offered the highest value to the holders of SFX's
Class A common stock, (b) it would permit SFX to spin off the concert and
live entertainment business to its stockholders, thereby allowing the
stockholders to participate in the opportunities presented by that business,
and (c) SFX Buyer was willing to permit the transaction to be structured in a
manner that would allow the holders of SFX's Class A common stock to
effectively have a separate class vote on the transaction. On August 24,
1997, SFX executed the SFX Merger Agreement with SFX Buyer.
On January 15, 1998, the board of directors of SFX approved the Spin-Off,
as contemplated by the Distribution Agreement, and approved the Distribution
Agreement and the Tax Sharing Agreement, together with the transactions
contemplated by those agreements.
Consistent with SFX's determination that the concert and live
entertainment business offers attractive acquisition opportunities, SFX
Entertainment has already agreed to consummate the Pending Acquisitions for
an aggregate purchase price of approximately $484.3 million, consisting of
approximately $352.8 million in cash, $75.3 million in repaid debt and the
issuance of approximately 4.2 million shares SFX Entertainment Common Stock
with an attributed negotiated value of $56.2 million. There can be no
assurance that the value attributed by the parties to SFX Entertainment's
capital stock will approximate the actual trading price of the stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." Management intends to finance
these acquisitions with the proceeds of SFX Entertainment's recent private
placement of $350.0 million in Notes and with borrowings under the Proposed
Credit Agreement; management anticipates closing the Pending Acquisitions
before the Spin-Off. See "Description of Indebtedness."
The Board believes that the Spin-Off, together with the SFX Merger, will
accomplish a number of important business objectives. The Spin-Off and SFX
Merger will allow SFX's stockholders to realize a
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significant premium for SFX's existing radio broadcasting business, while at
the same time permitting those stockholders to continue their participation
in the Entertainment Business. The Spin-Off will enable SFX Entertainment to
have its own publicly traded equity security to finance its own growth
opportunities. By distributing the SFX Entertainment Common Stock to SFX's
stockholders, SFX's board of directors believes that there will be a greater
potential for increasing the long-term value of the investment of SFX's
stockholders in the Entertainment Business. SFX's board of directors believes
that the Spin-Off will enable investors to better evaluate the performance,
investment characteristics and the future prospects of the Entertainment
Business, enhancing the likelihood that it will achieve appropriate market
recognition of its performance and potential.
MANNER OF EFFECTING THE SPIN-OFF
Prior to the Spin-Off, SFX Entertainment will amend and restate its
certificate of incorporation to, among other things, increase its authorized
capital stock and will issue to SFX, in exchange for the issued and
outstanding shares of stock of SFX Entertainment then held by SFX, the number
of shares of SFX Entertainment's common stock necessary to consummate the
Spin-Off. Assuming that SFX's stockholders approve Proposal 3 in the attached
Proxy Statement (a proposal that will allow the Spin-Off to occur as
currently structured), the Spin-Off will be a dividend distribution to the
holders of record at the close of business on the Spin-Off Record Date (a
date to be determined by the board of directors of SFX) of the outstanding
shares of SFX's common stock, Series D preferred stock, interests in SFX's
director deferred stock ownership plan and certain warrants and will be made
as follows:
o holders of SFX's Class A common stock will receive 1 share of SFX
Entertainment Class A Common Stock per share held;
o holders of SFX's Class B common stock will receive 1 share of SFX
Entertainment Class B Common Stock per share held;
o holders of SFX's Series D preferred stock will receive the number of
shares of SFX Entertainment Class A Common Stock obtained by multiplying
the number of shares held by 1.0987 (rounded down to the next whole
share);
o SFX will place in escrow with the Escrow Agent an aggregate of
approximately 636,289 shares of SFX Entertainment Class A Common Stock for
delivery to the holders of the warrants granted by SFX to Sillerman
Communications Management Corporation (the "SCMC Warrants") and to the
underwriters of Multi-Market Radio, Inc.'s ("MMR's") initial public
offering (the "IPO Warrants" and, together with the SCMC Warrants, the
"Warrants"), upon exercise of the Warrants (see "Certain Relationships and
Related Transactions--SFX Entertainment Common Stock to Be Received in the
Spin-Off"); and
o Messrs. Dugan, Kramer and O'Grady will receive an aggregate of 2,766
shares of SFX Entertainment Class A Common Stock as adjustments to their
interests under SFX's director deferred stock ownership plan.
See "Description of Capital Stock" for a description of the SFX Entertainment
Class A Common Stock and the SFX Entertainment Class B Common Stock.
Fractional shares of SFX Entertainment Common Stock will not be delivered in
the Spin-Off.
The distribution of shares of SFX Entertainment Common Stock in the
Spin-Off will be made on the distribution date to be set by the Board, which,
in any event, will be before the closing of the SFX Merger (the "Spin-Off
Distribution Date"). The Spin-Off is subject to further action by the Board
of Directors, which must set the Spin-Off Record Date and the Spin-Off
Distribution Date and declare the dividend effectuating the Spin-Off. All
shares of SFX Entertainment Common Stock will be fully paid, nonassessable
and free of preemptive rights.
On the Spin-Off Distribution Date, SFX will deposit with Chase Mellon
Shareholder Services, L.L.C., as the Distribution Agent, certificates
representing the aggregate number of shares of SFX Entertainment Class A
Common Stock and SFX Entertainment Class B Common Stock issuable to
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holders of SFX's common stock, Series D preferred stock and interests in
SFX's director deferred stock ownership plan (approximately 14,200,000 shares
of SFX Entertainment Class A Common Stock and 1,047,037 shares of SFX
Entertainment Class B Common Stock). SFX will instruct the Distribution Agent
to distribute the SFX Entertainment Common Stock to holders of SFX's common
stock, Series D preferred stock and interests in SFX's director deferred
stock ownership plan in accordance with the terms of the Distribution
Agreement as promptly as practicable following the Spin-Off Distribution
Date. Any shares deposited with the Distribution Agent but not required to be
distributed to holders of SFX's common stock and Series D preferred stock
will be returned to SFX Entertainment and subsequently canceled.
On the Spin-Off Distribution Date, SFX will also deposit with Chase Mellon
Shareholder Services, L.L.C., as Escrow Agent, certificates representing the
aggregate number of shares of SFX Entertainment Class A Common Stock that the
holders of Warrants would have been entitled to received as a result of their
ownership of SFX's Class A common stock if they had exercised all of the
Warrants immediately prior to the Spin-Off Record Date. Thereafter, upon
exercise of each Warrant, the Escrow Agent will deliver to the holder of that
Warrant the number of shares of SFX Entertainment Class A Common Stock to
which the holder is entitled. Any shares deposited with the Escrow Agent but
not required to be distributed to holders of Warrants will be returned to SFX
Entertainment and subsequently canceled.
The receipt of shares of SFX Entertainment Common Stock in the Spin-Off
will be taxable to the recipients of shares. See "Certain Federal Income Tax
Consequences."
The Spin-Off will be accounted for by SFX Entertainment based on the
historical cost of related assets. SFX will record the Spin-Off as a
nonmonetary distribution to stockholders, also at historical cost.
Following the Spin-Off and other transactions described in this
Prospectus, approximately 81 million shares of SFX Entertainment Class A
Common Stock (including 2 million shares to be reserved for issuance pursuant
to SFX Entertainment's stock option plan), 8 million shares of SFX
Entertainment Class B Common Stock and 25 million shares of SFX Entertainment
preferred stock will remain unissued.
NO HOLDER OF ANY CLASS OR SERIES OF SFX STOCK WILL BE REQUIRED TO PAY ANY
CASH OR OTHER CONSIDERATION FOR THE SHARES OF SFX ENTERTAINMENT COMMON STOCK
TO BE RECEIVED IN THE SPIN-OFF OR TO SURRENDER OR EXCHANGE SHARES OF SFX
STOCK (OTHER THAN IN REGARD TO THE EXCHANGE AS PART OF THE SFX MERGER AS
DESCRIBED IN THE ATTACHED PROXY STATEMENT) OR TO TAKE ANY OTHER ACTION IN
ORDER TO RECEIVE SFX ENTERTAINMENT COMMON STOCK.
REGULATORY MATTERS
No material United States federal or state regulatory approvals are
required in connection with the Spin-Off that have not been obtained. For a
discussion of United States regulatory approvals with respect to the SFX
Merger, see "Proposal 1: The Merger--Regulatory Matters" in the attached
Proxy Statement.
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AGREEMENTS BETWEEN SFX ENTERTAINMENT AND SFX
For the purpose of effecting the Spin-Off and governing certain of the
relationships between SFX Entertainment and SFX after the Spin-Off, SFX
Entertainment, SFX and SFX Buyer have entered or will enter into the various
agreements described below. The material features of the Distribution
Agreement are summarized below, and a form of the Distribution Agreement is
attached as Annex F to the accompanying Proxy Statement. The Tax Sharing
Agreement and a proposed employee benefits agreement (the "Employee Benefits
Agreement"), the material features of which are also summarized below, have
been filed with the Securities and Exchange Commission (the "SEC") as
exhibits to SFX Entertainment's Registration Statement on Form S-1, File No.
333-43287 (the "SFX Entertainment Registration Statement"). The following
descriptions do not purport to be complete and are qualified in their
entirety by reference to the actual agreements.
DISTRIBUTION AGREEMENT
Manner of Effecting the Spin-Off
The Distribution Agreement provides for the distribution of shares of SFX
Entertainment Common Stock to the holders of record on the Spin-Off Record
Date of SFX's common stock, Series D preferred stock, interests in SFX's
director deferred stock ownership plan and, upon exercise, Warrants, as
described in "The Spin-Off--Manner of Effecting the Spin-Off."
Transfer and Assumption of Assets and Obligations
The Distribution Agreement provides that, at the time of the Spin-Off, SFX
Entertainment will assume (a) certain of SFX's leases and employment
agreements, (b) debt and liabilities incurred by SFX Entertainment or its
subsidiaries after the date of the SFX Merger Agreement in connection with
acquisitions and capital expenditures, (c) liabilities under an airplane
lease, (d) liabilities under an agreement pursuant to which The Sillerman
Companies, Inc., a consulting company of which Mr. Sillerman is the Chairman
of the Board of Directors and Chief Executive Officer, and of which Mr. Tytel
is the Executive Vice President, General Counsel and a Director ("TSC"),
provides services to Triathlon and (e) any other debt and liabilities that
SFX Entertainment deems appropriate. SFX is obligated use its commercially
reasonable efforts to release SFX Entertainment and its subsidiaries from all
other debt and accrued liabilities prior to the effective time of the SFX
Merger.
SFX Entertainment will be entitled to all of SFX's accounts receivable
relating to SFX's live entertainment business. SFX will transfer to SFX
Entertainment, prior to the Spin-Off:
o an airplane lease;
o fees payable by Triathlon for services provided by TSC;
o two real estate leases and assets located on the leased property;
o a note receivable relating to the sale of SFX's radio stations operating
in Myrtle Beach;
o the employment agreements of certain employees of SFX; and
o all other assets used primarily by SFX Entertainment.
SFX Entertainment will assume all of SFX's and its subsidiaries' obligations
accruing after the date of the Spin-Off under the above agreements and in
connection with the transfer of assets and employees.
Transferred Employees
If the Spin-Off occurs prior to the closing date of the SFX Merger, SFX's
senior management and certain other employees of SFX will devote as much time
as they deem reasonably necessary to conduct the operations of SFX
Entertainment, while continuing to serve in their present capacities with,
and consistent with their obligations to, SFX. At the time of consummation of
the SFX Merger, SFX Entertainment will assume all obligations arising under
any employment agreement or arrangement
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between SFX or any of its subsidiaries and the employees who are transferred
to SFX Entertainment other than rights, if any, under those employment
agreements to receive options after a change of control and all existing
rights of indemnification. Messrs. Dugan, Kramer and O'Grady have indicated
that, if the SFX Merger Agreement is terminated, they will promptly resign
from their position as directors of SFX Entertainment, and the Board will
appoint three new independent directors to serve until the next annual
meeting of SFX Entertainment's stockholders. See "Management."
Working Capital
Pursuant to the Distribution Agreement (and as required by the SFX Merger
Agreement), SFX Entertainment and SFX have agreed to allocate funds between
them for working capital. If the Spin-Off occurs prior to the consummation of
the SFX Merger, then, immediately after the Spin-Off, SFX's management will
allocate working capital between SFX Entertainment and SFX, and SFX will pay
to SFX Entertainment any positive amount allocated to SFX Entertainment. In
any event, at least five business days before the consummation of the SFX
Merger, SFX must provide SFX Entertainment with a good faith estimate of
Working Capital (as defined below) as of the date of consummation of the SFX
Merger (the "Estimated Working Capital"). If the Estimated Working Capital is
a positive number, then SFX must pay to SFX Entertainment an amount equal to
the Estimated Working Capital at the time of consummation of the SFX Merger.
On the other hand, if the Estimated Working Capital is a negative number,
then SFX Entertainment must pay to SFX an amount equal to the Estimated
Working Capital at the time of consummation of the SFX Merger.
As soon as practicable (and in any event within ninety days) after the SFX
Merger is consummated, SFX must deliver to SFX Entertainment an audited
statement of Working Capital as of the date of consummation of the SFX
Merger. If SFX Entertainment does not object to SFX's Working Capital
statement within fifteen days following delivery thereof, then the Working
Capital reflected on SFX's Working Capital statement will be the "Final
Working Capital." If SFX Entertainment does so object, then the issues in
dispute will be submitted to a major national accounting firm for resolution
and to determine the "Final Working Capital."
On the third business day after the Final Working Capital is determined,
SFX or SFX Entertainment, as the case may be, must pay to the other an amount
equal to the Final Working Capital, less the Estimated Working Capital
previously paid, together with interest on the absolute value of the
difference at an annual rate of 10% beginning on the date of consummation of
the SFX Merger and ending on the date of payment of the amount (the "Working
Capital Adjustment Amount"). However, if SFX Entertainment notifies SFX prior
to the payment date that it wishes to have all or any portion of the Final
Working Capital (the "SFX Merger Consideration Adjustment") treated as an
adjustment to the consideration payable in connection with the SFX Merger,
then the consideration payable in connection with the SFX Merger will be
increased by an amount equal to the quotient of the SFX Merger Consideration
Adjustment divided by the fully diluted number of shares of SFX's common
stock outstanding immediately prior to the consummation of the SFX Merger,
and SFX must promptly distribute (a) the appropriate amount to the
appropriate holders, immediately prior to the consummation of the SFX Merger,
of SFX's common stock and Series D preferred stock, (b) upon exercise, the
appropriate amount to holders of options, warrants and unit purchase options
of SFX unexercised immediately prior to the consummation of the SFX Merger
and (c) the appropriate amount to holders of options, warrants and unit
purchase options of SFX who exercised their securities on and after the
consummation of the SFX Merger and prior to the final payment date. If SFX
Entertainment elects to treat any portion of the Final Working Capital as an
SFX Merger Consideration Adjustment, then SFX Entertainment must pay SFX the
difference, if any, between the SFX Merger Consideration Adjustment and the
Working Capital Adjustment Amount so that the aggregate net amount to be paid
or received (as the case may be) by SFX is equal to the amount that would
have been paid or received if the SFX Merger Consideration Adjustment had not
been made.
"Working Capital" means the sum of all current assets of SFX and its
consolidated subsidiaries minus the sum of all current liabilities of SFX and
its consolidated subsidiaries, as of the point in time immediately prior to
the consummation of the SFX Merger, adjusted (without duplication) by:
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(a) increasing Working Capital by 50% (up to $1.0 million) of all fees
and expenses incurred by SFX in connection with acquiring consents
from holders of SFX's Series E preferred stock and certain of its
outstanding notes in connection with the transactions contemplated
by the SFX Merger Agreement;
(b) increasing (if a positive number) or decreasing (if a negative
number) Working Capital by the product of (A) $75.00 (or any other
amount payable to holders of SFX's Class A common stock) and (B)
the difference between 15,589,083 less the sum of the fully diluted
number of shares of SFX common stock outstanding immediately prior
to the time of consummation of the SFX Merger (excluding up to
250,838 shares of SFX's common stock subject to a right of
repurchase granted by SFX in connection with an acquisition);
(c) reducing Working Capital by the difference between $84,554,649 less
the sum of (A) the aggregate exercise price of all options,
warrants and unit purchase options of SFX outstanding immediately
prior to the SFX Merger consummation plus (B) the aggregate
exercise price of all warrants underlying unit purchase options of
SFX outstanding immediately prior to the SFX Merger consummation
plus (C) the aggregate base price of all SARs of SFX outstanding
immediately prior to the SFX Merger consummation;
(d) reducing Working Capital by the product of (A) $42 and (B) up to
250,838 shares of SFX's common stock subject to a right of
repurchase by SFX granted in connection with an acquisition (see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--Meadows
Repurchase");
(e) increasing Working Capital by all permitted radio-related capital
expenditures paid by SFX and its subsidiaries after June 30, 1997
and immediately prior to the SFX Merger consummation;
(f) decreasing Working Capital by all accrued capital expenditures of
SFX as of immediately prior to the SFX Merger consummation (to the
extent not reflected in current liabilities);
(g) increasing Working Capital by accrued but not yet payable
dividends;
(h) except as required by clause (i) below, excluding from Working
Capital any liabilities attributable to indebtedness of SFX;
(i) excluding from Working Capital any liabilities included in clauses
(i) through (iv) of clause (k) below;
(j) reducing Working Capital by unpaid costs, fees and expenses of SFX
arising out of, based on or that will arise from the transactions
contemplated by the SFX Merger Agreement (other than as a result of
actions taken by SFX Buyer Sub) (including amounts relating to the
termination of any employees, broker fees, legal fees, accounting
fees, advisory fees and fees incurred in connection with third
party consents, waivers and amendments of creditors or holders of
SFX's preferred stock);
(k) reducing Working Capital by the amount of SFX's Excess Debt (as
defined below), if a positive number, or increasing Working Capital
by the amount of the Excess Debt, if a negative number. "Excess
Debt" means, as of immediately prior to the consummation of the SFX
Merger, the difference between the sum of the following and $899.7
million:
(i) the difference between (A) indebtedness of SFX and its
subsidiaries, less (B) the difference between $70.0 million and
any amounts (other than the reimbursement of expenses) actually
received by SFX and its consolidated subsidiaries after August
24, 1997, under agreements relating to the sale or local
marketing arrangement (the local marketing payments may not
exceed $30,000 per month) of its WVGO-FM and the sale or local
marketing arrangement of its Jackson/Biloxi radio stations, less
(C) any indebtedness incurred to finance acquisitions approved
by Buyer of stock of or substantially all of the assets of radio
stations, less (D) interest accrued as of immediately prior to
the consummation of the SFX Merger that is not then due and
payable,
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(ii) the aggregate merger consideration payable to holders of SFX's
Series C preferred stock (which SFX anticipates will be $2.0
million),
(iii) the aggregate liquidation preference amount of SFX's Series E
preferred stock, and
(iv) environmental costs or liabilities accrued and not paid after
June 30, 1997, to the extent they exceed $100,000 in the
aggregate; and
(l) reducing Working Capital by the difference between (i) 142,032
times the higher of (A) the average of the last sales price of
SFX's Series E preferred stock during the 15 business days ending
on the date of consummation of the SFX Merger, or (B) the average
of the last sales price of SFX's Series E preferred stock during
the 15 business days preceding February 9, 1998 ($115.08), and (ii)
$14,203,200 (the "Series E Adjustment").
Working Capital will not include any asset transferred to SFX
Entertainment or any of its subsidiaries, any liability assumed by SFX
Entertainment or any liability to which none of SFX or any of its
subsidiaries is a party immediately after the consummation of the SFX Merger.
Any computation of Working Capital should assume that the Spin-Off has been
consummated. As of September 30, 1997, Working Capital payable by SFX to SFX
Entertainment would have been approximately $2.1 million (excluding the
Series E Adjustment). The actual amount of Working Capital as of the closing
of the SFX Merger may differ substantially from the amount in existence as of
September 30, 1997, and will be a function of, among other things, the
operating results of SFX through the date of the SFX Merger, the actual cost
of consummating the SFX Merger and the related transactions and other
obligations of SFX, including the payment of dividends and interest on SFX's
debt. See "Risk Factors--Working Capital Adjustments and Repayment of
Advances" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources--Spin-Off."
Acquisitions and Capital Improvements
SFX and SFX Entertainment have agreed that SFX Entertainment may, from
time to time, (a) acquire additional businesses engaged in the Entertainment
Business or (b) make capital improvements on assets owned or leased by it or
its subsidiaries. In each case, SFX must loan SFX Entertainment the funds
with which to consummate the acquisitions and capital improvements. However,
all amounts so borrowed by SFX Entertainment must be repaid on the date of
the Spin-Off. SFX may increase the borrowing availability under its credit
agreement for these purposes, and must use its best efforts to obtain any
required or desirable waivers, consents or modifications under any financing
or other agreement of SFX in connection with the acquisitions or capital
improvements.
If SFX Entertainment makes such additional acquisitions or capital
improvements, it will be required to obtain financing to repay the amounts
that it borrows from SFX, which financing may take the form of public or
private sales of debt or equity securities, bank credit or other financing.
See "--Working Capital." However, there can be no assurance that SFX
Entertainment will be able to obtain such financing on advantageous terms, or
at all. If SFX Entertainment obtains a loan from SFX and is unable to obtain
financing to repay SFX as of the date of the Spin-Off, SFX will be in breach
of the SFX Merger Agreement.
As of January 31, 1998, SFX had advanced approximately $8.0 million to SFX
Entertainment for use in connection with certain acquisitions and capital
expenditures. SFX Entertainment intends to repay these amounts from the
proceeds of the Financing. SFX may advance additional amounts to SFX
Entertainment for these purposes before the consummation of the Spin-Off.
Release and Indemnification
Pursuant to the Distribution Agreement, SFX has agreed to release SFX
Entertainment and its subsidiaries and affiliates (other than SFX and its
subsidiaries) and all persons who at any time prior to the Spin-Off
Distribution Date were stockholders, directors, agents or employees of SFX
Entertainment or its subsidiaries from any and all claims arising from any
acts or events occurring or failing to occur or any conditions existing on or
before the Spin-Off Distribution Date (other than claims arising from
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transactions contemplated by the Distribution Agreement, the SFX Merger
Agreement and certain related agreements). Similarly, SFX Entertainment has
agreed to release SFX, its affiliates (other than SFX Entertainment and its
subsidiaries) and all persons who at any time prior to the date of the
Spin-Off were stockholders, directors, agents or employees of SFX or its
subsidiaries from any and all claims arising from any acts or events
occurring or failing to occur or any conditions existing on or before the
date of the Spin-Off (other than claims arising from transactions
contemplated by the Distribution Agreement, the SFX Merger Agreement and
certain related agreements).
The Distribution Agreement requires SFX Entertainment to indemnify, defend
and hold SFX and its subsidiaries (other than SFX Entertainment and its
subsidiaries) and each of its directors, officers, employees and agents
harmless from and against any liabilities (other than income tax liabilities)
to which SFX or any of its subsidiaries (other than SFX Entertainment and its
subsidiaries) may be or become subject that (a) relate to the assets,
business, operations, debts or liabilities of SFX Entertainment and its
subsidiaries (including liabilities to be assumed by SFX Entertainment as
contemplated in the Distribution Agreement and any liabilities arising under
certain guarantees of SFX in conection with the Pending Acquisitions),
whether arising prior to, concurrent with or after the Spin-Off or (b) result
from a breach by SFX Entertainment or its subsidiaries of any representation,
warranty, or covenant contained in the Distribution Agreement or any related
agreements.
The Distribution Agreement requires SFX to indemnify, defend and hold the
SFX Entertainment Group and each of its directors, officers, employees and
agents harmless from and against any liabilities (other than income tax
liabilities) to which the SFX Entertainment Group may be or become subject
that (a) relate to the assets, business, operations, debts or liabilities of
SFX or its subsidiaries (other than the SFX Entertainment Group), whether
arising prior to, concurrent with or after the Spin-Off or (b) result from a
breach by SFX or its subsidiaries (other than SFX Entertainment) of any
representation, warranty, or covenant contained in the Distribution Agreement
or any related agreements.
The release and indemnification obligations contained in the Distribution
Agreement will survive the Spin-Off for a period of six years (and thereafter
as to any claims for indemnification asserted prior to the expiration of that
period).
SFX Entertainment Registration Statement and Consent Solicitation Documents
SFX Entertainment has represented to SFX that the SFX Entertainment
Registration Statement and the consent solicitation documents sent to the
holders of certain of SFX's securities did not, at the time it became
effective or was mailed, contain any untrue statement of a material fact or
omit to state a material fact required to be stated in order to make the
statements in the SFX Entertainment Registration Statement and the consent
solicitation documents, in light of the circumstances under which they were
made, not misleading.
Related Agreements
SFX and SFX Entertainment have agreed that any tax sharing agreement to
which they are parties must be terminated as of the effective date of the
Spin-Off. In addition, the Distribution Agreement requires SFX and SFX
Entertainment to enter into the Tax Sharing Agreement and Employee Benefits
Agreement (as described below) on or before the date of the Spin-Off.
Use of Names; Intellectual Property
At the closing of the SFX Merger, SFX will assign to SFX Entertainment or
its designee the name "SFX," together with all causes of action and the right
to recover for past infringements of that name. As soon as commercially
practicable, but no later than six months from the consummation of the SFX
Merger, SFX must cease all use of the name "SFX" or other trademarks, trade
names or their identifiers owned by, licensed to, or transferred pursuant to
the Distribution Agreement to SFX Entertainment.
Conditions to the Spin-Off
Pursuant to the Distribution Agreement, the obligations of SFX
Entertainment and SFX to consummate the Spin-Off will be subject to the
fulfillment or waiver of each of the following conditions:
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o SFX's board of directors must be satisfied that SFX's surplus (as
defined under Delaware law) would be sufficient to permit the Spin-Off
under Delaware law and must formally approve the Spin-Off;
o the SFX Entertainment Registration Statement must be declared effective
by the SEC, and no stop order may be issued or pending with respect
thereto;
o the SFX Entertainment Class A Common Stock must be accepted for listing
or trading, subject to official notice of issuance, on a national
exchange or The Nasdaq Stock Market;
o all necessary third party consents to the Spin-Off must be obtained;
o the necessary stockholder approvals must be obtained to consummate the
Spin-Off as presently contemplated;
o there must not be in effect any temporary restraining order,
preliminary or permanent injunction or other order issued by any court
of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Spin-Off;
o SFX Entertainment and SFX must enter into the Tax Sharing Agreement and
the Employee Benefits Agreement; and
o each of the covenants and provisions in the Distribution Agreement
required to be performed or complied with prior to the Spin-Off must be
performed or complied with.
SFX's board of directors is entitled to waive any of the above conditions
prior to the Spin-Off.
Expenses of Spin-Off
Pursuant to the Distribution Agreement, all fees and expenses incurred in
connection with the Spin-Off will be paid by the party incurring them.
Termination of the SFX Merger Agreement
If the SFX Merger Agreement is terminated in accordance with its terms for
any reason, the boards of directors of SFX and SFX Entertainment will each
appoint a committee of independent directors (none of whom will serve on both
boards of directors) to negotiate in good faith with respect to all matters
that they deem necessary to effectuate the separation of the affairs of SFX
and SFX Entertainment, including the employment of employees to be
transferred to SFX Entertainment pursuant to the Distribution Agreement. No
adjustments will be made to the initial allocation of working capital between
SFX and SFX Entertainment if the SFX Merger Agreement is terminated in
accordance with its terms.
Amendment or Modification
SFX and SFX Entertainment can only amend the Distribution Agreement by
written agreement with the consent of SFX Buyer (which may not be
unreasonably withheld).
Termination
The Distribution Agreement may be terminated and the Spin-Off abandoned at
any time before the date of the Spin-Off by, and in the sole discretion of,
SFX. In the event of such a termination, no party will have any liability to
any other party.
TAX SHARING AGREEMENT
Prior to the Spin-Off, SFX and SFX Entertainment will enter into the Tax
Sharing Agreement. Under the Tax Sharing Agreement, SFX Entertainment will
agree to pay to SFX the amount of the tax liability of SFX and SFX
Entertainment combined, to the extent properly attributable to SFX
Entertainment for the period up to and including the Spin-Off, and will
indemnify SFX for any tax adjustment made in subsequent years that relates to
taxes properly attributable to SFX Entertainment
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during the period prior to and including the Spin-Off. SFX, in turn, will
indemnify SFX Entertainment for any tax adjustment made in years subsequent
to the Spin-Off that relates to taxes properly attributable to the SFX during
the period prior to and including the Spin-Off. SFX Entertainment also will
be responsible for any taxes of SFX resulting from the Spin-Off, including
any income taxes to the extent that the income taxes result from gain on the
distribution that exceeds the net operating losses of SFX and SFX
Entertainment available to offset gain resulting from the Spin-Off.
EMPLOYEE BENEFITS AGREEMENT
Prior to the Spin-Off, SFX and SFX Entertainment will enter into an
Employee Benefits Agreement. Pursuant to the Employee Benefits Agreement, SFX
and SFX Entertainment will agree to take all actions necessary or appropriate
so that, as of the Spin-Off, SFX Entertainment and its subsidiaries will no
longer be participating employers and sponsors of the 401(k), health, group
term life insurance, long term disability insurance and cafeteria plans
maintained by SFX (collectively, the "SFX Employee Benefit Plans"). The
Employee Benefits Agreement will also provide for the treatment of the
benefits under the SFX Employee Benefit Plans of employees being transferred
from SFX to SFX Entertainment or who are otherwise employed by SFX
Entertainment upon the Spin-Off. With respect to employees transferred from
SFX to SFX Entertainment or who are otherwise employed by SFX Entertainment
upon the Spin-Off, SFX will have sole responsibility for retaining and
discharging any claims that are incurred on or prior to the date of their
transfer under SFX Employee Benefit Plans that are not 401(k) plans. On or
prior to the Spin-Off, SFX Entertainment will continue to pay premiums and
contributions under the SFX Employee Benefit Plans in accordance with its
past practices and procedures, except that any premiums and contributions for
the month in which the Spin-Off occurs shall be paid as soon as practicable
after that month and pro-rated. To the extent the account balances under the
401(k) plan maintained by SFX of employees being transferred from SFX to SFX
Entertainment or who are otherwise employed by SFX Entertainment upon the
Spin-Off are not distributed, SFX and SFX Entertainment must take all actions
necessary or appropriate to effect their transfer to a 401(k) plan
established by SFX Entertainment.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion sets forth the material federal income tax
consequences of the Spin-Off and the SFX Merger applicable to stockholders
that hold their shares as capital assets within the meaning of Section 1221
of the Internal Revenue Code of 1986, as amended (the "Tax Code"). However,
the discussion does not address all federal income tax considerations that
may be relevant to particular stockholders in light of their specific
circumstances, such as stockholders who are dealers in securities, foreign
persons or stockholders who acquired their shares in connection with stock
options or stock purchase warrants. Each stockholder is urged to consult the
holder's own tax adviser to determine the tax consequences to the holder of
the SFX Merger and the Spin-Off in light of the holder's particular
circumstances, including the applicability and effect of federal, state,
local and foreign income and other tax laws and possible changes in those tax
laws (which may have retroactive effect).
Subject to the possible recharacterization discussed below, the receipt of
SFX Entertainment Common Stock as a result of the Spin-Off should be taxable
to the recipient as a distribution from SFX under Section 301 of the Tax
Code. The amount of the distribution for federal income tax purposes and the
basis for determining gain or loss on a subsequent disposition of the SFX
Entertainment Common Stock would be the fair market value of the SFX
Entertainment Common Stock at the time of the Spin-Off, and a stockholder's
holding period for SFX Entertainment Common Stock received in the Spin-Off
will begin on the day following the Spin-Off.
The receipt of the SFX Entertainment Common Stock should be taxable to the
holders of shares of SFX stock as a dividend to the extent of SFX's current
or accumulated earnings and profits (determined as of the end of SFX's
taxable year, which will occur on the date of the SFX Merger). Any amount of
SFX Entertainment Common Stock that exceeds the above-mentioned earnings and
profits of SFX would first be treated as a non-taxable return of capital to
the extent of each stockholder's tax basis in shares of SFX stock, and the
stockholder's tax basis in the stock would be reduced accordingly (but not
below zero). To the extent that the amount of SFX Entertainment Common Stock
were to exceed the stockholder's tax basis in shares of SFX stock, the excess
would be treated as long-term or short-term capital gain from the sale or
exchange of shares of SFX stock, depending on the period the stockholder held
the shares of SFX stock. Although SFX does not currently have accumulated
earnings and profits, it is possible that there may be earnings and profits
for the year of the SFX Merger, because the Spin-Off might give rise to
taxable gain to SFX. There can be no assurance, therefore, that there will be
no current or accumulated earnings and profits, and thus it is possible that
all or a portion of the value of the SFX Entertainment Common Stock could
give rise to ordinary income.
With respect to corporate stockholders, the portion of the SFX
Entertainment Common Stock, if any, that is a taxable dividend under the
foregoing rules generally should be eligible for the 70% dividends received
deduction. However, a corporate stockholder's ability to use the dividends
received deduction is subject to several limitations, including those
relating to "debt financed portfolio stock" under Section 246A of the Tax
Code and certain holding period requirements. In addition, even if the
dividends received deduction is fully available, a portion of the SFX
Entertainment Common Stock distribution may constitute an "extraordinary
dividend," which is subject to the provisions of Section 1059 of the Tax
Code.
The receipt by an SFX stockholder of cash pursuant to the SFX Merger (or
cash pursuant to the exercise of dissenters' rights of appraisal) will be a
taxable event for the stockholder. A stockholder will generally recognize
capital gain or loss for federal income tax purposes equal to the difference
between (a) the amount of cash received and (b) the tax basis in the shares
of SFX stock surrendered in exchange therefor (generally, the amount paid for
the shares of SFX stock, subject to downward adjustment as described herein
as a result of the Spin-Off). The gain or loss will be long-term capital gain
or loss if the stockholder's holding period for the surrendered shares is
more than one year at the time of consummation of the SFX Merger. Under
recently enacted legislation, individuals whose holding period for shares of
SFX stock exceeds 18 months will, in general, be subject to no more than a
20% tax on any gain, while individuals whose holding period for shares of SFX
stock is more than one year but not more than 18 months will, in general, be
subject to no more than a 28% tax on any gain. If an SFX stockholder
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owns more than one block of shares of SFX stock, the cash received must be
allocated ratably among the blocks in the proportion that the number of
shares of SFX stock in a particular block bears to the total number of shares
of SFX stock owned by the stockholder.
Although, as stated above, the receipt by an SFX stockholder of cash and
SFX Entertainment Common Stock should be treated as if only the cash payment
was received as payment for the shares of SFX stock, while the receipt of SFX
Entertainment Common Stock is taxable to the recipient as a distribution from
SFX under Section 301 of the Tax Code, and although SFX will report the
transaction in a manner consistent with this characterization, it is possible
that the Internal Revenue Service might contend that the transaction should
be treated as an exchange of shares of SFX stock for both cash and SFX
Entertainment Common Stock. Under this treatment, a stockholder will
generally recognize capital gain or loss for federal income tax purposes
equal to the difference between (a) the fair market value at the time of
consummation of the SFX Merger of the SFX Entertainment Common Stock received
plus the amount of cash received and (b) the tax basis in the shares of SFX
stock surrendered in exchange therefor (without adjustment for any portion of
the distribution of SFX Entertainment Common Stock that would have
constituted a return of capital, if the distribution were respected as such).
As discussed above, the gain or loss will be long-term capital gain or loss
if the stockholder's holding period for the surrendered shares is more than
one year at the time of consummation of the SFX Merger. Under this
characterization, if SFX has no current or accumulated earnings and profits
for the taxable year that includes the SFX Merger, the amount of capital gain
recognized by stockholders should be the same whether the Spin-Off is treated
as a distribution to stockholders, or as part of the sale price received as
payment for the shares of SFX stock. By contrast, if SFX does have earnings
and profits for that taxable year, such a characterization will generally
decrease the amount of tax payable by an individual (by converting ordinary
income to capital gain) and increase the amount of tax payable by a
corporation (by converting dividend income potentially eligible for a
dividends received deduction to capital gain).
A stockholder may be subject to information reporting and to backup
withholding at a rate of 31% of amounts paid to the stockholder, unless the
stockholder provides proof of an applicable exemption or a correct taxpayer
identification number, and otherwise complies with applicable requirements of
the backup withholding rules.
THE DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS BASED
ON EXISTING LAW AS OF THE DATE OF THIS PROSPECTUS. STOCKHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISERS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO
THEM OF THE SPIN-OFF AND THE SFX MERGER (INCLUDING THE APPLICABILITY AND
EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS).
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AGREEMENTS RELATED TO THE PENDING ACQUISITIONS
The following is a summary of the material terms of the agreements
relating to the Pending Acquisitions. This summary is not intended to be
complete and is subject to, and qualified in its entirety by reference to,
the agreements, which are filed as exhibits to the SFX Entertainment
Registration Statement and are incorporated herein by reference.
The approximately 4.2 million shares of SFX Entertainment Class A Common
Stock expected to be issued in connection with certain of the Pending
Acquisitions have been valued by the applicable parties at $13.33 per share
for purposes of calculating the consideration to be given for the Pending
Acquisitions. This valuation is based on financial projections developed
jointly by SFX Entertainment and the relevant sellers. There is presently no
trading market for the SFX Entertainment Class A Common Stock. There can be
no assurance that the assumptions underlying the valuation will, in fact, be
correct or that the valuation will approximate the actual trading prices of
the SFX Entertainment Class A Common Stock.
PACE ACQUISITION
General
On December 12, 1997, SFX Entertainment entered into the PACE Agreement, a
stock purchase agreement with PACE and the shareholders of PACE (the "PACE
Sellers"), wherein SFX Entertainment agreed to purchase the outstanding
capital stock of PACE for approximately $109.5 million in cash (the "PACE
Cash Payment"), the repayment of $25.5 million in debt and the issuance of
1.5 million shares of SFX Entertainment Class A Common Stock valued by the
parties at $20.0 million (the "PACE Stock Consideration"). The PACE Cash
Payment will be delivered to the PACE Sellers at closing, while the PACE
Stock Consideration will be issued to the PACE Sellers at the time of the
Spin-Off. The PACE Cash Payment includes a $1.5 million premium in respect of
shares held by Becker Interests Limited Partnership. SFX has irrevocably and
unconditionally guaranteed the full and timely performance of all of SFX
Entertainment's obligations under the PACE Agreement. This guarantee is in
place until the latter of (a) delivery of the PACE Cash Payment or (b)
delivery of the PACE Stock Consideration.
The PACE Agreement provides that closing will take place no later than the
latter of (a) 10 business days following satisfaction or waiver of the
conditions to the obligations of the parties or (b) the earlier of (i) 60
days after PACE has obtained, or is deemed to have obtained, all necessary
third party consents or (ii) March 1, 1998, provided that the closing date is
not earlier than February 23, 1998.
Representations and Warranties
PACE and each of the PACE Sellers have made representations and warranties
in the PACE Agreement with respect to, among other things:
o the due organization and good standing of PACE;
o each PACE Seller's good title to his or her shares of PACE common stock;
o the PACE Agreement as a valid and binding obligation of PACE and each of
the PACE Sellers; and
o with certain disclosed exceptions, performance of the PACE Agreement not
conflicting with the provisions of any other agreement to which PACE or
any PACE Seller is a party.
In addition, SFX Entertainment has made representations and warranties in
the agreement with respect to, among other things:
o its due organization and good standing;
o the PACE Agreement as a valid and binding obligation of SFX
Entertainment;
o with certain disclosed exceptions, performance of the agreement not
conflicting with the provisions of any other agreement to which SFX
Entertainment is a party; and
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o the PACE Stock Consideration's due authorization and, when issued and
delivered, status as duly issued, fully paid and non-assessable.
All representations and warranties in the PACE Agreement (except certain
representations and warranties of the PACE Sellers' concerning their title to
the shares of PACE and of PACE with respect to state and federal income
taxes) will expire on the earlier to occur of (a) 18 months following
consummation of the PACE Acquisition and (b) 60 days following the completion
of the first audit of PACE's financial statements that occurs after closing.
Indemnification
The PACE Sellers have agreed to indemnify SFX Entertainment, each of its
officers, directors and agents and each person who controls SFX Entertainment
against certain losses (the "PACE Damages"). The PACE Damages include losses
arising from (a) any breach of the representations and warranties made by
PACE or the PACE Sellers in the agreement, (b) any breach of the covenants or
agreements made by PACE or the PACE Sellers in the agreement or (c) any
liabilities with respect to the Excluded Assets (as defined in the PACE
Agreement). Except for damages arising from a breach of a representation,
warranty or covenant made by a PACE Seller on the PACE Seller's behalf, each
PACE Seller's liability under the PACE Agreement is limited to his or her
proportional share of the PACE Sellers' aggregate liability. The maximum
aggregate liability of the PACE Sellers to indemnify SFX Entertainment is
limited to (a) $2.0 million with respect to breaches of representations or
warranties of PACE disclosed to SFX Entertainment on or before December 24,
1997 and (b) $10.0 million with respect to PACE Damages (including damages
described in (a)). SFX Entertainment is not entitled to receive
indemnification from the PACE Sellers, except to the extent that the
aggregate amount of damages incurred by SFX Entertainment exceeds $750,000
(in which case SFX Entertainment will be indemnified from the first dollar of
damages).
SFX Entertainment has agreed to indemnify the PACE Sellers against losses
arising out of or based on the breach of any of the representations,
warranties, covenants or agreements made by SFX Entertainment in the PACE
Agreement. In addition, SFX Entertainment has agreed to indemnify and hold
harmless each present and former employee, officer or director of PACE, to
the fullest extent permitted under applicable law, against any damages in
connection with any action or omission occurring prior to consummation of the
PACE Acquisition (except for damages arising from a claim by SFX
Entertainment for indemnification under the agreement or a claim among or
between the PACE Sellers or PACE optionholders related solely to transactions
contemplated by the PACE Agreement). The maximum aggregate liability of SFX
Entertainment to indemnify the PACE Sellers is limited to $10 million with
respect to breaches of SFX Entertainment's representations and warranties.
However, there is no such limitation to SFX Entertainment's liability with
respect to any breach by SFX Entertainment of any of the covenants or
agreements contained in the PACE Agreement.
Closing Conditions
The consummation of the PACE Acquisition is subject to certain closing
conditions, including (a) the absence of governmental action that would
restrain, enjoin or otherwise prohibit completion of the PACE Acquisition,
(b) the absence of any injunction or order of specific performance that
purports to prohibit the PACE Acquisition and (c) expiration or termination
of any applicable waiting period under the HSR Act.
The obligation of SFX Entertainment to consummate the PACE Acquisition is
subject to certain conditions precedent, including:
o the truth and accuracy of all representations and warranties of PACE and
the PACE Sellers contained in the agreement as of December 24, 1997 (the
"PACE Reps and Warranties Condition");
o PACE's and the PACE Sellers' performance of and compliance with, in all
material respects, their respective obligations and covenants and
conditions contained in the agreement;
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o the absence of any Material Adverse Effect (as defined in the PACE
Agreement) affecting PACE on or before December 24, 1997 (the "PACE
Material Adverse Effect Condition");
o repayment by certain insiders of PACE to PACE of certain loans;
o PACE's receipt from Sony Sub and Blockbuster Sub of a waiver of certain
provisions of Pavilion Partners' partnership agreement; and
o execution by each holder of options to purchase common stock of PACE
(the "PACE Stock Options") of an option redemption agreement.
As required by the PACE Agreement, PACE obtained the consent of
Blockbuster Sub upon entering into the Blockbuster Agreement (as defined
below), wherein PACE agreed to purchase substantially all of Blockbuster
Sub's interest in Pavilion Partners. If PACE does not earlier obtain the
actual consent of Sony Sub, the consent will, nonetheless, be deemed to have
been obtained by PACE if SFX Entertainment has not terminated the PACE
Agreement on or before January 30, 1998.
On December 29, 1997, SFX Entertainment received certificates from an
officer of PACE and Allen J. Becker as representative of the PACE Sellers
(the "PACE Sellers' Representative") with respect to the fulfillment of the
PACE Reps and Warranties Condition and the PACE Material Adverse Effect
Condition. As a result of the delivery of these certificates, these two
conditions are deemed to be satisfied.
SFX Entertainment has agreed to waive the condition to closing that the
PACE Sellers deliver all of the outstanding shares of PACE, if the PACE
Sellers deliver 85% of the shares at closing. If only 85% of the outstanding
shares of PACE are delivered at closing, then SFX Entertainment intends to
effect a cash-out merger of the remaining stockholders of PACE.
PACE Acquisition Facility
SFX Entertainment has agreed that, at any time up to consummation of the
PACE Acquisition, it will make available to PACE up to $25.0 million to be
used by PACE to fund certain acquisitions (the "PACE Acquisition Facility").
SFX Entertainment does not currently anticipate having to extend this
facility. If the PACE Agreement is terminated for any reason other than
failure of the PACE Sellers to (a) deliver their stock certificates at
closing or (b) satisfy all of the conditions to SFX Entertainment's
obligation to consummate the acquisition and the failure is caused by wilful
breach by, or gross negligence of, the PACE Sellers in the performance of
their obligations under the agreement, then PACE will have the option to
immediately repay, without interest, any amounts advanced under the PACE
Acquisition Facility or convert those amounts into a full recourse term loan
(the "PACE Term Loan") . The PACE Term Loan will have a five-year term
commencing on the date funds were first advanced under the PACE Acquisition
Facility. For the first two years, the PACE Term Loan will bear interest at
an annual rate equal to SFX Entertainment's blended cost of funds; the
interest rate will escalate 1% per annum each anniversary thereafter.
Interest on the PACE Term Loan will only be payable in arrears for the first
two years of its term, followed by amortization based on available cash flow
from the assets acquired with the PACE Term Loan proceeds (the "PACE Term
Loan Assets"). The PACE Term Loan will be secured by a first priority lien on
PACE Term Loan Assets and the Pavilion Partners Option (as defined below)
and, except with respect thereto, will be subordinate to loans made by PACE's
senior bank lender.
If the PACE Term Loan is not fully paid and discharged within 60 days
after any event of default under the PACE Term Loan, then SFX Entertainment
will have an option (the "Pavilion Partners Option") to require PACE to sell
to SFX Entertainment 100% of its partnership interest in Pavilion Partners, a
general partnership between PACE and Amphitheater Entertainment Partners
("AEP") that owns or operates several amphitheaters. The transferability of
PACE's interest in Pavilion Partners is subject to the consent of AEP, which
may be withheld by AEP in its sole discretion for any reason or no reason.
SFX Entertainment's ability to exercise the Pavilion Partners Option is
conditioned on, without further recourse against PACE or the PACE Sellers,
SFX Entertainment obtaining the consent of AEP.
Except as described below, any amounts borrowed under the PACE Acquisition
Facility will be immediately due and payable if the parties fail to
consummate the PACE Acquisition due to the PACE Sellers' failure to (a)
deliver their stock certificates at closing or (b) satisfy all of the
conditions to SFX
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Entertainment's obligation to consummate the acquisition and the failure is
caused by wilful breach by, or gross negligence of, the PACE Sellers in the
performance of their obligations under the agreement and SFX Entertainment is
not in breach of the PACE Agreement and has satisfied (or is prepared to
satisfy) all of the conditions precedent to the PACE Sellers' obligation to
close. In that event, SFX Entertainment has agreed that, for a period of 60
days following the acceleration, it will not exercise or pursue any remedies
available to it by reason of PACE's failure to pay the accelerated amounts.
If the PACE Acquisition Facility is accelerated as described above, the
aggregate amount borrowed pursuant to the PACE Acquisition Facility will bear
an interest rate of 3% above the interest rate then in effect (which will be
increased by 1/4% each month thereafter), and SFX Entertainment will have the
option to either (a) avail itself of any remedies at its disposal, including
foreclosing on the PACE Term Loan Assets, or (b) exercise the Pavilion
Partners Option and offset the outstanding balance of amounts borrowed under
the PACE Acquisition Facility against the price paid for PACE's interest in
Pavilion Partners. If, on termination of the PACE Agreement, PACE provides
SFX Entertainment with written notice that PACE does not have the right to
convert amounts borrowed into the PACE Term Loan (or irrevocably waives its
right to such a conversion), then amounts borrowed under the PACE Acquisition
Facility will not become due and payable until after 60 days following the
failure to consummate the PACE Acquisition.
If the PACE Agreement is terminated, and if SFX Entertainment is in breach
or not prepared to satisfy all conditions precedent to the PACE Sellers'
obligation to close, then any amounts borrowed under the PACE Acquisition
Facility will be converted into the PACE Term Loan. In that event, the PACE
Term Loan will be secured by a first priority lien on the PACE Term Loan
Assets; however, SFX Entertainment will have no rights to the Pavilion
Partners Option.
Termination
The PACE Agreement may be terminated:
o by mutual consent of SFX Entertainment and the PACE Sellers'
Representative; or
o if the PACE Acquisition is not consummated on or before March 1, 1998
(unless extended by the parties), except that, if the acquisition is not
consummated solely because any applicable waiting period under the HSR
Act has not expired or been terminated, then the date may be extended to
May 31, 1998 (unless further extended by the parties).
If the PACE Agreement has not been previously terminated and closing has not
occurred prior to April 1, 1998, the PACE Cash Payment will increase after
that date at an annual rate of 9%.
SFX Entertainment has agreed that, at closing, Allen J. Becker will be
appointed as a member of and Chairman of the Board of PACE for a term to
expire on the earlier of (a) the fifth anniversary of closing or (b) the
termination of Brian Becker's employment agreement (discussed below) for any
reason other than death or disability of Brian Becker. Pursuant to the Brian
Becker's employment agreement, Brian Becker will remain as Chief Executive
Officer of PACE for a five year period following closing and, at closing,
will be appointed as member of PACE's Board of Directors for 2 years and 15
days following the closing of the PACE Acquisition.
Amendments to PACE's By-laws
SFX Entertainment has also agreed that, prior to consummation of the PACE
Acquisition, PACE may amend its bylaws to provide for the following
(collectively, the "PACE By-law Provisions"):
o for a period of one year after closing, any proposed sale by SFX
Entertainment of either of PACE's theatrical or motor sports line of
business will require the majority approval of PACE's Board of Directors
and the affirmative vote of either Brian or Allen Becker;
o if either PACE's theatrical or its motor sports line of business has
been previously sold, the requirement of majority approval of PACE's
Board of Directors and the affirmative vote of either of Brian or Allen
Becker for the sale of the remaining line of business will be extended
to the fifteenth day following the second anniversary of closing;
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o in any event, SFX Entertainment may not, within the first two years and
15 days following closing of the acquisition, consummate the sale of
either line of business without providing at least 30 days' written
notice to PACE's Board of Directors and notifying the potential
purchaser of Brian Becker's right of first refusal for that line of
business (see "--Becker Employment Agreement");
o no member of PACE's Board of Directors may be removed therefrom except
for death, disability or with adequate cause; and
o for a period of two years and fifteen days following closing, the
unanimous vote of PACE's Board of Directors will be required to alter
any PACE By-law Provisions.
SFX Entertainment has further agreed that, prior to closing, PACE may
amend its Articles of Incorporation to prohibit any amendment or removal of
the PACE By-law Provisions without the unanimous approval of PACE's Board of
Directors.
Future Acquisitions
In the PACE Agreement, SFX Entertainment expressed its intention to
acquire additional businesses in the theatrical and motor sports lines of
business to be acquired and managed by PACE. However, if the revenues from
the theatrical and motor sports lines of business in any acquired company do
not constitute a majority of the acquired company's revenues, then SFX
Entertainment may hold the acquired company outside of PACE, but the
management of the acquired company's theatrical and motor sports businesses
will report to Brian E. Becker. In addition, SFX Entertainment has agreed
that within 30 days of the latter to occur of consummation of the PACE
Acquisition and the Contemporary Acquisition, SFX Entertainment will
contribute to PACE all of Contemporary's ownership interest, direct or
indirect, in the assets of United Sports of America. Pursuant to the Mr.
Becker's employment agreement with SFX Entertainment, beginning on the second
anniversary date of that agreement and exercisable for 15 days, he will have
the option to acquire PACE's motor sports line of business (or, if that line
of business was previously sold, PACE's theatrical line of business) at its
fair market value. Mr. Becker also has a right of first refusal on those
lines of business. See "--Becker Employment Agreement."
Bonuses
SFX Entertainment has agreed that, from closing until the earlier of (a)
396 days after completion of the Spin-Off or (b) the second anniversary of
consummation of the PACE Acquisition, it will, in the sole discretion of
Allen J. Becker, pay a severance payment or series of payments to each and
every At-Will Employee (as defined in the PACE Agreement) whose employment is
terminated based on any of the causes set forth in the PACE Agreement. The
aggregate amount of these severance payments must not exceed $1.0 million.
Options
If the Spin-Off is not completed by July 1, 1998, each PACE Seller will
have the option, exercisable within the first 10 days thereafter, to require
SFX Entertainment to pay to him or her $13.33 in cash in lieu of the each
share of PACE Stock Consideration to which the PACE Seller may otherwise be
entitled. If the Spin-Off has not been completed on or prior to the first day
of each third month after July 1, 1998, each PACE Seller will have such an
option exercisable within the first 10 days thereafter.
SFX Entertainment delivered to the PACE Sellers' Representative an
internally generated report concerning the projected range of fair value of
the PACE Stock Consideration. The report was based on certain assumptions
concerning the completion of the Pending Acquisitions prior to the Spin-Off.
If the average selling price per share of the SFX Entertainment Class A
Common Stock is less than $13.33 per share during the five-day period
immediately following completion of the Spin-Off, then, within 10 days after
completion of the Spin-Off, SFX Entertainment must deliver an updated report
to each PACE Seller who did not exercise his or her option (as described
above). If the updated report reflects an adverse change to the range of fair
value from the range of fair value shown in the initial report, then SFX
Entertainment must include in the updated report a written offer to those
PACE Sellers to provide an
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additional cash payment or additional shares of SFX Entertainment Class A
Common Stock, which each PACE Seller will have the option of taking, as
consideration for the adverse change. The sole remedy for any PACE Seller who
does not wish to accept SFX Entertainment's offer is the assertion of a claim
under the dispute resolution procedures specified in the PACE Agreement.
The PACE Agreement provides further that each PACE Seller has an option,
exercisable during a period beginning on the fifth anniversary of the closing
of the PACE Acquisition and ending 90 days thereafter, to require SFX
Entertainment to purchase up to one-third of the PACE Stock Consideration
received by the PACE Seller for a cash purchase price of $33.00 per share.
With certain limited exceptions, these option rights are not assignable by
the PACE Sellers.
Releases
Each PACE Seller has executed a release and waiver of any and all claims
that the PACE Seller may have against (a) any other PACE Seller, PACE or SFX
Entertainment that relates to the transactions or agreements by which the
PACE Seller acquired ownership of shares of PACE or PACE Stock Options and
any claims that each PACE Seller may have by reason of being a shareholder of
PACE and (b) any other PACE Seller, PACE or the Sellers' Representative as to
the transactions contemplated by the PACE Agreement.
Pavilion Acquisition
SFX Entertainment has agreed to obtain 100% ownership of Pavilion
Partners, a partnership that owns interests in 10 amphitheaters. This
acquisition will consist of (a) acquiring one-third of Pavilion Partners
through the acquisition of PACE and (b) acquiring the remaining two-thirds of
Pavilion Partners through separate agreements with Sony Sub and Blockbuster
Sub to acquire AEP (a 50-50 partnership between Sony Sub and Blockbuster Sub
that owns two-thirds of Pavilion Partners), for a combined consideration of
$90.9 million (including the repayment of $49.8 million of debt related to
the two-thirds interest).
On December 19, 1997, PACE and its wholly-owned subsidiary, SM/PACE, Inc.,
entered into a purchase agreement (the "Blockbuster Agreement") with Viacom,
Inc. and Blockbuster Sub (collectively, the "Blockbuster Group"), wherein
PACE agreed to purchase the Blockbuster Group's interest in AEP (the
"Blockbuster Acquisition") for an aggregate purchase price of approximately
$13.7 million in cash. This amount includes $9.5 million in respect of the
purchase of a Blockbuster Sub note receivable payable by Pavilion Partners
(secured by a lien on the Charlotte Amphitheater) and the assumption of
approximately $2.9 million of certain liabilities of the Blockbuster Group
owed to Pavilion Partners. In addition, the PACE Group will be required under
the Blockbuster Agreement to cause the Blockbuster Group to be released from
liability from its direct obligations with respect to indebtedness of
Pavilion Partners for borrowed funds.
Consummation of transactions contemplated by the Blockbuster Agreement is
subject to the receipt by PACE of (a) the consent of Sony Sub to the
amendment and restatement of each of the Pavilion Partners partnership
agreement and AEP's partnership agreement, (b) the consent of PACE's lender
to the extent necessary to complete the transaction without violating PACE's
credit agreement and (c) any other consents reasonably necessary for closing.
The Blockbuster Agreement may be terminated by mutual agreement of the
parties or by any party if closing does not occur by May 31, 1998.
Pursuant to a letter agreement (the "Sony Agreement"), dated December 22,
1997, PACE has agreed to purchase all of Sony Sub's interest in AEP for $27.5
million in cash plus the assumption of all of Sony Sub's obligations and
liabilities arising under Pavilion Partners and AEP's respective partnership
agreements. In addition, PACE will be required under the Sony Agreement to
cause Sony Sub and its parent corporation to be released from liability for
their direct contractual obligations in connection with the business of
Pavilion Partners.
The closing must occur no later than (a) five business days after the
consummation of the PACE Acquisition and (b) the date of closing of the
Blockbuster Acquisition or (c) March 30, 1998 (which may
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be extended to May 31, 1998 if the closing of the PACE Acquisition or the
acquisition of Sony Sub's interest in AEP does not occur on or before March
30, 1998 solely because an applicable HSR Act waiting period has not expired
or been terminated). If the closing does not occur by March 30, 1998, the
purchase price will be increased at an annual rate of 8%, compounded monthly.
Pursuant to the Sony Agreement, Sony Sub has given all consents necessary
for consummation of the PACE Acquisition and the acquisition of Blockbuster
Group's interest in AEP; however, those consents--as well as the remainder of
the Sony Agreement--are conditioned on (a) HSR approval for the transaction,
(b) the closing of the PACE Acquisition and (c) unless the Blockbuster
Acquisition has occurred earlier, receipt of the Blockbuster Group's consent
to the transfer of Sony Sub's AEP partnership interest as required by the AEP
partnership agreement. Sony Sub's consent to the PACE Acquisition can be
withdrawn if the acquisition of Sony Sub's interest in AEP does not occur on
or before the contractual closing date for any reason other than Sony Sub's
breach.
Becker Employment Agreement
As a condition to the execution of the PACE Agreement, SFX Entertainment
entered into an employment agreement with the Chief Executive Officer and
President of PACE, Mr. Brian Becker (the "Becker Employment Agreement"). The
Becker Employment Agreement has a term of five years commencing on the
closing of the PACE Acquisition. Mr. Becker will continue as President and
Chief Executive Officer of PACE. In addition, for the term of his employment,
Mr. Becker will serve as (a) a member of SFX Entertainment's Office of the
Chairman, (b) an Executive Vice President of SFX Entertainment and (c) a
director of each of PACE and SFX Entertainment (subject to shareholder
approval). During the term of his employment, Mr. Becker will receive (a) a
base salary of $294,000 for the first year, $313,760 for each of the second
and third years and $334,310 for each of the fourth and fifth years and (b)
an annual bonus in the discretion of the Board.
SFX Entertainment has agreed that it will not sell either the theatrical
or motor sports line of business of PACE prior to the first anniversary of
the PACE Acquisition. If SFX Entertainment sells either line of business
after the first anniversary, it has agreed not to sell the other line of
business prior to 15 days past the second anniversary of the PACE
Acquisition. The Becker Employment Agreement provides that Mr. Becker will
have a right of first refusal (the "Becker Right of First Refusal") if,
between the first and second anniversary of the PACE Acquisition, SFX
Entertainment receives a bona fide offer from a third party to purchase all
or substantially all of either the theatrical or motor sports lines of
business at a price equal to 95% of the proposed purchase price. The Fifth
Year Put Option (as defined in the PACE Agreement) will also be immediately
exercisable as of such closing. If that Mr. Becker does not exercise his
right of first refusal and either of the theatrical or motor sports line of
business is sold, then he will have an identical right of first refusal for
the sale of the remaining line of business beginning on the second
anniversary of the PACE Acquisition and ending six months thereafter. Mr.
Becker will be paid an administrative fee of $100,000 if he does not exercise
his right of first refusal and SFX Entertainment does not consummate the
proposed sale. Mr. Becker would thereafter retain all rights to the Becker
Right of First Refusal.
Beginning on the second anniversary of the date of the Becker Employment
Agreement, Mr. Becker will have the option (the "Becker Second Year Option"),
exercisable within 15 days thereafter, to elect one or more of the following:
to (a) put any stock or portion thereof (including any vested and unvested
options to purchase stock) and/or any compensation to be paid to Mr. Becker
to SFX Entertainment; (b) become a consultant to SFX Entertainment for no
more than an average of 20 hours per week for the remainder of the term and
with the same level of compensation set forth in the Becker Employment
Agreement; or (c) acquire PACE's motor sports line of business (or, if that
line of business was previously sold, PACE's theatrical line of business) at
its fair market value as determined in the Becker Employment Agreement.
The Becker Employment Agreement may be terminated (a) by SFX Entertainment
for Cause (as defined in the Becker Employment Agreement), (b) by SFX
Entertainment for Mr. Becker's death or permanent disability or (c) by Mr.
Becker at any time for any reason or upon exercise of the Becker Second Year
Option.
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In addition, Mr. Becker's employment may be terminated by SFX
Entertainment any time in SFX Entertainment's sole discretion or by Mr.
Becker at any time following, among other things, (a) failure to elect or
re-elect Mr. Becker as a director of SFX Entertainment, (b) a reduction in
Mr. Becker's base salary or in the formula to calculate his bonus, (c)
discontinuation of Mr. Becker's participation in any stock option, bonus or
other employee benefit plan, (d) prior to two years and fifteen days after
consummation of the PACE Acquisition, the sale of either the motor sports or
theatrical line of business to any person other than Mr. Becker (unless Mr.
Becker elected not to exercise the Becker Right of First Refusal (as defined
below)), (e) the sale of all or substantially all of the assets of PACE, (f)
a change of control of SFX Entertainment or (g) the failure by SFX
Entertainment to contribute any acquired business (which derives a majority
of its revenues from either a theatrical or motor sports line of business) to
PACE. If Mr. Becker's employment is terminated, then, among other things, (a)
for the period from the date of termination until the fifth anniversary of
the closing of the PACE Acquisition, SFX Entertainment must pay Mr. Becker
the base salary and any bonus to which he would otherwise be entitled and Mr.
Becker will be entitled to participate in any and all of the profit-sharing,
retirement income, stock purchase, savings and executive compensation plans
to the same extent he would otherwise have been entitled to participate, (b)
for a period of one year after the date of termination, SFX Entertainment
will maintain Mr. Becker's life, accident, medical, health care and
disability programs or arrangements and provide Mr. Becker with use of the
same office and related facilities and (c) if the termination occurs prior to
two years and 15 days after consummation of the PACE Acquisition, Mr. Becker
will retain the Becker Second Year Option and the Becker Right of First
Refusal.
Throughout the term of his employment and for a period of 18 months
thereafter, Mr. Becker has agreed not to, directly or indirectly, engage in
any activity or business that is directly competitive with SFX Entertainment
(or its affiliates) or solicit any of its employees to leave SFX
Entertainment (or its affiliates). However, these restrictions will not apply
if Mr. Becker exercises his rights, or SFX Entertainment breaches its
obligations, with respect to the Becker Right of First Refusal or the Becker
Second Year Option
SFX Entertainment has agreed to indemnify, defend and hold Mr. Becker
harmless to the maximum extent permitted by law against expenses, including
attorney's fees, incurred in connection with the fact that Mr. Becker is or
was an officer, employee or director of SFX Entertainment or any of its
affiliates.
CONTEMPORARY ACQUISITION
General
SFX Entertainment has entered into the Contemporary Agreement, a merger
and asset purchase agreement dated as of December 12, 1997, with Contemporary
and certain individuals and their trusts. Pursuant to the Contemporary
Agreement, SFX Entertainment has agreed to acquire certain concert,
production and promotion event marketing, computerized ticketing and related
businesses through both:
o the merger of Contemporary International Productions Corporation
("Contemporary International") into SFX Entertainment (the "Contemporary
Merger"); and
o the acquisition by a wholly-owned subsidiary of SFX Entertainment of
substantially all of the assets, excluding certain cash and receivables,
of the remaining members of Contemporary prior to January 1, 1998 (the
"Contemporary Asset Acquisition").
The aggregate consideration to be paid in the Contemporary Acquisition is
approximately $91.5 million, comprised of $72.8 million in cash and
approximately 1,402,851 shares of SFX Entertainment Class A Common Stock
valued by the parties at $18.7 million. However, if the Spin-Off is not
consummated before the closing of the Contemporary Acquisition, then SFX
Entertainment must issue shares of a redeemable convertible preferred stock
of SFX Entertainment ("SFX Entertainment Preferred Stock") that is
convertible at the time of the Spin-Off into the required shares of SFX
Entertainment Class A Common Stock. Any SFX Entertainment Preferred Stock
will be automatically redeemed as of July 1, 1998, unless previously
converted into shares of SFX Entertainment Class A Common Stock. The
aggregate redemption price for the shares of the SFX Entertainment Preferred
Stock would be their then fair market value, but in no event less than $18.7
million, and would be guaranteed
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by SFX in certain circumstances. The SFX Entertainment Preferred Stock is
adjustable for certain dividends paid on the SFX Entertainment Class A Common
Stock, recapitalizations, stock splits and similar transactions, if any. The
consideration to be paid in the Contemporary Acquisition is subject to
certain adjustments, including a reduction of $10.5 million in the purchase
price if Contemporary does not acquire the remaining 50% interest in the
Riverport Amphitheater Joint Venture. Simultaneously with the execution of
the Contemporary Agreement, SFX Entertainment deposited $2.0 million with an
escrow agent to be applied to the purchase price at closing. The deposit will
be payable to Contemporary as liquidated damages if Contemporary terminates
the agreement because of a material violation or breach of any
representation, warranty, covenant or agreement of SFX Entertainment or
because of the failure of certain conditions under the Contemporary
Agreement.
The shares of SFX Entertainment Class A Common Stock issuable in
connection with the Contemporary Merger will be "restricted securities" under
Rule 144 of the Securities Act when issued, but SFX Entertainment has agreed
to use its best efforts to cause the shares to be registered with the SEC for
resale. SFX Entertainment will have the ability to suspend use of the
registration statement for up to 30 days in any 12-month period for offerings
of securities by SFX Entertainment and for up to 45 days in any 12-month
period for other valid reasons.
The Contemporary Acquisition will be deemed effective as of January 1,
1998. Accordingly, as of January 1, 1998, SFX Entertainment, in general, will
be deemed to have received the benefits of and assumed the liabilities and
obligations with respect to the businesses of Contemporary, although SFX
Entertainment will not assume actual operational responsibility for
Contemporary until the closing. The Contemporary Acquisition is expected to
close on the fifth business day following the fulfillment or waiver of the
conditions to closing, but in no event after February 15, 1998 (subject to
extension for 30 days to cover breaches of representations, warranties,
covenants or agreements, and until April 30, 1998 to obtain approval under
the HSR Act). Simultaneously with the closing of the Contemporary
Acquisition, it is currently expected that Contemporary will acquire the 50%
interest in the Riverport Amphitheater Joint Venture, which it currently does
not own (although the acquisition is not a condition to the closing).
In the Contemporary Asset Acquisition, SFX Entertainment will acquire
substantially all of the non-cash assets of the constituent companies of
Contemporary other than Contemporary International, which is being merged
into SFX Entertainment. SFX Entertainment will also assume substantially all
of the ordinary course of business obligations and liabilities of those
companies incurred or to be performed after December 31, 1997. SFX
Entertainment is not assuming liabilities for (a) tax, environmental, ERISA,
workers' compensation or pension liabilities incurred prior to January 1,
1998, (b) liabilities or obligations for severance or similar payments
arising as a result of the Contemporary Acquisition, (c) any liabilities or
obligations that are not directly incident to the business or assets of
Contemporary, (d) any indebtedness for borrowed money, (e) any amount payable
to any affiliate of Contemporary (other than certain liabilities incurred
after January 1, 1998 or expressly assumed by SFX Entertainment), and (f) any
liabilities arising out of or in connection with any litigation pending
against Contemporary prior to January 1, 1998.
Representations and Warranties
Contemporary and SFX Entertainment have each made certain representations
and warranties to the other in the Contemporary Agreement. Other than
representations and warranties with regard to tax matters, which survive for
the statute of limitations applicable to the relevant representation or
warranty, all representations and warranties made by the parties to the
Contemporary Agreement survive the closing of the Contemporary Acquisition
until the completion of the consolidated audit of the Contemporary businesses
for the two year period ended December 31, 1997.
Indemnification
Contemporary has agreed to indemnify and hold harmless SFX Entertainment
against any and all losses that it may suffer by reason of (a) the breach by
Contemporary of any representation or warranty contained in the Contemporary
Agreement or related agreements, (b) the failure of Contemporary to
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perform any agreement or covenant required under the Contemporary Agreement
or related agreements or (c) any liability or debt of Contemporary not
expressly assumed by SFX Entertainment by the terms of the Contemporary
Agreement. SFX Entertainment has agreed to indemnify and hold harmless
Contemporary against any and all losses that it may suffer as a result of (a)
the breach by SFX Entertainment of any representation or warranty contained
in the Contemporary Agreement or related agreements, (b) the failure of SFX
Entertainment to perform any agreement or covenant required under the
Contemporary Agreement or related agreements or (c) the liabilities expressly
assumed by SFX Entertainment by the terms of the Contemporary Agreement.
Neither SFX Entertainment nor Contemporary will be entitled to be indemnified
pursuant to the Contemporary Agreement unless and until the aggregate of all
losses incurred by either party, as the case may be, exceeds $500,000, at
which time the indemnifying party will be obligated to indemnify the
indemnified party (a) if the indemnifying party is SFX Entertainment, for the
first dollar of losses and (b) if the indemnifying party is Contemporary, for
all losses in excess of $100,000. This threshold limitation does not apply in
certain circumstances. Absent fraud and except with respect to certain tax
representations and warranties and other matters, the liability of
Contemporary for indemnification under the Contemporary Agreement will not
exceed an aggregate amount equal to the sum of $3.1 million plus one-half of
the shares of SFX Entertainment Class A Common Stock received by the trusts
in the Contemporary Merger. If notice of any indemnification claim is given
after six months following the closing of the Contemporary Merger, then
Contemporary's liability will be limited to $3.1 million.
Covenants
Contemporary has also agreed to certain pre-closing covenants, including,
among other things, not to:
o make any capital expenditures in excess of $50,000;
o enter into any operating lease calling for net increased rentals in
excess of five percent (5%) annually per lease (over present rentals)
o acquire any assets or properties except in the ordinary course of
business and consistent with past practice;
o purchase, sell, assign or transfer any of the assets or properties
relating to its business to be acquired that are valued in excess of
$50,000; or
o enter into any new material contract or agreement or any amendment,
modification or termination of any existing material contract relating
to its assets, properties or business to be acquired, except in the
ordinary course of business and consistent with past practice and in any
event not requiring payment in excess of $50,000, other than talent
contracts.
In addition, Contemporary has agreed to satisfy out of the cash proceeds of
the Contemporary Acquisition (a) its expenses incurred in connection with the
Contemporary Acquisition, (b) all monetary liens on assets of Contemporary,
other than liens permitted under the agreement, and (c) any liabilities of
Contemporary that SFX Entertainment will not assume as a result of the
Contemporary Acquisition. All covenants and agreements made by the parties,
unless waived in writing, survive the closing.
Conditions to Closing
The closing of the Contemporary Acquisition is subject to certain closing
conditions, including:
o the accuracy of the representations and warranties and the compliance
with the covenants of Contemporary;
o the receipt of all governmental authorizations, approvals, consents and
waivers, including any authorizations required under the HSR Act;
o the receipt of consents and approvals required under certain existing
agreements of the parties;
o the absence of any action, suit, proceeding or investigation before any
court, administrative agency or governmental authority seeking to
restrain, prohibit or invalidate the consummation of the Contemporary
Merger or the Contemporary Asset Acquisition;
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o the execution of employment agreements with certain employees of
Contemporary; and
o the best efforts of Contemporary to deliver estoppel certificates from
each landlord under any lease, and nondisturbance and/or recognition
agreements from each mortgagee or superior lessor of a leased property,
relating to the Sandstone Amphitheater, the Westport Playhouse and the
American Theatre.
As a condition to Contemporary's obligations under the Contemporary
Agreement, if the Spin-Off does not occur prior to the closing, then SFX must
provide to the trusts that own Contemporary International a guarantee (which
may be extinguished at the time of the Spin-Off) of the redemption price for
the SFX Entertainment Preferred Stock. Additionally, the closing of the
Contemporary Asset Acquisition is conditioned on the consummation of the
Contemporary Merger.
Termination
The Contemporary Agreement may be terminated at any time prior to the
closing date:
o by the mutual consent of the parties;
o by any of the parties on February 15, 1998, if the other party
materially violates or breaches any representation, warranty, covenant
or agreement or any closing condition, and if the material violation or
breach is not cured within a reasonable period not to exceed the later
of March 17, 1998 or 30 days after receipt of written notice from the
other party; or
o if, through no fault of the terminating party, the conditions to closing
have become impossible to satisfy or a court has permanently enjoined
the closing and the related order has become final and is not subject to
appeal.
Neither party may terminate the agreement if the Contemporary Acquisition for
failure to consummate by February 15, 1998, if the failure to consummate
results solely from the applicable waiting periods under the HSR Act not
having expired or been terminated; in that case, either party may terminate
the agreement only if the Contemporary Acquisition is not consummated on or
before April 30, 1998. If the closing is delayed beyond February 15, 1998 as
described in the preceding sentence, then, notwithstanding the occurrence of
an event that has a material adverse effect on the business of Contemporary,
SFX Entertainment will be required to close the Contemporary Acquisition when
the waiting period under the HSR Act terminates (unless the termination has
not occurred by April 30, 1998) unless the material adverse effect is the
result of the intentional acts or intentional omissions of Contemporary or
its affiliates or an act or omission of Contemporary or one of its affiliates
that constitutes gross negligence in which case SFX Entertainment will have
the right, without any liability, to refuse to close or may proceed to close
the Contemporary Acquisition, subject to receiving reimbursement for the
material adverse effect of as much as $3.1 million in cash and up to one-half
of the SFX Entertainment Class A Common Stock received by the individuals and
trusts in the transaction.
Future Payment Obligations
If any individual or trust that is a party to the Contemporary Agreement
owns any shares of SFX Entertainment Class A Common Stock received in the
Contemporary Acquisition on the second anniversary of the closing date, and
if the average trading price of the stock over the 20-day period ending on
that date is less than $13.33 per share (subject to adjustment to compensate
for recapitalizations of SFX Entertainment or dividends to holders of SFX
Entertainment Class A Common Stock), then SFX Entertainment will make a
one-time cash payment to that individual or trust. The payment will equal to
the product of (a) the quotient of the difference between (i) the actual
average trading price per share over the 20-day trading period and (ii)
$13.33 (or the price as adjusted under the agreement) divided by two,
multiplied by (b) the number of shares of SFX Entertainment Class A Common
Stock received by that individual or trust in the Contemporary Acquisition
and owned as of the second anniversary date.
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BGP ACQUISITION
General
SFX Entertainment, through its wholly-owned subsidiary BGP Acquisition,
LLC ("BGP Acquisition Sub"), has entered into a stock purchase agreement
dated as of December 11, 1997 (the "BGP Agreement") with all of the
shareholders (the "BGP Sellers") of BGP. Pursuant to the BGP Agreement, SFX
Entertainment has agreed to purchase all of the outstanding capital stock of
BGP for an aggregate purchase price of approximately $68.3 million in cash,
subject to reduction on a dollar-for-dollar basis to the extent if BGP's Long
Term Debt exceeds its Net Working Capital (both as defined in the BGP
Agreement).
If the Spin-Off occurs before the closing of the BGP Acquisition, then SFX
Entertainment may elect, in its sole discretion, to distribute up to 562,640
shares of SFX Entertainment Class A Common Stock to the BGP Sellers in lieu
of up to $7.5 million in cash. Similarly, if the Spin-Off does not occur
before the closing, then SFX Entertainment may elect, in its sole discretion,
to distribute options to purchase up to 562,640 shares of SFX Entertainment
Class A Common Stock to the BGP Sellers in lieu of up to $7.5 million in
cash. SFX Entertainment may be required, subject to certain conditions, to
repurchase the shares or options issued as consideration in the BGP
Acquisition, if, by June 30, 1998, the shares (a) are not registered with the
SEC, (b) are not listed with a nationally recognized exchange or (c) are
subject to any lock-up period.
SFX will guarantee the payment of the cash purchase price in the BGP
Acquisition.
Representations and Warranties
The BGP Sellers have made certain standard and customary representations
and warranties to SFX Entertainment with respect to BGP, including, among
other things, the completeness of the disclosure provided in connection with
the agreement. Similarly, the BGP Sellers have made certain representations
and warranties to SFX Entertainment with respect to themselves, including,
among other things, their competency to enter into the transaction, the
absence of conflicts, required consents and approvals, title to the stock to
be acquired, the absence of options or similar rights in the capital stock of
BGP and legal proceedings. In addition, BGP Acquisition Sub and SFX
Entertainment have made certain representations and warranties to each BGP
Seller with respect to, among other things, its authority to enter into the
transaction, the absence of defaults, the absence of legal proceedings,
required consents and the capitalization of SFX Entertainment. SFX
Entertainment has also represented and warranted to the BGP Sellers that it
will have net assets of not less than $100.0 million as of the closing date
of the BGP Acquisition. Except for representations and warranties relating to
tax matters, which survive for the applicable statute of limitations periods,
the representations and warranties of the parties contained in the BGP
Agreement survive until the first anniversary of the closing of the BGP
Acquisition.
Indemnification
The BGP Sellers have agreed to indemnify, defend and hold harmless BGP
Acquisition Sub from and against any losses based on, arising out of or
otherwise resulting from (a) any inaccuracy in any representation or breach
of any warranty of the BGP Sellers, (b) the breach or nonfulfillment of any
covenant, agreement or other obligation of the BGP Sellers, which breach
remains uncured for 30 days following written notice thereof or (c) certain
disclosed liabilities. SFX Entertainment has agreed to indemnify, defend and
hold harmless the BGP Sellers from and against any losses based on, arising
out of or otherwise resulting from (a) any inaccuracy in any representation
or breach of any warranty of BGP Acquisition Sub or (b) the breach or
nonfulfillment of any covenant, agreement or other obligation of BGP
Acquisition Sub (except those under the employee agreements required as a
condition to closing). Other than with respect to the payment of the purchase
price and tax liabilities, neither the BGP Sellers nor BGP Acquisition Sub is
entitled to indemnification under the BGP Agreement unless the aggregate
amount of losses suffered by either party exceeds $325,000, in which event
either party, as the case may be, will be entitled to indemnification for the
sum of (a) $137,500 plus (b) the amount by which the aggregate amount of
losses exceeds $325,000, up to and including (i) in the case of the BGP
Sellers, an amount equal to the payments at any time, received by the BGP
Sellers, severally, from BGP Acquisition Sub pursuant to the BGP Agreement
and (ii) in the case of BGP Acquisition Sub an amount equal to the
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payments, at any time, made by BGP Acquisition Sub to the BGP Sellers, in the
aggregate, pursuant to the BGP Agreement. The BGP Sellers have also agreed to
indemnify BGP Acquisition Sub against certain tax liabilities in excess of
the sum of $100,000 plus the amount determined to be Excess Working Capital
(as defined in the BGP Agreement) and to indemnify BGP Acquisition Sub and
BGP against all other tax liabilities in excess of Excess Working Capital.
Each party to the BGP Agreement has waived any consequential, exemplary or
special damages incurred in connection with the agreement.
Covenants
The BGP Sellers have agreed that, until the closing of the BGP
Acquisition, they will or will cause BGP to, among other things: (a) conduct
the operation of BGP's business in the ordinary course, (b) use their best
efforts to preserve BGP's business relationships with clients, customers,
accounts, agents, distributors, suppliers and others having business dealings
with BGP and (c) not participate in any discussions, communications or
negotiations with any persons (other than SFX Entertainment) with respect to
any direct or indirect acquisition of any material portion of the assets,
properties or common stock of BGP. On or prior to the closing of the
acquisition, certain key personnel of BGP will enter into employment
agreements with BGP Acquisition Sub; each BGP Seller that will not be a party
to such an employment agreement has agreed not to compete, directly or
indirectly, with the business of BGP for a period of two years following the
closing. In addition, the BGP Sellers have agreed not to use the names "Bill
Graham Presents" or "Fillmore" or any other similar name following the
closing.
Conditions to Closing
The closing of the BGP Acquisition is subject to certain closing
conditions, including:
o the accuracy of the representations and warranties contained in the BGP
Agreement as of the closing;
o the receipt of all consents (including any required under the HSR Act)
required to be obtained in connection with the acquisition;
o the absence of any action, suit, claim, proceeding or investigation that
questions the validity or legality of the acquisition or that could
reasonably be expected to have a material adverse effect on the ability
to consummate the acquisition;
o the execution of employment agreements between SFX Entertainment and
certain key employees of BGP;
o receipt by the BGP Sellers of confirmation that the base price used in
the determination of the number of shares of SFX Entertainment Common
Stock that may be distributed in lieu of cash consideration in the
acquisition is the lowest price used by Mr. Sillerman in his personal
acquisition of SFX Entertainment Common Stock;
o the absence of any material changes in BGP since October 31, 1997;
o the satisfaction or mutual termination of all obligations (other than
any obligation under the by-laws of BGP) between any BGP Seller and BGP,
the general unconditional releases by each BGP Seller of BGP from any
and all liabilities, and the release of all security interests held by
any party except SFX Entertainment in any property of BGP;
o the receipt of written waivers of each of the BGP Sellers' rights under
any shareholder or other agreement entered into with other shareholders
of BGP or BGP itself;
o the acknowledgment of the BGP Sellers that, other than certain materials
specifically excluded, the posters, handbills and other archive
materials referenced in the January 2, 1995 agreement between Bill
Graham Enterprises, Inc. and the heirs of William Graham are assets of
BGP and are to be transferred to SFX Entertainment;
o the termination of the Buy-Sell Agreement (as defined in the BGP
Agreement); and
o the execution of written leases with the Fillmore Auditorium and the
Warfield Theater.
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Termination
The BGP Agreement may be terminated by (a) mutual consent of the parties,
(b) either party if the closing does not occur by January 29, 1998 and the
terminating party does not cause the delay (or February 12, 1998 if the
conditions to closing have not been fulfilled by January 29, (c) SFX
Entertainment if there has been a material misrepresentation or material
breach in the representations, warranties or covenants of the BGP Sellers or
if there has been any material failure on the part of any of the BGP Sellers
to comply with their obligations under the BGP Agreement, (d) the BGP Sellers
if there has been a material misrepresentation or material breach in the
representations, warranties or covenants of SFX Entertainment or if there has
been any material failure on the part of SFX Entertainment to comply with its
obligations under the BGP Agreement or (e) either party if any court of
competent jurisdiction issues an order, decree or ruling or takes any other
action enjoining or otherwise prohibiting the transactions contemplated by
the BGP Agreement and the order, decree, ruling or other action becomes final
and non-appealable. The termination rights described in clauses (b) through
(d) above are subject to a 30 day cure period.
Restriction on Asset Sales
SFX Entertainment has agreed that it will not sell all, or substantially
all, of the assets of BGP (as of December 11, 1997), for a period of three
years following the closing of the BGP Acquisition without offering the BGP
Sellers the opportunity to purchase the assets on the same terms as those
included in any bona fide offer received by SFX Entertainment from any third
party.
NETWORK ACQUISITION
General
SFX Entertainment and its wholly-owned subsidiary SFX Entertainment
Network Group, L.L.C. ("Network Sub"), entered into the Network Agreement, a
stock and asset purchase agreement dated as of December 10, 1997, with the
holders of all of the outstanding capital stock of each of The Album Network,
Inc. ("Album Network") and SJS (collectively, the "Network Sellers") and The
Network 40, Inc. ("Network 40"), wherein SFX Entertainment has agreed to (a)
acquire all of the outstanding capital stock of each of Album Network and SJS
and (b) purchase substantially all of the assets and properties, and assume
substantially all of the liabilities and obligations, of Network 40, for an
aggregate purchase price of $52.0 million in cash (the "Network Cash
Consideration") to be delivered at closing and approximately 750,000 shares
of SFX Entertainment Class A Common Stock valued by the parties at $10.0
million (the "Network Stock Consideration") to be delivered at the time of
the Spin-Off. The Network Sellers will retain all working capital (as defined
in the Network Agreement) of the acquired businesses in excess of $500,000;
however, if this working capital is less than $500,000, the Network Cash
Consideration will be reduced by the amount of the deficit. If the Spin-Off
has not occurred prior to June 30, 1998, at the option of the Network
Sellers, SFX Entertainment may be required to pay $10 million (plus interest
at a rate of 10% per annum from the date of closing) in cash in lieu of the
issuance of the Network Stock Consideration. The Network Cash Consideration
has been guaranteed by SFX.
In addition to the Network Cash Consideration and the Network Stock
Consideration, SFX Entertainment is obligated to make an additional payment
to the Network Sellers by March 20, 1999 based on the aggregate EBITDA (as
defined in the Network Agreement) generated by Album Network, SJS and the
assets purchased from Network 40 in 1998 (the "Network Earn-Out EBITDA"). The
additional payment will range from a minimum of $4.0 million if the Network
Earn-Out EBITDA is $9.0 million to a maximum of $14.0 million if the Network
Earn-Out EBITDA is greater than $11.0 million and will be payable in shares
of SFX Entertainment Class A Common Stock (based on the average daily closing
price of SFX Entertainment Class A Common Stock for the 20 trading days prior
to March 15, 1999) except (a) if the Network Earn-Out EBITDA is less than
$9.6 million, SFX Entertainment may choose to make the additional payment in
cash or (b) if the Spin-Off has not occurred by March 20, 1999, the
additional payment must be made in cash. SFX has guaranteed full and prompt
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payment of the Network Cash Consideration upon the satisfaction by the
Network Sellers of all conditions precedent to the obligation of SFX
Entertainment to consummate the Network Acquisition and receipt of any
approvals required under the HSR Act.
SFX Entertainment has agreed that, within 60 days after the completion of
the Spin-Off, it will file with the SEC a registration statement covering all
shares of the Network Stock Consideration. The Network Sellers may not assign
their registration rights without SFX Entertainment's written consent. In
addition, if the Network Earn-Out EBITDA payment is made in shares of SFX
Entertainment Class A Common Stock, then SFX Entertainment must file with the
SEC, within 60 days after the issuance of the Network Earn-Out EBITDA shares,
a registration statement covering all of those shares.
Representations and Warranties
The Network Sellers have made certain representations and warranties to
SFX Entertainment in the Network Agreement that, among other things, (a) the
Network Agreement is a valid, legal and binding obligation of, and
enforceable in accordance with its terms against, each of the Network
Sellers, (b) except for certain disclosed exceptions, performance of the
Network Agreement will not, directly or indirectly, violate any material
agreement to which any of the Network Sellers or the acquired companies is a
party, (c) except for certain disclosed exceptions, no material consents from
third paries are necessary to consummate the Network Acquisition and (d)
since the date of the balance sheets provided to SFX Entertainment, none of
Network 40, Album Network or SJS has suffered a material adverse change in
their respective business, operations, properties, assets or condition. Each
of SFX Entertainment and Network Sub has made certain representations and
warranties to each Network Seller with respect to, among other things, (a)
its authority to enter into the transaction, (b) the absence of certain legal
proceedings, (c) that the Network Agreement is a valid, legal and binding
obligation of, and enforceable in accordance with its terms against, each of
SFX Entertainment and Network Sub, (d) required consents and (e) the
capitalization of SFX Entertainment. The representations and warranties of
the parties contained in the Network Agreement survive until June 30, 1999,
except for representations and warranties relating to corporate authority and
trustees' authority, authorization, validity of the agreement,
capitalization, further actions to perfect conveyances and good standing,
which survive for the applicable statute of limitations periods.
Office Purchase/Lease
SFX Entertainment has the option, exercisable on or prior to the later to
occur of three days after the receipt of all approvals under the HSR Act and
10 days prior to closing, to agree to enter into a purchase and sale
agreement with the Network Sellers to purchase an office building and related
property used in the conduct of the business of Network 40 and Album Network
for an aggregate purchase price of $2.4 million (which is not part of the
Network Cash Consideration), including reimbursement of certain costs of the
Network Sellers. Consummation of the purchase will be conditioned on, among
other things, a due diligence review of the real estate by SFX Entertainment.
If SFX Entertainment elects not to purchase the real estate, then it will
lease the real estate to the Network Sellers for a period of 10 years at Fair
Market Rent (as defined in the Network Agreement). The long-term lease will
provide that SFX Entertainment will have a right of first offer with regard
to sales of all or substantially all of the real estate. If SFX Entertainment
declines to accept such an offer and, within one year therefrom, the Network
Sellers accept a similar offer that is 95% or less in value than the offer
rejected by SFX Entertainment, then SFX Entertainment will have a right of
first refusal with regard to the accepted offer.
Covenants
The Network Sellers have agreed that, prior to the closing of the Network
Acquisition, they will, among other things: (a) conduct the operation of the
businesses to be acquired in the ordinary course, (b) use their best efforts
to preserve the business relationships of the businesses to be acquired, (c)
report periodically to SFX Entertainment, (d) satisfy all legal conditions
applicable to the proposed transactions, (e) repay all indebtedness of
related parties, (f) not participate in any discussions, communications or
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negotiations with any person with respect to any direct or indirect
acquisition of any material portion of the assets, properties or capital
stock of Network 40, Album Network, or SJS and (g) cause Network 40 and
Bullet Productions, Inc. to merge, with Network 40 as the surviving
corporation.
Indemnification
The Network Sellers and SFX Entertainment have agreed to enter into
indemnification agreements at closing whereby they agree to indemnify each
other and their successors and assigns from and against any losses resulting
from (a) any inaccuracy in any representation or breach of any warranty under
the Network Agreement and (b) the breach or nonfulfillment of any covenant,
agreement or other obligation under the Network Agreement. Other than with
respect to the payment of the Network Cash Consideration, the Network Stock
Consideration and the Network Earn-Out EBITDA payment, neither the Network
Sellers nor SFX Entertainment is entitled to indemnification unless the
aggregate amount of losses suffered by the party seeking indemnification
exceeds $250,000; in that case, that party will be indemnified from the first
dollar.
Conditions to Closing
The consummation of the Network Acquisition is subject to certain closing
conditions, including (a) the accuracy of the representations and warranties
contained in the Network Agreement as of the closing (except where made as of
a certain date), (b) the receipt of all material consents (including any
required under the HSR Act) required to be obtained in connection with the
Network Acquisition, (c) the absence of any action, suit, claim, proceeding
or investigation that challenges or requests relief with respect to the
proposed transactions or may have the effect of delaying or interfering with
the proposed transactions and (d) the execution of the employment agreements
with each of the Network Sellers and indemnification agreements described
above.
Closing and Termination
The consummation of the Network Acquisition will be on a date selected by
SFX Entertainment (but no earlier than January 31, 1998, and no later than
the date of the consummation of the Spin-Off). SFX Entertainment anticipates
consummating the Network Acquisition in the first quarter of 1998.
The Network Agreement may be terminated by (a) mutual consent of the
parties, (b) either party if the closing does not occur by March 1, 1998 and
the terminating party does not cause the delay or (c) either party if the
other party has materially breached any of its obligations under the
agreement and if the breach remains uncured for a 30-day period.
CONCERT/SOUTHERN ACQUISITION
General
SFX Entertainment, through its wholly-owned subsidiary SFX Concerts, Inc.,
has entered into the Concert/Southern Agreement, a purchase and sale
agreement dated December 15, 1997, with:
o Southern Promotions, Inc., High Cotton, Inc. and Cooley and Conlon
Management, Inc. (collectively, the "Concert/Southern Sale Companies"),
and certain shareholders of the Concert/ Southern Sale Companies;
o Buckhead Promotions, Inc., Northern Exposure, Inc., Pure Cotton, Inc.
and Interfest, Inc. (collectively, the "Concert/Southern Asset
Companies"); and
o Concert/Southern Chastain Promotions Joint Venture and Roxy Ventures
Joint Venture (collectively, the "Concert/Southern Joint Ventures").
Pursuant to the Concert/Southern Agreement, SFX Entertainment has agreed to
purchase all of the outstanding capital stock of the Concert/Southern Sale
Companies and substantially all of the assets of the Concert/Southern Asset
Companies and the Concert/Southern Joint Ventures excluding, among other
things, cash and receivables, for a purchase price of $16.6 million payable
in cash at closing. In addition,
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SFX Entertainment will assume the obligations of the Concert/Southern Asset
Companies and the Concert/Southern Joint Ventures arising under (a) certain
real estate contracts, (b) all other contracts arising in the ordinary course
of business and (c) any other contracts entered into by the closing date that
do not involve an obligation of $10,000 or more or $40,000 in the aggregate,
unless SFX Entertainment expressly agrees to do otherwise.
Representations and Warranties
The Concert/Southern Joint Ventures, the Concert/Southern Asset Companies
and the stockholders of the Concert/Southern Sale Companies (collectively,
the "Concert/Southern Sellers") have made certain customary representations
and warranties to SFX Entertainment in the Concert/Southern Agreement with
respect to, among other things, their organization and authority to enter
into the agreement, capitalization, title to shares, absence of conflicting
agreements or required consents, government authorizations, subsidiaries,
taxes, personal property, real property, contracts, status of contracts,
environmental matters, copyrights, trademarks and similar rights, personnel
information, financial statements, liabilities, absence of certain changes or
events, title to properties, litigation, compliance with laws, insurance,
accuracy of information, accounts receivable, payola/plugola and the business
of the Concert/Southern companies. SFX Entertainment has made certain
customary representations and warranties to the Concert/Southern Sellers with
respect to, among other things, organization and standing, authorization and
binding obligation, litigation and compliance with laws, investment intent
and the accuracy of information.
Indemnification
Each of SFX Entertainment and the Concert/Southern Sellers have agreed to
indemnify the other for losses resulting, directly or indirectly, from a
breach of any of its representations, warranties, covenants or agreements
contained in the Concert/Southern Agreement or any instrument or certificate
delivered pursuant thereto. The Concert/Southern Agreement provides that the
representations and warranties of the Concert/Southern Sellers and SFX
Entertainment contained therein will continue in force for a period of 12
months following the closing of the acquisition, after which time the
indemnification obligations of the parties will be limited to claims asserted
during the 12-month period. Neither the Concert/Southern Sellers nor SFX
Entertainment will have any liability to the other for breach of any
representation, warranty, covenant, agreement of the other party, except to
the extent that the aggregate of all claims by the other party for breaches
exceeds $100,000, in which case the party seeking indemnification will be
paid from the first dollar.
Covenants
The Concert/Southern Sellers have also agreed that, until the closing of
the acquisition, they will, among other things:
o use all reasonable efforts to preserve relationships with customers,
suppliers, employees and others;
o provide SFX Entertainment with monthly unaudited statements of revenue
and expenses; and
o provide SFX Entertainment with access to all books, records and other
facilities of the operating facilities.
The Concert/Southern Sellers have also agreed not to, other than in the
ordinary course of business:
o sell or dispose of any assets except the property located on Monroe
Drive in Atlanta, Georgia;
o grant any general increases in salaries or bonus (other than certain
specified bonuses);
o provide any pensions, retirement or other employee benefits unless
required by law; and
o permit any insurance policies to be canceled or terminated.
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Except as required by the Joint Venture Agreement with the Woodruff Arts
Center, none of the Concert/Southern Sellers will directly or indirectly
solicit or enter into any agreements regarding any merger, sale of shares of
capital stock, or sale of assets involving any of the operating entities of
Concert/Southern.
Conditions to Closing
The closing of the acquisition is subject to certain conditions, including
the accuracy and compliance with the representations, warranties and
covenants, the obtaining of requisite governmental consents, the resignation
of all officers and directors of each of the operating entities of the
Concert/Southern Sellers, receipt of all third party consents to the material
contracts of the operating entities and to all other contracts assigned or
transferred to SFX Entertainment, and the absence of adverse proceedings. SFX
Entertainment must also have entered into (a) employment agreements with
Messrs. Alex Cooley and Peter Conlon and (b) an agreement with Mr. Stephen
Selig, III with respect to certain preferred tickets for promotions in
Atlanta on terms to be mutually determined by SFX Entertainment and Mr.
Selig. In addition, receipt of the Robert W. Woodruff Arts Center, Inc.'s
consent to the sale or its waiver of its rights to purchase the assets
subject to the Concert/Southern Agreement is a condition to closing.
Closing and Termination
Consummation of the Concert/Southern Acquisition will occur on the later
of (a) 5 business days following the expiration or termination of all waiting
periods that are applicable to the acquisition pursuant to the HSR Act or (b)
March 31, 1998, unless extended to June 30, 1998 in connection with the
parties' HSR Act filings.
The Concert/Southern Agreement may be terminated:
o by the mutual written consent of the Concert/Southern Sellers and SFX
Entertainment;
o by either party if the closing has not occurred by March 31, 1998 (which
will be extended to June 30, 1998 if either party receives a request for
additional information in connection with their HSR Act filing);
o by either party if any judgment, final decree or order that would
prevent or make unlawful the closing is in effect;
o by a non-breaching party if the other breaches the agreement in any
material respect and fails to cure the breach within 30 calendar days;
o by either of SFX Entertainment or the Concert/Southern Sellers if the
conditions related to governmental consents and lack of adverse
proceedings of the other party are not satisfied;
o by SFX Entertainment if there is an uncured breach of the
Concert/Southern Sellers' representations and warranties with regard to
compliance with environmental laws (however, if the remedy for the
breach requires the expenditure of greater than an aggregate of $75,000,
then the Concert/Southern Agreement may be terminated at the option of
the Concert/Southern Sellers); or
o by SFX Entertainment if any of the purchased assets with a value greater
than $50,000 is damaged and is not restored or replaced by the
Concert/Southern Sellers.
If the Concert/Southern Agreement is terminated as a result of a material
breach by SFX Entertainment of its obligations thereunder, then SFX
Entertainment must pay the Concert/Southern Sellers liquidated damages in the
amount of $2.0 million.
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LISTING AND TRADING OF SFX ENTERTAINMENT CLASS A COMMON STOCK
SFX Entertainment has applied to list the SFX Entertainment Class A Common
Stock on the Nasdaq National Market but may seek listing on an exchange.
There is currently no public trading market for SFX Entertainment Class A
Common Stock. See "Risk Factors--No Prior Market for SFX Entertainment
Stock." A when-issued trading market (one in which shares can be traded
before certificates are actually available or issued) is expected to develop
in the SFX Entertainment Class A Common Stock on or about the Spin-Off Record
Date. Trading prices of the shares of SFX Entertainment Class A Common Stock,
before or after the Spin-Off, cannot be predicted. The SFX Entertainment
Class B Common Stock is not expected to be publicly traded.
On the Spin-Off Distribution Date, SFX Entertainment expects to issue
approximately 13,400,000 shares to approximately 150 holders of record of the
SFX Entertainment Class A Common Stock and Series D Preferred Stock, assuming
the exercise of outstanding options and warrants of SFX before the Spin-Off
Record Date and based on the number of holders of record of SFX's Class A
common stock and Series D preferred stock on February 9, 1998. The Transfer
Agent and Registrar for the SFX Entertainment Class A Common Stock will be
Chase Mellon Shareholder Services, L.L.C. In addition, the board of directors
of SFX Entertainment has approved the grant of up to 793,633 shares of SFX
Entertainment Class A Common Stock to holders as of the Spin-Off Record Date
of stock options or SARs of SFX, whether or not vested. It is anticipated
that SFX Entertainment will grant an aggregate of 190,000 shares of SFX
Entertainment Class A Common Stock pursuant to employment agreements. See
"Management--Employment Agreements and Arrangements with Certain Officers and
Directors" and "Certain Relationships and Related Transactions--Issuance of
Stock to Holders of SFX's Options and SARs."
Shares of SFX Entertainment Common Stock distributed to SFX stockholders
in the Spin-Off will be freely transferable, except for shares received by
persons who may be deemed to be "affiliates" of SFX Entertainment under the
Securities Act. See "Principal Stockholders." Persons who may be deemed to be
affiliates of SFX Entertainment generally include individuals or entities
that control, are controlled by or are under common control with SFX
Entertainment, and may include certain officers and directors of SFX
Entertainment as well as principal stockholders of SFX Entertainment, if any.
Persons who are affiliates of SFX Entertainment may sell their shares of SFX
Entertainment Common Stock only pursuant to an effective registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act, such as the exemptions afforded by
Section 4(2) of the Securities Act and Rule 144 thereunder. See "Shares
Eligible for Future Sale."
DIVIDEND POLICY
SFX Entertainment has no present plans to declare any dividends on the SFX
Entertainment Common Stock. The terms of the Indenture restrict (and the
terms of the Proposed Credit Facility are likely to restrict) SFX
Entertainment's ability to pay dividends on the SFX Entertainment Common
Stock in the future. The decision to declare a dividend and the amount
thereof, if any, will be in the sole discretion of the Board.
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CAPITALIZATION
The following table sets forth, as of September 30, 1997, (a) the
historical capitalization of SFX Entertainment, (b) the pro forma
capitalization of SFX Entertainment to reflect the Financing and the
consummation of the Pending Acquisitions and (c) the pro forma capitalization
of SFX Entertainment to reflect the Financing, the Pending Acquisitions, the
Spin-Off, the SFX Merger and the issuance of the stock described under
"Management--Employment Agreements and Arrangements with Certain Officers and
Directors" and "Certain Relationships and Related Party
Transactions--Issuance of Stock to Holders of SFX's Options and SARs." This
information should be read in conjunction with the financial statements and
the related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------------
(IN THOUSANDS)
PRO FORMA FOR
FINANCING,
PENDING
PRO FORMA FOR ACQUISITIONS,
FINANCING SPIN-OFF AND
AND PENDING SFX
ACQUISITIONS(2) MERGER(3)
ACTUAL(1) (UNAUDITED) (UNAUDITED)
---------- --------------- ---------------
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS..................................... $ 7,094 $ 60,390 $ 62,535
========== =============== ===============
DEBT:
Privately-placed debt ........................................ -- 350,000 350,000
Credit facility .............................................. -- 132,369 132,369
Other long-term debt.......................................... 16,453 16,453 16,453
---------- --------------- ---------------
TOTAL DEBT .................................................. 16,453 498,822 498,822
---------- --------------- ---------------
TEMPORARY EQUITY(4): -- 16,500 16,500
STOCKHOLDERS' EQUITY(5):
Preferred Stock, $.01 par value, 1,000 shares authorized,
none issued and outstanding as of September 30, 1997 actual
and pro forma ............................................... -- -- --
Class A Common Stock, $.01 par value, 1,000 shares
authorized, issued and outstanding as of September 30, 1997
actual, approximately 4,200,000 issued and outstanding pro
forma for the Financing and Pending Acquisitions and
approximately 18,700,000 issued and outstanding pro forma
for Financing, Pending Acquisitions, Spin-Off and SFX
Merger(6).................................................... -- 42 187
Class B Common Stock, $.01 par value, 1,000 shares
authorized, issued and outstanding as of September 30, 1997
actual and approximately 1,700,000 shares issued and
outstanding pro forma for Financing, Pending Acquisitions,
Spin-Off and
SFX Merger(6)................................................ -- -- 17
Additional paid-in capital ................................... 97,726 137,384 139,367
Retained earnings(7) ......................................... 3,652 3,652 3,652
---------- --------------- ---------------
Total stockholders' equity .................................. 101,378 141,078 143,223
---------- --------------- ---------------
Total capitalization......................................... $117,831 $656,400 $658,545
========== =============== ===============
</TABLE>
- ------------
(1) Reflects the consolidated historical balance sheet of SFX Entertainment
adjusted to reflect the contribution by SFX to SFX Entertainment's
capital of an intercompany payable incurred in connection with the
Recent Acquisitions. Only includes working capital associated with the
entertainment business.
(2) The cash portion of the purchase price in the Pending Acquisitions is
subject to increase under certain circumstances, including, in
particular, if SFX Entertainment is unable to issue shares of its
capital stock to certain of the sellers by virtue of having failed to
consummate the Spin-Off or for any other reason. In that case, the
aggregate cash consideration that would be owed to the sellers in the
Pending Acquisitions would increase by approximately $56.2 million,
resulting in a corresponding increase in debt and decrease in
stockholders' equity. In addition, the agreements relating to the
Pending Acquisitions provide for certain other purchase price
adjustments and future contingent payments in certain circumstances.
See "Risks Related to Pending Acquisitions" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Pending Acquisitions" and "--Liquidity and Capital
Resources--Pending Acquisitions" and "Agreements Related to the Pending
Acquisitions."
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(3) The Distribution Agreement provides that SFX will transfer any positive
Working Capital in existence at the closing of the SFX Merger to SFX
Entertainment, and that if Working Capital is negative at that time,
SFX Entertainment will pay the amount of such shortfall to SFX. As of
September 30, 1997 the amount of positive Working Capital would have
been $2,145,000 (excluding the Series E Adjustment) and such amount is
reflected in the cash to be acquired by SFX Entertainment pursuant to
the Distribution Agreement. The actual amount of Working Capital as of
the closing of the SFX Merger may differ substantially from the amount
in existence on September 30, 1997, and will be a function of, among
other things, the operating results of SFX through the date of the SFX
Merger at the actual cost of consummating the SFX Merger and the
related transactions and other obligations of SFX, including the
payment of dividends and interest on SFX's debt. See "Risk
Factors--Working Capital Adjustments and Repayment of Advances."
Includes the issuance of stock pursuant to the anticipated employment
agreements and the stock issued to the holders of SFX options. See
"Management--Employment Agreements and Arrangements with Certain
Officers and Directors" and "Certain Relationships and Related
Transactions--Issuance of Stock to Holders of SFX's Options and SARs."
(4) The PACE Agreement provides that each PACE Seller shall have a Fifth
Year Put Option, exercisable during a period beginning on the fifth
anniversary of the closing of the PACE Acquisition and ending 90 days
thereafter, to require SFX Entertainment to purchase up to one-third of
the SFX's Class A Common Stock received by such PACE Seller
(representing 500,000 shares in the aggregate) for a cash purchase
price of $33.00 per share. With certain limited exceptions, the Fifth
Year Put Option rights are not assignable by the PACE Sellers. The
maximum amount payable under the Fifth Year Put Option ($16.5 million)
has been presented as temporary equity on the pro forma balance sheet.
(5) SFX has indicated that it will recapitalize SFX Entertainment prior to
the consummation of the Pending Acquisitions and the Spin-Off which
will allow for, among other things, an increase in the number of
authorized shares of common stock.
(6) Assumes that (a) an aggregate of 4,216,680 shares of SFX Entertainment
Class A Common Stock are issued pursuant to the Pending Acquisitions,
(b) an aggregate of 793,633 shares of SFX Entertainment Class A Common
Stock are issued to the holders of stock options and SARs issued by SFX
and (c) an aggregate of 290,000 shares of SFX Entertainment Class A
Common Stock and 650,000 shares of SFX Entertainment Class B Common
Stock are issued pursuant to certain anticipated employment agreements.
See "Management--Employment Agreements and Arrangements with Certain
Officers and Directors" and "Certain Relationships and Related
Transactions--Issuance of Stock to Holders of SFX's Options and SARs."
(7) Retained earnings on a pro forma basis for the Financing, the Pending
Acquisitions, the Spin-Off and the SFX Merger have not been adjusted
for future charges to earnings which will result from the issuance of
stock and options granted to certain executive officers and other
employees of SFX Entertainment. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources--Future Charges to Earnings."
D-79
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following financial statements (the "Unaudited Pro Forma Condensed
Combined Financial Statements") and notes thereto contain forward-looking
statements that involve risks and uncertainties. The actual results of SFX
Entertainment may differ materially from those discussed herein for the
reasons identified herein. SFX Entertainment undertakes no obligation to
publicly release the result of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
In the opinion of management, all adjustments necessary to fairly present
this pro forma information have been made. The Unaudited Pro Forma Condensed
Combined Financial Statements are based upon, and should be read in
conjunction with, the historical financial statements of SFX Entertainment
and the Acquisition Businesses and the respective notes to such financial
statements included herein. The pro forma information is based upon tentative
allocations of purchase price for the Pending Acquisitions, and does not
purport to be indicative of the results that would have been reported had
such events actually occurred on the dates specified, nor is it indicative of
SFX Entertainment's future results if the aforementioned transactions are
completed. SFX Entertainment cannot predict whether the consummation of the
Pending Acquisitions will conform to the assumptions used in the preparation
of the Unaudited Pro Forma Condensed Combined Financial Statements.
Additionally, there can be no assurance that the Pending Acquisitions will be
consummated on the terms described herein, or at all.
The Unaudited Pro Forma Condensed Combined Balance Sheet at September 30,
1997 is presented as if SFX Entertainment had completed the Financing, the
Pending Acquisitions, the Spin-Off and the SFX Merger as of September 30,
1997.
The Unaudited Pro Forma Condensed Combined Statements of Operations for
the year ended December 31, 1996 and the nine months ended September 30, 1997
are presented as if SFX Entertainment had completed the Recent Acquisitions,
the Financing, the Pending Acquisitions, the Spin-Off and the SFX Merger as
of January 1, 1996.
The Unaudited Pro Forma Condensed Combined Financial Statements have been
prepared assuming that the approximately 4.2 million shares of SFX
Entertainment Class A Common Stock are issued in connection with certain of
the Pending Acquisitions and have been valued by the parties at $13.33 per
share for purposes of calculating the consideration to be given for the
Pending Acquisitions. Such valuation is based upon certain financial
projections developed jointly by SFX Entertainment and the sellers. There is
presently no trading market for SFX Entertainment Class A Common Stock, and
there can be no assurance that the assumptions upon which the valuation is
based will, in fact, be correct or that the valuation will approximate the
actual trading price of SFX Entertainment Class A Common Stock.
The cash portion of the purchase price in the Pending Acquisitions is
subject to increase under certain circumstances, including, in particular, if
SFX Entertainment is unable to issue shares of its capital stock to certain
of the sellers by virtue of having failed to consummate the Spin-Off by July
1, 1998 or for any other reason. In such case, the aggregate cash
consideration that would be owed to the sellers in the Pending Acquisitions
would increase by approximately $56.2 million resulting in a corresponding
increase in debt and decrease in stockholder's equity. Although management
believes the Spin-Off is likely to occur, the Spin-Off is subject to certain
conditions, some of which are outside of management's control. There can be
no assurance that the Spin-Off will be consummated on the terms presently
contemplated, or at all. In addition, the agreements relating to the Pending
Acquisitions provide for certain other purchase price adjustments and future
contingent payments in certain circumstances. See "Risk Factors--Risks
Related to Pending Acquisitions," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Agreements Related to the Pending Acquisitions."
Purchase accounting is based upon preliminary asset valuations, which are
subject to change.
D-80
<PAGE>
SFX ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(in thousands)
<TABLE>
<CAPTION>
PRO FORMA FOR THE PENDING
ACQUISITIONS
-----------------------------------
SFX PACE
ENTERTAINMENT AND CONTEMPORARY
(ACTUAL) PAVILION ACQUISITIONS ACQUISITION
I II III
------------- --------------------- ------------
<S> <C> <C> <C>
ASSETS:
Current assets ..... $ 12,189 $(150,730) $(72,800)
Property and
equipment, net..... 55,882 82,489 25,000
Intangible assets,
net................ 59,721 125,314 66,500
Other assets........ 7,678 34,706 --
------------- --------------------- ------------
TOTAL ASSETS........ $135,470 $ 91,779 $ 18,700
============= ===================== ============
LIABILITIES &
STOCKHOLDERS'
EQUITY:
Current
liabilities........ $ 11,333 $ 63,756 $ --
Deferred taxes...... 2,816 -- --
Credit facility..... -- -- --
Privately-placed
debt............... -- -- --
Other long-term
debt (including
current portion) .. 16,453 -- --
Other liabilities .. 3,490 5,583 --
------------- --------------------- ------------
Total Liabilities .. 34,092 69,339 --
Minority interest .. -- 2,440 --
Temporary Equity ... -- 16,500 --
Stockholders'
Equity............. 101,378 3,500 18,700
------------- --------------------- ------------
TOTAL LIABILITIES &
STOCKHOLDERS'
EQUITY............. $135,470 $ 91,779 $ 18,700
============= ===================== ============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE FINANCING,
THE PENDING
ACQUISITIONS,
CONCERT/ PRO FORMA THE SPIN-OFF
BGP NETWORK SOUTHERN PRO FORMA ADJUSTMENTS FOR AND THE
ACQUISITION ACQUISITION ACQUISITION ADJUSTMENTS THE FINANCING SFX
IV V VI VII VIII MERGER
----------- ----------- ----------- ----------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets ..... $(54,222) $(44,510) $(16,615) $ 2,145 (a) $352,893 $117,326
(40,500)(b) 88,976
40,500
Property and
equipment, net..... 20,000 1,000 1,000 -- -- 185,371
Intangible assets,
net................ 50,179 61,701 15,151 10,000 (d) 429,066
40,500 (b)
Other assets........ 222 391 464 (1,610)(c) -- 41,851
----------- ----------- ----------- ----------- --------------- --------------
TOTAL ASSETS........ $ 16,179 $ 18,582 $ -- $ 10,535 $482,369 $773,614
=========== =========== =========== =========== =============== ==============
LIABILITIES &
STOCKHOLDERS'
EQUITY:
Current
liabilities........ $ 6,062 $ 8,468 $ -- $ -- $ -- $ 89,619
Deferred taxes...... 2,617 114 -- 10,000 (d) 15,547
Credit facility..... -- -- -- -- 132,369 132,369
Privately-placed
debt............... -- -- -- -- 350,000 350,000
Other long-term
debt (including
current portion) .. -- -- -- -- 16,453
Other liabilities .. -- -- -- -- -- 9,073
----------- ----------- ----------- ----------- --------------- --------------
Total Liabilities .. 8,679 8,582 -- 10,000 482,369 613,061
Minority interest .. -- -- -- (1,610)(c) -- 830
Temporary Equity ... -- -- -- -- -- 16,500
Stockholders'
Equity............. 7,500 10,000 -- 2,145 (a) -- 143,223
----------- ----------- ----------- ----------- --------------- --------------
TOTAL LIABILITIES &
STOCKHOLDERS'
EQUITY............. $ 16,179 $ 18,582 $ -- $ 10,535 $482,369 $773,614
=========== =========== =========== =========== =============== ==============
</TABLE>
D-81
<PAGE>
I. Reflects the consolidated historical balance sheet of SFX Entertainment
adjusted to reflect the contribution by SFX to SFX Entertainment's capital of
an intercompany payable incurred primarily to complete the Recent
Acquisitions. Only includes working capital associated with the entertainment
business.
