<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998
REGISTRATION NO. 333-50331
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
SFX ENTERTAINMENT, INC.*
(Exact Name of Registrant as Specified in its Charter)
* A complete list of registrants is set forth on the following pages
DELAWARE 7922 13-3977880
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification
Number)
------------------
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)
------------------
Copy of all Communications to:
HOWARD M. BERKOWER, ESQ.
BAKER & MCKENZIE
805 THIRD AVENUE, 30TH FLOOR
NEW YORK, NEW YORK 10022
(212) 751-5700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
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(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. [ ]
------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
TABLE OF REGISTRANTS
Unless specified otherwise, the mailing address and phone number of the
additional registrants is c/o SFX Entertainment, Inc., 650 Madison Avenue,
16th Floor, New York, New York 10022; (212) 838-3100. The agent for service
for the additional registrants is Robert F.X. Sillerman, c/o SFX
Entertainment, Inc., 650 Madison Avenue, 16th Floor, New York, New York
10022. The primary standard industry classification number for all
registrants is 7922.
<TABLE>
<CAPTION>
STATE OR
OTHER JURISDICTION I.R.S. EMPLOYER
OF INCORPORATION IDENTIFICATION
NAME, ADDRESS AND TELEPHONE NUMBER OR ORGANIZATION NUMBER
- ----------------------------------------- ------------------ ---------------
<S> <C> <C>
SFX Entertainment, Inc. Delaware 13-3977880
AKG, Inc.(3) California 94-2628377
American Broadway, Inc.(1) Texas 76-0475585
Ardee Festivals N.J., Inc. New Jersey 13-3568617
Ardee Productions, Ltd. New York 13-2593666
Atlanta Concerts, Inc. Delaware 13-3969854
Beach Concerts, Inc. New York 13-3155946
BG Presents, Inc.(3) California 68-0320084
BGP Acquisition, L.L.C. Delaware Pending
Bill Graham Enterprises, Inc.(3) California 94-1734238
Bill Graham Presents, Inc.(3) California 94-1650714
Bill Graham Management, Inc.(3) California 94-3129254
Broadway Concerts, Inc. New York 13-3748971
Cooley and Conlon Management Co. Georgia 58-1762653
Concerts, Inc.(2) Nevada 86-0871933
Conn Ticketing Company Connecticut 06-14500628
Connecticut Amphitheater Development
Corporation Connecticut 06-1416442
Connecticut Concerts, Incorporated Connecticut 13-3748975
Connecticut Performing Arts, Inc. Connecticut 06-1411118
Connecticut Performing Arts Partners Connecticut 06-1420929
Contemporary Group Acquisition Corp. Delaware 13-3991262
Contemporary Group, Inc.(4) Missouri 43-1701968
Contemporary Marketing, Inc.(4) Missouri 43-1248261
Contemporary Productions, Incorporated(4) Missouri 43-1243654
Contemporary Sports, Incorporated(4) Missouri 43-1245258
Deer Creek Amphitheater Concerts, Inc. Delaware 13-3951407
Deer Creek Amphitheater Concerts, L.P. Delaware 13-3951407
Delsener/Slater Enterprises, Ltd. New York 13-2560412
Dumb Deal, Inc. New York 13-2892073
Entertainment Performing Arts, Inc.(1) Texas 76-0297763
Exit 116 Revisited, Inc. New Jersey 13-3886101
Festival Productions, Inc.(1) Texas 74-1975839
Fillmore Corporation(3) Delaware 94-1687122
Fillmore Fingers, Inc.(3) California 94-2998317
FPI Concerts, Inc. Delaware 13-3933969
(a)
<PAGE>
STATE OR
OTHER JURISDICTION I.R.S. EMPLOYER
OF INCORPORATION IDENTIFICATION
NAME, ADDRESS AND TELEPHONE NUMBER OR ORGANIZATION NUMBER
- ----------------------------------------- ------------------ ---------------
GSAC Partners Delaware 76-051636
High Cotton, Inc. Georgia 58-1802140
In House Tickets, Inc. New York 13-3077977
Irving Plaza Concerts, Inc. Delaware 13-3938355
Murat Center Concerts, Inc. Delaware 13-3948205
Murat Center Concerts, L.P. Delaware 13-3951403
NOC, Inc. Connecticut 13-3738288
Northeast Ticketing Company Connecticut 06-1450528
Oakdale Theatre Concerts, Inc. Delaware 13-3997242
Old PCI, Inc.(1) Texas 76-0392584
PACE AEP Acquisition, Inc.(1) Texas 01-477749
PACE Amphitheater Management, Inc.(1) Texas 76-0474961
PACE Amphitheaters, Inc.(1) Texas 76-0250531
PACE Bayou Place, Inc.(1) Texas 76-0543571
PACE Communications, Inc.(1) Texas 76-0545041
PACE Concerts GP, Inc.(1) Texas 76-0522081
PACE Concerts, Ltd.(1) Texas 76-0522083
PACE Entertainment Corporation(1) Texas 74-1545442
PACE Entertainment GP Corp.(1) Texas 76-0522082
PACE Entertainment Group, Ltd.(1) Texas 76-0522084
PACE Milton Keynes, Inc.(1) Texas 76-0412384
PACE Motor Sports, Inc.(1) Texas 74-1990536
PACE Music Group, Inc.(1) Texas 76-0108294
PACE Productions, Inc.(1) Texas 76-0287817
PACE Theatrical Group, Inc.(1) Texas 76-0235495
PACE Touring, Inc.(1) Texas 76-0406630
PACE U.K. Holding Corporation(1) Texas 76-0412383
PACE Variety Entertainment, Inc.(1) Texas 76-0546383
Pavilion Partners Delaware 76-0306688
PEC, Inc.(2) Nevada 86-0871934
Polaris Amphitheater Concerts, Inc. Delaware 13-3948206
PTG-Florida, Inc.(7) Texas 58-1812340
QN Corp. Connecticut Pending
SFX Broadcasting of the Midwest, Inc. Delaware 13-3950590
SFX Concerts, Inc. Delaware 13-3909179
SFX Delaware, Inc. Delaware 13-3931550
SFX Network Group, L.L.C. Delaware Pending
SFX Touring, Inc. Delaware 13-3993989
SJS Entertainment Corporation(5) Pennsylvania 23-2828323
Shoreline Amphitheatre, Ltd.(3) California 94-2997795
94-2997214
Shoreline Amphitheatre Partners(3) California 74-1855786
SM/PACE, Inc.(1) Texas 06-1450527
Southeast Ticketing Company Connecticut 58-1421506
Southern Promotions, Inc. Georgia 13-3951409
Sunshine Concerts, L.L.C. Delaware
(b)
<PAGE>
STATE OR
OTHER JURISDICTION I.R.S. EMPLOYER
OF INCORPORATION IDENTIFICATION
NAME, ADDRESS AND TELEPHONE NUMBER OR ORGANIZATION NUMBER
- ----------------------------------------- ------------------ ---------------
Sunshine Designs, Inc. Delaware 13-3948203
Sunshine Designs, L.P. Delaware 13-3951402
Suntex Acquisition, Inc. Delaware 13-3948208
Suntex Acquisition, L.P. Delaware 13-3951401
The Album Network, Inc.(6) California 93-3297803
Touring Productions, Inc.(1) Texas 76-0161212
Tuneful Company, Inc.(1) Texas Pending
Westbury Music Fair, L.L.C. Delaware 13-3984613
Wolfgang Records(3) California 94-3223917
</TABLE>
- --------------
The mailing addresses and phone numbers for the indicated registrants are as
follows:
(1) 515 Post Oak Boulevard, Suite 300, Houston, Texas 77027; (713)
693-8600.
(2) 1325 Airmotive Way, Suite 130, Reno, Nevada 89502; (702) 322-2221.
(3) 260 Fifth Avenue, San Francisco, California 94142; (415) 541-0800.
(4) 1401 South Brentwood Boulevard, St. Louis, Missouri 63144; (314)
962-4000.
(5) 116 East 27th Street, 10th Floor, New York, New York 10016; (212)
679-3200.
(6) 120 North Victory Boulevard, 3rd Floor, Burbank, California 91502;
(818) 955-4000.
(7) 100 South Biscayne Boulevard, Suite 1200, Miami, Florida 33131; (305)
379-2700.
(c)
<PAGE>
PROSPECTUS
[SFX ENTERTAINMENT, INC. LOGO]
OFFER TO EXCHANGE ITS
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
($350,000,000 PRINCIPAL AMOUNT)
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
($350,000,000 PRINCIPAL AMOUNT OUTSTANDING)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON JULY 9, 1998, UNLESS EXTENDED.
SFX Entertainment, Inc., a Delaware corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions
set forth in this Prospectus and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange up to an aggregate principal amount of
$350,000,000 of its 9 1/8% Senior Subordinated Notes due 2008, Series B (the
"Exchange Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement
of which this Prospectus is a part, for an equal principal amount of its
outstanding 9 1/8% Senior Subordinated Notes due 2008, Series A (the
"Notes"), in integral multiples of $1,000. The Exchange Notes will be senior
subordinated unsecured obligations of the Company and are substantially
identical (including principal amount, interest rate, maturity and redemption
rights) to the Notes for which they may be exchanged pursuant to the Exchange
Offer, except that (i) the offering and sale of the Exchange Notes has been
registered under the Securities Act and (ii) holders of Exchange Notes will
not be entitled to certain rights of holders under the Registration Rights
Agreement, dated as of February 11, 1998, among the Company, the Guarantors
(as defined) and the Initial Purchasers (as defined) of the Notes (the
"Registration Rights Agreement").
The Exchange Notes will be general unsecured obligations of the Company,
subordinate in right of payment to all existing and future Senior Debt (as
defined) of the Company. The Exchange Notes will be fully and unconditionally
guaranteed on a senior subordinated basis, jointly and severally, by certain
of the Company's subsidiaries (the "Guarantors"). As of March 31, 1998, after
giving pro forma effect to the Recent Acquisitions (as defined), the Pending
Acquisitions (as defined), the Equity Offering (as defined), $22.2 million of
additional borrowing under the Credit Facility (as defined; and together with
the Equity Offering, the "Financing") and the application of the net proceeds
therefrom, the Spin-Off (as defined) and the SFX Merger (as defined), the
Company would have had approximately $565.2 million of indebtedness
outstanding, of which $215.2 million would have been Senior Debt (excluding
letters of credit). The claims of holders of the Exchange Notes will be
effectively subordinated to the indebtedness and other liabilities of the
Company's Non-Guarantor Subsidiaries (as defined) through which the Company
conducts a portion of its operations, which indebtedness and other
liabilities were approximately $16.7 million on a pro forma basis as of March
31, 1998.
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the Exchange Notes issued pursuant to this
Exchange Offer in exchange for Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than (i) a broker-dealer who
receives Exchange Notes in the Exchange Offer in respect of Notes that were
acquired by the broker-dealer as a result of market-making activities or
other trading activities or (ii) a person that is an affiliate of the Company
within the meaning of Rule 405 under the Securities Act), without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided, that the holder is acquiring the Exchange Notes in the
ordinary course of its business and is not participating, and had no
arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes. However, the Commission has not
considered the Exchange Offer in the context of a no-action request and there
can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other
circumstances. Holders of Notes wishing to accept the Exchange Offer must
represent to the Company, as required by the Registration Rights Agreement,
that such conditions have been met. Each broker-dealer that receives the
Exchange Notes for its own account in exchange for the Notes, where such
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. The Company
has indicated its intention to make this Prospectus (as it may be amended or
supplemented) available to any broker-dealer for use in connection with any
such resale for a period of 180 days after the Expiration Date. See "Plan of
Distribution."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
(continued on next page)
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER NOTES IN THE EXCHANGE
OFFER.
------------------
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 June 9, 1998
<PAGE>
The Notes have been, and the Exchange Notes will be, issued under an
Indenture dated as of February 11, 1998 (the "Indenture"), among the Company,
the Guarantors and The Chase Manhattan Bank, as trustee (the "Trustee"). See
"Description of Exchange Notes." There will be no proceeds to the Company
from the Exchange Offer; however, pursuant to the Registration Rights
Agreement, the Company will bear certain offering expenses. No underwriter is
being used in connection with the Exchange Offer.
The Company will accept for exchange any and all Notes validly tendered on
or prior to 5:00 p.m. New York City time, on July 9, 1998, unless the
Exchange Offer is extended (the "Expiration Date"). Tenders of Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date; otherwise such tenders are irrevocable. The Chase Manhattan
Bank will act as Exchange Agent with respect to the Notes (in such capacity,
the "Exchange Agent") in connection with the Exchange Offer. The Exchange
Offer is not conditioned upon any minimum principal amount of Notes being
tendered for exchange, but is otherwise subject to certain customary
conditions. See "The Exchange Offer--Conditions." Notes may be tendered only
in integral multiples of $1,000.
The Exchange Notes will bear interest from February 11, 1998, the date of
issuance of the Notes that are tendered in exchange for the Exchange Notes
(or the most recent Interest Payment Date (as defined herein) to which
interest on such Notes has been paid), at a rate equal to 9 1/8% per annum.
Interest on the Exchange Notes will be payable semi-annually on February 1
and August 1 of each year, commencing August 1, 1998. Holders of Exchange
Notes will receive interest on August 1, 1998 from the date of initial
issuance of the Notes. Holders of Notes that are accepted for exchange will
be deemed to have waived the right to receive any interest accrued on the
Notes.
The Exchange Notes will be redeemable at the option of the Company, in
whole or in part, at any time on or after February 1, 2003, or earlier at the
option of the holders of Exchange Notes upon a Change of Control (as
defined), at the redemption prices set forth herein, plus accrued and unpaid
interest thereon to the date of redemption. In addition, at any time prior to
February 1, 2001, the Company may, in its discretion, redeem up to $122.5
million (equal to 35% of the aggregate principal amount of the Notes
originally issued) of the Notes and the Exchange Notes at a redemption price
equal to 109.125% of the principal amount thereof, plus accrued and unpaid
interest, to the date of redemption, with the net cash proceeds of one or
more offerings of common equity of the Company; provided, that at least an
aggregate of $227.5 million (equal to 65% of the aggregate principal amount
of the Notes originally issued) of the Notes and the Exchange Notes remains
outstanding immediately after each such redemption.
Upon the occurrence of a Change of Control, the Company will be required
to make an offer to repurchase the Exchange Notes at a price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest or Liquidated
Damages, if any, to the date of repurchase. If a Change of Control were to
occur, the Company may not have the financial resources to repay all of its
obligations under the Credit Facility (as defined herein), the Indenture and
the other indebtedness that would become payable upon the occurrence of such
Change of Control. See "Risk Factors--Payment Upon a Change of Control" and
"Description of Exchange Notes."
The Notes were sold by the Company on February 11, 1998 in transactions
not registered under the Securities Act in reliance upon the exemption
provided in Section 4(2) thereof. A portion of the Notes were subsequently
resold to qualified institutional buyers in reliance upon Rule 144A under the
Securities Act. The remainder of the Notes were resold outside the United
States in reliance on Regulation S under the Securities Act. Accordingly, the
Notes may not be reoffered, resold or otherwise transferred in the United
States unless registered under the Securities Act or unless an applicable
exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered hereunder in order to satisfy
certain obligations of the Company under the Registration Rights Agreement.
See "The Exchange Offer."
Prior to this Exchange Offer, there has been no public market for the
Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes
(continued on next page)
ii
<PAGE>
will develop. To the extent that a market for the Exchange Notes does
develop, the market value of the Exchange Notes will depend on market
conditions (such as yields on alternative investments), general economic
conditions, the Company's financial condition and other conditions. Such
conditions might cause the Exchange Notes, to the extent that they are
actively traded, to trade at a significant discount from face value. See
"Risk Factors--Absence of Public Market."
ANY NOTES NOT TENDERED AND ACCEPTED IN THE EXCHANGE OFFER WILL REMAIN
OUTSTANDING. TO THE EXTENT ANY NOTES ARE TENDERED AND ACCEPTED IN THE
EXCHANGE OFFER, A HOLDER'S ABILITY TO SELL UNTENDERED NOTES COULD BE
ADVERSELY AFFECTED. FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER, THE HOLDERS
OF NOTES WILL CONTINUE TO BE SUBJECT TO THE EXISTING RESTRICTIONS UPON
TRANSFER THEREOF, AND THE COMPANY WILL HAVE FULFILLED CERTAIN OF ITS
OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT. HOLDERS OF NOTES WHO DO
NOT TENDER THEIR NOTES GENERALLY WILL NOT HAVE ANY FURTHER REGISTRATION
RIGHTS UNDER THE REGISTRATION RIGHTS AGREEMENT OR OTHERWISE. SEE "THE
EXCHANGE OFFER--CONSEQUENCES OF FAILURE TO EXCHANGE."
The Exchange Notes issued pursuant to this Exchange Offer generally will
be issued in the form of Global Exchange Notes (as defined herein), which
will be deposited with, or on behalf of, The Depository Trust Company (the
"Depository" or "DTC") and registered in its name or in the name of Cede &
Co., its nominee. Beneficial interests in the Global Exchange Notes
representing the Exchange Notes will be shown on, and transfers thereof will
be effected through, records maintained by the Depository and its
participants. Notwithstanding the foregoing, Notes held in certificated form
will be exchanged solely for Exchange Notes in certificated form. After the
initial issuance of the Global Exchange Notes, Exchange Notes in certificated
form will be issued in exchange for the Global Exchange Notes only on the
terms set forth in the Indenture. See "Description of Exchange
Notes--Book-Entry, Delivery and Form."
UNTIL SEPTEMBER 7, 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE
OFFER), ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR
NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS.
(iii)
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (Reg. No. 333-50331) under the Securities Act for the registration of the
Exchange Notes offered hereby (the "Registration Statement"). This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain items of which are contained in exhibits and schedules to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company or the
Exchange Notes offered hereby, reference is made to the Registration
Statement, including the exhibits and financial statement schedules thereto.
With respect to each such document filed with the Commission as an exhibit to
the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Company is presently subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the
Commission. The Registration Statement, such reports and other information
filed by the Company can be inspected and copied at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 and the regional offices of the Commission located at 7 World Trade
Center, New York, New York 10048 and 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at its public reference facilities
in New York, New York and Chicago, Illinois at prescribed rates. The Company
makes its filings with the Commission electronically. The Commission
maintains an Internet site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically, which information can be accessed at http://www.sec.gov.
The Company will send to each holder of record of Exchange Notes copies of
annual reports and quarterly reports containing the information required to
be filed under the Exchange Act which reports, to the extent required by the
Exchange Act, will contain financial information that has been examined and
reported upon by the Company's independent public accountants. So long as the
Company is subject to the periodic reporting requirements of the Exchange
Act, it is required to furnish the information required to be filed with the
Commission to the Trustee and the holders of the Notes and the Exchange
Notes. The Company has agreed that, even if it is not required under the
Exchange Act to furnish such information to the Commission, it will
nonetheless continue to furnish information that would be required to be
furnished by the Company by Section 13 of the Exchange Act to the Trustee and
the holders of the Notes or Exchange Notes as if it were subject to such
periodic reporting requirements.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and consolidated financial statements, including
the notes thereto, appearing elsewhere in this Prospectus. Each person is
urged to read this Prospectus in its entirety. Unless the context requires
otherwise, the "Company" or "SFX Entertainment" means SFX Entertainment, Inc.
and its subsidiaries, after giving effect to the Pending Acquisitions (as
defined). Except as otherwise indicated, all information in this Prospectus
assumes the consummation of the Pending Acquisitions as described in
"Business--Pending Acquisitions." For all periods presented, except where
otherwise indicated, the discussions on a pro forma basis give effect to the
1997 Acquisitions, the Recent Acquisitions and the Pending Acquisitions (each
as defined herein) as if they had occurred on January 1, 1997. There can be
no assurance that either of the Pending Acquisitions will be consummated on
the terms described herein or at all. See "Risk Factors--Risks Related to the
Pending Acquisitions." Industry data used throughout this Prospectus was
obtained from industry publications and has not been independently verified
by the Company.
THE COMPANY
SFX Entertainment is a leading integrated promoter, producer and venue
operator in the live entertainment industry. In addition, the Company is a
leading full-service marketing and management company specializing in the
representation of team sports athletes, primarily in professional basketball.
The Company believes that it currently controls the largest network of venues
used principally for music concerts and other live entertainment events in
the United States, with 44 venues either directly owned or operated under
lease or exclusive booking arrangements in 22 of the top 50 markets on a pro
forma basis, including 11 amphitheaters in 7 of the top 10 markets. Through
its large number of venues, its strong, branded presence in each market
served and its long operating history, the Company is able to provide an
integrated offering of promotion and production services across a broad
variety of live entertainment events locally, regionally and nationally.
During 1997, approximately 27 million people attended 9,600 events promoted
and/or produced by the Company and the businesses to be acquired in the
Pending Acquisitions, including approximately 4,200 music concerts, 4,900
theatrical shows and over 190 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 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. In addition, the Company's event marketing programs interfaced with
over 15 million people in 1997. The Company believes that its ability to
provide integrated live entertainment services will, among other things,
encourage wider use of its venues by performers and allow the Company to
capture a greater percentage of revenues from national tours and ancillary
revenue sources. On a pro forma basis, the Company would have had revenues
and Adjusted EBITDA (as defined herein) of $827.9 million and $104.9 million,
respectively, for the twelve months ended March 31, 1998. For a description
of Adjusted EBITDA, see footnote 5 to "Summary Consolidated Financial Data."
The Company'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 the Company and in
third-party venues. As promoter, the Company 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, the Company (a) creates tours for music concert, theatrical,
specialized motor sports and other events, (b) develops and manages
Broadway-style touring theatrical shows ("Touring Broadway Shows") and (c)
develops specialized motor sports and other live entertainment events. As
venue owner/operator, the Company books and promotes events in the venues
which it controls. The Company also derives ancillary revenues from
operations related to its live entertainment events, including the sale of
corporate sponsorships and advertising, the sale of concessions and the
merchandising of a broad range of products. In addition, the Company
represents approximately 70 professional athletes, primarily in professional
basketball. On a pro forma basis, the Company's music businesses, theatrical
operations, specialized motor sports operations and other operations would
have comprised approximately 67%, 13%, 6% and 14%, respectively, of the
Company's total revenues for the twelve months ended March 31, 1998.
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<PAGE>
The Company has benefited from significant growth in the live
entertainment industry over the last several years. According to Amusement
Business, an entertainment industry journal, ticket sales for North American
music concert tours have grown at a 10.9% compound annual growth rate
("CAGR") since 1985, from approximately $321.7 million in 1985 to
approximately $1.1 billion in 1997. Box office receipts from Touring Broadway
Shows and Broadway shows in the United States have grown at a 11.2% CAGR
since the 1986-1987 season, from $431.5 million to $1.3 billion in the
1996-1997 season, according to Variety Magazine. 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.
VENUES
The Company believes that it owns and/or operates the largest number of
venues in the United States used principally for music concerts and other
live entertainment events. The following table summarizes the 45
amphitheaters, theaters and other venues owned and/or operated under lease or
exclusive booking arrangements by the Company on a pro forma basis. There can
be no assurance that any of the Pending Acquisitions will be completed on the
terms described herein or at all. See "Risk Factors--Risks Related to the
Pending Acquisitions."
<TABLE>
<CAPTION>
NUMBER OF TOTAL
MARKET NUMBER OF THEATERS AND TOTAL SEATING
MARKET RANK(1)AMPHITHEATERS(2) CLUBS(2) VENUES(2) CAPACITY(3)
- ------------------------------ -------- -------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
New York--Northern New
Jersey--
Long Island .................. 1 2 2 4 37,600
Los Angeles--Riverside--Orange
County ....................... 2 2 1 3 44,100(4)
San Francisco--Oakland--San
Jose.......................... 5 2 4 6 49,500(5)
Philadelphia--Wilmington--
Atlantic City ................ 6 1 -- 1 25,000
Boston--Mansfield.............. 7 2 1 3 27,400
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 N/A(5)
Indianapolis .................. 28 1 1 2 23,700
Columbus ...................... 30 1 -- 1 20,000
Charlotte--Gastonia--Rock Hill 32 1 -- 1 18,000
Hartford--Wallingford ......... 36 1 1 2 29,800
Rochester ..................... 38 1 -- 1 12,700
Nashville ..................... 40 1 -- 1 20,100
Oklahoma City ................. 42 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......................... 27 18 45 526,150(4)(5)
(see footnotes on next page)
</TABLE>
4
<PAGE>
- --------------
(1) Based on the July 1994 population of metropolitan statistical areas as
set forth in the 1997 Statistical Abstracts of the United States.
(2) Does not include venues in the 31 markets where the Company sells
subscriptions for Touring Broadway Shows. See "Business--Services
Provided by the Company--Production."
(3) Does not include the approximately 16,000 seat Camarillo Creek
Amphitheater in Los Angeles and the approximately 20,000 seat White
River Amphitheater in Seattle, each of which is currently under
construction. Completion of these facilities is currently scheduled for
the summer of 1999.
(4) Additional seating of approximately 40,000 is available for certain
events.
(5) Club seating, which cannot be accurately determined because clubs
typically have either open or reserved seating for any given event, is
not reflected.
OPERATING STRATEGY
The Company's principal objectives are to maximize revenue and cash flow
growth opportunities by (a) being a leading promoter and producer of live
entertainment events and a leading provider of talent representation services
and (b) owning and/or operating leading live entertainment venues in the
United States. The Company's specific strategies include the following:
OWN AND/OR OPERATE LEADING LIVE ENTERTAINMENT VENUES IN NATION'S TOP 50
MARKETS
A key component of the Company's strategy is to own and/or operate a
network of leading live entertainment venues in the nation's top 50 markets.
The Company 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 the Company's
venues by providing centralized access to a nationwide network of venues. The
Company believes that it controls the largest network of venues used
principally for music concerts and other live entertainment events in the
United States. Upon consummation of the Pending Acquisitions, the Company
will own and/or operate under exclusive booking arrangements 44 venues in 22
of the top 50 markets, including 11 amphitheaters in 7 of the top 10 markets.
MAXIMIZE ANCILLARY REVENUE OPPORTUNITIES
The Company intends to enhance revenues and cash flows by maximizing
revenue sources arising from and related to its leadership position in the
live entertainment business. On a pro forma basis for the 1997 and Recent
Acquisitions, these ancillary revenues comprised approximately 19% of the
Company's music businesses' total revenues for the year ended December 31,
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 the Company'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 the Company's venues currently have no sponsorship arrangements in
many of the available categories (including naming rights). The Company 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.
5
<PAGE>
EXPLOIT SYNERGIES OF THE ACQUIRED BUSINESSES
The Company plans to maximize revenues by exploiting synergies among its
various businesses and the businesses to be acquired in the Pending
Acquisitions. The Company believes that it can utilize the best business
practices of the businesses acquired in the Recent Acquisitions (the
"Acquired Businesses") and to be acquired in the Pending Acquisitions on a
national scale. For example, the Atlanta-based regional Music Midtown
Festival, created and promoted by Concert/Southern Promotions (one of the
Acquired Businesses), is a highly successful music festival concept that drew
approximately 200,000 attendees in 1997; the Company believes that it can use
the event as a model for other markets. In addition, the Company believes
that the radio industry trade publications of Network (as defined herein,
another of the Acquired Businesses) will enable the Company 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 the Company.
The Company believes that it will be able to capitalize on the
cross-marketing opportunities that may arise by virtue of representing
prominent team athletes while selling corporate sponsorships and other
marketing rights at its existing venues.
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. The Company 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 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. The Company 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
The Company 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, the Company 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 the Company acquired through certain of the Recent Acquisitions, when
combined with the Company's existing audience data collection efforts, will
permit highly-effective targeted marketing, such as direct-mail and
subscription series campaigns, which the Company believes will increase
ticket pre-sales and overall sales in a cost-efficient manner.
STRICT COST CONTROLS; NATIONALLY COORDINATED BOOKING, MARKETING & ACCOUNTING
The Company'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, the Company believes that its size 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
Company, (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-
6
<PAGE>
constrained local or regional businesses that do not achieve significant
economies of scale from their operations. The Company 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, the Company
believes that it will be better able to coordinate negotiations with
performers and talent agents, addressing what the Company believes is a
growing desire among performers and talent agents to deal with fewer, more
sophisticated promoters. The Company intends to pursue additional strategic
acquisitions of (a) amphitheaters and other live entertainment venues, (b)
local and regional promoters and producers of music concert, theatrical,
specialized motor sports and other live entertainment events and (c)
companies in the talent representation industry. The Company is currently in
the process of negotiating certain additional acquisitions of live
entertainment and related businesses; however, it has not entered into
definitive agreements with respect to any of such acquisitions and there can
be no assurance that it will do so. See "--Recent Developments" and "Risk
Factors--Company Specific Risks--Expansion Strategy; Need for Additional
Funds."
MANAGEMENT
Most of the Company's senior management team has worked together for a
number of years at SFX Broadcasting, Inc. ("Broadcasting" or "SFX
Broadcasting"), the parent of the Company prior to the Spin-Off (as defined),
and has managed the concert promotion operations of Delsener/Slater
Enterprises, Ltd. ("Delsener/Slater"), the predecessor of the Company, since
its acquisition by SFX Broadcasting in January 1997. Senior management plans
to continue to apply to its live entertainment businesses many of the same
operating strategies that it has successfully utilized in the radio business,
including a focus on revenue maximization through the cultivation of
sponsorship and advertising relationships, cost containment and other
strategies in order to maximize revenue and cash flow growth. Moreover,
senior management believes that the Company will benefit from the
consolidation of the live entertainment industry, much as SFX Broadcasting
benefited from the consolidation of the radio broadcasting industry. The
Company's senior management team is comprised of Robert F.X. Sillerman,
Executive Chairman and a member of the Office of the Chairman, Michael G.
Ferrel, Chief Executive Officer and a member of the Office of the Chairman,
Brian Becker, Executive Vice President and a member of the Office of the
Chairman, David Falk, a member of the Office of the Chairman, Howard J.
Tytel, Executive Vice President and Thomas P. Benson, Chief Financial
Officer. The Company has entered into employment agreements with each member of
its senior management team. See "Risk Factors--Company Specific
Risks--Control by Management" and "--Dependence on Key Personnel" and
"Management." The Company has also entered into long-term employment
agreements with many of the senior executives of the Acquired Businesses.
FORMATION OF THE COMPANY
The Company was formed as a wholly-owned subsidiary of SFX Broadcasting in
December 1997. SFX Broadcasting was formed in 1992 principally to acquire and
operate radio broadcasting stations. On May 29, 1998, SFX Broadcasting was
merged (the "SFX Merger") with and into an affiliate of Hicks, Muse Tate &
Furst Incorporated ("SFX Buyer") pursuant to a merger agreement (the "SFX
Merger Agreement") which was executed in August 1997. As a condition to the
SFX Merger and pursuant to the Distribution Agreement entered into among the
Company, SFX Broadcasting and SFX Buyer (the "Distribution Agreement"), SFX
Broadcasting contributed to the Company all of its assets relating to its
entertainment business and, on April 27, 1998, distributed the Company's
Class A Common Stock ("Class A Common Stock") and Class B Common Stock
("Class B Common Stock" and, together with the Class A Common Stock, the
"Common Stock") to certain stockholders of SFX Broadcasting on a pro rata
basis (the "Spin-Off"). The Spin-Off separated the entertainment business
from SFX Broadcasting's radio broadcasting business and enabled SFX Buyer to
acquire only SFX Broadcasting's radio broadcasting business in the SFX
Merger.
7
<PAGE>
In addition to the Distribution Agreement, the Company, SFX Broadcasting
and SFX Buyer also entered into a tax sharing agreement (the "Tax Sharing
Agreement") and an employee benefits agreement (the "Employee Benefits
Agreement"). Each of these agreements provides for certain indemnification
obligations by the Company and SFX Broadcasting. See "Risk Factors--Future
Contingent Payments" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital
Resources--Spin-Off."
RECENT ACQUISITIONS
In January 1997, the Company entered the live entertainment business with
the acquisition of Delsener/Slater. In March 1997, the Company acquired
certain entities which hold a 37-year lease to operate the Meadows Theater
("Meadows"), a 25,000-seat indoor/outdoor complex located in Hartford,
Connecticut. In June 1997, the Company 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 lease, the "1997 Acquisitions").
In January 1998, the Company acquired Westbury Music Fair ("Westbury") for
an aggregate consideration consisting of $3.0 million in cash and an
agreement to issue 75,019 shares of Class A Common Stock. In February and
March of 1998, the Company completed its acquisitions of PACE Entertainment
Corporation ("PACE"); Pavilion Partners ("Pavilion"); Contemporary Group
("Contemporary"); BG Presents, Inc. ("BGP"); Album Network, Inc., SJS
Entertainment Corporation and The Network 40 (collectively, "Network");
Concert/Southern Promotions ("Concert/Southern") and certain related entities
for an aggregate consideration consisting of approximately $442.1 million in
cash and 4.2 million shares of Class A Common Stock. In March 1998, the
Company acquired United Sports of America Motor Sports ("USA Motor Sports")
for a purchase price of approximately $4.0 million. In May and June 1998, the
Company completed its acquisitions of Falk Associates Management Enterprises,
Inc. and Financial Advisory Management Enterprises, Inc. (collectively,
"FAME"); Oakdale Concerts, LLC and Oakdale Development Limited Partnership
(collectively, "Oakdale"); and Irvine Meadows Amphitheater, New Avalon, Inc.,
TBA Media, Inc. and West Coast Amphitheater (collectively, "Avalon") for an
aggregate consideration consisting of approximately $134.5 million in cash
and 1.0 million shares of Class A Common Stock. The acquisitions of Westbury,
PACE, Pavilion, Contemporary, BGP, Network, Concert/Southern, USA Motor
Sports, FAME, Oakdale and Avalon are collectively referred to herein as the
"Recent Acquisitions." See "Business--Recent Acquisitions."
PENDING ACQUISITIONS
In April and May of 1998, the Company entered into agreements to acquire
the following live entertainment and talent representation businesses:
DON LAW
The Company has entered into an agreement to acquire certain assets of
Blackstone Entertainment, LLC ("Don Law"), a leading concert and theater
promoter in New England, for an aggregate consideration of approximately
$90.0 million (subject to adjustment under certain circumstances), including
the repayment of approximately $10.0 million in debt. The Company may, at its
option, pay up to $16.0 million of the purchase price in shares of Class A
Common Stock. Don Law currently owns and/or operates three venues in New
England with an aggregate seating capacity of 27,400. Don Law also acts as
the sole ticket operator for all of its own venues as well as several third
party venues. The Don Law acquisition will expand the Company's geographic
presence into the significant Boston market. The assets to be acquired from
Don Law will be subject, for two years following their acquisition, to a
right of first offer and refusal in favor of the Don Law seller.
8
<PAGE>
EMI
The Company has entered into an agreement to acquire an approximately 80%
interest in Event Merchandising, Inc. ("EMI"), a leading event merchandising
contractor in the United States, for approximately $8.5 million. In addition,
the Company is required to make a loan to the EMI sellers in an amount equal
to 20% of certain taxes incurred by the EMI sellers in connection with the
EMI acquisition. The Company expects that the amount of the loan will be
approximately $750,000. EMI has concession contracts for the sale of
merchandise with 26 amphitheaters, including 13 venues owned and/or operated
by the Company.
The acquisitions of Don Law and EMI are collectively referred to herein as
the "Pending Acquisitions." See "Business--Pending Acquisitions,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Pending Acquisitions" and "Agreements Related to the Pending
Acquisitions."
The Company intends to use a portion of the proceeds of the Equity
Offering (as defined) and $22.2 million in borrowing under the Credit
Facility to consummate the Pending Acquisitions. The Company expects to
consummate the Pending Acquisitions in June or July 1998. However, the timing
and completion of the Pending Acquisitions are subject to a number of
conditions, certain of which are beyond the Company's control, and there can
be no assurance that either of the Pending Acquisitions will be consummated
during such period, on the terms described herein or at all. The Company is
also currently in the process of negotiating certain additional acquisitions
of live entertainment and related businesses; however, it has not entered
into definitive agreements with respect to such acquisitions and there can be
no assurance that it will do so. See "Risk Factors--Risks Related to the
Pending Acquisitions" and "--Company Specific Risks--Expansion Strategy; Need
for Additional Funds" and "Agreements Related to the Pending Acquisitions."
FINANCINGS
In February 1998, the Company completed a $350.0 million private placement
of Notes (the "Notes") and borrowed $150.0 million under the term loan
portion of the Company's $300.0 million senior credit facility (the "Credit
Facility"). The proceeds from the offering of the Notes (the "Note Offering")
and the initial borrowings under the Credit Facility were used to consummate
certain of the Recent Acquisitions.
On May 27, 1998, the Company completed a public offering of 8,050,000
shares of Class A Common Stock (the "Equity Offering") and received net
proceeds therefrom of approximately $326.5 million. The Company has used a
portion of the proceeds, together with $22.2 million of expected borrowings
under the Credit Facility, to among other things, consummate certain of the
Recent Acquisitions and Pending Acquisitions and intends to use the remaining
proceeds to make an anticipated tax indemnity payment, to pay the cash
consideration of the Pending Acquisitions and to pay certain fees and expenses.
See "Risk Factors--Future Contingent Payments--Related to the Tax Indemnity
Payment," "--Risks Related to the Recent Acquisitions" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
RECENT DEVELOPMENTS
POTENTIAL ACQUISITION OF MARQUEE
The Company has indicated to The Marquee Group, Inc. ("Marquee"), a
publicly-traded company, its potential interest in acquiring Marquee. Marquee
provides integrated event management, television production, marketing and
consulting services in the sports, news and entertainment industries. In
addition, Marquee represents various entertainers, including athletes in team
sports, and books tours and appearances for a variety of entertainers. Mr.
Sillerman, the Executive Chairman of the Company, has an aggregate equity
interest of approximately 9.1% in Marquee and is the chairman of its board of
directors, and Mr. Tytel, a Director and Executive Vice President of the
Company, is one of its directors. The
9
<PAGE>
Company has been informed that Marquee has formed a committee of independent
directors to consider the proposal, as well as other strategic alternatives.
However, the Company has not entered into, and there can be no assurance that
the Company will enter into, any agreement, arrangement or understanding with
Marquee. See "Risk Factors--Company Specific Risks--Potential Conflicts of
Interest" and "--Expansion Strategy; Need for Additional Funds." In addition,
on May 5, 1998, a class action complaint was filed alleging that the proposed
acquisition of Marquee by the Company will be unfair to Marquee's
stockholders. See "Business--Litigation."
The address and telephone number of the Company's principal executive
offices are: 650 Madison Avenue, 16th Floor, New York, New York 10022; (212)
838-3100.
10
<PAGE>
THE NOTE OFFERING
THE NOTES ..................... The Notes were sold by the Company on
February 11, 1998 to Lehman Brothers, Inc.,
Goldman Sachs & Co., BNY Capital Markets and
ING Barings (collectively, the "Initial
Purchasers") pursuant to a Purchase
Agreement dated February 5, 1998 by and
among the Company, the Subsidiary
Guarantors, and the Initial Purchasers (the
"Purchase Agreement"). The Notes were
subsequently resold to qualified
institutional buyers pursuant to Rule 144A
under the Securities Act and to certain
persons in transactions outside the United
States in reliance on Regulation S under the
Securities Act.
REGISTRATION RIGHTS AGREEMENT . In connection with the Note Offering, the
Company entered into the Registration Rights
Agreement, which grants holders ("Holders")
of the Notes certain exchange and
registration rights. The Exchange Offer is
intended to satisfy such exchange and
registration rights, which generally
terminate upon the consummation of the
Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED ............ $350,000,000 aggregate principal amount of 9
1/8% Senior Subordinated Notes due February
1, 2008.
THE EXCHANGE OFFER ............ The Company is offering to exchange $1,000
principal amount of Exchange Notes for each
$1,000 principal amount of Notes that are
properly tendered and accepted. The issuance
of the Exchange Notes are intended to
satisfy certain obligations of the Company
contained in the Registration Rights
Agreement. Subject to certain conditions, a
Holder of the Notes who wishes to tender
must transmit a properly completed and duly
executed Letter of Transmittal to
ChaseMellon Shareholder Services, L.L.C.
(the "Exchange Agent") on or prior to the
Expiration Date. For procedures for
tendering, see "The Exchange Offer."
Based upon no-action letters issued by the
staff of the Commission to third parties,
the Company believes that the Exchange Notes
issued pursuant to the Exchange Offer in
exchange for Notes may be offered for
resale, resold and otherwise transferred by
a holder thereof (other than any holder
which is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act or a holder that is a
broker-dealer who acquires Exchange Notes to
resell pursuant to Rule 144A or any other
available exemption under the Securities
Act), without compliance with the
registration and prospectus delivery
provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holders' business
and such holder is not participating, does
not intend to participate, and has no
arrangement with any person to participate
in the distribution of such Exchange Notes.
However, the Commission has not considered
the Exchange Offer in the context of a
no-action request and there can be no
assurance that the staff of the Commission
would make a similar determination with
respect to the Exchange Offer as in such
other circumstances. Holders of Notes
wishing to accept the Exchange Offer must
11
<PAGE>
represent to the Company that such
conditions have been met. Each broker-dealer
that receives Exchange Notes for its own
account pursuant to the Exchange Offer where
it acquired the Notes exchanged for such
Exchange Notes for its own account as a
result of market-making or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with the
resale of such Exchange Notes.
REGISTRATION RIGHTS AGREEMENT;
TENDERS ...................... The Company, the Subsidiary Guarantors and
the Initial Purchasers entered into a
Registration Rights Agreement, dated as of
February 11, 1998, which grants the holders
of the Notes certain exchange and
registration rights (the "Registration
Rights Agreement"). See "The Exchange
Offer." This Exchange Offer is intended to
satisfy such rights, which terminate upon
the consummation of the Exchange Offer. The
holders of the Exchange Notes are not
entitled to any exchange or registration
rights with respect to the Exchange Notes.
The Notes are subject to the payment of
liquidated damages ("Liquidated Damages")
under certain circumstances if the Company
and the Subsidiary Guarantors are not in
compliance with their obligations under the
Registration Rights Agreement. See
"Description of Notes--Registration Rights;
Liquidated Damages."
EXPIRATION DATE; WITHDRAWAL ... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on July 9, 1998 (the
"Expiration Date") unless extended. The
tender of Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to
the Expiration Date by sending a written
notice of withdrawal to the Exchange Agent.
Any Notes so withdrawn will be deemed not to
have been validly tendered for exchange for
purposes of the Exchange Offer. Any shares
of Notes not accepted for exchange for any
reason will be returned without expense to
the tendering holder thereof as promptly as
practicable after the expiration or
termination of the Exchange Offer. See "The
Exchange Offer."
CERTAIN CONDITIONS TO THE
EXCHANGE OFFER ................ The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. See "The Exchange
Offer--Certain Conditions to the Exchange
Offer."
FEDERAL INCOME TAX
CONSEQUENCES .................. For Federal income tax purposes, the
exchange pursuant to the Exchange Offer
should not result in any income, gain or
loss to the holders or the Company. See
"Certain Federal Income Tax Considerations
of the Exchange Offer and an Investment in
the Exchange Notes."
USE OF PROCEEDS ............... There will be no proceeds to the Company
from the issuance of Exchange Notes pursuant
to the Exchange Offer.
EXCHANGE AND INFORMATION
AGENTS ........................ ChaseMellon Shareholder Services, L.L.C. is
serving as Exchange Agent in connection with
the Exchange Offer. Georgeson & Company Inc.
is serving as Information Agent in
connection with the Exchange Offer.
12
<PAGE>
THE EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and
terms of the Notes except that (i) the exchange will have been registered
under the Securities Act and therefore the Exchange Notes will not bear
legends restricting the transfer thereof and (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Notes under
the Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer. The Exchange Notes will evidence the same
debt as the Notes (which they replace) and will be entitled to the benefits
of the Indenture governing the Notes and the Exchange Notes. See "Description
of Exchange Notes" for further information and for definitions of certain
capitalized terms used below.
In the Exchange Offer, the Holders of Notes will receive Exchange Notes
with the same interest rate. The Exchange Notes issued in exchange for Notes
will accrue interest from February 11, 1998, the date of the issuance of the
Notes (the "Issue Date"). Holders whose Notes are accepted for exchange will
be deemed to have waived the right to receive any interest accrued on the
Notes.
MATURITY DATE ................. February 1, 2008
INTEREST PAYMENT DATES ........ Interest on the Exchange Notes is payable
semi-annually on each February 1 and
August 1, commencing August 1, 1998.
RANKING ....................... The Exchange Notes are general unsecured
obligations of the Company and are
subordinated in right of payment to all
existing and future Senior Debt of the
Company. The Exchange Notes rank pari passu
with any future senior subordinated
indebtedness of the Company and rank senior
to all other subordinated indebtedness of
the Company. As of March 31, 1998, on a pro
forma basis after giving effect to the
Recent Acquisitions, the Pending
Acquisitions, the Financing and the
application of the net proceeds from the
Financing, the Spin-Off and the SFX Merger,
the Company would have had $565.2 million of
indebtedness outstanding, of which $215.2
million would have been Senior Debt
(excluding letters of credit).
OPTIONAL REDEMPTION ........... The Exchange Notes are redeemable, in whole
or in part, at the option of the Company on
or after February 1, 2003, at the redemption
prices set forth herein plus accrued and
unpaid interest to the date of redemption.
In addition, until February 1, 2001, the
Company may, on any one or more occasions,
redeem up to $122.5 million (equal to 35% of
the aggregate principal amount of Notes
originally issued) of the Notes and the
Exchange Notes at the redemption price set
forth herein plus accrued and unpaid
interest and Liquidated Damages, if any,
thereon to the redemption date, with the net
proceeds of an offering of common equity;
provided that at least an aggregate of
$227.5 million (equal to 65% of the
principal amount of Notes originally issued)
of the Notes and the Exchange Notes must
remain outstanding immediately after the
occurrence of each such redemption; and
provided, further, that any such redemption
shall occur within 75 days of the date of
closing of such offering of common equity of
the Company.
13
<PAGE>
CHANGE OF CONTROL ............. Upon a Change of Control, each holder has
the right to require the Company to
repurchase such holder's Exchange Notes at a
price equal to 101% of the principal amount
thereof plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of
the purchase.
SUBSIDIARY GUARANTEES ......... The Company's payment obligations under the
Exchange Notes are jointly and severally
guaranteed on a senior subordinated basis
(the "Subsidiary Guarantees") by the current
and future domestic Restricted Subsidiaries
(as defined) of the Company, except for the
Non-Guarantor Subsidiaries. See "Description
of Exchange Notes--Subsidiary Guarantees."
CERTAIN COVENANTS ............. The Indenture governing the Exchange Notes
contains certain covenants that limit the
ability of the Company and certain of its
subsidiaries to, among other things, incur
additional indebtedness, pay dividends or
make certain other restricted payments,
consummate certain asset sales, enter into
certain transactions with affiliates, incur
indebtedness that is subordinate in right of
payment to any Senior Debt and senior in
right of payment to the Exchange Notes,
incur liens, impose restrictions on the
ability of a subsidiary to pay dividends or
make certain payments to the Company and its
subsidiaries, merge or consolidate with any
other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or
substantially all of the assets of the
Company.
REGISTRATION OF NOTES
REGISTRATION .................. If any Holder of Transfer Restricted
Securities (as defined in the Registration
Rights Agreement) notifies the Company on or
prior to the 20th Business Day following
consummation of the Exchange Offer that it
(A) is prohibited by law or Commission
policy from participating in the Exchange
Offer or (B) may not resell the Exchange
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 or (C) is a broker-dealer and owns
Notes acquired directly from the Company or
an affiliate of the Company, the Company and
the Guarantors will use their best efforts
to file with the Commission a shelf
registration statement (the "Shelf
Registration Statement") to cover resales of
the Notes by the Holders thereof who satisfy
certain conditions relating to the provision
of information in connection with the Shelf
Registration Statement. Notwithstanding the
foregoing, at any time after Consummation
(as defined in the Registration Rights
Agreement) of the Exchange Offer, the
Company and the Guarantors may allow the
Shelf Registration Statement to cease to be
effective and usable if (i) the Board of
Directors of the Company determines in good
faith that such action is in the best
interests of the Company, and the Company
notifies the Holders within a certain period
of time
14
<PAGE>
after the Board of Directors makes such
determination or (ii) the prospectus
contained in the Shelf Registration
Statement or the Shelf Registration
Statement contains an untrue statement of a
material fact required to be stated therein
or omits to state a material fact necessary
in order to make the statements therein, in
light of the circumstances under which they
were made, not misleading.
If (a) any Registration Statement required
by the Registration Rights Agreement to be
filed with the Commission is not filed on or
prior to the applicable filing deadline, (b)
any such Registration Statement has been
declared effective by the Commission on or
prior to the applicable effectiveness
deadline (the "Effectiveness Target Date"),
(c) the Exchange Offer has not been
consummated within 30 Business Days after
the Registration Statement has first been
declared effective by the Commission or (d)
any Registration Statement required by the
Registration Rights Agreement is filed and
declared effective but thereafter ceases to
be effective or fails 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 (a) through (d) above a
"Registration Default"), then, the Company
will pay Liquidated Damages to each Holder
of Transfer Restricted Securities (as
defined in the Registration Rights
Agreement), with respect to the first 90-day
period immediately following the occurrence
of such Registration Default in an amount
equal to $0.05 per week or portion thereof
per $1,000 in principal amount of Notes
constituting Transfer Restricted Securities
held by such Holder. The amount of the
Liquidated Damages will increase by an
additional $0.05 per week or portion thereof
per $1,000 in principal amount of Notes
constituting 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 $0.50 per week per
$1,000 in principal amount of Notes
constituting Transfer Restricted Securities.
All accrued Liquidated Damages will be paid
by the Company in cash on each Interest
Payment Date, as more fully described in the
Indenture. Following the cure of all
Registration Defaults, the accrual of
Liquidated Damages will cease. See
"Description of the Exchange
Notes--Registration Rights; Liquidated
Damages."
FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE EXCHANGE NOTES, SEE "RISK FACTORS."
15
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share amounts)
The Summary Consolidated Financial Data of the Company includes the
historical financial statements of Delsener/Slater and affiliated companies,
the predecessor of the Company, for each of the four years ended December 31,
1996 and the historical financial statements of the Company for the year
ended December 31, 1997 and the three months ended March 31, 1997 and 1998.
The statement of operations data with respect to Delsener/Slater for the year
ended December 31, 1993 and the balance sheet data as of December 31, 1993
and 1994 are 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 the Company, the
1997 Acquisitions, the Recent Acquisitions and the Pending Acquisitions
included herein. The financial information has been derived from the audited
and unaudited financial statements of the Company, the 1997 Acquisitions, the
Recent Acquisitions and the Pending Acquisitions. The 1997 Acquisitions, the
Recent Acquisitions, the Note Offering and the $150.0 million in initial
borrowings under the Credit Facility used to fund certain of the Recent
Acquisitions and certain obligations related to the Spin-Off and the SFX
Merger are collectively referred to herein as the "Transactions." The pro
forma summary data for the year ended December 31, 1997, the three months
ended March 31, 1998 and the twelve months ended March 31, 1998 have been
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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
PREDECESSOR
-----------------------------------------
1997
PRO FORMA
FOR THE
TRANSACTIONS,
THE PENDING
ACQUISITIONS
AND THE
FINANCING
1993 1994 1995 1996 1997 (UNAUDITED)
--------- --------- --------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue................ $46,526 $92,785 $47,566 $50,362 $ 96,144 $779,014
Operating expenses .... 45,635 90,598 47,178 50,686 83,417 688,430
Depreciation &
amortization.......... 762 755 750 747 5,431 56,681
Corporate expenses
(1)................... -- -- -- -- 2,206 5,206
------- ------- ------- ------- -------- --------
Operating income
(loss)................ $ 129 $ 1,432 $ (362) $(1,071) $ 5,090 $ 28,697
Interest expense....... (148) (144) (144) (60) (1,590) (49,098)
Other income
(expense)............. 85 138 178 198 295 1,226
Equity income (loss)
from investments ..... -- (9) 488 524 509 5,347
------- ------- ------- ------- -------- --------
Income (loss) before
income taxes.......... $ 66 $ 1,417 $ 160 $ (409) $ 4,304 $(13,828)
Income tax provision . (57) (5) (13) (106) (490) (4,200)
------- ------- ------- ------- -------- --------
Net income (loss)...... $ 9 $ 1,412 $ 147 $ (515) $ 3,814 $(18,028)
======= ======= ======= ======= ======== ========
Accretion on
temporary
equity--stock subject
to redemption (2)..... (3,300)
Net loss applicable to
common shares ........ $(21,328)
Net loss per common
share (3)............. $ (0.72)
Weighted average
common shares
outstanding (3)(4) ... 30,286
OTHER OPERATING DATA:
EBITDA (5)............. $ 891 $ 2,187 $ 388 $ (324) $ 10,521 $ 85,378
======= ======= ======= ======= ======== ========
Cash flow from:
Operating activities . $ 2,959 $ (453) $ 4,214 $ 1,005
Investing activities . -- -- (435) (73,296)
Financing activities . (477) (216) (1,431) 78,270
Ratio of earnings to
fixed charges (7) ... 1.2x 4.6x 1.4x -- 2.5x --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDED
THREE MONTHS ENDED MARCH 31, MARCH 31,
--------------------------------------- ---------------
1998 1998
PRO FORMA PRO FORMA
FOR THE FOR THE
TRANSACTIONS, TRANSACTIONS,
THE PENDING THE PENDING
ACQUISITIONS ACQUISITIONS
AND THE AND THE
1997 1998 FINANCING FINANCING
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue................ $ 7,789 $60,994 $187,345 $827,916
Operating expenses .... 7,738 58,175 172,422 729,485
Depreciation &
amortization.......... 660 4,428 14,171 56,681
Corporate expenses
(1)................... 858 1,314 1,617 5,565
-------- --------- -------- --------
Operating income
(loss)................ $ (1,467) $(2,923) $ (865) $ 36,185
Interest expense....... (103) (6,748) (12,274) (49,098)
Other income
(expense)............. 26 815 1,135 1,249
Equity income (loss)
from investments ..... -- 445 77 6,362
-------- --------- -------- --------
Income (loss) before
income taxes.......... $ (1,544) $ (8,411) $(11,927) $ (5,302)
Income tax provision . -- (500) (650) (3,000)
-------- --------- -------- --------
Net income (loss)...... $ (1,544) $ (8,911) $(12,577) $ (8,302)
======== ========= ======== ========
Accretion on
temporary
equity--stock subject
to redemption (2)..... (275) (825) (3,300)
Net loss applicable to
common shares ........ $ (9,186) $(13,402) $(11,602)
Net loss per common
share (3)............. $ (0.45) $ (0.39)
Weighted average
common shares
outstanding (3)(4) ... 30,286 30,286
OTHER OPERATING DATA:
EBITDA (5)............. $ (807) $ 1,505 $ 13,306 $ 92,866
======== ========= ======== ========
Cash flow from:
Operating activities . $ 307 $ 9,140
Investing activities . (22,612) (379,782)
Financing activities . 24,927 458,654
Ratio of earnings to
fixed charges (7) ... -- -- -- 1.02x
</TABLE>
16
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1998
---------------------------------------------- ------------------------------
PRO FORMA
FOR THE
RECENT
ACQUISITIONS,
THE SPIN-OFF, THE
SFX MERGER,
THE FINANCING AND
PREDECESSOR THE PENDING
------------------------------------ ACTUAL ACQUISITIONS
1993 1994 1995 1996 1997 (UNAUDITED) (UNAUDITED)
-------- -------- -------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................. $1,823 $4,453 $3,022 $6,191 $ 11,220 $149,375 $ 170,449
Property and equipment, net ... 4,484 3,728 2,978 2,231 59,685 196,732 243,824
Intangible assets, net......... -- -- -- -- 60,306 470,721 699,430
Total assets................... 6,420 8,222 6,037 8,879 146,942 858,426 1,165,627
Current liabilities............ 4,356 3,423 3,138 7,973 21,514 260,165 142,581
Long-term debt, including
current portion............... -- 1,830 -- -- 16,178 543,003 565,180
Temporary equity--stock
subject to redemption (2) .... -- -- -- -- -- 16,500 16,500
Shareholders' equity
(deficit)..................... 6,420 2,969 2,900 907 102,144 (5,046) 377,721(6)
</TABLE>
- ------------
(1) Corporate expenses are reduced by $1,794,000 and $1,286,000 for fees
earned from Triathlon Broadcasting Company ("Triathlon") for the year
ended December 31, 1997 and for the twelve months ended March 31, 1998,
respectively. The right to receive fees payable under the agreement
with Triathlon was assigned to the Company by SFX Broadcasting 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. 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. See "Certain Relationships and Related
Transactions--Triathlon Fees."
(2) 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 the Company to
purchase up to one-third of the 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.
See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations--Liquidity and Capital Resources."
(3) Includes 500,000 shares of Class A Common Stock 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.
(4) Reflects (i) the issuance of 8,050,000 shares of Class A Common Stock
in connection with the Equity Offering, (ii) the issuance of 1,000,000
shares of Class A Common Stock in connection with the FAME acquisition
and (iii) the expected issuance of 531,782 shares of Class A Common
Stock in connection with the Don Law acquisition.
(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"), the Company 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 the Company's operating performance or liquidity which
is calculated in accordance with GAAP.
There are other adjustments that could affect EBITDA but have not been
reflected herein ("Adjusted EBITDA"). Had such adjustments been made,
Adjusted EBITDA on a pro forma basis would have been approximately
$96,465,000 for the year ended December 31, 1997 and $104,883,000 for
the twelve months ended March 31, 1998, an increase of $8,418,000. The
adjustments include the expected cost savings in connection with the
Recent Acquisitions associated with the elimination of duplicative
staffing and general and administrative expenses of $5,740,000 and
$5,655,000, and include equity income from investments of $5,347,000
and $6,362,000, for the year ended December 31, 1997 and the twelve
months ended March 31, 1998, respectively. While management believes
that such cost savings are achievable, the Company's ability to fully
achieve such cost savings is subject to numerous factors, certain of
which may be beyond the Company's control.
(6) Stockholders' equity on a pro forma basis 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 the Company or certain other costs. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources--Future Charges to Earnings."
(7) 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, $8,481,000 for the year ended December 31,
1997 Pro Forma for the Transactions, the Recent Acquisitions and the
Financing, $1,544,000 for the three months ended March 31, 1997,
$7,966,000 for the three months ended March 31, 1998 and $11,850,000
for the three months ended March 31, 1998 Pro Forma for the
Transactions, the Recent Acquisitions and the Financing.
17
<PAGE>
RISK FACTORS
Holders of Notes should carefully consider and evaluate the following risk
factors together with the other information set forth in this Prospectus
before making an investment in the Exchange Notes.
Certain statements, estimates, predictions and projections contained in
this Prospectus under "Summary," "Risk Factors," "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" 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. 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 the Company'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 the Company'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, are discussed below as well as
elsewhere in this Prospectus. Holders of Notes are urged to carefully
consider these factors in connection with the forward-looking statements. The
Company 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.
RISKS RELATING TO THE EXCHANGE NOTES
Consequences of Failure to Exchange
The Exchange Notes will be issued in exchange for Notes only after timely
receipt by the Exchange Agent of such Notes, a properly completed and duly
executed Letter of Transmittal and all other required documents. Therefore,
holders of Notes desiring to tender such Notes in exchange for Exchange Notes
should allow sufficient time to ensure timely delivery. Neither the Exchange
Agent nor the Company is under any duty to give notification of defects or
irregularities with respect to tenders of Notes for exchange. Holders of
Notes who do not exchange their Notes for Exchange Notes pursuant to the
Exchange Offer will continue to be subject to the restrictions on transfer of
such Notes as set forth in the legend thereon as a consequence of the
issuance of the Notes pursuant to exemption from, or in transactions not
subject to, the registration requirements of the Securities Act and
applicable state securities laws. In general, the Notes may not be offered or
sold, unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. In addition, any holder of Notes who
tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Notes, where such Notes
were acquired by such broker-dealer as a result of market-making activities
or any other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution," "Description of Exchange Notes--Registration Rights;
Liquidated Damages" and "The Exchange Offer--Consequences of Failure to
Exchange."
Absence of Public Market
The Exchange Notes are being offered to the holders of the Notes. The
Notes were resold by the Initial Purchasers in February 1998 to qualified
institutional buyers as defined in Rule 144A of the Securities Act and
pursuant to Regulation S of the Securities Act and are trading in the Private
Offering, Resale and Trading through Automated Linkages (PORTAL) Market, the
National Association of Securities Dealers' screen-based, automated market
for trading of securities eligible for resale under Rule 144A. The Exchange
Notes are new securities for which there currently is no market. Although
certain of the Initial Purchasers have made a market in the Notes, they are
not obligated to make a market in the Exchange Notes, and if they do so, may
discontinue such market making at any time without notice. The
18
<PAGE>
Company does not currently intend to list the Exchange Notes on a national
securities exchange or to seek the admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System.
Accordingly, no assurance can be given that an active market will develop for
any of the Exchange Notes or as to the liquidity of the trading market for
any of the Exchange Notes. If a market for the Exchange Notes develops, any
such market may be discontinued at any time. If a trading market does not
develop or is not maintained, holders of the Exchange Notes may experience
difficulty in reselling such Exchange Notes or may be unable to sell them at
all. If a trading market develops for the Exchange Notes, future trading
prices of such Exchange Notes will depend on many factors, including, among
other things, prevailing interest rates, the Company's results of operations
and the market for similar securities. Depending on prevailing interest
rates, the market for similar securities and other factors, including the
financial condition of the Company, the Exchange Notes may trade at a
discount from their principal amount. In addition, to the extent that Notes
are tendered and accepted in the Exchange Offer, the trading market for the
untendered and tendered but unaccepted Notes could be adversely affected.
Restrictions on Transfer
The Notes were offered and sold by the Company in a private offering
exempt from registration pursuant to the Securities Act and have been resold
pursuant to Rule 144A and Regulation S under the Securities Act. As a result,
the Notes may not be reoffered or resold by purchasers except pursuant to an
effective registration statement under the Securities Act, or pursuant to an
applicable exemption from such registration, and the Notes are legended to
restrict transfer as aforesaid. Each Holder (other than any Holder who is an
affiliate or promoter of the Company) who duly exchanges Notes for Exchange
Notes in the Exchange Offer will receive Exchange Notes that are freely
transferable under the Securities Act. Holders of Notes who participate in
the Exchange Offer should be aware, however, that if they accept the Exchange
Offer for the purpose of engaging in a distribution, the Exchange Notes may
not be publicly reoffered or resold without complying with the registration
and prospectus delivery requirements of the Securities Act. As a result, each
Holder of Notes accepting the Exchange Offer will be deemed to have
represented, by its acceptance of the Exchange Offer, that it acquired the
Exchange Notes in the ordinary course of business and that it is not engaged
in, and does not intend to engage in, a distribution of the Exchange Notes.
If existing Commission interpretations permitting free transferability of the
Exchange Notes following the Exchange Offer are changed prior to consummation
of the Exchange Offer, the Company will use its best efforts to register the
Notes for resale under the Securities Act. See "Prospectus Summary--The
Exchange Offer" and "Description of Exchange Notes--Registration Rights;
Liquidated Damages."
Ranking
The Exchange Notes will be subordinated in right of payment to all current
and future Senior Debt of the Company and the Guarantors. However, the
Indenture provides that the Company will not, and will not permit any of the
Guarantors to, incur or otherwise become liable for 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, Exchange Notes or any of the
Subsidiary Guarantees. 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, the holders of Senior Debt are entitled to be paid in full in cash
or Cash Equivalents (as defined) before any payment may be made with respect
to the Exchange Notes. In addition, the subordination provisions of the
Indenture provide that payments with respect to the Exchange Notes will be
blocked in the event of a payment default on Designated Senior Debt (as
defined) and may be blocked for up to 179 days each year in the event of
certain non-payment defaults on Designated Senior Debt. In the event of a
bankruptcy, liquidation or reorganization of the Company, holders of the
Exchange Notes will participate ratably with all holders of subordinated
indebtedness of the Company that is deemed to be of the same class as the
Exchange Notes, and potentially with all other general creditors of the
Company, based upon the respective amounts owed to each holder or creditor,
in the remaining assets of the Company. In any of the foregoing events, there
can be no assurance that there would be sufficient assets to pay amounts due
on
19
<PAGE>
the Exchange Notes. As a result, holders of Exchange Notes may receive less,
ratably, than the holders of Senior Debt. See "Description of the Exchange
Notes--Subordination."
The Company's obligations under the Exchange Notes will be subordinate and
junior in right of payment to all existing and future Senior Debt of the
Company. As of March 31, 1998, on a pro forma basis giving effect to the
Financing, the Recent Acquisitions, the Pending Acquisitions, the Spin-Off
and the SFX Merger, the Company's consolidated indebtedness would have been
approximately $565.2 million, of which approximately $215.2 million would
have been Senior Debt, including approximately $172.2 million of borrowings
under the Credit Facility. The Indenture permits the incurrence of
substantial additional indebtedness, including Senior Debt, by the Company
and its subsidiaries in the future. See "Description of the Exchange Notes."
The Exchange Notes will not be guaranteed by certain of the Company's
Subsidiaries (the "Non-Guarantor Subsidiaries"). For the 12-month period
ended March 31, 1998, on a pro forma basis giving effect to the Recent
Acquisitions, Pending Acquisitions, Spin-Off and SFX Merger, the
Non-Guarantor Subsidiaries accounted for 2.9%, 4.9% and 1.5% of the Company's
revenues, EBITDA and assets, respectively, on a consolidated basis. The
Subsidiary Guarantees will be subordinated to the guarantees of Senior Debt
issued by the Guarantors under the Credit Facility. See "Description of the
Exchange Notes--Subsidiary Guarantees." The claims of creditors (including
trade creditors) of any Non-Guarantor Subsidiary will generally have priority
as to the assets of such subsidiaries over the claims of the holders of the
Exchange Notes. On a pro forma basis, as of March 31, 1998, giving effect to
the Financing, the Recent Acquisitions, the Pending Acquisitions, the
Spin-Off and the SFX Merger, the amount of liabilities of the Non-Guarantor
Subsidiaries would have been approximately $16.7 million.
Holding Company; Dependence on Subsidiaries
The Company is a holding company with no significant assets other than the
stock of its subsidiaries. In order to meet its financial needs, the Company
will rely exclusively on repayments of interest and principal on intercompany
loans made by the Company to its operating subsidiaries and income from
dividends and other cash flows from such subsidiaries. There can be no
assurance that the operating subsidiaries of the Company will generate
sufficient net income to pay upstream dividends or cash flow to make payments
of interest and principal to the Company in respect of its intercompany
loans.
RISKS RELATED TO THE COMPANY'S INDEBTEDNESS
Substantial Leverage
The Company is a highly leveraged company. As of March 31, 1998, on a pro
forma basis giving effect to the Recent Acquisitions, Pending Acquisitions,
Financing, Spin-Off and SFX Merger, the Company's consolidated indebtedness
would have been approximately $565.2 million (of which $350.0 million would
have consisted of the Notes, and the balance would have consisted of
approximately $172.2 million in debt under the Credit Facility and $43.0
million in other debt), its temporary equity--stock subject to redemption
would have been approximately $16.5 million, and its stockholders' equity
would have been approximately $377.7 million. See "Unaudited Pro Forma
Condensed Combined Financial Statements." On a pro forma basis giving effect
to the Recent Acquisitions, the Pending Acquisitions, the Financing, the
Spin-Off and the SFX Merger the Company's ratio of total debt to total
capitalization as of March 31, 1998 would have been approximately 0.6 to 1.0.
The Company's earnings were insufficient to cover fixed charges by $8.0
million for the three months ended March 31, 1998. On a pro forma basis, the
Company's earnings to fixed charges ratio for the twelve months ended
March 31, 1998 was 1.02 to 1.
In addition, certain of the agreements relating to the Recent Acquisitions
and 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--Recent Acquisitions" and "--Pending Acquisitions." The Company
may also incur substantial additional indebtedness from time to time to
finance future acquisitions, for capital expenditures or for other purposes.
See "--Future Contingent Payments," "Capitalization" and "Unaudited Pro Forma
Condensed Combined Financial Statements."
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The Company's ability to make scheduled payments of principal, to pay
interest, to pay Liquidated Damages, if any, on or to refinance its
indebtedness (including the Notes and the Exchange Notes), 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 Acquired Businesses and the businesses to be acquired in the
Pending Acquisitions and their integration into the Company's operations.
There can be no assurance that the Company will be able to make planned
borrowings (including under the Credit Facility), that the Company's business
will generate sufficient cash flow from operations, or that future borrowings
will be available in an amount to enable the Company to service its debt
(including the Notes and the Exchange Notes) and to make necessary capital or
other expenditures. The Company may be required to refinance a portion of the
principal amount of its indebtedness prior to its respective maturity. There
can be no assurance that the Company will be able to raise additional capital
through the sale of securities, the disposition of assets or otherwise for
any refinancing. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
The degree to which the Company is and will be leveraged could have
material consequences to the holders of Notes and Exchange Notes, including,
but not limited to, (a) making it more difficult for the Company to satisfy
its obligations with respect to the Notes and Exchange Notes, (b) increasing
the Company's vulnerability to general adverse economic and industry
conditions, (c) limiting the Company's ability to obtain additional financing
to fund future acquisitions, working capital, capital expenditures and other
general corporate requirements, (d) requiring the dedication of a substantial
portion of the Company'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, (e) limiting the Company's flexibility
in planning for, or reacting to, changes in its business and the industry and
(f) placing the Company at a competitive disadvantage to less leveraged
competitors. In addition, the indenture relating to the Notes (the
"Indenture") and the Credit Facility contain, financial and other restrictive
covenants that limit the ability of the Company to, among other things,
borrow additional funds. Failure by the Company 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 the Company's business, financial
condition and results of operations. The indebtedness incurred under the
Credit Facility is secured by a pledge of the stock of the Company's
subsidiaries and by liens on substantially all of its and its subsidiaries'
tangible assets. In addition, the Notes and borrowings under the Credit
Facility are guaranteed by substantially all the Company's subsidiaries. See
"--Restrictions Imposed by the Company's Indebtedness," "Description of the
Credit Facility and Other Indebtedness" and "Description of the Exchange
Notes--Repurchase at Option of Holder--Change of Control."
Restrictions Imposed by the Company's Indebtedness
Pursuant to the terms of the Credit Facility, a "Change of Control" will
be deemed to occur if, among other things, Mr. Sillerman beneficially owns less
than 30% of the combined voting power of the outstanding Common Stock. Upon
consummation of the Pending Acquisitions, Mr. Sillerman will beneficially own
approximately 37.9% of the combined voting power of the Company. In addition,
pursuant to the terms of the Indenture, a change of control will be deemed to
occur if any party, other than Mr. Sillerman, becomes the beneficial owner of
more than 35% of the combined voting power of the outstanding Common Stock. In
the event of a "Change of Control" under the Credit Facility, the Company will
be required to repay all amounts outstanding under the Credit Facility, and, in
the event of a "Change of Control" under the Indenture, the Company will be
required to offer to repurchase the outstanding Notes and Exchange Notes.
The Indenture and the Credit Facility also contain a number of significant
covenants that, among other things, restrict the ability of the Company 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 the
Company's ability to finance its future operations or capital needs or to
engage in other business activities that may be in the interest of the
Company. In addition, the Indenture and the Credit Facility
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require the Company 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. The Company's ability to comply with these ratios
and limits may be affected by events beyond its control. A breach of any of
the covenants contained in the Credit Facility or the inability of the
Company to comply with the required financial ratios or limits could result
in an event of default under the Credit Facility. Such an event of default
could permit the lenders thereunder to declare all borrowings outstanding to
be due and payable, to require the Company to apply all of its available cash
to repay its borrowings or to prevent the Company from making debt service
payments on certain portions of its outstanding indebtedness including the
Notes and Exchange Notes. If the Company were unable to repay any borrowings
when due, the lenders could proceed against their collateral. The Credit
Facility requires the Company and its subsidiaries to grant the lenders
thereunder a continuing security interest in substantially all of their
assets and in the capital stock of the Subsidiary Guarantors. If the
Company's indebtedness were to be accelerated, there can be no assurance that
the assets of the Company would be sufficient to repay its indebtedness in
full. See "Description of Credit Facility and Other Indebtedness."
There can be no assurance that the Company will be able to obtain a waiver
of these provisions or that sufficient funds will be available at the time of
any Change of Control to refinance its indebtedness. The failure to either
obtain waivers or refinance its indebtedness would result in a material
adverse effect to the Company's business, results of operations and financial
condition. See "--Substantial Leverage," "Principal Stockholders" and
"Description of Credit Facility and Other Indebtedness."
Fraudulent Conveyance
The Board of Directors of SFX Broadcasting determined that at the time of
the Spin-Off and after giving effect thereto, SFX Broadcasting was solvent.
There can be no assurance, however that a court would find the facts relied
on and the judgments made by the Board of Directors of SFX Broadcasting in
determining that SFX Broadcasting was solvent at the time of, and after
giving effect to, the Spin-Off would be binding on creditors of SFX
Broadcasting or that a court would reach the same conclusions as the Board of
Directors of SFX Broadcasting. 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 was consummated or
after giving effect thereto, SFX Broadcasting (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 Broadcasting 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 require the Company to fund certain liabilities of SFX Broadcasting for
the benefit of SFX Broadcasting's creditors. If the assets of the Company
were recovered as fraudulent transfers by a creditor or trustee of SFX
Broadcasting, the relative priority of right to payment between any financing
and any fraudulent transfer claimant would be unclear, and the Company could
be rendered insolvent. In addition, 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 Broadcasting's
surplus. The Company incurred indebtedness to finance the Recent Acquisitions
and the Pending Acquisitions, to refinance certain indebtedness of the
Company and the Recent Acquisitions, to pay related fees and expenses, and
for general corporate purposes. Management believes that the indebtedness of
the Company incurred in financing the Recent Acquisitions and the Pending
Acquisitions was for proper purposes and in good faith, and that, based on
present forecasts and other financial information, the Company is solvent,
has sufficient capital for carrying on its business and will be able to pay
its debts as they mature.
The Company believes that (a) SFX Broadcasting and the Company were
solvent at the time of the Spin-Off, (b) the Company was solvent at the time
of the financing for the Recent Acquisitions and (c) the Spin-Off was made
entirely out of SFX Broadcasting surplus in accordance with applicable law.
However, the Company cannot predict what standard a court might apply in
evaluating these matters, and it is possible that the court would disagree
with the Company's conclusions.
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The Notes were issued to finance the cash consideration to be paid in
certain of the Recent Acquisitions, to repay debt in connection with certain
of the Recent Acquisitions, to pay certain related fees and expenses, to fund
certain planned capital expenditures during 1998, to make certain other
payments and for general corporate purposes. Management believes that the
indebtedness of the Company and the Guarantors represented by the Credit
Facility and the Notes was incurred for proper purposes and in good faith,
and that after the consummation of the Spin-Off and the Recent Acquisitions,
the Company and the Guarantors were solvent, did have sufficient capital for
carrying on their respective businesses and was able to pay their respective
debts as they mature. Notwithstanding management's belief, however, under
federal and state fraudulent transfer laws, if a court of competent
jurisdiction in a suit by an unpaid creditor or a representative of creditors
(such as a trustee in bankruptcy or a debtor-in-possession) were to find
that, at the time of the incurrence of such indebtedness, the Company were
insolvent, were rendered insolvent by reason of such incurrence, were engaged
in a business or transaction for which its remaining assets constituted
unreasonably small capital, intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they matured, or
intended to hinder, delay or defraud its creditors, and that the indebtedness
was incurred for less than reasonably equivalent value, then such court
could, among other things, (i) void all or a portion of the Company's or the
Guarantors' obligations to the Holders of the Notes or Exchange Notes, the
effect of which would be that the Holders of the Notes or Exchange Notes
might not be paid in full and/or (ii) subordinate the Company's or the
Guarantors' obligations to the Holders of the Notes or Exchange Notes to
other existing and future indebtedness of the Company and the Guarantors to a
greater extent than would otherwise be the case, the effect of which would be
to entitle such other creditors to which the Notes or Exchange Notes were not
previously subordinated to be paid in full before any payment could be made
on the Notes or Exchange Notes. See "--Substantial Leverage."
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding with respect to
the foregoing. Generally, however, the Company or a Guarantor would be
considered insolvent if (i) the sum of its debts, including contingent
liabilities, were greater than the saleable value of all of its assets at a
fair valuation or if the present fair saleable value of its assets were less
than the amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute and
mature or (ii) it could not pay its debts as they become due.
Potential Inability to Fund a Change of Control Offer
Upon a Change of Control, as defined in the Indenture, the Company will be
required to offer to repurchase all outstanding Notes and Exchange Notes at
101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of repurchase. However, there can be no assurance that
sufficient funds will be available at the time of any Change of Control to
make any required repurchases of Notes and Exchange Notes tendered or that
restrictions in the Credit Facility will allow the Company to make such
required repurchases. Notwithstanding these provisions, the Company could
enter into certain transactions, including certain recapitalizations, that
would not constitute a Change of Control but would increase the amount of
debt outstanding at such time. See "Description of the Exchange
Notes--Repurchase at Option of Holders--Change of Control."
FUTURE CONTINGENT PAYMENTS
Related to Recent Acquisitions
Certain of the agreements relating to the Recent Acquisitions provide for
purchase price adjustments and other future contingent payments under certain
circumstances. The PACE acquisition agreement provides that each PACE seller
will have an option, exercisable for 90 days after the fifth anniversary of
the closing of the PACE acquisition, to require the Company to repurchase up
to 500,000 shares of the Class A Common Stock received by that seller for
$33.00 in cash per share (an aggregate of up to $16.5 million). Pursuant to
the terms of the Becker Employment Agreement (as defined herein), during the
period between December 12, 1999 and December 27, 1999, Mr. Becker, an
Executive Vice President, Director and a Member of the Office of the Chairman
of the Company, will have the option to, among
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other things, require the Company to purchase any stock or portion thereof
(including vested and unvested options) granted to him by the Company and/or
pay him an amount equal to the present value of the compensation payable
during the remaining term of his employment agreement. See
"Management--Employment Agreements and Arrangements with Certain Officers and
Directors." Moreover, pursuant to the Contemporary acquisition agreement, if
the average trading price of the shares of Class A Common Stock issued in the
Contemporary acquisition is less than $13.33 during the 20 days prior to the
second anniversary of the Contemporary acquisition, the Company will be
required to pay one-half of such difference for each share held by the
sellers of Contemporary on such date. Pursuant to the Network acquisition
agreement, the Company has agreed to increase the purchase price for Network
based on Network's actual 1998 EBITDA (as defined in the acquisition
agreement) 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
shares of Class A Common Stock or, in certain circumstances, in cash by March
20, 1999.
In addition, pursuant to the FAME acquisition agreement, the Company is
obligated to pay to the FAME sellers additional amounts up to an aggregate of
$15.0 million in equal annual installments over 5 years contingent on the
achievement by FAME of certain EBITDA targets. The FAME agreement also
provides for additional payments by the Company to the FAME sellers if FAME's
EBITDA performance exceeds the targets by certain amounts. Furthermore, if
the Company disposes of all or substantially all of the assets or 50% or more
of the voting or equity interests of FAME during the five years following the
closing of the FAME acquisition, certain payments may become due to the FAME
sellers out of the proceeds of such sale. In addition, pursuant to the
agreement relating to the acquisition of certain assets of Oakdale, if the
combined EBITDA (as defined in the acquisition agreement) for 1999 of Oakdale
Theater and Meadows exceeds $5.5 million, the Company will be obligated to
pay the sellers of Oakdale between 5.0 and 5.8 times the amount of such
excess. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--Pending
Acquisitions."
Related to Working Capital
In accordance with the terms of the Distribution Agreement, at the time of
the SFX Merger, SFX Broadcasting and the Company made an estimated allocation
of the Working Capital (as defined in the Distribution Agreement) between the
two companies. Pursuant thereto, the Company paid SFX Broadcasting
$8,293,000, representing a shortfall in the Working Capital. In connection
with the Meadows Repurchase, the Company received $10,306,434 from a third
party at the time of the SFX Merger for a net working capital adjustment to
the Company of approximately $2.0 million. See "Certain Relationships and
Related Transactions--Meadows Repurchase."
Within 90 days of the SFX Merger, SFX Broadcasting must deliver an audited
statement of the Working Capital calculation to the Company. If such audited
statement is disputed by the Company, another "big six" accounting firm is to
be hired to perform a separate audit of such statement, and the results
thereof are to be binding on both the Company and SFX Broadcasting. The
actual amount of the Working Capital will be a function of, among other
things, the actual operating results of SFX Broadcasting through the date of
the SFX Merger and the actual costs of consummating the SFX Merger and the
related transactions.
Any difference between the actual amount of the Working Capital and the
estimated amount paid by the Company to SFX Broadcasting at the time of the
SFX Merger shall be settled. There can be no assurance that the Company will
not be required to pay SFX Broadcasting significant additional funds once the
Working Capital amount has been finally determined.
Related to the Tax Indemnity Payment
Pursuant to the Tax Sharing Agreement, the Company is required to
indemnify SFX Broadcasting for certain tax obligations, including a tax
obligation estimated to be approximately $120.0 million in
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connection with the Spin-Off. Management's estimate of the amount of the
indemnity payment is based on certain assumptions which management believes
are reasonable. However, the actual amount could vary significantly. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources--Spin-Off."
Related to Other Indemnification Obligations
Pursuant to the Distribution Agreement, the Company has also agreed to
indemnify, defend and hold SFX Broadcasting and its subsidiaries harmless
from and against certain liabilities to which SFX Broadcasting 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 the Company in the Spin-Off), debts or liabilities of
the Company and its subsidiaries. Although the Company does not anticipate
that any material liabilities for which it has agreed to indemnify SFX
Broadcasting and its subsidiaries will arise, it is possible that the Company
will become subject to these liabilities. Any of these liabilities may have a
material adverse effect on the Company's business, financial condition or
results of operations.
Concurrently with the execution of the SFX Merger Agreement, Mr. Sillerman
waived his right to receive indemnification from SFX Broadcasting, 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 Broadcasting can be reimbursed under the terms of its directors' and
officers' liability insurance. The Company has agreed 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 Broadcasting (which were assumed by the Company pursuant
to the Distribution Agreement), the Company is 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 Broadcasting 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."
In addition, the agreements relating to the Tax Sharing Agreement and the
Employee Benefits Agreement provide for certain other indemnities.
RISKS RELATED TO THE PENDING ACQUISITIONS
The aggregate consideration to be paid in the Pending Acquisitions is
expected to consist of approximately $83.3 million in cash, including the
repayment of $10.0 million in debt, and the issuance of 531,782 shares of
Class A Common Stock. The Company intends to finance the cash portion of the
purchase price with a portion of the proceeds of the Financing. The
availability of funds under the Credit Facility is subject to certain
financial covenants and there can be no assurance that the funds required to
complete the Pending Acquisitions will be available to the Company when
needed. See "Description of Credit Facility and Other Indebtedness." See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Agreements Related to the
Pending Acquisitions."
There can be no assurance as to when or which of the Pending Acquisitions
will be consummated or that they will be consummated on the terms described
herein 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, holders of Notes should consider that the
Pending Acquisitions may not be consummated on the terms described herein or
at all. In addition, although the Company has conducted a due diligence
investigation of the businesses to be acquired in Pending Acquisitions, the
scope of its investigation has been limited. Although the agreements
governing the Pending Acquisitions generally provide for indemnification from
the sellers for a limited period of time with respect to certain matters,
such indemnification is subject to
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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.
While neither of the Pending Acquisitions is conditioned on the
consummation of the 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 the Company's control,
including, in the case of the Don Law acquisition, approval 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. See "Agreements Related to the Pending Acquisitions."
COMPANY SPECIFIC RISKS
Absence of Combined Operating History; Potential Inability to Integrate
Acquired Businesses
The business of the Company has been developed principally through the
acquisition of established live entertainment businesses, all of which have
been acquired since January 1997. The Company consummated the 1997
Acquisitions between January and June of 1997, the Recent Acquisitions in
February through June of 1998. Prior to their acquisition by the Company,
these acquired companies operated independently. In addition, each of the
businesses to be acquired in the Pending Acquisitions currently operates
independently. The Recent Acquisitions have increased, and the Pending
Acquisitions will significantly increase, the size and operations of the
Company. The Unaudited Pro Forma Condensed Combined Financial Statements
include the combined operating results of the Acquired Businesses and the
businesses to be acquired in Pending Acquisitions during periods when they
were not under common control or management, and therefore may not
necessarily be indicative of the results that would have been attained had
the Company and such businesses operated on a combined basis during those
periods. On a pro forma basis, as of and for the twelve months ended March
31, 1998, the Recent Acquisitions and the Pending Acquisitions represented
71% and 16% of the Company's revenues and 52% and 25% of its assets,
respectively. The Company's prospects should be considered in light of the
numerous risks commonly encountered in business combinations. Although
management of the Company has significant experience in other industries,
there can be no assurance that the Company's management group will be able to
effectively integrate the Acquired Businesses and the businesses to be
acquired in the Pending Acquisitions. The Company's business, financial
condition and results of operations could be materially adversely affected if
the Company is unable to retain the key personnel that have contributed to
the historical performances of the Acquired Businesses, the Company or the
businesses to be acquired in the Pending Acquisitions. See "--Dependence on
Key Personnel" and "Business."
Expansion Strategy; Need for Additional Funds
The Company is currently negotiating additional acquisitions and expects
to pursue additional acquisitions of live entertainment and related
businesses in the future. However, it may be unable to identify and acquire
additional suitable businesses or obtain the financing necessary to acquire
the businesses. Future acquisitions by the Company could result in (a)
potentially dilutive issuance 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 the Company'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, the
Company's business, financial condition and results of operations may be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Recent Developments" and "--Future Acquisitions."
Each acquisition is subject to the prior approval of the Company's lenders
under the Credit Facility, and financing for any future acquisitions may be
unavailable or restricted by the terms of the Credit Facility and the
Indenture.
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Control by Management
Upon the consummation of the Pending Acquisitions, Mr. Sillerman will
beneficially own approximately 37.9% of the total voting power of the Common
Stock, and all directors and executive officers together will beneficially
own approximately 44.1% of the total voting power of the Common Stock.
Accordingly, these persons will have substantial influence over the affairs
of the Company, including the ability to control the election of a majority
of the Company's Board of Directors (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.
Moreover, control by management may have the effect of discouraging certain
types of "change of control" transactions, including transactions in which
the holders of Class A Common Stock might otherwise receive a premium for
their shares. See "Management" and "Principal Stockholders."
Mr. Sillerman beneficially owns 1,524,168 shares of Class B Common Stock,
representing approximately 33.0% of the total voting power of the Common
Stock, which will allow him to exert substantial control in the election of
directors. Each share of Class B Common Stock automatically converts into a
share of Class A Common Stock upon (a) its sale, gift, or other transfer,
voluntary or involuntary, to a party that is not an Affiliate (as defined in
the Certificate of Incorporation) of Mr. Sillerman or of the Company or (b)
upon the death of Mr. Sillerman, in the case of any shares of Class B Common
Stock held by Mr. Sillerman or any Affiliate of Mr. Sillerman. The terms of
the Certificate of Incorporation contemplate that, absent an event of
automatic conversion, the shares of Class B Common Stock held by Mr.
Sillerman could be transferred to a third-party without losing their special
voting rights under certain circumstances.
Dependence on Key Personnel
The success of the Company depends substantially on the abilities and
continued service of certain of its (and its subsidiaries') executive
officers and directors. In particular, the Company will depend on the
continued services of Robert F.X. Sillerman, Michael G. Ferrel, Brian Becker,
David Falk, Howard J. Tytel and Thomas P. Benson. Although many of these
individuals generally 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. The Company has entered into
employment agreements with each of the members of its senior management team.
See "--Potential Conflicts of Interest" and "Management."
Furthermore, the operations of each of the Acquired Businesses and the
businesses to be acquired in the Pending Acquisitions are local in nature and
depend to a significant degree on the continued services of certain
individuals at each business. See "Management" and "Certain Relationships and
Related Transactions." The loss of any of these individuals' services could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "--Absence of Combined Operating History;
Potential Inability to Integrate Acquired Businesses."
Potential Conflicts of Interest
Marquee is a publicly-traded company that, among other things, provides
talent representation services to professional athletes and acts as booking
agent for tours and appearances for musicians and other entertainers. The
Company has indicated to Marquee its potential interest in acquiring Marquee.
Mr. Sillerman has an aggregate equity interest of approximately 9.1% in
Marquee and is the chairman of its board of directors, and Mr. Tytel is one
of its directors. As a result of the consummation of the acquisition of FAME,
the Company may directly compete with Marquee in obtaining representation
agreements with particular athletes and endorsement opportunities for its
clients. In addition, the Company anticipates that, from time to time, it
will enter into transactions and arrangements (particularly booking
arrangements) with Marquee and Marquee's clients. In any transaction or
arrangement with Marquee, Messrs. Sillerman and Tytel are likely to have
conflicts of interest as officers and directors of the Company. These
transactions or arrangements will be subject to the approval of a committee
of independent members of the boards of directors of each of the Company and
Marquee, except that
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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
and the Company produces ice skating and gymnastics events that may compete
with events in which Marquee is involved. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Recent
Developments" and "Certain Relationships and Related Transactions--Potential
Conflicts of Interest."
The Sillerman Companies, Inc. ("TSC"), an entity controlled by Mr.
Sillerman and in which Mr. Tytel also has an equity interest, provides
financial consulting services to Marquee. TSC's services are provided by
certain directors, officers and employees of the Company who are not
separately compensated for their services by TSC. In any transaction,
arrangement or competition with Marquee, Messrs. Sillerman and Tytel are
likely to have conflicts of interest between their duties as officers and
directors of the Company, on the one hand, and their duties as directors of
Marquee and their interests in TSC and Marquee, on the other hand. See
"Certain Relationships and Related Transactions--Triathlon Fees."
Rights to Purchase Certain Subsidiaries
Pursuant to the employment agreement entered into between Brian Becker and
the Company in connection with the PACE acquisition, Mr. Becker has the
option, exercisable within 15 days after February 25, 2000, to acquire the
Company's then existing motor sports line of business (or, if that line of
business has previously been sold, the Company'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 the Company's business,
financial condition and results of operations. In addition, during the period
between February 25, 1999 and February 25, 2000, Mr. Becker also has a right
of first refusal under certain circumstances to acquire the theatrical or
motor sports line of business at a price equal to 95% of the proposed
purchase price. On a pro forma basis, specialized motor sports would have
comprised approximately 6%, and theater would have comprised approximately
13%, of the Company's total net revenues for the year ended March 31, 1998.
The Don Law seller and the Company have also agreed to enter into an
agreement pursuant to which the assets to be acquired in the Don Law
Acquisition, with certain exceptions, will be subject to a right of first
offer and refusal of the Don Law seller if the Company elects to sell such
assets within two years after the closing of the Don Law Acquisition. These
rights of first refusal may have the effect of discouraging potential bidders
for such lines of business from negotiating with the Company. See
"Management--Employment Agreements and Arrangements with Certain Officers and
Directors" and "Agreements Related to the Pending Acquisitions."
The Company has also agreed that it will not sell all, or substantially
all, of BGP's assets prior to February 24, 2001 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 the Company from any third party.
BGP's right of first refusal may have the effect of discouraging potential
bidders for BGP's assets from negotiating with the Company.
Economic Conditions and Consumer Tastes; Availability of Artists and Events
The Company'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
could, in turn, materially adversely affect the Company's revenues. In
addition, the profitability of events promoted or produced by the Company 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 the Company 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 the Company's business, financial condition and results of
operations.
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The Company's success and ability to sell tickets (including
subscriptions) is also highly dependent on the availability of popular
musical artists, Touring Broadway Shows and specialized motor sports talent,
among other performers of live entertainment. The Company's 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 the
Company in the future. The lack of availability of these artists and
productions could have a material adverse effect on the Company's business,
financial condition and results of operations.
Risks Related to the Representation of Athletes
With the consummation of the FAME acquisition, the Company became a
leading full-service marketing and management company specializing in the
representation of team sports athletes, primarily in professional basketball.
A significant portion of FAME's revenues to date has been derived from a
small number of clients. The Company estimates that five of FAME's clients
accounted for approximately 78% of FAME's revenues for the twelve months
ended March 31, 1998 and, on a pro forma basis, FAME's EBITDA would have
comprised approximately 7% of the Company's EBITDA for the same period. The
amount of endorsement and other revenues which these clients generate is a
function of, among other things, such clients' professional performance and
public appeal. Factors beyond the Company's control, such as a client's
injury, declining skill, declining public appeal or conduct in violation of
team or league policy, as well as labor unrest in the sports industry, could
have a material adverse affect on the Company's operations. In the event of a
labor interruption, for example, revenues related to the negotiation of a
client's contract (absent a retroactive payment for games missed as part of
any settlement) would generally cease for the duration of the stoppage.
Endorsement revenues, which generally require that a player be on an active
roster, might also be affected in the event of a labor interruption.
Representation agreements with clients are generally for a term equal to the
term of the player's professional sports contract, but are terminable on 15
days' notice (although FAME would continue to be entitled to the revenue
streams generated during the remaining term of any contracts which it
negotiated). The termination or expiration of contracts with certain clients
could also have a material adverse effect on the Company's operations and
results of operations.
Future Charges to Earnings
Consummation of the Recent Acquisitions and Pending Acquisitions will
result in substantial charges to earnings relating to interest expense and the
recognition and amortization of goodwill and other intangible assets; these
charges will increase the Company's losses or reduce or eliminate its earnings,
if any. As of March 31, 1998 the Company had goodwill and other intangible
assets of approximately $470.7 million. This balance will substantially
increase due to the acquisitions completed subsequent to March 31, 1998 and the
Pending Acquisitions. Goodwill and other intangible assets are being amortized
using the straight line method over 15 years. See "Unaudited Pro Forma
Condensed Combined Financial Statements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Future Charges to Earnings."
In connection with employment agreements entered into with certain of its
executive officers, the Company sold to such executive officers an aggregate
of 650,000 shares of Class B Common Stock and 190,000 shares of Class A
Common Stock at a purchase price of $2.00 per share. The Company will record
a non-cash compensation charge in the second quarter of 1998 of approximately
$24 million associated with this sale. The Company will also recognize a
non-cash charge to earnings in the second quarter of 1998 of approximately
$7.5 million resulting from the issuance of 247,177 shares of Class A Common
Stock to Mr. Sillerman in connection with the Meadows Repurchase (as defined
herein). The amount of such charge is equal to the fair value of Class A
Common Stock received by Mr. Sillerman at the time of the Meadows Repurchase.
Further, the Board, on the recommendation of its Compensation Committee, also
has approved the issuance of certain "below market" stock options exercisable
for an aggregate of 252,500 shares of Class A Common Stock. These options
will vest over three years and will have an exercise price of $5.50 per
share. The Company will record non-cash compensation charges over the
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three-year exercise period of approximately $2.0 million annually. The
Company will also record non-cash charges in connection with an anticipated
deferred compensation plan for its non-employee directors equal to the fair
market value (on the date of credit) of the shares of Class A Common Stock
which are credited pursuant to such plan. These substantial non-cash charges
to earnings will increase the Company's losses or reduce or eliminate its
earnings, if any. See "--Future Contingent Payments," "Certain Relationships
and Related Transactions," "Management--Employment Agreements and
Arrangements with Certain Officers and Directors" and "--Compensation of
Directors."
Competition
Competition in the live entertainment industry is intense and is
fragmented among a wide variety of entities. The Company 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, the Company's marketing and consulting
operations compete with advertising agencies and other marketing
organizations. The Company and the businesses to be acquired in the Pending
Acquisitions 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. The talent
representation industry is also highly competitive. The Company competes with
both larger and smaller entities. A number of the Company's competitors have
substantially greater resources than the Company. Certain of the Company's
competitors may also operate on a less leveraged basis, and have greater
operating and financial flexibility, than the Company. 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 the Company. There can be no assurance that the Company will be able to
compete successfully in this market or against these competitors.
Control of Venues
The Company operates a number of its live entertainment venues under
leasing or booking agreements, and accordingly the Company's long-term
success will depend in part on its ability to renew these agreements when
they expire or terminate. There can be no assurance that the Company 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--Venue Operations."
Regulatory Matters
The business of the Company is not generally subject to material
governmental regulation. However, if the Company 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 the Company may pursue in the future.
There can be no assurance that the Company will be able to obtain the
licenses, approvals and permits it may require from time to time in order to
operate its business.
The Company has real property relating to its business, consisting of fee
interests, leasehold interests and other contractual interests. The Company'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 non-hazardous substances, materials or
wastes, including laws relating to noise emissions (which may affect, among
other things, the hours of operation of the Company's venues). Further, under
certain of these laws and regulations, the Company 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. The Company believes that it is in substantial compliance with
all of these laws and regulations, and has performed preliminary
environmental assessments of all of the properties that are
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wholly-owned, without identifying material environmental hazards. Although
the level of future expenditures cannot be determined with certainty, the
Company does not anticipate, based on currently known facts, that its
environmental costs are likely to have a material adverse effect on the
Company's business, financial condition and results of operations.
Offers to Sell Stock; Compliance with Securities Laws
The approximately 1.5 million shares issued in connection with the
acquisition of FAME and to be issued in connection with the acquisition of
Don Law were not registered under the Securities Act or state securities
laws, as may have been required. The Company filed a registration statement
in order to make a rescission offer (the "Rescission Offer") with respect to
such transactions. Although the FAME and Don Law sellers have rejected such
Rescission Offer, they may continue to have a right to bring a civil action
against the Company for its prior failure to register the Class A Common
Stock to be issued in the FAME or Don Law acquisitions, respectively, under
the federal and applicable state securities laws.
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THE EXCHANGE OFFER
The following discussion sets forth or summarizes what the Company
believes are the material terms of the Exchange Offer, including those set
forth in the Letter of Transmittal distributed with this Prospectus. This
summary is qualified in its entirety by reference to the full text of the
documents underlying the Exchange Offer, copies of which are filed as
exhibits to the Registration Statement of which this Prospectus is a part,
and are incorporated by reference herein.
PURPOSE OF THE EXCHANGE OFFER
The Notes were sold by the Company on February 11, 1998 to the Initial
Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently placed the Notes with qualified institutional buyers in reliance
on Rule 144A under the Securities Act and in non-U.S. transactions pursuant
to Regulation S promulgated under the Securities Act. As a condition to the
sale of the Notes, the Company, the Subsidiary Guarantors and the Initial
Purchasers entered into the Registration Rights Agreement on February 11,
1998. Pursuant to the Registration Rights Agreement, the Company agreed that,
unless the Exchange Offer is not permitted by applicable law or Commission
policy, it would (i) file with the Commission a Registration Statement under
the Securities Act with respect to the Exchange Notes within 75 days of such
agreement's execution, (ii) use its reasonable best efforts to cause such
Registration Statement to become effective under the Securities Act within
120 days and (iii) upon effectiveness of the Registration Statement, to
commence the Exchange Offer and maintain the effectiveness of the
Registration Statement and keep the Exchange Offer open for at least 20
business days. A copy of the Registration Rights Agreement has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
The Registration Statement of which this Prospectus is a part is intended to
satisfy certain of the Company's obligations under the Registration Rights
Agreement and the Purchase Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to
third parties, the Company believes that a holder (other than (i) a
broker-dealer who purchases such Exchange Notes directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) any such holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) who exchanges the
Notes for the Exchange Notes in the ordinary course of business and who is
not participating, does not intend to participate, and has no arrangement
with any person to participate, in the distribution of the Exchange Notes,
will be allowed to resell the Exchange Notes to the public without further
registration under the Securities Act and without delivering to the
purchasers of the Exchange Notes a prospectus that satisfies the requirements
of Section 10 of the Securities Act. However, if any holder acquires the
Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in the distribution of the Exchange Notes or is a
broker-dealer, such holder cannot rely on the position of the staff of the
Commission enumerated in certain no-action letters issued to third parties
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction, unless an
exemption from registration is otherwise available. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Notes, where such
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired by such broker-dealer as a
result of market-making or other trading activities. Pursuant to the
Registration Rights Agreement, the Company has agreed to make this
Prospectus, as it may be amended or supplemented from time to time, available
to broker-dealers for use in connection with any resale for a period of 180
days after the Expiration Date. See "Plan of Distribution."
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TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitutes the
Exchange Offer), the Company will accept for exchange any and all Notes which
are properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Notes
surrendered pursuant to the Exchange Offer. Notes may be tendered only in
integral multiples of $1,000. As used herein, the term "Expiration Date"
means 5:00 p.m., New York City time, on July 9, 1998; provided, however, that
if the Company, in its sole discretion, has extended the period of time for
which the Exchange Offer is open, the term "Expiration Date" means the latest
time and date to which the Exchange Offer is extended.
The form and terms of the Exchange Notes are the same as the form and
terms of the Notes except that (i) the exchange will be registered under the
Securities Act and hence the Exchange Notes will not bear legends restricting
their transfer and (ii) holders of the Exchange Notes will not be entitled to
the certain rights of holders of Notes under the Registration Rights
Agreement, which rights will terminate upon the consummation of the Exchange
Offer. The Exchange Notes will evidence the same debt as the Notes (which
they replace) and will be issued under, and be entitled to the benefits of,
the Indenture, which also authorized the issuance of the Notes, such that
both series will be treated as a single class of debt securities under the
Indenture.
As of the date of this Prospectus, an aggregate of $350.0 million of the
Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about June 8, 1998, to all Holders of
Notes known to the Company. The Company's obligation to accept Notes for
exchange pursuant to the Exchange Offer is subject to certain conditions as
set forth under "--Certain Conditions to the Exchange Offer" below.
Holders of the Notes do not have any appraisal or dissenters' rights under
the Indenture in connection with the Exchange Offer. The Company intends to
conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the
Securities Act, the Exchange Act and the rules and regulations of the
Commission thereunder.
The Company expressly reserves the right, at any time or from time to
time, to extend the period of time during which the Exchange Offer is open,
and thereby delay acceptance for exchange of any Notes, by giving written
notice of such extension to the Holders thereof as described below. During
any such extension, all Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Company. Any Notes not
accepted for exchange for any reason will be returned without expense to the
tendering Holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified below under "--Certain Conditions to the Exchange
Offer." The Company will give written notice of any extension, amendment,
nonacceptance or termination to the Holders of the Notes as promptly as
practicable, such notice in the case of any extension to be issued by means
of a press release or other public announcement no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date.
PROCEDURES FOR TENDERING NOTES
The tender to the Company of Notes by a Holder thereof as set forth below
and the acceptance thereof by the Company will constitute a binding agreement
between the tendering Holder and the Company upon the terms and subject to
the conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a Holder who wishes to tender Notes
for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to the Exchange Agent at
one of the addresses set forth below under "Exchange Agent" on or prior to
the Expiration Date. In addition, either (i) certificates for such Notes must
be received by the Exchange Agent along with
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the Letter of Transmittal, (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the Holder must comply with the guaranteed delivery
procedures described below.
THE METHOD OF DELIVERY OF NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL
OR NOTES SHOULD BE SENT TO THE COMPANY.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact such registered holder of Notes promptly and instruct
such registered holder of Notes to tender on behalf of the beneficial owner.
If such beneficial owner wishes to tender on its own behalf, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering its Notes, either make appropriate arrangements to register
ownership of the Notes in such beneficial owner's name or obtain a properly
completed bond power from the registered holder of Notes. The transfer of
record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Notes surrendered for exchange
pursuant thereto is tendered (i) by a registered Holder of the Notes who has
not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account
of an Eligible Institution (as defined herein below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantees must be by a firm
which is a member of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. or by a commercial bank
or trust company having an office or correspondent in the United States (each
an "Eligible Institution"). If Notes are registered in the name of a person
other than a signer of the Letter of Transmittal, the Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by
the Company in its sole discretion, duly executed by the registered Holder
with the signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all
tenders of any particular Notes not properly tendered or to not accept any
particular Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or conditions of the Exchange Offer as to
any particular Notes either before or after the Expiration Date (including
the right to waive the ineligibility of any Holder who seeks to tender Notes
in the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Notes for
exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity
with respect to any tender of Notes for exchange, nor shall any of them incur
any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered Holder or Holders of Notes, such Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered Holder or Holders that appear on the
Notes.
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If the Letter of Transmittal or any Notes or powers of attorney are signed
by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority
to so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, (i) the Exchange Notes to be acquired by the holder of the Notes in
connection with the Exchange Offer are being acquired by the holder in the
ordinary course of business of the holder, (ii) the holder has no arrangement
or understanding with any person to participate in the distribution of
Exchange Notes, (iii) the holder acknowledges and agrees that any person who
is a broker-dealer registered under the Exchange Act or is participating in
the Exchange Offer for the purposes of distributing the Exchange Notes must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the
Exchange Notes acquired by such person and cannot rely on the position of the
staff of the Commission set forth in certain no-action letters, (iv) the
holder understands that a secondary resale transaction described in clause
(iii) above and any resales of Exchange Notes obtained by such holder in
exchange for Notes acquired by such holder directly from the Company should
be covered by an effective registration statement containing the selling
security holder information required by Item 507 or Item 508, as applicable,
of Regulation S-K of the Commission, and (v) the holder is not an
"affiliate," as defined in Rule 405 of the Securities Act, of the Company. If
the holder is a broker-dealer that will receive Exchange Notes for its own
account in exchange for Notes that were acquired as a result of market-making
activities or other trading activities, the holder is required to acknowledge
in the Letter of Transmittal that it will deliver a prospectus in connection
with any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the holder will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will accept, promptly after the Expiration Date, all Notes
properly tendered and will issue the Exchange Notes promptly after acceptance
of the Notes. See "--Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
properly tendered Notes for exchange when, as and if the Company has given
oral or written notice thereof to the Exchange Agent, with written
confirmation of any oral notice to be given promptly thereafter.
The Exchange Notes bear interest at a rate equal to 9 1/8% per annum.
Interest on the Exchange Notes is payable semi-annually on each February 1
and August 1, commencing on August 1, 1998. Holders of Exchange Notes will
receive interest on August 1, 1998 from the date of initial issuance of the
Notes. Holders of Notes that are accepted for exchange will be deemed to have
waived the right to receive any interest accrued on the Notes.
In all cases, the issuance of Exchange Notes for Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Notes or a timely
Book-Entry Confirmation of such Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility, a properly completed and duly executed
Letter of Transmittal and all other required documents. If any tendered Notes
are not accepted for any reason set forth in the terms and conditions of the
Exchange Offer, or if Notes are submitted for a greater amount than the
Holder desires to exchange, such unaccepted or non-exchanged Notes will be
returned without expense to the tendering Holder thereof (or, in the case of
tendered by book-entry procedures described below, such nonexchanged Notes
will be credited to an account maintained with such Book-Entry Transfer
Facility) designated by the tendering Holder as promptly as practicable after
the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with
respect to the Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date
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of this Prospectus, and any financial institution that is a participant in
the Book-Entry Transfer Facility's systems may make book-entry delivery of
Notes by causing the Book-Entry Facility to transfer such Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance
with such Book-Entry Transfer Facility's procedures for transfer. However,
although delivery of Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees and other required documents, must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "--Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of Notes desires to tender such Notes, and such
Notes are not immediately available, or if time will not permit such Holder's
Notes or other required documents to reach the Exchange Agent before the
Expiration Date, or if the procedure for book-entry transfer cannot be
completed on a timely basis, then a tender may be effected if (i) the tender
is made through an Eligible Institution, (ii) prior to the Expiration Date,
the Exchange Agent has received from such Eligible Institution a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof)
and notice of Guaranteed Delivery, substantially in the form provided by the
Company (by telegram, telex, facsimile transmission, mail or hand delivery),
setting forth the name and address of the Holder of the Notes and the amount
of Notes, stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Notes,
in proper form for transfer, or a Book-Entry Confirmation, as the case may
be, and all other documents required by the Letter of Transmittal, are
received by the Exchange Agent within five NYSE trading days after the date
of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Notes may be withdrawn at any time prior to the Expiration
Date. For a withdrawal to be effective, a written notice of withdrawal must
be received by the Exchange Agent at one of the addresses set forth below
under the caption "Exchange Agent." Any such notice of withdrawal must
specify the name of the person having tendered the Notes to be withdrawn,
identify the Notes to be withdrawn (including the amount of such), and (where
certificates for Notes have been transmitted) specify the name in which such
Notes is registered, if different from that of the withdrawing Holder. If
certificates for Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the
withdrawing Holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Notes have been tendered pursuant to the procedure
for book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Notes and otherwise comply with
the procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company whose determination shall be final and binding on all parties.
Any Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the Holder thereof without cost to such Holder (or, in the case
of Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Notes will be credited to an account with
such Book-Entry Transfer Facility specified by the Holder) as soon as
practicable after withdrawal, rejection of tender or terminations of the
Exchange Offer. Properly withdrawn Notes may be retendered by following one
of the procedures described under "--Procedures for Tendering" above at any
time on or prior to the Expiration Date.
36
<PAGE>
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue Exchange Notes in
exchange for, any Notes and may terminate or amend the Exchange Offer, if at
any time before the acceptance of such Notes for exchange or the exchange of
the Exchange Notes for such Notes, any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking
any damages as a result thereof, or (ii) resulting in a material delay in
the ability of the Company to accept for exchange or exchange some or all
of the Notes pursuant to the Exchange Offer; or any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any
other transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the sole judgment of the
Company might directly or indirectly result in any of the consequences
referred to in clauses (i) or (ii) above or, in the sole judgment of the
Company might result in the holders of Exchange Notes having obligations
with respect to resales and transfers to Exchange Notes which are greater
than those described in the interpretation of the Commission referred to
on the cover page of this Prospectus, or would otherwise make it
inadvisable to proceed with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Company to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company and its subsidiaries taken as a whole that, in
the sole judgment of the Company, is or may be adverse to the Company, or
the Company shall have become aware of facts that, in the sole judgment of
the Company have or may have adverse significance with respect to the
value of the Notes or the Exchange Notes;
which, in the sole judgment of the Company in any case, and regardless of the
circumstances (including any action by the Company) giving rise to any such
condition, makes it inadvisable to proceed with the Exchange Offer and/or
with such acceptance for exchange or with such exchange. To the Company's
knowledge, as of the date of this Prospectus, none of the foregoing events
has occurred.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any
time and from time to time in its sole discretion. The failure by the Company
at any time to exercise any of the foregoing rights shall not be deemed a
waiver of any such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Notes tendered,
and no Exchange Notes will be issued in exchange for any such Notes, if at
such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part.
37
<PAGE>
EXCHANGE AGENT
ChaseMellon Shareholder Services, L.L.C. has been appointed as the
Exchange Agent for the Exchange Offer. All executed Letters of Transmittal
should be directed to the Exchange Agent at the addresses set forth below.
By U.S. Mail:
ChaseMellon Shareholder Services, L.L.C.
Post Office Box 3301
South Hackensack, NJ 07606
Attn: Reorganization Department
By Hand:
ChaseMellon Shareholder Services, L.L.C.
120 Broadway, 13th Floor
New York, NY 10271
Attn: Reorganization Department
By Overnight Delivery:
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road--Mail Drop--Reorg
Ridgefield Park, NJ 07660
Attn: Reorganization Department
Facsimile Number: (201) 296-4293
Confirm Facsimile Only: (201) 296-4860
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE
ONE LISTED ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF
TRANSMITTAL.
INFORMATION AGENT
Georgeson & Company Inc. has been appointed as the Information Agent for
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the
Information Agent addressed as follows:
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
ALL OTHERS CALL TOLL FREE: 1-800-223-2065
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer other than to the Information
Agent.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately $100,000.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
TRANSFER TAXES
Holders who tender their Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that Holders who instruct
the Company to register Exchange Notes in the name of, or request that Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the
payment of any applicable transfer tax thereon.
REGULATORY MATTERS
The Company is not aware of any governmental or regulatory approvals that
are required in order to consummate the Exchange Offer.
38
<PAGE>
CONSEQUENCES OF EXCHANGING NOTES
Based upon no-action letters issued by the staff of the Commission to
third parties, the Company believes that Exchange Notes issued pursuant to
the Exchange Offer in exchange for Notes may be offered for resale, sold or
otherwise transferred by a Holder thereof (other than any Holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or a holder that is a broker-dealer who acquires Exchange
Notes to resell pursuant to Rule 144A or any other available exemption under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such Holder's business and such Holder
is not participating, does not intend to participate, and has no arrangement
with any person to participate, in the distribution of such Exchange Notes.
However, the Commission has not considered the Exchange Offer in the context
of a no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. If any Holder is an affiliate of the
Company, is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer, such Holder (i) could not rely on
the relevant determinations of the staff of the Commission and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Notes, where
such Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. Pursuant
to the Registration Rights Agreement, the Company has agreed to make this
Prospectus, as it may be amended or supplemented from time to time, available
to broker-dealers for use in connection with any resale for a period of 180
days after the expiration Date. Under certain circumstances, the Company may
cause the Prospectus to not be available for resale for a period of up to 30
days. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the Exchange Notes may not be offered or sold unless it has
been registered or qualified for sale in such jurisdiction or an exemption
from registration or qualification is available ans is complied with. The
Company has agreed to register or qualify the sale of the Exchange Notes in
such jurisdictions only in limited circumstances and subject to certain
conditions.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Notes are
urged to consult their financial and tax advisors in making their own
decisions on what action to take.
The Notes which are not exchanged for the Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Notes may
be resold only (i) to a person whom the seller reasonably believes is a
qualified institutional buyer (as defined in Rule 144A under the Securities
Act) in a transaction meeting the requirements of Rule 144A, (ii) in a
transaction meeting the requirements of Rule 144 under the Securities Act,
(iii) outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act or (iv) in accordance
with another exemption from the registration requirements of the Securities
Act (and based upon an opinion of counsel if the Company so requests), (v) to
the Company or (vi) pursuant to an effective registration statement and, in
each case, in accordance with any applicable securities laws of any state of
the United States or any other applicable jurisdiction. Under certain
circumstances, the Company is required to file a Shelf Registration
Statement. See "Description of Exchange Notes--Registration Rights;
Liquidated Damages."