II. PACE AND PAVILION ACQUISITIONS
Reflects the PACE Acquisition and the separate acquisitions of the
remaining two partners' interests in Pavilion Partners. The PACE Acquisition
is not conditioned on the consummation of the Pavilion Acquisition.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 (IN THOUSANDS)
------------------------------------------------------------
PACE PAVILION PRO FORMA PACE
AS REPORTED AS REPORTED ADJUSTMENTS TOTAL (F)
------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets........................... $45,087 $ 30,178 $(109,500)(a) $(150,730)
(25,523)(a)
(9,507)(b)
(4,171)(b)
(27,500)(c)
(49,794)(e)
Property and equipment, net.............. -- 59,938 5,000 (a) 82,489
9,103 (b)
(19,052)(d)
27,500 (c)
Intangible assets, net................... 17,894 -- 107,420 (a) 125,314
Other assets............................. 26,856 12,660 9,507 (b) 34,706
(4,810)(d)
(9,507)(d)
------------- ------------- --------------- ------------
Total Assets............................. $89,837 $102,776 $(100,834) $ 91,779
============= ============= =============== ============
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities...................... $43,171 $ 17,254 $ 2,000 (b) $ 63,756
2,932 (b)
(1,601)(d)
Deferred taxes........................... -- -- -- --
Long-term debt (including current
portion)................................ 25,523 57,700 (25,523)(a) --
(7,906)(d)
(49,794)(e)
Other liability.......................... 4,063 1,520 -- 5,583
------------- ------------- --------------- ------------
Total Liabilities........................ 72,757 76,474 (79,892) 69,339
Minority interest........................ -- 2,440 -- 2,440
Temporary Equity......................... -- -- 16,500 (a) 16,500
Stockholders' Equity..................... 17,080 23,862 (17,080)(a) 3,500
20,000 (a)
(16,500)(a)
(23,862)(d)
- ---------------------------------------- ------------- ------------- --------------- ------------
Total Liabilities & Stockholders'
Equity.................................. $89,837 $102,776 $(100,834) $ 91,779
============= ============= =============== ============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) To reflect the PACE Acquisition for $109,500,000 in cash, the issuance
of 1,500,000 shares of SFX Entertainment's Class A Common Stock valued
by the parties at $20,000,000, the repayment of debt of $25,523,000
which is expected to be repaid shortly after closing, the related
increase in the fair value allocated to fixed assets of $5,000,000; the
related excess of the purchase price paid over the fair value of net
tangible assets of $107,420,000, and the elimination of stockholder's
equity of $17,080,000. Pursuant to the terms of the PACE Agreement,
additional consideration is required to be paid by SFX Entertainment if
the deemed value of SFX Entertainment Class A Common Stock is below
D-82
<PAGE>
$13.33 per share at the time of the Spin-Off under certain
circumstances.
The PACE Agreement further provides that each PACE Seller shall have a
Fifth Year Put Option, exercisable during a period beginning on the
fifth anniversary of the closing of the PACE Acquisition and ending 90
days thereafter, to require SFX Entertainment to purchase up to
one-third of the SFX Entertainment Class A Common Stock (500,000
shares) received by such PACE Seller for a cash purchase price of
$33.00 per share. With certain limited exceptions, the Fifth Year Put
Option rights are not assignable by the PACE Sellers. The maximum
amount payable under the Fifth Year Put Option ($16,500,000) has been
presented as temporary equity on the pro forma balance sheet.
Pursuant to the PACE Agreement, certain notes receivables and loans
made to key executives will be repaid in connection with the closing of
the PACE Acquisition. Such repayment has not been reflected herein.
(b) To reflect the acquisition of an additional 33.33% indirect interest in
Pavilion from Blockbuster for $4,171,000 in cash, the assumption of
$2,932,000 in liabilities and the granting of naming rights of three
venues for a two-year period with an estimated value of $2,000,000,
which will be recognized as income over such two-year period, and the
related increase in the fair value allocated to fixed assets of
$9,103,000. Also reflects the purchase of a note receivable from
Blockbuster, due from Pavilion at its current outstanding balance,
including accrued interest of, $9,507,000. This note will be eliminated
in consolidation upon the acquisition of Sony's interest in Pavilion,
as described below.
(c) To reflect the acquisition of an additional 33.33% indirect interest in
Pavilion Partners from Sony for $27,500,000 in cash.
(d) To eliminate PACE's equity method investment in Pavilion Partners
following the acquisition of 100% of Pavilion Partners and to eliminate
Pavilion Partners' historical equity. Also reflects the elimination of
the $7,906,000 intercompany notes receivable and accrued interest of
$1,601,000 acquired from Blockbuster. There can be no assurance that
SFX Entertainment will be able to consummate the acquisition of either
or both of Blockbuster's and Sony's respective interests in Pavilion
Partners and, as a result, SFX Entertainment may not obtain 100% of
Pavilion Partners. See "Agreements Related to Pending
Acquisitions--PACE Acquisition--Pavilion Acquisition."
(e) To reflect the repayment of Pavilion Partners' third party debt at the
closing of the Pavilion Acquisition.
(f) SFX Entertainment has agreed to lend PACE up to $25,000,000 for
potential acquisitions to be made by PACE whether or not the PACE
Acquisition is consummated. None of these acquisitions are considered
probable. As a result, none of such loans or acquisitions have been
reflected in the pro forma adjustment.
See "Agreements Related to Pending Acquisitions--PACE Acquisition."
III. CONTEMPORARY ACQUISITION
Reflects the Contemporary Acquisition and the separate acquisition of the
remaining 50% interest in Riverport Amphitheater Partners, a partnership that
owns an amphitheater in St. Louis, Missouri that is operated by Contemporary.
The Contemporary Acquisition is not conditioned upon the consummation of the
acquisition of such 50% interest.
D-83
<PAGE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 (IN THOUSANDS)
-------------------------------------------------------------
RIVERPORT
CONTEMPORARY AMPHITHEATER PRO FORMA CONTEMPORARY
AS REPORTED PARTNERS ADJUSTMENTS(A) ACQUISITION
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets........................... $13,375 $ 2,603 $(72,800) $(72,800)
(15,978)
Property and equipment, net.............. 2,838 11,355 10,807 25,000
Intangible assets, net................... -- -- 66,500 66,500
Other assets............................. 7,430 8 (1,205) --
(6,233)
-------------- -------------- -------------- --------------
Total Assets............................. $23,643 $13,966 $(18,909) $ 18,700
============== ============== ============== ==============
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities...................... $ 7,786 $ 1,022 $ (8,808) $ --
Other long-term debt (including current
portion)................................ 1,578 -- (1,578) --
Other liabilities........................ 5,390 478 (5,868) --
-------------- -------------- -------------- --------------
Total Liabilities........................ 14,754 1,500 (16,254) --
Stockholders' Equity..................... 8,889 12,466 18,700 18,700
(21,355)
-------------- -------------- -------------- --------------
Total Liabilities & Stockholders'
Equity.................................. $23,643 $13,966 $(18,909) $ 18,700
============== ============== ============== ==============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) To reflect the Contemporary Acquisition for $72,800,000 in cash,
including the additional acquisition of the remaining 50% interest in
the Riverport Amphitheater Partners not already owned by Contemporary
and the issuance of 1,402,851 shares of SFX Entertainment Class A
Common Stock valued by the parties at $18,700,000, the related
increase in the fair value allocated to fixed assets of $10,807,000,
the related excess of the purchase price paid over the fair value of
net tangible assets of $66,500,000, and the adjustment to eliminate
$15,978,000 of current assets, $1,205,000 of other assets, $8,808,000
of current liabilities, $1,578,000 of notes payable, $5,868,000 of
other liabilities, and stockholders' equity of $21,355,000, and to
reflect the elimination of Contemporary Group's $6,233,000 equity
investment in Riverport Amphitheather Partners. Pursuant to the
Contemporary Agreement, SFX Entertainment has eliminated certain cash
and receivables from current assets, accounts payable and accrued
expenses from current liabilities, and other assets and other
liablilties (principally, deferred revenue), which will not be
acquired or assumed by SFX Entertainment upon closing the Contemporary
Acquisition. Adjustment to eliminate Contemporary's historical
stockholders' equity and replace it with the value of the equity
securities to be issued by SFX Entertainment in connection with the
Contemporary Acquisition has also been made.
If Contemporary is unable to complete this acquisition of the
remaining 50% interest in Riverport Amphitheater Partners, the cash
consideration paid by SFX Entertainment for Contemporary will be
reduced by $10,500,000.
The acquisition agreement provides that in the event the Contemporary
Acquisition is consummated prior to the consummation of the Spin-Off,
1,402,851 shares of preferred stock of SFX Entertainment will be issued to
the sellers. Such preferred stock is to be converted into an equal number
of shares of SFX Entertainment's Class A Common Stock upon consummation of
the Spin-Off or, if the Spin-Off shall not have occurred prior to July 1,
1998, such preferred stock is to be redeemed at its fair market value, but
in no event less than $18,700,000. In addition, pursuant to the terms of
the Contemporary Agreement, SFX Entertainment has agreed to make certain
payments to any Contemporary sellers that own shares of SFX
Entertainment's Class A Common Stock on the second anniversary of the
closing of the Contemporary Acquisition if the average trading price of
such stock on the 20-day period ending on such period is less than $13.33
per share. See "Agreements Related to the Pending
Acquisitions--Contemporary Acquisition."
D-84
<PAGE>
IV. BGP ACQUISITION
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 (IN THOUSANDS)
--------------------------------------------
PRO FORMA BGP
AS REPORTED ADJUSTMENTS ACQUISITION
------------- -------------- -------------
<S> <C> <C> <C>
ASSETS:
Current assets........................... $18,759 $(60,800)(a) $(54,222)
(12,181)(b)
Property and equipment, net.............. 9,233 10,767 (a) 20,000
Intangible assets, net .................. 1,460 48,719 (a) 50,179
Other assets............................. 222 -- 222
------------- -------------- -------------
Total Assets............................. $29,674 $(13,495) $ 16,179
============= ============== =============
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities...................... $ 6,062 $ -- $ 6,062
Deferred taxes .......................... 2,617 -- 2,617
Other long-term debt (including current
portion)................................ 12,181 (12,181)(b) --
------------- -------------- -------------
Total Liabilities........................ 20,860 (12,181) 8,679
Stockholders' Equity..................... 8,814 (8,814)(a) 7,500
7,500 (a)
------------- -------------- -------------
Total Liabilities & Stockholders'
Equity.................................. $29,674 $(13,495) $ 16,179
============= ============== =============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) To reflect the BGP Acquisition for $60,800,000 in cash and the issuance
of 563,000 shares of SFX Entertainment Class A Common Stock valued at
$7,500,000, the related increase in fair value allocated to fixed
assets of $10,767,000 and the related excess of the purchase price paid
over the fair value of net tangible assets of $48,719,000, and the
elimination of $8,814,000 of stockholders' equity.
(b) To reflect the repayment of BGP's long-term debt at closing. Although
SFX Entertainment is assuming $12,200,000 of long-term debt, BGP is
required to have working capital at least equal to such liabilities at
the closing of the BGP Acquisition. The purchase price will be reduced
dollar-for-dollar to the extent that long-term debt exceeds working
capital.
See "Agreements Related to the Pending Acquisitions--BGP Acquisition."
V. NETWORK ACQUISITION
The Network Acquisition consists of the separate acquisitions of Network
Magazine and SJS. Each of these acquisitions is conditioned on the concurrent
closing of the other.
D-85
<PAGE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 (IN THOUSANDS)
----------------------------------------------------------
NETWORK
MAGAZINE SJS PRO FORMA NETWORK
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets........................... $ 3,127 $4,325 $(52,000)(a) $(44,510)
1,516 (b)
(1,478)(c)
Property and equipment, net.............. 304 334 362 (a) 1,000
Intangible assets, net................... -- -- 63,217 (a) 61,701
(1,516)(b)
Other assets............................. 299 92 -- 391
------------- ------------- -------------- -------------
Total Assets............................. $ 3,730 $4,751 $ 10,101 $ 18,582
============= ============= ============== =============
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities...................... $ 3,659 $4,809 -- $ 8,468
Deferred taxes........................... 114 -- -- 114
Long-term debt (including current
portion)................................ 1,478 -- (1,478)(c) --
------------- ------------- -------------- -------------
Total Liabilities........................ 5,251 4,809 (1,478) 8,582
Stockholders' Equity..................... (1,521) (58) 1,579 (a) 10,000
10,000 (a)
------------- ------------- -------------- -------------
Total Liabilities & Stockholders'
Equity.................................. $ 3,730 $4,751 $ 10,101 $ 18,582
============= ============= ============== =============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) To reflect the Network Acquisition for $52,000,000 in cash and the
issuance of 750,188 shares of SFX Entertainment Class A Common Stock
valued by the parties at $10,000,000, the related increase in fair
value allocated to fixed assets of $362,000, and the related excess of
the purchase price paid over the fair value of net tangible assets of
$63,217,000, and the elimination of stockholders' deficiency of
$1,579,000.
SFX Entertainment's purchase agreement for Network Magazine and SJS
provides that the purchase price will be increased by $4,000,000 if
total 1998 EBITDA for Network and SJS as defined equals or exceeds
$9,000,000; by an additional $4 for each $1 increase in such EBITDA
between $9,000,000 and $10,000,000 and by an additional $6 for each $1
increase in such EBITDA between $10,000,000 and $11,000,000 (up to a
maximum of $14,000,000 of additional consideration). The additional
consideration is payable in shares of SFX Entertainment's Class A
Common Stock or, in certain circumstances, in cash. The pro forma
financial statements assume that no additional consideration is paid.
(b) To reflect a net working capital adjustment as required in the Network
Acquisition agreement. Pursuant to the Network Agreement, the final
cash purchase price of Network Magazine and SJS shall be adjusted for
any difference between net working capital, as defined, and $500,000.
The working capital adjustment is calculated as the difference between
current assets and current liabilities of Network Magazine and SJS at
closing.
(c) To reflect the repayment of Network Magazine's long-term debt at
closing.
SFX Entertainment's purchase agreement for Network Magazine and SJS
provides SFX Entertainment with an option to acquire an office building
in Burbank, California, which currently serves as Network Magazine's
headquarters, at a cost of approximately $2,400,000. This potential
transaction has not been reflected on the pro forma balance sheet.
See "Agreements Related to the Pending Acquisitions--Network
Acquisition."
D-86
<PAGE>
VI. CONCERT/SOUTHERN ACQUISITION
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 (IN THOUSANDS)
--------------------------------------------
CONCERT/
PRO FORMA SOUTHERN
AS REPORTED ADJUSTMENTS ACQUISITION
------------- -------------- -------------
<S> <C> <C> <C>
ASSETS:
Current assets........................... $1,921 $(16,615)(a) $(16,615)
(1,921)(a)
Property and equipment, net.............. 360 640 (a) 1,000
Intangible assets, net................... -- 15,151 (a) 15,151
Other assets............................. 919 (455)(a) 464
------------- -------------- -------------
Total Assets............................. $3,200 $ (3,200) $ --
============= ============== =============
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities...................... $1,254 $ (1,254)(a) $ --
------------- -------------- -------------
Total Liabilities........................ 1,254 (1,254) --
Stockholders' Equity..................... 1,946 (1,946)(a) --
------------- -------------- -------------
Total Liabilities & Stockholders'
Equity.................................. $3,200 $ (3,200) $ --
============= ============== =============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) To reflect the Concert/Southern Acquisition for $16,615,000 in cash;
the related increase in fair value allocated to fixed assets of
$640,000, the related excess of the purchase price paid over the fair
value of net tangible assets of $15,151,000; and the adjustments to
eliminate $1,921,000 of current assets, $1,254,000 of current
liabilities, stockholders' equity of $1,946,000 and a $455,000
investment in a non-entertainment affiliated entity not being acquired
by SFX Entertainment. Pursuant to the Concert/Southern Agreement, SFX
Entertainment has eliminated certain cash and receivables from current
assets and accounts payable and other accrued expenses from current
liabilities, which will not be acquired or assumed by SFX Entertainment
upon closing the Concert/Southern Acquisition. Adjustment to eliminate
Concert/Southern's historical combined stockholders' equity and replace
it with the value of the equity securities to be issued by SFX
Entertainment in connection with the Concert/Southern Acquisition has
also been made.
See "Agreements Related to the Pending Acquisitions--Concert/Southern
Acquisition."
VII. PRO FORMA ADJUSTMENTS FOR PENDING ACQUISITIONS
(a) The Distribution Agreement provides that SFX will pay any positive
Working Capital in existence at the closing of the SFX Merger to SFX
Entertainment, and that if Working Capital is negative at that time,
SFX Entertainment will pay the amount of such shortfall to SFX. As of
September 30, 1997 the amount of positive Working Capital would have
been $2,145,000 (excluding the Series E Adjustment) and such amount is
reflected in the cash to be acquired by SFX Entertainment pursuant to
the Distribution Agreement. The actual amount of Working Capital as of
the closing of the SFX Merger may differ substantially from the amount
in existence on September 30, 1997, and will be a function of, among
other things, the operating results of SFX through the date of the SFX
Merger and the actual cost of consummating the SFX Merger and the
related transactions. Additionally, SFX Entertainment will be
responsible for any taxes resulting from the Spin-Off to the extent
such taxes result from any gain on the distribution. See "Agreements
Between SFX Entertainment and SFX."
(b) To reflect estimated costs associated with the Pending Acquisitions and
the Financing and the related transactions. Consists of approximately
(i) $5.5 million in fees and expenses in connection with the Pending
Acquisitions, (ii) $17.2 million in fees in connection with the
Spin-Off, the Consent Solicitations and other required consents and
(iii) $17.8 million of fees and expenses in connection with the
Financing. The information relataing to fees and expenses is based on
management's estimates, and may not be indicative of, and are likely to
vary from, the actual fees and expenses incurred by SFX Entertainment
relating to the Financing, the Pending Acquisitions, the Spin-Off and
the SFX Merger.
D-87
<PAGE>
(c) To reflect the consolidation of GSAC Partners (the entity which
operates the PNC Bank Arts Center) following the acquisition of the
remaining 50% ownership interest in GSAC currently owned by Pavilion
Partners.
(d) To reflect deferred taxes associated with differences between the book
and tax bases of assets and liabilities acquired.
VIII. PRO FORMA ADJUSTMENTS FOR THE FINANCING
Represents assumed borrowings to finance the Pending Acquisitions
including the Notes and Proposed Credit Facility. There can be no assurance
that SFX Entertainment will be able to enter into or obtain financing under
the Proposed Credit Facility, on acceptable terms, or at all. SFX
Entertainment anticipates using $352.9 million of proceeds to finance the
cash portion of the Pending Acquisitions, $89.0 million for the repayment of
debt assumed in the Pending Acquisitions and $40.5 million for the payment of
estimated costs associated with the Pending Acquisitions and the Financing
and related transactions. The repayment of assumed debt includes $25.5
million in connection with the PACE Acquisition, $49.8 million in connection
with the Pavilion Acquisition, $12.2 million in connection with the BGP
Acquisition and $1.4 million in connection with the Network Acquisition.
D-88
<PAGE>
SFX ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA FOR RECENT
ACQUISITIONS
----------------------
SFX
ENTERTAINMENT PRO FORMA
(ACTUAL) ADJUSTMENTS
I II PRO FORMA
------------- ----------- ---------
<S> <C> <C> <C>
Revenue...................... $74,396 $12,293 $86,689
Operating expenses........... 63,045 12,236 75,281
Depreciation & amortization . 4,041 1,084 5,125
Corporate expenses (1)....... 1,307 -- 1,307
------------- ----------- ---------
Operating income (loss) ..... 6,003 (1,027) 4,976
Interest expense............. 956 (956) 1,291
1,291
Other (income) expenses ..... (213) -- (213)
Equity (income) loss from
investments................. (1,344) -- (1,344)
------------- ----------- ---------
Income/(loss) before income
tax expense................. 6,604 (1,362) 5,242
Income tax expense
(benefit)................... 2,952 1,649 4,601
------------- ----------- ---------
Net income (loss)............ $ 3,652 $(3,011) $ 641
============= =========== =========
Accretion on temporary
equity .....................
Net loss applicable to
common shares ..............
Net loss per common share ...
Weighted average common
shares outstanding (2)......
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR PENDING ACQUISITIONS FOR THE RECENT
ACQUISITIONS,
-------------------------------------------------------------------------- ----------------- THE FINANCING,
THE PENDING
PACE ACQUISITIONS,
AND CONCERT/ PRO FORMA THE SPIN-OFF
PAVILION CONTEMPORARY BGP NETWORK SOUTHERN PRO FORMA ADJUSTMENTS AND THE
ACQUISITIONS ACQUISITION ACQUISITION ACQUISITION ACQUISITION ADJUSTMENTS FOR THE FINANCING SFX
III IV V VI VII VIII IX MERGER
------------ ------------ ----------- ----------- ----------- ----------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue...... $229,480 $85,570 $65,448 $20,563 $13,093 $ -- $ -- $500,843
Operating
expenses.... 205,365 75,784 59,312 13,893 10,631 -- -- 440,266
Depreciation
&
amortization 4,476 1,081 611 207 57 16,821 (a) -- 28,378
Corporate
expenses
(1)......... -- -- -- -- -- 1,500 (b) -- 2,807
------------ ------------ ----------- ----------- ----------- ----------- ----------------- --------------
Operating
income
(loss)...... 19,639 8,705 5,525 6,463 2,405 (18,321) -- 29,392
Interest
expense..... 4,803 227 837 196 -- -- (6,063)(a) 33,186
-- 31,895 (b)
Other
(income)
expenses.... 1,594 (170) (764) (123) (57) (1,046) (c) -- (779)
Equity
(income)
loss from
investments. (5,321) -- -- -- (34) 1,046 (c) -- (5,653)
------------ ------------ ----------- ----------- ----------- ----------- ----------------- --------------
Income/(loss)
before
income tax
expense..... 18,563 8,648 5,452 6,390 2,496 (18,321) (25,832) 2,638
Income tax
expense
(benefit)... 3,751 -- 2,133 135 -- (7,120)(d) -- 3,500
------------ ------------ ----------- ----------- ----------- ----------- ----------------- --------------
Net income
(loss)...... $ 14,812 $ 8,648 $ 3,319 $ 6,255 $ 2,496 (11,201) $(25,832) (862)
============ ============ =========== =========== =========== ================= ==============
Accretion on
temporary
equity ..... (2,475)(e) (2,475)
----------- --------------
Net loss
applicable
to common
shares ..... $(13,676) $ (3,337)
=========== ==============
Net loss per
common
share....... $ (.17)
==============
Weighted
average
common
shares
outstanding
(2)......... 20,400
==============
</TABLE>
- ------------
(1) Net of fees from Triathlon of $1,693,000. These fees will vary, above
the minimum level of $500,000, based on the level of acquisition and
financing activities of Triathlon. SCMC previously assigned its rights
to receive fees payable under this agreement to SFX. Pursuant to the
terms of the Distribution Agreement, SFX will assign its rights to
receive such fees to SFX Entertainment. Triathlon has previously
announced that it is exploring ways of maximizing stockholder value,
including possible sale to a third party. In the event that Triathlon
were acquired by a third party, there can be no assurance that the
agreement would continue for the remainder of its term.
(2) Includes 500,000 shares of SFX Entertainment Class A Common Stock to be
issued to the PACE Sellers in connection with the Fifth Year Put
Option; such shares are not included in calculating the net loss per
common share.
D-89
<PAGE>
NOTES TO PRO FORMA INCOME STATEMENTS:
I. Represents SFX Entertainment's actual operating results for the nine
months ended September 30, 1997.
EBITDA for the nine months ended September 30, 1997 was $10,044,000
and $57,770,000 for SFX Entertainment on an actual basis and a pro
forma basis, respectively. EBITDA is defined as earnings before
interest, taxes, other income, net, equity income (loss) from
investments and depreciation and amortization. Although EBITDA is not
a measure of performance calculated in accordance with GAAP, SFX
Entertainment believes that EBITDA is accepted by the entertainment
industry as a generally recognized measure of performance and is used
by analysts who report publicly on the performance of entertainment
companies. Nevertheless, this measure should not be considered in
isolation or as a substitute for operating income, net income, net
cash provided by operating activities or any other measure for
determining SFX Entertainment's operating performance or liquidity
which is calculated in accordance with GAAP. Cash flows from
operating, investing and financing activities for SFX Entertainment
for the nine months ended September 30, 1997 were $789,000,
($71,997,000) and $78,302,000, respectively.
There are other adjustments that could affect EBITDA but have not
been reflected herein. Had such adjustments been made, Adjusted
EBITDA on a pro forma basis would have been approximately $67,300,000
for the nine months ended September 30, 1997. The adjustments include
the expected cost savings in connection with the Pending Acquisitions
associated with the elimination of duplicative staffing and general
and administrative expenses of $3,800,000, and include equity income
from investments of $5,700,000. While management believes that such
cost savings are achievable, SFX Entertainment's ability to fully
achieve such cost savings is subject to numerous factors, certain of
which may be beyond SFX Entertainment's control.
II. SFX Entertainment acquired Delsener/Slater, the Meadows Music Theater
lease and Sunshine Promotions on January 2, 1997, March 20, 1997 and
June 24, 1997, respectively. These adjustments represent the
operating results of the Meadows Music Theater and Sunshine
Promotions prior to their acquisition by SFX Entertainment.
III. PACE AND PAVILION ACQUISITIONS
Reflects the PACE Acquisition and the separate acquisitions of PACE's two
partners' interests in Pavilion Partners, a partnership that owns certain
amphitheaters operated by PACE. The PACE Acquisition is not conditioned on
the consummation of either part of the Pavilion Acquisition.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
----------------------------------------------------------
PACE
AND
PACE PAVILION PRO FORMA PAVILION
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITIONS
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue ................................ $137,616 $91,114 $ 750 (a) $229,480
Operating expenses...................... 131,473 75,319 (1,427)(b) 205,365
Depreciation & amortization............. 1,462 3,014 -- 4,476
Other expenses.......................... 447 -- (447)(c) --
------------- ------------- ------------- --------------
Operating income........................ 4,234 12,781 2,624 19,639
Interest expense........................ 1,517 3,286 -- 4,803
Other expenses.......................... 64 1,530 -- 1,594
Equity (income) loss from investments .. (6,949) (1,654) 3,282 (d) (5,321)
------------- ------------- ------------- --------------
Income/(loss) before income tax
expense................................ 9,602 9,619 (658) 18,563
Income tax expense...................... 3,751 -- -- 3,751
------------- ------------- ------------- --------------
Net income (loss)....................... $ 5,851 $ 9,619 $ (658) $ 14,812
============= ============= ============= ==============
</TABLE>
D-90
<PAGE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) To reflect non-cash revenue resulting from SFX Entertainment granting
Blockbuster naming rights to three venues for two years for no future
consideration as part of its agreement to acquire Blockbuster's
indirect 33 1/3% interest in Pavilion.
(b) Reflects the elimination of $520,000 of certain officers' salaries and
bonuses which will not be paid under SFX Entertainment's new employment
contracts and of $907,000 of non-recurring costs incurred in connection
with PACE's previously planned initial public offering, which has since
been canceled. The amount of the pro forma adjustment to eliminate
salaries and bonuses is based on SFX Entertainment's agreements with
the affected employees that a bonus will not be paid unless there is a
significant improvement in the results of the PACE Acquisition.
Accordingly, no such bonus is reflected in the pro forma statement of
operations as should the PACE Acquisition's results, once acquired by
SFX Entertainment, be at a similar level to that in these pro forma
statements of operations no bonus would be paid, and SFX Entertainment
would not be contractually obligated to pay a bonus.
(c) Reflects the elimination of non-recurring restricted stock compensation
to PACE executives.
(d) To eliminate PACE's income from its 33 1/3% equity investment in
Pavilion Partners. PACE currently owns 33 1/3% in Pavilion Partners and
has agreed to acquire the remaining 66 2/3% interest in Pavilion
Partners pursuant to the Blockbuster Acquisition and Sony Acquisition.
There can be no assurance that SFX Entertainment will be able to
consummate the acquisition of either or both of Blockbuster's and
Sony's respective interests in Pavilion Partners and, as a result, SFX
Entertainment may not obtain 100% ownership of Pavilion Partners. See
"Agreements Related to Pending Acquisitions--PACE Acquisition--Pavilion
Acquisition."
IV. CONTEMPORARY ACQUISITION
Reflects the Contemporary Acquisition and the separate acquisition of the
remaining 50% interest in Riverport Amphitheater Partners, a partnership that
owns an amphitheater in St. Louis, Missouri that is operated by Contemporary.
The Contemporary Acquisition is not conditioned upon the consummation of the
acquisition of such 50% interest.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
-----------------------------------------------------------
CONTEMPORARY RIVERPORT PRO FORMA CONTEMPORARY
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue ................................ $71,141 $14,429 $ -- $85,570
Operating expenses...................... 66,764 11,223 (2,203)(a) 75,784
Depreciation & amortization............. 498 583 -- 1,081
-------------- ------------- ------------- --------------
Operating income........................ 3,879 2,623 2,203 8,705
Interest expense........................ 153 74 -- 227
Other income............................ (122) (48) -- (170)
Equity (income) from investments ....... (1,298) -- 1,298 (b) --
-------------- ------------- ------------- --------------
Income (loss) before income tax
expense................................ 5,146 2,597 905 8,648
Income tax expense...................... -- -- -- --
-------------- ------------- ------------- --------------
Net income (loss)....................... $ 5,146 $ 2,597 $ 905 $ 8,648
============== ============= ============= ==============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of certain officers' salaries and bonuses and
other consulting expenses which will not be paid under SFX
Entertainment's new employment and other contracts. The amount of the
pro forma adjustment to eliminate salaries and bonuses is based on SFX
Entertainment's agreements
D-91
<PAGE>
with the affected employees that a bonus will not be paid unless there
is a significant improvement in the results of the Contemporary
Acquisition. Accordingly, no such bonus is reflected in the pro forma
statement of operations as should the Contemporary Acquisition's
results, once acquired by SFX Entertainment, be at a similar level to
that in these pro forma statements of operations no bonus would be
paid, and SFX Entertainment would not be contractually obligated to pay
a bonus.
(b) Reflects the elimination of Contemporary's equity income in Riverport
Amphitheater Partners. Contemporary has entered into an agreement to
acquire its partners' 50% interest in this venture. If Contemporary is
unable to complete this acquisition of the remaining 50% interest in
Riverport Amphitheater Partners, the cash consideration paid by SFX
Entertainment for Contemporary will be reduced by $10,500,000.
The Contemporary Agreement provides that in the event the Contemporary
Acquisition is consummated prior to the consummation of the Spin-Off,
1,402,851 shares of preferred stock of SFX Entertainment will be issued to
the sellers. Such preferred stock is to be converted into an equal number of
shares of SFX Entertainment's Class A Common Stock upon consummation of the
Spin-Off or, if the Spin-Off shall not have occurred prior to July 1, 1998,
such preferred stock is to be redeemed by SFX Entertainment at its fair
market value, but in no event less than $18,700,000. See "Agreements Related
to the Pending Acquisitions--Contemporary Acquisition."
V. BGP ACQUISITION
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
---------------------------------------------
PRO FORMA BGP
AS REPORTED (A) ADJUSTMENTS ACQUISITION
--------------- ------------- -------------
<S> <C> <C> <C>
Revenue ......................... $65,448 $ -- $65,448
Operating expenses............... 59,312 -- 59,312
Depreciation & amortization ..... 611 -- 611
--------------- ------------- -------------
Operating income ................ 5,525 -- 5,525
Interest expense................. 837 -- 837
Other income..................... (764) -- (764)
--------------- ------------- -------------
Income before income tax
expense......................... 5,452 -- 5,452
Income tax expense............... 2,133 -- 2,133
--------------- ------------- -------------
Net income....................... $ 3,319 $ -- $ 3,319
=============== ============= =============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects BGP's unaudited operating results for the nine months ended
October 31, 1997.
VI. NETWORK ACQUISITIONS
The Network Acquisitions consist of the separate acquisitions of Network
Magazine and SJS. Each of these acquisitions is conditioned on the concurrent
closing of the other.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
--------------------------------------------------------------
THE NETWORK
MAGAZINE SJS PRO FORMA NETWORK
AS REPORTED (A) AS REPORTED (A) ADJUSTMENTS ACQUISITIONS
--------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue ................................ $12,047 $10,737 $(2,221)(c) $20,563
Operating expenses...................... 11,878 10,717 (6,481)(b) 13,893
(2,221)(c)
Depreciation & amortization............. 119 88 -- 207
--------------- --------------- ------------- --------------
Operating income (loss)................. 50 (68) 6,481 6,463
Interest expense........................ 163 33 -- 196
Other income............................ (43) (80) -- (123)
--------------- --------------- ------------- --------------
Income (loss) before income tax
expense................................ (70) (21) 6,481 6,390
Income tax expense ..................... -- 135 -- 135
--------------- --------------- ------------- --------------
Net (loss) income ...................... $ (70) $ (156) $ 6,481 $ 6,255
=============== =============== ============= ==============
</TABLE>
D-92
<PAGE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) SFX Entertainment's purchase agreement for Network Magazine and SJS
provides that the purchase price will be increased by $4,000,000 if
total 1998 EBITDA as defined equals $9,000,000; by an additional $4 for
each $1 increase in EBITDA between $9,000,000 and $10,000,000 and by an
additional $6 for each $1 increase in EBITDA between $10,000,000 and
$11,000,000 (maximum of $14,000,000 additional consideration). The
additional consideration is payable in stock or cash at SFX
Entertainment's option. The pro forma statement of operation assumes
that no additional consideration is paid.
(b) Reflects the elimination of certain officers' salaries and bonuses
which will not be paid under SFX Entertainment's new employment
contracts. The amount of the pro forma adjustment to eliminate salaries
and bonuses is based on SFX Entertainment's agreements with the
affected employees that a bonus will not be paid unless there is a
significant improvement in the results of the Network Acquisitions.
Accordingly, no such bonus is reflected in the pro forma statement of
operations as should the Network Acquisitions' results, once acquired
by SFX Entertainment, be at a similar level to that in these pro forma
statements of operations no bonus would be paid, and SFX Entertainment
would not be contractually obligated to pay a bonus.
(c) Reflects the elimination of transactions between Network Magazine and
SJS.
VII. CONCERT/SOUTHERN ACQUISITION
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN
THOUSANDS)
-------------------------------------------
CONCERT/
PRO FORMA SOUTHERN
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- -------------
<S> <C> <C> <C>
Revenue .............................. $13,093 $ -- $13,093
Operating expenses.................... 11,097 (466)(a) 10,631
Depreciation & amortization........... 57 -- 57
------------- ------------- -------------
Operating income...................... 1,939 466 2,405
Interest expense...................... -- -- --
Other income.......................... (57) -- (57)
Equity loss (income) from
investments.......................... 11 (45)(b) (34)
------------- ------------- -------------
Income before income tax expense ..... 1,985 511 2,496
Income tax expense.................... -- -- --
------------- ------------- -------------
Net income............................ $ 1,985 $ 511 $ 2,496
============= ============= =============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of certain officers' salaries and bonuses
which will not be paid under SFX Entertainment's new employment
contracts. The amount of the pro forma adjustment to eliminate salaries
and bonuses is based on SFX Entertainment's agreements with the
affected employees that a bonus will not be paid unless there is a
significant improvement in the results of the Concert/ Southern
Acquisition. Accordingly, no such bonus is reflected in the pro forma
statement of operations as should the Concert/Southern Acquisition's
results, once acquired by SFX Entertainment, be at a similar level to
that in these pro forma statements of operations no bonus would be
paid, and SFX Entertainment would not be contractually obligated to pay
a bonus.
(b) Reflects the elimination of equity income of a non-entertainment
affiliated entity which is not being acquired by SFX Entertainment.
VIII. PRO FORMA ADJUSTMENTS:
(a) Reflects the increase in depreciation and amortization resulting from
the preliminary purchase accounting treatment of the Pending
Acquisitions. SFX Entertainment amortizes goodwill over 15 years.
D-93
<PAGE>
(b) To record incremental corporate overhead charges associated with
incremental headquarters personnel and general and administrative
expenses that management estimates will be necessary following
completion of the Pending Acquisitions.
(c) To reclassify Delsener/Slater's equity income in the PNC Bank Arts
Center venue following the acquisition of Pavilion Partners which owns
the other 50% equity interest in the venue.
(d) Represents an adjustment to the provision for income taxes to reflect
an approximate pro forma tax provision of $3,500,000. The calculation
treats all companies to be acquired pursuant to the Pending
Acquisitions as "C" Corporations and includes a benefit of
approximately $6,000,000 related to the pro forma loss carryforward of
approximately $16,000,000 from the twelve months ended December 31,
1996. The above provision also reflects the non-deductibility of
approximately $12,000,000 of goodwill amortization, tax savings related
to the pro forma adjustments for the Financing and state taxes of
approximately $3,500,000.
(e) Represents the accretion on the Fifth Year Put Option issued to the
PACE Sellers in connection with the PACE Acquisition.
IX. PRO FORMA FOR THE FINANCING:
(a) Represents the elimination of existing interest expense for the Pending
Acquisitions.
(b) Reflects interest expense associated with the Notes at 9 1/8%, the
Proposed Credit Facility and other debt and deferred compensation costs
related to the Pending Acquisitions. The interest rate assumed in the
Proposed Credit Facility is 8% per annum. A one-quarter percent
increase or decrease in the assumed weighted average interest rate for
the credit facility would change the pro forma interest expense by
approximately $250,000. There can be no assurance that SFX
Entertainment will be able to enter into or borrow under the Proposed
Credit Facility on acceptable terms, or at all.
D-94
<PAGE>
SFX ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA FOR RECENT ACQUISITIONS
DELSENER/ ------------------------------------
SLATER MEADOWS/
ACQUISITION SUNSHINE PRO FORMA
(PREDECESSOR) ACQUISITIONS ADJUSTMENTS
I II VIII PRO FORMA
----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenue................ $50,361 $54,423 $ -- $104,784
Operating expenses .... 50,686 46,632 (6,078)(a) 91,240
Depreciation &
amortization.......... 747 3,072 3,014 (b) 6,833
Corporate expenses
(1)................... -- -- 1,000 (c) 1,000
----------- ------------ ----------- ---------
Operating income
(loss)................ (1,072) 4,719 2,064 5,711
(4,354)(d)
Interest expense....... 60 4,294 1,780 (e) 1,780
Other (income)
expenses.............. (198) (168) -- (366)
Equity (income) loss
from investments...... (525) -- -- (525)
----------- ------------ ----------- ---------
Income (loss) before
income tax expense .. (409) 593 4,638 4,822
Income tax expense
(benefit) ............ 106 1,155 893 2,154
----------- ------------ ----------- ---------
Net income (loss) .... $ (515) $ (562) $ 3,745 $ 2,668
=========== ============ =========== =========
Accretion on temporary
Equity................
Net loss applicable to
common shares ........
Net loss per common
share ................
Weighted average
common shares
outstanding (2) ......
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR PENDING ACQUISITIONS
----------------------------------------------------------------------------
PRO FORMA FOR
THE RECENT
ACQUISITIONS,
THE
FINANCING,
PRO FORMA THE PENDING
PACE CONCERT/ ADJUSTMENTS ACQUISITIONS,
AND PAVILION CONTEMPORARY BGP NETWORK SOUTHERN PRO FORMA FOR THE THE SPIN-OFF
ACQUISITIONS ACQUISITION ACQUISITION ACQUISITION ACQUISITION ADJUSTMENTS FINANCING AND THE
III IV V VI VII VIII IX SFX MERGER
------------ ------------ ----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue .......... $246,548 $71,545 $92,331 $24,556 $12,601 $ -- $ -- $552,365
Operating
expenses ........ 237,429 64,320 84,466 18,403 9,679 -- -- 505,537
Depreciation &
amortization .... 5,336 1,334 1,474 268 69 22,481 (f) -- 37,795
Corporate
expenses (1) .... -- -- -- -- -- 2,000 (g) -- 3,000
------------ ------------ ----------- ----------- ----------- ----------- ----------- -------------
Operating income
(loss) .......... 3,783 5,891 6,391 5,885 2,853 (24,481) -- 6,033
(7,391)(a)
Interest expense . 5,456 383 1,258 294 -- -- 42,527 (b) 44,307
Other (income)
expenses ........ (265) (216) (584) (42) (47) (312)(i) -- (1,832)
Equity (income)
loss from
investments ..... (3,227) -- -- -- 38 312 (i) -- (3,402)
------------ ------------ ----------- ----------- ----------- ----------- ----------- -------------
Income (loss)
before income
tax expense .... 1,819 5,724 5,717 5,633 2,862 (24,481) (35,136) (33,040)
Income tax
expense
(benefit) ...... (714) 35 1,272 303 -- (1,550)(h) -- 1,500
------------ ------------ ----------- ----------- ----------- ----------- ----------- -------------
Net income (loss) $ 2,533 $ 5,689 $ 4,445 $ 5,330 $ 2,862 (22,931) $(35,136) (34,540)
============ ============ =========== =========== =========== =========== =========== =============
Accretion on
temporary
Equity .......... (3,300)(j) (3,300)
----------- -------------
Net loss
applicable to
common shares .. $(26,231) $(37,840)
=========== =============
Net loss per
common share ... $ (1.90)
=============
Weighted average
common shares
outstanding (2) 20,400
=============
</TABLE>
- ------------
(1) Net of fees from Triathlon of $3,000,000. These fees will fluctuate based
on the level of acquisition and financing activities of Triathlon. SCMC
previously assigned its rights to receive fees payable under this
agreement to SFX. Pursuant to the terms of the Distribution Agreement,
SFX will assign its rights to receive such fees to SFX Entertainment.
Triathlon has previously announced that it is exploring ways of
maximizing stockholder value, including possible sale to a third party.
In the event that Triathlon were acquired by a third party, there can be
no assurance that the agreement would continue for the remainder of its
term.
(2) Includes 500,000 shares of SFX Entertainment Class A Common Stock to be
issued to the PACE Sellers in connection with the Fifth Year Put Option;
such shares are not included in calculating the net loss per common
share.
D-95
<PAGE>
NOTES TO PRO FORMA INCOME STATEMENTS:
I. Represents the actual operating results of Delsener/Slater, the
predecessor, for the year ended December 31, 1996. The Company acquired
Delsener/Slater on January 2, 1997.
EBITDA for the year ended December 31, 1996 was ($325,000) and
$43,828,000 for Delsener/Slater and SFX Entertainment on a pro forma
basis, respectively. EBITDA is defined as earnings before interest,
taxes, other income, net, equity income (loss) from investments and
depreciation and amortization. Although EBITDA is not a measure of
performance calculated in accordance with GAAP, SFX Entertainment
believes that EBITDA is accepted by the entertainment industry as a
generally recognized measure of performance and is used by analysts who
report publicly on the performance of entertainment companies.
Nevertheless, this measure should not be considered in isolation or as a
substitute for operating income, net income, net cash provided by
operating activities or any other measure for determining SFX
Entertainment's operating performance or liquidity which is calculated in
accordance with GAAP. Cash flows from operating, investing and financing
activities for Delsener/Slater for the year ended December 31, 1996 were
$4,214,000, $(435,000) and $(1,431,000), respectively.
There are other adjustments that could affect EBITDA but have not been
reflected herein. Had such adjustments been made, Adjusted EBITDA on a
pro forma basis would have been $58,200,000 for the year ended December
31, 1996. The adjustments include the elimination of non-recurring
charges including a litigation settlement recorded by PACE and Pavilion
Partners of $6,000,000, expected cost savings in connection with the
Pending Acquisitions associated with the elimination of duplicative
staffing and general and administrative expenses of $5,000,000, and
equity income from investments of $3,400,000. While management believes
that such cost savings are achievable, SFX Entertainment's ability to
fully achieve such cost savings is subject to numerous factors, certain
of which may be beyond SFX Entertainment's control.
II. Represents the actual operating results of the Meadows Music Theater and
Sunshine Promotions for the year ended December 31, 1996. SFX
Entertainment aquired the Meadows Music Theater and Sunshine Promotions
on March 20, 1997 and June 24, 1997, respectively.
III. PACE AND PAVILION ACQUISITIONS
Reflects the PACE Acquisition and the separate acquisitions of PACE's two
partners' interest in a partnership that owns certain amphitheaters operated
by PACE. The PACE Acquisition is not conditioned on the consummation of the
Pavilion Acquisition.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
---------------------------------------------------------------------------------------
PACE
PACE PAVILION PAVILION PAVILION PRO FORMA AND PAVILION
AS REPORTED (A) 1 MONTH (B) 11 MONTHS (B) AS REPORTED ADJUSTMENTS ACQUISITIONS
--------------- ----------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue......................... $156,325 $5,259 $83,964 $89,223 $ 1,000(c) $246,548
Operating expenses.............. 155,533 5,199 77,267 82,466 (570)(d) 237,429
Depreciation & amortization .... 1,737 253 3,346 3,599 -- 5,336
Other expenses.................. 3,675 -- -- -- (3,675)(e) --
--------------- ----------- ------------- ------------- ------------- --------------
Operating (loss) income ........ (4,620) (193) 3,351 3,158 5,245 3,783
Interest expense................ 1,206 395 3,855 4,250 -- 5,456
Other income.................... (59) (123) (83) (206) -- (265)
Equity (income) loss from
investments.................... (3,048) 82 (129) (47) (132)(f) (3,227)
--------------- ----------- ------------- ------------- ------------- --------------
Income (loss) before income tax
expense........................ (2,719) (547) (292) (839) 5,377 1,819
Income tax (benefit)............ (714) -- -- -- -- (714)
--------------- ----------- ------------- ------------- ------------- --------------
Net (loss) income .............. $ (2,005) $ (547) $ (292) $ (839) $ 5,377 $ 2,533
=============== =========== ============= ============= ============= ==============
</TABLE>
D-96
<PAGE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects PACE's audited operating results for fiscal year ended
September 30, 1996.
(b) Reflects Pavilion Partners' unaudited operating results for the one
month ended October 31, 1995 and the audited operating results for the
eleven months ended September 30, 1996. During 1996, Pavilion Partners
changed its fiscal year-end from October 31 to September 30.
PACE currently owns 33 1/3% in Pavilion Partners and has agreed to
acquire the remaining 66 2/3% interest from Pavilion Partners' two
partners, Blockbuster and Sony.
(c) To reflect non-cash revenue resulting from SFX Entertainment granting
Blockbuster naming rights to three venues for two years for, no future
consideration, as part of its agreement to acquire Blockbuster's
indirect 33 1/3% interest in Pavilion.
(d) Reflects the elimination of $570,000 of certain officers' salaries and
bonuses which will not be paid under SFX Entertainment's new employment
contracts. The amount of the pro forma adjustment to eliminate salaries
and bonuses is based on SFX Entertainment's agreements with the
affected employees that a bonus will not be paid unless there is a
significant improvement in the results of the PACE Acquisition.
Accordingly, no such bonus is reflected in the pro forma statement of
operations as should the PACE Acquisition's results, once acquired by
SFX Entertainment, be at a similar level to that in these pro forma
statements of operations no bonus would be paid, and SFX Entertainment
would not be contractually obligated to pay a bonus.
(e) Reflects the elimination of non-recurring restricted stock compensation
to PACE executives.
(f) To eliminate PACE's income from its 33 1/3% equity investment in
Pavilion Partners. PACE currently owns 33 1/3% in Pavilion and has
agreed to acquire the remaining 66 2/3% interest in Pavilion Partners
pursuant to the Blockbuster Acquisition and Sony Acquisition. There can
be no assurance that SFX Entertainment will be able to consummate the
acquisition of either or both of Blockbuster's and Sony's respective
interests in Pavilion Partners and, as a result, SFX Entertainment may
not obtain 100% ownership of Pavilion Partners. See "Agreements Related
to Pending Acquisitions--PACE Acquisition--Pavilion Acquisition."
IV. CONTEMPORARY ACQUISITION
Reflects the Contemporary Acquisition and the separate acquisition of the
remaining 50% interest in Riverport Amphitheater Partners, a partnership that
owns an amphitheater in St. Louis, Missouri that is operated by Contemporary.
The Contemporary Acquisition is not conditioned upon the consummation of the
acquisition of such 50% interest.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
-----------------------------------------------------------
CONTEMPORARY RIVERPORT PRO FORMA CONTEMPORARY
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue................................. $59,852 $11,693 $ -- $71,545
Operating expenses...................... 58,189 9,168 (3,037)(a) 64,320
Depreciation & amortization............. 567 767 -- 1,334
-------------- ------------- ------------- --------------
Operating income ....................... 1,096 1,758 3,037 5,891
Interest expense........................ 213 170 -- 383
Other income............................ (159) (57) -- (216)
Equity (income) loss from investments .. (822) -- 822 (b) --
-------------- ------------- ------------- --------------
Income (loss) before income tax
expense................................ 1,864 1,645 2,215 5,724
Income tax expense ..................... 35 -- 35
-------------- ------------- ------------- --------------
Net income.............................. $ 1,829 $ 1,645 $ 2,215 $ 5,689
============== ============= ============= ==============
</TABLE>
D-97
<PAGE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of certain officers' salaries and bonuses
which will not expected be paid under SFX Entertainment's new
employment and other contracts. The amount of the pro forma adjustment
to eliminate salaries and bonuses is based on SFX Entertainment's
agreements with the affected employees that a bonus will not be paid
unless there is a significant improvement in the results of the
Contemporary Acquisition. Accordingly, no such bonus is reflected in
the pro forma statement of operations as should the Contemporary
Acquisition's results, once acquired by SFX Entertainment, be at a
similar level to that in these pro forma statements of operations no
bonus would be paid, and SFX Entertainment would not be contractually
obligated to pay a bonus.
(b) Reflects the elimination of Contemporary's equity income in Riverport
Amphitheater Partners. Contemporary had entered into an agreement to
acquire its partners' 50% interest in this venture. If Contemporary is
unable to complete this acquisition of the remaining 50% interest in
Riverport Amphitheater Partners, the cash consideration paid by SFX
Entertainment for Contemporary will be reduced by $10,500,000.
The Contemporary Agreement provides that in the event the Contemporary
Acquisition is consummated prior to the consummation of the Spin-Off,
1,402,851 shares of preferred stock of SFX Entertainment will be issued to
the Sellers. Such preferred stock is to be converted into an equal number of
shares of SFX Entertainment's Class A Common Stock upon consummation of the
Spin-Off or, if the Spin-Off shall not have occurred prior to July 1, 1998,
such preferred stock is to be redeemed by SFX Entertainment at its fair
market value, but in no event less than $18,700,000. See "Agreements Related
to the Pending Acquisitions--Contemporary Acquisition."
V. BGP ACQUISITION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
---------------------------------------------
PRO FORMA BGP
AS REPORTED (A) ADJUSTMENTS ACQUISITION
--------------- ------------- -------------
<S> <C> <C> <C>
Revenue.......................... $92,331 $ -- $92,331
Operating expenses............... 87,520 (3,054)(b) 84,466
Depreciation & amortization ..... 1,474 -- 1,474
--------------- ------------- -------------
Operating income ................ 3,337 3,054 6,391
Interest expense................. 1,258 -- 1,258
Other expense.................... (584) -- (584)
--------------- ------------- -------------
Income before income tax
expense......................... 2,663 3,054 5,717
Income tax expense .............. 1,272 -- 1,272
--------------- ------------- -------------
Net income ...................... $ 1,391 $ 3,054 $ 4,445
=============== ============= =============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects BGP's audited operating results for the fiscal year ended
January 31, 1997.
(b) Reflects the elimination of certain officers' salaries and bonuses,
partnership life insurance, profit sharing and other expenses which
will not be paid under SFX Entertainment's new employment contracts.
The amount of the pro forma adjustment to eliminate salaries and
bonuses is based on SFX Entertainment's agreements with the affected
employees that a bonus will not be paid unless there is a significant
improvement in the results of the BGP Acquisition. Accordingly, no such
bonus is reflected in the pro forma statement of operations as should
the BGP Acquisition's results, once acquired by SFX Entertainment, be
at a similar level to that in these pro forma statements of operations
no bonus would be paid, and SFX Entertainment would not be
contractually obligated to pay a bonus.
VI. NETWORK ACQUISITION
The Network Acquisition consists of the separate acquisitions of Network
Magazine and SJS. Each of these acquisitions is conditioned on the concurrent
closing of the other.
D-98
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
---------------------------------------------------------------
THE NETWORK
MAGAZINE SJS PRO FORMA NETWORK
AS REPORTED (A) AS REPORTED (A) ADJUSTMENTS ACQUISITION
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue.......................... $14,767 $11,375 $(1,586)(c) $24,556
Operating expenses............... 14,275 11,259 (5,545)(b) 18,403
(1,586)(c)
Depreciation & amortization ..... 184 84 -- 268
--------------- --------------- ------------- -------------
Operating income ................ 308 32 5,545 5,885
Interest expense................. 291 3 -- 294
Other income..................... (42) -- -- (42)
--------------- --------------- ------------- -------------
Income before income tax
expense......................... 59 29 5,545 5,633
Income tax expense .............. 212 91 -- 303
--------------- --------------- ------------- -------------
Net (loss) income ............... $ (153) $ (62) $ 5,545 $ 5,330
=============== =============== ============= =============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects Network Magazine's audited operating results for fiscal year
ended September 30, 1996. SFX Entertainment's purchase agreement for
Network Magazine and SJS provides that the purchase price will be
increased by $4,000,000 if total 1998 EBITDA as defined equals
$9,000,000; by an additional $4 for each $1 increase in EBITDA between
$9,000,000 and $10,000,000 and by an additional $6 for each $1 increase
in EBITDA between $10,000,000 and $11,000,000 (maximum of $14,000,000
additional consideration). The additional consideration is payable is
stock or cash at SFX Entertainment's option. The pro forma statement of
operations assumes that no additional consideration is paid.
(b) Reflects the elimination of certain officers' salaries and bonuses
which will not be paid under SFX Entertainment's new employment
contracts. The amount of the pro forma adjustment to eliminate salaries
and bonuses is based on SFX Entertainment's agreements with the
affected employees that a bonus will not be paid unless there is a
significant improvement in the results of the Network Acquisitions.
Accordingly, no such bonus is reflected in the pro forma statement of
operations as should the Network Acquisitions' results, once acquired
by SFX Entertainment, be at a similar level to that in these pro forma
statements of operations no bonus would be paid, and SFX Entertainment
would not be contractually obligated to pay a bonus.
(c) Reflects the elimination of transactions between Network Magazine and
SJS.
VII. CONCERT/SOUTHERN ACQUISITION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
--------------------------------------------
CONCERT/
PRO FORMA SOUTHERN
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- -------------
<S> <C> <C> <C>
Revenue.......................... $12,601 $ -- $12,601
Operating expenses............... 10,873 (1,194)(a) 9,679
Depreciation & amortization ..... 69 -- 69
------------- ------------- -------------
Operating income ................ 1,659 1,194 2,853
Investment income................ (47) -- (47)
Equity loss from investments .... 27 11 (b) 38
------------- ------------- -------------
Income before income tax
expense......................... 1,679 1,183 2,862
Income tax expense .............. -- -- --
------------- ------------- -------------
Net income ...................... $ 1,679 $ 1,183 $ 2,862
============= ============= =============
</TABLE>
D-99
<PAGE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of certain officers' salaries and bonuses
which will not be paid under SFX Entertainment's new employment
contracts. The amount of the pro forma adjustment to eliminate salaries
and bonuses is based on SFX Entertainment's agreements with the
affected employees that a bonus will not be paid unless there is a
significant improvement in the results of the Concert/Southern
Acquisition. Accordingly, no such bonus is reflected in the pro forma
statement of operations as should the Concert/Southern Acquisition's
results, once acquired by SFX Entertainment, be at a similar level to
that in these pro forma statements of operations no bonus would be
paid, and SFX Entertainment would not be contractually obligated to pay
a bonus.
(b) Reflects the elimination of equity loss of a non-entertainment
affiliated entity which is not being acquired by SFX Entertainment.
VIII. PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of non-recurring Delsener/Slater officers'
bonuses and wages which are not being paid under SFX Entertainment's
new employment contracts.
(b) Reflects the increase in depreciation and amortization related to the
Recent Acquisitions. SFX Entertainment amortizes goodwill over 15
years.
(c) To record corporate overhead charges of $4,000,000 related to the
Recent Acquisitions less the amount received in 1996 pursuant to the
Triathlon agreement of $3,000,000.
(d) Represents the elimination of existing interest expense for the Recent
Acquisitions.
(e) Reflects interest expense associated with the Meadows Music Theater and
Sunshine Promotions debt assumed.
(f) Reflects the increase in depreciation and amortization resulting from
the preliminary purchase accounting treatment of the Pending
Acquisitions. SFX Entertainment amortizes goodwill over 15 years.
(g) To record incremental corporate overhead charges associated with
incremental headquarters personnel that management estimates will be
necessary following completion of the Pending Acquisitions.
(h) Reflects estimated state and local income taxes. On a consolidated pro
forma basis, SFX Entertainment has a net operating loss for the year
ending December 31, 1996 of approximately $16,000,000 for which no
federal tax benefit has been provided.
(i) To reclassify the Delsener/Slater's equity income in the PNC Bank Arts
Center venue following the acquisition of Pavilion Partners, which owns
the other 50% equity interest in the venue.
(j) Represents the accretion on the Fifth Year Put Option issued to the
PACE Sellers in connection with the PACE Acquisition.
IX. PRO FORMA FOR THE FINANCING:
(a) Represents the elimination of existing interest expense for the Pending
Acquisitions.
(b) Reflects interest expense associated with the Notes at 9 1/8%, the
Proposed Credit Facility and other debt and deferred compensation costs
related to the Pending Acquisitions. The interest rate assumed for the
credit facility was 8% per annum. A one-quarter percent increase or
decrease in the assumed weighted average interest rate for the credit
facility would change the annual pro forma interest expense by
approximately $330,000. There can be no assurance that SFX
Entertainment will be able to enter into or borrow under the Proposed
Credit Facility on acceptable terms, or at all.
D-100
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF SFX ENTERTAINMENT
(in thousands, except per share amounts)
The Selected Consolidated Financial Data of SFX Entertainment includes the
historical financial statements of Delsener/Slater and affiliated companies,
the predecessor of SFX Entertainment for each of the five years ended
December 31, 1996 and the nine months ended September 30, 1996, and the
historical financial statements of SFX Entertainment, for the nine months
ended September 30, 1997. The statement of operations data with respect to
Delsener/Slater for the years ended December 31, 1992 and 1993, and the
balance sheet data as of December 31, 1993 and 1994 is unaudited. The
financial information presented below should be read in conjunction with the
information set forth in "Unaudited Pro Forma Condensed Combined Financial
Statements" and the notes thereto and the historical financial statements and
the notes thereto of SFX Entertainment, the Recent Acquisitions and the
Pending Acquisitions included herein. The financial information has been
derived from the audited and unaudited financial statements of SFX
Entertainment, the Recent Acquisitions and the Pending Acquisitions. The pro
forma summary data as of September 30, 1997 and for the year ended December
31, 1996 and the nine months ended September 30, 1997 are derived from the
unaudited pro forma condensed combined financial statements, which, in the
opinion of management, reflect all adjustments necessary for a fair
presentation of the transactions for which such pro forma financial
information is given. Operating results for the nine months ended September
30, 1997 are not necessarily indicative of the results that may be achieved
for the fiscal year ending December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
PREDECESSOR (ACTUAL)
---------------------------------------------------------------
1996 (1)
PRO FORMA
1992 1993 1994 1995 1996 (UNAUDITED)
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue.................... $38,017 $46,526 $92,785 $47,566 $50,362 $552,365
Operating expenses......... 36,631 45,635 90,598 47,178 50,687 505,537
Depreciation &
amortization.............. 758 762 755 750 747 37,795
Corporate expenses (2) .... -- -- -- -- -- 3,000
--------- --------- --------- --------- --------- -----------
Operating income (loss) ... 628 129 1,432 (362) (1,072) 6,033
Interest expense........... (171) (148) (144) (144) (60) (44,307)
Other income............... 74 85 138 178 198 1,832
Equity income (loss) from
investments .............. -- -- (9) 488 525 3,402
--------- --------- --------- --------- --------- -----------
Income (loss) before
income taxes.............. 531 66 1,417 160 (409) (33,040)
Income tax (provision)
benefit................... (32) (57) (5) (13) (106) (1,500)
--------- --------- --------- --------- --------- -----------
Net income (loss).......... $ 499 $ 9 $ 1,412 $ 147 $ (515) (34,540)
========= ========= ========= ========= ========= ===========
Accretion on temporary
equity (3)................ (3,300)
-----------
Net loss applicable to
common shares ............ $(37,840)
===========
Net loss per common share . $ (1.90)
===========
Weighted average common
shares outstanding (4) ... 20,400
===========
OTHER OPERATING DATA:
EBITDA (5)................. $ -- $ -- $ 2,187 $ 388 $ (325) $ 43,828
========= ========= ========= ========= ========= ===========
Cash flow from:
Operating activities .... $ -- $ -- $ 2,959 $ (453) $ 4,214 $ --
Investing activities .... -- -- 0 0 (435) --
Financing activities .... -- -- (477) (216) (1,431) --
Ratio of earnings to fixed
charges (6)............... 4.1x 1.4x 11.3x 2.1x -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------
PREDECESSOR
-------------
1997 (1)
1996 1997 PRO FORMA
ACTUAL ACTUAL (UNAUDITED)
------------- ---------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue.................... $41,609 $74,396 $500,843
Operating expenses......... 42,930 63,045 440,266
Depreciation &
amortization.............. 744 4,041 28,378
Corporate expenses (2) .... -- 1,307 2,807
------------- ---------- -----------
Operating income (loss) ... (2,065) 6,003 29,392
Interest expense........... (60) (956) (33,186)
Other income............... 143 213 779
Equity income (loss) from
investments .............. 525 1,344 5,653
------------- ---------- -----------
Income (loss) before
income taxes.............. (1,457) 6,604 2,638
Income tax (provision)
benefit................... (80) (2,952) (3,500)
------------- ---------- -----------
Net income (loss).......... $(1,537) $ 3,652 (862)
============= ========== ===========
Accretion on temporary
equity (3)................ (2,475)
-----------
Net loss applicable to
common shares ............ $ (3,337)
===========
Net loss per common share . $ (.17)
===========
Weighted average common
shares outstanding (4) ... 20,400
===========
OTHER OPERATING DATA:
EBITDA (5)................. $(1,321) $ 10,044 $57,770
============= ========== ===========
Cash flow from:
Operating activities .... $ 2,761 $ 789 $ --
Investing activities .... 0 (71,997) --
Financing activities .... 684 78,302 --
Ratio of earnings to fixed
charges (6)............... -- 8.4x 1.0x
</TABLE>
D-101
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF SFX ENTERTAINMENT
(in thousands)
BALANCE SHEET DATA(7):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
PREDECESSOR (ACTUAL)
-------------------------------------
1993 1994 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Current assets.............. $1,823 $4,453 $3,022 $6,191
Property and equipment,
net........................ 4,484 3,728 2,978 2,231
Intangible assets, net ..... -- -- -- --
Total assets................ 6,420 8,222 6,037 8,879
Current liabilities......... 4,356 3,423 3,138 7,973
Long-term debt, including
current portion ........... -- 1,830 -- --
Temporary equity(3) ........ -- -- -- --
Stockholders' equity........ 6,420 2,969 2,900 907
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
PRO FORMA
ACTUAL (UNAUDITED)(8)
<S> <C> <C>
Current assets.............. $ 12,189 $117,326
Property and equipment,
net........................ 55,882 185,371
Intangible assets, net ..... 59,721 429,066
Total assets................ 135,470 773,614
Current liabilities......... 11,333 89,619
Long-term debt, including
current portion ........... 16,453 498,822
Temporary equity(3) ........ -- 16,500
Stockholders' equity........ 101,378 143,223(9)
</TABLE>
- ------------
(1) The Unaudited Pro Forma Statement of Operations Data for the year ended
December 31, 1996 and the nine months ended September 30, 1997 are
presented as if SFX Entertainment had completed the Recent
Acquisitions, the Financing, the Pending Acquisitions, the Spin-Off and
the SFX Merger as of January 1, 1996. There can be no assurance that
any of the Financing, the Pending Acquisitions, the Spin-Off and the
SFX Merger will be consummated on the terms assumed in preparing such
pro forma data or at all. See "Risk Factors--Risks Related to Pending
Acquisitions."
(2) Pro forma corporate expenses are reduced by $3,000,000 and $1,693,000
for fees earned from Triathlon for the year ended December 31, 1996 and
for the nine months ended September 30, 1997, respectively. The right
to receive such fees in the future are to be assigned to SFX
Entertainment by SFX in connection with the Spin-Off. Future fee may
vary, above the minimum fee of $500,000, depending upon the level of
acquisition and financing activities of Triathlon. See "Certain
Relationships and Related Transactions--Triathlon Fees."
(3) The PACE Agreement provides that each PACE Seller shall have a Fifth
Year Put Option, exercisable during a period beginning on the fifth
anniversary of the closing of the PACE Acquisition and ending 90 days
thereafter, to require SFX Entertainment to purchase up to one-third of
the SFX Entertainment Class A Common Stock received by that PACE Seller
(representing 500,000 shares in the aggregate) for a cash purchase
price of $33.00 per share. With certain limited exceptions, the Fifth
Year Put Option rights are not assignable by the PACE Sellers. The
maximum amount payable under the Fifth Year Put Option ($16,500,000)
has been presented as temporary equity on the pro forma balance sheet.
(4) Includes 500,000 shares of SFX Entertainment Class A Common Stock to be
issued to the PACE Sellers in connection with the Fifth Year Put
Option; these shares are not included in calculating the net loss per
common share.
(5) "EBITDA" is defined as earnings before interest, taxes, other income,
net, equity income (loss) from investments and depreciation and
amortization. Although EBITDA is not a measure of performance calculated
in accordance with GAAP, SFX Entertainment believes that EBITDA is
accepted by the entertainment industry as a generally recognized measure
of performance and is used by analysts who report publicly on the
performance of entertainment companies. Nevertheless, this measure
should not be considered in isolation or as a substitute for operating
income, net income, net cash provided by operating activities or any
other measure for determining SFX Entertainment's operating performance
or liquidity which is calculated in accordance with GAAP. There are
other adjustments that could effect EBITDA but have not been reflected
herein. Had such adjustments been made, Adjusted EBITDA on a pro forma
basis would have been approximately $58,200,000 for the year ended
December 31, 1996 and $67,300,000 for the nine months ended September
30, 1997. These adjustments include the elimination of non-recurring
charges including a litigation settlement recovered by PACE and Pavilion
Partners of $6,000,000 and $0, expected cost savings in connection with
the Pending Acquisitions associated with the elimination of duplicative
staffing and general and administrative expenses of $5,000,000 and
$3,800,000 and includes SFX Entertainment's pro rata share of equity
income from investments of $3,400,000 and $5,700,000, for the year ended
December 31, 1996 and the nine months ended September 30, 1997,
respectively. While management believes that such cost savings and the
elimination of non-recurring expenses are achievable, SFX
Entertainment's ability to fully achieve such cost savings and to
eliminate the non-recurring expenses is subject to numerous factors
certain of which may be beyond SFX Entertainment's control.
(6) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consists of earnings before income taxes and fixed charges.
"Fixed charges" consists of interest on all indebtedness. Earnings were
insufficient to cover fixed charges by $393,000 for the year ended
December 31, 1996, $1,605,000 for the nine months ended September 30,
1996 and $32,420,000 on a pro forma basis for the year ended December
31, 1996.
(7) The required 1992 balance sheet data for Delsener/Slater has not been
included herein due to the difficulty in accumulating a verifiable
balance sheet as of that date coupled with management's belief that
such information would not be of substantial use to a potential
investor. The difficulty in preparing an accurate balance sheet is due
to the fact that (i) Delsener/Slater was not audited at such time, (ii)
Delsener/Slater included a number of companies with different fiscal
year ends and (iii) the unaudited balance sheets of Delsener/Slater and
its related entities were not prepared in strict accordance are with
GAAP reporting requirements as such entities were privately held. The
lack of usefulness of the information is due to the fact that (i)
Delsener/Slater is the predecessor of SFX Entertainment and therefore
its accounts were adjusted to a new basis upon its acquisition by SFX;
(ii) the balance sheet is principally comprised of cash, leasehold
improvements and accruals for bonuses to the prior owners and would not
include the operating lease for the Jones Beach Ampitheather, which
management believes is Delsener/Slater's most significant operating
agreement; and (iii) the balance sheet of Delsener/Slater as of
December 31 in any year contains a low level of assets relative to
operating income, as the concert business is seasonal (with most
concerts occurring in the summer), and the promotion business does not
require large amounts of capital investment.
(8) The Unaudited Pro Forma Balance Sheet data at September 30, 1997 is
presented as if SFX Entertainment had completed the Financing, the
Pending Acquisitions, the Spin-Off and the SFX Merger as of September
30, 1997.
(9) Retained earnings on a pro forma basis for the Financing, the Pending
Acquisitions, the Spin-Off and the SFX Merger have not been adjusted
for future charges to earnings which will result from the issuance of
stock and options granted to certain executive officers and other
employees of SFX Entertainment. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources--Future Charges to Earnings."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of SFX Entertainment should be read in conjunction with the
consolidated financial statements and related notes thereto. The following
discussion contains certain forward-looking statements that involve risks and
uncertainties. SFX Entertainment's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to the
differences include, but are not limited to, risks and uncertainties relating
to SFX Entertainment's absence of a combined operating history, its potential
inability to integrate the Acquisition Businesses and risks related to the
Pending Acquisitions, control of the motor sports and theatrical businesses,
future acquisitions, inability to obtain future financings (including
borrowings under the Proposed Credit Facility), inability to successfully
implement operating strategies (including the achievement of cost savings),
SFX Entertainment's expansion strategy, its need for additional funds, its
control of venues, working capital adjustments, control by management,
dependence on key personnel, potential conflicts of interest, indemnification
agreements, seasonality, competition, regulatory matters, environmental
matters, economic conditions and consumer tastes and availability of artists
and events. See "Risk Factors." SFX Entertainment undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
The performance of entertainment companies, such as SFX Entertainment, is
measured, in part, by their ability to generate EBITDA. "EBITDA" is defined
as earnings before interest, taxes, other income, net equity income (loss)
from investments and depreciation and amortization. Although EBITDA is not a
measure of performance calculated in accordance with GAAP, SFX Entertainment
believes that EBITDA is accepted by the industry as a generally recognized
measure of performance and is used by analysts who report publicly on the
performance of entertainment companies. Nevertheless, this measure should not
be considered in isolation or as a substitute for operating income, net
income, net cash provided by operating activities or any other measure for
determining SFX Entertainment's operating performance or liquidity that is
calculated in accordance with GAAP.
SFX Entertainment's core business is the promotion and production of live
entertainment events, most significantly for concert and other music
performances in venues owned and/or operated by SFX Entertainment and in
third-party venues. In connection with all of its live entertainment events,
SFX Entertainment seeks to maximize related revenue streams, including the
sale of corporate sponsorships, the sale of concessions and the merchandising
of a broad range of products. On a pro forma basis giving effect to the
Pending Acquisitions, SFX Entertainment's music and ancillary businesses
comprised approximately 77%, theater comprised approximately 17% and
specialized motor sports comprised approximately 6% of SFX Entertainment's
total net revenues for the 12 months ended September 30, 1997.
Promotion of events involves booking talent, renting or providing the
event venue, marketing the event to attract ticket buyers and providing for
local services required in the production of the event such as security and
stage hands. Promoters generally receive revenues from the sale of tickets
and sponsorships. When an event is promoted at a venue owned or managed by
the promoter, the promoter also generally receives a percentage of revenues
from concessions, merchandising, parking and premium box seats. After the
consummation of the Pending Acquisitions, SFX Entertainment will earn
promotion revenues principally by promoting (a) music concerts, (b) Touring
Broadway Shows and (c) specialized motor sports events.
Production of events involves developing the event content, hiring
artistic talent and managing the actual production of the event (with the
assistance of the local promoter). Producers generally receive revenues from
guarantees and from profit sharing agreements with promoters, a percentage of
the promoters' ticket sales, merchandising, sponsorships, licensing and the
exploitation of other rights (including intellectual property rights) related
to the production. After the consummation of the Pending Acquisitions, SFX
Entertainment will earn producing revenues by producing (a) Touring Broadway
Shows, (b) specialized motor events and (c) other proprietary and
non-proprietary entertainment events.
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RECENT ACQUISITIONS
SFX Entertainment entered the live entertainment business with SFX's
acquisition of Delsener/ Slater, a New York-based concert promotion company,
in January 1997 for aggregate consideration of $27.6 million. Delsener/Slater
has long-term leases or is the exclusive promoter for many of the major
concert venues in the New York City metropolitan area, including the Jones
Beach Amphitheater, a 14,000-seat complex located in Wantagh, New York, and
the PNC Bank Arts Center (formerly known as the Garden State Arts Center), a
17,500-seat complex located in Holmdel, New Jersey. In March 1997,
Delsener/Slater acquired, for aggregate consideration of $23.8 million, a
37-year lease to operate the Meadows Music Theater, a 25,000-seat
indoor/outdoor complex located in Hartford, Connecticut. In June 1997, SFX
acquired Sunshine Promotions, a concert promoter in the Midwest, and certain
other related companies for an aggregate consideration of $61.5 million. As a
result of the acquisition of Sunshine Promotions, SFX Entertainment owns the
Deer Creek Music Theater, a 21,000-seat complex located in Indianapolis,
Indiana, the Polaris Amphitheater, a 20,000-seat complex located in Columbus,
Ohio, and has a long-term lease to operate the Murat Centre, a 2,700-seat
theater and 2,200-seat ballroom located in Indianapolis, Indiana.
PENDING ACQUISITIONS
In December 1997, SFX Entertainment entered into agreements to acquire
PACE, Pavilion Partners, Contemporary, BGP, the Network Group and
Concert/Southern, all of which are expected to close during the first quarter
of 1998. The following table summarizes the payment terms of each of the
acquisitions:
<TABLE>
<CAPTION>
VALUE OF SFX
ENTERTAINMENT
STOCK TO BE REPAYMENT
CASH PURCHASE PRICE ISSUED(A) OF DEBT(B) TOTAL CONSIDERATION
ACQUIRED BUSINESS (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
- ---------------------- ------------------- ------------------- ------------- -------------------
<S> <C> <C> <C> <C>
PACE .................. $109.5(c) $20.0 $25.5 $155.0
Pavilion Partners(d) 41.1 -- 49.8 90.9
Contemporary .......... 72.8(e) 18.7(e) -- 91.5(e)
BGP ................... 60.8(f) 7.5(f) --(g) 68.3
Network Group ......... 52.0(h) 10.0(h) --(i) 62.0
Concert/Southern ...... 16.6(j) -- --(j) 16.6
------------------- ------------------- ------------- -------------------
Total ............... $352.8 $56.2 $75.3 $484.3
====================================== ============= ===================
</TABLE>
- ------------
(a) The value ascribed to the SFX Entertainment Class A Common Stock in the
acquisition agreements is based on certain financial projections
developed jointly by SFX Entertainment and the sellers of the
Acquisition Businesses. There is presently no trading market for the
SFX Entertainment Class A Common Stock. There can be no assurance that
the assumptions underlying the valuation will, in fact, be correct or
that the valuation will approximate the actual trading price of the SFX
Entertainment Class A Common Stock.
(b) Represents debt as of September 30, 1997, which the SFX Entertainment
has agreed to repay. The actual amount of debt will vary at the time of
closing of the Pending Acquisitions.
(c) The cash portion of the purchase price will begin to bear interest at
an annual rate of 9% if the PACE Acquisition is not consummated before
April 1, 1998. If the Spin-Off has not been completed on or before July
1, 1998, each PACE Seller will have the option of requiring SFX
Entertainment to pay $13.33 in cash in lieu of each share of SFX
Entertainment's stock to which that seller was entitled. SFX
Entertainment has also granted the current owners of PACE the right to
require SFX Entertainment to repurchase up to one-third of the shares
of stock to be issued to them in the PACE Acquisition during a
specified period beginning five years after the closing date at a price
of $33.00 per share, for an estimated maximum obligation of $16.5
million. In certain circumstances, if the selling price of SFX
Entertainment Class A Common Stock is less than $13.33 per share, then
SFX Entertainment may be required to offer to provide an additional
cash payment or additional shares of SFX Entertainment Class A Common
Stock. In addition, the PACE Agreement provides that SFX Entertainment,
at PACE's request, will loan PACE up to $25.0 million prior to the
closing of the PACE Acquisition for specified acquisitions. Any loan
made pursuant to this requirement would be secured by the assets of the
acquired businesses. If the PACE Acquisition is not consummated, then,
under certain circumstances, the loan will convert
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into a five-year term loan. Although SFX Entertainment does not
currently anticipate having to extend this facility to PACE, there can
be no assurance that SFX Entertainment will have sufficient sources of
financing to extend the facility, if required to do so. See "Agreements
Related to the Pending Acquisitions--PACE Acquisition."
(d) Relates to the acquisition by SFX Entertainment of the indirect 66 2/3%
ownership interest of Blockbuster Sub and Sony Sub in Pavilion Partners
not currently held by PACE. There can be no assurance that SFX
Entertainment will be able to consummate the acquisition of either or
both of Blockbuster Sub's and Sony Sub's respective interests in
Pavilion Partners, and, as a result, SFX Entertainment may not obtain
100% ownership of Pavilion Partners. Although the consummation of the
PACE Acquisition is a condition precedent to the acquisition of Sony
Sub's interest, the consummation of the Pavilion Acquisition is not a
condition precedent to the closing of the PACE Acquisitions. See
"Agreements Related to the Pending Acquisitions--PACE
Acquisition--Pavilion Acquisition."
(e) If the Spin-Off is not completed before consummation of the
Contemporary Acquisition, then SFX Entertainment must issue shares of
its preferred stock that are convertible into shares of SFX
Entertainment Class A Common Stock at the Spin-Off (or, if not so
convertible by July 1, 1998, are redeemable for the stock's fair market
value, but no less than an aggregate of $18.7 million). If the
remaining 50% of Riverport Amphitheater Partnership is not acquired,
the purchase price will be reduced by $10.5 million. In addition,
pursuant to the terms of the Contemporary Agreement, SFX Entertainment
has agreed to make certain payments to any sellers who own shares of
SFX Entertainment Class A Common Stock on the second anniversary of the
closing of the Contemporary Acquisition, if the average trading price
of that stock over the 20-day period ending on that date is less than
$13.33 per share. See "Agreements Related to the Pending
Acquisitions--Contemporary Acquisition."
(f) SFX Entertainment has the option to pay up to $7.5 million in cash in
lieu of an equivalent value of SFX Entertainment Class A Common Stock.
SFX Entertainment may also be required, subject to certain conditions,
to repurchase the shares (or, in certain cases, options) to be issued
to the sellers, if the shares, by June 30, 1998, are not registered
with the SEC, are not listed with a nationally recognized exchange, or
are subject to a lock-up period. See "Agreements Related to the Pending
Acquisitions--BGP Acquisition."
(g) Although SFX Entertainment is assuming $12.2 million of long-term debt,
BGP is required to have working capital at least equal to the amount of
debt liabilities at the closing of the BGP Acquisition. The purchase
price will be reduced dollar-for-dollar to the extent that long-term
debt exceeds working capital. See "Agreements Related to the Pending
Acquisitions--BGP Acquisition."
(h) If the Spin-Off is not completed by June 30, 1998, the sellers will
have the option to require SFX Entertainment to pay $10.0 million in
cash in lieu of SFX Entertainment Class A Common Stock. In addition,
pursuant to the Network Agreement, SFX Entertainment has agreed to
increase the purchase price for Network Magazine and SJS based on
actual 1998 EBITDA (as defined therein) as follows: (a) by $4.0 million
if the 1998 EBITDA equals or exceeds $9.0 million; (b) by an additional
$4 for each $1 of additional 1998 EBITDA between $9.0 million and $10.0
million; and (c) by an additional $6 for each $1 of additional 1998
EBITDA between $10.0 million and $11.0 million. This contingent
consideration of up to $14.0 million is payable in stock or, in certain
circumstances, in cash no later than March 20, 1999. In addition, SFX
Entertainment expects to exercise its option to acquire an office
building and related property for $2.4 million. See "Agreements Related
to the Pending Acquisitions--Network Acquisition."
(i) Although SFX Entertainment has agreed to assume $1.4 million of debt
pursuant to the Network Agreement, Network has guaranteed SFX
Entertainment $500,000 in working capital to offset a portion of this
amount.
(j) The Concert/Southern Agreement requires SFX Entertainment to pay to the
sellers compensation for a deferred liability of $2.0 million in five
equal annual payments or, at the sellers' option, the present value of
the payments at closing (approximately $1.6 million). SFX Entertainment
expects the sellers to elect to receive the present value of the
liability at closing, and this amount has been included in the cash
purchase price. See "Agreements Related to the Pending
Acquisitions--Concert/Southern Acquisition."
The cash portion of the purchase price for each of the Pending
Acquisitions is subject to increase under certain circumstances, including,
in particular, if SFX Entertainment is unable to issue shares of its capital
stock to certain of the sellers by virtue of having failed to consummate the
Spin-Off or for any other reason. In that case, the aggregate cash
consideration that would be owed to the sellers in the Pending Acquisitions
would increase, in the aggregate, by approximately $56.2 million (plus
interest in certain cases), resulting in a corresponding increase in debt and
decrease in stockholders' equity. Although management believes that the
Spin-Off is likely to occur, the Spin-Off is subject to certain conditions,
some of which are outside of management's control. There can be no assurance
that the
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Spin-Off will be consummated on the terms presently contemplated, or at all.
In addition, the agreements relating to the Pending Acquisitions provide for
certain other purchase price adjustments and future contingent payments in
certain circumstances, certain of which could be material. There can be no
assurance that SFX Entertainment will be able to finance the payments. See
"Risk Factors--Risks Related to the Pending Acquisitions," "--Liquidity and
Capital Resources" and "Agreements Related to the Pending Acquisitions."
The Pending Acquisitions will be accounted for using the purchase method
of accounting, and the intangible assets created in the purchase transactions
will generally be amortized against future earnings over a 15-year period.
The amount of amortization will be substantial and will continue to affect
SFX Entertainment's operating results in the future. These expenses, however,
do not result in an outflow of cash by SFX Entertainment and do not impact
EBITDA.
SFX Entertainment expects to complete all of the Pending Acquisitions as
soon as practicable after completing the Financing and prior to the Spin-Off
and the SFX Merger. SFX Entertainment anticipates that it will consummate all
of the Pending Acquisitions in the first quarter of 1998. However, the timing
and completion of the Pending Acquisitions are subject to a number of
conditions, certain of which are beyond SFX Entertainment's control, and
there can be no assurance that the Pending Acquisitions will be completed
during that time period, on the terms described herein, or at all. See "Risk
Factors--Risks Related to Pending Acquisitions" and "Agreements Related to
the Pending Acquisitions."
SPIN-OFF AND SFX MERGER
SFX was formed in 1992 principally to acquire and operate radio
broadcasting stations. In August 1997, SFX agreed to the SFX Merger and to
the Spin-Off. Before consummating the SFX Merger, SFX intends (a) to
contribute its concert and other live entertainment operations to SFX
Entertainment and (b) to distribute all of the outstanding shares of common
stock of SFX Entertainment to the holders of common stock, Series D preferred
stock and certain warrants of SFX pursuant to the Spin-Off. SFX Entertainment
intends to enter into the Proposed Credit Facility and consummate the Pending
Acquisitions prior to consummation of the Spin-Off and the SFX Merger. SFX
intends to consummate the Spin-Off on or prior to the consummation of the SFX
Merger. The Spin-Off is subject to certain conditions, including (a) the
acceptance for listing or trading of the SFX Entertainment Class A Common
Stock, subject to official notice of issuance, on a national exchange or The
Nasdaq Stock Market and (b) the receipt of all necessary third-party and
stockholder consents to the Spin-Off as presently contemplated. There can be
no assurance that the conditions to the Spin-Off will be fulfilled, that the
Spin-Off will be consummated on the terms described in this Prospectus or at
all, or that the Pending Acquisitions will be consummated prior to the
Spin-Off on the terms described in this Prospectus or at all. See "Agreements
Between SFX Entertainment and SFX--Distribution Agreement."
Pursuant to the SFX Merger Agreement, if SFX fails or is otherwise unable
to consummate the Spin-Off prior to the consummation of the SFX Merger, then
SFX will be entitled to divest its interest in its live entertainment
business in an alternate type of transaction. If SFX fails to consummate the
Spin-Off or any alternate transaction prior to the SFX Merger, then SFX Buyer
may elect either to consummate the SFX Merger (increasing the amount of cash
consideration to be paid to SFX's stockholders in the SFX Merger by $42.5
million) or to terminate the SFX Merger Agreement. Additionally, part of the
aggregate consideration to be paid to the sellers in the Pending Acquisitions
is intended to consist of shares of SFX Entertainment Class A Common Stock.
If the Spin-Off does not occur, SFX Entertainment would be unable to issue
shares of its common stock to the sellers, and the aggregate cash
consideration to be paid in the Pending Acquisitions would increase by
approximately $56.2 million. Although management believes that the Spin-Off
is likely to occur, the Spin-Off is subject to certain conditions, some of
which are outside of management's control. There can be no assurance that the
conditions to the Spin-Off will be fulfilled or that the Spin-Off will be
consummated on the terms contemplated or at all. See "Risk Factors--Risks
Related to Pending Acquisitions" and "Agreements Related to the Pending
Acquisitions."
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RESULTS OF OPERATIONS
General
SFX Entertainment's operations currently consist primarily of concert
promotion and venue operation. After consummation of the Pending
Acquisitions, SFX Entertainment's operations will consist primarily of (a)
concert promotion and venue operation, (b) the promotion and production of
theatrical events, particularly Touring Broadway Shows, and (c) the promotion
and production of motor sports events. SFX Entertainment and the Acquisition
Businesses also engage in various other activities ancillary to their live
entertainment businesses.
On a pro forma basis, after giving effect to the Pending Acquisitions, SFX
Entertainment's revenues for the year ended December 31, 1996 and the nine
months ended September 30, 1997 would have been $552.4 million and $500.8
million, respectively. For the nine months ended September 30, 1997, the pro
forma revenue is comprised of $86.7 million from the Recent Acquisitions and
$414.1 million from the Pending Acquisitions, of which the PACE and Pavilion
Acquisitions represented 55%.
On a pro forma basis, after giving effect to the Pending Acquisitions,
operating expenses for the year ended December 31, 1996 and the nine months
ended September 30, 1997 would have been $505.5 million and $440.3 million,
respectively. Operating margins for these periods on a pro forma basis would
have been 8.5% and 12.1%, respectively. Pro forma operating expenses do not
reflect SFX Entertainment's expectation that it will be able to achieve
substantial economies of scale upon completion of the Pending Acquisitions
and reductions in operating expenses as a result of the elimination of
duplicative staffing and general and administrative expenses.
As of September 30, 1997, on a pro forma basis after giving effect to the
Pending Acquisitions, SFX Entertainment had net current assets of $27.7
million (included in net current assets is cash and cash equivalents of $62.5
million), property and equipment (principally concert venues) of $185.4
million, intangible assets of $429.1 million and long-term debt of $498.8
million. The long-term debt is comprised of $350.0 million of Notes,
borrowings of $132.3 million under the Proposed Credit Facility and other
debt obligations of $16.5 million. The Proposed Credit Facility consists of a
$150.0 million eight year term loan and a $150.0 million seven year reducing
revolving credit facility.
Concert Promotion/Venue Operation
SFX Entertainment's concert promotion and venue operation business consist
primarily of the promotion of concerts and operation of venues primarily for
use in the presentation of musical events. SFX Entertainment's primary source
of revenues from its concert promotion activities is from ticket sales at
events promoted by SFX Entertainment. As a venue operator, SFX
Entertainment's primary sources of revenue are sponsorships, concessions,
parking and other ancillary services, derived principally from events
promoted by SFX Entertainment.
Revenue from ticket sales is affected primarily by the number of events
SFX Entertainment promotes, the average ticket price and the number of
tickets sold. The average ticket price depends on the popularity of the
artist whom SFX Entertainment is promoting, the size and type of venue and
the general economic conditions and consumer tastes in the market where the
event is being held. Revenue and margins are also affected significantly by
the type of contract entered into with the artist or the artist's
representative. Generally, the promoter or venue operator will agree to pay
the artist the greater of a minimum guarantee or a profit sharing payment
based on ticket revenue, less certain show expenses. The promoter or venue
operator assumes the financial risk of ticket sales and is responsible for
local production and advertising of the event. However, in certain instances,
the promoter agrees to accept a fixed fee from the artist for its services,
and the artist assumes all financial risk. When the promoter or venue
operator assumes the financial risk, all revenue and expenses associated with
the event are recorded. When the artist assumes the risk, only the fee is
recorded. As a result, operating margins would be significantly greater for
fee-based events as opposed to events for which SFX Entertainment assumes the
risk of ticket sales, although profits per event would tend to be lower.
Operating margins can vary from period to period.
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SFX Entertainment's most significant operating expenses are talent fees,
production costs, venue operating expenses (including rent), advertising
costs and insurance expense. The booking of talent in the concert promotion
business generally involves contracts for limited engagements, often
involving a small number of performances. Talent fees depend primarily on the
popularity of the artist, the ticket price that the artist can command at a
particular venue and the expected level of ticket sales. Production costs and
venue operating expenses have substantial fixed cost components and lesser
variable costs primarily related to expected attendance.
Theatrical
In the PACE Acquisition, SFX Entertainment will acquire the operations of
PACE. PACE's theatrical operations are directed mainly towards the promotion
and production of Touring Broadway Shows, which generate revenues primarily
from ticket sales and sponsorships. PACE may also participate in ancillary
revenues, such as concessions and merchandise sales, depending on its
agreement with a particular local promoter/venue operator. Revenue from
ticket sales is primarily affected by the popularity of the production and
the general economic conditions and consumer tastes in the particular market
and venue where the production is presented. In order to reduce its
dependency on the success of any single touring production, PACE sells
advance annual subscriptions that provide the purchaser with tickets for all
of the shows that PACE intends to tour in the particular market during the
touring season. For the twelve months ended September 30, 1997, approximately
28% of tickets for Touring Broadway Shows presented by PACE were sold through
advance annual subscriptions. Subscriptions for Touring Broadway Shows
typically cover approximately two-thirds of PACE's break-even cost point for
those shows.
Principal operating expenses related to touring shows include talent,
rent, advertising and royalties. Talent costs are generally fixed once a
production is cast. Rent and advertising expense may be either fixed or
variable based on the arrangement with the particular local promoter/venue
operator. Royalties are generally paid as a percentage of gross ticket sales.
PACE also makes minority equity investments in original Broadway
productions, principally as a means to obtain rights for touring shows, and
in certain Touring Broadway Shows. These investments are accounted for using
either the equity method or the cost method of accounting, based on the
relative size of the investment. PACE monitors the recoverability of these
investments on a regular basis, and SFX Entertainment may be required to take
write-offs if the original production closes or if SFX Entertainment
determines that the production will not recoup the investment. The timing of
any write-off could adversely affect operating results in a particular
quarter.
Motor Sports
SFX Entertainment does not currently have any substantial motor sports
activities. The Acquisition Businesses' motor sports activities consist
principally of the promotion and production of specialized motor sports,
which generate revenues primarily from ticket sales and sponsorships, as well
as merchandising and video rights associated with producing motor sports
events. Ticket prices for these events are generally lower than for
theatrical or music concert events, generally ranging from $5 to $30 in 1996.
Revenue from these sources is primarily affected by the type of event and the
general economic conditions and consumer tastes in the particular markets and
venues where the events are presented. Event-related revenues received prior
to the event date are initially recorded on the balance sheet as deferred
revenue; after the event occurs, they are recorded on the statement of
operations as gross revenue. Expenses are capitalized on the balance sheet as
prepaid expenses until the event occurs.
Operating expenses associated with motor sports activities include talent,
rent, track preparation costs, security and advertising. These operating
expenses are generally fixed costs that vary based on the type of event and
venue where the event is held.
Under certain circumstances, SFX Entertainment may be required to sell
either its motor sports or theatrical lines of business. See "Risk
Factors--Risks Related to Acquisitions" and "Agreements Related to the
Pending Acquisitions--PACE Acquisition--Becker Employment Agreement."
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Other Businesses
SFX Entertainment's and the Acquisition Businesses' other principal
businesses include (a) the production and distribution of radio industry
trade magazines, (b) the production of radio programming content and
show-prep material and (c) the provision of radio air play and music retail
research services. The primary sources of revenues from these activities
include (a) the sale of advertising space in its publications and the sale of
advertising time on radio stations that carry its syndicated shows, (b)
subscription fees for its trade publications and (c) subscription fees for
access to its database of radio playlist and audience data. Revenues
generally vary based on the overall advertising environment and competition.
SFX Entertainment and the Acquisition Businesses also provide marketing
and consulting services pursuant to contracts with individual clients for
specific projects. Revenues from and costs related to these services vary
based on the type of service being provided and the incremental associated
costs.
HISTORICAL RESULTS
The following analysis of the historical operations of SFX Entertainment,
including the Recent Acquisitions, but excluding the Pending Acquisitions,
includes, for comparative purposes, the historical operations of
Delsener/Slater (SFX Entertainment's predecessor) for the nine months ended
September 30, 1996 and for the years ended December 31, 1994, 1995 and 1996.
Nine Months Ended September 30, 1997 Compared to the Nine Months Ended
September 30, 1996
SFX Entertainment's concert promotion revenue increased by 79% to $74.4
million for the nine months ended September 30, 1997, compared to $41.6
million for the nine months ended September 30, 1996, as a result of the
acquisitions of Sunshine Promotions and the Meadows Music Theater lease,
which increased concert promotion revenue by $37.9 million. On a pro forma
basis, assuming that those acquisitions had been completed as of January 1,
1997, concert promotion revenue for the nine months ended September 30, 1997
would have been $86.7 million.
Concert promotion operating expenses increased by 47% to $63.0 million for
the nine months ended September 30, 1997, compared to $42.9 million for the
nine months ended September 30, 1996, primarily as a result of the
acquisitions of Sunshine Promotions and the Meadows Music Theater lease,
which increased concert operating expenses revenue by $31.4 million, which
was offset in part by decreased officer salary expense paid to the former
owners of Delsener/Slater. On a pro forma basis, assuming that those
acquisitions had been completed as of January 1, 1997, concert operating
expenses would have been $75.3 million for the nine months ended September
30, 1997.
Depreciation and amortization expense increased to $4.0 million for the
nine months ended September 30, 1997, compared to $744,000 for the nine
months ended September 30, 1996, due to the inclusion of $2.3 million of
depreciation and amortization expense related to the acquisitions of Sunshine
Promotions and the Meadows Music Theater lease and the additional
depreciation and amortization recorded in 1997 related to the purchase of
Delsener/Slater on January 2, 1997. In 1997, SFX Entertainment recorded the
fixed assets of Delsener/Slater at fair value and recorded an intangible
asset equal to the excess of purchase price over the fair value of net
tangible assets of Delsener/Slater, which was amortized over a 15 year
period.
Corporate, general and administrative expenses were $1.3 million for the
nine months ended September 30, 1997, net of $1.7 million in fees received
from Triathlon, compared to zero for the nine months ended September 30,
1996. These expenses represent the incremental costs of operating SFX
Entertainment's offices, and therefore did not exist in 1996. The fees
receivable from Triathlon are based on consulting services provided by or on
behalf of Sillerman Communications Management Corporation, a private
investment company in which Messrs. Sillerman and Tytel have economic
interests, that makes investments in and provides financial consulting
services to companies engaged in the media business ("SCMC"). The fees will
fluctuate (above the minimum annual fee of $500,000) based on the level of
acquisition and financing activities of Triathlon. SCMC previously assigned
its rights to receive fees payable from Triathlon to SFX, and SFX will assign
its rights to receive the fees to SFX Entertainment,
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pursuant to the Distribution Agreement. Triathlon has previously announced
that it is exploring ways of maximizing stockholder value, including a
possible sale to a third party. If Triathlon is acquired by a third party, it
is possible that the consulting fees would not continue for the remainder of
the agreement's term. See "Certain Relationships and Related
Transactions--Triathlon Fees."
Operating income was $6.0 million for the nine months ended September 30,
1997, compared to a loss of $2.0 million in the nine months ended September
30, 1996, due to the results discussed above.
Interest expense, net of investment income, was $743,000 in the nine
months ended September 30, 1997, compared to net interest income of $83,000
for the nine months ended September 30, 1996, primarily as a result of
assumption of additional debt related to the acquisitions of Sunshine
Promotions and the Meadows Music Theater lease.
Equity income in unconsolidated subsidiaries increased 148% to $1.3
million from $525,000, primarily as a result of the investment in the PNC
Bank Arts Center.
Income tax expense increased to $3.0 million for the nine months ended
September 30, 1997, compared to $80,000 for the nine months ended September
30, 1996, primarily as the result of higher operating income.
SFX Entertainment's net income increased to $3.7 million for the nine
months ended September 30, 1997, as compared to a net loss of $1.5 million
for the nine months ended September 30, 1996, due to the factors discussed
above.
EBITDA increased to $10.0 million for the nine months ended September 30,
1997, compared to a negative $1.3 million for the nine months ended September
30, 1996, as a result of the reduction in officers' salary expense and
improved operating results.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
SFX Entertainment's concert promotion revenue increased by 5.9% to $50.4
million for the year ended December 31, 1996, compared to $47.6 million for
the year ended December 31, 1995, primarily as a result of an increase in
concerts promoted and an increase in ticket prices.
Concert promotion operating expenses increased by 4.8% to $41.6 million
for the year ended December 31, 1996, compared to $39.7 million for the year
ended December 31, 1995, primarily as a result of an increase in concert
activity.
Depreciation and amortization expense decreased slightly to $747,000 for
the year ended December 31, 1996, compared to $750,000 for the year ended
December 31, 1995.
General and administrative expenses, including officers' salary expenses,
increased by 22% to $9.1 million for the year ended December 31, 1996,
compared to $7.5 million for the year ended December 31, 1995, primarily from
higher officers' salary expense.
SFX Entertainment's operating loss was $1.1 million for the year ended
December 31, 1996, compared to an operating loss of $362,000 for the year
ended December 31, 1995, due to the results discussed above.
Interest income, net of interest expense, increased by 306% to $138,000
for the year ended December 31, 1996, compared to $34,000 for the year ended
December 31, 1995.
Equity income in unconsolidated subsidiaries increased 8% to $525,000 from
$488,000, primarily as result of the investment in the PNC Bank Arts Center,
offset by lower income from SFX Entertainment's other equity investments.
SFX Entertainment's state and local income tax expense increased to
$106,000 for the year ended December 31, 1996, compared to $13,000 for the
year ended December 31, 1995. This increase was primarily the result of the
higher operating income.
SFX Entertainment's net loss was $515,000 for the year ended December 31,
1996, compared to net income of $147,000 for the year ended December 31,
1995, due to the factors discussed above.
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EBITDA was a negative $325,000 for the year ended December 31, 1996,
compared to $388,000 for the year ended December 31, 1995, primarily as a
result of higher officers' salary expense partially offset by lower general
and administrative expenses.
Year Ended December 31, 1995 Compared to the Year Ended December 31, 1994
SFX Entertainment's concert promotion revenue decreased by 49% to $47.6
million for the year ended December 31, 1995, compared to $92.8 million for
the year ended December 31, 1994, primarily as a result of the larger number
of major stadium tours promoted in 1994.
Concert promotion operating expenses decreased by 52% to $39.7 million for
the year ended December 31, 1995, compared to $83.4 million for the year
ended December 31, 1994, primarily as a result of the decrease in concert
activity described above.
Depreciation and amortization expense decreased by 1% to $750,000 for the
year ended December 31, 1995, compared to $755,000 for the year ended
December 31, 1994.
General and administrative expenses, including officers' salary expenses,
increased by 4% to $7.5 million for the twelve months ended December 31,
1995, compared to $7.2 million for the year ended December 31, 1994. This
increase resulted from higher general and administrative expenses partially
offset by lower officers' salary expense.
SFX Entertainment's operating loss was $362,000 for the year ended
December 31, 1995, compared to an operating income of $1.4 million for the
year ended December 31, 1994, due to the results discussed above.
Interest income, net of interest expense, was $34,000 in the year ended
December 31, 1995, compared to net interest expense of $6,000 for the year
ended December 31, 1994.
Equity income in unconsolidated subsidiaries increased to $488,000 from
negative $9,000, primarily as a result of improved operating results of
Broadway Concerts, Inc., which subleases a venue in New York City.
SFX Entertainment's state and local income tax expense increased to
$13,000 for the year ended December 31, 1995, compared to $5,000 for the year
ended December 31, 1994.
SFX Entertainment's net income decreased to $147,000 for the year ended
December 31, 1995, compared to net income of $1.4 million for the year ended
December 31, 1994, due to the factors discussed above.
EBITDA decreased by 82% to $388,000 for the year ended December 31, 1995,
compared to $2.2 million for the year ended December 31, 1994, primarily as a
result of decreased concert activity in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Following consummation of the Pending Acquisitions, SFX Entertainment's
principal need for funds will be to fund interest and debt service payments,
future acquisitions, related working capital needs and, to a lesser extent,
capital expenditures. SFX Entertainment anticipates that its principal source
of funds will be the proceeds from the recent private placement of Notes,
borrowings under the Proposed Credit Facility and cash flows from operations.
Historical Cash Flows
Net cash provided by operations was $789,000 for the nine months ended
September 30, 1997.
Net cash used in investing activities for the nine months ended September
30, 1997 was $72.0 million. Cash used in investing activities in 1997 related
primarily to the Recent Acquisitions.
Net cash provided by financing activities for the nine months ended
September 30, 1997 was $78.3 million. For the nine months ended September 30,
1997, cash provided by financing activities related primarily to the funding
of the Recent Acquisitions by SFX.
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Recent Acquisitions
In 1997, SFX consummated the acquisitions of Delsener/Slater ($23.6
million in cash plus $4.0 million of deferred payments), the Meadows Music
Theater lease ($0.9 million in cash plus shares of SFX's Class A common stock
with a value at that time of approximately $7.5 million and the assumption of
approximately $15.4 million of debt) and Sunshine Promotions ($53.9 million
in cash plus $2.0 million in deferred payments, shares of SFX's Class A
common stock with a value of approximately $4.0 million and the assumption of
$1.6 million of debt). The present value of the future payments that SFX
Entertainment is required to pay in connection with the Recent Acquisitions
is approximately $3.5 million.
The foregoing includes a note in the original principal amount of $2.0
million, of which approximately $1.8 million is currently outstanding.
Pursuant to the SFX Merger Agreement, SFX Entertainment is responsible for
the payments owing under the note, which by its terms accelerates upon the
change of control of SFX resulting from the consummation of the SFX Merger.
Pending Acquisitions
The aggregate purchase price of the Pending Acquisitions is expected to be
approximately $484.3 million, consisting of approximately $352.8 million in
cash, $75.3 million in repaid debt and the issuance of approximately 4.2
million shares of SFX Entertainment Common Stock with an attributed
negotiated value of $56.2 million. In addition, SFX Entertainment expects to
incur approximately $5.5 million in fees and expenses related to the Pending
Acquisitions. SFX Entertainment has placed a deposit in connection with the
Pending Acquisitions of $2.0 million, which will be applied against the
applicable purchase price at closing. Each of the agreements relating to the
Pending Acquisitions provides that, if the Spin-Off is not completed on or
before July 1, 1998, then the sellers may require SFX Entertainment to
repurchase the shares at a price of $13.33 per share. In that event, the cash
needed to fund the Pending Acquisitions would increase by $56.2 million and
SFX Entertainment's stockholders' equity would decrease, and debt would
increase, by a corresponding amount. Although management believes that the
Spin-Off is likely to occur, the Spin-Off is subject to certain conditions,
some of which are outside of management's control. There can be no assurance
that the Spin-Off will be consummated on the terms presently contemplated, or
at all. In addition, the agreements relating to the Pending Acquisitions
provide for certain other purchase price adjustments and future contingent
payments. See "--Pending Acquisitions." The price ascribed to the SFX
Entertainment Class A Common Stock in the acquisition agreements is based on
certain financial projections developed jointly by SFX Entertainment and the
sellers. There is presently no trading market for the SFX Entertainment Class
A Common Stock. There can be no assurance that the assumptions underlying the
valuation will, in fact, be correct or that the valuation will approximate
the actual trading price of the SFX Entertainment Class A Common Stock.
SFX Entertainment has also granted the current owners of PACE the right to
require SFX Entertainment to repurchase up to one-third of the shares of
stock to be issued to them in the PACE Acquisition during a specified period
beginning five years after the closing date at a price of $33.00 per share
for an estimated maximum obligation of $16.5 million. In addition, SFX
Entertainment may be required to issue up to an additional $14.0 million of
shares of SFX Entertainment Class A Common Stock or, at SFX Entertainment's
option in certain circumstances, cash, if Network attains certain EBITDA
targets (as defined in the Network Agreement) for the year ended December 31,
1998. Further, SFX Entertainment may be required to pay additional cash
consideration to complete certain of the Pending Acquisitions, if the
transactions do not close by certain dates specified in the agreements. See
"Agreements Related to the Pending Acquisitions."
The PACE Agreement requires SFX Entertainment to make available to PACE,
at any time up to the consummation of the PACE Acquisition, up to $25.0
million to be used by PACE to fund certain acquisitions. SFX Entertainment
does not currently anticipate that it will be required to extend this credit
to PACE; however, if SFX Entertainment is required to make the loan, there
can be no assurance that SFX Entertainment will have sufficient cash or other
sources of liquidity to provide the required funds. See "Agreements Related
to the Pending Acquisitions--PACE Acquisition--PACE Acquisition Facility."
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The timing and completion of the Pending Acquisitions is subject to a
number of closing conditions, certain of which are beyond SFX Entertainment's
control. No assurance can be given that SFX Entertainment will be able to
complete any of the Pending Acquisitions by the closing dates specified in
the acquisition agreements, that the Spin-off will be completed on or before
July 1, 1998 or at all, or that SFX Entertainment will have sufficient cash
or other available sources of capital to make any or all of the future or
contingent payments described above. See "Agreements Related to the Pending
Acquisitions."
Spin-Off
SFX Entertainment expects to incur approximately $17.2 million in fees and
expenses in connection with the Spin-Off. In addition, pursuant to the SFX
Merger Agreement, SFX Entertainment has agreed to assume SFX's obligations
under the employment agreements of certain employees and senior management,
including the obligation to make change of control payments to Messrs.
Sillerman, Ferrel and Benson aggregating approximately $3.3 million, $1.5
million and $0.2 million, respectively. The assumed obligations will also
include the duty to indemnify Messrs. Sillerman and Ferrel for one-half of
any excise taxes that may be assessed against them in connection with the
change of control payments. It is also anticipated that Mr. Sillerman's
employment agreement with SFX Entertainment will provide for certain
indemnities relating to the SFX Merger. See "Certain Relationships and
Related Transactions--Assumption of Employment Agreements; Certain Change of
Control Payments" and "--Indemnification of Mr. Sillerman." In addition,
pursuant to the Distribution Agreement, SFX Entertainment will be required to
indemnify SFX and each of its directors, officers and employees for any
losses relating to SFX Entertainment's assets and liabilities. Pursuant to
the Tax Sharing Agreement, SFX Entertainment also will be responsible for any
taxes of SFX resulting from the Spin-Off, including any income taxes to the
extent that the income taxes result from gain on the distribution that
exceeds the net operating losses of SFX and SFX Entertainment available to
offset gain resulting from the Spin-Off. See "Agreements Between SFX
Entertainment and SFX." The actual amount of the indemnification payment by
SFX Entertainment to SFX will be based on the value of the SFX Entertainment
Common Stock on the date of the Spin-Off; this amount cannot be predicted
with accuracy at this time. It is possible that the amount of the
indemnification payment will be significant and will have a material adverse
effect on SFX Entertainment. Pursuant to the Distribution Agreement, these
payments will reduce the amount of Working Capital which may be transferred
from SFX to SFX Entertainment or increase the amount of Working Capital
payable by SFX Entertainment to SFX.
Meadows Repurchase
SFX Entertainment may assume the obligation to exercise an option held by
SFX to repurchase 250,838 shares of SFX's Class A Common Stock for an
aggregate purchase price of $8.3 million (the "Meadows Repurchase"). This
option was granted in connection with the acquisition of the lease for the
Meadows Music Theater. If the option were exercised by SFX, the exercise
would result in a reduction of Working Capital by approximately $8.3 million.
If the option were not exercised, Working Capital would decrease by
approximately $10.5 million.
Financing
SFX Entertainment expects to incur approximately $17.8 million in fees and
expenses related to the Financing.
Capital Expenditures
Capital expenditures totaled $2.4 million in the nine months ended
September 30, 1997. Capital expenditures in 1997 included cash paid for
building improvements, computer equipment, leasehold improvements and general
operating equipment. SFX Entertainment expects that capital expenditures in
the fourth quarter of 1998 and in fiscal year 1998 will be substantially
higher than current levels, due to the planned capital expenditures of
approximately $17.0 million for 1998 at existing venues (including $14.0
million initially planned for the expansion and renovation of the Jones Beach
Amphitheater and $3.0 million planned for the expansion and renovation of the
PNC Bank Arts Center) and capital expenditures requirements of the
Acquisition Businesses, including $10.0 million for the construction of a new
amphitheater serving the Seattle, Washington market. SFX Entertainment
expects all other capital expenditures to total less than $12.0 million in
1998.
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Future Charges to Earnings
SFX Entertainment anticipates entering into employment agreements with
certain of its executive officers before the Spin-Off. In connection with
these agreements, the Board, on the recommendation of its Compensation
Committee, agreed to grant the executive officers an aggregate of 650,000
shares of SFX Entertainment Class B Common Stock and 190,000 shares of SFX
Entertainment Class A Common Stock. The shares will be issued on or about the
Spin-Off Distribution Date. SFX Entertainment will record a non-cash
compensation charge at the date of the grant equal to the fair market value
of the shares.
In addition, the Board, on the recommendation of its Compensation
Committee, also has approved the issuance of stock options exercisable for an
aggregate of 245,000 shares of SFX Entertainment Class A Common Stock. The
options will vest over five years and will have an exercise price of $5.50
per share. SFX Entertainment will record non-cash compensation charges over
the five-year exercise period to the extent that the fair value of the
underlying SFX Entertainment Class A Common Stock exceeds the exercise price.
Further, the consummation of the Pending Acquisitions will result in
substantial charges to earnings relating to interest expense and the
recognition and amortization of goodwill.
Year 2000 Compliance
SFX Entertainment has addressed the risks associated with Year 2000
compliance with respect to its accounting and financial reporting systems and
is in the process of installing new accounting and reporting systems. These
systems are expected to provide better reporting, to allow for more detailed
analysis, to handle both the recent and Pending Acquisitions and to be Year
2000 compliant. SFX Entertainment anticipates that the cost of implementing
these systems will be approximately $1.4 million. SFX Entertainment is in the
process of examining Year 2000 compliance issues with respect to its vendors
and does not anticipate that it will be subject to a material impact in this
area.
Sources of Liquidity
As of September 30, 1997, SFX Entertainment's cash and cash equivalents
totaled $7.1 million. As a subsidiary of SFX, SFX Entertainment has incurred
and, as a stand-alone entity, will continue to incur substantial amounts of
indebtedness. As of September 30, 1997, SFX Entertainment's consolidated
indebtedness would have been approximately $498.8 million on a pro forma
basis giving effect to the Spin-Off, the Pending Acquisitions, the Financing
and the SFX Merger (assuming that all of these transactions occur on the
terms currently contemplated). The total amount of SFX Entertainment's
indebtedness could increase substantially if those transactions do not occur
on the terms currently contemplated as described above. In addition, SFX
Entertainment may incur indebtedness from time to time to finance
acquisitions, for capital expenditures or for other purposes.
On February 11, 1998, SFX completed the private placement of $350.0
million of 9 1/8% Senior Subordinated Notes due 2008. Interest is payable on
the Notes on February 1 and August 1 of each year. In addition, SFX
Entertainment anticipates borrowing approximately $132.3 million under the
Proposed Credit Facility for the uses described above. The Proposed Credit
Facility is expected to consist of a $150.0 million seven year reducing
revolving facility (the "Proposed Revolver") and a $150.0 million eight year
term loan (the "Proposed Term Loan"). Pursuant to the expected terms of the
Proposed Credit Facility, the maximum amount of funding available under the
facility on a pro forma basis for the 12 months ended September 30, 1997
would have been approximately $175.0 million. This amount, together with the
proceeds of the private placement of Notes, would be sufficient to (i)
consummate the Pending Acquisitions (approximately $428.1 million), (ii) pay
certain fees and expenses related to the Spin-Off, the Pending Acquisitions,
the Financing and certain consent solicitations related thereto
(approximately $40.5 million), (iii) fund certain planned capital
expenditures (approximately $39.0 million), (iv) make various other payments
in connection with the Pending Acquisitions, certain change-of-control
provisions contained in the employment agreeements being assumed by SFX
Entertainment and the exercise of an option to acquire an office building and
related property from Network (approximately $12.7 million). However,
pursuant to the expected terms of the Proposed Credit Facility,
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pro forma for the twelve months ended September 30, 1997, the maximum amount
of borrowing availability under the facility would have been insufficient to
fund the approximately $8.3 million payable in connection with the Meadows
Repurchase or to make the contingent payments described above. While SFX
Entertainment believes that expected improvements in its cash flows will
permit it to borrow sufficient funds under the Proposed Credit Facility to
fund the Meadows Repurchase, there can be no assurance that SFX Entertainment
will be able to achieve such increased cash flow levels, or that other
available sources of financing will be available under terms acceptable to
SFX Entertainment or permitted under the terms of SFX Entertainment's
applicable debt instruments or that the contingent payments described above
will not become payable. See "Risk Factors--Risks Related to the Pending
Acquisitions--Financing Matters" and "--Working Capital Adjustments and
Repayment of Advances" and "Description of Indebtedness." In addition, the
information relating to fees and expenses is based on management's estimates,
and may not be indicative of, and are likely to vary from, the actual fees
and expenses incurred by SFX Entertainment relating to the Financing, the
Pending Acquisitions, the Spin-Off and the SFX Merger.