LIQUIDATED DAMAGES
In the event of a Registration Default (as hereinafter defined), the
Company is required to pay liquidated damages. See "Description of Exchange
Notes--Registration Rights; Liquidated Damages."
39
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1998, (a) the historical
capitalization of the Company (giving effect to the recapitalization of the
Company in connection with the Spin-Off) and (b) the pro forma capitalization
of the Company to reflect the Pending Acquisitions, the Recent Acquisitions,
the Financing and the application of the proceeds therefrom, the Spin-Off and
the SFX Merger. This information should be read in conjunction with the
financial statements and the related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------
(IN THOUSANDS)
PRO FORMA FOR
THE RECENT
ACQUISITIONS,
THE SPIN-OFF,
THE SFX MERGER,
THE FINANCING
AND THE
PENDING
ACTUAL ACQUISITIONS
(UNAUDITED) (UNAUDITED)
----------- ---------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS.......................................................... $ 93,992 $102,771
======== ========
DEBT:
Credit Facility ................................................................... $150,000 $172,177
Notes ............................................................................. 350,000 350,000
Other long-term debt............................................................... 30,701 30,701
Capital lease obligations ......................................................... 12,302 12,302
-------- --------
Total debt ....................................................................... $543,003 $565,180
-------- --------
TEMPORARY EQUITY--STOCK SUBJECT TO REDEMPTION(1)................................... 16,500 16,500
STOCKHOLDERS' EQUITY(2):
Net capital transferred from SFX Broadcasting...................................... (39,795) --
Preferred Stock, $.01 par value, 25,000,000 shares authorized, 10 shares issued
and outstanding as of March 31, 1998 actual, and none outstanding pro forma(3) .. -- --
Class A Common Stock, $.01 par value, 100,000,000 shares authorized, 13,579,024
shares issued and outstanding as of March 31, 1998 actual, and 28,589,423 shares
issued and outstanding pro forma(4) .............................................. 136 286
Class B Common Stock, $.01 par value, 10,000,000 shares authorized, 1,047,037
shares issued and outstanding as of March 31, 1998 actual, and 1,697,037 shares
issued and outstanding pro forma(4) .............................................. 10 17
Paid-in capital ................................................................... 39,975 382,790
Accumulated deficit(5) ............................................................ (5,372) (5,372)
-------- --------
Total stockholders' (deficit) equity ............................................. $ (5,046) $377,721
-------- --------
Total capitalization.............................................................. $554,457 $959,401
======== ========
</TABLE>
- ------------
(1) The PACE agreement provides that each PACE seller shall have a Fifth
Year Put Option, exercisable during a period beginning on February 25,
2003 and ending 90 days thereafter, to require the Company to purchase
up to one-third of the 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.
(2) In connection with the Spin-Off, the Company amended and restated its
certificate of incorporation to, among other things, (a) increase the
authorized number of shares of Class A Common Stock and Class B Common
Stock to 100,000,000 shares and 10,000,000, respectively, and (b)
recapitalize the outstanding shares of Common Stock in order to permit
the distribution of shares in the Spin-Off. See "Description of Capital
Stock."
(3) In February 1998, the Company issued 10 shares of preferred stock in
connection with the Contemporary acquisition, which were converted into
1,402,850 shares of Class A Common Stock at the time of the Spin-Off.
(4) Gives effect on a pro forma basis to the issuance of (a) an aggregate
of 13,579,024 shares of Class A Common Stock and 1,047,037 shares of
Class B Common Stock issued in the Spin-Off, (b) an aggregate of
4,216,680 shares of Class A Common Stock issued pursuant to the Recent
Acquisitions, (c) an aggregate of 522,941 shares of Class A Common
Stock issued to the holders of stock options and SARs issued by SFX
Broadcasting, (d) an aggregate of 395,000 shares of Class A Common
Stock issued to Messrs. Sillermen and Ferrel with respect to the
options to be issued pursuant to their employment agreements with SFX
Broadcasting, (e) 75,019 shares of Class A Common Stock which the
Company agreed to issue in connection with its acquisition of Westbury
Music Fair, (f) 8,050,000 shares issued pursuant to the Equity
Offering, (g) 190,000 shares of Class A Common Stock and 650,000 shares
of Class B Common Stock issued to certain officers of the Company in
connection with their employment agreements, (h) 1,000,000 shares of
Class A Common Stock issued pursuant to the FAME Acquisition and (i)
531,782 shares of Class A Common Stock expected to be issued in
connection with the Don Law acquisition. Does not include (a) shares
issuable, subject to certain conditions, upon conversion of the Class B
Common Stock or (b) shares issuable upon exercise of outstanding
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 Broadcasting's
Options and SARs."
(5) Retained earnings on a pro forma basis 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 the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital
Resources--Future Charges to Earnings."
40
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share amounts)
The Selected Consolidated Financial Data of the Company includes the
historical financial statements of Delsener/Slater and affiliated companies,
the predecessor of the Company, for each of the four years ended December 31,
1996 and the three months ended March 31, 1998 and the historical financial
statements of the Company for the year ended December 31, 1997 and the three
months ended March 31, 1998. The statement of operations data with respect to
Delsener/Slater for the year ended December 31, 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 the Company, the 1997 Acquisitions, the Recent Acquisitions and the
Pending Acquisitions included herein. The financial information has been
derived from the audited and unaudited financial statements of the Company,
the 1997 Acquisitions, the Recent Acquisitions and the Pending Acquisitions.
The pro forma summary data for the year ended December 31, 1997 and the three
months ended March 31, 1998 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
PREDECESSOR
------------------------------------------ ---------- ---------------
1997
PRO FORMA
FOR THE
TRANSACTIONS,
THE PENDING
ACQUISITIONS
AND THE
FINANCING
1993 1994 1995 1996 1997 (UNAUDITED)
--------- --------- --------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue................ $46,526 $92,785 $47,566 $50,362 $ 96,144 $779,014
Operating expenses .... 45,635 90,598 47,178 50,686 83,417 688,430
Depreciation &
amortization.......... 762 755 750 747 5,431 56,681
Corporate expenses
(1)................... -- -- -- -- 2,206 5,206
--------- --------- --------- ---------- ---------- ---------------
Operating income
(loss)................ $ 129 $ 1,432 $ (362) $(1,071) $ 5,090 $ 28,697
Interest expense....... (148) (144) (144) (60) (1,590) (49,098)
Other income
(expense)............. 85 138 178 198 295 1,226
Equity income (loss)
from investments ..... -- (9) 488 524 509 5,347
--------- --------- --------- ---------- ---------- ---------------
Income (loss) before
income taxes.......... $ 66 $ 1,417 $ 160 $ (409) $ 4,304 $(13,828)
Income tax provision . (57) (5) (13) (106) (490) (4,200)
--------- --------- --------- ---------- ---------- ---------------
Net income (loss)...... $ 9 $ 1,412 $ 147 $ (515) $ 3,814 $(18,028)
========= ========= ========= ========== ========== ===============
Accretion on temporary
equity--stock subject
to redemption (2)..... (3,300)
Net loss applicable to
common shares ........ $(21,328)
Net loss per common
share (3)............. $ (0.72)
===============
Weighted average
common shares
outstanding (3)(4) ... 30,286
===============
OTHER OPERATING DATA:
EBITDA (5)............. $ 891 $ 2,187 $ 388 $ (324) $ 10,521 $ 85,378
========= ========= ========= ========== ========== ===============
Cash flow from:
Operating activities . $ 2,959 $ (453) $ 4,214 $ 1,005
Investing activities . -- -- (435) (73,296)
Financing activities . (477) (216) (1,431) 78,270
Ratio of earnings to
fixed charges (7)..... 1.2x 4.6x 1.4x -- 2.5x --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDED
THREE MONTHS ENDED MARCH 31, MARCH 31,
---------------------------------------- ---------------
1998 1998
PRO FORMA PRO FORMA
FOR THE FOR THE
TRANSACTIONS, TRANSACTIONS,
THE PENDING THE PENDING
ACQUISITIONS ACQUISITIONS
AND THE AND THE
1997 1998 FINANCING FINANCING
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue................ $ 7,789 $60,994 $187,345 $827,916
Operating expenses .... 7,738 58,175 172,422 729,485
Depreciation &
amortization.......... 660 4,428 14,171 56,681
Corporate expenses
(1)................... 858 1,314 1,617 5,565
----------- ----------- --------------- ---------------
Operating income
(loss)................ $ (1,467) $(2,923) $ (865) $ 36,185
Interest expense....... (103) (6,748) (12,274) (49,098)
Other income
(expense)............. 26 815 1,135 1,249
Equity income (loss)
from investments ..... -- 445 77 6,362
----------- ----------- --------------- ---------------
Income (loss) before
income taxes.......... $ (1,544) $ (8,411) $(11,927) $ (5,302)
Income tax provision . -- (500) (650) (3,000)
----------- ----------- --------------- ---------------
Net income (loss)...... $ (1,544) $ (8,911) $(12,577) $ (8,302)
=========== =========== =============== ===============
Accretion on temporary
equity--stock subject
to redemption (2)..... (275) (825) (3,300)
Net loss applicable to
common shares ........ $ (9,186) $(13,402) $(11,602)
Net loss per common
share (3)............. $ (0.45) $ (0.39)
=========== =========== =============== ===============
Weighted average
common shares
outstanding (3)(4) ... 30,286 30,286
=========== =========== =============== ===============
OTHER OPERATING DATA:
EBITDA (5)............. $ (807) $ 1,505 $ 13,306 $ 92,866
=========== =========== =============== ===============
Cash flow from:
Operating activities . $ 307 $ 9,140
Investing activities . (22,612) (379,782)
Financing activities . 24,927 458,654
Ratio of earnings to
fixed charges (7)..... -- -- -- 1.02x
</TABLE>
41
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1998
------------------------------------------------ ---------------------------
PRO FORMA
FOR THE
SPIN-OFF, THE
SFX MERGER,
THE
RECENT
ACQUISITIONS,
THE PENDING
ACQUISITIONS
PREDECESSOR AND THE
------------------------------------- ACTUAL FINANCING
1993 1994 1995 1996 1997 (UNAUDITED) (UNAUDITED)
-------- -------- -------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................. $1,823 $4,453 $3,022 $6,191 $ 11,220 $149,375 $ 170,449
Property and equipment, net ... 4,484 3,728 2,978 2,231 59,685 196,732 243,824
Intangible assets, net......... -- -- -- -- 60,306 470,721 699,430
Total assets................... 6,420 8,222 6,037 8,879 146,942 858,426 1,165,627
Current liabilities............ 4,356 3,423 3,138 7,973 21,514 260,165 142,581
Long-term debt, including
current portion............... -- 1,830 -- -- 16,178 543,003 565,180
Temporary equity--stock
subject to redemption(2) ..... -- -- -- -- -- 16,500 16,500
Shareholders' equity
(deficit)..................... 6,420 2,969 2,900 907 102,144 (5,046) 377,721(6)
</TABLE>
- ------------
(1) Corporate expenses are reduced by $1,794,000 and $1,286,000 for fees
earned from Triathlon for the year ended December 31, 1997 and for the
twelve months ended March 31, 1998, respectively. The right to receive
fees payable under the agreement with Triathlon was assigned to the
Company by SFX Broadcasting 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. 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. See "Certain Relationships and Related Transactions--Triathlon
Fees."
(2) The PACE acquisition 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 the Company to purchase up to one-third
of the 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. See "Management's
Discussion and Analysis of Financial Conditions and Results of
Operations--Liquidity and Capital Resources."
(3) Includes 500,000 shares of Class A Common Stock 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.
(4) Reflects the issuance of (i) 8,050,000 shares of Class A Common Stock
in connection with the Equity Offering, (ii) 1,000,000 shares of Class
A Common Stock issued in connection with the FAME Acquisition and (iii)
531,782 shares of Class A Common Stock expected to be issued in
connection with the Don Law acquisition.
(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, the Company 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 the Company's operating performance or
liquidity which is calculated in accordance with GAAP.
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 $96,465,000 for the year
ended December 31, 1997 and $104,883,000 for the twelve months ended
March 31, 1998, an increase of $8,418,000. The adjustments include the
expected cost savings in connection with the Recent Acquisitions
associated with the elimination of duplicative staffing and general and
administrative expenses of $5,740,000 and $5,655,000, and include
equity income from investments of $5,347,000 and $6,362,000, for the
year ended December 31, 1997 and the twelve months ended March 31,
1998, respectively. While management believes that such cost savings
are achievable, the Company's ability to fully achieve such cost
savings is subject to numerous factors, certain of which may be beyond
the Company's control.
(6) Stockholders' equity on a pro forma basis 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 the Company or certain other costs. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources--Future Charges to Earnings."
(7) 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, $8,481,000 for the year ended December 31, 1997 Pro
Forma for the Transactions, the Recent Acquisitions and the Financing,
$1,544,000 for the three months ended March 31, 1997, $7,966,000 for
the three months ended March 31, 1998 and $11,850,000 for the three
months ended March 31, 1998 Pro Forma for the Transactions, the
Recent Acquisitions and the Financing.
42
<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 the
Company may differ materially from those discussed herein for the reasons
identified herein. The Company 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 the Company and the
businesses acquired or to be acquired in the 1997 Acquisitions, Recent
Acquisitions and the Pending Acquisitions and the respective notes to such
financial statements included herein. The pro forma information is based upon
tentative allocations of purchase price for the Recent and 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 date specified,
nor is it indicative of the Company's future results. Purchase accounting is
based upon preliminary asset valuations, which are subject to change.
The Unaudited Pro Forma Condensed Combined Balance Sheet at March 31, 1998
is presented as if the Recent and the Pending Acquisitions, the Financing,
the Spin-Off and the SFX Merger were completed as of March 31, 1998.
The Unaudited Pro Forma Condensed Combined Statements of Operations for
the year ended December 31, 1997, the three months ended March 31, 1998 and
the twelve months ended March 31, 1998 are presented as if the Company had
completed the Transactions, the Recent Acquisitions, the Pending Acquisitions
and the Financing as of January 1, 1997.
In addition, the Unaudited Pro Forma Condensed Combined Financial
Statements do not reflect certain purchase price adjustments and future
contingent payments contained in the agreements relating to the Recent
Acquisitions and the Pending Acquisitions. See "Risk Factors--Risks Related
to Pending Acquisitions" and "--Future Contingent Payments" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The pro forma financial statements do not include the effect of certain
immaterial acquisitions. No adjustments have been made to the Pro Forma
Condensed Combined Statement of Operations relating to charges to earnings
that are non-recurring and related to the transactions presented. See "Risk
Factors--Future Charges to Earnings."
43
<PAGE>
SFX ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
(in thousands)
<TABLE>
<CAPTION>
PRO FORMA FOR PRO FORMA FOR
THE SPIN-OFF, THE RECENT ACQUISITIONS,
PRO FORMA THE SFX MERGER PRO FORMA FOR THE SPIN-OFF, THE SFX
SFX FOR RECENT AND THE THE PENDING MERGER,
ENTERTAINMENT ACQUISITIONS FINANCING ACQUISITIONS THE FINANCING AND
(ACTUAL) I II III THE PENDING ACQUISITIONS
--------------- -------------- --------------- -------------- ----------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
$(122,987) $(81,605)
326,504
Current assets......... $149,375 $(123,015) 22,177 $ 170,449
Property and
equipment, net........ 196,732 15,092 32,000 243,824
Intangible assets,
net................... 470,721 154,229 74,480 699,430
Other assets........... 41,598 10,319 7 51,924
--------------- -------------- --------------- -------------- ----------------------------
TOTAL ASSETS........... $858,426 $ 56,625 $ 225,694 $24,882 $1,165,627
=============== ============== =============== ============== ============================
LIABILITIES &
STOCKHOLDERS' EQUITY:
Current liabilities ... 245,982 9,564 (120,000) 7,035 142,581
Deferred taxes......... 50,559 2,400 52,959
Senior Subordinated
Notes ................ 350,000 350,000
Credit Facility........ 150,000 22,177 172,177
Other long-term debt .. 30,701 30,701
Capital lease
obligations .......... 12,302 12,302
Other liabilities...... 5,858 1,411 147 7,416
Minority interest...... 1,570 1,700 3,270
Temporary
equity--stock subject
to redemption ........ 16,500 16,500
326,504
Stockholders' Equity .. (5,046) 43,250 (5,000) 16,000 377,721
2,013
--------------- -------------- --------------- -------------- ----------------------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY . $858,426 $ 56,625 $ 225,694 $24,882 $1,165,627
=============== ============== =============== ============== ============================
</TABLE>
44
<PAGE>
I. PRO FORMA FOR RECENT ACQUISITIONS
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998 (IN THOUSANDS)
--------------------------------------------------------------------------
FAME AVALON OAKDALE PRO FORMA RECENT
AS REPORTED ACQUISITION ACQUISITION ADJUSTMENTS ACQUISITIONS
------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets.................... $ 1,743 $2,871 $4,997 $(86,916)(a) $(123,015)
(26,800)(a)
4,676 (a)
(20,715)(a)
(2,871)(e)
Property and equipment, net ...... 60 3,505 364 11,163 (b) 15,092
Intangible assets, net............ -- 257 -- 127,155 (b) 154,229
24,417 (b)
2,400 (f)
Other assets...................... 348 2,337 -- 11,350 (a) 10,319
------------- ------------- ------------- -------------- --------------
(2,337)(e)
(1,379)(g)
TOTAL ASSETS...................... $ 2,151 $8,970 $5,361 $ 40,143 $ 56,625
============= ============= ============= ============== ==============
LIABILITIES & STOCKHOLDERS'
EQUITY:
Current liabilities............... 2,405 2,493 4,624 2,535 (a) 9,564
(2,493)(e)
Deferred taxes.................... -- -- -- 2,400 (f) 2,400
Other long-term debt.............. 344 1,124 -- (344)(c) --
(1,124)(e)
Other liabilities................. 1,411 -- -- 1,411
Minority interest................. -- 1,379 -- (1,379)(g) --
Stockholders' Equity.............. (2,009) 3,974 737 2,009 (d) 43,250
43,250 (a)
(737)(d)
(3,974)(e)
------------- ------------- ------------- -------------- --------------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY........................... $ 2,151 $8,970 $5,361 $ 40,143 $ 56,625
============= ============= ============= ============== ==============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) To reflect the FAME acquisition for $86,916,000 in cash (including
$7,900,000 which the Company paid in connection with certain taxes to
be incurred by FAME and the FAME sellers and $4,676,000 of taxes paid
on behalf of the seller which will be refunded to the Company in 1999)
and the issuance of 1.0 million shares of Class A Common Stock, the
Avalon Acquisition for $26,800,000 in cash (including reimbursement of
$300,000 in out-of-pocket costs and expenses incurred in connection
with the development of the Camarillo Creek Amphitheatre), and the
Oakdale Acquisition for $20,715,000 in cash (including a non-recourse
loan to the sellers of Oakdale in the amount of $11,350,000, a portion
of which will be used to repay outstanding indebtedness) and the
assumption of $2,535,000 of liabilities.
(b) To reflect the excess of the purchase price over the net tangible
assets acquired of $127,155,000 and $24,417,000 for the FAME and Avalon
Acquisitions, respectively. Also to reflect the increase in the fair
value allocated to fixed assets of $11,163,000 associated with the
Oakdale Acquisition.
(c) To reflect the repayment by the Company of FAME's long-term debt at
closing.
(d) To reflect the elimination of FAME's and Oakdale's stockholders'
equity.
(e) To reflect the elimination of the historical balances of current
assets, current liabilities, other assets, long term debt and
stockholder's equity of the Avalon Acquisition.
45
<PAGE>
(f) Reflects deferred taxes of $2,400,000 associated with the differences
between the book and tax bases of assets and liabilities acquired in
the Avalon Acquisition.
(g) Reflects the elimination of $1,379,000 of minority interest recorded by
Avalon related to its investment in a partnership which operates the
Irvine and Glen Helen Amphitheatres. The Company currently owns the
remaining 50% of the partnership.
II. PRO FORMA ADJUSTMENTS FOR THE SPIN-OFF, THE SFX MERGER AND THE FINANCING
To reflect (i) the assumption of the obligation to pay an estimated $120.0
million of certain taxes resulting from the Spin-Off and (ii) the payment of
Working Capital by SFX Broadcasting to the Company upon consummation of the
SFX Merger. At the consummation of the SFX Merger, the Company received net
Working Capital of $2,013,000. Also reflects $5.0 million of change of control
payments under the employment agreements of Messrs. Sillerman, Ferrel and
Benson assumed by the Company pursuant to the Distribution Agreement.
Represents the net proceeds from the Equity Offering of $326,504,000 and
additional borrowings under the Credit Facility of $22,177,000.
III. PRO FORMA FOR THE PENDING ACQUISITIONS
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998 (IN THOUSANDS)
-----------------------------------------------------------
DON LAW EMI PRO FORMA PENDING
AS REPORTED ACQUISITION ADJUSTMENTS ACQUISITIONS
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets ........................... $ 7,145 $1,300 $(74,000)(a) $(81,605)
(9,250)(a)
(800)(f)
(6,000)(h)
Property and equipment, net .............. 13,025 -- 18,975 (b) 32,000
Intangible assets, net ................... 157 -- 57,322 (c) 74,480
11,001 (c)
6,000 (h)
Other assets.............................. -- 7 7
------------- ------------- -------------- --------------
TOTAL ASSETS ............................. $20,327 $1,307 $ 3,248 $ 24,882
============= ============= ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities ...................... $ 6,574 $ 461 7,035
Long-term debt ........................... 10,514 800 (10,000)(a) --
(514)(d)
(800)(f)
Other liabilities ........................ 50 97 -- 147
Minority interest ........................ -- -- 1,700 (g) 1,700
Stockholders' Equity...................... 3,189 (51) (3,189)(e) 16,000
51 (e)
16,000 (a)
------------- ------------- -------------- --------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $20,327 $1,307 $ 3,248 $ 24,882
============= ============= ============== ==============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS
(a) To reflect the Don Law acquisition for $74,000,000 in cash (including
the repayment of up to $10,000,000 of the seller's debt) and the
issuance of shares of Class A Common Stock valued at $16,000,000
(531,782 shares based on a negotiated per-share price of $30.0875).
The Company may, at its option, elect to pay the full purchase price
in cash in lieu of capital stock. Also reflects the EMI Acquisition
for $9,250,000 in cash (including a loan to the EMI sellers of
approximately $750,000).
(b) To reflect the increase in fair value allocated to fixed assets.
(c) To reflect the excess of the purchase price paid over the fair value
of net tangible assets acquired of $57,322,000 and $11,001,000 for
the Don Law and EMI Acquisitions, respectively.
(d) To reflect the repayment by the seller of the remaining long-term
debt at closing.
(e) To reflect the elimination of Don Law's and EMI's stockholders'
equity.
(f) To reflect the repayment by the Company of EMI's long-term debt at
closing.
(g) To record minority interest for the 20% of EMI not purchased by the
Company.
(h) Reflects $6,000,000 in estimated fees and expenses associated with
the Pending and certain Recent Acquisitions.
46
<PAGE>
SFX ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SFX PRO FORMA FOR THE PRO FORMA FOR
ENTERTAINMENT PRO FORMA FOR PENDING THE TRANSACTIONS, THE
(ACTUAL) THE TRANSACTIONS ACQUISITIONS PENDING ACQUISITIONS
I II III AND THE FINANCING
--------------- ---------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Revenue ...................... $96,144 $701,300 $77,714 $779,014
Operating expenses ........... 83,417 617,654 70,776 688,430
Depreciation & amortization . 5,431 50,430 6,251 56,681
Corporate expenses............ 2,206 5,206 -- 5,206
--------------- ---------------- ------------------- ---------------------
Operating income (loss) ..... 5,090 28,010 687 28,697
Interest expense ............. 1,590 49,098 -- 49,098
Other (income) expenses ..... (295) (817) (371) (1,188)
Equity (income) loss from
investments ................. (509) (5,417) 70 (5,347)
Other expenses................ -- (38) -- (38)
--------------- ---------------- ------------------- ---------------------
Income/(loss) before income
tax expense ................. 4,304 (14,816) 988 (13,828)
Income tax expense (benefit) 490 4,200 -- 4,200
--------------- ---------------- ------------------- ---------------------
Net income (loss) ............ $ 3,814 $(19,016) $ 988 $(18,028)
=============== ================ =================== =====================
Accretion on temporary equity (3,300) (3,300)
---------------- ---------------------
Net loss applicable to common
shares ...................... $(22,316) $(21,328)
================ =====================
Net loss per common share .... $ (0.72)
=====================
Weighted average common
shares outstanding (1)....... 30,286
=====================
</TABLE>
- ------------
(1) Includes 500,000 shares of Class A Common Stock 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), 8,050,000
and 1.0 million shares of Class A Common Stock issued in connection
with the Equity Offering and the FAME Acquisition, respectively, and
the assumed issuance of approximately 0.5 million shares in connection
with the Don Law acquisition.
47
<PAGE>
NOTES TO PRO FORMA INCOME STATEMENT:
I. Represents the Company's actual operating results for the year ended
December 31, 1997.
EBITDA for the year ended December 31, 1997 was $10,521,000 and
$85,378,000 for the Company 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, the Company 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 the Company's
operating performance or liquidity which is calculated in accordance
with GAAP. Cash flows from operating, investing and financing
activities for the Company for the year ended December 31, 1997 were
$1,005,000, ($73,296,000) and $78,270,000, 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 $96,465,000
for the year ended December 31, 1997. The adjustments include the
expected cost savings in connection with the Recent Acquisitions
associated with the elimination of duplicative staffing and general
and administrative expenses of $5,740,000, and include equity income
from investments of $5,347,000. While management believes that such
cost savings are achievable, the Company's ability to fully achieve
such cost savings is subject to numerous factors, certain of which
may be beyond the Company's control.
Corporate expenses are net of fees from Triathlon of $1,794,000.
These fees will vary, above the minimum level of $500,000, based on
the level of acquisition and financing activities of Triathlon.
Sillerman Communications Management Corporation ("SCMC") previously
assigned its rights to receive fees payable under its agreement with
Triathlon to SFX Broadcasting. Pursuant to the terms of the
Distribution Agreement, SFX Broadcasting assigned its rights to
receive such fees to the Company. 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.
II. PRO FORMA FOR THE TRANSACTIONS
The Transactions consist of the 1997 Acquisitions, the Recent
Acquisitions, the Note Offering, $150.0 million in initial borrowings under
the Credit Facility to fund certain of the Recent Acquisitions, the Spin-Off
and the SFX Merger.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
-------------------------------------------------------------------------------
PRO FORMA PACE
SFX FOR 1997 AND PAVILION CONTEMPORARY BGP NETWORK
ENTERTAINMENT ACQUISITIONS ACQUISITIONS ACQUISITION ACQUISITION ACQUISITION
(ACTUAL) A B C D E
------------- ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue......................... $96,144 $14,243 $284,360 $103,300 $105,553 $28,322
Operating expenses.............. 83,417 13,293 260,256 91,220 96,630 19,577
Depreciation & amortization .... 5,431 1,402 6,053 1,320 1,027 351
Corporate expenses.............. 2,206 -- -- -- --
Other expenses.................. -- -- -- -- --
------------- ------------ ------------ ------------ ----------- -----------
Operating income (loss)......... 5,090 (452) 18,051 10,760 7,896 8,394
Interest expense................ 1,590 171 6,772 266 917 195
Other (income) expenses......... (295) (1) 1,328 (357) (270) (78)
Equity (income) loss from
investments.................... (509) -- (7,399) -- -- --
Other expenses.................. -- -- (38) -- -- --
------------- ------------ ------------ ------------ ----------- -----------
Income (loss) before income tax
expense........................ 4,304 (622) 17,388 10,851 7,249 8,277
Income tax expense (benefit) ... 490 -- 3,569 -- 1,687 127
------------- ------------ ------------ ------------ ----------- -----------
Net income (loss)............... $ 3,814 $ (622) $ 13,819 $ 10,851 $ 5,562 $ 8,150
============= ============ ============ ============ =========== ===========
Accretion on temporary equity .
Net income (loss) applicable to
common share...................
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
CONCERTS ADJUSTMENTS
SOUTHERN FAME OTHER FOR THE RECENT PRO FORMA
ACQUISITION ACQUISITION ACQUISITIONS ACQUISITIONS FOR THE
F G H I TRANSACTIONS
----------- ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue......................... $14,797 $10,881 $43,700 $ -- $701,300
Operating expenses.............. 12,520 3,457 37,284 -- 617,654
Depreciation & amortization .... 79 115 461 34,191 (a) 50,430
Corporate expenses.............. -- -- -- 3,000 (b) 5,206
Other expenses.................. -- -- -- -- --
----------- ----------- ------------ -------------- ------------
Operating income (loss)......... 2,198 7,309 5,955 (37,191) 28,010
Interest expense................ -- 79 1,602 (9,831)(c) 49,098
47,337 (c)
Other (income) expenses......... (60) (143) (79) (862)(d) (817)
Equity (income) loss from
investments.................... 48 -- -- 862 (d) (5,417)
1,581 (g)
Other expenses.................. -- -- -- (38)
----------- ----------- ------------ -------------- ------------
Income (loss) before income tax
expense........................ 2,210 7,373 4,432 (76,278) (14,816)
Income tax expense (benefit) ... -- 700 949 (3,322)(e) 4,200
----------- ----------- ------------ -------------- ------------
Net income (loss)............... $ 2,210 $ 6,673 $ 3,483 $(72,956) $(19,016)
=========== =========== ============ ============== ============
Accretion on temporary equity . (3,300)(f) (3,300)
-------------- ------------
Net income (loss) applicable to
common share................... $(76,256) $(22,316)
============== ============
</TABLE>
48
<PAGE>
A. The Company acquired Delsener/Slater, the Meadows Music Theater 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 acquisitions by
the Company.
B. PACE AND PAVILION ACQUISITIONS
Reflects the PACE acquisition, the separate acquisition of two partners'
interest in the Pavilion partnership that owns certain amphitheaters operated
by PACE and the acquisition of USA Motor Sports by PACE in March 1998.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1997 (IN THOUSANDS)
----------------------------------------------------------------------
PACE PAVILION USA MOTOR PRO FORMA PACE
AS REPORTED AS REPORTED SPORTS ADJUSTMENTS ACQUISITION
------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue ........................ $176,168 $98,632 $8,560 $ 1,000 (a) $284,360
Operating expenses.............. 170,169 83,258 8,306 (1,477)(b) 260,256
Depreciation & amortization .... 1,985 4,045 23 -- 6,053
Other expenses.................. 1,139 -- -- (1,139)(c) --
------------- ------------- ----------- ------------- -------------
Operating income (loss) ........ $ 2,875 $11,329 $ 231 $ 3,616 $ 18,051
Interest expense................ 2,384 4,388 -- -- 6,772
Other (income) expenses......... 53 1,304 (29) -- 1,328
Equity (income) loss from
investments.................... (8,134) (1,831) -- 2,566 (d) (7,399)
Other expenses ................. -- -- (38) -- (38)
------------- ------------- ----------- ------------- -------------
Income/(loss) before income tax
expense........................ $ 8,572 $ 7,468 298 $ 1,050 $ 17,388
Income tax expense (benefit) .. 3,569 -- -- -- 3,569
------------- ------------- ----------- ------------- -------------
Net income (loss) .............. $ 5,003 $ 7,468 $ 298 $ 1,050 $ 13,819
============= ============= =========== ============= =============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) To reflect non-cash revenue resulting from the Company 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 $570,000 of certain officers' salaries and
bonuses which will not be paid under the Company's new employment
contracts and of $907,000 of non-recurring costs incurred in connection
with PACE's previously planned initial public offering, which was
canceled. The amount of the pro forma adjustment to eliminate salaries
and bonuses is based on the Company'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
because, if PACE's results were similar to those in these pro forma
statements of operations, the Company 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.
49
<PAGE>
C. 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
-----------------------------------------------------------
CONTEMPORARY RIVERPORT PRO FORMA CONTEMPORARY
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue ................................ $89,053 $14,247 $ -- $103,300
Operating expenses...................... 90,820 11,630 (11,230)(a) 91,220
Depreciation & amortization............. 541 779 -- 1,320
-------------- ------------- ------------- --------------
Operating income (loss)................. $(2,308) $ 1,838 $ 11,230 $ 10,760
Interest expense........................ 192 74 -- 266
Other (income) expenses................. (117) (240) -- (357)
Equity (income) from investments ....... (1,002) -- 1,002 (b) --
-------------- ------------- ------------- --------------
Income/(loss) before income tax
expense................................ $(1,381) $ 2,004 $ 10,228 $ 10,851
Income tax expense (benefit)............ -- -- -- --
-------------- ------------- ------------- --------------
Net income (loss)....................... $(1,381) $ 2,004 $ 10,228 $ 10,851
============== ============= ============= ==============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of certain officers' salaries and bonuses and
other consulting expenses which will not be paid under the Company's
new employment and other contracts. The amount of the pro forma
adjustment to eliminate salaries and bonuses is based on the Company's
agreements with the affected employees that a bonus will not be paid
unless there is a significant improvement in the results of
Contemporary. Accordingly, no such bonus is reflected in the pro forma
statement of operations because, if Contemporary's results were similar
to those in these pro forma statements of operations, the Company would
not be contractually obligated to pay a bonus.
(b) Reflects the elimination of Contemporary's equity income in Riverport
Amphitheater Partners. Contemporary has acquired its partners' 50%
interest in this venture.
D. BGP ACQUISITION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
---------------------------------------------
PRO FORMA BGP
AS REPORTED (A) ADJUSTMENTS ACQUISITION
--------------- ------------- -------------
<S> <C> <C> <C>
Revenue ................................ $105,553 $ -- $105,553
Operating expenses...................... 99,958 (3,328)(b) 96,630
Depreciation & amortization............. 1,027 -- 1,027
--------------- ------------- -------------
Operating income ....................... $ 4,568 $ 3,328 $ 7,896
Interest expense........................ 917 -- 917
Other (income) expenses................. (270) -- (270)
--------------- ------------- -------------
Income/(loss) before income tax
expense................................ $ 3,921 $ 3,328 $ 7,249
Income tax expense (benefit)............ 1,687 -- 1,687
--------------- ------------- -------------
Net income.............................. $ 2,234 $ 3,328 $ 5,562
=============== ============= =============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects BGP's operating results for the twelve months ended January
31, 1998.
(b) Reflects the elimination of certain officers' salaries and bonuses and
other consulting expenses which will not be paid under the Company's
new employment and other contracts. The amount of the pro forma
adjustment to eliminate salaries and bonuses is based on the Company's
agreements with the affected employees that a bonus will not be paid
unless there is a significant improvement in the results of BGP.
Accordingly, no such bonus is reflected in the pro forma statement of
operations because, if BGP's results were similar to those in these pro
forma statements of operations, the Company would not be contractually
obligated to pay a bonus.
50
<PAGE>
E. NETWORK ACQUISITION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
----------------------------------------------------------
THE NETWORK
MAGAZINE SJS PRO FORMA NETWORK
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITIONS
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue ................................ $16,274 $14,218 $(2,170)(b) $28,322
Operating expenses...................... 14,651 14,422 (2,170)(b) 19,577
(7,326)(a)
Depreciation & amortization............. 224 127 351
------------- ------------- ------------- --------------
Operating income (loss)................. $ 1,399 $ (331) $ 7,326 $ 8,394
Interest expense, net................... 159 36 -- 195
Other (income) expenses................. -- (78) -- (78)
------------- ------------- ------------- --------------
Income/(loss) before income tax
expense................................ $ 1,240 $ (289) $ 7,326 $ 8,277
Income tax expense (benefit) ........... -- (127) -- (127)
------------- ------------- ------------- --------------
Net income (loss) ...................... $ 1,240 $ (416) $ 7,326 $ 8,150
============= ============= ============= ==============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of certain officers' salaries and bonuses
which will not be paid under the Company's new employment contracts.
The amount of the pro forma adjustment to eliminate salaries and
bonuses is based on the Company'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
because, if Network's results were similar to those in these pro forma
statements of operations, the Company would not be contractually
obligated to pay a bonus.
(b) Reflects the elimination of transactions between Network Magazine and
SJS.
F. CONCERT/SOUTHERN ACQUISITION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
-------------------------------------------
CONCERT/
PRO FORMA SOUTHERN
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- -------------
<S> <C> <C> <C>
Revenue .............................. $14,797 $ -- $14,797
Operating expenses.................... 12,949 (429)(a) 12,520
Depreciation & amortization........... 79 -- 79
------------- ------------- -------------
Operating income...................... $ 1,769 $ 429 $ 2,198
Other (income) expenses............... (60) -- (60)
Equity (income) loss from
investments.......................... 80 (32)(b) 48
------------- ------------- -------------
Income before income tax expense ..... $ 1,749 $ 461 $ 2,210
Income tax expense (benefit).......... -- -- --
------------- ------------- -------------
Net income............................ $ 1,749 $ 461 $ 2,210
============= ============= =============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of certain officers' salaries and bonuses
which will not be paid under the Company's new employment contracts.
The amount of the pro forma adjustment to eliminate salaries and
bonuses is based on the Company's agreements with the affected
employees that a bonus will not be paid unless there is a significant
improvement in the results of Concert/Southern. Accordingly, no such
bonus is reflected in the pro forma statement of operations because, if
Concert/Southern's results were similar to those in these pro forma
statements of operations, the Company would not be contractually
obligated to pay a bonus.
(b) Reflects the elimination of equity loss of a non-entertainment
affiliated entity which was not acquired by the Company.
51
<PAGE>
G. FAME ACQUISITION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
--------------------------------------------
PRO FORMA FAME
AS REPORTED ADJUSTMENTS ACQUISITION
------------- -------------- -------------
<S> <C> <C> <C>
Revenue................................ $10,881 $10,881
Operating expenses..................... 13,002 $(10,595)(a) 3,457
1,050 (b)
Depreciation & amortization............ 115 115
------------- -------------- -------------
Operating income (loss)................ (2,236) 9,545 7,309
Interest expense....................... 79 79
Other (income) expenses................ (143) (143)
------------- -------------- -------------
Income/(loss) before income tax
expense............................... (2,172) 9,545 7,373
Income tax expense (benefit)........... 700 (c) 700
------------- -------------- -------------
Net income (loss)...................... $(2,172) $ 8,845 $ 6,673
============= ============== =============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of certain officers' distributions of
earnings which will not be paid under the Company's new employment
contracts. The FAME Agreement provides for payments by the Company to
the FAME sellers of additional amounts up to an aggregate of $15.0
million in equal annual installments over 5 years contingent on the
achievement of certain EBITDA targets and for additional payments by
the Company if FAME's EBITDA performance exceeds the target by
certain amounts.
(b) Reflects salaries and officers' life insurance premiums to be paid by
the Company.
(c) Reflects an adjustment to the provision for state and local income
taxes.
H. OTHER ACQUISITIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
----------------------------------------------------------
AVALON OAKDALE PRO FORMA OTHER
ACQUISITION ACQUISITION ADJUSTMENTS ACQUISITIONS
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue......................... $27,265 $16,435 $43,700
Operating expenses.............. 24,404 14,720 (1,840)(a) 37,284
Depreciation & amortization .... 410 51 461
Corporate expenses.............. --
Other expenses.................. --
------------- ------------- ------------- --------------
Operating income (loss)......... 2,451 $ 1,664 1,840 5,955
Interest expense................ 94 1,508 1,602
Other (income) expenses......... -- (79) (79)
Other expenses ................. 1,581 (1,581)(b) --
------------- ------------- ------------- --------------
Income/(loss) before income tax
expense........................ $ 776 $ 235 3,421 4,432
Income tax expense (benefit) ... 249 700 (c) 949
------------- ------------- ------------- --------------
Net income (loss)............... $ 527 $ 235 $ 2,721 $ 3,483
============= ============= ============= ==============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of certain officers' bonuses and wages not
expected to be paid under the Company's new employment contracts for
Avalon. The amount of the pro forma adjustment to eliminate salaries
and bonuses is based on the Company's agreements with the affected
employees that a bonus will not be paid unless there is a significant
improvement in the results of Avalon. Accordingly, no such bonus is
reflected in the pro forma statement of operations because, if
Avalon's results were similar to those in these pro forma statements
of operations, the Company would not be contractually obligated to
pay a bonus.
52
<PAGE>
(b) To reclassify PACE's equity income in Avalon following the Avalon
acquisition.
(c) Reflects an adjustment to the provision for state and local income
taxes.
I. PRO FORMA ADJUSTMENTS
(a) Reflects the increase in depreciation and amortization resulting from
the preliminary purchase accounting treatment of the Recent
Acquisitions. The Company amortizes goodwill over 15 years.
(b) To record incremental corporate overhead charges associated with
headquarters personnel and general and administrative expenses that
management estimates will be necessary as a result of the Recent
Acquisitions.
(c) Reflects the elimination of $9,831,000 of historical interest expense
and the recording of incremental interest expense associated with the
Notes, the borrowings under the Credit Facility and other debt and
deferred compensation costs related to the 1997 and the Recent
Acquisitions.
(d) 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.
(e) Represents an adjustment to the provision for state and local income
taxes to reflect an approximate pro forma tax provision of $4,200,000.
The calculation treats all companies acquired pursuant to the Recent
Acquisitions as "C" Corporations. The tax provision reflects the
non-deductibility of approximately $17,000,000 of goodwill
amortization, and tax savings related to the pro forma adjustments for
the Financing.
(f) Represents the accretion on the Fifth Year Put Option issued to the
PACE sellers in connection with the PACE acquisition.
(g) To reclassify PACE's equity income in Avalon following the Avalon
acquisition.
III. PENDING ACQUISITIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
-----------------------------------------------------------
DON LAW EMI PRO FORMA PENDING
AS REPORTED ACQUISITION ADJUSTMENTS(C) ACQUISITIONS
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue................................. $50,588 $27,126 $77,714
Operating expenses...................... 44,401 27,035 (610)(a) 70,776
(50)(b)
Depreciation & amortization............. 2,033 -- 4,218 (e) 6,251
------------- ------------- -------------- --------------
Operating income (loss)................. $ 4,154 $ 91 (3,558) $ 687
Interest expense........................ 1,072 41 (1,113)(d) --
Other (income) expenses................. (329) (42) (371)
Equity loss from investments ........... -- 70 70
------------- ------------- -------------- --------------
Income/(loss) before income tax
expense................................ $ 3,411 22 (2,445) $ 988
Income tax expense (benefit)............ -- --
------------- ------------- -------------- --------------
Net income (loss)....................... $ 3,411 $ 22 $(2,445) $ 988
============= ============= ============== ==============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of payments made to employees by the
principal owner of Don Law in connection with the sale of membership
interests to a third party in 1997.
(b) Reflects the elimination of certain officers' bonuses and wages not
expected to be paid under the Company's new employment contracts. The
amount of the pro forma adjustment to eliminate salaries and bonuses
is based on the Company's agreements with the affected employees that
a bonus will not be paid unless there is a significant improvement in
the results of Don Law. Accordingly, no such bonus is reflected in
the pro forma statement of operations because, if Don Law's results
were similar to those in these pro forma statements of operations,
the Company would not be contractually obligated to pay a bonus.
53
<PAGE>
(c) The pro forma adjustments for Don Law do not reflect the impact of
certain new business opportunities in 1998 including an agreement to
provide ticketing services for the Boston Red Sox, a new long-term
concessions contract at Great Woods and an opportunity to sell the
naming rights at Harborlights Pavilion. These opportunities are
expected to have a significant positive impact on Don Law's 1998
operating results. However, there can be no assurance that the
Company will be able to achieve such improvements. See "Risk
Factors."
(d) Reflects the elimination of $1,113,000 of historical interest
expense.
(e) Reflects the $4,218,000 increase in depreciation and amortization
resulting from the preliminary purchase accounting treatment of the
Pending Acquisitions. The Company amortized goodwill over 15 years.
54
<PAGE>
SFX ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
SFX PRO FORMA TRANSACTIONS,
ENTERTAINMENT PRO FORMA FOR FOR THE PENDING THE PENDING
(ACTUAL) THE TRANSACTIONS ACQUISITIONS ACQUISITIONS,
I II III AND THE FINANCING
--------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C>
Revenue................................. $60,994 $181,322 $ 6,023 $187,345
Operating expenses...................... 58,175 166,162 6,260 172,422
Depreciation & amortization............. 4,428 12,608 1,563 14,171
Corporate expenses...................... 1,314 1,617 1,617
Other expenses.......................... -- -- --
--------------- ---------------- --------------- ------------------
Operating income (loss)................. $(2,923) $ 935 $(1,800) (865)
Interest expense........................ 6,748 12,274 12,274
Other (income) expenses................. (897) (1,319) (30) (1,349)
Equity (income) loss from investments .. (445) (77) (77)
Other expenses ......................... 82 214 214
--------------- ---------------- --------------- ------------------
Income/(loss) before income tax
expense................................ $(8,411) $(10,157) $(1,770) $(11,927)
Income tax expense (benefit)............ 500 650 650
--------------- ---------------- --------------- ------------------
Net income (loss)....................... (8,911) $(10,807) $(1,770) $(12,577)
=============== ================ =============== ==================
Accretion on temporary equity........... (275) (825) (825)
--------------- ---------------- ------------------
Net income (loss) applicable to common
shares................................. $(9,186) $(11,632) $(13,402)
=============== ================ ==================
Net income (loss) per common share ..... $ (0.45)
==================
Weighted Average common shares
outstanding (1)........................ 30,286
==================
</TABLE>
- ------------
(1) Includes 500,000 shares of Class A Common Stock 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), 8,050,000
and 1.0 million shares of Class A Common Stock issued in connection
with the Equity Offering and the FAME Acquisition, respectively, and
the assumed issuance of approximately 0.5 million shares in connection
with the Don Law acquisition.
55
<PAGE>
NOTE TO PRO FORMA INCOME STATEMENT:
I. Represents the Company's actual operating results for the three months
ended March 31, 1998.
EBITDA for the three months ended March 31, 1998 was $1,505,000 and
$13,306,000 for the Company 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, the Company 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 the Company's operating performance or liquidity which is
calculated in accordance with GAAP. Cash flows from operating, investing
and financing activities for the Company for the three months ended March
31, 1998 were $9,140,000, $379,782,000 and $458,654,000, respectively.
There are other adjustments that could affect EBITDA but have not been
reflected herein. Had such adjustment been made, Adjusted EBITDA on a pro
forma basis would have been approximately $14,766,000 for the three months
ended March 31, 1998. The adjustments include the expected cost savings in
connection with the Recent Acquisitions associated with the elimination of
duplicative staffing and general and administrative expenses of
$1,383,000, and include equity income from investments of $77,000. While
management believes that such cost savings are achievable, the Company's
ability to fully achieve such cost savings is subject to numerous factors,
certain of which may be beyond the Company's control.
Corporate expenses are net of fees from Triathlon of $133,000. These fees
will vary, above the minimum annual 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 its agreement with
Triathlon to SFX Broadcasting. Pursuant to the terms of the Distribution
Agreement, SFX Broadcasting assigned its rights to receive such fees to
the Company. 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.
II. PRO FORMA FOR THE TRANSACTIONS
The Company acquired PACE & Pavilion, Contemporary, BGP, Network,
Concert/Southern, FAME, Oakdale and Avalon on February 25, 1998, February
27, 1998, February 24, 1998, February 27, 1998, March 4, 1998, June 4,
1998, June 3, 1998 and May 14, 1998, respectively. The following represent
the operating results of these companies prior to their acquisition by the
Company.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
------------------------------------------------------------------------------
SFX PACE & CONCERT/
ENTERTAINMENT PAVILION CONTEMPORARY BGP NETWORK SOUTHERN
(ACTUAL) ACQUISITIONS ACQUISITION ACQUISITION ACQUISITION ACQUISITION
------------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue ........................ $60,994 $84,199 $7,882 $16,075 $4,154 $ 524
Operating expenses ............. 58,175 83,643 8,255 16,801 3,949 638
Depreciation & amortization ... 4,428 1,049 254 213 51 9
Corporate expenses ............. 1,314
Other expenses ................. --
------------- ------------ ------------ ----------- ----------- -----------
Operating income (loss) ........ $(2,923) (493) (627) (939) 154 (123)
Interest expense ............... 6,748 1,148 -- 165 37
Other (income) expenses ........ (897) (195) (122) (46) (14)
Equity (income) loss from
investments ................... (445) 549 20
Other expenses ................. 82 19 113
------------- ------------ ------------ ----------- ----------- -----------
Income/(loss) before income tax
expense ....................... $(8,411) (2,014) (505) (1,171) 131 (143)
Income tax expense (benefit) .. 500 (475) 3
------------- ------------ ------------ ----------- ----------- -----------
Net income (loss) .............. $(8,911) $(1,539) $ (505) $(1,171) $ 128 $(143)
============ ============ =========== =========== ===========
Accretion on temporary equity . (275)
-------------
Net income (loss) applicable to
common share .................. $(9,186)
=============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FAME OTHER FOR THE RECENT PRO FORMA
ACQUISITION ACQUISITIONS ACQUISITIONS FOR THE
A B C TRANSACTIONS
----------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Revenue ........................ $1,813 $5,681 $181,322
Operating expenses ............. 716 5,881 $(10,723) 166,162
(1,173)
Depreciation & amortization ... 14 124 6,466 12,608
Corporate expenses ............. -- -- 303 1,617
Other expenses ................. -- -- -- --
----------- ------------ -------------- ------------
Operating income (loss) ........ 1,083 (324) 5,127 935
Interest expense ............... 21 51 (8,170) 12,274
12,274
Other (income) expenses ........ (24) (21) (1,319)
Equity (income) loss from
investments ................... -- -- (201) (77)
Other expenses ................. -- -- 214
----------- ------------ -------------- ------------
Income/(loss) before income tax
expense ....................... 1,086 (354) 1,224 (10,157)
Income tax expense (benefit) .. 100 -- 522 650
----------- ------------ -------------- ------------
Net income (loss) .............. $ 986 $ (354) $ 702 $(10,807)
=========== ============ ============== ============
Accretion on temporary equity . (550) (825)
-------------- ------------
Net income (loss) applicable to
common share .................. $152 $(11,632)
============== ============
</TABLE>
56
<PAGE>
A. FAME Acquisition
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 (IN
THOUSANDS)
-------------------------------------------
PRO FORMA FAME
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- -------------
<S> <C> <C> <C>
Revenue.......................... $1,813 $1,813
Operating expenses............... 1,742 $(1,289)(a) 716
263 (b)
Depreciation & amortization ..... 14 14
------------- ------------- -------------
Operating income................. 57 1,026 1,083
Interest expense................. 21 21
Other (income) expenses.......... (24) (24)
------------- ------------- -------------
Income before income tax
expense......................... 60 1,026 1,086
Income tax expense (benefit) .... 100(c) 100
------------- ------------- -------------
Net income....................... $ 60 $ 926 $ 986
============= ============= =============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of certain officer's distributions of
earnings which will not be paid under the Company's new employment
contracts. The FAME Agreement provides for payments by the Company to
the FAME sellers of additional amounts up to an aggregate of $15.0
million in equal annual installments over 5 years contingent on the
achievement of certain EBITDA targets and for additional payments by
the Company if FAME's EBITDA performance exceeds the targets by
certain amounts.
(b) Reflects salaries and officers' life insurance premiums to be paid by
the Company.
(c) Reflects an adjustment to the provision for state and local income
taxes.
B. OTHER ACQUISITIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 (IN THOUSANDS)
----------------------------------------------------------
AVALON OAKDALE PRO FORMA OTHER
ACQUISITION ACQUISITION ADJUSTMENTS ACQUISITIONS
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue................................ $ 1,071 $4,610 $5,681
Operating expenses..................... 2,043 3,838 5,881
Depreciation & amortization............ 110 14 124
------------- ------------- ------------- --------------
Operating income (loss)................ (1,082) $ 758 -- $ (324)
Interest expense....................... 20 31 51
Other (income) expenses................ (21) (21)
Other expenses ........................ (201) $ 201 (a) --
------------- ------------- ------------- --------------
Income/(loss) before income tax
expense............................... $ (901) $ 748 $(201) $ (354)
Income tax expense (benefit)........... --
------------- ------------- ------------- --------------
Net income (loss)...................... $ (901) $ 748 $(201) $ (354)
============= ============= ============= ==============
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(a) To reclassify PACE's equity income in Avalon following the Avalon
acquisition (which was consummated on May 14, 1998).
57
<PAGE>
C. PRO FORMA ADJUSTMENTS FOR THE RECENT ACQUISITIONS:
To reflect the elimination of $10,723,000 of PACE's non-cash stock
and other non-recurring compensation and $1,173,000 of Network's
excess compensation.
Reflects the increase of $6,466,000 in depreciation and amortization
resulting from the preliminary purchase accounting treatment of the
Recent Acquisitions. The Company amortizes goodwill over 15 years.
To record incremental corporate overhead charges of $303,000
associated with incremental headquarters personnel and general and
administrative expenses that management estimates will be necessary
as a result of the Recent Acquisitions.
Reflects the elimination of $8,170,000 of historical interest expense
and to record incremental interest expense of $12,274,000 associated
with the Notes, the Credit Facility and other debt related to the
Recent Acquisitions.
To reclassify $201,000 of PACE's equity income in Avalon following
the Avalon acquisition.
Represents an adjustment to the provision for their state and local
income taxes to reflect an approximate pro forma tax provision of
$650,000. The calculation treats all companies to be acquired
pursuant to the Recent Acquisitions as "C" Corporations.
Represents the accretion of $550,000 on the Fifth Year Put Option
issued to the PACE sellers in connection with the PACE acquisition.
III. PENDING ACQUISITIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 (IN THOUSANDS)
-----------------------------------------------------------
DON LAW EMI PRO FORMA PENDING
AS REPORTED ACQUISITION ADJUSTMENTS (A) ACQUISITIONS
------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenue................................. $4,549 $1,474 $ 6,023
Operating expenses...................... 4,718 1,542 6,260
Depreciation & amortization............. 475 $ 1,088 (b) 1,563
------------- ------------- --------------- --------------
Operating income (loss)................. $ (644) $ (68) $(1,088) $(1,800)
Interest expense........................ 201 4 (205)(c) --
Other (income) expenses................. (30) (30)
------------- ------------- --------------- --------------
Income/(loss) before income tax
expense................................ $ (815) $ (72) $ (883) $(1,770)
Income tax expense (benefit)............ -- --
------------- ------------- --------------- --------------
Net income (loss)....................... $ (815) $ (72) $ (883) $(1,770)
============= ============= =============== ==============
</TABLE>
- ------------
(a) The pro forma adjustments for Don Law do not reflect the impact of
certain new business opportunities in 1998 including an agreement to
provide ticketing services for the Boston Red Sox, a new long-term
concessions contract at Great Woods and an opportunity to sell the
naming rights at Harborlights Pavilion. These opportunities are
expected to have a significant positive impact on Don Law's 1998
operating results. However, there can be no assurance that the
Company will be able to achieve such improvements. See "Risk
Factors."
(b) Reflects the increase of $1,088,000 in depreciation and amortization
resulting from the preliminary purchase accounting treatment of the
Pending Acquisitions. The Company amortizes goodwill over 15 years.
(c) Reflects the elimination of $205,000 of historical interest expense.
58
<PAGE>
SFX ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SFX FOR THE FOR THE TRANSACTIONS,
ENTERTAINMENT PRO FORMA FOR THE PENDING THE PENDING
(ACTUAL) TRANSACTIONS ACQUISITIONS ACQUISITIONS
I II III AND THE FINANCING
--------------- ----------------- -------------- ---------------------
<S> <C> <C> <C> <C>
Revenue................................ $149,349 $750,127 $77,789 $827,916
Operating expenses..................... 133,854 658,433 71,052 729,485
Depreciation & amortization............ 9,199 50,430 6,251 56,681
Corporate expenses..................... 2,662 5,565 -- 5,565
--------------- ----------------- -------------- ---------------------
Operating income (loss)................ 3,634 35,699 486 36,185
Interest expense....................... 8,235 49,098 -- 49,098
Other (income) expenses................ (1,166) (2,003) (393) (2,396)
Equity (income) loss from investments . (954) (6,432) 70 (6,362)
Other expenses ........................ 82 1,147 -- 1,147
--------------- ----------------- -------------- ---------------------
Income/(loss) before income tax
expense............................... (2,563) (6,111) 809 (5,302)
Income tax expense (benefit)........... 870 3,000 -- 3,000
--------------- ----------------- -------------- ---------------------
Net income (loss)...................... $ (3,433) $ (9,111) $ 809 $ (8,302)
Accretion on temporary equity.......... (275) (3,300) (3,300)
--------------- ----------------- ---------------------
Net income (loss) applicable to common
shares................................ $ (3,708) $(12,411) $(11,602)
=============== ================= =====================
Net income (loss) per common share .... $ (0.39)
=====================
Weighted average common shares
outstanding (1)....................... 30,286
</TABLE>
- ------------
(1) Includes 500,000 shares of Class A Common Stock 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), 8,050,000
and 1.0 million shares of Class A Common Stock issued in connection
with the Equity Offering and the FAME Acquisition, respectively, and
the assumed issuance of approximately 0.5 million shares in connection
with the Don Law acquisition.
59
<PAGE>
NOTES TO PRO FORMA INCOME STATEMENT:
I. Represents the Company's actual operating results for the twelve months
ended March 31, 1998.
EBITDA for the twelve months ended March 31, 1998 was $12,833,000 and
$92,866,000 for the Company 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, the Company 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 the Company's operating
performance or liquidity which is calculated in accordance with GAAP.
Cash flows from operating, investing and financing activities for the
Company for the twelve months ended March 31, 1998 were $9,838,000,
$430,466,000 and $511,997,000, 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 $104,883,000 for the
twelve months ended March 31, 1998. The adjustments include the
expected cost savings in connection with the Recent Acquisitions
associated with the elimination of duplicative staffing and general and
administrative expenses of $5,655,000, and include equity income from
investments of $6,362,000. While management believes that such cost
savings are achievable, the Company's ability to fully achieve such
cost savings is subject to numerous factors, certain of which may be
beyond the Company's control. See "Risk Factors."
Corporate expenses are net of fees from Triathlon of $1,286,000. These
fees will vary, above the minimum annual 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 its
agreement with Triathlon to SFX Broadcasting. Pursuant to the terms of
the Distribution Agreement, SFX Broadcasting assigned its rights to
receive such fees to the Company. Triathlon has 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.
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<PAGE>
II. PRO FORMA FOR THE TRANSACTIONS
The Company acquired Sunshine Promotions, PACE & Pavilion, Contemporary,
BGP, Network, Concert/Southern, FAME, Oakdale and Avalon on June 24, 1997,
February 25, 1998, February 27, 1998, February 24, 1998, February 27, 1998,
March 4, 1998, June 4, 1998, June 3, 1998 and May 14, 1998, respectively. The
following adjustments represents the operating results of these companies
prior to their acquisition by the Company.
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
------------------------------------------------------------------
SFX SUNSHINE PACE &
ENTERTAINMENT PROMOTIONS PAVILION CONTEMPORARY BGP
(ACTUAL) ACQUISITION ACQUISITIONS ACQUISITION ACQUISITION
------------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenue.............. $149,349 $6,057 $295,607 $90,225 $110,745
Operating expenses .. 133,854 5,553 279,891 90,162 102,918
Depreciation &
amortization........ 9,199 299 5,649 1,225 857
Corporate expenses .. 2,662 --
Other expenses....... -- -- 1,139 -- --
------------- ----------- ------------ ------------ -----------
Operating income
(loss).............. 3,634 205 8,928 (1,162) 6,970
Interest expense .... 8,235 447 6,325 (10) 989
Other (income)
expenses............ (1,166) (34) (7) (368) (257)
Equity (income) loss
from investments ... (954) -- (9,457) (1,002)
Other expenses ...... 82 -- 1,415 -- 156
------------- ----------- ------------ ------------ -----------
Income/(loss) before
income tax
expenses............ (2,563) (208) 10,652 218 6,082
Income tax expense
(benefit)........... 870 -- 683 -- --
------------- ----------- ------------ ------------ -----------
Net income (loss) ... $ (3,433) $ (208) $ 9,969 $ 218 $ 6,082
=========== ============ ============ ===========
Accretion on put
option.............. (275)
-------------
Net income (loss)
applicable to
common shares....... $ (3,708)
=============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CONCERT/ FAME OTHER PRO FORMA
NETWORK SOUTHERN ACQUISITION ACQUISITIONS ADJUSTMENTS PRO FORMA
ACQUISITION ACQUISITION A B C FOR THE TRANSACTIONS
----------- ----------- ----------- ------------ ----------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue.............. $28,364 $13,924 $11,475 $45,551 $ 1,000 $750,127
(2,170)
Operating expenses .. 28,321 12,027 2,814 40,276 (2,170) 658,433
(11,423)
(23,790)
Depreciation &
amortization........ 378 72 99 481 32,171 50,430
Corporate expenses .. -- -- 2,903 5,565
Other expenses....... -- -- -- -- (1,139) --
----------- ----------- ----------- ------------ ----------- --------------------
Operating income
(loss).............. (335) 1,825 8,562 4,794 2,278 35,699
Interest expense .... 151 -- 259 (16,396) 49,098
49,098
Other (income)
expenses............ 28 (50) (54) (95) (2,003)
Equity (income) loss
from investments ... 65 -- -- 2,566 (6,432)
1,380
1,002
(32)
Other expenses ...... (506) -- -- -- 1,147
----------- ----------- ----------- ------------ ----------- --------------------
Income/(loss) before
income tax
expenses............ (8) 1,810 8,616 4,630 (35,340) (6,111)
Income tax expense
(benefit)........... (503) -- 900 948 102 3,000
----------- ----------- ----------- ------------ ----------- --------------------
Net income (loss) ... $ 495 $ 1,810 $ 7,716 $ 3,682 $(35,442) $ (9,111)
=========== =========== =========== ============ =========== ====================
Accretion on put
option.............. (3,025) (3,300)
----------- --------------------
Net income (loss)
applicable to
common shares....... $(38,467) $(12,411)
=========== ====================
</TABLE>
61
<PAGE>
A. FAME ACQUISITION
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED MARCH 31, 1998 (IN
THOUSANDS)
--------------------------------------------
PRO FORMA FAME
AS REPORTED ADJUSTMENTS ACQUISITION
------------- -------------- -------------
<S> <C> <C> <C>
Revenue................................. $11,475 $11,475
Operating expenses...................... 13,185 $(10,711)(a) 2,814
340 (b)
Depreciation & amortization............. 99 99
Corporate expenses...................... --
Other expenses.......................... --
------------- -------------- -------------
Operating income (loss)................. (1,809) 10,371 8,562
Interest expense........................ --
Other (income) expenses................. (54) (54)
Equity (income) loss from investments .. --
Other expenses ......................... --
------------- -------------- -------------
Income/(loss) before income tax
expense................................ (1,755) 10,371 8,616
Income tax expense (benefit)............ 900 (c) 900
------------- -------------- -------------
Net income (loss)....................... $(1,755) $ 9,471 $ 7,716
============= ============== =============
</TABLE>
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of certain officers' distributions of earnings
which will not be paid under the Company's new employment contracts. The
FAME Agreement provides for payments by the Company to the FAME sellers
of additional amounts up to an aggregate of $15.0 million in equal annual
installments over 5 years contingent on the achievement of certain EBITDA
targets and for additional payments by the Company if FAME's EBITDA
performance exceeds the targets by certain amounts.
(b) Reflects salaries and officers' life insurance premiums to be paid by the
Company.
(c) Reflects an adjustment to the provision for state and local income taxes.
B. OTHER ACQUISITIONS
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED MARCH 31, 1998 (IN THOUSANDS)
-----------------------------------------------------------
TOTAL
AVALON OAKDALE PRO FORMA OTHER
ACQUISITION ACQUISITIONS ADJUSTMENTS ACQUISITIONS
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue................................ $27,795 $17,756 $45,551
Operating expenses..................... 25,310 16,806 (1,840)(a) 40,276
Depreciation & amortization............ 426 55 481
Corporate expenses..................... --
Other expenses......................... --
------------- -------------- ------------- --------------
Operating income (loss)................ 2,059 895 1,840 4,794
Interest expense....................... 99 160 259
Other (income) expenses................ (95) (95)
Equity (income) loss from investments . --
Other expenses......................... 1,380 (1,380)(b) --
------------- -------------- ------------- --------------
Income/(loss) before income tax
expense............................... 580 830 3,220 4,630
Income tax expense (benefit)........... 248 -- 700 (c) 948
------------- -------------- ------------- --------------
Net income (loss)...................... $ 332 $ 830 $ 2,520 $ 3,682
============= ============== ============= ==============
</TABLE>
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of certain officers' bonuses and wages not
expected to be paid under the Company's new employment contracts. The
amount of the pro forma adjustment to eliminate salaries and bonuses is
based on the Company's agreements with the affected employees that a
bonus will not be paid unless there is a significant improvement in the
results of Avalon. Accordingly, no
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<PAGE>
such bonus is reflected in the pro forma statement of operations because,
if Avalon's results were similar to those in these pro forma statements
of operations, the Company would not be contractually obligated to pay a
bonus.
(b) To reclassify PACE's equity income in Avalon following the Avalon
acquisition (which was consummated on May 14, 1998).
(c) Reflects an adjustment to the provision for state and local income taxes.
C. PRO FORMA ADJUSTMENTS FOR RECENT ACQUISITIONS:
To reflect $1,000,000 of non-cash revenue resulting from the Company
granting 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.
Reflects the elimination of transactions of $2,170,000 between Network
Magazine and SJS.
To eliminate PACE's non-cash stock and other non-recurring compensation
of $11,423,000.
To record the elimination of certain officer's bonuses and wages not
expected to be paid under the Company's new employment contracts of
$1,477,000, $11,230,000, $3,328,000, $7,326,000, and $429,000 for the
PACE, Contemporary, BGP, Network, and Concert Southern Acquisitions,
respectively.
Reflects the elimination of $1,139,000 of non-recurring restricted stock
compensation to PACE executives.
To eliminate $2,566,000 of PACE's income from its 33 1/3% equity
investment in Pavilion Partners, $1,380,000 of PACE's equity income in
Avalon, $1,002,000 of Contemporary's equity income in Riverport
Amphitheatre Partners and $32,000 of equity loss of a non-entertainment
affiliated entity of Concert/Southern which was not acquired by the
Company.
Reflects the increase of $32,171,000 in depreciation and amortization
resulting from the preliminary purchase accounting treatment of the
Recent Acquisitions. The Company amortizes goodwill over 15 years.
To record incremental corporate overhead charges of $2,903,000 associated
with incremental headquarters personnel and general and administrative
expenses that management estimates will be necessary as a result of the
Recent Acquisitions.
To reflect the elimination of $16,396,000 of historical interest expense
and the recording of interest expense associated with the Notes, initial
borrowings under the Credit Facility and other debt and deferred
compensation costs related to the Recent Acquisitions.
Represents an adjustment to the provision for their state and local
income taxes to reflect an approximate pro forma tax provision of
$3,000,000. The calculation treats all companies to be acquired pursuant
to the Recent Acquisitions as "C" Corporations.
To reflect the accretion of $3,025,000 on the Fifth Year Put Option
issued to the PACE sellers in connection with the PACE acquisition.
63
<PAGE>
III. PENDING ACQUISITIONS
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED MARCH 31, 1998 (IN THOUSANDS)
-----------------------------------------------------------
PRO FORMA
DON LAW EMI ADJUSTMENTS PENDING
AS REPORTED ACQUISITION (E) ACQUISITIONS
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue................................. $49,494 $28,295 $77,789
Operating expenses...................... 43,554 28,158 $ (610)(a) 71,052
(50)(b)
Depreciation & amortization............. 2,006 -- 4,245 (c) 6,251
------------- ------------- -------------- --------------
Operating income (loss)................. 3,934 137 (3,585) 486
Interest expense........................ 1,055 45 (1,100)(d) --
Other (income) expenses................. (351) (42) (393)
Equity loss from investments............ 70 70
------------- ------------- -------------- --------------
Income (loss) before income tax
expense................................ 3,230 64 (2,485) 809
Income tax expense (benefit)............ -- -- --
------------- ------------- -------------- --------------
Net income (loss)....................... $ 3,230 $ 64 $(2,485) $ 809
============= ============= ============== ==============
</TABLE>
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of payments made to employees by the principal
owner of Don Law in connection with the sale of membership interests to a
third party in 1997.
(b) Reflects the elimination of certain officers' bonuses and wages not
expected to be paid under the Company's new employment contracts. The
amount of the pro forma adjustment to eliminate salaries and bonuses is
based on the Company's agreements with the affected employees that a
bonus will not be paid unless there is a significant improvement in the
results of Don Law. Accordingly, no such bonus is reflected in the pro
forma statement of operations because, if Don Law's results were similar
to those in these pro forma statements of operations, the Company would
not be contractually obligated to pay a bonus.
(c) Reflects the increase of $4,245,000 in depreciation and amortization
resulting from the preliminary purchase accounting treatment of the
Pending Acquisitions. The Company amortizes goodwill over 15 years.
(d) To reflect the elimination of $1,100,000 of historical interest
expense.
(e) The pro forma adjustments for Don Law do not reflect the impact of
certain new business opportunities in 1998, including an agreement to
provide ticketing services for the Boston Red Sox and a new long-term
concessions contract at Great Woods. These opportunities are expected to
have a significant positive impact on Don Law's 1998 operating results.
However, there can be no assurance that the Company will be able to
achieve such improvements. See "Risk Factors."
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto included in this Prospectus.
The following discussion contains certain forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or
contribute to the differences are discussed in "Risk Factors" and elsewhere
in this Prospectus. The Company 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 the Company, 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, the Company
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 the Company's operating performance or liquidity that is
calculated in accordance with GAAP.
The Company'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 the Company and in
third-party venues. In connection with all of its live entertainment events,
the Company 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, the Company's music businesses
comprised approximately 67%, theater comprised approximately 13%, specialized
motor sports comprised approximately 6% and other operations comprised
approximately 14% of the Company's total revenues for the twelve months ended
March 31, 1998.
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. The Company
earns 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. The Company earns revenues by producing (a) Touring
Broadway Shows, (b) specialized motor events and (c) other proprietary and
non-proprietary entertainment events.
1997 ACQUISITIONS
The Company entered the live entertainment business with SFX
Broadcasting'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, companies which hold a 37-year lease to operate the Meadows Music
Theater, a 25,000-seat indoor/outdoor complex located in Hartford,
Connecticut. In June 1997, Delsener/Slater acquired Sunshine Promotions, a
concert promoter in the
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<PAGE>
Midwest, and certain other related companies for an aggregate consideration
of $57.5 million. As a result of the acquisition of Sunshine Promotions, the
Company 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. See "Certain Relationships and Related Transactions--Delsener/Slater
Employment Agreements."
The cash portion of the 1997 Acquisitions was financed through capital
contributions from SFX Broadcasting.
RECENT ACQUISITIONS
In January 1998, the Company acquired Westbury Music Fair. In February to
June 1998, the Company acquired PACE, Pavilion, Contemporary, BGP, Network,
Concert/Southern, USA Motor Sports, FAME, Oakdale and Avalon. See
"Business--Recent Acquisitions."
ACQUISITION OF WESTBURY
On January 8, 1998, the Company acquired a long-term lease for Westbury
Music Fair, located in Westbury, New York, for an aggregate consideration of
approximately $3.0 million and an agreement to issue 75,019 shares of Class A
Common Stock. During the period between the closing and January 8, 2000, the
Company has the right to repurchase all of such shares for an aggregate
consideration of $2.0 million, and the seller has the right to require the
Company to purchase all of such shares for an aggregate consideration of
$750,000. The purchase price was financed from the Company's cash on hand.
ACQUISITION OF PACE
On February 25, 1998, the Company acquired all of the outstanding capital
stock of PACE (the "PACE Acquisition"). In connection with the PACE
Acquisition, the Company acquired 100% of Pavilion Partners, a partnership
that owns interests in 10 venues, one-third through the acquisition of PACE
and two-thirds through separate agreements between PACE and Blockbuster and
between PACE and Sony (the acquisition of such two-thirds interest, the
"Pavilion Acquisition"). The total consideration for the PACE Acquisition was
approximately $109.5 million in cash, the repayment of approximately $20.6
million of debt and the issuance of 1.5 million shares of Class A Common
Stock. The total consideration for the Pavilion Acquisition was approximately
$90.6 million, comprised of $41.4 million in cash, the repayment of $43.1
million of debt and the assumption of approximately $6.1 million of debt
related to a capital lease. The purchase price was financed from borrowings
under the Credit Facility and with the proceeds of the Note Offering.
In addition, on March 25, 1998, PACE acquired a 67% interest in certain
assets and liabilities of USA Motor Sports for an aggregate cash
consideration of approximately $4.0 million. The remaining 33% interest is
held by the Contemporary Group.
In connection with its acquisition of partnership interests in Lakewood
Amphitheater in Atlanta, Georgia and Starplex Amphitheater in Dallas, Texas,
PACE entered into a co-promotion agreement with its partner that contains a
provision that purports, under certain circumstances, to require PACE to
co-promote (and share one-half of the profits and losses) with such
partnership certain concerts which are presented by PACE or any of its
affiliates in another venue located in either Atlanta, Georgia or Dallas,
Texas. However, the Company acquired an interest in Chastain Park
Amphitheater, also in Atlanta, in the Concert Southern acquisition described
below. The Company is currently negotiating with the third party to waive
this restrictive provision; however, it is possible that the Company will be
unable to obtain the waiver. In management's view, this provision will not
materially affect the business or prospects of the Company.
ACQUISITION OF CONTEMPORARY
On February 27, 1998, the Company acquired Contemporary (the "Contemporary
Acquisition"). The Contemporary Acquisition involved the merger of
Contemporary International Productions Corporation with and into the Company,
the acquisition by a wholly-owned subsidiary of the Company
66
<PAGE>
of substantially all of the assets, excluding certain cash and receivables,
of the remaining members of Contemporary and the acquisition of the 50%
interest in the Riverport Amphitheatre Joint Venture not owned by
Contemporary. The total consideration of the Contemporary Acquisition was
approximately $72.8 million in cash, a payment for working capital of $9.9
million, and the issuance of 1,402,850 shares of Class A Common Stock. The
purchase price was financed by borrowings under the Credit Facility and the
proceeds of the Note Offering.
ACQUISITION OF BGP
On February 24, 1998, the Company, through the Company's wholly-owned
subsidiary, BGP Acquisition, LLC, acquired all of the outstanding capital
stock of BGP for a total consideration of $60.8 million in cash, $12.0
million in repayment of debt, which amount was at least equal to BGP's
working capital (as defined in the acquisition agreement), and 562,640 shares
of Class A Common Stock (the "BGP Acquisition"). The purchase price was
financed from borrowings under the Credit Facility and with the proceeds of
the Note Offering.
ACQUISITION OF NETWORK
On February 27, 1998, the Company acquired Network (the "Network
Acquisition"). In the Network Acquisition, the Company acquired all of the
outstanding capital stock of each of The Album Network, Inc. and SJS and
purchased substantially all of the assets and properties and assumed
substantially all of the liabilities and obligations of The Network 40, Inc.
The total purchase price was approximately $52.0 million in cash, a payment
for working capital of $1.8 million, reimbursed seller's costs of $500,000,
the purchase of an office building and related property for approximately
$2.5 million and the issuance of approximately 750,000 shares of Class A
Common Stock. The purchase price is subject to increase based on Network's
actual 1998 EBITDA (as defined in the acquisition agreement) by $4.0 million
(if such EBITDA equals or exceeds $9.0 million) to $14.0 million (if such
EBITDA is greater than $11.0 million), and is payable in stock, or in certain
circumstances in cash, by no later than March 20, 1999. The $2.5 million
purchase of the office building and related property used in connection with
Network's business was comprised of cash of $700,000 and the assumption of
debt of $1.8 million. The purchase price was financed by borrowings under the
Credit Facility and with the proceeds of the Note Offering. In connection
with the Network Acquisition, the selling stockholders were reimbursed
working capital (as defined in the acquisition agreement) in excess of
$500,000.
ACQUISITION OF CONCERT/SOUTHERN
On March 4, 1998, the Company acquired Concert/Southern Promotions, a
promoter of live music entertainment in the Atlanta metropolitan area, for a
total consideration of $16.9 million (including the payments of the $1.6
million representing the present value of a deferred purchase obligation and
$300,000 for the working capital adjustment.) The purchase price was financed
by the borrowings under the Credit Facility and with the proceeds of the Note
Offering.
ACQUISITION OF AVALON
On May 14, 1998, the Company acquired all the outstanding equity interests
in Avalon for a total cash purchase price of $26.8 million, including
approximately $300,000 that the Company paid to reimburse the Avalon sellers'
third party out of pocket costs and expenses incurred with the development of
the Camarillo Creek Amphitheater (the "Avalon Acquisition"). The purchase
price was financed from borrowing under the Credit Facility which was
subsequently repaid from a portion of the proceeds from the Equity Offering.
ACQUISITION OF OAKDALE
On June 3, 1998, the Company acquired certain assets of Oakdale for a
purchase price of $9.4 million in cash and the assumption of $2.5 million of
liabilities. At the closing, the Company also made a non-recourse loan to the
Oakdale sellers in the amount of $11.4 million, a portion of which was used
to repay outstanding indebtedness. In addition, if the combined EBITDA (as
defined in the acquisition
67
<PAGE>
agreement) for the Oakdale Theater and Meadows exceeds $5.5 million in 1999,
the Company will be obligated to pay the amount of such excess multiplied by
a factor of between 5.0 and 5.8. The purchase price was financed from
proceeds from theEquity Offering.
ACQUISITION OF FAME
On June 4, 1998, the Company acquired all of the outstanding capital stock
of FAME. The aggregate purchase price for FAME was approximately $82.2 million
in cash (including $7.9 million which the Company paid in connection with
certain taxes to which FAME and the FAME sellers will be subject and excluding
$4,676,000 of taxes paid on behalf of the seller which will be refunded to the
Company in 1999) and 1.0 million shares of Class A Common Stock. The agreement
also provides for payments by the Company to the FAME sellers of additional
amounts up to an aggregate of $15.0 million in equal annual installments over 5
years contingent on the achievement of certain EBITDA targets. The agreement
also provides for additional payments by the Company if FAME's EBITDA
performance exceeds the targets by certain amounts. The additional payments are
to be within 120 days after the end of the year to which they relate. The
purchase price was financed from proceeds from the Equity Offering.
The foregoing descriptions do not purport to be complete descriptions of
the terms of the acquisition agreements and are qualified by reference to the
acquisition agreements, copies of which are exhibits to the Registration
Statement and are incorporated herein by reference. Pursuant to the
acquisition agreements and the agreements related thereto, the Company, (a)
under certain circumstances, may be required to repurchase shares of its
Class A Common Stock or make additional payments in connection therewith, (b)
has granted certain rights of first refusal certain of which are exercisable
at 95% of the proposed purchase price and (c) in connection with the PACE
Acquisition, has granted Brian Becker, an Executive Vice President, a Member
of the Office of the Chairman, and a director of the Company, the option to
acquire, after February 25, 2000, the Company's then existing motor sports
line of business (or, if that business has previously been sold, the
Company's then existing theatrical line of business) at its then fair market
value. See "Risk Factors--Future Contingent Payments" and "--Rights to
Purchase Certain Subsidiaries" and "Additional Information."
The Recent Acquisitions were accounted for using the purchase method of
accounting, and the intangible assets created in the purchase transactions
will generally be amortized against future earnings, if any, over a 15-year
period. The amount of amortization will be substantial and will continue to
affect the Company's operating results in the future. These expenses,
however, do not result in an outflow of cash by the Company and do not impact
EBITDA.
PENDING ACQUISITIONS
In April and May of 1998, the Company entered into agreements to acquire
certain assets of Don Law and 80% of the outstanding capital stock of EMI for
an aggregate consideration consisting of approximately $83.3 million in cash,
including the repayment of approximately $10.0 million in debt, and $16.0
million which at the Company's option may be paid in cash or up to 531,782
shares of Class A Common Stock. See "Agreements Related to the Pending
Acquisitions."
ACQUISITION OF DON LAW
On April 29, 1998, the Company entered into an agreement to acquire
certain assets of Blackstone Entertainment, LLC (the "Don Law Acquisition").
The aggregate purchase price for the Don Law Acquisition is approximately
$90.0 million, including the repayment of $10.0 million in debt. The Company
may, at its option, pay up to $16.0 million of the purchase price in 531,782
shares of Class A Common Stock. The purchase price will be increased or
decreased, as applicable, to the extent that Don Law's Net Working Capital
(as defined in the acquisition agreement) is positive or negative at the
closing. The Company has made a $100,000 non-refundable deposit in connection
with the Don Law Acquisition. The Company expects to finance this acquisition
with proceeds of the Equity Offering and borrowings under the Credit
Facility.
ACQUISITION OF EMI
On May 1, 1998, the Company entered into an agreement to acquire an 80%
equity interest in EMI for $8.5 million in cash (the "EMI Acquisition"). In
addition, the Company is required to make a loan to
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<PAGE>
the EMI sellers in an amount equal to twenty percent of certain taxes
incurred by the EMI sellers in connection with the transaction. The Company
expects that the amount of the loan will be approximately $750,000 The
Company expects to finance this acquisition with proceeds of the Equity
Offering and borrowings under the Credit Facility.
The foregoing descriptions do not purport to be complete descriptions of
the terms of the acquisition agreements and are qualified by reference to the
acquisition agreements, copies of which are attached as exhibits to the
Registration Statement and are incorporated herein by reference.
The Pending Acquisitions will be accounted for using the purchase method
of accounting and intangible assets created in the purchase transaction will
generally be amortized against future earnings over a fifteen-year period.
The amount of such amortization will be substantial and will continue to
affect the Company's operating results in the future. These expenses,
however, do not result in an outflow of cash by the Company and do not impact
EBITDA.
The Company anticipates that it will consummate the Pending Acquisitions
during June or July 1998. However, the timing and completion of the Pending
Acquisitions are subject to a number of conditions, certain of which are
beyond the Company's control, and there can be no assurance that either of
the Pending Acquisitions will be consummated during such period, on the terms
described herein or at all. See "Risk Factors--Risks Related to the Pending
Acquisitions" and "Agreements Related to the Pending Acquisitions."
FINANCINGS
In February 1998, the Company completed a $350.0 million private placement
of Notes and borrowed $150.0 million under the term loan portion of the
Company's $300.0 million Credit Facility. The proceeds from the Note Offering
and the initial borrowings under the Credit Facility were used to consummate
certain of the Recent Acquisitions.
On May 27, 1998, the Company consummated the Equity Offering of 8,050,000
shares of Class A Common Stock at an initial offering price of $43.25 per share
and received net proceeds of approximately $326.5 million. The Company has used
certain of the proceeds to consummate certain of the Recent Acquisitions and
for certain other purposes and intends to use the remaining proceeds, together
with $22.2 million in expected borrowings under the Credit Facility, to make an
anticipated tax indemnity payment, to pay the cash consideration of the Pending
Acquisitions and to pay certain fees and expenses. See "Risk Factors--Future
Contingent Payments--Related to the Tax Indemnity Payment," "--Related to the
Pending Acquisitions" and "--Liquidity and Capital Resources."
RECENT DEVELOPMENTS
The Spin-Off and the SFX Merger
On May 29, 1998, SFX Broadcasting was merged with and into SFX Buyer
pursuant to the SFX Merger Agreement, which was executed in August 1997. As a
condition to the SFX Merger and pursuant to the Distribution Agreement, SFX
Broadcasting contributed to the Company all of its assets relating to its
entertainment business and, on April 27, 1998, distributed the Common Stock
to certain stockholders of SFX Broadcasting on a pro rata basis. The Spin-Off
separated the entertainment business from SFX Broadcasting's
radio-broadcasting business and enabled SFX Buyer to acquire only SFX
Broadcasting's radio broadcasting business in the SFX Merger. See "Risk
Factors--Future Contingent Payments" and "--Liquidity and Capital
Resources--Spin-Off."
Potential Acquisition of Marquee
The Company has indicated to Marquee, a publicly-traded company, its
potential interest in acquiring Marquee. Marquee provides integrated event
management, television production, marketing and consulting services in the
sports, news and entertainment industries. In addition, Marquee represents
various entertainers including athletes in team sports, and books tours and
appearances for a variety of entertainers. Mr. Sillerman, the Executive
Chairman of the Company, has an aggregate equity interest of approximately
9.1% in Marquee and is the chairman of its board of directors, and Mr. Tytel,
a Director
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and Executive Vice President of the Company, is one of its directors. The
Company has been informed that Marquee has formed a committee of independent
directors to consider the proposal, as well as other strategic alternatives.
However, the Company has not entered into any agreement, arrangement or
understanding with Marquee, and there can be no assurance that the Company
will enter into a definitive agreement with Marquee. See "Risk
Factors--Potential Conflicts of Interest" and "--Expansion Strategy; Need for
Additional Funds." In addition, on May 5, 1998, a class action complaint was
filed alleging that the proposed acquisition of Marquee by the Company will
be unfair to Marquee's stockholders. See "Business--Litigation."
RESULTS OF OPERATIONS
GENERAL
The Company's operations 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. The Company and the Acquired Businesses also engage in
various other activities ancillary to their live entertainment businesses.
On a pro forma basis, the Company's revenues for the year ended December
31, 1997 and the three months ended March 31, 1998, would have been $779.0
million and $187.3 million, respectively.
On a pro forma basis, operating expenses for the year ended December 31,
1997 and the three months ended March 31, 1998, would have been $688.4
million and $172.4 million, respectively. Pro forma operating expenses do not
reflect the Company's expectation that it will be able to achieve substantial
economies of scale upon completion of the Recent Acquisitions and reductions
in operating expenses as a result of the elimination of duplicative staffing
and general and administrative expenses.
On a pro forma basis, the Company's net loss as for the year ended
December 31, 1997 and the three months ended March 31, 1998, would have been
$18.0 million and $12.6 million, respectively. Net loss per share, after
accretion of the Fifth Year Put Option issued in connection with the PACE
Acquisition, would have been $0.72 and $0.45 for the year ended December 31,
1997 and three months ended March 31, 1998, respectively. The pro forma
operating results include the impact of significant non-cash amortization
expense arising from the Recent Acquisitions and interest expense relating to
the Financing.
As of March 31, 1998, on a pro forma basis, the Company had net current
assets of $170.4 million (included in net current assets is cash and cash
equivalents of $102.8 million), net property and equipment (principally concert
venues) of $243.8 million, net intangible assets of $699.4 million and
long-term debt of $565.2 million. The long-term debt is comprised of $350.0
million of Notes, borrowings of $172.2 million under the Credit Facility and
other debt obligations of $43.0 million.
Delsener/Slater (the Company's predecessor) had no federal tax provision
in 1996 or 1995 by virtue of the status of its profitable included companies
as S Corporations. No federal income taxes were paid by the Company in 1997
as a result of the Company's inclusion in SFX Broadcasting's consolidated
federal income tax return. If the Company had filed on a stand alone basis,
its federal tax provision would have been approximately $2.1 million,
consisting of approximately $1.8 million in current taxes and approximately
$290,000 of deferred taxes.
CONCERT PROMOTION/VENUE OPERATION
The Company'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. The Company's primary source of
revenues from its concert promotion activities is from ticket sales at events
promoted by the Company. As a venue operator, the Company's primary sources
of revenue are sponsorships, concessions, parking and other ancillary
services, derived principally from events promoted by the Company.
Revenue from ticket sales is affected primarily by the number of events
the Company promotes, the average ticket price and the number of tickets
sold. The average ticket price depends on the popularity
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of the artist whom the Company 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 the Company assumes the risk
of ticket sales, although profits per event would tend to be lower. Operating
margins can vary from period to period.
The Company'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
The Company's theatrical operations are directed mainly towards the
promotion and production of Touring Broadway Shows, which generate revenues
primarily from ticket sales and sponsorships. The Company 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, the
Company sells advance annual subscriptions that provide the purchaser with
tickets for all of the shows that the Company intends to tour in the
particular market during the touring season. For the year ended December 31,
1997, on a pro forma basis approximately 34% of ticket sales for Touring
Broadway Shows presented by the Company were sold through advance annual
subscriptions. Subscription 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. Subscriptions for Touring Broadway Shows typically
cover approximately two-thirds of the Company'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.
The Company 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. The Company monitors the recoverability of
these investments on a regular basis, and the Company may be required to take
write-offs if the original production closes or if the Company 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
The Company's 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
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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, the Company may be required to sell either
its motor sports or theatrical lines of business. See "Risk Factors--Rights
to Purchase Certain Subsidiaries."
REPRESENTATION OF PROFESSIONAL ATHLETES
Through FAME, the Company's talent representation activities consist
principally of the representation of team sports athletes, primarily in the
National Basketball Association, in player contract and endorsement
negotiations. The Company also provides certain investment advisory services
to its clients through an affiliate. The Company typically receives a
percentage of monies earned by a player, generally approximately 4% of a
player's sports contract and typically from 20% to 25% of endorsement deals.
Revenue from these sources is recognized as the player receives his salary or
endorsement payments based on the terms of the negotiated agreement. Revenue
from these sources is dependent upon a number of variables, many of which are
outside the Company's control, including a player's skill, health, public
appeal and the appeal of the sport in which the player participates.
Principal operating expenses include salaries, wages and travel and
entertainment expenses. See "Risk Factors--Risks Related to the
Representation of Athletes."
OTHER BUSINESSES
The Company's 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 play list and
audience data. Revenues generally vary based on the overall advertising
environment and competition.
The Company also provides 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.
SEASONALITY
The Company's operations and revenues have been 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 1997
Acquisitions, the Company generated approximately 68% of its revenues in the
second and third quarters for the twelve months ended December 31, 1997. 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. Therefore, the
seasonality of the Company's business causes (and, upon consummation of the
Pending Acquisitions, will probably continue to cause) a significant
variation in the Company's quarterly operating results. These variations in
demand could have a material adverse effect on the timing of the Company's
cash flows and, therefore, on its ability to service its obligations with
respect to its indebtedness. However, the Company
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believes that this variation may be somewhat offset with the acquisition of
typically non-summer seasonal businesses in the Recent Acquisitions, such as
motor sports (which is winter-seasonal) and Touring Broadway Shows (which
typically tour between September and May).
HISTORICAL RESULTS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1997
The Company's revenue increased by $53.2 million to $61.0 million for the
three months ended March 31, 1998, compared to $7.8 million for three months
ended March 31, 1997, as a result of the acquisitions of Sunshine and Meadows
in 1997 and the Recent Acquisitions consummated during the period. On a pro
forma basis, revenue for the three months ended March 31, 1998 would have been
$187.3 million.
Operating expenses increased by $50.5 million to $58.2 million for the three
month period ended March 31, 1998, compared to $7.7 million for three months
ended March 31, 1997, primarily as a result of the acquisition of Sunshine and
Meadows in 1997 and the Recent Acquisitions consummated during the period. On a
pro forma basis, operating expenses would have been $172.4 million for the
three month period ended March 31, 1998.
Depreciation and amortization expense increased to $4.4 million for the
three month period ended March 31, 1998 compared to $660,000 for the three
month period ended March 31, 1997, due to the inclusion of depreciation and
amortization expense related to the acquisitions of Sunshine and Meadows in
1997 and the Recent Acquisitions consummated during the period. The Company
recorded the fixed assets from these acquisitions at fair value and recorded
intangible assets equal to the excess of purchase price over the fair value of
the net tangible assets, which are being amortized over a 15-year period.
Corporate expenses were $1.3 million for the three month period ended March
31, 1998, net of $133,000 fees received from Triathlon, compared to $858,000
for the three months ended March 31, 1997, net of Triathlon fees of $651,000.
The fees receivable from Triathlon are based on consulting services provided by
or on behalf of SCMC, 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. The
fees will fluctuate (above the minimum annual fee of $500,000) based on the
level of acquisition financing activities of Triathlon. SCMC previously
assigned its rights to receive fees payable from Triathlon to SFX Broadcasting,
and SFX Broadcasting has assigned its rights to receive the fees to the
Company, pursuant to the Distribution Agreement. Triathlon has announced that
it is exploring ways of maximizing stockholder value, including 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.
The operating loss was $2.9 million for the three month period ended March
31, 1998, compared to a loss of $1.5 million for the three months March 31,
1997, due to the results discussed above.
Interest expense, net of investment income, was $5.9 million in the three
months ended March 31, 1998, compared to $77,000 for the three months ended
March 31, 1997, primarily as a result of assumption of additional debt related
to the Recent Acquisitions consummated during the period and the debt assumed
in connection with the Meadows and Sunshine acquisitions.
Equity income in unconsolidated subsidiaries was $445,000 for the three
months ended March 31, 1998 as a result of the Recent Acquisitions consummated
during the period.
Income tax expense was $500,000 for the three month period ended March 31,
1998.
The Company's net loss increased to $8.9 million for the three month period
ended March 31, 1998, as compared to a net loss of $1.5 million for the three
months ended March 31, 1997, due to the factors discussed above.
EBITDA increased to $1.5 million for the three month period ended March 31,
1998, compared to negative $807,000 for the three months ended March 31, 1997,
primarily as a result of the 1997 Acquisitions and the Recent Acquisitions
consummated during the period.
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YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
The Company's concert promotion revenue increased by 91% to $96.1 million
for the year ended December 31, 1997, compared to $50.4 million for the year
ended December 31, 1996, as a result of the acquisitions of Sunshine
Promotions and Meadows, which increased concert promotion revenue by $45.5
million. On a pro forma basis, assuming the acquisitions had been completed
as of January 1, 1997, revenue for the year ended December 31, 1997 would
have been $779.0 million.
Concert promotion operating expenses increased by 65% to $83.4 million for
the year ended December 31, 1997, compared to $50.7 million for the year
ended December 31, 1996, primarily as a result of the acquisitions of
Sunshine Promotions and Meadows, which increased concert operating expenses
revenue by $37.1 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, operating expenses would have been $688.4 million for the year ended
December 31, 1997.
Depreciation and amortization expense increased to $5.4 million for the
year ended December 31, 1997, compared to $747,000 for the year ended
December 31, 1996, due to the inclusion of $2.6 million of depreciation and
amortization expense related to the acquisitions of Sunshine Promotions and
Meadows and the additional depreciation and amortization recorded in 1997
related to the purchase of Delsener/Slater on January 2, 1997. In 1997, the
Company 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 expenses were $2.2 million for the year ended December 31, 1997,
net of $1.8 million in fees received from Triathlon, compared to zero for the
year ended December 31, 1996. These expenses represent the incremental costs
of operating the Company's corporate offices, and therefore did not exist in
1996. The fees receivable from Triathlon are based on consulting services
provided by or on behalf of SCMC, 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. 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 Broadcasting, and SFX Broadcasting has assigned its rights
to receive the fees to the Company, 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 $5.1 million for the year ended December 31, 1997,
compared to a loss of $1.1 million for the year ended December 31, 1996, due
to the results discussed above.
Interest expense, net of investment income, was $1.3 million in the year
ended December 31, 1997, compared to net interest income of $138,000 for the
year ended December 31, 1996, primarily as a result of assumption of
additional debt related to the acquisitions of the Meadows Music Theater and
Sunshine Promotions.
Equity income in unconsolidated subsidiaries decreased 3% to $509,000 from
$524,000.
Income tax expense increased to $490,000 for the year ended December 31,
1997, compared to $106,000 for the year ended December 31, 1996, primarily as
a result of higher operating income.
The Company's net income increased to $3.8 million for the year ended
December 31, 1997, as compared to a net loss of $515,000 for the year ended
December 31, 1996, due to the factors discussed above.
EBITDA increased to $10.5 million for the year ended December 31, 1997,
compared to a negative $324,000 for the year ended December 31, 1996, as a
result of the 1997 Acquisitions, the reduction in officers' salary expense
and improved operating results.
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YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
The Company'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 7.2% to $50.6 million
for the year ended December 31, 1996, compared to $47.2 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.
The Company'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 $524,000 from
$488,000, primarily as result of the investment in the PNC Bank Arts Center,
offset by lower income from the Company's other equity investments.
The Company'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.
The Company'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.
EBITDA was a negative $324,000 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal need for funds has been for acquisitions, interest
expense, working capital needs, to make certain payments in connection with
the Spin-Off and, to a lesser extent, capital expenditures. The Company
anticipates that its principal sources of funds will be remaining proceeds
from the Equity Offering, additional borrowings under the Credit Facility and
cash flows from operations.
HISTORICAL CASH FLOWS
Net cash provided by operations was $9.1 million for the three months
ended March 31, 1998 as compared to $307,000 for the three months ended March
31, 1997. The increase was primarily attributable to changes in working
capital.
Net cash used in investing activities for the three months ended March 31,
1998 was $379.8 million as compared to $22.6 million for the three months
ended March 31, 1997. The increase was primarily the result of the Recent
Acquisitions consummated in the first quarter of 1998. During the three months
ended March 31, 1997, the Company completed the acquisition of Delsener/Slater.
Net cash provided by financing activities for the three months ended March
31, 1998 was $458.7 million as compared to $24.9 million for the three months
ended March 31, 1997. During 1998, the Company completed the issuance of the
Notes for $350.0 million and borrowed $150.0 million under the Credit
Facility, offset by Spin-Off related payments of $17.1 million and the
payment of debt issuance costs of $16.9 million.
Delsener/Slater (the Company's predecessor) had no federal tax provision
in 1996 or 1995 by virtue of the status of its profitable included companies
as S Corporations. No federal income taxes were paid by the Company in 1997
as a result of the Company's inclusion in SFX Broadcasting's consolidated
federal
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income tax return. If the Company had filed on a stand alone basis, its
federal tax provision would have been approximately $2.1 million, consisting
of approximately $1.8 million in current taxes and approximately $290,000 of
deferred taxes.
PENDING ACQUISITIONS
The aggregate consideration in the Pending Acquisitions is expected to
consist of approximately $83.3 million (including the repayment of
approximately $10 million in debt, a loan to be made to the sellers of EMI
expected to be approximately $750,000 and $16.0 million payable at the option
of the Company in cash or up to 531,782 shares of Class A Common Stock). In
addition, the Company expects to incur approximately $6.0 million in fees and
expenses related to the Pending Acquisitions. The Company has also placed a
deposit in connection with the Don Law Acquisition of $100,000, which will be
applied against the applicable purchase price at closing. See "Agreements
Related to the Pending Acquisitions." The Company intends to finance the cash
portion of the purchase price of the Pending Acquisitions from remaining
proceeds from the Equity Offering and $22.2 million in borrowing under the
Credit Facility.
The Company expects to complete the Pending Acquisitions during June or
July 1998. The timing and completion of the Pending Acquisitions is subject to
a number of closing conditions certain of which are beyond the control of the
Company. No assurance can be given that the Company will be able to complete
the Pending Acquisitions on the terms described or at all, or that the Company
will have sufficient funds available to make any of the contingent payments
described above should they come due. See "Agreements Related to the Pending
Acquisitions."
FUTURE CONTINGENT PAYMENTS
Certain of the agreements relating to the Recent Acquisitions provide for
purchase price adjustments and other future contingent payments under certain
circumstances. The PACE acquisition agreement provides that each PACE seller
will have an option, exercisable for 90 days after the fifth anniversary of
the closing of the PACE acquisition, to require the Company to repurchase up
to 500,000 shares of the Class A Common Stock received by that seller for
$33.00 in cash per share (an aggregate of up to $1.5 million). Pursuant to
the terms of the Becker Employment Agreement (as defined herein), during the
period between December 12, 1999 and December 27, 1999, Mr. Becker, an
Executive Vice President, Director and a Member of the Office of the Chairman
of the Company, will have the option to, among other things, require the
Company to purchase any stock or portion thereof (including vested and
unvested options) granted to him by the Company and/or pay him an amount
equal to the present value of the compensation payable during the remaining
term of his employment agreement. See "Management--Employment Agreements and
Arrangements with Certain Officers and Directors." Moreover, pursuant to the
Contemporary acquisition agreement, if the average trading price of the
1,402,850 shares of Class A Common Stock issued in the Contemporary
acquisition is less than $13.33 during the twenty days prior to the second
anniversary of the Contemporary acquisition, the Company will be required to
pay one-half of such difference for each share held by the sellers of
Contemporary on such date. Pursuant to the Network acquisition agreement, the
Company has agreed to increase the purchase price for Network based on
Network's actual 1998 EBITDA (as defined in the acquisition agreement) 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 shares of Class
A Common Stock or, in certain circumstances, in cash by no later than March
20, 1999. No assurance can be given that the Company will have sufficient
cash or other available sources of capital to make any or all of the future
or contingent payments described above.
Pursuant to the FAME acquisition agreement, the Company is obligated to
pay to the FAME sellers additional amounts up to an aggregate of $15.0
million in equal annual installments over five years contingent on the
achievement by FAME of certain EBITDA targets. The FAME agreement also
provides for additional payments by the Company to the FAME sellers if FAME's
EBITDA performance exceed the targets by certain amounts. Futhermore, if the
Company disposes of all or substantially all of the assets or voting
interests of FAME during the five years following the closing of the FAME
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acquisition, certain payments may become due to the FAME sellers out of the
proceeds of such sale. See "Agreements Related to the Pending Acquisitions."
In addition, pursuant to the Oakdale acquisition agreement, if the
combined EBITDA (as defined in the Oakdale acquisition agreement) of the
Oakdale Music Theater and Meadows exceeds $5.5 million in 1999, the Company
will be obligated to pay the Oakdale sellers between 5.0 and 5.8 times the
amount of such excess. See "Risk Factors--Future Contingent Payments."
FUTURE ACQUISITIONS
The Company is in the process of negotiating certain additional
acquisitions in the live entertainment and related businesses; however, it
has not yet entered into any definitive agreements with respect to such
acquisitions, and there can be no assurance that it will do so or have the
necessary resources to consummate any of such acquisitions. See "--Recent
Developments" and "Risk Factors--Expansion Strategy; Need for Additional
Funds."
SPIN-OFF
Pursuant to the Tax Sharing Agreement, the Company is responsible for
certain taxes of SFX Broadcasting, including taxes imposed with respect to
income generated by the Company for the periods prior to the Spin-Off and
taxes resulting from gain recognized in the Spin-Off. The Company will be
allowed to offset any gain or income by the net operating losses of SFX
Broadcasting (including net operating losses generated in the current year
prior to the Spin-Off) which are available to offset such gain or income. The
Company believes that the amount of taxes that it will be required to pay in
connection with the Spin-Off will be determined by reference to the average
of the high and low sales price of the Class A Common Stock on April 27, 1998
(the date of the distribution of Common Stock pursuant to the Spin-Off).
Increases or decreases in the value of the Common Stock subsequent to such
date will not affect the tax liability. The average of the high and low sales
price of the Class A Common Stock on April 27, 1998 was $30.50 per share, and
management estimates that the Company will be required to pay approximately
$120 million pursuant to such indemnification obligation. Most of the tax
liability relates to certain deferred intercompany transactions creating
taxable income for the Company. Management believes that these deferred
intercompany transactions will give rise to additional tax basis which will
be available to offset future taxable income of the Company. Management's
estimates of the amount of the indemnity payment and additional taxable basis
are based on certain assumptions which management believes are reasonable.
However, upon completion of the relevant tax forms, including any potential
audits, such assumptions could be modified in a manner which would result in
a significant variance in the actual amount of the tax indemnity. The Company
intends to use a substantial portion of the remaining net proceeds from the
Equity Offering to make such payment. Such payment will not result in any
corresponding increase in the Company's assets or cash flows. For a more
complete description of the tax indemnification obligations, see the Tax
Sharing Agreement filed as an exhibit to the Registration Statement. See
"Risk Factors--Future Contingent Payments" and "Additional Information."
In addition, pursuant to the SFX Merger Agreement, the Company assumed
SFX Broadcasting'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, and
has made such payments using proceeds from the Equity Offering. The assumed
obligations 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. In addition, Mr. Sillerman's
employment agreement with the Company provides 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, the Company has agreed to indemnify SFX
Broadcasting and each of its directors, officers and employees for any losses
relating to the Company's assets and liabilities.
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In addition, pursuant to the Distribution Agreement, the Company has
assumed certain obligations of SFX Broadcasting, including two real estate
leases on its executive offices. Such leases provide for annual rent of
approximately $1.4 million.
WORKING CAPITAL
In accordance with the terms of the Distribution Agreement, at the time of
the SFX Merger, SFX Broadcasting and the Company made an estimated allocation
of the Working Capital (as defined in the Distribution Agreement) between the
two companies. Pursuant thereto, the Company paid SFX Broadcasting
$8,293,000, representing a shortfall in the Working Capital. This amount was
offset by a third party payment of $10,306,434 in connection with the Meadows
Repurchase, for a net working capital adjustment to the Company of approximately
$2.0 million.
Within 90 days of the SFX Merger, SFX Broadcasting is to deliver an
audited statement of the Working Capital and its calculation thereof to the
Company. If such audited statement is disputed by the Company, another "big
six" accounting firm is to be hired to perform a separate audit of such
statement and the results thereof are to be binding on both the Company and
SFX Broadcasting. The actual amount of the Working Capital will be a function
of, among other things, the actual operating results of SFX Broadcasting
through the date of the SFX Merger and the actual costs of consummating the
SFX Merger and the related transactions.
Any difference between the actual amount of the Working Capital and the
estimated amount paid by the Company to SFX Broadcasting at the time of the
SFX Merger shall be settled. There can be no assurance that the Company will
not be required to pay SFX Broadcasting significant additional funds once the
Working Capital amount has been finally determined. For a more complete
description of the calculation of the Working Capital, see the Distribution
Agreement filed as an exhibit to the Registration Statement. See "Additional
Information." In February 1998, the Company reimbursed SFX Broadcasting
approximately $25.3 million for consent fees, capital expenditures and other
acquisition related fees previously funded by SFX Broadcasting. See "Risk
Factors--Future Contingent Payments."
INTEREST ON NOTES AND BORROWINGS UNDER THE CREDIT FACILITY
On February 11, 1998, the Company completed the $350.0 million private
placement of Notes. Interest is payable on the Notes on February 1 and August
1 of each year. In addition, the Company has borrowed $150.0 million under
the term loan portion of the Credit Facility at an interest rate of
approximately 8.07%. The Company borrowed approximately $27.5 million under
the Credit Facility to finance the Avalon acquisition and has since repaid
such borrowing with proceeds from the Equity Offering. The Company expects to
borrow approximately an additional $22.2 million under the revolving portion
of the Credit Facility in connection with the Pending Acquisitions. See
"--Sources of Liquidity" and "Description of Credit Facility and Other
Indebtedness."
The degree to which the Company is leveraged has material consequences to
the Company. The Company's ability to obtain additional financing in the
future for acquisitions, working capital, capital expenditures, general
corporate or other purposes are subject to the covenants contained in the
instruments governing its indebtedness. A substantial portion of the
Company'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 Indenture and the credit agreement with respect to the Credit
Facility contain restrictive financial and operating covenants, and the
failure by the Company 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). Although the Company believes that it is
currently in compliance with the covenants under the Indenture and the Credit
Facility, there can be no assurance that it will be able to maintain such
compliance in the future. The Company 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; the
Company's indebtedness could also have other adverse consequences. See "Risk
Factors--Substantial Leverage" and "Description of Credit Facility and Other
Indebtedness."
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The Company'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 the Company's operations. There can be
no assurance that the Company will be able to make planned borrowings
(including under the Credit Facility), that the Company's business will
generate sufficient cash flow from operations, or that future borrowings will
be available in an amount to enable the Company to service its debt and to
make necessary capital or other expenditures. The Company 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 the Company will
be able to raise additional capital through the sale of securities, the
disposition of assets or otherwise for any refinancing. See "Risk
Factors--Risks Related to the Company's Indebtedness."
SUBSIDIARY GUARANTEES OF INDEBTEDNESS UNDER THE INDENTURE
Substantially all the Company's subsidiaries have jointly and severally
guaranteed the Company's indebtedness under the Indenture, represented by the
Notes and the Exchange Notes.
The Notes are not, and the Exchange Notes will not be, guaranteed by
certain Non-Guarantor Subsidiaries. Management believes that the
Non-Guarantor Subsidiaries are inconsequential to the Company on a
consolidated basis. For the 12-month period ended March 31, 1998, on a pro
forma basis giving effect to the Recent Acquisitions, Pending Acquisitions,
Spin-Off and SFX Merger, the Non-Guarantor Subsidiaries accounted for 2.9%,
4.9% and 1.5% of the Company's revenues, EBITDA and assets, respectively, on
a consolidated basis. The Subsidiary Guarantees are subordinated to the
guarantees of Senior Debt issued by the Guarantors under the Credit Facility.
See "Description of the Exchange Notes--Subsidiary Guarantees." The claims of
creditors (including trade creditors) of any Non-Guarantor Subsidiary will
generally have priority as to the assets of such subsidiaries over the claims
of the holders of the Exchange Notes. On a pro forma basis, as of March 31,
1998, giving effect to the Financing, the Recent Acquisitions and Pending
Acquisitions, the Spin-Off and the SFX Merger, the amount of liabilities of
the Non-Guarantor Subsidiaries would have been approximately $16.7 million.
There are no restrictions on the ability of consolidated subsidiaries to
transfer funds to the Company in the form of cash dividends, loans or
advances (i.e., borrowing arrangements, regulatory restraints, foreign
governments, etc.) except to the extent provided by law generally (e.g.,
adequate capital to pay dividends under corporate law). Indeed, the Credit
Facility and Indenture prohibit such restrictions on the assets of the
Subsidiary Guarantors. Consequently, there were no such assets so restricted
in consolidated subsidiaries at December 31, 1997.
CAPITAL EXPENDITURES
Capital expenditures totaled $11.8 million for the three months ended
March 31, 1998 and $2.1 million in the year ended December 31, 1997. Capital
expenditures in 1997 included cash paid for expansion and renovations at the
Jones Beach Amphitheater, improvements at other venues and computer and other
operating equipment. The Company expects that capital expenditures in fiscal
year 1998 will be substantially higher than current levels, due to the
planned capital expenditures of approximately $29.0 million for 1998 at
existing venues (including $17.0 million for the expansion and renovation of
the Jones Beach Amphitheater and $12.0 million for the expansion and
renovation of the PNC Bank Arts Center) and capital expenditures requirements
of the Acquired Businesses, including $12.0 million for the construction of a
new amphitheater serving the Seattle, Washington market. As of March 31,
1998, the Company had paid approximately $9.0 million of the $41.0 million
which it expects to pay in 1998. The Company estimates that, of the remaining
capital expenditures of approximately $32.0 million, approximately $25.0
million will consist of major projects and approximately $7.0 million will
consist of other capital expenditures. The Company expects to fund such
capital expenditures from its cash on hand.
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FUTURE CHARGES TO EARNINGS
In connection with employment agreements entered into with certain of the
Company's executive officers, the Company sold to such executive officers an
aggregate of 650,000 shares of Class B Common Stock and 190,000 shares of
Class A Common Stock at a purchase price of $2.00 per share. The Company will
record a non-cash compensation charge in the second quarter of approximately
$24.0 million in connection with this sale. In addition, the Company will
recognize a charge to earnings of approximately $7.5 million in the second
quarter associated with the Meadows Repurchase resulting from 247,177 shares
of Class A Common Stock issued to Mr. Sillerman in connection with the
Meadows Repurchase. The amount of such charge would be equal to the fair
value of Class A Common Stock to be received by Mr. Sillerman at the time of
the Meadows Repurchase. See "Certain Relationships and Related
Transactions--Meadows Repurchase."
Further, the Board, on the recommendation of its Compensation Committee,
also has approved the issuance of certain "below market" stock options
exercisable for an aggregate of 252,500 shares of Class A Common Stock. These
options will vest over three years and will have an exercise price of $5.50
per share. The Company will record non-cash compensation charges of
approximately $2.0 million annually over the three-year exercise period. The
Company will also record non-cash charges in connection with an anticipated
deferred compensation plan for its non-employee directors equal to the fair
market value (on the date of credit) of the shares of Class A Common Stock
which are credited pursuant to such plan. See "Management--Employment
Agreements and Arrangements with Certain Officers and Directors" and "Certain
Relationships and Related Transactions."
The consummation of the Recent Acquisitions resulted in substantial
charges to earnings relating to interest expense and the recognition and
amortization of goodwill and other intangible assets. As of March 31, 1998,
the Company's goodwill was approximately $470.7 million. This balance will
substantially increase due to certain of the Recent Acquisitions and the
Pending Acquisitions. Goodwill and other intangible assets are being
amortized using the straight line method over 15 years.
YEAR 2000 COMPLIANCE
The Company 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 the 1997 Acquisitions, Recent Acquisitions and Pending Acquisitions
and to be Year 2000 compliant. The Company anticipates that the cost of
implementing these systems will be approximately $3.0 million. The Company 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of An
Enterprise and Related Information" ("FAS 131"), which is effective for years
beginning after December 15, 1997. FAS 131 establishes standards for the way
that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. FAS 131 is effective for
financial statements for fiscal years beginning after December 15, 1997, and
therefore the Company will adopt the new requirements in 1998. Management has
not yet completed its review of FAS 131 but does not expect that its adoption
will have a material effect on the Company's statement of position or
revenues, only on the composition of its reportable segments.
SOURCES OF LIQUIDITY
As of March 31, 1998, the Company's cash and cash equivalents totaled
$94.0 million and its working capital deficit totaled $110.8 million. In
February of 1998, the Company received the proceeds from the
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$350.0 million Note Offering and borrowed $150.0 million under the Credit
Facility. On May 27, 1998, the Company received approximately $326.5 million
in net proceeds from the Equity Offering. On May 13, 1998, the Company
borrowed an additional $27.5 million under the Credit Facility to fund the
Avalon Acquisition which was subsequently repaid. On May 29, 1998, the
Company received a third party payment, net of the estimated Working Capital
payment by the Company, of approximately $2.0 million in connection with the
Meadows Repurchase. On a pro forma basis, the Company's working capital would
have been approximately $27.9 million at March 31, 1998.