As required by the Distribution Agreement, by the time of the Spin-Off,
SFX will contribute to SFX Entertainment all of its concert and other live
entertainment assets. At that time, SFX Entertainment will assume all of
SFX's liabilities pertaining to the live entertainment businesses, along with
certain other liabilities. Immediately after the Spin-Off, SFX will
contribute to SFX Entertainment an allocation of working capital in an amount
estimated by SFX's management to be consistent with the proper operation of
SFX. At the time of the SFX Merger, SFX will pay its positive Working Capital
(if any) to SFX Entertainment. If Working Capital is negative, then SFX
Entertainment must pay the amount of the shortfall to SFX. As of September
30, 1997, SFX Entertainment estimates that Working Capital to be received by
SFX Entertainment would have been approximately $2.1 million (excluding the
Series E Adjustment), and that approximately $135.5 million of additional
assets and $34.1 million of liabilities related to the live entertainment
businesses would have been contributed to SFX Entertainment. The actual
amount of Working Capital as of the closing of the SFX Merger may differ
substantially from the amount as of September 30, 1997, and will be a
function of, among other things, the operating results of SFX through the
date of the SFX Merger, the actual cost of consummating the SFX Merger and
the related transactions SFX will also incur certain other significant
expenses prior to the consummation of the SFX Merger that could reduce
Working Capital, including the payment of interests and dividends on SFX's
debt and approximately $8.3 million payable in connection with the Meadows
Repurchase. Working Capital will also be reduced by at least $2.1 million
pursuant to the Series E Adjustment. In addition, at the time of the
Spin-Off, SFX Entertainment must repay sums advanced to it by SFX for certain
acquisitions or capital expenditures after August 24, 1997 and which have not
been repaid. As of January 31, 1998, SFX had advanced approximately $8.0
million to SFX Entertainment for use in connection with certain acquisitions
and capital expenditures. SFX Entertainment intends to repay these amounts
from the proceeds of the Financing. SFX may advance additional amounts to SFX
Entertainment for these purposes before the consummation of the Spin-Off. See
"Risk Factors--Working Capital Adjustments and Repayment of Advances,"
"Agreements Between SFX Entertainment and SFX--Distribution Agreement" and
"--Meadows Repurchase."
SFX Entertainment expects that the Proposed Revolver and Proposed Term
Loan will contain provisions providing that, at its option and subject to
certain conditions, SFX Entertainment may increase the amount of either the
Proposed Revolver or Proposed Term Loan by $50.0 million. The Proposed
Revolver and Proposed Term Loan are expected to contain usual and customary
covenants, including limitations on (a) line of business, (b) additional
indebtedness, (c) liens, (d) acquisitions, (e) asset sales, (f) dividends,
repurchases of stock and other cash distributions, (g) total leverage, (h)
senior leverage and (i) ratios of Operating Cash Flow (as defined herein) to
pro forma interest expense, debt service and fixed charges. SFX
Entertainment's obligations under the Proposed Revolver and Proposed Term
Loan would be secured by substantially all of its assets, including property,
stock of subsidiaries and accounts receivable and guaranteed by SFX
Entertainment's subsidiaries.
The degree to which SFX Entertainment is leveraged will have material
consequences to SFX Entertainment. SFX Entertainment's ability to obtain
additional financing in the future for acquisitions,
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working capital, capital expenditures, general corporate or other purposes
will be subject to the covenants contained in the instruments governing its
indebtedness. A substantial portion of SFX Entertainment's cash flow from
operations will be required to be used to pay principal and interest on its
debt and will not be available for other purposes. The agreements governing
SFX Entertainment's long-term debt will likely contain restrictive financial
and operating covenants, and the failure by SFX Entertainment to comply with
those covenants would result in an event of default under the applicable
instruments, which in turn would permit acceleration of the debt under the
instruments (and in some cases acceleration of debt under other instruments
that contain cross-default or cross-acceleration provisions). SFX
Entertainment will be more vulnerable to economic downturns and could also be
limited in its ability to withstand competitive pressures and in its
flexibility in reacting to changes in its industry and general economic
conditions. These consequences are not exhaustive; SFX Entertainment's
indebtedness could also have other adverse consequences. See "Risk
Factors--Substantial Leverage."
SFX Entertainment's ability to make scheduled payments of principal of, to
pay interest on or to refinance its debt depends on its future financial
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors beyond its
control, as well as the success of the businesses to be acquired and the
integration of these businesses into SFX Entertainment's operations. There
can be no assurance that SFX Entertainment will be able to make planned
borrowings (including under the Proposed Credit Facility), that SFX
Entertainment's business will generate sufficient cash flow from operations,
or that future borrowings will be available in an amount to enable SFX
Entertainment to service its debt and to make necessary capital or other
expenditures. SFX Entertainment may be required to refinance a portion of the
principal amount of its indebtedness prior to their respective maturities.
There can be no assurance that SFX Entertainment will be able to raise
additional capital through the sale of securities, the disposition of assets
or otherwise for any refinancing. See "Risk Factors."
SFX Entertainment intends to pursue additional expansion opportunities and
expects to continue to identify and negotiate with respect to substantial
acquisitions in the concert promotion and venue operation business, certain
of which may be consummated prior to the Spin-Off. However, it may be unable
to identify and acquire additional suitable businesses or obtain the
financing necessary to acquire the businesses. SFX Entertainment, in
connection with future acquisitions, may seek additional debt and equity
financing, the terms of which could affect the results of operations of SFX
Entertainment. Any debt financing would require payments of principal and
interest and would adversely impact SFX Entertainment's cash flows, and any
equity financing could be dilutive to the ownership interests of SFX
Entertainment's then-existing stockholders. There can be no assurance that
SFX Entertainment will be able to obtain financing on terms acceptable to SFX
Entertainment, or at all. Furthermore, any additional acquisitions may result
in charges to operations relating to interest expense or the recognition and
amortization of goodwill, which would increase SFX Entertainment's losses or
reduce or eliminate its earnings, if any.
Based on the current earnings of SFX Entertainment and the Acquisition
Businesses and anticipated cost savings and revenue growth, management
believes that, after consummating the Pending Acquisitions, cash flow from
operations and available cash (together with available borrowings under the
Proposed Credit Facility) will be adequate to meet SFX Entertainment's future
liquidity needs until at least the first quarter of 1999.
Seasonality
SFX Entertainment's operations and revenues are largely seasonal in
nature, with generally higher revenue generated in the second and third
quarters of the year. For example, on a pro forma basis for the Recent
Acquisitions, SFX Entertainment generated approximately 70% of its revenues
in the second and third quarters for the 12 months ending September 30, 1997.
SFX Entertainment's outdoor venues are primarily utilized in the summer
months and do not generate substantial revenue in the late fall, winter and
early spring. Similarly, the musical concerts that SFX Entertainment promotes
largely occur in the second and third quarters. To the extent that SFX
Entertainment's entertainment marketing and consulting relate to musical
concerts, they also predominantly generate revenues in the second and third
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quarters. Therefore, the seasonality of SFX Entertainment's business causes
(and will probably continue to cause) a significant variation in SFX
Entertainment's quarterly operating results. These variations in demand could
have a material adverse effect on the timing of SFX Entertainment's cash
flows and, therefore, on its ability to service its obligations with respect
to its indebtedness. However, SFX Entertainment believes that this variation
may be somewhat offset with the acquisition of typically non-summer seasonal
businesses in the Pending Acquisitions, such as motor sports (which is
winter-seasonal) and Touring Broadway Shows (which typically tour between
September and May). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Pursuant to SFX Entertainment's Certificate of Incorporation and By-laws,
the business of SFX Entertainment is managed by the Board. The Board will
conduct its business through meetings of the board and its committees. The
standing committees of the Board are described below.
The By-laws of SFX Entertainment authorize the Board to fix the number of
directors from time to time. The initial number of directors of SFX
Entertainment is nine. All directors hold office until the next annual
meeting of stockholders following their election or until their successors
are elected and qualified. Officers of SFX Entertainment are to be elected
annually by the Board and serve at the Board's discretion. In the election of
directors, the holders of SFX Entertainment Class A Common Stock will be
entitled by class vote, exclusive of all other stockholders, to elect
two-sevenths (rounded up) of the directors to serve on the Board, with each
share of SFX Entertainment Class A Common Stock entitled to one vote.
Currently, the Board consists of the individuals who are currently serving
as directors of SFX. In addition, it is anticipated that, after the
consummation of the PACE Acquisition, Brian Becker, the Chief Executive
Officer and President of PACE, will be appointed as a Director, as an
Executive Vice President and, together with Messrs. Sillerman and Ferrel, as
a Member of the Office of the Chairman. All of the individuals who currently
serve as directors of SFX will cease to be directors of SFX at the time of
the consummation of the SFX Merger. If the SFX Merger Agreement is
terminated, Messrs. Dugan, Kramer and O'Grady have indicated that they will
promptly resign from their positions as directors of SFX Entertainment, and
the Board will appoint three new independent directors, to serve until the
next annual meeting of the stockholders of SFX Entertainment. The directors
of SFX Entertainment will hold office until the next annual meeting of
stockholders of SFX Entertainment or until their successors are duly elected
and qualified.
All of the executive officers of SFX Entertainment (the "Executive
Officers") consist initially of individuals currently responsible for the
management of SFX. It is anticipated that, prior to the Spin-Off, the
Executive Officers will enter into five year employment agreements with SFX
Entertainment that will be similar to their existing employment agreements
with SFX (except that Mr. Armstrong's employment agreement is expected to
provide that he will serve as an executive vice president of SFX
Entertainment but not as the chief operating officer). See "--Employment
Agreements and Arrangements with Certain Officers and Directors." These
employment agreements will become effective immediately at the time of
consummation of the SFX Merger. During the period following the Spin-Off and
prior to the consummation of the SFX Merger, the Executive Officers will
continue to devote as much time as they deem necessary to conduct the
operations of SFX Entertainment consistent with their obligations to SFX. If
the Merger Agreement is terminated for any reason, the Executive Officers
will continue to perform services to both SFX and SFX Entertainment until SFX
is able to hire suitable replacements for the Executive Officers. If the
Merger Agreement is terminated, SFX intends to seek another buyer for the
radio broadcasting business.
SFX and Messrs. Sillerman and Ferrel have reached agreements in principle
that Messrs. Sillerman and Ferrel will serve as officers and directors of SFX
Entertainment; however, if Proposal 3 in the attached Proxy Statement is not
approved, there can be no assurance that they will serve in any such
capacity, in which event SFX intends to pursue alternative means of disposing
of SFX Entertainment. See "Risk Factors--Dependence on Key Personnel."
It is expected that, after the consummation of the Pending Acquisitions,
current senior management of the Acquisition Businesses will remain largely
intact in order to preserve essential local relationships, reputations, names
and expertise, with senior management overseeing and coordinating operations
of
D-118
<PAGE>
SFX Entertainment as a whole. See "Agreements Related to the Pending
Acquisitions." The following table sets forth information as to the Directors
and the Executive Officers of SFX Entertainment:
<TABLE>
<CAPTION>
DIRECTOR AGE AS OF
POSITION(S) HELD WITH POSITION(S) HELD OF SFX DECEMBER 31,
NAME SFX ENTERTAINMENT WITH SFX SINCE 1997
- --------------------- ---------------------------- ----------------------------- ---------- --------------
<S> <C> <C> <C> <C>
Robert F.X. Sillerman Director, Executive Chairman Director and Executive 1992 49
and Member of the Office of Chairman
the Chairman
Michael G. Ferrel Director, President, Chief Director, President and Chief 1996 48
Executive Officer and Member Executive Officer
of the Office of the
Chairman
D. Geoffrey Armstrong Director and Executive Vice Director, Chief Operating 1993 40
President Officer and Executive Vice
President
Howard J. Tytel Director, General Counsel, Director, General Counsel, 1993 50
Secretary and Executive Vice Secretary and Executive Vice
President President
Thomas P. Benson Director, Vice President and Director and Chief Financial 1996 35
Chief Financial Officer Officer
Richard A. Liese Director, Vice President and Director, Vice President and 1995 45
Assistant General Counsel Assistant General Counsel
James F. O'Grady, Jr. Director Director 1993 69
Paul Kramer Director Director 1993 65
Edward F. Dugan Director Director 1996 63
*Brian Becker Director, Executive Vice None -- 41
President and Member of the
Office of the Chairman
</TABLE>
- ------------
* Anticipated to be appointed after the consummation of the PACE
Acquisition.
ROBERT F.X. SILLERMAN has served as the Executive Chairman of SFX since
July 1, 1995, and from 1992 through June 30, 1995, he served as Chairman of
the Board of Directors and Chief Executive Officer of SFX. Mr. Sillerman is
Chairman of the Board of Directors and Chief Executive Officer of SCMC, a
private company that makes investments in and provides financial consulting
services to companies engaged in the media business, and of TSC, a private
company that makes investments in and provides financial advisory services to
media-related companies. Through privately held entities, Mr. Sillerman
controls the general partner of Sillerman Communications Partners, L.P., an
investment partnership. Mr. Sillerman is also the Chairman of the Board and a
founding stockholder of Marquee, a publicly-traded company organized in 1995,
which is engaged in various aspects of the sports, news and other
entertainment industries. Mr. Sillerman is also a founder and a significant
stockholder of Triathlon, a publicly-traded company that owns and operates
radio stations in medium and small-sized markets in midwestern and western
United States. For the last twenty years, Mr. Sillerman has been a senior
executive of and principal investor in numerous entities operating in the
broadcasting business. In 1993, Mr. Sillerman became the Chancellor of the
Southampton campus of Long Island University.
D-119
<PAGE>
MICHAEL G. FERREL has been the President, Chief Executive Officer and a
Director of SFX since November 22, 1996. Mr. Ferrel served as President and
Chief Operating Officer of MMR, a wholly-owned subsidiary of SFX, and a
member of MMR's board of directors since MMR's inception in August 1992 and
as Co-Chief Executive Officer of MMR from January 1994 to January 1996, when
he became the Chief Executive Officer. From 1990 to 1993, Mr. Ferrel served
as Vice President of Goldenberg SFX, Inc. the former owner of radio station
WPKX-FM, Springfield, Massachusetts, which was acquired by MMR in July 1993.
D. GEOFFREY ARMSTRONG has been the Chief Operating Officer and an
Executive Vice President of SFX since November 22, 1996 and has served as a
Director of SFX since 1993. Mr. Armstrong became the Chief Operating Officer
of SFX in June 1996 and the Chief Financial Officer, Executive Vice President
and Treasurer of SFX in April 1995. Mr. Armstrong was Vice President, Chief
Financial Officer and Treasurer of SFX from 1992 until March 1995. He had
been Executive Vice President and Chief Financial Officer of Capstar, a
predecessor of SFX, since 1989. From 1988 to 1989, Mr. Armstrong was the
Chief Executive Officer of Sterling Communications Corporation.
HOWARD J. TYTEL has been a Director, General Counsel, Executive Vice
President and Secretary of SFX since 1992. Mr. Tytel is Executive Vice
President, General Counsel and a Director of SCMC and TSC and holds an
economic interest in those companies. Mr. Tytel is a Director and a founder
of Marquee and a founder of Triathlon. Mr. Tytel was a Director of Country
Music Television from 1988 to 1991. From March 1995 until March 1997, Mr.
Tytel was a Director of Interactive Flight Technologies, Inc., a
publicly-traded company providing computer-based in-flight entertainment. For
the last twenty years, Mr. Tytel has been associated with Mr. Sillerman in
various capacities with entities operating in the broadcasting business.
Since 1993, Mr. Tytel has been Of Counsel to the law firm of Baker &
McKenzie, which currently represents SFX, SFX Entertainment and other
entities with which Messrs. Sillerman and Tytel are affiliated, on various
matters.
THOMAS P. BENSON has been the Chief Financial Officer and a Director of
SFX since November 22, 1996. Mr. Benson became the Vice President of
Financial Affairs of SFX in June 1996. He was the Vice President--External
and International Reporting for American Express Travel Related Services
Company from September 1995 to June 1996. From 1984 through September 1995,
Mr. Benson worked at Ernst & Young LLP as a staff accountant, senior
accountant, manager and senior manager.
RICHARD A. LIESE has been a Director, Vice President and Assistant General
Counsel of SFX since 1995. Mr. Liese has also been the Assistant General
Counsel and Assistant Secretary of SCMC since 1988. In addition, from 1993
until April 1995, he served as Secretary of MMR.
JAMES F. O'GRADY, JR. has been President of O'Grady and Associates, a
media brokerage and consulting company, since 1979. Mr. O'Grady has been a
Director of Orange and Rockland Utilities, Inc. and of Video for Broadcast,
Inc. since 1980 and 1991, respectively. Mr. O'Grady has been the co-owner of
Allcom Marketing Corp., a corporation that provides marketing and public
relations services for a variety of clients, since 1985, and has been Of
Counsel to Cahill and Cahill, Brooklyn, New York, since 1986. He also served
on the Board of Trustees of St. John's University from 1984 to 1996, and has
served as a Director of Orange and Rockland Utilities, Inc. since 1980 and of
The Insurance Broadcast System, Inc. since 1994.
PAUL KRAMER has been a partner in Kramer & Love, financial consultants
specializing in acquisitions, reorganizations and dispute resolution, since
1994. From 1992 to 1994, Mr. Kramer was an independent financial consultant.
Mr. Kramer was a partner in the New York office of Ernst & Young LLP from
1968 to 1992, and from 1987 to 1992 was Ernst & Young's designated
Broadcasting Industry Specialist.
EDWARD F. DUGAN is President of Dugan Associates Inc., a financial
advisory firm to media and entertainment companies, which he founded in 1991.
Mr. Dugan was an investment banker with Paine Webber Inc., as a Managing
Director, from 1978 to 1990, with Warburg Paribas Becker Inc., as President,
from 1975 to 1978 and with Smith Barney Harris Upham & Co., as a Managing
Director, from 1961 to 1975.
D-120
<PAGE>
BRIAN E. BECKER has served as Chief Executive Officer of PACE since 1994
and was appointed as President of PACE in 1996. He first joined PACE as the
Vice President and General Manager of PACE's theatrical division at the time
of that division's formation in 1982, and subsequently directed PACE's
amphitheater development efforts. He served as Vice Chairman of PACE from
1992 until he was named its Chief Executive Officer in 1994.
Audit Committee
The Audit Committee will review (and report to the Board prior to the
Spin-Off) on various auditing and accounting matters, including the
selection, quality and performance of SFX Entertainment's internal and
external accountants and auditors, the adequacy of its financial controls,
and the reliability of financial information reported to the public. The
Audit Committee will also review certain related-party transactions and
potential conflict-of-interest situations involving officers, directors or
stockholders of SFX Entertainment. The members of the Audit Committee are
Messrs. Kramer, O'Grady and Dugan.
Compensation Committee
The Compensation Committee will review and make recommendations with
respect to certain of SFX Entertainment's compensation programs and
compensation arrangements with respect to certain officers, including Messrs.
Sillerman, Ferrel, Armstrong, Tytel, Benson and Liese. The members of the
Compensation Committee are Messrs. Kramer, O'Grady and Dugan, none of whom is
a current or former employee or officer of SFX or SFX Entertainment.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised of Messrs. Kramer, O'Grady and
Dugan. The Board has approved the issuance of shares of SFX Entertainment
Class A Common Stock to holders as of the Spin-Off Record Date of stock
options or SARs of SFX, whether or not vested. The issuance was approved to
allow the holders of these options and SARs to participate in the Spin-Off in
a similar manner to holders of SFX's Class A common stock. In connection with
this issuance, Messrs. Kramer, O'Grady and Dugan will receive 13,000, 13,000
and 3,000 shares of SFX Entertainment Class A Common Stock, respectively.
Stock Option Committee
The Stock Option Committee will grant options, determine which employees
and other individuals performing substantial services to SFX Entertainment
may be granted options and determine the rights and limitations of options
granted under SFX Entertainment's plans. The members of the Stock Option
Committee are Messrs. Kramer, O'Grady and Dugan.
Stock Option and Restricted Stock Plan
The Board and SFX, as sole stockholder of SFX Entertainment, have approved
and adopted the SFX Entertainment, Inc. 1998 Stock Option and Restricted
Stock Plan, providing for the issuance of up to 2,000,000 shares of SFX
Entertainment Class A Common Stock. The purpose of the plan is to provide
additional incentive to officers and employees of SFX Entertainment. Each
option granted under the plan will be designated at the time of grant as
either an "incentive stock option" or a "non-qualified stock option." The
plan will be administered by the Stock Option Committee.
Compensation of Directors
Directors employed by SFX Entertainment will receive no compensation for
meetings they attend. Each director not employed by SFX Entertainment will
receive a fee of $1,500 for each Board meeting he attends, in addition to
reimbursement of travel expenses. Each non-employee director who is a member
of a committee will also receive $1,500 for each committee meeting he attends
that is not held in conjunction with a Board meeting. If the committee
meeting occurs in conjunction with a Board meeting, each committee member
will receive an additional $500 for each committee meeting he attends. In
addition, SFX Entertainment will pay each director an annual retainer of
$30,000, of which one-half will be paid in cash and one-half will be paid in
shares of SFX Entertainment Class A Common Stock.
D-121
<PAGE>
EXECUTIVE COMPENSATION
SFX Entertainment did not pay any compensation to the current Executive
Officers in 1997. SFX Entertainment anticipates that during 1998 its most
highly compensated executive officers will be Messrs. Sillerman, Ferrel,
Armstrong, Tytel and, after the consummation of the PACE Acquisition, Becker.
See "--Employment Agreements and Arrangements with Certain Officers and
Directors."
It is anticipated that compensation for the Executive Officers and for
other executives will consist principally of base salary, an annual incentive
bonus opportunity and long-term stock-based incentive awards. All direct and
indirect remuneration of all Executive Officers and certain other executives
will be approved by the Compensation and Stock Option Committees.
It is anticipated that the Board will, after the Spin-Off, grant shares of
SFX Entertainment Class A Common Stock to holders as of the Spin-Off Record
Date of stock options or SARs of SFX, whether or not vested. See "Certain
Relationships and Related Transactions--Issuance of Stock to Holders of SFX's
Options and SARs."
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS WITH CERTAIN OFFICERS AND DIRECTORS
SFX Entertainment anticipates that it will enter into employment
agreements with all of the Executive Officers prior to the consummation of
the Spin-Off, and that the employment agreements (except for Mr. Becker's
employment agreement) will become effective immediately after the
consummation of the SFX Merger. It is anticipated that the employment
agreements will provide for annual base salaries of $500,000 for Mr.
Sillerman, $350,000 for Mr. Ferrel, $325,000 for Mr. Armstrong, $300,000 for
Mr. Tytel and $235,000 for Mr. Benson. Each executive officer is expected to
receive a bonus to be determined annually in the discretion of the Board, on
the recommendation of the Compensation Committee. Each employment agreement
will be for a term of five years, and unless terminated or not renewed by SFX
Entertainment or the employee, the term will continue thereafter on a
year-to-year basis on the same terms existing at the time of renewal. It is
anticipated that each of the agreements will provide for payments and other
benefits to be mutually agreed upon, if the employee's employment terminates
following a change of control.
In connection with entering into the employment agreements, the Board (on
the review and recommendation of the Compensation Committee) approved the
following restricted stock awards: 500,000 shares of SFX Entertainment Class
B Common Stock to Mr. Sillerman, 150,000 shares of SFX Entertainment Class B
Common Stock to Mr. Ferrel, 100,000 shares of SFX Entertainment Class A
Common Stock to Mr. Armstrong, 80,000 shares of SFX Entertainment Class A
Common Stock to Mr. Tytel and 10,000 shares of SFX Entertainment Class A
Common Stock to Mr. Benson. For a period of three years from issuance, the
restricted stock may not be transferred and will be subject to forfeiture if
an unwaived event of default is called on certain indebtedness, including the
Notes and the debt to be incurred under the Proposed Credit Facility. In
addition, in connection with entering into the employment agreements, the
Board (on the review and recommendation of the Compensation Committee) also
approved the issuance, effective upon consummation of the Spin-Off, of the
following stock options exercisable for shares of SFX Entertainment Class A
Common Stock: options to purchase 120,000 shares to Mr. Sillerman, options to
purchase 50,000 shares to Mr. Ferrel, options to purchase 40,000 shares to
Mr. Armstrong, options to purchase 25,000 shares to Mr. Tytel and options to
purchase 10,000 shares to Mr. Benson. The options will vest over five years
and will have an exercise price of $5.50 per share.
SFX Entertainment has entered into an employment agreement with Mr. Becker
(which will be effective at the time of consummation of the PACE
Acquisition), who will serve as a Director, Member of the Office of the
Chairman and Executive Vice President. Mr. Becker's employment agreement
provides for (a) an annual salary of $294,000 for the first year, $313,760
for each of the second and third years and $334,310 for each of the fourth
and fifth years, (b) an annual bonus in the discretion of the Board and (c)
the other terms described in "Agreements Related to the Pending
Acquisitions--PACE Acquisition--Becker Employment Agreement." In addition,
SFX Entertainment expects to enter into additional employment agreements with
certain of the existing officers of the Acquisition Businesses after the
consummation of the acquisitions. See "Agreements Related to the Pending
Acquisitions."
D-122
<PAGE>
Until the closing date of the SFX Merger, the Executive Officers (other
than Mr. Becker) will continue to be employed by SFX (at SFX's expense), but
will devote as much time as they deem reasonably necessary, consistent with
their obligations to SFX, in support of SFX Entertainment on a basis
consistent with the time and scope of services that they devoted to the live
entertainment business prior to the Spin-Off. Effective immediately prior to
the consummation of the SFX Merger, SFX Entertainment will assume all
obligations arising under any employment agreement or arrangement (written or
oral) between SFX or any of its subsidiaries and the Executive Officers,
other than the rights, if any, of the Executive Officers to receive options
at the time of their termination following a change of control of SFX (as
defined in their respective employment agreements) and all existing rights to
indemnification. SFX Entertainment will assume the obligation to make change
of control payments under Messrs. Sillerman's, Ferrel's and Benson's existing
employment agreements with SFX of approximately $3.3 million, $1.5 million
and $0.2 million, respectively. SFX Entertainment will also indemnify SFX and
its subsidiaries from all obligations arising under the assumed employment
agreements or arrangements (except in respect of the termination options and
all existing rights to indemnification).
SFX Entertainment and SFX have also entered into certain agreements and
arrangements with their officers and directors from time to time in the past.
See "Certain Relationships and Related Transactions."
D-123
<PAGE>
PRINCIPAL STOCKHOLDERS OF SFX ENTERTAINMENT
All of the outstanding SFX Entertainment Common Stock is currently held by
SFX. To the best of SFX Entertainment's knowledge, the following table sets
forth projected information regarding the beneficial ownership of shares of
SFX Entertainment Common Stock after the Spin-Off, and after the Spin-Off,
the Pending Acquisitions and stock grants, with respect to (a) each director
of SFX Entertainment, (b) certain executive officers of SFX Entertainment,
(c) the directors and executive officers of SFX Entertainment as a group and
(d) each person known by SFX Entertainment to own beneficially more than five
percent of the outstanding shares of any class of SFX's common stock. The
ownership information presented below with respect to all persons and
organizations is based on record ownership of SFX's common stock and certain
options and warrants to purchase SFX's common stock as of February 9, 1998
and assumes no change in record ownership of SFX's common stock and the
options and warrants.
<TABLE>
<CAPTION>
AFTER THE SPIN-OFF(1)
------------------------------------------------------
CLASS A CLASS B
COMMON STOCK COMMON STOCK(3)
------------------------ -------------------
PERCENT
OF TOTAL
NAME AND ADDRESS OF NUMBER OF PERCENT NUMBER PERCENT VOTING
BENEFICIAL OWNER(4) SHARES OF CLASS OF SHARES OF CLASS POWER
- --------------------------- ------------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Directors and
Executive Officers:
Robert F.X. Sillerman .... 1,287,437(5) 9.2% 1,024,168 97.8% 47.1%
Michael G. Ferrel ......... 12,132 * 22,869 2.2% 1.0%
D. Geoffrey Armstrong ..... 9,496 * -- -- *
Howard J. Tytel(11) ....... 24,284 * -- -- *
Thomas P. Benson .......... -- -- -- -- *
Richard A. Liese .......... -- -- -- -- *
James F. O'Grady, Jr. .... 1,772 * -- -- *
Paul Kramer ............... 2,922 * -- -- *
Edward F. Dugan ........... 2,922 * -- -- *
Brian Becker .............. -- -- -- -- *
All directors and executive
officers as a group
(9 persons; 10 persons
after the PACE
Acquisition) .............. 1,340,965 9.9% 1,047,037 100.0% 48.3%
5% Stockholders:
Nomura Holdings America
Inc. ..................... 1,320,729(18) 9.8% -- -- 5.5%
2 World Financial Center,
Building B
New York, NY 10281
The Goldman Sachs Group,
L.P. ..................... 689,574(19) 5.1% -- -- 2.8%
85 Broad Street
New York, NY 10004
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AFTER THE SPIN-OFF, PENDING ACQUISITIONS AND
STOCK GRANTS(1),(2)
---------------------------------------------------------------
CLASS A CLASS B
COMMON STOCK COMMON STOCK(3)
------------------------------ ----------------------
PERCENT
OF TOTAL
NAME AND ADDRESS OF NUMBER OF PERCENT NUMBER OF PERCENT VOTING
BENEFICIAL OWNER(4) SHARES OF CLASS SHARES OF CLASS POWER
- --------------------------- ---------------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Directors and Executive
Officers:
Robert F.X. Sillerman .... 1,332,630(5),(6) 6.9% 1,524,168(7) 89.9% 45.7%
Michael G. Ferrel ......... 179,504(8) * 172,869(9) 10.1% 5.3%
D. Geoffrey Armstrong ..... 294,496(10) 1.6% -- -- *
Howard J. Tytel(11) ....... 137,891(11),(12) * -- -- *
Thomas P. Benson .......... 19,000(13) * -- -- *
Richard A. Liese .......... 9,500(14) * -- -- *
James F. O'Grady, Jr. .... 14,772(15) * -- -- *
Paul Kramer ............... 15,922(16) * -- -- *
Edward F. Dugan ........... 5,922(17) * -- -- *
Brian Becker .............. -- * -- -- *
All directors and executive
officers as a group
(9 persons; 10 persons
after the PACE
Acquisition) .............. 2,009,637 10.7% 1,697,037 100.0% 52.3%
5% Stockholders:
Nomura Holdings America
Inc. ..................... 1,320,729(18) 7.0% -- -- 3.6%
2 World Financial Center,
Building B
New York, NY 10281
The Goldman Sachs Group,
L.P. ..................... 689,574(19) 3.6% -- -- 1.9%
85 Broad Street
New York, NY 10004
</TABLE>
- ------------
* Less than 1%
(1) Assumes that (a) all of the outstanding Class B Warrants and Unit
Purchase Options of SFX are exercised prior to the Spin-Off Record Date
and (b) SFX exercises a contractual right to purchase 250,838 shares of
SFX's Class A common stock prior to the Spin-Off Record Date. Does not
include 2,000,000 shares reserved for issuance pursuant to SFX
Entertainment's stock option and restricted stock plan.
(2) Assumes that (a) an aggregate of 4,216,680 shares of SFX Entertainment
Class A Common Stock are issued pursuant to the Pending Acquisitions,
(b) an aggregate of 793,633 shares of SFX Entertainment Class A Common
Stock are issued to the holders of stock options and SARs issued by SFX
and (c) an aggregate of 290,000 shares of SFX Entertainment Class A
Common Stock and 650,000 shares of SFX Entertainment Class B Common
Stock are issued pursuant to certain anticipated employment agreements.
See "Management--Employment Agreements and Arrangements with Certain
Officers and Directors" and "Certain Relationships and Related
Transactions--Issuance of Stock to Holders of SFX's Options and SARs."
D-124
<PAGE>
(3) Assumes that the proposal to allow holders of SFX's Class B Common
Stock to receive SFX Entertainment Class B Common Stock in the Spin-Off
is approved at SFX's stockholders meeting.
(4) Unless otherwise set forth above, the address of each stockholder is
the address of SFX Entertainment, which is 650 Madison Avenue, 16th
Floor, New York, New York 10022. Pursuant to Rule 13d-3 of the Exchange
Act, as used in this table, (a) "beneficial ownership" means the sole
or shared power to vote, or to direct the disposition of, a security,
and (b) a person is deemed to have "beneficial ownership" of any
security that the person has the right to acquire within 60 days of
February 9, 1998. Unless noted otherwise, (a) information as to
beneficial ownership is based on statements furnished to SFX or SFX
Entertainment by the beneficial owners, and (b) stockholders possess
sole voting and dispositive power with respect to shares listed on this
table. As of February 9, 1998, there were issued and outstanding
9,517,663 shares of SFX's Class A common stock and 1,047,037 shares of
SFX's Class B common stock.
(5) Includes 600,000 shares of SFX Entertainment Class A Common Stock to be
issued to SCMC in the Spin-Off pursuant to certain warrants held by
SCMC and an option, exercisable upon consummation of the Spin-Off, to
acquire an aggregate of 537,185 shares of SFX Entertainment Class A
Common Stock from a third party.
(6) Assumes that SFX Entertainment issues 45,193 shares of SFX
Entertainment Class A Common Stock to Mr. Sillerman (or entities
controlled by Mr. Sillerman) as a result of his ownership of options of
SFX. See "Certain Relationships and Related Transactions--Issuance of
Stock to Holders of SFX's Options and SARs." Includes 8,949 shares of
SFX Entertainment Class A Common Stock expected to be issued to TSC in
the Spin-Off. If the 1,524,168 shares of SFX Entertainment Class B
Common Stock to be held by Mr. Sillerman were included in calculating
his ownership of SFX Entertainment Class A Common Stock, then Mr.
Sillerman would beneficially own 2,856,705 shares of SFX Entertainment
Class A Common Stock, representing approximately 14% of the class. Does
not include options to purchase an aggregate of 120,000 shares of SFX
Entertainment Class A Common Stock that are expected to be issued to
Mr. Sillerman pursuant to his anticipated employment agreement. See
"Management--Employment Agreements and Arrangements with Certain
Officers and Directors."
(7) Includes 500,000 shares of SFX Entertainment Class B Common Stock that
are expected to be issued to Mr. Sillerman pursuant to his anticipated
employment agreement. See "Management--Employment Agreements and
Arrangements with Certain Officers and Directors."
(8) Assumes that SFX Entertainment issues 167,372 shares of SFX
Entertainment Class A Common Stock to Mr. Ferrel as a result of his
ownership of options of SFX. See "Certain Relationships and Related
Transactions--Issuance of Stock to Holders of SFX's Options and SARs."
If the 22,869 shares of Class B Common Stock held by Mr. Ferrel were
included in calculating his ownership of SFX Entertainment Class A
Common Stock, then Mr. Ferrel would beneficially own 352,371 shares of
SFX Entertainment Class A Common Stock, representing approximately 1.9%
of the class. Does not include options to purchase an aggregate of
50,000 shares of SFX Entertainment Class A Common Stock that are
expected to be issued to Mr. Ferrel pursuant to his anticipated
employment agreement. See "Management--Employment Agreements and
Arrangements with Certain Officers and Directors."
(9) Includes 150,000 shares of SFX Entertainment Class B Common Stock that
are expected to be issued to Mr. Ferrel pursuant to his anticipated
employment agreement. See "Management--Employment Agreements and
Arrangements with Certain Officers and Directors."
(10) Assumes that SFX Entertainment issues an aggregate of 285,000 shares of
SFX Entertainment Class A Common Stock to Mr. Armstrong pursuant to his
anticipated employment agreement and as a result of his ownership of
options of SFX. See "Management--Employment Agreements and Arrangements
with Certain Officers and Directors" and "Certain Relationships and
Related Transactions--Issuance of Stock to Holders of SFX's Options and
SARs."
(11) In addition to the shares that Mr. Tytel beneficially owns, he has
economic interests in a limited number of shares beneficially owned by
Mr. Sillerman. These interests do not impair Mr. Sillerman's ability to
vote and dispose of those shares. See "Certain Relationships and
Related Transactions--Arrangement Between Robert F.X. Sillerman and
Howard J. Tytel."
(12) Assumes that SFX Entertainment issues an aggregate of 113,614 shares of
SFX Entertainment Class A Common Stock to Mr. Tytel pursuant to his
anticipated employment agreement and as a result of his ownership of
options of SFX. Mr. Tytel has an economic interest in SCMC and TSC,
which together will beneficially own an aggregate of 608,949 shares of
SFX Entertainment Class A Common Stock, although he does not have
voting or dispositive power with respect to the shares beneficially
held by SCMC and TSC. See "Certain Relationships and Related
Transactions--Arrangement Between Robert F.X. Sillerman and Howard J.
Tytel." Does not include options to purchase an aggregate of 25,000
shares of SFX Entertainment Class A Common Stock that are expected to
be issued to Mr. Tytel pursuant to his employment agreement. See
"Management--Employment Agreements and Arrangements with Certain
Officers and Directors" and "Certain Relationships and Related
Transactions--Issuance of Stock to Holders of SFX's Options and SARs."
(13) Assumes that SFX Entertainment issues an aggregate of 19,000 shares of
SFX Entertainment Class A Common Stock to Mr. Benson pursuant to his
anticipated employment agreement and as a result of his ownership of
options of SFX. Does not include options to purchase an aggregate of
10,000 shares of SFX Entertainment Class A Common Stock that are
expected to be issued to Mr. Benson pursuant to his employment
agreement. See "Management--Employment Agreements and Arrangements with
Certain Officers and Directors" and "Certain Relationships and Related
Transactions--Issuance of Stock to Holders of SFX's Options and SARs."
(14) Assumes that SFX Entertainment issues 9,500 shares of SFX Entertainment
Class A Common Stock to Mr. Liese as a result of his ownership of
options of SFX. See "Certain Relationships and Related
Transactions--Issuance of Stock to Holders of SFX's Options and SARs."
(15) Assumes that SFX Entertainment issues 13,000 shares of SFX
Entertainment Class A Common Stock to Mr. O'Grady as a result of his
ownership of options and/or SARs of SFX. See "Certain Relationships and
Related Transactions--Issuance of Stock to Holders of SFX's Options and
SARs." Includes 922 shares issuable pursuant to SFX's director deferred
stock ownership plan.
(16) Assumes that SFX Entertainment issues 13,000 shares of SFX
Entertainment Class A Common Stock to Mr. Kramer as a result of his
ownership of options and/or SARs of SFX. See "Certain Relationships and
Related Transactions--Issuance of Stock to Holders of SFX's Options and
SARs." Includes 922 shares issuable pursuant to SFX's director deferred
stock ownership plan.
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(17) Assumes that SFX Entertainment issues 3,000 shares of SFX Entertainment
Class A Common Stock to Mr. Dugan as a result of his ownership of
options and/or SARs of SFX. See "Certain Relationships and Related
Transactions--Issuance of Stock to Holders of SFX's Options and SARs."
Includes 922 shares issuable pursuant to SFX's director deferred stock
ownership plan.
(18) Based on information contained in Amendment No. 2 to Schedule 13D filed
with the SEC on November 7, 1997. Of these shares, 1,071,429 shares are
held of record by Bedrock Asset Trust I, a Delaware trust established
by Nomura Holdings America Inc. The remaining 249,300 shares are held
directly by Nomura Holdings America Inc., which is controlled by The
Nomura Securities Co., Ltd., a corporation organized under the laws of
Japan.
(19) Based on information contained in Amendment No. 1 to Schedule 13D filed
with the SEC on September 24, 1997. As of September 19, 1997, The
Goldman Sachs Group, L.P., a holding partnership, beneficially owned
689,574 shares, of which 649,574 shares were beneficially owned by
Goldman, Sachs & Co., including 293,952 shares issuable upon conversion
of shares of Series D preferred stock. The Goldman Sachs Group, L.P. is
a general partner of (and owns a 99% interest in) Goldman, Sachs & Co.,
a broker dealer and an investment adviser under the Investment Advisers
Act of 1940.
POSSIBLE CHANGE IN CONTROL
Mr. Sillerman has pledged an aggregate of 793,401 of his shares of SFX's
Class B common stock as collateral for a line of credit, under which Mr.
Sillerman currently has no outstanding borrowings. The pledge extends to all
dividends payable on the pledged shares; accordingly, if the pledge agreement
is in effect at the time of the Spin-Off, and if Proposal 3 in the attached
Proxy Statement is approved, then 793,401 shares of SFX Entertainment Class B
Common Stock distributed to Mr. Sillerman will be subject to the pledge
agreement. Mr. Sillerman continues to be entitled to exercise voting and
consent rights with respect to the pledged shares, with certain restrictions.
However, if Mr. Sillerman defaults in the payment of any future loans
extended to him under the line of credit, the bank will be entitled to sell
the pledged shares. Although the SFX Entertainment Class B Common Stock has
10 votes per share in most matters, the pledged shares will automatically
convert into shares of SFX Entertainment Class A Common Stock upon such a
sale. Such a sale of the pledged shares would reduce Mr. Sillerman's share of
the voting power of the SFX Entertainment Common Stock, and would therefore
be likely to result in a change of control of SFX Entertainment. See "Risk
Factors--Restrictions Imposed by SFX Entertainment's Indebtedness" and
"Description of Indebtedness--Proposed Senior Credit Facility."
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AGREEMENTS WITH SFX
SFX Entertainment and SFX have entered into various agreements with
respect to the Spin-Off and related matters. For a description of the
material terms of these agreements, see "Agreements Between SFX Entertainment
and SFX."
SFX ENTERTAINMENT COMMON STOCK TO BE RECEIVED IN THE SPIN-OFF
In the Spin-Off, the holders of SFX's Class A common stock, Series D
preferred stock and Warrants (upon exercise) will receive shares of SFX
Entertainment Class A Common Stock, whereas Messrs. Sillerman and Ferrel, as
the holders of SFX's Class B common stock (which is entitled to ten votes per
share on most matters), will receive shares of SFX Entertainment Class B
Common Stock (assuming approval of Proposal 3 in the attached Proxy
Statement). The SFX Entertainment Class A Common Stock and Class B Common
Stock have similar rights and privileges, except that the SFX Entertainment
Class B Common Stock differs as to voting rights generally to the extent that
SFX's Class A common stock and Class B common stock presently differ. See
"Description of Capital Stock." The issuance of SFX Entertainment Class B
Common Stock in the Spin-Off is intended to preserve Messrs. Sillerman's and
Ferrel's relative voting power after the Spin-Off. Mr. Sillerman is
anticipated to be deemed to beneficially own approximately 45.7% of the
combined voting power of SFX Entertainment after the Pending Acquisitions,
Spin-Off and stock grants to management. Similarly, Messrs. Sillerman and
Ferrel are anticipated to be deemed to beneficially own approximately 51.0%
of the combined voting power of SFX Entertainment after the Pending
Acquisitions, Spin-Off and stock grants to management. Accordingly, Mr.
Sillerman, alone and together with SFX Entertainment's current directors and
executive officers, will generally be able to control the outcome of the
votes of the stockholders of SFX Entertainment on most matters. SFX
Entertainment and Messrs. Sillerman and Ferrel have agreed in principle that
Messrs. Sillerman and Ferrel will serve as officers and directors of SFX
Entertainment; however, if Proposal 3 in the attached Proxy Statement is not
approved, there can be no assurance that they will serve in that capacity, in
which event SFX intends to pursue alternative means of disposing of SFX
Entertainment. See "The Spin-Off." SFX Entertainment expects, however, that
in such a case Messrs. Sillerman and Ferrel will assist in an orderly
transition of management.
In addition, in August 1997, the board of directors of SFX approved
amendments to the SCMC Warrants (which represent the right to purchase an
aggregate of 600,000 shares of SFX's Class A common stock). The SCMC Warrants
had previously been issued to SCMC, an entity controlled by Mr. Sillerman.
The amendments memorialize the original intent of the directors of SFX that
SCMC receive the aggregate number of shares of SFX Entertainment Class A
Common Stock that it would have received if it had exercised the SCMC
Warrants immediately prior to the Spin-Off Record Date.
ISSUANCE OF STOCK TO HOLDERS OF SFX'S OPTIONS AND SARS
The Board has approved the grant of shares of SFX Entertainment Class A
Common Stock to holders as of the Spin-Off Record Date of the stock options
or SARs of SFX, whether or not vested. These grants were approved by the
Board to allow holders of these options and SARs to participate in the
Spin-Off in a manner similar to holders of SFX's Class A common stock.
Additionally, many of the option and SAR holders will become officers,
directors or employees of SFX Entertainment. These grants will result in the
issuance of an aggregate of up to 793,633 shares of SFX Entertainment Class A
Common Stock. Among those receiving shares will be all members of the Board
other than Mr. Becker.
EMPLOYMENT AGREEMENTS
SFX Entertainment anticipates that it will enter into employment
agreements with each member of its senior management before consummating the
Spin-Off, and that the employment agreements (except for Mr. Becker's
employment agreement) will become effective immediately after the
consummation of the SFX Merger. SFX Entertainment anticipates that the
employment agreements will provide for annual base salaries of $500,000 for
Mr. Sillerman, $350,000 for Mr. Ferrel, $325,000 for Mr. Armstrong, $300,000
for Mr. Tytel and $235,000 for Mr. Benson. In addition, the employment
agreements are expected to
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provide for certain stock and option grants. See "Management--Employment
Agreements and Arrangements with Certain Officers and Directors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Future Charges to Earnings."
DELSENER/SLATER EMPLOYMENT AGREEMENTS
In connection with the Delsener/Slater Acquisition, SFX entered into
employment agreements in January 1997 with Ron Delsener and Mitch Slater
(collectively, the "Delsener/Slater Employment Agreements"), pursuant to
which each of Messrs. Delsener and Slater serve as co-Presidents and co-Chief
Executive Officers of Delsener/Slater. The Delsener/Slater Employment
Agreements will continue until December 31, 2001 unless terminated earlier by
SFX Entertainment for Cause (as defined in the Delsener/Slater Employment
Agreements) or voluntarily by Messrs. Delsener or Slater.
Rights to Repurchase (Or to Offer to Repurchase) Delsener/Slater
Pursuant to the Delsener/Slater Employment Agreements, if, before January
2, 2000, SFX's Board of Directors approves a Change of Control (as defined in
the Delsener/Slater Employment Agreements to include a transaction in which a
third party becomes the beneficial owner of 50% or more of the voting power
of SFX), then Messrs. Delsener and Slater will have the right to purchase the
outstanding capital stock of Delsener/Slater for Fair Market Value (as
defined in the Delsener/Slater Employment Agreements).
Under the Delsener/Slater Employment Agreements, Messrs. Delsener and
Slater each also have a 60-day right to negotiate with SFX to purchase the
capital stock or assets of Delsener/Slater if, before January 2, 2000, SFX
proposes to (a) commence an initial public offering of Delsener/Slater, (b)
sell or transfer capital stock of Delsener/Slater, resulting in SFX no longer
controlling Delsener/Slater, or (c) sell or transfer substantially all of the
assets of Delsener/Slater.
Rights to Receive Additional Cash Payments
In the case of a Return Event (as defined in the Delsener/Slater
Employment Agreements), which may be deemed to include the Spin-Off, the SFX
Merger and related transactions, Messrs. Delsener and Slater will have the
right to receive a portion of the excess of the proceeds of the Return Event,
less a fixed amount determined in reference to the original purchase price
for Delsener/Slater. Management believes that no payment will accrue to
Messrs. Delsener or Slater pursuant to these rights with respect to the
Spin-Off, the SFX Merger and related transactions.
Additionally, the Delsener/Slater Employment Agreements require Messrs.
Delsener and Slater to receive annual bonuses determined with reference to
Delsener/Slater Profits (as defined in the Delsener/Slater Employment
Agreements) for the immediately preceding year. Delsener/Slater Profits for
each year are required to be allocated as follows:
o the first $4.0 million of Delsener/Slater Profits will be retained by
SFX;
o the next $300,000 of Delsener/Slater Profits must be paid to Messrs.
Delsener and Slater; and
o all Delsener/Slater Profits above $4.3 million must be shared 80% by SFX
and 20% by Messrs. Delsener and Slater.
Management believes that no bonus was earned in 1997 pursuant to this
arrangement. However, any bonuses that may accrue to Messrs. Delsener and
Slater in the future will not be available for SFX Entertainment's use to
service its debt or for other purposes.
Possible Amendments to Delsener/Slater Employment Agreements
Messrs. Delsener and Slater and SFX Entertainment are in the process of
negotiating amendments to the Delsener/Slater Employment Agreements to
reflect, among other things, the changes to SFX Entertainment's business as a
result of the Pending Acquisitions and the Spin-Off. Messrs. Delsener and
Slater have agreed in principle to waive any rights to repurchase (or to
offer to repurchase)
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Delsener/Slater, and any rights to receive a portion of the proceeds of a
Return Event, that they might otherwise have in connection with the SFX
Merger or the Spin-Off. However, there can be no assurance that Messrs.
Delsener and Slater will waive these rights on terms acceptable to SFX
Entertainment or that, if not so waived, neither Mr. Delsener nor Mr. Slater
will exercise these rights. These rights may continue to apply in certain
circumstances to transactions after, or unrelated to, the Spin-Off and the
SFX Merger. SFX Entertainment also expects, in connection with the foregoing,
to negotiate mutually satisfactory amendments to certain of Messrs.
Delsener's and Slater's compensation arrangements, including bonus and
profit-sharing provisions.
ASSUMPTION OF EMPLOYMENT AGREEMENTS; CERTAIN CHANGE OF CONTROL PAYMENTS
Pursuant to the terms of the Distribution Agreement, at the time of the
consummation of the SFX Merger, SFX Entertainment will assume all obligations
under any employment agreement or arrangement (whether written or oral)
between SFX or any of its subsidiaries and any employee of SFX Entertainment
(including Messrs. Sillerman and Ferrel), other than obligations relating to
Messrs. Sillerman's and Ferrel's Change of Control Options and existing
rights to indemnification. These assumed obligations include the obligation
to pay to Messrs. Sillerman, Ferrel and Benson, after the termination of
their employment with SFX, cash payments aggregating approximately $3.3
million, $1.5 million and $0.2 million, respectively. These payments will
become due to Messrs. Sillerman, Ferrel and Benson after the termination of
their employment with SFX following a change of control of SFX, pursuant to
their employment agreements with SFX. In addition, SFX Entertainment's
assumed obligations will include the duty to indemnify Messrs. Sillerman and
Ferrel (to the extent permitted by law) for one-half of the cost of any
excise tax that may be assessed against them for any change-of-control
payments made to them by SFX in connection with the SFX Merger.
INDEMNIFICATION OF MR. SILLERMAN
On August 24, 1997, Mr. Sillerman entered into an agreement with SFX, SFX
Buyer and SFX Buyer Sub to waive his right to receive indemnification (except
to the extent covered by directors' and officers' insurance) from SFX, its
subsidiaries, SFX Buyer and SFX Buyer Sub for claims and damages arising out
of the SFX Merger and related transactions. It is anticipated that, in any
employment agreement with Mr. Sillerman, SFX Entertainment will agree to
indemnify Mr. Sillerman for these claims and damages to the fullest extent
permitted by applicable law.
POTENTIAL CONFLICTS OF INTEREST
Marquee is a publicly-traded company that, among other things, acts as
booking agent for tours and appearances for musicians and other entertainers.
Messrs. Sillerman and Tytel have an aggregate equity interest of
approximately 9.2% in Marquee; Mr. Sillerman is the chairman of its board of
directors, and Mr. Tytel is one of its directors. SFX Entertainment
anticipates that, from time to time, it will enter into transactions and
arrangements (particularly, booking arrangements) with Marquee and Marquee's
clients, and it may compete with Marquee for specific concert promotion
engagements. In addition, SFX Entertainment could in the future compete with
Marquee in the production or promotion of motor sports or other sporting
events. These transactions or arrangements will be subject to the approval of
the independent committees of SFX Entertainment and Marquee, except that
booking arrangements in the ordinary course of business will be subject to
periodic review, but not approval of each particular arrangement.
TSC, an entity controlled by Mr. Sillerman and in which Mr. Tytel also has
an equity interest, provides financial consulting services to Marquee and
Triathlon. TSC's services are provided by certain directors, officers and
employees of SFX, who are anticipated to become directors, officers and
employees of SFX Entertainment at the time of consummation of the SFX Merger,
and who are not separately compensated for their services by TSC. Messrs.
Sillerman and Tytel have substantial equity interests in Triathlon. In any
transaction, arrangement or competition with Marquee or Triathlon, Messrs.
Sillerman and Tytel are likely to have conflicts of interest between their
duties as officers and directors of SFX Entertainment, on the one hand, and
their duties as directors of Marquee and their interests in TSC, Marquee and
Triathlon, on the other hand.
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RELATIONSHIP BETWEEN HOWARD J. TYTEL AND BAKER & MCKENZIE
Howard J. Tytel, who is the Executive Vice President, General Counsel,
Secretary and a Director of SFX Entertainment, is "of counsel" to the law
firm of Baker & McKenzie. Mr. Tytel is also an executive vice president, the
general counsel and a director of SFX. Baker & McKenzie serves as counsel to
SFX, SFX Entertainment and certain other affiliates of Mr. Sillerman. Baker &
McKenzie compensates Mr. Tytel based, in part, on the fees it receives from
providing legal services to SFX, other affiliates of Mr. Sillerman and other
clients introduced to the firm by Mr. Tytel.
ARRANGEMENT BETWEEN ROBERT F.X. SILLERMAN AND HOWARD J. TYTEL
Since 1978, Messrs. Sillerman and Tytel have been jointly involved in
numerous business ventures, including SCMC, TSC, MMR, Triathlon, Marquee, SFX
and SFX Entertainment. In consideration for certain services provided by Mr.
Tytel in connection with those ventures, Mr. Tytel has received from Mr.
Sillerman either a minority equity interest in the businesses (with Mr.
Sillerman retaining the right to control the voting and disposition of Mr.
Tytel's interest) or cash fees in an amount mutually agreed upon. Although
Mr. Tytel has not been compensated directly by SFX (except for ordinary fees
paid to him in his capacity as a director), he receives compensation from TSC
and SCMC, companies controlled by Mr. Sillerman, as well as from Mr.
Sillerman personally, with respect to the services he provides to various
entities affiliated with Mr. Sillerman, including SFX. In 1997, these cash
fees aggregated approximately $5.0 million, a portion of which were paid from
the proceeds of payments made by SFX to Mr. Sillerman or entities controlled
by Mr. Sillerman and the proceeds from Mr. Sillerman's exercise for tax
purposes of options granted to him by SFX and subsequent sale of the
underlying shares. It is anticipated that, in connection with the
consummation of the SFX Merger and certain related transactions, Mr. Tytel
will receive shares of SFX Entertainment and cash fees from TSC, SCMC and Mr.
Sillerman personally in an amount to be determined in the future. See
"--Assumption of Employment Agreements; Certain Change of Control Payments."
It is also anticipated that Mr. Tytel will enter into an employment agreement
directly with SFX Entertainment that will be effective at the time of
consummation of the SFX Merger. See "--Employment Agreements."
TRIATHLON FEES
SCMC, a corporation controlled by Mr. Sillerman and in which Mr. Tytel has
an equity interest, has an agreement to provide consulting and marketing
services to Triathlon, a publicly-traded company in which Mr. Sillerman is a
significant stockholder. Under the terms of the agreement, SCMC has agreed to
provide consulting and marketing services to Triathlon until June 1, 2005 for
an annual fee of $500,000, together with a refundable advance of $500,000 per
year against fees earned in respect of transactional investment banking
services. Fees paid by Triathlon for the year ended December 31, 1996 and for
the nine months ended September 30, 1997 were $3,000,000 and $1,693,000,
respectively. These fees will vary (above the minimum annual fee of $500,000)
depending on the level of acquisition and financing activities of Triathlon.
SCMC previously assigned its rights to receive fees payable under this
agreement to SFX. Pursuant to the terms of the Distribution Agreement, SFX
will assign its rights to receive these fees to SFX Entertainment. Triathlon
has previously announced that it is exploring ways of maximizing stockholder
value, including possible sale to a third party. If Triathlon were acquired
by a third party, the agreement might not continue for the remainder of its
term.
RELATIONSHIPS AND TRANSACTIONS WITH SFX
SFX has guaranteed certain payments in connection with the PACE
Acquisition, the Contemporary Acquisition and the Network Acquisition. See
"Agreements Related to the Pending Acquisitions."
Certain members of management of SFX (who are also members of SFX
Entertainment's management) have entered into a number of additional related
party agreements and transactions in connection with the SFX Merger and
certain related transactions. The section entitled "Proposal 1: The
Merger--Interests of Certain Persons in the Merger" in the attached Proxy
Statement describes these agreements and transactions.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Spin-Off, there has not been any public market for SFX
Entertainment Class A Common Stock, and there can be no assurance that a
significant public market for SFX Entertainment Class A Common Stock will
develop or continue after the Spin-Off. Sales of substantial amounts of SFX
Entertainment Class A Common Stock in the public market after the Spin-Off,
or the possibility that these sales may occur, could adversely affect market
prices for SFX Entertainment Class A Common Stock or the future ability of
SFX Entertainment to raise capital through an offering of equity securities.
After the Spin-Off, Pending Acquisitions and other transactions described
in this Prospectus, approximately 18.7 million shares of SFX Entertainment
Class A Common Stock and approximately 1.7 million shares of SFX
Entertainment Class B Common Stock will be outstanding. See "The Spin-Off,"
"Agreements Related to the Pending Acquisitions" and "Management." Shares
distributed in the Spin-Off will be freely tradeable in the public market
without restriction under the Securities Act, unless the shares are held by
"affiliates" of SFX Entertainment (as that term is defined in Rule 144 under
the Securities Act). Of the shares of SFX Entertainment Class A Common Stock
to be issued in conjunction with the Spin-Off, approximately 5,913,713 shares
will be issued to affiliates of SFX Entertainment. These shares held by
affiliates will be eligible for sale subject to compliance with the
provisions of Rule 144 or pursuant to an effective registration statement
filed with the SEC.
Under Rule 144, as recently amended, shares held by affiliates that are
not "restricted securities" may be sold in "brokers' transactions" or to
market makers, in a number of shares no larger within any three-month period
than the greater of (a) one percent of the number of shares of SFX
Entertainment Class A Common Stock then outstanding (approximately 187,000
shares at the time of completion of the Spin-Off, Pending Acquisitions and
other issuances described in this Prospectus) or (b) generally, the average
weekly trading volume in the SFX Entertainment Class A Common Stock during
the four calendar weeks preceding the required filing of a Form 144 with
respect to the sale. Sales under Rule 144 are also subject to certain
requirements pertaining to the availability of current public information
concerning SFX Entertainment. Under Rule 144(k), a person who is not deemed
to have been an affiliate of SFX Entertainment at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years (including the holder of any prior owner other
than an affiliate from whom the shares were purchased), is entitled to sell
the shares without having to comply with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. As an
alternative to sales under Rule 144, shares of SFX Entertainment Class A
Common Stock may be sold without any volume limitations pursuant to an
effective registration statement filed with the SEC.
The board of directors of SFX Entertainment has approved the grant of up
to 793,633 shares of SFX Entertainment Class A Common Stock to holders as of
the Spin-Off Record Date of stock options or SARs of SFX, whether or not
vested. See "Certain Relationships and Related Transactions--Issuance of
Stock to Holders of SFX's Options and SARs." These shares will be "restricted
securities" under Rule 144.
The aggregate of up to 4,216,680 shares of SFX Entertainment Class A
Common Stock issuable in connection with the Pending Acquisitions will be
"restricted securities" under Rule 144 of the Securities Act when issued, but
SFX Entertainment has obligations to register all or a portion of these
shares with the SEC for resale. See "Agreements Related to the Pending
Acquisitions."
In addition, SFX Entertainment anticipates granting options to purchase an
aggregate of approximately 245,000 shares of SFX Entertainment Class A Common
Stock, in conjunction with entering into employment agreements with SFX
Entertainment's executive officers. These options will vest over five years
and will have an exercise price of $5.50 per share. See
"Management--Employment Agreements and Arrangements with Certain Officers and
Directors."
SFX Entertainment has adopted a stock option plan providing for the
issuance of options to purchase up to 2,000,000 shares of SFX Entertainment
Class A Common Stock. No options have been granted to date under the plan.
SFX Entertainment anticipates that in the future it will file a registration
statement with the SEC to register the shares issuable upon exercise of
options granted under the plan.
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Furthermore, approximately 1.7 million shares of SFX Entertainment Class
B Common Stock will be outstanding after the Spin-Off and anticipated stock
grants, which may be converted at any time into shares of SFX Entertainment
Class A Common Stock.
DESCRIPTION OF CAPITAL STOCK
At the time of the Spin-Off, the authorized capital stock of SFX
Entertainment will consist of 110,000,000 shares of common stock (comprised
of 100,000,000 shares of SFX Entertainment Class A Common Stock and
10,000,000 shares of SFX Entertainment Class B Common Stock), par value $.01
per share, and 25,000,000 shares of preferred stock, par value $.01 per
share. The following descriptions of the common stock and the preferred stock
are summaries, and are qualified in their entirety by reference to the
detailed provisions of the SFX Entertainment Certificate (which is attached
as Annex E to the accompanying Proxy Statement) and the SFX Entertainment
By-laws (which were filed as an exhibit to the SFX Entertainment Registration
Statement). See "Additional Information."
COMMON STOCK
Shares Outstanding
As of February 13, 1998, there are issued and outstanding 1,000 shares of
SFX Entertainment Class A Common Stock and 1,000 shares of SFX Entertainment
Class B Common Stock. All of these shares are validly issued, fully paid and
nonassessable.
After the consummation of the Spin-Off, Pending Acquisitions and other
issuances described in this Prospectus, it is anticipated that there will be
issued and outstanding approximately 18,700,000 shares of SFX Entertainment
Class A Common Stock and 1,697,037 shares of SFX Entertainment Class B Common
Stock. All of these shares will be validly issued, fully paid and
nonassessable.
Dividends
Although no dividends are anticipated to be paid on the SFX Entertainment
Common Stock in the foreseeable future, holders of common stock are entitled
to receive any dividends (payable in cash, stock, or otherwise) that are
declared thereon by the Board at any time and from time to time out of funds
legally available for that purpose. No dividend may be declared or paid in
cash or property on either class of common stock, unless the same dividend is
simultaneously declared or paid on the other class of common stock. If
dividends are declared that are payable in shares of SFX Entertainment Common
Stock, then the stock dividends will be payable at the same rate on each
class of common stock and will be payable only in shares of SFX Entertainment
Class A Common Stock to holders of SFX Entertainment Class A Common Stock and
in shares of SFX Entertainment Class B Common Stock to holders of SFX
Entertainment Class B Common Stock. If dividends are declared that are
payable in shares of common stock of another corporation, then the shares
paid may differ as to voting rights to the extent that voting rights differ
among the SFX Entertainment Class A Common Stock and the SFX Entertainment
Class B Common Stock.
Voting Rights
Holders of SFX Entertainment Class A Common Stock and SFX Entertainment
Class B Common Stock vote as a single class on all matters submitted to a
vote of the stockholders, with each share of SFX Entertainment Class A Common
Stock entitled to one vote and each share of SFX Entertainment Class B Common
Stock entitled to ten votes, except (a) for the election of directors, (b)
with respect to any "going private" transaction between SFX Entertainment and
Robert F.X. Sillerman or any of his affiliates and (c) as otherwise provided
by law.
In the election of directors, the holders of shares of SFX Entertainment
Class A Common Stock, voting as a separate class, are entitled to elect two
sevenths of SFX Entertainment's directors (each, a "Class A Director"). Any
person nominated by the Board for election by the holders of SFX
Entertainment Class A Common Stock as a director of SFX Entertainment must be
qualified to be an
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"Independent Director" (as defined in the SFX Entertainment Certificate). If
a Class A Director dies, is removed or resigns before his term expires, then
that director's vacancy on the Board may be filled by any person appointed by
a majority of the directors then in office, although less than a quorum. Any
person appointed to fill the vacancy must, however, be qualified to be an
Independent Director. The holders of SFX Entertainment Class A Common Stock
and SFX Entertainment Class B Common Stock, voting as a single class, with
each share of SFX Entertainment Class A Common Stock entitled to one vote and
each share of SFX Entertainment Class B Common Stock entitled to ten votes,
are entitled to elect the remaining directors. The holders of SFX
Entertainment Common Stock are not entitled to cumulative votes in the
election of directors. Mr. Sillerman has agreed to abstain, and has agreed to
cause each of his affiliates to abstain, from voting in any election of Class
A Directors.
The initial Class A Directors are Messrs. Dugan, Kramer and O'Grady. If
the SFX Merger Agreement is terminated, each of these individuals has
indicated that he will promptly resign from his position as a director of SFX
Entertainment, and the board of directors of SFX Entertainment will appoint
three different Class A Directors, to serve until the next annual meeting of
the stockholders of SFX Entertainment.
The holders of the SFX Entertainment Class A Common Stock and SFX
Entertainment Class B Common Stock vote as a single class with respect to any
proposed "going private" transaction with Mr. Sillerman or any of his
affiliates, with each share of SFX Entertainment Class A Common Stock and SFX
Entertainment Class B Common Stock entitled to one vote.
Under Delaware law, the affirmative vote of the holders of a majority of
the outstanding shares of any class of common stock is required to approve,
among other things, a change in the designations, preferences or limitations
of that class of common stock.
Liquidation Rights
Upon liquidation, dissolution or winding-up of SFX Entertainment, after
distribution in full of any preferential amounts required to be distributed
to holders of preferred stock, the holders of SFX Entertainment Class A
Common Stock will be entitled to share ratably with the holders of SFX
Entertainment Class B Common Stock all assets available for distribution
after payment in full of creditors.
Conversion
Each share of SFX Entertainment Class B Common Stock is convertible at any
time, at the holder's option, into one share of SFX Entertainment Class A
Common Stock. Each share of SFX Entertainment Class B Common Stock converts
automatically into one share of SFX Entertainment Class A Common Stock (a) at
the time of its sale or transfer to a party not affiliated with SFX
Entertainment or (b) in the case of shares held by Mr. Sillerman or any of
his affiliates, at the time of Mr. Sillerman's death.
Other Provisions
The holders of SFX Entertainment Common Stock are not entitled to
preemptive or subscription rights. In any merger, consolidation or business
combination, the consideration to be received per share by holders of SFX
Entertainment Class A Common Stock must be identical to that received by
holders of SFX Entertainment Class B Common Stock, except that in any such
transaction in which shares of common stock are to be distributed, the
distributed shares may differ as to voting rights to the extent that voting
rights now differ among the SFX Entertainment Class A Common Stock and the
SFX Entertainment Class B Common Stock. SFX Entertainment may not subdivide
(by any stock split, reclassification, stock dividend, recapitalization, or
otherwise) or combine the outstanding shares of either class of SFX
Entertainment Common Stock unless the outstanding shares of both classes are
proportionately subdivided or combined.
Transfer Agent and Registrar
The transfer agent and registrar for the SFX Entertainment Class A Common
Stock and the SFX Entertainment Class B Common Stock is Chase Mellon
Shareholder Services, L.L.C.
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PREFERRED STOCK
As of February 13, 1998, there are no shares of SFX Entertainment's
preferred stock, par value $.01 per share, outstanding and there are 1,000
shares of preferred stock authorized. After the consummation of the Spin-Off
and the Pending Acquisitions, it is anticipated that SFX Entertainment will
have 25,000,000 shares of preferred stock authorized, with no shares of
preferred stock issued and outstanding. However, SFX Entertainment may, under
certain circumstances, be required to issue shares of preferred stock in
conjunction with the Contemporary Acquisition. See "Agreements Related to the
Pending Acquisitions--Contemporary Acquisition."
The Board has the authority to issue this preferred stock in one or more
series and to fix the number of shares and the relative designations and
powers, preferences, and rights, and qualifications, limitations, and
restrictions thereof, without further vote or action by the stockholders. If
shares of preferred stock with voting rights are issued, the voting rights of
the holders of SFX Entertainment Common Stock could be diluted by increasing
the number of outstanding shares having voting rights, and by creating class
or series voting rights. If the Board authorizes the issuance of shares of
preferred stock with conversion rights, the number of shares of common stock
outstanding could potentially be increased by up to the authorized amount.
Issuances of preferred stock could, under certain circumstances, have the
effect of delaying or preventing a change in control of SFX Entertainment and
may adversely affect the rights of holders of SFX Entertainment Common Stock.
Also, the preferred stock could have preferences over the common stock (and
other series of preferred stock) with respect to dividend and liquidation
rights. There are no shares of preferred stock outstanding, and SFX
Entertainment currently has no plans to issue any preferred stock, except in
connection with the Contemporary Acquisition.
WARRANTS AND OTHER SECURITIES OF SFX
IPO Warrants
MMR, a company previously controlled by Mr. Sillerman, granted the IPO
Warrants to the underwriters of its initial public offering in July 1993.
When SFX acquired MMR, the IPO Warrants converted into warrants to purchase
SFX's Class A common stock. Pursuant to the terms of the IPO Warrants, their
holders will be entitled to receive, upon exercise after the Spin-Off Record
Date, the number of shares of SFX Entertainment Class A Common Stock that
they would be entitled to receive if the IPO Warrants were exercised before
the Spin-Off Record Date. As of February 9, 1998, there are outstanding
32,289 IPO Warrants, which have the right to purchase an aggregate of 36,289
shares of SFX's Class A common stock at an aggregate price per share of
$22.36, which will require the transfer of 36,289 shares of SFX Entertainment
Class A Common Stock into escrow at the time of the Spin-Off. See "The
Spin-Off--Manner of Effecting the Spin-Off."
SCMC Warrants
Prior to April 1996, SCMC, a corporation controlled by Mr. Sillerman,
provided advisory services to SFX from time to time with respect to specific
transactions. In April 1996, SFX and SCMC agreed to terminate the arrangement
pursuant to which SFX compensated SCMC for financial consulting services.
Pursuant to the termination agreement, among other things, SFX issued to SCMC
the SCMC Warrants to purchase up to 600,000 shares of SFX's Class A common
stock at an exercise price, subject to adjustment, of $33.75 per share (the
market price at the time of the termination agreement). A committee of SFX's
independent directors approved the termination transaction. A
nationally-recognized investment banking firm provided to the independent
directors its written opinion that, as of the date the termination agreement
was entered into, the consideration offered by SFX to SCMC pursuant to the
agreement was fair, from a financial point of view, to SFX. The SCMC Warrants
were subsequently amended to provide for the receipt of an aggregate of
600,000 shares of SFX Entertainment Class A Common Stock upon exercise. See
"Certain Relationships and Related Transactions--SFX Entertainment Common
Stock to Be Received in the Spin-Off." As of February 13, 1998, all of the
SCMC Warrants remain outstanding, and therefore 600,000 shares of SFX
Entertainment Class A Common Stock will be transferred into escrow at the
time of the Spin-Off. See "The Spin-Off--Manner of Effecting the Spin-Off."
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Director Deferred Stock Ownership Plan
SFX has adopted a director deferred stock ownership plan, in which Messrs.
Dugan, Kramer and O'Grady are the sole participants. Under this plan, each
participant receives an annual fee of $20,000, payable in shares of SFX's
Class A common stock to a bookkeeping account maintained for that person. As
of the date of this Prospectus, 922 shares of SFX's Class A common stock had
been credited to each participant's account. The plan provides that, if there
is a change in the capitalization of SFX (such as the Spin-Off), an
appropriate adjustment will be made to the number and kind of shares held in
the directors' accounts. On January 15, 1998, the committee overseeing the
plan determined that the adjustment occasioned by the Spin-Off would consist
of the issuance to each participant of one share of SFX Entertainment Class A
common stock per share of SFX's Class A common stock held in that
participant's account on the Spin-Off Record Date.
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DESCRIPTION OF INDEBTEDNESS
NOTES
The following is a summary of the material terms contained in the
Indenture. This summary is not complete. It is subject to the terms of the
Indenture, which was filed as an exhibit to the SFX Entertainment
Registration Statement. See "Available Information."
On February 11, 1998, SFX Entertainment consummated the private placement
of $350.0 million in aggregate principal amount of 9 1/8% Senior Subordinated
Notes due 2008. The Notes bear interest at an annual interest rate of 9 1/8%,
and interest payments will be due semi-annually, commencing August 1, 1998.
The Notes will mature on February 1, 2008. The Proposed Notes do not contain
any sinking fund provision.
Ranking
The Notes are general unsecured obligations of SFX Entertainment,
subordinate in right to all Senior Debt (as defined in the Indenture),
whether outstanding on the date of the Indenture or thereafter incurred, of
SFX Entertainment and senior in right of payment to or pari passu with all
other indebtedness of SFX Entertainment. On a pro forma basis giving effect
to the Financing, the Pending Acquisitions, the Spin-Off and the SFX Merger,
SFX Entertainment would have had approximately $498.8 million of indebtedness
outstanding, of which $148.8 million would have been Senior Debt (excluding
letters of credit) at September 30, 1997. See "Capitalization."
Subsidiary Guarantees
SFX Entertainment's payment obligations under the Notes are jointly and
severally guaranteed on a senior subordinated basis by all of its current and
future domestic subsidiaries, with certain specified exceptions.
Optional Redemption
Except as noted below, the Notes are not redeemable at SFX Entertainment's
option before February 1, 2003. Thereafter, the Notes will be subject to
redemption at any time at the option of SFX Entertainment, in whole or in
part, at specified redemption prices plus accrued and unpaid interest and
Liquidated Damages (as defined in the Indenture), if any, thereon to the
applicable redemption date. In addition, at any time prior to February 1,
2001, SFX Entertainment may on any one or more occasions redeem up to 35.0%
of the original aggregate principal amount of Notes at a redemption price of
109.125% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of redemption, with the
net proceeds of one or more offerings of common equity of SFX Entertainment.
However, at least 65.0% of the original aggregate principal amount of Notes
must remain outstanding immediately after each occurrence of redemption.
Change of Control
After the occurrence of a Change of Control (as defined in the Indenture),
SFX Entertainment will be required to make an offer to repurchase the Notes
at a price equal to 101% of their principal amount, together with accrued and
unpaid interest and Liquidated Damages, if any, to the date of purchase.
Certain Covenants
The Indenture contains certain covenants that, among other things, limit
the ability of SFX Entertainment and its subsidiaries to (a) incur additional
Indebtedness (as defined in the Indenture), (b) issue preferred stock, (c)
pay dividends, (d) make certain other restricted payments, (e) create certain
Liens (as defined in the Indenture), (f) enter into certain transactions with
affiliates, (g) sell assets of SFX Entertainment or its Restricted
Subsidiaries (as defined in the Indenture), (h) issue or sell Equity
Interests (as defined in the Indenture) of SFX Entertainment's Restricted
Subsidiaries or (i) enter into certain mergers and consolidations. In
addition, under certain circumstances, SFX Entertainment will be required to
offer to purchase Notes at a price equal to 100.0% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to
the date of purchase, with the proceeds of certain Asset Sales (as defined in
the Indenture).
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Exchange Offer; Registration Rights
Pursuant to a registration rights agreement among SFX Entertainment and
the initial purchasers of the Notes, SFX Entertainment must use its best
efforts to file a registration statement with the SEC with respect to an
offer to exchange the Notes for a new issue of debt securities registered
under the Securities Act, with terms identical in all material respects to
those of the Notes. If (a) this exchange offer is not permitted by applicable
law or (b) any holder of Transfer Restricted Securities (as defined in the
Indenture) notifies SFX Entertainment that (i) it is prohibited by law or SEC
policy from participating in the exchange offer, (ii) it may not resell the
new issue of debt securities to be acquired by it in the exchange offer to
the public without delivering a prospectus, and the prospectus contained in
the registration statement is not appropriate or available for those resales,
or (iii) it is a broker-dealer and holds Notes acquired directly from SFX
Entertainment or an affiliate of SFX Entertainment, then SFX Entertainment
will be required to provide a shelf registration statement to cover resales
of the Notes by their holders. If SFX Entertainment fails to satisfy these
registration obligations, it will be required to pay Liquidated Damages to
the holders of Notes under certain circumstances.
Transfer Restrictions
The Notes have not been registered under the Securities Act, and may not
be offered or sold except pursuant to an exemption from (or in a transaction
not subject to) the registration requirements of the Securities Act.
PROPOSED CREDIT FACILITY
The following is a summary of the material terms expected to be contained
in the Proposed Credit Facility. This summary is not complete. It is subject
to, and qualified in its entirety by reference to, the Commitment Letter (as
defined below), which has been filed as an exhibit to the SFX Entertainment
Registration Statement. There can be no assurance that SFX Entertainment will
be able to enter into the Proposed Credit Facility on the terms described
herein, or at all.
SFX Entertainment has received a commitment letter (the "Commitment
Letter") from The Bank of New York ("BNY") to act as the Administrative Agent
for--and from BNY Capital Markets, Inc., Lehman Brothers Inc. and Goldman
Sachs Credit Partners L.P. to act as the Arrangers for--$300.0 million of
senior secured credit facilities. The Proposed Credit Facility is to be
comprised of (a) the Proposed Term Loan, a $150.0 million eight-year term
loan, and (b) the Proposed Revolver, a $150.0 million seven-year reducing
revolving credit facility. Subsequent to, and conditioned upon, the
consummation of the PACE Acquisition, SFX Entertainment anticipates the
execution and delivery of the definitive documents governing the Proposed
Credit Facility (the "Credit Facility Closing Date"). SFX Entertainment
currently anticipates that, on the Credit Facility Closing Date, the Proposed
Term Loan will be fully funded and that a portion of the Proposed Revolver
will be drawn. The following discussion summarizes the material terms and
conditions of the Commitment Letter; it is subject to the final provisions of
the definitive documents governing the Proposed Credit Facility.
General
The Proposed Credit Facility is expected to provide for borrowings in a
principal amount of up to $300.0 million, subject to certain covenants and
conditions. Borrowings under the Proposed Credit Facility may be used by SFX
Entertainment to finance Permitted Acquisitions (as defined in the Commitment
Letter), for working capital and for general corporate purposes. Up to $20.0
million of the Proposed Revolver will be available for the issuance of
standby letters of credit. Each Permitted Acquisition must be in the same
line of business (or other business incidental or related thereto) as SFX
Entertainment and, with the exception of the Pending Acquisitions, must have
the prior written consent of the Required Lenders (as defined in the
Commitment Letter) if the cost of the Permitted Acquisition exceeds $50.0
million.
Interest Rates; Fees
Loans outstanding under the Proposed Credit Facility will bear interest,
at SFX Entertainment's option, at certain spreads over LIBOR or the greater
of the Federal Funds rate plus 0.50% or BNY's
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prime rate. The interest rate spreads on the Proposed Term Loan and the
Proposed Revolver will be adjusted based on SFX Entertainment's Total
Leverage Ratio (as defined below). SFX Entertainment will pay an annual
commitment fee on unused availability under the Proposed Revolver of 0.50% if
SFX Entertainment's Total Leverage Ratio is greater than or equal to 4.0 to
1.0, and 0.375% if that ratio is less than 4.0 to 1.0. SFX Entertainment will
also pay an annual letter of credit fee equal to the Applicable LIBOR Margin
(as defined in the Commitment Letter) for the Proposed Revolver then in
effect.
Mandatory Prepayments and Commitment Reductions
Commitments to lend under the Proposed Revolver will be reduced in equal
quarterly installments commencing March 31, 2000 in annual percentages of the
borrowings under the Proposed Revolver as of December 31, 1999 according to
the following schedule: by 10.0% in 2000; by 15.0% in 2001; by 20.0% in 2002;
by 25.0% in 2003; by 25.0% in 2004; and by the remaining 5.0% upon final
maturity. The Proposed Term Loan will be reduced by $1.0 million per year
until final maturity, at which point the remaining balance will be due and
payable. Amounts outstanding under the Proposed Credit Facility will be
subject to, among others, the following mandatory prepayments, which will
also permanently reduce commitments: (a) 100.0% of the net cash proceeds
received from permitted Asset Sales (as defined in the Commitment Letter),
subject to standard reinvestment provisions; (b) 50.0% of Excess Cash Flow
(as defined in the Commitment Letter), calculated for each fiscal year
beginning with the year ending December 31, 2000; and (c) 50.0% of net
proceeds of any equity issuance, to the extent that the Total Leverage Ratio
is greater than or equal to 5.0 to 1.0.
Collateral and Guarantees
Each of SFX Entertainment's present and future direct and indirect
domestic subsidiaries (the "Senior Guarantors") must provide guarantees under
the Proposed Credit Facility. In order to secure its obligations under the
Proposed Credit Facility, SFX Entertainment and each of the Senior Guarantors
must also pledge to the lenders a continuing security interest in all of
their tangible assets (subject to certain non-material exceptions), all of
the capital stock of each Senior Guarantor and not less than 66-2/3% of the
capital stock of SFX Entertainment's present and future direct and indirect
foreign subsidiaries.
Conditions Precedent; Covenants
The lenders' obligations to extend credit under the Proposed Credit
Facility will be subject to the satisfaction of certain conditions precedent,
including:
o the contribution by SFX to SFX Entertainment of all of its existing
concert promotion and live entertainment businesses;
o the acquisition by SFX Entertainment or any Senior Guarantor of not
less than 85.0% of the capital stock of PACE on terms acceptable to the
Administrative Agent and the refinancing of all outstanding debt of
PACE; and
o the execution of definitive purchase agreements on terms acceptable to
the Administrative Agent for the purchase of BGP, Concert/Southern,
Network, Contemporary, 100.0% of the ownership interests in Pavilion
Partners and 100.0% of the ownership of Riverport Amphitheater.
The Proposed Credit Facility may contain various covenants that, subject to
certain specified exceptions, will restrict SFX Entertainment's and its
subsidiaries' ability to:
o incur additional indebtedness and other obligations;
o grant liens;
o consummate mergers, acquisitions, investments and asset dispositions;
o declare or pay Restricted Payments (as defined in the Commitment
Letter);
o declare or pay dividends, distributions and other prepayments or
repurchases of other indebtedness;
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o amend certain agreements, including SFX Entertainment's organizational
documents, the Proposed Notes and the Proposed Indenture;
o enter into partnerships and joint ventures;
o engage in transactions with affiliates;
o form subsidiaries; and
o change lines of business.
The Proposed Credit Facility will also include covenants relating to
compliance with ERISA, environmental and other laws, payment of taxes,
maintenance of corporate existence and rights, maintenance of insurance and
financial reporting. In addition, the Proposed Credit Facility will require
SFX Entertainment to maintain compliance with certain specified financial
covenants relating to:
o a maximum ratio (the "Total Leverage Ratio") of (a) all outstanding
amounts under the Proposed Credit Facility and any other borrowed money
and similar type indebtedness (including capital lease obligations) of
SFX Entertainment and its subsidiaries, on a consolidated basis ("Total
Debt"), less cash and cash equivalents in excess of $5.0 million, to
(b) for the most recently completed four fiscal quarters, (i) revenues
less (ii) expenses (excluding depreciation, amortization other than
capitalized pre-production costs, interest expense and income tax
expense), plus (iii) non-recurring expense items or non-cash expense
items mutually agreed upon by SFX Entertainment and the Required
Lenders, plus (iv) the lesser of (A) the equity income from
Unconsolidated Investments (as defined in the Commitment Letter) and
(B) cash dividends and other cash distributions from Unconsolidated
Investments (however, the total amount determined under this clause
(iv) will not exceed 10.0% of Operating Cash Flow before overhead) (the
amount referred to in this clause (b), "Operating Cash Flow");
Operating Cash Flow is to be adjusted to reflect acquisitions and
dispositions consummated during the calculation period as if those
transactions were consummated at the beginning of the period;
o a maximum ratio (the "Senior Leverage Ratio") of (a) Total Debt less
the principal amount outstanding under the Proposed Notes to, less cash
and cash equivalents in excess of $5.0 million, to (b) Operating Cash
Flow;
o a minimum ratio (the "Pro Forma Interest Expense Ratio") of (a)
Operating Cash Flow to (b) the sum of all interest expense and
commitment fees calculated for the four fiscal quarters following the
calculation quarter, giving effect to the Total Debt outstanding and
the interest rates in effect as of the date of the determination and
the commitment reductions and debt amortization scheduled during that
period;
o a minimum ratio (the "Debt Service Ratio") of (a) Operating Cash Flow
to (b) the sum of (i) the sum of all interest expense and commitment
fees calculated for the four fiscal quarters following the calculation
quarter, giving effect to the Total Debt outstanding and the interest
rates in effect as of the date of the determination and the commitment
reductions and debt amortization scheduled during that period and (ii)
the scheduled current maturities of Total Debt and current commitment
reductions with respect to the Proposed Revolver, each measured for the
four fiscal quarters immediately succeeding the date of determination;
and
o a minimum ratio (the "Fixed Charges Ratio") of (a) the sum of Operating
Cash Flow (before any adjustments to reflect acquisitions, sales and
exchanges) to (b) the sum of, for the four most recently completed
fiscal quarters, the following paid during that period: (i) Interest
Expense (as defined in the Commitment Letter) plus the scheduled
maturities of Total Debt and current commitment reductions with respect
to the Proposed Revolver, (ii) cash income taxes, (iii) capital
expenditures (excluding certain special capital expenditures to be
mutually agreed upon) and (iv) Unconsolidated Investments (as defined
in the Commitment Letter).
It is anticipated that the Total Leverage Ratio may not at any time exceed
(a) 6.75x from the Credit Facility Closing Date to September 29, 1998, (b)
6.50x from September 30, 1998 to December 30, 1998,
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(c) 6.25x from December 31, 1998 to June 29, 1999, (d) 5.75x from June 30,
1999 to December 30, 1999, (e) 5.25x from December 31, 1999 to December 30,
2000, (f) 4.50x from December 31, 2000 to December 30, 2001 and (g) 3.75x on
December 31, 2001 and thereafter.
The Senior Leverage Ratio may not at any time exceed (a) 3.75x from the
Credit Facility Closing Date to September 29, 1998, (b) 3.50x from September
30, 1998 to December 30, 1998, (c), 3.25x from December 31, 1998 to December
30, 1999, (d) 3.00x from December 31, 1999 to December 30, 2000 and (e) 2.50x
on December 31, 2000 and thereafter.
The Pro Forma Interest Expense Ratio may not at the end of any fiscal
quarter be less than (a) 1.50x from the Credit Facility Closing Date to
December 31, 1998 and (b) 2.00x on January 1, 1999 and thereafter.
The Pro Forma Debt Service Ratio may not at any fiscal quarter end be less
than (a) 1.25x from the Credit Facility Closing Date to December 31, 1998 and
(b) 1.50x on January 1, 1999 and thereafter.
The Fixed Charges Ratio may not at any quarter end be less than 1.00x.
The Proposed Credit Facility will also prohibit prepayment or defeasance
of the Notes.
Events of Default
The Proposed Credit Facility will contain customary events of default,
including payment defaults, the occurrence of a Change of Control (as defined
in the Commitment Letter), the invalidity of guarantees or security documents
under the Proposed Credit Facility, any Material Adverse Change (as defined
in the Commitment Letter), breach of any representation or warranty under the
Proposed Credit Facility and any cross-default to other indebtedness of SFX
Entertainment and its subsidiaries. The occurrence of any event of default
could result in termination of the commitments to extend credit under the
Proposed Credit Facility and foreclosure on the collateral securing those
obligations, each of which, individually, could have a material adverse
effect on SFX Entertainment.
OTHER DEBT
SFX Entertainment also has approximately $16.5 million of long-term debt
outstanding, which was incurred primarily in connection with its recently
completed acquisitions. See Note 5 to the notes to the Consolidated Financial
Statements of SFX Entertainment.
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ADDITIONAL INFORMATION
By the time of the Spin-Off, SFX Entertainment will be a reporting company
under the Exchange Act. SFX Entertainment has filed the SFX Entertainment
Registration Statement on Form S-1 under the Securities Act with the SEC with
respect to the SFX Entertainment Common Stock described in this Prospectus.
This Prospectus, which is part of the SFX Entertainment Registration
Statement, does not contain all of the information set forth in the SFX
Entertainment Registration Statement and the exhibits thereto. For further
information with respect to SFX Entertainment and its common stock offered
hereby, reference is hereby made to the SFX Entertainment Registration
Statement (No. 333-43287) and its exhibits, which may be inspected without
charge at the office of the SEC at 450 Fifth Street, NW, Washington, D.C.
20549 and at the regional offices of the SEC located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at 500 West Madison (Suite
1400), Chicago, Illinois 60661. Copies of this material may also be obtained
at prescribed rates from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549. The SEC maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements
and other information regarding issuers that file electronically with the
SEC. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete; in each
instance, reference is made to the copy of the contract or document filed as
an exhibit to the SFX Entertainment Registration Statement, and each such
statement is qualified in all respects by this reference.
In addition, SFX is a reporting company under the Exchange Act and
therefore files reports, proxy statements and other materials with the SEC.
SFX's reports, proxy statements and other filed materials are available as
discussed above for SFX Entertainment.
LEGAL MATTERS
The validity of the shares of SFX Entertainment Common Stock to be issued
in connection with the Spin-Off will be passed upon for SFX Entertainment by
Baker & McKenzie, New York, New York. Howard J. Tytel, who is an executive
officer and director of and is anticipated after the Spin-Off to have an
equity interest in SFX Entertainment, and who has an equity interest in SFX,
TSC and SCMC and is an executive officer and director of those entities, is
Of Counsel to Baker & McKenzie. See "Management," "Principal Stockholders of
SFX Entertainment" and "Certain Relationships and Related Transactions."
EXPERTS
The consolidated financial statements of SFX Entertainment, Inc. and
Subsidiaries as of September 30, 1997, and for the nine months ended
September 30, 1997; the combined financial statements of Delsener/Slater
Enterprises, Ltd. and Affiliated Companies (Predecessor) as of December 31,
1995 and 1996, and for the years ended December 31, 1994, 1995 and 1996; the
consolidated financial statements of PACE Entertainment Corporation and
Subsidiaries as of September 30, 1996, and for the years ended September 30,
1995 and 1996; the combined financial statements of Contemporary Group as of
September 30, 1996 and December 31, 1996, and for the nine months ended
September 30, 1997 and year ended December 31, 1996; the combined financial
statements of SJS Entertainment Corporation and Affiliated Company as of
December 31, 1996, and for the year ended December 31, 1996; the combined
financial statements of The Album Network, Inc. and Affiliated Companies as
of September 30, 1996 and 1997, and for the years ended September 30, 1996
and 1997; the consolidated financial statements of BG Presents, Inc. and
Subsidiaries as of January 31, 1996 and 1997 and for the years ended January
31, 1996 and 1997; and the combined financial statements of Concert/Southern
Promotions and Affiliated Companies as of September 30, 1997 and for the nine
months ended September 30, 1997, included in the Prospectus and Registration
Statement of SFX Entertainment have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance on such reports given on the
authority of such firm as experts in accounting and auditing.
Arthur Andersen LLP, independent public accountants, audited the following
financial statements (as set forth in their reports thereon appearing
elsewhere herein and in the SFX Entertainment
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Registration Statement), each appearing in this Prospectus and the SFX
Entertainment Registration Statement: the combined financial statements of
Connecticut Performing Arts, Inc. and Connecticut Performing Arts Partners as
of December 31, 1995 and 1996, and for the years ended December 31, 1994,
1995 and 1996; the combined financial statements of Deer Creek Partners, L.P.
and Murat Centre, L.P. as of December 31, 1995 and 1996, and for the years
ended December 31, 1994, 1995 and 1996 the consolidated financial statements
of PACE Entertainment Corporation and Subsidiaries as of September 30, 1997,
and for the year ended September 30, 1997; the consolidated financial
statements of Pavilion Partners as of September 30, 1997, and for the year
ended September 30, 1997, which are included in reliance on such reports
given on the authority of such firm as experts in accounting and auditing.
The financial statements of Pavilion Partners for the year ended October
31, 1995, for the eleven months ended September 30, 1996 and as of September
30, 1996 included in this Prospectus and the SFX Entertainment Registration
Statement have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts
in auditing and accounting.
The Board expects to appoint Ernst & Young LLP as SFX Entertainment's
independent auditors to audit SFX Entertainment's financial statements.
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INDEX TO DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
-----------------
<S> <C>
Acquisition Businesses ................ D-4
Adjusted EBITDA ....................... D-13
AEP ................................... D-61
AKG ................................... F-124
Album Network ......................... D-72
Amphitheatre .......................... F-137
Becker Employment Agreement ........... D-65
Becker Right of First Refusal ......... D-65
Becker Second Year Option ............. D-65
BGE ................................... F-124
BGM ................................... F-124
BGP ................................... D-1, F-124
BGP Acquisition ....................... D-6
BGP Acquisition Sub ................... D-70
BGP Agreement ......................... D-42, D-70
BGP Sellers ........................... D-70
BGPI .................................. F-124
Blockbuster Acquisition ............... D-64
Blockbuster Agreement ................. D-64
Blockbuster Group ..................... D-64
Blockbuster Sub ....................... D-36
BNY ................................... D-137
Board ................................. D-22
Broadcasting .......................... F-8, F-26
Broadcasting Merger ................... F-8
Broadway Shows ........................ D-28
Buyer ................................. F-8
CCMI .................................. F-135
CDA ................................... F-13
Chastain Ventures ..................... F-135
CIC ................................... F-93
Class A Director ...................... D-132
CMI ................................... F-93
Commitment Letter ..................... D-137
Companies ............................. F-25, F-93,
F-112, F-124,
F-135
Company ............................... F-8, F-25, F-103,
F-112, F-124
Concerts .............................. F-8
Concert/Southern ...................... D-1, F-135
Concert/Southern Agreement ............ D-43
Concert/Southern Asset Companies ..... D-74
Concert/Southern Joint Ventures ...... D-74
Concert/Southern Sale Companies ...... D-74
Concert/Southern Sellers .............. D-75
Contemporary .......................... D-1
Contemporary Acquisition .............. D-6
Contemporary Agreement ................ D-42
Contemporary Asset Acquisition ....... D-66
Contemporary Group .................... F-93
Contemporary International ............ D-66
Contemporary Merger ................... D-66
Credit Facility Closing Date .......... D-137
Debt Service Ratio .................... D-139
Delsener/Slater ....................... D-6, F-8
Delsener/Slater Employment Agreements D-128
DGCL .................................. D-26
Distribution Agent .................... D-10
Distribution Agreement ................ D-1
EBITDA ................................ D-13
Employee Benefits Agreement ........... D-50
Entertainment Business ................ D-1
Escrow Agent .......................... D-10
Estimated Working Capital ............. D-51
Excess Debt ........................... D-52
Exchange Act .......................... D-14
Executive Officers .................... D-118
FF .................................... F-124
Fifth Year Put Option ................. D-13
Final Working Capital ................. D-51
Financing ............................. D-1, F-8
Fixed Charges Ratio ................... D-139
GAAP .................................. D-13
HSR Act ............................... D-17
Indenture ............................. D-16
IPO Warrants .......................... D-48
IRS ................................... F-114
Jones Beach Loan ...................... F-26
Marquee ............................... D-23
Master Account ........................ F-136
Meadows ............................... F-8
Meadows Repurchase .................... D-113
MMR ................................... D-48
Nasdaq National Market ................ D-1
Network ............................... D-1
Network 40 ............................ D-72
Network Acquisition ................... D-6
Network Agreement ..................... D-42
Network Cash Consideration ............ D-72
Network Earn-Out EBITDA ............... D-72
Network Magazine ...................... D-40
Network Sellers ....................... D-72
Network Stock Consideration ........... D-72
Network Sub ........................... D-72
Notes ................................. D-1
Operating Cash Flow ................... D-139
PACE .................................. D-1
PACE Acquisition ...................... D-6
PACE Acquisition Facility ............. D-61
D-143
<PAGE>
PAGE
-----------------
PACE Agreement ........................ D-41
PACE By-law Provisions ................ D-62
PACE Cash Payment ..................... D-59
PACE Damages .......................... D-60
PACE Material Adverse Effect Condition D-61
PACE Reps and Warranties Condition .... D-60
PACE Sellers .......................... D-59
PACE Sellers' Representative .......... D-61
PACE Stock Consideration .............. D-59
PACE Stock Options .................... D-61
PACE Term Loan ........................ D-61
PACE Term Loan Assets ................. D-61
Pavilion Acquisition .................. D-16
Pavilion Exclusivity Provision ....... D-16
Pavilion Partners Option .............. D-61
Pending Acquisitions .................. D-1
PNC Loan .............................. F-26
Pro Forma Interest Expense Ratio ..... D-139
Proposed Credit Facility .............. D-1
Proposed Revolver ..................... D-114
Proposed Term Loan .................... D-114
Recent Acquisitions ................... D-6
Riverport ............................. F-93
SAL ................................... F-124
SAP ................................... F-124
SCMC .................................. D-109
SCMC Warrants ......................... D-48
SEC ................................... D-50
Securities Act ........................ D-14
Senior Guarantors ..................... D-138
Senior Leverage Ratio ................. D-139
Series E Adjustment ................... D-53
Service ............................... F-129
SFX ................................... D-1, F-137
SFX Buyer ............................. D-1
SFX Buyer Sub ......................... D-7
SFX Employee Benefit Plans ............ D-56
SFX Entertainment ..................... D-1
SFX Entertainment By-laws ............. D-26
SFX Entertainment Certificate ......... D-26
SFX Entertainment Class A Common Stock D-1
SFX Entertainment Class B Common Stock D-1
SFX Entertainment Common Stock ....... D-1
SFX Entertainment Group ............... D-24
SFX Entertainment Preferred Stock .... D-66
SFX Entertainment Registration
Statement ............................ D-50
SFX Merger ............................ D-1
SFX Merger Agreement .................. D-1
SFX Merger Consideration Adjustment .. D-51
SJS ................................... D-40
Sony Agreement ........................ D-64
Sony Sub .............................. D-36
Spin-Off .............................. D-1, F-8
Spin-Off Distribution Date ............ D-48
Spin-Off Record Date .................. D-1
Sunshine Promotions ................... D-6, F-8
Tax Code .............................. D-57
Tax Sharing Agreement ................. D-24
Total Debt ............................ D-139
Total Leverage Ratio .................. D-139
Touring Broadway Shows ................ D-4
Triathlon ............................. D-13, F-11
TSC ................................... D-50
Unaudited Pro Forma Condensed Combined
Financial Statements ................. D-80
Warrants .............................. D-48
Working Capital ....................... D-51
Working Capital Adjustment Amount ..... D-51
</TABLE>
D-144
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
Report of Independent Auditors............................................................. D-F-4
Consolidated Balance Sheet as of September 30, 1997 ....................................... D-F-5
Consolidated Statement of Operations for the nine months ended September 30, 1996
(Predecessor-unaudited) and 1997 ......................................................... D-F-6
Consolidated Statement of Cash Flows for the nine months ended September 30, 1996
(Predecessor-unaudited) and 1997 ......................................................... D-F-7
Notes to Consolidated Financial Statements................................................. D-F-8
DELSENER/SLATER ENTERPRISES, LTD. AND AFFILIATED COMPANIES (PREDECESSOR)
Report of Independent Auditors............................................................. D-F-20
Combined Balance Sheets as of December 31, 1995 and 1996 .................................. D-F-21
Combined Statements of Operations for the years ended December 31, 1994, 1995
and 1996 ................................................................................. D-F-22
Combined Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996.................................................................................. D-F-23
Combined Statements of Stockholders' Equity for the years ended December 31, 1994, 1995
and 1996.................................................................................. D-F-24
Notes to Combined Financial Statements..................................................... D-F-25
CONNECTICUT PERFORMING ARTS, INC. AND CONNECTICUT PERFORMING ARTS PARTNERS
Report of Independent Public Accountants................................................... D-F-29
Combined Balance Sheets as of December 31, 1995 and 1996................................... D-F-30
Combined Statements of Operations for the years ended December 31, 1994, 1995
and 1996.................................................................................. D-F-31
Combined Statements of Shareholders' Equity and Partners' Equity for the years ended
December 31, 1994, 1995 and 1996.......................................................... D-F-32
Combined Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 ... D-F-33
Notes to Combined Financial Statements..................................................... D-F-34
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
Report of Independent Public Accountants .................................................. D-F-42
Combined Balance Sheet as of December 31, 1995 and 1996.................................... D-F-43
Combined Statements of Operations and Partners' Equity for the years ended
December 31, 1994, 1995 and 1996.......................................................... D-F-45
Combined Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996.................................................................................. D-F-46
Notes to Combined Financial Statements..................................................... D-F-47
D-F-1
<PAGE>
PAGE
-----------
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants .................................................. D-F-53
Report of Independent Auditors............................................................. D-F-54
Consolidated Balance Sheets as of September 30, 1996 and 1997.............................. D-F-55
Consolidated Statements of Operations for the years ended September 30, 1995, 1996 and
1997...................................................................................... D-F-56
Consolidated Statements of Shareholders' Equity for the years ended September 30, 1995,
1996 and 1997............................................................................. D-F-57
Consolidated Statements of Cash Flows for the years ended September 30, 1995, 1996 and
1997...................................................................................... D-F-58
Notes to Consolidated Financial Statements................................................. D-F-59
PAVILION PARTNERS
Report of Independent Public Accountants .................................................. D-F-73
Report of Independent Accountants ......................................................... D-F-74
Consolidated Balance Sheets as of September 30, 1996 and 1997 ............................. D-F-75
Consolidated Statements of Income for the year ended October 31, 1995, eleven months ended
September 30, 1996 and year ended September 30, 1997 ..................................... D-F-76
Consolidated Statements of Partners' Capital for the year ended October 31, 1995, eleven
months ended September 30, 1996 and year ended September 30, 1997 ........................ D-F-77
Consolidated Statements of Cash Flows for the year ended October 31, 1995, eleven months
ended September 30, 1996 and year ended September 30, 1997 ............................... D-F-78
Notes to Consolidated Financial Statements ................................................ D-F-79
CONTEMPORARY GROUP
Report of Independent Auditors ............................................................ D-F-88
Combined Balance Sheets as of December 31, 1996 and September 30, 1997 .................... D-F-89
Combined Statements of Operations for the year ended December 31, 1996 and nine months
ended September 30, 1997 ................................................................. D-F-90
Combined Statements of Cash Flows for the year ended December 31, 1996 and nine months
ended September 30, 1997 ................................................................. D-F-91
Combined Statements of Stockholders' Equity for the year ended December 31, 1996 and nine
months ended September 30, 1997 .......................................................... D-F-92
Notes to Combined Financial Statements .................................................... D-F-93
SJS ENTERTAINMENT CORPORATION AND AFFILIATED COMPANY
Report of Independent Auditors ............................................................ D-F-97
Combined Balance Sheets as of December 31, 1996 and September 30, 1997 (unaudited) ....... D-F-98
Combined Statement of Operations and Retained Earnings for the year ended December 31,
1996 ..................................................................................... D-F-99
Combined Statements of Operations and Retained Earnings for the nine months ended
September 30, 1996 and 1997 (unaudited) .................................................. D-F-100
Combined Statement of Cash Flows for the year ended December 31, 1996 ..................... D-F-101
Combined Statements of Cash Flows for the nine months ended September 30, 1996 and 1997
(unaudited) .............................................................................. D-F-102
Notes to Combined Financial Statements .................................................... D-F-103
D-F-2
<PAGE>
PAGE
-----------
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
Report of Independent Auditors ............................................................ D-F-108
Combined Balance Sheets as of September 30, 1996 and 1997 ................................. D-F-109
Combined Statements of Operations and Stockholders' Deficit for the years ended September
30, 1996 and 1997 ........................................................................ D-F-110
Combined Statements of Cash Flows for the years ended September 30, 1996 and 1997 ......... D-F-111
Notes to Combined Financial Statements .................................................... D-F-112
BG PRESENTS, INC. AND SUBSIDIARIES
Report of Independent Auditors ............................................................ D-F-116
Consolidated Balance Sheets as of January 31, 1996 and 1997 ............................... D-F-117
Consolidated Balance Sheet as of October 31, 1997 (unaudited).............................. D-F-118
Consolidated Statements of Operations for the years ended January 31, 1996 and 1997 ...... D-F-119
Consolidated Statement of Operations for the nine months ended October 31, 1997
(unaudited)............................................................................... D-F-120
Consolidated Statements of Cash Flows for the years ended January 31, 1996 and 1997 ...... D-F-121
Consolidated Statement of Cash Flows for the nine months ended October 31, 1997
(unaudited)............................................................................... D-F-122
Consolidated Statements of Stockholders' Equity for the years ended January 31, 1996 and
1997 and the nine months ended October 31, 1997 (unaudited) .............................. D-F-123
Notes to Consolidated Financial Statements ................................................ D-F-124
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
Report of Independent Auditors ............................................................ D-F-130
Combined Balance Sheet as of September 30, 1997 ........................................... D-F-131
Combined Statement of Operations for the nine months ended September 30, 1997 ............ D-F-132
Combined Statement of Cash Flows for the nine months ended September 30, 1997 ............ D-F-133
Combined Statements of Stockholders' Equity for the nine months ended
September 30, 1997 ....................................................................... D-F-134
Notes to Combined Financial Statements .................................................... D-F-135
</TABLE>
D-F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
SFX Entertainment, Inc.
We have audited the accompanying consolidated balance sheet of SFX
Entertainment, Inc. and Subsidiaries as of September 30, 1997, and the
related consolidated statements of operations and cash flows for the nine
months then ended. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of SFX
Entertainment, Inc. and Subsidiaries at September 30, 1997, and the
consolidated results of its operations and its cash flows for the nine months
then ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
January 16, 1998
D-F-4
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 3)...................................... $ 7,094,000
Accounts receivable .................................................... 2,525,000
Prepaid expenses and other current assets .............................. 2,570,000
--------------
Total current assets .................................................... 12,189,000
Property and equipment, net ............................................. 55,882,000
Goodwill, net ........................................................... 59,721,000
Investment in unconsolidated subsidiaries ............................... 1,324,000
Note receivable from employee............................................ 900,000
Other assets (Note 3) ................................................... 5,454,000
--------------
Total assets ............................................................ $135,470,000
==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable ....................................................... $ 1,620,000
Accrued expenses ....................................................... 777,000
Deferred revenue ....................................................... 4,095,000
Income taxes payable ................................................... 4,107,000
Current portion of long-term debt ...................................... 922,000
Current portion of deferred purchase consideration ..................... 734,000
--------------
Total current liabilities ............................................... 12,255,000
Long-term debt, less current portion .................................... 15,531,000
Deferred purchase consideration, less current portion ................... 3,490,000
Deferred income taxes ................................................... 2,816,000
Commitment and contingencies (Notes 4 and 9)............................. --
Shareholder's equity:
Capital to be contributed by SFX Broadcasting (Note 1)................... 97,726,000
Preferred Stock, $.01 par value, 1,000 shares authorized, none issued
and outstanding ........................................................ --
Class A common stock, $.01 par value, 1,000 shares authorized, issued
and outstanding ........................................................ --
Class B common stock, $.01 par value, 1,000 shares authorized, issued
and outstanding ........................................................ --
Retained earnings ....................................................... 3,652,000
--------------
Total shareholder's equity .............................................. 101,378,000
--------------
Total liabilities and shareholder's equity .............................. $135,470,000
==============
</TABLE>
See accompanying notes.
D-F-5
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
PREDECESSOR
(UNAUDITED)
1996 1997
-------------- -------------
<S> <C> <C>
Concert revenue ................................................ $41,609,000 $74,396,000
OPERATING EXPENSES
Cost of concerts ............................................... 42,930,000 63,045,000
Depreciation and amortization .................................. 744,000 4,041,000
Corporate, general and administrative expenses, net of
Triathlon fees of $1,693,000 in 1997 .......................... -- 1,307,000
-------------- -------------
43,674,000 68,393,000
-------------- -------------
Income (loss) from operations .................................. (2,065,000) 6,003,000
OTHER INCOME (EXPENSE)
Interest income ................................................ 143,000 213,000
Interest expense ............................................... (60,000) (956,000)
Equity in pretax income of unconsolidated subsidiaries ........ 525,000 1,344,000
-------------- -------------
Income (loss) before provision for income taxes ................ (1,457,000) 6,604,000
Provision for income taxes ..................................... 80,000 2,952,000
-------------- -------------
Net income (loss) .............................................. $(1,537,000) $ 3,652,000
============== =============
</TABLE>
See accompanying notes.
D-F-6
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
PREDECESSOR
(UNAUDITED)
1996 1997
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................................ $(1,537,000) $ 3,652,000
Adjustment to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization .................................. 744,000 4,041,000
Equity in pretax income of unconsolidated subsidiaries, net
distributions received.......................................... (148,000) 458,000
Changes in operating assets and liabilities, net of amounts
acquired:
Accounts receivable ........................................... (317,000) (1,019,000)
Prepaid expenses and other current assets ..................... (513,000) (2,419,000)
Other asset.................................................... 13,000 (275,000)
Accounts payable and accrued expenses ......................... 4,448,000 (311,000)
Income taxes payable........................................... -- 3,379,000
Deferred income taxes.......................................... -- (427,000)
Deferred revenue .............................................. 71,000 (6,290,000)
-------------- --------------
Net cash provided by (used in) operating activities.............. 2,761,000 789,000
INVESTING ACTIVITIES:
Purchase of concert promotion businesses, net of cash acquired -- (69,645,000)
Purchase of fixed assets ....................................... -- (2,352,000)
-------------- --------------
Net cash used in investing activities............................ -- (71,997,000)
FINANCING ACTIVITIES:
Capital to be contributed by SFX Broadcasting .................. -- 78,855,000
Payment of debt ................................................ -- (553,000)
Proceeds from issuance of Common Stock and capital
contributions ................................................. 613,000 --
Due to stockholder ............................................. 71,000 --
-------------- --------------
Net cash provided by financing activities ....................... 684,000 78,302,000
-------------- --------------
Net increase in cash and cash equivalents ....................... 3,445,000 7,094,000
Cash and cash equivalents at beginning of period ................ 2,905,000 0
-------------- --------------
Cash and cash equivalents at end of period....................... $ 6,350,000 $ 7,094,000
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................................... $ 60,000 $ 897,000
============== ==============
Cash paid for income taxes....................................... $ 80,000 $ --
============== ==============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
o Issuance of 250,838 shares of Broadcasting's Class A Common Stock and
assumption of $15.4 million of debt in connection with the Meadows
acquisition and issuance of 62,792 shares of Broadcasting's Class A Common
Stock and assumption of $1.6 million in connection with the Sunshine
Promotions acquisition.
o The balance sheet includes certain assets and liabilities which have been
or will be contributed to the Company prior to the Spin-Off.
See accompanying notes.
D-F-7
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
SFX Entertainment, Inc. ("SFX" or the "Company") was formed as a
wholly-owned subsidiary of SFX Broadcasting, Inc. ("Broadcasting") in
December 1997 and as the parent company of SFX Concerts, Inc ("Concerts").
During 1997, the following acquisitions were made:
Delsener/Slater
In January 1997, Broadcasting acquired Delsener/Slater Enterprises, Ltd.
and affiliated companies ("Delsener/Slater"), a leading concert promotion
company, for an aggregate consideration of approximately $27,600,000,
including $2,900,000 for working capital and the present value of deferred
payments of $3,000,000 to be paid without interest over five years and
$1,000,000 to be paid without interest over ten years. Delsener/Slater has
long-term leases or is the exclusive promoter for seven of the major concert
venues in the New York City metropolitan area, including the Jones Beach
Amphitheater, a 14,000-seat complex located in Wantagh, New York, and the PNC
Bank Arts Center (formerly known as the Garden State Arts Center), a
17,500-seat complex located in Holmdel, New Jersey.
Meadows
In March 1997, the Company acquired the stock of certain companies which
own and operate the Meadows Music Theater (the "Meadows"), a 25,000-seat
indoor/outdoor complex located in Hartford, Connecticut for $900,000 in cash,
shares of Broadcasting Class A Common Stock with a value of approximately
$7,500,000 and the assumption of approximately $15,400,000 in debt.
Sunshine Promotions
In June 1997, the Company acquired the stock of Sunshine Promotions, Inc.
and certain other related Companies ("Sunshine Promotions"), one of the
largest concert promoters in the Midwest for $53,900,000 in cash, $2,000,000
payable over five years, shares of Broadcasting Class A Common Stock issued
and issuable over a two year period with a value of approximately $4,000,000
and the assumption of appoximately $1,600,000 of debt. Sunshine Promotions
owns the Deer Creek Music Theater, a 21,000-seat complex located in
Indianapolis, Indiana, and the Polaris Amphitheater ("Polaris"), a
20,000-seat complex located in Columbus, Ohio, and has a long-term lease to
operate the Murat Centre, a 2,700-seat theater and 2,200-seat ballroom
located in Indianapolis, Indiana.
The cash portion of these acquisitions were financed through intercompany
loans from Broadcasting and were accounted for under the purchase method of
accounting. The purchase prices have been preliminarily allocated to the
assets acquired and are subject to change.
Pending Spin-Off and Financing
In August 1997, Broadcasting agreed to the merger among SBI Holdings, Inc.
(the "Buyer"), SBI Radio Acquisition Corporation, a wholly-owned subsidiary
of the Buyer, and Broadcasting (the "Broadcasting Merger") and to the
spin-off of the Company to the shareholders of Broadcasting (the "Spin-Off").
The Company intends to consummate a senior credit facility and an offering of
senior subordinated notes (collectively, the "Financing") prior to the
consummation of the Spin-Off to finance certain pending acquisitions (see
Note 2). The Spin-Off is subject to certain conditions, including, among
others: (i) the satisfaction of the Board of Directors of Broadcasting that
Broadcasting's surplus would be sufficient to permit the Spin-Off under
Delaware law, (ii) the acceptance for listing or trading of the Class A
Common Stock of the Company, subject to official notice of issuance, on the
American Stock Exchange or Nasdaq Stock Market, (iii) receipt of all
necessary third party consents to the Spin-Off, and (iv) receipt of necessary
Broadcasting stockholder approvals.