The Company has incurred and will continue to incur substantial amounts of
indebtedness. As of March 31, 1998, the Company's consolidated indebtedness
would have been approximately $565.2 million on a pro forma basis. The
Company may incur indebtedness from time to time to finance acquisitions, for
capital expenditures or for other purposes. See "Risk Factors--Substantial
Leverage" and "--Expansion Strategy; Need for Additional Funds."
The Credit Facility consists of a $150.0 million seven-year reducing
revolving facility (the "Revolver") and a $150.0 million eight-year term loan
(the "Term Loan"). Upon consummation of the Pending Acquisitions, the Company
estimates that it will have approximately $127.8 million in remaining
borrowing availability under the Credit Facility. The Company has the ability
to increase borrowing availability by up to an additional $50.0 million under
certain circumstances). Loans outstanding under the Credit Facility will bear
interest, at the Company's option, at 1.875 to 2.375 percentage points over
LIBOR or the greater of the Federal Funds rate plus 0.50% or BNY's prime
rate. The interest rate spreads on the Term Loan and the Revolver will be
adjusted based on the Company's Total Leverage Ratio (as defined in the
Credit Agreement). The Company will pay a per annum commitment fee on unused
availability under the Revolver of 0.50% (to the extent that the Company's
Leverage Ratio is greater than or equal to 4.0 to 1.0), or 0.375% (if such
ratio is less than 4.0 to 1.0) and a per annum letter of credit fee equal to
the Applicable LIBOR Margin (as defined in the Credit Agreement) for the
Revolver then in effect. The Revolver and Term Loan contain provisions
providing that, at its option and subject to certain conditions, the Company
may increase the amount of either the Revolver or Term Loan by $50.0 million.
The Revolver and Term Loan 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 in the Credit Agreement) to pro
forma interest expense, debt service and fixed charges. The Company's
obligations under the Revolver and Term Loan are secured by substantially all
of its assets, including property, stock of subsidiaries and accounts
receivable and are guaranteed by the Company's subsidiaries. See "Description
of Credit Facility and Other Indebtedness--Credit Facility."
The Company intends to use the remaining proceeds of the Equity Offering,
together with anticipated borrowings under the Credit Facility of $22.2
million, to pay the anticipated tax indemnification obligation to SFX
Broadcasting (approximately $120.0 million), to pay the cash portion of the
purchase price of the Pending Acquisitions (approximately $83.3 million) and to
pay certain fees and expenses related to the Pending Acquisitions
(approximately $6.0 million). The foregoing represents the Company's best
estimate of the allocation of the remaining net proceeds of the Financing based
on the current status of its business and, as noted elsewhere herein, could be
subject to significant change. On a pro forma basis for the twelve months ended
March 31, 1998, amounts available for borrowing under the Credit Facility, plus
remaining net proceeds from the Equity Offering, would be sufficient for the
uses of funds described herein. However, there can be no assurance that the
Company will have sufficient cash flows at the time of borrowing to permit it
to make borrowings under the Credit Facility in the amounts required. See
"Description of Credit Facility and Other Indebtedness."
In February 1998, the Company completed a $350.0 million private placement
of Notes and borrowed $150.0 million under the term loan portion of the
Company's $300.0 million Credit Facility. The proceeds from the Note Offering
and the initial borrowings under the Credit Facility were used to consummate
certain of the Recent Acquisitions.
Future events, including the actual amount of the tax indemnity payment,
the timing of the tax indemnity payment, the ability of the Company to
identify appropriate acquisition candidates, the availability of other
financing and funds generated from operations and the status of the Company's
business from time to time, may make changes in the allocation of remaining
net proceeds of the Equity Offering necessary or desirable.
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Furthermore, certain agreements of the Company, including the Distribution
Agreement, the Tax Sharing Agreement, Employee Benefits Agreement, certain
employment agreements and the agreements relating to the Recent Acquisitions
and the Pending Acquisitions provide for tax and other indemnities, purchase
price adjustments and future contingent payments in certain circumstances.
There can be no assurance that the Company will have sufficient sources of
funds to make such payments should they come due. In addition, consistent
with its operating strategy, the Company is currently negotiating additional
acquisitions and expects to pursue additional acquisitions in the live
entertainment business in the future. See "Risk Factors--Risks Related to
Pending Acquisitions," "--Substantial Leverage," "--Future Contingent
Payments," "--Expansion Strategy; Need for Additional Funds" and
"--Restrictions Imposed by the Company's Indebtedness," "Certain
Relationships and Related Transactions--Indemnification of Mr. Sillerman" and
"Description of Credit Facility and Other Indebtedness."
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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 $1.1 billion in 1997, compared to $321.7 million in
1985, representing a compounded annual growth rate of approximately 10.9%.
The Company 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 the Company, 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 11.2%. 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 has 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
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or more in many municipalities, and an increase in the quality of Touring
Broadway Shows and in the 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
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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.
TALENT REPRESENTATION INDUSTRY
The talent representation industry generally encompasses the negotiation
of employment agreements and the creation and evaluation of endorsement,
promotional and other business opportunities for the client. A provider in
this industry may also provide ancillary services, such as financial advisory
or management services to its clients in the course of the representation.
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BUSINESS
GENERAL
SFX Entertainment is a leading integrated promoter, producer and venue
operator in the live entertainment industry. In addition, upon consummation
of the acquisition of FAME, the Company became a leading full-service
marketing and management company specializing in the representation of team
sports athletes, primarily in professional basketball. The Company believes
that it currently controls the largest network of venues used principally for
music concerts and other live entertainment events in the United States, with
44 venues either directly owned or operated under lease or exclusive booking
arrangements in 22 of the top 50 markets on a pro forma basis, including 11
amphitheaters in 7 of the top 10 markets. Through its large number of venues,
its strong, branded presence in each market served and its long operating
history, the Company is able to provide an integrated offering of promotion
and production services across a broad variety of live entertainment events
locally, regionally and nationally. During 1997, approximately 27 million
people attended 9,600 events promoted and/or produced by the Company, the
Acquired Businesses and the businesses to be acquired in the Pending
Acquisitions, including approximately 4,200 music concerts, 4,900 theatrical
shows and over 190 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 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. In
addition, the Company's event marketing programs interfaced with over 15
million people in 1997. The Company believes that its ability to provide
integrated live entertainment services will, among other things, encourage
wider use of its venues by performers and allow the Company to capture a
greater percentage of revenues from national tours and ancillary revenue
sources. On a pro forma basis, the Company would have had revenues and
Adjusted EBITDA of $827.9 million and $104.9 million, respectively, for the
twelve months ended March 31, 1998. For a description of Adjusted EBITDA, see
footnote 5 to "Summary Consolidated Financial Statements."
The Company'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 the Company and in
third-party venues. As promoter, the Company 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, the Company (a) creates tours for music concert, theatrical,
specialized motor sports and other events, (b) develops and manages Touring
Broadway Shows and (c) develops specialized motor sports and other live
entertainment events. As venue owner/operator, the Company books and promotes
events in the venues which it controls. The Company also derives ancillary
revenues from operations related to its live entertainment events, including
the sale of corporate sponsorships and advertising, the sale of concessions
and the merchandising of a broad range of products. In addition, upon
consummation of the acquisition of FAME, the Company began representation of
approximately 70 professional athletes, primarily in professional basketball.
On a pro forma basis, the Company's music businesses, theater operations,
specialized motor sports operations and other operations would have comprised
approximately 67%, 13%, 6% and 14%, respectively, of the Company's total
revenues for the twelve months ended March 31, 1998.
SFX MERGER AND THE SPIN-OFF
SFX Broadcasting was formed in 1992 principally to acquire and operate
radio broadcasting stations. On May 29, 1998, SFX Broadcasting was merged
with and into SFX Buyer, an affiliate of Hicks, Muse Tate & Furst
Incorporated. As a condition to the SFX Merger and pursuant to the
Distribution Agreement, SFX Broadcasting contributed to the Company all of
its assets relating to its entertainment business, and, on April 27, 1998,
distributed the Common Stock to certain stockholders of SFX Broadcasting on a
pro rata basis in the Spin-Off. The Spin-Off separated the entertainment
business from SFX Broadcasting's radio-broadcasting business and enabled SFX
Buyer to acquire only SFX Broadcasting's radio broadcasting business in the
SFX Merger.
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In addition to the Distribution Agreement, the Company, SFX Broadcasting
and SFX Buyer also entered into the Tax Sharing Agreement and the Employee
Benefits Agreement. Each of these agreements provides for certain
indemnification obligations by the Company and SFX Broadcasting.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Spin-Off."
1997 ACQUISITIONS
The Company was formed as a wholly-owned subsidiary of SFX Broadcasting in
December 1997 as the parent company of Concerts. Concerts was formed by SFX
Broadcasting in January of 1997 to acquire and hold SFX Broadcasting's live
entertainment operations.
DELSENER/SLATER
In January 1997, Concerts acquired Delsener/Slater, a leading concert
promotion company, for an aggregate consideration of approximately $27.6
million, including $2.9 million for working capital and the present value of
deferred payments of $3.0 million to be paid without interest over five years
and $1.0 million to be paid without interest over ten years. 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.
MEADOWS
In March 1997, Concerts acquired the stock of certain companies which own
and operate the Meadows, a 25,000-seat indoor/outdoor complex located in
Hartford, Connecticut for $900,000 in cash, 250,838 shares of SFX
Broadcasting Class A common stock with a value of approximately $7.5 million
and the assumption of approximately $15.4 million in debt. See "Certain
Relationships and Related Transactions--Meadows Repurchase."
SUNSHINE PROMOTIONS
In June 1997, Concerts acquired the stock of Sunshine Promotions, one of
the largest concert promoters in the Midwest for $53.9 million in cash, $2.0
million payable over five years, shares of SFX Broadcasting Class A common
stock issued and issuable over a two year period with a value of
approximately $4.0 million and the assumption of approximately $1.6 million
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.
RECENT ACQUISITIONS
In May and early June 1998, the Company consummated the Avalon, FAME and
Oakdale Acquisitions for an aggregate consideration consisting of
approximately $134.5 million in cash and 1.0 million shares of Class A Common
Stock. In February and March of 1998, the Company completed its acquisitions
of PACE, Pavilion, Contemporary, BGP, Network, Concert/Southern and certain
related entities. The aggregate purchase price of these Recent Acquisitions
was approximately $442.1 million in cash including repaid debt and payments
for working capital, $7.8 million in assumed debt and the issuance of an
aggregate of approximately 4.2 million shares of Class A Common Stock.
Following is a brief description of the Acquired Businesses. The following
descriptions are not intended to be complete descriptions of the terms of the
acquisition agreements and are qualified by reference to the acquisition
agreements, copies of which are filed as exhibits hereto and are incorporated
herein by reference. See "Additional Information."
FAME
On June 4, 1998, the Company acquired all of the outstanding capital stock
of FAME, a leading full-service marketing and management company which
specializes in the representation of team sports
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athletes, primarily in professional basketball. The aggregate purchase price
for FAME was approximately $82.2 million in cash (including $7.9 million
which the Company paid in connection with certain taxes incurred by FAME and
the FAME sellers and excluding $4.7 million of taxes paid on behalf of the
seller which will be refunded to the Company in 1999) and 1.0 million shares
of Class A Common Stock. The agreement also provides for payments by the
Company to the FAME sellers of additional amounts up to an aggregate of $15.0
million in equal annual installments over five years contingent on the
achievement of certain EBITDA targets and additional payments by the Company
if FAME's EBITDA performance exceeds the targets by certain amounts. FAME was
founded in 1992 by David Falk and Curtis Polk and currently represents some of
the premier athletes in professional team sports, including, among others,
Michael Jordan, Patrick Ewing, Alonzo Mourning, Juwan Howard and Allen
Iverson. In addition, FAME provides specialized financial advisory services
to its clients. Mr. Falk continues to serve as the Chairman of FAME and was
appointed as a Member of the Office of the Chairman and a Director of the
Company. The Company believes that, through its acquisition of FAME, it will
be able to capitalize on the cross-marketing opportunities that may arise by
virtue of representing prominent team athletes while selling corporate
sponsorships and other marketing rights at its existing venues.
OAKDALE
On June 3, 1998, the Company acquired certain assets of Oakdale for a
purchase price of $9.4 million in cash and the assumption of $2.5 million of
liabilities. The Company also made a non-recourse loan to the Oakdale sellers
in the amount of $11.4 million. Oakdale is a promoter and producer of
concerts in Connecticut and the owner of the Oakdale Theater, a new 4,800
seat facility located in Wallingford, Connecticut. In addition, pursuant to
the Oakdale Agreement, if the combined EBITDA (as defined in the Oakdale
Agreement) of the Oakdale Theater and Meadows exceeds $5.5 million in 1999,
the Company will be obligated to pay between 5.0 to 5.8 times the amount of
such excess to the Oakdale sellers.
AVALON
On May 14, 1998, the Company acquired Avalon for an aggregate cash
purchase price of $26.8 million, including approximately $300,000 paid to the
Avalon sellers to reimburse them for their third party out of pocket costs
and expenses incurred in connection with the development of the Camarillo
Creek Amphitheater. Avalon is a leading music concert producer and promoter
in the Los Angeles area.
PACE
On February 25, 1998, the Company acquired all of the outstanding capital
stock of PACE for a total purchase price of $109.5 million in cash, the
repayment of $20.6 million of debt and the issuance of 1.5 million shares of
Class A Common Stock. PACE is one of the largest diversified promoters and
producers of live entertainment in the United States, having what the Company
believes to be the largest distribution network in each of its music
concerts, theatrical shows and motor sports events business segments. In
connection with the acquisition of PACE, the Company has obtained 100% of
Pavilion Partners, a partnership that owns interests in 10 of the 41 venues
owned by the Company, by acquiring one-third of Pavilion Partners through the
acquisition of PACE and the remaining two-thirds of Pavilion Partners from
Sony and Blockbuster, for a combined consideration of $90.6 million
(comprised of cash of $41.4 million, the repayment of $43.1 million of debt
related to the two-thirds interest and the assumption of $6.1 million of debt
related to a capital lease). Under certain circumstances, the Company may be
required to sell either its motor sports or theatrical lines of business. See
"Management--Employment Agreements and Arrangements with Certain Officers and
Directors."
In addition, on March 25, 1998, PACE acquired a 67% interest in certain
assets and liabilities of USA Motorsports for an aggregate cash consideration
of approximately $4.0 million. The remaining 33% interest is held by the
Contemporary Group.
In connection with its acquisition of partnership interests in Lakewood
Amphitheater in Atlanta, Georgia and Starplex Amphitheater in Dallas, Texas,
PACE entered into a co-promotion agreement with its partner that contains a
provision that purports, under certain circumstances, to require PACE to
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co-promote (and share one-half of the profits and losses) with such
partnership certain concerts which are presented by PACE or any of its
affiliates in another venue located in either Atlanta, Georgia or Dallas,
Texas. However, the Company acquired an interest in Chastain Park
Amphitheater, also in Atlanta, in the Concert Southern acquisition described
below. The Company is currently negotiating with the third party to waive
this restrictive provision; however, it is possible that the Company will be
unable to obtain the waiver. In management's view, this provision will not
materially affect the business or prospects of the Company.
CONTEMPORARY
On February 27, 1998, the Company acquired by merger and asset
acquisition, the music concert, live entertainment, event marketing,
computerized ticketing and related businesses of Contemporary and the 50%
interest in the Riverport Amphitheater Joint Venture not owned by
Contemporary for approximately $72.8 million in cash, a payment for working
capital of $9.9 million, and the issuance of the 1,402,850 shares of Class A
Common Stock. Contemporary is a vertically-integrated live entertainment and
special event promoter and producer, venue operator and consumer marketer.
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.
BGP
On February 24, 1998, the Company acquired BGP for total consideration of
$60.8 million in cash, $12.0 million in repayment of debt, which amount was
at least equal to BGP's working capital (as defined in the acquisition
agreement) and the issuance of 562,640 shares of Class A Common Stock. 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.
NETWORK
On February 27, 1998, the Company acquired Album Network, Inc., SJS and
The Network 40 for a purchase price of $52.0 million in cash, a payment for
working capital of $1.8 million, reimbursed seller's costs of $500,000, the
purchase of an office building and related property for $2.5 million and the
issuance of 750,188 shares of Class A Common Stock upon consummation of the
Spin-Off. The $2.5 million purchase of the office building and related
property consisted of cash of $700,000 and the assumption of debt of $1.8
million. Network 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.
CONCERT/SOUTHERN
On March 4, 1998, the Company acquired Concert/Southern for a total cash
purchase price of $16.9 million (including a working capital payment of
$300,000). Concert/Southern is a promoter of live entertainment in the
Atlanta metropolitan area.
WESTBURY
On January 8, 1998, the Company acquired a long-term lease for Westbury
Music Fair, located in Westbury, New York, for an aggregate consideration of
approximately $3.0 million and an agreement to issue 75,019 shares of Class A
Common Stock. During the period between the closing and January 8, 2000, the
Company has the right to repurchase all of such shares for an aggregate
consideration of $2.0 million and the seller has the right to require the
Company to purchase all of such shares for an aggregate consideration of
$750,000.
PENDING ACQUISITIONS
In April and May of 1998, the Company entered into agreements to acquire
the following live entertainment businesses (for a more complete description
of the material terms of the agreements relating to these acquisitions, see
"Agreements Related to the Pending Acquisitions"):
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DON LAW
On April 29, 1998, the Company entered into an agreement (the "Don Law
Agreement") to acquire certain assets of Don Law. The Company proposes to
acquire such assets of Don Law for an aggregate consideration of
approximately $90.0 million, including the repayment of approximately $10.0
million in indebtedness. The Company may, at its option, pay up to $16.0
million of the purchase price in shares of Class A Common Stock. Don Law is a
leading concert and theater promoter in the New England area. In addition,
Don Law acts as the sole ticket operator for all of its own venues as well as
several third party venues. The definitive agreement is expected to provide
for an employment contract for Mr. Donald F. Law, Jr., the founder and
president and chief executive officer of Don Law.
EMI
On May 1, 1998, the Company entered into an agreement (the "EMI
Agreement") to acquire an 80% equity interest in EMI for $8.5 million in
cash. In addition, if the EMI sellers are required to pay any federal income
taxes in connection with the transaction, the Company has agreed to make a
loan to them in such amount (which the Company currently anticipates will be
approximately $750,000). The loan will bear interest at a rate of 10% and
will be repaid when the EMI sellers sell their remaining equity interests in
EMI. EMI has long term concession contracts with 26 amphitheaters, including
13 venues owned and/or operated by the Company.
SERVICES PROVIDED BY THE COMPANY
The Company is 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, (c) the representation of
professional athletes and (d) the sale of corporate sponsorships and
advertising and provision of marketing and consulting services to
third-parties.
BOOKING AND PROMOTION
The Company books and promotes music concerts, theatrical events,
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. The Company books and
promotes events in a number of types of venues (including amphitheaters,
theaters, clubs, arenas and stadiums) that are owned and/or operated by the
Company or by third parties. See "--Venue Operations." The Company primarily
promotes 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 Buffett). The Company believes that
its large distribution network will enable it to set an aggregate guarantee
for a series of shows, mitigating the risk of loss associated with a single
show. The Company also believes that the market research and audience
demographics database that it acquired in the Recent Acquisitions, when
combined with its existing audience data collection efforts, will permit
highly-effective, targeted marketing, such as direct-mail and subscription
series campaigns, which the Company believes will increase ticket pre-sales
and overall sales in a cost-efficient manner. In addition, the Company's
Capital Tickets retail distribution outlets and Dialtix interactive,
voice-response automated phone ticket order system are currently operating in
three markets. The Company believes that expanding the markets where it can
utilize its own ticketing sources will permit the Company to promote its live
entertainment events more effectively.
The following table identifies artists whose events were recently promoted
by the Company:
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- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
* National tour produced by the Company.
PRODUCTION
The Company is currently involved in the creation of tours for music
concert and other live entertainment events. The Company's production
activities 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 Acquired Businesses produce tours on a national or regional
basis and, in 1997, structured national tours for Fleetwood Mac and Ozzy
Osbourne, among others. The Company plans to increase its production of
national music tours. PACE (one of the Acquired Businesses) 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. The Company believes it is 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. The Company
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. The Company's competitors, some of whom
have also been partners of PACE in certain theater investments from time to
time, include a number of New York-based production companies that also
promote Touring Broadway Shows and a number of regional promoters. On a pro
forma basis, the Company would have had a producing interest or investment in
the following shows for 1997 and/or 1998:
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<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
SHOW TITLE TYPE THE COMPANY'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>
The Company 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.
The Company currently sells subscription series for its Touring Broadway
Shows in the following 31 of the approximately 60 markets that maintain
active touring schedules:
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
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.
The Company also produces motor sports events such as monster truck
events, tractor pulls, mud races, demolition derbies and motorcross races,
and designs 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. The Company believes
that it is the largest participant in the industry, on a pro forma basis
having produced over 190 events in 1997. The Company also competes 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. See "Risk Factors--Rights to Purchase
Certain Subsidiaries."
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In addition, the Company produces 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 its events and other events.
VENUE OPERATIONS
The Company'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, the Company typically receives 100% of sponsorship and
advertising revenues. Since few artists will play in every available market
during a tour, the Company 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,
the Company also competes with other venues to promote an artist in that
city. The Company believes that it controls the largest network of venues
used principally for music concerts and other live entertainment events in
the United States. Upon consummation of the Pending Acquisitions, the Company
will own and/or operate 44 venues in 22 of the top 50 markets, including 11
amphitheaters in 7 of the top 10 markets. The following chart sets forth
certain information with respect to the venues that are owned and/or operated
by the Company:
<TABLE>
<CAPTION>
TOTAL
TOTAL AVG. NO. OF SEATS
MARKET TYPE OF THE COMPANY'S SEATING ATTENDANCE EVENTS SOLD IN
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1997 IN 1997 1997
- ------------------------ -------- -------------- -------------------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
New York--Northern New
Jersey--Long Island: 1
PNC Bank ArtsCenter
(formerly Garden
State Arts Center) ... amphitheater 22-year lease 17,500(2) 6,456 57 368,004
(expires October 31,
2017)
Jones Beach Marine
Amphitheater .......... amphitheater 10-year license 14,400(2) 7,992 45 359,653
agreement (expires
December 31, 1999)
Roseland Theater ....... theater exclusive booking 3,200 2,614 41 107,174
agent
Westbury Music Fair .... theater 43-year lease 2,870 2,198 148 325,348
(expires December
31, 2034)
Los Angeles--Riverside--
Orange County: 2
Glen Helen Blockbuster
Pavilion............... amphitheater 25-year lease 25,000(3) 10,162 15 152,432
(expires July 1,
2018)
Irvine Meadows
Amphitheater........... amphitheater 20-year lease 15,500 11,537 19 219,211
(expires February
28, 2017)
Thousand Oaks
Civic Arts Plaza........ theater 5-year exclusive 1,800 1,164 24 27,929
booking agent for
contemporary music
events (expires May
2003)
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TOTAL
TOTAL AVG. NO. OF SEATS
MARKET TYPE OF THE COMPANY'S SEATING ATTENDANCE EVENTS SOLD IN
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1997 IN 1997 1997
- ------------------------ -------- -------------- -------------------- ----------- ------------ --------- ---------
San Francisco--Oakland--
San Jose: 5
Shoreline Amphitheater . amphitheater facility owned; land 22,000 12,600 40 504,013
leased for 35 years
(expires November
30, 2021)
Concord Pavilion........ amphitheater 10-year exclusive 12,500 6,226 42 261,479
outside booking
agent (expires
December 31, 2005)
Greek Theater........... theater 4-year lease 8,500 6,191 9 55,718
(expires October 31,
1998)
Warfield Theatre........ theater 10-year lease 2,250 1,677 77 129,129
(expires May 31,
2008)
Filmore Auditorium...... theater 10-year lease 1,249 1,051 180 189,103
(expires August 31,
2007)
Punchline Comedy Club ..
club 5-year lease 175 97 422 41,138
(expires September
15, 2001)
Philadelphia--Wilmington--
Atlantic City: 6
Blockbuster/SONY Music
Entertainment
Centre on the
Waterfront............. amphitheater 31-year lease 25,000 8,973 54 484,528
(expires February 9,
2025)
Boston--Mansfield: 7
Great Woods Center for
the Performing Arts(4) . amphitheater owned 19,900 11,943 54 644,875
Harborlights amphitheater 4,800 3,180 45 143,100
Pavilion(4)............. leased
Orpheum Theatre(4)...... theater long-term management 2,700 2,475 184 622,586
contract
Dallas--Ft. Worth: 9
Starplex Amphitheater .. amphitheater 32.5% partnership 20,500 8,799 35 307,981
interest in 31 year
lease (expires
December 31, 2028)
Houston--Galveston--
Brazoria: 10
Cynthia Woods Mitchell
Pavilion............... amphitheater 15-year management 13,000 8,381 35 293,350
contract (expires
December 31, 2009)
Bayou Place
Performance Hall....... theater 50% partnership 2,800 3,223 18 58,019
interest in 10-year
lease (expires
December 31, 2007)
Atlanta: 12
Lakewood Amphitheater .. amphitheater 32.5% partnership 19,000 9,257 32 296,225
interest in 35-year
lease (expires
January 1, 2019)
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TOTAL
TOTAL AVG. NO. OF SEATS
MARKET TYPE OF THE COMPANY'S SEATING ATTENDANCE EVENTS SOLD IN
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1997 IN 1997 1997
- ------------------------ -------- -------------- -------------------- ----------- ------------ --------- ---------
Chastain Park
Amphitheater........... amphitheater 10-year lease 7,000 5,777 28 161,755
(expires December
31, 2000)
Roxy Theater............ theater 7-year lease 1,600 848 102 86,498
(expires March 31,
2004)
Cotton Club............. theater 5-year lease 650 403 151 60,829
(expires June 12,
2000)
St. Louis: 17
Riverport Amphitheater . amphitheater owned 21,000 10,531 42 442,302
American Theater........ theater 10-year lease 2,000 1,510 24 36,236
(expires July 31,
2004)
Westport Playhouse...... theater 1-year lease 1,100 880 15 13,196
(expires May 31,
1998)
Phoenix--Mesa: 18
Desert Sky Blockbuster
Pavilion .............. amphitheater 60-year lease 19,900(2) 9,179 23 211,114
(expires June 30,
2049)
Pittsburgh: 19
Star Lake Amphitheater . amphitheater 45-year lease 22,500 12,361 42 519,182
(expires December
31, 2034)
Kansas City: 24
Sandstone Amphitheater . amphitheater 10-year lease 18,000 8,109 32 259,488
(expires December
31, 2002)
Starlight Theater....... theater annual exclusive 9,000 3,772 9 33,948
booking agent
contract for 1998
(renewal under
negotiation)
Memorial Hall........... theater 1998 contract 3,000 1,910 11 21,014
(renewal under
negotiation)
Sacramento--Yolo: 26
Punchline Comedy Club .. club 9-year lease 245 355 90 31,834
(expires December
17, 1999)
Indianapolis: 28
Deer Creek Music
Center................. amphitheater owned 21,000 11,348 42 476,617
Murat Centre............ theater and 50-year lease 2,700 1,412 144 211,920
ballroom (expires August 31,
2045)
Columbus: 30
Polaris Amphitheater .. amphitheater owned 20,000 7,732 39 301,555
Charlotte--Gastonia--
Rock Hill: 32
Charlotte Blockbuster
Pavilion............... amphitheater owned 18,000 8,592 34 292,135
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TOTAL
TOTAL AVG. NO. OF SEATS
MARKET TYPE OF THE COMPANY'S SEATING ATTENDANCE EVENTS SOLD IN
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1997 IN 1997 1997
- ------------------------ -------- -------------- -------------------- ----------- ------------ --------- ---------
Hartford--Wallingford: 36
Meadows Music Theater .
amphitheater facility owned; land 25,000 9,807 26 254,982
leased for 37 years
(expires September
13, 2034)
Oakdale Theater......... theater facility owned; land
leased for 15 years
and the Company will
purchase land upon
expiration 4,800 2,944 142 418,000
Rochester: 39
Finger Lakes
Amphitheater........... amphitheater co-promotion 12,700 6,123 15 91,845
agreement
Nashville: 41 amphitheater
Starwood Amphitheater .. 50% ownership 17,000 8,208 25 205,204
Oklahoma City: 43
Zoo Amphitheater........ amphitheater year-to-year 9,000 6,412 4 25,648
exclusive booking
agent
Raleigh--Durham--
Chapel Hill: 50
Walnut Creek
Amphitheater........... amphitheater 66 2/3% partnership
interest in 40-year
lease (expires
October 31, 2030) 20,000 10,498 40 419,919
West Palm Beach--
Boca Raton: 50
SONY Music/Blockbuster
Coral Sky
Amphitheater........... amphitheater 75% partnership 20,000 11,244 26 292,340
interest in 10-year
lease (expires
January 4, 2005)
Reno: 119
Reno Hilton
Amphitheater........... amphitheater operating agreement
(renewal under
negotiation) 8,500 3,420 19 64,983
</TABLE>
- ------------
(1) Based on the July 1994 population of metropolitan statistical areas as
set forth in the 1997 Statistical Abstracts of the United States. Does
not include venues where the Company sells subscriptions for Touring
Broadway Shows.
(2) Assumes completion of current expansion projects, which are anticipated
to be completed by Summer 1998.
(3) Additional seating of approximately 40,000 is available for certain
events.
(4) Upon consummation of the Don Law Acquisition.
Because the Company operates a number of its venues under leasing or
booking agreements, the Company's long-term success will depend on its
ability to renew these agreements when they expire or terminate. There can be
no assurance that the Company 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.
REPRESENTATION OF PROFESSIONAL ATHLETES
Upon consummation of the FAME Acquisition, the Company became a leading
full-service provider of marketing and management services, specializing in
the representation of team sports athletes (primarily in professional
basketball). The Company will generate revenues through the negotiation of
professional sports contracts (primarily basketball) and endorsement
contracts for its clients. FAME's clients have endorsed products for
companies such as Nike, McDonald's, Coca-Cola and Chevrolet. In addition,
FAME generates a small portion of its revenues by providing certain financial
management and
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planning services to its clients, through its investment affiliate (which will
also be acquired in the FAME Acquisition), which is a registered investment
advisor. The Company believes that it will be able to capitalize on the
synergies which exist between the representation of athletes in corporate
marketing opportunities and the sale of corporate sponsorships and other
marketing rights at its existing venues.
A significant portion of FAME's revenues to date has been derived from a
small number of clients. The Company estimates that five of FAME's clients
accounted for approximately 78% of FAME's revenue for the twelve months ended
March 31, 1998, and on a pro forma basis, FAME's EBITDA would have comprised
approximately 7% of the Company's EBITDA for the same period. The amount of
endorsement and other revenues which these clients generate is a function of,
among other things, such clients' professional performance and public appeal.
Factors beyond the Company's control, such as injuries to these clients,
declining skill or labor unrest, among others, could have a material adverse
affect on the Company's operations. Representation agreements with its
clients are generally for a term equal to the term of the player's
professional sports contract but are terminable on 15 days' notice (although
FAME would continue to be entitled to the revenue streams generated during
the remaining term of any contracts which it negotiated). The termination or
expiration of FAME's contracts with certain clients could have a material
adverse affect on the Company's operations. See "Risk Factors--Risks Related
to the Representation of Athletes."
SPONSORSHIPS AND ADVERTISING; MARKETING AND OTHER SERVICES
In order to maximize revenues, the Company 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 the Company's venues currently
have no sponsorship arrangements in many of the available categories
(including naming rights). The Company believes that the national venue
network assembled through the Recent Acquisitions will likely (a) attract a
larger number of major corporate sponsors and (b) enable the Company to sell
national sponsorship rights at a premium over local or regional sponsorship
rights. The Company 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. The Company 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.
The Company provides a variety of marketing and consulting services
derived from or complementary to its 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 at malls and college campuses. For
example, Contemporary (one of the Acquired Businesses) 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, the Company believes that Contemporary is one of
the leading producers of national mall touring events, producing over 65
events every year in the country's 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). The Company 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.
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The Company 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 of the
Company's magazines focuses on research and insight common to a specific
contemporary radio format. The Company also provides radio airplay and music
retail research services to record labels, artist managers, retailers and
radio broadcasters. The Company 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.
The Company, through Network (one of the Acquired Businesses), 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, the Company 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
The Company's principal objectives are to maximize revenue and cash flow
growth opportunities by (a) being a leading promoter and producer of live
entertainment events and a leading provider of talent representation services
and (b) owning and/or operating leading live entertainment venues in the
United States. The Company's specific strategies include the following:
OWN AND/OR OPERATE LEADING LIVE ENTERTAINMENT VENUES IN NATION'S TOP 50
MARKETS
A key component of the Company's strategy is to own and/or operate a
network of leading live entertainment venues in the nation's top 50 markets.
The Company 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 the Company's
venues by providing centralized access to a nationwide network of venues. The
Company believes that it controls the largest network of venues used principally
for music concerts and other live entertainment events in the United States.
Upon consummation of the Pending Acquisitions, the Company will own and/or
operate under exclusive booking arrangements 44 venues in 22 of the top 50
markets, including 11 amphitheaters in 7 of the top 10 markets.
MAXIMIZE ANCILLARY REVENUE OPPORTUNITIES
The Company intends to enhance revenues and cash flows by maximizing
revenue sources arising from and related to its leadership position in the
live entertainment business. On a pro forma basis for the 1997 and Recent
Acquisitions, these ancillary revenues comprised approximately 19% of the
Company's music businesses' total revenues for the year ended December 31,
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 the Company'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 the Company's venues currently have no sponsorship arrangements in
many of the available categories (including naming rights). The Company 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.
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EXPLOIT SYNERGIES OF THE ACQUIRED BUSINESSES
The Company plans to maximize revenues by exploiting synergies among its
various existing businesses and the Acquired Businesses. The Company believes
that it can utilize the best business practices of the businesses acquired in
the Recent Acquisitions and the Pending Acquisitions on a national scale. For
example, the Atlanta-based regional Music Midtown Festival, created and
promoted by Concert/Southern (one of the Acquired Businesses), is a highly
successful music festival concept that drew approximately 200,000 attendees
in 1997; the Company believes that it can use the event as a model for other
markets. In addition, the Company believes that the radio industry trade
publications of Network (another of the Acquired Businesses) will enable the
Company 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 the Company. In addition, the Company believes that it will be able to
capitalize on the cross-marketing opportunities that may arise by virtue of
representing prominent team athletes while selling corporate sponsorships and
other marketing rights at its existing venues.
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. The Company 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 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. The Company 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
The Company 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, the Company 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 the
Company acquired through certain of the Recent Acquisitions, when combined with
the Company's existing audience data collection efforts, will permit
highly-effective targeted marketing, such as direct-mail and subscription series
campaigns, which the Company believes will increase ticket pre-sales and overall
sales in a cost-efficient manner.
STRICT COST CONTROLS; NATIONALLY COORDINATED BOOKING, MARKETING & ACCOUNTING
The Company'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, the Company believes that its size 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
Acquired 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
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operations. The Company 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, the Company believes that it will be better able to coordinate
negotiations with performers and talent agents, addressing what the Company
believes is a growing desire among performers and talent agents to deal with
fewer, more sophisticated promoters. The Company intends to pursue additional
strategic acquisitions of (a) amphitheater and other live entertainment venues,
(b) local and regional promoters and producers of music concert, theatrical,
specialized motor sports and other live entertainment events and (c) companies
in the talent representation industry. The Company is currently in the process
of negotiating certain additional acquisitions of live entertainment and related
businesses; however, it has not entered into definitive agreements with respect
to any of such acquisitions and there can be no assurance that it will do so.
PROPERTIES
The Company's executive offices are located at 650 Madison Avenue, 16th
Floor, New York, New York 10022. Upon consummation of the Pending
Acquisitions, in addition to the properties described in "--The Company's
Live Entertainment Activities--Venue Operations," the Company leases or will
lease office space in New York, New York; Austin and Houston, Texas; Atlanta,
Georgia; Chicago, Illinois; Indianapolis, Indiana; Washington, DC; Miami,
Florida; Gaithersburg, Maryland; Cambridge, Mansfield and Boston,
Massachusetts; Santa Monica and Encino, California; Seattle, Washington;
London, England; and St. Louis, Missouri and owns office buildings in Burbank
and San Francisco, California and Mansfield, Massachusetts. These properties
are generally leased for terms of 1 to 10 years.
EMPLOYEES
As of March 31, 1998, the Company had approximately 950 full-time
employees. Upon consummation of the Pending Acquisitions, the Company expects
to have approximately 1,100 full-time employees. The Company will also, from
time to time, hire or contract for part-time or seasonal employees or
independent contractors, although its staffing needs will vary. Management
believes that its relations with its employees are good. A number of the
employees to be retained by the Company are covered by collective bargaining
agreements. See "Management."
LITIGATION
On May 5, 1998, a class action complaint was filed in Chancery Court in
the State of Delaware, New Castle County, CA #16355NC against the Company,
Robert F.X. Sillerman, Howard J. Tytel, Marquee and certain of Marquee's
directors. The complaint alleges that the Company has proposed an acquisition
of Marquee and that the proposed acquisition will be unfair to Marquee's
public stockholders. The complaint seeks an order enjoining the proposed
transaction, or, in the alternative, awarding rescissory and compensatory
damages. To date there have been no other proceedings in the case and the
Company intends to defend the action vigorously.
Although the Company is involved in several other 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, provides
talent representation services to professional athletes and acts as booking
agent for tours and appearances for musicians and other entertainers. The
Company has indicated to Marquee its potential interest in acquiring Marquee.
Mr. Sillerman has an aggregate equity interest of approximately 9.1% in
Marquee and Mr. Sillerman is the chairman of its board of directors, and Mr.
Tytel is one of its directors. In addition, with the acquisition of FAME, the
Company may directly compete with Marquee in obtaining representation
agreements with particular athletes and endorsement opportunities for its
clients. The Company anticipates that, from time
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to time, it will enter into transactions and arrangements (particularly, booking
arrangements) with Marquee and Marquee's clients. In any transaction or
arrangement with Marquee, Messrs. Sillerman and Tytel are likely to have
conflicts of interest as officers and directors of the Company. These
transactions or arrangements will be subject to the approval of a committee of
independent members of the boards of directors of each of the Company and
Marquee, 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 and the Company produces ice skating and gymnastics events
that may compete with events in which Marquee is involved. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Recent
Developments" and "Certain Relationships and Related Transactions--Potential
Conflicts of Interest."
TSC, an entity controlled by Mr. Sillerman and in which Mr. Tytel also has
an equity interest, provides financial consulting services to Marquee. TSC's
services are provided by certain directors, officers and employees of the
Company who are not separately compensated for their services by TSC. In any
transaction, arrangement or competition with Marquee, Messrs. Sillerman and
Tytel are likely to have conflicts of interest between their duties as
officers and directors of the Company, on the one hand, and their duties as
directors of Marquee and their interests in TSC and Marquee, on the other
hand. See "Certain Relationships and Related Transactions--Triathlon Fees,"
"Management" and "Certain Relationships and Related Transactions--Potential
Conflicts of Interest."
Pursuant to the employment agreement entered into between Brian Becker and
the Company in connection with the acquisition of PACE, Mr. Becker has the
option, exercisable within 15 days after the second anniversary of the
consummation of the PACE Acquisition, to purchase the Company's then existing
motor sports line of business (or, if that line of business has been sold,
the Company'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 the Company. See "Management--Employment Agreements and
Arrangements with Certain Officers and Directors."
SEASONALITY
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. For example, on a pro forma basis for the 1997 Acquisitions, the
Company generated approximately 68% of its revenues in the second and third
quarters for the twelve months ended December 31, 1997. 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. Therefore, the seasonality of the
Company's business causes (and, upon consummation of the Pending
Acquisitions, will probably continue to cause) a significant variation in the
Company's quarterly operating results. These variations in demand could have
a material adverse effect on the timing of the Company's cash flows and,
therefore, on its ability to service its obligations with respect to its
indebtedness. However, the Company believes that this variation may be
somewhat offset with the acquisition of typically non-summer seasonal
businesses in the Recent 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. The Company 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, the Company's marketing and consulting
operations compete with advertising agencies and other marketing
organizations. The Company and the businesses to be acquired in the Pending
Acquisitions compete not only with other live entertainment events, including
sporting events and theatrical presentations, but also
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with non-live forms of entertainment, such as television, radio and motion
pictures. The talent representation industry is also highly competitive. The
Company competes with both larger and smaller entities. A number of the
Company's competitors have substantially greater resources than the Company.
Certain of the Company's competitors may also operate on a less leveraged basis,
and have greater operating and financial flexibility, than the Company. 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 the Company. There can be no assurance that the Company will be able
to compete successfully in this market or against these competitors.
REGULATORY MATTERS
The business of the Company is not generally subject to material
governmental regulation. However, if the Company 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 the Company may pursue in the future.
There can be no assurance that the Company 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. 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 the Company'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 the Company'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, are discussed under "Risk Factors" and elsewhere
in this Prospectus. Readers are urged to carefully consider these factors in
connection with the forward-looking statements. The Company 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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AGREEMENTS RELATED TO THE PENDING ACQUISITIONS
The following is a summary of the material terms of the agreements related
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,
copies of which have been filed as exhibits to the Company's Registration
Statement filed with the Commission and are incorporated herein by reference.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of any such person, a
copy of any or all documents incorporated herein by reference (other than
exhibits to such documents which are not specifically incorporated by
reference into such documents). Requests for such documents should be
directed to SFX Entertainment, Inc., 650 Madison Avenue, 16th Floor, New
York, New York 10022, Attention: Investor Relations, telephone (212)
838-3100.
DON LAW ACQUISITION
The Company has entered into the Don Law Agreement, pursuant to which the
Company will acquire certain assets of Don Law for an aggregate purchase
price of $90.0 million (subject to adjustment based on the working capital of
Don Law as described more fully below), including the repayment of $10.0
million in debt. The Company may at its option pay up to $16.0 million of the
purchase price in shares of Class A Common Stock at a negotiated per share
price of approximately $30.09. At the closing, the Company will have the
option to either include or exclude the lease on the Harborlights Pavilion
(the "Harborlights") and related assets (collectively, the "Harborlights
Assets") from the Don Law Acquisition. If the Harborlights Assets are so
excluded, the purchase price will be reduced by $8.0 million.
EXCLUDED ASSETS
Certain assets of Don Law are to be excluded from the Don Law Acquisition,
including (a) Don Law's ownership interests in certain nightclubs in Boston,
Massachusetts (as long as such nightclubs do not materially compete with the
Company's efforts to attract performing artists), (b) the name "Blackstone",
(c) the name "Don Law", which the Company will have the right to use during
the term of the employment agreement to be executed between the Company and
Donald F. Law, Jr. at the closing, (d) the land and improvements located in
Mansfield, Massachusetts that have been designated for a waterpark facility
and (e) a lease for certain office space in Cambridge, Massachusetts.
RIGHT OF FIRST OFFER AND REFUSAL; NON-COMPETE
As a condition to closing, the Don Law seller and the Company will enter
into an agreement pursuant to which the assets to be acquired in the Don Law
Acquisition, with certain exceptions, will be subject to a right of first
offer and refusal by the members of Don Law if the Company elects to sell
such assets within two years after the closing of the Don Law Acquisition. In
addition, the Company and Mr. Law have agreed to enter into a non-competition
agreement at the closing to restrict employees of the Company and its
affiliates who are responsible for the day to day operation or management of
the concert promotion business in the New York metropolitan area from
participating in the management of the assets acquired in the Don Law
Acquisition. The agreement also imposes certain restrictions on transfers of
the Company's assets (including the assets to acquired in the Don Law
Acquisition) in Maine, Massachusetts and Rhode Island to such employees.
CLOSING CONDITIONS; TERMINATION
The closing of the Don Law Acquisition is subject to certain conditions,
including a requirement to obtain certain third party consents. The closing
is also conditioned upon the execution by the Company and Mr. Law of a
five-year employment agreement. Both parties will have the right to terminate
the Don Law Agreement if the closing has not occurred by July 1, 1998 or such
other date as mutually agreed; however, if the Don Law seller has not entered
into a new lease with respect to the Harborlights on terms and conditions
acceptable to the Company, the Company may extend the termination date to
August 1, 1998.
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REGISTRATION RIGHTS
If the Company issues any Class A Common Stock as part of the purchase
price, then the Don Law Agreement provides that the parties will enter into a
registration rights agreement providing for certain demand and piggy-back
registration rights and a twelve month lock-up period.
INDEMNITY
The Don Law seller, including its members (pro rata according to their
respective ownership interests in Don Law), and the Company have agreed to
indemnify each other from all costs and expenses with respect to any breach
of any representation, warranty, covenant or obligation pursuant to the Don
Law Agreement. In most cases, each party will be obligated to indemnify the
other to the extent that the other party has indemnifiable expenses in excess
of $100,000. Each party's indemnity obligations generally terminate after one
year. The Don Law seller's indemnity obligation is generally limited to 5% of
the purchase price (as adjusted), but in no event in excess of the purchase
price (as adjusted) with respect to claims relating to title to assets and
excluded assets. Indemnity obligations of the Don Law seller and its members
are payable in cash and shares of Class A Common Stock (issued at fair market
value) in specified proportions.
EMI ACQUISITION
On May 1, 1998, the Company entered into the EMI Agreement to acquire
approximately an 80% equity interest in EMI for an aggregate purchase price
of $8.5 million in cash. In addition, the Company has agreed to make a loan
to the EMI sellers in an amount equal to 20% of certain taxes which the EMI
sellers will be subject to as a result of the transaction. The Company
currently anticipates the amount of such loan will be approximately $750,000.
The loan will bear interest at a rate of 10% and, subject to certain
conditions, will be repaid when the EMI sellers sell their equity interests
in EMI.
CLOSING CONDITIONS; TERMINATION
The parties have the right to terminate the EMI Agreement if the closing
has not occurred by June 30, 1998. The EMI Agreement provides that the
Company and the EMI sellers will enter into a shareholders agreement
reasonably satisfactory to the parties and a management services agreement.
The Company expects that the management services agreement will provide that
the EMI sellers will be entitled to compensation for providing services
pursuant to such agreement in an amount equal to 20% of EMI's adjusted EBDA
(which will be defined in the management services agreement).
INDEMNITY
The Company and the EMI sellers have agreed to indemnify each other for,
among other things, any costs or expenses with respect to any breach of a
representation, warranty, covenant or other obligation under the EMI
Agreement. The indemnity obligations of the EMI sellers are subject to
certain limitations, including a limitation of approximately $4.3 million on
the amount of the sellers' liability with respect to a breach of any
representation or warranty and to approximately $8.5 million in all other
cases.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Pursuant to the Company's Certificate of Incorporation and By-laws, the
business of the Company is managed by the Board. The Board conducts its
business through meetings of the Board and its committees. The standing
committees of the Board are described below.
The By-laws of the Company authorize the Board to fix the number of
directors from time to time. The number of directors of the Company is
currently eleven. All directors hold office until the next annual meeting of
stockholders following their election or until their successors are elected
and qualified. Officers of the Company are to be elected annually by the
Board and serve at the Board's discretion. In the election of directors, the
holders of the 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 the Class A Common Stock
entitled to one vote.
Currently, the Board consists of the individuals who previously served as
directors of SFX Broadcasting, Brian Becker, who was appointed to the Board
upon the consummation of the PACE Acquisition, and David Falk, the Chairman
and a founder of FAME, who was appointed as a Director and a Member of the
Office of the Chairman of the Company upon the consummation of the FAME
acquisition. All of the individuals who previously served as directors of SFX
Broadcasting ceased to be directors of SFX Broadcasting at the time of the
SFX Merger.
All of the executive officers of the Company (the "Executive Officers")
entered into five-year employment agreements with the Company (except Mr.
Armstrong, who will no longer serve as an executive officer of the Company,
effective as of September 1, 1998, in order to continue to pursue a career in
radio broadcasting). See "--Employment Agreements and Arrangements with
Certain Officers and Directors."
The following table sets forth information as to the directors and the
executive officers of the Company:
<TABLE>
<CAPTION>
AGE AS OF
POSITION(S) HELD WITH SFX DECEMBER 31,
NAME ENTERTAINMENT 1997
- ----------------------- ----------------------------------- --------------
<S> <C> <C>
Robert F.X. Sillerman .. Director, Executive Chairman and 49
Member of the Office of the
Chairman
Michael G. Ferrel....... Director, President, Chief 48
Executive Office and Member of the
Office of the Chairman
Brian Becker............ Director, Executive Vice President 41
and Member of the Office of the
Chairman
David Falk.............. Director and Member of the Office 47
of the Chairman
Howard J. Tytel......... Director, Executive Vice President, 50
General Counsel and Secretary
Thomas P. Benson........ Director, Vice President and Chief 35
Financial Officer
Richard A. Liese........ Director, Vice President and 47
Associate General Counsel
D. Geoffrey Director and Executive Vice 40
Armstrong(1)........... President
James F. O'Grady, Jr. .. Director 69
Paul Kramer............. Director 65
Edward F. Dugan......... Director 63
</TABLE>
- ------------
(1) While Mr. Armstrong will remain as a director of the Company, it is
anticipated that, effective as of September 1, 1998, he will no longer
serve as an executive officer of the Company in order to continue to
pursue a career in radio broadcasting.
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ROBERT F.X. SILLERMAN has served as the Executive Chairman, a Member of
the Office of the Chairman and a Director of the Company since its formation
in December 1997. Mr. Sillerman also served as the Executive Chairman of SFX
Broadcasting from July 1, 1995 until the consummation of the SFX Merger. From
1992 through June 30, 1995, Mr. Sillerman served as Chairman of the Board of
Directors and Chief Executive Officer of SFX Broadcasting. 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 the mid-western 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.
MICHAEL G. FERREL has served as the President, Chief Executive Officer, a
Member of the Office of the Chairman and a Director of the Company since its
formation in December 1997. Mr. Ferrel also served as the President, Chief
Executive Officer and a director of SFX Broadcasting from November 22, 1996
until the consummation of the SFX Merger. Mr. Ferrel served as President and
Chief Operating Officer of MMR, a wholly-owned subsidiary of SFX
Broadcasting, 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 Broadcasting, Inc., the
former owner of radio station WPKX-FM, Springfield, Massachusetts, which was
acquired by MMR in July 1993.
BRIAN E. BECKER has served as an Executive Vice President, a Member of the
Office of the Chairman and a Director of the Company since the consummation
of the PACE acquisition in February 1998. Mr. 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.
DAVID FALK serves as a Member of the Office of the Chairman and a Director
of the Company. Mr. Falk will also serve as a Director and as Chairman of the
Company's sports group and several subsidiaries within the Company's sports
group (which includes FAME). Mr. Falk, who has represented professional
athletes for over twenty years, is presently a director, Chairman and Chief
Executive Officer of FAME, positions he has held since he founded FAME in
1992. Mr. Falk also serves as Chairman of the HTS Sports-a-Thon to benefit
the Leukemia Society of America, is a member of the Executive Committee of
the College Fund and is on the Board of Directors of the Juvenile Diabetes
Foundation and Share the Care for Children.
HOWARD J. TYTEL has served as an Executive Vice President, General
Counsel, Secretary and a Director of the Company since its formation in
December 1997. Mr. Tytel also served as a Director, General Counsel,
Executive Vice President and Secretary of SFX Broadcasting from 1992 until
the consummation of the SFX Merger. 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. From 1993 to 1998, Mr. Tytel was Of
Counsel to the law firm of Baker & McKenzie, which represented SFX
Broadcasting and currently represents the Company and other entities with
which Messrs. Sillerman and Tytel are affiliated on various matters.
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THOMAS P. BENSON has served as the Vice President, Chief Financial Officer
and a Director of the Company since its formation in December 1997. Mr.
Benson also served as the Chief Financial Officer and a Director of SFX
Broadcasting, having served in such capacity from November 22, 1996 until the
consummation of the SFX Merger. Mr. Benson became the Vice President of
Financial Affairs of SFX Broadcasting 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 served as a Vice President, Associate General Counsel
and a Director of the Company since its formation in December 1997. Mr. Liese
also served as a Director, Vice President and Associate General Counsel of
SFX Broadcasting, having served in such capacity from 1995 until the
consummation of the SFX Merger. 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.
D. GEOFFREY ARMSTRONG has served as an Executive Vice President and a
Director of the Company since its formation in December 1997. It is
anticipated that, effective as of September 1, 1998, Mr. Armstrong will no
longer serve as an executive officer of the Company but will remain as a
Director. Mr. Armstrong also served as the Chief Operating Officer and an
Executive Vice President of SFX Broadcasting, having served in such capacity
from November 22, 1996 until the consummation of the SFX Merger. Mr.
Armstrong has served as a Director of SFX Broadcasting since 1993. Mr.
Armstrong became the Chief Operating Officer of SFX Broadcasting in June 1996
and the Chief Financial Officer, Executive Vice President and Treasurer of
SFX Broadcasting in April 1995. Mr. Armstrong was Vice President, Chief
Financial Officer and Treasurer of SFX Broadcasting from 1992 until March
1995. He had been Executive Vice President and Chief Financial Officer of
Capstar, a predecessor of SFX Broadcasting, since 1989. From 1988 to 1989,
Mr. Armstrong was the Chief Executive Officer of Sterling Communications
Corporation.
JAMES F. O'GRADY, JR. has served as a Director of the Company since its
formation in December 1997. Mr. O'Grady also served as a Director of SFX
Broadcasting prior to the consummation of the SFX Merger. Mr. O'Grady 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 The
Insurance Broadcast System, Inc. since 1994.
PAUL KRAMER has served as a Director of the Company since its formation in
December 1997, served as a Director of SFX Broadcasting prior to the SFX
Merger and currently serves as a director of Nations Flooring, Inc. Mr.
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.
EDWARD F. DUGAN has served as a Director of the Company since its
formation in December 1997. Mr. Dugan also served as a Director of SFX
Broadcasting prior to the SFX Merger. Mr. 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.
AUDIT COMMITTEE
The Audit Committee will review (and report to the Board) on various
auditing and accounting matters, including the selection, quality and
performance of the Company's internal and external accountants and auditors,
the adequacy of its financial controls, and the reliability of financial
information
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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 the Company. 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 the Company's compensation programs and compensation
arrangements with respect to certain officers, including Messrs. Sillerman,
Ferrel, 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 Broadcasting or the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Messrs. Kramer, O'Grady and
Dugan. The Board approved the issuance of shares of Class A Common Stock to
holders as of the Spin-Off record date of stock options or SARs of SFX
Broadcasting , 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 Broadcasting's Class A common stock and as
consideration for past services to the Company. In connection with this
issuance, Messrs. Kramer, O'Grady and Dugan received 13,000, 13,000 and 3,000
shares of 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 the Company may be
granted options and determine the rights and limitations of options granted
under the Company's plans. The members of the Stock Option Committee are
Messrs. Kramer, O'Grady and Dugan.
STOCK OPTION AND RESTRICTED STOCK PLAN
The Company's 1998 Stock Option and Restricted Stock Plan, provides for
the issuance of up to 2,000,000 shares of Class A Common Stock. The purpose
of the plan is to provide additional incentive to officers and employees of
the Company. 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. The
Board has approved the issuance of stock options exercisable for an aggregate
of 1,002,500 shares under the plan. See "--Employment Agreements and
Arrangements with Certain Officers and Directors."
COMPENSATION OF DIRECTORS
Directors employed by the Company will receive no compensation for
meetings they attend. Each director not employed by the Company 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, the Company anticipates adopting a deferred compensation plan for
the non-employee directors which shall be effective as of January 1, 1998.
Pursuant to such plan, the Company will pay each non-employee director an
annual retainer of $30,000, at least one-half of which shall be paid in
shares of Class A Common Stock which will be credited to a book-entry account
maintained by the Company for each participant. It is expected that each
non-employee director's account will initially be credited with 5,455 shares
of Class A Common Stock representing one year's annual retainer fee (based
upon $5.50 per share).
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EXECUTIVE COMPENSATION
The Company did not pay any compensation to the current Executive Officers
in 1997. The Company anticipates that during 1998 its most highly compensated
executive officers will be Messrs. Sillerman, Ferrel, Becker and Tytel. See
"--Employment Agreements and Arrangements with Certain Officers and
Directors."
The Company has issued shares of Class A Common Stock to holders as of the
Spin-Off record date of stock options or SARs of SFX Broadcasting, whether or
not vested. See "Certain Relationships and Related Transactions--Issuance of
Stock to Holders of SFX Broadcasting's Options and SARs."
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS WITH CERTAIN OFFICERS AND DIRECTORS
The Company has entered into employment agreements with each of the
executive officers, except for Mr. Armstrong. Such employment agreements
became effective upon the SFX Merger or shortly thereafter (except for Mr.
Becker's employment agreement which is described below). The employment
agreements provide for annual base salaries of $500,000 for Mr. Sillerman,
$350,000 for Mr. Ferrel, $300,000 for Mr. Tytel and $235,000 for Mr. Benson,
increased annually by the greater of five percent or the rate of inflation.
Each executive officer will receive a bonus to be determined annually in the
discretion of the Board, on the recommendation of the Compensation Committee.
Each employment agreement is for a term of five years, and unless terminated
or not renewed by the Company or the employee, the term will continue
thereafter on a year-to-year basis on the same terms existing at the time of
renewal.