D-F-8
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At or prior to the Spin-Off, pursuant to the Distribution Agreement,
Broadcasting will contribute to the Company all of its concert and other live
entertainment assets along with an allocation of working capital in an amount
estimated by management of Broadcasting to be consistent with the proper
operation of Broadcasting, and the Company will assume all of Broadcasting's
liabilities pertaining to the live entertainment businesses, as well as
certain other liabilities including the obligation to make change of control
payments to certain employees of Broadcasting of approximately $5,800,000 as
well as the obligation to indemnify one-half of certain of these employees'
excise tax. At the time of the Broadcasting Merger, Broadcasting will
contribute its positive Working Capital (as defined) to the Company. If
Working Capital is negative, the Company must pay the amount of the shortfall
to Broadcasting. Subsequent to September 30, 1997, Broadcasting advanced
approximately $6,500,000 to the Company for use in connection with certain
acquisitions and capital expenditures. Broadcasting may advance additional
amounts to the Company prior to the consummation of the Spin-Off.
The accompanying consolidated financial statements include the accounts of
Delsener/Slater, Sunshine Promotions, the Meadows and certain assets and
liabilities which have been or will be contributed by Broadcasting to the
Company prior to the Spin-Off under the terms of the Broadcasting Merger
agreement. Operating results associated with the assets and liabilities to be
contributed are included herein. Corporate expenses represent an allocation
from Broadcasting based on a method that management believes is reasonable.
Intercompany transactions and balances among these companies have been
eliminated in consolidation.
2. PENDING ACQUISITIONS
In December of 1997, the Company entered into agreements to acquire the
following live entertainment businesses:
PACE Entertainment Corporation ("PACE"), one of the largest diversified
producers and promoters of live entertainment in the United States, having
what the Company believes to be the largest distribution network in the
United States in each of its music, theater and specialized motor sports
businesses (the "PACE Acquisition"), for total consideration of
approximately $155,000,000 (including issuance of 1,500,000 shares of the
Company's common stock valued by the parties at $20,000,000 and assumption
of approximately $25,500,000 of debt). Under the terms of the agreement,
additional cash consideration would be required if the deemed value of the
Company's common stock was less than $13.33 per share as a result of
changes in the consummation of acquisitions. In related transactions, the
Company has agreed to acquire, for total consideration of $90,900,000
including cash, assumed liabilities and the assumption of 100% of the
partnership's third party debt, the 66 2/3% ownership interests of
Blockbuster Entertainment Corporation and Sony Music Entertainment Inc. in
Amphitheater Entertainment Partnership, a partner of PACE in the Pavilion
Partners venue partnership. PACE will then own 100% of Pavilion Partners.
The PACE acquisition agreement further provides that each seller of PACE
shall have an option, exercisable during a period beginning on the fifth
anniversary of the closing of the PACE acquisition and ending 90 days
thereafter, to require the Company to purchase up to one-third of the PACE
consideration stock received by such PACE seller for a cash purchase price
of $33.00 per share. With certain limited exceptions, these option rights
are not assignable by the PACE sellers.
Under the terms of an employment agreement to be entered into by the
Company with an officer of PACE, the officer will have the right, two
years from the date of the acquisition, to purchase PACE's motor sports
division at fair value. If the motor sports division has been sold, he
would be entitled to purchase PACE's theatrical division for the fair
value. The Company has agreed to lend to PACE up to $25,000,000 for
potential PACE acquisitions whether or not the PACE Acquisition is
consummated.
D-F-9
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Contemporary Group ("Contemporary"), a fully-integrated live
entertainment and special event promoter and producer, venue owner and
operator and consumer marketer, for total consideration of approximately
$91,500,000 (including issuance of 1,402,851 shares of common stock of the
Company valued by the parties at $18,700,000) (the "Contemporary
Acquisition"). The cash consideration to be paid for Contemporary is
subject to a reduction of $10,500,000 should it not acquire the remaining
50% of Riverport Amphitheater Joint Venture. If any of the Contemporary
sellers owns any shares of Class A Common Stock of the Company received in
the Contemporary Acquisition on the second anniversary of the closing date
and the average trading price of such stock over the 20-day period ending
on such anniversary date is less than $13.33 per share, then the Company
will make a one-time cash payment to each individual holding any such
shares that is equal to the product of (i) the quotient of the difference
between (A) the actual average trading price per share over such 20-day
period and (B) $13.33 divided by two, multiplied by (ii) the number of
shares of Class A Common Stock of the Company received by such individual
in the Contemporary Acquisition and owned as of such anniversary date.
The Network Magazine Group ("Network Magazine"), a publisher of trade
magazines for the radio broadcasting industry, and SJS Entertainment
("SJS"), an independent creator, producer and distributor of music-related
radio programming, services and research which it exchanges with radio
broadcasters for commercial air-time sold, in turn, to national network
advertisers (the "Network Acquisition"), for total consideration of
approximately $62,000,000 (including issuance of approximately 750,000
shares of common stock of the Company valued by the parties at
$10,000,000). The Company is also obligated to pay the sellers an
additional payment based on EBITDA, as defined, generated on a combined
basis by Network Magazine and SJS in 1998, up to a maximum of $14,000,000.
BG Presents ("BGP"), one of the oldest promoters of, and owner-operators
of venues for, live entertainment in the United States, and a leading
promoter in the San Francisco Bay area (the "BGP Acquisition"), for total
consideration of approximately $68,300,000 subject to adjustment based on
BGP's working capital and long-term debt (including issuance of
approximately 563,000 shares of common stock of the Company valued by the
parties at $7,500,000). The sellers of BGP have agreed to provide net
working capital (as defined) at the closing in an amount equal to or
greater than long-term debt.
Concert/Southern Promotions ("Concert/Southern"), a promoter of live
music events in the Atlanta, Georgia metropolitan area (the
"Concert/Southern Acquisition"), for total consideration of approximately
$16,600,000 (including payment of the present value of a $1,600,000
deferred liability).
The PACE Acquisition, the Contemporary Acquisition, the Network
Acquisition, the BGP Acquisition and the Concert/Southern Acquisition are
collectively referred to herein as the "Pending Acquisitions."
The Company expects to complete all of the Pending Acquisitions as soon as
practicable after the Financing and prior to the Broadcasting Merger. Each of
the Pending Acquisition agreements other than Concert/Southern provide that,
should the Spin-Off not occur prior to July 1, 1998, the sellers' may require
the Company to repurchase the shares of the Company's common stock issued to
the sellers for $13.33 each.
D-F-10
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following unaudited pro forma summary presents the consolidated
results of operations for the nine months ended September 30, 1997 and for
the year ended December 31, 1996 as if the acquisitions for any given period
and the subsequent period had occurred at the beginning of such period after
giving effect to certain adjustments, including amortization of goodwill and
interest expense on the acquisition debt. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisitions been made as of that date or of
results which may occur in the future.
<TABLE>
<CAPTION>
PRO FORMA
IN THOUSANDS EXCEPT PER SHARE DATA
(UNAUDITED)
-------------------------------------
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Revenues.......... $500,843,000 $552,365,000
================== =================
Net income
(loss)........... $ 625,000 $(32,557,000)
================== =================
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Cash and Cash Equivalents
The Companies consider all investments purchased with a maturity of three
months or less to be cash equivalents. Included in cash and cash equivalents
is $1,718,000 of cash which has been deposited in a separate account and will
be used to fund committed capital expenditures at PNC Bank Arts Center.
Property and Equipment
Land, buildings and improvements and furniture and equipment are stated at
cost. Depreciation is provided on a straight-line basis over the estimated
useful lives of the assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements ....7-40 years
Furniture and equipment ........ 5-7 years
</TABLE>
Leasehold improvements represents the capitalized costs to renovate the
Jones Beach Theatre. The costs to renovate the theatre included permanent
seats, a new stage and lavatory facilities. These costs are being amortized
over the term of the lease.
Goodwill
Goodwill as of September 30, 1997 was $59,721,000, which is net of
accumulated amortization of $1,789,000. Goodwill is being amortized using the
straight-line method over 15 years. Management reviews the carrying value of
goodwill against anticipated cash flows to determine whether the carrying
amount will be recoverable.
Other Assets
Other assets includes $5,093,000 of costs associated with acquiring the
right to receive fees from Triathlon Broadcasting Company ("Triathlon"), an
affiliate, for certain financial consulting, marketing and administrative
services provided by the Company to Triathlon. Under the terms of the
agreement, the Company has agreed to provide consulting and marketing
services to Triathlon for an annual fee of $500,000, together with a
refundable advance of $500,000 per year against fees to be earned in respect
of transactional investment banking services. These fees, which are recorded
as a reduction of corporate, general and administrative expenses, will
fluctuate based upon the level of acquisition and financing activity of
Triathlon. The cost of acquiring the fees is being amortized over the term of
the agreement which expires on June 1, 2005.
D-F-11
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenue Recognition
The Company's operations and revenues are largely seasonal in nature, with
generally higher revenue generated in the second and third quarters of the
year. The Company's outdoor venues are primarily utilized in the summer
months and do not generate substantial revenue in the late fall, winter and
early spring. Similarly, the musical concerts that the Company promotes
largely occur in the second and third quarters. To the extent that the
Company's entertainment marketing and consulting relate to musical concerts,
they also predominantly generate revenues in the second and third quarters.
Revenue from ticket sales is recognized upon occurrence of the event.
Advance ticket sales are recorded as deferred revenue until the event occurs.
Risks and Uncertainties
Accounts receivable are due principally from ticket companies and venue
box offices. These amounts are typically collected within 20 days of a
performance. Generally, management considers these accounts receivable to be
fully collectible; accordingly, no allowance for doubtful accounts is
required. Certain other accounts receivable, arising from the normal course
of business, are reviewed for collectibility and allowances for doubtful
accounts are recorded as required. Management believes that no allowance for
doubtful accounts is required at September 30, 1997.
The Company had agreements with various trade unions which have expired.
The trade unions are currently working under the old agreements and the
Company and the unions are in the process of negotiating new agreements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
statement requires a company to recognize deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized
in a company's financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement carrying amounts and the tax bases of assets
and liabilities.
Under a tax sharing agreement, the Company will agree to pay to
Broadcasting the amount of the tax liability of the combined Broadcasting/SFX
group to the extent properly attributable to the Company for the period up to
and including the Spin-Off, and will indemnify Broadcasting for any tax
adjustment made in subsequent years that relates to taxes properly
attributable to the Company during the period prior to and including the
Spin-Off. Broadcasting, in turn, will indemnify the Company for any tax
adjustment made in years subsequent to the Spin-Off that relates to taxes
properly attributable to Broadcasting (excluding any taxes relating to the
Company) during the period prior to and including the Spin-Off. The Company
will be responsible for any taxes of Broadcasting resulting from the Spin-Off
to the extent such taxes result from a gain on the distribution that exceeds
the available net operating loss carryforwards of Broadcasting and the
Company.
The Company calculates its tax provision on a separate company basis.
D-F-12
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. CONNECTICUT DEVELOPMENT AUTHORITY ASSISTANCE AGREEMENT
On September 12, 1994, the Connecticut Development Authority ("CDA")
entered into a non-recourse assistance agreement with the Meadows whereby the
CDA provided grant funds for the construction and development of the Meadows
through the issuance of State of Connecticut General Fund Obligation Bonds
(GFO Bonds). The Meadows received bond proceeds of $8,863,000. Pursuant to
such agreement, the annual tax revenues derived from the operation of the
amphitheater are utilized to satisfy the annual debt service requirements
under the GFO Bonds. In the event that annual tax revenues derived from the
operation of the amphitheater do not equal annual debt service requirements
under the GFO Bonds, the Company must deposit the lesser of the operating
shortfall, as defined, or 10% of the annual debt service under the GFO Bonds.
An operating shortfall did not exist for the year ended December 31, 1996 and
is not expected to exist for the year ending December 31, 1997. The GFO Bonds
mature on October 15, 2024 and have an average coupon rate of 6.33%. Annual
debt service requirements, including interest, on the GFO Bonds for each of
the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------- ------------
<S> <C>
1997 ......... $ 185,000
1998 ......... 739,000
1999 ......... 737,000
2000 ......... 739,000
2001 ......... 740,000
Thereafter .. 16,585,000
------------
$19,725,000
============
</TABLE>
The assistance agreement requires an annual attendance of at least 400,000
for each of the first three years of operations. It will not be considered an
event of default if the annual attendance is less than 400,000 provided that
no operating shortfall exists for that year or if an operating shortfall
exists such amount has been deposited by the Company. If there is an event of
default, the CDA may foreclose on the construction mortgage loan (see Note
5). If the amphitheater's operations are relocated outside of Connecticut
during the ten year period subsequent to the assistance agreement or during
the period of the construction mortgage loan, the full amount of the grant
funds plus a penalty of 5% must be repaid to the State of Connecticut.
5. LONG-TERM DEBT
As of September 30, 1997, the Company's long-term debt consisted of the
following:
<TABLE>
<CAPTION>
<S> <C>
Meadows CDA Mortgage Loan ......... $ 7,440,000
Meadows Concession Agreement
Loans............................. 5,931,000
Meadows CDA Construction Loan .... 850,000
Murat notes payable................ 790,000
Meadows note payable .............. 694,000
Polaris note payable .............. 221,000
Capital Lease Obligations.......... 527,000
------------
16,453,000
Less Current Portion.............. (922,000)
------------
$15,531,000
============
</TABLE>
D-F-13
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Meadows CDA Mortgage Loan
On September 12, 1994, the CDA entered into a construction mortgage loan
agreement for $7,685,000 with the Company. The purpose of the loan was to
finance a portion of the construction and development of the Meadows. The
loan agreement contains substantially the same covenants as the CDA
assistance agreement (see Note 4). The mortgage loan bears interest at 8.73%
and is payable in monthly installments of principal and interest. The
mortgage loan matures on October 15, 2019.
The loan is collateralized by a lien on the Meadows' assets. The loan was
secured by an irrevocable standby letter of credit issued by the Company in
the amount of $785,000.
Meadows Concession Agreement Loans
In connection with the Meadows' concession agreement, the concessionaire
loaned the Company $4,500,000 in 1995 to facilitate the construction of the
amphitheater. Principal and interest, at the rate of 7.5% per annum on the
note is payable via withholdings of the first $31,299 from each monthly
concession commission payment. As of September 30, 1997, the outstanding
balance was $4,355,000.
During 1995, the concessionaire loaned the Company an additional
$1,000,000. This loan bears interest at a rate of 9.75% per annum and is
payable via withholdings of an additional $11,900 of principal, plus
interest, from each monthly concession commission payment through December
20, 2002. As of September 30, 1997, the outstanding balance was $715,000.
The concession agreement also required the Company to supply certain
equipment to the concessionaire at the Company's expense. The cost of the
equipment purchased by the concessionaire was converted to a note payable for
$884,000. The note bears interest at the rate of 9.25% per annum and provides
for monthly principal and interest payments of $10,185. However, the Company
is not required to make any principal or interest payments to the extent that
5% of receipts, as defined, in any month are less than the amount of the
payment due. As of September 30, 1997, the outstanding balance was $861,000.
Meadows CDA Construction Loan
In March 1997, the Company entered into a $1,500,000 loan agreement with
the CDA of which $1,000,000 was funded in March 1997. Principal payments of
$150,000 are due on July 1 and October 1 of each year commencing July 1, 1997
through October 1, 2001. The note bears interest at the rate of 8.9% per
annum through February 1, 1998, and thereafter at the index rate, as defined,
plus 2.5%. In addition, the Company is required to make principal payments in
an amount equal to 10% of the annual gross revenue, as defined, in excess of
$13,000,000 on or before March 1 of each calendar year commencing March 1,
1998.
Murat Notes Payable
The Company has two loans payable to the Massachusetts Avenue Community
Development Corporation (MAC), an $800,000 non-interest bearing note and a
$1,000,000 note. Principal payments on the non-interest bearing note are the
lesser of $0.15 per ticket sold during fiscal year or remaining net cash
flow, as defined. Interest on the other note is calculated annually and is
equal to the lesser of (1) $0.10 per ticket sold during the fiscal year, (2)
prime plus 1% or (3) remaining net cash flow, as defined. Interest and
principal on the $1,000,000 note is payable at the lesser of $0.10 per ticket
sold during fiscal year or remaining net cash flow, as defined. The present
value of the two loans is $790,000 as of September 30, 1997.
D-F-14
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Provisions of the $800,000 note payable requires the Murat to continue
making payments after the principal has been paid down equal to the lesser of
$0.15 per ticket sold during the fiscal year or remaining cash flow. These
payments are to be made to a not-for-profit foundation and will be designated
for remodeling and upkeep of the theatre.
Meadows Note Payable
Under the terms of a Meadows ticket and sales agreement, a vendor loaned
the Company $824,500 and pays the Company an annual fee of $140,000 for nine
years commencing in March 1996. Proceeds from the annual fee are used by the
Company to make the annual principal and interest payments. As of September
30, 1997, the outstanding balance was $694,000.
Polaris Note Payable
In 1994, a concessionaire advanced Sunshine Promotions $500,000 to be used
in the construction of the Polaris Amphitheater. The advance is interest free
and is payable in annual installments of $25,000 beginning in 1994 for a
period of 20 years. As of September 30, 1997, the net present value of the
advance was $221,000.
Capital Lease Obligations
The Company has entered into various equipment leases totaling $527,000.
Interest on the leases range from 6.5% to 18.67%.
Principal maturities of the long-term debt, notes payable and capital
lease obligations over the next five years as of September 30, 1997 are as
follows:
<TABLE>
<CAPTION>
LONG-TERM DEBT AND CAPITAL LEASE
SEPTEMBER 30, NOTES PAYABLE OBLIGATIONS
- --------------- ------------------ ---------------
<S> <C> <C>
1998............ $751,000 $171,000
1999 ........... 768,000 161,000
2000 ........... 747,000 121,000
2001 ........... 527,000 74,000
2002 ........... 558,000
</TABLE>
6. PROPERTY AND EQUIPMENT
The Company's property and equipment, net of accumulated amortization, as
of September 30, 1997 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Land....................... $ 8,750,000
Building and improvements 40,484,000
Furniture and equipment .. 5,518,000
Leasehold improvements ... 2,676,000
-------------
57,428,000
Accumulated depreciation . (1,546,000)
-------------
$55,882,000
=============
</TABLE>
D-F-15
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
The Company is a 49% partner in a general partnership which subleases a
theater located in New York City. Income associated with the promotion of
concerts at this theater is recorded as concert revenue. Any such promotion
revenue recognized reduces the Company's share of the partnership's profits.
The Company is also a one-third partner in GSAC Partners, a general
partnership through which it shares in the income or loss of the PNC Bank
Arts Center at varying percentages based on the partnership agreement. The
Company records these investments on the equity method.
The following is a summary of the unaudited financial position and results
of operations of the Company's equity investees as of and for the nine months
ended September 30, 1997:
<TABLE>
<CAPTION>
<S> <C>
Current assets.......................... $ 3,300,000
Property, plant and equipment .......... 1,217,000
Other assets ........................... 347,000
-------------
Total assets............................ $ 4,864,000
=============
Current liabilities..................... $ 1,150,000
Partners' capital ...................... 3,714,000
-------------
Total liabilities and partners'
capital................................ $ 4,864,000
=============
Revenue ................................ $18,622,000
Expenses ............................... 16,020,000
-------------
Net income.............................. $ 2,602,000
=============
</TABLE>
The equity income recognized by the Company represents the appropriate
percentage of investment income less amounts reported in concert revenues for
shows promoted by the Company at these theaters. Such concert revenues of
unconsolidated subsidiaries was approximately $81,000 for the nine months
ended September 30, 1997.
8. INCOME TAXES
The provision for income taxes for the nine months ended September 30,
1997 is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
CURRENT:
Federal.... $3,041,000
State...... 338,000
DEFERRED:
Federal.... (384,000)
State...... (43,000)
------------
Total....... $2,952,000
============
</TABLE>
D-F-16
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax liabilities as of September 30, 1997
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax liabilities:
Depreciable assets......... $2,755,000
Deferred compensation ..... 61,000
------------
Net deferred tax
liability.................. $2,816,000
============
</TABLE>
The effective rate varies from the statutory Federal income tax rate as
follows:
<TABLE>
<CAPTION>
<S> <C>
Income taxes at the statutory rate .. $2,245,000
Nondeductible amortization........... 370,000
Travel and entertainment............. 13,000
State and local income taxes (net of
Federal benefit) ................... 324,000
------------
Total provision...................... $2,952,000
============
</TABLE>
9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Pursuant to the terms of the Spin-Off, upon the consummation of the
Broadcasting Merger, the Company will assume all obligations under any
employment agreements or arrangements between Broadcasting and any employee
of the Company.
While the Company is involved in several suits and claims in the ordinary
course of business, the Company is not now a party to any legal proceeding
that the Company believes would have a material adverse effect on its
business.
The Company's operating leases includes primarily leases with respect to
an amphitheater, office space and land. Total rent expense was $1,773,000 for
the nine months ended September 30, 1997. The lease terms range from 3 to 37
years. The future minimum rental payments for the next five years and
thereafter are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
---------------
<S> <C>
1998................ $ 3,121,000
1999 ............... 3,812,000
2000 ............... 1,622,000
2001 ............... 1,630,000
2002 ............... 1,630,000
2003 and
thereafter......... 12,962,000
---------------
$24,777,000
===============
</TABLE>
The Company has committed to expansion projects at the Jones Beach Theater
and PNC Bank Arts Center which are expected to be completed in June 1998 and
to cost approximately $14,000,000 and $3,000,000, respectively.
As of September 30, 1997, outstanding letters of credit for $1,110,000
were issued by banks on behalf of the Company as security for loans and the
rental of theaters.
D-F-17
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the acquisition of Delsener/Slater, Broadcasting
entered into an employment agreement with each of Ron Delsener and Mitch
Slater pursuant to which each of Messrs. Delsener and Slater serve as
Co-Presidents and Co-Chief Executive Officers of Delsener/Slater. Each of the
employment agreements continue until December 31, 2001 unless terminated
earlier by the Company for cause or voluntarily by Mr. Delsener or Mr.
Slater.
In certain cases, Messrs. Delsener and Slater have rights to purchase the
outstanding capital stock of Delsener/Slater for fair market value as defined
in their employment agreements.
Additionally, in the case of a return event, as defined, which may be
deemed to include the Spin-Off, the Broadcasting Merger and related
transactions, Messrs. Delsener and Slater have the right to receive a portion
of the excess of the proceeds of the return event over a fixed amount
determined in reference to the original purchase price for Delsener/Slater,
all as calculated pursuant to the Delsener/Slater Employment Agreements.
Management believes that, with respect to the Spin-Off, the Broadcasting
Merger and related transactions, no payment will accrue to Mr. Delsener or
Mr. Slater pursuant to their employment agreements.
The employment agreements further provide that Messrs. Delsener and Slater
shall be paid annual bonuses determined with reference to Delsener/Slater
profits, as defined, for the immediately preceding year. Management believes
that no such bonus was earned for the nine months ended September 30, 1997.
However, the amount of any such bonuses which may accrue to Messrs. Delsener
and Slater in the future will not be available to the Company to apply to
debt service.
Messrs. Delsener and Slater and the Company are in the process of
negotiating amendments to their employment agreements to reflect, among other
things, the changes to the business of the Company as a result of the Pending
Acquisitions and the Spin-Off, and each of Messrs. Delsener and Slater have
agreed in principle to waive any rights which may accrue in connection with
the Broadcasting Merger or the Spin-Off. The Company also expects, in
connection with the foregoing, to negotiate mutually satisfactory amendments
to certain of Messrs. Delsener's and Slater's compensation arrangements,
including bonus and profit sharing provisions.
10. RELATED PARTY TRANSACTIONS
The Company's Executive Vice President, General Counsel and Director is Of
Counsel to the law firm of Baker & McKenzie. Baker & McKenzie serves as
counsel to the Company in certain matters. Baker & McKenzie compensates the
executive based, in part, on the fees it receives from providing legal
services to the Company and other clients originated by the executive.
11. CAPITAL STOCK
Subject to the approval of shareholders of Broadcasting, holders of Class
A Common Stock will be entitled to one vote and holders of Class B Common
Stock will be entitled to ten votes on all matters submitted to a vote of
shareholders except for (a) the election of directors, (b) with respect to
any "going private" transaction involving the Chairman and (c) as otherwise
provided by law.
The Board of Directors has the authority to issued preferred stock and
will fix the designations and rights at the time of issuance.
12. DEFINED CONTRIBUTION PLAN
The Company sponsors a 401(k) defined contribution plan in which most
full-time employees are eligible to participate. The Plan presently provides
for discretionary employer contributions. There were no contributions in
1997.
D-F-18
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SUBSEQUENT EVENTS (UNAUDITED)
During January 1998, the Board of Directors and Broadcasting, as sole
stockholder, approved and adopted a stock option and restricted stock plan
providing for the issuance of restricted shares of SFX Entertainment Class A
Common Stock and options to purchase shares of SFX Entertainment Class A
Common Stock totaling up to 2,000,000 shares.
During January 1998, in connection with certain executive officers
entering into employment agreements with the Company, the Board of Directors,
upon recommendation of the Compensation Committee, agreed to grant the
executive officers an aggregate of 650,000 shares of the Company's Class B
Common Stock and 190,000 shares of the Company's Class A Common Stock. Such
shares will be issued on or about the effective date of the Spin-Off. A
substantial non-cash charge to earnings will be recorded by the Company at
the time of the Spin-Off based on the fair value of the shares issued.
In addition, the Board, upon recommendation of the Compensation Committee,
has approved the issuance of stock options exercisable for 245,000 shares of
the Company's Class A Common Stock. The options will vest over five years and
will have an exercise price of $5.50 per share. The Company will record
non-cash compensation charges over the five-year period to the extent that
the fair value of the Company's Class A Common Stock exceeds the exercise
price.
Further, the Board of Directors has approved the issuance of shares of the
Company's Class A Common Stock to holders of stock options or stock
appreciation rights ("SARs") of Broadcasting as of the Spin-Off record date,
whether or not vested. The issuance was approved to allow such holders of
these options or SARs to participate in the Spin-Off in a similar manner to
holders of Broadcasting's Class A Common Stock. Additionally, many of the
option holders will become officers, directors and employees of the Company.
D-F-19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Delsener/Slater Enterprises, Ltd.
We have audited the accompanying combined balance sheets of
Delsener/Slater Enterprises, Ltd. and Affiliated Companies as of December 31,
1996 and 1995, and the related combined statements of operations, cash flows
and stockholders' equity for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of
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 combined financial position of Delsener/Slater
Enterprises, Ltd. and Affiliated Companies at December 31, 1996 and 1995, and
the combined results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
October 2, 1997
D-F-20
<PAGE>
DELSENER/SLATER ENTERPRISES, LTD. AND
AFFILIATED COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 2,905,449 $ 5,253,193
Accounts receivable ................................................ -- 158,748
Prepaid expenses and other current assets .......................... 116,613 778,768
------------- -------------
Total current assets ................................................ 3,022,062 6,190,709
Investments in unconsolidated subsidiaries, principally GSAC
partners
in 1996 (Note 2) ................................................... 37,492 457,903
Property, plant and equipment:
Leasehold improvements ............................................. 6,726,317 6,726,317
Furniture and equipment ............................................ 132,445 130,846
------------- -------------
6,858,762 6,857,163
Accumulated depreciation and amortization .......................... (3,880,506) (4,626,531)
------------- -------------
2,978,256 2,230,632
------------- -------------
Total assets ........................................................ $ 6,037,810 $ 8,879,244
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued officers' salary expense ................................... $ 1,186,880 $ 5,950,123
Accounts payable and other accrued expenses ........................ 101,191 97,029
Advances and deferred income ....................................... 1,880 17,672
Prepaid memberships ................................................ 17,710 30,413
Due to stockholder (Note 3) ........................................ 1,830,000 1,877,465
------------- -------------
Total current liabilities ........................................... 3,137,661 7,972,702
Combined stockholders' equity (Note 4) .............................. 2,900,149 906,542
------------- -------------
Total liabilities and stockholders' equity .......................... $ 6,037,810 $ 8,879,244
============= =============
</TABLE>
See accompanying notes.
D-F-21
<PAGE>
DELSENER/SLATER ENTERPRISES, LTD. AND
AFFILIATED COMPANIES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1994 1995 1996
-------------- -------------- -------------
<S> <C> <C> <C>
OPERATING REVENUES
Concert revenue ....................... $92,785,420 $47,566,304 $50,361,556
Cost of concerts ...................... 83,360,563 39,690,805 41,584,365
-------------- -------------- -------------
9,424,857 7,875,499 8,777,191
OPERATING EXPENSES
Officers' salary expense .............. 4,254,292 3,963,940 6,388,247
Depreciation and amortization ......... 755,238 750,083 746,505
General and administrative expenses .. 2,983,740 3,523,569 2,714,099
-------------- -------------- -------------
7,993,270 8,237,592 9,848,851
-------------- -------------- -------------
(Loss) income from operations ......... 1,431,587 (362,093) (1,071,660)
OTHER INCOME (EXPENSE)
Interest income ....................... 137,966 177,561 198,052
Interest expense ...................... (144,000) (144,000) (60,000)
Equity income (loss) from investments (8,422) 488,372 524,544
-------------- -------------- -------------
Income before income taxes............. 1,417,131 159,840 (409,064)
INCOME TAXES
State and local taxes.................. 4,882 12,610 106,297
-------------- -------------- -------------
Net income (loss) ..................... $ 1,412,249 $ 147,230 $ (515,361)
============== ============== =============
</TABLE>
See accompanying notes.
D-F-22
<PAGE>
DELSENER/SLATER ENTERPRISES, LTD. AND
AFFILIATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) .................................... $1,412,249 $ 147,230 $ (515,361)
Adjustment to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ....................... 755,238 750,083 746,505
Equity in pretax income of partnerships, net of
distributions received ............................. 73,229 2,447 15,885
Changes in operating assets and liabilities:
Accounts receivable ................................ 240,973 384,154 (158,748)
Prepaid expenses and other current assets ......... (389,203) 378,770 (662,155)
Accrued officers' salary expense, accounts payable
and accrued expenses .............................. 1,291,936 (1,326,542) 4,759,546
Advances and deferred income........................ (545) (433,998) 15,792
Prepaid memberships................................. (7,816) (5,000) 12,703
Sponsors advances payable........................... (416,915) (350,000) --
------------- ------------- -------------
Net cash provided by (used in) operating activities .. 2,959,146 (452,856) 4,214,167
INVESTING ACTIVITIES
Investment in GSAC Partnership........................ -- -- (436,296)
Proceeds from disposals of fixed assets............... -- -- 1,119
------------- ------------- -------------
Net cash used in investing activities................. -- -- (435,177)
FINANCING ACTIVITIES
Proceeds from the issuance of common stock and
capital contribution ................................ 30,000 -- 151,993
Due to stockholder.................................... 30,000 -- 47,000
Distributions paid.................................... (536,596) (215,787) (1,630,239)
------------- ------------- -------------
Net cash used in financing activities................. (476,596) (215,787) (1,431,246)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents . 2,482,550 (668,643) 2,347,744
Cash and cash equivalents at beginning of year ....... 1,091,542 3,574,092 2,905,449
------------- ------------- -------------
Cash and cash equivalents at end of year.............. $3,574,092 $ 2,905,449 $ 5,253,193
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest................................ $ 144,000 $ 144,000 $ 60,000
============= ============= =============
Cash paid for income taxes............................ $ 4,882 $ 12,610 $ 106,297
============= ============= =============
</TABLE>
See accompanying notes.
D-F-23
<PAGE>
DELSENER/SLATER ENTERPRISES, LTD. AND
AFFILIATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
<S> <C>
January 1, 1994 ........................................... $ 2,063,053
Distributions to stockholder ............................. (536,596)
Issuance of common stock (Note 4) ........................ 30,000
Net income ............................................... 1,412,249
-------------
December 31, 1994 ......................................... 2,968,706
Distribution to stockholder .............................. (215,787)
Net income ............................................... 147,230
-------------
December 31, 1995 ......................................... 2,900,149
Distributions to stockholder ............................. (1,630,239)
Issuance of common stock and capital contribution (Note
4) ...................................................... 151,993
Net loss ................................................. (515,361)
-------------
December 31, 1996 ......................................... $ 906,542
=============
</TABLE>
See accompanying notes.
D-F-24
<PAGE>
DELSENER/SLATER ENTERPRISES, LTD. AND
AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of Combination
The accompanying combined financial statements include the accounts of
Delsener/Slater Enterprises, Ltd. (the "Company," formerly known as Ron
Delsener Enterprises, Ltd.), Beach Concerts, Inc., Connecticut Concerts,
Inc., Ardee Productions, Ltd., Ardee Festivals NJ, Inc., Dumb Deal, Inc.,
In-House Tickets, Inc., Broadway Concerts, Inc. and Exit 116 Revisited, Inc.
(collectively, the "Companies"). Intercompany transactions and balances among
these companies have been eliminated in combination. The Companies are
presented on a combined basis to reflect common ownership by Ron Delsener.
The Companies principally promote musical events in the New York, New
Jersey and Connecticut area. Beach Concerts, Inc.'s principal income from
operations originates from the operation of the Jones Beach Theatre, located
in Wantagh, New York. The Companies earn promotion income in two ways: either
a fixed fee for organizing and promoting an event or an arrangement that
entitles them to a profit percentage based on a predetermined formula.
Broadway Concerts, Inc. is a 49% partner in a general partnership which
subleases a theater located in New York City. Income associated with the
promotion of concerts at this theater is recorded as concert revenue. Any
such promotion revenue recognized reduces the Company's share of the
partnership's profits. Exit 116 Revisited, Inc. is a one-third partner in
GSAC Partners, a general partnership through which it shares in the income or
loss of the PNC Bank Arts Center (formerly known as the Garden State Arts
Center) at varying percentages based on the partnership agreement. Exit 116
Revisited, Inc. invested $436,296 in 1996 for its share of GSAC Partners. The
Companies record these investments on the equity method.
Leasehold Improvements, Furniture and Equipment
Leasehold improvements represents the capitalized costs to renovate the
Jones Beach Theatre. The costs to renovate the theatre included permanent
seats, a new stage and lavatory facilities. These costs are being amortized
over the term of the lease. Furniture and equipment are valued at cost less
accumulated depreciation. Depreciation is provided on a straight-line basis
over the estimated useful lives of the assets.
Cash and Cash Equivalents
The Companies consider all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Concentration of Risk
As of December 1996 and 1995, the Companies have cash equivalents of
approximately $3,461,000 and $1,070,000, respectively, primarily at an
uninsured financial institution. The Companies maintain a policy whereby
funds are transferred daily into uninsured municipal accounts.
Income Taxes
All of the Companies, except Ardee Festivals NJ, Inc. and In-House
Tickets, Inc., have elected to be taxed as S Corporations as provided in
Section 1362(a) of the Internal Revenue Code. As such, the corporate income
or loss and credits are passed to the stockholders and combined with their
personal income and deductions to determine taxable income on their
individual federal tax returns.
Business income of an S Corporation is subject to a corporate level tax on
income derived in New York, New Jersey and Connecticut. The corporate tax
rates for S Corporations in New York State, New Jersey and Connecticut are
approximately one and one-half percent (1.5%), approximately two and
D-F-25
<PAGE>
DELSENER/SLATER ENTERPRISES, LTD. AND
AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
four-tenths percent (2.4%) and eleven and one-half percent (11.5%),
respectively. New York City does not recognize S Corporation status.
Provisions of $106,297, $12,610 and $4,882 have been recorded for 1996, 1995
and 1994 for state and local income taxes, respectively.
Risks and Uncertainties
Accounts receivable are due from ticket vendors and venue box offices.
These amounts are typically collected within 20 days of a performance.
Management considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
The following is a summary of the unaudited financial position and results
of operations of the Companies' equity investees (GSAC Partners--1996 only)
as of and for the years ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Current assets .......................... $ 328,177 $ 214,947 $ 756,491
Property, plant and equipment ........... 138,467 121,620 239,290
Other assets ............................ -- -- 819,124
------------- ------------- -------------
Total assets ............................ $ 466,644 $ 336,567 $ 1,814,905
============= ============= =============
Current liabilities ..................... $ 398,620 $ 264,531 $ 1,534,380
Partners' capital ....................... 68,024 72,036 280,525
------------- ------------- -------------
Total liabilities and partners' capital $ 466,644 $ 336,567 $ 1,814,905
============= ============= =============
Revenue ................................. $2,505,595 $4,058,522 $16,037,410
Expenses ................................ 2,524,088 2,954,028 14,624,036
------------- ------------- -------------
Net income (loss) ....................... $ (18,493) $1,104,494 $ 1,413,374
============= ============= =============
</TABLE>
The equity income recognized by the Companies represents the appropriate
percentage of investment income less amounts reported in concert revenues for
shows promoted at these theaters. Such concert revenues of unconsolidated
subsidiaries were approximately $-0-, $110,000 and $205,000 for the years
ended December 31, 1994, 1995 and 1996, respectively.
3. DUE TO STOCKHOLDER
Due to stockholder represents the balance due to Ronald Delsener on his
advances to renovate the Jones Beach Theatre (the "Jones Beach Loan") and the
PNC Bank Arts Center (the "PNC Loan"). The Companies paid interest at 8% per
annum on the Jones Beach Loan, which was repaid in May 1996. The PNC Loan,
which was originated in 1996, was repaid in connection with the acquisition
by SFX Broadcasting, Inc. ("Broadcasting") in 1997. (See Note 7).
D-F-26
<PAGE>
DELSENER/SLATER ENTERPRISES, LTD. AND
AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
4. COMMON STOCK
The corporations' stock and tax status are as follows:
<TABLE>
<CAPTION>
TAX SHARES SHARES PAR
STATUS AUTHORIZED ISSUED VALUE
--------- ------------ -------- -------
<S> <C> <C> <C> <C>
Delsener/Slater Enterprises, Ltd. . S-Corp. 100 10 None
Beach Concerts, Inc. ............... S-Corp. 2,500 10 None
Connecticut Concerts, Incorporated S-Corp. 5,000 10 None
Ardee Productions, Ltd. ............ S-Corp. 100 10 None
Ardee Festivals NJ, Inc. ........... C-Corp. 2,500 10 None
Dumb Deal, Inc. .................... S-Corp. 100 10 $.01
In-House Tickets, Inc. ............. C-Corp. 200 10 None
Broadway Concerts, Inc. ............ S-Corp. 2,500 10 None
Exit 116 Revisited, Inc. ........... S-Corp. 200 10 None
</TABLE>
In 1994, there was an issuance of common stock for Broadway Concerts, Inc.
for $20,000 and Connecticut Concerts, Inc. for $10,000. In 1996, there was an
initial issuance of the common stock of Dumb Deal, Inc. for $100,109 and a
capital contribution of $51,884 by Ron Delsener into Connecticut Concerts,
Inc.
5. COMMITMENTS AND CONTINGENCIES
Leases
The Companies lease office facilities and concert venues under
noncancellable leases which expire at various dates through 1999. Such leases
contain various operating escalations and renewal options.
Total rent expense for the years ended December 31, 1996, 1995 and 1994
under operating leases was $875,000, $835,000 and $823,333, respectively.
Future minimum lease payments under noncancellable operating leases as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 ... $ 837,500
1998 ... 775,000
1999 ... 820,000
-----------
$2,432,500
===========
</TABLE>
Unions
The Companies had agreements with various trade unions which have expired.
The trade unions are currently working under the old agreements and the
Companies and the unions are in the process of negotiating new agreements.
Other Matters
As of December 31, 1996, outstanding letters of credit for approximately
$400,000 were issued by banks on behalf of the Companies for the rental of
theaters.
6. SUBSEQUENT EVENTS
In January 1997, Broadcasting purchased 100% of the capital stock of the
Companies for aggregate consideration of approximately $26.6 million,
including $2.9 million for working capital and the present value of deferred
payments of $3 million to be paid, without interest, over five years, and $1
million to be paid, without interest, over ten years.
D-F-27
<PAGE>
DELSENER/SLATER ENTERPRISES, LTD. AND
AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
In March 1997, the Company consummated the acquisition of certain
companies which collectively own and operate the Meadows Music Theater in
Hartford, Connecticut for $0.9 million in cash, shares of Broadcasting's
Class A common stock with a value of approximately $7.5 million and the
assumption of approximately $15.4 million of debt.
D-F-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Connecticut Performing Arts, Inc. and
the Partners of Connecticut Performing Arts Partners:
We have audited the accompanying combined balance sheets of Connecticut
Performing Arts, Inc. and Connecticut Performing Arts Partners (collectively,
the Company) as of December 31, 1996 and 1995, and the related combined
statements of operations, shareholders' and partners' equity (deficit) and
cash flows for the years ended December 31, 1996, 1995 and 1994. These
combined 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 the Company as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years ended December 31, 1996, 1995 and 1994 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
March 21, 1997
D-F-29
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
ASSETS:
Current assets:
Cash ........................................................... $ 63,061 $ 6,778
Accounts receivable............................................. 192,382 152,205
Accounts receivable--related party.............................. 124,700 226,265
Prepaid interest ............................................... 54,982 54,279
Prepaid insurance .............................................. 69,797 87,869
Other current assets ........................................... 21,156 60,784
Deposit ........................................................ -- 110,000
Subscription receivable ........................................ 100 100
------------- -------------
Total current assets ......................................... 526,178 698,280
------------- -------------
Plant and equipment:
Building and building improvements ............................. 14,127,632 14,208,153
Furniture, fixtures and equipment .............................. 1,899,041 1,973,911
Leasehold improvements ......................................... 1,221,069 1,224,071
------------- -------------
17,247,742 17,406,135
Less: Accumulated depreciation and amortization ................ (408,897) (1,620,297)
------------- -------------
16,838,845 15,785,838
------------- -------------
Other assets:
Deferred costs, net of accumulated amortization of $503,766 and
$165,300 in 1996 and 1995, respectively ....................... 2,453,553 2,115,087
Deposit ........................................................ 110,000 --
Other .......................................................... -- 2,332
------------- -------------
Total other assets ........................................... 2,563,553 2,117,419
------------- -------------
$19,928,576 $18,601,537
============= =============
LIABILITIES AND SHAREHOLDERS' AND PARTNERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ............................................... $ 915,280 $ 908,986
Accrued expenses ............................................... 1,356,132 655,207
Deferred income ................................................ 679,476 737,440
Notes payable .................................................. 1,100,000 1,450,000
Current portion of long-term debt and capital lease obligations 493,362 824,800
------------- -------------
Total current liabilities .................................... 4,544,250 4,576,433
------------- -------------
Long-term debt and capital lease obligations,
less current portion .......................................... 13,398,700 13,982,196
------------- -------------
COMMITMENTS AND CONTINGENCIES
(Notes 2, 4, 5, 6, 9 and 10)
Shareholders' and Partners' Equity (Deficit):
Shareholders' equity--
Common stock................................................... 1,000 1,000
Series A Preferred Stock....................................... 1,346,341 1,372,174
Series B Preferred Stock....................................... 1,250,000 1,250,000
Accumulated deficit............................................ (273,114) (1,999,823)
Partners' equity (deficit)...................................... (338,601) (580,443)
------------- -------------
Total shareholders' and partners' equity (deficit) .......... 1,985,626 42,908
------------- -------------
$19,928,576 $18,601,537
============= =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
D-F-30
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
------- -------------- -------------
<S> <C> <C> <C>
Operating revenues:
Concert revenue ............... $ -- $ 6,830,681 $ 8,122,797
Cost of concerts .............. -- (5,524,043) (6,191,777)
------- -------------- -------------
-- 1,306,638 1,931,020
Ancillary income .............. -- 1,431,577 2,052,592
------- -------------- -------------
-- 2,738,215 3,983,612
------- -------------- -------------
Operating expenses:
General and administrative .... -- 3,068,162 3,080,914
Depreciation and amortization -- 574,197 1,549,894
Other ......................... 32 20,046 33,577
------- -------------- -------------
32 3,662,405 4,664,385
------- -------------- -------------
Loss from operations......... (32) (924,190) (680,773)
Other income (expense):
Interest income................ -- 428,869 30,015
Interest expense............... -- (509,225) (1,274,660)
------- -------------- -------------
Loss before income taxes ... -- (1,004,546) (1,925,418)
Provision for income taxes ... 10,796 17,300
------- -------------- -------------
Net loss .................... $(32) $(1,015,342) $(1,942,718)
======= ============== =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
D-F-31
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
COMBINED STATEMENTS OF SHAREHOLDERS'
AND PARTNERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY (DEFICIT)
-------------------------------------- PARTNERS'
COMMON PREFERRED ACCUMULATED EQUITY
STOCK STOCK DEFICIT (DEFICIT)
-------- ------------ -------------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1994................ $1,000 $ -- $ -- $ 500,000
Proceeds from sale of 125,000 shares of
Series A Preferred Stock............... -- 1,250,000 -- --
Proceeds from sale of 125,000 shares of
Series B Preferred Stock............... -- 1,250,000 -- --
Net loss................................ -- -- (32) --
-------- ------------ -------------- -----------
Balance, December 31, 1994.............. 1,000 2,500,000 (32) 500,000
Accretion of Series A Preferred Stock .. -- 96,341 (96,341) --
Net loss................................ -- -- (176,741) (838,601)
-------- ------------ -------------- -----------
Balance, December 31, 1995.............. 1,000 2,596,341 (273,114) (338,601)
Accretion of Series A Preferred Stock .. -- 25,833 (25,833) --
Net loss................................ -- -- (1,700,876) (241,842)
-------- ------------ -------------- -----------
Balance, December 31, 1996.............. $1,000 $2,622,174 $(1,999,823) $(580,443)
======== ============ ============== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
D-F-32
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1995 1996
------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ........................................... $ (32) $ (1,015,342) $ (1,942,718)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Depreciation and amortization ..................... -- 574,197 1,549,894
Loss on disposal of equipment ..................... -- -- 1,031
Changes in operating assets and liabilities:
Accounts receivable ............................... -- (192,382) 40,177
Accounts receivable--related party ................ -- -- (101,565)
Prepaid expenses and other assets ................. (2,232) (143,703) (59,329)
Accounts payable .................................. -- -- (6,294)
Accrued expenses .................................. -- 505,199 150,008
Deferred income ................................... -- 679,476 57,964
------------- --------------- ---------------
Net cash (used in) provided by operating
activities ...................................... (2,264) 407,445 (310,832)
------------- --------------- ---------------
Cash flows from investing activities:
Purchases of plant and equipment .................. (3,873,286) (23,242,858) (159,452)
Grant proceeds..................................... 3,232,839 7,680,161 --
Deferred start-up costs ........................... (756,570) (264,975) --
Accounts receivable--related party................. (527,878) 827,170 --
Accounts payable................................... 1,353,630 (438,350) --
Accounts payable--related party.................... (489,302) -- --
Long term deposit.................................. (110,000) -- --
------------- --------------- ---------------
Net cash (used in) investing activities ........ (1,170,567) (15,438,852) (159,452)
------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from borrowings on notes payable and
long-term debt ................................... -- 13,943,316 1,278,068
Repayments of notes payable, long-term debt and
capital lease obligations......................... -- (176,917) (864,067)
Proceeds from sales of common and preferred stock . 2,500,000 900 --
------------- --------------- ---------------
Net cash provided by financing activities ....... 2,500,000 13,767,299 414,001
------------- --------------- ---------------
Net increase (decrease) in cash .................... 1,327,169 (1,264,108) (56,283)
Cash, beginning of year ............................ -- 1,327,169 63,061
------------- --------------- ---------------
Cash, end of year................................... $ 1,327,169 $ 63,061 $ 6,778
============= =============== ===============
Supplemental Disclosures:
Cash Paid For--
Interest........................................... $ -- $ 554,342 $ 1,108,291
============= =============== ===============
Income taxes....................................... $ -- $ 10,796 $ 17,300
============= =============== ===============
Noncash Transactions--
Capital lease obligations.......................... $ -- $ 59,479 $ --
============= =============== ===============
Series A Preferred Stock accretion................. $ -- $ 96,341 $ 25,833
============= =============== ===============
Conversion of accrued expense for equipment
purchase to note payable.......................... $ -- $ -- $ 850,933
============= =============== ===============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
D-F-33
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Operations --
Connecticut Performing Arts, Inc. (the Company) and Connecticut Performing
Arts Partners (the Partnership) were incorporated and formed, respectively,
in 1993 pursuant to the laws of the State of Connecticut. The Company's
shareholders and the Partnership's partners are Nederlander of Connecticut,
Inc. and Connecticut Amphitheater Development Corporation. The Company's
shareholders and the Partnership's partners changed in March 1997 (see Note
10). The Company and Partnership are engaged in the ownership and operation
of an amphitheater in Hartford, Connecticut. The construction of the
amphitheater commenced in December 1994 and amphitheater operations commenced
in July 1995.
Principles of combination --
The combined financial statements include the accounts of the Company and
the Partnership after elimination of intercompany accounts and transactions.
Use of estimates in the preparation of financial statements --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Plant and equipment --
Plant and equipment is carried at cost. Major additions and betterments
are capitalized, while replacements, maintenance and repairs which do not
extend the lives of the assets are charged to operations as incurred. Upon
the disposition of plant and equipment, any resulting gain or loss is
recognized in the statement of operations as a component of income.
The Company received grant funds from the City of Hartford and Connecticut
Development Authority related to the construction of the amphitheater (see
Note 4). Such amounts have been accounted for as a reduction in the cost of
the amphitheater.
Depreciation of plant and equipment is provided for, commencing when such
assets become operational, using straight-line and accelerated methods over
the following estimated useful lives:
<TABLE>
<CAPTION>
USEFUL LIVES
----------------------
<S> <C>
Building and building improvements .... 39 years
Furniture, fixtures and equipment ..... 4-7 years
Leasehold improvements ................. Shorter of asset
life or lease term
</TABLE>
Effective January 1, 1996, the Company and Partnership adopted Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" which had no
effect upon adoption. This statement requires that long-lived assets and
certain identifiable intangible assets to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
D-F-34
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Deferred costs --
Deferred costs consist of start-up costs being amortized over a period of
5 years and deferred financing costs being amortized over the term of the
related debt (24 years and 4 months). As of December 31, 1995 and 1996
deferred costs were as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Deferred start-up .............. $1,452,669 $1,452,669
Deferred financing ............. 1,166,184 1,166,184
------------ ------------
2,618,853 2,618,853
Less: Accumulated amortization (165,300) (503,766)
------------ ------------
$2,453,553 $2,115,087
============ ============
</TABLE>
Deposit --
The deposit represents a deposit held by the City of Hartford related to
an employment agreement between the Partnership and the City of Hartford for
priority hiring of Hartford residents and utilization of minority business
enterprise or women business enterprise contractors and vendors in the future
operation of the amphitheater. The deposit will be returned to the
Partnership in December 1997 if the Partnership is in compliance with the
employment agreement. As of December 31, 1996, the Partnership has
compensated the City of Hartford for noncompliance with the terms of the
agreement in connection with the construction of the facility and the hiring
of contractors and the City of Hartford has agreed to make no additional
claims with respect to this matter.
Income taxes --
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
statement requires a company to recognize deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized
in a company's financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement carrying amounts and the tax bases of assets
and liabilities and net operating loss carryforwards available for tax
reporting purposes, using the applicable tax rates for the years in which the
differences are expected to reverse. A valuation allowance is recorded on
deferred tax assets unless realization is more likely than not.
The income tax effects of the operations of the Partnership accrue to the
partners in accordance with the terms of the Partnership agreement and are
not reflected in the accompanying combined financial statements.
Revenue recognition --
Revenue from ticket sales is recognized upon occurrence of the event.
Advance ticket sales are recorded as deferred income until the event occurs.
Ticket revenue is recorded net of payments in lieu of taxes under the terms
of the City of Hartford lease (see Note 6) and admission taxes.
Advertising --
The Company expenses the cost of advertising when the specific event takes
place. Advertising expense was $639,424, $689,160 and $0 for the years ended
December 31, 1996, 1995 and 1994, respectively.
D-F-35
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SHAREHOLDERS' EQUITY:
Common stock --
The Company is authorized to issue 5,000 shares of common stock with no
par value. The subscription receivable of $100 as of December 31, 1996
represents the amount due from shareholders for 100 shares of common stock at
$10 per share, of which $900 was received in February 1995.
Preferred stock --
The Company is authorized to issue 295,000 shares of preferred stock at no
par value. As of December 31, 1996 and 1995, 125,000 of such shares have been
designated as Series A Preferred Stock and 125,000 of such shares have been
designated as Series B Preferred Stock. Series A and Series B Preferred Stock
are not entitled to dividends and have liquidation rights of $10 per share.
Series A Preferred Stock is mandatorily redeemable at the rate of 20,835
shares commencing December 31, 1995 (the Initial Redemption Date) and an
aggregate of 20,833 shares on each six month anniversary of the Initial
Redemption Date until all 125,000 shares of the Series A Preferred Stock have
been redeemed, at $11.445 per share. As of December 31, 1996, no shares of
Series A Preferred Stock had been redeemed. The Company is accreting the
difference between the redemption price and the proceeds per share over the
period from the issuance date to the respective scheduled redemption dates.
Series B Preferred Stock is mandatorily redeemable at a per share price of
$10 in whole or in part at the option of the Company at any such time as
legally available funds, as defined in the resolution establishing and
designating the preferred stock, are available. On the tenth anniversary of
the completion date of the amphitheater any Series B Preferred Stock
outstanding shall be redeemed by the Company at a per share price of $10.
The Series A and Series B Preferred Stock will not be redeemed if such
redemption would result in a violation of the provisions of the Connecticut
Development Authority assistance agreement (see Note 4) or the mortgage loan
agreement (see Note 5).
3. PARTNERS' EQUITY:
In 1993, Nederlander of Connecticut, Inc. and Connecticut Amphitheater
Development Corporation each made an initial capital contribution of
$250,000.
4. GRANT FUNDS:
Connecticut Development Authority (CDA) Assistance Agreement --
On September 12, 1994, the CDA entered into a non-recourse assistance
agreement with the Company whereby the CDA provided grant funds for the
construction and development of an amphitheater in the City of Hartford (the
Project) through the issuance of State of Connecticut General Fund Obligation
Bonds (GFO Bonds). The Company received bond proceeds of $8,863,000, which
amount is net of CDA bond issuance costs of $593,000 and withholdings of
$429,000 by the CDA to cover the expected operating shortfall, as discussed
below, through December 31, 1995. Commencing January 1, 1996, the annual tax
revenues derived from the operation of the amphitheater are utilized to
satisfy the annual debt service requirements under the GFO Bonds. In the
event that annual tax revenues derived from the operation of the amphitheater
do not equal annual debt service requirements under the GFO Bonds, the
Company must deposit the lesser of the operating shortfall, as defined, or
10% of the annual debt service under the GFO Bonds. An operating shortfall
did not exist for the year ended December 31, 1996. The GFO Bonds mature on
October 15, 2024 and have an average coupon rate of 6.33%. Annual debt
service requirements on the GFO Bonds for each of the next five years and
thereafter are as follows:
D-F-36
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. GRANT FUNDS: (Continued)
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------- ------------
<S> <C>
1997.......... $ 740,556
1998 ......... 738,906
1999 ......... 736,656
2000 ......... 738,856
2001 ......... 740,293
Thereafter .. 17,140,363
------------
$20,835,630
============
</TABLE>
The assistance agreement requires an annual attendance of at least 400,000
for each of the first three years of operations. It will not be considered an
event of default if the annual attendance is less than 400,000 provided that
no operating shortfall exists for that year or if an operating shortfall
exists such amount has been deposited by the Company. If there is an event of
default, the CDA may foreclose on the construction mortgage loan (see Note
5). If the amphitheater's operations are relocated outside of Connecticut
during the ten year period subsequent to the assistance agreement or during
the period of the construction mortgage loan, the full amount of the grant
funds plus a penalty of 5% must be repaid to the State of Connecticut.
City of Hartford Grant Funds --
On February 15, 1995 the Company entered into an agreement with the City
of Hartford whereby the City of Hartford provided grant funds of $2,050,000
for the remediation and closure of a solid waste disposal area near the
amphitheater. As of December 31, 1995 all funds had been received by the
Company.
5. NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable --
In October 1995, the Company entered into two notes payable with related
parties for an aggregate of $2,000,000. As of December 31, 1996 and 1995,
$1,450,000 and $1,100,000, respectively was outstanding on these notes. The
notes bear interest at 6.6% per annum and are payable upon demand.
CDA mortgage loan --
On September 12, 1994, CDA entered into a construction mortgage loan
agreement for $7,685,000 with the Company. The purpose of the loan was to
finance a portion of the construction and development of the amphitheater.
The loan agreement contains substantially the same covenants as the CDA
assistance agreement (see Note 4). As of December 31, 1995, proceeds of
$6,519,000, which amount is net of deferred financing costs of approximately
$1,166,000, had been received by the Company.
D-F-37
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. NOTES PAYABLE AND LONG-TERM DEBT: (Continued)
The mortgage loan bears interest at 8.73% and is payable in monthly
installments of principal and interest. The mortgage loan matures on October
15, 2019. As of December 31, 1996, future principal payments are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------- -----------
<S> <C>
1997.......... $ 111,667
1998 ......... 121,667
1999 ......... 131,667
2000 ......... 141,667
2001 ......... 152,500
Thereafter .. 6,854,498
-----------
$7,513,666
===========
</TABLE>
The loan is guaranteed by the Company's shareholders and is collateralized
by a lien on the Company's assets. As of December 31, 1996, the loan was
secured by an irrevocable standby letter of credit issued by a shareholder of
the Company in the amount of $785,000. The letter of credit was replaced in
March 1997 by a letter of credit issued by a new shareholder (see Note 10).
Ogden Entertainment, Inc. (OE) Concession Agreement --
In October 1994, the Partnership entered into a concession agreement with
OE which provides for the payment of concession commissions to the
Partnership. In connection with the concession agreement, OE loaned the
Partnership $4,500,000 in 1995 to facilitate the construction of the
amphitheater. On December 30, 1996, the concession agreement was amended and
restated retroactively to October 18, 1994. In accordance with the terms of
the amended agreement, which expires on July 7, 2025, interest only, at the
6-month LIBOR rate, through July 7, 1995 and principal and interest, at the
rate of 7.5% per annum, were due on the note payable via withholdings of the
first $41,716 from each monthly commission payment commencing July 20, 1995
through December 20, 1995. Effective January 2, 1996, and through the term of
the amended concession agreement, principal and interest, at the rate of 7.5%
per annum on the note is payable via withholdings of the first $31,299 from
each monthly commission payment.
OE loaned the Partnership an additional $1,000,000 during 1995. This loan
bears interest at a rate of 9.75% per annum and is payable via withholdings
of an additional $11,900 of principal, plus interest, from each monthly
commission payment through December 20, 2002. As of December 31, 1996,
aggregate future principal payments to OE are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------- -----------
<S> <C>
1997.......... $ 190,722
1998 ......... 194,442
1999 ......... 198,451
2000 ......... 202,772
2001 ......... 207,427
Thereafter .. 4,218,234
-----------
$5,212,048
===========
</TABLE>
The concession agreement provided for the Partnership to supply certain
equipment to OE at the Partnership's expense. This equipment was installed
prior to the opening of the amphitheater (the Initial
D-F-38
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. NOTES PAYABLE AND LONG-TERM DEBT: (Continued)
Equipment). The Initial Equipment was purchased by OE at a cost of $850,933
and the Partnership was obligated to reimburse OE for the cost of the
equipment. Accordingly, this amount was reflected as an accrued expense in
the accompanying combined balance sheet as of December 31, 1995. In 1996, in
connection with the amended concession agreement, the $850,933, and an
additional $33,067 related to 1996 equipment purchases, was converted to a
note payable for $884,000. The note bears interest at the rate of 9.25% per
annum and provides for monthly principal and interest payments of $10,185 to
OE, however, the Partnership is not required to make any principal or
interest payments to the extent that 5% of receipts, as defined, in any month
are less than the amount of the payment due. As of December 31, 1996, future
principal payments to OE by the Partnership are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------- ---------
<S> <C>
1997.......... $ 42,210
1998 ......... 46,284
1999 ......... 50,751
2000 ......... 55,650
2001 ......... 61,022
Thereafter .. 628,083
---------
$884,000
=========
</TABLE>
Conn Ticketing Company (CTC) Promissory Note Payable --
On April 1, 1995, CTC (a company related to the Company and the
Partnership via common ownership) entered into a promissory note agreement
with ProTix Connecticut General Partnership (PTCGP). Under the terms of the
agreement, CTC borrowed $825,000 at 9.375% per annum from PTCGP. Principal
and interest are repayable by CTC in nine annual installments of $139,714
which commenced March 31, 1996. In May 1995, CTC loaned $824,500 to the
Company which is also repayable in nine annual installments of principal and
interest of $139,714. The PTCGP loan to CTC is secured by CTC's receivable
from the Company. As of December 31, 1996, future principal payments to CTC
by the Company are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------- ---------
<S> <C>
1997.......... $ 68,217
1998 ......... 74,613
1999 ......... 81,608
2000 ......... 89,259
2001 ......... 97,627
Thereafter .. 351,306
---------
$762,630
=========
</TABLE>
In January 1995, the Partnership entered into a ticket and sales agreement
with PTCGP through December 31, 2004. Under the terms of the agreement, PTCGP
pays the Partnership an annual fee of $140,000 commencing in March 1996.
Proceeds from the annual fee for the first nine years will be used by the
Partnership to make the annual principal and interest payment to CTC.
Line of credit --
The Partnership has a line of credit in the amount of $2,000,000, which
bears interest at 8.25% per annum, with a bank. As of December 31, 1996,
$395,000 was outstanding on the line of credit.
D-F-39
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. NOTES PAYABLE AND LONG-TERM DEBT: (Continued)
Capital lease obligations --
The Partnership entered into capital leases for certain office equipment.
The leases expire in 1998 and 2000. As of December 31, 1996 future principal
payments are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------- ---------
<S> <C>
1997 ... $16,984
1998 ... 13,905
1999 ... 4,550
2000 ... 4,213
---------
$39,652
=========
</TABLE>
6. LAND AND BUILDING LEASES:
Land lease agreement between the City of Hartford and the Partnership --
The Partnership entered into a 40 year lease agreement for certain land
with the City of Hartford, Connecticut on September 14, 1994. The lease
agreement provides for two successive options to extend the term of the lease
for a period of ten years each. The Partnership pays an annual basic rent of
$50,000 commencing July 1, 1995; and additional rent payments in lieu of real
estate taxes (PILOT) in an amount equal to 2% of all admission receipts, food
and beverage revenue, merchandise revenue and parking receipts that exceed
10% of the total admission receipts, which amount is to be net of any
surcharges and sales or like taxes levied by governmental authorities on the
price of such items.
Assignment of lease by the Partnership to the Company --
The above lease was subsequently assigned by the Partnership to the
Company on September 22, 1994 for consideration of $1.
Lease and sublease agreement between the Company and the Partnership --
On October 19, 1994, the Company subleased the land and buildings and
improvements thereon to the Partnership for a period of 40 years commencing
upon substantial completion of the amphitheater. The sublease agreement
provides for two successive options to extend the term of the lease for a
period of ten years each. The sublease agreement provides for the Partnership
to pay rent to the Company in amounts ranging from $804,000 to $831,100 per
annum for the first 25 years and $100,000 per annum thereafter including the
option periods. Additional rent of six semi-annual installments of $238,452
is also payable by the Partnership commencing six months after the start of
operations. Subsequent to the six semi-annual installments an aggregate of
$1,250,000 will be payable in semi-annual installments based on available
cash flow of the Partnership, as defined. Additionally, the Partnership is
also required to pay the annual basic rent ($50,000) and any additional
payments in lieu of taxes under the terms of the lease agreement between the
City of Hartford and the Partnership described above. The Partnership will
also pay additional rent equal to principal and interest payable by the
Company to the concession company for a previously arranged concessionaire
arrangement (see Note 5). The accompanying combined statement of operations
for the year ended December 31, 1996 includes rent expense of $50,000 which
represents the aggregate amount due to the City of Hartford under the terms
of the above agreements.
7. INCOME TAXES:
The provision for income taxes for the year ended December 31, 1996
represents minimum state income taxes for the Company. As of December 31,
1996, the Company has a net deferred tax asset of
D-F-40
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES: (Continued)
approximately $750,000 primarily as a result of aggregate net operating
losses since inception. Usage of the net operating loss carryforwards is
restricted in the event of certain ownership changes. A valuation allowance
has been recorded for the same amount due to the uncertainty related to the
realization of this asset.
8. RELATED PARTY TRANSACTIONS:
Accounts receivable -related party as of December 31, 1996, includes net
amounts due from a shareholder of $121,265 and receivables from another
related party of $105,000.
9. CONTINGENCIES:
The Company and the Partnership are party to certain litigation arising in
the normal course of business. Management, after consultation with legal
counsel, believes the disposition of these matters will not have a material
adverse effect on the combined results of operations or financial condition.
10. SUBSEQUENT EVENTS:
Effective March 5, 1997, the Partnership and Company entered into a
$1,500,000 loan agreement with the CDA of which $1 million was funded in
March 1997. Principal payments of $150,000 are due on July 1 and October 1 of
each year commencing July 1, 1997 through October 1, 2001. The note bears
interest at the rate of 8.9% per annum through February 1, 1998, and
thereafter at the index rate, as defined, plus 2.5%. In addition, the
Partnership and Company are required to make principal payments in an amount
equal to 10% of the annual gross revenue, as defined, in excess of $13
million on or before March 1 of each calendar year commencing March 1, 1998.
In March 1997, three subsidiaries of SFX Broadcasting, Inc.
(Broadcasting), which were created for such purpose, were merged into
Nederlander of Connecticut, Inc., Connecticut Amphitheater Development
Corporation and QN Corp., a newly formed entity. In connection with the
merger, the name of Nederlander of Connecticut, Inc., was changed to NOC,
Inc. (NOC) and the directors of NOC, Inc., Connecticut Amphitheater
Development Corporation (CADCO) and QN Corp. (QN) were replaced with
directors of the Broadcasting acquisition subsidiaries. Each outstanding
share of stock of NOC, CADCO and QN was canceled and exchanged for an
aggregate of $1 million cash and shares of Broadcasting Class A Common Stock
valued at $9 million, subject to certain adjustments. The shares are subject
to a put provision between the second and seventh anniversary of the closing
whereby the holder can put each share back to Broadcasting for the per share
value of Broadcasting stock as of the merger closing date, as defined, less
10%. Additionally, the shares may be called by Broadcasting during the same
period for an amount equal to the per share value of the Broadcasting stock
as of the merger closing date, as defined, plus 10%. As consideration for
approval of the transaction, the CDA received shares of Broadcasting stock
valued at approximately $361,000.
D-F-41
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of SFX Broadcasting, Inc.:
We have audited the accompanying combined balance sheets of DEER CREEK
PARTNERS, L.P. (formerly Sand Creek Partners, L.P.) and MURAT CENTRE, L.P.,
as of December 31, 1996 and 1995, and the related combined statements of
operations and partners' equity (deficit) and cash flows for the years ended
December 31, 1996, 1995 and 1994. These financial statements are the
responsibility of the Partnerships' 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 combined financial position of Deer Creek
Partners, L.P. and Murat Centre, L.P. as of December 31, 1996 and 1995, and
the combined results of their operations and their cash flows for the years
ended December 31, 1996, 1995 and 1994 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana
September 29, 1997.
D-F-42
<PAGE>
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................. $ 1,894,533 $ 876,776
Accounts receivable........................ 138,548 155,929
Prepaid show expense....................... -- 42,114
Prepaid expenses........................... 91,919 118,152
------------- ------------
Total current assets..................... 2,125,000 1,192,971
------------- ------------
Property and equipment:
Land....................................... 2,428,770 2,428,770
Buildings.................................. 6,155,979 6,155,979
Site improvements.......................... 2,328,369 2,230,594
Leasehold improvements..................... 5,270,038 9,663,357
Furniture and equipment.................... 1,070,547 1,722,874
------------- ------------
17,253,703 22,201,574
Less: Accumulated depreciation............. 2,167,567 2,850,077
------------- ------------
Total property and equipment............. 15,086,136 19,351,497
------------- ------------
Other Assets:
Cash surrender value--life insurance
policy.................................... 62,819 71,815
Unamortized loan acquisition costs ....... 93,439 350,055
------------- ------------
Total other assets....................... 156,258 421,870
------------- ------------
TOTAL ASSETS ............................ $17,367,394 $20,966,338
============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
D-F-43
<PAGE>
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Current portion of notes and capital lease
obligation........................................... $ 796,391 $ 611,127
Current portion of deferred ticket revenue............ 542,420 841,476
Accounts payable...................................... 472,365 520,663
Accrued interest...................................... 663,391 299,600
Accrued property taxes................................ 125,524 280,734
Current portion of loan payable....................... -- 34,200
Construction payable and other accrued liabilities .. 3,341,284 50,641
------------- -------------
Total current liabilities .......................... 5,941,375 2,638,441
------------- -------------
Long-term Liabilities:
Notes payable and capital lease obligation,
net of current portion............................... 12,998,738 17,266,768
Loan, net of current portion (Note 5)................. -- 99,200
Deferred ticket revenue, net of current portion ...... -- 168,833
------------- -------------
Total long-term liabilities......................... 12,998,738 17,534,801
------------- -------------
Partners' equity (deficit):
Contributed capital .................................. -- 2,200,000
Undistributed earnings (loss) ........................ (1,572,719) (1,406,904)
------------- -------------
(1,572,719) 793,096
------------- -------------
TOTAL LIABILITIES AND PARTNERS' EQUITY.............. $17,367,394 $20,966,338
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
D-F-44
<PAGE>
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
COMBINED STATEMENTS OF OPERATIONS AND PARTNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Operating revenues:
Concert revenue....................................... $ 9,258,015 $11,073,491 $14,194,502
Cost of concerts...................................... 8,018,336 8,939,022 10,724,059
-------------- -------------- --------------
1,239,679 2,134,469 3,470,443
Ancillary income:
Royalty commissions................................... 1,066,297 1,706,458 1,799,950
Corporate sponsorships................................ 987,362 959,518 1,056,161
Other ancillary income................................ 1,148,952 789,433 1,375,528
-------------- -------------- --------------
4,442,290 5,589,878 7,702,082
Operating expenses:
General & administrative.............................. 1,971,613 2,419,679 3,452,990
Depreciation & amortization........................... 340,753 343,567 783,167
Other operating expenses.............................. 211,428 249,812 471,126
-------------- -------------- --------------
2,523,794 3,013,058 4,707,283
Income from operations................................ 1,918,496 2,576,820 2,994,799
Other income (expense):
Interest income....................................... 56,919 86,034 84,123
Interest expense...................................... (1,648,956) (2,203,690) (1,549,579)
Professional fees related to attempted initial public
offering ............................................ (540,000) -- --
-------------- -------------- --------------
Net Income (Loss)................................... $ (213,541) $ 459,164 $ 1,529,343
Partners' Equity (Deficit) at beginning of year ..... $(1,161,815) $(1,857,603) $(1,572,719)
Contributions......................................... -- -- 2,200,000
Distributions......................................... (482,247) (174,280) (1,363,528)
-------------- -------------- --------------
Partners' Equity (Deficit) at end of year ............ $(1,857,603) $(1,572,719) $ 793,096
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
D-F-45
<PAGE>
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Operating Activities:
Net income (loss).............................................. $ (213,541) $ 459,164 $ 1,529,343
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization................................. 412,182 461,678 783,167
Decrease (increase) in certain assets:
Accounts receivable........................................... (93,231) (45,317) (17,381)
Prepaid show expenses......................................... -- -- (42,114)
Prepaid expenses and other ................................... (836,929) 746,307 (33,381)
Increase (decrease) in certain liabilities:
Accounts payable, construction payable and other accrued
liabilities.................................................. 213,228 3,424,461 (3,087,135)
Deferred ticket revenue....................................... 1,329,022 (1,266,654) 467,889
Accrued interest.............................................. -- 389,251 (363,791)
Other......................................................... -- (75,407) 44,852
------------- ------------- -------------
Net cash provided by (used in) operating activities ........ 810,731 4,093,483 (718,551)
------------- ------------- -------------
Investing Activities:
Capital expenditures.......................................... (53,621) (6,713,889) (5,197,260)
------------- ------------- -------------
Net cash used by investing activities......................... (53,621) (6,713,889) (5,197,260)
------------- ------------- -------------
Financing Activities:
Net proceeds from borrowings.................................. -- 3,060,087 5,057,249
Capital contributions......................................... -- -- 2,200,000
Department of Metropolitan Development Grant.................. -- 761,014 338,986
Principal payments on notes and loan payable and capital
leases....................................................... (40,741) (20,308) (1,334,653)
Distributions to partners..................................... (482,247) (174,280) (1,363,528)
------------- ------------- -------------
Net cash provided by (used by) financing activities ........ (522,988) 3,626,513 4,898,054
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents .......... 234,122 1,006,107 (1,017,757)
Cash and cash equivalents:
Beginning of period........................................... 654,304 888,426 1,894,533
------------- ------------- -------------
End of period................................................. $ 888,426 $ 1,894,533 $ 876,776
============= ============= =============
Supplemental disclosures:
Cash paid for interest........................................ $1,685,494 $ 1,148,049 $ 1,912,494
Equipment acquired under capital leases....................... -- -- 139,000
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
D-F-46
<PAGE>
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
Prior to 1997 (See Note 10) Deer Creek Partners, L.P. (the Deer Creek
Partnership) owned and operated Deer Creek Music Center (Deer Creek), a
concert amphitheater located in Hamilton County, near Indianapolis, Indiana
which commenced operations in 1989. Sand Creek Partners, L.P. (the general
partner) was a 50% general partner and is responsible for the management of
the Deer Creek Partnership. Conseco, Inc. (Conseco) was a 50% limited partner
of the Deer Creek Partnership. All distributable cash, as defined by the Deer
Creek partnership agreement, is to be distributed equally between the
Partners.
The Deer Creek Partnership was formed on January 5, 1996 as a result of
Conseco exercising its option to become a 50% owner of Deer Creek. Deer Creek
was previously 100% owned by Sand Creek Partners, L.P. This change in
ownership has been accounted for as a reorganization, and thus the carrying
value of the assets and liabilities related to Deer Creek remain unchanged as
a result of the reorganization.
Murat Centre, L.P. (Murat Partnership), formed on August 1, 1995, leases
and operates the Murat Theatre (Theatre), a renovated concert and
entertainment venue located in downtown Indianapolis, Indiana. The Theatre's
grand reopening was in March, 1996. The Theatre is currently owned by and was
previously operated by the Murat Temple Association, Inc. Murat Centre, Inc.
is the general partner and is responsible for management of the Theatre.
Profits and losses of the Murat Partnership are allocated 1% to the general
partner and 99% to the limited partners. Distributions to partners are
generally limited to the income taxes payable by the partners as a result of
taxable income generated by the Murat Partnership. To the extent that cash
flow for the applicable year exceeds all payment requirements as discussed in
Note 3, the excess shall be distributed to the partners.
In connection with reopening the Theatre, the Murat Partnership expended
approximately $11.7 million for renovations which began in 1995. Start-up and
organizational costs of approximately $85,000 in 1995 and $90,000 in 1996
were expensed as incurred and have been included in general and
administrative expenses in the combined statement of operations for the years
ended December 31, 1996 and 1995. The building is leased under a 50 year
operating lease with options for 5 additional consecutive 10 year periods
under the same terms and conditions as the initial 50 year lease.
b. Basis of Accounting
The financial statements have been prepared in accordance with generally
accepted accounting principles. Such principles require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and disclosures of contingent assets and liabilities at the date
of financial statements and the amounts of income and expenses during the
reporting period. Actual results could differ from those estimated.
c. Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Buildings are depreciated over forty years,
leasehold improvements over thirty years, site improvements over twenty
years, and furniture and equipment over five to seven years.
d. Loan Acquisition Costs
Loan acquisition costs represent agency and commitment fees paid to the
lenders, closing costs and legal fees incurred in connection with the notes
payable (see Note 2). These fees are being amortized on a straight-line basis
over a fifteen year period, which represented the approximate term of the
related debt.
D-F-47
<PAGE>
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
e. Deferred Revenue
Deferred revenue includes individual show ticket revenue, season ticket
revenue, and corporate box seat revenue received in advance of events or the
next concert season and will be recognized over the period in which the shows
are held. A portion of the deferred revenue was derived from the bartering of
tickets for goods and services related to the Murat renovation. Barter
transactions are recorded at the estimated fair value of the materials or
service received.
f. Income Taxes
No provision for Federal or state income taxes is required because the
partners are taxed directly on their distributable shares of the
Partnerships' income or loss.
g. Cash Equivalents
The Partnerships consider all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
h. Advertising and Promotion
Advertising and promotion costs are expensed at the time the related
promotional event is held. The costs were approximately $930,000 in 1996,
$595,000 in 1995 and $470,000 in 1994.
2. NOTES PAYABLE
Notes payable and capital lease obligations as of December 31, 1995 and
1996 consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
-------------- --------------
<S> <C> <C>
MURAT PARTNERSHIP
- ------------------------------------------------------------------- -------------- --------------
Note payable to bank with 9.25% interest rate subject to adjustment
in 2001 and 2006; payable in monthly installments of $30,876,
including interest, in addition to annual contingent principal
payments based upon remaining net cash flow as defined in Note 3;
secured by assets of the Murat Partnership and guaranteed by two
of the limited partners for $375,000 each; balance due no later
than April 1, 2011. ............................................... $ -- $2,928,053
Note payable with 9% non-compounding interest rate through November
14, 1996, 12% non-compounding interest rate from November 15, 1996
through November 14, 1998, 18% non-compounding interest rate
thereafter; all interest is cumulative; principal and interest
payments are based upon remaining net cash flow as defined in Note
3; subordinate to above bank note payable. ........................ 2,647,165 3,000,000
Note payable with 0% interest rate; principal payments the lesser
of $.15 per ticket sold during fiscal year or remaining net cash
flow as defined in Note 3; subordinate to above bank note payable. -- 800,000
D-F-48
<PAGE>
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, DECEMBER 31,
1995 1996
-------------- --------------
Note payable with interest calculated annually and is equal to the
lesser of (1) $.10 per ticket sold during fiscal year, (2) prime
plus 1% or (3) remaining net cash flow as defined in Note 3;
interest and principal is paid at the lesser of $.10 per ticket
sold during fiscal year or remaining net cash flow as defined in
Note 3; principal is also required to be paid down upon sale of
certain Partnership assets or the refinancing of certain
Partnership loans; subordinate to above bank note payable ........ $ -- $ 1,000,000
Other.............................................................. 90,940 --
DEER CREEK PARTNERSHIP
Note payable with interest calculated annually at 9.5%; payable in
quarterly installments of approximately $353,000, including
interest, through the year 2010; secured by substantially all of
the assets of the partnership and is guaranteed up to 50%, jointly
and severally, by two officers of Sunshine Promotions, Inc.
(Sunshine), and by Sunshine (See Note 6.).......................... -- 10,019,361
Note payable with interest at 11.18% payable in monthly
installments and contingent interest based upon net cash flow;
secured by substantially all of the assets of the Partnership;
principal due 1999 with the option for the holder to accelerate
the maturity date to 1996. ........................................ 11,041,024 --
Capital leases ..................................................... 16,000 130,481
-------------- --------------
Total notes payable and capital lease obligations................. 13,795,129 17,877,894
Less--Current portion ............................................ 796,391 611,127
-------------- --------------
$12,998,738 $17,266,768
============== ==============
</TABLE>
Principal payments made on the Murat Partnership bank term note during
1996 totaled $71,947. The Murat Partnership's 1996 net cash flow (see Note 3)
did not require additional principal payments to be made on its notes
payable. The bank term note contains cash flow and leverage ratio covenants.
The Murat Partnership was not in compliance with the cash flow covenant as of
December 31, 1996, but received a waiver dated March 31, 1997 for the
December 31, 1996 calculation. Provisions of the $800,000 note payable
require the Murat Partnership to continue making payments after the principal
has been paid down equal to the lesser of $.15 per ticket sold during the
fiscal year or remaining cash flow, as defined in Note 3. These payments are
to be made to a not-for-profit foundation and will be designated for
remodeling and upkeep of the Theatre.
Under the terms of the note payable in 1995 and 1994, the Deer Creek
Partnership incurred contingent interest, which was based on cash flow, of
$885,000 and $374,000, respectively. During 1995, Deer Creek Partnership's
current lender (a related party) purchased the note payable and entered into
an amended and restated loan agreement with the partnership on January 5,
1996. For each year until the Deer Creek loan is repaid, net cash flow (as
defined) in excess of $400,000 shall be paid as a principal payment on the
loan, not to exceed $400,000. In 1995 and 1996, the Deer Creek Partnership's
net cash flow was such that the maximum principal payment of $400,000 was
required for each year. In addition, the promotional management fee paid to
Sunshine (see Note 6) is subordinate to the quarterly loan payments.
D-F-49
<PAGE>
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Principal maturities of notes payable for the next 5 years, excluding
principal paydowns resulting from excess cash flow:
<TABLE>
<CAPTION>
<S> <C>
1997 ... $578,895
1998 ... 635,682
1999 ... 698,041
2000 ... 766,518
2001.... 841,712
</TABLE>
Future capital lease payments of principal and interest are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 ... $50,800
1998 ... 46,250
1999 ... 37,000
2000 ... 36,000
2001 ... 4,000
</TABLE>
3. MURAT CASH FLOW PAYMENTS
Each of the Murat Partnership's debt agreements require certain principal
and interest to be paid in April of each year based upon the Murat
Partnership's net cash flow for the preceding year. The Murat Partnership's
building lease agreement provides for lease payments to be made based upon
the same net cash flow calculation. Net cash flow, as defined in each
agreement, approximates net income, plus depreciation and amortization, less
capital expenditures and partnership distributions necessary to pay
applicable income taxes. Net cash flow in each year will be used by the Murat
Partnership to pay principal, interest and lease payments in the following
order of priority:
1. Payment of interest on $1,000,000 note equal to the lesser of (a) $.10 per
ticket sold, (b) prime plus 1% or (c) remaining net cash flow;
2. Additional principal payments on bank note so that the total principal
paid each month (including mandatory term payments discussed in Note 2)
equals up to, but not exceeding, $16,667. If cash flow in any fiscal year
is not sufficient to meet these additional principal payments, the
obligation carries forward to the subsequent year;
3. For 1997 and beyond, building operating lease payments not to exceed
$50,000 per year, non-cumulative;
4. Interest related to the $3 million note (including previous years'
cumulative amounts not paid);
5. Principal payment on the $3 million note until paid in full;
6. Principal payment on $800,000 note equal to lesser of $.15 per ticket sold
during fiscal year or remaining net cash flow;
If cash flow is such that only a portion is paid on the obligation in 2.
above, Sunshine, Inc.'s management fee (see Note 6.) could be reduced by the
amount paid in 1. in order to maximize the amount available to fully pay the
obligation in 2.
4. DMD GRANT
As part of the original financing for renovation of the Theatre, the
Department of Metropolitan Development (DMD) contributed approximately
$760,000 in 1995 and $340,000 in 1996 to the Murat Partnership. The DMD
stipulated that the grant was to be used for leasehold improvements on the
Theatre. As such, the grant has been recorded on the balance sheet as a
reduction of leasehold improvements and is being amortized over 30 years.
D-F-50
<PAGE>
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. AGREEMENTS WITH OUTSIDE VENDORS
Effective February 1996, the Murat Partnership entered into a ten year
agreement with a caterer to provide exclusive catering services at the
Theatre. The Murat Partnership is entitled to a commission based upon a
percentage of the caterer's net sales. As part of the agreement the caterer
loaned the Murat Partnership $165,000, at a nominal interest rate, for
leasehold improvements necessary to provide catering services. In February
1996 the Murat Partnership began repaying the loan ratably over 5 years.
Effective February 1996, the Murat Partnership entered into a ten year
agreement with a concessionaire for the exclusive license to sell concession
food and beverages at Theatre events. The Murat Partnership is entitled to
royalty commissions based upon a percentage of the concessionaire's gross
receipts. The concessionaire has paid the Murat Partnership $50,000 to be
used for leasehold improvements (which are being depreciated over 30 years)
which will be used by the concessionaire. This payment has been recorded as
deferred income and is being amortized over the term of the agreement. On
March 28, 1997 the rights to the concession agreement were acquired by the
caterer under the same terms as the original concession agreement.
Effective March 1996, the Murat Partnership entered into a five year
agreement with a stagehand union allowing the union to provide services at
all ticketed shows held in the main theater other than the broadway series.
The agreement, among other items, sets minimum hours per show and hourly
wages to be paid to union members. It also sets forth duties which must be
performed solely by union members. A separate agreement between the stagehand
union and Pace Theatrical Group, Inc. (see Note 7) governs the use of union
stagehands for the broadway series.
Effective February 1996, the Murat Partnership entered into a one year
agreement granting another party the right to manage and operate the Theatre
parking lot.
In July 1988, the Deer Creek Partnership entered into a ten-year agreement
with a concessionaire for the exclusive license to sell food and beverages at
Deer Creek events. The Deer Creek Partnership is entitled to royalty
commissions based upon a percentage of the concessionaire's gross receipts.
The Deer Creek Partnership has an agreement with another concessionaire
for an exclusive license to sell consigned nonconsumable novelties and
programs at Deer Creek events. The agreement expires on October 31, 2001. The
Deer Creek Partnership is entitled to royalty commissions based on the
concessionaire's gross receipts.
Total revenues related to the Deer Creek and Murat Center Partnership's
vendor agreements were approximately $1.8 million, $1.7 million and $1.1
million in 1996, 1995 and 1994, respectively.
6. MANAGEMENT AGREEMENTS
The Deer Creek Partnership and Murat Partnership have entered into
agreements which expire in 2009 and 2015, respectively, with Sunshine whose
stockholders are also the limited partners of the general partner. Sunshine
provides the overall promotional management and booking of the entertainment
events held at respective venues, along with other general management
responsibilities. As compensation for Sunshine's services, the Deer Creek
Partnership pays Sunshine 4 percent of gross ticket sales, royalty income and
various other revenues. Total fees to Sunshine for these services were
approximately $501,000 in 1994, $581,000 in 1995 and $560,000 in 1996. The
Murat pays Sunshine an annual management fee of $300,000, adjusted annually
each January 1 by the greater of 4% or the annual increase in the consumer
price index. In 1996 no such fee was recognized by the Murat Partnership as
Sunshine permanently waived the $300,000 management fee due for 1996.
In June 1988, the Deer Creek Partnership entered into a ten-year agreement
with an unrelated management company to provide the on-site operations
management for Deer Creek. At the end of 1995, this agreement was terminated
by mutual consent of both parties. The Deer Creek Partnership entered
D-F-51
<PAGE>
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
into a new agreement with the former management company whereby it agreed to
pay $75,000 in 1996, 1997 and 1998 and also to provide to the former
management company selected season tickets at Deer Creek in 1997 and 1998. In
return, for 1996, 1997 and 1998, the Deer Creek Partnership is to receive
advertising and promotion.
7. BROADWAY SERIES PARTNERSHIP
In 1996 the Murat Partnership entered into a 5 year partnership agreement
with Pace Theatrical Group, Inc. (Pace) and Broadway Series Management (BSMG)
to co-present a subscription series of touring Broadway type shows in
Indianapolis. This agreement calls for net profits and losses derived from
the series to be split, after the allocation of certain revenues to the Murat
Partnership and Pace, as follows: 45% Murat Partnership, 45% Pace, and 10%
BSMG. No capital was invested by any of the parties and all income has been
distributed to the parties. The Murat Partnership is responsible for the
local marketing and management of the series, while Pace is responsible for
booking, series management, and season ticket sales for the series. The Murat
Partnership recognized earnings related to this partnership of $270,000 in
1996.
8. RELATED PARTIES
In addition to the management agreement with Sunshine discussed in Note 6,
the Deer Creek Partnership and Murat Partnership have conducted business with
certain related parties in which the limited partners of the general partner
have significant interests. Fees paid to all other related parties for
catering, uniforms and marketing services totaled $204,000 in 1994, $249,000
in 1995 and $65,000 in 1996 from the Deer Creek Partnership and $46,000 in
1996 from the Murat Partnership.
9. ATTEMPTED INITIAL PUBLIC OFFERING
The Deer Creek Partnership was one of several commonly owned and managed
businesses which were involved in an attempted initial public offering during
1994. The offering was not completed. Approximately $900,000 of legal,
accounting, printing and other professional fees were incurred in
contemplation of the offering of which $540,000 was attributable to the
Deercreek Partnership. These costs are included in other expenses in the
combined statement of operations.
10. SALE OF MURAT PARTNERSHIP AND DEER CREEK PARTNERSHIP
In June 1997, the partners of the Murat Partnership and the Deer Creek
Partnership agreed to sell all of the assets of the Murat Partnership and
Deer Creek Partnership to SFX Broadcasting, Inc. (Broadcasting). The total
sales price to Broadcasting of the combined partnership assets was
approximately $33 million. As a part of the sale, Broadcasting assumed or
retired virtually all liabilities and acquired all assets of the Murat
Partnership and the Deer Creek Partnership.
D-F-52
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PACE Entertainment Corporation:
We have audited the accompanying consolidated balance sheet of PACE
Entertainment Corporation and subsidiaries as of September 30, 1997, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PACE
Entertainment Corporation and subsidiaries as of September 30, 1997, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
December 15, 1997 (except with respect
to the matters discussed in
Note 12, as to which the date
is December 22, 1997)
D-F-53
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
PACE Entertainment Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of PACE
Entertainment Corporation and subsidiaries as of September 30, 1996, and the
related consolidated statements of operations, cash flows, and shareholders'
equity for each of the two years in the period ended September 30, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PACE
Entertainment Corporation and subsidiaries at September 30, 1996, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
December 13, 1996, except for
Note 10, as to which the
date is August 22, 1997
D-F-54
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $23,165 $23,784
Trade receivables, net ............................... 4,097 4,562
Accounts receivable, related parties ................. 1,010 1,007
Notes receivable ..................................... 3,040 386
Prepaid expenses ..................................... 6,106 9,967
Investments in theatrical productions ................ 2,489 4,402
Deferred tax asset ................................... 1,872 979
--------- ---------
Total current assets ................................ 41,779 45,087
INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS ............ 8,816 13,899
NOTES RECEIVABLE, related parties ..................... 6,958 8,024
INTANGIBLE ASSETS, net ................................ 17,244 17,894
OTHER ASSETS, net ..................................... 4,484 4,933
--------- ---------
Total assets ........................................ $79,281 $89,837
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ............. $10,285 $11,078
Deferred revenue ..................................... 26,909 32,093
Current maturities of long-term debt ................. 2,576 2,394
--------- ---------
Total current liabilities ........................... 39,770 45,565
LONG-TERM DEBT ........................................ 21,863 23,129
OTHER NONCURRENT LIABILITIES .......................... 2,496 1,607
REDEEMABLE COMMON STOCK ............................... 3,264 2,456
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; 500,000 shares
authorized,
2,579 shares issued as of September 30, 1996 and
1997 ................................................ 3 3
Additional paid-in capital ........................... 1,910 1,942
Retained earnings .................................... 10,115 15,275
Treasury stock, at cost, 544 shares .................. (140) (140)
--------- ---------
Total shareholders' equity .......................... 11,888 17,080
--------- ---------
Total liabilities and shareholders' equity ......... $79,281 $89,837
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
D-F-55
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
GROSS REVENUES ..................... $ 150,385 $ 156,325 $ 176,046
COST OF SALES ...................... (131,364) (135,925) (148,503)
EQUITY IN EARNINGS OF
UNCONSOLIDATED PARTNERSHIPS AND
THEATRICAL PRODUCTIONS ............ 2,183 3,048 6,838
----------- ----------- -----------
Gross profit ..................... 21,204 23,448 34,381
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES .......................... (13,351) (15,951) (21,260)
STOCK COMPENSATION ................. (25) (3,675) (456)
LITIGATION SETTLEMENT .............. -- (3,657) --
DEPRECIATION AND AMORTIZATION ..... (1,223) (1,737) (1,896)
----------- ----------- -----------
Operating profit (loss) .......... 6,605 (1,572) 10,769
INTEREST INCOME, related parties .. 305 329 403
INTEREST INCOME, other ............. 147 176 60
INTEREST EXPENSE ................... (655) (1,206) (1,997)
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST ............. 6,402 (2,273) 9,235
INCOME TAX (PROVISION) BENEFIT .... (2,575) 714 (3,529)
MINORITY INTEREST .................. (485) (446) (546)
----------- ----------- -----------
NET INCOME (LOSS) .................. $ 3,342 $ (2,005) $ 5,160
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
D-F-56
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
-------- ------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1994 ................ $ 3 $1,465 $ 8,778 $(140) $10,106
Amortization of deferred stock compensation . -- 25 -- -- 25
Net income .................................. -- -- 3,342 -- 3,342
-------- ------------ ---------- ---------- ---------------
BALANCE AT SEPTEMBER 30, 1995 ................ 3 1,490 12,120 (140) 13,473
Issuance of restricted stock and
amortization of deferred stock compensation -- 420 -- -- 420
Net loss .................................... -- -- (2,005) -- (2,005)
-------- ------------ ---------- ---------- ---------------
BALANCE AT SEPTEMBER 30, 1996 ................ 3 1,910 10,115 (140) 11,888
Issuance of restricted stock and
amortization of deferred stock compensation -- 32 -- -- 32
Net income .................................. -- -- 5,160 -- 5,160
-------- ------------ ---------- ---------- ---------------
BALANCE AT SEPTEMBER 30, 1997 ................ $ 3 $1,942 $15,275 $(140) $17,080
======== ============ ========== ========== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
D-F-57
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
---------------------------------
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................... $ 3,342 $ (2,005) $ 5,160
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities-
Depreciation and amortization .................................. 1,223 1,737 1,896
Equity in earnings of unconsolidated partnerships ............. (1,624) (486) (4,912)
Distributions from unconsolidated partnerships ................. 1,297 1,090 2,354
Restricted stock compensation .................................. 25 3,675 456
Deferred income tax expense (benefit) .......................... 848 (4,541) 2,037
Changes in operating assets and liabilities-....................
Trade receivables ............................................. 447 (826) (465)
Notes receivable .............................................. (1,813) (1,227) 2,654
Prepaid expenses .............................................. (221) 1,466 (3,861)
Investments in theatrical productions ......................... 305 (335) (1,913)
Other assets .................................................. (37) (1,130) (421)
Accounts payable and accrued liabilities ...................... 947 (1,142) (920)
Deferred revenue .............................................. (1,082) (1,008) 5,184
Other liabilities ............................................. 171 1,601 (34)
--------- ---------- ----------
Net cash provided by (used in) operating activities ......... 3,828 (3,131) 7,215
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired .............................. -- (13,233) (2,215)
Capital expenditures ............................................ (728) (827) (1,008)
Loans and advances to related parties ........................... (2,301) (535) (2,295)
Contributions to unconsolidated partnerships .................... (1,212) (1,806) (2,162)
--------- ---------- ----------
Net cash used in investing activities ........................ (4,241) (16,401) (7,680)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt additions .................................... 8,927 24,043 24,287
Payments on debt ................................................ (8,928) (6,512) (23,203)
--------- ---------- ----------
Net cash provided by (used in) financing activities ......... (1) 17,531 1,084
--------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........... (414) (2,001) 619
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................... 25,580 25,166 23,165
--------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR ......................... $25,166 $ 23,165 $ 23,784
========= ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ................................................... $ 620 $ 1,117 $ 1,900
Income taxes paid ............................................... 2,276 2,804 2,103
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
D-F-58
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION:
Description of Business
PACE Entertainment Corporation (referred to herein as PACE or the
Company), a Texas corporation, is a diversified live entertainment company
operating principally in the United States. The Company presents and produces
theatrical shows, musical concerts and specialized motor sports events.
Through certain unconsolidated partnerships, the Company also owns interests
in and operates amphitheaters, which are used primarily for the presentation
of live performances by musical artists.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
PACE and its majority-owned subsidiaries. The Company accounts for its
investments in 50 percent or less owned entities, including theatrical
production partnerships, using the equity method. Intercompany balances are
eliminated.
The Company has various agreements related to the presentation of events
with other live entertainment organizations whereby the Company retains 50
percent to 80 percent of the profits from such events. The Company
consolidates the revenues and related costs from these events and records the
amounts paid to the other parties in cost of sales.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. At September 30,
1997, the Company had restricted cash and cash equivalents of $2,950,000,
which secured letters of credit totaling $3,750,000.
Trade Receivables
Trade receivables are shown net of allowance for doubtful accounts of
$120,000 and $134,000 at September 30, 1996 and 1997, respectively.
Prepaid Expenses
Prepaid expenses include show advances and deposits, event advertising
costs and other costs directly related to future events. Such costs are
charged to operations upon completion of the related events.
As of September 30, 1996 and 1997, prepaid expenses included event
advertising costs of $1,337,000 and $1,498,000, respectively. The Company
recognized event advertising expenses of $13,818,000, $14,861,000 and
$13,802,000 in cost of sales for the years ended September 30, 1995, 1996 and
1997, respectively.
Investments in Theatrical Productions
Theatrical production partnerships are typically formed to invest in a
single theatrical production and, therefore, have limited lives which are
generally less than one year. Accordingly, the Company's investments in such
partnerships are generally shown as current assets. The partnerships amortize
production costs over the estimated life of each production based on the
percentage of revenues earned in relation to projected total revenues.
D-F-59
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Intangible Assets
Intangible assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Goodwill .................................... $16,599 $17,851
Noncompete agreements and other intangibles 3,940 3,857
--------- ---------
20,539 21,708
Accumulated amortization .................... (3,295) (3,814)
--------- ---------
$17,244 $17,894
========= =========
</TABLE>
Goodwill, which represents the excess of costs of business acquisitions
over the fair value of net assets acquired, is being amortized on a
straight-line basis over periods not exceeding 40 years. The noncompete
agreements and other intangibles are being amortized on a straight-line basis
over periods generally not exceeding five years. The Company evaluates on an
ongoing basis whether events and circumstances indicate that the amortization
periods of intangibles warrant revision. Additionally, the Company
periodically assesses whether the carrying amounts of intangibles exceed
their expected future benefits and value, in which case an impairment loss
would be recognized. Such assessments are based on various analyses,
including cash flow and profitability projections.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------
1996 1997
--------- --------
<S> <C> <C>
Accounts payable .......... $ 1,192 $ 1,866
Accrued payroll ........... 2,384 2,936
Other accrued liabilities 6,709 6,276
--------- --------
$10,285 $11,078
========= ========
</TABLE>
Revenue Recognition
Revenues from the presentation and production of an event, including
interest on advance ticket sales, are recognized upon completion of the
event. Deferred revenue relates primarily to advance ticket sales.
The Company barters event tickets and sponsorship rights for products and
services, including event advertising. These barter transactions are not
recognized in the accompanying consolidated financial statements and are not
material to the Company's financial position or results of operations.
Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation," during the year ended
September 30, 1997, and implemented its disclosure provisions. While SFAS No.
123 encourages companies to recognize expense for stock options at estimated
fair value based on an option-pricing model, the Company has elected to
continue to follow Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its employee stock options.
D-F-60
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Financial Instruments
The carrying amounts of cash equivalents approximate fair value because of
the short maturities of these investments. The carrying amount of long-term
debt approximates fair value as borrowings bear interest at current market
rates.
Reclassifications
Certain 1995 and 1996 amounts have been reclassified to conform with the
1997 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. ACQUISITIONS:
On March 13, 1996, the Company acquired substantially all the assets of
SRO Motorsports (SRO), a division of Madison Square Garden, L.P., under an
asset purchase agreement for an aggregate initial purchase price of
approximately $13,300,000 in cash and $3,800,000 in assumed liabilities. The
agreement also provides for a contingent deferred purchase price not to
exceed $1,000,000, payable if annual earnings before interest, taxes,
depreciation and amortization of the Company's motor sports operations, as
defined, exceed $8,000,000 for any fiscal year through September 30, 2001. No
deferred purchase price costs had been incurred through September 30, 1997.
The acquisition of SRO was accounted for under the purchase method and the
assets acquired and liabilities assumed were recorded at fair value,
resulting in the recognition of $14,250,000 of goodwill and $400,000 of other
intangibles. The results of operations of SRO since March 13, 1996, have been
included in the accompanying consolidated financial statements.
The following unaudited pro forma information assumes that the Company had
acquired SRO as of October 1, 1994. The pro forma information includes
adjustments for interest expense that would have been incurred to finance the
acquisition, amortization of goodwill and other intangibles, the income tax
effects of the operations of SRO, and the elimination of certain intercompany
balances. The unaudited pro forma information, which is not necessarily
indicative of what actual results would have been, is as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30
----------------------
1995 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Gross revenues ..... $167,422 $172,952
Net income (loss) . 3,742 (257)
</TABLE>
D-F-61
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS AND THEATRICAL
PRODUCTIONS:
Investments in unconsolidated partnerships and theatrical productions
consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------
1996 1997
--------- --------
<S> <C> <C>
Investment in--
Pavilion Partners ......................... $ 3,131 $ 4,810
Universal/PACE Amphitheaters Group, L.P. . 3,380 3,991
Other ..................................... 2,305 5,098
--------- --------
Investments in unconsolidated partnerships 8,816 13,899
Investments in theatrical productions ..... 2,489 4,402
--------- --------
$11,305 $18,301
========= ========
</TABLE>
The Company's share of earnings and the distributions received from these
investments were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Equity in earnings (losses) of--
Pavilion Partners .................. $1,872 $ 103 $2,803
Universal/PACE Amphitheaters Group,
L.P. .............................. 551 871 645
Other .............................. (799) (488) 1,464
-------- -------- --------
Equity in earnings of unconsolidated
partnerships ....................... 1,624 486 4,912
Equity in earnings of theatrical
productions ........................ 559 2,562 1,926
-------- -------- --------
$2,183 $3,048 $6,838
======== ======== ========
Distributions received from--
Pavilion Partners .................. $ 992 $1,002 $1,124
Universal/PACE Amphitheaters Group,
L.P. .............................. 166 78 34
Other .............................. 139 10 1,196
-------- -------- --------
Distributions from unconsolidated
partnerships ....................... 1,297 1,090 2,354
Distributions from theatrical
productions ........................ 4,240 5,836 6,803
-------- -------- --------
$5,537 $6,926 $9,157
======== ======== ========
</TABLE>
D-F-62
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pavilion Partners
Pavilion Partners is a Delaware general partnership between the Company
and Amphitheater Entertainment Partnership (AEP). AEP is a partnership
between Sony Music Entertainment Inc. (Sony) and Blockbuster Entertainment
Corporation (Blockbuster). Pavilion Partners owns and operates amphitheaters,
which are used primarily for the presentation of live performances by musical
artists. Pavilion Partners had interests in 10 and 11 amphitheaters at
September 30, 1996 and 1997, respectively. The Company owns a 33-1/3 percent
interest in, and is the managing partner of, Pavilion Partners.
In general, all of Pavilion Partners' income is allocated to the partners
in proportion to their respective ownership interests. The partnership
agreement generally restricts cash distributions to 35 percent of cash flow
after scheduled debt service. Additionally, PACE has been entitled to certain
priority allocations of net income based, in part, on the cash flow from one
of the amphitheaters it contributed to Pavilion Partners. During the periods
ended September 30, 1995, 1996 and 1997, the priority allocations of net
income included in the Company's equity in earnings of Pavilion Partners were
$771,000, $725,000 and $119,000, respectively. The cumulative amount of the
priority allocations of net income was limited; PACE is not entitled to any
future priority allocations. AEP is entitled to receive priority allocations
of net income once a loan related to an amphitheater contributed by
Blockbuster is repaid. The cumulative priority allocations of net income to
AEP is limited to $7,000,000. The loan is scheduled to mature in 2004 and no
such allocation has yet been made.
PACE also received booking fees of $323,000, $235,000 and $395,000 from
Pavilion Partners for the years ended September 30, 1995, 1996 and 1997,
respectively. In addition, the Company is reimbursed for certain costs of
providing management services to Pavilion Partners. These reimbursements
totaled $1,629,000, $1,824,000 and $1,968,000 during the periods ended
September 30, 1995, 1996 and 1997, respectively, and offset general and
administrative expenses.
Summarized financial information as of and for the years ended September
30, 1995, 1996 and 1997, for Pavilion Partners follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ----------
<S> <C> <C> <C>
Current assets .......................... $15,787 $20,700 $ 30,178
Noncurrent assets ....................... 64,619 72,793 72,598
--------- --------- ----------
Total assets ........................... $80,406 $93,493 $102,776
========= ========= ==========
Current liabilities ..................... $ 9,467 $17,194 $ 19,748
Noncurrent liabilities .................. 51,578 58,695 59,166
Partners' capital ....................... 19,361 17,604 23,862
--------- --------- ----------
Total liabilities and partners' capital $80,406 $93,493 $102,776
========= ========= ==========
Gross revenues .......................... $69,372 $89,223 $100,209
========= ========= ==========
Gross profit ............................ $19,440 $27,993 $ 36,157
========= ========= ==========
Net income (loss) ....................... $ 3,104 $ (839) $ 6,986
========= ========= ==========
</TABLE>
D-F-63
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Universal/PACE
The Company owns a 32.5 percent interest in Universal/PACE Amphitheaters
Group, L.P. (Universal/PACE), a limited partnership between the Company and
Universal Concerts, Inc., which controls two amphitheaters. PACE earned
management fees of $167,000, $79,000 and $34,000 from Universal/PACE for the
years ended September 30, 1995, 1996 and 1997, respectively. Summarized
financial information as of and for the years ended September 30, 1995, 1996
and 1997, for Universal/ PACE follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Current assets .......................... $ 4,085 $ 3,420 $ 6,659
Noncurrent assets ....................... 14,654 14,185 14,156
--------- --------- ---------
Total assets ........................... $18,739 $17,605 $20,815
========= ========= =========
Current liabilities ..................... $ 6,599 $ 3,876 $10,221
Noncurrent liabilities .................. 6,467 5,618 602
Partners' capital ....................... 5,673 8,111 9,992
--------- --------- ---------
Total liabilities and partners' capital $18,739 $17,605 $20,815
========= ========= =========
Gross revenues .......................... $24,070 $20,336 $25,299
========= ========= =========
Gross profit ............................ $ 5,968 $ 6,361 $ 5,817
========= ========= =========
Net income .............................. $ 1,183 $ 2,438 $ 1,880
========= ========= =========
</TABLE>
Other
The Company also has investments in numerous theatrical production and
other unconsolidated partnerships. Summarized financial information as of and
for the years ended September 30, 1995, 1996 and 1997, for these
partnerships, excluding Pavilion Partners and Universal/PACE, follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current assets .......................... $ 10,410 $ 12,433 $ 35,743
Noncurrent assets ....................... 5,668 7,267 14,050
---------- ---------- ----------
Total assets ........................... $ 16,078 $ 19,700 $ 49,793
========== ========== ==========
Current liabilities ..................... $ 7,539 $ 6,566 $ 19,134
Noncurrent liabilities .................. 2,315 2,250 2,957
Partners' capital ....................... 6,224 10,884 27,702
---------- ---------- ----------
Total liabilities and partners' capital $ 16,078 $ 19,700 $ 49,793
========== ========== ==========
Gross revenues .......................... $113,854 $111,715 $249,707
========== ========== ==========
Gross profit ............................ $ 221 $ 10,440 $ 34,454
========== ========== ==========
Net income (loss) ....................... $ (1,863) $ 9,823 $ 32,164
========== ========== ==========
</TABLE>
D-F-64
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT:
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Term loan ................ $14,464 $12,322
Revolving line of credit 9,250 12,950
Other notes payable ..... 725 251
--------- ---------
24,439 25,523
Less-Current portion .... (2,576) (2,394)
--------- ---------
$21,863 $23,129
========= =========
</TABLE>
In March 1996, the Company entered into a new credit agreement with
certain financial institutions. The credit agreement provides for a term loan
and a revolving line of credit, both of which bear interest at either LIBOR
plus 2 percent or prime, at the option of the Company. At September 30, 1997,
the weighted average interest rate was 7.8 percent. The term loan is
scheduled to mature in March 2001 and is payable in quarterly installments of
$536,000 plus interest, with a balloon payment at maturity. The Company may
borrow $27,000,000 under the revolving line of credit until February 1998;
subsequently, borrowings are limited to $13,000,000 until March 2001, when
the revolving line of credit expires. The Company must pay a quarterly
commitment fee equal to 0.375 percent per annum on the average daily unused
portion of the revolving line of credit. The term loan and the revolving line
of credit are secured by substantially all of the Company's assets, including
pledges of the capital stock of its subsidiaries. The credit agreement
contains various restrictions and requirements relating to, among other
things, mergers, sales of assets, investments and maintenance of certain
financial ratios.
At September 30, 1997, scheduled maturities of long-term debt were as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
For the year ending September 30--
1998 ............................ $ 2,394
1999 ............................ 2,143
2000 ............................ 2,143
2001............................. 18,843
--------
$25,523
========
</TABLE>
D-F-65
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES:
Deferred taxes reflect the tax effects of temporary differences between
the financial statement carrying amounts and the tax bases of assets and
liabilities. Significant components of the Company's deferred tax assets and
liabilities were as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
-----------------
1996 1997
-------- -------
<S> <C> <C>
Deferred tax assets--
Investments in unconsolidated partnerships
and theatrical productions .................. $ 286 $ 237
Accounts payable and accrued liabilities .... 1,014 1,480
Restricted stock compensation ................ 1,387 409
Other noncurrent liabilities ................. 1,717 --
Other ........................................ 107 281
-------- -------
Total deferred tax assets ................... 4,511 2,407
-------- -------
Deferred tax liabilities--
Investments in unconsolidated partnerships
and theatrical productions .................. 1,522 1,099
Prepaid expenses ............................. 907 1,237
Intangibles .................................. 646 672
-------- -------
Total deferred tax liabilities .............. 3,075 3,008
-------- -------
$1,436 $ (601)
======== =======
</TABLE>
Deferred taxes are included in the consolidated balance sheets as follows
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------
1996 1997
-------- ---------
<S> <C> <C>
Current deferred tax assets . $1,872 $ 979
Other noncurrent liabilities (436) (1,580)
-------- ---------
$1,436 $ (601)
======== =========
</TABLE>
The income tax (provision) benefit consisted of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current--
Federal ...................... $(1,251) $(2,817) $(1,319)
State ........................ (476) (1,010) (173)
Deferred--
Federal ...................... (692) 3,705 (1,777)
State ........................ (156) 836 (260)
---------- ---------- ----------
Total tax (provision) benefit $(2,575) $ 714 $(3,529)
========== ========== ==========
Effective tax rate ............ 44% 26% 41%
========== ========== ==========
</TABLE>
D-F-66
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The reconciliation of income tax computed at the U.S. federal statutory
rates to the income tax (provision) benefit is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-------------------------------
1995 1996 1997
---------- ------- ----------
<S> <C> <C> <C>
Tax at the federal statutory rate .... $(2,012) $ 924 $(2,954)
Increases resulting from--
State income taxes, net of federal
tax effect .......................... (417) (112) (286)
Nondeductible expenses ............... (60) (98) (185)
Other ................................ (86) -- (104)
---------- ------- ----------
Total income tax (provision) benefit $(2,575) $ 714 $(3,529)
========== ======= ==========
</TABLE>
6. REDEEMABLE COMMON STOCK:
At September 30, 1997, the Company had outstanding 155 shares of common
stock that are redeemable under conditions that are not solely within the
control of the Company. The Company granted this redeemable stock to certain
executives during the years ended September 30, 1996 and 1997. To the extent
that the grants related to prior service, the Company recognized compensation
costs on the grant date. Additionally, the Company recognizes compensation
costs for the change in value of certain shares that, as discussed below, the
Company may be required to purchase from the executives at fair market value.
Restricted stock compensation related to these grants totaled $3,260,000 and
$425,000 during the years ended September 30, 1996 and 1997, respectively.
The Company has the right of first refusal to purchase the redeemable common
stock at fair market value.
Agreements with one executive who received 140 shares of redeemable stock
provide that the Company will have call options to purchase these shares from
the executive for a total of $3,420,000. These agreements also provide that
the executive will have put options to sell such shares to the Company for
$3,420,000. The put and call options are only exercisable if the executive's
employment is terminated before an initial public offering of the Company's
common stock.
Of the redeemable stock granted to this executive, 123 shares were granted
during the year ended September 30, 1996, and vested during the year ended
September 30, 1997. Since the grant related to prior service, the Company
recognized compensation costs on the grant date. During the year ended
September 30, 1997, the Company executed a promissory note in the amount of
$1,232,000 with this executive. This note bears interest at 5.45 percent, is
secured by 140 shares of the Company's common stock, and is scheduled to
mature in October 2001. The proceeds of the note were used to pay the
executive's tax liability related to the 123 shares that vested during the
year ended September 30, 1997. Accordingly, the value of redeemable stock
outstanding has been reduced by this note receivable.
The remaining 17 shares of redeemable stock received by this executive
were granted during the year ended September 30, 1997, and vest ratably
during the years ending September 30, 1999 and 2000. To fund the executive's
tax liability related to these 17 shares, the Company may be required to
purchase up to 41 percent of the shares at fair market value when the shares
vest. The Company has similar agreements with the other executives who
received the remaining 15 shares of redeemable stock, which were granted
during the year ended September 30, 1996. In order to fund the executives'
tax liabilities related to these grants and related restricted common stock
grants, these 15 shares of redeemable stock must be purchased at fair market
value when the shares vest during the years ended September 30, 1998 and
1999. Although all 32 shares that the Company may be required to purchase in
order to satisfy executives' tax liabilities have future vesting
requirements, the Company recognized compensation costs on the grant dates to
the extent the grants related to prior service. The difference between such
expense recognition and recognition over the vesting periods is not material
to the Company's results of operations and financial position.
D-F-67
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDER'S EQUITY:
The Company granted 23 shares of restricted common stock to certain
executives during the year ended September 30, 1996. These shares vest
ratably during the years ended September 30, 1998 and 1999. Although the
shares have future vesting requirements, the Company recognized compensation
costs on the grant dates to the extent the grants related to prior service.
The difference between such expense recognition, which totaled $390,000 and
$6,000 during the years ended September 30, 1996 and 1997, respectively, and
recognition over the vesting periods is not material to the Company's results
of operations and financial position. The Company has the right of first
refusal to purchase at fair market value all of the shares granted during the
year ended September 30, 1996. Additionally, if the executives' employment is
terminated before an initial public offering of the Company's common stock,
the Company has a call option to purchase the vested shares at fair market
value.
Effective October 15, 1993, the Company and one of its officers entered
into an employment agreement which provided for the granting of 45 shares of
the Company's common stock. The shares vested over a five-year period and the
Company recorded related compensation expense of $25,000 for each of the
years ended September 30, 1995, 1996 and 1997.
8. STOCK OPTIONS:
The Company adopted the 1996 Stock Incentive Compensation Plan during the
year ended September 30, 1996. Under the plan, the Company may grant awards
based on its common stock to employees and directors. Such awards may
include, but are not limited to, restricted stock, stock options, stock
appreciation rights and convertible debentures. Up to 325 shares of common
stock may be issued under the plan. During the year ended September 30, 1996,
the Company granted options to purchase 117 shares of common stock at a
weighted average exercise price of $18,989 per share, which approximated fair
value on the date of grant. Such options vest and are generally exercisable
ratably over a four-year period. The options expire in 10 years.
An option to purchase 22 shares of common stock at $10,000 per share was
granted to an executive during the year ended September 30, 1994. This option
was canceled subsequent to September 30, 1997.
Because the exercise prices of the Company's employee stock options
equaled the fair market value of the underlying stock on the date of grant,
no compensation expense was recognized in accordance with APB Opinion No. 25.
Had compensation cost for the options been determined based on the fair value
at the grant date pursuant to SFAS No. 123, the Company's net income would
have decreased by $49,000 and $148,000 for the years ended September 30, 1996
and 1997, respectively. For this purpose, the fair value of the options was
estimated using the minimum value method assuming that the risk-free interest
rate was 6.7 percent and that no dividends will be paid.
9. RELATED-PARTY TRANSACTIONS:
The Company contracts with certain theatrical partnerships of which it is
a minority partner to obtain the rights to present theatrical productions in
the Company's markets. Approximately $20,000,000, $33,400,000 and $31,200,000
of expenses were incurred for such rights and included in cost of sales
during the years ended September 30, 1995, 1996 and 1997, respectively.
The Company contracts with certain unconsolidated partnerships to sell the
rights to present musical concerts. Approximately $2,446,000 of revenues was
earned from the sale of such rights during the year ended September 30, 1997.
No such rights were sold during the years ended September 30, 1995 and 1996.
As of September 30, 1997, notes receivable, related parties included
$6,453,000 due from executives and $1,571,000 due from other related parties.
Two of the notes receivable from executives are promissory notes from the
Company's principal shareholder. As of September 30, 1997, these two notes
totaled
D-F-68
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$5,961,000, including accrued interest of $550,000. One note, in the original
principal amount of $2,911,000, bears interest at 5.83 percent, is secured by
254 shares of PACE common stock and matures on March 28, 1999. The other note
is for $2,500,000, bears interest at 6.34 percent, is secured by 246 shares
of PACE common stock and was scheduled to mature on November 3, 1997. This
note has been extended to mature on November 4, 2000. Interest income on
these two notes was approximately $300,000 for each of the years ended
September 30, 1995, 1996 and 1997. At September 30, 1997, the Company also
had a $583,000 receivable from its principal shareholder. The principal
shareholder has represented his intention to pay the outstanding loans and
receivable balance from personal assets or if necessary, the liquidation of
certain ownership interests in the Company.
At September 30, 1997, notes receivable from other related parties
included $945,000 due from a joint venture partner. The terms of the related
joint venture agreement provide for the Company to loan to the joint venture
partner any required capital contributions, to be repaid on a priority basis
from the profits allocated to the joint venture partner. The advances accrue
interest at the prime rate plus 4 percent (12.5 percent at September 30,
1997) and are secured by the joint venture partner's 50 percent interest in
the joint venture.
10. LITIGATION SETTLEMENT:
The Company was previously named as a defendant in a case filed in Wake
County, North Carolina (Promotion Litigation). There were several other
defendants named in the litigation, including Pavilion Partners, with various
causes of action asserted against one or more of each of the defendants,
including (a) breach of alleged contract, partnership, joint venture and
fiduciary duties between certain of the defendants and Pro Motion Concerts,
(b) constructive fraud, (c) interference with prospective advantage, (d)
unfair trade practices, (e) constructive trust and (f) unjust enrichment. The
essence of the plaintiffs' claims was that certain of the defendants agreed
to enter into a partnership with plaintiffs for the development and operation
of an amphitheater.
On May 1, 1997, the Promotion Litigation was settled. All defendants were
fully and finally released with prejudice from any and all claims and causes
of action. The defendants did not acknowledge or admit any liability. The
settlement called for payments from defendants totaling $4,500,000. The
Company was obligated to pay $1,500,000 immediately after the settlement and
is obligated to pay an additional $2,000,000 on or before May 1, 1998. To
guarantee payment of this $2,000,000 obligation, the Company had a standby
letter of credit outstanding at September 30, 1997. The remaining $1,000,000
of the settlement was paid by Pavilion Partners during the year ended
September 30, 1997. This expense and related legal expenses were charged to
operations for the year ended September 30, 1996.
D-F-69
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases office facilities under noncancelable operating leases
with future minimum rent payments as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
For the year ending September 30--
1998 ............................ $1,006
1999 ............................ 417
2000 ............................ 215
2001 ............................ 193
2002 ............................ 195
Thereafter ....................... 33
--------
Total ........................... $2,059
========
</TABLE>
Rent expense was $676,000, $765,000 and $1,084,000 for the years ended
September 30, 1995, 1996 and 1997, respectively.
Change in Control Provisions
The Company and its unconsolidated partnerships, including Pavilion
Partners, have entered into numerous leases and other contracts in the
ordinary course of business. Certain of these agreements either contain
restrictions on their assignability or would require third-party approval of
a change in control of the Company.
Employment Agreements
The Company has employment agreements with certain key employees. Such
agreements generally provide for minimum salary levels, guaranteed bonuses
and incentive bonuses which are payable if specified financial goals are
attained. As of September 30, 1997, the Company's minimum commitment under
these agreements were as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
For the year ending September 30--
1998 ............................ $4,463
1999 ............................ 3,825
2000 ............................ 2,789
2001 ............................ 1,430
2002 ............................ 743
</TABLE>
The Company is currently negotiating certain other employment agreements
that may result in additional future commitments.
Insurance
The Company carries a broad range of insurance coverage, including general
liability, workers' compensation, stop-loss coverage for its employee health
plan and umbrella policies. The Company carries deductibles of up to $10,000
per occurrence for general liability claims and is self-insured for annual
healthcare costs of up to $25,000 per covered employee and family. The
Company has accrued for estimated potential claim costs in satisfying the
deductible and self-insurance provisions of the insurance policies for claims
occurring through September 30, 1997. The accrual is based on known facts and
historical trends, and management believes such accrual to be adequate.
D-F-70
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Legal Proceedings
Various legal actions and claims are pending against the Company, most of
which are covered by insurance. In the opinion of management, the ultimate
liability, if any, which may result from these actions and claims will not
materially affect the financial position or results of operations of the
Company.
Guarantees
The Company has guaranteed a $2,438,000 debt of a partnership in which
Pavilion Partners holds a 50 percent interest. PACE has agreements with its
partners whereby they would assume approximately 50 percent of any liability
arising from this guarantee. The debt matures June 1, 2003. Management does
not believe that the guarantee will result in a material liability to the
Company.
Income Taxes
The Internal Revenue Service is examining several years of returns of a
majority-owned subsidiary. Management is currently discussing a possible
settlement of approximately $600,000, which has been accrued in the Company's
financial statements.
Subscription Agreement
During April 1995, the Company acquired an interest in a company
incorporated in the United Kingdom. Pursuant to a subscription agreement, the
Company made payments totaling $1,355,000 prior to September 30, 1997. The
Company has agreed to pay an additional pounds sterling239,000 in April 1998.
Construction Commitments
An unconsolidated partnership has committed to certain renovation work at
its amphitheater. The Company may be obligated to fund up to approximately
$7.3 million of these renovations. Through its investment in another
unconsolidated partnership, the Company has an interest in a performance hall
being constructed for musical and theatrical presentations. The Company had
funded $0.4 million of the performance hall construction costs through
September 30, 1997; the Company's estimated additional funding commitments
are approximately $2.0 million. In addition, the Company and several third
parties are currently negotiating definitive agreements to develop a
theatrical venue. The Company may be obligated to fund approximately $3.0
million of the costs of this development over an undetermined period of time.
Put Option Agreement
The Company has entered into put option agreements with two banks whereby
the Company may be required to repurchase a total of 1,000 shares of the
Company's common stock held by an affiliate that collateralizes the personal
loans of the Company's principal shareholder at a per share price of $1,500.
The put options are effective only in the event of a loan default of the
shareholder prior to July 31, 1999. At September 30, 1997, the loans were not
in default.
12. SUBSEQUENT EVENTS:
Subsequent to September 30, 1997, the Company entered into certain
agreements with an executive who previously had been granted an option to
purchase 22 shares of common stock at $10,000 per share. Pursuant to the new
agreements, the option was canceled and the executive was granted 22 shares
of restricted common stock.
In December 1997, the Company and its shareholders entered into an
agreement with SFX Entertainment, Inc. (SFX), whereby the shareholders would
sell their interests in the Company to SFX. The purchase price of $109
million in cash and 1,500,000 shares of SFX Class A Common Stock is subject
to adjustment prior to closing. Closing is subject to certain conditions,
including approval of certain third
D-F-71
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
parties. Concurrent with closing, the agreement requires, among other things,
the repayment of all outstanding loans and receivables due from the Company's
principal shareholder (see Note 9) and the repayment of the promissory note
received from an executive in connection with a stock grant (see Note 6).
Additionally, the agreement provides for the settlement of all restricted and
redeemable stock, as well as all outstanding stock options. This settlement
is expected to result in a one-time charge by the Company of approximately
$4.7 million, net of related tax effects. The agreement also requires SFX to
provide the Company with a $25 million line of credit to be used for certain
acquisitions being contemplated by the Company. If the acquisition of the
Company is not consummated, this line of credit will be converted to a term
loan in the amount of advances then outstanding or, under certain
circumstances, will become immediately due and payable. This bridge financing
is secured by the assets acquired and an option to purchase the Company's
interest in Pavilion Partners.
In December 1997, the Company entered into agreements to effectively
purchase substantially all of the assets of United Sports of America, a
producer and presenter of demolition derbies, thrill shows, air shows,
monster truck shows, tractor pull events, motorcycle racing and bull riding
in the United States and Canada. Pursuant to the agreements, the total
purchase price is $6,000,000 in cash of which an option amount of $500,000
was paid upon the execution of the agreement and closing is subject to the
satisfactory completion of due diligence by the Company. Management does not
expect this transaction to close until May 1998. In the event the transaction
does not close, the option amount will be forfeited if certain conditions are
not met.
In December 1997, the Company entered into an agreement to purchase
Blockbuster's 33 1/3 percent interest in Pavilion Partners for $4,171,000 in
cash, $2,940,000 in assumed liabilities and the assumption of certain
indemnification obligations of Blockbuster under the Pavilion Partners
Partnership Agreement. In addition, the Company has agreed to purchase a note
with a balance of $9,507,000, including accrued interest of $1,601,000, at
September 30, 1997. The transaction is contingent on, among other things,
obtaining acceptable financing including the release of Blockbuster from
certain debt obligations and the approval of Sony (Note 3)
On December 22, 1997, the Company entered into an agreement to purchase
Sony's 33 1/3 percent interest in Pavilion Partners for $27,500,000 in cash.
The transaction is contingent on, among other things, government approval and
obtaining acceptable financing including the release of Sony from certain
debt obligations. (see Note 3)
D-F-72
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Pavilion Partners:
We have audited the accompanying consolidated balance sheet of Pavilion
Partners, a Delaware general partnership, as of September 30, 1997, and the
related consolidated statements of income, partners' capital and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of the partnership's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pavilion
Partners as of September 30, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
December 15, 1997 (except with
respect to the matters discussed
in Note 11, as to which the date
is December 22, 1997)
D-F-73
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Pavilion Partners
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of partners' capital and of cash
flows present fairly, in all material respects, the financial position of
Pavilion Partners and its subsidiaries (the Partnership) at September 30,
1996 and the results of their operations and their cash flows for the year
ended October 31, 1995 and the eleven months ended September 30, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
December 12, 1996
D-F-74
<PAGE>
PAVILION PARTNERS
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30
---------------------
1996 1997
--------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................... $ 8,554 $ 17,898
Accounts receivable ................................................. 7,842 6,167
Accounts receivable, related parties ................................ 1,878 3,878
Notes receivable, related parties ................................... 1,218 1,218
Prepaid expenses and other current assets ........................... 1,208 1,017
--------- ----------
Total current assets ............................................. 20,700 30,178
Prepaid rent ........................................................ 7,075 6,938
Property and equipment, net ......................................... 61,292 59,938
Other assets ........................................................ 4,426 5,722
--------- ----------
Total assets ..................................................... $93,493 $102,776
========= ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable .................................................... $ 1,404 $ 1,193
Accounts payable, related parties ................................... 1,866 3,948
Accrued liabilities ................................................. 8,112 7,032
Deferred revenue .................................................... 3,602 5,081
Current portion of notes payable and capital lease obligation ...... 1,573 1,614
Current portion of note payable, related party ...................... 637 880
--------- ----------
Total current liabilities ........................................ 17,194 19,748
Notes payable ....................................................... 43,680 42,192
Note payable, related party ......................................... 7,268 7,025
Capital lease obligation ............................................ 6,130 5,989
Other liabilities and minority interests in consolidated
subsidiaries ....................................................... 1,617 3,960
--------- ----------
Total liabilities ................................................ 75,889 78,914
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL .................................................... 17,604 23,862
--------- ----------
Total liabilities and partners' capital .......................... $93,493 $102,776
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
D-F-75
<PAGE>
PAVILION PARTNERS
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FOR THE ELEVEN MONTHS FOR THE
YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997
------------- --------------- ---------------
<S> <C> <C> <C>
TICKET REVENUES .................... $43,266 $50,151 $ 58,479
OTHER OPERATING REVENUES ........... 28,109 33,942 41,730
------------- --------------- ---------------
Total revenues ................... 71,375 84,093 100,209
COST OF SALES ...................... 49,226 57,723 64,052
------------- --------------- ---------------
Gross profit ..................... 22,149 26,370 36,157
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES .......................... 8,329 9,774 10,858
DEPRECIATION AND AMORTIZATION ..... 2,461 3,346 3,975
OTHER OPERATING COSTS .............. 5,345 7,390 8,531
LITIGATION EXPENSES AND SETTLEMENT -- 2,380 --
------------- --------------- ---------------
Operating profit ................. 6,014 3,480 12,793
INTEREST INCOME .................... 504 391 532
INTEREST EXPENSE ................... 2,793 3,855 4,413
------------- --------------- ---------------
INCOME BEFORE MINORITY INTEREST ... 3,725 16 8,912
MINORITY INTEREST .................. 276 308 1,926
------------- --------------- ---------------
NET INCOME (LOSS) .................. $ 3,449 $ (292) $ 6,986
============= =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
D-F-76
<PAGE>
PAVILION PARTNERS
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMPHITHEATER
ENTERTAINMENT
PARTNERSHIP SM/PACE, INC. TOTAL
--------------- --------------- ---------
<S> <C> <C> <C>
BALANCE, October 31, 1994 .. $13,108 $2,805 $15,913
Net income ................. 1,788 1,661 3,449
Distributions .............. -- (699) (699)
--------------- --------------- ---------
BALANCE, October 31, 1995 .. 14,896 3,767 18,663
Net income (loss) .......... (330) 38 (292)
Distributions .............. -- (767) (767)
--------------- --------------- ---------
BALANCE, September 30, 1996 14,566 3,038 17,604
Net income ................. 4,578 2,408 6,986
Distributions .............. -- (728) (728)
--------------- --------------- ---------
BALANCE, September 30, 1997 $19,144 $4,718 $23,862
=============== =============== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
D-F-77
<PAGE>
PAVILION PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FOR THE ELEVEN MONTHS FOR THE
YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997
------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................... $ 3,449 $ (292) $ 6,986
Adjustments to reconcile net income (loss) to
net cash provided by operating activities--
Depreciation and amortization .................. 2,461 3,346 3,975
Minority interest .............................. 276 308 1,926
Changes in assets and liabilities--
Accounts receivable ........................... (1,455) (3,647) 1,669
Accounts receivable and payable, related
parties ...................................... 32 (756) 82
Prepaid expenses and other current assets .... 191 (296) 266
Accounts payable and accrued liabilities ..... (512) 1,695 (2,184)
Deferred revenue and other liabilities ....... 1,304 2,110 2,284
Other, net .................................... (785) (1,259) (1,548)
------------- --------------- ---------------
Net cash provided by operating activities ... 4,961 1,209 13,456
------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments of preoperating costs .................. (1,318) (1,114) (59)
Capital expenditures ............................ (25,856) (7,483) (1,879)
------------- --------------- ---------------
Net cash used in investing activities ....... (27,174) (8,597) (1,938)
------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Funding of capital commitments by partners ..... 4,046 -- --
Distributions to partner ........................ (699) (767) (728)
Proceeds from borrowings ........................ 24,322 8,323 -
Repayments of borrowings ........................ (639) (1,072) (1,446)
------------- --------------- ---------------
Net cash provided by (used in) financing
activities .................................. 27,030 6,484 (2,174)
------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ..................................... 4,817 (904) 9,344
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,641 9,458 8,554
------------- --------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...... $ 9,458 $ 8,554 $17,898
============= =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
D-F-78
<PAGE>
PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Pavilion Partners (the Partnership) is a Delaware general partnership
between SM/PACE, Inc. (PACE), which is a wholly owned subsidiary of PACE
Entertainment Corporation, and Amphitheater Entertainment Partnership (AEP).
AEP is a partnership between a wholly owned subsidiary of Sony Music
Entertainment Inc. (Sony) and two wholly owned subsidiaries of Blockbuster
Entertainment Corporation (Blockbuster). PACE is the managing partner of the
Partnership. AEP owns a 66 2/3 percent interest in the Partnership, and PACE
owns a 33 1/3 percent interest in the Partnership.
In April 1990, Sony and PACE formed YM/PACE Partnership which changed its
name to the Sony Music/PACE Partnership. Effective April 1, 1994, the
partners entered into an agreement whereby Blockbuster obtained an indirect
33 1/3 percent interest in Sony Music/PACE Partnership, which was renamed
Pavilion Partners. In accordance with the agreement, Sony contributed an
interest-bearing note in the amount of $4,250,000 and its existing interest
in Sony Music/PACE Partnership to AEP. Concurrently, Blockbuster contributed
an interest-bearing note in the amount of $4,250,000 and its interest in
three existing amphitheaters to AEP. AEP in turn contributed these assets to
the Partnership. At the same time, PACE Entertainment Corporation contributed
its interest in two existing amphitheaters to the Partnership. Upon
completion of these contributions to the Partnership, AEP owned a 66 2/3
percent interest in the Partnership and PACE owned a 33 1/3 percent interest
in the Partnership.
The Partnership owns and operates amphitheaters, which are primarily used
for the presentation of live performances by musical artists. As of September
30, 1997, the Partnership owned interests in or leased 10 amphitheaters and
had a long-term management contract to operate an additional amphitheater.
All of the amphitheaters owned or operated by the Partnership are located in
the United States.
In April 1997, the Partnership entered into a new partnership agreement
with a third party to be known as Western Amphitheater Partners (WAP). The
Partnership contributed or licensed the assets and liabilities of the Glen
Helen Amphitheatre, and the other partner contributed or licensed the assets
and liabilities of the Irvine Meadows Amphitheatre. Each partner has a 50
percent interest in WAP. Under the terms of the Partnership agreement, the
partners are required to make an additional capital contribution of
approximately $850,000 each in WAP which was accrued by the Partnership at
September 30, 1997. The fiscal year-end for the WAP partnership will be
December 31.
During 1996, the Partnership changed its fiscal year-end from October 31
to September 30.
2. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements of the Partnership include all of
its wholly owned subsidiaries and other partnerships in which Pavilion
Partners holds a controlling interest. All partnerships in which Pavilion
Partners holds less than a controlling interest are reported on the equity
method of accounting. All significant intercompany transactions have been
eliminated in consolidation.
Basis of Contributed Assets
All assets contributed to the Partnership by the partners were recorded at
the carrying values of the contributing entities.
Revenue Recognition
The Partnership records revenues from the presentation of events at the
completion of the related event. Advance ticket sales are classified as
deferred revenue until the event has occurred. Sponsorship and other revenues
that are not related to any single event are classified as deferred revenue
and amortized over each of the amphitheaters' various shows during the
operating season.
D-F-79
<PAGE>
PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Partnership barters event tickets and sponsorship rights for products
and services, including event advertising. These barter transactions are not
recognized in the accompanying consolidated financial statements and are not
material to the Partnership's financial position or results of operations.
Income Taxes
No provision for federal or state income taxes is necessary in the
financial statements of the Partnership because, as a partnership, it is not
subject to federal or state income taxes and the tax effect of its activities
accrues to the partners.
Prepaid Expenses
Prepaid expenses include show advances and deposits, event advertising
costs and other costs directly related to future events. Such costs are
charged to operations upon completion of the related events.
As of September 30, 1996 and 1997, prepaid expenses included event
advertising costs of $160,000 and $137,000, respectively. The Partnership
recognized event advertising expenses of $5,815,000, $6,439,000 and
$6,569,000 in cost of sales for the year ended October 31, 1995, the eleven
months ended September 30, 1996, and the year ended September 30, 1997,
respectively.
Other Assets
The Partnership incurs certain costs in identifying and selecting
potential sites for amphitheater development. All costs incurred by the
Partnership during the initial site selection phase are expensed as incurred.
Certain incremental start-up costs that are incurred after a decision has
been made to develop a site are capitalized as preoperating costs. After an
amphitheater is fully developed, these preoperating costs are amortized on a
straight-line basis over a five-year period.
Contract acquisition costs include fees associated with securing a
contract with a booking agent for one of the Partnership's amphitheaters.
These costs are amortized on a straight-line basis over the life of the
contract which is 10 years.
Property and Equipment
Property and equipment is stated at cost. Repair and maintenance costs are
expensed as incurred. Interest incurred in connection with the construction
of an amphitheater is capitalized as part of the cost of the amphitheater.
During 1995 and 1996, the Partnership capitalized interest in connection with
the construction of amphitheaters of $645,000, $161,000, respectively. No
interest was capitalized in 1997.
Leasehold improvements are amortized on a straight-line basis over the
shorter of their estimated useful lives or the term of the lease. Other
property and equipment is depreciated on a straight-line basis over the
estimated useful lives of the assets. A summary of the principal ranges of
useful lives used in computing the annual provision for depreciation and
amortization is as follows:
<TABLE>
<CAPTION>
RANGE OF YEARS
--------------
<S> <C>
Buildings .................. 27-31.5
Leasehold improvements ..... 5-31.5
Equipment .................. 3-7
Furniture and fixtures ..... 5-10
</TABLE>
The Partnership evaluates on an ongoing basis whether events and
circumstances indicate that the estimated useful lives of property and
equipment warrant revision. The Partnership adopted Statement of Financial
Accounting Standard (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in 1997. The
adoption of SFAS No. 121 did not have a material effect on the Partnership's
financial position or results of operations.
D-F-80
<PAGE>
PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fair Value of Financial Instruments
The carrying amounts of the Partnership's financial instruments
approximate their fair value at September 30, 1996 and 1997.
Statement of Cash Flows
The Partnership considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Interest paid was
$2,319,000, $3,652,000 and $3,917,000 for 1995, 1996 and 1997, respectively.
During the year ended October 31, 1995, the Partnership issued a note payable
with a fair value of $1,300,000 to a vendor in exchange for certain equipment
with a fair value which approximated the amount of the note. During 1997, the
Partnership contributed or licensed the assets and liabilities of the Glen
Helen Amphitheatre into the new WAP Partnership in which it holds a 50
percent interest. The net book value of the investment made in the WAP
Partnership was $54,000.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Partnership to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the 1995 and 1996 consolidated financial statements
have been reclassified to conform to the 1997 presentation.
3. PARTNERSHIP AGREEMENT:
The Partnership agreement provides, among other things, for the following:
Contributions and Project Loans
In addition to the initial contributions as discussed in Note 1, the
partners are obligated to contribute, in proportion to their respective
Partnership interests, any deficiency in the funding for the construction of
each approved amphitheater development or any operational shortfall, as
defined in the Partnership agreement. No such funding was required in 1995,
1996 or 1997.
In addition, AEP is responsible for providing project financing, as
defined, for each approved amphitheater development. To the extent AEP does
not fulfill this responsibility, AEP must indemnify, defend and hold harmless
the Partnership from all claims, demands, liabilities or other losses
(including the loss of any earnest money deposits and any reasonable
attorneys' fees) which might result from AEP's failure to provide such
project loan.
Income Allocation
In general, all of the Partnership's income is allocated to the partners
in proportion to their respective Partnership interests. However, PACE
receives a priority allocation of net income, as defined in the Partnership
agreement, until the cumulative amount of such allocations is equal to
$2,000,000 increased by 7 percent of the unpaid allocation on the last day of
each fiscal year. Any such allocation of net income to PACE is distributed in
the following year. The priority allocation of net income to PACE for 1995,
1996 and 1997 was approximately $767,000, $716,000 and $119,000,
respectively. This allocation obligation was fully satisfied with the
distribution of the fiscal 1997 income allocation amount during October 1997.
AEP is entitled to receive a priority allocation of net income once a loan
related to an amphitheater contributed by Blockbuster is repaid. At September
30, 1997, the loan balance is $7,905,000 and is payable in quarterly
installments with a balloon payment due at its maturity on April 1, 2004. The
priority allocation of net income is equal to 65 percent of the cash flow
attributable to the amphitheater, as defined in the Partnership agreement.
The cumulative priority allocation of net income to AEP is limited to
$7,000,000. No such allocation was made in 1995, 1996 or 1997.
D-F-81
<PAGE>
PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On November 1 of each calendar year, the executive committee of the
Partnership determines if any excess cash exists in the Partnership's
accounts above what is necessary to fund future operations and obligations.
Any such excess cash may be distributed to the partners in proportion to
their respective interests in the Partnership. No distributions of excess
cash flow have been made.
4. PROPERTY AND EQUIPMENT:
The components of the Partnership's property and equipment are as follows
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------
1996 1997
--------- --------
<S> <C> <C>
Property ....................................... $ 695 $ 695
Buildings ...................................... 10,817 10,817
Leasehold improvements ......................... 53,148 53,826
Equipment ...................................... 5,007 4,488
Furniture and fixtures ......................... 705 722
Construction in progress ....................... -- 786
--------- --------
70,372 71,334
Less--Accumulated depreciation and amortization 9,080 11,396
--------- --------
$61,292 $59,938
========= ========
</TABLE>
Depreciation and amortization expense associated with property and
equipment for 1995, 1996 and 1997 was $1,905,000, $2,693,000 and $3,179,000,
respectively.
Assets under capital lease included above are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
------------------
1996 1997
-------- --------
<S> <C> <C>
Building ...................... $5,333 $5,333
Furniture and equipment ...... 841 841
-------- --------
6,174 6,174
Less--Accumulated depreciation 2,068 2,237
-------- --------
$4,106 $3,937
======== ========
</TABLE>
Amortization expense associated with assets under capital lease for 1995,
1996 and 1997 was $169,000, $156,000 and $169,000, respectively.
D-F-82
<PAGE>
PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. OTHER ASSETS:
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
------------------
1996 1997
-------- --------
<S> <C> <C>
Preoperating costs, net of accumulated amortization of $2,092,000 and
$1,094,000, respectively................................................. $2,153 $1,709
Investment in unconsolidated partnerships ................................ 1,302 2,797
Contract acquisition costs, net of accumulated amortization of $45,000
and $129,000, respectively .............................................. 624 815
Other .................................................................... 347 402
-------- --------
$4,426 $5,723
======== ========
</TABLE>
During 1995, 1996 and 1997, the Partnership recognized equity in earnings
of unconsolidated partnerships of $263,000, $129,000 and $1,592,000,
respectively, which is included in other operating revenues.
6. ACCRUED LIABILITIES:
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
-----------------
1996 1997
-------- -------
<S> <C> <C>
Interest ........................... $ 544 $ 522
Rent ............................... 638 580
Taxes .............................. 748 613
Litigation expenses and settlement 1,873 --
Insurance .......................... 1,216 1,656
Other .............................. 3,093 3,660
-------- -------
$8,112 $7,031
======== =======
</TABLE>
Accrued liabilities do not include accrued interest on the notes payable
to Blockbuster (see Note 7). Such accrued interest, which is included in
accounts payable, related parties, was $1,082,000 and $1,601,000 as of
September 30, 1996 and 1997, respectively.
D-F-83
<PAGE>
PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. NOTES PAYABLE:
Notes payable to third parties consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Note payable to a bank, interest at LIBOR plus 0.18% (6% at
September 30, 1996 and 1997), payments due semiannually with a
balloon payment due on maturity in July 2005, guaranteed by
Sony .......................................................... $13,122 $12,573
Note payable to a bank, interest at 8.35% through July 2002 and
LIBOR plus 0.18% thereafter, due in July 2005, guaranteed by
Sony........................................................... 10,000 10,000
Note payable to a bank, interest at LIBOR plus 0.85% (6.78% at
September 30, 1996 and 1997), payments due annually with a
balloon payment due on maturity in December 2005, guaranteed
by Blockbuster and Sony........................................ 7,732 7,575
Note payable to a bank, interest at prime minus 105 basis
points (7.2% and 7.45% at September 30, 1996 and 1997,
respectively), payments due quarterly with a balloon payment
due on maturity in April 2000, guaranteed by Sony.............. 6,449 6,356
Note payable to a bank, interest at 9.46%, payments due
quarterly with a balloon payment due on maturity in December
1999, guaranteed by Sony....................................... 3,958 3,914
Note payable to a vendor, interest imputed at 8.98%, payments
due weekly through May 2005.................................... 1,826 1,671
Other notes payable to vendors, interest at fixed rates ranging
from 8.2% to 10.72%, due in equal installments with final
maturities ranging from December 1996 through February 2006 ... 2,040 1,591
--------- ---------
Total......................................................... 45,127 43,680
Less--Current maturities........................................ 1,447 1,488
--------- ---------
Noncurrent portion............................................ $43,680 $42,192
========= =========
Note payable to a related party consist of the following (in
thousands):
SEPTEMBER 30
--------------------
1996 1997
--------- ---------
Note payable to Blockbuster, interest at 7%, payments due
quarterly with a balloon payment due on maturity in April
2004, secured by property and equipment with a net book value
of $6,212 ..................................................... $ 7,905 $ 7,905
Less--Current maturities........................................ 637 880
--------- ---------
Noncurrent portion............................................ $ 7,268 $ 7,025
========= =========
</TABLE>
The terms of contracts with concessionaires such as food and beverage
vendors generally require the vendors to make a significant initial payment
to the Partnership at the time of the construction of an amphitheater. These
advances are repayable in periodic installments from amounts otherwise due to
the Partnership under the concession contracts. As of September 30, 1997, the
notes payable to vendors under
D-F-84
<PAGE>
PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
such arrangements had a weighted-average effective interest rate of 9.15
percent. The Partnership's weighted-average interest rate on notes payable to
banks was 7.3 percent on September 30, 1997.
Interest expense on the note payable to a related party was $547,000,
$489,000 and $519,000 for 1995, 1996 and 1997, respectively. Principal and
interest on the note payable to a related party have not been paid as
accounts receivable, related parties from Blockbuster remain outstanding.
As of September 30, 1997, scheduled maturities of notes payable were as
follows:
<TABLE>
<CAPTION>
<S> <C>
1998 ......... $ 2,368
1999 ......... 1,841
2000 ......... 11,560
2001 ......... 1,751
2002 ......... 1,811
Thereafter .. 32,254
--------
$51,585
========
</TABLE>
8. LEASE COMMITMENTS:
The Partnership leases various amphitheaters under operating and capital
leases. Initial lease terms are 25 to 60 years with varying renewal periods
at the Partnership's option on most leases. A number of the amphitheater
leases provide for escalating rent over the lease term. Rental expense on
operating leases is recognized on a straight-line basis over the life of such
leases. The majority of the amphitheater leases provide for contingent
rentals, generally based upon a percentage of gross revenues, as defined in
the respective lease agreements. Minimum rental expense associated with
operating leases for 1995, 1996 and 1997 was $648,000, $2,353,000 and
$2,612,000, respectively. Contingent rental expense associated with operating
leases for 1995, 1996 and 1997 was $2,407,000, $2,515,000 and $2,571,000,
respectively. Contingent rental expense associated with capital leases for
1995, 1996 and 1997 was $144,000, $155,000 and $149,000, respectively.
Minimum rental commitments on long-term capital and operating leases at
September 30, 1997, were as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
Year ending September 30--
1998 .................................... $ 757 $ 2,902
1999 .................................... 757 3,056
2000 .................................... 756 3,148
2001 .................................... 757 3,248
2002 .................................... 757 3,297
Thereafter .............................. 9,714 54,693
--------- -----------
13,498 $70,344
===========
Less--Amount representing interest ...... 7,383
---------
Present value of minimum rental payments 6,115
Less--Current portion .................... 126
---------
Noncurrent portion........................ $ 5,989
=========
</TABLE>
9. RELATED PARTIES:
The responsibility for the day-to-day business and affairs of the
Partnership has been delegated by the partners to a managing director and
support staff employed by PACE Entertainment Corporation and
D-F-85
<PAGE>
PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
its subsidiaries. PACE Entertainment Corporation and its subsidiaries provide
the Partnership with management and consulting services in connection with
the development, construction, maintenance and operation of amphitheaters
owned or leased by the Partnership. The Partnership paid $1,650,000,
$1,687,000 and $1,968,000 during 1995, 1996 and 1997, respectively, to PACE
Entertainment Corporation as reimbursement for the costs of these services.
The Partnership paid PACE Music Group (PMG), a subsidiary of PACE
Entertainment Corporation, $289,000, $225,000 and $395,000 during 1995, 1996
and 1997, respectively, for services provided by PMG as a local presenter at
one of the Partnership's amphitheaters.
Accounts receivable from and accounts payable to related parties at
September 30, 1997, of $3,878,000 and $3,948,000, respectively, relate to
amounts owed to and due from the partners arising from the formation of the
Partnership and general and administrative expenses paid by or on behalf of
the Partnership.
Notes receivable, related parties consist of two notes due from AEP which
bear interest at 5.62 percent per annum and matured April 1, 1997. Principal
payments on the notes are due upon request by the Partnership in order to
fund the construction of proposed amphitheaters. Interest on the partners'
notes amounted to $192,000, $63,000 and $68,000 for 1995, 1996 and 1997,
respectively.
10. COMMITMENTS AND CONTINGENCIES:
Commitments
The Partnership guarantees 50 percent of a $2,305,000 promissory note
issued by its 50 percent equity partner in the Starwood Amphitheater. The
note matures on June 1, 2003.
The Partnership has committed to fund certain renovation work at one of
its amphitheaters in proportion to its 66 2/3 percent partnership interest in
that amphitheater. The renovations are to include increasing seating capacity
and upgrading the amphitheater's concession plazas and parking facilities.
The total budget for these renovations is approximately $11.0 million of
which $5.0 million will be funded by the minority partner and a note payable
to vendor, therefore the Partnership's funding commitment is approximately
$6.0 million.
The Partnership maintains cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Partnership has not experienced any
losses in such accounts. Management performs periodical evaluations of the
relative credit standards of the financial institutions with which it deals.
Additionally, the Partnership's cash management and investment policies
restrict investments to low-risk, highly liquid securities. Accordingly,
management does not believe that the Partnership is currently exposed to any
significant credit risk on cash and cash equivalents.
The Partnership is subject to other claims and litigation arising in the
normal course of its business. The Partnership does not believe that any of
these proceedings will have a material adverse effect on its financial
position or results of operations.
The Partnership was previously named as a defendant in a case filed in
Wake County, North Carolina (Promotion Litigation). There were several
defendants named in the litigation with various causes of action asserted
against one or more of each of the defendants, including (a) breach of
alleged contract, partnership, joint venture and fiduciary duties between
certain of the defendants and Pro Motion Concerts, (b) constructive fraud,
(c) interference with prospective advantage, (d) unfair trade practices, (e)
constructive trust and (f) unjust enrichment. The essence of the plaintiff's
claims was that certain of the defendants agreed to enter into a partnership
with the plaintiffs for the development and operation of an amphitheater. On
May 1, 1997, the Promotion Litigation was settled. All defendants were fully
and finally released with prejudice from any and all claims and causes of
action. Although the defendants believe that they would have prevailed at a
trial of the Promotion Litigation, the defendants chose to
D-F-86
<PAGE>
PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
settle rather than risk the uncertainties of a trial. The defendants did not
acknowledge or admit any liability. The settlement called for payments to
plaintiffs totaling $4.5 million, of which $1.0 million was paid by the
Partnership. The Partnership recorded litigation settlement expense of $1.0
million at September 30, 1996. The settlement was paid during May 1997.
Change in Control Provisions
The Partnership has entered into numerous leases and other contracts in
the ordinary course of business. Certain of these agreements either contain
restrictions on their assignability or would require third-party approval of
a change in control of the Partnership.
Employment Agreements
The Partnership has employment agreements with certain key employees. Such
agreements generally provide for minimum salary levels, guaranteed bonuses
and incentive bonuses which are payable if specified financial goals are
attained. As of September 30, 1997, the Company's minimum commitment under
these agreements were as follows (in thousands);
<TABLE>
<CAPTION>
<S> <C>
For the year ending September 30--
1998 ............................. $335
1999 ............................. 177
</TABLE>
Insurance
The Partnership carries a broad range of insurance coverage, including
general liability, workers' compensation, employee health coverage and
umbrella policies. The Partnership carries deductibles of up to $10,000 per
occurrence for general liability claims. The Partnership has accrued for
estimated potential claim costs in satisfying the deductible provisions of
the insurance policies for claims occurring through September 30, 1997. The
accrual is based on known facts and historical trends, and management
believes such accrual to be adequate.
11. SUBSEQUENT EVENTS:
In December 1997, the managing partner and its shareholders entered into
an agreement whereby the shareholders would sell their interests in PACE
Entertainment Corporation to SFX Entertainment, Inc. Closing is subject to
certain conditions, including the approval of third parties.
On December 19, 1997, the PACE Entertainment Corporation entered into an
agreement to purchase Blockbuster's 33 1/3 percent interest in the
Partnership for $4,171,000 in cash, $2,940,000 in assumed liabilities and the
assumption of certain indemnification obligations of Blockbuster under the
Partnership agreement. In addition, PACE Entertainment Corporation has agreed
to purchase the note payable to Blockbuster with a balance of $9,507,000,
including accrued interest of $1,601,000, at September 30, 1997. The
transaction is contingent on, among other things, obtaining acceptable
financing including the release of Blockbuster from certain debt obligations
and the approval of Sony.
On December 22, 1997, PACE Entertainment Corporation entered into an
agreement to purchase Sony's 33 1/3 percent interest in the Partnership for
$27,500,000 in cash. The transaction is contingent on, among other things,
government approval and obtaining acceptable financing including the release
of Sony from certain debt obligations (see Note 7).
D-F-87
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Boards of Directors
Contemporary Group
We have audited the accompanying combined balance sheets of Contemporary
Group as of September 30, 1997 and December 31, 1996 and the related combined
statements of operations, cash flows and stockholders' equity for each of the
nine months ended September 30, 1997 and year ended December 31, 1996. These
financial statements are the responsibility of 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 combined financial position of Contemporary
Group at September 30, 1997 and December 31, 1996 and the combined results of
their operations and their cash flows for the nine months ended September 30,
1997 and the year ended December 31, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
November 25, 1997
D-F-88
<PAGE>
CONTEMPORARY GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
-------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................................ $ 2,972,409 $ 4,630,459
Accounts receivable ............................................. 4,067,444 8,369,802
Prepaid expenses and other current assets ....................... 272,105 374,952
-------------- ---------------
Total current assets ............................................. 7,311,958 13,375,213
Property and equipment, at cost, less accumulated depreciation
and amortization of $2,723,986 in 1996 and $3,222,296 in 1997 .. 2,438,210 2,837,790
Reimbursable event costs ......................................... 474,469 890,502
Deferred event expenses .......................................... 250,973 175,551
Investment in Riverport .......................................... 4,934,513 6,232,889
Other assets ..................................................... 120,256 130,674
-------------- ---------------
Total assets ..................................................... $15,530,379 $23,642,619
============== ===============
LIABILITIES AND COMBINED STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 1,733,676 $ 1,212,506
Accrued expenses and other current liabilities .................. 4,975,189 6,572,522
Current portion of note payable ................................. 592,138 --
-------------- ---------------
Total current liabilities ........................................ 7,301,003 7,785,028
Deferred revenue ................................................. 2,424,020 4,012,136
Other liabilities ................................................ 244,412 790,127
Deferred compensation ............................................ -- 588,122
Note payable, less current portion ............................... 1,578,171 1,578,171
Combined stockholders' equity .................................... 3,982,773 8,889,035
-------------- ---------------
Total liabilities and combined stockholders' equity ............. $15,530,379 $23,642,619
============== ===============
</TABLE>
See accompanying notes.
D-F-89
<PAGE>
CONTEMPORARY GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
-------------- ---------------
<S> <C> <C>
OPERATING REVENUES
Event promotion revenue ............. $38,023,454 $41,162,946
Marketing revenue ................... 12,969,621 21,132,035
Other event revenue ................. 8,859,218 8,846,167
-------------- ---------------
59,852,293 71,141,148
Cost of revenue ..................... 46,410,935 54,662,268
-------------- ---------------
13,441,358 16,478,880
OPERATING EXPENSES
Salary expense ...................... 8,010,991 7,936,131
Depreciation and amortization ...... 566,573 498,310
General and administrative expenses 3,767,111 4,165,336
-------------- ---------------
12,344,675 12,599,777
-------------- ---------------
Income from operations .............. 1,096,683 3,879,103
OTHER INCOME (EXPENSE)
Interest income ..................... 158,512 121,990
Interest expense .................... (213,658) (153,207)
Equity in income of Riverport ...... 822,716 1,298,376
-------------- ---------------
767,570 1,267,159
-------------- ---------------
Income before income taxes .......... 1,864,253 5,146,262
Federal and state taxes ............. 35,367 --
-------------- ---------------
Net income .......................... $ 1,828,886 $ 5,146,262
============== ===============
</TABLE>
See accompanying notes.
D-F-90
<PAGE>
CONTEMPORARY GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
-------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ................................................... $ 1,828,886 $ 5,146,262
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................... 566,573 498,310
Deferred revenue ............................................ 1,324,206 1,588,116
Non-cash compensation ....................................... -- 588,122
Equity in income of Riverport, net of distributions received (222,716) (1,298,376)
Changes in operating assets and liabilities:
Accounts receivable ........................................ (899,830) (4,302,358)
Prepaid expenses and other current assets .................. 225,754 (102,847)
Reimbursable event costs ................................... (207,355) (416,033)
Deferred event expenses .................................... (159,393) 75,422
Other assets ............................................... (29,923) (10,418)
Accounts payable ........................................... (186,876) (521,170)
Accrued expenses and other current liabilities ............ 2,605,182 1,597,333
Other liabilities .......................................... (1,061,570) 545,715
-------------- ---------------
Net cash provided by operating activities .................... 3,782,938 3,388,078
INVESTING ACTIVITIES
Purchase of property and equipment ........................... (1,159,382) (897,890)
-------------- ---------------
Net cash used in investing activities ........................ (1,159,382) (897,890)
FINANCING ACTIVITIES
Borrowings ................................................... 626,970 --
Payments of notes payable .................................... (34,832) (592,138)
Distributions paid ........................................... (2,993,000) (240,000)
-------------- ---------------
Net cash used in financing activities ........................ (2,400,862) (832,138)
-------------- ---------------
Net increase in cash ......................................... 222,694 1,658,050
Cash at beginning of period .................................. 2,749,715 2,972,409
-------------- ---------------
Cash at end of period ........................................ $ 2,972,409 $ 4,630,459
============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ....................................... $ 143,271 $ 112,429
============== ===============
Cash paid for income taxes ................................... $ 34,550 $ 23,618
============== ===============
</TABLE>
See accompanying notes.
D-F-91
<PAGE>
CONTEMPORARY GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 AND NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C>
Balance, January 1, 1996 ............................... $ 5,146,887
Distributions to stockholders .......................... (2,993,000)
Net income for the year ended December 31, 1996 ....... 1,828,886
-------------
Balance, December 31, 1996 ............................. 3,982,773
Distributions to stockholders .......................... (240,000)
Net income for the nine months ended September 30, 1997 5,146,262
-------------
Balance, September 30, 1997 ............................ $ 8,889,035
=============
</TABLE>
See accompanying notes.
D-F-92
<PAGE>
CONTEMPORARY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of Combination
The accompanying combined financial statements include the accounts of
Contemporary International Productions Corporation, Contemporary Productions
Incorporated, Contemporary Marketing, Inc. ("CMI"), Contemporary Sports,
Incorporated, Innovative Training and Education Concepts Corporation,
Contemporary Investments Corporation ("CIC"), Contemporary Investments of
Kansas, Inc., Continental Entertainment Associates, Inc., Dialtix, Inc., and
Capital Tickets L.P. (collectively, the "Contemporary Group" or the
"Companies"). Intercompany transactions and balances among these companies
have been eliminated in combination. The Companies are subject to common
ownership and to the transaction described in Note 7.
The Contemporary Group is a live entertainment and special events
producer, venue operator and consumer marketer. Income from operations
originates from the operation of the concert division which earns promotion
income in two ways: either a fixed fee for organizing and promoting an event
or an arrangement that entitles it to a profit percentage based on a
predetermined formula. The Companies recognize revenue from the promotion of
events when earned, which is generally upon exhibition. The Companies record
commissions on booking acts as well as sponsorship and concession income as
other event revenues.
Deferred revenue relates primarily to an advance on future concession
revenues which is evidenced by a noninterest bearing note payable and
advances on marketing services. Payments collected in advance are recognized
as income as events occur or services are provided. Reimbursable event costs
represent amounts paid by the Companies on behalf of co-promoters and other
parties with interests in the events which will be reimbursed by such
parties.
CIC is a 50% partner in Riverport Performing Arts Centre Joint Venture
("Riverport"), a Missouri general partnership which leases and operates a
20,000 seat outdoor amphitheater located in St. Louis, Missouri. The
investment in Riverport is recorded under the equity method of accounting.
Income Taxes
The Companies have been organized as either partnerships or corporations
which have elected to be taxed as "S Corporations" or incorporated as "C
Corporations." The "S Corporation" elections are valid for both federal and
state tax purposes. With respect to the partnerships and "S Corporations,"
all items of income, loss, deduction or credit are reported by the partners
or shareholders on their respective personal income tax returns. Accordingly,
no current or deferred federal or state taxes have been provided for in the
accompanying financial statements with regard to such entities.
For the year ended December 31, 1996, with respect to the "C
Corporations," the total provision for income taxes is $35,367. Certain of
the "C Corporations" filed elections to be treated as "S Corporations"
beginning January 1, 1997. Therefore, with respect to such corporations, no
provision for income taxes has been provided for during the nine months ended
September 30, 1997. The remaining "C Corporation" generated a tax loss of
approximately $52,000 for the nine months ended September 30, 1997. As such,
no provision for income taxes has been provided for.
Accounts Receivable
Accounts receivable consist of amounts due from ticket vendors, venue box
offices and customers of marketing services. Management considers these
accounts receivable as of September 30, 1997 and December 31, 1996 to be
collectible; accordingly, no allowance for doubtful accounts is recorded.
D-F-93
<PAGE>
CONTEMPORARY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Significant Customer
CMI produces marketing and sales programs for national consumer product
companies. Its most significant customer is AT&T, which provided
approximately 20% and 12% of the Companies' combined revenues for the nine
months ended September 30, 1997 and the year ended December 31, 1996,
respectively.
Advertising Costs
Advertising costs are expensed as incurred. For the nine months ended
September 30, 1997 and the year ended December 31, 1996, advertising costs
were $66,413 and $71,879, respectively
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed on
either the straight-line method or accelerated methods over the estimated
useful lives of the assets or the term of the related lease as follows:
<TABLE>
<CAPTION>
<S> <C>
Furniture, fixtures and equipment .... 5-7 years
Land improvements ..................... 15 years
Leasehold Improvements ................ 10 years
</TABLE>
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. INVESTMENTS
The following is a summary of the financial position and results of
operations of Riverport as of and for the year ended December 31, 1996 and as
of and for the nine months ended September 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
-------------- ---------------
<S> <C> <C>
Current assets .......................... $ 473,275 $ 2,603,349
Property and equipment .................. 11,815,552 11,355,439
Other assets ............................ 16,553 8,186
-------------- ---------------
Total assets ............................ $12,305,380 $13,966,974
============== ===============
Current liabilities ..................... $ 1,993,981 $ 1,022,327
Other liabilities ....................... 442,374 478,870
Partners' capital ....................... 9,869,025 12,465,777
-------------- ---------------
Total liabilities and partners' capital $12,305,380 $13,966,974
============== ===============
Revenue ................................. $11,693,138 $14,429,029
Net operating income .................... 1,970,887 4,684,284
Net income .............................. $ 1,645,431 $ 2,596,752
</TABLE>
During the year ended December 31, 1996, CIC received a cash distribution
of $600,000 from Riverport.
D-F-94
<PAGE>
CONTEMPORARY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. NOTES PAYABLE
At September 30, 1997 and December 31, 1996, CIC held a $2,322,500 non
interest bearing note payable to its partner in Riverport. The note is
payable in installments through December 1, 2000 and is secured by CIC's
investment in Riverport. The carrying value of the note is $1,578,171 based
on an imputed interest rate of approximately 9%. Based on this rate, future
principal payments on the note as of September 30, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 ... $ 683,970
1999 ... 426,296
2000 ... 467,905
-----------
$1,578,171
===========
</TABLE>
At December 31, 1996, the Companies had a $592,138 bank note payable which
bore an interest rate based on the prime lending rate (8.25% in 1996, 8.5% in
1997) and was repaid in full prior to September 30, 1997.
4. COMMON STOCK
The Companies' stock and tax status for 1997 are as follows:
<TABLE>
<CAPTION>
TAX SHARES SHARES PAR
STATUS AUTHORIZED ISSUED VALUE
------------- ------------ -------- -------
<S> <C> <C> <C> <C>
Contemporary International Productions
Corporation ............................... S-Corp. 30,000 10 $1
Contemporary Productions Incorporated ..... S-Corp. 30,000 100 $1
Contemporary Marketing, Inc. ............... S-Corp. 30,000 100 $1
Contemporary Sports, Incorporated .......... S-Corp. 30,000 100 $1
Innovative Training and Education Concepts
Corporation n/k/a Contemporary Group,
Inc........................................ S-Corp. 30,000 100 $1
Contemporary Investments Corporation ...... S-Corp. 30,000 200 $1
Contemporary Investments of Kansas, Inc. .. S-Corp. 30,000 30,000 $1
Continental Entertainment Associates, Inc. C-Corp. 300 6 $100
Dialtix, Inc. .............................. S-Corp. 30,000 6 $100
Capital Tickets L.P......................... Partnership N/A N/A N/A
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Leases
The Companies lease office facilities and concert venues under
noncancellable leases which expire at various dates through 2004. Such leases
contain various operating escalations and renewal options.
Total rent expense for the nine months ended September 30, 1997 and the
year ended December 31, 1996 was $754,395 and $818,123, respectively.
D-F-95
<PAGE>
CONTEMPORARY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under noncancellable operating leases as of
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 ......... $ 270,063
1998 ......... 858,757
1999 ......... 863,757
2000 ......... 440,050
2001 ......... 264,000
Thereafter .. 317,000
-----------
$3,013,627
===========
</TABLE>
Compensation
CMI has entered into an employment agreement with one of its employees
which provides her with rights to future cash payments based on the fair
value of CMI, as defined. These rights vest on January 1, 2002 or upon the
occurrence of certain transactions including a change of control. CMI
recorded related compensation expense for the nine months ended September 30,
1997 of $588,122 pursuant to this agreement.
Litigation
The Companies are party to various legal proceedings generally incidental
to their businesses. Although the ultimate disposition of these proceedings
is not presently determinable, management, based upon the advice of counsel,
does not expect the outcome of these proceedings to have a material adverse
effect on the financial condition of the Companies.
6. EMPLOYEE RETIREMENT PLAN
In January 1992, the Companies began a retirement plan for their employees
under Section 401(k) of the Internal Revenue Code. All employees are eligible
to participate once they obtain the minimum age requirement of 21 years and
have satisfied the service requirement of one year with the Companies.
Participant contributions are subject to the limitations of Section 402(g) of
the Internal Revenue Code. The Companies contribute to participant employees'
accounts at the rate of 25% of the first 5% of the participating employees'
contributions. During the nine months ended September 30, 1997 and the year
ended December 31, 1996, the Companies contributions totaled approximately
$23,700 and $25,600, respectively.
7. SUBSEQUENT EVENT
In December 1997, the owners of the Companies entered into an agreement to
transfer 100% of the capital stock of Contemporary International Productions
Corporation and the assets of the remaining companies comprising the
Contemporary Group, excluding cash and 1997 receivables, to SFX
Entertainment, Inc. for an aggregate consideration of $72,800,000 in cash and
the issuance of 1,402,851 shares of SFX Entertainment Class A Common Stock.
It is intended that prior to the sale, the Companies will acquire the
remaining 50% of Riverport. If it is unable to do so, the cash portion of the
purchase price would be reduced by $10,500,000.
D-F-96
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
SJS Entertainment Corporation
We have audited the accompanying combined balance sheet of SJS
Entertainment Corporation and Affiliated Company as of December 31, 1996, and
the related combined statements of operations and retained earnings and cash
flows for the year then ended. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, combined financial statements referred to above present
fairly, in all material respects, the financial position of SJS Entertainment
Corporation and Affiliated Company at December 31, 1996 and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
November 20, 1997
D-F-97
<PAGE>
SJS ENTERTAINMENT CORPORATION AND AFFILIATED COMPANY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................... $ 230,280 $ 633,001
Accounts receivable ................................ 2,257,110 3,644,176
Due from officers .................................. 616,177 --
Prepaid expenses ................................... 26,037 38,982
Employee loans ..................................... 1,925 9,108
-------------- ---------------
Total current assets ................................ 3,131,529 4,325,267
-------------- ---------------
Fixed assets, at cost:
Furniture, fixtures and office equipment .......... 309,756 375,390
Production equipment ............................... 95,317 172,641
Leasehold improvements ............................. 61,228 61,228
-------------- ---------------
466,301 609,259
Less, accumulated depreciation and amortization ... 187,546 275,142
-------------- ---------------
Net fixed assets .................................... 278,755 334,117
-------------- ---------------
Deferred tax asset .................................. -- 69,422
Other assets ........................................ 23,658 22,656
-------------- ---------------
Total assets ........................................ $3,433,942 $4,751,462
============== ===============
LIABILITIES AND COMBINED STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable--bank ................................ $1,900,000 $ --
Accounts payable ................................... 694,055 1,008,718
Accrued expenses ................................... 619,427 2,754,965
Due to affiliate ................................... 15,989 15,989
Loans and exchanges ................................ 2,799 --
Deferred revenue ................................... 104,208 41,575
Due to officers .................................... -- 988,423
-------------- ---------------
Total current liabilities ........................... 3,336,478 4,809,670
-------------- ---------------
Combined stockholders' equity:
Common stock ....................................... 27,200 27,200
Retained earnings (deficit) ........................ 145,264 (10,408)
Treasury stock ..................................... (75,000) (75,000)
-------------- ---------------
Total combined stockholders' equity ................. 97,464 (58,208)
-------------- ---------------
Total liabilities and combined stockholders' equity $3,433,942 $4,751,462
============== ===============
</TABLE>
See accompanying notes.
D-F-98
<PAGE>
SJS ENTERTAINMENT CORPORATION AND AFFILIATED COMPANY
COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Net sales, including management fees from related party (Note
2)............................................................. $11,374,672
Cost of sales .................................................. 4,039,320
-------------
Gross profit ................................................... 7,335,352
-------------
Operating expenses:
Officers' base salaries ....................................... 490,353
Officers' salaries--bonus ..................................... 2,475,000
Employee payroll and taxes .................................... 2,211,372
Consulting fees ............................................... 272,233
Messengers and delivery expense ............................... 208,697
Telephone and utilities ....................................... 341,649
Transportation and automobile expenses ........................ 240,218
Advertising and promotion ..................................... 149,907
Rent expense, net ............................................. 182,012
Depreciation and amortization ................................. 84,001
Other, net .................................................... 648,128
-------------
7,303,570
-------------
Income from operations ......................................... 31,782
Interest expense--net .......................................... (3,229)
-------------
Income before provision for income taxes ....................... 28,553
Provision for income taxes ..................................... 91,197
-------------
Net loss ....................................................... (62,644)
Retained earnings at beginning of year ......................... 207,908
-------------
Retained earnings at end of year ............................... $ 145,264
=============
</TABLE>
See accompanying notes.
D-F-99
<PAGE>
SJS ENTERTAINMENT CORPORATION AND AFFILIATED COMPANY
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Net sales, including management fees from related party (Note
2)............................................................. $8,745,965 $10,736,887
Cost of sales .................................................. 3,076,955 3,439,414
------------ -------------
Gross profit ................................................... 5,669,010 7,297,473
------------ -------------
Operating expenses:
Officers' base salaries ....................................... 366,224 883,308
Officers' salaries--bonus ..................................... 2,085,000 2,116,692
Employee payroll and taxes .................................... 1,521,486 1,969,623
Consulting fees ............................................... 192,951 220,860
Messengers and delivery expense ............................... 157,075 192,097
Telephone and utilities ....................................... 248,866 316,473
Transportation and automobile expenses ........................ 165,811 242,895
Advertising and promotion ..................................... 128,005 279,758
Rent expense, net ............................................. 119,482 173,486
Start-up costs of SJS Research ................................ -- 216,944
Depreciation and amortization ................................. 59,500 87,596
Other, net .................................................... 439,024 665,881
------------ -------------
5,483,424 7,365,613
------------ -------------
Income (loss) from operations .................................. 185,586 (68,140)
Other income (expenses):
Other income .................................................. -- 77,510
Interest expense--net ......................................... (5,627) (30,540)
------------ -------------
Income (loss) before provision for income taxes ................ 179,959 (21,170)
Provision for income taxes ..................................... 88,859 134,502
------------ -------------
Net income (loss) .............................................. 91,100 (155,672)
Retained earnings at January 1 ................................. 207,908 145,264
------------ -------------
Retained earnings (deficit) at September 30 .................... $ 299,008 $ (10,408)
============ =============
</TABLE>
See accompanying notes.
D-F-100
<PAGE>
SJS ENTERTAINMENT CORPORATION AND AFFILIATED COMPANY
COMBINED STATEMENT OF CASH FLOWS
Year ended December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss ...................................................................... $ (62,644)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization ............................................... 84,001
Changes in assets and liabilities:
Decrease in accounts receivable ............................................ 241,679
Decrease in due from affiliate ............................................. 6,134
Increase in prepaid expenses ............................................... (5,445)
Decrease in employee loans ................................................. 14
Decrease in security deposits .............................................. 4,737
Decrease in accounts payable ............................................... (130,667)
Increase in accrued expenses ............................................... 532,762
Increase in due to affiliate ............................................... 15,989
Decrease in loans and exchanges ............................................ (959)
Increase in deferred revenues .............................................. 104,208
-------------
Net cash provided by operating activities ..................................... 789,809
-------------
CASH FLOW FROM INVESTING ACTIVITIES
Cash used to acquire fixed assets ............................................. (184,132)
CASH FLOW FROM FINANCING ACTIVITIES
Officers' loans, net .......................................................... (2,204,564)
Repayments of bank loan ....................................................... (275,760)
Proceeds from new bank loans .................................................. 1,900,000
Payments towards treasury stock financing agreement ........................... (12,500)
-------------
Net cash used by financing activities ......................................... (592,824)
-------------
Net increase in cash .......................................................... 12,853
Cash at beginning of year ..................................................... 217,427
-------------
Cash at end of year ........................................................... $ 230,280
=============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid during period ................................................... $ 9,003
=============
Income taxes paid during period ............................................... $ 180,636
=============
</TABLE>
See accompanying notes.
D-F-101
<PAGE>
SJS ENTERTAINMENT CORPORATION AND AFFILIATED COMPANY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1996 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income ................................................ $ 91,100 $ (155,672)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ........................... 59,500 87,596
Changes in assets and liabilities:
Increase in accounts receivable ........................ (347,582) (1,387,066)
Decrease in due from affiliate ......................... 6,134 --
(Increase) decrease in prepaid expenses ................ 4,316 (12,945)
(Increase) in employee loans ........................... (5,388) (7,183)
(Increase) in deferred tax asset ....................... -- (69,422)
(Increase) decrease in other assets .................... (1,354) 1,000
Increase in accounts payable ........................... 124,338 314,663
Increase in accrued expenses ........................... 1,491,531 2,135,538
Increase in due to affiliate ........................... 15,989 --
Decrease in loans and exchanges ........................ (3,758) (2,797)
Increase (decrease) in deferred revenues ............... 107,183 (62,633)
------------- -------------
Net cash provided by operating activities ................. 1,542,009 841,079
------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES
Cash used to acquire fixed assets ......................... (161,079) (142,958)
CASH FLOW FROM FINANCING ACTIVITIES
Officers' loans, net ...................................... (848,077) 1,604,600
Repayments of bank loan ................................... (275,760) (1,900,000)
Payments towards treasury stock financing agreement ...... (12,500) --
------------- -------------
Net cash used by financing activities ..................... (1,136,337) (295,400)
------------- -------------
Net increase in cash ...................................... 244,593 402,721
Cash at January 1 ......................................... 217,427 230,280
------------- -------------
Cash at September 30 ...................................... $ 462,020 $ 633,001
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid during period ............................... $ 8,239 $ 33,218
============= =============
Income taxes paid during period ........................... $ 133,088 $ 57,052
============= =============
</TABLE>
See accompanying notes.
D-F-102
<PAGE>
SJS ENTERTAINMENT CORPORATION AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Combined Statements
The financial statements present the financial position and results of
operations of SJS Entertainment Corporation and Urban Entertainment Corp.
(collectively, the "Company") which are affiliated through common management
and ownership.
Nature of Business
The Company creates, produces and distributes music-related radio programs
and services which it barters or exchanges with radio broadcasters for
commercial air time, which is then sold to national network advertisers.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management use estimates based upon
available information, which directly affect reported amounts. Actual results
could differ from those estimates.
Depreciation and Amortization
Depreciation of furniture, fixtures and equipment is computed using the
straight-line and declining balance methods, at rates adequate to allocate
the cost of the applicable asset over its expected useful life. Amortization
of leasehold improvements is computed using the straight-line method over the
shorter of the lease term or the expected useful life of the asset.
Depreciation and amortization expense for the year ended December 31, 1996
totaled $84,001.
<TABLE>
<CAPTION>
<S> <C>
Estimated useful life ranges are as follows:
Furniture, fixtures and office equipment ...... 5-7 years
Production equipment ........................... 5 years
Leasehold improvements ......................... 5-10 years
</TABLE>
Intercompany Balances and Transactions
All intercompany balances and transactions have been eliminated in
combination.
Concentration of Credit Risk
The Company maintains bank balances with Sterling National Bank in excess
of the federally insured limit of $100,000.
Interim Financial Information
Financial information as of September 30, 1997 and for the nine months
ended September 30, 1997 and September 30, 1996 is unaudited. In the opinion
of management, all adjustments necessary for a fair presentation of the
results for such period have been included; all adjustments are of a normal
and recurring nature. Interim results are not necessarily indicative of
results for a full year.
2. RELATED PARTY TRANSACTIONS
Due from Officers
The Company maintains a running loan/exchange account with its officers in
order to satisfy the cash flow needs of operations. There is no interest
charged by either party on these temporary loans.
D-F-103
<PAGE>
SJS ENTERTAINMENT CORPORATION AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
At the beginning of the year, January 1, 1996, the Company owed its
officers $1,589,146. During the year, the officers loaned the Company an
additional $354,780, while the Company paid to its officers a total of
$2,560,103.
In addition, the Company pays its officers in total $2,000 per month
towards the business use of their home. These amounts are charged to rent
expense and totaled $24,000 for the year ended December 31, 1996.
Salaries and bonuses paid to officers is determined annually by the
Company's board of directors.
Management Services
The Company has arranged to manage the operations of a related company
which is 40% owned by the officers of the Company. In exchange for the
services provided, the Company receives managing fees of $40,000 per month.
In addition, the Company has subleased a portion of its premises to this
related company (see Note 4), and is also reimbursed for other direct
operating expenses (telephone, utilities, cleaning, bookkeeping and
administrative) and indirect overhead costs. This arrangement terminated at
the end of April 1997.
During the year ended December 31, 1996, the Company received the
following amounts from this related company:
<TABLE>
<CAPTION>
<S> <C>
Management fees ................. $480,000
Rental income ................... 69,780
Direct expense reimbursement ... 25,519
Indirect overhead reimbursement 108,000
-----------
$683,299
===========
</TABLE>
Management fees, rental income, the direct expense reimbursement and
indirect overhead reimbursement are reflected as an adjustment to the related
income or expense account in the accompanying statement of operations.
Due to Affiliate
The amount reflected as due to affiliate on the current liabilities
section of the balance sheet in the amount of $15,989, is a carryforward of a
prior year liability due to a related company of which 50% is owned by the
officers of the Company. This matter is currently in litigation, and there is
no legal opinion as to its probable settlement. However, management does not
expect any eventual monetary settlement to exceed this amount.
3. LOANS PAYABLE--BANK
At December 31, 1996, the Company owed to Sterling National Bank a term
loan of $1,600,000 which was secured by personal certificates of deposit
totaling the same amount held by the officers of the Company. On February 20,
1997 the certificates matured, at which time they were transferred into the
Company as an officers' loan repayment and used to pay-off the bank loan.
Interest charged to the Company was at the rate of prime plus 1%.
In addition to the term loan referred to above, the Company maintains a
$300,000 line-of-credit with Sterling National Bank, which is collateralized
by all corporate assets and guaranteed by the officers/ shareholders. At
December 31, 1996, there was an outstanding balance of $300,000. Interest is
charged at the rate of prime plus 1%. As of November 20, 1997, this loan has
been repaid.
In 1996, the Company repaid a $275,760 loan from Sterling National Bank,
which was outstanding at December 31, 1995.
D-F-104
<PAGE>
SJS ENTERTAINMENT CORPORATION AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. COMMITMENTS AND CONTINGENCIES
Automobile Lease
The Company leases automobiles with monthly payments of $1,834 due through
February, 1999.
Office and Audio Production Studio Leases
The Company maintains several offices for sales and administration
throughout the United States, as well as two production studios. The main
premises are located in New York City and is subject to an operating lease
expiring March 31, 2006. Other premises are subject to operating leases with
various terms ranging from month-to-month, to January 31, 2001.
Future minimum commitments for automobile, office and studio leases,
including two new leases entered into during 1997, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 ......... $ 305,300
1998 ......... 311,200
1999 ......... 300,000
2000 ......... 267,000
2001 ......... 240,100
Thereafter .. 1,098,800
-----------
$2,522,400
===========
</TABLE>
Rent expense for offices and production studios, net of the subtenant
lease income (see below), totaled $182,012 for the year ended December 31,
1996, while the automobile lease cost was approximately $22,000.
Subtenant Lease
The Company has subleased a portion of its New York City premises to a
related company who is partially owned by the stockholders of the Company,
for approximately $5,800 per month. The lease terminated at the end of April,
1997.
Consulting Agreements
Urban Entertainment Corp. is a party to consulting agreements with two
individuals, requiring monthly payments totaling $9,583 to be paid through
December 31, 1999. The future commitment is as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 ... $115,000
1998 ... 115,000
1999 ... 115,000
----------
$345,000
==========
</TABLE>
D-F-105
<PAGE>
SJS ENTERTAINMENT CORPORATION AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY
Shareholders' equity consists of the following:
<TABLE>
<CAPTION>
PAR ISSUED AND
COMPANY CLASS VALUE AUTHORIZED OUTSTANDING VALUE
- ------------------------------ --------------- ------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
SJS Entertainment Corporation -- None 1,000 1,000 $27,000
Urban Entertainment Corp. .... A (voting) None 840 840 100
B (nonvoting) None 160 160 100
---------
$27,200
=========
</TABLE>
Treasury stock represents the acquisition cost of 550 shares of Urban
Entertainment Corp. (420 Class A, and 130 Class B) in 1995. The Company paid
$12,500 of the total consideration for the stock in 1996.
Retained earnings at January 1, 1996 was adjusted to reflect the
underaccrual of $51,831 of state and local taxes related to 1995.
6. INCOME TAXES
Urban Entertainment Corp. has elected "S" Corporation status for both
federal and state tax purposes. Accordingly, all items of income, loss,
deduction or credit are reported by the stockholders on their respective
personal income tax returns. Therefore, no federal or state tax has been
provided.
SJS Entertainment Corporation is subject to corporate taxes at the federal
level and seven state and local jurisidictions.
The provision for income taxes for the year ended December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Federal ......... $ 9,647
State and local 81,550
---------
$91,197
=========
</TABLE>
On October 30, 1997, SJS Entertainment Corporation filed an election to be
treated as an "S" Corporation beginning January 1, 1998. Approval from the
Internal Revenue Service and various state revenue departments are pending.
7. EMPLOYEE RETIREMENT PLAN
The Company maintains a retirement plan for their employees under Section
401(k) of the Internal Revenue Code. All employees are eligible to
participate once they obtain the minimum age requirement of 21 years, and
have satisfied the service requirement of six months with the Company.
Participants may make voluntary contributions into the plan of up to 15% of
their compensation. The Company contributes to each participant's account an
amount equal to 25% of the participant's voluntary contribution, or $1,000,
whichever is less.
During the year ended December 31, 1996, employer contributions totaled
$6,979.
8. LEGAL MATTERS
The Company has been named in various lawsuits arising in the normal
course of business. It is not possible at this time to assess the probability
of any liability against the Company as a result of these lawsuits.
Management has stated that all cases will be vigorously defended.
D-F-106
<PAGE>
SJS ENTERTAINMENT CORPORATION AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
9. SUBSEQUENT EVENTS
In December 1997, the Company's shareholders entered into an agreement to
sell all of the issued and outstanding shares of the Company to SFX
Entertainment, Inc.
In December 1997, the Company borrowed $1,500,000 under a term loan with
Sterling National Bank (Unaudited).
D-F-107
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
The Album Network, Inc.
We have audited the accompanying combined balance sheets of The Album
Network, Inc. and Affiliated Companies as of September 30, 1997 and 1996, and
the related combined statements of operations and stockholders' deficit and
cash flows for the years then ended. These financial statements are the
responsibility of 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 combined financial position of The Album
Network, Inc. and Affiliated Companies at September 30, 1997 and 1996, and
the combined results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
November 20, 1997
New York, New York
D-F-108
<PAGE>
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 160,453 $ 272,423
Accounts receivable, less allowance for doubtful
accounts of $153,728 in 1997and $95,450 in 1996 ................... 2,148,159 2,229,237
Officers' loans receivable ......................................... 423,447 390,794
Prepaid expenses and other current assets .......................... 125,558 234,914
------------- -------------
Total current assets ................................................ 2,857,617 3,127,368
Property, plant and equipment, at cost, less accumulated
depreciation of $1,056,689 in 1997 and $914,512 in 1996 ........... 278,898 303,614
Deferred software costs, less accumulated amortization of $106,639
in 1997 and $45,768 in 1996 ........................................ 172,302 262,061
Other noncurrent assets ............................................. 39,477 37,033
------------- -------------
Total assets ........................................................ $ 3,348,294 $ 3,730,076
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accrued officers' bonuses .......................................... $ 1,200,000 $ 1,251,000
Accounts payable and other accrued expenses ........................ 1,081,469 1,208,424
Officers' loans payable ............................................ 650,000 489,085
Unearned subscription income ....................................... 530,255 406,529
Taxes payable and other current liabilities ........................ 351,551 304,011
Current portion of long-term debt .................................. 624,723 426,228
------------- -------------
Total current liabilities ........................................... 4,437,998 4,085,277
Long-term debt ...................................................... 1,294,133 1,051,881
Deferred income taxes ............................................... 279,434 114,178
Combined stockholders' deficit ...................................... (2,663,271) (1,521,260)
------------- -------------
Total liabilities and stockholders' deficit ......................... $ 3,348,294 $ 3,730,076
============= =============
</TABLE>
See accompanying notes.
D-F-109
<PAGE>
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF OPERATIONS AND
STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1996 1997
-------------- -------------
<S> <C> <C>
OPERATING REVENUES
Advertising revenue ................................ $ 7,040,465 $ 7,619,751
Research services revenue .......................... 2,453,026 2,441,703
Direct mail & subscription revenue ................. 1,791,887 1,837,248
Broadcast revenue .................................. 2,085,714 2,235,788
Consulting revenue.................................. 720,000 470,000
Other revenue ...................................... 675,790 1,152,448
-------------- -------------
14,766,882 15,756,938
Direct costs of revenue ............................ 4,408,997 4,107,328
-------------- -------------
10,357,885 11,649,610
OPERATING EXPENSES
Officers' salary expense ........................... 3,384,870 3,662,427
Other salary expense ............................... 3,956,910 3,949,715
Depreciation and amortization ...................... 183,976 203,047
General and administrative expenses ................ 2,524,704 2,483,197
-------------- -------------
10,050,460 10,298,386
-------------- -------------
Income from operations ............................. 307,425 1,351,224
OTHER INCOME (EXPENSE)
Interest income--officers' loans ................... 35,000 41,600
Interest income--third party ....................... 6,961 1,295
Interest expense--officers' loans .................. (35,000) (55,940)
Interest expense--third party ...................... (256,164) (175,490)
-------------- -------------
Income before income taxes ......................... 58,222 1,162,689
INCOME TAXES
Provision for income taxes ......................... 211,832 20,678
-------------- -------------
Net income (loss) .................................. (153,610) 1,142,011
Combined stockholders' deficit at beginning of year (2,509,661) (2,663,271)
-------------- -------------
Combined stockholders' deficit at end of year ..... $(2,663,271) $(1,521,260)
============== =============
</TABLE>
See accompanying notes.
D-F-110
<PAGE>
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ......................................................... $(153,610) $1,142,011
Adjustment to reconcile net income to net cash (used in) provided
by operating activities:
Depreciation and amortization .................................... 183,976 203,047
Provision for doubtful accounts .................................. 13,584 58,278
Changes in operating assets and liabilities:
Accounts receivable ............................................. (246,873) (139,356)
Prepaid expenses and other current assets ....................... 154,120 (97,053)
Other non current assets ........................................ (3,378) 2,444
Accounts payable and accrued expenses ........................... 69,816 126,955
Unearned subscription income .................................... 101,623 (123,726)
Accrued officers' bonus ......................................... 639,000 51,000
Deferred income taxes ........................................... 39,268 (165,257)
Taxes payable and other current liabilities ..................... 143,423 (127,843)
------------ ------------
Net cash (used in) provided by operating activities ................ 940,949 930,500
------------ ------------
INVESTING ACTIVITIES
Purchase of property and equipment ................................. (65,731) (166,891)
Deferred software costs ............................................ (97,463) (150,630)
------------ ------------
Net cash used in investing activities .............................. (163,194) (317,521)
------------ ------------
FINANCING ACTIVITIES
Payments on long term debt ......................................... (860,236) (527,747)
Proceeds from additional debt borrowings ........................... 52,500 155,000
Proceeds from (repayments of) officers' loans, net ................. 61,355 (128,262)
------------ ------------
Net cash used in financing activities .............................. (746,381) (501,009)
------------ ------------
Net increase in cash and cash equivalents .......................... 31,374 111,970
Cash and cash equivalents at beginning of year ..................... 129,079 160,453
------------ ------------
Cash and cash equivalents at end of year ........................... $ 160,453 $ 272,423
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ............................................. $ 304,726 $ 190,168
============ ============
Cash paid for income taxes ......................................... $ 21,375 $ 26,316
============ ============
</TABLE>
See accompanying notes.
D-F-111
<PAGE>
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of Combination
The accompanying combined financial statements include the accounts of The
Album Network, Inc., The Network 40, Inc., The Urban Network, Inc. and
In-the-Studio (collectively, the "Companies"). Intercompany transactions and
balances among the Companies have been eliminated in combination.
On August 27, 1997, the board of directors and shareholders of the
Companies approved a plan of agreement and merger which provided that The
Urban Network, Inc. merge into The Album Network, Inc. (the "Company")
effective September 24, 1997. The Companies accounted for the transaction as
a merger of companies under common control.
The Companies publish six music trade magazines, produce rock, urban and
top 40 programming specials and manufacture compact disc samplers. They also
serve as product marketing advisors to contemporary music talent and their
managers in providing creative content and innovative marketing campaigns. In
addition, the Companies provide research services for radio station program
directors and record label executives. The Companies publishes five print
periodicals for rock and top 40 music broadcasters, retailers and music
industry executives. The weekly publications are the "Album Network" and the
"Network 40". The monthly publications are the "Virtually Alternative" and
"Totally Adult" and the quarterly publication is titled "AggroActive."
Additionally, "The Urban Network" trade magazine is published each week.
Revenue Recognition
The Companies' magazines generate revenue from advertising sales,
complemented by subscription sales and incremental direct mail revenue.
Unearned subscription income represents revenues on subscriptions for
which publications have not been delivered to customers as of the balance
sheet date. Unearned subscription income at September 30, 1996 also includes
unearned income on certain advertising and direct mail packages.
Revenue from research services is recognized straight-line over the
license term or upon the sale of computer software developed for licensees
and other customers. Advertising and broadcast revenues are recognized when
advertisements are run or aired.
Furniture and Equipment
Furniture and equipment are valued at cost less accumulated depreciation.
Depreciation is provided on the straight-line and declining balance methods
over the estimated useful lives of the assets, as follows:
<TABLE>
<CAPTION>
<S> <C>
Computer hardware ...........5 years
Software .................... 5 years
Furniture and equipment .... 5-7 years
Leasehold improvements ..... 5 years
</TABLE>
Deferred Software Costs
Costs incurred to produce software masters and subsequent enhancements to
such software are capitalized and amortized over the remaining economic life
of the master (generally, five years). Costs of maintenance and customer
support are charged to expense when incurred.
Cash and Cash Equivalents
The Companies consider all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Income Taxes
Each of the affiliated Companies file a separate tax return. The Album
Network, Inc. and the Urban Network, Inc. are "C Corporations." The Network
40, Inc. has elected to be taxed as an "S Corporation".
D-F-112
<PAGE>
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
The "S Corporation" election is effective for both federal and state tax
purposes. Accordingly all items of income, loss, deduction or credit are
reported by the shareholders on their respective personal income tax returns.
The corporate tax rate for S Corporations in California is one and one-half
percent (1.5%).
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company maintains bank balances with City National Bank in excess of
the federally insured limit of $100,000.
2. RELATED PARTY TRANSACTIONS
Officers' Loans
The Companies have several loan agreements outstanding with its officers
in order to satisfy the cash flow needs of operations. The interest rates on
the loans to and from the officers range from approximately 10% to 12%.
At October 1, 1995, the officers owed the Companies $471,918 and the
Companies owed the officers $637,116. During the year ended September 30,
1996, the officers repaid $48,471 and loaned the Companies an additional
$12,884.
At October 1, 1996, the officers owed the Companies $423,447 and the
Companies owed the officers $650,000. During the year ended September 30,
1997, the officers repaid $32,653 to the Companies and the Companies repaid
$160,915 to the officers.
3. LONG-TERM DEBT
A summary of long-term debt as of September 30, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------------
1996 1997
------------ -----------
<S> <C> <C>
Note payable to City National Bank, collateralized by certain
equipment and personally guaranteed by the stockholders; payable
in monthly installments of $2,917 plus interest at 10.5%; due May
1999 ............................................................. $ 96,996 $ 62,740
Note payable to City National Bank, personally guaranteed by the
stockholders; payable in monthly installments of $41,233 plus
interest at 8.75% through January 22, 1997 and at 8.25%
thereafter; due December 2000.(A) ................................ 1,821,862 1,415,369
------------ -----------
1,918,856 1,478,109
Less current portion .............................................. 624,723 426,228
------------ -----------
Long-term debt .................................................... $1,294,133 $1,051,881
============ ===========
</TABLE>
- ------------
(A) In September 1995 The Album Network, Inc., The Network 40, Inc. and The
Urban Network, Inc. entered into a loan agreement with City National Bank
for $2,330,000 in connection with a redemption of common stock. Interest
was set at 8.75% per year and principal and interest were payable in
monthly installments of $57,846 through September 1999. In January 1997,
the loan agreement was revised. Interest was reset at 8.25% and monthly
payments of $41,233 were extended through December 2000. The principal
balance at the date of revision was $1,687,560.
D-F-113
<PAGE>
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
4. COMMON STOCK
The Companies' stock and tax status at September 30, 1997 are as follows:
<TABLE>
<CAPTION>
SHARES
ISSUED
TAX SHARES AND
STATUS AUTHORIZED OUTSTANDING
------------- ------------ -------------
<S> <C> <C> <C>
The Album Network, Inc. C-Corp. 1,000,000 220
The Network 40, Inc. ... S-Corp. 100,000 825
The Urban Network, Inc. C-Corp. 100,000 825
In-the-Studio ........... Partnership n/a n/a
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Leases
The Companies lease an office facility under noncancellable leases which
expire in February 1998.
Total rent expense for the years ended September 30, 1997 and 1996 under
operating leases was $262,812 and $256,026, respectively.
Future minimum lease payments under noncancellable operating leases as of
September 30, 1997 total $121,155, all of which is payable in 1998.
Other Matters
As of September 30, 1997, approximately $80,000 was drawn on lines of
credit with City National Bank. There were no amounts drawn as of September
30, 1996.
6. INCOME TAXES
The Album Network has received a Statutory Notice of Deficiency from the
Internal Revenue Service ("IRS") for the years ended September 30, 1994, 1995
and 1996 asserting tax deficiencies resulting primarily from an IRS position
that compensation paid to officers was unreasonable and excessive. In total,
approximately $3.5 million of adjustments increasing taxable income have been
proposed. The total additional tax, penalties and interest through September
30, 1997 related to these adjustments would be approximately $1.8 million.
The company has analyzed these matters with tax counsel and believes it has
meritorious defenses to the deficiencies asserted by the IRS. The company has
filed a petition with the United States Tax Court contesting the asserted
liability. While the company believes that a successful defense of this case
may be made, in light of the economic burdens of the defense, the company may
entertain a settlement for up to $291,000. Accordingly, the company has
recorded reserves in such amount, including $23,000, $115,000 and $153,000
for the years ended September 30, 1997, 1996 and prior periods, respectively.
D-F-114
<PAGE>
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
For the years ended September 30, 1996 and 1997 the provision for income
taxes is as follows:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Current:
Federal .. $129,911 $ 143,056
State ..... 17,710 42,878
---------- -----------
Total .... 147,621 185,934
---------- -----------
Deferred:
Federal .. 49,764 (150,383)
State ..... 14,447 (14,873)
---------- -----------
Total .... 64,211 (165,256)
---------- -----------
Total ...... $211,832 $ 20,678
========== ===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Companies' deferred tax assets and liabilities as of
September 30, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Deferred tax assets:
Contributions carryforward .... $ 8,194 $ 10,078
Deferred tax liabilities:
Fixed assets ................... 12,280 11,830
Intangible assets .............. 275,346 112,424
---------- ---------
Total deferred tax liabilities 287,628 124,254
---------- ---------
Net deferred tax liabilities ... $279,434 $114,176
========== =========
</TABLE>
7. EMPLOYEE RETIREMENT PLAN
In January 1997, the Companies began a retirement plan for their employees
under Section 401(k) of the Internal Revenue Code. All employees are eligible
to participate once they obtain the minimum age requirement of 21 years, and
have satisfied the service requirement of one year with the Companies.
Participant contributions are subject to the limitations of Section 402 (g)
of the Internal Revenue Code. The Companies contribute monthly to
participating employees accounts at the rate of 10% of the participating
employees contributions. During the year ended September 30, 1997, the
Companies contributions totaled approximately $14,000.
8. SUBSEQUENT EVENTS
Subsequent to September 30, 1997, an additional $320,000 was drawn on the
lines of credit with City National Bank.
In December 1997, the shareholders of the Companies entered into an
agreement to sell all of the issued and outstanding shares of the Company and
all of the assets and liabilities of The Network 40, Inc. to SFX
Entertainment, Inc.
D-F-115
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
BG Presents, Inc.
We have audited the accompanying consolidated balance sheets of BG
Presents, Inc. and subsidiaries as of January 31, 1997 and 1996, and the
related consolidated statements of operations, cash flows and stockholders'
equity for the years then ended. These financial statements are the
responsibility of 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of BG Presents,
Inc. and subsidiaries at January 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
December 18, 1997
D-F-116
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31
1996 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ 7,431,899 $11,819,831
Accounts receivable--trade ............................................ 1,808,280 3,164,543
Accounts receivable--related parties .................................. 1,346,329 1,347,150
Investments ........................................................... 123,000 370,000
Inventories ........................................................... 228,294 236,078
Prepaid assets ........................................................ 929,274 450,883
Income tax receivable ................................................. 90,138 418,528
Deferred income taxes ................................................. 170,000 94,000
------------- -------------
Total current assets ................................................... 12,127,214 17,901,013
Property and equipment, net ............................................ 10,649,446 9,661,910
Goodwill, net........................................................... 1,668,800 1,549,600
Other assets ........................................................... 327 167
------------- -------------
Total assets............................................................ $24,445,787 $29,112,690
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--current portion......................................... $ 591,755 $ 722,966
Lease commitment--current portion ..................................... 405,275 35,676
Accounts payable ...................................................... 2,254,539 5,116,133
Accrued liabilities ................................................... 1,567,788 1,834,670
Deferred revenue ...................................................... 982,785 1,362,533
------------- -------------
Total current liabilities .............................................. 5,802,142 9,071,978
------------- -------------
Lease commitment, less current portion ................................. 6,740,395 6,704,719
Notes payable, less current portion .................................... 5,140,676 5,233,709
Deferred income taxes .................................................. 2,648,000 2,617,000
Stockholders' equity:
Common stock, no par value; 10,000,000 shares authorized; 1,000,000
and 957,894 shares issued and outstanding in 1996 and 1997,
respectively........................................................... 1,220,000 1,198,947
Retained earnings ..................................................... 2,894,574 4,286,337
------------- -------------
Total stockholders' equity ............................................. 4,114,574 5,485,284
------------- -------------
Total liabilities and stockholders' equity.............................. $24,445,787 $29,112,690
============= =============
</TABLE>
See accompanying notes.
D-F-117
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
October 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents..................................................... $10,709,619
Accounts receivable--trade.................................................... 4,666,132
Accounts receivable--related parties.......................................... 1,986,379
Inventories................................................................... 224,922
Prepaid assets................................................................ 1,171,624
-------------
Total current assets........................................................... 18,758,676
Property and equipment, net.................................................... 9,233,108
Goodwill, net.................................................................. 1,460,200
Other assets................................................................... 222,284
-------------
Total assets................................................................... $29,674,268
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--current portion................................................ $ 868,482
Accounts payable.............................................................. 1,006,601
Accrued liabilities........................................................... 2,833,129
Deferred revenue.............................................................. 2,222,917
-------------
Total current liabilities...................................................... 6,931,129
Notes payable, less current portion............................................ 11,312,336
Deferred income taxes.......................................................... 2,617,000
Stockholders' equity:
Common stock, no par value; 10,000,000 shares authorized; 957,894 shares
issued and outstanding....................................................... 1,208,947
Retained earnings............................................................. 7,604,856
-------------
Total stockholders' equity..................................................... 8,813,803
-------------
Total liabilities and stockholders' equity..................................... $29,674,268
=============
</TABLE>
See accompanying notes.
D-F-118
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
1996 1997
------------- -------------
<S> <C> <C>
OPERATING REVENUES
Concert revenues............... $62,996,606 $74,981,534
Contract management ........... 7,844,248 10,255,060
Concessions/merchandise ...... 5,536,287 7,094,593
------------- -------------
76,377,141 92,331,187
Cost of concerts .............. 54,383,763 69,916,840
------------- -------------
Gross profit .................. 21,993,378 22,414,347
------------- -------------
OPERATING EXPENSES
General and administrative ... 17,614,296 17,602,501
Depreciation and amortization 1,441,439 1,474,414
------------- -------------
Income from operations ........ 2,937,643 3,337,432
OTHER INCOME (EXPENSE)
Interest expense .............. (1,324,219) (1,257,758)
Interest income ............... 307,756 295,057
Miscellaneous, net ............ 535,191 289,222
------------- -------------
Income before income taxes ... 2,456,371 2,663,953
Provision for income taxes ... 1,160,718 1,272,190
------------- -------------
Net income .................... $ 1,295,653 $ 1,391,763
============= =============
</TABLE>
See accompanying notes.
D-F-119
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
OPERATING REVENUES
Concert revenues.............. $51,188,539
Contract management........... 9,141,625
Concessions/merchandise....... 5,117,576
-------------
65,447,740
Cost of concerts.............. 47,557,539
-------------
Gross profit.................. 17,890,201
-------------
OPERATING EXPENSES
General and administrative ... 11,753,765
Depreciation and
amortization................. 611,111
-------------
Income from operations........ 5,525,325
OTHER INCOME (EXPENSE)
Interest expense.............. (836,850)
Interest income............... 229,285
Miscellanous, net............. 534,705
-------------
Income before income taxes ... 5,452,465
Provision for income taxes ... 2,133,946
-------------
Net income.................... $ 3,318,519
=============
</TABLE>
See accompanying notes.
D-F-120
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1996 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................... $ 1,295,653 $ 1,391,763
Adjustment to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization...................... 1,441,439 1,474,414
Loss on sale of property and equipment............. 13,603 --
Changes in operating assets and liabilities:
Accounts receivable--trade........................ 524,566 (1,356,263)
Accounts receivable--related parties.............. (496,971) (821)
Inventories....................................... (228,294) (7,784)
Prepaid assets and other.......................... (322,524) 478,391
Income tax receivable............................. (50,888) (328,390)
Accounts payable and accrued expenses............. (491,982) 3,128,476
Deferred income taxes............................. 1,139,000 45,000
Deferred revenue.................................. (67,859) 379,748
Other............................................. 288,367 160
------------- -------------
Net cash provided by operating activities............ 3,044,110 5,204,694
INVESTING ACTIVITIES
Purchase of SAP limited partnership interest ........ (4,250,000) --
Proceeds from sale of equipment...................... 13,150 --
Purchase of property and equipment................... (469,447) (367,678)
Other................................................ (644,496) (247,000)
------------- -------------
Net cash used in investing activities................ (5,350,793) (614,678)
FINANCING ACTIVITIES
Payments of notes payable............................ (444,985) (775,756)
Payments of lease commitments........................ (395,330) (405,275)
Retirement of stock.................................. -- (21,053)
Proceeds from issuance of notes...................... -- 1,000,000
------------- -------------
Net cash used in financing activities................ (840,315) (202,084)
------------- -------------
Net increase (decrease) in cash and cash
equivalents......................................... (3,146,998) 4,387,932
Cash and cash equivalents at beginning of year ...... 10,578,897 7,431,899
------------- -------------
Cash and cash equivalents at end of year............. $ 7,431,899 $11,819,831
============= =============
Supplemental disclosure of cash flow information
Cash paid for interest............................... $ 1,324,219 $ 1,257,664
Cash paid for income taxes........................... 888,738 1,280,000
</TABLE>
See accompanying notes.
D-F-121
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
(UNAUDITED)
NINE MONTHS ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net income....................................... $ 3,318,519
Adjustment to reconcile net income to net cash
used in operating activities:
Depreciation and amortization................... 611,111
Changes in operating assets and liabilities:
Accounts receivable--trade..................... (1,501,589)
Accounts receivable--related parties........... (639,229)
Inventories.................................... 11,156
Prepaid assets and other....................... (720,741)
Income tax receivable.......................... 418,528
Accounts payable and accrued expenses ......... (3,111,073)
Deferred income taxes.......................... 94,000
Deferred revenue............................... 860,384
Other.......................................... 147,883
-------------
Net cash used in operating activities............ (511,051)
INVESTING ACTIVITIES
Proceeds from sale of equipment.................. (92,909)
-------------
Net cash used in investing activities............ (92,909)
FINANCING ACTIVITIES
Proceeds from issuance of notes payable ......... 6,224,143
Payments of lease commitments.................... (6,740,395)
Proceeds from issuance of stock.................. 10,000
-------------
Net cash used in financing activities............ (506,252)
Net decrease in cash and cash equivalents ....... (1,110,212)
Cash and cash equivalents at beginning of year .. 11,819,831
-------------
Cash and cash equivalents at end of year ........ $10,709,619
=============
Supplemental disclosure of cash flow information
Cash paid for interest........................... $ 3,836,850
Cash paid for income taxes....................... 500,000
</TABLE>
See accompanying notes.
D-F-122
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1997 AND 1996
AND NINE MONTHS ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Balance--February 1, 1995.......................... $2,818,921
Net income for the year ended January 31, 1996 .... 1,295,653
------------
Balance--January 31, 1996.......................... 4,114,574
Net income for the year ended January 31, 1997 .... 1,391,763
Repurchase and retirement of stock................. (21,053)
------------
Balance--January 31, 1997.......................... $5,485,284
Net income for nine months ended December 31,
1997.............................................. 3,318,519
Issuance of stock.................................. 10,000
------------
Balance--October 31, 1997 (unaudited).............. $8,813,803
============
</TABLE>
See accompanying notes.
D-F-123
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Business and Principles of Consolidation
BG Presents, Inc. ("BGP" or the "Company") is a holding company for
various operating subsidiaries which principally promote and manage musical
and special events in the San Francisco Bay Area. In addition, the Company
owns the Shoreline Amphitheatre in Mountainview, California. Bill Graham
Enterprises, Inc. ("BGE"), Bill Graham Presents, Inc. ("BGPI"), Bill Graham
Management, Inc. ("BGM"), AKG, Inc. ("AKG"), Shoreline Amphitheatre, Ltd.
("SAL"), Fillmore Fingers, Inc. ("FF"), and Shoreline Amphitheatre Partners
("SAP" and collectively, the "Companies") are wholly-owned subsidiaries of
the Company. The accompanying consolidated financial statements include the
accounts of the Company and all of its wholly-owned subsidiaries.
Intercompany transactions and balances have been eliminated in consolidation.
BGE and BGPI earn promotion income in two ways: either a fixed fee for
organizing and promoting an event, or an arrangement that entitles them to a
profit percentage based on a predetermined formula. In addition, the
Companies earn revenue from merchandise and concessions sold during events
which they promote. BGM manages the careers of various artists and records a
percentage of the artists' gross sales from publishing rights, record sales,
and tours as contract management revenue.
AKG operates the Fillmore, Warfield, and Punchline theatres located in San
Francisco, which generate revenue from food and beverage sales, sponsorships,
and ticket sales. Bill Graham Special Events, a division of AKG, records
management/contract fees from organizing corporate and other parties at
various venues in the Bay Area. FF provides table service (food and beverage)
for two theatres owned by separate entities in Los Angeles.
Revenue Recognition
Revenue from talent management and the sales of tickets is recognized when
earned. Cash received from the sale of tickets for events not yet performed
is deferred. Revenue from the direct sale of compact discs is recognized upon
the date of sale. Revenue from distributor sales of compact discs is
recognized when the right of return no longer exists. The Company received
revenue from various sources, including $14,562,424 during the fiscal year
ended January 31, 1997 (16% of total revenue) from various gymnastics tours,
ice skating tours and television specials.
Cash and Cash Equivalents
The Company considers all investments purchased with an original maturity
date of three months or less to be cash equivalents. At January 31, 1997 and
1996, the Companies had cash balances in excess of the federally insured
limits of $100,000 per institution.
Use of Estimates
Generally accepted accounting principles require management to make
assumptions in estimates that affect the amount reported in the financial
statements for assets, liabilities, revenues, and expenses. In addition,
assumptions and estimates are used to determine disclosure for contingencies,
commitments, and other matters discussed in the notes to the financial
statements. Actual results could differ from those estimates.
Accounts Receivable
The Company's accounts receivable are principally due from ticket service
and merchandising companies in the San Francisco Bay Area. In addition,
related party receivables include amounts due from owners of the Company and
from affiliated companies. Management believes that all accounts receivable
as of January 31, 1997 and 1996 were fully collectible; therefore, no
allowance for doubtful accounts was recorded.
D-F-124
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property and Equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives, which range from 3 to 40 years. Leasehold
improvements are amortized on the straight-line basis over the shorter of the
lease term or estimated useful lives of the assets. Maintenance and repairs
are charged to expense as incurred.
Goodwill
The Company amortizes goodwill over a 15 year period.
Income Taxes
The Companies account for income taxes under the liability method, whereby
deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Investments
Investment stock consists of trading securities that are traded on stock
exchanges. These securities, which are stated at fair value, are traded with
the intent to sell when market prices are favorable. Unrealized holding gains
or losses are recognized in the financial statements.
Inventories
Inventories, which consist principally of compact discs and beverage
items, are stated at first-in, first-out (FIFO) cost, which is not in excess
of market.
Interim Financial Information
Financial information as of October 31, 1997 and for the nine months ended
October 31, 1997 is unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of the results for such period have been
included; all adjustments are of a normal and recurring nature. Interim
results are not necessarily indicative of results for a full year.
2. INCOME TAXES
The provisions for income taxes for the years ended January 31, 1996 and
1997 is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------ -----------
<S> <C> <C>
Current:
Federal .. $ 848,600 $ 984,500
State ..... 246,400 285,800
------------ -----------
1,095,000 1,270,300
Deferred:
Federal .. 50,900 1,500
State ..... 14,800 400
------------ -----------
65,700 1,900
------------ -----------
$1,160,700 $1,272,200
============ ===========
</TABLE>
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company's net
deferred tax liabilities as of January 31, 1997 and 1996 are primarily the
result of the difference between the book basis of depreciable assets and the
related tax basis.
The difference between the tax provision at Federal statutory rates and
the effective rate is due to state taxes, amortization of goodwill and other
permanent items.
D-F-125
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. PROPERTY AND EQUIPMENT
Property and equipment as of January 31, 1996 and 1997 consists of the
following:
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
Buildings.................... $ 8,206,766 $ 8,234,231
Leasehold improvements ..... 10,167,067 10,326,553
Equipment ................... 2,133,343 2,166,037
Office furniture ............ 612,359 693,068
Computer equipment .......... 263,247 330,367
Vehicle ..................... 61,007 61,211
-------------- --------------
21,443,789 21,811,467
Accumulated depreciation and
amortization ............... (11,428,296) (12,751,012)
-------------- --------------
10,015,493 9,027,957
Land ........................ 633,953 633,953
-------------- --------------
$ 10,649,446 $ 9,661,910
============== ==============
</TABLE>
4. PENSION PLAN
The Company sponsors a 401(k) Tax Advantage Savings Plan that covers
employees who have one year of service, have worked at least 1,000 hours, are
twenty-one years of age or older, and are not covered by a union contract. At
its discretion, the Company may contribute a percentage of gross pay to the
plan, up to a maximum gross pay of $150,000 per participant. In addition, the
Company makes a matching contribution of 25 percent of each participant's
account up to $400 of their salary deferral each year, for a maximum company
matching contribution of $100. Total contributions to the plan were
approximately $186,000 and $182,000 for the years ended January 31, 1997 and
1996, respectively.
5. NOTES PAYABLE
Notes payable as of January 31, 1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
1996 1997
------------ -------------
<S> <C> <C>
Note payable to Continental Savings; monthly payments of $16,574,
including interest at bank's index rate plus 3.5% (8.4% and 8%
at January 31, 1997 and 1996, respectively; matures May 1, 2004;
secured by deed:................................................. $2,232,431 $2,215,001
Note payable to Sanwa Bank; quarterly payments range from $75,000
to $200,000, interest accrued monthly at the banks prime rate
plus 0.5% (8.75% and 9.5% at January 31, 1997 and 1996,
respectively; matures January 31, 2001: ......................... 3,500,000 2,925,000
Note payable to Sanwa Bank; monthly payments of $16,666,
including interest at a rate of London Inter-Bank Offered Rates
(LIBOR) plus 2.5% (8% at January 31, 1997); matures January 31,
2002; secured by assets of the Company (excluding the office
building): ...................................................... -- 816,674
------------ -------------
5,732,431 5,956,675
Less current portion ............................................. (591,755) (722,966)
------------ -------------
$5,140,676 $5,233,709
============ =============
</TABLE>
D-F-126
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The first note payable with Sanwa Bank also provided for a line-of-credit
of up to $1,000,000 that expired on April 30, 1997. At January 31, 1997,
there were no borrowings outstanding against this credit line.
The provisions of the second note payable to Sanwa Bank contain certain
restrictive financial covenants. The Company is in compliance with these
covenants at January 31, 1997.
At January 31, 1997, the Company has a $3,000,000 unused line-of-credit
with a bank to be drawn upon as needed, with interest at the bank's prime
rate plus 0.5%. In addition, the Company may use up to $1,500,000 of the line
for letters-of-credit. This line of credit is secured by the assets of the
Company (excluding the building) and a pledge of 100% of the outstanding
common stock.
Maturities of long-term debt are approximately as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ended January 31:
1998 ................. $ 722,966
1999 ................. 721,407
2000 ................. 725,124
2001 ................. 1,669,018
2002 ................. 29,698
Thereafter ........... 2,088,462
-----------
$5,956,675
===========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases storage space, nightclubs, and theaters pursuant to
noncancellable operating leases. Certain leases require contingent rentals to
be paid based on a percentage of gross sales of tickets, merchandise, and
food and beverage. These lease expire on various dates through June 2021.
As January 31, 1997 the future minimum operating lease payments under
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ended January 31:
1998.................. $ 404,467
1999 ................. 500,346
2000 ................. 504,203
2001 ................. 453,705
2002 ................. 451,694
Thereafter ........... 2,792,986
-----------
$5,107,401
===========
</TABLE>
Total minimum rental expense included in operating expenses for the years
ended January 31, 1997 and 1996 was $438,500 and $810,956, respectively, and
the contingent rental expense was $627,222 and $541, 334, respectively.
Included in cost of concerts is $6,349,115 and $6,078,042 of contingent
rentals paid based on gross sales for the years ended January 31, 1997 and
1996, respectively.
D-F-127
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Shoreline Amphitheater Lease and Agreement
The Shoreline Amphitheater Lease and Agreement, as amended, provides for,
among other things, the following:
The City of Mountain View, California (the "City") owns certain real
property ("the Site") which it has leased to the Company for the purpose of
constructing and operating the amphitheater. The lease terminates after
thirty-five years on November 30, 2021, and the Company has the option to
extend for three additional five-year periods.
The Company is obligated to pay as rent to the City a certain percentage
of "gross receipts" received annually by the Company and additional rent
based on the "net available cash" of the Company, as such terms are defined
in the agreement.
Rent expense charged to operations for the years ended January 31, 1997
and 1996 amounted to $396,789 and $594,002, respectively.
The Company is obligated to pay the City monthly, commencing August 1,
1986 and ending July 1, 2006, $93,200, which relates to the $9,500,000 of
funds provided the Company by the City and Community pursuant to the lease.
The Company has accounted for this obligation as a long-term liability
amortizable on a monthly basis over the 20-year period commencing August 1,
1986. The principal and interest (10.24%) on this liability are being
amortized monthly. At January 31, 1997 and 1996, the outstanding balances
amounted to $6,740,395 and $7,145,670, of which $35,676 and $405,275 is
current, respectively.
On March 7, 1997, the Company acquired a term loan, the proceeds of which
were used to retire the obligation described in the preceding paragraph (see
Note 10).
Employment Contracts
The Company has entered into employment contracts with certain key
employees which amount to $2,302,250 per year. These contracts are in effect
until the note payable to Sanwa Bank (See Note 7) of $4,000,000 is paid in
full or six years, whichever comes first. According to these agreements,
compensation and other benefits will cease if discharged with just cause,
death or disability, and resignation of employment. Benefits do not cease if
discharged without just cause.
Contingencies
The Company is involved in various legal and other matters arising in the
normal course of business. Based upon information available to management,
its review of these matters to date and consultation with counsel, management
believes that any liability relating to these matters, would not have a
material effect on the Company's financial position and results of
operations.
D-F-128
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. SUBSEQUENT EVENTS
Issuance of Long-Term Debt
On March 7, 1997, Shoreline Amphitheater Partners executed a term loan
agreement that provides for a $6,900,000 term loan. The proceeds of the new
loan were used to retire the City of Mountain View obligation described in
Note 8.
The term loan is payable monthly in principal installments plus interest
at a rate if LIBOR plus 2.1% through February 1, 2007, with the entire unpaid
principal balance due March 1, 2007. The loan is secured by a leasehold deed
of trust on the Amphitheater and is guaranteed by the Company. Maturities of
the loan are approximately as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ended January 31:
1998 ................. $ 121,540
1999 ................. 155,928
2000 ................. 168,874
2001 ................. 182,890
2002 ................. 198,066
Thereafter ........... 6,072,702
-----------
$6,900,000
===========
</TABLE>
The term loan agreement also provides for, among other things,
restrictions on the payment of distributions, repurchase of partnership
interests, maintenance of certain financial ratios, and limitation on capital
expenditures.
Major Service Agreement
On September 7, 1997 the Company entered into a ticket service agreement
with a local ticket service company (the "Service"). The contract is in
effect through June 30, 2004. The Service sells approximately 70% of the
tickets sold to the events promoted by the Company.
Acquisition of Companies by SFX Entertainment, Inc.
In December 1997, the stockholders of the Company executed an agreement
with SFX Entertainment, Inc. to sell the Companies for a total purchase price
of approximately $68.3 million, including the issuance of common stock valued
at $7.5 million. The Company has agreed to have net working capital, as
defined, at the closing at least equal to the Company's debt.
D-F-129
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Concert/Southern Promotions
We have audited the accompanying combined balance sheet of
Concert/Southern Promotions and Affiliated Companies as of September 30,
1997, and the related combined statements of operations, cash flows and
stockholders' equity for the nine months then ended. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Concert/Southern
Promotions and Affiliated Companies at September 30, 1997, and the combined
results of their operations and their cash flows for the nine months then
ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
November 14, 1997
D-F-130
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 645,630
Accounts receivable ................................ 564,128
Due from owner (Note 3) ............................ 566,986
Prepaid expenses and other current assets ......... 143,932
------------
Total current assets ................................ 1,920,676
Investment in unconsolidated subsidiaries (Note 2) . 919,419
Property and equipment:
Land ............................................... 15,888
Leasehold improvements ............................. 286,998
Furniture and equipment ............................ 498,553
------------
801,439
Accumulated depreciation and amortization ......... 441,223
------------
360,216
------------
Total assets ........................................ $3,200,311
============
LIABILITIES AND COMBINED STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued expenses ....... $ 880,814
Due to owner (Note 3) .............................. 373,481
------------
Total current liabilities ........................... 1,254,295
Combined stockholders' equity (Note 4) .............. 1,946,016
------------
Total liabilities and combined stockholders' equity $3,200,311
============
</TABLE>
See accompanying notes.
D-F-131
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C>
OPERATING REVENUES
Concert revenue .............................. $13,092,956
Cost of concerts ............................. 8,558,759
-------------
4,534,197
-------------
OPERATING EXPENSES
Salaries--officers ........................... 276,500
Bonus--officers .............................. 564,767
Salaries--other .............................. 294,321
Rent expense ................................. 202,645
Legal and accounting fees .................... 115,109
Depreciation and amortization ................ 57,410
General and administrative expenses ......... 984,818
Legal settlement ............................. 100,000
-------------
2,595,570
-------------
Income from operations ....................... 1,938,627
OTHER INCOME
Interest income .............................. 57,189
Equity loss from unconsolidated subsidiaries (11,378)
-------------
Net income ................................... $ 1,984,438
=============
</TABLE>
See accompanying notes.
D-F-132
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
COMBINED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net income ......................................................................... $ 1,984,438
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization .................................................... 57,410
Equity in loss from unconsolidated subsidiaries, including distributions received 21,000
Changes in operating assets and liabilities:
Accounts receivable ............................................................. 622,090
Prepaid expenses and other current assets ....................................... 76,808
Accounts payable and accrued expenses ........................................... 296,143
-------------
Net cash provided by operating activities .......................................... 3,057,889
FINANCING ACTIVITIES
Due to owner ....................................................................... (352,605)
Distributions paid ................................................................. (2,900,129)
-------------
Net cash used in financing activities .............................................. (3,252,734)
-------------
Net decrease in cash and cash equivalents .......................................... (194,845)
Cash and cash equivalents at beginning of period ................................... 840,475
-------------
Cash and cash equivalents at end of period ......................................... $ 645,630
=============
</TABLE>
See accompanying notes.
D-F-133
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C>
Balance, January 1, 1997 .... $ 2,861,707
Distributions to stockholder (2,900,129)
Net income ................... 1,984,438
-------------
Balance, September 30, 1997 . $ 1,946,016
=============
</TABLE>
See accompanying notes.
D-F-134
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of Combination
The accompanying combined financial statements include the accounts of
Southern Promotions, Inc., High Cotton, Inc., Buckhead Promotions, Inc.,
Northern Exposure, Inc., Pure Cotton, Inc., Cooley and Conlon Management,
Inc. ("CCMI") and Interfest, Inc. and their wholly-owned subsidiaries:
Concert/ Southern Chastain Promotions ("Concert/Southern"), Roxy Ventures,
Cotton Club and Midtown Music Festival (collectively, the "Companies").
Intercompany transactions and balances among these companies have been
eliminated in combination. The Companies are presented on a combined basis to
reflect common ownership by Alex Cooley, Peter Conlon and Stephen Selig III.
Concert/Southern is the predominant musical event promoter in the Atlanta,
Georgia region, and through Chastain Joint Ventures ("Chastain Ventures") is
the operator, pursuant to a long-term lease with the City of Atlanta, of the
Chastain Park Amphitheater. Chastain Ventures is owned equally by
Concert/Southern and the Atlanta Symphony Orchestra, and is accounted for by
Concert/Southern on the equity method. Buckhead Promotions and Northern
Exposure equally own Roxy Ventures which holds a long-term lease for the Roxy
Theatre, and Pure Cotton holds a long-term lease for the Cotton Club.
Interfest, Inc. promoted the three-day Midtown Music Festival held in
downtown Atlanta during 1997. In addition, High Cotton owns 15% of HC
Properties, Inc. a real estate investment company which is accounted for on
the equity method.
The Companies record revenue when earned. Concert revenue includes
ticketing, concession, and sponsorship revenue.
Property and Equipment
Land, leasehold improvements, and furniture and equipment are stated at
cost. Depreciation of furniture and equipment is provided primarily by the
straight-line method over the estimated useful lives of the respective
classes of assets. Leasehold improvements are amortized over the life of the
lease or of the improvement, whichever is shorter.
Income Taxes
The Companies have been organized as either partnerships or corporations
which have elected to be taxed as "S Corporations". The "S Corporation"
elections are effective for both federal and state tax purposes. Accordingly,
all items of income, loss, deduction or credit are reported by the partners
or shareholders on their respective personal income tax returns and,
therefore, no current or deferred federal or state taxes have been provided
in the accompanying combined financial statements.
The difference between the tax basis and the reported amounts of the
Companies' assets and liabilities was $12,820 at September 30, 1997.
Risks and Uncertainties
Accounts receivable are due from ticket vendors and venue box offices.
These amounts are typically collected within 20 days of a performance.
Management considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
D-F-135
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
The following is a summary of the financial position and results of
operations of the Companies' equity investees as of and for the period ended
September 30, 1997:
<TABLE>
<CAPTION>
HC
CHASTAIN PROPERTIES
------------- -------------
<S> <C> <C>
Current assets .......................... $ 561,405 $ 31,675
Property and equipment .................. 581,853 798,984
Other assets ............................ -- 409,626
------------- -------------
Total assets ............................ $1,143,258 $1,240,285
============= =============
Current liabilities ..................... $ 319,709 $ 1,532
Partners' capital ....................... 823,549 1,238,753
------------- -------------
Total liabilities and partners' capital $1,143,258 $1,240,285
============= =============
Revenue ................................. $ 569,133 $ 7,509
Expenses ................................ 500,112 117,196
------------- -------------
Net income (loss) ....................... $ 69,021 $ (109,687)
============= =============
</TABLE>
The equity income recognized by the Companies represents the appropriate
percentage of investment income less amount reported less intercompany income
eliminations.
3. RELATED PARTY TRANSACTIONS
Due from/to Owner
The Companies have an arrangement with Stephen Selig III whereby the cash
receipts of Concert/Southern, Buckhead Promotions and Roxy Ventures are
transferred to the Selig Enterprises, Inc. Master Cash Account (the "Master
Account"). All subsequent payments made by the Companies are funded by the
Master Account. Accordingly, the Companies' cash held by the Master Account
is recorded as due from owner.
Due to owner represents amounts advanced to High Cotton and Northern
Exposure by each respective owner and an amount which represents an
overfunding of cash from the Master Account. The advances are repaid out of
company assets when available. The balances at September 30, 1997 were
$62,189, $217,518, and $93,774, respectively. No interest is charged by the
owners on their advances.
Due from/to Unconsolidated Subsidiary
The Companies have a net receivable balance with Chastain Ventures
totaling $55,154 at September 30, 1997, which has been recorded with accounts
receivable and accounts payable.
D-F-136
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY
The Companies' stocks are as follows:
<TABLE>
<CAPTION>
SHARES SHARES PAR
AUTHORIZED ISSUED VALUE
------------ -------- -------
<S> <C> <C> <C>
Southern Promotions 1,000,000 5,000 $1
High Cotton ......... 10,000 550 1
Buckhead Promotions 1,000,000 500 1
Northern Exposure .. 1,000,000 1,000 1
Pure Cotton ......... 100,000 500 1
CCMI ................ 10,000 1,000 1
Interfest ........... 100,000 500 1
--------
9,050
========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Leases
The following is a schedule of future minimum rental payments under
operating leases (principally office and venue facilities) that have initial
or remaining lease terms in excess of one year as of September 30, 1997:
<TABLE>
<CAPTION>
<S> <C>
Year ended September 30:
1998.................... $ 222,539
1999 ................... 183,198
2000 ................... 188,991
2001 ................... 133,350
2002 ................... 136,350
Thereafter ............. 174,375
-----------
Total ................... $1,038,803
===========
</TABLE>
Certain office facilities have renewal and escalation clauses. Rental
expense was $202,645 for 1997.