In the event that an executive officer is terminated by the Company
without Cause or there is a Constructive Termination Without Cause (as such
terms are defined in the employment agreements), the executive officer will be
entitled to receive the following payments: his base salary for a period of
three years following his termination or until the end of the term of the
employment agreement, whichever is longer; a bonus for the unexpired term of
the agreement, based on the bonus received for the year prior to termination,
multiplied by the unexpired term; and options to purchase shares of Class A
Common Stock. In the event that the executive officer is terminated for any
reason other than Cause, or there is a Constructive Termination Without Cause,
following a change in control of the Company, he will be entitled to receive,
in addition to the foregoing, additional options to purchase shares of Class A
Commons Stock. The Company has also agreed to indemnify the executive officers
for taxes that they incur if any of the change of control payments are deemed
"parachute payments" under the Internal Revenue Code of 1986, as amended. Mr.
Tytel's agreement permits him or the Company to terminate his employment after
one year, in which case all of his options would immediately vest, he would
receive two years' salary paid in a lump sum and he would be granted options to
purchase 25,000 to 50,000 shares of Class A Common Stock at the lowest exercise
price of any options granted by the Company during that year.
In connection with entering into the employment agreements, the Company
sold the following restricted stock: 500,000 shares of Class B Common Stock
to Mr. Sillerman, 150,000 shares of Class B Common Stock to Mr. Ferrel,
80,000 shares of Class A Common Stock to Mr. Tytel and 10,000 shares of Class
A Common Stock to Mr. Benson. The shares of restricted stock were sold to the
officers at a purchase price of $2.00 per share. In addition, the Board (on
the review and recommendation of the Compensation Committee) also approved
the issuance of the following stock options exercisable for shares of 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, options to
purchase 10,000 shares to Mr. Benson and options to purchase 2,500 shares to
each of Messrs. Kramer, O'Grady, and Dugan. The options will vest over three
years and will have an exercise price of $5.50 per share. See "Risk
Factors--Future Charges to Earnings."
Upon the SFX Merger, the Company assumed all obligations arising under any
employment agreement or arrangement (written or oral) between SFX
Broadcasting 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 Broadcasting
(as defined in their respective
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employment agreements) and all existing rights to indemnification. The Company
also assumed the obligation to make change of control payments under Messrs.
Sillerman's, Ferrel's and Benson's existing employment agreements with SFX
Broadcasting of approximately $3.3 million, $1.5 million and $0.2 million,
respectively, which the Company paid with a portion of the proceeds from the
Equity Offering. The Company will also indemnify SFX Broadcasting 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).
BECKER EMPLOYMENT AGREEMENT
As a condition to the execution of the PACE Agreement, the Company 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 that commenced on February 25,
1998. 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 the Company's Office of the Chairman, (b) an Executive Vice
President of the Company and (c) a director of each of PACE and the Company
(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.
The Company has agreed that it will not sell either the theatrical or
motor sports line of business of PACE prior February 25, 1999. If the Company
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, the Company 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 acquisition agreement and
described in footnote 2 to the Summary Consolidated Financial Data contained
herein) will also be immediately exercisable as of such closing. If 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 the
Company 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 (December 12, 1999), 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 by the Company; (b) become a consultant to the Company 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 the Company for
Cause (as defined in the Becker Employment Agreement), (b) by the Company 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.
In addition, Mr. Becker's employment may be terminated by the Company at
any time in the Company'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 the Company, (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
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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 the Company
or (g) the failure by the Company 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, the Company 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, the Company 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 the Company (or
its affiliates) or solicit any of its employees to leave the Company (or its
affiliates). However, these restrictions will not apply if Mr. Becker
exercises his rights, or the Company breaches its obligations, with respect
to the Becker Right of First Refusal or the Becker Second Year Option.
The Company 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 the Company or any of its affiliates.
FALK EMPLOYMENT AGREEMENT
On April 29, 1998, the Company entered into an employment agreement with
Mr. Falk (the "Falk Employment Agreement"). The Falk Employment Agreement has
a term of five years commencing June 4, 1998. The Company employs Mr. Falk as
the Chairman of FAME and the Company's Sports Group and as a Member of the
Office of Chairman of the Company and appointed him a Director of the
Company. Pursuant to the Falk Employment Agreement, Mr. Falk directs the day
to day operations of FAME and the Company's Sports Group and any other sports
businesses acquired by the Company. The Falk Employment Agreement provides
for an annual base salary of $315,000, reviewed annually and increased (but
in no event decreased) by a minimum of 4.0% per year. In addition, Mr. Falk
will be considered for an annual bonus consistent with the bonuses given to
other senior executives of the Company. Mr. Falk received an option to
purchase 100,000 shares of Class A Common Stock at an exercise price of
$41.62 per share. Such option will fully vest on June 4, 1999. In addition,
the Company has agreed to make annual stock option grants to Mr. Falk of at
least 30,000 shares of Class A Common Stock in the first four years of the
Falk Employment Agreement.
The Company may terminate Mr. Falk's employment at any time with or
without cause (as defined in the Falk Employment Agreement). In the event
that the Falk Employment Agreement is terminated for any reason other than a
voluntary termination or termination for cause, all stock options granted
pursuant to the Falk Employment Agreement will immediately vest and become
exercisable, and any remaining stock options to be granted pursuant to the
Falk Employment Agreement will immediately be granted and will vest and
become exercisable. In such case, the Company will also be obligated to pay
Mr. Falk his (a) base salary and (b) annual bonuses at a rate equal to 50% of
his base salary through the original term of the Falk Employment Agreement,
as well as certain additional benefits. In addition, in the event of a change
in control (as defined in the Falk Employment Agreement), the Company may be
required to pay a portion of certain taxes incurred by Mr. Falk as a result
of the change of control.
For one year following the termination of the Falk Employment Agreement
for cause (as defined in the Falk Employment Agreement) or by Mr. Falk,
except in the event of a constructive termination event (as defined in the
Falk Employment Agreement), Mr. Falk has agreed that (i) he will not become
employed in any capacity by, or become an officer, director, shareholder or
general partner of any entity
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that competes with any material business of FAME as conducted as of the closing
date of the FAME Acquisition and (ii) he will not solicit any employee of the
Company or any entities that are directly or indirectly controlled by the
Company to leave such employment.
The Company and SFX Broadcasting 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."
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of shares of Common Stock as of June 1, 1998, as adjusted to give
effect to the Pending Acquisitions, with respect to (a) each director of the
Company, (b) each executive officers of the Company, (c) the directors and
executive officers of the Company as a group and (d) each person known by the
Company to own beneficially more than five percent of the outstanding shares
of any class of Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
AFTER THE PENDING ACQUISITIONS(1)
------------------------------------------------------------------
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------------------ ------------------------
NUMBER PERCENT NUMBER PERCENT PERCENT
NAME AND ADDRESS OF OF OF OF OF OF TOTAL
BENEFICIAL OWNER(2) SHARES CLASS SHARES CLASS VOTING POWER
- ---------------------------------------------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Directors and Executive Officers:
Robert F.X. Sillerman ........................ 2,229,714(3) 7.6% 1,524,168(3) 89.8% 37.9%
Michael G. Ferrel ............................ 128,637 * 172,869(4) 10.2% 4.0
Brian Becker ................................. 29,402 * -- -- *
David Falk.................................... 650,000 2.2 -- -- 1.4
Howard J. Tytel .............................. 446,271(5) 1.5 -- -- 1.0
Thomas P. Benson ............................. 19,000 (6) * -- -- *
Richard A. Liese ............................. 2,800 * -- -- *
D. Geoffrey Armstrong ........................ 161,800 * -- -- *
James F. O'Grady, Jr. ........................ 14,772 (7) * -- -- *
Paul Kramer .................................. 15,922 (7) * -- -- *
Edward F. Dugan .............................. 5,922 (7) * -- -- *
All directors and executive officers as a
group (11 persons) ............................ 3,396,204 11.6% 1,697,037 100.0% 44.1%
</TABLE>
- ------------
* Less than 1%
(1) Does not include 2,000,000 shares reserved for issuance pursuant to
the Company's 1998 Stock Option and Restricted Stock Plan. The Board
has approved the issuance of stock options for an aggregate of
1,002,500 shares of Class A Common Stock.
(2) Unless otherwise set forth above, the address of each stockholder is
the address of the Company, 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
June 1, 1998. Unless noted otherwise, (a) information as to
beneficial ownership is based on statements furnished to the Company
by the beneficial owners, and (b) stockholders possess sole voting
and dispositive power with respect to shares listed on this table. As
of June 1, 1998, there were issued and outstanding 29,185,741 shares
of Class A Common Stock and 1,697,037 shares of Class B Common Stock.
(3) Includes 39,343 shares of Class A Common Stock held by SCMC. Also
includes 308,374 shares of Class A Common Stock held by Mr. Tytel
that Mr. Sillerman has the right to vote. If the 1,524,168 shares of
Class B Common Stock held by Mr. Sillerman were included in
calculating his ownership of the Class A Common Stock, then Mr.
Sillerman would beneficially own 3,753,882 shares of Class A Common
Stock, representing approximately 12.2% of the class upon
consummation of the Pending Acquisitions. Does not include options to
purchase an aggregate of 120,000 shares of Class A Common Stock held
by Mr. Sillerman which are not exercisable within 60 days of June 1,
1998. See "Management--Employment Agreements and Arrangements with
Certain Officers and Directors."
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(4) If the 172,869 shares of Class B Common Stock held by Mr. Ferrel were
included in calculating his ownership of the Class A Common Stock,
then Mr. Ferrel would beneficially own 301,506 shares of Class A
Common Stock, representing approximately 1.0% of the class upon
consummation of the Pending Acquisitions. Does not include options to
purchase an aggregate of 50,000 shares of Class A Common Stock held
by Mr. Ferrel which are not exercisable within 60 days of June 1,
1998. See "Management--Employment Agreements and Arrangements with
Certain Officers and Directors."
(5) Includes 308,374 shares of Class A Common Stock held by Mr. Tytel
that Mr. Sillerman has the right to vote. Mr. Tytel also has an
economic interest in SCMC, which beneficially owns 39,343 shares of
Class A Common Stock, although he does not have voting or dispositive
power with respect to the shares beneficially held by SCMC. Does not
include options to purchase an aggregate of 25,000 shares of Class A
Common Stock held by Mr. Tytel which are not exercisable within 60
days of June 1, 1998. See "Management--Employment Agreements and
Arrangements with Certain Officers and Directors."
(6) Does not include options to purchase an aggregate of 10,000 shares of
Class A Common Stock held by Mr. Benson which are not exercisable
within 60 days of June 1, 1998.
(7) Does not include options to purchase an aggregate of 2,500 shares of
Class A Common Stock which are held by each of Messrs. Kramer,
O'Grady and Dugan which are not exercisable within 60 days of June 1,
1998.
POSSIBLE CHANGE IN CONTROL
Mr. Sillerman has pledged an aggregate of 793,401 of his shares of Class B
Common Stock as collateral for a line of credit, under which Mr. Sillerman
currently has no outstanding borrowings. 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 Class B Common
Stock has 10 votes per share in most matters, the pledged shares will
automatically convert into shares of 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 Common Stock, and would therefore be likely to result in
a change of control of the Company. See "Risk Factors--Restrictions Imposed
by the Company's Indebtedness."
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
POTENTIAL CONFLICTS OF INTEREST
Marquee is a publicly-traded company that, among other things, provides
talent representations services to professional athletes and acts as booking
agent for tours and appearances for musicians and other entertainers. The
Company has indicated to Marquee its potential interest in acquiring Marquee.
Mr. Sillerman has an aggregate equity interest of approximately 9.1% in
Marquee and is the chairman of its board of directors, and Mr. Tytel is one
of its directors. In addition, with the acquisition of FAME, the Company may
directly compete with Marquee in obtaining representation agreements with
particular athletes and endorsement opportunities for its clients. The
Company 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, the Company 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
a committee of independent members of the boards of directors of each of the
Company 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Developments" and
"Certain Relationships and Related Transactions--Potential Conflicts of
Interest."
TSC, an entity controlled by Mr. Sillerman and in which Mr. Tytel also has
an equity interest, provides financial consulting services to Marquee. TSC's
services are provided by certain directors, officers and employees of the
Company who are not separately compensated for their services by TSC. In any
transaction, arrangement or competition with Marquee, Messrs. Sillerman and
Tytel are likely to have conflicts of interest between their duties as
officers and directors of the Company, on the one hand, and their duties as
directors of Marquee and their interests in TSC and Marquee, on the other
hand. See "--Triathlon Fees."
Pursuant to the employment agreement entered into between Brian Becker and
the Company in connection with the acquisition of PACE, Mr. Becker has the
option, exercisable within 15 days after the second anniversary of the
consummation of the PACE Acquisition, to purchase the Company's then existing
motor sports line of business (or, if that line of business has been sold,
the Company'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 the Company. See "Management."
EMPLOYMENT AGREEMENTS
In January 1998, in order to retain the services of Messrs. Sillerman,
Ferrel, Tytel and Benson as officers of the Company, the Company reached an
agreement in principle with such individuals pursuant to which the
individuals waived their right to receive shares of the Company in connection
with the Spin-Off in return for the right to receive either a share of Common
Stock or $4.20 in cash for each share of SFX Broadcasting common stock held
by them directly or indirectly in the event that either the Spin-Off or an
Alternate Transaction (as defined in the SFX Merger Agreement) were to occur.
The amount of $4.20 was based on the value attributed to the Common Stock in
the fairness opinion obtained by SFX Broadcasting in connection with the SFX
Merger. The Company's obligation will be deemed satisfied by the receipt of
shares of Common Stock in the Spin-Off.
The Company entered into employment agreements with each of its executive
officers, except for Mr. Armstrong. The employment agreements provide for
annual base salaries of $500,000 for Mr. Sillerman, $350,000 for Mr. Ferrel,
$315,000 for Mr. Falk, $300,000 for Mr. Tytel and $235,000 for Mr. Benson.
Mr. Becker's employment agreement provides for 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.
In connection with entering into the employment agreements, the Company
sold the following restricted stock: 500,000 shares of Class B Common Stock
to Mr. Sillerman, 150,000 shares of Class B Common Stock to Mr. Ferrel,
80,000 shares of Class A Common Stock to Mr. Tytel and 10,000 shares of
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Class A Common Stock to Mr. Benson. The shares of restricted stock were sold
to the officers at a purchase of $2.00 per share. In addition, the Board, on
the recommendation of its Compensation Committee, also has approved the
issuance of stock options to its officers and directors exercisable for an
aggregate of 252,500 shares of Class A Common Stock. The options will vest
over three years and will have an exercise price of $5.50 per share. The
Company will record non-cash compensation charges over the three-year
exercise period to the extent that the fair value of the underlying Class A
Common Stock of the Company exceeds the exercise price. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Future Charges to Earnings" and
"Management--Employment Agreements and Arrangements with Certain Officers and
Directors."
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, the Company assumed all obligations under any
employment agreement or arrangement (whether written or oral) between SFX
Broadcasting or any of its subsidiaries and any employee of the Company
(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 included the obligation
to pay to Messrs. Sillerman, Ferrel and Benson, after the termination of
their employment with SFX Broadcasting following the SFX Merger, cash
payments aggregating approximately $3.3 million, $1.5 million and $0.2
million, respectively, which the Company paid using a portion of the proceeds
from the Equity Offering. In addition, the Company'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
Broadcasting in connection with the SFX Merger.
INDEMNIFICATION OF MR. SILLERMAN
On August 24, 1997, Mr. Sillerman entered into an agreement with SFX
Broadcasting, 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 Broadcasting, its subsidiaries, SFX Buyer and SFX Buyer
Sub for claims and damages arising out of the SFX Merger and related
transactions. Mr. Sillerman's employment agreement with the Company provides
that the Company will indemnify Mr. Sillerman for these claims and damages to
the fullest extent permitted by applicable law.
RELATIONSHIP BETWEEN HOWARD J. TYTEL AND BAKER & MCKENZIE
Howard J. Tytel, who is the Executive Vice President, General Counsel,
Secretary and a Director of the Company, was "Of Counsel" to the law firm of
Baker & McKenzie from 1993 to May 31, 1998. Mr. Tytel was also an executive
vice president, the general counsel and a director of SFX Broadcasting. Baker
& McKenzie served as counsel to SFX Broadcasting and currently serves as
counsel to the Company and certain other affiliates of Mr. Sillerman. Baker &
McKenzie formerly compensated Mr. Tytel based, in part, on the fees it
received from providing legal services to SFX Broadcasting, the Company,
other affiliates of Mr. Sillerman and other clients introduced to the firm by
Mr. Tytel. Baker & McKenzie has agreed to a severance arrangement with Mr.
Tytel, which is not based on fees received by Baker & McKenzie.
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
Broadcasting and the Company. 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 was not compensated directly by SFX Broadcasting (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
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various entities affiliated with Mr. Sillerman, including SFX Broadcasting.
In 1997, these cash fees aggregated approximately $5.0 million. In connection
with the consummation of the SFX Merger and certain related transactions, Mr.
Tytel received 308,374 shares of Class A Common Stock (with Mr. Sillerman
retaining the right to vote these shares) and cash fees from TSC, SCMC and
Mr. Sillerman personally. In addition, Mr. Tytel continues to have an
economic interest in SCMC, which beneficially owns 39,343 shares of Class A
Common Stock. See "--Assumption of Employment Agreements; Certain Change of
Control Payments" and "--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 years ended December 31, 1996 and
December 31, 1997 were $3,000,000 and $1,794,000, 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
Broadcasting. Pursuant to the terms of the Distribution Agreement, SFX
Broadcasting has assigned its rights to receive these fees to the Company.
Triathlon has 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.
AGREEMENTS WITH SFX BROADCASTING
The Company and SFX Broadcasting have entered into various agreements with
respect to the Spin-Off and related matters. For the terms of these
agreements, see the Distribution Agreement, Tax Sharing Agreement and the
Employment Benefits Agreement, each of which is an exhibit to the Registration
Statement. See "Additional Information."
COMMON STOCK RECEIVED IN THE SPIN-OFF
In the Spin-Off, the holders of SFX Broadcasting's Class A common stock,
Series D preferred stock and Warrants (upon exercise) received shares of
Class A Common Stock, whereas Messrs. Sillerman and Ferrel, as the holders of
SFX Broadcasting's Class B common stock (which is entitled to ten votes per
share on most matters), received shares of Class B Common Stock. The Class A
Common Stock and Class B Common Stock have similar rights and privileges,
except that the Class B Common Stock differs as to voting rights generally to
the extent that SFX Broadcasting's Class A common stock and Class B common
stock presently differ. The issuance of the Class B Common Stock in the
Spin-Off was intended to preserve Messrs. Sillerman's and Ferrel's relative
voting power after the Spin-Off. Mr. Sillerman is deemed to beneficially own
approximately 37.9% of the combined voting power of the Company, and Messrs.
Sillerman and Ferrel are deemed to beneficially own approximately 41.9% of
the combined voting power of the Company. Accordingly, Mr. Sillerman, alone
and together with the Company's current directors and executive officers,
will generally be able to control the outcome of the votes of the
stockholders of the Company on most matters. The Company and Messrs.
Sillerman and Ferrel have agreed in principle that Messrs. Sillerman and
Ferrel will continue to serve as officers and directors of the Company. See
"Principal Stockholders."
In addition, in August 1997, the board of directors of SFX Broadcasting
approved amendments to the SCMC Warrants (which represent the right to
purchase an aggregate of 600,000 shares of SFX Broadcasting'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 Broadcasting that SCMC receive the aggregate number of
shares of Class A Common Stock that it would have received if it had exercised
the SCMC Warrants immediately prior to the Spin-Off.
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ISSUANCE OF STOCK TO HOLDERS OF SFX BROADCASTING'S OPTIONS AND SARS
On April 27, 1998, the Company issued 522,941 shares of Class A Common
Stock to holders as of the Spin-Off record date of the stock options or SARs
of SFX Broadcasting, whether or not vested, and 325,000 and 70,000 shares to
Messrs. Sillerman and Ferrel, respectively, with respect to the options to be
issued pursuant to their employment agreements with SFX Broadcasting. In
addition, the Company issued 325,000 and 30,000 shares of Class A Common Stock
to Messrs. Sillerman and Ferrel, respectively, which corresponded to
change-of-control options of SFX Broadcasting which they waived in connection
with the SFX Merger. The issuances were made in consideration for past services
to the Company and to allow holders of such options and SARs to participate in
the Spin-Off in a manner similar to holders of SFX Broadcasting's Class A common
stock. Additionally, many of the option and SAR holders are officers, directors
or employees of the Company. The members of the Company's Board, other than Mr.
Becker, received an aggregate of 850,479 shares pursuant to such issuance.
MEADOWS REPURCHASE
In connection with the acquisition of Meadows Music Theater, SFX
Broadcasting obtained an option, as subsequently amended, to repurchase
247,177 shares of its Class A common stock (the "Meadows Shares") for an
aggregate purchase price of $8.2 million (the "Meadows Repurchase"). However,
SFX Broadcasting was restricted from exercising the Meadows Repurchase by
certain loan covenants and other restrictions. Pursuant to the terms of the
SFX Merger Agreement, since the Meadows Shares were outstanding at the
effective time of the SFX Merger, Working Capital was decreased by
approximately $10.3 million.
In January 1998, Mr. Sillerman, the Executive Chairman of the Company,
committed to finance the $8.2 million exercise price of the Meadows
Repurchase in order to offset the $10.3 million reduction to Working Capital.
In consideration for such commitment, the board of directors of SFX
Broadcasting agreed that Mr. Sillerman would receive approximately the number
of shares of Class A Common Stock to be issued in the Spin-Off with respect
to the Meadows Shares. At the time SFX Broadcasting accepted Mr. Sillerman's
commitment, the board of directors of SFX Broadcasting valued the Class A
Common Stock to be issued in the Spin-Off at $4.20 per share, the value
attributed to such shares in the fairness opinion obtained by SFX
Broadcasting in connection with the SFX Merger. The transaction has been
approved by SFX Broadcasting's board of directors, including the independent
directors.
In April 1998, SFX Broadcasting assigned the option for the Meadows Shares
to an unaffiliated third party and, in connection therewith, agreed to pay
such party a fee of $75,000. Mr. Sillerman subsequently advanced such party
the $8.2 million exercise price for the Meadows Repurchase, the repayment of
which became due upon the SFX Merger. The third party has exercised the
option and transferred to Mr. Sillerman the Class A Common Stock issued in
the Spin-Off with respect to the Meadows Shares. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Future Charges to Earnings." The Meadows Shares were
tendered in the SFX Merger by the third party in exchange for the per share
SFX Merger consideration of $75. Such third party subsequently repaid the
advance from Mr. Sillerman and transferred $10.3 million, the remainder of
such consideration net of the third party fee, to the Company.
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DESCRIPTION OF CREDIT FACILITY AND OTHER INDEBTEDNESS
CREDIT FACILITY
The following is a summary of the material terms of the Credit Facility.
This summary is not complete. It is subject to, and qualified in its entirety
by reference to, the Credit and Guarantee Agreement, which has been filed as
an exhibit hereto.
In February of 1998, the Company entered into the Credit Facility, which
established $300.0 million of senior secured credit facilities. The Credit
Facility is comprised of (a) the $150.0 million eight-year Term Loan and (b)
the $150.0 million seven-year reducing Revolver. Borrowings under the Credit
Facility are secured by substantially all the assets of the Company,
including a pledge of the outstanding stock of substantially all of its
subsidiaries, and are guaranteed by substantially all of the Company's
subsidiaries. On February 27, 1998, the Company borrowed $150.0 million
pursuant to the Term Loan in connection with the Recent Acquisitions. On May
13, 1998, the Company borrowed approximately $27.5 million to fund the Avalon
acquisition, and such borrowing was subsequently repaid with proceeds from
the Equity Offering. The Company expects to borrow approximately $22.2
million to fund a portion of the cash purchase price of the Pending
Acquisitions. The Revolver and Term Loan contain provisions providing that,
at its option and subject to certain conditions, the Company may increase the
amount of either the Revolver or the Term Loan by $50.0 million.
GENERAL
The Credit Facility provides for borrowings in a principal amount of up to
$300.0 million, subject to certain covenants and conditions. Borrowings under
the Credit Facility may be used by the Company to finance Permitted
Acquisitions (as defined in the Credit Agreement), for working capital and
for general corporate purposes. Up to $20.0 million of the 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 the Company and must have the prior written
consent of the Required Lenders (as defined in the Credit Agreement) if the
cost of the Permitted Acquisition exceeds $50.0 million.
INTEREST RATES; FEES
Loans outstanding under the Credit Facility will bear interest, at the
Company's option, at certain spreads over LIBOR or the greater of the Federal
Funds rate plus 0.50% or BNY's prime rate. The interest rate spreads on the
Term Loan and the Revolver will be adjusted based on the Company's Total
Leverage Ratio (as defined below). The Company will pay an annual commitment
fee on unused availability under the Revolver of 0.50% if the Company'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. The Company will also pay an annual letter of
credit fee equal to the Applicable LIBOR Margin (as defined in the Credit
Agreement) for the Revolver then in effect.
MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS
Commitments to lend under the Revolver will be reduced in equal quarterly
installments commencing March 31, 2000 in annual percentages of the
borrowings under the 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 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 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 Credit Agreement), subject to
standard reinvestment provisions; (b) 50.0% of Excess Cash Flow (as defined
in the Credit Agreement), 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.
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COLLATERAL AND GUARANTEES
Each of the Company's present and future direct and indirect domestic
subsidiaries (the "Senior Guarantors") must provide guarantees under the
Credit Facility. In order to secure its obligations under the Credit
Facility, the Company and each of the Senior Guarantors must also grant to
the lenders a continuing security interest in all of their 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 the Company's
present and future direct and indirect foreign subsidiaries.
The Credit Facility contains various covenants that, subject to certain
specified exceptions, restrict the Company'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 Credit Facility);
o declare or pay dividends, distributions and other prepayments or
repurchases of other indebtedness;
o amend certain agreements, including the Company's organizational
documents, the Notes and the Indenture;
o make acquisitions and dispositions;
o engage in transactions with affiliates;
o engage in sale and leaseback transactions; and
o change lines of business.
The Credit Facility also includes 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 Credit Facility requires the Company 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 Credit Facility and any other borrowed money and
similar type indebtedness (including capital lease obligations) of the
Company 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 the Company and the Required Lenders,
plus (iv) the lesser of (A) the equity income from Unconsolidated
Investments (as defined in the Credit Agreement) 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 (with adjustment, "Adjusted Operating Cash
Flow");
o a maximum ratio (the "Senior Leverage Ratio") of (a) Total Debt less
the principal amount outstanding under the 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)
Adjusted 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;
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o a minimum ratio (the "Debt Service Ratio") of (a) Adjusted 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 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 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 Credit Agreement) plus the scheduled
maturities of Total Debt and current commitment reductions with respect
to the 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 Credit
Agreement).
The Total Leverage Ratio for the most recently completed 12 month period
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,
(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 for the most recently completed 12 month period
may not at any time exceed (a) 3.50x from the Credit Facility Closing Date to
September 29, 1998, (b) 3.25x from September 30, 1998 to December 30, 1999,
(c) 3.00x from December 31, 1999 to December 30, 2000 and (d) 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 1.05x.
The Credit Facility also prohibits prepayment of any subordinated notes,
including the Notes.
EVENTS OF DEFAULT
The Credit Facility contains customary events of default, including
payment defaults, the occurrence of a Change of Control (as defined in the
Credit Facility), the invalidity of guarantees or security documents under
the Credit Facility, any Material Adverse Change (as defined in the Credit
Facility), breach of any representation or warranty under the Credit Facility
and any cross-default to other indebtedness of the Company and its
subsidiaries. The occurrence of any event of default could result in
termination of the commitments to extend credit under the Credit Facility and
foreclosure on the collateral securing those obligations, each of which,
individually, could have a material adverse effect on the Company.
Change of Control
"Change of Control" is defined in the Credit Facility as, inter alia: (i)
the failure of Mr. Sillerman, any Affiliate (as defined therein) of Mr.
Sillerman, or any Affiliate of Mr. Sillerman together with any executor, heir
or successor appointed to take control of Mr. Sillerman's affairs in the
event of his death, disability or incapacity, to own directly or indirectly,
in the aggregate, of record and beneficially, more than 30% of the voting
power of all issued and outstanding capital stock of the Company or (ii) the
occurrence of any Person (as defined in the Credit Facility), other than as
provided in clause (i) above, owning, beneficially, more than 10% of the
voting power of all issued and outstanding capital stock of the Company.
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OTHER DEBT
In addition to the amounts outstanding under the Credit Facility and the
Notes, the Company has approximately $43.0 million of long-term debt
outstanding, which was incurred primarily in connection with the 1997
Acquisitions and Recent Acquisitions. See Note 5 to the Notes to the
Consolidated Financial Statements of the Company.
DESCRIPTION OF THE NOTES
On February 11, 1998, the Company consummated the $350.0 million private
placement of Notes. The terms of the Notes are substantially identical to
those of the Exchange Notes, including ranking, guarantees by subsidiaries of
the Company, redemption, and restrictive covenants. However, 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.
Also, pursuant to the Registration Rights Agreement, the Company and the
Guarantors must use their best efforts to file a registration statement with
the Commission 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 the Company that (i) it is
prohibited by law or Commission 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 the Company or an affiliate of the Company, then the
Company and the Guarantors will be required to provide a shelf registration
statement to cover resales of the Notes by their holders. If the Company and
the Guarantors fail to satisfy these registration obligations, they will be
required to pay Liquidated Damages to the holders of Notes under certain
circumstances. See "Description of the Exchange Notes--Registration Rights;
Liquidated Damages."
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued pursuant to the Indenture among the
Company, the Guarantors and The Chase Manhattan Bank, as trustee (in such
capacity, the "Trustee"). The terms of the Exchange 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 (the "Trust Indenture Act"). The
Exchange Notes are subject to all such terms, and holders of Exchange Notes
are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of the material provisions of the Indenture
does not purport to be complete and is qualified in its entirety by reference
to the Indenture, including the definitions therein of certain terms used
below. Copies of the Indenture are available as set forth under the caption
"--Additional Information." The definitions of certain terms used in the
following summary are set forth below under the caption "--Certain
Definitions." Capitalized terms in this section have the meanings assigned to
them in the Indenture. For purposes of this "Description of the Exchange
Notes," the term "Company" refers only to SFX Entertainment, Inc. and not to
any of its Subsidiaries.
The Exchange Notes will be general unsecured obligations of the Company and
will be subordinated in right of payment to all existing and future Senior Debt
of the Company. See "--Subordination." On a pro forma basis giving effect to the
Financing, the Recent Acquisitions, the Pending Acquisitions, the Spin-Off and
the Merger, the Company would have had $565.2 million of indebtedness
outstanding, of which $215.2 million would have been Senior Debt (excluding
letters of credit), at March 31, 1998. The Indenture permits the incurrence of
additional indebtedness, including additional Senior Debt, subject to certain
restrictions. See "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock."
As of the date of the Indenture, all of the Company's Subsidiaries were
Restricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate current or future
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Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not
be subject to many of the restrictive covenants set forth in the Indenture.
The Company's payment obligations under the Exchange Notes will be jointly
and severally guaranteed, on a senior subordinated basis, by all of the
Company's Restricted Subsidiaries except for the Non-Guarantor Subsidiaries.
See "--Subsidiary Guarantees" and "Risk Factors--Risks Relating to the
Exchange Notes--Substantial Leverage."
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be limited in aggregate principal amount to $350.0
million and will mature on February 1, 2008. Interest on the Exchange Notes
will accrue at the rate of 9 1/8% per annum and will be payable semi-annually
in arrears on February 1 and August 1 of each year, commencing on August 1,
1998, to holders of record of the Exchange Notes on the immediately preceding
January 15 and July 15. Interest on the Exchange 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 original issuance. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal of and
premium, interest and Liquidated Damages, if any, on the Exchange Notes will
be payable at the office or agency of the Company maintained for such purpose
within the City and State of New York or, at the option of the Company,
payment of premium, interest and Liquidated Damages, if any, may be made by
check mailed to the holders of the Exchange Notes at their respective
addresses set forth in the register of holders of Exchange Notes; provided,
that all payments of principal, premium, interest and Liquidated Damages, if
any, with respect to Exchange Notes the holders of which have given wire
transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the
holders thereof. Until otherwise designated by the Company, the Company's
office or agency in New York will be the office of the Trustee maintained for
such purpose. The Exchange Notes will be issued in denominations of $1,000
and integral multiples thereof.
SUBORDINATION
The payment of principal of and premium, interest and Liquidated Damages,
if any, on the Exchange Notes will be subordinated in right of payment, as
set forth in the Indenture, to the prior payment in full in cash or Cash
Equivalents of all Senior Debt of the Company, whether outstanding on the
date of the Indenture or thereafter incurred.
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,
an assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Debt of the Company will 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 the holders of Exchange Notes will be entitled to receive
any payment with respect to the Exchange Notes, and until all Obligations
with respect to Senior Debt are paid in full in cash or Cash Equivalents, any
distribution to which the holders of Exchange Notes would be entitled shall
be made to the holders of Senior Debt (except that holders of Exchange Notes
may receive Permitted Junior Securities and payments made from the trust
described under the caption "--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the
Exchange Notes (except in Permitted Junior Securities or from the trust
described under the caption "--Legal Defeasance and Covenant Defeasance") if
(i) a default in the payment of the principal of or premium or interest on
any Designated Senior Debt occurs and is continuing beyond any applicable
period of grace or (ii) any other default occurs and is continuing with
respect to any Designated Senior Debt that permits holders of the Designated
Senior Debt as to which such default relates to accelerate its maturity and
the Trustee receives a notice of such default (a "Payment Blockage Notice")
from the Company or the holders of such Designated Senior Debt. Payments on
the Exchange Notes may and shall be resumed (a) in the case of a payment
default, upon the date on which such default is cured or waived or has ceased
to exist or such Designated Senior Debt has been discharged or repaid in full
in cash or Cash Equivalents and (b) in case
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of a nonpayment default, the earlier of the date on which such nonpayment
default is cured or waived or 179 days after the date on which the applicable
Payment Blockage Notice is received or has ceased to exist or such Designated
Senior Debt has been discharged or repaid in full in cash or Cash
Equivalents, unless the maturity of any Designated Senior Debt has been
accelerated. No new period of payment blockage may be commenced unless and
until 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice. No nonpayment default that existed or 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 unless
such default has been cured or waived for a period of at least 90 consecutive
days.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Exchange Notes is accelerated because of an
Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of Exchange Notes may recover less
ratably than creditors of the Company who are holders of Senior Debt. On a
pro forma basis giving effect to the Financing, the Recent Acquisitions, the
Spin-Off and the Merger, the Company would have had $565.2 million of
indebtedness outstanding, of which $215.2 million would have been Senior Debt
(excluding letters of credit) at March 31, 1998. The Company will be able to
incur additional Senior Debt in the future, subject to certain limitations.
See "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock."
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Credit Facility and (ii) any other Senior Debt or Guarantor Senior Debt
permitted under the 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 Exchange Notes are subordinated
to Senior Debt or the Subsidiary Guarantees are subordinated to Guarantor
Senior Debt, as applicable, pursuant to the Indenture.
"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 the 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 Exchange 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 does not 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 the 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 the Indenture to be incurred.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Exchange Notes will be jointly
and severally guaranteed by each of the Company's current and future domestic
Restricted Subsidiaries except for the Non-Guarantor Subsidiaries. See "Risk
Factors--Risks Relating to the Exchange Notes--Substantial Leverage." The
Subsidiary Guarantee of each Guarantor will be subordinated in right of payment
to all existing and future Senior Debt of such Guarantor to the same extent as
the Exchange Notes are subordinated to Senior Debt of the Company. See
"--Subordination." As of March 31, 1998, after giving pro forma effect to the
Financing, the Recent Acquisitions and the Pending Acquisitions, the Guarantors
had approximately $215.2 million of Guarantor Senior Debt outstanding ($172.2
million of which represented Indebtedness incurred pursuant to guarantees of the
Credit Facility and $43.0 million of
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which represented other Senior Debt). The Indenture permits the Guarantors to
incur additional indebtedness, including additional Senior Debt, subject to
certain restrictions. See "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock." The obligations of each Guarantor under its
Subsidiary Guarantee will be limited so as not to constitute a fraudulent
conveyance under applicable law. See "Risk Factors--Risks Relating to the
Exchange Notes--Fraudulent Conveyance."
The Indenture provides that 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 (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Exchange Notes, the Indenture and the Registration Rights
Agreement; (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists; and (iii) 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 the covenant described below under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
The Indenture provides that 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 such a 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 of the assets of such Guarantor)
will be released and relieved of any obligations under its Subsidiary
Guarantee; provided, that the Net Proceeds, if any, of such sale or other
disposition are applied in accordance with the applicable provisions of the
Indenture. See "--Repurchase at the Option of Holders--Asset Sales."
OPTIONAL REDEMPTION
The Exchange Notes will not be redeemable at the Company's option prior to
February 1, 2003. Thereafter, the Exchange Notes will be subject to
redemption at any time at the option of the Company, 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:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003 ............... 104.563%
2004................ 103.042%
2005................ 101.521%
2006 and thereafter. 100.000%
</TABLE>
Notwithstanding the foregoing, prior to February 1, 2001, the Company may,
on any one or more occasions, redeem up to $122.5 million (equal to 35% of
the aggregate principal amount of the Notes originally issued) of the Notes
and the Exchange 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 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 $227.5 million (equal to 65% of the aggregate
principal amount of the Notes originally issued) of the Notes and the
Exchange Notes remain outstanding immediately after the occurrence of each
such redemption (excluding Notes and Exchange 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.
SELECTION AND NOTICE
If less than all of the Exchange Notes are to be redeemed at any time,
selection of Exchange Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national
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securities exchange, if any, on which the Exchange Notes are listed, or, if
the Exchange Notes are not so listed, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate; provided, that no
Exchange Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each holder of Exchange Notes to be
redeemed at its registered address. Notices of redemption may not be
conditional. If any Exchange Note is to be redeemed in part only, the notice
of redemption that relates to such Exchange Note shall state the portion of
the principal amount thereof to be redeemed. A new Exchange Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of
the holder thereof upon cancellation of the original Exchange Note. Exchange
Notes called for redemption become due on the date fixed for redemption. On
and after the redemption date, interest ceases to accrue on Exchange Notes or
portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under the caption "--Repurchase at the Option of
Holders," the Company is not required to make mandatory redemption or sinking
fund payments with respect to the Exchange Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, the Company will be obligated
to make an offer (a "Change of Control Offer") to each holder of Exchange
Notes to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such holder's Exchange 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 of Exchange Notes describing the
transaction or transactions that constitute the Change of Control and
offering to repurchase Exchange 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. 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 Exchange Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Exchange 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 Exchange Notes or portions thereof so tendered and (iii) deliver or
cause to be delivered to the Trustee the Exchange Notes so accepted together
with an Officers' Certificate stating the aggregate principal amount of
Exchange Notes or portions thereof being purchased by the Company. The Paying
Agent will promptly mail to each holder of Exchange Notes so tendered the
Change of Control Payment for such Exchange Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each holder a new Exchange Note equal in principal amount to any unpurchased
portion of the Exchange Notes surrendered, if any; provided that each such
new Exchange Note will be in a principal amount of $1,000 or an integral
multiple thereof. The Indenture provides that, prior to complying with the
provisions of this covenant, 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 Exchange Notes required
by this covenant. 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 the Indenture are applicable. Except
as described above with respect to a Change of Control, the Indenture does
not contain provisions that permit the holders of the Exchange Notes to
require the Company to repurchase or redeem the Exchange Notes in the event
of a takeover, recapitalization or similar transaction.
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The Senior Credit Facility prohibits, and other future credit agreements
or other agreements relating to Senior Debt to which the Company becomes a
party may prohibit, the Company from purchasing any Exchange Notes following
a Change of Control and provide that certain change of control events with
respect to the Company would constitute a default thereunder. In the event a
Change of Control occurs at a time when the Company is prohibited from
purchasing Exchange Notes, the Company could seek the consent of its lenders
to the purchase of Exchange Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such
a consent or repay such borrowings, the Company will remain prohibited from
purchasing Exchange Notes. The Company's failure to purchase tendered
Exchange Notes following a Change of Control would constitute an Event of
Default under the Indenture which, in turn, would constitute a default under
the Senior Credit Facility. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to the holders of
Exchange Notes. See "--Subordination."
The Company will not be required to make a Change of Control Offer
following 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 the Indenture applicable to a Change of Control
Offer made by the Company and purchases all Exchange Notes validly tendered
and not withdrawn under such Change of Control Offer.
Asset Sales
The Indenture provides that the Company will not, and will 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; 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 Exchange 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 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
the Indenture. Any Net Proceeds from Asset Sales that
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are not applied or invested as provided in the first sentence of this
paragraph will be deemed to constitute "Excess Proceeds." When the aggregate
amount of Excess Proceeds exceeds $10.0 million, the Company will be required
to make an offer to all holders of Exchange 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 Exchange 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 Exchange 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 Exchange Notes and such other pari passu
Indebtedness surrendered by holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Exchange 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.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will 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 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); (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 Exchange
Notes or any guarantee of the Exchange 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 the
covenant described below under caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock;" 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 of the Indenture (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 of the Indenture 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),
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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 of the Indenture 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 of the Indenture 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 of the Indenture 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 the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Equity Interests of the 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 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 Recent Acquisitions, each as in effect on the date of the
Indenture; 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 the covenant
"Restricted Payments" 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.
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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 the 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 the covenant described under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock," the Company
shall be in default of such covenant). 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 the
covenant described under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock," 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.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will 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.
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 of
the Indenture 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 the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales;"
(ii) the incurrence by the Company and the guarantee thereof by the
Guarantors of Indebtedness represented by the Exchange 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);
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(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 the Indenture to be
incurred by the first paragraph of this covenant, 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 Exchange 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 covenant;
(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 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 the 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 covenant 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.
Limitation on Other Senior Subordinated Debt
The Indenture provides that (i) the Company will 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 Exchange Notes and (ii) no Guarantor will incur any Indebtedness that is
subordinate or junior in right of payment to its Guarantor Senior Debt and
senior in any respect in right of payment to such Guarantor's Subsidiary
Guarantee.
Liens
The Indenture provides that the Company will not, and will 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.
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Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will 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 the covenant described
above under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock" and (b) incurred a Lien to secure such Indebtedness pursuant
to the covenant described above under the caption "--Liens," (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, the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales."
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will 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 (i)(a) pay
dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (b) pay
any indebtedness owed to the Company or any of its Restricted Subsidiaries,
(ii) make loans or advances to the Company or any of its Restricted
Subsidiaries or (iii) 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 reason of (a) Existing Indebtedness as in
effect on the date of the Indenture, (b) 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,
replacement 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, (c) the Indenture, the Notes, the Exchange
Notes and the Subsidiary Guarantees, (d) applicable law, (e) 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 contemplation 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 the Indenture to be incurred, (f)
by reason of customary non-assignment provisions in leases entered into in
the ordinary course of business and consistent with past practices, (g)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii)
above on the property so acquired, (h) 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, (i)
secured Indebtedness otherwise permitted to be incurred pursuant to the
provisions of the covenant described above under the caption "--Liens" that
limits the right of the debtor to dispose of the assets securing such
Indebtedness, (j) 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 (k)
restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business.
Issuances and Sales of Equity Interests in Restricted Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Equity Interests in any
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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 Subsidiary and (b) the cash Net Proceeds, if any, from
such transfer, conveyance, sale, lease or other disposition are applied in
accordance with the covenant described above under the caption "--Repurchase
at the Option of Holders--Asset Sales," 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 the
covenant described above under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may 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 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 Exchange 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 the first paragraph of the covenant described above
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will 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
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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 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 Recent Acquisitions or by instruments referred to
in any such agreements, in each case, as the same are in effect on the date
of the Indenture, (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 of the Indenture, (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 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 the Indenture described above under the
caption "--Restricted Payments," in each case, shall not be deemed to be
Affiliate Transactions.
Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Restricted
Subsidiaries shall acquire or create another domestic Restricted Subsidiary
after the date of the Indenture (other than the Non-Guarantor Subsidiaries),
or any domestic Unrestricted Subsidiary shall become a Restricted Subsidiary
of the Company, then such Subsidiary shall execute a Subsidiary Guarantee of
the Exchange Notes and deliver an opinion of counsel, in accordance with the
terms of the Indenture.
Payments for Consent
The Indenture provides that neither the Company nor any of the Company's
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any Exchange Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the Exchange
Notes unless such consideration is offered to be paid or is paid to all
holders of the Exchange 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.
Business Activities
The Company will not, and will 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.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Exchange Notes are outstanding,
the Company will furnish to the holders of Exchange Notes (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Company was 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
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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 Commission on Form 8-K if the Company was required to
file such reports, in each case, within the time periods specified in the
Commission's rules and regulations. In addition, following the consummation
of the Exchange Offer, whether or not required by the rules and regulations
of the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability within the time periods
specified in the Commission's rules and regulations (unless the Commission
will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company will agree that, for so long as any Exchange Notes remain
outstanding, they will furnish to the holders of the Exchange Notes 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.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Exchange Notes (whether or
not prohibited by the subordination provisions of the Indenture), (ii)
default in payment when due of the principal of or premium, if any, on the
Exchange Notes (whether or not prohibited by the subordination provisions of
the Indenture); (iii) failure by the Company or any Restricted Subsidiary to
comply with the provisions described under the captions "--Repurchase at the
Option of Holders--Change of Control" or "--Certain Covenants--Merger,
Consolidation or Sale of Assets;" (iv) failure by the Company or any
Restricted Subsidiary for 30 days after written notice by the Trustee or the
holders of at least 25% in principal amount of the then outstanding Notes and
Exchange Notes to comply with the provisions described under the captions
"--Repurchase at the Option of Holders--Asset Sales," "--Certain
Covenants--Restricted Payments" or "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock;" (v) failure by the Company or
any Restricted Subsidiary for 60 days after written notice by the Trustee or
the holders of at least 25% in principal amount of the then outstanding Notes
and Exchange Notes to comply with any of its other agreements in the
Indenture or the Exchange Notes; (vi) default 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 (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; (vii)
failure by the Company or any of its Restricted Subsidiaries 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; (viii) 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; and (ix) 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 and
Exchange Notes may declare all the Notes and Exchange 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
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Restricted Subsidiaries of the Company that, taken together, would constitute
a Significant Subsidiary, all outstanding Notes and Exchange Notes will
become due and payable without further action or notice. Holders of the Notes
or the Exchange Notes may not enforce the Indenture or the Exchange Notes
except as provided in the Indenture. Subject to certain limitations, holders
of a majority in principal amount of the then outstanding Notes and Exchange
Notes may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from holders of the Notes and the Exchange 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 Exchange Notes
pursuant to the optional redemption provisions 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 Exchange 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 Exchange 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 Exchange Notes.
The holders of a majority in aggregate principal amount of the Notes and
Exchange Notes then outstanding by notice to the Trustee may on behalf of the
holders of all of the Notes and the Exchange 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 and the Exchange 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.
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 Exchange 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 Exchange Notes by accepting a
Exchange Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Exchange 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.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes and Exchange
Notes and to have each Guarantor's obligation discharged with respect to its
Subsidiary Guarantee ("Legal Defeasance") except for (i) the rights of
holders of outstanding Notes and Exchange Notes to receive payments in
respect of the principal of and premium, interest and Liquidated Damages, if
any, on the Notes and the Exchange Notes when such payments are due from the
trust referred to below, (ii) the Company's obligations with respect to the
Notes and the Exchange Notes concerning issuing temporary Notes or Exchange
Notes, registration of Notes or Exchange Notes, mutilated, destroyed, lost or
stolen Notes or Exchange Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions
of the Indenture. In addition, the Company may, at its option and at any
time, elect to have the obligations of the Company and each Guarantor
released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with
respect to the Notes
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and the Exchange Notes. In the event Covenant Defeasance occurs, certain
events (not including non-payment, bankruptcy, receivership, rehabilitation
and insolvency events) described under the caption "Events of Default" will
no longer constitute an Event of Default with respect to the Notes and the
Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the Notes and the Exchange Notes, cash in U.S.
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 and premium,
interest and Liquidated Damages, if any, on the outstanding Notes and
Exchange Notes on the stated maturity or on the applicable redemption date,
as the case may be, and the Company must specify whether the Notes and the
Exchange Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, 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 the 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 and Exchange 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;
(iii) in the case of Covenant Defeasance, 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 and
Exchange 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; (iv) 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 borrowing of funds to be applied to such deposit)
or insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material
agreement or instrument (other than the 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; (vi) the Company shall have delivered to the Trustee
an opinion of counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) 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 of Notes or Exchange Notes over the
other creditors of the Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and (viii) the
Company shall have delivered to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Exchange Notes in accordance with 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 is not required to transfer or
exchange any Exchange Note selected for redemption. Also, the Company is not
required to transfer or exchange any Exchange Note for a period of 15 days
before a selection of Exchange Notes to be redeemed. The registered holder of
a Exchange Note will be treated as the owner of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Notes, the Exchange Notes and the Subsidiary Guarantees may be amended or
supplemented with the consent of the holders
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of at least a majority in principal amount of the Notes and the Exchange
Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes
and Exchange Notes), and any existing default or compliance with any
provision of the Indenture, the Notes, the Exchange Notes or the Subsidiary
Guarantees may be waived with the consent of the holders of a majority in
principal amount of the then outstanding Notes and Exchange Notes (including
consents obtained in connection with a tender offer or exchange offer for
Notes and Exchange Notes).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any Exchange Notes held by a non-consenting holder): (i)
reduce the principal amount of Exchange Notes whose holders must consent to
an amendment, supplement or waiver, (ii) reduce the principal of or change
the fixed maturity of any Exchange Note or alter the provisions with respect
to the redemption of the Exchange Notes (other than provisions relating to
the covenants described above under the caption "--Repurchase at the Option
of Holders"), (iii) reduce the rate of or change the time for payment of
interest on any Exchange Note, (iv) waive a Default or Event of Default in
the payment of principal of or premium, interest or Liquidated Damages, if
any, on the Exchange Notes (except a rescission of acceleration of the
Exchange Notes by the holders of at least a majority in aggregate principal
amount of the Exchange Notes and a waiver of the payment default that
resulted from such acceleration), (v) make any Exchange Note payable in money
other than that stated in the Exchange Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the
rights of holders of Exchange Notes to receive payments of principal of or
premium, interest or Liquidated Damages, if any, on the Exchange Notes, (vii)
waive a redemption payment with respect to any Exchange Note (other than a
payment required by one of the covenants described above under the caption
"--Repurchase at the Option of Holders"), (ix) release any Guarantor from its
Subsidiary Guarantee or (x) make any change in the foregoing amendment and
waiver provisions. In addition, any amendment to the provisions of Article 10
of the Indenture (which relate to subordination) will require the consent of
the holders of at least 75% in aggregate principal amount of the Notes and
the Exchange Notes then outstanding if such amendment would adversely affect
the rights of holders of Notes and Exchange Notes.
Notwithstanding the foregoing, without the consent of any holder of
Exchange Notes, the Company, a Guarantor (with respect to a Subsidiary
Guarantee or the Indenture to which it is a party) and the Trustee may amend
or supplement the Indenture, the Exchange Notes or any Subsidiary Guarantee
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Exchange Notes in addition to or in place of certificated Exchange Notes, to
provide for the assumption of the Company's or any Guarantor's obligations to
holders of Exchange 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 Exchange Notes or
that does not adversely affect the legal rights under the Indenture of any
such holder or to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust
Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The holders of a majority in principal amount of the then outstanding
Notes and Exchange Notes will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee, subject to certain exceptions. The Indenture provides that in case
an Event of Default shall occur (which shall not be cured), the Trustee will
be required, in the exercise of its power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such provisions,
the Trustee will be under no obligation to exercise any of its rights or
powers under the Indenture at the request of any holder of Notes or Exchange
Notes, unless such holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
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DEPOSITORY PROCEDURES; BOOK-ENTRY, DELIVERY AND FORM
All of the Notes were initially issued in the form of two Global Notes
(the "Global Notes"). The Global Notes were deposited on February 11, 1998
with, or on behalf of, The Depository Trust Company (the "Depositary") and
registered in the name of Cede & Co., as nominee of the Depositary (such
nominee being referred to herein as the "Global Note Holder"). Exchange Notes
which will be issued in exchange for the Notes will be issued in the form of
one Global Note (the "Exchange Global Note") and deposited with, or on behalf
of, the Depositary and registered in the name of the Global Note Holder.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only thorough the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Exchange Note, the Depositary will
credit the accounts of Participants designated by the Exchange Agent with
portions of the principal amount of the Exchange Global Note and (ii)
ownership of the Exchange Notes evidenced by the Exchange Global Note will be
shown on, and the transfer of ownership thereof will be effected only
through, records maintained by the Depositary (with respect to the interests
of the Depositary's Participants), the Depositary's Participants and the
Depositary's Indirect Participants. Prospective purchasers are advised that
the laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer Exchange Notes evidenced by the Exchange Global Note will be limited
to such extent. For certain other restrictions on the transferability of the
Exchange Notes, see "Notice to Investors."
So long as the Global Note Holder is the registered owner of any Notes,
the Global Note Holder will be considered the sole Holder under the Indenture
of any Notes evidenced by the Global Notes and the Global Exchange Note.
Beneficial owners of Notes evidenced by the Global Notes and the Global
Exchange Note will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee has any responsibility or liability for any aspect of
the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Notes registered in the name of the Global
Note Holder on the applicable record date will be payable by the Trustee to
or at the direction of the Global Note Holder in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the persons in whose names Notes, including
the Global Notes, are registered as the owners thereof for the purpose of
receiving such payments. Consequently, neither the Company nor the Trustee
has or will have any responsibility or liability for the payment of such
amounts to beneficial owners of Notes. The Company believes, however, that it
is currently the policy of the Depositary to immediately credit the accounts
of the relevant Participants with such payments, in amounts proportionate to
their respective holdings of beneficial interests in the relevant security as
shown on the records of the Depositary. Payments by the Depositary's
Participants and the Depositary's Indirect Participants to the beneficial
owners of Notes will be governed by standing instructions and customary
practice and will be the responsibility of the Depositary's Participants or
the Depositary's Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Notes and the Global Exchange Note may, upon request to the
Trustee, exchange such beneficial interest for Notes in
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the form of a definitive registered certificate ("Certificated Securities").
Upon any such issuance, the Trustee is required to register such Certificated
Securities in the name of, and cause the same to be delivered to, such person
or persons (or the nominee of any thereof) except that all certificated Notes
would be subject to transfer restriction legend requirements. In addition, if
(i) the Company notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance
of Notes in the form of Certificated Securities under the Indenture, then,
upon surrender by the Global Note Holder of its Global Notes and the Global
Exchange Note, Notes in such form will be issued to each person that the
Global Note Holder and the Depositary identify as being the beneficial owner
of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
Exchange of Certificated Notes for Book-Entry Notes
Exchange Notes issued in certificated form may not be exchanged for
beneficial interests in any Global Note unless the transferor first delivers
to the Trustee a written certificate (in the form provided in the Indenture)
to the effect that such transfer will comply with the appropriate transfer
restrictions applicable to such Notes. See "Notice to Investors."
Same Day Settlement and Payment
The Indenture requires that payments in respect of the Notes represented
by the Global Note (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note Holder. With respect to
Certificated Securities, the Company will make all payments of principal,
premium, if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available funds to the accounts specified by the Holders thereof
or, if no such account is specified, by mailing a check to each such Holder's
registered address. The Notes represented by the Global Notes are eligible to
trade in the PORTAL Market and to trade in the Depositary's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in
Notes will, therefore, be required by the Depositary to be settled in
immediately available funds. The Company expects that secondary trading in
the Certificated Securities will also be settled in immediately available
funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant
in DTC will be credited, and any such crediting will be reported to the
relevant Euroclear or Cedel participant, during the securities settlement
processing day (which must be a business day for Euroclear and Cedel)
immediately following the settlement date of DTC. DTC has advised the Company
that cash received in Euroclear or Cedel as a result of sales of interests in
a Global Note by or through a Euroclear or Cedel participant to a Participant
in DTC will be received with value on the settlement date of DTC but will be
available in the relevant Euroclear or Cedel cash account only as of the
business day for Euroclear or Cedel following DTC's settlement date.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
On February 11, 1998, the Company, the Subsidiary Guarantors and the
Initial Purchasers entered into the Registration Rights Agreement. Pursuant
to the Registration Rights Agreement, the Company and the Subsidiary
Guarantors agreed to file with the Commission the Registration Statement of
which this Prospectus is a part on the appropriate form under the Securities
Act with respect to the Exchange Notes. Upon the effectiveness of the
Registration Statement, the Company will offer to the Holders of Notes
pursuant to the Exchange Offer who are able to make certain representations
the opportunity to exchange their Notes for Exchange Notes. If (i) the
Company and the Subsidiary Guarantors are not required to file the
Registration Statement or permitted to consummate the Exchange Offer because
the Exchange Offer is not permitted by applicable law or Commission policy or
(ii) any Holder of Notes
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notifies the Company within 20 business days following consummation of the
Exchange Offer that (A) it is prohibited by law or Commission policy from
participating in the Exchange Offer or (B) that it may not resell the
Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and the prospectus contained in this Registration
Statement is not appropriate or available for such resales or (C) that it is
a broker-dealer and owns Notes acquired directly from the Company or an
affiliate of the Company, the Company and the Subsidiary Guarantors will file
with the Commission a shelf registration statement pursuant to Rule 415 under
the Securities Act (the "Shelf Registration Statement") to cover resales of
the Notes by the Holders thereof who satisfy certain conditions relating to
the provision of information in connection with the Shelf Registration
Statement. The Company and the Subsidiary Guarantors will use their
reasonable best efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission. For purposes of
the foregoing, "Note" means each Note until (i) the date on which such Note
has been exchanged by a person other than a broker-dealer for a New Note in
the Exchange Offer, (ii) following the exchange by a broker-dealer in the
Exchange Offer of a Note for an Exchange Note, the date on which such
Exchange Note is sold to a purchaser who receives from such broker-dealer on
or prior to the date of such sale a copy of the prospectus contained in this
Registration Statement, (iii) the date on which such Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iv) the date on which such Note is
distributed to the public pursuant to Rule 144 under the Securities Act.
The Registration Rights Agreement provides that (i) the Company and the
Subsidiary Guarantors will file this Registration Statement with the
Commission on or prior to 75 days of executing the Registration Rights
Agreement, (ii) the Company and the Subsidiary Guarantors will use their
reasonable best efforts to have the Exchange Offer Registration Statement
declared effective by the Commission on or prior to 120 days of executing the
Registration Rights Agreement, (iii) unless the Exchange Offer would not be
permitted by applicable law or Commission policy, the Company and the
Subsidiary Guarantors will commence the Exchange Offer and use their
reasonable best efforts to issue on or prior to 30 business days after the
date on which the Exchange Offer Registration Statement was declared
effective by the Commission, Exchange Notes in exchange for all Notes
tendered prior thereto in the Exchange Offer and (iv) if obligated to file
the Shelf Registration Statement, the Company and the Subsidiary Guarantors
will use their best efforts to file the Shelf Registration Statement with the
Commission on or prior to 30 days after such filing obligation arises and to
cause the Shelf Registration to be declared effective by the Commission on or
prior to 90 days after such filing and to cause the Shelf Registration
Statement to be continuously effective for up to two years or such earlier
time as such Notes have been sold pursuant to such Shelf Registration
Statement. The Company may cause the Shelf Registration Statement to not be
available for up to 120 days during the three-year period, but in no event
for more than 45 consecutive days or for more than 60 days in any calendar
year. If (a) the Company and the Subsidiary Guarantors fail to file any of
the Registration Statements required by the Registration Rights Agreement on
or before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the
date specified for such effectiveness (the "Effectiveness Target Date"), (c)
the Company and the Subsidiary Guarantors fail to Consummate the Exchange
Offer within 30 business days of the Effectiveness Target Date with respect
to this Registration Statement, or (d) the Shelf Registration Statement or
the Exchange Offer Registration Statement is declared effective but
thereafter ceases to be effective or usable in connection with resales of
Notes during the periods specified in the Registration Rights Agreement (each
such event referred to in clauses (a) through (d) above a "Registration
Default"), then the Company will pay Liquidated Damages to each Holder of
Notes, with respect to the first 90-day period immediately following the
occurrence of such Registration Default in an amount equal to $.05 per week
per $1,000 principal amount of Notes held by such Holder. The amount of the
Liquidated Damages will increase by an additional $.05 per week per $1,000
principal amount of Notes 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 principal amount of Notes. All
accrued Liquidated Damages will be paid by the Company on each interest
payment date to the Global Note Holder by wire transfer of immediately
available funds or by federal
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funds check and to Holders of Certificated Securities by wire transfer to the
accounts specified by them or by mailing checks to their registered addresses
if no such accounts have been specified. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set
forth in the Registration Rights Agreement in order to have their Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Business" means each of the businesses acquired by the Company
pursuant to the Recent Acquisitions.
"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.
"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 the Indenture described above under the
caption "--Repurchase at the Option of Holders--Change of Control" and/or the
provisions described above under the caption "--Certain Covenants--Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant) 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 the covenant described above
under the caption "--Certain Covenants--Restricted Payments" 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).
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"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.
"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.
"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.
"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
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the extent 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 Recent 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 of the Indenture.
"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 of the Indenture 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.
"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,
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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 the 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.
"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.
"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 of the Indenture.
"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 Exchange 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 Issuer may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless such repurchase or redemption complies
with the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"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).
"Existing Indebtedness" means Indebtedness in existence on the date of the
Indenture (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.
"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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"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.
"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.
"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
the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"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).
"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 of the
Indenture.
"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
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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 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 Exchange 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.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"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 of the Indenture.
"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 of the Indenture.
"Permitted Business" means the live entertainment business and any
business reasonably similar, complementary, ancillary or related thereto,
including the Recent 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 the covenant described above
under the caption "--Repurchase at the Option of Holders--Asset Sales;" (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
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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 of the Indenture; (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 Recent
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 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.
"Permitted Liens" means (i) Liens securing Senior Debt that was permitted
by the terms of the Indenture 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 of the Indenture; (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 therefor 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 Exchange Notes, such
Permitted Refinancing Indebtedness is pari passu with or subordinated in
right of payment to the Exchange 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 Exchange Notes, such
Permitted Refinancing Indebtedness is subordinated in right of payment to the
Exchange Notes on terms at least as favorable to the holders of Exchange
Notes as those contained in the documentation governing the Indebtedness
being
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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.
"Principal" means Robert F.X. Sillerman.
"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).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Credit Facility" means that certain credit 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 Credit Partners L.P., each as Co-Agents, as contemplated by that
certain commitment letter by and among the Company, the Guarantors, The Bank
of New York, as Arranger, and Lehman Brothers Inc. and Goldman, Sachs & Co.,
each as Co-Arrangers, 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.
"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).
"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.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary:
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(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.
"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' 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" has the meaning assigned to such term in the
Merger Agreement.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS OF THE EXCHANGE
OFFER AND AN INVESTMENT IN THE EXCHANGE NOTES
The following summary describes the material U.S. federal income tax
consequences of the exchange of Notes for Exchange Notes and ownership of the
Exchange Notes to holders of Exchange Notes as of the date hereof. As used
herein, a "U.S. Holder" means a holder of an Exchange Note that is a citizen
or resident of the United States, a corporation, a partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, an estate the income of which is subject to
U.S. federal income taxation regardless of its source, or a trust which is
subject to the supervision of a court within the United States and the
control of a U.S. fiduciary as described in Section 7701(a)(30) of the
Internal Revenue Code of 1986 (the "Code"). A "Non-U.S. Holder " is a holder
of a note that is not a U.S. Holder. Except where noted, it deals only with
Exchange Notes held as capital assets and does not deal with special
situations, such as those of dealers in securities or currencies, financial
institutions, life insurance companies, persons holding Exchange Notes as
part of a hedging or conversion transaction or a straddle or holders of
Exchange Notes whose "functional currency" is not the U.S. dollar.
Furthermore, the discussion below is based upon the provisions of the Code,
and regulations, rulings and judicial decisions thereunder as of the date
hereof, and such authorities may be repealed, revoked or modified so as to
result in federal income tax consequences different from those discussed
below. In addition, except as otherwise indicated, the following does not
consider the effect of any applicable foreign, state or local or other tax
laws or estate or gift tax considerations. Persons considering the Exchange
Offer and the ownership or disposition of Exchange Notes should consult their
own tax advisors concerning the federal income tax consequences in light of
their particular situations, as well as any consequences arising under the
laws of any other taxing jurisdiction.
EXCHANGE OF NOTES FOR EXCHANGE NOTES
The issuance of the Exchange Notes to holders of the Notes pursuant to the
terms set forth in this Prospectus should not constitute an exchange for
federal income tax purposes. Consequently, no gain or loss would be
recognized by holders of the Notes upon receipt of the Exchange Notes, and
ownership of the Exchange Notes will be considered a continuation of
ownership of the Notes. For purposes of determining gain or loss upon the
subsequent sale or exchange of the Exchange Notes, a holder's basis in the
Exchange Notes should be the same as such holder's basis in the Notes
exchanged therefor. A holder's holding period for the Exchange Notes should
include the Holder's holding period for the Notes exchanged therefor. The
issue price and other tax characteristics of the Exchange Notes should be
identical to the issue price and other tax characteristics of the Notes
exchanged therefor.
STATED INTEREST ON EXCHANGE NOTES; CHANGE OF CONTROL
Except as set forth below, interest on an Exchange Note will generally be
taxable to a U.S. Holder as ordinary income from domestic sources at the time
it is paid or accrued in accordance with the U.S. Holder's method of
accounting for tax purposes.
The Company intends to take the position that the possibility that a U.S.
Holder will acquire the option to require the Company to purchase such
holder's Exchange Notes at 101% of the principal amount thereof as described
in "Description of the Exchange Notes--Change of Control" (the "Change of
Control Put Option") is remote, and does not give rise to any original issue
discount for United States federal income tax purposes. Thus, the Company
intends to take the position that the Change of Control Put Option, if
exercised, will give rise to an increase in the amount realized on the
Exchange Note. The Internal Revenue Service ("IRS") may take a different
position, however, which could affect the timing of the U.S. Holder's income
with respect to the Change of Control Put Option.
MARKET DISCOUNT
If a U.S. Holder purchases an Exchange Note for an amount that is less
than its stated redemption price at maturity, the amount of the difference
will be treated as "market discount" for federal income tax
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purposes, unless such difference is less than a specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat any
principal payments on, or any gain on the sale, exchange, retirement or other
disposition of, a Exchange Note as ordinary income to the extent of the
market discount that has not previously been included in income and is
treated as having accrued on such Exchange Note at the time of such payment
or disposition. In addition, the U.S. Holder may be required to defer, until
the maturity of the Exchange Note or its earlier disposition in a taxable
transaction, the deduction of all or a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry such Exchange Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Exchange Note,
unless the U.S. Holder elects to accrue on a constant interest method. A U.S.
Holder of an Exchange Note may elect to include market discount in income
currently as it accrues (on either a ratable or constant interest method), in
which case the rule described above regarding deferral of interest deductions
will not apply. This election to include market discount in income currently,
once made, applies to all market discount obligations acquired on or after
the first taxable year to which the election applies and may not be revoked
without the consent of the IRS.
AMORTIZABLE BOND PREMIUM
A U.S. Holder that purchases a Exchange Note for an amount in excess of
the sum of all amounts payable on the Exchange Note after the purchase date
other than stated interest will be considered to have purchased the Exchange
Note at a "premium." A U.S. Holder generally may elect to amortize the
premium over the remaining term of the Exchange Note on a constant yield
method. The amount amortized in any year will be treated as a reduction of
the U.S. Holder's interest income from the Exchange Note. Bond premium on an
Exchange Note held by a U.S. Holder that does not make such an election will
decrease the gain or increase the loss otherwise recognized on disposition of
the Exchange Note. The election to amortize premium on a constant yield
method, once made, applies to all debt obligations held or subsequently
acquired by the electing U.S. Holder on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the IRS.
SALE, EXCHANGE AND RETIREMENT OF EXCHANGE NOTES
A U.S. Holder's tax basis in an Exchange Note will, in general, be the
U.S. Holder's cost therefor, increased by market discount previously included
in income by the U.S. Holder and reduced by any amortized premium. Upon the
sale, exchange, retirement or other disposition of an Exchange Note, a U.S.
Holder will recognize gain or loss equal to the difference between the amount
realized upon the sale, exchange, retirement or other disposition and the tax
basis of the Exchange Note. Except as described above with respect to market
discount, such gain or loss will be capital gain or loss and will be
long-term capital gain or loss if at the time of sale, exchange, retirement
or other disposition the Exchange Note has been held for more than one year.
Net capital gain recognized by an individual from the sale, exchange or
retirement of a Exchange Note that has been held more than 18 months will
generally be subject to tax at a rate not to exceed 20%. Net capital gain
recognized by an individual from the sale, exchange or retirement of a
Exchange Note that has been held for more than 12 months but not for more
than 18 months will be subject to tax at a rate not to exceed 28%. The
deductibility of capital losses is subject to limitations.
NON-U.S. HOLDERS
Under present U.S. federal income and estate tax law, and subject to the
discussion below concerning backup withholding:
(a) no withholding of U.S. federal income tax will be required with
respect to the payment by the Company or any paying agent of principal,
premium, if any, or interest in respect of an Exchange Note owned by a
Non-U.S. Holder (the "Portfolio Interest Exception"), provided (i) that
the beneficial owner does not actually or constructively own 10% or more
of the total combined voting power of all classes of stock of the Company
entitled to vote within the meaning of section 871(h)(3)
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of the Code and the regulations thereunder, (ii) the beneficial owner is
not a controlled foreign corporation that is related to the Company
through stock ownership, (iii) the beneficial owner is not a bank whose
receipt of interest on an Exchange Note is described in section
881(c)(3)(A) of the Code and (iv) the beneficial owner satisfies the
statement requirement (described generally below) set forth in section
871(h) and section 881(c) of the Code and the regulations thereunder;
(b) no withholding of U.S. federal income tax will be required with
respect to any gain or income realized by a Non-U.S. Holder upon the sale,
exchange, retirement or other disposition of an Exchange Note; and
(c) an Exchange Note beneficially owned by an individual who at the time
of death is a Non-U.S. Holder will not be subject to U.S. federal estate
tax as a result of such individual's death, provided that such individual
does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company entitled to vote
within the meaning of section 871(h)(3) of the Code and provided that the
interest payments with respect to such Exchange Note would not have been,
if received at the time of such individual's death, effectively connected
with the conduct of a U.S. trade or business by such individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Exchange Note, or a financial institution holding the Exchange
Note on behalf of such owner, must provide, in accordance with specified
procedures, a paying agent of the Company with a statement to the effect that
the beneficial owner is not a U.S. person. Pursuant to current temporary
Treasury regulations, these requirements will be met if (i) the beneficial
owner provides his name and address, and certifies, under penalties of
perjury, that he is not a U.S. person (which certification may be made on an
Internal Revenue Service Form W-8 (or successor form)) or (ii) a financial
institution holding the Exchange Note on behalf of the beneficial owner
certifies, under penalties of perjury, that such statement has been received
by it and furnishes a paying agent with a copy thereof.
If a Non-U.S. Holder cannot satisfy the requirements of the Portfolio
Interest Exception described in (a) above, payments on an Exchange Note made
to such Non-U.S. Holder will be subject to a 30% withholding tax unless the
beneficial owner of the Exchange Note provides the Company or its paying
agent, as the case may be, with a properly executed (i) IRS Form 1001 (or
successor form) claiming an exemption from withholding under the benefit of a
tax treaty or (ii) IRS Form 4224 (or successor form) stating that interest
paid on the Exchange Note is not subject to withholding tax because it is
effectively connected with the beneficial owner's conduct or trade or
business in the United States. Recently issued regulations, effective for
payments made after December 31, 1999, have changed to some extent the
documentation requirements discussed above. Non-U.S. Holders are advised to
consult their own tax advisors to discuss the effect of these regulations in
light of such Holders' situations.
If a Non-U.S. Holder is engaged in a trade or business in the United
States and payment on an Exchange Note is effectively connected with the
conduct of such trade or business, the Non-U.S. Holder, although exempt from
the withholding tax discussed above, will be subject to U.S. federal income
tax on such payment on a net income basis in the same manner as if it were a
U.S. Holder. In addition, if such holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% of its effectively connected
earnings and profits for the taxable year, subject to adjustments. For this
purpose, such payment on an Exchange Note will be included in such foreign
corporation's earnings and profits.
Any gain or income realized upon the sale, exchange, retirement or other
disposition of an Exchange Note generally will not be subject to U.S. federal
income tax unless (i) such gain or income is effectively connected with a
trade or business in the United States of the Non-U.S. Holder, or (ii) in the
case of a Non-U.S. Holder who is an individual, such individual is present in
the United States for 183 days or more in the taxable year of such sale,
exchange, retirement or other disposition, and certain other conditions are
met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments on
an Exchange Note and to the proceeds of sale of a Exchange Note made to U.S.
Holders other than certain exempt recipients (such
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as corporations). A 31% backup withholding tax will apply to such payments if
the U.S. Holder fails to provide a taxpayer identification number or
certification of foreign or other exempt status or fails to report in full
dividend and interest income.
No information reporting or backup withholding will be required with
respect to payments made by the Company or any paying agent to Non-U.S.
Holders if a statement described in (a)(iv) under "--Non-U.S. Holders" has
been received and the payor does not have actual knowledge that the
beneficial owner is a U.S. persons.
In addition, backup withholding and information reporting will not apply
if payments on an Exchange Note are paid or collected by a foreign office of
a custodian, nominee or other foreign agent on behalf of the beneficial owner
of such Exchange Note, or if a foreign office of a broker (as defined in
applicable Treasury regulations) pays the proceeds of the sale of an Exchange
Note to the owner thereof. If, however, such nominee, custodian, agent or
broker is, for U.S. federal income tax purposes, a U.S. person, a controlled
foreign corporation or a foreign person that derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the
United States, such payments will be subject to information reporting (but
not backup withholding), unless (i) such custodian, nominee, agent or broker
has documentary evidence in its records that the beneficial owner is not a
U.S. person and certain other conditions are met or (ii) the beneficial owner
otherwise establishes an exemption. Temporary Treasury regulations provide
that the Treasury is considering whether backup withholding will apply with
respect to payments of principal, interest or the proceeds of a sale that are
not subject to backup withholding under the current regulations.
Payments on an Exchange Note paid to the beneficial owner of an Exchange
Note by a U.S. office of a custodian, nominee or agent, or the payment by the
U.S. office or a broker of the proceeds of sale of an Exchange Note, will be
subject to both backup withholding and information reporting unless the
beneficial owner provides the statement referred to in (a)(iv) above and the
payor does not have actual knowledge that the beneficial owner is a U.S.
person or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
The Treasury Department has issued final regulations regarding the backup
withholding and information reporting rules discussed above. In general, the
final regulations, which are generally effective for payments made after
December 31, 1999, subject to certain transition rules, do not alter the
substantive withholding and information reporting requirements but unify
current forms and procedures.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Notes where such Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Registration Statement is declared
effective, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until 90 days after commencement of the Exchange Offer, all dealers
effecting transactions in the Exchange Notes may be required to deliver a
Prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, or negotiated prices. Any such resale
may be made directly to the purchaser or to or through brokers or dealers who
may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells the Exchange Notes that were received by it for
its own account pursuant to the Exchange Offer and any
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broker or dealer that participates in a distribution of such Exchange Notes
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that,
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of 180 days after the Registration Statement is declared
effective, the Company will promptly send additional copies of this
Prospectus and any amendment or supplement to this Prospectus to any
broker-dealer that requests such documents in the Letter of Transmittal. The
Company has agreed to pay certain expenses incident to the Exchange Offer,
other than commission or concessions of any brokers or dealers, and will
indemnify the holders of the Exchange Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees
that, upon receipt of notice from the company of the happening of any event
which makes any statement in the Prospectus untrue in any material respect or
which requires the making of any changes in the Prospectus in order to make
the statements therein not misleading (which notice the Company agrees to
deliver promptly to such broker-dealer), such broker-dealer will suspend use
of the Prospectus until the Company has amended or supplemented the
Prospectus to correct such misstatement or omission and has furnished copies
of the amended or supplemental Prospectus to such broker-dealer.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Baker & McKenzie, New York, New York. Howard J. Tytel, who is
an executive officer and director of and has an equity interest in the
Company, Marquee, TSC and SCMC and is an executive officer and director of
those entities, was Of Counsel to Baker & McKenzie from 1993 to May 31, 1998.
See "Management," "Principal Stockholders" and "Certain Relationships and
Related Transactions."
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997, and for the year ended December 31, 1997; the consolidated financial
statements of Delsener/Slater Enterprises, Ltd. and Affiliated Companies
(Predecessor) as of December 31, 1996, and for the years ended December 31,
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, 1996 and 1995; the combined financial statements of
Contemporary Group as of December 31, 1996 and 1997, and for the years ended
December 31, 1995, 1996 and 1997; the combined financial statements of SJS
Entertainment Corporation as of December 31, 1996 and 1997, and for the years
ended December 31, 1996 and 1997; 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,
1997 and 1998 and for the years ended January 31, 1996, 1997 and 1998; the
combined financial statements of Concert/Southern Promotions and Affiliated
Companies as of December 31, 1997, and for the year ended December 31, 1997;
the combined financial statements of Falk Associates Management Enterprises,
Inc. as of December 31, 1996 and 1997, and for the years ended December 31,
1996 and 1997, and the consolidated financial statements of Blackstone
Entertainment LLC as of December 31, 1996 and 1997 and for the years ended
December 31, 1996 and 1997, included in the Prospectus and Registration
Statement of the Company 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 Registration Statement), each
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appearing in this Prospectus and the 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, 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, 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; the financial statements of
Riverport Performing Arts Centre, Joint Venture as of December 31, 1997 and
1996 and for the years ended December 31, 1997 and 1996, 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 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 the Company's
independent auditors to audit the Company's consolidated financial
statements.
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
1997 Acquisitions ...................... 8
Acquired Businesses .................... 6
Adjusted EBITDA ........................ 17
Adjusted Operating Cash Flow ........... 121
Asset Sale Offer ....................... 129
Avalon Acquisition ..................... 67
Becker Employment Agreement ............ 111
Becker Right of First Refusal .......... 111
Becker Second Year Option .............. 111
BGP .................................... 8
BGP Acquisition ........................ 67
Payment Blockage Notice ................ 124
Board .................................. 27
Book-Entry Confirmation ................ 34
Book-Entry Transfer Facility ........... 34
Broadway Shows ......................... 84
CAGR ................................... 4
Certificated Securities ................ 141
Change of Control Offer ................ 127
Change of Control Payment .............. 127
Change of Control Payment Date ......... 127
Change of Control Put Option ........... 152
Commission ............................. 1
Company ................................ 3
Concert/Southern ....................... 8
Contemporary ........................... 8
Contemporary Acquisition ............... 66
Covenant Defeasance .................... 137
Credit Facility ........................ 9
Debt Service Ratio ..................... 122
Delsener/Slater ........................ 7
Depositary ............................. 140
Depositary's Indirect Participants .... 140
Depositary's Participants .............. 140
Depository ............................. 3
Designated Senior Debt ................. 125
Distribution Agreement ................. 7
Don Law ................................ 8
Don Law Acquisition .................... 68
Don Law Agreement ...................... 90
DTC .................................... 3
EBITDA ................................. 17
Effectiveness Target Date .............. 15
Eligible Institution ................... 34
EMI .................................... 9
EMI Acquisition ........................ 68
EMI Agreement .......................... 90
Employee Benefits Agreement ............ 8
Excess Proceeds ........................ 129
Exchange Act ........................... 2
Exchange Agent ......................... 11
Exchange Global Note ................... 140
Exchange Notes ......................... 1
Exchange Offer ......................... 1
Executive Officers ..................... 106
Expiration Date ........................ 12
Falk Employment Agreement .............. 112
FAS 131 ................................ 80
Fifth Year Put Option .................. 17
Fixed Charges Ratio .................... 122
Future Contingent Payments ............. 82
GAAP ................................... 17
Global Note Holder ..................... 140
Global Notes ........................... 140
Guarantors ............................. 1
Harborlights ........................... 104
Harborlights Assets .................... 104
Holders ................................ 11
HSR Act ................................ 26
Indenture .............................. 21
Indirect Participants .................. 140
Initial Purchasers ..................... 11
Issue Date ............................. 13
Legal Defeasance ....................... 137
Letter of Transmittal .................. 1
Liquidated Damages ..................... 12
Marquee ................................ 9
Meadows ................................ 8
Meadows Repurchase ..................... 119
Meadows Shares ......................... 119
Network ................................ 8
Network Acquisition .................... 67
Non-Guarantor Subsidiaries ............. 20
Note Offering .......................... 9
Notes .................................. 9
NYSE ................................... 36
Operating Cash Flow .................... 121
157
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TERM PAGE
---- ----
PACE ................................... 8
PACE Acquisition ....................... 66
Participants ........................... 140
Pavilion Acquisition ................... 66
Payment Blockage Notice ................ 124
Pending Acquisitions ................... 9
Permitted Debt ......................... 131
Permitted Junior Securities ............ 125
Polaris ................................ 87
Portfolio Interest Exception ........... 153
Pro Forma Interest Expense Ratio ...... 121
Purchase Agreement ..................... 11
Recent Acquisitions .................... 8
Registration Default ................... 15
Registration Rights Agreement .......... 12
Registration Statement ................. 2
Rescission Offer ....................... 31
Revolver ............................... 81
Securities Act ......................... 1
Senior Debt ............................ 125
Senior Guarantors ...................... 121
Senior Leverage Ratio .................. 121
SFX Buyer .............................. 7
SFX Entertainment ...................... 3
SFX Merger ............................. 7
SFX Merger Agreement ................... 7
Shelf Registration Statement ........... 14
Spin-Off ............................... 7
Subsidiary Guarantees .................. 14
Substantial Leverage ................... 82
Sunshine Promotions .................... 8
Tax Sharing Agreement .................. 8
Term Loan .............................. 81
Total Debt ............................. 121
Total Leverage Ratio ................... 121
Touring Broadway Shows ................. 3
Transactions ........................... 16
Triathlon .............................. 17
Trust Indenture Act .................... 123
Trustee ................................ 123
TSC .................................... 28
Unaudited Pro Forma Condensed Combined
Financial Statements .................. 43
USA Motor Sports ....................... 8
Westbury ...............................
</TABLE>
158
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SFX ENTERTAINMENT, INC.
Consolidated Balance Sheets as of December 31, 1997 and March 31, 1998 (unaudited) ........ F-4
Consolidated Statements of Operations for the three months ended March 31, 1997
and 1998 (unaudited)...................................................................... F-5
Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1998
(unaudited)............................................................................... F-6
Notes to Consolidated Financial Statements (unaudited)..................................... F-7
Reports of Independent Auditors............................................................ F-15
Consolidated Balance Sheets as of December 31, 1997 and 1996 (Predecessor) ............... F-17
Consolidated Statements of Operations for the years ended December 31, 1997, 1996
(Predecessor) and 1995 (Predecessor) ..................................................... F-18
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996
(Predecessor) and 1995 (Predecessor) ..................................................... F-19
Notes to Consolidated Financial Statements................................................. F-20
CONNECTICUT PERFORMING ARTS, INC. AND CONNECTICUT PERFORMING ARTS PARTNERS
Report of Independent Public Accountants................................................... F-34
Combined Balance Sheets as of December 31, 1995 and 1996................................... F-35
Combined Statements of Operations for the years ended December 31, 1995
and 1996.................................................................................. F-36
Combined Statements of Shareholders' and Partners' Equity (Deficit) for the years ended
December 31, 1995 and 1996................................................................ F-37
Combined Statements of Cash Flows for the years ended December 31, 1995 and 1996 ......... F-38
Notes to Combined Financial Statements..................................................... F-39
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
Report of Independent Public Accountants .................................................. F-47
Combined Balance Sheets as of December 31, 1995 and 1996................................... F-48
Combined Statements of Operations and Partners' Equity (Deficit) for the years ended
December 31, 1995 and 1996................................................................ F-50
Combined Statements of Cash Flows for the years ended December 31, 1995
and 1996.................................................................................. F-51
Notes to Combined Financial Statements..................................................... F-52
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants .................................................. F-58
Report of Independent Auditors............................................................. F-59
Consolidated Balance Sheets as of September 30, 1996 and 1997 and December 31, 1997
(unaudited) .............................................................................. F-60
Consolidated Statements of Operations for the years ended September 30, 1995, 1996 and
1997 and the three months ended December 31, 1996 and 1997 (unaudited) ................... F-61
Consolidated Statements of Shareholders' Equity for the years ended September 30, 1995,
1996 and 1997 and the three months ended December 31, 1997 (unaudited) ................... F-62
Consolidated Statements of Cash Flows for the years ended September 30, 1995, 1996 and
1997 and the three months ended December 31, 1996 and 1997 (unaudited) ................... F-63
Notes to Consolidated Financial Statements................................................. F-64
F-1
<PAGE>
PAGE
----
PAVILION PARTNERS
Report of Independent Public Accountants .................................................. F-78
Report of Independent Accountants ......................................................... F-79
Consolidated Balance Sheets as of September 30, 1996 and 1997 and December 31, 1997
(unaudited) .............................................................................. F-80
Consolidated Statements of Income for the year ended October 31, 1995, eleven months ended
September 30, 1996, the year ended September 30, 1997 and the three months ended December
31, 1996 and 1997 (unaudited) ............................................................ F-81
Consolidated Statements of Partners' Capital for the year ended October 31, 1995, eleven
months ended September 30, 1996, the year ended September 30, 1997 and the three months
ended December 31, 1997 (unaudited) ...................................................... F-82
Consolidated Statements of Cash Flows for the year ended October 31, 1995, eleven months
ended September 30, 1996, the year ended September 30, 1997 and the three months ended
December 31, 1996 and 1997 (unaudited) ................................................... F-83
Notes to Consolidated Financial Statements ................................................ F-84
CONTEMPORARY GROUP
Report of Independent Auditors ............................................................ F-93
Combined Balance Sheets as of December 31, 1996 and 1997 .................................. F-94
Combined Statements of Operations for the years ended December 31, 1995, 1996 and 1997 ... F-95
Combined Statements of Cash Flows for the years ended December 31, 1996 and 1997 ......... F-96
Combined Statements of Stockholders' Equity for the years ended December 31, 1996 and 1997 F-97
Notes to Combined Financial Statements .................................................... F-98
RIVERPORT PERFORMING ART CENTRE, JOINT VENTURE
Report of Independent Public Accountants .................................................. F-102
Balance Sheets as of December 31, 1997 and 1996 ........................................... F-103
Statements of Income and Changes in Partners' Equity for the years ended December 31, 1997
and 1996 ................................................................................. F-104
Statements of Cash Flows for the years ended December 31, 1997 and 1996 .................. F-105
Notes to Financial Statements ............................................................. F-106
SJS ENTERTAINMENT CORPORATION
Report of Independent Auditors ............................................................ F-109
Combined Balance Sheets as of December 31, 1996 and 1997 .................................. F-110
Combined Statements of Operations and Retained Earnings for the years ended December 31,
1996 and 1997 ............................................................................ F-111
Combined Statements of Cash Flows for the years ended December 31, 1996 and 1997 ......... F-112
Notes to Combined Financial Statements .................................................... F-113
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
Report of Independent Auditors ............................................................ F-117
Combined Balance Sheets as of September 30, 1996 and 1997 ................................. F-118
Combined Balance Sheet as of December 31, 1997 (unaudited) ................................ F-119
Combined Statements of Operations and Stockholders' Deficit for the years ended September
30, 1996 and 1997 ........................................................................ F-120
F-2
<PAGE>
PAGE
----
Combined Statements of Operations and Stockholders' Deficit for the three months ended
December 31, 1997 (unaudited) ............................................................ F-121
Combined Statements of Cash Flows for the years ended September 30, 1996 and 1997 ......... F-122
Combined Statements of Cash Flows for the three months ended December 31, 1997 (unaudited) F-123
Notes to Combined Financial Statements .................................................... F-124
BG PRESENTS, INC. AND SUBSIDIARIES
Report of Independent Auditors ............................................................ F-128
Consolidated Balance Sheets as of January 31, 1997 and 1998 ............................... F-129
Consolidated Statements of Operations for the years ended January 31, 1996, 1997 and 1998 F-130
Consolidated Statements of Cash Flows for the years ended January 31, 1996, 1997 and 1998 F-131
Consolidated Statements of Stockholders' Equity for the years ended January 31, 1996, 1997
and 1998 ................................................................................. F-132
Notes to Consolidated Financial Statements ................................................ F-133
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
Report of Independent Auditors ............................................................ F-139
Combined Balance Sheet as of December 31, 1997 ............................................ F-140
Combined Statement of Operations for the year ended December 31, 1997 ..................... F-141
Combined Statement of Cash Flows for the year ended December 31, 1997 ..................... F-142
Combined Statements of Stockholders' Equity for the year ended
December 31, 1997 ........................................................................ F-143
Notes to Combined Financial Statements .................................................... F-144
FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
Report of Independent Auditors............................................................. F-147
Combined Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998 (unaudited) .. F-148
Combined Statements of Operations and Stockholders' Equity (Deficit) for the years ended
December 31, 1996 and 1997 and the three months ended March 31, 1997 and 1998
(unaudited)............................................................................... F-149
Combined Statements of Cash Flows for the years ended December 31, 1996 and 1997 and the
three months ended March 31, 1997 and 1998 (unaudited) ................................... F-150
Notes to Combined Financial Statements..................................................... F-151
BLACKSTONE ENTERTAINMENT LLC
Report of Independent Auditors............................................................. F-155
Combined Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998 (unaudited) ... F-156
Combined Statements of Income for the years ended December 31, 1996 and 1997 and for the
three months ended March 31, 1997 and 1998 (unaudited).................................... F-157
Combined Statements of Cash Flows for the years ended December 31, 1996 and 1997 .......... F-158
Combined Statement of Members' Equity ..................................................... F-159
Notes to Combined Financial Statements..................................................... F-160
</TABLE>
F-3
<PAGE>
SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................... $ 93,992 $ 5,979
Accounts receivable ............................................... 36,251 3,831
Prepaid expenses and other current assets ......................... 19,132 1,410
----------- --------------
Total current assets ............................................... 149,375 11,220
Property and equipment, net ........................................ 196,732 59,685
Deferred acquisition costs ......................................... -- 6,213
Goodwill and other intangible assets, net .......................... 470,721 60,306
Investment in equity investees ..................................... 18,506 937
Note receivable from employees ..................................... 4,060 900
Other assets ....................................................... 19,032 7,681
----------- --------------
TOTAL ASSETS ....................................................... $858,426 $146,942
=========== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses ............................. $ 50,501 $ 2,715
Deferred revenue .................................................. 54,943 3,603
Income taxes payable .............................................. 15,160 1,707
Due to SFX Broadcasting ........................................... 125,378 11,539
Current portion of long-term debt ................................. 12,127 755
Current portion of capital lease obligations ...................... 326 168
Current portion of deferred purchase consideration ................ 1,730 1,950
----------- --------------
Total current liabilities .......................................... 260,165 22,437
Long-term debt, less current portion ............................... 518,574 14,929
Capital lease obligations, less current portion .................... 11,976 326
Deferred purchase consideration, less current portion ............. 4,128 4,289
Deferred income taxes .............................................. 50,559 2,817
----------- --------------
Total liabilities .................................................. 845,402 44,798
Minority interest .................................................. 1,570 --
Temporary equity-Stock subject to redemption ....................... 16,500 --
Shareholder's equity (deficit):
Net capital transferred from SFX Broadcasting ...................... (39,795) 98,184
Preferred Stock, $.01 par value, 25,000,000 shares authorized,
10 shares issued and outstanding at March 31, 1998 and no shares
issued and outstanding at December 31, 1997 ....................... -- --
Class A common stock, $.01 par value, 100,000,000 shares
authorized, 13,579,024 shares issued and outstanding .............. 136 136
Class B common stock, $.01 par value, 10,000,000 shares authorized,
1,047,037 shares issued and outstanding ........................... 10 10
Paid-in capital .................................................... 39,975 --
Accumulated (deficit) earnings ..................................... (5,372) 3,814
----------- --------------
Total shareholder's equity (deficit)................................ (5,046) 102,144
----------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)................ $858,426 $146,942
=========== ==============
</TABLE>
See accompanying notes.
F-4
<PAGE>
SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1997
---------- ---------
<S> <C> <C>
Revenue .................................................. $60,994 $ 7,789
Operating expenses:
Cost of revenue ......................................... 58,175 7,738
Depreciation and amortization............................ 4,428 660
Corporate expenses, net of Triathlon fees of $133 in
1998 and $641 in 1997 .................................. 1,314 858
---------- ---------
63,917 9,256
---------- ---------
Loss from operations ..................................... (2,923) (1,467)
Investment income ........................................ (897) (26)
Interest expense ......................................... 6,748 103
Minority interest ........................................ 82 --
Pretax income of equity investees ........................ (445) --
---------- ---------
Loss before provision for income taxes ................... (8,411) (1,544)
Provision for income taxes ............................... 500 --
---------- ---------
Net loss ................................................. (8,911) (1,544)
Accretion on Stock subject to redemption.................. (275) --
---------- ---------
Net loss applicable to Common Shares...................... $(9,186) $(1,544)
========== =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Operating activities:
Net loss ............................................................ $ (8,911) $ (1,544)
Adjustment to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization ...................................... 4,428 660
Pretax income of equity investees, net of distributions received .. (351) --
Minority interest................................................... 82 --
Changes in operating assets and liabilities, net of amounts
acquired:
Accounts receivable................................................ 3,390 (260)
Prepaid expenses and other current assets.......................... (1,207) (603)
Other assets....................................................... (1,150) 1,384
Accounts payable and accrued expenses.............................. 4,586 (81)
Deferred revenue................................................... 8,273 751
----------- -----------
Net cash provided by operating activities............................ 9,140 307
Investing activities:
Acquisition of businesses, net of cash acquired..................... (367,997) (22,590)
Purchase of property and equipment.................................. (11,785) (22)
----------- -----------
Net cash used in investing activities................................ (379,782) (22,612)
----------- -----------
Financing activities:
Capital transferred from SFX Broadcasting........................... -- 24,956
Repayment of debt................................................... (1,158) (29)
Proceeds from issuance of senior subordinated notes and borrowings
under credit agreement............................................. 500,000 --
Spin-Off related payments .......................................... (17,107) --
Due to SFX Broadcasting ............................................ (6,161) --
Other, principally debt issuance costs ............................. (16,920) --
----------- -----------
Net cash provided by financing activities............................ 458,654 24,927
Net increase in cash and cash equivalents............................ 88,012 2,622
Cash and cash equivalents at beginning of period..................... 5,980 0
----------- -----------
Cash and cash equivalents at end of period........................... $ 93,992 $ 2,622
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest............................................... $ 274 $ --
=========== ===========
Cash paid for income taxes........................................... $ -- $ --
=========== ===========
</TABLE>
- ------------
Supplemental disclosure of non-cash investing and financing activities:
o Issuance of equity securities, including deferred equity security
issuance and assumption of debt in connection with certain acquisitions
(see Note 1).
o Agreements to pay future cash consideration in connection with certain
acquisitions (see Note 1).
o The balance sheet includes certain assets and liabilities which have
been contributed by SFX Broadcasting to the Company in connection with
the Spin-Off.
See accompanying notes.
F-6
<PAGE>
SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
SFX Entertainment, Inc. ("SFX" or the "Company") was formed as a
wholly-owned subsidiary of SFX Broadcasting, Inc. ("SFX Broadcasting") in
December 1997 and as the parent company of SFX Concerts, Inc ("Concerts").
Concerts was formed in January of 1997 to acquire and hold SFX Broadcasting's
live entertainment operations. During 1997 and 1998, the Company made several
acquisitions as described below. The Company had no substantive operations
until its acquisition of Delsener/Slater Enterprises, Ltd. and Affiliated
Companies ("Delsener/Slater") in January 1997.
Information with respect to the three months ended March 31, 1998 and 1997
is unaudited. The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, the unaudited interim financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the financial position, results of
operations and cash flows of the Company, for the periods presented.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 131 ("SFAS 131"), "Disclosure About Segments of an Enterprise and Related
Information," which establishes new standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that these enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS 131 is effective for financial
statements for fiscal years beginning after December 31, 1997, and therefore
the Company will adopt the new requirements in 1998. Management has not yet
completed its review of SFAS 131 but does not expect that its adoption will
have a material effect on the Company's statement of position or revenues,
only on the composition of its reportable segments.
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.
In August 1997, SFX Broadcasting agreed to the merger (the "Broadcasting
Merger Agreement") among SBI Holdings, Inc. (the "Buyer"), SBI Radio
Acquisition Corporation, a wholly-owned subsidiary of the Buyer, and SFX
Broadcasting (the "Broadcasting Merger") and to the spin-off of the Company
to the shareholders of SFX Broadcasting (the "Spin-Off"). The Spin-Off was
completed on April 27, 1998 and the Broadcasting Merger was completed on May
29, 1998.
Pursuant to the terms of the Spin-Off, SFX Broadcasting contributed to the
Company all of the assets relating to its live entertainment businesses and
the Company assumed all of SFX 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 SFX
Broadcasting of approximately $5,000,000 as well as the obligation to
indemnify one-half of certain of these employees' excise tax. At the time of
the Broadcasting Merger, the Company paid $8.3 million of negative Working
Capital (as defined in the Broadcasting Merger Agreement) to SFX
Broadcasting. In a related transaction, the Company was reimbursed $10.3
million of these costs by a third party. As of March 31, 1998, SFX
Broadcasting had advanced approximately $5,378,000 to the Company for use in
connection with certain acquisitions and capital expenditures. This
obligation and other costs subsequently incurred in connection with the
Spin-Off were reimbursed in April 1998.
F-7
<PAGE>
The consolidated financial statements as of March 31, 1998 and for the
three months ended March 31, 1998 have been amended to eliminate expenses of
approximately $18.4 million principally related to the Spin-Off. The
elimination of these expenses resulted in a corresponding decrease in the
original capital transferred to the Company from SFX Broadcasting and therefore
the change had no effect on the Company's reported shareholders' deficit.
SFX Broadcasting and the Company have entered into a tax sharing
agreement, pursuant to which the Company is responsible for certain taxes,
including income taxes imposed with respect to income generated by the
Company for the periods prior to the Spin-Off and taxes resulting from gain
recognized in the Spin-Off. The Company will be allowed to offset any gain or
income by the net operating losses of SFX Broadcasting (including net
operating losses generated in the current year prior to the Spin-Off) which
are available to offset such gain or income. The Company believes that the
amount of taxes that it will be required to pay in connection with the
Spin-Off will be determined by reference to the average of the high and low
sales price of the Class A Common Stock on April 27, 1998 (the date of the
distribution of Common Stock pursuant to the Spin-Off). Increases or
decreases in the value of the Common Stock subsequent to such date will not
affect the tax liability. The average of the high and low sales price of the
Class A Common Stock on the Nasdaq National Market on April 27, 1998 was
$30.50 per share and management estimates that the Company will be required
to pay approximately $120.0 million pursuant to such indemnification
obligation. Most of the tax liability relates to certain deferred
intercompany transactions creating taxable income for the Company. Management
believes that these deferred intercompany transactions will give rise to
additional tax basis which will be available to offset future taxable income
of the Company. Management's estimates of the amount of the indemnity payment
and additional taxable basis are based on certain assumptions which
management believes are reasonable. However, upon completion of the relevant
tax forms, including any potential audits, such assumptions could be modified
in a manner which would result in a significant variance in the actual
amounts of the tax indemnity and of the additional basis. The Company intends
to use a substantial portion of the net proceeds from an equity offering to
make such payment and expects that all or a portion of such payment will be
due on or about June 15, 1998. Such payment will not result in any
corresponding increase in the Company's assets or cash flows.
2. RECENT ACQUISITIONS
Delsener/Slater
In January 1997, SFX Broadcasting acquired 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,
250,838 shares of SFX Broadcasting Class A Common Stock with a value of
approximately $7,500,000 and the assumption of approximately $15,400,000 in
debt.
In connection with the acquisition of the Meadows, SFX Broadcasting
obtained an option to repurchase 250,838 shares of its Class A common stock
(the "Meadows Shares") for an aggregate purchase price of $8.3 million (the
"Meadows Repurchase"). Pursuant to the terms of the SFX Merger Agreement, if
the Meadows Shares are outstanding at the effective time of the SFX Merger,
Working Capital would be decreased by approximately $10.5 million. However,
SFX Broadcasting was restricted from exercising the Meadows Repurchase by
certain loan covenants and other restrictions.
F-8
<PAGE>
In January 1998, Robert F.X. Sillerman, the Executive Chairman of the
Company, committed to finance the $8.3 million exercise price of the Meadows
Repurchase in order to avoid the $10.5 million reduction to Working Capital.
In consideration for such commitment, the board of directors of SFX
Broadcasting agreed that Mr. Sillerman would receive approximately the number
of shares of Class A Common Stock to be issued in the Spin-Off with respect
to the Meadows Shares. At the time SFX Broadcasting accepted Mr. Sillerman's
commitment, the board of directors of SFX Broadcasting valued the Class A
Common Stock to be issued in the Spin-Off at $4.20 per share, the value
attributed to such shares in the fairness opinion obtained by SFX
Broadcasting in connection with the Broadcasting Merger.
In April 1998, SFX Broadcasting assigned the option for the Meadows Shares
to an unaffiliated third party and, in connection therewith, paid such party
a fee of $75,000. Mr. Sillerman subsequently advanced such party the $8.3
million exercise price for the Meadows Repurchase, the repayment of which
became due upon the consummation of the SFX Merger. The third party exercised
the option and transferred to Mr. Sillerman the Class A Common Stock to be
issued in the Spin-Off with respect to the Meadows Shares. The transaction
was approved by SFX Broadcasting's board of directors, including the
independent directors. A non-cash charge to earnings of approximately $7.5
million will be recorded in the second quarter of 1998 based on the fair
value of the shares received by Mr. Sillerman as of the date of the Meadows
Repurchase.
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, of which
$2,000,000 is payable over five years, 62,792 shares of SFX Broadcasting
Class A Common Stock issued with a value of approximately $2,000,000, shares
of SFX Broadcasting stock issuable over a two year period with a value of
approximately $2,000,000 and the assumption of approximately $1,600,000 of
debt. The shares of stock to be issued in the future are classified as
deferred purchase consideration on the balance sheet. Sunshine Promotions
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 (the "Murat"), a 2,700-seat theater and 2,200-seat ballroom located in
Indianapolis, Indiana. Pursuant to the Broadcasting Merger Agreement, the
Company is responsible for the payments owing under the Sunshine note, which
by its terms accelerates upon the change in control of SFX Broadcasting
resulting from the consummation of the Broadcasting Merger.
The Delsener/Slater, Meadows, and Sunshine Promotions acquisitions are
collectively referred to herein as the "1997 Acquisitions." The cash portion
of the 1997 Acquisitions were financed through capital contributions from SFX
Broadcasting and were accounted for under the purchase method of accounting.
The purchase price of Sunshine Promotions has been preliminarily allocated to
the assets acquired and liabilities assumed and is subject to change.
Westbury
On January 8, 1998, the Company acquired a long-term lease for Westbury
Music Fair, located in Westbury, New York, for an aggregate consideration of
approximately $3.0 million and an agreement to issue 75,019 shares of Class A
Common Stock. During the period between the closing and January 8, 2000, the
Company has the right to repurchase all of such shares for an aggregate
consideration of $2.0 million and the seller has the right to require the
Company to purchase all of such shares for an aggregate consideration of
$750,000. The purchase price was financed from the Company's cash on hand.
BGP
On February 24, 1998, the Company acquired all of the outstanding capital
stock of 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 $80,300,000 (including the repayment of
$12,000,000 in BGP debt and the
F-9
<PAGE>
issuance upon the Spin-Off of 562,640 shares of common stock of the Company
valued by the parties at $7,500,000). The sellers of BGP provided net working
capital (as defined in the acquisition agreement) at the closing in an amount
equal to or greater than long-term debt.
PACE
On February 25, 1998, the Company acquired all of the outstanding capital
stock of 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 $150,100,000 (including issuance upon the Spin-Off of 1,500,000
shares of the Company's common stock valued by the parties at $20,000,000 and
assumption of approximately $20,600,000 of debt). In related transactions,
the Company acquired, for total consideration of $90,600,000 comprised of
$41,400,000 in cash, the repayment of approximately $43,100,000 of debt and
the assumption of approximately $6,100,000 of debt related to a capital
lease, 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. As
a result, the Company owns 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 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 by the Company, the officer
would be entitled to purchase PACE's theatrical division for the fair value.
In addition, on March 25, 1998 PACE paid $4,000,000 to acquire a 67%
interest in certain assets and liabilities of USA Motor Sports. The remaining
33% interest is owned by the Contemporary Group.
Contemporary
On February 27, 1998, the Company acquired 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 $101,400,000 comprised of $72,800,000 in
cash, a payment for working capital of approximately $9,900,000 and the
issuance of preferred stock of the Company valued by the parties at
$18,700,000 which, upon the Spin-Off, was converted into 1,402,850 shares of
common stock of the Company (the "Contemporary Acquisition"). The
Contemporary Acquisition involved the merger of Contemporary International
Productions Corporation with and into the Company, the acquisition by a
wholly owned subsidiary of the Company of substantially all of the assets,
excluding certain cash and receivables, of the remaining members of
Contemporary and the acquisition by Contemporary of the 50% interest in the
Riverport Amphitheater Joint Venture not owned by Contemporary. If any of the
Contemporary sellers owns any shares of the Company's Class A Common Stock
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.
Network
On February 27, 1998, the Company acquired the Network Magazine Group
("Network Magazine"), a publisher of trade magazines for the radio
broadcasting industry, and SJS Entertainment Corporation
F-10
<PAGE>
("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 $66,800,000 comprised of $52,000,000 in cash, a payment for
working capital of approximately $1,800,000, reimbursed sellers costs of
$500,000, the purchase of an office building and property for $2,500,000 and
the issuance upon the Spin-Off of approximately 750,000 shares of common
stock of the Company valued by the parties at $10,000,000. The $2,500,000
purchase of the office building and property is comprised of cash of
approximately $700,000 and the assumption of debt of approximately
$1,800,000. The Company is also obligated to pay the sellers an additional
payment in common stock or, at the Company's option, cash based on future
operating results, as defined, generated on a combined basis by Network
Magazine and SJS in 1998, up to a maximum of $14,000,000. In the Network
Acquisition, the Company, through a wholly owned subsidiary, acquired all of
the outstanding capital stock of each of The Album Network, Inc. and SJS
Entertainment Corporation and purchased substantially all of the assets and
properties and assumed substantially all of the liabilities and obligations
of The Network 40, Inc.
Concert/Southern
On March 4, 1998, the Company acquired Concert/Southern Promotions
("Concert/Southern"), a promoter of live music events in the Atlanta, Georgia
metropolitan area (the "Concert/Southern Acquisition"), for total cash
consideration of approximately $16,900,000, which includes a $300,000 payment
for working capital.
The PACE Acquisition, the Contemporary Acquisition, the Network
Acquisition, the BGP Acquisition and the Concert/Southern Acquisition are
collectively referred to herein as the "1998 Acquisitions." The cash portion
of the 1998 Acquisitions were financed with the proceeds of the Notes
offering and Credit Agreement (see Note 3) and were accounted for under the
purchase method of accounting. The purchase prices of the 1998 Acquisitions
have been preliminarily allocated to the assets acquired and liabilities
assumed and are subject to change.
The accompanying consolidated financial statements as of March 31, 1998
include the accounts of the Company, its subsidiaries and certain assets and
liabilities which were contributed by SFX Broadcasting to the Company in the
Spin-Off. Operating results for the 1997 Acquisitions and the 1998
Acquisitions are included herein from their respective acquisition dates.
Operating results associated with the assets and liabilities to be
contributed by SFX Broadcasting are included herein. SFX Broadcasting
provides various administrative services to the Company. It is SFX
Broadcasting's policy to allocate these expenses on the basis of direct
usage. In the opinion of management, this method of allocation is reasonable
and allocated expenses approximate what the Company would have incurred on a
stand-alone basis. Intercompany transactions and balances have been
eliminated in consolidation.
The following pro forma summary represents the consolidated results for
the three months ended March 31, 1998 and 1997 as if the 1997 Acquisitions
and the 1998 Acquisitions had occurred at the beginning of such period after
giving effect to certain adjustments, including amortization of intangible
assets and interest expense on the acquisition debt. These pro forma results
have been included 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 (in thousands).
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
Revenues .. $173,828 $127,446
Net loss .. $(26,633) $(17,129)
</TABLE>
3. FINANCING
On February 11, 1998, SFX completed an offering of $350.0 million of 9
1/8% Senior Subordinated Notes (the "Notes") due 2008. Interest is payable on
the Notes on February 1 and August 1 of each year.
On February 26, 1998 the Company executed a Credit and Guarantee Agreement
(the "Credit Agreement") which established a $300.0 million senior secured
credit facility comprised of (i) a
F-11
<PAGE>
$150.0 million eight-year term loan (the "Term Loan") and (ii) a $150.0
million seven-year reducing revolving credit facility. Loans outstanding
under the Credit Facility bear interest, at the Company's option, at 1.875 to
2.375 percentage points over LIBOR or the greater of the Federal Funds rate
plus 0.50% or BNY's prime rate. The interest rate spreads on the Term Loan
and the Revolver will be adjusted based on the Company's Total Leverage Ratio
(as defined in the Credit Agreement). The Company will pay a per annum
commitment fee on unused availability under the Revolver of 0.50% to the
extent that the Company's Leverage Ratio is greater than or equal to 4.0 to
1.0, and 0.375% if such ratio is less than 4.0 to 1.0 and a per annum letter
of credit fee equal to the Applicable LIBOR Margin (as defined in the Credit
Agreement) for the Revolver then in effect. The Revolver and Term Loan
contain provisions providing that, at its option and subject to certain
conditions, the Company may increase the amount of either the Revolver or
Term Loan by $50.0 million. Borrowings under the Credit Agreement are secured
by substantially all of the assets of the Company, including a pledge of the
outstanding stock of substantially all of its subsidiaries and guaranteed by
all of the Company's subsidiaries. On February 27, 1998, the Company borrowed
$150.0 million under the Term Loan. As of May 4, 1998 there were no
borrowings under the Revolver. The Company intends to draw down approximately
$63.0 million of the Revolver to fund the Pending Acquisitions (see Note 6).
4. CAPITAL STOCK
In order to facilitate the Spin-Off, the Company recently revised its
capital structure to increase its authorized capital stock and to effect a
stock split. The authorized capital stock of the Company consists of
110,000,000 shares of Common Stock (comprised of 100,000,000 shares of Class
A Common Stock and 10,000,000 shares of Class B Common Stock), and 25,000,000
shares of preferred stock, par value $.01 per share.
In the Spin-Off, (a) 13,579,024 shares of Class A Common Stock were
distributed to holders on the Spin-Off record date of SFX Broadcasting's
Class A common stock, Series D preferred stock and interests in SFX
Broadcasting's director deferred stock ownership plan, (b) 1,047,037 shares
of Class B Common Stock were distributed to holders on the Spin-Off record
date of SFX Broadcasting Class B common stock and (c) 609,856 shares of Class
A Common Stock were placed in escrow to be issued upon the exercise of
certain warrants of SFX Broadcasting. The financial statements have been
retroactively adjusted to reflect this transaction.
Holders of Class A Common Stock and Class B Common Stock vote as a single
class on all matters submitted to a vote of the stockholders, with each share
of Class A Common Stock entitled to one vote and each share of Class B Common
Stock entitled to ten votes, except (a) for the election of directors, (b)
with respect to any "going private" transaction between the Company and Mr.
Sillerman or any of his affiliates and (c) as otherwise provided by law.
The Board of Directors has the authority to issue preferred stock and will
assign the designations and rights at the time of issuance.
During January 1998, the Board of Directors and SFX Broadcasting, as sole
stockholder, approved and adopted a stock option and restricted stock plan
providing for the issuance of restricted shares of the Company's Class A
Common Stock and options to purchase shares of the Company's Class A Common
Stock totaling up to 2,000,000 shares. In addition, the Board, upon
recommendation of the Compensation Committee, has approved the issuance of
stock options exercisable for 1,002,500 shares of the Company's Class A
Common Stock. Of these options, 252,500 will vest over three years and will
have an exercise price of $5.50 per share, and the remainder will vest over
five years and will have an exercise price of $30.50. The Company will record
non-cash compensation charges over the three-year period of approximately $2
million annually relating to the 252,000 options to be issued.
During January 1998, in connection with the expectation of certain
executive officers entering into employment agreements with the Company, the
Board of Directors, upon recommendation of the Compensation Committee,
approved the sale of an aggregate of 650,000 shares of the Company's Class
F-12
<PAGE>
B Common Stock and 190,000 shares of the Company's Class A Common Stock to
certain officers for a purchase price of $2.00 per share. Such shares were
issued in April 1998. A non-cash charge to earnings will be recorded by the
Company in the second quarter of approximately $24 million associated with
the sale.
The Board of Directors has also approved the issuance of shares of the
Company's Class A Common Stock to holders of stock options or stock
appreciation rights ("SARs") of SFX 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 SFX Broadcasting's Class A Common Stock. Additionally, many of
the option holders will become officers, directors and employees of the
Company.
5. COMMITMENTS AND CONTINGENCIES
While the Company is involved in several law suits and claims arising 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, financial position or results of operations.
6. SUBSEQUENT EVENTS
Avalon
On May 14, 1998, the Company acquired all of the outstanding equity
interests of Irvine Meadows Amphitheater, New Avalon, Inc., TBA Media, Inc.
and West Coast Amphitheater (collectively, "Avalon") for a cash purchase
price of $26.8 million, including approximately $300,000 (subject to upward
adjustment) that the Company paid to reimburse the Avalon sellers for certain
third party out of pocket expenses incurred in the development of the
Camarillo Creek Amphitheater. Avalon is a leading concert promoter and
producer that operates predominantly in the Los Angeles area. The purchase
price was financed from borrowings under the Company's Credit Agreement, which
were subsequently repaid with the proceeds from the Equity Offering.