Legal Matters
The Companies have been named in various lawsuits arising in the normal
course of business. It is not possible at this time to assess the probability
of any liability against the Companies as a result of these lawsuits.
Management has stated that all cases will be vigorously defended.
6. SUBSEQUENT EVENTS
In December 1997, the Companies' shareholders entered into an agreement to
sell all of the issued and outstanding shares of the Companies to SFX
Entertainment, Inc. ("SFX"). SFX will pay the sellers $15,000,000 in cash at
closing and an additional $2,000,000, payable, at the sellers option,
quarterly over the next five years or as a lump sum present value at closing.
In addition, SFX agreed with CCMI to finance a new 20,000 seat amphitheatre
(the "Amphitheatre") located in the city of Alpharetta, Georgia. SFX will
deposit $250,000 at the close for the purchase of the real estate in
Alpharetta, Georgia and will pay the sum of approximately $84,000 for costs
related to the Amphitheatre.
Prior to the sale of the Companies to SFX, the sole shareholder of High
Cotton will receive a distribution of High Cotton's interest in HC
Properties, LP.
D-F-137
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND SPIN-OFF
The following table sets forth the various expenses in connection with the
distribution of the securities being registered. All amounts shown are
estimates except for the SEC registration fee and the Nasdaq listing fee.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee...................... $ 30,778.00
Nasdaq National Market Listing Fees ..... 50,000.00
Transfer Agent and Registrar Fees ....... 20,000.00
Accounting Fees and Expenses ............. 500,000.00
Legal Fees and Expenses .................. 900,000.00
Printing, Engraving and Mailing Expenses 150,000.00
Miscellaneous............................. 49,222.00
---------------
Total .................................. $1,700,000.00
===============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL empowers a Delaware corporation to indemnify any
person who is, 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 the person is or was an officer
or director 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. The indemnity may include expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with the action, suit or
proceeding, provided that he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Where an officer or
director is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which he actually and reasonably incurred in connection therewith.
The SFX Entertainment Certificate provides that no director of SFX
Entertainment will be personally liable to SFX Entertainment or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability:
o for any breach of the director's duty of loyalty to SFX Entertainment
or its stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o under Section 174 of the DGCL; or
o for any transaction from which the director derived an improper
personal benefit.
In addition to the circumstances in which a director of SFX Entertainment is
not personally liable as set forth above, no director will be liable to SFX
Entertainment or its stockholders to such further extent as permitted by any
law enacted after the date of the SFX Entertainment Certificate, including
any amendment to the DGCL.
The SFX Entertainment Certificate requires SFX Entertainment to indemnify
any person who was, is, or is threatened to be made a party to any action,
suit or proceeding, by reason of the fact that he (a) is or was a director or
officer of SFX Entertainment or (b) is or was serving at the request of SFX
Entertainment as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise. This indemnification is to be to the fullest extent permitted by
the
II-1
<PAGE>
DGCL. The right to indemnification will be a contract right and, as such,
will run to the benefit of any director or officer who is elected and accepts
the position of director or officer of SFX Entertainment or elects to
continue to serve as a director or officer of SFX Entertainment while this
provision of the SFX Entertainment Certificate is in effect. The right to
indemnification includes the right to be paid by SFX Entertainment for
expenses incurred in defending any such action, suit or proceeding in advance
of its final disposition to the maximum extent permitted under the DGCL. If a
claim for indemnification or advancement of expenses is not paid in full by
SFX Entertainment within 60 days after a written claim has been received by
SFX Entertainment, the claimant may, at any time thereafter, bring suit
against SFX Entertainment to recover the unpaid amount of the claim and, if
successful in whole or in part, expenses of prosecuting his claim. It will be
a defense to any such action that the requested indemnification or
advancement of costs of defense are not permitted under the DGCL, but the
burden of proving this defense will be on SFX Entertainment. The rights
described above do not exclude any other right that any person may have or
acquire under any statute, by-law, resolution of stockholders or directors,
agreement or otherwise.
The by-laws of SFX Entertainment require SFX Entertainment to indemnify
its officers, directors, employees and agents to the full extent permitted by
the DGCL. The by-laws also require SFX Entertainment to pay expenses incurred
by a director in defending a civil or criminal action, suit or proceeding by
reason of the fact that he is/was a director (or was serving at SFX
Entertainment's request as a director or officer of another corporation) in
advance of the final disposition of the action, suit or proceeding, upon
receipt of an undertaking by or on behalf of the director to repay the
advance if it ultimately is determined that the director is not entitled to
be indemnified by SFX Entertainment as authorized by relevant sections of the
DGCL. The indemnification and advancement of expenses provided in the by-laws
are not to be deemed exclusive of any other rights provided by any agreement,
vote of stockholders or disinterested directors or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
<S> <C>
2.1 Form of Distribution Agreement between SFX Entertainment and SFX.
2.2* Form of Tax Sharing Agreement between SFX Entertainment and SFX.
2.3 Form of Employee Benefits Agreement between SFX Entertainment and SFX.
3.1* Certificate of Incorporation of SFX Entertainment.
3.2* Bylaws of SFX Entertainment.
3.3 Form of Amended and Restated Certificate of Incorporation of SFX Entertainment (incorporated
by reference to Annex E to Schedule 14A of SFX, filed with the SEC on or about February 13,
1998).
3.4* 1998 Stock Option and Restricted Stock Plan of SFX Entertainment.
3.5 Form of Indenture relating to the 9 1/8% Senior Subordinated Notes due 2008.
5.1* Opinion of Baker & McKenzie.
II-2
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
10.1* Stock Purchase Agreement, dated as of October 11, 1996, by and among Delsener/Slater
Enterprises, Ltd., Beach Concerts, Inc., Connecticut Concerts Incorporated, Broadway
Concerts, Inc., Ardee Productions, Ltd., In-House Tickets, Inc., Exit 116 Revisited, Inc.,
Ron Delsener, Mitch Slater and SFX Broadcasting, Inc.
10.2* License Agreement, dated January 29, 1990, by and between the State of New York and Beach
Concerts, Inc.
10.3* Amendment to License Agreement of January 29, 1990, dated as of April 11, 1997, by and
between the State of New York and Beach Concerts, Inc.
10.4* Lease Agreement, Easement Agreement and Declaration of Restrictive Covenants dated as of May
1, 1996, by and between New Jersey Highway Authority and GSAC Partners.
10.5* Partnership Agreement, dated as of November 18, 1996, by and between Pavilion Partners and
Exit 116 Revisited, Inc.
10.6* Asset Purchase and Sale Agreement, dated June 23, 1997, by and among Sunshine Concerts,
L.L.C., SFX Broadcasting, Inc., Sunshine Promotions, Inc., P. David Lucas and Steven P.
Sybesma.
10.7* Asset Purchase and Sale Agreement, dated as of June 23, 1997, by and among Suntex
Acquisition, L.P., SFX Broadcasting, Inc., Suntex, Inc., P. David Lucas, Steven P. Sybesma,
Greg Buttrey and John Valant.
10.8* Asset Purchase and Sale Agreement, dated as of June 23, 1997, by and among Deer Creek
Amphitheater Concerts, L.P., SFX Broadcasting, Inc., Deer Creek Partners, L.P., Sand Creek
Partners, L.P., Sand Creek, Inc., P. David Lucas and Steven P. Sybesma.
10.9* Asset Purchase and Sale Agreement, dated as of June 23, 1997, by and among Murat Centre
Concerts, L.P., SFX Broadcasting, Inc., Murat Centre L.P., P. David Lucas and Steven P.
Sybesma.
10.10* Asset Purchase and Sale Agreement, dated June 23, 1997, by and among Polaris Amphitheater
Concerts, Inc., SFX Broadcasting, Inc., Polaris Amphitheater Limited Partnership and certain
of the partners of Polaris Amphitheater Limited Partnership.
10.11* Asset Purchase and Sale Agreement, dated as of June 23, 1997, by and among Sunshine Design,
L.P., SFX Broadcasting, Inc., Tourdesign, Inc., P. David Lucas and Steven P. Sybesma.
10.12* Indenture of Lease, dated as of September 1, 1995, by and between Murat Temple Association,
Inc. and Murat Centre, L.P.
10.13* Agreement of Merger, dated as of February 12, 1997, by and among SFX Broadcasting, Inc., NOC
Acquisition Corp., Cadco Acquisition Corp., QN-Acquisition Corp., Nederlander of Connecticut,
Inc., Connecticut Amphitheater Development Corporation, QN Corp., Connecticut Performing
Arts, Inc., Connecticut Performing Arts Partners and the Stockholders of Nederlander of
Connecticut, Inc., Connecticut Amphitheater Development Corporation and QN Corp.
10.14* Agreement of Merger, dated as of February 14, 1997, by and among SFX Broadcasting, Inc., NOC
Acquisition Corp., Cadco Acquisition Corp., QN-Acquisition Corp., Nederlander of Connecticut,
Inc., Connecticut Amphitheater Development Corporation, QN Corp., Connecticut Performing
Arts, Inc., Connecticut Performing Arts Partners and the Stockholders of Nederlander of
Connecticut, Inc., Connecticut Amphitheater Development Corporation and QN Corp.
II-3
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
10.15* Second Amendment of Agreement of Merger, dated as of March 19, 1997, by and among SFX
Broadcasting, Inc., NOC Acquisition Corp., Cadco Acquisition Corp., QN-Acquisition Corp.,
Nederlander of Connecticut, Inc., Connecticut Amphitheater Development Corporation, QN Corp.,
Connecticut Performing Arts, Inc., Connecticut Performing Arts Partners and the Stockholders
of Nederlander of Connecticut, Inc., Connecticut Amphitheater Development Corporation and QN
Corp.
10.16* Lease Agreement, dated as of September 14, 1994, by and between The City of Hartford and
Connecticut Performing Arts Partners.
10.17* Agreement and Plan of Merger and Asset Purchase Agreement, dated as of December 10, 1997, by
and among SFX Entertainment, Inc., Contemporary Investments Corporation, Contemporary
Investments of Kansas, Inc., Continental Entertainment Associates, Inc., Capital Tickets, LP,
Dialtix, Inc., Contemporary International Productions Corporation, Steven F. Schankman Living
Trust, dated 10/22/82, Irving P. Zuckerman Living Trust, dated 11/24/81, Steven F. Schankman
and Irving P. Zuckerman.
10.18* Lease Agreement, dated December 13, 1992, by and between Wyandotte County, Kansas and
Wyandotte County Parks Board and Sandstone Amphitheater Joint Venture.
10.19* Stock Purchase Agreement, dated as of December 11, 1997, among each of the shareholders of
BGP Presents, Inc. and BGP Acquisitions, LLC.
10.20* Amphitheater Lease and Agreement, dated June 20, 1986, between the City of Mountain View, the
Mountain View Shoreline Regional Park Community and Shoreline Amphitheater Partners.
10.21* Stock and Asset Purchase Agreement, dated December 2, 1997, between and among SFX Network
Group, L.L.C. and SFX Entertainment, Inc., and Elias N. Bird, individually and as Trustee
under the Bird Family Trust u/d/o 11/18/92, Gary F. Bird, individually and as Trustee under
the Gary F. Bird Corporation Trust u/d/o 2/4/94, Stephen R. Smith, individually and as
Trustee under the Smith Family Trust u/d/o 7/17/89, June E. Brody, Steven A. Saslow and The
Network 40, Inc.
10.22* Purchase and Sale Agreement, dated as of December 15, 1997, by and among Alex Cooley, S.
Stephen Selig, III, Peter Conlon, Southern Promotions, Inc., High Cotton, Inc., Cooley and
Conlon Management, Inc., Buckhead Promotions, Inc., Northern Exposure, Inc., Pure Cotton,
Inc., Interfest, Inc., Concert/Southern Chastain Promotions Joint Venture, Roxy Ventures
Joint Venture and SFX Concerts, Inc.
10.23* Stock Purchase Agreement, dated as of December 12, 1997 by and between Pace Entertainment
Corporation and SFX Entertainment, Inc.
10.24 Agreement and Plan of Merger, dated as of August 24, 1997, as amended on February 9, 1998,
among SFX Buyer, SFX Buyer Sub and SFX (composite version) (incorporated by reference to
Annex A to Schedule 14A of SFX, filed with the SEC on or about February 13, 1998).
10.25 Form of Registration Rights Agreement, relating to the Notes.
10.26* Non-Negotiable Promissory Note, dated as of June 23, 1997, between SFX (as maker) and
Sunshine Promotions, Inc. (as payee).
10.27* Partnership Agreement, dated as of April 1, 1994, by and among SM/PACE, Inc., YM Corp., The
Westside Amphitheater Corporation, Charlotte Amphitheater Corporation and Amphitheater
Entertainment Partnership.
II-4
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
10.28* Purchase Agreement, dated as of December 19, 1997, by and among SM/PACE, Inc., PACE
Entertainment Corporation, Charlotte Amphitheater Corporation, The Westside Amphitheater
Corporation and Viacom Inc.
10.29* Letter Purchase Agreement, dated as of December 22, 1997, by and among SM/PACE, Inc., YM
Corp. and PACE Entertainment Corporation.
10.30* Extended Events Management Agreement, dated as of November 21, 1994, by and between The
Woodlands Center for the Performing Arts and Pavilion Partners.
10.31* Operator Lease Agreement, dated as of September 26, 1989, by and between the City of Phoenix
and The Westside Amphitheatre Corp.
10.32* Addendum to Operator Lease Agreement, dated as of September 26, 1989, by and between the City
of Phoenix and Pavilion Partners.
10.33* Memorandum of Lease, dated as of April 1, 1994, by and between the City of Phoenix and
Pavilion Partners.
10.34* Lease Agreement, dated as of February 9, 1994, by and between New Jersey Development
Authority and Sony Music/Pace Partnership.
10.35* First Amendment to Lease Agreement, dated as of March 11, 1994, by and between New Jersey
Economic Development and Sony Music/Pace Partnership.
10.36* Second Amendment to Lease Agreement, dated as of June 7, 1994, by and between New Jersey
Economic Development Authority and Pavilion Partners.
10.37* Third Amendment to Lease Agreement, dated as of March 15, 1995, by and between New Jersey
Economic Development Authority and Pavilion Partners.
10.38* Fourth Amendment to Lease Agreement, dated as of March 11, 1997, by and between the New
Jersey Economic Development Authority and Pavilion Partners.
10.39* Three Way Agreement, dated as of April 28, 1995, by and between New Jersey Economic
Development Authority, South Jersey Performing Arts Center, Inc. and Pavilion Partners.
10.40* Lease Agreement, dated as of December 1, 1989, between Crossroads Properties, Incorporated
and Pace Entertainment Group, Inc.
10.41* Assignment of Ground Lease, dated as of April 6, 1990, by and between Pace Entertainment
Group, Inc. and YM/Pace Partnership.
10.42* Partnership Agreement, dated as of July 1, 1991, by and between SM/PACE Partnership and CDC
Amphitheaters/I, Inc.
10.43* First Amendment to Partnership Agreement, dated as of January 31, 1992, by and between
SM/PACE Partnership and CDC Amphitheaters/I, Inc.
10.44* Lease Agreement, dated as of December 1, 1990, by and between the City of Raleigh, North
Carolina and Sony Music/Pace Partnership.
10.45* Amendment to Lease Agreement, dated as of November 15, 1995, by and between Walnut Creek
Amphitheater Partnership and City of Raleigh, North Carolina.
10.46* Mutual Recognition Agreement, dated as of December 1, 1990, by and among Walnut Creek
Amphitheater Financing Assistance Corporation, First Union National Bank of North Carolina,
City of Raleigh, North Carolina and Sony Music/Pace Partnership.
II-5
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
10.47* Mutual Recognition Agreement, dated as of December 1, 1990, by and among Walnut Creek
Amphitheater Financing Assistance Corporation, First Union National Bank of North Carolina,
City of Raleigh, North Carolina and Sony Music/Pace Partnership.
10.48* Partnership Agreement, dated as of February 28, 1986, by and between Belz Investment Company,
Inc., Martin S. Belz and Pace Productions, Inc.
10.49* First Amendment to Partnership Agreement, dated as of June 15, 1986, by and among Belz
Investment Company, Martin S. Belz, Belz-Starwood, Inc. and Pace Productions, Inc.
10.50* Partnership Agreement, dated as of May 15, 1996, by and between Pavilion Partners and
CDC/SMT, Inc.
10.51* Lease Agreement, Easement Agreement and Declaration of Restrictive Covenants, dated as of
January 4, 1995, by and between South Florida Fair and Pam Beach County Expositions, Inc. and
Pavilion Partners.
10.52* First Amendment to Lease Agreement, dated as of June 5, 1995, by and between South Florida
Fair and Pam Beach County Expositions, Inc. and Pavilion Partners.
10.53* Partnership Agreement, dated as of April 4, 1997, by and between Pavilion Partners and Irvine
Meadows Amphitheater.
10.54* Amended and Restated Agreement, dated as of October 1, 1991, by and between The Irvine
Company and Irvine Meadows.
10.55* Concession Lease, dated as of October 19, 1992, by and between the County of San Bernardino
and Amphitheater Entertainment Corporation.
10.56* Partnership Formation Agreement, dated as of January 22, 1988, by and among MCA Concerts II,
Inc. and Pace Entertainment Group, Inc.
10.57* Lease and Use Agreement, dated as of December 9, 1987, by and between City of Dallas and Pace
Entertainment Group, Inc.
10.58* Agreement, dated as of October 10, 1988, by and between the City of Atlanta and MCA Concerts,
Inc.
10.59* Amended Indenture of Lease, February 2, 1984, by and between the City of Atlanta and
Filmworks U.S.A., Inc.
10.60* Amendment to Lease Agreement, dated as of October 10, 1988, between the City of Atlanta,
Georgia and Filmworks U.S.A., Inc.
10.61* Agreement Regarding Sublease, dated as of January 20, 1988, by and between Filmworks U.S.A.,
Inc. and MCA Concerts, Inc.
10.62* First Amendment to Sublease, dated as of January 21, 1988, between Filmworks U.S.A., Inc. and
MCA Concerts, Inc.
10.63* Second Amendment to Sublease, dated as of April 19, 1988, between Filmworks U.S.A., Inc. and
MCA Concerts, Inc.
10.64* Third Amendment to Sublease, dated as of September 15, 1988, between Filmworks U.S.A., Inc.
and MCA Concerts, Inc.
10.65* Memorandum of Agreement, dated as of October 10, 1988, by and between the City of Atlanta and
MCA Concerts, Inc.
II-6
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
10.66* Assignment of Sublease, dated as of June 15, 1989, by Filmworks U.S.A., Inc. and MCA
Concerts, Inc.
10.67* Assignment of Sublease, dated as of June 23, 1989, by Filmworks U.S.A., Inc. and MCA
Concerts, Inc.
10.68* Assignment of Agreement, dated as of June 15, 1989, by the City of Atlanta and MCA Concerts,
Inc.
10.69* Assignment of Agreement, dated as of June 23, 1989, by the City of Atlanta and MCA Concerts,
Inc.
10.70* Lease, dated as of June, 1997, by and between 500 Texas Avenue Limited Partnership and Bayou
Place Performance Hall General Partnership.
10.71* Master Licensed User Agreement, dated as of February 1, 1996, by and between Ticketmaster
Ticketing Co., Inc. and Pace Entertainment Corporation.
10.72* Joint Venture Agreement, dated as of July, 1995 by and between American Broadway, Inc. and
Gentry & Associates, Inc.
10.73* Amended and Restated Employment Agreement, dated as of December 12, 1997, by and between SFX
Entertainment, Inc. and Brian E. Becker.
10.74* Second Amended and Restated Partnership Agreement, dated as of April 1, 1994 by and between
The Westside Amphitheatre Corporation, San Bernardino Amphitheater Corporation and YM Corp.
10.75* Employment Agreement, dated as of January 2, 1997, between Delsener/Slater Enterprises, Inc.,
SFX Broadcasting, Inc. and Ron Delsener.
10.76* Employment Agreement, dated as of January 2, 1997, between Delsener/Slater Enterprises, Inc.,
SFX Broadcasting, Inc. and Mitch Slater.
10.77* Bank Commitment Letter, dated January 15, 1998, among the Bank of New York, BNY Capital
Markets, Inc., Lehman Commercial Paper, Inc., Goldman Sachs Credit Partners L.P. and SFX
Entertainment, Inc.
10.78* Summary of Principal Terms and Conditions of Credit Facility, dated January 15, 1998.
21.1* Subsidiaries of SFX Entertainment.
23.1* Consent of Baker & McKenzie (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Price Waterhouse LLP.
23.5* Consent of Brian Becker.
24.1* Power of Attorney.
27.1* Financial Data Schedule.
99.1 Opinion of Lehman Brothers (incorporated by reference to Annex B to Schedule 14A of SFX,
filed with the SEC on or about February 13, 1998).
</TABLE>
- ------------
* Previously filed.
II-7
<PAGE>
(b) Financial Schedules.
None.
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes:
(a) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(2) Insofar as indemnification for liabilities arising under the
Securities 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
Commission such indemnification is against public policy as expressed
in the Securities 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 Securities Act and will be governed by the final
adjudication of such issue.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the
City of New York, State of New York, on February 11, 1998.
SFX Entertainment, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel
Secretary
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the registration statement has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- ------------------------------------------------ -------------------
<S> <C> <C>
* Executive Chairman, Member of the Office of the February 11, 1998
------------------------- Chairman and Director
Robert F.X. Sillerman (principal executive officer)
* President, Chief Executive Officer, Member of February 11, 1998
------------------------- the Office of the Chairman and Director
Michael G. Ferrel
* Executive Vice President and Director February 11, 1998
-------------------------
D. Geoffrey Armstrong
* Chief Financial Officer, Vice President and February 11, 1998
------------------------- Director
Thomas P. Benson (principal financial and accounting officer)
/s/ Howard J. Tytel Executive Vice President, General Counsel, February 11, 1998
------------------------- Secretary and Director
Howard J. Tytel
* Vice President, Assistant General Counsel and February 11, 1998
------------------------- Director
Richard A. Liese
* Director February 11, 1998
-------------------------
James F. O'Grady, Jr.
* Director February 11, 1998
-------------------------
Paul Kramer
* Director February 11, 1998
-------------------------
Edward F. Dugan
*By: /s/ Howard J. Tytel
---------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
<S> <C>
2.1 Form of Distribution Agreement between SFX Entertainment and SFX.
2.2* Form of Tax Sharing Agreement between SFX Entertainment and SFX.
2.3 Form of Employee Benefits Agreement between SFX Entertainment and SFX.
3.1* Certificate of Incorporation of SFX Entertainment.
3.2* Bylaws of SFX Entertainment.
3.3 Form of Amended and Restated Certificate of Incorporation of SFX Entertainment (incorporated
by reference to Annex E to Schedule 14A of SFX, filed with the SEC on or about February 13,
1998).
3.4* 1998 Stock Option and Restricted Stock Plan of SFX Entertainment.
3.5 Form of Indenture relating to the 9 1/8% Senior Subordinated Notes due 2008.
5.1* Opinion of Baker & McKenzie.
10.1* Stock Purchase Agreement, dated as of October 11, 1996, by and among Delsener/Slater
Enterprises, Ltd., Beach Concerts, Inc., Connecticut Concerts Incorporated, Broadway
Concerts, Inc., Ardee Productions, Ltd., In-House Tickets, Inc., Exit 116 Revisited, Inc.,
Ron Delsener, Mitch Slater and SFX Broadcasting, Inc.
10.2* License Agreement, dated January 29, 1990, by and between the State of New York and Beach
Concerts, Inc.
10.3* Amendment to License Agreement of January 29, 1990, dated as of April 11, 1997, by and
between the State of New York and Beach Concerts, Inc.
10.4* Lease Agreement, Easement Agreement and Declaration of Restrictive Covenants dated as of May
1, 1996, by and between New Jersey Highway Authority and GSAC Partners.
10.5* Partnership Agreement, dated as of November 18, 1996, by and between Pavilion Partners and
Exit 116 Revisited, Inc.
10.6* Asset Purchase and Sale Agreement, dated June 23, 1997, by and among Sunshine Concerts,
L.L.C., SFX Broadcasting, Inc., Sunshine Promotions, Inc., P. David Lucas and Steven P.
Sybesma.
10.7* Asset Purchase and Sale Agreement, dated as of June 23, 1997, by and among Suntex
Acquisition, L.P., SFX Broadcasting, Inc., Suntex, Inc., P. David Lucas, Steven P. Sybesma,
Greg Buttrey and John Valant.
10.8* Asset Purchase and Sale Agreement, dated as of June 23, 1997, by and among Deer Creek
Amphitheater Concerts, L.P., SFX Broadcasting, Inc., Deer Creek Partners, L.P., Sand Creek
Partners, L.P., Sand Creek, Inc., P. David Lucas and Steven P. Sybesma.
10.9* Asset Purchase and Sale Agreement, dated as of June 23, 1997, by and among Murat Centre
Concerts, L.P., SFX Broadcasting, Inc., Murat Centre L.P., P. David Lucas and Steven P.
Sybesma.
10.10* Asset Purchase and Sale Agreement, dated June 23, 1997, by and among Polaris Amphitheater
Concerts, Inc., SFX Broadcasting, Inc., Polaris Amphitheater Limited Partnership and certain
of the partners of Polaris Amphitheater Limited Partnership.
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
10.11* Asset Purchase and Sale Agreement, dated as of June 23, 1997, by and among Sunshine Design,
L.P., SFX Broadcasting, Inc., Tourdesign, Inc., P. David Lucas and Steven P. Sybesma.
10.12* Indenture of Lease, dated as of September 1, 1995, by and between Murat Temple Association,
Inc. and Murat Centre, L.P.
10.13* Agreement of Merger, dated as of February 12, 1997, by and among SFX Broadcasting, Inc., NOC
Acquisition Corp., Cadco Acquisition Corp., QN-Acquisition Corp., Nederlander of Connecticut,
Inc., Connecticut Amphitheater Development Corporation, QN Corp., Connecticut Performing
Arts, Inc., Connecticut Performing Arts Partners and the Stockholders of Nederlander of
Connecticut, Inc., Connecticut Amphitheater Development Corporation and QN Corp.
10.14* Agreement of Merger, dated as of February 14, 1997, by and among SFX Broadcasting, Inc., NOC
Acquisition Corp., Cadco Acquisition Corp., QN-Acquisition Corp., Nederlander of Connecticut,
Inc., Connecticut Amphitheater Development Corporation, QN Corp., Connecticut Performing
Arts, Inc., Connecticut Performing Arts Partners and the Stockholders of Nederlander of
Connecticut, Inc., Connecticut Amphitheater Development Corporation and QN Corp.
10.15* Second Amendment of Agreement of Merger, dated as of March 19, 1997, by and among SFX
Broadcasting, Inc., NOC Acquisition Corp., Cadco Acquisition Corp., QN-Acquisition Corp.,
Nederlander of Connecticut, Inc., Connecticut Amphitheater Development Corporation, QN Corp.,
Connecticut Performing Arts, Inc., Connecticut Performing Arts Partners and the Stockholders
of Nederlander of Connecticut, Inc., Connecticut Amphitheater Development Corporation and QN
Corp.
10.16* Lease Agreement, dated as of September 14, 1994, by and between The City of Hartford and
Connecticut Performing Arts Partners.
10.17* Agreement and Plan of Merger and Asset Purchase Agreement, dated as of December 10, 1997, by
and among SFX Entertainment, Inc., Contemporary Investments Corporation, Contemporary
Investments of Kansas, Inc., Continental Entertainment Associates, Inc., Capital Tickets, LP,
Dialtix, Inc., Contemporary International Productions Corporation, Steven F. Schankman Living
Trust, dated 10/22/82, Irving P. Zuckerman Living Trust, dated 11/24/81, Steven F. Schankman
and Irving P. Zuckerman.
10.18* Lease Agreement, dated December 13, 1992, by and between Wyandotte County, Kansas and
Wyandotte County Parks Board and Sandstone Amphitheater Joint Venture.
10.19* Stock Purchase Agreement, dated as of December 11, 1997, among each of the shareholders of
BGP Presents, Inc. and BGP Acquisitions, LLC.
10.20* Amphitheater Lease and Agreement, dated June 20, 1986, between the City of Mountain View, the
Mountain View Shoreline Regional Park Community and Shoreline Amphitheater Partners.
10.21* Stock and Asset Purchase Agreement, dated December 2, 1997, between and among SFX Network
Group, L.L.C. and SFX Entertainment, Inc., and Elias N. Bird, individually and as Trustee
under the Bird Family Trust u/d/o 11/18/92, Gary F. Bird, individually and as Trustee under
the Gary F. Bird Corporation Trust u/d/o 2/4/94, Stephen R. Smith, individually and as
Trustee under the Smith Family Trust u/d/o 7/17/89, June E. Brody, Steven A. Saslow and The
Network 40, Inc.
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
10.22* Purchase and Sale Agreement, dated as of December 15, 1997, by and among Alex Cooley, S.
Stephen Selig, III, Peter Conlon, Southern Promotions, Inc., High Cotton, Inc., Cooley and
Conlon Management, Inc., Buckhead Promotions, Inc., Northern Exposure, Inc., Pure Cotton,
Inc., Interfest, Inc., Concert/Southern Chastain Promotions Joint Venture, Roxy Ventures
Joint Venture and SFX Concerts, Inc.
10.23* Stock Purchase Agreement, dated as of December 12, 1997 by and between Pace Entertainment
Corporation and SFX Entertainment, Inc.
10.24 Agreement and Plan of Merger, dated as of August 24, 1997, as amended on February 9, 1998,
among SFX Buyer, SFX Buyer Sub and SFX (composite version) (incorporated by reference to
Annex A to Schedule 14A of SFX, filed with the SEC on or about February 13, 1998).
10.25 Form of Registration Rights Agreement, relating to the Notes.
10.26* Non-Negotiable Promissory Note, dated as of June 23, 1997, between SFX (as maker) and
Sunshine Promotions, Inc. (as payee).
10.27* Partnership Agreement, dated as of April 1, 1994, by and among SM/PACE, Inc., YM Corp., The
Westside Amphitheater Corporation, Charlotte Amphitheater Corporation and Amphitheater
Entertainment Partnership.
10.28* Purchase Agreement, dated as of December 19, 1997, by and among SM/PACE, Inc., PACE
Entertainment Corporation, Charlotte Amphitheater Corporation, The Westside Amphitheater
Corporation and Viacom Inc.
10.29* Letter Purchase Agreement, dated as of December 22, 1997, by and among SM/PACE, Inc., YM
Corp. and PACE Entertainment Corporation.
10.30* Extended Events Management Agreement, dated as of November 21, 1994, by and between The
Woodlands Center for the Performing Arts and Pavilion Partners.
10.31* Operator Lease Agreement, dated as of September 26, 1989, by and between the City of Phoenix
and The Westside Amphitheatre Corp.
10.32* Addendum to Operator Lease Agreement, dated as of September 26, 1989, by and between the City
of Phoenix and Pavilion Partners.
10.33* Memorandum of Lease, dated as of April 1, 1994, by and between the City of Phoenix and
Pavilion Partners.
10.34* Lease Agreement, dated as of February 9, 1994, by and between New Jersey Development
Authority and Sony Music/Pace Partnership.
10.35* First Amendment to Lease Agreement, dated as of March 11, 1994, by and between New Jersey
Economic Development and Sony Music/Pace Partnership.
10.36* Second Amendment to Lease Agreement, dated as of June 7, 1994, by and between New Jersey
Economic Development Authority and Pavilion Partners.
10.37* Third Amendment to Lease Agreement, dated as of March 15, 1995, by and between New Jersey
Economic Development Authority and Pavilion Partners.
10.38* Fourth Amendment to Lease Agreement, dated as of March 11, 1997, by and between the New
Jersey Economic Development Authority and Pavilion Partners.
10.39* Three Way Agreement, dated as of April 28, 1995, by and between New Jersey Economic
Development Authority, South Jersey Performing Arts Center, Inc. and Pavilion Partners.
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
10.40* Lease Agreement, dated as of December 1, 1989, between Crossroads Properties, Incorporated
and Pace Entertainment Group, Inc.
10.41* Assignment of Ground Lease, dated as of April 6, 1990, by and between Pace Entertainment
Group, Inc. and YM/Pace Partnership.
10.42* Partnership Agreement, dated as of July 1, 1991, by and between SM/PACE Partnership and CDC
Amphitheaters/I, Inc.
10.43* First Amendment to Partnership Agreement, dated as of January 31, 1992, by and between
SM/PACE Partnership and CDC Amphitheaters/I, Inc.
10.44* Lease Agreement, dated as of December 1, 1990, by and between the City of Raleigh, North
Carolina and Sony Music/Pace Partnership.
10.45* Amendment to Lease Agreement, dated as of November 15, 1995, by and between Walnut Creek
Amphitheater Partnership and City of Raleigh, North Carolina.
10.46* Mutual Recognition Agreement, dated as of December 1, 1990, by and among Walnut Creek
Amphitheater Financing Assistance Corporation, First Union National Bank of North Carolina,
City of Raleigh, North Carolina and Sony Music/Pace Partnership.
10.47* Mutual Recognition Agreement, dated as of December 1, 1990, by and among Walnut Creek
Amphitheater Financing Assistance Corporation, First Union National Bank of North Carolina,
City of Raleigh, North Carolina and Sony Music/Pace Partnership.
10.48* Partnership Agreement, dated as of February 28, 1986, by and between Belz Investment Company,
Inc., Martin S. Belz and Pace Productions, Inc.
10.49* First Amendment to Partnership Agreement, dated as of June 15, 1986, by and among Belz
Investment Company, Martin S. Belz, Belz-Starwood, Inc. and Pace Productions, Inc.
10.50* Partnership Agreement, dated as of May 15, 1996, by and between Pavilion Partners and
CDC/SMT, Inc.
10.51* Lease Agreement, Easement Agreement and Declaration of Restrictive Covenants, dated as of
January 4, 1995, by and between South Florida Fair and Pam Beach County Expositions, Inc. and
Pavilion Partners.
10.52* First Amendment to Lease Agreement, dated as of June 5, 1995, by and between South Florida
Fair and Pam Beach County Expositions, Inc. and Pavilion Partners.
10.53* Partnership Agreement, dated as of April 4, 1997, by and between Pavilion Partners and Irvine
Meadows Amphitheater.
10.54* Amended and Restated Agreement, dated as of October 1, 1991, by and between The Irvine
Company and Irvine Meadows.
10.55* Concession Lease, dated as of October 19, 1992, by and between the County of San Bernardino
and Amphitheater Entertainment Corporation.
10.56* Partnership Formation Agreement, dated as of January 22, 1988, by and among MCA Concerts II,
Inc. and Pace Entertainment Group, Inc.
10.57* Lease and Use Agreement, dated as of December 9, 1987, by and between City of Dallas and Pace
Entertainment Group, Inc.
10.58* Agreement, dated as of October 10, 1988, by and between the City of Atlanta and MCA Concerts,
Inc.
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
10.59* Amended Indenture of Lease, February 2, 1984, by and between the City of Atlanta and
Filmworks U.S.A., Inc.
10.60* Amendment to Lease Agreement, dated as of October 10, 1988, between the City of Atlanta,
Georgia and Filmworks U.S.A., Inc.
10.61* Agreement Regarding Sublease, dated as of January 20, 1988, by and between Filmworks U.S.A.,
Inc. and MCA Concerts, Inc.
10.62* First Amendment to Sublease, dated as of January 21, 1988, between Filmworks U.S.A., Inc. and
MCA Concerts, Inc.
10.63* Second Amendment to Sublease, dated as of April 19, 1988, between Filmworks U.S.A., Inc. and
MCA Concerts, Inc.
10.64* Third Amendment to Sublease, dated as of September 15, 1988, between Filmworks U.S.A., Inc.
and MCA Concerts, Inc.
10.65* Memorandum of Agreement, dated as of October 10, 1988, by and between the City of Atlanta and
MCA Concerts, Inc.
10.66* Assignment of Sublease, dated as of June 15, 1989, by Filmworks U.S.A., Inc. and MCA
Concerts, Inc.
10.67* Assignment of Sublease, dated as of June 23, 1989, by Filmworks U.S.A., Inc. and MCA
Concerts, Inc.
10.68* Assignment of Agreement, dated as of June 15, 1989, by the City of Atlanta and MCA Concerts,
Inc.
10.69* Assignment of Agreement, dated as of June 23, 1989, by the City of Atlanta and MCA Concerts,
Inc.
10.70* Lease, dated as of June, 1997, by and between 500 Texas Avenue Limited Partnership and Bayou
Place Performance Hall General Partnership.
10.71* Master Licensed User Agreement, dated as of February 1, 1996, by and between Ticketmaster
Ticketing Co., Inc. and Pace Entertainment Corporation.
10.72* Joint Venture Agreement, dated as of July, 1995 by and between American Broadway, Inc. and
Gentry & Associates, Inc.
10.73* Amended and Restated Employment Agreement, dated as of December 12, 1997, by and between SFX
Entertainment, Inc. and Brian E. Becker.
10.74* Second Amended and Restated Partnership Agreement, dated as of April 1, 1994 by and between
The Westside Amphitheatre Corporation, San Bernardino Amphitheater Corporation and YM Corp.
10.75* Employment Agreement, dated as of January 2, 1997, between Delsener/Slater Enterprises, Inc.,
SFX Broadcasting, Inc. and Ron Delsener.
10.76* Employment Agreement, dated as of January 2, 1997, between Delsener/Slater Enterprises, Inc.,
SFX Broadcasting, Inc. and Mitch Slater.
10.77* Bank Commitment Letter, dated January 15, 1998, among the Bank of New York, BNY Capital
Markets, Inc., Lehman Commercial Paper, Inc., Goldman Sachs Credit Partners L.P. and SFX
Entertainment, Inc.
10.78* Summary of Principal Terms and Conditions of Credit Facility, dated January 15, 1998.
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
21.1* Subsidiaries of SFX Entertainment.
23.1* Consent of Baker & McKenzie (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Price Waterhouse LLP.
23.5* Consent of Brian Becker.
24.1* Power of Attorney.
27.1* Financial Data Schedule.
99.1 Opinion of Lehman Brothers (incorporated by reference to Annex B to Schedule 14A of SFX,
filed with the SEC on or about February 13, 1998).
</TABLE>
- ------------
* Previously filed.
<PAGE>
DISTRIBUTION AGREEMENT
DATED AS OF , 1998
AMONG
SFX BROADCASTING, INC.,
SFX ENTERTAINMENT, INC.
AND
SBI HOLDING CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ARTICLE I
DEFINITIONS ........................................... F-2
SECTION 1.1 General.................................... F-2
ARTICLE II
REORGANIZATION AND RELATED TRANSACTIONS ............... F-3
SECTION 2.1 The Reorganization......................... F-3
SECTION 2.2 Working Capital Adjustment................. F-4
SECTION 2.3 SFX Approval............................... F-7
ARTICLE III
ASSUMPTION AND RETENTION OF LIABILITIES ............... F-7
SECTION 3.1 Assumed Liabilities........................ F-7
SECTION 3.2 Retained Liabilities....................... F-7
SECTION 3.3 Construction of Agreements................. F-7
ARTICLE IV
THE DISTRIBUTION ...................................... F-7
SECTION 4.1 The Distribution........................... F-7
SECTION 4.2 Fractional Shares.......................... F-8
SECTION 4.3 SFX Employees.............................. F-8
SECTION 4.4 SFX Board Action........................... F-8
SECTION 4.5 Registration and Listing; SEC Filings ..... F-9
SECTION 4.6 Third Party Consents....................... F-9
SECTION 4.7 Waivers.................................... F-9
SECTION 4.8 Termination of Merger Agreement. .......... F-9
ARTICLE V
SURVIVAL; MUTUAL RELEASE AND INDEMNIFICATION ......... F-10
SECTION 5.1 Survival and Indemnification............... F-10
SECTION 5.2 Mutual Release, Etc. ...................... F-10
SECTION 5.3 Indemnification............................ F-11
SECTION 5.4 Procedure for Indemnification.............. F-11
ARTICLE VI
TAX MATTERS ........................................... F-
SECTION 6.1 Prior Tax Sharing Agreements............... F-
SECTION 6.2 Tax Sharing Agreement...................... F-12
ARTICLE VII
CERTAIN ADDITIONAL MATTERS ............................ F-13
SECTION 7.1 Conveyancing and Assumption Instruments ... F-13
SECTION 7.2 No Representations or Warranties .......... F-13
SECTION 7.3 Further Assurances; Subsequent Transfers .. F-13
SECTION 7.4 Entertainment Board........................ F-14
F-1
<PAGE>
PAGE
---------
SECTION 7.5 Resignations............................... F-
SECTION 7.6 Sales and Transfer Taxes................... F-
SECTION 7.7 Change of Name............................. F-14
ARTICLE VIII
ACCESS TO INFORMATION AND SERVICES .................... F-14
SECTION 8.1 Provision of Corporate Records............. F-14
SECTION 8.2 Access to Information...................... F-14
SECTION 8.3 Retention of Records....................... F-14
SECTION 8.4 Confidentiality............................ F-14
SECTION 8.5 Privileged Matters......................... F-15
ARTICLE IX
INSURANCE ............................................. F-15
SECTION 9.1 General.................................... F-15
SECTION 9.2 Certain Insured Claims..................... F-15
ARTICLE X
CONDITIONS ............................................ F-16
SECTION 10.1 Conditions................................ F-16
ARTICLE XI
MEDIATION ............................................. F-16
SECTION 11.1 Mediation and Binding Arbitration ........ F-16
SECTION 11.2 Initiation................................ F-17
SECTION 11.3 Submission to Mediation................... F-17
SECTION 11.4 Selection of Mediator..................... F-17
SECTION 11.5 Mediation................................. F-17
SECTION 11.6 Selection of Arbitrator................... F-17
SECTION 11.7 Cost of Arbitration....................... F-17
ARTICLE XII
MISCELLANEOUS ......................................... F-17
SECTION 12.1 Complete Agreement........................ F-17
SECTION 12.2 Governing Law............................. F-17
SECTION 12.3 Notices................................... F-17
SECTION 12.4 Amendment and Modification................ F-18
SECTION 12.5 Termination............................... F-18
SECTION 12.6 Successor and Assigns..................... F-18
SECTION 12.7 No Third Party Beneficiaries.............. F-18
SECTION 12.8 Counterparts.............................. F-19
SECTION 12.9 Interpretation............................ F-19
SECTION 12.10 Annexes, Etc. ........................... F-19
SECTION 12.11 Legal Enforceability..................... F-19
Annex I Assumed Liabilities.......................... I-1
Annex II Transferred Assets........................... II-1
</TABLE>
F-2
<PAGE>
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, dated as of , 1997, by and between
SFX Broadcasting, Inc., a Delaware corporation ("SFX"), and SFX
Entertainment, Inc., a Delaware corporation and a wholly-owned subsidiary of
SFX ("Entertainment"). Capitalized terms used and not defined herein have the
respective meanings ascribed them in the Merger Agreement. Unless the context
requires otherwise, "SFX" refers to SFX and its subsidiaries (other than
Entertainment and its subsidiaries) and "Entertainment" refers to
Entertainment and its subsidiaries.
WHEREAS, SFX has entered into that Agreement and Plan of Merger dated as
of August 24, 1997, among SBI Holding Corporation, a Delaware corporation
("Parent"), SBI Radio Acquisition Corporation, a Delaware corporation and a
wholly owned subsidiary of Parent ("Sub"), and SFX pursuant to which SFX will
become a wholly-owned subsidiary of Parent (the "Merger Agreement");
WHEREAS, Entertainment has, among other endeavors, been engaged in the
business of venue ownership, operation and management and the booking,
promotion and/or production of entertainment events, including, without
limitation, related merchandising, concession management and Internet-based
marketing through its wholly owned subsidiary SFX Concerts, Inc., formerly
known as Delsener/Slater Enterprises, Inc., and its Subsidiaries and
Affiliates (the "Transferred Businesses"), which Transferred Businesses are
principally outside the scope of SFX's core radio broadcasting business;
WHEREAS, the Board of Directors of SFX has determined that the interests
of SFX's stockholders would be best served by restructuring the ownership of
the Transferred Businesses and ownership of the core radio broadcasting
business prior to the Merger as contemplated by Section 5.07 of the Merger
Agreement;
WHEREAS, SFX wishes to transfer and assign to Entertainment all of the
Transferred Assets as specified in this Agreement in exchange for the
assumption by Entertainment of the Assumed Liabilities as specified in this
Agreement;
WHEREAS, Entertainment is willing to assume such Assumed Liabilities;
WHEREAS, SFX intends to distribute all of the outstanding shares of the
Class A Common Stock, par value $.01 per share, of Entertainment (the
"Entertainment Class A Common Stock") and the Class B Common Stock of
Entertainment, par value $.01 per share (the "Entertainment Class B Common
Stock" and, together with the Entertainment Class A Common Stock, the
"Entertainment Common Stock"), owned by SFX to the holders of (i) the common
stock of SFX (the "SFX Common Stock"), (ii) the 6 1/2% Series D Cumulative
Convertible Exchangeable Preferred Stock due May 31, 2007 of SFX (the "Series
D Preferred Stock"), (iii) interests in the SFX Director Deferred Stock
Ownership Plan dated as of January 1, 1997 (the "SFX Director Deferred Stock
Ownership Plan") and (iv) certain warrants of SFX, with the holders of the
Class A Common Stock, par value $.01 per share, of SFX (the "SFX Class A
Common Stock"), the Series D Preferred Stock, interests in the SFX Director
Deferred Stock Ownership Plan and certain warrants of SFX receiving
Entertainment Class A Common Stock and the holders of the Class B Common
Stock, par value $.01 per share, of SFX (the "SFX Class B Common Stock")
receiving Entertainment Class B Common Stock (such distribution hereinafter
referred to as the "Distribution") on the Distribution Date (as hereinafter
defined);
WHEREAS, SFX and Entertainment have determined that it is necessary and
desirable to set forth the principal corporate transactions required to
effect the Distribution and to set forth other agreements that will govern
certain other matters in connection with the Distribution; and
WHEREAS, Parent has joined as a signatory and a party to this Agreement in
order to preserve and protect its rights under the Merger Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and intending to be legally bound hereby, SFX
and Entertainment hereby agree as follows:
F-1
<PAGE>
ARTICLE 1
DEFINITIONS
SECTION 1.1 General. As used in this Agreement, capitalized terms defined
immediately after their use shall have the respective meanings thereby
provided and the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of
the terms defined):
Action: any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
Affiliate: with respect to any specified person, a person that, directly
or indirectly, through one or more intermediaries, controls, or is controlled
by, or is under common control with, such specified person; provided,
however, that SFX and Entertainment shall not be deemed to be Affiliates of
each other for purposes of this Agreement.
Agent: ChaseMellon Shareholder Services, LLC, the distribution agent
appointed by SFX to distribute shares of Entertainment Common Stock pursuant
to the Distribution.
Assumed Liabilities: collectively, all of the Liabilities and other
obligations of SFX listed on Annex I hereto.
Books and Records: the books and records of SFX (or true and complete
copies thereof), including all computerized books and records owned by SFX,
which relate principally to the Transferred Businesses and are necessary for
Entertainment to operate the Transferred Businesses, including, without
limitation, all such books and records relating to Employees, the purchase of
materials, supplies and services, the sale of products by the Transferred
Businesses or dealings with customers of the Transferred Businesses and all
litigation files relating to any Action being assumed by Entertainment as
part of the Assumed Liabilities.
Code: the Internal Revenue Code of 1986, as amended.
Consent Solicitation Documents. The Consent Solicitation Statements mailed
to the holders of SFX's 12 5/8% Cumulative Exchangeable Series E Preferred
Stock and 10 3/4% Senior Subordinated Notes due 2006 on January 7, 1998 and
the Information Statement related thereto.
Conveyancing and Assumption Instruments: collectively, the various
agreements, instruments and other documents to be entered into in order to
effect the transfer to Entertainment of Transferred Assets, and the
assumption by Entertainment of the Assumed Liabilities in the manner
contemplated by this Agreement, each of which shall be in a form reasonably
satisfactory to Parent.
Distribution Date: the date as of which the Distribution shall be effected
as determined by the SFX Board of Directors which, in any event, shall be a
date on or prior to the Closing Date.
Distribution Employees: the employees of SFX listed on Section 5.07(h) of
the Company Disclosure Schedule to the Merger Agreement.
Employee: the Distribution Employees and any employee shown on the records
of SFX as being employed by SFX and assigned to the Transferred Businesses as
of the Distribution Date, including any laid-off Employee or any Employee on
leave of absence.
Exchange Act: the Securities Exchange Act of 1934, as amended.
Form 8-A: the registration statement on Form 8-A to be filed by
Entertainment with the SEC to effect the registration of the Entertainment
Class A Common Stock pursuant to the Exchange Act.
Guarantees: the guarantees provided by SFX in connection with the
following agreements: (i) Agreement and Plan of Merger and Asset Purchase
Agreement, dated as of December 10, 1997 by and among SFX Entertainment,
Inc., Contemporary Investments Corporation, Contemporary Investments of
Kansas, Inc., Contemporary International Productions Corporation, Steven F.
Schanman Living Trust,
F-2
<PAGE>
Irving P. Zuckerman Living Trust, Steven F. Schankman and Irving P.
Zuckerman, (ii) Stock and Asset Purchase Agreement, dated December 2, 1997,
by and among SFX Network Group, L.L.C. and SFX Entertainment, Inc., and Elias
N. Bird, individually and as Trustee under the Bird Family Trust, Gary F.
Bird, individually and as Trustee under the Gary F. Bird Corporation Trust,
Stephen R. Smith, individually and as Trustee under the Smith Family Trust,
June E. Brody, Steven A. Saslow, and The Network 40, Inc. and (iii) Stock
Purchase Agreement, dated as of December 12, 1997 by and among Pace
Entertainment Corporation and SFX Entertainment, Inc.
Indemnifiable Losses: with respect to any claim by an Indemnitee for
indemnification authorized pursuant to this Agreement, all losses,
Liabilities, claims, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all
Actions, demands, assessments, judgments, settlements and compromises
relating thereto and reasonable attorneys' fees and expenses in connection
therewith) suffered by such Indemnitee with respect to such claim.
Indemnifying Party: any party who is required to indemnify any other
person pursuant to this Agreement hereof.
Indemnitee: any party who is entitled to receive indemnification from an
Indemnifying Party pursuant to this Agreement hereof.
Indemnity Payment: the amount an Indemnifying Party is required to pay an
Indemnitee pursuant to this Agreement hereof.
Insurance Program: collectively, the series of property and casualty
policies pursuant to which various insurance carriers provide insurance
coverage to SFX (including Entertainment and its subsidiaries) in respect of
claims or occurrences relating to, without limitation, property damage,
business interruption, transit, fire, extended coverage, fiduciary, fidelity,
environmental impairment, employee crime, general liability, products'
liability, automobile liability and employer's liability. The term Insurance
Program shall not include any SFX Welfare Plan as such term is defined in the
Employee Benefits Agreement.
Liabilities: any and all debts, liabilities and obligations, whether or
not accrued, contingent, known or unknown, or reflected on a balance sheet,
including, without limitation, those arising under any law, rule, regulation,
Action, order or consent decree of any governmental entity or any judgment of
any court of any kind or any award of any arbitrator of any kind, and those
arising under any contract, commitment or undertaking.
Record Date: the date determined by the Board of Directors of SFX as the
record date for the Distribution.
Registration Statement: the registration statement on Form S-1 (Reg. No.
333-43287) filed by Entertainment with the SEC on December 24, 1997, as
amended, to effect the registration of the Entertainment Class A Common Stock
and Class B Common Stock pursuant to the Securities Act of 1933, as amended.
Related Agreements: the Tax Sharing Agreement and the Employee Benefits
Agreement.
Retained Liabilities: all Liabilities and obligations of SFX other than
the Assumed Liabilities.
SEC: the Securities and Exchange Commission.
Transferred Assets: collectively, all of the assets and properties of SFX
identified on Annex II hereto.
ARTICLE 2
REORGANIZATION AND RELATED TRANSACTIONS
SECTION 2.1 The Reorganization. Subject to the terms and conditions of
this Agreement, SFX and Entertainment shall use their respective best efforts
to cause, prior to the Distribution Date, all of SFX's right, title and
interest in and to the Transferred Assets to be conveyed, assigned,
transferred and delivered to Entertainment, free and clear of all liens or
encumbrances in favor of SFX or its subsidiaries,
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and all of SFX's duties, obligations and responsibilities under the Assumed
Liabilities to be assumed by Entertainment (the "Asset and Liability
Transfer"). Such transfer and assumption shall be effected by means of the
Conveyancing and Assumption Instruments which shall be executed and delivered
by each of SFX and Entertainment prior to the Distribution Date. Subject to
Section 7.3 hereof, to the extent that any such conveyances, assignments,
transfers and deliveries shall not have been so consummated on the
Distribution Date, SFX and Entertainment shall cooperate to effect such
consummation as promptly thereafter as shall be practicable, it nonetheless
being understood and agreed by SFX and Entertainment that neither shall be
liable in any manner to any person who is not a party to this Agreement for
any failure of any of the transfers contemplated by this Article 2 to be
consummated on or subsequent to the Distribution Date. Whether or not all of
the Transferred Assets or the Assumed Liabilities shall have been legally
transferred to, or assumed by, Entertainment as of the Distribution Date, SFX
and Entertainment agree that, as of the Distribution Date, Entertainment
shall have, and shall be deemed to have acquired, complete and sole
beneficial ownership over all of the Transferred Assets, together with all of
SFX's and its subsidiaries' rights, powers and privileges incident thereto,
and shall be deemed to have assumed all of the Assumed Liabilities and all of
SFX's and its subsidiaries' duties, obligations and responsibilities incident
thereto in accordance with the terms of this Agreement.
SECTION 2.2 Working Capital Adjustment.
(a) In the event that the Distribution occurs prior to the Closing Date,
then on the Distribution Date, the management of SFX shall make an allocation
of working capital between Entertainment and SFX, consistent with the proper
operation of SFX in its usual, regular and ordinary course and, immediately
after the effective time of the Distribution, SFX shall deliver to
Entertainment, in immediately available funds by wire transfer to such bank
account as Entertainment shall specify, any positive amount allocated to
Entertainment.
(b) Not less than five business days prior to the Closing Date, SFX shall
deliver to Entertainment and Parent a good faith estimate of Working Capital
(as defined in Section 2.3(d)) as of the Closing Date (the "Estimated Working
Capital") accompanied by a certificate by the Chief Executive Officer and
Chief Financial Officer of SFX certifying that the Estimated Working Capital
has been calculated in accordance with the Merger Agreement and this
Agreement. If the Estimated Working Capital is a positive number, then at the
Closing SFX shall deliver to Entertainment, in immediately available funds by
wire transfer to such bank account as Entertainment shall specify, an amount
of cash equal to the Estimated Working Capital. If the Estimated Working
Capital is a negative number, then at the Closing SFX shall cause
Entertainment to deliver, and Entertainment shall deliver to SFX, in
immediately available funds by wire transfer to such bank account as SFX
shall specify, an amount of cash equal to the Estimated Working Capital.
(c)(i) As soon as practicable after the Closing Date, SFX will prepare a
statement of Working Capital as of the Closing Date, which will be audited by
Ernst & Young LLP (the "Company's Working Capital Statement") at the expense
of SFX. SFX will deliver SFX's Working Capital Statement to Entertainment as
soon as practicable and in any event within ninety days after the Closing
Date. If within fifteen days following delivery of SFX's Working Capital
Statement to Entertainment, Entertainment has not given SFX notice of its
objection to SFX's Working Capital Statement (such notice must contain a
statement of the basis of such objection), then the Working Capital reflected
on SFX's Working Capital Statement shall be deemed final and conclusive and
shall be the "Final Working Capital." If Entertainment gives such notice of
objection within the fifteen day period, then the issues in dispute will be
submitted to a "big six" accounting firm (other than Ernst & Young LLP) to be
selected jointly by Entertainment and Parent within the following fifteen
days or, if they fail to agree, such accounting firm shall be Arthur Andersen
(Chicago office) (it being understood that the Chicago office of Arthur
Andersen was chosen because of representations made that neither Parent and
its Affiliates, SFX and its Affiliates nor Entertainment and its Affiliates
have a material relationship with such office and if any of such parties
prior to the calculation of the Final Working Capital develops a material
relationship with such office, the party having such a relationship shall
promptly notify the other party of such relationship and the parties will
select another office of Arthur Andersen or another "big six" accounting firm
with which none of such parties has a material relationship to serve as the
accountants) (the "Accountants"),
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for resolution and the Accountants shall determine the "Final Working
Capital" within thirty days after the dispute is submitted to them. If issues
in dispute are submitted to the Accountants for resolution, (A) each party
will furnish to the Accountants such work papers and other documents and
information relating to the disputed issues as the Accountants may request
and are available to that party or its Subsidiaries (or its independent
public accountants), and will be afforded the opportunity to present to the
Accountants any material relating to the determination and to discuss the
determination with the Accountants; (B) the determination by the Accountants
of Final Working Capital, as set forth in a notice delivered to both parties
by the Accountants, will be binding and conclusive on the parties; and (C)
Entertainment and SFX will each bear one-half of the fees and expenses of the
Accountants for such determination. SFX shall make its employees and books
and records available to Entertainment for purposes of verifying Final
Working Capital and shall cause Ernst & Young LLP to make its work papers
used in determining Final Working Capital available to Entertainment.
(ii) On the third business day following the determination of the Final
Working Capital (the "Payment Date"), (A) if the Working Capital Adjustment
Amount (as defined below) is a positive number, then SFX will pay such amount
to Entertainment in immediately available funds by wire transfer to such bank
account as Entertainment shall specify and (B) if the Working Capital
Adjustment Amount is a negative number, then Entertainment will pay such
amount to SFX in immediately available funds by wire transfer to a bank
account specified by SFX. Notwithstanding the foregoing, if Entertainment has
notified SFX in writing prior to the Payment Date that it wishes to have all
or any portion of the Final Working Capital (such amount, the "Consideration
Adjustment") treated as an adjustment to the Class A Common Stock Merger
Consideration and the Class B Common Stock Merger Consideration, the Class A
Common Stock Merger Consideration and the Class B Common Stock Merger
Consideration shall be increased by an amount equal to the quotient of the
Consideration Adjustment divided by the fully diluted number of shares of SFX
Common Stock outstanding immediately prior to the Effective Time, and SFX
shall (X) promptly distribute the appropriate amount to the appropriate
holders, immediately prior to the Effective Time, of SFX Common Stock and
Series D Preferred Stock, (Y) promptly distribute upon exercise the
appropriate amount to holders of Options, Warrants and Unit Purchase Options
unexercised immediately prior to the Effective Time, and (Z) promptly
distribute the appropriate amount to holders of Options, Warrants, and Unit
Purchase Options who exercised such securities on and after the Effective
Time and prior to the Payment Date; provided that as a condition precedent to
SFX's obligations under this sentence, Entertainment shall have paid to SFX
in immediately available funds by wire transfer to an account specified by
SFX the difference, if any, between the Consideration Adjustment and the
Working Capital Adjustment Amount so that the aggregate net amount to be paid
or received by SFX, as the case may be, pursuant to this sentence is equal to
the amount that would have been paid or received, as the case may be,
pursuant to the first sentence of this paragraph had the Consideration
Adjustment not been made.
(d) The term "Working Capital" shall mean, as of the point in time
immediately prior to the Effective Time, the sum of all current assets of SFX
and its consolidated Subsidiaries minus the sum of all current liabilities of
SFX and its consolidated Subsidiaries, each as determined in accordance with
GAAP applied on a basis consistent with the balance sheet of SFX as of June
30, 1997 included in Company SEC Documents (as defined in the Merger
Agreement) (provided that no liabilities or reserves reflected on such
balance sheet shall be reduced or eliminated except by reason of a payment or
credit occurring in the ordinary course of business and consistent with past
practices).
Notwithstanding the foregoing, Working Capital shall, without duplication
either in this computation or as between this computation and the computation
of Excess Debt, (i) be increased by the lesser of (A) 50% of all fees and
expenses incurred by SFX in connection with acquiring consents from holders
of the Series E Preferred Stock and the 2006 Notes in connection with the
transactions contemplated by the Merger Agreement and (B) $1,000,000, (ii) be
increased by, if a positive number, or decreased by, if a negative number,
the product of (A) the Class A Common Stock Merger Consideration and (B) the
difference between 15,589,083 less the sum of the fully diluted number of
shares of SFX Common Stock outstanding immediately prior to the Effective
Time (excluding the Meadows Shares (as defined below)) (calculated in a
manner consistent with Section 3.01(c)(i) of the Company Disclosure Schedule,
such
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calculation to include, without limitation, derivative securities that will
become issuable upon consummation of the transactions contemplated by the
Merger Agreement), (iii) be reduced by the difference between $84,554,649
less the sum of (A) the aggregate exercise price of all Options, Warrants and
Unit Purchase Options outstanding immediately prior to the Effective Time
plus (B) the aggregate exercise price of all Unit Purchase Option Warrants
underlying Unit Purchase Options outstanding immediately prior to the
Effective Time plus (C) the aggregate base price of all SARs outstanding
immediately prior to the Effective Time, (iv) be reduced by the product of
(A) $42 and (B) the aggregate number of shares of SFX Common Stock subject to
a right of repurchase in favor of SFX (the "Meadows Shares") granted pursuant
to that certain Agreement of Merger dated February 12, 1997 among SFX,
Nederlander of Connecticut, Inc. and the other parties thereto outstanding
immediately prior to the Effective Time, (v) be increased by all capital
expenditures paid by SFX and its Subsidiaries after June 30, 1997 and
immediately prior to the Effective Time permitted by Section 4.01(a)(vii) of
the Merger Agreement, (vi) be decreased by all accrued capital expenditures
of SFX as of immediately prior to the Effective Time (to the extent not
reflected in current liabilities), (vii) be increased by dividends that have
been accrued immediately prior to the Effective Date whose regularly
scheduled payment date has not then yet occurred, (viii) except as required
by clause (xi) below, exclude any liabilities attributable to Indebtedness,
(ix) exclude any liabilities included in clauses (i) through (v) of the
following sentence, (x) be decreased by unpaid costs, fees and expenses of
SFX arising out of, based upon or that will arise from the transactions
contemplated by the Merger Agreement (other than as a result of actions taken
by Sub) (including, without limitation, amounts related to the termination of
any employees, broker fees, legal, accounting and advisory fees and fees
incurred in connection with third party consents, waivers and amendments of
creditors or holders of Preferred Stock), and (xi) be reduced by the amount
of the Excess Debt, if a positive number, or be increased by the amount of
the Excess Debt, if a negative number, and (xii) be reduced by the amount of
the Series E Premium (as defined below).
The term "Series E Premium" shall mean the difference between (i) the
Average Trading Price times 142,032 and (ii) 14,203,200. The term "Average
Trading Price" shall mean the highest of the following averages: (i) the
average of the last sales price of the Series E Preferred Stock during the 15
consecutive business days ending on the Closing Date, or (ii) the average of
the last sales price of the Series E Preferred Stock during the 15
consecutive business days immediately preceding February 9, 1998.
(e) The term "Excess Debt" shall mean, as of immediately prior to the
Effective Time, the difference between the sum of the following and
$899,700,000: (i) the difference between (A) Indebtedness of SFX and its
consolidated Subsidiaries less (B) the difference between $70,000,000 and any
amounts (other than the reimbursement of expenses) actually received by SFX
and its consolidated subsidiaries after August 24, 1997 under agreements
relating to the sale or LMA (such LMA payments not to exceed $30,000 per
month) of its WVGO-FM and the sale or LMA of its Jackson/Biloxi radio
stations, less (C) any Indebtedness incurred to finance acquisitions approved
by Parent of stock of or substantially all of the assets of radio stations,
less (D) interest accrued as of immediately prior to the Effective Time that
is not then due and payable, (ii) the Series B Merger Consideration, (iii)
the Series C Merger Consideration, (iv) the liquidation preference amount of
the Series E Preferred Stock, and (v) Environmental Costs or Liabilities
accrued and not paid after June 30, 1997 to the extent they exceed $100,000
in the aggregate. "Working Capital Adjustment Amount" shall mean an amount
equal to the Final Working Capital, less the Estimated Working Capital,
together with interest on the absolute value of the difference at 10% per
annum beginning on the Closing Date and ending on the date of payment of the
Working Capital Adjustment Amount as provided in Section 2.02(c)(ii) hereof.
Notwithstanding the foregoing, Working Capital shall not include any asset
transferred to Entertainment or any of its Subsidiaries, any Liability
assumed by Entertainment, or any Liability to which none of SFX or any of its
Subsidiaries is a party immediately after the Effective Time and any such
computation shall assume that the Distribution has been consummated.
(f) All amounts loaned to Entertainment by SFX to (i) acquire (whether by
merger, stock or asset acquisition or otherwise) additional businesses
engaged in the business in which Entertainment is engaged or (ii) make
capital improvements on assets owned or leased by Entertainment, shall be
paid by Entertainment to SFX by wire transfer of immediately available funds
to a bank account specified by SFX on the Distribution Date and shall not be
considered for purposes of computing Working Capital under clause (b) of this
Section 2.3.
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(g) If the Merger Agreement is terminated for any reason in accordance
with its terms, than the working capital shall be allocated in accordance
with Section 2.3(a) above, and no further adjustments to working capital
shall be made.
SECTION 2.3 SFX Approval. Prior to the Distribution Date, SFX shall
cooperate with Entertainment in effecting, and if so requested by
Entertainment, SFX shall, as the sole stockholder of Entertainment, ratify
any actions which are reasonably necessary or desirable to be taken by
Entertainment to effectuate the transactions contemplated by this Agreement
in a manner consistent with the terms of this Agreement, including, without
limitation, the following: (a) the election or appointment of directors and
officers of Entertainment to serve in such capacities following the
Distribution Date, and (b) the preparation and implementation of appropriate
plans, agreements and arrangements for Employees (including, without
limitation, plans, agreements or arrangements pursuant to which Entertainment
Common Stock would be acquired by Employees).
ARTICLE 3
ASSUMPTION AND RETENTION OF LIABILITIES
SECTION 3.1 Assumed Liabilities. Upon the terms and subject to the
conditions set forth in this Agreement and in addition to any other
Liabilities otherwise expressly assumed by Entertainment pursuant to this
Agreement, the Related Agreements or any other agreement contemplated by this
Agreement, Entertainment assumes all Assumed Liabilities and agrees with SFX
to pay, perform and discharge in due course any and all Assumed Liabilities.
SFX shall use its commercially reasonable efforts to cause Entertainment and
its Subsidiaries to be released from all debt and accrued liabilities other
than the Assumed Liabilities, prior to the Effective Time.
SECTION 3.2 Retained Liabilities. Upon the terms and subject to the
conditions set forth in this Agreement and in addition to any other
Liabilities otherwise expressly retained by SFX pursuant to this Agreement,
the Related Agreements or any other agreement contemplated by this Agreement,
SFX hereby agrees with Entertainment that SFX shall pay, perform and
discharge in due course any and all Retained Liabilities.
SECTION 3.3 Construction of Agreements. Notwithstanding any other
provisions in this Agreement to the contrary, in the event and to the extent
there shall be a conflict between the provisions of this Agreement and the
Related Agreements (or any Conveyancing and Assumption Instrument or other
instrument of assumption entered into pursuant to this Agreement) and (a) the
provisions of the Merger Agreement then (i) prior to the Effective Time, the
provisions of the Merger Agreement shall control and (ii) subsequent to the
Effective Time, the provisions of this Agreement and the Related Agreements
(or any Conveyancing and Assumption Instrument or other instrument of
assumption entered into pursuant to this Agreement) shall control and (b) the
provisions of any other agreement entered into by SFX or Entertainment, the
provisions of this Agreement and the Related Agreements (and any Conveyancing
and Assumption Instrument or other instrument of assumption entered into
pursuant to this Agreement) shall control. In the event and to the extent
there shall be a conflict between the provisions of this Agreement and the
provisions of the Related Agreements, the provisions of the Related
Agreements shall control.
ARTICLE 4
THE DISTRIBUTION
SECTION 4.1 The Distribution.
(a) On or prior to the Distribution Date, SFX shall deliver to the Agent
for the benefit of holders of record of SFX Common Stock, Series D Preferred
Stock and interests in the SFX Director Deferred Stock Ownership Plan on the
Record Date, (i) certificates representing, in the aggregate, the number of
Entertainment Class A Common Stock equal to the sum of (A) the number of SFX
Class A Common Stock outstanding on the Record Date (B) the aggregate number
of shares of SFX Class A Common Stock credited pursuant to the SFX Director
Deferred Stock Ownership Plan and (C) the product of the number of Series D
Preferred Stock outstanding on the Record date multiplied by the Conversion
Rate (as defined in the certificate of designations governing the Series D
Preferred Stock) and (ii) certificates representing, in the aggregate, the
number of Entertainment Class B Common Stock equal to the number
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of SFX Class B Common Stock outstanding on the Record Date. SFX shall
instruct the Agent to distribute as promptly as practicable following the
Distribution Date to holders of the SFX Common Stock, Series D Preferred
Stock and interests in the SFX Director Deferred Stock Ownership Plan on the
Record Date (i) one share of Entertainment Class A Common Stock for every one
share of SFX Class A Common Stock, (ii) one share of Entertainment Class A
Common Stock for every one share of SFX Class A Common Stock credited
pursuant to the SFX Director Deferred Stock Ownership Plan, (iii) the number
of shares of Entertainment Class A Common Stock equal to the Conversion Rate
(as defined in the Certificate of Designations governing the Series D
Preferred Stock) for every one share of Series D Preferred Stock and (iv) one
share of Entertainment Class B Common Stock for every one share of SFX Class
B Common Stock. Simultaneously with the Distribution, SFX shall place that
number of shares of the Entertainment Class A Common in an escrow account
with an escrow agent selected by SFX and governed by an escrow agreement
reasonably acceptable to SFX and Parent for delivery to the holders of the
IPO Warrants, Huff Warrants and SCMC Warrants upon exercise of such warrants
that equals the number of shares of Entertainment Class A Common Stock that
the holders of such warrants would have been entitled to receive if they had
exercised all of their IPO Warrants, Huff Warrants and SCMC Warrants
immediately prior to the Record Date. SFX and Entertainment agree to provide
to the Agent sufficient certificates in such denominations as the Agent may
request in order to effect the Distribution. All of the shares of
Entertainment Common Stock issued in the Distribution shall be fully paid,
nonassessable and free of preemptive rights.
(b) The Distribution shall be deemed to be effective on the Distribution
Date.
SECTION 4.2 Fractional Shares. No certificate or scrip representing
fractional shares of Entertainment Common Stock shall be issued as part of
the Distribution and in lieu of receiving fractional shares, each holder of a
warrant who would otherwise be entitled to receive a fractional share of
Entertainment Common Stock upon exercise of such warrant, after aggregating
all shares of Entertainment Common Stock which such holder would be entitled
to receive under Section 4.1, will receive cash for such fractional share.
SFX and Entertainment agree that Entertainment shall instruct the Agent to
determine the number of whole shares and fractional shares of Entertainment
Common Stock allocable to each holder of record of such warrant as of the
date of exercise, to aggregate all such fractional shares into whole shares
and sell the whole shares obtained thereby in the open market at the then
prevailing prices on behalf of holders who otherwise would be entitled to
receive fractional shares interests and to distribute to each such holder
such holder's ratable share of the total proceeds of such sale promptly after
the date of exercise. SFX shall bear the costs of commissions incurred in
connection with such sale.
SECTION 4.3 SFX Employees. If the Distribution occurs prior to the Closing
Date, the Distribution Employees shall continue to be employed by SFX (at
SFX's expense), but shall devote such time as deemed reasonably necessary to,
consistent with their obligations to SFX, in support of the conduct of the
Entertainment Business by Entertainment on a basis consistent with the time
and scope of services that such employees devoted and provided to the
Entertainment Business prior to the Distribution. Effective immediately prior
to the Effective Time, Entertainment shall assume all obligations arising
under any employment agreement or arrangement (written or oral) between SFX
or any of its Subsidiaries and the Distribution Employees other than the
rights, if any, of the Distribution Employees to receive the options upon
termination following a change of control as defined in their respective
employment agreements (the "Termination Options") immediately prior to the
Effective Time (with such Termination Options being deemed granted as of such
time) and all existing rights to indemnification. SFX and its Subsidiaries,
effective as of the Effective Time (or effective as of the Distribution Date
as to any member of the Distribution Employees that devotes substantially all
of his or her business time to the Entertainment Business), shall be
indemnified by Entertainment in accordance with Article 5 hereof from all
obligations arising under such employment agreements or arrangements (except
in respect of the Termination Options and all existing rights to
indemnification). Neither party shall, directly or indirectly, solicit the
employment of any employees of the other party or its subsidiaries (other
than as a result of a general solicitation for employment); provided however
that Entertainment may offer to employ the Distribution Employees.
SECTION 4.4 SFX Board Action. The Board of Directors of SFX, in its
discretion, shall establish the Record Date and the Distribution Date and all
appropriate procedures in connection with the Distribution, subject to the
satisfaction or waiver of the conditions contained in Article 10.
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SECTION 4.5 Registration and Listing; SEC Filings.
(a) Prior to the Distribution Date:
(i) SFX and Entertainment shall register the Distribution under
applicable federal and state securities laws if such registration is
either required under applicable law or would otherwise be required to
cause the securities issued in connection with the Distribution to be
freely transferable by Persons not Affiliates with Entertainment. SFX and
Entertainment shall use reasonable efforts to cause the Registration
Statement to become effective under the Securities Act as promptly as
reasonably practicable. In connection with such registration,
Entertainment shall file a Form 8-A, if necessary, with the SEC.
(ii) The parties hereto shall use reasonable efforts to take all such
action as may be necessary or appropriate under state securities and blue
sky laws in connection with the transactions contemplated by this
Agreement.
(iii) Entertainment shall prepare, and Entertainment shall file and seek
to make effective, an application for the listing of the Entertainment
Class A Common Stock on the a national exchange, subject to official
notice of issuance, or for the inclusion of quotations for the
Entertainment Class A Common Stock on the Nasdaq Stock Market.
(iv) The parties hereto shall cooperate in preparing, filing with the SEC
and causing to become effective any registration statements or amendments
thereto which are necessary or appropriate in order to effect the
transactions contemplated hereby.
(b) Entertainment hereby represents and warrants to SFX that each of the
Registration Statement and the Consent Solicitation Documents and each
amendment or supplement thereto did not, at the time it became effective or
was mailed, contain any 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, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing shall not apply to the
extent that any such untrue statement or material omission was made by
Entertainment in reliance upon and in conformity with written information
furnished by Parent, its representatives or affiliates to Entertainment
specifically for use in such filing.
SECTION 4.6 Third Party Consents. SFX shall obtain all necessary third
party consents to the Distribution except where the failure to obtain such
consents, in the aggregate, would not (a) have a Material Adverse Effect on
SFX, (b) impair the ability of SFX to perform its obligations under the
Transaction Documents in any material respect or (c) delay in any material
respect or prevent the consummation of any of the transactions contemplated
by the Transaction Documents. The Distribution shall be effected in
compliance with SFX's certificate of incorporation and by-laws and in
material compliance with all applicable laws and shall be subject to
obtaining all applicable consents of Governmental Entities.
SECTION 4.7 Waivers. Prior to the Distribution Date, SFX and Entertainment
shall obtain from Ron Delsener and Mitch Slater a release or waiver of any
rights that either of them may have to purchase or acquire all of part of the
Delsener/Slater Group.
SECTION 4.8 Termination of Merger Agreement. If the Merger Agreement is
terminated for any reason in accordance with its terms, the Boards of
Directors of SFX and Entertainment shall appoint committees (the "Independent
Committees") composed solely of independent directors (none of whom shall
serve on both Boards of Directors) and shall authorize the Independent
Committees to negotiate with each other in good faith with respect to (a) the
Distribution Employees, (b) a lease arrangement for the office space of
Entertainment utilized by SFX and (c) any other matters which the Boards deem
necessary to effectuate the separation of the affairs of SFX and
Entertainment.
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ARTICLE 5
SURVIVAL; MUTUAL RELEASE AND INDEMNIFICATION
SECTION 5.1 Survival and Indemnification.
(a) Except as specifically provided herein to the contrary, all covenants
and agreements of the parties contained in this Agreement shall survive the
Distribution Date.
(b) Except as specifically provided herein, the indemnification provisions
of this Article 5 shall terminate and be of no further force and effect on
the sixth (6th) anniversary of the Distribution Date; provided, however, that
such provisions shall survive thereafter as to any claims for indemnification
asserted prior to the sixth (6th) anniversary of the Distribution Date. Such
termination shall in no way limit the obligations of Entertainment with
respect to the Assumed Liabilities or the obligations of SFX with respect to
the Retained Liabilities and related indemnification rights under this
Agreement, which shall survive indefinitely.
(c) The obligations of Entertainment and SFX under this Article 5 shall
survive the sale or other transfer by either of them of any assets or
businesses or the assignment by either of them of any Liabilities. To the
extent that SFX assigns any of its Retained Liabilities (except for such
amounts of Retained Liabilities which are not material individually or in the
aggregate), SFX shall cause such transferee of such Retained Liabilities to
assume specifically its obligations with respect thereto under this Agreement
and to fulfill its obligations related to such Retained Liabilities. To the
extent Entertainment transfers to another party other than a Subsidiary of
Entertainment any of the Assumed Liabilities (except for such amounts of
Assumed Liabilities which are not material individually or in the aggregate),
Entertainment will cause the transferee of such Assumed Liabilities to assume
specifically its obligations with respect thereto under this Agreement and
will cause such transferee to fulfill its obligations related to such Assumed
Liabilities. In the event the transferee of the Retained Liabilities or
Assumed Liabilities does not fulfill its obligations with respect thereto,
SFX and Entertainment, respectively, shall fulfill their obligations with
respect thereto.
SECTION 5.2 Mutual Release, Etc.
(a) Effective on the Distribution Date, and except for Claims arising from
or attributable to the transactions contemplated by the Transaction
Documents, this Agreement, the Related Agreements or Claims otherwise
asserted prior to the Effective Time, SFX does hereby, for itself and its
Subsidiaries (other than the Delsener/Slater Group), and anyone claiming
through SFX or its Subsidiaries, remise, release and forever discharge the
Delsener/Slater Group, their respective Affiliates (other than SFX and its
Subsidiaries), successors and assigns, the Executive Group, and all Persons
who at any time prior to the Distribution Date have been shareholders,
directors or agents or employees of any member of the Delsener/Slater Group
(in each case, in their respective capacities as such), and their respective
heirs, executors, administrators, successors and assigns, from any and all
Claims whatsoever, whether in law or in equity (including any right of
contribution), whether arising under any contract or arrangement, by
operation of law or otherwise, existing or arising from any acts or events
occurring or failing to occur aor alleged to have occurred or to have failed
to occur or any conditions existing or alleged to have existed on or before
the Distribution Date.
(b) Effective on the Distribution Date, and except for Claims arising from
or attributable to the transactions contemplated by the Transaction
Documents, this Agreement, the Related Agreements or Claims otherwise
asserted prior to the Effective Time, Entertainment does hereby, for itself
and its Subsidiaries, and anyone claiming through Entertainment or its
Subsidiaries, remise, release and forever discharge SFX, their respective
Affiliates (other than the Delsener/Slater Group), successors and assigns and
all Persons who at any time prior to the Distribution Date have been
shareholders, directors or agents or employees of any member of the SFX and
its Subsidiaries (in each case, in their respective capacities as such), and
their respective heirs, executors, administrators, successors and assigns,
from any and all Claims whatsoever, whether in law or in equity (including
any right of contribution), whether arising
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under any contract or arrangement, by operation of law or otherwise, existing
or arising from any acts or events occurring or failing to occur or alleged
to have occurred or to have failed to occur or any conditions existing or
alleged to have existed on or before the Distribution Date.
SECTION 5.3 Indemnification.
(a) SFX shall indemnify, defend and hold harmless the Delsener/Slater
Group from and against any and all Indemnifiable Losses (other than income
tax liabilities) to which the Delsener/Slater Group may be or become subject
that (i) relate to the Retained Liabilities, assets, business, operations,
debts or Liabilities of SFX or its Subsidiaries (other than the
Delsener/Slater Group) whether arising prior to, concurrent with or after the
Distribution or (ii) result from a breach by SFX or its Subsidiaries (other
than the Delsener/Slater Group) of any representation, warranty or covenant
contained in this Agreement or any Related Agreement. The rights of the
directors, officers and employees of the Delsener/Slater Group to seek
indemnity from SFX shall continue to be governed by the Merger Agreement or
any other existing agreement addressing such matter.
(b) Entertainment shall indemnify, defend and hold harmless SFX and its
Subsidiaries (other than the Delsener/Slater Group from and against any and
all Indemnifiable Losses (other than income tax liabilities) to which SFX or
any of its Subsidiaries (other than the Delsener/Slater Group) may be or
become subject that (i) relate to the Transferred Businesses, Transferred
Assets, assets, business, operations, debts or Liabilities of the
Delsener/Slater Group including, without limitation, Liabilities arising
under the Guarantees and Liabilities to be assumed by any member of the
Delsener/Slater Group as contemplated herein, whether arising prior to,
concurrent with or after the Distribution or as a result of the failure to
obtain all necessary third party consents to the Distribution or (ii) result
from a breach by a member of the Delsener/Slater Group of any representation,
warranty or covenant contained in this Agreement or any Related Agreement.
(c) The amount which any party (an "Indemnifying Party") is required to
pay to any other party (an "Indemnitee") pursuant to Section 5.3(a) or
Section 5.3(b) shall be reduced (including, without limitation,
retroactively) by any insurance proceeds and other amounts actually recovered
by such Indemnitee in reduction of the related Indemnifiable Loss. Amounts
required to be paid are hereafter sometimes collectively called "Indemnity
Payments" and are individually called an "Indemnity Payment." If an
Indemnitee shall have received an Indemnity Payment in respect of an
Indemnifiable Loss and shall subsequently actually receive insurance proceeds
or other amounts in respect of such Indemnifiable Loss, then such Indemnitee
shall pay to such Indemnifying Party a sum equal to the lesser of the amount
of such insurance proceeds or other amounts actually received or the net
amount of Indemnity Payments actually received previously. The Indemnitee
agrees that the Indemnifying Party shall be subrogated to such Indemnitee
under any insurance policy and that the Indemnitee shall not waive any right
of subrogation.
SECTION 5.4 Procedure for Indemnification.
(a) If an Indemnitee shall receive notice of the assertion by a person who
is not a party to this Agreement of any claim or of the commencement by any
such person of any Action (a "Third Party Claim") with respect to which an
Indemnifying Party is or may be obligated to make an Indemnity Payment, such
Indemnitee shall give such Indemnifying Party prompt notice thereof after
becoming aware of such Third Party Claim, specifying in reasonable detail the
nature of such Third Party Claim and the amount or estimated amount thereof
to the extent then feasible (which estimate shall not be conclusive of the
final amount of such claim); provided, however, that the failure of any
Indemnitee to give notice as provided in this Section 5.4 shall not relieve
the related Indemnifying Party of its obligations under this Article 5,
except to the extent that such Indemnifying Party is actually prejudiced by
such failure to give notice.
(b) An Indemnifying Party may elect to defend, at such Indemnifying
Party's own expense and by such Indemnifying Party's own counsel (which
counsel shall be reasonably satisfactory to the Indemnitee), any Third Party
Claim. If an Indemnifying Party elects to defend a Third Party Claim, it
shall, within 10 days of notice of such Third Party Claim (or sooner, if the
nature of such Third Party Claim so requires), notify the related Indemnitee
of its intent to do so, and such Indemnitee shall cooperate in the
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defense of such Third Party Claim. such Indemnifying Party shall pay such
Indemnitee's actual out-of-pocket expenses (other than officers' or
employees' salaries) reasonably incurred in connection with such cooperation.
After notice from an Indemnifying Party to an Indemnitee of its election to
assume the defense of a Third Party Claim, such Indemnifying Party shall not
be liable to such Indemnitee under this Article 5 for any legal or other
expenses subsequently incurred by such Indemnitee in connection with the
defense thereof; provided, however, that such Indemnitee shall have the right
to employ separate counsel to represent such Indemnitee if, in such
Indemnitee's reasonable judgment, a conflict of interest between such
Indemnitee and such Indemnifying Party exists in respect of such claim, and
in that event the reasonable fees and expenses of such separate counsel shall
be paid by such Indemnifying Party. Except as so provided, if an Indemnitee
desires to participate in the defense of a Third Party Claim, it may do so
but it shall not control the defense and such participation shall be at its
sole cost and expense. If an Indemnifying Party elects not to defend against
a Third Party Claim, or fails to notify an Indemnitee of its election as
provided in this Section 5.4, such Indemnitee may defend, compromise and
settle such Third Party Claim; provided, however, that no such Indemnitee may
compromise or settle any such Third Party Claim without prior written notice
to such Indemnifying Party and except by payment of monetary damages or other
money payments. No Indemnifying Party shall consent to entry of any judgment
or enter into any compromise or settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnitee of a release from all Liability in respect to such Third Party
claim.
(c) If an Indemnifying Party chooses to defend any claim, the Indemnitee
shall make available to such Indemnifying Party any personnel or any books,
records or other documents within its control that are necessary or
appropriate for such defense (the cost of copying thereof to be paid by the
Indemnifying Party).
(d) Notwithstanding the foregoing provisions of this Section 5.4, there
may be Third Party Claims which reasonably could result in both SFX and
Entertainment being liable to the other under indemnification provisions of
this Agreement. In any such events, the parties shall endeavor, acting
reasonably and in good faith, to agree upon a manner of conducting the
defense of or settlement of the Third Party Claim with a view to minimizing
the legal expenses and associated costs that might otherwise be incurred by
the parties, including to the use of the same legal counsel for the defense
of such claim.
(e) Except to the extent expressly provided otherwise in this Section 5.4,
the indemnification provided for by this Section 5.4 shall not inure to the
benefit of any third party or parties and shall not relieve any insurer who
would otherwise be obligated to pay any claim of the responsibility with
respect thereto or, solely by virtue of the indemnification provisions
hereof, provided any subrogation rights with respect thereto.
(f) Any claim on account of an Indemnifiable Loss which does not result
from a Third Party Claim shall be asserted by written notice given by the
related Indemnitee to the related Indemnifying Party. Such Indemnifying Party
shall have a period of 60 days within which to respond thereto. If such
Indemnifying Party does not respond within such 60-day period, such
Indemnifying Party shall be deemed to have accepted responsibility to make
payment and shall have no further right to contest the validity of such
claim. If such Indemnifying Party does respond within such 60-day period and
rejects such claim in whole or in party, such Indemnitee shall be free to
pursue mediation as provided in Article 10 hereof.
ARTICLE 6
RELATED AGREEMENTS
SECTION 6.1 Tax Sharing Agreement. Except as contemplated in this Section
6.1 hereof, any tax sharing agreement between any of the Delsener/Slater
Group and any of SFX and its Subsidiaries shall be terminated as of the
Distribution Date and will have no further effect for any taxable year
(whether the current year, a future year, or a past year). On or prior to the
Distribution Date, SFX and the Delsener/Slater Group shall enter into a Tax
Sharing Agreement in the form attached hereto as Exhibit A.
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<PAGE>
SECTION 6.2 Employee Benefits Agreement. On or prior to the Distribution
Date, SFX and the Delsener/Slater Group shall enter into a Employee Benefits
Agreement in the form attached hereto as Exhibit B.
ARTICLE 7
CERTAIN ADDITIONAL MATTERS
SECTION 7.1 Conveyancing and Assumption Instruments. In connection with
the transfer, conveyance, assignment and delivery of the Transferred Assets
and the assumption of Liabilities contemplated by this Agreement, SFX and
Entertainment agree to execute or cause to be executed by the appropriate
parties and to deliver to each other, as appropriate, the Conveyancing and
Assumption Instruments.
SECTION 7.2 No Representations or Warranties. Entertainment understands
and agrees that SFX is not in this Agreement or in any other agreement or
document contemplated by this Agreement, nor shall SFX be deemed or implied
to be, representing or warranting in any way as to the value or freedom from
encumbrance of, or any other matter concerning, any Transferred Assets or the
Transferred Businesses or as to the legal sufficiency to convey title to any
Transferred Assets of the execution, delivery and filing of the Conveyancing
and Assumption Instruments, IT BEING AGREED AND UNDERSTOOD THAT ALL SUCH
ASSETS ARE BEING TRANSFERRED "AS IS, WHERE IS" and that Entertainment shall
bear the economic and legal risk that any conveyances of such assets shall
prove to be insufficient or that Entertainment's title to any such assets
shall be other than good and marketable and free from encumbrances.
SECTION 7.3 Further Assurances; Subsequent Transfers.
(a) Each of SFX and Entertainment will execute and deliver such further
instruments of conveyance, transfer and assignment and will take such other
actions as each of them may reasonably request of the other in order to
effectuate the purposes of this Agreement and to carry out the terms hereof.
Without limiting the generality of the foregoing, at any time and from time
to time after the Distribution Date, at the request of Entertainment, SFX
will execute and deliver to Entertainment such other instruments of transfer,
conveyance, assignment and confirmation and take such action as Entertainment
may reasonably deem necessary or desirable in order to more effectively
transfer, convey and assign to Entertainment and to confirm Entertainment's
title to all of the Transferred Assets, to put Entertainment in actual
possession and operating control thereof and to permit Entertainment to
exercise all rights with respect thereto (including, without limitation,
rights under contracts and other arrangements as to which the consent of any
third party to the transfer thereof shall not have previously been obtained)
and SFX will take such actions as Entertainment may reasonably request in
order to prepare and implement appropriate plans, agreements and arrangements
for the Employees and Entertainment will execute and deliver to SFX all
instruments, undertakings or other documents and take such other action as
SFX may reasonably request in order to have Entertainment properly assume and
discharge the Assumed Liabilities and relieve SFX of any Liability or
obligations with respect thereto and evidence the same to third parties.
Notwithstanding the foregoing, SFX and Entertainment shall not be obligated,
in connection with the foregoing, to expend monies other than reasonable
out-of-pocket expenses and attorneys' fees (which expenses and fees shall be
reimbursed by the requesting party).
(b) SFX and Entertainment will use their commercially reasonable efforts
to obtain any consent required to assign all agreements, leases, permits,
licenses and other rights of any nature whatsoever relating to the
Transferred Assets to Entertainment; provided, however, that SFX shall not be
obligated to pay any consideration therefor (except as provided in Section
2.2 and except for filing fees and other administrative charges) to the third
party from whom such consents, approvals and amendments are requested. In the
event and to the extent that SFX is unable to obtain any such required
consent, SFX shall continue to be bound thereby and unless not permitted by
law or the terms thereof, Entertainment shall pay, perform and discharge
fully all the obligations of SFX thereunder from and after the Distribution
Date and indemnify SFX for all Indemnifiable Losses arising out of such
performance by Entertainment in accordance with Article 5. SFX shall, without
further consideration therefor, pay, assign
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and remit to Entertainment promptly all monies, rights and other
considerations received in respect of such performance. SFX shall exercise or
exploit its rights and options under all such agreements, leases, licenses
and other rights and commitments referred to in this Section 7.3(b) only as
reasonably directed by Entertainment and at Entertainment's expense. If and
when any such consent shall be obtained or such agreement, lease, license or
other right shall otherwise become assignable or able to be novated, SFX
shall promptly assign and novate all its rights and obligations thereunder to
Entertainment without payment of further consideration and Entertainment
shall, without the payment of any further consideration therefore, assume
such rights and obligations.
SECTION 7.4 Sales and Transfer Taxes. Entertainment and SFX agree to
cooperate to determine the amount of sales, transfer or other taxes or fees
(including, without limitation, all real estate, patent, copyright and
trademark transfer taxes and recording fees) payable in connection with the
transactions contemplated by this Agreement (the "Transaction Taxes"). SFX
agrees to file promptly and timely the returns for such Transaction Taxes
with the appropriate taxing authorities and remit payment of the Transaction
Taxes, and Entertainment will join in the execution of any such tax returns
or other documentation.
SECTION 7.5 Change of Name. Within 10 business days after the consummation
of the Merger, SFX and each of its Subsidiaries, if necessary, shall file
certificates of amendment with the appropriate Secretary of State, amending
such company's certificate of incorporation to change the name of such
Company to any name which does not include the letters "SFX". At the closing
of the Merger, SFX will assign to Entertainment or its designee all right,
title and interest, including all the good will related thereto, in and to
the name "SFX" together with all causes of action and the right to recover
for past infringements of the name "SFX." As soon as commercially
practicable, but in no event later than six months from the consummation of
the Merger, SFX shall cease all use of the name "SFX" or other trademarks,
trade names or their identifiers owned by, licensed to, or transferred
pursuant to this Agreement to, Entertainment in all modes.
ARTICLE 8
ACCESS TO INFORMATION AND SERVICES
SECTION 8.1 Provision of Corporate Records. As soon as practicable after
the Distribution Date, SFX shall deliver to Entertainment all Books and
Records in its possession. Such Books and Records shall be the property of
Entertainment, but shall be retained and made available to SFX for review and
duplication until the earlier of notice from SFX that such records are no
longer needed by SFX or the 20th anniversary of the Distribution Date.
SECTION 8.2 Access to Information. From and after the Distribution Date,
SFX and Entertainment shall afford to each other and to each other's
authorized accountants, counsel and other designated representatives
reasonable access and duplicating rights (with copying costs to be borne by
the requesting party) during normal business hours to all Books and Records
and other data and information (collectively, "Information") within each
other's possession relating to the Transferred Assets, the Transferred
Businesses and the Employees, insofar as such access is reasonably required
by SFX or Entertainment, as the case may be (and shall use reasonable efforts
to cause persons or firms possessing relevant Information to give similar
access). Information may be requested under this Article 8 for, without
limitation, audit, accounting, claims, litigation and tax purposes, as well
as for purposes of fulfilling disclosure and reporting obligations.
SECTION 8.3 Retention of Records. Except as otherwise required for a
longer period by law or agreed to in writing, SFX and Entertainment shall
retain, for a period of at least 20 years following the Distribution Date,
all material Information relating to the Transferred Businesses.
Notwithstanding the foregoing, in lieu of retaining any specific Information,
SFX or Entertainment may offer in writing to deliver such Information to the
other and, if such offer is not accepted within 90 days, the offered
Information may be destroyed or otherwise disposed of at any time. If a
recipient of such offer shall request in writing prior to the scheduled date
for such destruction or disposal that any of the Information
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proposed to be destroyed or disposed of be delivered to such requesting
party, the party proposing the destruction or disposal shall promptly arrange
for delivery of such of the Information as was requested (at cost of
requesting party).
SECTION 8.4 Confidentiality. Each of SFX and Entertainment shall hold, and
shall cause its officers, employees, agents, consultants and advisors to
hold, in strict confidence, unless compelled to disclose by judicial or
administrative process or, in the opinion of its legal counsel, by other
requirements of law (including, without limitation, any requirements imposed
under state and federal securities laws and stock exchange rules), all
non-public Information concerning the other party furnished it by such other
party or its representatives pursuant to this Agreement (except to the extent
that such Information can be shown to have been available to such party on a
non-confidential basis prior to this disclosure by the other party, in the
public domain through no fault of such party or later lawfully acquired from
other sources by the party to which it was furnished), and each party shall
not release or disclose such Information to any other person, except its
auditors, attorneys, financial advisors, bankers and other consultants and
advisors who shall be bound by the provisions of this Section 8.4. Each party
shall be deemed to have satisfied its obligation to hold confidential
Information concerning or supplied by the other party if its exercises the
same care as it takes to preserve confidentiality for its own similar
Information. SFX and Entertainment agree with each other that each will
maintain, preserve and assert, unless waived in writing by the other, all
attorney-client and work product privileges applicable to documents and other
Information which relates, directly or indirectly, to the Transferred
Businesses for any period prior to the Distribution Date.
SECTION 8.5 Privileged Matters. Anything herein or in the Merger Agreement
notwithstanding, the transactions contemplated hereby and by the Merger
Agreement shall not be deemed to transfer to or vest in SFX any right to
waive, nor shall they be deemed to waive, any attorney-client privilege
between SFX and its legal counsel, with respect to legal advice concerning
the business or operations of Entertainment including, without limitation,
the transactions contemplated by the Merger Agreement, this Agreement and the
Related Agreements, in either case, concerning privileged communications (or
work product related thereto) at any time prior to the Closing Date. SFX
shall assign to Entertainment SFX's rights (if any) to any attorney-client
privilege with respect to legal advice concerning the business or operations
of Entertainment including, without limitation, the transactions contemplated
by the Merger Agreement, this Agreement and the Related Agreements,
concerning privileged communications (or work product related thereto) at any
time prior to the Closing Date. SFX and its successors and assigns shall not
be entitled to waive or have access, nor shall they attempt to waive or seek
access, to any privileged communications (or work product related thereto)
between Entertainment and its legal counsel with respect to legal advice
concerning the business or operations of Entertainment.
ARTICLE 9
INSURANCE
SECTION 9.1 General. SFX shall keep in effect all policies under its
Insurance Program in effect as of the date hereof insuring the Transferred
Assets and operations of the Transferred Businesses until the earlier of (i)
the Effective Time and (ii) 12:00 midnight on the Distribution Date, unless
Entertainment shall have earlier obtained appropriate coverage and notified
SFX in writing to that effect. In so far as any claims made or accrued under
policies under the Insurance Program prior to the Distribution Date relate to
Entertainment, SFX shall use its reasonable efforts to assure that
Entertainment can continue to make and/or pursue such claims under the
policies, or that SFX can continue to make and/or pursue such claims on
behalf of Entertainment, notwithstanding assignment or transfer of the
policies (provided that Entertainment shall reimburse SFX for any reasonable
out-of-pocket expenses incurred by SFX in connection therewith). From and
after the Distribution Date, Entertainment shall be responsible for obtaining
and maintaining insurance coverage for its own account. SFX shall, if so
requested by Entertainment, use reasonable efforts to assist Entertainment in
obtaining such initial insurance coverage for Entertainment from and after
the Distribution Date in such amounts as are agreed upon by SFX and
Entertainment. Following the Distribution Date, each of SFX and Entertainment
shall cooperate with and assist the other party in the prevention of
conflicts or gaps in insurance coverage and/or collection proceeds.
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SECTION 9.2 Certain Insured Claims. SFX will assert and pursue, for the
benefit of Entertainment, claims against the Insurance Program for any losses
resulting, directly or indirectly, from claims made or deemed made under the
applicable Insurance Program which relate to the Transferred Business and
which arise from or relate to events or occurrences prior to the Distribution
Date. Entertainment shall pay all costs incurred by SFX after the
Distribution Date in defending or pursuing any such claims under an insurance
policy relating to the Transferred Businesses, including the salaries of
employees based on the portion of time spent on such claims and Entertainment
shall make available to SFX such of its employees as SFX may reasonably
request as witnesses or deponents in connection with SFX's defense or pursuit
of any such claims, at Entertainment's sole cost and expense.
ARTICLE 10
CONDITIONS
SECTION 10.1 Conditions. The obligations of SFX and Entertainment to
consummate the Distribution shall be subject to the fulfillment or waiver of
each of the following conditions:
(a) the Board of Directors of SFX shall be satisfied that SFX's surplus
would be sufficient to permit under Delaware law the Distribution and shall
have formally approved the Distribution;
(b) the Registration Statement shall have been declared effective by the
SEC and no stop order shall have been issued or be pending with respect
thereto;
(c) the Entertainment Class A Common Stock shall have been accepted for
listing or trading, subject to official notice of issuance, on a national
exchange or the Nasdaq Stock Market;
(d) all necessary third party consents to the Distribution shall have been
obtained;
(e) the necessary stockholder approvals shall have been obtained to
consummate the Distribution as presently contemplated;
(f) no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Distribution
shall be in effect;
(g) SFX and Entertainment shall have entered into the Related Agreements;
and
(h) each of the covenants and provisions in this Agreement required to be
performed or complied with prior to the Distribution shall have been
performed or complied with.
Any determination by the Board of Directors of SFX on behalf of either
party hereto prior to the Distribution Date concerning the satisfaction or
waiver of any or all of the conditions set forth in this Section shall be
conclusive.
ARTICLE 11
MEDIATION
SECTION 11.1 Mediation and Binding Arbitration. If a dispute arises
between SFX and Entertainment as to the interpretation or the implementation
of this Agreement, the Related Agreements or any other agreement entered into
pursuant hereto (other than a dispute with respect to Working Capital which
shall be resolved in accordance with the provisions of Section 2.2. hereof),
including, without limitation, any matter involving an Indemnifiable Loss,
SFX and Entertainment agree to use the following procedures, in lieu of
either party pursuing other available remedies and as the sole remedy, to
resolve the dispute.
SECTION 11.2 Initiation. A party seeking to initiate the procedures shall
give written notice to the other party, describing briefly the nature of the
dispute. A meeting shall be held between the parties within 10 days of the
receipt of such notice, attended by individuals with decision-making
authority regarding the dispute, to attempt in good faith to negotiate a
resolution of the dispute.
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SECTION 11.3 Submission to Mediation. If, within 30 days after such
meeting, the parties have not succeeded in negotiating a resolution of the
dispute, they agree to submit the dispute to mediation in accordance with the
Commercial Arbitration Rules of the American Arbitration Association and to
bear equally the costs of the mediation.
SECTION 11.4 Selection of Mediator. The parties will jointly appoint a
mutually acceptable mediator, seeking assistance in such regard from the
American Arbitration Association or another mutually agreed-upon organization
if they have been unable to agree upon such appointment within 20 days from
the conclusion of the negotiation period.
SECTION 11.5 Mediation. The parties agree to participate in good faith in
the mediation and negotiations related thereto for a period of 30 days
following the initial mediation session. If the parties are not successful in
resolving the dispute through the mediation by the end of such 30-day period,
then the parties agree to submit the matter to binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, by a sole arbitrator selected in accordance with the provisions
of Section 11.6 hereof. The arbitration shall be governed by the United
States Arbitration Act, 9 U.S.C. Section 1-16, and judgment upon the award
rendered by the arbitrator may be entered by any court having jurisdiction
thereof.
SECTION 11.6 Selection of Arbitrator. The parties shall have 10 days from
the end of the mediation period to agree upon a mutually acceptable neutral
person not affiliated with either of the parties to act as arbitrator. If no
arbitrator has been selected within such time, an arbitrator shall be
selected for the Disputing Parties by the American Arbitration Association.
SECTION 11.7 Cost of Arbitration. The costs of arbitration shall be
apportioned between SFX and Entertainment as determined by the arbitrator in
such manner as the arbitrator deems reasonable taking into account the
circumstances of the case, the conduct of the parties during the proceeding,
and the result of the arbitration.
ARTICLE 12
MISCELLANEOUS
SECTION 12.1 Complete Agreement. Subject to Section 3.3 hereof , this
Agreement, including the Annexes and Exhibits and the agreements and other
documents referred to herein, shall constitute the entire agreement between
SFX and Entertainment with respect to the subject matter hereof and shall
supersede all previous negotiations, commitments and writings with respect to
such subject matter.
SECTION 12.2 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
(regardless of the laws that might otherwise govern under applicable
principles of conflicts law) as to all matters, including, without
limitation, matters of validity, construction, effect, performance and
remedies.
SECTION 12.3 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed
to have been duly given on the date of service if served personally on the
part to whom notice is given, on the day of transmission if set via facsimile
transmission to the facsimile number given below, provided telephonic
confirmation of receipt is obtained promptly after completion of
transmission, on the business day after delivery to an overnight courier
service or the Express mail service maintained by the United States Postal
Service, provided receipt of delivery has been confirmed, or on the fifth day
after mailing provided receipt of delivery is confirmed, if mailed to the
party
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to whom notice is to be given, by first class mail, registered or certified,
postage prepaid, properly addressed and return-receipt requested, to the
party as follows:
If to SFX
<TABLE>
<CAPTION>
<S> <C>
prior to the Effective Time: SFX Broadcasting, Inc.
150 East 58th Street, 19th Floor
New York, New York 10155
Telecopy No.: (212)753-3188
Attention: Howard J. Tytel
with a copy to: Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Telecopy No.: (214) 740-7313
Attention: Lawrence D. Stuart, Jr.
after the Effective Time: Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Telecopy No.: (214) 740-7313
Attention: Lawrence D. Stuart, Jr.
If to Entertainment: SFX Entertainment, Inc.
150 East 58th Street, 19th Floor
New York, New York 10155
Telecopy No.: (212)753-3188
Attention: Howard J. Tytel
with a copy to: Baker & McKenzie
Two Allen Center
1200 Smith Street, Suite 1200
Houston, Texas 77002
Telecopy No.: (713) 427-5099
Attention: Amar Budarapu
</TABLE>
Any party may change its address by giving the other party written notice of
its new address in the manner set forth above.
SECTION 12.4 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by written agreement of SFX and Entertainment
and with the consent of Parent, which consent shall not be unreasonably
withheld
SECTION 12.5 Termination. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Distribution Date by and in
the sole discretion of SFX without the approval of Entertainment or Parent.
In the event of such termination, no party shall have any Liability of any
kind to any other party.
SECTION 12.6 Successor and Assigns. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns, but neither
this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by either party without the prior written consent of the
other party.
SECTION 12.7 No Third Party Beneficiaries. Except for the indemnification
rights under this Agreement of any Indemnity in their capacity as such and
except for the mutual releases provided for in this Agreement, this
Agreement, the Exhibits hereto and the Related Agreements are solely for the
benefit of the parties hereto and are not intended to confer upon any other
person except the parties hereto any rights or remedies hereunder.
F-18
<PAGE>
SECTION 12.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 12.9 Interpretation. The Article and Section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, the term
"person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
SECTION 12.10 Annexes, Etc. The Annexes, Schedules and Exhibits shall be
construed with and as an integral part of this Agreement to the same extent
as if the same had been set forth verbatim herein.
SECTION 12.11 Legal Enforceability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the day and year first above written.
SFX BROADCASTING, INC.
By:
Name:
Title:
SFX ENTERTAINMENT, INC.
By:
Name:
Title:
SBI HOLDING CORPORATION,
with respect to Section
12.4 only.
By:
Name:
Title:
F-19
<PAGE>
ANNEX I
ASSUMED LIABILITIES
(a) Lease Agreement dated May 1, 1986, as amended, between AR DE Realty
Corp., N.V. and Sillerman-Magee Communications Management Corporation,
assumed by SFX, and that certain Lease Agreement dated May 27, 1997, between
HIRO Real Estate Co. and SFX (the "Leases"),
(b) Debt and Liabilities incurred by SFX Concerts, Inc. or Entertainment
or their respective Subsidiaries after the date of execution of the Merger
Agreement in connection with acquisitions and capital expenditures approved
by their respective Boards of Directors and such other debt and Liabilities
as Entertainment deems appropriate;
(b) Liabilities under the Airplane Agreement and the Triathlon SCMC
Agreement, as well as the New York Leases (both leases);
(c) Liabilities under the following, subject to Section 4.3 of this
Agreement:
(i) Employment Agreement with Ron Delsener dated January 2, 1997;
(ii) Employment Agreement with Mitch Slater dated January 2, 1997;
(iii) Employment Agreement with David Lucas dated June 1997;
(iv) Employment Agreement with Steve Lybesma dated June 1997 and all
other concert division employees;
(v) the employment agreements of all employees located on 150 East 58th
Street, New York, New York, 10155.
(d) All Liabilities and obligations of SFX and its Subsidiaries arising
under the Asset Purchase and Sale Agreement, dated June 23, 1997 by and among
Sunshine Concerts, L.L.C., SFX Broadcasting, Inc., Sunshine Promotions, Inc.,
P. David Lucas and Steven P. Sybesma.
(e) All Liabilities and obligations arising under the SCMC Termination
Agreement described in Section 4.06 of the Company Disclosure Schedule to the
Merger Agreement; and
(g) obligations which accrue after the Distribution Date for all the items
above.
(h) all liabilities and obligations under SFX Entertainments proposed
private placement of $275 million of debt.
I-1
<PAGE>
ANNEX II
TRANSFERRED ASSETS
Transferred Assets. Subject to Section 4.3 of this Agreement, the
following assets and properties as of the Distribution Date:
(a) the assets under the Airplane Agreement
(b) the assets under the Triathlon SCMC Agreement
(c) the New York Leases (both leases), including the cash collateral on
the leases, and all assets located in the New York offices;
(d) the note receivable resulting from the sale of SFX's radio stations in
Myrtle Beach;
(e) Employment Agreement with Ron Delsener dated January 2, 1997;
(f) Employment Agreement with Mitch Slater dated January 2, 1997;
(g) Employment Agreement with David Lucas dated June 1997;
(h) Employment Agreement with Steve Lybesma dated June 1997 and all other
concert division employees;
(i) the employment agreements of all employees located on 150 East 58th
Street, New York, New York, 10155.
(j) rights which accrue after the Distribution Date for all of the items
listed above;
(k) all accounts receivable relating to the Entertainment Business of SFX;
and
(l) all assets used primarily in the Transferred Businesses including,
without limitation, permits, licences, intellectual property and other
rights.
(m) all of the capital stock of SFX Concerts, Inc. and its subsidiaries.
<PAGE>
Exhibit B to the Distribution Agreement
EMPLOYEE
BENEFITS
and
COMPENSATION ALLOCATION AGREEMENT
between
SFX BROADCASTING, INC.
and
SFX ENTERTAINMENT, INC.
dated as of
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I.
DEFINITIONS..................................................... 1
Section 1.1 General....................................... 1
ARTICLE II.
RETIREMENT AND WELFARE PLANS.................................... 4
Section 2.1 SFX 401(k) Plan............................... 4
Section 2.2 Welfare Plans................................. 4
ARTICLE III.
GENERAL PROVISIONS.............................................. 5
Section 3.1 Employment Transfers.......................... 5
Section 3.2 Costs and Expenses............................ 6
ARTICLE IV.
MISCELLANEOUS................................................... 6
Section 4.1 Guarantee of Subsidiaries' Obligations........ 6
Section 4.2 Sharing of Information........................ 6
Section 4.3 Termination................................... 6
Section 4.4 Rights to Amend or Terminate Plans;
No Third Party Beneficiaries ............... 6
Section 4.5 Complete Agreement............................ 7
Section 4.6 Governing Law................................. 7
Section 4.7 Notices....................................... 7
Section 4.8 Amendment and Modification.................... 7
Section 4.9 Successors and Assigns........................ 7
Section 4.10 Counterparts.................................. 7
Section 4.11 Interpretation................................ 7
Section 4.12 Legal Enforceability.......................... 7
Section 4.13 References; Construction...................... 7
Section 4.14 Disputes...................................... 8
- i -
<PAGE>
EMPLOYEE BENEFITS AND COMPENSATION
ALLOCATION AGREEMENT
EMPLOYEE BENEFITS AND COMPENSATION ALLOCATION
AGREEMENT, dated as of , 1998 by and between SFX Broadcasting, Inc., a
Delaware corporation ("SFX"), and SFX Entertainment, Inc., a Delaware
corporation and wholly-owned subsidiary of SFX ("Entertainment"). Unless the
context requires otherwise, "SFX" refers to SFX and its subsidiaries (other
than Entertainment and its subsidiaries) and "Entertainment" refers to
Entertainment and its subsidiaries.
WITNESSETH:
WHEREAS, pursuant to the terms of that certain Distribution
Agreement by and between SFX and Entertainment and dated as of (the
"Distribution Agreement), the parties have entered into this Agreement
regarding certain employment, compensation and benefit matters occasioned by
the Distribution; and
WHEREAS, Parent has joined as a signatory and a party to
this Agreement in order to preserve and protect its rights under the Merger
Agreement.
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained in this Agreement and the Distribution
Agreement, each of the parties hereto, on behalf of itself and its
subsidiaries, hereby agrees as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1 GENERAL. Any capitalized terms that are used in this Agreement but
not defined herein shall have the meanings set forth in the Distribution
Agreement (or, if not defined therein, the meanings set forth in the Merger
Agreement), and, as used herein, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
Adverse Consequences: means all actions, suits, proceedings,
investigations, charges, complaints, claims, demands, judgments,
orders, decrees, rulings, damages, fines, costs, amounts paid in
settlement, liabilities, losses, and expenses, including court costs
and reasonable attorneys' fees and expenses.
Agreement: this Employee Benefits and Compensation
Allocation Agreement.
- 1 -
<PAGE>
Alternate Payee: an alternate payee under a domestic
relations order which has been determined by the appropriate Plan
administrator to be qualified under Section 414(p) of the Code and
Section 206(d) of ERISA and which creates or recognizes an alternate
payee's right to, or assigns to an alternate payee, all or a portion
of the benefits payable to a participant under any Plan, or an
alternate recipient under a medical child support order which has
been determined by the appropriate Plan administrator to be qualified
under Section 609(a) of ERISA and which creates or recognizes the
existence of an alternate recipient's right to, or assigns to an
alternate recipient the right to, receive benefits for which a
participant or beneficiary is eligible under any Plan.
Beneficiary: a beneficiary, dependent or Alternate Payee of
a participant in a Plan or the estate of a deceased participant in a
Plan, in each case, in his, her or its capacity as such a
beneficiary, dependent, Alternate Payee or estate.
Distribution Agreement: defined in the recitals.
Distribution Date: defined in the Distribution Agreement.
Distribution Employees: defined in the Distribution
Agreement.
Effective Time: defined in the Merger Agreement.
Employee: a Distribution Employee and any employee shown on
the payroll and other records of the Pre-Distribution Group as being
assigned to the Transferred Businesses as of the Distribution Date,
if such individual is, at the relevant time, actively at work or on a
leave of absence (including, but not limited to, vacation, holiday,
sick leave, family and medical leave, disability leave, military
leave, jury duty, layoff with rights of recall, and any other leave
of absence or similar interruption of active employment that is not
considered, according to the policies and practices of such entity,
to have resulted in a permanent termination of such individual's
employment).
Entertainment: defined in the preamble.
Entertainment Participant: any individual who is an Employee
or a Beneficiary of an Employee.
Entertainment 401(k) Plan: a defined contribution plan and
any related trust established by Entertainment to receive the SFX
401(k) Plan account balances described in Section 2.1(a).
Entertainment Plans: Plans provided by, contributed to or
sponsored by one or more members of the Delsener/Slater Group which
are initially effective on or after the Distribution Date to provide
benefits to Entertainment Participants.
- 2 -
<PAGE>
Entertainment Welfare Plan: a Welfare Plan provided by,
contributed to or sponsored by one or more members of the
Delsener/Slater Group which are initially effective on or after the
Distribution Date to provide benefits to Entertainment Participants.
ERISA: the Employee Retirement Income Security Act of 1974,
as amended, or any successor legislation, and the regulations
promulgated thereunder.
Executive Group: defined in the Merger Agreement.
Parent: defined in the Distribution Agreement.
Plan: any written or unwritten plan, policy, program,
payroll practice, ongoing arrangement, trust, fund, contract,
insurance policy or other agreement or funding vehicle provided by,
contributed to or sponsored by one or more members of the SFX Group
or the Delsener/Slater Group, providing benefits to SFX Participants
or Entertainment Participants, regardless of whether it is mandated
under local law or negotiated or agreed to as a term or condition of
employment or otherwise, and regardless of whether it is
governmental, private, funded, unfunded, financed by the purchase of
insurance, contributory or noncontributory.
Pre-Distribution Group: SFX and its subsidiaries prior to
the Distribution.
SFX: defined in the preamble.
SFX Employee: any individual who is not an Employee who is
actively employed or on a leave of absence from (including, but not
limited to, vacation, holiday, sick leave, family and medical leave,
disability leave, military leave, jury duty, layoff with rights of
recall, and any other leave of absence or similar interruption of
active employment that is not considered, according to the policies
and practices of such entity, to have resulted in a permanent
termination of such individual's employment) or was formerly employed
by one or more members of the Pre-Distribution Group.
SFX 401(k) Plan: the SFX Broadcasting 401(k) Plan, or any
successor thereto (by merger of plans or otherwise) and any related
trust.
SFX Group: the Pre-Distribution Group, excluding the
Delsener/Slater Group.
SFX Welfare Plan: any Welfare Plan provided by, contributed
to or sponsored by one or more members of the SFX Group on, prior to
or after the Distribution Date.
Welfare Plan: any Plan that is an "employee welfare benefit
plan" as defined in Section 3(1) of ERISA (whether or not such plan
is subject to ERISA) and any Plan that
- 3 -
<PAGE>
is or is intended to be a cafeteria plan under Code Section 125;
provided such term shall not include any severance obligations to the
Executive Group.
ARTICLE II.
RETIREMENT AND WELFARE PLANS
SECTION 2.1 SFX 401(K) PLAN
(a) SFX and Entertainment shall take all actions necessary
or appropriate so that, as of the Distribution Date, all members of the
Delsener/Slater Group shall cease to be participating employers and sponsors
of the SFX 401(k) Plan. To the extent the parties determine that distribution
of the account balances of Entertainment Participants under the SFX 401(k)
Plan cannot be made in accordance with applicable law and the provisions of
the SFX 401(k) Plan within thirty (30) days after the Effective Time or such
other date or dates mutually agreeable to the parties ("401(k) Distribution
Deadlines"), SFX and Entertainment shall take all actions as may be necessary
or appropriate in order to effect the transfer of the account balances of the
Entertainment Participants under the SFX 401(k) Plan to the Entertainment
401(k) Plan on or as soon as practicable after the 401(k) Distribution
Deadlines or such other date or dates mutually agreeable to the parties. The
assets transferred shall be equal to the liabilities transferred and shall
consist of a pro-rata portion of the assets held in the SFX 401(k) Plan,
unless the parties mutually agree otherwise. To the extent such transfer is
made or any distributions from the SFX 401(k) Plan are submitted for
acceptance to the Entertainment 401(k) Plan as rollover contributions, such
transfers and rollover contributions shall be subject to receipt by
Entertainment of notification from SFX that the SFX 401(k) Plan is intended to
be a tax qualified plan under section 401(a) of the Code. Furthermore,
acceptance or non-acceptance of any rollover contribution from the SFX 401(k)
Plan by the Entertainment 401(k) Plan shall be solely at Entertainment's
discretion and, if accepted, shall be subject to any other conditions and
restrictions that Entertainment in its sole discretion decides to impose.
(b) SFX and Entertainment shall cooperate in making all
appropriate filings required under the Code or ERISA, and the regulations
thereunder and any applicable securities or other laws, implementing all
appropriate communications with participants, maintaining and transferring
appropriate records, and taking all such other actions as may be necessary or
appropriate to implement the provisions of this Section 2.1 and to cause the
transfers pursuant to Section 2.1(a) to take place as soon as practicable
after the date or dates described in Section 2.1(a).
- 4 -
<PAGE>
SECTION 2.2 WELFARE PLANS.
(a) SFX and Entertainment shall take all actions necessary
or appropriate so that, as of the Distribution Date, all members of the
Delsener/Slater Group shall cease to be participating employers and sponsors
of the SFX Welfare Plans. The SFX Group shall have sole responsibility for
retaining and discharging: (1) all Liabilities and Adverse Consequences
relating to or arising out of the SFX Welfare Plans by or in respect of
Entertainment Participants who are not Distribution Employees or Beneficiaries
of Distribution Employees with respect to claims incurred on or prior to the
Distribution Date, provided such claims are filed or submitted within the time
periods required under the SFX Welfare Plans; (2) all Liabilities and Adverse
Consequences relating to or arising out of the SFX Welfare Plans by or in
respect of Entertainment Participants who are Distribution Employees or
Beneficiaries of Distribution Employees with respect to claims incurred on or
prior to the Effective Time, provided such claims are filed or submitted
within the time periods required under the SFX Welfare Plans; and (3) all
Liabilities and Adverse Consequences relating to or arising out of the SFX
Welfare Plans by or in respect of individuals who are not Entertainment
Participants. Effective as of the Distribution Date, the Delsener/Slater Group
shall have no Liabilities and shall not be responsible for any Adverse
Consequences relating to or arising out of the SFX Welfare Plans. For purposes
of this Section 2.2(a), a claim shall be deemed incurred when the service is
rendered or the materials are provided and not when an individual is formally
billed or charged for the service or materials.
(b) Except as specifically set forth in this Section 2.2,
Entertainment shall take all actions necessary or appropriate to establish
Entertainment Welfare Plans to provide such Welfare Plan benefits as
Entertainment determines necessary or appropriate, if any, to Entertainment
Participants. SFX agrees to provide Entertainment or its designated
representatives with such information in the possession of a member of the SFX
Group and not already in the possession of a member of the Delsener/Slater
Group as may be reasonably requested by Entertainment in order to carry out
the requirements of this Section 2.2. Entertainment shall have sole
responsibility for retaining and discharging all Liabilities and Adverse
Consequences relating to or arising out of the Entertainment Welfare Plans.
(c) On or prior to the Distribution Date, Entertainment
shall pay premiums and contributions with respect to the Entertainment
Participants' coverage under the SFX Welfare Plans in accordance with past
practices and procedures except, with respect to the month in which the
Distribution Date occurs, any such premiums and contributions shall be paid as
soon as practicable after such month and be pro-rated to the day in the month
when the Distribution Date occurs and be based on the number of participants
employed by the Delsener/Slater Group as compared to the total number of
participants in the SFX Welfare Plan in question.
ARTICLE III.
GENERAL PROVISIONS
- 5 -
<PAGE>
SECTION 3.1 EMPLOYMENT TRANSFERS. Subject to Section 4.3 of
the Distribution Agreement and Section 5.07 of the Merger Agreement,
Entertainment and SFX shall take all steps necessary and appropriate so that,
on or immediately after the Distribution Date, all Employees who are not
Distribution Employees are employed, or (where employment does not continue by
operation of law) are offered employment, by a member of the Delsener/Slater
Group, and all SFX Employees who are not former employees of the
Pre-Distribution Group are employed, or (where employment does not continue by
operation of law) are offered employment, by a member of the SFX Group. Such
steps shall include, where necessary or appropriate under local law, making
employment offers and/or transferring contracts of employment.
SECTION 3.2 COSTS AND EXPENSES. The Delsener/Slater Group
and SFX Group shall bear their own costs and expenses with respect to actions
taken to comply with this Agreement, except as otherwise provided in this
Agreement.
ARTICLE IV.
MISCELLANEOUS
SECTION 4.1 GUARANTEE OF SUBSIDIARIES' OBLIGATIONS. Each of
SFX and Entertainment shall cause to be performed, and hereby guarantees the
performance and payment of, all actions, agreements, obligations and
Liabilities set forth herein to be performed or paid by any subsidiary of such
party which is contemplated by the Distribution Agreement to be a subsidiary of
such party on or after the Distribution Date.
SECTION 4.2 SHARING OF INFORMATION. Each of SFX and
Entertainment shall provide to the other all such information in its
possession as the other may reasonably request to enable it to administer its
employee benefit plans and programs, and to determine the scope of, and
fulfill, its obligations under this Agreement. Such information shall, to the
extent reasonably practicable, be provided in the format and at the times and
places requested, but in no event shall the party providing such information
be obligated to incur any direct expense not reimbursed by the party making
such request, nor to make such information available outside its normal
business hours and premises.
SECTION 4.3 TERMINATION. This Agreement shall be terminated
in the event that the Distribution Agreement is terminated and the
Distribution abandoned prior to the Distribution Date. In the event of such
termination, neither party shall have any liability of any kind to the other
party under this Agreement.
SECTION 4.4 RIGHTS TO AMEND OR TERMINATE PLANS; NO THIRD
PARTY BENEFICIARIES. No provisions of this Agreement shall be construed (i) to
limit the right of SFX, any other member of the SFX Group, Entertainment or
any other member of the Delsener/Slater
- 6 -
<PAGE>
Group to amend any Plan or terminate any Plan, or (ii) to create any right or
entitlement whatsoever in any employee of the Pre-Distribution Group, former
employee of the Pre-Distribution Group or Beneficiary, including a right to
continued employment or to any benefit under a Plan or any other compensation.
This Agreement is solely for the benefit of the parties hereto and their
respective subsidiaries and should not be deemed to confer upon third parties
any remedy, claim, liability, reimbursement, claim of action or other right in
excess of those existing without reference to this Agreement.
SECTION 4.5 COMPLETE AGREEMENT. This Agreement and the
agreements and other documents referred to herein (including, but not limited
to, the Distribution Agreement, Merger Agreement and Tax Sharing Agreement)
shall constitute the entire agreement between the parties hereto with respect
to the subject matter hereof and shall supersede all previous negotiations,
commitments and writings with respect to such subject matter.
SECTION 4.6 GOVERNING LAW. Subject to applicable U.S.
federal law, this Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware (other than the laws that might
otherwise govern under applicable principles of conflicts law) as to all
matters, including matters of validity, construction, effect, performance and
remedies.
SECTION 4.7 NOTICES. All notices, requests, claims, demands
and other communications hereunder shall be given in accordance with the
provisions of the Distribution Agreement.
SECTION 4.8 AMENDMENT AND MODIFICATION. This Agreement may
be amended, modified or supplemented only by a written agreement of SFX and
Entertainment and with the consent of the Parent, which consent shall not be
unreasonably withheld.
SECTION 4.9 SUCCESSORS AND ASSIGNS. This Agreement and all
of the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests and obligations
hereunder shall be assigned by any party hereto without the prior written
consent of the other party.
SECTION 4.10 COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
SECTION 4.11 INTERPRETATION. The Article and Section
headings contained in this Agreement are solely for the purpose of reference,
are not part of the agreement of the parties hereto and shall not in any way
affect the meaning or interpretation of this Agreement.
- 7 -
<PAGE>
SECTION 4.12 LEGAL ENFORCEABILITY. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
SECTION 4.13 REFERENCES; CONSTRUCTION. References to any
"Article" or "Section," without more, are references to Articles or Sections
of this Agreement. Unless otherwise expressly stated, clauses beginning with
the term "including" set forth examples only and in no way limit the
generality of the matters thus exemplified.
SECTION 4.14 DISPUTES. If a dispute arises between SFX and
Entertainment as to the interpretation or the implementation of this
Agreement, the provisions of Article XI of the Distribution Agreement shall be
used to resolve the dispute.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the day and year first above
written.
SFX BROADCASTING, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
SFX ENTERTAINMENT, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
SBI HOLDING CORPORATION
By:
-----------------------------
Name:
---------------------------
- 8 -
<PAGE>
Title:
--------------------------
- 9 -
<PAGE>
EXECUTION COPY
===============================================================================
SFX ENTERTAINMENT, INC.
9-1/8% SENIOR SUBORDINATED NOTES DUE 2008
------------------------------------
INDENTURE
Dated as of February 11, 1998
-------------------------------
-------------------------------
THE CHASE MANHATTAN BANK
-------------------------------
Trustee
===============================================================================
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture
Section
310 (a)(1)......................................................7.10
(a)(2) .........................................................7.10
(a)(3)..........................................................N.A.
(a)(4)..........................................................N.A.
(a)(5)..........................................................7.10
(i)(b)..........................................................7.10
(ii)(c).........................................................N.A.
311(a)..........................................................7.11
(b).............................................................7.11
(iii)(c)........................................................N.A.
312 (a).........................................................2.05
(b).............................................................12.03
(iv)(c).........................................................12.03
313(a)..........................................................7.06
(b)(2)..........................................................7.07
(v)(c)..........................................................7.06; 12.02
(vi)(d).........................................................7.06
314(a)..........................................................4.03; 12.02
(c)(1)..........................................................12.04
(c)(2)..........................................................12.04
(c)(3)..........................................................N.A.
(vii)(e)........................................................11.05
(f) ............................................................NA
315 (a).........................................................7.01
(b) ............................................................7.05, 12.02
(A)(c)..........................................................7.01
(d) ............................................................7.01
(e) ............................................................6.11
316 (a)(last sentence)..........................................2.09
(a)(1)(A).......................................................6.05
(a)(1)(B).......................................................6.04
(a)(2)..........................................................N.A.
(b) ............................................................6.07
(B)(c)..........................................................2.12
317 (a)(1)......................................................6.08
(a)(2)..........................................................6.09
(b) ............................................................2.04
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.....................................................................................1
Section 1.02. Other Definitions..............................................................................15
Section 1.03. Incorporation by Reference of Trust Indenture Act..............................................15
Section 1.04. Rules of Construction..........................................................................16
ARTICLE 2. THE NOTES
Section 2.01. Form and Dating................................................................................16
Section 2.01. Execution and Authentication...................................................................17
Section 2.02. Registrar and Paying Agent.....................................................................18
Section 2.03. Paying Agent to Hold Money in Trust............................................................18
Section 2.04. Holder Lists...................................................................................18
Section 2.05. Transfer and Exchange..........................................................................19
Section 2.06. Replacement Notes..............................................................................30
Section 2.07. Outstanding Notes..............................................................................30
Section 2.08. Treasury Notes.................................................................................31
Section 2.09. Temporary Notes................................................................................31
Section 2.10. Cancellation...................................................................................31
Section 2.11. Defaulted Interest.............................................................................31
ARTICLE 3. REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.............................................................................32
Section 3.02. Selection of Notes to Be Redeemed..............................................................32
Section 3.03. Notice of Redemption...........................................................................32
Section 3.04. Effect of Notice of Redemption.................................................................33
i
<PAGE>
Section 3.05. Deposit of Redemption Price....................................................................33
Section 3.06. Notes Redeemed in Part.........................................................................34
Section 3.07. Optional Redemption............................................................................34
Section 3.08. Mandatory Redemption...........................................................................34
Section 3.09. Offer to Purchase by Application of Excess Proceeds............................................35
ARTICLE 4. COVENANTS
Section 4.01. Payment of Notes...............................................................................36
Section 4.02. Maintenance of Office or Agency................................................................36
Section 4.03. Reports........................................................................................37
Section 4.04. Compliance Certificate.........................................................................37
Section 4.05. Taxes..........................................................................................38
Section 4.06. Stay, Extension and Usury Laws.................................................................38
Section 4.07. Restricted Payments............................................................................38
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries.................................40
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.....................................41
Section 4.10. Asset Sales....................................................................................43
Section 4.11. Transactions with Affiliates...................................................................44
Section 4.12. Liens..........................................................................................45
Section 4.13. Business activities............................................................................45
Section 4.14. Corporate Existence............................................................................45
Section 4.15. Offer to Repurchase Upon Change of Control.....................................................45
Section 4.16. No Senior Subordinated Debt....................................................................46
Section 4.17. Issuances and Sales of Equity Interests in Restricted Subsidiaries.............................46
Section 4.18. Limitation on Sale and Leaseback Transactions..................................................47
Section 4.19. Payments for Consent...........................................................................47
Section 4.20. Additional Note Guarantees.....................................................................47
ii
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ARTICLE 5. SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.......................................................47
Section 5.02. Successor Corporation Substituted..............................................................48
ARTICLE 6. DEFAULTS AND REMEDIES
Section 6.01. Events of Default..............................................................................48
Section 6.02. Acceleration...................................................................................50
Section 6.03. Other Remedies.................................................................................50
Section 6.04. Waiver of Past Defaults........................................................................51
Section 6.05. Control by Majority............................................................................51
Section 6.06. Limitation on Suits............................................................................51
Section 6.07. Rights of Holders of Notes to Receive Payment..................................................52
Section 6.08. Collection Suit by Trustee.....................................................................52
Section 6.09. Trustee May File Proofs of Claim...............................................................52
Section 6.10. Priorities.....................................................................................52
Section 6.11. Undertaking for Costs..........................................................................53
ARTICLE 7. TRUSTEE
Section 7.01. Duties of Trustee..............................................................................53
Section 7.01. Rights of Trustee..............................................................................54
Section 7.02. Individual Rights of Trustee...................................................................55
Section 7.03. Trustee's Disclaimer...........................................................................55
Section 7.04. Notice of Defaults.............................................................................55
Section 7.05. Reports by Trustee to Holders of the Notes.....................................................55
Section 7.06. Compensation and Indemnity.....................................................................56
Section 7.07. Replacement of Trustee.........................................................................56
Section 7.08. Successor Trustee by Merger, etc...............................................................57
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Section 7.09. Eligibility; Disqualification..................................................................57
Section 7.10. Preferential Collection of Claims Against Company..............................................58
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.......................................58
Section 8.02. Legal Defeasance and Discharge.................................................................58
Section 8.03. Covenant Defeasance............................................................................58
Section 8.04. Conditions to Legal or Covenant Defeasance.....................................................59
Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions..60
Section 8.06. Repayment to Company...........................................................................60
Section 8.07. Reinstatement..................................................................................61
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes............................................................61
Section 9.02. With Consent of Holders of Notes...............................................................62
Section 9.03. Compliance with Trust Indenture Act............................................................63
Section 9.04. Revocation and Effect of Consents..............................................................63
Section 9.05. Notation on or Exchange of Notes...............................................................63
Section 9.06. Trustee to Sign Amendments, etc................................................................64
ARTICLE 10. SUBORDINATION
Section 10.01. Agreement to Subordinate......................................................................64
Section 10.02. Certain Definitions...........................................................................64
Section 10.03. Liquidation; Dissolution; Bankruptcy..........................................................65
Section 10.04. Default on Designated Senior Debt.............................................................65
Section 10.05. Acceleration of Securities....................................................................66
Section 10.06. When Distribution Must Be Paid Over...........................................................66
Section 10.07. Notice by Company.............................................................................66
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Section 10.08. Subrogation...................................................................................66
Section 10.09. Relative Rights...............................................................................67
Section 10.10. Subordination May Not Be Impaired by Company..................................................67
Section 10.11. Distribution or Notice to Representative......................................................67
Section 10.12. Rights of Trustee and Paying Agent............................................................67
Section 10.13. Authorization to Effect Subordination.........................................................68
Section 10.14. Amendments....................................................................................68
ARTICLE 11. SUBSIDIARY GUARANTEES
Section 11.01. Guarantee.....................................................................................68
Section 11.02. Subordination of Note Guarantee...............................................................69
Section 11.03. Limitation on Guarantor Liability.............................................................69
Section 11.04. Execution and Delivery of Note Guarantee......................................................69
Section 11.05. Guarantors May Consolidate, etc., on Certain Terms............................................70
Section 11.06. Releases Following Sale of Assets.............................................................71
ARTICLE 12. MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls..................................................................71
Section 12.02. Notices.......................................................................................71
Section 12.03. Communication by Holders of Notes with Other Holders of Notes.................................72
Section 12.04. Certificate and Opinion as to Conditions Precedent............................................73
Section 12.05. Statements Required in Certificate or Opinion.................................................73
Section 12.06. Rules by Trustee and Agents...................................................................73
Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders......................73
Section 12.08. Governing Law.................................................................................73
Section 12.09. No Adverse Interpretation of Other Agreements.................................................74
Section 12.10. Successors....................................................................................74
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Section 12.11. Severability..................................................................................74
Section 12.12. Counterpart Originals.........................................................................74
Section 12.13. Table of Contents, Headings, etc..............................................................74
</TABLE>
EXHIBITS
Exhibit A1 FORM OF NOTE
Exhibit A2 FORM OF REGULATION S TEMPORARY GLOBAL NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED
INVESTOR
Exhibit E FORM OF SUBSIDIARY GUARANTEE
Exhibit F FORM OF SUPPLEMENTAL INDENTURE
SCHEDULES
Schedule I Schedule of Guarantors
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INDENTURE dated as of February 11, 1998 among SFX
Entertainment, Inc., a Delaware corporation (the "Company"), Atlanta Concerts,
Inc., Ardee Festivals N.J., Inc., Ardee Productions, Ltd., Beach Concerts,
Inc., BGP Acquisition, LLC, Broadway Concerts, Inc., Connecticut Amphitheater
Development Corp., Connecticut Concerts, Incorporated, Connecticut Performing
Arts, Inc., Connecticut Performing Arts Partners, Conn Ticketing Company,
Contemporary Group Acquisition Corp., Deer Creek Amphitheater Concerts, Inc.,
Deer Creek Amphitheater Concerts, LP, Delsener/Slater Enterprises, Ltd., Dumb
Deal, Inc., Exit 116 Revisited, Inc., FPI Concerts, Inc., In House Tickets,
Inc., Irving Plaza Concerts, Inc., Murat Center Concerts, Inc., Murat Center
Concerts, LP, NOC, Inc., Northeast Ticketing Company, Polaris Amphitheater
Concerts, Inc., QN Corp., SFX Broadcasting of the Midwest, Inc., SFX Concerts,
Inc., SFX Network Group, LLC, Southeast Ticketing Company, Sunshine Concerts,
LLC, Sunshine Designs, Inc., Sunshine Designs, LP, Suntex Acquisition, Inc.,
Suntex Acquisition, LP, Westbury Music Fair, LLC (collectively, the
"Guarantors") and The Chase Manhattan Bank, as trustee (the "Trustee").
The Company, the Guarantors and the Trustee agree as follows
for the benefit of each other and for the equal and ratable benefit of the
Holders of the 9-1/8% Series A Senior Subordinated Notes due 2008 (the "Series
A Notes") and the 9-1/8% Series B Senior Subordinated Notes due 2008 (the
"Series B Notes" and, together with the Series A Notes, the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"144A Global Note" means a global note in the form of Exhibit
A1 hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary
or its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
"Acquired Businesses" means each of the businesses to be
acquired by the Company pursuant to the Pending Acquisitions.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer
or exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer
or exchange.
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"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback), excluding sales of services and ancillary products in the
ordinary course of business consistent with past practices (provided that the
sale, lease, conveyance or other disposition of all or substantially all of the
assets of the Company and its Restricted Subsidiaries taken as a whole will be
governed by the provisions of Section 4.15 hereof and/or the provisions of
Section 5.01 hereof and not by the provisions of Section 4.10 hereof) and (ii)
the issue or sale by the Company or any of its Subsidiaries of Equity Interests
of any of the Company's Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $5.0 million or (b) for net proceeds in
excess of $5.0 million. Notwithstanding the foregoing: (i) a transfer of assets
by the Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned
Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary,
(iii) the transfer of obsolete equipment in the ordinary course of business,
(iv) the sale and leaseback of any assets within 90 days of the acquisition of
such assets and (v) a Restricted Payment that is permitted by Section 4.07
hereof will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback
transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the
Company, or any authorized committee of the Board of Directors.
"Broadcasting" means SFX Broadcasting, Inc., a Delaware
corporation.
"Broadcasting Buyer" means SBI Holding Co.
"Broadcasting Merger" means the merger of SBI Radio
Acquisition Corporation with and into SFX Broadcasting, Inc., pursuant to which
Broadcasting will become a subsidiary of SBI Holding Co.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in respect of
a capital lease that would at such time be required to be capitalized on a
balance sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
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"Cash Equivalents" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof having maturities of
not more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less from
the date of acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any domestic commercial
bank having capital and surplus in excess of $500.0 million and a Thompson Bank
Watch Rating of "B" or better, (iv) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in
clauses (ii) and (iii) above entered into with any financial institution
meeting the qualifications specified in clause (iii) above and (v) commercial
paper having the highest rating obtainable from Moody's Investors Service, Inc.
or Standard & Poor's Corporation and in each case maturing within six months
after the date of acquisition and (vi) money market funds at least 95% of the
assets of which constitute Cash Equivalents of the kinds described in clauses
(i) - (v) of this definition.
"Cedel" means Cedel Bank, SA.
"Change of Control" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other disposition
(other than the Spin-Off or by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the assets of
the Company and its Subsidiaries taken as a whole to any "person" (as such term
is used in Section 13(d)(3) of the Exchange Act) other than the Principal or a
Related Party of the Principal, (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), other than the
Principal and his Related Parties, becomes the "beneficial owner" (as such term
is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of Voting Stock of the Company having more
than 35% of the combined voting power of all classes of Voting Stock of the
Company then outstanding or (iv) the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing Directors.
"Company" means SFX Entertainment, Inc., a Delaware
corporation, and any and all successors thereto.
"Compensation Committee" means a committee of at least two
members of the board of directors of the Company, a majority of whom are (i)
independent directors elected by the holders of Class A Common Stock of the
Company and (ii) not interested in the particular transactions being approved.
"Consolidated Cash Flow" means, with respect to any Person
for any period, the Consolidated Net Income of such Person for such period
plus, without duplication, (i) an amount equal to any extraordinary loss plus
any net loss realized in connection with an Asset Sale, to the extent such
losses were deducted in computing such Consolidated Net Income, plus (ii)
provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision for
taxes was deducted in computing such Consolidated Net Income, plus (iii)
consolidated interest expense of such Person and its Restricted Subsidiaries
for such period, whether paid or accrued and whether or not capitalized
(including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges incurred
in respect of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations), to the extent
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that any such expense was deducted in computing such Consolidated Net Income,
plus (iv) depreciation expense for such period, to the extent the same was
deducted in computing such Consolidated Net Income, plus (v) all amortization
expense and other non-cash expenses (excluding any such non-cash expense to the
extent that it represents an accrual of or reserve for cash expenses in any
future period) for such period, to the extent the same was deducted in
computing such Consolidated Net Income, plus (vi) unusual and nonrecurring
charges paid or accrued in 1997 or 1998 (including, but not limited to, legal,
accounting, investment banking, severance, termination, non-compete and consent
fees) relating to the Merger Agreement, the Spin-Off, the Pending Acquisitions
and transactions related thereto, minus (vii) non-cash items increasing such
Consolidated Net Income for such period, minus (viii) except to the extent
already deducted in computing Consolidated Net Income for such period,
preproduction expenses and investments in theatrical productions incurred or
made during such period by the Company or any Restricted Subsidiary as set
forth in the Company's Consolidated Statement of Cash Flows, plus (ix) any cash
return of capital paid to the Company or a Restricted Subsidiary during such
period associated with a preproduction expense or investment in theatrical
productions to the extent the same was deducted pursuant to clause (viii) above
in computing Consolidated Cash Flow for such period or a prior period, in each
case, on a consolidated basis and determined in accordance with GAAP.
"Consolidated Indebtedness" means, with respect to any Person
as of any date of determination, the sum, without duplication, of (i) the total
amount of Indebtedness and Attributable Debt of such Person and its Restricted
Subsidiaries, plus (ii) the total amount of Indebtedness and Attributable Debt
of any other Person, to the extent that such Indebtedness or Attributable Debt
has been guaranteed by the referent Person or by one or more of its Restricted
Subsidiaries or is secured by a Lien on assets of the referent Person or any of
its Restricted Subsidiaries, plus (iii) the aggregate liquidation value of all
Disqualified Stock of such Person and all preferred stock of Restricted
Subsidiaries of such Person, in each case, determined on a consolidated basis
in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (i) the Net Income (but not loss) of any
Person that is not a Restricted Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid in cash to the referent Person or a
Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary
shall be excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in
a pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded and (v) the Net Income (but not loss)
of any Unrestricted Subsidiary shall be excluded, whether or not distributed to
the Company or one of its Restricted Subsidiaries.
"Contemporary Agreement" means the agreement by the Company
to acquire The Contemporary Group, dated as of December 12, 1997, and the
agreements related thereto, each as in effect on the date hereof.
"Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the Company who (i) was
a member of such Board of Directors on the date hereof or (ii) was nominated
for election or elected to such Board of Directors with the approval of a
majority of the Continuing Directors who were members of such Board at the time
of such nomination or election.
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"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 12.02 hereof or such other address
as to which the Trustee may give notice to the Company.
"Credit Facility" or "Credit Facilities" means one or more
debt facilities (including, without limitation, the Senior Credit Facility) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables financing (including
through the sale of receivables to such lenders or to special purpose entities
formed to borrow from such lenders against such receivables) or letters of
credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time. Indebtedness
under Credit Facilities outstanding on the date on which Notes are first issued
and authenticated under this Indenture shall be deemed to have been incurred on
such date in reliance on the exception provided by clause (i) of the definition
of Permitted Debt.
"Custodian" means the Trustee, as custodian with respect to
the Notes in global form, or any successor entity thereto.
"Debt to Cash Flow Ratio" means, with respect to any Person
as of any date of determination (the "Calculation Date"), the ratio of (a) the
Consolidated Indebtedness of such Person as of such date to (b) the
Consolidated Cash Flow of such Person for the four most recent full fiscal
quarters ending immediately prior to such date for which internal financial
statements are available, determined on a pro forma basis after giving effect
to all acquisitions and dispositions of assets made by such Person and its
Restricted Subsidiaries from the beginning of such four-quarter period through
and including such date of determination (including any related financing
transactions) as if such acquisitions and dispositions had occurred at the
beginning of such four-quarter period. For purposes of making the computation
referred to above, (i) acquisitions that have been made by such Person or any
of its Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of by the
Company or any of its Restricted Subsidiaries prior to the Calculation Date,
shall be excluded.
"Default" means any event that is or with the passage of time
or the giving of notice or both would be an Event of Default.
"Definitive Note" means a certificated Note registered in the
name of the Holder thereof and issued in accordance with Section 2.06 hereof,
in the form of Exhibit A1 hereto except that such Note shall not bear the
Global Note Legend and shall not have the "Schedule of Exchanges of Interests
in the Global Note" attached thereto.
"Delsener/Slater Employment Agreements" means (i) the
employment agreement dated January 2, 1997, among Broadcasting, Delsener/Slater
Enterprises, Inc. and Mitch Slater and (ii) the employment agreement dated
January 2, 1997 among Broadcasting, Delsener/Slater Enterprises, Inc. and Ron
Delsener, in each case as in effect on the date hereof.
"Depositary" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified in Section 2.03
hereof as the Depositary with respect to the Notes, and any and all successors
thereto appointed as depositary hereunder and having become such pursuant to
the applicable provision of this Indenture.
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"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible or for
which it is exchangeable at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the option of the
holder thereof, in whole or in part, on or prior to the date that is 91 days
after the date on which the Notes mature, provided, however, that any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require the Company to repurchase such Capital Stock
upon the occurrence of a Change of Control or an Asset Sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
the Company may not repurchase or redeem any such Capital Stock pursuant to
such provisions unless such repurchase or redemption complies with Section 4.07
hereof.
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means the Notes issued in the Exchange Offer
pursuant to Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the
Registration Rights Agreement.
"Exchange Offer Registration Statement" has the meaning set
forth in the Registration Rights Agreement.
"Existing Indebtedness" means Indebtedness in existence on
the date hereof (other than Indebtedness under Credit Facilities), until such
Indebtedness is repaid.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect from time to time.
"Global Notes" means, individually and collectively, each of
the Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibits A1 and A2 hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.
"Global Note Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America, and the payment for
which the United States pledges its full faith and credit.
"guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, by way of a
pledge of assets or through letters of credit and reimbursement agreements in
respect thereof), of all or any part of any Indebtedness.
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"Guarantor" means each of the Company's current and future
domestic Restricted Subsidiaries that executes a Subsidiary Guarantee in
accordance with the provisions of this Indenture, and its respective successors
and assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Holder" means a Person in whose name a Note is registered.
"IAI Global Note" means the global Note in the form of
Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement
Legend and deposited with or on behalf of and registered in the name of the
Depositary or its nominee that will be issued in a denomination equal to the
outstanding principal amount of the Notes sold to Institutional Accredited
Investors.
"Indebtedness" means, with respect to any Person, without
duplication, (i) any indebtedness of such Person, whether or not contingent, in
respect of borrowed money or evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or representing Capital Lease Obligations or
the balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense or trade payable, if and to the extent any of the foregoing
indebtedness (other than letters of credit and Hedging Obligations) would
appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, (ii) all indebtedness of others secured by a Lien on any
asset of such Person (whether or not such indebtedness is assumed by such
Person) and (iii) to the extent not otherwise included, the guarantee by such
Person of any indebtedness of any other Person. The amount of any Indebtedness
outstanding as of any date shall be (i) the accreted value thereof, in the case
of any Indebtedness issued with original issue discount, and (ii) the principal
amount thereof, together with any interest thereon that is more than 30 days
past due, in the case of any other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Indirect Participant" means a Person who holds a beneficial
interest in a Global Note through a Participant.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the forms
of direct or indirect loans (including guarantees of Indebtedness or other
obligations), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP. If the Company or any Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Subsidiary of the
Company such that, after giving effect to any such sale or disposition, such
Person is no longer a Subsidiary of the Company, the Company shall be deemed to
have made an Investment on the date of any such sale or disposition equal to
the fair market value of the Equity Interests of such Subsidiary not sold or
disposed of in an amount determined as provided in the third paragraph of
Section 4.07 hereof.
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"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that
place on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue on such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Company and sent to all Holders of the Notes for use by such
Holders in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidated Damages" means all liquidated damages then owing
pursuant to Section 5 of the Registration Rights Agreement.
"Meadows Repurchase" means the transfer by Broadcasting to
the Company of an option to repurchase, and the purchase by the Company, of up
to 250,838 shares of Class A Common Stock of Broadcasting for $33.00 per share,
pursuant to an option granted in connection with the Agreement of Merger, dated
February 12, 1997, by and among Broadcasting, NOC Acquisition Corp., CAPCO
Acquisition Corp., QN Acquisition Corp., Nederlander of Connecticut, Inc.,
Connecticut Amphitheater Development Corporation, QN Corp., Connecticut
Performing Arts. Inc. and Connecticut Performing Arts Partners and the
stockholders of Nederlander of Connecticut, Inc., Connecticut Amphitheater
Development Corporation and QN Corp. listed on the signature pages thereto and
the transfer of such stock to Broadcasting prior to the Broadcasting Merger.
"Merger Agreement" means the Agreement and Plan of Merger
dated as of August 24, 1997, that provides for the Broadcasting Merger and all
transactions and agreements specifically contemplated thereby or by instruments
referred to therein, each as in effect on the date hereof.
"Net Income" means, with respect to any Person, the net
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions)
or (b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries and (ii) any extraordinary gain
(but not loss), together with any related provision for taxes on such
extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by
the Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the
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asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Guarantor Subsidiaries" means Walnut Creek Amphitheater
Partnership and Coral Sky Amphitheater Partnership.
"Non-Recourse Debt" means Indebtedness: (i) as to which
neither the Company nor any of its Restricted Subsidiaries (a) provides credit
support of any kind (including any undertaking, agreement or instrument that
would constitute Indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise) or (c) constitutes the lender; (ii) no default with
respect to which (including any rights that the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes being offered hereby) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Notes" has the meaning assigned to it in the preamble to
this Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf
of the Company by two Officers of the Company, one of whom must be the
principal executive officer, the principal financial officer, the treasurer,
the controller or the principal accounting officer of the Company, that meets
the requirements of Section 12.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who
is reasonably acceptable to the Trustee, that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Pace Agreement" means the agreement by the Company to
acquire PACE Entertainment Corporation (including the Agreements relating to
the Sony Acquisition and the Blockbuster Acquisition to acquire a 100% interest
in Pavilion Partners), dated December 12, 1997 and the agreements related
thereto, each as in effect on the date hereof.
"Pace Acquisition Facility" means the agreement by the
Company, pursuant to the Pace Agreement, to provide to PACE Entertainment
Corporation up to an aggregate of $25.0 million to be used to fund certain
acquisitions, as in effect on the date hereof.
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"Participant" means, with respect to the Depositary,
Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear
or Cedel, respectively (and, with respect to The Depository Trust Company,
shall include Euroclear and Cedel).
"Participating Broker-Dealer" has the meaning set forth in
the Registration Rights Agreement.
"Pending Acquisitions" means the acquisition by the Company
of (i) PACE Entertainment Corporation, pursuant to the Pace Agreement, (ii) The
Contemporary Group, pursuant to the Contemporary Agreement, (iii) BG Presents,
pursuant to an agreement dated December 11, 1997, (iv) The Network Magazine
Group and SJS Entertainment, each pursuant to an agreement dated December 10,
1997, and (v) Concert/Southern Promotions, pursuant to an agreement dated
December 15, 1997, in each case as in effect on the date hereof and including
the transactions and agreements specifically related thereto.
"Permitted Business" means the live entertainment business
and any business reasonably similar, complementary, ancillary or related
thereto, including the Pending Acquisitions.
"Permitted Investments" means (i) any Investment in the
Company or in a Guarantor; (ii) any Investment in Cash Equivalents; (iii) any
Investment by the Company or any Restricted Subsidiary of the Company in a
Person engaged in a Permitted Business, if (a) as a result of, or concurrently
with, such Investment such Person becomes a Guarantor or (b) as a result of, or
concurrently with, such Investment such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Guarantor; or (c) the
Company or a Guarantor has entered into a binding agreement to acquire such
Person or all or substantially all of the assets of such Person, which
agreement is in effect on the date of such Investment, and such Person becomes
a Guarantor or such transaction is consummated, in each case within 180 days of
the date of such Investment; (iv) any Restricted Investment made as a result of
the receipt of non-cash consideration from an Asset Sale that was made pursuant
to and in compliance with Section 4.10 hereof; (v) any obligations or shares of
Capital Stock received in connection with or as a result of a bankruptcy,
workout or reorganization of the issuer of such obligations or shares of
Capital Stock; (vi) any Investment received involuntarily; (vii) any
acquisition of assets solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of the Company; (viii) any Investment made
under the Pace Acquisition Facility pursuant to the Pace Agreement as in effect
on the date hereof; (ix) Investments owned by any of the Acquired Businesses as
of the date such Acquired Business is acquired; (x) other Investments in
Persons engaged in Permitted Businesses (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause (x)
that are at the time outstanding, not to exceed 5% of Total Tangible Assets;
(xi) the consummation of the Pending Acquisitions; (xii) the Meadows Repurchase
and the Series E Preferred Repurchase; provided that the Company receives
either (x) a cash payment from Broadcasting or Broadcasting Buyer or an
Affiliate thereof at or prior to the date of the Broadcasting Merger at least
equal to the aggregate amount expended by the Company in the Meadows Repurchase
and the Series E Preferred Repurchase less $3.0 million or (y) an increase in
favor of the Company in the Working Capital Adjustment (including the avoidance
of a decrease) contemplated by the Merger Agreement in an amount at least equal
to the aggregate amount expended by the Company in the Meadows Repurchase and
the Series E Preferred Repurchase less $3.0 million or (z) any combination
thereof adding up to an amount at least equal to the aggregate amount expended
by the Company in the Meadows Repurchase and the Series E Preferred Repurchase
less $3.0 million; and (xiii) other Investments in any Person (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause (xiii) that are at the time outstanding, not to exceed $4.0
million.
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"Permitted Liens" means (i) Liens securing Senior Debt that
was permitted by the terms hereof to be incurred; (ii) Liens in favor of the
Company or any of its Restricted Subsidiaries; (iii) Liens on property of a
Person existing at the time such Person is merged into or consolidated with the
Company or any Restricted Subsidiary of the Company; provided that such Liens
were not incurred in contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated
with the Company; (iv) Liens on property existing at the time of acquisition
thereof by the Company or any Restricted Subsidiary of the Company, provided
that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vi) Liens existing on the date
hereof; (vii) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefore; and (viii) Liens incurred
in the ordinary course of business of the Company or any Restricted Subsidiary
of the Company with respect to obligations that do not exceed $2.0 million at
any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness
of the Company or any of its Restricted Subsidiaries or any Disqualified Stock
of the Company issued in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund other Indebtedness of the
Company or any of its Restricted Subsidiaries; provided that: (i) the principal
amount (or accreted value or liquidation preference, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of (or
accreted value, if applicable), plus accrued interest on, the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is pari passu with the Notes, such Permitted Refinancing Indebtedness
is pari passu with or subordinated in right of payment to the Notes or is
Disqualified Stock; (iv) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Indebtedness is subordinated in right of
payment to the Notes on terms at least as favorable to the Holders of Notes as
those contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded or is Disqualified Stock;
and (v) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary that is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded, or such Disqualified Stock
is issued by the Company, as applicable.
"Person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or agency or political subdivision thereof
(including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"Principal" means Robert F.X. Sillerman.
"Private Placement Legend" means the legend set forth in
Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except
where otherwise permitted by the provisions of this Indenture.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
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"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of February 11, 1998, by and among the Company and the
other parties named on the signature pages thereof, as such agreement may be
amended, modified or supplemented from time to time.
"Regulation S" means Regulation S promulgated under the
Securities Act.
"Regulation S Global Note" means a global Note bearing the
Private Placement Legend and deposited with or on behalf of the Depositary and
registered in the name of the Depositary or its nominee, issued in a
denomination equal to the outstanding principal amount of the Notes initially
sold in reliance on Rule 903 of Regulation S.
"Regulation S Permanent Global Note" means a permanent global
Note in the form of Exhibit A1 hereto bearing the Global Note Legend and the
Private Placement Legend and deposited with or on behalf of and registered in
the name of the Depositary or its nominee, issued in a denomination equal to
the outstanding principal amount of the Regulation S Temporary Global Note upon
expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary global
Note in the form of Exhibit A2 hereto bearing the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee, issued in a denomination equal to the outstanding principal amount
of the Notes initially sold in reliance on Rule 903 of Regulation S.
"Related Party" with respect to the Principal means (i) any
spouse or immediate family member of the Principal or (ii) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of the Principal and/or such other Persons referred
to in the immediately preceding clause (i).
"Responsible Officer," when used with respect to the Trustee,
means any officer within the Corporate Trust Administration of the Trustee (or
any successor group of the Trustee) or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing
the Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the
Private Placement Legend.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Period" means the 40-day restricted period as
defined in Regulation S.
"Restricted Subsidiary" of a Person means any Subsidiary of
the referent Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities
Act.
"Rule 144A" means Rule 144A promulgated under the Securities
Act.
"Rule 903" means Rule 903 promulgated under the Securities
Act.
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"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended.
"Senior Credit Facility" collectively means that certain
credit and guarantee agreement to be entered into by and among the Company, the
Guarantors, the lenders party thereto, The Bank of New York, as Administrative
Agent, Lehman Commercial Paper Inc. and Goldman Sachs Credit Partners L.P.,
each as Co-Documentation Agents, and each other Loan Document as defined in
such credit and guarantee agreement, as contemplated by that certain commitment
letter by and among the Company, The Bank of New York, BNY Capital Markets,
Inc., Lehman Commercial Paper Inc. and Goldman Sachs Credit Partners L.P., each
as amended, restated, modified, renewed, refunded, replaced or refinanced in
whole or in part from time to time.
"Series E Preferred Repurchase" means the purchase by the
Company of up to $14.2 million in liquidation preference of 12-5/8% Series E
Cumulative Exchangeable Preferred Stock due October 31, 2006 of Broadcasting
and the dividend or other transfer of such stock to Broadcasting prior to the
Broadcasting Merger.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation
is in effect on the date hereof.
"Spin-Off" means the distribution of the common stock of the
Company pro rata to the holders of SFX Broadcasting, Inc. or other disposition
pursuant to, or as permitted by, the Merger Agreement of all the capital stock
and assets of the Company and its Subsidiaries.
"Spin-Off Transaction" means the Spin-Off, the Merger
Agreement and related transactions described or referred to in the Offering
Memorandum of the Company dated February 5, 1998.
"Stated Maturity" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on which such
payment of interest or principal was scheduled to be paid in the original
documentation governing such Indebtedness, and shall not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or indirectly,
by such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof).
"Subsidiary Guarantee" means the Guarantee by each Guarantor
of the Company's payment obligations under this Indenture and the Notes,
executed pursuant to the provisions of this Indenture.
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"TIA" means the Trust Indenture Act of 1939 (15
U.S.C.ss.ss.77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA.
"Total Tangible Assets" means, as of any date, (i) the total
consolidated assets of the Company and its Restricted Subsidiaries, as set
forth on the Company's most recently available internal consolidated balance
sheet, minus (ii) the total consolidated intangible assets of the Company and
its Restricted Subsidiaries, as set forth on such consolidated balance sheet.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"Unrestricted Global Note" means a permanent global Note in
the form of Exhibit A1 attached hereto that bears the Global Note Legend and
that has the "Schedule of Exchanges of Interests in the Global Note" attached
thereto, and that is deposited with or on behalf of and registered in the name
of the Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Definitive Note" means one or more Definitive
Notes that do not bear and are not required to bear the Private Placement
Legend.
"Unrestricted Subsidiary" means (i) any Subsidiary that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to
a resolution of the Board of Directors, but only to the extent that such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any direct
or indirect obligation (1) to subscribe for additional Equity Interests or (2)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has
at least one director on its board of directors that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries.
"U.S. Person" means a U.S. person as defined in Rule 902(o)
under the Securities Act.
"Voting Stock" of any Person as of any date means the Capital
Stock of such Person that is at the time entitled to vote in the election of
the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to
any Indebtedness at any date, the number of years obtained by dividing (i) the
sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required payments
of principal, including payment at final maturity, in respect thereof, by (b)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors'
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qualifying shares) shall at the time be owned by such Person or by one or more
Wholly Owned Restricted Subsidiaries of such Person and one or more Wholly
Owned Restricted Subsidiaries of such Person.
"Working Capital Adjustment" shall have the meaning assigned
to such term in the Merger Agreement.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"Affiliate Transaction"....................................4.11
"Asset Sale Offer".........................................4.10
"Authentication Order".....................................2.02
"Change of Control Offer"..................................4.15
"Change of Control Payment"................................4.15
"Change of Control Payment Date"...........................4.15
"Covenant Defeasance"......................................8.03
"Designated Senior Debt"...................................10.02
"DTC"......................................................2.03
"Event of Default".........................................6.01
"Excess Proceeds"..........................................4.10
"incur"....................................................4.09
"Legal Defeasance".........................................8.02
"Offer Amount".............................................3.09
"Offer Period".............................................3.09
"Paying Agent".............................................2.03
"Payment Blockage Notice"..................................10.04
"Payment Default"..........................................6.01
"Permitted Debt"...........................................4.09
"Permitted Junior Securities"..............................10.02
"Purchase Date"............................................3.09
"Registrar"................................................2.03
"Representative"...........................................10.01
"Restricted Payments"......................................4.07
"Senior Debt"..............................................10.01
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
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"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the Notes and the Subsidiary Guarantees means
the Company and the Guarantors, respectively, and any successor obligor upon
the Notes and the Subsidiary Guarantees, respectively.
All other terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule
under the TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and
transactions; and
(6) references to sections of or rules under the
Securities Act shall be deemed to include substitute, replacement of
successor sections or rules adopted by the SEC from time to time.
ARTICLE 2.
THE NOTES
SECTION 2.01. FORM AND DATING.
(a) General. The Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto. The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Note shall be dated the date of its
authentication. The Notes shall be in denominations of $1,000 and integral
multiples thereof.
The terms and provisions contained in the Notes shall
constitute, and are hereby expressly made, a part of this Indenture and the
Company, the Guarantors and the Trustee, by their execution and delivery of
this Indenture, expressly agree to such terms and provisions and to be bound
thereby. However, to the extent any provision of any Note conflicts with the
express provisions of this Indenture, the provisions of this Indenture shall
govern and be controlling.
(b) Global Notes.
Notes issued in global form shall be substantially in the
form of Exhibits A1 or A2 attached hereto (including the Global Note Legend
thereon and the "Schedule of Exchanges of Interests in the Global Note"
attached thereto). Notes issued in definitive form shall be substantially in
the form of Exhibit A1 attached hereto (but without the Global Note Legend
thereon and without the "Schedule of
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Exchanges of Interests in the Global Note" attached thereto). Each Global Note
shall represent such of the outstanding Notes as shall be specified therein and
each shall provide that it shall represent the aggregate principal amount of
outstanding Notes from time to time endorsed thereon and that the aggregate
principal amount of outstanding Notes represented thereby may from time to time
be reduced or increased, as appropriate, to reflect exchanges and redemptions.
Any endorsement of a Global Note to reflect the amount of any increase or
decrease in the aggregate principal amount of outstanding Notes represented
thereby shall be made by the Trustee or the Note Custodian, at the direction of
the Trustee, in accordance with instructions given by the Holder thereof as
required by Section 2.06 hereof.
(c) Temporary Global Notes.
Notes offered and sold in reliance on Regulation S shall be
issued initially in the form of the Regulation S Temporary Global Note, which
shall be deposited on behalf of the purchasers of the Notes represented thereby
with the Trustee, at its New York office, as custodian for the Depositary, and
registered in the name of the Depositary or the nominee of the Depositary for
the accounts of designated agents holding on behalf of Euroclear or Cedel Bank,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. The Restricted Period shall be terminated upon the receipt by the
Trustee of (i) a written certificate from the Depositary, together with copies
of certificates from Euroclear and Cedel Bank certifying that they have
received certification of non-United States beneficial ownership of 100% of the
aggregate principal amount of the Regulation S Temporary Global Note (except to
the extent of any beneficial owners thereof who acquired an interest therein
during the Restricted Period pursuant to another exemption from registration
under the Securities Act and who will take delivery of a beneficial ownership
interest in a 144A Global Note or an IAI Global Note bearing a Private
Placement Legend, all as contemplated by Section 2.06(a)(ii) hereof), and (ii)
an Officers' Certificate from the Company. Following the termination of the
Restricted Period, beneficial interests in the Regulation S Temporary Global
Note shall be exchanged for beneficial interests in Regulation S Permanent
Global Notes pursuant to the Applicable Procedures. Simultaneously with the
authentication of Regulation S Permanent Global Notes, the Trustee shall cancel
the Regulation S Temporary Global Note. The aggregate principal amount of the
Regulation S Temporary Global Note and the Regulation S Permanent Global Notes
may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee, as the case may be,
in connection with transfers of interest as hereinafter provided.
(d) Euroclear and Cedel Procedures Applicable.
The provisions of the "Operating Procedures of the Euroclear
System" and "Terms and Conditions Governing Use of Euroclear" and the "General
Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall
be applicable to transfers of beneficial interests in the Regulation S
Temporary Global Note and the Regulation S Permanent Global Notes that are held
by Participants through Euroclear or Cedel Bank.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Notes for the Company by manual
or facsimile signature.
If an Officer whose signature is on a Note no longer holds
that office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
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The Trustee shall, upon a written order of the Company signed
by two Officers (an "Authentication Order"), authenticate Notes for original
issue up to the aggregate principal amount stated in paragraph 4 of the Notes.
The aggregate principal amount of Notes outstanding at any time may not exceed
such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT
The Company shall maintain an office or agency where Notes
may be presented for registration of transfer or for exchange ("Registrar") and
an office or agency where Notes may be presented for payment ("Paying Agent").
The Registrar shall keep a register of the Notes and of their transfer and
exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Registrar" includes any co-registrar and
the term "Paying Agent" includes any additional paying agent. The Company may
change any Paying Agent or Registrar without notice to any Holder. The Company
shall notify the Trustee in writing of the name and address of any Agent not a
party to this Indenture. If the Company fails to appoint or maintain another
entity as Registrar or Paying Agent, the Trustee shall act as such. The Company
or any of its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Note Custodian with respect to the
Global Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of principal, premium or Liquidated Damages, if any, or interest on the
Notes, and will notify the Trustee of any default by the Company in making any
such payment. While any such default continues, the Trustee may require a
Paying Agent to pay all money held by it to the Trustee. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee.
Upon payment over to the Trustee, the Paying Agent (if other than the Company
or a Subsidiary) shall have no further liability for the money. If the Company
or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Holders all money held by it as Paying Agent.
Upon any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of all Holders and shall otherwise comply with TIA ss. 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee at least
seven Business Days before each interest payment date and at such other times
as the Trustee may request in
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writing, a list in such form and as of such date as the Trustee may reasonably
require of the names and addresses of the Holders of Notes and the Company
shall otherwise comply with TIA ss. 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes.
A Global Note may not be transferred as a whole except by the
Depositary to a nominee of the Depositary, by a nominee of the Depositary to
the Depositary or to another nominee of the Depositary, or by the Depositary or
any such nominee to a successor Depositary or a nominee of such successor
Depositary. All Global Notes will be exchanged by the Company for Definitive
Notes if (i) the Company delivers to the Trustee notice from the Depositary
that it is unwilling or unable to continue to act as Depositary or that it is
no longer a clearing agency registered under the Exchange Act and, in either
case, a successor Depositary is not appointed by the Company within 120 days
after the date of such notice from the Depositary or (ii) the Company in its
sole discretion determines that the Global Notes (in whole but not in part)
should be exchanged for Definitive Notes and delivers a written notice to such
effect to the Trustee; provided that in no event shall the Regulation S
Temporary Global Note be exchanged by the Company for Definitive Notes prior to
(x) the expiration of the Restricted Period and (y) the receipt by the
Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under
the Securities Act. Upon the occurrence of either of the preceding events in
(i) or (ii) above, Definitive Notes shall be issued in such names as the
Depositary shall instruct the Trustee. Global Notes also may be exchanged or
replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof.
Every Note authenticated and delivered in exchange for, or in lieu of, a Global
Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or
2.10 hereof, shall be authenticated and delivered in the form of, and shall be,
a Global Note. A Global Note may not be exchanged for another Note other than
as provided in this Section 2.06(a), however, beneficial interests in a Global
Note may be transferred and exchanged as provided in Section 2.06(b), (c) or
(f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global
Notes.
The transfer and exchange of beneficial interests in the
Global Notes shall be effected through the Depositary, in accordance with the
provisions of this Indenture and the Applicable Procedures. Beneficial
interests in the Restricted Global Notes shall be subject to restrictions on
transfer comparable to those set forth herein to the extent required by the
Securities Act. Transfers of beneficial interests in the Global Notes also
shall require compliance with either subparagraph (i) or (ii) below, as
applicable, as well as one or more of the other following subparagraphs, as
applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in
the same Restricted Global Note in accordance with the transfer
restrictions set forth in the Private Placement Legend; provided, however,
that prior to the expiration of the Restricted Period, transfers of
beneficial interests in the Temporary Regulation S Global Note may not be
made to a U.S. Person or for the account or benefit of a U.S. Person
(other than an Initial Purchaser). Beneficial interests in any
Unrestricted Global Note may be transferred to Persons who take delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note. No written orders or instructions shall be required to be delivered
to the Registrar to effect the transfers described in this Section
2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of beneficial
interests that are not subject to Section
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2.06(b)(i) above, the transferor of such beneficial interest must deliver
to the Registrar either (A) (1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to credit or cause to be
credited a beneficial interest in another Global Note in an amount equal
to the beneficial interest to be transferred or exchanged and (2)
instructions given in accordance with the Applicable Procedures containing
information regarding the Participant account to be credited with such
increase or (B) (1) a written order from a Participant or an Indirect
Participant given to the Depositary in accordance with the Applicable
Procedures directing the Depositary to cause to be issued a Definitive
Note in an amount equal to the beneficial interest to be transferred or
exchanged and (2) instructions given by the Depositary to the Registrar
containing information regarding the Person in whose name such Definitive
Note shall be registered to effect the transfer or exchange referred to in
(1) above; provided that in no event shall Definitive Notes be issued upon
the transfer or exchange of beneficial interests in the Regulation S
Temporary Global Note prior to (x) the expiration of the Restricted Period
and (y) the receipt by the Registrar of any certificates required pursuant
to Rule 903 under the Securities Act. Upon consummation of an Exchange
Offer by the Company in accordance with Section 2.06(f) hereof, the
requirements of this Section 2.06(b)(ii) shall be deemed to have been
satisfied upon receipt by the Registrar of the instructions contained in
the Letter of Transmittal delivered by the Holder of such beneficial
interests in the Restricted Global Notes. Upon satisfaction of all of the
requirements for transfer or exchange of beneficial interests in Global
Notes contained in this Indenture and the Notes or otherwise applicable
under the Securities Act, the Trustee shall adjust the principal amount of
the relevant Global Note(s) pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted Global
Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and each of
the Trustee and the Registrar receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Note or
the Regulation S Global Note, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof; and
(C) if the transferee will take delivery in the form of a
beneficial interest in the IAI Global Note, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications and certificates and Opinion of
Counsel required by item (3) thereof, if applicable.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in the Unrestricted Global Note. A
beneficial interest in any Restricted Global Note may be exchanged by any
holder thereof for a beneficial interest in an Unrestricted Global Note or
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note if the exchange or
transfer complies with the requirements of Section 2.06(b)(ii) above and:
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(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the holder of the beneficial interest to be
transferred, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal or via the Depositary's book-entry system that it is
not (1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights Agreement;
or
(D) each of the Trustee and the Registrar receives the
following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest
for a beneficial interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit C hereto,
including the certifications in item (1)(a) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial interest
to a Person who shall take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note, a certificate from
such holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B)
or (D) above at a time when an Unrestricted Global Note has not yet been
issued, the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(i) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Restricted
Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Restricted Definitive Note, then,
upon receipt by each of the Trustee and the Registrar of the following
documentation:
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(A) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note, a certificate from such holder in the
form of Exhibit C hereto, including the certifications in item
(2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB
in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with
Rule 903 or Rule 904 under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant
to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(a) thereof;
(E) if any such beneficial interest is being transferred to
an Institutional Accredited Investor in reliance on an exemption
from the registration requirements of the Securities Act other
than those listed in paragraphs (B) through (D) above, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications, certificates and Opinion of Counsel
required by item (3) thereof, if applicable;
(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in
item (3)(b) thereof; or
(G) if such beneficial interest is being transferred pursuant
to an effective registration statement under the Securities Act,
a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to Section
2.06(h) hereof, and the Company shall execute and the Trustee, upon
receipt of an Authentication Order in accordance with Section 2.02
hereof, shall authenticate and deliver to the Person designated in the
instructions a Definitive Note in the appropriate principal amount.
Any Definitive Note issued in exchange for a beneficial interest in a
Restricted Global Note pursuant to this Section 2.06(c) shall be
registered in such name or names and in such authorized denomination
or denominations as the holder of such beneficial interest shall
instruct the Registrar through instructions from the Depositary and
the Participant or Indirect Participant. The Trustee shall deliver
such Definitive Notes to the Persons in whose names such Notes are so
registered. Any Definitive Note issued in exchange for a beneficial
interest in a Restricted Global Note pursuant to this Section
2.06(c)(i) shall bear the Private Placement Legend and shall be
subject to all restrictions on transfer contained therein.
(ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Note may not be
exchanged for a Definitive Note or transferred to a Person who takes
delivery thereof in the form of a Definitive Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the Registrar
of any certificates required pursuant to Rule
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903(c)(3)(ii)(B) under the Securities Act, except in the case of a
transfer pursuant to an exemption from the registration requirements of
the Securities Act other than Rule 903 or Rule 904.
(iii) Beneficial Interests in Restricted Global Notes to Unrestricted
Definitive Notes. A holder of a beneficial interest in a Restricted Global
Note may exchange such beneficial interest for an Unrestricted Definitive
Note or may transfer such beneficial interest to a Person who takes
delivery thereof in the form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the holder of such beneficial interest, in the case
of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not
(1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights Agreement;
or
(D) the Trustee and the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest
for a Definitive Note that does not bear the Private Placement Legend,
a certificate from such holder in the form of Exhibit C hereto,
including the certifications in item (1)(b) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial interest
to a Person who shall take delivery thereof in the form of a
Definitive Note that does not bear the Private Placement Legend, a
certificate from such holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
(iv) Beneficial Interests in Unrestricted Global Notes to Unrestricted
Definitive Notes. If any holder of a beneficial interest in an
Unrestricted Global Note proposes to exchange such beneficial interest for
a Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Definitive Note, then, upon
satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof,
the Trustee shall cause the aggregate principal amount of the applicable
Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof,
and the Company shall execute and the Trustee shall, upon receipt of an
Authentication Order in accordance with Section 2.02 hereof, authenticate
and deliver to the Person designated in the instructions a Definitive Note
in the appropriate principal amount. Any Definitive Note issued in
exchange for a beneficial interest
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pursuant to this Section 2.06(c)(iii) shall be registered in such name or
names and in such authorized denomination or denominations as the holder
of such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Definitive Notes to the
Persons in whose names such Notes are so registered. Any Definitive Note
issued in exchange for a beneficial interest pursuant to this Section
2.06(c)(iii) shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial
Interests.
(i) Restricted Definitive Notes to Beneficial Interests in Restricted
Global Notes. If any Holder of a Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global Note
or to transfer such Restricted Definitive Notes to a Person who takes
delivery thereof in the form of a beneficial interest in a Restricted
Global Note, then, upon receipt by each of the Trustee and the Registrar
of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes
to exchange such Note for a beneficial interest in a Restricted
Global Note, a certificate from such Holder in the form of
Exhibit C hereto, including the certifications in item (2)(b)
thereof;
(B) if such Restricted Definitive Note is being transferred
to a QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred
to a Non-U.S. Person in an offshore transaction in accordance
with Rule 903 or Rule 904 under the Securities Act, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred
pursuant to an exemption from the registration requirements of
the Securities Act in accordance with Rule 144 under the
Securities Act, a certificate to the effect set forth in Exhibit
B hereto, including the certifications in item (3)(a) thereof;
(E) if any such Restricted Definitive Note is being
transferred to an Institutional Accredited Investor in reliance
on an exemption from the registration requirements of the
Securities Act other than those listed in paragraphs (B) through
(D) above, a certificate to the effect set forth in Exhibit B
hereto, including the certifications, certificates and Opinion of
Counsel required by item (3) thereof, if applicable;
(F) if such Restricted Definitive Note is being transferred
to the Company or any of its Subsidiaries, a certificate to the
effect set forth in Exhibit B hereto, including the
certifications in item (3)(b) thereof; or
(G) if such Restricted Definitive Note is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in Exhibit
B hereto, including the certifications in item (3)(c) thereof,
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the Trustee shall cancel the Restricted Definitive Note, increase or
cause to be increased the aggregate principal amount of, in the case
of clause (A) above, the appropriate Restricted Global Note, in the
case of clause (B) above, the 144A Global Note, in the case of clause
(C) above, the Regulation S Global Note, and in all other cases, the
IAI Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Restricted Definitive Note to a Person who takes
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of
the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights Agreement;
or
(D) each of the Trustee and the Registrar receives the
following:
(1) if the Holder of such Definitive Notes proposes to
exchange such Notes for a beneficial interest in the Unrestricted
Global Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery thereof in the
form of a beneficial interest in the Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in
this Section 2.06(d)(ii), the Trustee shall cancel the Definitive
Notes and increase or cause to be increased the aggregate principal
amount of the Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note at any time. Upon receipt of a request for such an exchange or
transfer, the Trustee shall cancel the applicable Unrestricted
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Definitive Note and increase or cause to be increased the aggregate
principal amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such
Holder's compliance with the provisions of this Section 2.06(e), the Registrar
shall register the transfer or exchange of Definitive Notes. Prior to such
registration of transfer or exchange, the requesting Holder shall present or
surrender to the Registrar the Definitive Notes duly endorsed or accompanied by
a written instruction of transfer in form satisfactory to the Registrar duly
executed by such Holder or by his attorney, duly authorized in writing. In
addition, the requesting Holder shall provide any additional certifications,
documents and information, as applicable, required pursuant to the following
provisions of this Section 2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive Notes. Any
Restricted Definitive Note may be transferred to and registered in the
name of Persons who take delivery thereof in the form of a Restricted
Definitive Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under
the Securities Act, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule
904, then the transferor must deliver a certificate in the form
of Exhibit B hereto, including the certifications in item (2)
thereof; and
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities
Act, then the transferor must deliver a certificate in the form
of Exhibit B hereto, including the certifications, certificates
and Opinion of Counsel required by item (3) thereof, if
applicable.
(ii) Restricted Definitive Notes to Unrestricted Definitive Notes. Any
Restricted Definitive Note may be exchanged by the Holder thereof for an
Unrestricted Definitive Note or transferred to a Person or Persons who
take delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of
the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
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(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights Agreement;
or
(D) each of the Trustee and the Registrar receives the
following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive Note, a
certificate from such Holder in the form of Exhibit C hereto,
including the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take delivery
thereof in the form of an Unrestricted Definitive Note, a certificate
from such Holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests, an Opinion of Counsel in form reasonably
acceptable to the Company to the effect that such exchange or transfer
is in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the Securities
Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes.
A Holder of Unrestricted Definitive Notes may transfer such Notes to a
Person who takes delivery thereof in the form of an Unrestricted
Definitive Note. Upon receipt of a request to register such a transfer,
the Registrar shall register the Unrestricted Definitive Notes pursuant to
the instructions from the Holder thereof.
(f) Exchange Offer.
Upon the occurrence of the Exchange Offer in accordance with
the Registration Rights Agreement, the Company shall issue and, upon receipt of
an Authentication Order in accordance with Section 2.02, the Trustee shall
authenticate (i) one or more Unrestricted Global Notes in an aggregate
principal amount equal to the principal amount of the beneficial interests in
the Restricted Global Notes tendered for acceptance by Persons that certify in
the applicable Letters of Transmittal that (x) they are not broker-dealers, (y)
they are not participating in a distribution of the Exchange Notes and (z) they
are not affiliates (as defined in Rule 144) of the Company, and accepted for
exchange in the Exchange Offer and (ii) Definitive Notes in an aggregate
principal amount equal to the principal amount of the Restricted Definitive
Notes accepted for exchange in the Exchange Offer. Concurrently with the
issuance of such Notes, the Trustee shall cause the aggregate principal amount
of the applicable Restricted Global Notes to be reduced accordingly, and the
Company shall execute and the Trustee shall, upon receipt of an Authentication
Order in accordance with Section 2.02, authenticate and deliver to the Persons
designated by the Holders of Definitive Notes so accepted Definitive Notes in
the appropriate principal amount.
(g) Legends.
The following legends shall appear on the face of all Global
Notes and Definitive Notes issued under this Indenture unless specifically
stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
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(A) Except as permitted by subparagraph (B) below, each
Global Note and each Definitive Note (and all Notes issued in
exchange therefor or substitution thereof) shall bear the legend
in substantially the following form:
"THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE.
BY ITS ACQUISITION HEREOF, THE HOLDER: REPRESENTS THAT (1) IT IS (A) A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) NOT A U.S. PERSON AND IS ACQUIRING THE NOTE
EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL
NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT TO
(A) THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES
ACT, (C) AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO THE CHASE MANHATTAN BANK, AS TRUSTEE (OR A
SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D)
OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER
APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER
IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO THE CHASE MANHATTAN BANK, AS TRUSTEE (OR A
SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS
OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT."
(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv),
(c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to
this Section 2.06 (and all Notes issued in exchange therefor or
substitution thereof) shall not bear the Private Placement
Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
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"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO
ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY
MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07
OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT
NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS
GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE
TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT
OF THE COMPANY."
(iii)Regulation S Temporary Global Note Legend. The Regulation S
Temporary Global Note shall bear a legend in substantially the
following form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND
THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED
NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER
THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY
GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes.
At such time as all beneficial interests in a particular
Global Note have been exchanged for Definitive Notes or a particular Global
Note has been redeemed, repurchased or canceled in whole and not in part, each
such Global Note shall be returned to or retained and canceled by the Trustee
in accordance with Section 2.11 hereof. At any time prior to such cancellation,
if any beneficial interest in a Global Note is exchanged for or transferred to
a Person who will take delivery thereof in the form of a beneficial interest in
another Global Note or for Definitive Notes, the principal amount of Notes
represented by such Global Note shall be reduced accordingly and an endorsement
shall be made on such Global Note by the Trustee or by the Depositary to
reflect such reduction; and if the beneficial interest is being exchanged for
or transferred to a Person who will take delivery thereof in the form of a
beneficial interest in another Global Note, such other Global Note shall be
increased accordingly and an endorsement shall be made on such Global Note by
the Trustee or by the Depositary to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon the Company's order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or transfer pursuant
to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).
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(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes
shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Global
Notes or Definitive Notes surrendered upon such registration of transfer
or exchange.
(v) The Company shall not be required (A) to issue, to register the
transfer of or to exchange any Notes during a period beginning at the
opening of business 15 days before the day of any selection of Notes for
redemption under Section 3.02 hereof and ending at the close of business
on the day of selection, (B) to register the transfer of or to exchange
any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part or (C) to register
the transfer of or to exchange a Note between a record date and the next
succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of principal of and interest on
such Notes and for all other purposes, and none of the Trustee, any Agent
or the Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive Notes
in accordance with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a registration of transfer or exchange may be submitted by
facsimile.
SECTION 2.07. REPLACEMENT NOTES
If any mutilated Note is surrendered to the Trustee or the
Company and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Note, the Company shall issue and the
Trustee, upon receipt of an Authentication Order, shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that
is sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Note is replaced. The Company may charge for its
expenses in replacing a Note.
Every replacement Note is an additional obligation of the
Company and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes
authenticated by the Trustee except for those canceled by it, those delivered
to it for cancellation, those reductions in the interest in a Global Note
effected by the Trustee in accordance with the provisions hereof, and those
described in this Section as not outstanding. Except as set forth in Section
2.09 hereof, a Note does not cease to be outstanding
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because the Company or an Affiliate of the Company holds the Note; however,
Notes held by the Company or a Subsidiary of the Company shall not be deemed to
be outstanding for purposes of Section 3.07(b) hereof.
If a Note is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or
an Affiliate of any thereof) holds, on a redemption date or maturity date,
money sufficient to pay Notes payable on that date, then on and after that date
such Notes shall be deemed to be no longer outstanding and shall cease to
accrue interest.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company,
shall be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that the Trustee knows are so owned
shall be so disregarded. The Company agrees to notify the Trustee of the
existence of any Notes owned by the Company, any Guarantor, or any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company or any Guarantor.
SECTION 2.10. TEMPORARY NOTES
Until certificates representing Notes are ready for delivery,
the Company may prepare and the Trustee, upon receipt of an Authentication
Order, shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of certificated Notes but may have variations that
the Company considers appropriate for temporary Notes and as shall be
reasonably acceptable to the Trustee. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Notes in exchange
for temporary Notes.
Holders of temporary Notes shall be entitled to all of the
benefits of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee and no one else shall cancel all Notes surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all canceled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it
has paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
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If the Company defaults in a payment of interest on the
Notes, it shall pay the defaulted interest in any lawful manner plus, to the
extent lawful, interest payable on the defaulted interest, to the Persons who
are Holders on a subsequent special record date, in each case at the rate
provided in the Notes and in Section 4.01 hereof. The Company shall notify the
Trustee in writing of the amount of defaulted interest proposed to be paid on
each Note and the date of the proposed payment. The Company shall fix or cause
to be fixed each such special record date and payment date, provided that no
such special record date shall be less than 10 days prior to the related
payment date for such defaulted interest. At least 15 days before the special
record date, the Company (or, upon the written request of the Company, the
Trustee in the name and at the expense of the Company) shall mail or cause to
be mailed to Holders a notice that states the special record date, the related
payment date and the amount of such interest to be paid.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the
optional redemption provisions of Section 3.07 hereof, it shall furnish to the
Trustee, at least 45 days but not more than 60 days before a redemption date,
an Officers' Certificate setting forth (i) the clause of this Indenture
pursuant to which the redemption shall occur, (ii) the redemption date, (iii)
the principal amount of Notes to be redeemed, (iv) the redemption price, and
(v) the CUSIP numbers of the Notes to be redeemed.
If the Company is required to make an offer to purchase Notes
pursuant to the provisions of Section 3.09 or 4.15 hereof, it shall furnish to
the Trustee an Officers' Certificate setting forth (i) the Section of this
Indenture pursuant to which the purchase shall occur, (ii) the purchase date,
(iii) the principal amount of Notes to be purchased, (iv) the purchase price
and (v) a statement to the effect that (a) the Company or one of its
Subsidiaries has effected an Asset Sale and the conditions set forth in
Sections 3.09 and 4.10 have been satisfied or (b) a Change of Control has
occurred and the conditions set forth in Section 4.15 have been satisfied, as
applicable.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED
If less than all of the Notes are to be redeemed or purchased
in an offer to purchase at any time, the Trustee shall select the Notes to be
redeemed or purchased among the Holders of the Notes in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed or, if the Notes are not so listed, on a pro rata basis,
by lot or in accordance with any other method the Trustee considers fair and
appropriate. In the event of partial redemption by lot, the particular Notes to
be redeemed shall be selected, unless otherwise provided herein, not less than
30 nor more than 60 days prior to the redemption date by the Trustee from the
outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Note selected for
partial redemption, the principal amount thereof to be redeemed. Notes and
portions of Notes selected shall be in amounts of $1,000 or whole multiples of
$1,000; except that if all of the Notes of a Holder are to be redeemed, the
entire outstanding amount of Notes held by such Holder, even if not a multiple
of $1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION
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Subject to the provisions of Section 3.09 hereof, at least 30
days but not more than 60 days before a redemption date, the Company shall mail
or cause to be mailed, by first class mail, a notice of redemption to each
Holder whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed, including
the CUSIP numbers, and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption
date upon surrender of such Note, a new Note or Notes in principal amount equal
to the unredeemed portion shall be issued upon cancellation of the original
Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice
of redemption in the Company's name and at its expense; provided, however, that
the Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as
provided in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION
Once notice of redemption is mailed in accordance with
Section 3.03 hereof, Notes called for redemption become irrevocably due and
payable on the redemption date at the redemption price. A notice of redemption
may not be conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE
One Business Day prior to the redemption date, the Company
shall deposit with the Trustee or with the Paying Agent money sufficient to pay
the redemption price of and accrued interest on all Notes to be redeemed on
that date. The Trustee or the Paying Agent shall promptly return to the Company
any money deposited with the Trustee or the Paying Agent by the Company in
excess of the amounts necessary to pay the redemption price of, and accrued
interest on, all Notes to be redeemed.
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If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the
Company shall issue and, upon the Company's written request, the Trustee shall
authenticate for the Holder at the expense of the Company a new Note equal in
principal amount to the unredeemed portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section 3.07, the
Company shall not have the option to redeem the Notes pursuant to this Section
3.07 prior to February 1, 2003. Thereafter, the Company shall have the option
to redeem the Notes, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on February 1 of the years
indicated below:
YEAR PERCENTAGE
2003.............................................104.563%
2004.............................................103.042%
2005.............................................101.521%
2006 and thereafter..............................100.000%
(b) Notwithstanding the foregoing, prior to February 1, 2001, the
Company may, on any one or more occasions, redeem up to 35% of the aggregate
principal amount of Notes originally issued in the Offering at a redemption
price of 109.125% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the redemption date, with
the net cash proceeds of an offering of common equity of the Company (other
than Disqualified Stock); provided that (i) at least 65% of the aggregate
principal amount of the Notes originally issued in the Offering remain
outstanding immediately after the occurrence of each such redemption (excluding
Notes held by the Company and its Subsidiaries) and (ii) each such redemption
shall occur within 75 days after the date of the closing of any such offering
of common equity of the Company.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08 MANDATORY REDEMPTION.
The Company shall not be required to make mandatory
redemption payments with respect to the Notes, except as set forth in Section
4.15.
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SECTION 3.09 OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the
Company shall be required to commence an Asset Sale Offer, it shall follow the
procedures specified below.
The Asset Sale Offer shall remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Offer Period"). No
later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount of Notes
required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount")
or, if less than the Offer Amount has been tendered, all Notes tendered in
response to the Asset Sale Offer. Payment for any Notes so purchased shall be
made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date
and on or before the related interest payment date, any accrued and unpaid
interest shall be paid to the Person in whose name a Note is registered at the
close of business on such record date, and no additional interest shall be
payable to Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company
shall send, by first class mail, a notice to the Trustee and each of the
Holders. The notice shall contain all instructions and materials necessary to
enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset
Sale Offer shall be made to all Holders. The notice, which shall govern the
terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall
remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrete or accrue interest;
(d) that, unless the Company defaults in making such payment, any
Note accepted for payment pursuant to the Asset Sale Offer shall cease to
accrete or accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an
Asset Sale Offer may only elect to have all of such Note purchased and may not
elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Company, a depositary, if
appointed by the Company, or a Paying Agent at the address specified in the
notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
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(h) that, if the aggregate principal amount of Notes surrendered
by Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the
extent lawful, accept for payment, on a pro rata basis to the extent necessary,
the Offer Amount of Notes or portions thereof tendered pursuant to the Asset
Sale Offer, or if less than the Offer Amount has been tendered, all Notes
tendered, and shall deliver to the Trustee an Officers' Certificate stating
that such Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 3.09. The Company, the Depositary or
the Paying Agent, as the case may be, shall promptly (but in any case not later
than five days after the Purchase Date) mail or deliver to each tendering
Holder an amount equal to the purchase price of the Notes tendered by such
Holder and accepted by the Company for purchase, and the Company shall promptly
issue a new Note, and the Trustee, upon written request from the Company shall
authenticate and mail or deliver such new Note to such Holder, in a principal
amount equal to any unpurchased portion of the Note surrendered. Any Note not
so accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce the results of the Asset Sale
Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
SECTION 4.01 PAYMENT OF NOTES.
The Company or a Guarantor shall pay or cause to be paid the
principal of, premium, if any, and interest and Liquidated Damages, if any, on
the Notes on the dates and in the manner provided in the Notes. Principal,
premium, if any, and interest and Liquidated Damages, if any, shall be
considered paid on the date due if the Paying Agent, if other than the Company
or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date
money deposited by the Company in immediately available funds and designated
for and sufficient to pay all principal, premium, if any, and interest and
Liquidated Damages, if any, then due. The Company shall pay all Liquidated
Damages, if any, in the same manner on the dates and in the amounts set forth
in the Registration Rights Agreement.
The Company or a Guarantor shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
principal at the rate equal to 1% per annum in excess of the then applicable
interest rate on the Notes to the extent lawful; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest and Liquidated Damages (without regard to
any applicable grace period) at the same rate to the extent lawful.
SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the
City of New York, an office or agency (which may be an office of the Trustee or
an affiliate of the Trustee, Registrar or
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co-registrar) where Notes may be surrendered for registration of transfer or
for exchange and where notices and demands to or upon the Company in respect of
the Notes and this Indenture may be served. The Company shall give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be
made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of
the Trustee as one such office or agency of the Company in accordance with
Section 2.03.
SECTION 4.03 REPORTS.
(a) Whether or not required by the rules and regulations of the SEC,
so long as any Notes are outstanding, the Company shall furnish to the Trustee
and the Holders of Notes (i) all quarterly and annual financial information
that would be required to be contained in a filing with the SEC on Forms 10-Q
and 10-K if the Company were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its consolidated Subsidiaries (showing in reasonable detail,
either on the face of the financial statements or in the footnotes thereto and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial information and
results of operations of the Unrestricted Subsidiaries of the Company) and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the SEC on Form 8-K if the Company were required to
file such reports, in each case, within the time periods specified in the SEC's
rules and regulations. In addition, following consummation of the Exchange
Offer, whether or not required by the rules and regulations of the SEC, the
Company shall file a copy of all such information and reports with the SEC for
public availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. The Company shall at all times comply with TIA ss. 314(a).
(b) For so long as any Notes remain outstanding, the Company and
the Guarantors shall furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
SECTION 4.04 COMPLIANCE CERTIFICATE.
(a) The Company and each Guarantor (to the extent that such
Guarantor is so required under the TIA) shall deliver to the Trustee, within 90
days after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture,
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and further stating, as to each such Officer signing such certificate, that to
the best of his or her knowledge the Company has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and is not in
default in the performance or observance of any of the terms, provisions and
conditions of this Indenture (or, if a Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of which he or she
may have knowledge and what action the Company is taking or proposes to take
with respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of or interest, if any, on the Notes is prohibited or if such event
has occurred, a description of the event and what action the Company is taking
or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations
of the American Institute of Certified Public Accountants, the year-end
financial statements delivered pursuant to Section 4.03(a) above shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial
statements, nothing has come to their attention that would lead them to believe
that the Company has violated any provisions of Article 4 or Article 5 hereof
or, if any such violation has occurred, specifying the nature and period of
existence thereof, it being understood that such accountants shall not be
liable directly or indirectly to any Person for any failure to obtain knowledge
of any such violation.
(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes
to take with respect thereto.
SECTION 4.05 TAXES.
The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
SECTION 4.06 STAY, EXTENSION AND USURY LAWS.
The Company and each of the Guarantors covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time hereafter
in force, that may affect the covenants or the performance of this Indenture;
and the Company and each of the Guarantors (to the extent that it may lawfully
do so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it shall not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been
enacted.
SECTION 4.07 RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Restricted Subsidiary's Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation
involving the Company or any Restricted Subsidiary) or to any direct or
indirect holders of the Company's Equity Interests in their capacity as such
(other than
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dividends or distributions (a) payable in Equity Interests (other than
Disqualified Stock) of the Company or (b) to the Company or any Wholly Owned
Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value (including, without limitation, in connection with
any merger or consolidation involving the Company) any Equity Interests of the
Company or any of its Restricted Subsidiaries or any direct or indirect parent
of the Company (other than any such Equity Interests owned by the Company or
any Restricted Subsidiary of the Company or Permitted Investments); (iii) make
any payment on or with respect to, or purchase, redeem, defease or otherwise
acquire or retire for value any Indebtedness of the Company or any Restricted
Subsidiary that is subordinated to the Notes or any guarantee of the Notes,
except a payment of interest or principal at Stated Maturity; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Debt to Cash Flow Ratio test set forth in the first paragraph of Section 4.09
hereof, and
(c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date hereof (excluding Restricted Payments permitted by
clauses (ii), (iii) and (vi) of the next succeeding paragraph), is less than
the sum, without duplication, of (i) 50% of the Consolidated Net Income of the
Company for the period (taken as one accounting period) from the beginning of
the first fiscal quarter commencing after the date hereof to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds received by the
Company as a contribution to its common equity capital or from the issue or
sale since the date hereof of Equity Interests of the Company (other than
Disqualified Stock) or from the issue or sale of Disqualified Stock or debt
securities of the Company that have been converted into such Equity Interests
(other than Equity Interests (or Disqualified Stock or convertible debt
securities) sold to a Subsidiary of the Company and other than Disqualified
Stock or convertible debt securities that have been converted into Disqualified
Stock), plus (iii) 50% of any dividends received by the Company or a Wholly
Owned Restricted Subsidiary after the date hereof from an Unrestricted
Subsidiary of the Company, to the extent that such dividends were not otherwise
included in Consolidated Net Income of the Company for such period, plus (iv)
to the extent that any Restricted Investment that was made after the date
hereof is sold for cash or otherwise liquidated or repaid for cash, the lesser
of (A) the cash return of capital with respect to such Restricted Investment
(less the cost of disposition, if any) and (B) the initial amount of such
Restricted Investment.
The foregoing provisions will not prohibit (i) the payment of
any dividend within 60 days after the date of declaration thereof, if at the
date of declaration such payment would have complied with the provisions of
this Indenture; (ii) the redemption, repurchase, retirement, defeasance or
other acquisition of any Equity Interests of Company or subordinated
Indebtedness of the Company or any Guarantor in exchange for, or out of the net
cash proceeds of the substantially concurrent sale (other than to a Subsidiary
of the Company) of, other Equity Interests of the Company (other than any
Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement, defeasance
or other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph; and, provided further, that no Default or Event of Default shall
have occurred and be continuing
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immediately after such transaction; (iii) the defeasance, redemption,
repurchase or other acquisition of subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness; provided
that no Default or Event of Default shall have occurred and be continuing
immediately after such transaction; (iv) the payment of any dividend by a
Restricted Subsidiary of the Company to the holders of Equity Interests on a
pro rata basis; (v) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Restricted
Subsidiary of the Company held by any member of the Company's (or any of its
Restricted Subsidiaries') management or board of directors pursuant to any
management equity subscription agreement, stock option agreement or other
similar agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$250,000 in any twelve-month period and no Default or Event of Default shall
have occurred and be continuing immediately after such transaction; and (vi)
the repurchase, redemption or other acquisition or retirement for value or
payment made in respect of any Equity Interests of the Company or any
Restricted Subsidiary of the Company pursuant to any of the agreements relating
to the Pending Acquisitions, each as in effect on the date hereof; provided
that no Default or Event of Default shall have occurred and be continuing
immediately after such transaction.
The amount of all Restricted Payments (other than cash) shall
be the fair market value on the date of the Restricted Payment of the asset(s)
or securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined in
good faith by the Board of Directors whose resolution with respect thereto
shall be delivered to the Trustee. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this Section 4.07 were
computed.
The Board of Directors may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, the aggregate fair market
value of all outstanding Investments by the Company and its Restricted
Subsidiaries in the Subsidiary so designated will be deemed to be a Restricted
Payment at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. Such
designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary.
Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions. If, at
any time, any Unrestricted Subsidiary would fail to meet the definition of an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.09 hereof, the Company shall be in
default). The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under Section 4.09 hereof, calculated on a pro forma
basis as if such designation had occurred at the beginning of the four-quarter
reference period and (ii) no Default or Event of Default would be in existence
immediately following such designation.
SECTION 4.08 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
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The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a)(i) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries (A) on its
Capital Stock or (B) with respect to any other interest or participation in, or
measured by, its profits or (ii) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (b) make loans or advances to the Company
or any of its Restricted Subsidiaries or (c) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reasons of (i) Existing
Indebtedness as in effect on the date hereof, (ii) the Senior Credit Facility
and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, and any other
agreement governing or relating to Senior Debt, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings and other agreements are no more restrictive with
respect to such dividend and other payment restrictions than those contained in
the Senior Credit Facility, (iii) this Indenture as in effect on the date
hereof, the Notes and the Subsidiary Guarantees, (iv) applicable law, (v) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in anticipation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of this Indenture to be incurred, (vi) by reason of customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (vii) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (c) above on the property so
acquired, (viii) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced, (ix) secured Indebtedness
otherwise permitted to be incurred pursuant to the provisions of Section 4.12
hereof that limits the right of the debtor to dispose of the assets securing
such Indebtedness, (x) provisions with respect to the disposition or
distribution of assets or property in joint venture agreements and other
similar agreements entered into in the ordinary course of business and (xi)
restrictions on cash or other deposits or net worth imposed by customers under
contracts entered into in the ordinary course of business.
SECTION 4.09 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) or issue any shares of Disqualified Stock and will not permit
any of its Subsidiaries to issue any shares of preferred stock; provided,
however, that, so long as no Default or Event of Default has occurred and is
continuing, the Company may incur Indebtedness (including Acquired Debt) or
issue shares of Disqualified Stock and the Guarantors may issue shares of
preferred stock if, in each case, the Company's Debt to Cash Flow Ratio at the
time of incurrence of such Indebtedness or the issuance of such Disqualified
Stock or preferred stock, as the case may be, after giving pro forma effect to
such incurrence or issuance as of such date and to the use of the proceeds
therefrom as if the same had occurred at the beginning of the most recently
ended four full fiscal quarter period of the Company for which internal
financial statements are available, would have been no greater than (a) 7.0 to
1.0, if such incurrence or issuance is prior to December 31, 1999 or (b) 6.0 to
1.0 thereafter.
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The provisions of the first paragraph of this covenant will
not apply to the incurrence of any of the following (collectively, "Permitted
Debt"):
(i) the incurrence by the Company (and the guarantee thereof by
Guarantors) of Indebtedness and Letters of Credit under one or more Credit
Facilities in an aggregate principal amount at any time outstanding not to
exceed $400.0 million (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
and the Guarantors thereunder), less the aggregate amount of all
repayments, optional or mandatory, of the principal of any term
Indebtedness under a Credit Facility that have been made since the date
hereof and less the aggregate amount of all commitment reductions of any
revolving Indebtedness under a Credit Facility pursuant to clause (i) of
the third paragraph of Section 4.10 hereof;
(ii) the incurrence by the Company and the guarantee thereof by the
Guarantors of Indebtedness represented by the Notes and the Subsidiary
Guarantees;
(iii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iv) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or such Restricted Subsidiary, in an aggregate amount not to
exceed $5.0 million at any time outstanding, including all Permitted
Refinancing Debt incurred pursuant to clause (v) below to refund, replace
or refinance any Indebtedness pursuant to this clause (iv);
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace
Indebtedness (other than intercompany Indebtedness) that was permitted by
this Indenture to be incurred by the first paragraph of this Section 4.09,
or by clauses (ii), (iii), (iv), (v), (vii) or (x) of this paragraph;
(vi) the incurrence of Indebtedness between or among the Company and
any of its Restricted Subsidiaries; provided, however, that (a) if the
Company is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full of all Obligations
with respect to the Notes and (b) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Restricted Subsidiary, and any sale or
other transfer of any such Indebtedness to a Person that is not either the
Company or a Restricted Subsidiary, shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding;
(viii) the guarantee by the Company or any of the Guarantors of
Indebtedness that was permitted to be incurred by another provision of
this Section 4.09;
(ix) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted
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Subsidiary, such event shall be deemed to constitute an incurrence of
Indebtedness by a Restricted Subsidiary of the Company that was not
permitted by this clause (ix);
(x) the issuance of preferred stock by the Company pursuant to the
Contemporary Agreement, as in effect on the date of this Indenture; and
(xi) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
at any time outstanding, including all Permitted Refinancing Indebtedness
incurred pursuant to clause (v) above to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (xi), not to exceed $10.0
million.
For purposes of determining compliance with this covenant, in
the event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Debt described in clauses (i) through (xi) above or
is entitled to be incurred pursuant to the first paragraph of this covenant,
the Company shall, in its sole discretion, classify such item of Indebtedness
in any manner that complies with this Section 4.09 and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof. Accrual of interest,
the accretion of accreted value, the payment of interest on any Indebtedness in
the form of additional Indebtedness with the same terms and the payment of
dividends on Disqualified Stock in the form of additional shares of the same
class of Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes of this
covenant.
SECTION 4.10 ASSET SALES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or
such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; provided that the amount of (a) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet) of the
Company or such Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Restricted
Subsidiary from further liability, (b) any securities, notes or other
obligations received by the Company or such Restricted Subsidiary from such
transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received) and (c) escrowed cash
that the Company reasonably believes will be released from escrow within 365
days from the date of consummation of such Asset Sale, in each case shall be
deemed to be cash for purposes of this provision.
Notwithstanding the immediately preceding paragraph, the
Company and its Restricted Subsidiaries will be permitted to consummate an
Asset Sale without complying with such paragraph if (i) the Company or the
applicable Restricted Subsidiary, as the case may be, receives consideration at
the time of such Asset Sale at least equal to the fair market value of the
assets or other property sold, issued or otherwise disposed of (as evidenced by
a resolution of the Company's Board of Directors set forth in an Officers'
Certificate delivered to the Trustee) and (ii) at least 75% of the
consideration for such Asset Sale constitutes a controlling interest in a
Permitted Business, long-term assets used or useful in a Permitted Business
and/or cash or Cash Equivalents; provided that any cash or Cash Equivalents
received by the Company or any of its Restricted Subsidiaries in connection
with any Asset Sale permitted to be
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consummated under this paragraph shall constitute Net Proceeds subject to the
provisions of the next succeeding paragraph.
Within 365 days of the receipt of any Net Proceeds from an
Asset Sale, the Company may apply such Net Proceeds, at its option, (i) to
repay Senior Debt under a Credit Facility (and to correspondingly reduce
commitments with respect thereto in the case of revolving borrowings) or (ii)
to the acquisition of a controlling interest in a Permitted Business, the
making of a capital expenditure or the acquisition of other long-term assets,
in each case, used or useful in a Permitted Business. Pending the final
application of any such Net Proceeds, the Company may temporarily reduce Senior
Debt or otherwise invest such Net Proceeds in any manner that is not prohibited
by this Indenture. Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the first sentence of this paragraph shall be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10.0 million, the Company shall be required to make an offer to all
Holders of Notes and all holders of other pari passu Indebtedness containing
provisions similar to those set forth in this Indenture with respect to offers
to purchase or redeem such other pari passu Indebtedness with the proceeds of
sales of assets (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes and such other pari passu Indebtedness that may be purchased
out of the Excess Proceeds at an offer price in cash in an amount equal to 100%
of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase, in accordance with
the procedures set forth in this Indenture and in such other pari passu
Indebtedness. To the extent that the aggregate amount of Notes and such other
pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use any remaining Excess Proceeds for any
purpose not otherwise prohibited by this Indenture. If the aggregate principal
amount of Notes and such other pari passu Indebtedness surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes and such other pari passu Indebtedness to be purchased on a pro rata
basis. Upon completion of an Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.
SECTION 4.11 TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or such Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of
the members of the Board of Directors that are disinterested as to such
Affiliate Transaction and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $5.0 million, an opinion as to the fairness to the Company of such
Affiliate Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing; provided that (1)
any employment agreement entered into by, and any compensation paid by, the
Company or any of its Restricted Subsidiaries, in each case, approved by the
Compensation Committee, (2) transactions between or among the Company and/or
its Restricted Subsidiaries, (3) fees and compensation paid to members of the
Board of Directors of the Company and of its Restricted Subsidiaries in their
capacity as such, to the extent such fees and compensation are reasonable,
customary and consistent with past practices and the issuance of shares of the
Company to the Directors who were holders of options or stock appreciation
rights in Broadcasting as of
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the Spin-Off record date, whether or not vested, (4) fees and compensation paid
to, and indemnity provided on behalf of, officers, directors or employees of
the Company or any of its Restricted Subsidiaries, as determined by the Board
of Directors of the Company or of any such Restricted Subsidiary, to the extent
such fees and compensation are reasonable, customary and consistent with past
practices, (5) the transactions specifically contemplated by the Merger
Agreement, the agreements relating to the Pending Acquisitions or by
instruments referred to in any such agreements, in each case, as the same are
in effect on the date hereof, (6) the Spin-Off Transactions, (7) the
transactions specifically contemplated by the Delsener/Slater Employment
Agreements, in each case as in effect on the date hereof, (8) the Meadows
Repurchase and the Series E Preferred Repurchase; provided that the Company
receives either (x) a cash payment from Broadcasting or Broadcasting Buyer or
an Affiliate thereof at or prior to the date of the Broadcasting Merger at
least equal to the aggregate amount expended by the Company in the Meadows
Repurchase and the Series E Preferred Repurchase less $3.0 million or (y) an
increase in favor of the Company in the Working Capital Adjustment (including
the avoidance of a decrease) contemplated by the Merger Agreement in an amount
at least equal to the aggregate amount expended by the Company in the Meadows
Repurchase and the Series E Preferred Repurchase less $3.0 million or (z) any
combination thereof adding up to an amount at least equal to the aggregate
amount expended by the Company in the Meadows Repurchase and the Series E
Preferred Repurchase less $3.0 million; and (9) any Restricted Payment that is
permitted by the provisions of Section 4.07 hereof, in each case, shall not be
deemed to be Affiliate Transactions.
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly create, incur, assume or
suffer to exist any Lien securing Indebtedness or trade payables on any asset
now owned or hereafter acquired, or any income or profits therefrom or assign
or convey any right to receive income therefrom, except Permitted Liens.
SECTION 4.13. BUSINESS ACTIVITIES.
The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any business other than Permitted Businesses, except
to such extent as would not be material to the Company and its Restricted
Subsidiaries taken as a whole.
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect (i)
its corporate existence, and the corporate, partnership or other existence of
each of its Subsidiaries, in accordance with the respective organizational
documents (as the same may be amended from time to time) of the Company or any
such Subsidiary and (ii) the rights (charter and statutory), licenses and
franchises of the Company and its Subsidiaries; provided, however, that the
Company shall not be required to preserve any such right, license or franchise,
or the corporate, partnership or other existence of any of its Subsidiaries, if
the Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of the Notes.
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the Company shall
be obligated to make an offer (a "Change of Control Offer") to each Holder of
Notes to repurchase all or any part (equal to $1,000 or
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an integral multiple thereof) of such Holder's Notes at an offer price in cash
equal to 101% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of purchase (the "Change of
Control Payment"). Within ten days following a Change of Control, the Company
will mail a notice to the Trustee and each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by this
Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
(b) On the Change of Control Payment Date, the Company will, to
the extent lawful, (i) accept for payment all Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (ii) deposit with
the Paying Agent an amount equal to the Change of Control Payment in respect of
all Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company. The Paying Agent will promptly mail to each
Holder of Notes so tendered the Change of Control Payment for such Notes, and
the Trustee will promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof. Prior to complying with the provisions of this Section 4.15, but in
any event within 90 days following a Change of Control, the Company will either
repay all outstanding Senior Debt or obtain the requisite consents, if any,
under all agreements governing outstanding Senior Debt to permit the repurchase
of Notes required by this Section 4.15. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of this Indenture are applicable.
(c) Notwithstanding anything to the contrary in this Section
4.15, the Company shall not be required to make a Change of Control Offer upon
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in this Section 4.15 and Section 3.09 hereof and purchases all Notes
validly tendered and not withdrawn under such Change of Control Offer.
SECTION 4.16. NO SENIOR SUBORDINATED DEBT.
Notwithstanding the provisions of Section 4.09 hereof, (i)
the Company shall not directly or indirectly incur any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes and (ii) no Guarantor shall incur any
Indebtedness that is subordinated or junior in right of payment to any
Guarantees of Senior Debt and senior in any respect in right of payment to the
Subsidiary Guarantees.
SECTION 4.17. ISSUANCES AND SALES OF EQUITY INTERESTS IN RESTRICTED
SUBSIDIARIES.
The Company (i) shall not, and shall not permit any
Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Equity Interests in any Restricted Subsidiary of the
Company to any Person (other than the Company or a Restricted Subsidiary of the
Company), unless (a) such transfer, conveyance, sale, lease or other
disposition is of all the Equity Interests in such Restricted
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Subsidiary and (b) the cash Net Proceeds, if any, from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with
Section 4.10 hereof, and (ii) will not permit any Restricted Subsidiary of the
Company to issue any of its Equity Interests (other than, if necessary, shares
of its Capital Stock constituting directors' qualifying shares) to any Person
other than to the Company or a Restricted Subsidiary of the Company except as
permitted pursuant to Section 4.09 hereof.
SECTION 4.18. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that the Company and the Guarantors may enter into a sale and
leaseback transaction if (i) the Company or such Guarantor could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to the Debt to Cash Flow Ratio
test set forth in the first paragraph of Section 4.09 hereof and (b) incurred a
Lien to secure such Indebtedness pursuant to Section 4.12 hereof, (ii) the
gross cash proceeds of such sale and leaseback transaction are at least equal
to the fair market value (as determined in good faith by the Board of Directors
and set forth in an Officers' Certificate delivered to the Trustee) of the
property that is the subject of such sale and leaseback transaction and (iii)
the transfer of assets in such sale and leaseback transaction is permitted by,
and the proceeds of such transaction are applied in compliance with Section
4.10 hereof.
SECTION 4.19. PAYMENTS FOR CONSENT.
Neither the Company nor any of its Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of this Indenture or the Notes unless such consideration is offered
to be paid or is paid to all Holders of the Notes that consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
SECTION 4.20. ADDITIONAL SUBSIDIARY GUARANTEES.
If the Company or any of its Restricted Subsidiaries shall
acquire or create another domestic Restricted Subsidiary after the date of this
Indenture (other than the Non-Guarantor Subsidiaries), or any domestic
Unrestricted Subsidiary shall become a Restricted Subsidiary of the Company,
then such Subsidiary shall become a Guarantor by executing a Supplemental
Indenture in the form attached hereto as Exhibit E and deliver an Opinion of
Counsel to the Trustee to the effect that such Supplemental Indenture has been
duly authorized, executed and delivered by such Subsidiary and constitutes a
valid and binding obligation of such Subsidiary, enforceable against such
Subsidiary in accordance with its terms (subject to customary exceptions).
ARTICLE 5.
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into
(whether or not the Company is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or
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surviving any such consolidation or merger (if other than the Company) or the
entity or Person to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made assumes all the obligations of the
Company under the Notes, the Indenture and the Registration Rights Agreement
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately after such transaction no Default or Event of
Default exists; and (iv) except in the case of a merger of the Company with or
into a Wholly Owned Restricted Subsidiary of the Company, the Company or the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made will, both immediately
prior to and immediately after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt to Cash Flow Ratio test set forth in Section 4.09 hereof.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company), and may
exercise every right and power of the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from the
obligation to pay the principal of and interest on the Notes except in the case
of a sale of all of the Company's assets that meets the requirements of Section
5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(a) the Company defaults for 30 days in the payment when due of
interest on, or Liquidated Damages, if any, with respect to, the Notes, whether
or not such payment is prohibited by the provisions of Article 10 hereof;
(b) the Company defaults in payment when due of the principal of
or premium, if any, on the Notes, whether or not such payment is prohibited by
the provisions of Article 10 hereof;
(c) the Company or any Restricted Subsidiary fails to comply
with any of the provisions of Section 4.15 or 5.01 hereof;
(d) the Company or any Restricted Subsidiary fails for 30 days
after written notice by the Trustee or the Holders of at least 25% in principal
amount of the then outstanding Notes to comply with the provisions of Section
3.09, 4.07, 4.09 or 4.10 hereof;
(e) the Company or any Restricted Subsidiary fails for 60 days
after written notice by the Trustee or the Holders of at least 25% in principal
amount of the then outstanding Notes to comply with any of its other agreements
in this Indenture or the Notes;
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(f) the Company or any Restricted Subsidiary defaults under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries), whether such
Indebtedness or guarantee now exists or is created after the date hereof, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $10.0 million or more;
(g) the Company or any of its Restricted Subsidiaries fails to
pay final judgments aggregating in excess of $10.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days;
(h) except as permitted by this Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its Subsidiary Guarantee;
(i) the Company or any of the Company's Restricted Subsidiaries
that constitutes a Significant Subsidiary or any group of Restricted
Subsidiaries of the Company that, taken together, would constitute a
Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in
an involuntary case,
(iii) consents to the appointment of a custodian of it or for all
or substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors,
or
(v) generally is not paying its debts as they become due; or
(j) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary in an involuntary case;
(ii) appoints a custodian of the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary or for all or substantially all of the
property of the Company or any of its Significant Subsidiaries or any
group of Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary; or
(iii) orders the liquidation of the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary;
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and the order or decree remains unstayed and in effect for 60
consecutive days.
SECTION 6.02 ACCELERATION.
If any Event of Default (other than an Event of Default
specified in clause (i) or (j) of Section 6.01 hereof with respect to the
Company, any Significant Subsidiary or any group of Significant Subsidiaries
that, taken as a whole, would constitute a Significant Subsidiary) occurs and
is continuing, the Trustee or the Holders of at least 25% in principal amount
of the then outstanding Notes may declare all the Notes to be due and payable
immediately. Notwithstanding the foregoing, if an Event of Default specified in
clause (i) or (j) of Section 6.01 hereof occurs with respect to the Company,
any Restricted Subsidiary of the Company that constitutes a Significant
Subsidiary or any group of Restricted Subsidiaries of the Company that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes will
become due and payable without further action or notice. Holders of the Notes
may not enforce this Indenture or the Notes except as provided in this
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of the Notes notice
of any continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
If an Event of Default occurs on or after February 1, 2003 by
reason of any willful action (or inaction) taken (or not taken) by or on behalf
of the Company with the intention of avoiding payment of the premium that the
Company would have had to pay if the Company then had elected to redeem the
Notes pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an
equivalent premium shall also become and be immediately due and payable, to the
extent permitted by law, anything in this Indenture or in the Notes to the
contrary notwithstanding. If an Event of Default occurs prior to February 1,
2003 by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to such date, then, upon acceleration of the
Notes, an additional premium shall also become and be immediately due and
payable in an amount, for each of the years beginning on February 1 of the
years set forth below, as set forth below (expressed as a percentage of the
aggregate principal amount to the date of payment that would otherwise be due
but for the provisions of this sentence):
YEAR PERCENTAGE
1998...........................................112.167%
1999...........................................110.646%
2000...........................................109.125%
2001...........................................107.604%
2002...........................................106.083%
The Holders of a majority in aggregate principal amount of
the Notes then outstanding by notice to the Trustee may on behalf of the
Holders of all of the Notes waive any existing Default or Event of Default and
its consequences under this Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a
statement regarding compliance with this Indenture, and the Company is required
upon becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement specifying such Default or Event of Default.
SECTION 6.03. OTHER REMEDIES.
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If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal, premium,
if any, and interest on the Notes or to enforce the performance of any
provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Note in exercising any
right or remedy accruing upon an Event of Default shall not impair the right or
remedy or constitute a waiver of or acquiescence in the Event of Default. All
remedies are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal
amount of the then outstanding Notes by notice to the Trustee may on behalf of
the Holders of all of the Notes waive an existing Default or Event of Default
and its consequences hereunder, except a continuing Default or Event of Default
in the payment of the principal of, premium and Liquidated Damages, if any, or
interest on, the Notes (including in connection with an offer to purchase)
(provided, however, that the Holders of a majority in aggregate principal
amount of the then outstanding Notes may rescind an acceleration and its
consequences, including any related payment default that resulted from such
acceleration). Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes or that may
involve the Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
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A Holder of a Note may not use this Indenture to prejudice
the rights of another Holder of a Note or to obtain a preference or priority
over another Holder of a Note.
SECTION 6.07 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal, premium and
Liquidated Damages, if any, and interest on the Note, on or after the
respective due dates expressed in the Note (including in connection with an
offer to purchase), or to bring suit for the enforcement of any such payment on
or after such respective dates, shall not be impaired or affected without the
consent of such Holder.
SECTION 6.08 COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b)
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal of, premium and Liquidated Damages, if any, and interest
remaining unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders of the Notes allowed in any judicial proceedings relative to
the Company (or any other obligor upon the Notes), its creditors or its
property and shall be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.07 hereof. To the extent that the
payment of any such compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof out of the estate in any such proceeding, shall be denied
for any reason, payment of the same shall be secured by a Lien on, and shall be
paid out of, any and all distributions, dividends, money, securities and other
properties that the Holders may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement or
otherwise. Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder, or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding.
SECTION 6.10 PRIORITIES.
If the Trustee collects any money pursuant to this Article,
it shall pay out the money in the following order:
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First: to the Trustee, its agents and attorneys for amounts
due under Section 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium and Liquidated Damages, if any, and interest,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal, premium and Liquidated Damages, if
any and interest, respectively; and
Third: to the Company or to such party as a court of
competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.10.
SECTION 6.11 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Notes.
SECTION 6.12. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS
No director, officer, employee or stockholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company or any Guarantor under the Notes, the Subsidiary Guarantees, the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
SEC that such a waiver is against public policy.
ARTICLE 7.
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the TIA and the Trustee need
perform only those duties that are specifically set forth in
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this Indenture and no others, and no implied covenants or obligations
shall be read into this Indenture or the TIA against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liabilities for its own
gross negligent action, its own gross negligent failure to act, or its own
willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability
or expense that might be incurred by it in compliance with such request or
direction.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02 RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
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(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company or any Guarantor shall be
sufficient if signed by an Officer of the Company or Guarantor issuing such
demand, request, direction or notice.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may
become the owner or pledgee of Notes and may otherwise deal with the Company or
any Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes,
it shall not be accountable for the Company's use of the proceeds from the
Notes or any money paid to the Company or upon the Company's direction under
any provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to Holders of Notes a
notice of the Default or Event of Default within 90 days after it occurs.
Except in the case of a Default or Event of Default in payment of principal of,
premium, if any, or interest on any Note, the Trustee may withhold the notice
if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders of
the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA ss. 313(a) (but if no
event described in TIA ss. 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA ss. 313(b)(2). The Trustee shall also transmit by mail
all reports as required by TIA ss. 313(c).
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A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed to the Company and filed with the SEC and each
stock exchange on which the Notes are listed in accordance with TIA ss. 313(d).
The Company shall promptly notify the Trustee when the Notes are listed on any
stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company and the Guarantors shall pay to the Trustee from
time to time reasonable compensation for its acceptance of this Indenture and
the rendering by it of the services required hereunder. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company and the Guarantors shall reimburse the Trustee
promptly upon request for all reasonable disbursements, advances and expenses
incurred or made by it in addition to the compensation for its services. Such
expenses shall include the reasonable compensation, disbursements and expenses
of the Trustee's agents and counsel.
The Company and the Guarantors shall indemnify the Trustee
against any and all losses, liabilities or expenses incurred by it arising out
of or in connection with the acceptance or administration of its duties under
this Indenture (including, but not limited to, its duties under Section 9.06
hereof), including the costs and expenses of enforcing this Indenture against
the Company and the Guarantors (including this Section 7.07) and defending
itself against any claim (whether asserted by the Company and the Guarantors or
any Holder or any other person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent any
such loss, liability or expense may be attributable to its gross negligence or
bad faith. The Trustee shall notify the Company and the Guarantors promptly of
any claim for which it may seek indemnity.
The obligations of the Company and the Guarantors under this
Section 7.07 shall survive the satisfaction and discharge of this Indenture.
To secure the Company's and the Guarantors' payment
obligations in this Section, the Trustee shall have a Lien prior to the Notes
on all money or property held or collected by the Trustee, except that held in
trust to pay principal and interest on particular Notes. Such Lien shall
survive the satisfaction and discharge of this Indenture. Compensation,
reimbursement and indemnification of the Trustee under this Section 7.07 is not
subordinated to Senior Debt of the Company.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(i) or (j) hereof occurs, the
expenses and the compensation for the services (including the fees and expenses
of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss.
313(b)(2) to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of Notes of a majority in principal amount of the then
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outstanding Notes may remove the Trustee by so notifying the Trustee and the
Company in writing. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists
in the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of Notes of at least 10% in principal amount of the
then outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note
who has been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
hereof shall continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $50.0 million as set forth in its most recent published annual report of
condition.
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This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA ss. 311(a), excluding any
creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated
therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding
Notes upon compliance with the conditions set forth below in this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to
have been discharged from its obligations with respect to all outstanding Notes
and to have each Guarantor's obligation discharged with respect to its
Subsidiary Guarantee on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means
that the Company shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Notes, which shall thereafter be
deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the
other Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Notes and this Indenture (and
the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following provisions
which shall survive until otherwise terminated or discharged hereunder: (a) the
rights of Holders of outstanding Notes to receive solely from the trust fund
described in Section 8.04 hereof, and as more fully set forth in such Section,
payments in respect of the principal of and premium, interest and Liquidated
Damages, if any, on such Notes when such payments are due, (b) the Company's
obligations with respect to such Notes under Article 2 and Section 4.02 hereof,
(c) the rights, powers, trusts, duties and immunities of the Trustee hereunder
and the Company's obligations in connection therewith and (d) this Article 8.
Subject to compliance with this Article 8, the Company may exercise its option
under this Section 8.02 notwithstanding the prior exercise of its option under
Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, the Company and each Guarantor shall,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be released from their obligations under the covenants contained in Sections
4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20,
5.01 and 11.01 hereof with respect to the outstanding Notes on and after the
date the conditions set forth in Section 8.04 are satisfied (hereinafter,
"Covenant Defeasance"), and the Notes shall thereafter be deemed not
"outstanding" for the purposes of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder (it being understood that such Notes shall not be deemed outstanding
for accounting
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purposes). For this purpose, Covenant Defeasance means that, with respect to
the outstanding Notes, the Company and each Guarantor may omit to comply with
and shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference
in any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 6.01 hereof, but, except as specified above, the remainder of
this Indenture and such Notes shall be unaffected thereby. In addition, upon
the Company's exercise under Section 8.01 hereof of the option applicable to
this Section 8.03 hereof, subject to the satisfaction of the conditions set
forth in Section 8.04 hereof, Sections 6.01(d) through 6.01(f) hereof shall not
constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of
either Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders, cash in United States dollars,
non-callable Government Securities, or a combination thereof, in such amounts
as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium and Liquidated
Damages, if any, and interest on the outstanding Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be, and
the Company must specify whether the Notes are being defeased to maturity or to
a particular redemption date;
(b) in the case of an election under Section 8.02 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the incurrence of Indebtedness all or a portion of the
proceeds of which will be used to defease the Notes pursuant to this Article 8
concurrently with such incurrence) or insofar as Sections 6.01(i) or 6.01(j)
hereof is concerned, at any time in the period ending on the 91st day after the
date of deposit (or greater period of time in which any such deposit of trust
funds may remain subject to bankruptcy or insolvency laws insofar as those
apply to the deposit by the Company);
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(e) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel (which may be subject to customary exceptions) to the effect that (A)
on the 91st day following the deposit (or greater period of time in which any
such deposit of trust funds may remain subject to bankruptcy or insolvency laws
insofar as those apply to the deposit by the Company), the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and (B)
the trust funds will not be subject to the rights of holders of Indebtedness
other than the Notes;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the
outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as Paying Agent) as the Trustee may determine, to the Holders of such
Notes of all sums due and to become due thereon in respect of principal,
premium, if any, and interest, but such money need not be segregated from other
funds except to the extent required by law.
The Company and the Guarantors shall pay and indemnify the
Trustee against any tax, fee or other charge imposed on or assessed against the
cash or non-callable Government Securities deposited pursuant to Section 8.04
hereof or the principal and interest received in respect thereof other than any
such tax, fee or other charge which by law is for the account of the Holders of
the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon the
request of the Company any money or non-callable Government Securities held by
it as provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
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Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of,
premium, if any, or interest on any Note and remaining unclaimed for two years
after such principal, and premium, if any, or interest has become due and
payable shall be paid to the Company on its request or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Note shall
thereafter, as a secured creditor, look only to the Company for payment
thereof, and all liability of the Trustee or such Paying Agent with respect to
such trust money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in the New York Times and The Wall Street
Journal (national edition), notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such notification or publication, any unclaimed balance of such money
then remaining will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United
States dollars or non-callable Government Securities in accordance with Section
8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit
had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if
the Company makes any payment of principal of, premium, if any, or interest on
any Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company,
a Guarantor (with respect to a Subsidiary Guarantee or this Indenture to which
it is a party) and the Trustee may amend or supplement this Indenture, the
Subsidiary Guarantee or the Notes without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in
place of certificated Notes or to alter the provisions of Article 2 hereof
(including the related definitions) in a manner that does not materially
adversely affect any Holder;
(c) to provide for the assumption of the Company's or a
Guarantor's obligations to the Holders of the Notes by a successor to the
Company or a Guarantor pursuant to Article 5 or Article 11 hereof;
(d) to make any change that would provide any additional rights
or benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any Holder of the Notes;
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;
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Upon the request of the Company accompanied by a resolution
of its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Company and
the Guarantors in the execution of any amended or supplemental Indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into such amended or supplemental
Indenture that affects its own rights, duties or immunities under this
Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Company
and the Trustee may amend or supplement this Indenture (including Section 3.09,
4.10 and 4.15 hereof) , the Subsidiary Guarantees and the Notes may be amended
or supplemented with the consent of the Holders of at least a majority in
principal amount of the Notes then outstanding voting as a single class
(including consents obtained in connection with a tender offer or exchange
offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07
hereof, any existing Default or Event of Default (other than a Default or Event
of Default in the payment of the principal of, premium, if any, or interest on
the Notes, except a payment default resulting from an acceleration that has
been rescinded) or compliance with any provision of this Indenture, the
Subsidiary Guarantees or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes voting
as a single class (including consents obtained in connection with a tender
offer or exchange offer for, or purchase of, the Notes). Section 2.08 hereof
shall determine which Notes are considered to be "outstanding" for purposes of
this Section 9.02.
Upon the request of the Company accompanied by a resolution
of its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as
aforesaid, and upon receipt by the Trustee of the documents described in
Section 7.02 hereof, the Trustee shall join with the Company in the execution
of such amended or supplemental Indenture unless such amended or supplemental
Indenture directly affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise, in which case the Trustee may in its discretion,
but shall not be obligated to, enter into such amended or supplemental
Indenture.
It shall not be necessary for the consent of the Holders of
Notes under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority in aggregate principal amount of the Notes then
outstanding voting as a single class may waive compliance in a particular
instance by the Company with any provision of this Indenture or the Notes.
However, without the consent of each Holder affected, an amendment or waiver
under this Section 9.02 may not (with respect to any Notes held by a
non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent
to an amendment, supplement or waiver;
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(b) reduce the principal of or change the fixed maturity of any Note
or alter or waive any of the provisions with respect to the redemption of the
Notes except as provided above with respect to Sections 3.09, 4.10 and 4.15
hereof;
(c) reduce the rate of or change the time for payment of interest on
any Note;
(d) waive a Default or Event of Default in the payment of principal
of or premium, interest or Liquidated Damages, if any, on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a majority
in aggregate principal amount of the then outstanding Notes and a waiver of the
payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or premium, interest or Liquidated Damages, if any, on the
Notes;
(g) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described in Sections 4.10 and 4.15).
(h) release any Guarantor from its Subsidiary Guarantee; or
(i) make any change in Section 6.04 or 6.07 hereof or in the
foregoing amendment and waiver provisions.
In addition, any amendment to the provisions of Article 10 of
this Indenture (which relate to subordination) will require the consent of the
Holders of at least 75% in aggregate principal amount of the Notes then
outstanding if such amendment would adversely affect the rights of Holders of
Notes.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes
shall be set forth in a amended or supplemental Indenture that complies with
the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder of a Note or subsequent
Holder of a Note may revoke the consent as to its Note if the Trustee receives
written notice of revocation before the date the waiver, supplement or
amendment becomes effective. An amendment, supplement or waiver becomes
effective in accordance with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Note thereafter authenticated. The
Company in exchange for all Notes may issue and the Trustee shall, upon receipt
of an Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
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Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01 hereof)
shall be fully protected in relying upon, in addition to the documents required
by Section 12.04 hereof, an Officers' Certificate and an Opinion of Counsel
stating that (i) the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture, (ii) such amended or supplemental
indenture complies with this Indenture and, (iii) in the event that such
amendment or supplemental indenture is being executed pursuant to Section 5.01
or 11.01 hereof, the surviving Person assumes the Obligations of this Indenture
and the Notes.
ARTICLE 10.
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Company and the Guarantors agree, and each Holder by
accepting a Note agrees, that the Indebtedness evidenced by the Notes is
subordinated in right of payment, to the extent and in the manner provided in
this Article 10, to the prior payment in full in cash or Cash Equivalents of
all Senior Debt (whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed), and that the subordination is for the benefit
of the holders of Senior Debt.
SECTION 10.02. CERTAIN DEFINITIONS.
"Designated Senior Debt" means (i) any Indebtedness
outstanding under the Senior Credit Facility and (ii) any other Senior Debt or
Guarantor Senior Debt permitted under this Indenture the principal amount of
which is $25.0 million or more and that has been designated by the Company as
"Designated Senior Debt."
"Permitted Junior Securities" means Equity Interests in the
Company or debt securities of the Company or the relevant Guarantor that are
subordinated to all Senior Debt (and any debt securities issued in exchange for
Senior Debt) or Guarantor Senior Debt (and any debt securities issued in
exchange for Guarantor Senior Debt), as applicable, to substantially the same
extent as, or to a greater extent than, the Notes are subordinated to Senior
Debt or the Subsidiary Guarantees are subordinated to Guarantor Senior Debt, as
applicable, pursuant to this Indenture.
"Representative" means the indenture trustee or other
trustee, agent or representative for any Senior Debt.
"Senior Debt" means (i) all Indebtedness outstanding under
Credit Facilities and all Hedging Obligations with respect thereto, (ii) any
other Indebtedness of the Company or any Guarantor permitted to be incurred
under the terms of this Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes or the Subsidiary Guarantees and
(iii) all Obligations of the Company or any Guarantor with respect to the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt will not
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include (a) any liability for federal, state, local or other taxes owed or
owing by the Company, (b) any Indebtedness of the Company or any Guarantor to
any of its Subsidiaries or other Affiliates, (c) any trade payables or (d) any
Indebtedness that is incurred in violation of this Indenture; provided that
Indebtedness under Credit Facilities will not cease to be Senior Debt if
borrowed based upon a written certificate from a purported officer of the
Company to the effect that such Indebtedness was permitted by this Indenture to
be incurred.
A distribution may consist of cash, securities or other
property, by set-off or otherwise.
SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, in an assignment for the benefit of creditors or any marshaling of
the Company's assets and liabilities:
(1) holders of Senior Debt shall be entitled to receive
payment in full in cash or Cash Equivalents of all Obligations due in respect
of such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt) before Holders
of the Notes shall be entitled to receive any payment with respect to the Notes
(except that Holders may receive (i) Permitted Junior Securities and (ii)
payments and other distributions made from any defeasance trust created
pursuant to Section 8.01 hereof); and
(2) until all Obligations with respect to Senior Debt (as
provided in subsection (1) above) are paid in full in cash or Cash Equivalents,
any distribution to which the Holders of Notes would be entitled but for this
Article 10 shall be made to holders of Senior Debt (except that Holders of
Notes may receive (i) Permitted Junior Securities and (ii) payments and other
distributions made from any defeasance trust created pursuant to Section 8.01
hereof), as their interests may appear.
SECTION 10.04. DEFAULT ON DESIGNATED SENIOR DEBT.
The Company may not make any payment or distribution to the
Trustee or any Holder in respect of Obligations with respect to the Notes and
may not acquire from the Trustee or any Holder any Notes for cash or property
(other than (i) Permitted Junior Securities and (ii) payments and other
distributions made from any defeasance trust created pursuant to Section 8.01
hereof) until all principal and other Obligations with respect to the Senior
Debt have been paid in full if:
(i) a default in the payment of any principal or other Obligations
with respect to Designated Senior Debt occurs and is continuing beyond any
applicable grace period in the agreement, indenture or other document
governing such Designated Senior Debt; or
(ii) a default, other than a payment default, on Designated Senior
Debt occurs and is continuing that then permits holders of the Designated
Senior Debt to accelerate its maturity and the Trustee receives a notice
of the default (a "Payment Blockage Notice") from a Person who may give it
pursuant to Section 10.12 hereof. If the Trustee receives any such Payment
Blockage Notice, no subsequent Payment Blockage Notice shall be effective
for purposes of this Section unless and until (i) at least 360 days shall
have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice and (ii) all scheduled payments of principal, premium, if
any, and interest on the Securities that have come due have been paid in
full in cash. No nonpayment default that existed or
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was continuing on the date of delivery of any Payment Blockage Notice to
the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice.
The Company may and shall resume payments on and
distributions in respect of the Notes and may acquire them upon the earlier of:
(1) the date upon which the default is cured or waived, or
(2) in the case of a default referred to in Section 10.04(ii)
hereof, 179 days after notice is received if the maturity of such Designated
Senior Debt has not been accelerated,
if this Article 10 otherwise permits the payment, distribution or acquisition
at the time of such payment or acquisition.
SECTION 10.05. ACCELERATION OF SECURITIES.
If payment of the Securities is accelerated because of an
Event of Default, the Company shall promptly notify holders of Senior Debt of
the acceleration.
SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder receives any
payment of any Obligations with respect to the Notes at a time when the Trustee
or such Holder, as applicable, has actual knowledge that such payment is
prohibited by Section 10.04 hereof, such payment shall be held by the Trustee
or such Holder, in trust for the benefit of, and shall be paid forthwith over
and delivered, upon written request, to, the holders of Senior Debt as their
interests may appear or their Representative under the indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt remaining unpaid to the extent
necessary to pay such Obligations in full in accordance with their terms, after
giving effect to any concurrent payment or distribution to or for the holders
of Senior Debt.
With respect to the holders of Senior Debt, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Debt shall be read into this
Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Debt, and shall not be liable to any
such holders if the Trustee shall pay over or distribute to or on behalf of
Holders or the Company or any other Person money or assets to which any holders
of Senior Debt shall be entitled by virtue of this Article 10, except if such
payment is made as a result of the willful misconduct or gross negligence of
the Trustee.
SECTION 10.07. NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying
Agent of any facts known to the Company that would cause a payment of any
Obligations with respect to the Notes to violate this Article 10, but failure
to give such notice shall not affect the subordination of the Notes to the
Senior Debt as provided in this Article 10.
SECTION 10.08. SUBROGATION.
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After all Senior Debt is paid in full and until the Notes are
paid in full, Holders of Notes shall be subrogated (equally and ratably with
all other Indebtedness pari passu with the Notes) to the rights of holders of
Senior Debt to receive distributions applicable to Senior Debt to the extent
that distributions otherwise payable to the Holders of Notes have been applied
to the payment of Senior Debt. A distribution made under this Article 10 to
holders of Senior Debt that otherwise would have been made to Holders of Notes
is not, as between the Company and Holders, a payment by the Company on the
Notes.
SECTION 10.09. RELATIVE RIGHTS.
This Article 10 defines the relative rights of Holders of
Notes and holders of Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders of Notes, the
obligation of the Company, which is absolute and unconditional, to
pay principal of and interest on the Notes in accordance with their
terms;
(2) affect the relative rights of Holders of Notes and
creditors of the Company other than their rights in relation to holders of
Senior Debt; or
(3) prevent the Trustee or any Holder of Notes from
exercising its available remedies upon a Default or Event of Default, subject
to the rights of holders and owners of Senior Debt to receive distributions and
payments otherwise payable to Holders of Notes.
If the Company fails because of this Article 10 to pay
principal of or interest on a Note on the due date, the failure is still a
Default or Event of Default.
SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Debt to enforce the
subordination of the Indebtedness evidenced by the Notes shall be impaired by
any act or failure to act by the Company or any Holder or by the failure of the
Company or any Holder to comply with this Indenture.
SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to
holders of Senior Debt, the distribution may be made and the notice given to
their Representative.
Upon any payment or distribution of assets of the Company
referred to in this Article 10, the Trustee and the Holders of Notes shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction or upon any certificate of such Representative or of the
liquidating trustee or agent or other Person making any distribution to the
Trustee or to the Holders of Notes for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the Senior Debt
and other Indebtedness of the Company, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 10.
SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any
other provision of this Indenture, the Trustee shall not be charged with
knowledge of the existence of any facts that would
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prohibit the making of any payment or distribution by the Trustee, and the
Trustee and the Paying Agent may continue to make payments on the Notes, unless
the Trustee shall have received at its Corporate Trust Office at least five
Business Days prior to the date of such payment written notice of facts that
would cause the payment of any Obligations with respect to the Notes to violate
this Article 10. Only the Company or a Representative may give the notice.
Nothing in this Article 10 shall impair the claims of, or payments to, the
Trustee under or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold
Senior Debt with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of Notes, by the Holder's acceptance thereof,
authorizes and directs the Trustee on such Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination as provided
in this Article 10, and appoints the Trustee to act as such Holder's
attorney-in-fact for any and all such purposes. If the Trustee does not file a
proper proof of claim or proof of debt in the form required in any proceeding
referred to in Section 6.09 hereof at least 30 days before the expiration of
the time to file such claim, the Credit Agents are hereby authorized to file an
appropriate claim for and on behalf of the Holders of the Notes.
SECTION 10.14. AMENDMENTS.
The provisions of this Article 10 shall not be amended or
modified without the written consent of the holders of all Senior Debt.
ARTICLE 11.
SUBSIDIARY GUARANTEES
SECTION 11.01. GUARANTEE.
Subject to this Article 11, each of the Guarantors hereby,
jointly and severally, unconditionally guarantees to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of this
Indenture, the Notes or the obligations of the Company hereunder or thereunder,
that: (a) the principal of and interest on the Notes will be promptly paid in
full when due, whether at maturity, by acceleration, redemption or otherwise,
and interest on the overdue principal of and interest on the Notes, if any, if
lawful, and all other obligations of the Company to the Holders or the Trustee
hereunder or thereunder will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; and (b) in case of any extension
of time of payment or renewal of any Notes or any of such other obligations,
that same will be promptly paid in full when due or performed in accordance
with the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise. Failing payment when due of any amount so guaranteed
or any performance so guaranteed for whatever reason, the Guarantors shall be
jointly and severally obligated to pay the same immediately. Each Guarantor
agrees that this is a guarantee of payment and not a guarantee of collection.
The Guarantors hereby agree that their obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense of a guarantor.
Each Guarantor hereby waives diligence, presentment, demand of payment, filing
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of claims with a court in the event of insolvency or bankruptcy of the Company,
any right to require a proceeding first against the Company, protest, notice
and all demands whatsoever and covenant that this Note Guarantee shall not be
discharged except by complete performance of the obligations contained in the
Notes and this Indenture.
If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the Guarantors or any custodian, trustee,
liquidator or other similar official acting in relation to either the Company
or the Guarantors, any amount paid by either to the Trustee or such Holder,
this Note Guarantee, to the extent theretofore discharged, shall be reinstated
in full force and effect.
Each Guarantor agrees that it shall not be entitled to any
right of subrogation in relation to the Holders in respect of any obligations
guaranteed hereby until payment in full of all obligations guaranteed hereby.
Each Guarantor further agrees that, as between the Guarantors, on the one hand,
and the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 6
hereof for the purposes of this Subsidiary Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (y) in the event of any declaration of
acceleration of such obligations as provided in Article 6 hereof, such
obligations (whether or not due and payable) shall forthwith become due and
payable by the Guarantors for the purpose of this Subsidiary Guarantee. The
Guarantors shall have the right to seek contribution from any non-paying
Guarantor so long as the exercise of such right does not impair the rights of
the Holders under the Guarantee.
SECTION 11.02. SUBORDINATION OF SUBSIDIARY GUARANTEE.
The Obligations of each Guarantor under its Subsidiary
Guarantee pursuant to this Article 11 shall be junior and subordinated to the
Senior Debt of such Guarantor on the same basis as the Notes are junior and
subordinated to Senior Debt of the Company. For the purposes of the foregoing
sentence, the Trustee and the Holders shall have the right to receive and/or
retain payments by any of the Guarantors only at such times as they may receive
and/or retain payments in respect of the Notes pursuant to this Indenture,
including Article 10 hereof.
SECTION 11.03. LIMITATION ON GUARANTOR LIABILITY.
Each Guarantor, and by its acceptance of Notes, each Holder,
hereby confirms that it is the intention of all such parties that the
Subsidiary Guarantee of such Guarantor not constitute a fraudulent transfer or
conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to
the extent applicable to any Subsidiary Guarantee. To effectuate the foregoing
intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree
that the obligations of such Guarantor under its Subsidiary Guarantee and this
Article 11 shall be limited to the maximum amount as will, after giving effect
to such maximum amount and all other contingent and fixed liabilities of such
Guarantor that are relevant under such laws, and after giving effect to any
collections from, rights to receive contribution from or payments made by or on
behalf of any other Guarantor in respect of the obligations of such other
Guarantor under this Article 11, result in the obligations of such Guarantor
under its Subsidiary Guarantee not constituting a fraudulent transfer or
conveyance.
SECTION 11.04. EXECUTION AND DELIVERY OF NOTE GUARANTEE.
To evidence its Subsidiary Guarantee set forth in Section
11.01, each Guarantor hereby agrees that a notation of such Subsidiary
Guarantee substantially in the form included in Exhibit E shall
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be endorsed by an Officer of such Guarantor on each Note authenticated and
delivered by the Trustee and that this Indenture shall be executed on behalf of
such Guarantor by its President or one of its Vice Presidents.
Each Guarantor hereby agrees that its Subsidiary Guarantee
set forth in Section 11.01 shall remain in full force and effect
notwithstanding any failure to endorse on each Subsidiary a notation of such
Subsidiary Guarantee.
If an Officer whose signature is on this Indenture or on the
Subsidiary Guarantee no longer holds that office at the time the Trustee
authenticates the Note on which a Subsidiary Guarantee is endorsed, the
Subsidiary Guarantee shall be valid nevertheless.
The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
Subsidiary Guarantee set forth in this Indenture on behalf of the Guarantors.
In the event that the Company creates or acquires any new
domestic Restricted Subsidiaries subsequent to the date of this Indenture, if
required by Section 4.20 hereof, the Company shall cause such domestic
Restricted Subsidiaries to execute supplemental indentures to this Indenture in
the form included in Exhibit F and Subsidiary Guarantees in the form included
in Exhibit E in accordance with Section 4.20 hereof and this Article 11, to the
extent applicable.
SECTION 11.05. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
No Guarantor may consolidate with or merge with or into
(whether or not such Guarantor is the surviving Person) another corporation,
Person or entity whether or not affiliated with such Guarantor unless:
(a) subject to the provisions of Section 11.06 hereof, the Person
formed by or surviving any such consolidation or merger (if other than a
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes, the Indenture and the Registration Rights Agreement;
(b) immediately after giving effect to such transaction, no Default
or Event of Default exists; and
(c) the Company would be permitted by virtue of the Company's pro
forma Debt to Cash Flow Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness pursuant to the
Debt to Cash Flow Ratio test set forth in Section 4.09 hereof.
In case of any such consolidation, merger, sale or conveyance
and upon the assumption by the successor Person, by supplemental indenture,
executed and delivered to the Trustee and satisfactory in form to the Trustee,
of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Guarantor, such successor Person shall succeed to and be
substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor. Such successor Person thereupon may cause to be signed
any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee. All the
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Subsidiary Guarantees so issued shall in all respects have the same legal rank
and benefit under this Indenture as the Subsidiary Guarantees theretofore and
thereafter issued in accordance with the terms of this Indenture as though all
of such Subsidiary Guarantees had been issued at the date of the execution
hereof.
Except as set forth in Articles 4 and 5 hereof, and
notwithstanding clauses (a) and (b) above, nothing contained in this Indenture
or in any of the Notes shall prevent any consolidation or merger of a Guarantor
with or into the Company or another Guarantor, or shall prevent any sale or
conveyance of the property of a Guarantor as an entirety or substantially as an
entirety to the Company or another Guarantor.
SECTION 11.06. RELEASES FOLLOWING SALE OF ASSETS.
In the event of a sale or other disposition of all of the
assets of any Guarantor, by way of merger, consolidation or otherwise, or a
sale or other disposition of all of the capital stock of any Guarantor, then
such Guarantor (in the event of a sale or other disposition, by way of merger,
consolidation or otherwise, of all of the capital stock of such Guarantor) or
the corporation acquiring the property (in the event of a sale or other
disposition of all or substantially all of the assets of such Guarantor) will
be released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of this Indenture, including without
limitation Section 4.10 hereof. Upon delivery by the Company to the Trustee of
an Officers' Certificate and an Opinion of Counsel to the effect that such sale
or other disposition was made by the Company in accordance with the applicable
provisions of this Indenture, including without limitation Section 4.10 hereof,
the Trustee shall execute any documents reasonably required in order to
evidence the release of any Guarantor from its obligations under its Subsidiary
Guarantee.
Any Guarantor not released from its obligations under its
Subsidiary Guarantee shall remain liable for the full amount of principal of
and interest on the Notes and for the other obligations of any Guarantor under
this Indenture as provided in this Article 11.
ARTICLE 12.
MISCELLANEOUS
SECTION 12.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by a provision of the TIA or another
provision that would be required or deemed under the TIA to be part of and
govern this Indenture if this Indenture were subject thereto, the latter
provision shall control. If any provision of this Indenture modifies or
excludes any provision of the TIA that may be so modified or excluded, the
later provision shall be deemed to apply to this Indenture as so modified or to
be excluded, as the case may be.
SECTION 12.02. NOTICES.
Any notice or communication by the Company, any Guarantor or
the Trustee to the others is duly given if in writing and delivered in Person
or mailed by first class mail, telecopier or overnight air courier guaranteeing
next day delivery, to the others' address:
If to the Company and/or any Guarantor:
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SFX Entertainment, Inc.
650 Madison Avenue
New York, New York 10022
Telecopier No.: (212) 753-3188
Attention: Howard J. Tytel, Esq.
With a copy to:
Baker & McKenzie
805 Third Avenue
New York, New York 10022
Telecopier No. (212) 751-5700
Attention: Howard Berkower, Esq.
If to the Trustee:
The Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, New York 10001
Telecopier No.: (212) 946-8158
Attention: Ms. Francine Springer, Corporate Trust Department
The Company, any Guarantor or the Trustee, by notice to the
others may designate additional or different addresses for subsequent notices
or communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time delivered by
hand, if personally delivered; five Business Days after being deposited in the
mail, postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by
first class mail or by overnight air courier guaranteeing next day delivery to
its address shown on the register kept by the Registrar. Any notice or
communication shall also be so mailed to any Person described in TIA ss.
313(c), to the extent required by the TIA. Failure to mail a notice or
communication to a Holder or any defect in it shall not affect its sufficiency
with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the
addressee receives it.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF
NOTES.
Holders may communicate pursuant to TIA ss. 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection
of TIA ss. 312(c).
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SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA
ss. 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 12.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 12.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No past, present or future director, officer, employee,
incorporator or stockholder of the Company or any Guarantor, as such, shall
have any liability for any obligations of the Company or such Guarantor under
the Notes, the Subsidiary Guarantees, this Indenture or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each Holder
by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
SECTION 12.08. GOVERNING LAW.
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THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 12.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 12.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes
shall bind its successors. All agreements of the Trustee in this Indenture
shall bind its successors.
SECTION 12.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 12.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
74
<PAGE>
SIGNATURES
Dated as of February 11, 1998
SFX ENTERTAINMENT, INC.
By:
---------------------------
Name: Howard J. Tytel
Title: General Counsel,
Executive Vice President
and Secretary
ATLANTA CONCERTS, INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
ARDEE FESTIVALS N.J., INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
ARDEE PRODUCTIONS, LTD.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
BEACH CONCERTS, INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
Indenture signature page -1
<PAGE>
BGP ACQUISITION, LLC
BY: SFX ENTERTAINMENT, INC.,
its managing member
By:
---------------------------
Name: Howard J. Tytel
Title: General Counsel,
Executive Vice President
and Secretary
BROADWAY CONCERTS, INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
CONNECTICUT AMPHITHEATER
DEVELOPMENT CORP.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
CONNECTICUT CONCERTS,
INCORPORATED
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
CONNECTICUT PERFORMING ARTS, INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
CONNECTICUT PERFORMING ARTS
PARTNERS
BY: NOC, INC.,
its general partner
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
Indenture signature page -2
<PAGE>
CONN TICKETING COMPANY
BY: NORTHEAST TICKETING
COMPANY,
its general partner
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
CONTEMPORARY GROUP ACQUISITION
CORP.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
DEER CREEK AMPHITHEATER CONCERTS,
INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
DEER CREEK AMPHITHEATER CONCERTS,
LP
BY: DEER CREEK AMPHITHEATER
CONCERTS, INC.,
its general partner
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
DELSENER/SLATER ENTERPRISES, LTD.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
DUMB DEAL, INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
Indenture signature page -3
<PAGE>
EXIT 116 REVISITED, INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
FPI CONCERTS, INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
IN HOUSE TICKETS, INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
IRVING PLAZA CONCERTS, INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Agent
MURAT CENTER CONCERTS, INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
MURAT CENTER CONCERTS, LP
BY: MURAT CENTER CONCERTS,
INC.,
its general partner
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
Indenture signature page -4
<PAGE>
NOC, INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
NORTHEAST TICKETING COMPANY
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
POLARIS AMPHITHEATER CONCERTS,
INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
QN CORP.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
SFX BROADCASTING OF THE MIDWEST,
INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
SFX CONCERTS, INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
Indenture signature page -5
<PAGE>
SFX NETWORK GROUP, LLC
BY: SFX ENTERTAINMENT, INC.,
its managing member
By:
---------------------------
Name: Howard J. Tytel
Title: General Counsel,
Executive Vice President
and Secretary
SOUTHEAST TICKETING COMPANY
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
SUNSHINE CONCERTS, LLC
BY: SFX BROADCASTING OF THE
MIDWEST, INC., its
managing member
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
SUNSHINE DESIGNS, INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
SUNSHINE DESIGNS, LP
BY: SUNSHINE DESIGNS, INC.,
its general partner
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
SUNTEX ACQUISITION, INC.
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
Indenture signature page -6
<PAGE>
SUNTEX ACQUISITION, LP
BY: SUNTEX ACQUISITION,
INC.,
its general partner
By:
---------------------------
Name: Howard J. Tytel
Title: Executive Vice President
and Secretary
WESTBURY MUSIC FAIR, LLC
BY: SFX ENTERTAINMENT, INC.,
its managing member
By:
---------------------------
Name: Howard J. Tytel
Title: General Counsel,
Executive Vice President
and Secretary
THE CHASE MANHATTAN BANK
BY:
---------------------------
Name:
Title:
Indenture signature page -7
<PAGE>
EXHIBIT A1
(Face of Note)
[THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN
THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF
THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY
BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE
MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE
INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL
NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
CONSENT OF THE COMPANY.]1
[THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF,
THE HOLDER: REPRESENTS THAT (1) IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) NOT A U.S. PERSON AND IS
ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT
IT WILL NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT TO
(A) THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) A QUALIFIED INSTITUTIONAL BUYER
IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE CHASE
MANHATTAN BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER
CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D)
OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER
APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D)
OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE CHASE
MANHATTAN BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE
- ---------------------------------
1 This paragraph should be included only if Note is issues in global form.
A1-1
<PAGE>
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.]2
CUSIP/CINS
----------
9-1/8% Series A Senior Subordinated Notes due 2008
No. $
---- ----------------
SFX ENTERTAINMENT, INC.
promises to pay to or registered
assigns, the principal sum of Dollars on , 2008.
Interest Payment Dates: , and .
Record Dates: , and .
DATED: , 1998
SFX ENTERTAINMENT, INC.
BY:
---------------------
Name:
Title:
BY:
---------------------
Name:
Title:
This is one of the Global
Notes referred to in the
within-mentioned Indenture:
The Chase Manhattan Bank,
as Trustee
By:
------------------------
- ----------------------------
2 This paragraph should be included only if applicable pursuant to terms of the
Indenture.
A1-2
<PAGE>
(Reverse face of Note)
9-1/8% Series A Senior Subordinated Notes due 2008
Capitalized terms used herein shall have the meanings
assigned to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. SFX Entertainment, a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at
9-1/8% per annum from February 11, 1998 until maturity and shall pay the
Liquidated Damages payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and Liquidated
Damages semi-annually on February 1 and August 1 of each year, or if any such
day is not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date"). Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of issuance; provided that if there is no existing Default in the
payment of interest, and if this Note is authenticated between a record date
referred to on the face hereof and the next succeeding Interest Payment Date,
interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be August 1,
1998. The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1% per annum in excess of the
rate then in effect; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest
and Liquidated Damages (without regard to any applicable grace periods) from
time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the
Notes (except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the January 15 or July
15 next preceding the Interest Payment Date, even if such Notes are canceled
after such record date and on or before such Interest Payment Date, except as
provided in Section 2.12 of the Indenture with respect to defaulted interest.
The Notes will be payable as to principal, premium and Liquidated Damages, if
any, and interest at the office or agency of the Company maintained for such
purpose within or without the City and State of New York, or, at the option of
the Company, payment of interest and Liquidated Damages may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall
have provided wire transfer instructions to the Company or the Paying Agent.
Such payment shall be in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts.
3. PAYING AGENT AND REGISTRAR. Initially, The Chase Manhattan
Bank, the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Company may change any Paying Agent or Registrar without notice to any
Holder. The Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture
dated as of February 11, 1998 ("Indenture") between the Company and the
Trustee. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such
terms, and Holders are referred to the Indenture and such Act for a statement
of such terms. To the extent any
A1-3
<PAGE>
provision of this Note conflicts with the express provisions of the Indenture,
the provisions of the indenture shall govern and be controlling. The Notes are
obligations of the Company limited to $350.0 million in aggregate principal
amount.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section 5, the
Company shall not have the option to redeem the Notes pursuant to this Section
5 prior to February 1, 2003. Thereafter, the Company shall have the option to
redeem the Notes, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on February 1 of the years indicated below:
YEAR PERCENTAGE
- ---- ----------
2003........................................................ 104.563%
2004........................................................ 103.042%
2005........................................................ 101.521%
2006 and thereafter......................................... 100.000%
(b) Notwithstanding the foregoing, prior to February 1, 2001,
the Company may, on any one or more occasions, redeem up to 35% of the
aggregate principal amount of Notes originally issued in the Offering at a
redemption price of 109.125% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the redemption date,
with the net cash proceeds of an offering of common equity of the Company
(other than Disqualified Stock); provided that (i) at least 65% of the
aggregate principal amount of the Notes originally issued in the Offering
remain outstanding immediately after the occurrence of each such redemption
(excluding Notes held by the Company and its Subsidiaries) and (ii) each such
redemption shall occur within 75 days after the date of the closing of any such
offering of common equity of the Company.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall
not be required to make mandatory redemption or sinking fund payments with
respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be
obligated to make an offer (a "Change of Control Offer") to each Holder of
Notes to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such Holder's Notes at an offer price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase (the "Change of Control
Payment"). Within ten days following a Change of Control, the Company will mail
a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Notes on the date
specified in such notice, which date shall be no earlier than 30 days and no
later than 60 days from the date such notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice.
(b) If the Company or a Subsidiary consummates any Asset
Sales, when the aggregate amount of Excess Proceeds exceeds $10.0 million, the
Company shall be required to make an
A1-4
<PAGE>
offer to all Holders of Notes and all holders of other pari passu Indebtedness
containing provisions similar to those set forth in the Indenture with respect
to offers to purchase or redeem such other pari passu Indebtedness with the
proceeds of sales of assets (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes and such other pari passu Indebtedness that may be
purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of purchase, in accordance
with the procedures set forth in the Indenture and in such other pari passu
Indebtedness. To the extent that the aggregate amount of Notes and such other
pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use any remaining Excess Proceeds for any
purpose not otherwise prohibited by the Indenture. If the aggregate principal
amount of Notes and such other pari passu Indebtedness surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes and such other pari passu Indebtedness to be purchased on a pro rata
basis. Upon completion of an Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes
or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, the Company need not exchange or register the transfer of any Notes
for a period of 15 days before a selection of Notes to be redeemed or during
the period between a record date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note
may be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture , the Subsidiary Guarantees or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the then outstanding Notes voting as a single class
(including without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture, the Subsidiary Guarantees or
the Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes voting as a single class
(including consents obtained in connection with a tender offer or exchange
offer for Notes). Without the consent of any Holder of Notes, the Indenture,
the Subsidiary Guarantees or the Notes may be amended or supplemented to cure
any ambiguity, defect or inconsistency, to provide for uncertificated Notes in
addition to or in place of certificated Notes, to provide for the assumption of
the Company's or any Guarantor's obligations to Holders of the Notes in the
case of a merger or consolidation or sale of substantially all of the Company's
assets, to make any change that would provide any additional rights or benefits
to the Holders of the Notes or that does not adversely affect the legal rights
under the Indenture of any such Holder or to comply with the requirements of
the SEC in order to effect or maintain the qualification of the Indenture under
the Trust Indenture Act.
A1-5
<PAGE>
12. DEFAULTS AND REMEDIES. Events of Default include: (a) the
Company defaults for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes, whether or not such
payment is prohibited by the provisions of Article 10 of the Indenture; (b) the
Company defaults in payment when due of the principal of or premium, if any, on
the Notes, whether or not such payment is prohibited by the provisions of
Article 10 of the Indenture; (c) the Company or any Restricted Subsidiary fails
to comply with any of the provisions of Section 4.15 or 5.01 of the Indenture;
(d) the Company or any Restricted Subsidiary fails for 30 days after written
notice by the Trustee or the Holders of at least 25% in principal amount of the
then outstanding Notes to comply with the provisions of Section 3.09, 4.07,
4.09 or 4.10 of the Indenture; (e) the Company or any Restricted Subsidiary
fails for 60 days after written notice by the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Notes to comply with any
of its other agreements in the Indenture or the Notes; (f) the Company or any
Restricted Subsidiary defaults under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists
or is created after the date of the Indenture, which default (i) is caused by a
failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (ii) results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$10.0 million or more; (g) the Company or any of its Restricted Subsidiaries
fails to pay final judgments aggregating in excess of $10.0 million, which
judgments are not paid, discharged or stayed for a period of 60 days; (h)
except as permitted by the Indenture, any Subsidiary Guarantee shall be held in
any judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Guarantor, or any Person acting on
behalf of any Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee; (i) certain events of bankruptcy or insolvency with
respect to the Company or any of the Company's Restricted Subsidiaries that
constitutes a Significant Subsidiary or any group of Restricted Subsidiaries of
the Company that, taken together, would constitute a Significant Subsidiary. If
any Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Notes may declare all the
Notes to be due and payable immediately. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company, any Restricted Subsidiary of the
Company that constitutes a Significant Subsidiary or any group of Restricted
Subsidiaries of the Company that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or
Event of Default (except a Default or Event of Default relating to the payment
of principal or interest) if it determines that withholding notice is in their
interest. In the case of any Event of Default occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of the premium that the Company
would have had to pay if the Company then had elected to redeem the Notes
pursuant to Section 3.07 of the Indenture, an equivalent premium shall also
become and be immediately due and payable to the extent permitted by law upon
the acceleration of the Notes. If an Event of Default occurs prior to February
1, 2003 by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to such date, then the premium specified in the
Indenture shall also become immediately due and payable to the extent permitted
by law upon the acceleration of the Notes. The Holders of a majority in
aggregate principal amount of the Notes then outstanding by notice to the
Trustee may on behalf of the Holders of all of the Notes waive any existing
A1-6
<PAGE>
Default or Event of Default and its consequences under the Indenture except a
continuing Default or Event of Default in the payment of interest on, or the
principal of, the Notes. The Company is required to deliver to the Trustee
annually a statement regarding compliance with the Indenture, and the Company
is required upon becoming aware of any Default or Event of Default, to deliver
to the Trustee a statement specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer,
employee, incorporator or stockholder, of the Company, as such, shall not have
any liability for any obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES
AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders
of Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the A/B Exchange
Registration Rights Agreement dated as of February 11, 1998, between the
Company and the parties named on the signature pages thereof (the "Registration
Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
SFX Entertainment, Inc.
650 Madison Avenue
New York, New York 10022
Attention: Howard J. Tytel, Esq.
A1-7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- -------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- -------------------------------------------------------------------------------
Date:
-------------- Your Signature:
--------------------------------
(Sign exactly as your name appears on the face
of this Note)
Tax Identification No:
-------------------------
SIGNATURE GUARANTEE:
------------------------------
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the requirements
of the Registrar, which requirements include
membership or participation in the Security
Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.
A1-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased
by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state
the amount you elect to have purchased: $________
Date:
----------- Your Signature:
--------------------------------
(Sign exactly as your name appears on the face
of this Note)
Tax Identification No:
-------------------------
SIGNATURE GUARANTEE:
---------------------------------
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the requirements
of the Registrar, which requirements include
membership or participation in the Security
Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may
be determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of
1934, as amended.
A1-9
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an
interest in another Global Note or for a Definitive Note, or exchanges of a
part of another Global Note or Definitive Note for an interest in this Global
Note, have been made:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Principal Amount of Signature of
Amount of decrease in Amount of increase in this Global Note authorized officer
Principal Amount of Principal Amount of following such of Trustee or Note
Date of Exchange this Global Note this Global Note decrease (or increase) Custodian
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
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</TABLE>
A1-10
<PAGE>
EXHIBIT A2
(Face of Note)
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL
NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED
NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE
HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE
SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON.
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY
BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE
MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE
INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL
NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
CONSENT OF THE COMPANY.
THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF,
THE HOLDER: REPRESENTS THAT (1) IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) NOT A U.S. PERSON AND IS
ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT
IT WILL NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT TO
(A) THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) A QUALIFIED INSTITUTIONAL BUYER
IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE CHASE
MANHATTAN BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER
CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D)
OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER
APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D)
OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE CHASE
MANHATTAN BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER
A2-1
<PAGE>
INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
CUSIP/CINS
------------
9-1/8% Series A Senior Subordinated Notes due 2008
No. $
---- ------------
SFX ENTERTAINMENT, INC.
promises to pay to or registered
assigns, the principal sum of Dollars on , 2008.
Interest Payment Dates: , and .
Record Dates: , and .
DATED: , 1998
SFX ENTERTAINMENT, INC.
BY:
---------------------
Name:
Title:
BY:
---------------------
Name:
Title:
This is one of the Global
Notes referred to in the
within-mentioned Indenture:
The Chase Manhattan Bank,
as Trustee
By:
---------------------
A2-2
<PAGE>
(Reverse face of Note)
9-1/8% Series A Senior Subordinated Notes due 2008
Capitalized terms used herein shall have the meanings
assigned to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. SFX Entertainment, Inc., a Delaware corporation
(the "Company"), promises to pay interest on the principal amount of this Note
at 9-1/8% per annum from February 11, 1998 until maturity and shall pay the
Liquidated Damages payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and Liquidated
Damages semi-annually on February 1 and August 1 of each year, or if any such
day is not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date"). Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of issuance; provided that if there is no existing Default in the
payment of interest, and if this Note is authenticated between a record date
referred to on the face hereof and the next succeeding Interest Payment Date,
interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be August 1,
1998. The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1% per annum in excess of the
rate then in effect; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest
and Liquidated Damages (without regard to any applicable grace periods) from
time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
Until this Regulation S Temporary Global Note is exchanged
for one or more Regulation S Permanent Global Notes, the Holder hereof shall
not be entitled to receive payments of interest hereon; until so exchanged in
full, this Regulation S Temporary Global Note shall in all other respects be
entitled to the same benefits as other Notes under the Indenture.
2. METHOD OF PAYMENT. The Company will pay interest on the
Notes (except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the January 15 or July
15 next preceding the Interest Payment Date, even if such Notes are canceled
after such record date and on or before such Interest Payment Date, except as
provided in Section 2.12 of the Indenture with respect to defaulted interest.
The Notes will be payable as to principal, premium, interest and Liquidated
Damages at the office or agency of the Company maintained for such purpose
within or without the City and State of New York, or, at the option of the
Company, payment of interest and Liquidated Damages may be made by check mailed
to the Holders at their addresses set forth in the register of Holders, and
provided that payment by wire transfer of funds will be required with respect
to principal of and interest, premium and Liquidated Damages on, all Global
Notes and all other Notes the Holders of which shall have provided wire
transfer instructions to the Company or the Paying Agent. Such payment shall be
in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, The Chase Manhattan
Bank, the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Company may change any Paying Agent or Registrar without notice to any
Holder. The Company or any of its Subsidiaries may act in any such capacity.
A2-3
<PAGE>
4. INDENTURE. The Company issued the Notes under an Indenture
dated as of February 11, 1998 ("Indenture") between the Company and the
Trustee. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such
terms, and Holders are referred to the Indenture and such Act for a statement
of such terms. The Notes are obligations of the Company limited to $350.0
million in aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section 5, the
Company shall not have the option to redeem the Notes pursuant to this Section
5 prior to February 1, 2003. Thereafter, the Company shall have the option to
redeem the Notes, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on February 1 of the years indicated below:
YEAR PERCENTAGE
- ---- ----------
2003........................................................ 104.563%
2004........................................................ 103.042%
2005........................................................ 101.521%
2006 and thereafter......................................... 100.000%
(b) Notwithstanding the foregoing, prior to February 1, 2001,
the Company may, on any one or more occasions, redeem up to 35% of the
aggregate principal amount of Notes originally issued in the Offering at a
redemption price of 109.125% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the redemption date,
with the net cash proceeds of an offering of common equity of the Company
(other than Disqualified Stock); provided that (i) at least 65% of the
aggregate principal amount of the Notes originally issued in the Offering
remain outstanding immediately after the occurrence of each such redemption
(excluding Notes held by the Company and its Subsidiaries) and (ii) each such
redemption shall occur within 75 days after the date of the closing of any such
offering of common equity of the Company.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall
not be required to make mandatory redemption payments with respect to the
Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be
obligated to make an offer (a "Change of Control Offer") to each Holder of
Notes to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such Holder's Notes at an offer price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase (the "Change of Control
Payment"). Within ten days following a Change of Control, the Company will mail
a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Notes on the date
specified in such notice, which date shall be no earlier than 30 days and no
later than 60 days from the date such notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice.
A2-4
<PAGE>
(b) If the Company or a Subsidiary consummates any Asset
Sales, when the aggregate amount of Excess Proceeds exceeds $10.0 million, the
Company shall be required to make an offer to all Holders of Notes and all
holders of other pari passu Indebtedness containing provisions similar to those
set forth in the Indenture with respect to offers to purchase or redeem such
other pari passu Indebtedness with the proceeds of sales of assets (an "Asset
Sale Offer") to purchase the maximum principal amount of Notes and such other
pari passu Indebtedness that may be purchased out of the Excess Proceeds at an
offer price in cash in an amount equal to 100% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
date of purchase, in accordance with the procedures set forth in the Indenture
and in such other pari passu Indebtedness. To the extent that the aggregate
amount of Notes and such other pari passu Indebtedness tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for any purpose not otherwise prohibited by the
Indenture. If the aggregate principal amount of Notes and such other pari passu
Indebtedness surrendered by Holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes and such other pari passu
Indebtedness to be purchased on a pro rata basis. Upon completion of an Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes
or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, it need not exchange or register the transfer of any Notes for a
period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
This Regulation S Temporary Global Note is exchangeable in
whole or in part for one or more Global Notes only (i) on or after the
termination of the 40-day restricted period (as defined in Regulation S) and
(ii) upon presentation of certificates (accompanied by an Opinion of Counsel,
if applicable) required by Article 2 of the Indenture. Upon exchange of this
Regulation S Temporary Global Note for one or more Global Notes, the Trustee
shall cancel this Regulation S Temporary Global Note.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note
may be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture , the Subsidiary Guarantees or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the then outstanding Notes voting as a single class
(including without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture, the Subsidiary Guarantees or
the Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes voting as a single class
(including consents obtained in connection with a tender offer or exchange
offer for Notes). Without the consent of any Holder of Notes,
A2-5
<PAGE>
the Indenture, the Subsidiary Guarantees or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's or any Guarantor's obligations to
Holders of the Notes in the case of a merger or consolidation or sale of
substantially all of the Company's assets, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder or to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
12. DEFAULTS AND REMEDIES. Events of Default include: (a) the
Company defaults for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes, whether or not such
payment is prohibited by the provisions of Article 10 of the Indenture; (b) the
Company defaults in payment when due of the principal of or premium, if any, on
the Notes, whether or not such payment is prohibited by the provisions of
Article 10 of the Indenture; (c) the Company or any Restricted Subsidiary fails
to comply with any of the provisions of Section 4.15 or 5.01 of the Indenture;
(d) the Company or any Restricted Subsidiary fails for 30 days after written
notice by the Trustee or the Holders of at least 25% in principal amount of the
then outstanding Notes to comply with the provisions of Section 3.09, 4.07,
4.09 or 4.10 of the Indenture; (e) the Company or any Restricted Subsidiary
fails for 60 days after written notice by the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Notes to comply with any
of its other agreements in the Indenture or the Notes; (f) the Company or any
Restricted Subsidiary defaults under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists
or is created after the date of the Indenture, which default (i) is caused by a
failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (ii) results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$10.0 million or more; (g) the Company or any of its Restricted Subsidiaries
fails to pay final judgments aggregating in excess of $10.0 million, which
judgments are not paid, discharged or stayed for a period of 60 days; (h)
except as permitted by the Indenture, any Subsidiary Guarantee shall be held in
any judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Guarantor, or any Person acting on
behalf of any Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee; (i) certain events of bankruptcy or insolvency with
respect to the Company or any of the Company's Restricted Subsidiaries that
constitutes a Significant Subsidiary or any group of Restricted Subsidiaries of
the Company that, taken together, would constitute a Significant Subsidiary. If
any Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Notes may declare all the
Notes to be due and payable immediately. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company, any Restricted Subsidiary of the
Company that constitutes a Significant Subsidiary or any group of Restricted
Subsidiaries of the Company that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or
Event of Default (except a Default or Event of Default relating to the payment
of principal or interest) if it determines that withholding notice is in their
interest. In the case of any Event of Default occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of the premium that the Company
would have had to pay if the Company then had elected to redeem the Notes
pursuant to Section 3.07 of the Indenture, an equivalent premium shall also
become and be immediately due and payable to the extent permitted by law upon
the acceleration of the Notes. If an Event of Default occurs prior to February
1, 2003 by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the
A2-6
<PAGE>
Company with the intention of avoiding the prohibition on redemption of the
Notes prior to such date, then the premium specified in the Indenture shall
also become immediately due and payable to the extent permitted by law upon the
acceleration of the Notes. The Holders of a majority in aggregate principal
amount of the Notes then outstanding by notice to the Trustee may on behalf of
the Holders of all of the Notes waive any existing Default or Event of Default
and its consequences under the Indenture except a continuing Default or Event
of Default in the payment of interest on, or the principal of, the Notes. The
Company is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and the Company is required upon becoming aware
of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer,
employee, incorporator or stockholder, of the Company or any of the Guarantors,
as such, shall not have any liability for any obligations of the Company or
such Guarantor under the Notes, the Note Guarantees or the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES
AND RESTRICTED DEFINITIVE Notes. In addition to the rights provided to Holders
of Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the A/B Exchange
Registration Rights Agreement dated as of February 11, 1998, between the
Company and the parties named on the signature pages thereof (the "Registration
Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
A2-7
<PAGE>
SFX Entertainment, Inc.
650 Madison Avenue
New York, New York 10022
Attention: Howard J. Tytel, Esq.
A2-8
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- -------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- -------------------------------------------------------------------------------
Date:
------------ Your Signature:
--------------------------------
(Sign exactly as your name appears on the face
of this Note)
Tax Identification No:
---------------------------
SIGNATURE GUARANTEE:
---------------------------------
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the requirements
of the Registrar, which requirements include
membership or participation in the Security
Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may
be determined by the Registrar in addition to, or
in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as
amended.
A2-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.10 or 4.15 of the Indenture, check the
appropriate box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased
by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state
the amount you elect to have purchased: $___________
- -------------------------------------------------------------------------------
Date:
------------ Your Signature:
--------------------------------
(Sign exactly as your name appears on the face
of this Note)
Tax Identification No:
SIGNATURE GUARANTEE:
---------------------------------
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the requirements
of the Registrar, which requirements include
membership or participation in the Security
Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may
be determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of
1934, as amended.
A2-10
<PAGE>
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S
Temporary Global Note for an interest in another Global Note, or of other
Restricted Global Notes for an interest in this Regulation S Temporary Global
Note, have been made:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Principal Amount of Signature of
Amount of decrease in Amount of increase in this Global Note authorized officer
Principal Amount of Principal Amount of following such of Trustee or Note
Date of Exchange this Global Note this Global Note decrease (or increase) Custodian
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
A2-11
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
SFX Entertainment, Inc.
650 Madison Avenue
New York, New York 10022
The Chase Manhattan Bank
450 West 33rd Street -15th Floor
New York, New York 10001
Re: 9-1/8% Senior Subordinated Notes Due 2008
(CUSIP ______________)
Reference is hereby made to the Indenture, dated as of
February 11, 1998 (the "Indenture"), among SFX Entertainment, Inc., as issuer
(the "Company") , Atlanta Concerts, Inc., Ardee Festivals N.J., Inc., Ardee
Productions, Ltd., Beach Concerts, Inc., BGP Acquisition, LLC, Broadway
Concerts, Inc., Connecticut Amphitheater Development Corp., Connecticut
Concerts, Incorporated, Connecticut Performing Arts, Inc., Connecticut
Performing Arts Partners, Conn Ticketing Company, Contemporary Group
Acquisition Corp., Deer Creek Amphitheater Concerts, Inc., Deer Creek
Amphitheater Concerts, LP, Delsener/Slater Enterprises, Ltd., Dumb Deal, Inc.,
Exit 116 Revisited, Inc., FPI Concerts, Inc., In House Tickets, Inc., Irving
Plaza Concerts, Inc., Murat Center Concerts, Inc., Murat Center Concerts, LP,
NOC, Inc., Northeast Ticketing Company, Polaris Amphitheater Concerts, Inc., QN
Corp., SFX Broadcasting of the Midwest, Inc., SFX Concerts, Inc., SFX Network
Group, LLC, Southeast Ticketing Company, Sunshine Concerts, LLC, Sunshine
Designs, Inc., Sunshine Designs, LP, Suntex Acquisition, Inc., Suntex
Acquisition, LP, Westbury Music Fair, LLC as Guarantors (the "Guarantors") and
The Chase Manhattan Bank, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.
______________, (the "Transferor") owns and proposes to
transfer the Note[s] or interest in such Note[s] specified in Annex A hereto,
in the principal amount of $___________ in such Note[s] or interests (the
"Transfer"), to __________ (the "Transferee"), as further specified in Annex A
hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the
Transferor reasonably believed and believes is purchasing the beneficial
interest or Definitive Note for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion, and
such Person and each such account is a "qualified institutional buyer" within
the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A
and such Transfer is in compliance with any applicable blue sky securities laws
of any state of the United States. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will be subject to the
B-1
<PAGE>
restrictions on transfer enumerated in the Private Placement Legend printed on
the 144A Global Note and/or the Definitive Note and in the Indenture and the
Securities Act.
2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A
DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected
pursuant to and in accordance with Rule 903 or Rule 904 under the Securities
Act and, accordingly, the Transferor hereby further certifies that (i) the
Transfer is not being made to a person in the United States and (x) at the time
the buy order was originated, the Transferee was outside the United States or
such Transferor and any Person acting on its behalf reasonably believed and
believes that the Transferee was outside the United States or (y) the
transaction was executed in, on or through the facilities of a designated
offshore securities market and neither such Transferor nor any Person acting on
its behalf knows that the transaction was prearranged with a buyer in the
United States, (ii) no directed selling efforts have been made in contravention
of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the
Securities Act, (iii) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act and (iv) if the proposed
transfer is being made prior to the expiration of the Restricted Period, the
transfer is not being made to a U.S. Person or for the account or benefit of a
U.S. Person (other than an Initial Purchaser). Upon consummation of the
proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on Transfer enumerated in the Private Placement Legend printed on
the Regulation S Global Note, the Temporary Regulation S Global Note and/or the
Definitive Note and in the Indenture and the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION
OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is
being effected in compliance with the transfer restrictions applicable to
beneficial interests in Restricted Global Notes and Restricted Definitive Notes
and pursuant to and in accordance with the Securities Act and any applicable
blue sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
(b) [ ] such Transfer is being effected to the Company or
a subsidiary thereof;
or
(c) [ ] such Transfer is being effected pursuant to an
effective registration statement under the Securities Act and in compliance
with the prospectus delivery requirements of the Securities Act;
or
(d) [ ] such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904,
and the Transferor hereby further certifies that it has not engaged in any
general solicitation within the meaning of Regulation D under the Securities
Act and the Transfer complies with the transfer restrictions applicable to
beneficial interests in a Restricted Global Note or
B-2
<PAGE>
Restricted Definitive Notes and the requirements of the exemption claimed,
which certification is supported by (1) a certificate executed by the
Transferee in the form of Exhibit D to the Indenture and (2) if such Transfer
is in respect of a principal amount of Notes at the time of transfer of less
than $250,000, an Opinion of Counsel provided by the Transferor or the
Transferee (a copy of which the Transferor has attached to this certification),
to the effect that such Transfer is in compliance with the Securities Act. Upon
consummation of the proposed transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the IAI Global Note and/or the Definitive Notes and in the
Indenture and the Securities Act.
4. [ ] Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The
Transfer is being effected pursuant to and in accordance with Rule 144 under
the Securities Act and in compliance with the transfer restrictions contained
in the Indenture and any applicable blue sky securities laws of any state of
the United States and (ii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
(b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i)
The Transfer is being effected pursuant to and in accordance with Rule 903 or
Rule 904 under the Securities Act and in compliance with the transfer
restrictions contained in the Indenture and any applicable blue sky securities
laws of any state of the United States and (ii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act. Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will no longer be subject to
the restrictions on transfer enumerated in the Private Placement Legend printed
on the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
(c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i)
The Transfer is being effected pursuant to and in compliance with an exemption
from the registration requirements of the Securities Act other than Rule 144,
Rule 903 or Rule 904 and in compliance with the transfer restrictions contained
in the Indenture and any applicable blue sky securities laws of any State of
the United States and (ii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will not be subject to the restrictions
on transfer enumerated in the Private Placement Legend printed on the
Restricted Global Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
---------------------------
[Insert Name of Transferor]
B-3
<PAGE>
By:
---------------------------
Name:
Title:
Dated: ________ __, ____.
B-4
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP ), or
(ii) [ ] Regulation S Global Note (CUSIP ), or
(iii) [ ] IAI Global Note (CUSIP ); or
(b) [ ] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP ), or
(ii) [ ] Regulation S Global Note (CUSIP ), or
(iii) [ ] IAI Global Note (CUSIP ); or
(iv) [ ] Unrestricted Global Note (CUSIP ); or
(b) [ ] a Restricted Definitive Note; or
(c) [ ] an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
B-5
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
SFX Entertainment, Inc.
650 Madison Avenue
New York, New York 10022
The Chase Manhattan Bank
450 West 33rd Street -15th Floor
New York, New York 10001
Re: 9-1/8% Senior Subordinated Notes Due 2008
(CUSIP ______________)
Reference is hereby made to the Indenture, dated as of
February 11, 1998 (the "Indenture"), among SFX Entertainment, Inc., as issuer
(the "Company") , Atlanta Concerts, Inc., Ardee Festivals N.J., Inc., Ardee
Productions, Ltd., Beach Concerts, Inc., BGP Acquisition, LLC, Broadway
Concerts, Inc., Connecticut Amphitheater Development Corp., Connecticut
Concerts, Incorporated, Connecticut Performing Arts, Inc., Connecticut
Performing Arts Partners, Conn Ticketing Company, Contemporary Group
Acquisition Corp., Deer Creek Amphitheater Concerts, Inc., Deer Creek
Amphitheater Concerts, LP, Delsener/Slater Enterprises, Ltd., Dumb Deal, Inc.,
Exit 116 Revisited, Inc., FPI Concerts, Inc., In House Tickets, Inc., Irving
Plaza Concerts, Inc., Murat Center Concerts, Inc., Murat Center Concerts, LP,
NOC, Inc., Northeast Ticketing Company, Polaris Amphitheater Concerts, Inc., QN
Corp., SFX Broadcasting of the Midwest, Inc., SFX Concerts, Inc., SFX Network
Group, LLC, Southeast Ticketing Company, Sunshine Concerts, LLC, Sunshine
Designs, Inc., Sunshine Designs, LP, Suntex Acquisition, Inc., Suntex
Acquisition, LP, Westbury Music Fair, LLC as Guarantors (the "Guarantors") and
The Chase Manhattan Bank, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.
____________, (the "Owner") owns and proposes to exchange the
Note[s] or interest in such Note[s] specified herein, in the principal amount
of $____________ in such Note[s] or interests (the "Exchange"). In connection
with the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A
RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL
INTERESTS IN AN UNRESTRICTED GLOBAL NOTE
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE.
In connection with the Exchange of the Owner's beneficial interest in a
Restricted Global Note for a beneficial interest in an Unrestricted Global Note
in an equal principal amount, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer, (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to the Global Notes and pursuant to and in accordance with the
United States Securities Act of 1933, as amended (the "Securities Act"), (iii)
the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act and (iv) the beneficial interest in an Unrestricted Global Note
is being acquired in compliance with any applicable blue sky securities laws of
any state of the United States.
C-1
<PAGE>
(b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for an
Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive
Note is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance
with the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act and (iv) the Definitive Note is
being acquired in compliance with any applicable blue sky securities laws of
any state of the United States.
(c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE
TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in
an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer, (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance
with the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act and (iv) the beneficial interest is
being acquired in compliance with any applicable blue sky securities laws of
any state of the United States.
(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE
TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner
hereby certifies (i) the Unrestricted Definitive Note is being acquired for the
Owner's own account without transfer, (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to Restricted Definitive
Notes and pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the Unrestricted Definitive Note is being acquired in compliance with
any applicable blue sky securities laws of any state of the United States.
2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for a
Restricted Definitive Note with an equal principal amount, the Owner hereby
certifies that the Restricted Definitive Note is being acquired for the Owner's
own account without transfer. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Definitive Note
issued will continue to be subject to the restrictions on transfer enumerated
in the Private Placement Legend printed on the Restricted Definitive Note and
in the Indenture and the Securities Act.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE
TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the
Exchange of the Owner's Restricted Definitive Note for a beneficial interest in
the [CHECK ONE] [ ] 144A Global Note, [ ] Regulation S Global Note, [ ] IAI
Global Note with an equal principal amount, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner's own account without
transfer and (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes and pursuant to
and in accordance with the Securities Act, and in compliance with any
applicable blue
C-2
<PAGE>
sky securities laws of any state of the United States. Upon consummation of the
proposed Exchange in accordance with the terms of the Indenture, the beneficial
interest issued will be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the relevant Restricted Global Note and
in the Indenture and the Securities Act.
C-3
<PAGE>
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
--------------------------
[Insert Name of Owner]
By:
-----------------------
Name:
Title:
Dated: ________ __, ____.
C-4
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
SFX Entertainment, Inc.
650 Madison Avenue
New York, New York 10022
The Chase Manhattan Bank
450 West 33rd Street -15th Floor
New York, New York 10001
Re: 9-1/8% Senior Subordinated Notes Due 2008
(CUSIP ______________)
Reference is hereby made to the Indenture, dated as of
February 11, 1998 (the "Indenture"), among SFX Entertainment, Inc., as issuer
(the "Company"), Atlanta Concerts, Inc., Ardee Festivals N.J., Inc., Ardee
Productions, Ltd., Beach Concerts, Inc., BGP Acquisition, LLC, Broadway
Concerts, Inc., Connecticut Amphitheater Development Corp., Connecticut
Concerts, Incorporated, Connecticut Performing Arts, Inc., Connecticut
Performing Arts Partners, Conn Ticketing Company, Contemporary Group
Acquisition Corp., Deer Creek Amphitheater Concerts, Inc., Deer Creek
Amphitheater Concerts, LP, Delsener/Slater Enterprises, Ltd., Dumb Deal, Inc.,
Exit 116 Revisited, Inc., FPI Concerts, Inc., In House Tickets, Inc., Irving
Plaza Concerts, Inc., Murat Center Concerts, Inc., Murat Center Concerts, LP,
NOC, Inc., Northeast Ticketing Company, Polaris Amphitheater Concerts, Inc., QN
Corp., SFX Broadcasting of the Midwest, Inc., SFX Concerts, Inc., SFX Network
Group, LLC, Southeast Ticketing Company, Sunshine Concerts, LLC, Sunshine
Designs, Inc., Sunshine Designs, LP, Suntex Acquisition, Inc., Suntex
Acquisition, LP, Westbury Music Fair, LLC as Guarantors (the "Guarantors") and
The Chase Manhattan Bank, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________
aggregate principal amount of:
(a) [ ]a beneficial interest in a Global Note, or
(b) [ ]a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or
any interest therein is subject to certain restrictions and conditions set
forth in the Indenture and the undersigned agrees to be bound by, and not to
resell, pledge or otherwise transfer the Notes or any interest therein except
in compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have
not been registered under the Securities Act, and that the Notes and any
interest therein may not be offered or sold except as permitted in the
following sentence. We agree, on our own behalf and on behalf of any accounts
for
D-1
<PAGE>
which we are acting as hereinafter stated, that if we should sell the Notes or
any interest therein, we will do so only (A) to the Company or any subsidiary
thereof, (B) in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (c) to an institutional
"accredited investor" (as defined below) that, prior to such transfer,
furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and
to the Company a signed letter substantially in the form of this letter and, if
such transfer is in respect of a principal amount of Notes, at the time of
transfer of less than $250,000, an Opinion of Counsel in form reasonably
acceptable to the Company to the effect that such transfer is in compliance
with the Securities Act, (D) outside the United States in accordance with Rule
904 of Regulation S under the Securities Act, (E) pursuant to the provisions of
Rule 144(k) under the Securities Act or (F) pursuant to an effective
registration statement under the Securities Act, and we further agree to
provide to any person purchasing the Definitive Note or beneficial interest in
a Global Note from us in a transaction meeting the requirements of clauses (A)
through (E) of this paragraph a notice advising such purchaser that resales
thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or
beneficial interest therein, we will be required to furnish to you and the
Company such certifications, legal opinions and other information as you and
the Company may reasonably require to confirm that the proposed sale complies
with the foregoing restrictions. We further understand that the Notes purchased
by us will bear a legend to the foregoing effect. We further understand that
any subsequent transfer by us of the Notes or beneficial interest therein
acquired by us must be effected through one of the Placement Agents.
4. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
and have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the Notes,
and we and any accounts for which we are acting are each able to bear the
economic risk of our or its investment.
5. We are acquiring the Notes or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.
-------------------------------
[Insert Name of Accredited Investor]
By:
----------------------------
Name:
Title:
Dated: ________ __, ____.
D-2
<PAGE>
EXHIBIT E
FORM OF NOTATION OF SUBSIDIARY GUARANTEE
For value received, each Guarantor (which term includes any
successor Person under the Indenture) has, jointly and severally,
unconditionally guaranteed, to the extent set forth in the Indenture and
subject to the provisions in the Indenture dated as of February 11, 1998 (the
"Indenture") among SFX Entertainment, Inc., the Guarantors listed on Schedule I
thereto and The Chase Manhattan Bank, as trustee (the "Trustee"), (a) the due
and punctual payment of the principal of, premium, if any, and interest on the
Notes (as defined in the Indenture), whether at maturity, by acceleration,
redemption or otherwise, the due and punctual payment of interest on overdue
principal and premium, and, to the extent permitted by law, interest, and the
due and punctual performance of all other obligations of the Company to the
Holders or the Trustee all in accordance with the terms of the Indenture and
(b) in case of any extension of time of payment or renewal of any Notes or any
of such other obligations, that the same will be promptly paid in full when due
or performed in accordance with the terms of the extension or renewal, whether
at stated maturity, by acceleration or otherwise. The obligations of the
Guarantors to the Holders of Notes and to the Trustee pursuant to the
Subsidiary Guarantee and the Indenture are expressly set forth in Article 11 of
the Indenture and reference is hereby made to the Indenture for the precise
terms of the Subsidiary Guarantee. Each Holder of a Note, by accepting the
same, (a) agrees to and shall be bound by such provisions, (b) authorizes and
directs the Trustee, on behalf of such Holder, to take such action as may be
necessary or appropriate to effectuate the subordination as provided in the
Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such
purpose; provided, however, that the Indebtedness evidenced by this Subsidiary
Guarantee shall cease to be so subordinated and subject in right of payment
upon any defeasance of this Note in accordance with the provisions of the
Indenture.
ATLANTA CONCERTS, INC.
By:
------------------------
Name:
Title:
ARDEE FESTIVALS N.J., INC.
By:
------------------------
Name:
Title:
ARDEE PRODUCTIONS, LTD.
By:
------------------------
Name:
Title:
E-1
<PAGE>
BEACH CONCERTS, INC.
By:
------------------------
Name:
Title:
BGP ACQUISITION, LLC
By:
------------------------
Name:
Title:
BROADWAY CONCERTS, INC.
By:
------------------------
Name:
Title:
CONNECTICUT AMPHITHEATER DEVELOPMENT CORP.
By:
------------------------
Name:
Title:
CONNECTICUT CONCERTS, INCORPORATED
By:
------------------------
Name:
Title:
CONNECTICUT PERFORMING ARTS, INC.
By:
------------------------
Name:
Title:
CONNECTICUT PERFORMING ARTS PARTNERS
By:
------------------------
Name:
Title:
E-2
<PAGE>
CONN TICKETING COMPANY
By:
------------------------
Name:
Title:
CONTEMPORARY GROUP ACQUISITION CORP.
By:
------------------------
Name:
Title:
DEER CREEK AMPHITHEATER CONCERTS, INC.
By:
------------------------
Name:
Title:
DEER CREEK AMPHITHEATER CONCERTS, LP
By:
------------------------
Name:
Title:
DELSENER/SLATER ENTERPRISES, LTD.
By:
------------------------
Name:
Title:
DUMB DEAL, INC.
By:
------------------------
Name:
Title:
EXIT 116 REVISITED, INC.
By:
------------------------
Name:
Title:
E-3
<PAGE>
FPI CONCERTS, INC.
By:
------------------------
Name:
Title:
IN HOUSE TICKETS, INC.
By:
------------------------
Name:
Title:
IRVING PLAZA CONCERTS, INC.
By:
------------------------
Name:
Title:
MURAT CENTER CONCERTS, INC.
By:
------------------------
Name:
Title:
MURAT CENTER CONCERTS, LP
By:
------------------------
Name:
Title:
NOC, INC.
By:
------------------------
Name:
Title:
NORTHEAST TICKETING COMPANY
By:
------------------------
Name:
Title:
E-4
<PAGE>
POLARIS AMPHITHEATER CONCERTS, INC.
By:
------------------------
Name:
Title:
QN CORP.
By:
------------------------
Name:
Title:
SFX BROADCASTING
OF THE MIDWEST, INC.
By:
------------------------
Name:
Title:
SFX CONCERTS, INC.
By:
------------------------
Name:
Title:
SFX NETWORK GROUP, LLC
By:
------------------------
Name:
Title:
SOUTHEAST TICKETING COMPANY
By:
------------------------
Name:
Title:
SUNSHINE CONCERTS, LLC
By:
------------------------
Name:
Title:
E-5
<PAGE>
SUNSHINE DESIGNS, INC.
By:
------------------------
Name:
Title:
SUNSHINE DESIGNS, LP
By:
------------------------
Name:
Title:
SUNTEX ACQUISITION, INC.
By:
------------------------
Name:
Title:
SUNTEX ACQUISITION, LP
By:
------------------------
Name:
Title:
WESTBURY MUSIC FAIR, LLC
By:
------------------------
Name:
Title:
E-6
<PAGE>
EXHIBIT F
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated
as of ________________, between __________________ (the "Guarantor"), a direct
or indirect subsidiary of SFX Entertainment, Inc. (or its successor), a
Delaware corporation (the "Company"), and The Chase Manhattan Bank as trustee
under the indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, The Company has heretofore executed and delivered to
the Trustee an indenture (the "Indenture"), dated as of February 11, 1998,
providing for the issuance of an aggregate principal amount of $350,000,000 of
9-1/8% Senior Subordinated Notes due 2008 (the "Notes");
WHEREAS, Section 4.20 of the Indenture provides that under
certain circumstances the Company is required to cause the Guarantor to execute
and deliver to the Trustee a supplemental indenture pursuant to which the
Guarantor shall unconditionally guarantee all of the Company's Obligations
under the Notes pursuant to a Subsidiary Guarantee on the terms and conditions
set forth herein; and
NOW THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the Guarantor and the Trustee mutually covenant and agree for the
equal and ratable benefit of the holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guarantor hereby agrees,
jointly and severally with all other Guarantors, to guarantee the Company's
obligations under the Notes on the terms and subject to the conditions set
forth in Article 11 of the Indenture and to be bound by all other applicable
provisions of the Indenture, including, without limitation, the provisions of
Article 10 of the Indenture.
3. NO RECOURSE AGAINST OTHERS. No past, present or future
director, officer, employee, incorporator, shareholder or agent of the
Guarantor, as such, shall have any liability for any obligations of the Company
or any Guarantor under the Notes, any Subsidiary Guarantees, the Indenture or
this Supplemental Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of the Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
4. EFFECTIVENESS. This Supplemental Indenture shall be
effective upon execution by the parties hereto.
5. RECITALS. The recitals contained herein shall be taken as
the statements of the Company and the Guarantors and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as
to the validity of this Supplemental Indenture.
<PAGE>
6. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF
NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.
7. COUNTERPARTS. The parties may sign any number of copies of
this Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
8. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed and attested, all as of the date
first above written.
Dated: ____________ ___, ____
[Guarantor]
By:___________________________
Name:
Title:
The Chase Manhattan Bank, as Trustee
By:___________________________
Name:
Title:
F-2
<PAGE>
SCHEDULE I
SCHEDULE OF GUARANTORS
The following schedule lists each Guarantor under the
Indenture as of the Issue Date:
1. Atlanta Concerts, Inc.
2. Ardee Festivals N.J., Inc.
3. Ardee Productions, Ltd.
4. Beach Concerts, Inc.
5. BGP Acquisition, LLC
6. Broadway Concerts, Inc.
7. Connecticut Amphitheater Development Corp.
8. Connecticut Concerts, Incorporated
9. Connecticut Performing Arts, Inc.
10. Connecticut Performing Arts Partners
11. Conn Ticketing Company
12. Contemporary Group Acquisition Corp.
13. Deer Creek Amphitheater Concerts, Inc.
14. Deer Creek Amphitheater Concerts, LP
15. Delsener/Slater Enterprises, Ltd.
16. Dumb Deal, Inc.
17. Exit 116 Revisited, Inc.
18. FPI Concerts, Inc.
19. In House Tickets, Inc.
20. Irving Plaza Concerts, Inc.
21. Murat Center Concerts, Inc.
22. Murat Center Concerts, LP
23. NOC, Inc.
24. Northeast Ticketing Company
25. Polaris Amphitheater Concerts, Inc.
26. QN Corp.
27. SFX Broadcasting of the Midwest, Inc.
28. SFX Concerts, Inc.
29. SFX Network Group, LLC
30. Southeast Ticketing Company
<PAGE>
31. Sunshine Concerts, LLC
32. Sunshine Designs, Inc.
33. Sunshine Designs, LP
34. Suntex Acquisition, Inc.
35. Suntex Acquisition, LP
36. Westbury Music Fair,
<PAGE>
==============================================================================
==============================================================================
9-1/8% SENIOR SUBORDINATED NOTES DUE 2008
REGISTRATION RIGHTS AGREEMENT
Dated as of February 11, 1998
by and among
SFX ENTERTAINMENT, INC.,
AS ISSUER,
ATLANTA CONCERTS, INC., ARDEE FESTIVALS N.J., INC., ARDEE PRODUCTIONS, LTD.,
BEACH CONCERTS, INC., BGP ACQUISITION, LLC, BROADWAY CONCERTS, INC.,
CONNECTICUT AMPHITHEATER DEVELOPMENT CORP., CONNECTICUT CONCERTS,
INCORPORATED, CONNECTICUT PERFORMING ARTS, INC., CONNECTICUT PERFORMING ARTS
PARTNERS, CONN TICKETING COMPANY, CONTEMPORARY GROUP ACQUISITION CORP., DEER
CREEK AMPHITHEATER CONCERTS, INC., DEER CREEK AMPHITHEATER CONCERTS, LP,
DELSENER/SLATER ENTERPRISES, LTD., DUMB DEAL, INC., EXIT 116 REVISITED, INC.,
FPI CONCERTS, INC., IN HOUSE TICKETS, INC., IRVING PLAZA CONCERTS, INC.,
MURAT CENTER CONCERTS, INC., MURAT CENTER CONCERTS, LP, NOC, INC.,
NORTHEAST TICKETING COMPANY, POLARIS AMPHITHEATER CONCERTS, INC., QN CORP.,
SFX BROADCASTING OF THE MIDWEST, INC., SFX CONCERTS, INC., SFX NETWORK GROUP,
LLC, SOUTHEAST TICKETING COMPANY, SUNSHINE CONCERTS, LLC, SUNSHINE
DESIGNS, INC., SUNSHINE DESIGNS, LP, SUNTEX ACQUISITION, INC., SUNTEX
ACQUISITION, LP, WESTBURY MUSIC FAIR, LLC,
AS GUARANTORS,
and
LEHMAN BROTHERS INC.,
GOLDMAN, SACHS & CO.,
BNY CAPITAL MARKETS, INC., and
ING BARINGS.
==============================================================================
<PAGE>
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of February 11, 1998, by and among SFX Entertainment, Inc., a
Delaware corporation (the "COMPANY"), the Guarantors (as defined in the
Purchase Agreement (as defined below)), and Lehman Brothers Inc., Goldman,
Sachs & Co., BNY Capital Markets, Inc. and ING Barings (each an "INITIAL
PURCHASER" and, collectively, the "INITIAL PURCHASERS"), each of whom has
agreed to purchase the Company's 9-1/8% Senior Subordinated Notes due 2008 (the
"SERIES A NOTES") pursuant to the Purchase Agreement.
This Agreement is made pursuant to the Purchase Agreement, dated
February 5, 1998 (the "PURCHASE AGREEMENT"), by and among the Company, the
Guarantors and the Initial Purchasers. In order to induce the Initial
Purchasers to purchase the Series A Notes (as defined below), the Company has
agreed to provide the registration rights set forth in this Agreement. The
execution and delivery of this Agreement is a condition to the obligations of
the Initial Purchasers set forth in Section 8 of the Purchase Agreement.
Capitalized terms used herein and not otherwise defined shall have the meaning
assigned to them in the Indenture, dated February 11, 1998, between the Company
and The Chase Manhattan Bank, as Trustee, relating to the Series A Notes and
the Series B Notes (the "INDENTURE").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Affiliate: As defined in Rule 144 of the Act.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Certificated Securities: Definitive Notes, as defined in the
Indenture.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously
effective and the keeping of the Exchange Offer open for a period not less than
the period required pursuant to Section 3(b) hereof and (c) the delivery by the
Company to the Registrar under the Indenture of Series B Notes in the same
aggregate principal amount as the aggregate principal amount of Series A Notes
tendered by Holders thereof pursuant to the Exchange Offer.
Effectiveness Deadline: As defined in Section 3(a) and 4(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The exchange and issuance by the Company of a
principal amount of Series B Notes (which shall be registered pursuant to the
Exchange Offer Registration Statement) equal to the outstanding principal
amount of Series A Notes that are tendered by such Holders in connection with
such exchange and issuance.
1
<PAGE>
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Series A Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act and pursuant to Regulation S
under the Act.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
Holders: As defined in Section 2 hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company and
the Guarantors relating to (a) an offering of Series B Notes pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) that
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
Regulation S: Regulation S promulgated under the Act.
Restricted Broker-Dealer: Any Broker-Dealer that holds Series B Notes
that were acquired in the Exchange Offer in exchange for Series A Notes that
such Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its affiliates).
Rule 144: Rule 144 promulgated under the Act.
Series B Notes: The Company's 9-1/8% Senior Subordinated Notes due
2008 to be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii)
as contemplated by Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
Suspension Notice: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to occur
of (a) the date on which such Note is exchanged in the Exchange Offer and
entitled to be resold to the public by the Holder thereof without complying
with the prospectus delivery requirements of the Act, (b) the date on which
2
<PAGE>
such Note has been disposed of in accordance with a Shelf Registration
Statement, (c) the date on which such Note is disposed of by a Broker-Dealer
pursuant to the "Plan of Distribution" contemplated by the Exchange Offer
Registration Statement (including delivery of the Prospectus contained therein)
or (d) the date on which such Note is distributed to the public pursuant to
Rule 144 under the Act.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "HOLDER") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company and the Guarantors shall (i) cause the Exchange
Offer Registration Statement to be filed with the Commission as soon as
practicable after the Closing Date (the "EXCHANGE OFFER FILING DATE"), but in
no event later than 75 days after the Closing Date (such 75th day being the
"FILING DEADLINE"), (ii) use its best efforts to cause such Exchange Offer
Registration Statement to become effective at the earliest possible time, but
in no event later than 120 days after the Closing Date (such 120th day being
the "EFFECTIVENESS DEADLINE"), (iii) in connection with the foregoing, (A) file
all pre-effective amendments to such Exchange Offer Registration Statement as
may be necessary in order to cause it to become effective, (B) file, if
applicable, a post-effective amendment to such Exchange Offer Registration
Statement pursuant to Rule 430A under the Act and (C) cause all necessary
filings, if any, in connection with the registration and qualification of the
Series B Notes to be made under the Blue Sky laws of such jurisdictions as are
necessary to permit Consummation of the Exchange Offer, and (iv) upon the
effectiveness of such Exchange Offer Registration Statement, commence and
Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate
form permitting registration of the Series B Notes to be offered in exchange
for the Series A Notes that are Transfer Restricted Securities and to permit
resales of Series B Notes by Broker-Dealers that tendered into the Exchange
Offer for Series A Notes that such Broker-Dealer acquired for its own account
as a result of market making activities or other trading activities (other than
Series A Notes acquired directly from the Company or any of its Affiliates) as
contemplated by Section 3(c) below.
(b) The Company and the Guarantors shall use their respective best
efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer; provided, however, that in no event
shall such period be less than 20 Business Days. The Company and the Guarantors
shall cause the Exchange Offer to comply with all applicable federal and state
securities laws. No securities other than the Series B Notes shall be included
in the Exchange Offer Registration Statement. The Company and the Guarantors
shall use their respective reasonable best efforts to cause the Exchange Offer
to be Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30
Business Days thereafter.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of
market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from the Company or any Affiliate of
the Company), may exchange such Transfer Restricted Securities pursuant to the
Exchange Offer; however, such Broker-Dealer may be deemed to be an
"underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus meeting the requirements of the Act in connection with its initial
sale of any Series B Notes received by such Broker-
3
<PAGE>
Dealer in the Exchange Offer and that the Prospectus contained in the
Exchange Offer Registration Statement may be used to satisfy such prospectus
delivery requirement. Such "Plan of Distribution" section shall also contain
all other information with respect to such sales by such Broker-Dealers that
the Commission may require in order to permit such sales pursuant thereto, but
such "Plan of Distribution" shall not name any such Broker-Dealer or disclose
the amount of Transfer Restricted Securities held by any such Broker-Dealer,
except to the extent required by the Commission as a result of a change in
policy, rules or regulations after the date of this Agreement. See the Shearman
& Sterling no-action letter (available July 2, 1993).
To the extent necessary to ensure that the Exchange Offer Registration
Statement is available for sales of Series B Notes by Broker-Dealers, the
Company and the Guarantors agree to use their respective best efforts to keep
the Exchange Offer Registration Statement continuously effective, supplemented
and amended as required by the provisions of Section 6(c) hereof and in
conformity with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of 180 days from the date on which the Exchange Offer is Registration
Statement is declared effective, or such shorter period as will terminate when
all Transfer Restricted Securities covered by such Registration Statement have
been sold pursuant thereto. The Company and the Guarantors shall promptly
provide sufficient copies of the latest version of such Prospectus to such
Broker-Dealers promptly upon request, and in no event later than one day after
such request, at any time during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted by
applicable law (after the Company and the Guarantors have complied with the
procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of
Transfer Restricted Securities shall notify the Company within 20 Business Days
following the Consummation of the Exchange Offer that (A) such Holder was
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) such Holder may not resell the Series B Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the Prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales by such Holder or (C) such Holder is a Broker-Dealer
and holds Series A Notes acquired directly from the Company or any of its
Affiliates, then the Company and the Guarantors shall:
(x) cause to be filed, on or prior to 30 days after the earlier of (i)
the date on which the Company determines that the Exchange Offer Registration
Statement cannot be filed as a result of clause (a)(i) above and (ii) the date
on which the Company receives the notice specified in clause (a) (ii) above,
(such earlier date, the "FILING DEADLINE"), a shelf registration statement
pursuant to Rule 415 under the Act (which may be an amendment to the Exchange
Offer Registration Statement (the "SHELF REGISTRATION STATEMENT")), relating to
all Transfer Restricted Securities the Holders of which shall have provided the
information required pursuant to Section 4(b) hereof, and
(y) shall use their respective reasonable best efforts to cause such
Shelf Registration Statement to become effective on or prior to 90 days after
the Filing Deadline (such 90th day the "EFFECTIVENESS DEADLINE").
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law, then
the filing of the Exchange Offer Registration Statement shall be deemed to
satisfy the requirements of clause (x) above; provided that, in such event, the
Company shall remain obligated to meet the Effectiveness Deadline set forth in
clause (y).
4
<PAGE>
The Company and the Guarantors shall use their respective reasonable
best efforts to keep any Shelf Registration Statement required by this Section
4(a) continuously effective, supplemented and amended as required by and
subject to the provisions of Sections 6(b) and (c) hereof to the extent
necessary to ensure that it is available for sales of Transfer Restricted
Securities by the Holders thereof entitled to the benefit of this Section 4(a),
and to ensure that it conforms with the requirements of this Agreement, the Act
and the policies, rules and regulations of the Commission as announced from
time to time, for a period of at least two years (as extended pursuant to
Section 6(c)(i)) following the date on which such Shelf Registration Statement
first becomes effective under the Act, or such shorter period as will terminate
when all Transfer Restricted Securities covered by such Registration Statement
have been sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information
previously furnished to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated within 30 Business Days after the
Exchange Offer Registration Statement is first declared effective by the
Commission or (iv) any Registration Statement required by this Agreement is
filed and declared effective but shall thereafter cease to be effective or fail
to be usable for its intended purpose without being succeeded within two
Business Days by a post-effective amendment to such Registration Statement that
cures such failure and that is itself declared effective within two Business
Days of its filing (each such event referred to in clauses (i) through (iv), a
"REGISTRATION DEFAULT"), then the Company and the Guarantors hereby jointly and
severally agree to pay to each Holder of Transfer Restricted Securities
affected thereby liquidated damages in an amount equal to $.05 per week per
$1,000 in principal amount of Transfer Restricted Securities held by such
Holder for each week or portion thereof that the Registration Default continues
for the first 90-day period immediately following the occurrence of such
Registration Default. The amount of the liquidated damages shall increase by an
additional $.05 per week per $1,000 in principal amount of Transfer Restricted
Securities with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of liquidated damages of $.50
per week per $1,000 in principal amount of Transfer Restricted Securities;
provided that the Company and the Guarantors shall in no event be required to
pay liquidated damages for more than one Registration Default at any given
time. Notwithstanding anything to the contrary set forth herein, (1) upon
filing of the Exchange Offer Registration Statement (and/or, if applicable, the
Shelf Registration Statement), in the case of (i) above, (2) upon the
effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4)
upon the filing of a post-effective amendment to the Registration Statement or
an additional Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement) to again be declared effective or made usable in the case of
5
<PAGE>
(iv) above, the liquidated damages payable with respect to the Transfer
Restricted Securities as a result of such clause (i), (ii), (iii) or (iv), as
applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture,
on each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. All obligations of the Company and the Guarantors set forth in the
preceding paragraph that are outstanding with respect to any Transfer
Restricted Security at the time such security ceases to be a Transfer
Restricted Security shall survive until such time as all such obligations with
respect to such Security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantors shall comply with all applicable
provisions of Section 6(c) below, shall use their respective best efforts to
effect such exchange and to permit the resale of Series B Notes by
Broker-Dealers that tendered in the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of its market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) being sold in accordance
with the intended method or methods of distribution thereof, and shall comply
with all of the following provisions:
(i) If, following the date hereof there has been announced a
change in Commission policy with respect to exchange offers such as
the Exchange Offer that, in the reasonable opinion of counsel to the
Company raises a substantial question as to whether the Exchange Offer
is permitted by applicable federal law, the Company and the Guarantors
hereby agree to seek a no-action letter or other favorable decision
from the Commission allowing the Company and the Guarantors to
Consummate an Exchange Offer for such Transfer Restricted Securities.
The Company and the Guarantors hereby agree to pursue the issuance of
such a decision to the Commission staff level but shall not be
required to take commercially unreasonable action to effect a change
in Commission policy. In connection with the foregoing, the Company
and the Guarantors hereby agree to take all such other actions as may
be requested by the Commission or otherwise required in connection
with the issuance of such decision, including without limitation (A)
participating in telephonic conferences with the Commission, (B)
delivering to the Commission staff an analysis prepared by counsel to
the Company setting forth the legal bases, if any, upon which such
counsel has concluded that such an Exchange Offer should be permitted
and (C) diligently pursuing a resolution (which need not be favorable)
by the Commission staff.
(ii) As a condition to its participation in the Exchange
Offer, each Holder of Transfer Restricted Securities (including,
without limitation, any Holder who is a Broker Dealer) shall furnish,
upon the request of the Company, prior to the Consummation of the
Exchange Offer, a written representation to the Company and the
Guarantors (which may be contained in the letter of transmittal
contemplated by the Exchange Offer Registration Statement) to the
effect that (A) it is not an Affiliate of the Company, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement
or understanding with any person to participate in, a distribution of
the Series B Notes to be issued in the Exchange Offer and (C) it is
acquiring the Series B Notes in its ordinary course of business. In
addition, all such Holders of Transfer Restricted Securities shall
otherwise reasonably cooperate with any reasonable request of the
Company relating to the Company's and Guarantors' preparation of the
Exchange Offer Registration Statement. Each Holder using the Exchange
Offer to participate in a distribution of the Series B Notes hereby
acknowledges and agrees that, if the resales are of Series B Notes
obtained by such Holder in exchange for Series A Notes acquired
directly from the Company or an Affiliate thereof, it (1) could not,
under Commission policy as in effect on the date of this
6
<PAGE>
Agreement, rely on the position of the Commission enunciated in Morgan
Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital
Holdings Corporation (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and
similar no-action letters (including, if applicable, any no-action
letter obtained pursuant to clause (i) above), and (2) must comply
with the registration and prospectus delivery requirements of the Act
in connection with a secondary resale transaction and that such a
secondary resale transaction must be covered by an effective
registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation
S-K.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company and the Guarantors shall provide a
supplemental letter to the Commission (A) stating that the Company and
the Guarantors are registering the Exchange Offer in reliance on the
position of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991) as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and, if applicable, any
no-action letter obtained pursuant to clause (i) above, (B) including
a representation that neither the Company nor any Guarantor has
entered into any arrangement or understanding with any Person to
distribute the Series B Notes to be received in the Exchange Offer and
that, to the best of the Company's and each Guarantor's information
and belief, each Holder participating in the Exchange Offer is
acquiring the Series B Notes in its ordinary course of business and
has no arrangement or understanding with any Person to participate in
the distribution of the Series B Notes received in the Exchange Offer
and (C) any other undertaking or representation required by the
Commission as set forth in any no-action letter obtained pursuant to
clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Guarantors shall comply with all
the provisions of Section 6(c) below and shall use their respective reasonable
best efforts to effect such registration to permit the sale of the Transfer
Restricted Securities being sold in accordance with the intended method or
methods of distribution thereof (as indicated in the information furnished to
the Company pursuant to Section 4(b) hereof), and pursuant thereto the Company
and the Guarantors will prepare and file with the Commission a Registration
Statement relating to the registration on any appropriate form under the Act,
which form shall be available for the sale of the Transfer Restricted
Securities in accordance with the intended method or methods of distribution
thereof, within the time periods and otherwise in accordance with the
provisions hereof.
(c) General Provisions. In connection with any Registration Statement
and any related Prospectus required by this Agreement, the Company and
the Guarantors shall:
(i) use their respective reasonable best efforts to keep such
Registration Statement continuously effective and provide all
requisite financial statements for the period specified in Section 3
or 4 of this Agreement, as applicable. Upon the occurrence of any
event that would cause any such Registration Statement or the
Prospectus contained therein (A) to contain a material misstatement or
omission or (B) not to be effective and usable for resale of Transfer
Restricted Securities during the period required by this Agreement,
the Company and the Guarantors shall file promptly an appropriate
amendment to such Registration Statement curing such defect, and, if
Commission review is required, use their respective reasonable best
efforts to cause such amendment to be declared effective as soon as
practicable. Notwithstanding the foregoing, if the Board of Directors
of the Company determines in good faith that it is in the best
interests of the Company and the Guarantors not to disclose the
existence of or facts surrounding any proposed or pending material
corporate transaction involving the Company or the
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Guarantors, the Company and the Guarantors may allow the Shelf
Registration Statement or the Exchange Offer Registration Statement to
fail to be effective and usable as a result of such nondisclosure for
up to 120 days during the three year period of effectiveness required
by Section 4 hereof, but in no event (x) for any period in excess of
45 consecutive days or (y) for more than 60 days in any calendar year,
provided, that in the event the Exchange Offer is Consummated, the
Company and the Guarantors shall not allow the Exchange Offer
Registration Statement to fail to be effective and usable for a period
in excess of 30 days during the one year period of effectiveness
required by Section 3 hereof;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as
may be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as the case may
be; cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act, and to comply fully with Rules 424, 430A and 462, as
applicable, under the Act in a timely manner; and comply with the
provisions of the Act with respect to the disposition of all
securities covered by such Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(iii) advise the selling Holders promptly and, if requested
by such Persons, confirm such advice in writing, (A) when the
Prospectus or any Prospectus supplement or post-effective amendment
has been filed, and, with respect to any applicable Registration
Statement or any post-effective amendment thereto, when the same has
become effective, (B) of any request by the Commission for amendments
to the Registration Statement or amendments or supplements to the
Prospectus or for additional information relating thereto, (C) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the
suspension by any state securities commission of the qualification of
the Transfer Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, (D) of the existence of any fact or the happening
of any event that makes any statement of a material fact made in the
Registration Statement, the Prospectus, any amendment or supplement
thereto or any document incorporated by reference therein untrue, or
that requires the making of any additions to or changes in the
Registration Statement in order to make the statements therein not
misleading, or that requires the making of any additions to or changes
in the Prospectus in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
If at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an
order suspending the qualification or exemption from qualification of
the Transfer Restricted Securities under state securities or Blue Sky
laws, the Company and the Guarantors shall use their respective
reasonable best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or have
occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchaser(s) of Transfer
Restricted Securities, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
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(v) furnish to the Initial Purchasers and each selling Holder
named in any Registration Statement or Prospectus in connection with
such sale, if any, before filing with the Commission, copies of any
Registration Statement or any Prospectus included therein or any
amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after
the initial filing of such Registration Statement), which documents
will be subject to the review and comment of such Holders in
connection with such sale, if any, for a period of at least three
Business Days, and the Company will not file any such Registration
Statement or Prospectus or any amendment or supplement to any such
Registration Statement or Prospectus (including all such documents
incorporated by reference) to which the selling Holders of the
Transfer Restricted Securities covered by such Registration Statement
in connection with such sale, if any, shall reasonably object within
three Business Days after the receipt thereof. A selling Holder shall
be deemed to have reasonably objected to such filing if such
Registration Statement, amendment, Prospectus or supplement, as
applicable, as proposed to be filed, contains a material misstatement
or omission or fails to comply with the applicable requirements of the
Act;
(vi) promptly prior to the filing of any document that is to
be incorporated by reference into a Registration Statement or
Prospectus, provide copies of such document to the selling Holders in
connection with such sale, if any, make the Company's and the
Guarantors' representatives available for discussion of such document
and other customary due diligence matters, and include such
information in such document prior to the filing thereof as such
selling Holders may reasonably request;
(vii) make available at reasonable times for inspection by
the selling Holders participating in any disposition pursuant to such
Registration Statement and any attorney or accountant retained by such
selling Holders, all financial and other records, pertinent corporate
documents of the Company and the Guarantors and cause the Company's
and the Guarantors' officers, directors and employees to supply all
information reasonably requested by any such selling Holder, attorney
or accountant in connection with such Registration Statement or any
post-effective amendment thereto subsequent to the filing thereof and
prior to its effectiveness;
(viii) if requested by any selling Holders in connection with
such sale, if any, promptly include in any Registration Statement or
Prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as such selling Holders may reasonably
request to have included therein, including, without limitation,
information relating to the "Plan of Distribution" of the Transfer
Restricted Securities; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as
practicable after the Company is notified of the matters to be
included in such Prospectus supplement or post-effective amendment;
(ix) furnish to each selling Holder in connection with such
sale, if any, without charge, at least one copy of the Registration
Statement, as first filed with the Commission, and of each amendment
thereto, including all documents incorporated by reference therein and
all exhibits (including exhibits incorporated therein by reference);
(x) deliver to each selling Holder, without charge, as many
copies of the Prospectus (including each preliminary prospectus) and
any amendment or supplement thereto as such Persons reasonably may
request; the Company and the Guarantors hereby consent to the use (in
accordance with law) of the Prospectus and any amendment or supplement
thereto by each of the selling Holders in connection with the offering
and the sale of the Transfer Restricted Securities covered by the
Prospectus or any amendment or supplement thereto;
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(xi) upon the request of any selling Holder, enter into such
agreements (including underwriting agreements) and make such
representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the
disposition of the Transfer Restricted Securities pursuant to any
applicable Registration Statement contemplated by this Agreement as
may be reasonably requested by any Holder of Transfer Restricted
Securities in connection with any sale or resale pursuant to any
applicable Registration Statement and in such connection, the Company
and the Guarantors shall:
(A) upon request of any selling Holder, furnish (or in the
case of paragraphs (2) and (3), use its reasonable best efforts
to cause to be furnished) to each selling Holder, upon the
effectiveness of the Shelf Registration Statement or upon
Consummation of the Exchange Offer, as the case may be:
(1) (1) a certificate, dated such date, signed on
behalf of the Company and each Guarantor by (x) the President
or any Vice President and (y) a principal financial or
accounting officer of the Company and such Guarantor,
confirming, as of the date thereof, the matters set forth in
paragraphs (b), (d) and (e) and the second sentence of
paragraph (c) of Section 8 of the Purchase Agreement and such
other similar matters as the selling Holders may reasonably
request;
(2) an opinion, dated the date of Consummation of
the Exchange Offer, or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for
the Company and the Guarantors covering matters similar to
those set forth in paragraph (h) of Section 8 of the Purchase
Agreement and such other matter as the selling Holders may
reasonably request, and in any event including a statement to
the effect that such counsel has participated in conferences
with officers and other representatives of the Company and
the Guarantors, representatives of the independent public
accountants for the Company and the Guarantors and have
considered the matters required to be stated therein and the
statements contained therein, although such counsel has not
independently verified the accuracy, completeness or fairness
of such statements; and that such counsel advises that, on
the basis of the foregoing (relying as to materiality to the
extent such counsel deems appropriate upon the statements of
officers and other representatives of the Company and the
Guarantors) no facts came to such counsel's attention that
caused such counsel to believe that the applicable
Registration Statement (except as to (a) financial
statements, including the notes thereto, (b) statistical data
and (c) other financial and accounting data (including,
without limitation, the pro forma financial information), in
each case, included or omitted therefrom, as to which no
belief need be expressed), at the time such Registration
Statement or any post-effective amendment thereto became
effective and, in the case of the Exchange Offer Registration
Statement, as of the date of Consummation of the Exchange
Offer, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading, or that the Prospectus (except as to (a)
financial statements, including the notes thereto, (b)
statistical data and (c) other financial and accounting data
(including, without limitation, the pro forma financial
information), in each case, included or omitted therefrom, as
to which no belief need be expressed) contained in such
Registration Statement as of its date and, in the case of the
opinion dated the date of Consummation of the Exchange Offer,
as of the date of Consummation, contained an untrue statement
of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading. Without limiting the foregoing, such counsel may
state further that such counsel assumes no responsibility
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for, and has not independently verified, the accuracy,
completeness or fairness of the financial statements, notes
and schedules and other financial data included in any
Registration Statement contemplated by this Agreement or the
related Prospectus; and
(3) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date of
effectiveness of the Shelf Registration Statement, as the
case may be, from the Company's independent accountants, in
the customary form and covering matters of the type
customarily covered in comfort letters to underwriters in
connection with underwritten offerings, and affirming the
matters set forth in the comfort letters delivered pursuant
to Section 8(k) of the Purchase Agreement; and
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence
compliance with clause (A) above and with any customary
conditions contained in the Purchase Agreement entered into by
the Company and the Guarantors pursuant to this clause (xi), if
any;
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders may request and do any and all
other acts or things necessary or advisable to enable the disposition
in such jurisdictions of the Transfer Restricted Securities covered by
the applicable Registration Statement; provided, however, that neither
the Company nor any Guarantor shall be required to register or qualify
as a foreign corporation where it is not now so qualified or to take
any action that would subject it to the service of process in suits or
to taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so
subject;
(xiii) issue, upon the request of any Holder of Series A
Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal
to the aggregate principal amount of Series A Notes surrendered to the
Company by such Holder in exchange therefor or being sold by such
Holder; such Series B Notes to be registered in the name of such
Holder or in the name of the purchaser(s) of such Series B Notes, as
the case may be; in return, the Series A Notes held by such Holder
shall be surrendered to the Company for cancellation;
(xiv) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being
Transfer Restricted Securities, cooperate with the selling Holders to
facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing
any restrictive legends; and to register such Transfer Restricted
Securities in such denominations and such names as the selling Holders
may request at least two Business Days prior to such sale of Transfer
Restricted Securities;
(xv) use their respective reasonable best efforts to cause
the disposition of the Transfer Restricted Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of such
Transfer Restricted Securities, subject to the proviso contained in
clause (xii) above;
(xvi) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration
Statement covering such Transfer Restricted Securities and
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provide the Trustee under the Indenture with printed certificates for
the Transfer Restricted Securities which are in a form eligible for
deposit with the Depository Trust Company;
(xvii) otherwise use their respective reasonable best efforts
to comply with all applicable rules and regulations of the Commission,
and make generally available to its security holders with regard to
any applicable Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
(which need not be audited) covering a twelve-month period beginning
after the effective date of the Registration Statement (as such term
is defined in paragraph (c) of Rule 158 under the Act);
(xviii) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement
required by this Agreement and, in connection therewith, cooperate
with the Trustee and the Holders to effect such changes to the
Indenture as may be required for such Indenture to be so qualified in
accordance with the terms of the TIA; and execute and use its best
efforts to cause the Trustee to execute, all documents that may be
required to effect such changes and all other forms and documents
required to be filed with the Commission to enable such Indenture to
be so qualified in a timely manner; and
(xix) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the requirements of
Section 13 or Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(i) or any notice from the Company of the existence of any fact of
the kind described in Section 6(c)(iii)(D) hereof (in each case, a "SUSPENSION
NOTICE"), such Holder will forthwith discontinue disposition of Transfer
Restricted Securities pursuant to the applicable Registration Statement until
(i) such Holder's has received copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is advised in
writing by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings that are incorporated
by reference in the Prospectus (in each case, the "RECOMMENCEMENT DATE"). Each
Holder receiving a Suspension Notice hereby agrees that it will either (i)
destroy any Prospectuses, other than permanent file copies, then in such
Holder's possession which have been replaced by the Company with more recently
dated Prospectuses or (ii) deliver to the Company (at the Company's expense)
all copies, other than permanent file copies, then in such Holder's possession
of the Prospectus covering such Transfer Restricted Securities that was current
at the time of receipt of the Suspension Notice. The time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4
hereof, as applicable, shall be extended by a number of days equal to the
number of days in the period from and including the date of delivery of the
Suspension Notice to the date of delivery of the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantors'
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and expenses; (ii) all
fees and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including printing
certificates for the Series B Notes to be issued in the Exchange Offer and
printing of Prospectuses), messenger and delivery services and telephone; (iv)
all fees and disbursements of counsel for the Company, the Guarantors and the
Holders of Transfer Restricted Securities; (v) all application and filing fees
in connection with listing the Series B Notes on a national securities exchange
or automated quotation system pursuant to the requirements hereof; and (vi) all
fees and disbursements of independent certified public accountants of the
Company and the
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Guarantors (including the expenses of any special audit and comfort
letters required by or incident to such performance) but specifically
excluding any transfer fees and taxes, if any, relating to the sale and
disposition of Transfer Restricted Securities by any Holder.
The Company will, in any event, bear its and the Guarantors' internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantors
will reimburse the Purchasers and the Holders of Transfer Restricted Securities
being tendered in the Exchange Offer and/or resold pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel, who shall be
Latham & Watkins, unless another firm shall be chosen by the Holders of a
majority in principal amount of the Transfer Restricted Securities for whose
benefit such Registration Statement is being prepared; provided that such fees
and disbursements shall not exceed $25,000.
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors agree, jointly and severally, to
indemnify and hold harmless (i) each Holder and (ii) each person, if any, who
controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) any Holder (any of the persons referred to in this clause (ii)
being hereinafter referred to as a "controlling person") and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "INDEMNIFIED HOLDER"), from
and against any and all losses, claims, damages, liabilities, judgments,
(including without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, preliminary prospectus
or Prospectus (or any amendment or supplement thereto) provided by the Company
to any holder or any prospective purchaser of Series B Notes, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by an untrue statement or omission or alleged untrue statement or
omission that is based upon information furnished in writing to the Company by
any of the Holders.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and the Guarantors,
and their respective directors, and officers, partners, employees,
representatives and agents and each person, if any, who controls (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) the
Company, or the Guarantors to the same extent as the foregoing indemnity from
the Company and the Guarantors to each of the Indemnified Holders, but only
with reference to information relating to such Indemnified Holder furnished in
writing to the Company by such Indemnified Holder expressly for use in any
Registration Statement. In no event shall any Indemnified Holder be liable or
responsible for any amount in excess of the amount by which the total amount
received by such Indemnified Holder with respect to its sale of Transfer
Restricted Securities pursuant to a Registration Statement exceeds (i) the
amount paid by such Indemnified Holder for such Transfer Restricted Securities
and (ii) the amount of any damages that such Indemnified Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.
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(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), an Indemnified Holder shall not
be required to assume the defense of such action pursuant to this Section 8(c),
but may employ separate counsel and participate in the defense thereof, but the
fees and expenses of such counsel, except as provided below, shall be at the
expense of the Indemnified Holder). Any indemnified party shall have the right
to employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the indemnified party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnified party and the indemnifying party, and the indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions arising out of the same general allegations or circumstances, be liable
for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such fees
and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by a majority of the Indemnified Holders, in the case of
the parties indemnified pursuant to Section 8(a), and by the Company, in the
case of parties indemnified pursuant to Section 8(b). The indemnifying party
shall not be liable, shall not indemnify or hold harmless the indemnified party
from and against any and all losses, claims, damages, liabilities and judgments
by reason of any settlement of any action effected without its written consent.
No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement or compromise of, or consent to the
entry of judgment with respect to, any pending or threatened action in respect
of which the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this
Section 8 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Guarantors, on the one hand, and the Holders, on the other
hand, from their sale of Transfer Restricted Securities or (ii) if the
allocation provided by clause 8(d)(i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause 8(d)(i) above but also the relative fault of the Company
and the Guarantors, on the one hand, and of the Indemnified Holder, on the
other hand, in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative fault of the Company and the
Guarantors, on the one hand, and of the Indemnified Holder, on the other hand,
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a
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material fact relates to information supplied by the Company or such
Guarantor, on the one hand, or by the Indemnified Holder, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and judgments referred to above shall be deemed to include, subject to the
limitations set forth in the second paragraph of Section 8(a), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The Company, the Guarantors and each Holder agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any
matter, including any action that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, no Holder or its related Indemnified Holders shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
total received by such Holder with respect to the sale of its Transfer
Restricted Securities pursuant to a Registration Statement exceeds the sum of
(A) the amount paid by such Holder for such Transfer Restricted Securities plus
(B) the amount of any damages which such Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to this Section 8(c) are several in
proportion to the respective principal amount of Transfer Restricted Securities
held by each of the Holders hereunder and not joint.
SECTION 9. RULE 144A
The Company and each Guarantor hereby agrees with each Holder, for so
long as any Transfer Restricted Securities remain outstanding and during any
period in which the Company or such Guarantor is not subject to Section 13 or
15(d) of the Securities Exchange Act, to make available, upon request of any
Holder of Transfer Restricted Securities, to any Holder or beneficial owner of
Transfer Restricted Securities in connection with any sale thereof and any
prospective purchaser of such Transfer Restricted Securities designated by such
Holder or beneficial owner, the information required by Rule 144A(d)(4) under
the Act in order to permit resales of such Transfer Restricted Securities
pursuant to Rule 144A.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company and the Guarantors acknowledge and agree
that any failure by the Company and/or the Guarantors to comply with their
respective obligations under Sections 3 and 4 hereof may result in material
irreparable injury to the Initial Purchasers or the Holders for which there is
no adequate remedy at law, that it will not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, the Initial
Purchasers or any Holder may obtain such relief as may be required to
specifically enforce the Company's and the Guarantor's obligations under
Sections 3 and 4 hereof. The Company and the Guarantors further agree to waive
the defense in any action for specific performance that a remedy at law would
be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any Guarantor
will, on or after the date of this Agreement, enter into any agreement with
respect to its securities that is inconsistent with
15
<PAGE>
the rights granted to the Holders in this Agreement or otherwise conflicts
with the provisions hereof. Neither the Company nor any Guarantor has
previously entered into any agreement granting any registration rights with
respect to its securities to any Person. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's and the Guarantors' securities
under any agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities (excluding Transfer Restricted Securities held
by the Company of its Affiliates). Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount
of Transfer Restricted Securities subject to such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect its rights or the
rights of Holders hereunder.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company or the Guarantors:
SFX Entertainment, Inc.
650 Madison Avenue
New York, New York 10022
Telecopier No.: (212) 753-3188
Attention: Howard J. Tytel, Esq.
With a copy to:
Baker & McKenzie
805 Third Avenue
New York, New York 10022
Telecopier No.: (212) 751-5700
Attention: Howard M. Berkower, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
receipt acknowledged, if telecopied; and on the next business day, if timely
delivered to an air courier guaranteeing overnight delivery.
16
<PAGE>
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of filing of the Exchange Offer or a Shelf Registration
Statement, as the case may be, notice shall be delivered to Lehman Brothers,
Inc., on behalf of the Initial Purchasers (in the form attached hereto as
Exhibit A) and shall be addressed to: Attention: Compliance Department, 3 World
Financial Center, New York, New York 10285.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided, that nothing
herein shall be deemed to permit any assignment, transfer or other disposition
of Transfer Restricted Securities in violation of the terms hereof or of the
Purchase Agreement or the Indenture. If any transferee of any Holder shall
acquire Transfer Restricted Securities in any manner, whether by operation of
law or otherwise, such Transfer Restricted Securities shall be held subject to
all of the terms of this Agreement, and by taking and holding such Transfer
Restricted Securities such Person shall be conclusively deemed to have agreed
to be bound by and to perform all of the terms and provisions of this
Agreement, including the restrictions on resale set forth in this Agreement
and, if applicable, the Purchase Agreement, and such Person shall be entitled
to receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect
of the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
SFX ENTERTAINMENT, INC.
By: ______________________________
Name:
Title:
ATLANTA CONCERTS, INC.
By: ______________________________
Name:
Title:
ARDEE FESTIVALS N.J., INC.
By: ______________________________
Name:
Title:
ARDEE PRODUCTIONS, LTD.
By: ______________________________
Name:
Title:
BEACH CONCERTS, INC.
By: ______________________________
Name:
Title:
BGP ACQUISITION, LLC
By: ______________________________
Name:
Title:
BROADWAY CONCERTS, INC.
By: ______________________________
Name:
Title:
CONNECTICUT AMPHITHEATER DEVELOPMENT CORP.
Registration Rights Agreement signature page - 1
<PAGE>
By: ______________________________
Name:
Title:
CONNECTICUT CONCERTS, INCORPORATED
By: ______________________________
Name:
Title:
CONNECTICUT PERFORMING ARTS, INC.
By: ______________________________
Name:
Title:
CONNECTICUT PERFORMING ARTS PARTNERS
By: ______________________________
Name:
Title:
CONN TICKETING COMPANY
By: ______________________________
Name:
Title:
CONTEMPORARY GROUP ACQUISITION CORP.
By: ______________________________
Name:
Title:
DEER CREEK AMPHITHEATER CONCERTS, INC.
By: ______________________________
Name:
Title:
DEER CREEK AMPHITHEATER CONCERTS, LP
Registration Rights Agreement signature page - 2
<PAGE>
By: ______________________________
Name:
Title:
DELSENER/SLATER ENTERPRISES, LTD.
By: ______________________________
Name:
Title:
DUMB DEAL, INC.
By: ______________________________
Name:
Title:
EXIT 116 REVISITED, INC.
By: ______________________________
Name:
Title:
FPI CONCERTS, INC.
By: ______________________________
Name:
Title:
IN HOUSE TICKETS, INC.
By: ______________________________
Name:
Title:
IRVING PLAZA CONCERTS, INC.
By: ______________________________
Name:
Title:
MURAT CENTER CONCERTS, INC.
By: ______________________________
Registration Rights Agreement signature page - 3
<PAGE>
By: ______________________________
Title:
MURAT CENTER CONCERTS, LP
By: ______________________________
Name:
Title:
NOC, INC.
By: ______________________________
Name:
Title:
NORTHEAST TICKETING COMPANY
By: ______________________________
Name:
Title:
POLARIS AMPHITHEATER CONCERTS, INC.
By: ______________________________
Name:
Title:
QN CORP.
By: ______________________________
Name:
Title:
SFX BROADCASTING OF THE MIDWEST, INC.
By: ______________________________
Name:
Title:
SFX CONCERTS, INC.
By: ______________________________
Name:
Registration Rights Agreement signature page - 4
<PAGE>
Title:
SFX NETWORK GROUP, LLC
By:
Name:
Title:
SOUTHEAST TICKETING COMPANY
By:
Name:
Title:
SUNSHINE CONCERTS, LLC
By:
Name:
Title:
SUNSHINE DESIGNS, INC.
By:
Name:
Title:
SUNSHINE DESIGNS, LP
By:
Name:
Title:
SUNTEX ACQUISITION, INC.
By:
Name:
Title:
SUNTEX ACQUISITION, LP
By:
Name:
Title:
Registration Rights Agreement signature page - 5
<PAGE>
WESTBURY MUSIC FAIR, LLC
By:
Name:
Title:
Registration Rights Agreement signature page - 6
<PAGE>
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
LEHMAN BROTHERS INC.
By: _______________________
Name:
Title:
________________________________________
(Goldman, Sachs & Co.)
BNY CAPITAL MARKETS, INC.
By: _______________________________
Name:
Title:
ING BARINGS
By: _______________________________
Name:
Title:
Registration Rights Agreement signature page - 7
<PAGE>
EXHIBIT A
NOTICE OF FILING OF
A/B EXCHANGE OFFER REGISTRATION STATEMENT
To: Lehman Brothers Inc.
3 World Financial Center
New York, New York 10285
Attention: Compliance Department
Fax: (212) 526-3738
From: SFX Entertainment Inc.
9-1/8% Senior Subordinated Notes due 2008
Date: ___, 199_
For your information only (NO ACTION REQUIRED):
Today, ______, 199_, we filed [an A/B Exchange Registration
Statement/a Shelf Registration Statement] with the Securities and Exchange
Commission. We currently expect this registration statement to be declared
effective within __ business days of the date hereof.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated (i) January 16, 1998 with respect to SFX
Entertainment, Inc. and Subsidiaries; (ii) October 2, 1997 with respect to
Delsener/Slater Enterprises, Ltd. and Affiliated Companies; (iii) December
13, 1996, except for note 10 as to which the date is August 22, 1997, with
respect to PACE Entertainment Corporation and Subsidiaries; (iv) November 25,
1997 with respect to Contemporary Group; (v) November 20, 1997 with respect
to SJS Entertainment Corporation and Affiliated Company; (vi) November 20,
1997 with respect to The Album Network, Inc. and Affiliated Companies; (vii)
December 18, 1997 with respect to BG Presents, Inc. and Subsidiaries; and
(viii) November 14, 1997 with respect to Concert/Southern Promotions and
Affiliated Companies, each included in Amendment No. 3 to the Registration
Statement on Form S-1 and related Prospectus of SFX Entertainment, Inc. for
the registration of 15,839,921 shares of its common stock.
/s/ Ernst & Young
ERNST & YOUNG LLP
New York, New York
February 9, 1998
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
on the combined financial statements of Deer Creek Partners, L.P. and
Murat Centre, L.P. dated September 29, 1997 (and to all references to our firm)
included in or made a part of this registration statement on Form S-1.
/s/ Arthur Andersen LLP
-------------------------------
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
February 10, 1998
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
on the consolidated financial statements of PACE Entertainment Corporation and
subsidiaries dated December 15, 1997 (except with respect to the matters
discussed in Note 12, as to which the date is December 22, 1997) and Pavilion
Partners dated December 15, 1997 (except with respect to the matters discussed
in Note 11, as to which the date is December 22, 1997), and to all references
to our Firm included in or made a part of this registration statement on Form
S-1.
/s/ Arthur Andersen LLP
Houston, Texas
February 9, 1998
<PAGE>
[ARTHUR ANDERSEN LLP LOGO]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
on the combined financial statements of Connecticut Performing Arts, Inc. and
Connecticut Performing Arts Partners dated March 21, 1997 (and to all
references to our Firm) included in or made a part of this registration
statement on Form S-1.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 9, 1998
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 3 to the Registration Statement on Form S-1 of our report dated
December 12, 1996 relating to the financial statements of Pavilion Partners,
which appears in such Prospectus. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Houston, Texas
February 9, 1998