Oakdale
On June 3, 1998, the Company acquired certain assets of Oakdale Concerts,
LLC and Oakdale Development Limited Partnership (collectively, "Oakdale"), a
promoter and producer of concerts in Connecticut and the owner of the 4,800
seat Oakdale Music Theater, for a purchase price of $9.4 million in cash and
the assumption of $2.5 million in liabilities. The Company also made a
non-recourse loan to the Oakdale sellers in the amount of $11.4 million. In
addition, pursuant to the Oakdale agreement, if the Combined EBITDA (as defined
in the Oakdale agreement) of the Oakdale Theater and Meadows exceeds $5.5
million in 1999, the Company will be obligated to pay between 5.0 to 5.8 times
the amount of such excess to the Oakdale sellers. The purchase price was
financed from the proceeds of the Equity Offering (as hereinafter defined).
FAME
On June 4, 1998, the Company acquired Falk Associates Management
Enterprises, Inc. and Financial Advisory Management Enterprises, Inc.
(collectively, "FAME"), a leading full-service marketing and management
company which specializes in the representation of team sports athletes,
primarily in professional basketball. The aggregate purchase price for FAME
was approximately $82.2 million in cash (including approximately $7.9
million which the Company paid in connection with certain taxes incurred by
FAME and the FAME sellers and excluding $4.7 million of taxes paid on behalf of
the sellers which will be refunded to the Company in 1999) and 1.0 million
shares of Class A Common Stock. The agreement also provides for payments by the
Company to the FAME sellers of additional amounts up to an aggregate of $15.0
million in equal annual installments over 5 years contingent on the
achievement of certain operating performance targets. The agreement also
provides for additional payments by the Company if FAME's operating
performance exceeds the targets by certain amounts. The purchase price was
financed from the proceeds of the Equity Offering (as hereinafter defined).
<PAGE>
Offering of Class A Common Stock
On May 27, 1998, the Company consummated an offering of 8,050,000 shares
of Class A Common Stock at an initial offering price of $43.25 per share. The
proceeds received by the Company, after deducting the underwriting discount
and offering expenses, were approximately $326.5 million. A portion of the
proceeds (i) were used to repay certain indebtedness and consummate the FAME
acquisition and Oakdale acquisition and (ii) will be used to pay the tax
indemnification obligation to SFX Broadcasting pursuant to the tax sharing
agreement (see Note 1).
Don Law
The Company has entered into an agreement to acquire certain assets of
Blackstone Entertainment, LLC ("Don Law"), a leading concert and theater
promoter in New England, for an aggregate consideration of approximately
$90.0 million (subject to adjustment under certain circumstances), including
the repayment of approximately $10.0 million in debt. The Company may, at its
option, pay up to $16.0 million of the purchase price in shares of Class A
Common Stock. Don Law currently owns and/or operates three venues in New
England with an aggregate seating capacity of 27,400. Don Law also acts as
the sole ticket operator for all of its own venues as well as several third
party venues.
F-13
<PAGE>
EMI
The Company has entered into an agreement to acquire an approximately 80%
interest in Event Merchandising, Inc. ("EMI"), a leading event merchandising
contractor in the United States for approximately $8.5 million. In addition,
the Company is required to make a loan to the EMI sellers in an amount equal
to 20% of certain taxes incurred by the EMI sellers in connection with the
transaction. The Company expects that the amount of the loan will be
approximately $750,000. EMI has concession contracts with 26 amphitheaters,
including 13 venues owned and/or operated by the Company.
The acquisitions of Don Law and EMI are collectively referred to herein as
the "Pending Acquisitions." The Company intends to use a portion of the
proceeds from the Equity Offering and additional borrowings under the Credit
Agreement to consummate the Pending Acquisitions. The Company expects to
complete each of the Pending Acquisitions in June or July 1998. However, the
timing and completion of the Pending Acquisitions are subject to a number of
conditions, certain of which are beyond the Company's control and there can be
no assurance that each of the Pending Acquisitions will be consummated during
such period, on the terms described herein, or at all. The Company is also
currently pursuing certain additional acquisitions; however, it has not entered
into any definitive agreements with respect to such acquisitions and there can
be no assurance that it will do so.
F-14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
SFX Entertainment, Inc.
We have audited the accompanying consolidated balance sheet of SFX
Entertainment, Inc. as of December 31, 1997, and the related consolidated
statements of operations and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our 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 consolidated financial position
of SFX Entertainment, Inc. at December 31, 1997, and the consolidated 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
March 5, 1998, except
for Notes 1 and 11, as to
which the date is April 27, 1998
F-15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Delsener/Slater Enterprises, Ltd.
We have audited the accompanying consolidated balance sheet of
Delsener/Slater Enterprises, Ltd. and Affiliated Companies as of December 31,
1996, and the related consolidated statements of operations and cash flows
for each of the two years in the period ended December 31, 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Delsener/Slater Enterprises, Ltd. and Affiliated Companies at December 31,
1996, and the consolidated results of their operations and their cash flows
for each of the two 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
F-16
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
PREDECESSOR
1997 1996
---------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 5,979 $5,253
Accounts receivable ......................................................... 3,831 159
Prepaid expenses and other current assets ................................... 1,410 779
---------- -------------
Total current assets ......................................................... 11,220 6,191
Property and equipment, net .................................................. 59,685 2,231
Deferred acquisition costs ................................................... 6,213 --
Goodwill, net ................................................................ 60,306 --
Investment in unconsolidated subsidiaries .................................... 937 458
Note receivable from employee ................................................ 900 --
Other assets ................................................................. 7,681 --
---------- -------------
Total assets ................................................................. $146,942 $8,880
=============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses........................................ $ 2,715 $6,078
Deferred revenue ............................................................ 3,603 18
Income taxes payable ........................................................ 1,707 --
Due to stockholder .......................................................... -- 1,877
Due to SFX Broadcasting ..................................................... 11,539 --
Current portion of long-term debt ........................................... 923 --
Current portion of deferred purchase consideration .......................... 1,950 --
---------- -------------
Total current liabilities .................................................... 22,437 7,973
Long-term debt, less current portion ......................................... 15,255 --
Deferred purchase consideration, less current portion ........................ 4,289 --
Deferred income taxes ........................................................ 2,817 --
Commitment and contingencies .................................................
Shareholder's equity (Note 11):
Capital contributed by SFX Broadcasting ...................................... 98,184 --
Preferred Stock, $.01 par value, 25,000,000 shares authorized, none issued
and outstanding ............................................................. -- --
Class A common stock, $.01 par value, 100,000,000 shares authorized,
13,579,024 issued and outstanding ........................................... 136 --
Class B common stock, $.01 par value, 10,000,000 shares authorized, 1,047,037
issued and outstanding ...................................................... 10 --
Combined stockholder's equity--predecessor ................................... -- 907
Retained earnings ............................................................ 3,814 --
---------- -------------
Total shareholder's equity ................................................... 102,144 907
---------- -------------
Total Liabilities and shareholder's Equity ................................... $146,942 $8,880
========== =============
</TABLE>
See accompanying notes.
F-17
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
PREDECESSOR PREDECESSOR
1997 1996 1995
--------- ------------- -------------
<S> <C> <C> <C>
Concert revenue......................................... $96,144 $50,362 $47,566
Operating expenses:
Cost of concerts ...................................... 83,417 50,686 47,178
Depreciation and amortization ......................... 5,431 747 750
Corporate expenses, net of Triathlon fees of $1,794 in
1997 ................................................. 2,206 -- --
--------- ------------- -------------
$91,054 $51,433 $47,928
--------- ------------- -------------
Income (loss) from operations .......................... 5,090 (1,071) (362)
Investment income ...................................... 295 198 178
Interest expense ....................................... (1,590) (60) (144)
Equity in pretax income of unconsolidated subsidiaries 509 524 488
--------- ------------- -------------
Income (loss) before provision for income taxes ....... $ 4,304 $ (409) $ 160
Provision for income taxes ............................. 490 106 13
--------- ------------- -------------
Net income (loss)....................................... $ 3,814 $ (515) $ 147
========= ============= =============
</TABLE>
See accompanying notes.
F-18
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
PREDECESSOR PREDECESSOR
1997 1996 1995
---------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ..................................... $ 3,814 $ (515) $ 147
Adjustment to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation of property and equipment ............... 2,686 746 750
Amortization of goodwill.............................. 2,745 -- --
Equity in pretax income of unconsolidated
subsidiaries, net of distributions received ......... (479) 16 2
Deferred income taxes................................ (427) -- --
Changes in operating assets and liabilities, net of
amounts acquired:
Accounts receivable.................................. (923) (159) 384
Prepaid expenses and other current assets............ 419 (649) 374
Other assets......................................... (275) -- --
Accounts payable and accrued expenses................ (325) 4,759 (1,326)
Income taxes payable................................. 917 -- --
Deferred revenue..................................... (7,147) 16 (784)
---------- ------------- -------------
Net cash provided by (used in) operating activities .. 1,005 4,214 (453)
INVESTING ACTIVITIES:
Purchase of concert promotion businesses, net of cash
acquired ............................................ (71,213) -- --
Investment in GSAC Partnership ....................... -- (435) --
Purchase of property and equipment ................... (2,083) -- --
---------- ------------- -------------
Net cash used in investing activities ................. (73,296) (435) --
---------- ------------- -------------
FINANCING ACTIVITIES:
Capital contributed by SFX Broadcasting .............. 79,093 -- --
Payment of debt ...................................... (823) -- --
Proceeds from issuance of common stock and capital
contributions ....................................... -- 152 --
Loan from stockholder ................................ -- 47 --
Distributions paid ................................... -- (1,630) (216)
---------- ------------- -------------
Net cash provided by (used in) financing activities .. 78,270 (1,431) (216)
Net increase in cash and cash equivalents ............. 5,979 2,348 (669)
Cash and cash equivalents at beginning of period ..... -- 2,905 3,574
---------- ------------- -------------
Cash and cash equivalents at end of period ............ $ 5,979 $ 5,253 $ 2,905
========== ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ................................ $ 1,504 $ 60 $ 144
========== ============= =============
Cash paid for income taxes ............................ $ -- $ 106 $ 13
========== ============= =============
</TABLE>
SUPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
o Issuance of equity securities, including deferred equity security issuance
and assumption of debt in connection with certain acquisitions (see Note
1).
o Agreements to pay future cash consideration in connection with certain
acquisitions (see Note 1).
o The balance sheet includes certain assets and liabilities which have been
contributed by SFX Broadcasting to the Company in connection with the
Spin-Off.
See accompanying notes.
F-19
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
SFX Entertainment, Inc. ("SFX" or the "Company") was formed as a
wholly-owned subsidiary of SFX Broadcasting, Inc. ("SFX Broadcasting") in
December 1997 and as the parent company of SFX Concerts, Inc ("Concerts").
Concerts was formed in January of 1997 to acquire and hold SFX Broadcasting's
live entertainment operations. During 1997, the Company made several
acquisitions as described below. The Company had no substantive operations
until its acquisition of Delsener/Slater Enterprises, Ltd. and Affiliated
Companies ("Delsener/Slater" or the "Predecessor") in January 1997, and
Delsener/Slater is considered the Company's predecessor for financial
reporting purposes.
Delsener/Slater
In January 1997, SFX Broadcasting acquired 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,
250,838 shares of SFX Broadcasting Class A Common Stock with a value of
approximately $7,500,000 and the assumption of approximately $15,400,000 in
debt.
The Company may assume the obligation to exercise an option held by SFX
Broadcasting to repurchase 250,838 shares of SFX Broadcasting'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 Meadows Music Theater. If the option were exercised by SFX Broadcasting,
the exercise would result in a reduction of Working Capital as defined in the
Spin-Off (see below) by approximately $8.3 million. If the option were not
exercised, Working Capital would decrease by approximately $10.5 million.
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, of which
$2,000,000 is payable over five years, 62,792 shares of SFX Broadcasting
Class A Common Stock issued with a value of approximately $2,000,000, shares
of SFX Broadcasting stock issuable over a two year period with a value of
approximately $2,000,000 and the assumption of approximately $1,600,000 of
debt. The shares of stock to be issued in the future are classified as
deferred purchase consideration on the balance sheet. Sunshine Promotions
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 (the "Murat"), a 2,700-seat theater and 2,200-seat ballroom located in
Indianapolis, Indiana. Pursuant to the Broadcasting Merger Agreement, the
Company is responsible for the payments owing under the Sunshine note, which
by its terms accelerates upon the change in control of SFX Broadcasting
resulting from the consummation of the Broadcasting Merger.
The Delsener/Slater, Meadows, and Sunshine Promotions acquisitions are
collectively referred to herein as the "Completed Acquisitions." The cash
portion of the Completed Acquisitions were financed
F-20
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
through capital contributions from SFX 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.
The accompanying consolidated financial statements as of December 31, 1997
include the accounts of Delsener/Slater, Sunshine Promotions, the Meadows,
and certain assets and liabilities which have been contributed by SFX
Broadcasting to the Company in connection with the Spin-Off (as defined
herein) under the terms of the Broadcasting Merger (as defined herein)
Agreement. Operating results for the Completed Acquisitions are included
herein from their respective acquisition dates. Operating results associated
with the assets and liabilities to be contributed are included herein. SFX
Broadcasting provides various administrative services to the Company. It is
SFX Broadcasting's policy to allocate these expenses on the basis of direct
usage. In the opinion of management, this method of allocation is reasonable
and allocated expenses approximate what the Company would have incurred on a
stand-alone basis. Intercompany transactions and balances among these
companies have been eliminated in consolidation.
The following unaudited pro forma summary represents the consolidated
results for the years ended December 31, 1997 and 1996 as if the Completed
Acquisitions had occurred at the beginning of such year after giving effect
to certain adjustments, including amortization of goodwill and interest
expense on the acquisition debt. These pro forma results have been included
for comparative purposes only and do not purport to be indicative of what
would have occurred had the acquisition been made as of that date or of
results which may occur in the future (in thousands).
<TABLE>
<CAPTION>
PRO FORMA
(UNAUDITED)
------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Revenues..... $110,387 $104,784
Net income .. $ 734 $ 2,668
</TABLE>
Spin-Off
In August 1997, SFX Broadcasting agreed to the merger (the "Broadcasting
Merger Agreement") among SBI Holdings, Inc. (the "Buyer"), SBI Radio
Acquisition Corporation, a wholly-owned subsidiary of the Buyer, and SFX
Broadcasting (the "Broadcasting Merger") and to the spin-off of the Company
to the shareholders of SFX Broadcasting (the "Spin-Off"). The Spin-Off was
completed on April 27, 1998 and the Broadcasting Merger is expected to be
completed in the second quarter of 1998.
Pursuant to the terms of the Spin-Off, SFX Broadcasting contributed 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 SFX
Broadcasting to be consistent with the proper operation of SFX Broadcasting,
and the Company assumed all of SFX 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 SFX Broadcasting of approximately $5,000,000 as well as the
obligation to indemnify one-half of certain of these employees' excise tax.
At the time of the Broadcasting Merger, SFX Broadcasting will contribute its
positive Working Capital (as defined in the Broadcasting Merger Agreement) to
the Company. If Working Capital is negative, the Company must pay the amount
of the shortfall to SFX Broadcasting. As of December 31, 1997, SFX
Broadcasting had advanced approximately $11,539,000 to the Company for use in
connection with certain acquisitions and capital expenditures. This
obligation and other costs subsequently incurred in connection with the
Spin-Off were reimbursed with the proceeds from the Senior Subordinated Notes
and the Credit Agreement (see Note 2). SFX Broadcasting advanced additional
amounts to the Company prior to the consummation of the Spin-Off which were
reimbursed in April 1998.
F-21
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SFX Broadcasting and the Company entered into a tax sharing agreement.
Under the tax sharing agreement, the Company will agree to pay to SFX
Broadcasting the amount of the tax liability of SFX Broadcasting and the
Company combined, to the extent properly attributable to the Company for the
period up to and including the Spin-Off, and will indemnify SFX 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. SFX 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 the SFX Broadcasting during the period prior to and
including the Spin-Off. The Company also will be responsible for any taxes of
SFX Broadcasting resulting from the Spin-Off, including any income taxes but
only to the extent that the income taxes result from the gain on the
distribution that exceeds the net operating losses of SFX Broadcasting and
the Company available to offset such gain including net operating losses
generated in the current year prior to the Spin-Off.
The actual amount of the gain will be based on the excess of the value of
the Company's Common Stock on the date of the Spin-Off over the tax basis of
that stock. The Company believes that the value of the Company's Common Stock
for tax purposes will be determined by no later than the first trading day
following the date on which the Company's Common Stock is distributed in the
Spin-Off. Increases or decreases in the value of the Company's Common Stock
subsequent to such date will not effect the tax liability. The Company
expects that such indemnity payment will be due on or about June 15, 1998.
2. RECENT ACQUISITIONS AND FINANCING
On February 11, 1998, SFX completed the private placement of $350.0
million of 9 1/8% Senior Subordinated Notes (the "Notes") due 2008. Interest
is payable on the Notes on February 1 and August 1 of each year.
On February 26, 1998 the Company executed a Credit and Guarantee Agreement
(the "Credit Agreement") which established a $300.0 million senior secured
credit facility comprised of (i) a $150.0 million eight-year term loan (the
"Term Loan") and (ii) a $150.0 million seven-year reducing revolving credit
facility. Loans outstanding under the Credit Facility bear interest, at the
Company's option, at 1.875 to 2.375 percentage points over LIBOR or the
greater of the Federal Funds rate plus 0.50% or BNY's prime rate. The
interest rate spreads on the Term Loan and the Revolver will be adjusted
based on the Company's Total Leverage Ratio (as defined in the Credit
Agreement). The Company will pay a per annum commitment fee on unused
availability under the Revolver of 0.50% to the extent that the Company's
Leverage Ratio is greater than or equal to 4.0 to 1.0, and 0.375% if such
ratio is less than 4.0 to 1.0 and a per annum letter of credit fee equal to
the Applicable LIBOR Margin (as defined in the Credit Agreement) for the
Revolver then in effect. The Revolver and Term Loan contain provisions
providing that, at its option and subject to certain conditions, the Company
may increase the amount of either the Revolver or Term Loan by $50.0 million.
Borrowings under the Credit Agreement are secured by substantially all of the
assets of the Company, including a pledge of the outstanding stock of
substantially all of its subsidiaries and guaranteed by all of the Company's
subsidiaries. On February 27, 1998, the Company borrowed $150.0 million under
the Term Loan. Together with the proceeds from the Notes, the proceeds from
the Term Loan were used to finance the Recent Acquisitions (as defined
below.)
On February 24, 1998, the Company acquired all of the outstanding capital
stock of 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 $80,300,000 (including the repayment of
$12,000,000 in BGP debt and the issuance upon the Spin-Off of 562,640 shares
of common stock of the Company valued by the parties at $7,500,000). The
sellers of BGP provided net working capital (as defined in the acquisition
agreement) at the closing in an amount equal to or greater than long-term
debt.
F-22
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On February 25, 1998, the Company acquired all of the outstanding capital
stock of 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 $150,100,000 (including issuance upon the Spin-Off of 1,500,000
shares of the Company's common stock valued by the parties at $20,000,000 and
assumption of approximately $20,600,000 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 acquired, for total consideration of $90,600,000
comprised of $41,400,000 in cash, the repayment of approximately $43,100,000
of debt and the assumption of approximately $6,100,000 of debt related to a
capital lease, 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. As
a result, the Company owns 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 by the Company, the
officer would be entitled to purchase PACE's theatrical division for the fair
value.
On February 27, 1998, the Company acquired 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 $101,400,000 comprised of $72,800,000 in
cash, a payment for working capital of approximately $9,900,000 and the
issuance upon the Spin-Off of 1,402,850 shares of common stock of the Company
valued by the parties at $18,700,000. (the "Contemporary Acquisition"). The
Contemporary Acquisition involved the merger of Contemporary International
Productions Corporation with and into the Company, the acquisition by a
wholly owned subsidiary of the Company of substantially all of the assets,
excluding certain cash and receivables, of the remaining members of
Contemporary and the acquisition by Contemporary of the 50% interest in the
Riverport Amphitheater Joint Venture not owned by Contemporary. If any of the
Contemporary sellers owns any shares of the Company's Class A Common Stock
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.
On February 27, 1998, the Company acquired the Network Magazine Group
("Network Magazine"), a publisher of trade magazines for the radio
broadcasting industry, and SJS Entertainment Corporation ("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 $66,800,000
comprised of $52,000,000 in cash, a payment for working capital of
approximately $1,800,000, reimbursed sellers costs of $500,000, the purchase
of an office building and property for $2,500,000 and the issuance
F-23
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
upon the Spin-Off of 750,188 shares of common stock of the Company valued by
the parties at $10,000,000. The $2,500,000 purchase of the office building
and property is comprised of cash of approximately $700,000 and the
assumption of debt of approximately $1,800,000. The Company is also obligated
to pay the sellers an additional payment in common stock or, at the Company's
option, cash based on future operating results, as defined, generated on a
combined basis by Network Magazine and SJS in 1998, up to a maximum of
$14,000,000. In the Network Acquisition, the Company, through a wholly owned
subsidiary, acquired all of the outstanding capital stock of each of The
Album Network, Inc. and SJS Entertainment Corporation and purchased
substantially all of the assets and properties and assumed substantially all
of the liabilities and obligations of the Network 40, Inc.
On March 4, 1998, the Company acquired Concert/Southern Promotions
("Concert/Southern"), a promoter of live music events in the Atlanta, Georgia
metropolitan area (the "Concert/Southern Acquisition"), for total cash
consideration of approximately $16,900,000, which includes a $300,000 payment
for working capital.
The PACE Acquisition, the Contemporary Acquisition, the Network
Acquisition, the BGP Acquisition and the Concert/Southern Acquisition are
collectively referred to herein as the "Recent Acquisitions."
3. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Cash and Cash Equivalents
The Company considers all investments purchased with a maturity of three
months or less to be cash equivalents. Included in cash and cash equivalents
at December 31, 1997 is $1,235,000 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 represent 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 represents the excess of the purchase price over the fair market
value of the assets purchased in the Completed Acquisitions and is net of
accumulated amortization of $2,745,000. Goodwill is being amortized using the
straight-line method over 15 years. Management reviews the carrying value of
goodwill against anticipated cash flows on a non-discounted basis to
determine whether the carrying amount will be recoverable.
Other Assets
Other assets includes $4,928,000 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
F-24
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$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.
Triathlon has announced its intention to enhance shareholder value through a
sale. The Company's management believes that the capitalized cost of
acquiring the right to receive fees from Triathlon is recoverable.
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 December 31, 1996 or 1997.
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 the Company. However, the Company acquired an interest in the
Chastain Park Amphitheater, also in Atlanta, in the Concert/Southern
acquisition. The Company intends to seek a waiver.
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.
Advertising Costs
Advertising costs are expensed as incurred and approximated $7,109,000,
$4,896,000 and $2,687,000 in 1997, 1996, and 1995, respectively.
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.
F-25
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company calculates its tax provision on a separate company basis.
Reclassification
Certain amounts in 1995 and 1996 have been reclassified to conform to the
1997 presentation.
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 service requirements under
the GFO Bonds. In the event that annual tax revenues derived from the
operation of the amphitheater do not equal annual service requirements under
the GFO Bonds, the Company must deposit the lesser of the operating
shortfall, as defined, or 10% of the annual service under the GFO Bonds. An
operating shortfall has not existed since the inception of the CDA. The GFO
Bonds mature on October 15, 2024 and have an average coupon rate of 6.33%.
Annual service requirements, including interest, on the GFO Bonds for each of
the next five years and thereafter are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998.......... $ 739
1999 ......... 737
2000 ......... 739
2001 ......... 740
2002 ......... 741
Thereafter .. 16,399
-------
$20,095
=======
</TABLE>
The assistance agreement requires an annual Meadows 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 Meadows 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 beginning
of 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.
F-26
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT
The Predecessor did not have any long-term debt as of December 31, 1996.
As of December 31, 1997, the company's long-term debt, which is recorded at
present value, consisted of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Meadows CDA Mortgage Loan........... $ 7,411
Meadows Concession Agreement Loans 5,872
Meadows CDA Construction Loan ..... 700
Murat notes payable ................ 790
Meadows note payable ............... 694
Polaris note payable ............... 221
Capital lease obligations .......... 490
-------
16,178
Less current portion................ 923
-------
$15,255
=======
</TABLE>
Meadows CDA Mortgage Loan
On September 12, 1994, the CDA entered into a construction mortgage loan
agreement for $7,685,000 with the Meadows. 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 is
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 Meadows $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 December 31, 1997, the outstanding
balance was $4,343,000.
During 1995, the concessionaire loaned the Meadows 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 December 31, 1997, the outstanding balance was $679,000.
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 December 31, 1997, the outstanding balance was $850,000.
Meadows CDA Construction Loan
In March 1997, the Meadows 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,
F-27
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the Meadows 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 the March 1 following each calendar year commencing March 1, 1998. In
1997, gross revenues did not exceed the defined threshold and thus no
principal payment was made on 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 Murat 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 Murat 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
Murat ticket sold during fiscal year or remaining net cash flow, as defined.
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 Murat 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.
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.
Capital Lease Obligations
The Company has entered into various equipment leases. 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 December 31, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
LONG-TERM DEBT AND CAPITAL LEASE
NOTES PAYABLE OBLIGATIONS
------------------ ---------------
<S> <C> <C>
1998.... $756 $167
1999 ... 782 157
2000 ... 611 113
2001 ... 541 53
2002.... $537 --
</TABLE>
F-28
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PROPERTY AND EQUIPMENT
The Company's property and equipment as of December 31, 1997 and 1996
consisted of the following (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
1997 1996
--------- -------------
<S> <C> <C>
Land...................... $ 8,752 --
Building and
improvements............. 44,364 --
Furniture and equipment .. 6,503 $ 131
Leasehold improvements ... 2,676 6,726
--------- -------------
62,295 6,857
Accumulated depreciation . (2,610) (4,626)
--------- -------------
$59,685 $ 2,231
========= =============
</TABLE>
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. In connection with
the PACE Acquisition, the Company agreed to purchase the interest in GSAC
Partners that it did not already own and in 1998 completed the purchase.
Thus, the financial position and operations of GSAC Partners will be
consolidated into those of the Company beginning in 1998.
The following is a summary of the unaudited financial position and results
of operations of the Company's equity investees (GSAC Partners in 1997 and
1996 only) as of and for the years ended December 31, 1997, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
1997 1996 1995
--------- ------------- -------------
<S> <C> <C> <C>
Current assets.......................... $ 2,818 $ 756 $ 214
Property, plant and equipment .......... 1,427 239 122
Other assets ........................... 239 819 --
--------- ------------- -------------
Total assets............................ $ 4,484 $ 1,814 $ 336
========= ============= =============
Current liabilities..................... $ 1,621 $ 1,534 $ 264
Partners' capital ...................... 2,863 280 72
--------- ------------- -------------
Total liabilities and partners'
capital................................ $ 4,484 $ 1,814 $ 336
========= ============= =============
Revenue................................. $20,047 $16,037 $4,058
Expenses................................ 17,074 14,624 2,954
--------- ------------- -------------
Net income.............................. $ 2,973 1,413 $1,104
========= ============= =============
</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 $97,000, $205,000 and $110,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
F-29
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
The provisions for income taxes for the years ended December 31, 1997,
1996 and 1995 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
1997 1996 1995
-------- --------------- ---------------
<S> <C> <C> <C>
CURRENT:
Federal ...... -- -- --
State ........ $420 $106 $13
DEFERRED:
Federal ...... -- -- --
State ........ 70 -- --
-------- --------------- ---------------
Total ........ $490 $106 $13
======== =============== ===============
</TABLE>
No Federal income taxes were provided in 1997 as a result of the Company's
inclusion in the consolidated federal income tax return with SFX
Broadcasting. If the Company had filed on a stand alone basis, its federal
tax provision would have been approximately $2,050,000, consisting of
$1,760,000 in current taxes and approximately $290,000 of deferred taxes. The
Predecessor had no Federal tax provision in 1996 or 1995 by virtue of the
status of its profitable included companies as S Corporations. State income
taxes were provided to the extent that S Corporation status was not
recognized.
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 asset and liabilities as of December
31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Deferred compensation....... $ 783
Deferred tax liabilities:
Depreciable assets ......... $3,600
--------
Net deferred tax liability $2,817
========
</TABLE>
The Predecessor had no deferred tax liabilities as of December 31, 1996.
The acquisition of the Meadows resulted in the recognition of deferred tax
liabilities of approximately $3,200,000 under the purchase method of
accounting. These amounts were based upon the excess of the financial
statement basis over the tax basis in assets, principally fixed assets. The
acquisition of Delsener/Slater resulted in the recognition of deferred tax
assets of approximately $1,200,000 under the purchase method of accounting.
These amounts were based upon the excess of the financial statements basis
over the tax basis in assets, principally deferred compensation.
F-30
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1997, 1996, and 1995 the effective rate varies from the
statutory Federal income tax rate as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
----------------
1997 1996 1995
--------- -------- ------
<S> <C> <C> <C>
Income taxes at the statutory rate .................... $ 1,463 $(139) $ 54
Effect of Subchapter S status ......................... -- 139 (54)
Nondeductible amortization ............................ 800 -- --
Travel and entertainment .............................. 20 -- --
Effect of consolidated return loss .................... (2,283) -- --
State and local income taxes (net of Federal benefit) 490 106 13
--------- -------- ------
Total provision ....................................... $ 490 $ 106 $ 13
========= ======== ======
</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 SFX 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
venues, office space and land. Total rent expense was $2,753,000 , $875,000
and $835,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. The lease terms range from 3 to 37 years. Prior to the
Spin-Off, the Company will enter into contracts with certain officers and
other key employees. No such contracts existed in 1997. The future minimum
payments for all noncancelable operating leases and employee agreements with
initial terms of one year or more are as follows (in thousands):
<TABLE>
<CAPTION>
EMPLOYMENT
OPERATING LEASES AGREEMENTS
---------------- ------------
<S> <C> <C>
1998 ................ $ 3,366 $1,900
1999 ................ 3,823 1,864
2000 ................ 1,648 1,624
2001 ................ 1,666 1,534
2002 ................ 1,678 300
2003 and thereafter 14,117 --
---------------- ------------
$26,298 $7,222
================ ============
</TABLE>
The Company has committed to expansion projects at the Jones Beach Theater
and PNC Bank Arts Center and, in connection with the BGP Acquisition, for the
construction of a new amphitheater in the Seattle, Washington market. The
Jones Beach Theater and PNC Bank Arts Center expansions are expected to be
completed in June 1998 and to cost approximately $15,000,000 and $10,500,000,
respectively. As of December 31, 1997, approximately $1,018,000 and
$1,500,000, respectively, of these costs have been incurred. The new
amphitheater in Seattle is expected to cost $10,000,000 and is expected to be
completed in the spring of 1999.
As of December 31, 1997 and 1996, outstanding letters of credit for
$1,110,000 and $400,000, respectively, were issued by banks on behalf of the
Company as security for loans and the rental of theaters.
In connection with the acquisition of Delsener/Slater, SFX 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-President and Co-Chief Executive Officer of Delsener/Slater. Each of the
employment agreements continues until December 31, 2001 unless terminated
earlier by the Company for cause or voluntarily by Mr. Delsener or Mr.
Slater.
F-31
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 and 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 year ended December 31, 1997.
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 Recent
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. In
1997, the Company incurred fees of approximately $2,948,000 for legal
services related to the Recent Acquisitions. Such fees were funded by SFX
Broadcasting on behalf of the Company. In February 1998, the Company
reimbursed SFX Broadcasting for these fees.
Due to stockholder represents the balance due to Mr. Delsener on his
advances to renovate the Jones Beach Theatre (the "Jones Beach Loan") and the
PNC Bank Arts Center (the "PNC Loan"). Delsener /Slater 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 of Delsener/Slater by SFX Broadcasting in 1997 (See Note 1).
11. CAPITAL STOCK
In order to facilitate the Spin-Off, the Company recently revised its
capital structure to increase its authorized capital stock and to effect a
stock split. The authorized capital stock of the Company consists of
110,000,000 shares of Common Stock (comprised of 100,000,000 shares of Class
A Common Stock and 10,000,000 shares of Class B Common Stock), and 25,000,000
shares of preferred stock, par value $.01 per share.
In the Spin-Off, (a) 13,579,024 shares of Class A Common Stock were
distributed to holders on the Spin-Off record date of SFX Broadcasting's
Class A common stock, Series D preferred stock and interests in SFX
Broadcasting's director deferred stock ownership plan, (b) 1,047,037 shares
of Class B Common Stock were distributed to holders on the Spin-Off record
date of SFX Broadcasting Class B common stock and (c) 609,856 shares of Class
A Common Stock were placed in escrow to be issued upon the exercise of
certain warrants of SFX Broadcasting. The financial statements have been
retroactively adjusted to reflect this transaction.
F-32
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Holders of the Company's Class A Common Stock are entitled to one vote and
holders of the Company's Class B Common Stock are 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 issue preferred stock and will
assign 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.
13. SUBSEQUENT EVENTS (UNAUDITED)
During January 1998, the Board of Directors and SFX Broadcasting, as sole
stockholder, approved and adopted a stock option and restricted stock plan
providing for the issuance of restricted shares of the Company's Class A
Common Stock and options to purchase shares of the Company's 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, approved the sale of an
aggregate of 650,000 shares of the Company's Class B Common Stock and 90,000
shares of the Company's Class A Common Stock to certain executive officers
for a purchase price of $2.00 per share. 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
then fair value of such shares.
In addition, the Board, upon recommendation of the Compensation Committee,
has approved the issuance of stock options exercisable for 1,002,500 shares
of the Company's Class A Common Stock. Of these options, 252,500 will vest
over three years and will have an exercise price of $5.50 per share, and the
remainder will vest over five years and will have an exercise price of
$30.50. The Company will record non-cash compensation charges over the
three-year period with respect to the 252,000 options to be issued to the
extent that the fair value of the Company's Class A Common Stock exceeds the
exercise price of such options.
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 SFX 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 SFX Broadcasting's Class A Common Stock. Additionally, many of
the option holders will become officers, directors and employees of the
Company.
In January 1998, Mr. Sillerman committed to finance the $8.3 million
exercise price of the Meadows Repurchase in order to avoid the $10.5 million
reduction to Working Capital. In consideration for such commitment, the board
of directors of SFX Broadcasting agreed that Mr. Sillerman would receive the
Company Class A Common Stock to be issued in the Spin-Off with respect to the
Meadows Shares. In April 1998, SFX Broadcasting assigned the option for the
Meadows Shares to an unaffiliated third party and, in connection therewith,
paid such party a fee of $75,000. Mr. Sillerman subsequently advanced such
party the $8.3 million exercise price for the Meadows Repurchase which will
become due on the earlier of the date on which the Meadows Shares are
disposed of by the third party or January 16, 1999. In the event the Meadows
Shares are tendered in the SFX Merger, the third party has agreed to pay
$10.5 million to the Company, which is an amount equal to the Meadows
Reduction. In the event that the SFX Merger is not consummated on or before
December 31, 1998, SFX Broadcasting has the option, for a limited time, to
repurchase the Meadows Shares for an aggregate consideration of approximately
$10.0 million. The third party has agreed to transfer to Mr. Sillerman the
Company Class A Common Stock to be issued in the Spin-Off with respect to the
Meadows Shares.
F-33
<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, 1995 and 1996, and the related combined
statements of operations, shareholders' and partners' equity (deficit) and
cash flows for the years then ended. 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, 1995 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
March 21, 1997
F-34
<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 $165,300 and
$503,766 in 1995 and 1996, 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.
F-35
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996
-------------- -------------
<S> <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 ......................... 20,046 33,577
-------------- -------------
3,662,405 4,664,385
-------------- -------------
Loss from operations......... (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 .................... $(1,015,342) $(1,942,718)
============== =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-36
<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, 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.
F-37
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................ $ (1,015,342) $ (1,942,718)
Adjustments to reconcile net loss to net cash provided
by
(used in) 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 ...................... (143,703) (59,329)
Accounts payable ....................................... -- (6,294)
Accrued expenses ....................................... 505,199 150,008
Deferred income ........................................ 679,476 57,964
--------------- ---------------
Net cash provided by (used in) operating activities .. 407,445 (310,832)
--------------- ---------------
Cash flows from investing activities:
Purchases of plant and equipment ....................... (23,242,858) (159,452)
Grant proceeds.......................................... 7,680,161 --
Deferred start-up costs ................................ (264,975) --
Accounts receivable--related party...................... 827,170 --
Accounts payable........................................ (438,350) --
--------------- ---------------
Net cash used in investing activities ................ (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 ...... 900 --
--------------- ---------------
Net cash provided by financing activities ............. 13,767,299 414,001
--------------- ---------------
Net decrease in cash .................................... (1,264,108) (56,283)
Cash, beginning of year ................................. 1,327,169 63,061
--------------- ---------------
Cash, end of year........................................ $ 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.
F-38
<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.
F-39
<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 and $689,160 for the years ended
December 31, 1996 and 1995, respectively.
F-40
<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:
F-41
<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.
F-42
<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
F-43
<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.
F-44
<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
F-45
<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.
F-46
<PAGE>
10. SUBSEQUENT EVENTS: (Continued)
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 and 1995. 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 and 1995 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana
September 29, 1997.
F-47
<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.
F-48
<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.
F-49
<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, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Operating revenues:
Concert revenue.................................. $11,073,491 $14,194,502
Cost of concerts................................. 8,939,022 10,724,059
-------------- --------------
2,134,469 3,470,443
Ancillary income:
Royalty commissions.............................. 1,706,458 1,799,950
Corporate sponsorships........................... 959,518 1,056,161
Other ancillary income........................... 789,433 1,375,528
-------------- --------------
5,589,878 7,702,082
Operating expenses:
General & administrative......................... 2,419,679 3,452,990
Depreciation & amortization...................... 343,567 783,167
Other operating expenses......................... 249,812 471,126
-------------- --------------
3,013,058 4,707,283
Income from operations........................... 2,576,820 2,994,799
Other income (expense):
Interest income.................................. 86,034 84,123
Interest expense................................. (2,203,690) (1,549,579)
-------------- --------------
Net Income (Loss).............................. $ 459,164 $ 1,529,343
Partners' Equity (Deficit) at beginning of year $(1,857,603) $(1,572,719)
Contributions.................................... -- 2,200,000
Distributions.................................... (174,280) (1,363,528)
-------------- --------------
Partners' Equity (Deficit) at end of year ...... $(1,572,719) $ 793,096
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-50
<PAGE>
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Operating Activities:
Net income .................................................... $ 459,164 $ 1,529,343
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 461,678 783,167
Decrease (increase) in certain assets:
Accounts receivable........................................... (45,317) (17,381)
Prepaid show expenses......................................... -- (42,114)
Prepaid expenses and other ................................... 746,307 (33,381)
Increase (decrease) in certain liabilities:
Accounts payable, construction payable and other accrued
liabilities.................................................. 3,424,461 (3,087,135)
Deferred ticket revenue....................................... (1,266,654) 467,889
Accrued interest.............................................. 389,251 (363,791)
Other......................................................... (75,407) 44,852
------------- -------------
Net cash provided by (used in) operating activities ........ 4,093,483 (718,551)
------------- -------------
Investing Activities:
Capital expenditures.......................................... (6,713,889) (5,197,260)
------------- -------------
Net cash used by investing activities......................... (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....................................................... (20,308) (1,334,653)
Distributions to partners..................................... (174,280) (1,363,528)
------------- -------------
Net cash provided by financing activities ................... 3,626,513 4,898,054
------------- -------------
Net increase (decrease) in cash and cash equivalents .......... 1,006,107 (1,017,757)
Cash and cash equivalents:
Beginning of period........................................... 888,426 1,894,533
------------- -------------
End of period................................................. $ 1,894,533 $ 876,776
============= =============
Supplemental disclosures:
Cash paid for interest........................................ $ 1,148,049 $ 1,912,494
Equipment acquired under capital leases....................... -- 139,000
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-51
<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.
F-52
<PAGE>
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
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 and
$595,000 in 1995.
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
F-53
<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, the Deer Creek Partnership
incurred contingent interest, which was based on cash flow, of $885,000.
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.
F-54
<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.
F-55
<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 and $1.7 million in 1996
and 1995, 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 $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
F-56
<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 $249,000 in 1995 and
$65,000 in 1996 from the Deer Creek Partnership and $46,000 in 1996 from the
Murat Partnership.
9. 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.
F-57
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PACE Entertainment Corporation:
We have audited the accompanying consolidated balance sheet of PACE
Entertainment Corporation (a Texas 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)
F-58
<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
F-59
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-------------------- -------------
1996 1997 1997
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $23,165 $23,784 $27,702
Trade receivables, net ............................... 4,097 4,562 6,741
Accounts receivable, related parties ................. 1,010 1,007 1,096
Notes receivable ..................................... 3,040 386 81
Prepaid expenses ..................................... 6,106 9,967 10,586
Investments in theatrical productions ................ 2,489 4,402 3,958
Deferred tax asset ................................... 1,872 979 943
--------- --------- -------------
Total current assets ................................ 41,779 45,087 51,107
INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS ............ 8,816 13,899 15,613
NOTES RECEIVABLE, related parties ..................... 6,958 8,024 7,766
INTANGIBLE ASSETS, net ................................ 17,244 17,894 17,633
OTHER ASSETS, net ..................................... 4,484 4,933 6,047
--------- --------- -------------
Total assets ........................................ $79,281 $89,837 $98,166
========= ========= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ............. $10,285 $11,078 9,277
Deferred revenue ..................................... 26,909 32,093 33,208
Current maturities of long-term debt ................. 2,576 2,394 2,688
--------- --------- -------------
Total current liabilities ........................... 39,770 45,565 45,173
LONG-TERM DEBT ........................................ 21,863 23,129 31,543
OTHER NONCURRENT LIABILITIES .......................... 2,496 1,607 2,080
REDEEMABLE COMMON STOCK ............................... 3,264 2,456 2,983
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 3
Additional paid-in capital ........................... 1,910 1,942 2,097
Retained earnings .................................... 10,115 15,275 14,427
Treasury stock, at cost, 544 shares .................. (140) (140) (140)
--------- --------- -------------
Total shareholders' equity .......................... 11,888 17,080 16,387
--------- --------- -------------
Total liabilities and shareholders' equity ......... $79,281 $89,837 $98,166
========= ========= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-60
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30 DECEMBER 31
------------------------------------ ----------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
GROSS REVENUES ................... $ 150,385 $ 156,325 $ 176,046 $ 38,430 $ 38,552
COST OF SALES .................... (131,364) (135,925) (148,503) (34,221) (33,687)
EQUITY IN EARNINGS (LOSS) OF
UNCONSOLIDATED PARTNERSHIPS AND
THEATRICAL PRODUCTIONS .......... 2,183 3,048 6,838 (111) 1,185
----------- ----------- ----------- ---------- ----------
Gross profit ................... 21,204 23,448 34,381 4,098 6,050
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ......... (13,351) (15,951) (21,260) (4,072) (5,018)
STOCK COMPENSATION ............... (25) (3,675) (456) (6) (683)
LITIGATION SETTLEMENT ............ -- (3,657) -- -- --
DEPRECIATION AND AMORTIZATION ... (1,223) (1,737) (1,896) (434) (523)
----------- ----------- ----------- ---------- ----------
Operating profit (loss) ........ 6,605 (1,572) 10,769 (414) (174)
INTEREST INCOME, related parties 305 329 403 75 178
INTEREST INCOME, other ........... 147 176 60 35 6
INTEREST EXPENSE ................. (655) (1,206) (1,997) (480) (867)
----------- ----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST ........... 6,402 (2,273) 9,235 (784) (857)
INCOME TAX (PROVISION) BENEFIT .. (2,575) 714 (3,529) 222 182
MINORITY INTEREST ................ (485) (446) (546) (130) (173)
----------- ----------- ----------- ---------- ----------
NET INCOME (LOSS) ................ $ 3,342 $ (2,005) $ 5,160 $ (692) $ (848)
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-61
<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
Issuance of restricted stock and
amortization of deferred stock compensation
(unaudited)................................. -- 155 -- -- 155
Net loss (unaudited) ........................ -- -- (848) -- (848)
-------- ------------ ---------- ---------- ---------------
BALANCE AT DECEMBER 31, 1997 (unaudited) .... $ 3 $2,097 $14,427 $(140) $16,387
======== ============ ========== ========== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-62
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30 DECEMBER 31
-------------------------------- -------------------
1995 1996 1997 1996 1997
--------- ---------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................... $ 3,342 $ (2,005) $ 5,160 $ (692) $ (848)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities-
Depreciation and amortization .................. 1,223 1,737 1,896 434 522
Equity in (earnings) loss of unconsolidated
partnerships .................................. (1,624) (486) (4,912) 607 (1,150)
Distributions from unconsolidated partnerships 1,297 1,090 2,354 1,073 411
Restricted stock compensation .................. 25 3,675 456 6 683
Deferred income tax expense (benefit) ......... 848 (4,541) 2,037 36 (574)
Changes in operating assets and liabilities- ...
Trade receivables ............................. 447 (826) (465) 383 (2,179)
Notes receivable .............................. (1,813) (1,227) 2,654 1,140 305
Prepaid expenses .............................. (221) 1,466 (3,861) (2,099) (619)
Investments in theatrical productions ........ 305 (335) (1,913) (1,658) 444
Other assets .................................. (37) (1,130) (421) (39) (469)
Accounts payable and accrued liabilities ..... 947 (1,142) (920) (264) (2,626)
Deferred revenue .............................. (1,082) (1,008) 5,184 (7,004) 1,115
Other liabilities ............................. 171 1,601 (34) 130 3,083
--------- ---------- ---------- --------- ---------
Net cash provided by (used in) operating
activities .................................. 3,828 (3,131) 7,215 (7,947) (1,902)
--------- ---------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired .............. -- (13,233) (2,215) -- (178)
Capital expenditures ............................ (728) (827) (1,008) (407) (900)
Loans and advances to related parties ........... (2,301) (535) (2,295) 2 169
Contributions to unconsolidated partnerships ... (1,212) (1,806) (2,162) (618) (1,980)
--------- ---------- ---------- --------- ---------
Net cash used in investing activities ....... (4,241) (16,401) (7,680) (1,023) (2,889)
--------- ---------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt additions .................... 8,927 24,043 24,287 557 14,593
Payments on debt ................................ (8,928) (6,512) (23,203) (873) (5,884)
--------- ---------- ---------- --------- ---------
Net cash provided by (used in) financing
activities .................................. (1) 17,531 1,084 (316) 8,709
--------- ---------- ---------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ...................................... (414) (2,001) 619 (9,286) 3,918
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .. 25,580 25,166 23,165 23,165 23,784
--------- ---------- ---------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ....... $25,166 $ 23,165 $ 23,784 $13,879 $27,702
========= ========== ========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ................................... $ 620 $ 1,117 $ 1,900 $ 180 $ 644
Income taxes paid ............................... 2,276 2,804 2,103 565 93
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-63
<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.
F-64
<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.
F-65
<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.
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.
Reclassifications
Certain 1995 and 1996 amounts have been reclassified to conform with the
1997 presentation.
Interim Financial Information
The interim financial data as of December 31, 1997 and for the three-month
periods ended December 31, 1996 and 1997 is unaudited and certain information
and disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted.
However, in the opinion of management, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the interim periods. The results of
operations for the interim periods are not necessarily indicative of the
results to be expected for the entire year.
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>
F-66
<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>
F-67
<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>
F-68
<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>
F-69
<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>
F-70
<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>
F-71
<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.
F-72
<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
F-73
<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.
F-74
<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.
F-75
<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 (SFX Transaction). 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
F-76
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
approval of certain third 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 (Acquisition Facility) 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 (USA
Transaction), 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 (Blockbuster
Transaction) 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 (Sony Transaction) 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)
13. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (Unaudited)
Effective February 25, 1998, the SFX Transaction, Blockbuster Transaction
and Sony Transaction closed. In conjunction with the closing, SFX retired the
Company's outstanding term loan and revolving line of credit and purchased or
retired a substantial portion of the indebtedness of Pavilion Partners,
including debt which was previously guaranteed by PACE. No borrowings had
been made under the Acquisition Facility, which expired with the closing of
the SFX Transaction. Additionally, all put option agreements related to the
Company's common stock were terminated.
During February 1998, the Company granted 40 shares of restricted common
stock to an executive. This grant combined with the settlement of all
restricted and redeemable stock, all outstanding stock options and certain
bonuses paid in conjunction with the SFX Transaction resulted in a one-time
charge during February 1998 of approximately $6.4 million, net of related tax
effects.
The USA Transaction closed on March 25, 1998. To effect the USA
Transaction, PACE contributed $4,000,000 to a newly formed partnership and
that partnership acquired a 67% interest in certain assets and liabilities of
United Sports of America from third parties. The remaining 33% interest in
those assets and liabilities was contributed to the partnership by a
subsidiary of SFX.
F-77
<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)
F-78
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Pavilion Partners
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of partners' equity 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.
/s/ PRICE WATERHOUSE LLP
Houston, Texas
December 12, 1996
F-79
<PAGE>
PAVILION PARTNERS
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------- DECEMBER 31
1996 1997 1997
--------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................. $ 8,554 $ 17,898 $15,464
Accounts receivable ................................... 7,842 6,167 2,067
Accounts receivable, related parties .................. 1,878 3,878 1,687
Notes receivable, related parties ..................... 1,218 1,218 1,218
Prepaid expenses and other current assets ............. 1,208 1,017 622
--------- ---------- -------------
Total current assets ............................... 20,700 30,178 21,058
Prepaid rent .......................................... 7,075 6,938 6,898
Property and equipment, net ........................... 61,292 59,938 59,291
Other assets .......................................... 4,426 5,722 5,777
--------- ---------- -------------
Total assets ....................................... $93,493 $102,776 $93,024
========= ========== =============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable ...................................... $ 1,404 $ 1,193 $ 260
Accounts payable, related parties ..................... 1,866 3,948 2,193
Accrued liabilities ................................... 8,112 7,032 5,614
Deferred revenue ...................................... 3,602 5,081 3,067
Current portion of notes payable and capital lease
obligation ........................................... 1,573 1,614 1,639
Current portion of note payable, related party ....... 637 880 945
--------- ---------- -------------
Total current liabilities .......................... 17,194 19,748 13,718
Notes payable ......................................... 43,680 42,192 41,879
Note payable, related party ........................... 7,268 7,025 6,961
Capital lease obligation .............................. 6,130 5,989 5,952
Other liabilities and minority interests in
consolidated subsidiaries ............................ 1,617 3,960 2,911
--------- ---------- -------------
Total liabilities .................................. 75,889 78,914 71,421
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL ...................................... 17,604 23,862 21,603
--------- ---------- -------------
Total liabilities and partners' capital ........... $93,493 $102,776 $93,024
========= ========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-80
<PAGE>
PAVILION PARTNERS
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS THREE MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30, --------------------
1995 1996 1997 1996 1997
------------- --------------- --------------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
TICKET REVENUES ......... $43,266 $50,151 $ 58,479 $ 4,186 $ 4,554
OTHER OPERATING
REVENUES................ 28,109 33,942 41,730 3,254 3,141
------------- --------------- --------------- ---------- ---------
Total revenues ........ 71,375 84,093 100,209 7,440 7,695
COST OF SALES ........... 49,226 57,723 64,052 4,862 5,229
------------- --------------- --------------- ---------- ---------
Gross profit .......... 22,149 26,370 36,157 2,578 2,466
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES................ 8,329 9,774 10,858 2,299 1,987
DEPRECIATION AND
AMORTIZATION ........... 2,461 3,346 3,975 961 1,031
OTHER OPERATING COSTS .. 5,345 7,390 8,531 961 723
LITIGATION EXPENSES AND
SETTLEMENT ............. -- 2,380 -- -- --
------------- --------------- --------------- ---------- ---------
Operating profit
(loss) ............... 6,014 3,480 12,793 (1,643) (1,275)
INTEREST INCOME ......... 504 391 532 74 167
INTEREST EXPENSE ........ 2,793 3,855 4,413 1,127 1,102
------------- --------------- --------------- ---------- ---------
INCOME (LOSS) BEFORE
MINORITY INTEREST ...... 3,725 16 8,912 (2,696) (2,210)
MINORITY INTEREST ....... 276 308 1,926 (63) (59)
------------- --------------- --------------- ---------- ---------
NET INCOME (LOSS) ....... $ 3,449 $ (292) $ 6,986 $(2,633) $(2,151)
============= =============== =============== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-81
<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
Net loss (unaudited) .................. (1,435) (716) (2,151)
Distributions (unaudited) ............. -- (108) (108)
--------------- --------------- ---------
BALANCE, December 31, 1997 (unaudited) $17,709 $3,894 $21,603
=============== =============== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-82
<PAGE>
PAVILION PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FOR THE ELEVEN MONTHS FOR THE THREE MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30, ----------------------
1995 1996 1997 1996 1997
------------- --------------- --------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) ............... $ 3,449 $ (292) $ 6,986 $(2,633) $(2,151)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities--
Depreciation and amortization . 2,461 3,346 3,975 961 1,031
Minority interest .............. 276 308 1,926 (63) (59)
Changes in assets and
liabilities--
Accounts receivable ........... (1,455) (3,647) 1,669 5,124 4,100
Accounts receivable and
payable, related parties .... 32 (756) 82 (299) 436
Prepaid expenses and other
current assets ............... 191 (296) 266 774 435
Accounts payable and accrued
liabilities .................. (512) 1,695 (2,184) (1,925) (2,350)
Deferred revenue and other
liabilities .................. 1,304 2,110 2,284 (2,082) (2,092)
Other, net .................... (785) (1,259) (1,548) (141) (1,210)
------------- --------------- --------------- ---------- ----------
Net cash provided by (used
in) operating activities ... 4,961 1,209 13,456 (284) (1,860)
------------- --------------- --------------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments of preoperating costs . (1,318) (1,114) (59) (271) --
Capital expenditures ............ (25,856) (7,483) (1,879) (15) (178)
------------- --------------- --------------- ---------- ----------
Net cash used in investing
activities .................. (27,174) (8,597) (1,938) (286) (178)
------------- --------------- --------------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Funding of capital commitments
by partners .................... 4,046 -- -- -- --
Distributions to partner ........ (699) (767) (728) (728) (108)
Proceeds from borrowings ........ 24,322 8,323 -- -- --
Repayments of borrowings ........ (639) (1,072) (1,446) (375) (288)
------------- --------------- --------------- ---------- ----------
Net cash provided by (used
in) financing activities ... 27,030 6,484 (2,174) (1,103) (396)
------------- --------------- --------------- ---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ............ 4,817 (904) 9,344 (1,673) (2,434)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ............. 4,641 9,458 8,554 8,554 17,898
------------- --------------- --------------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD ....................... $ 9,458 $ 8,554 $17,898 $ 6,881 $15,464
============= =============== =============== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-83
<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.
F-84
<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 and $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.
F-85
<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.
Interim Financial Information
The interim financial data as of December 31, 1997 and for the three-month
periods ended December 31, 1996 and 1997 is unaudited and certain information
and disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted.
However, in the opinion of management, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the interim periods. The results of
operations for the interim periods are not necessarily indicative of the
results to be expected for the entire year.
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
F-86
<PAGE>
PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
F-87
<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.
F-88
<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
F-89
<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
F-90
<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 periodic 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
F-91
<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. (SFX Transaction).
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 (Blockbuster Transaction) 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 (Sony
Transaction) 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).
12. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (Unaudited)
Effective February 25, 1998, the SFX Transaction, Blockbuster Transaction
and Sony Transaction closed. In conjunction with the closing, SFX purchased
or retired approximately $38 million of the Partnership's outstanding notes
payable.
F-92
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Boards of Directors
Contemporary Group
We have audited the accompanying combined balance sheets of Contemporary
Group as of December 31, 1997 and 1996 and the related combined statements of
operations, cash flows and stockholders' equity for each of the three years
in the period ended December 31, 1997. 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 combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Contemporary Group at December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
May 22, 1998
F-93
<PAGE>
CONTEMPORARY GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1996 1997
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................................ $ 2,972,409 $10,427,805
Accounts receivable ............................................. 4,067,444 7,672,187
Notes receivable -related party ................................. -- 1,000,000
Prepaid expenses and other current assets ....................... 272,105 210,640
-------------- -------------
Total current assets ............................................. 7,311,958 19,310,632
Property and equipment, at cost, less accumulated depreciation
and amortization of $2,723,986 in 1996 and $3,264,972 in 1997 .. 2,438,210 2,813,902
Reimbursable event costs.......................................... 474,469 152,617
Deferred event expenses........................................... 250,973 402,460
Investment in Riverport........................................... 4,934,513 5,436,717
Other assets...................................................... 120,256 199,518
-------------- -------------
Total assets...................................................... $15,530,379 $28,315,846
============== =============
LIABILITIES AND COMBINED STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation and bonuses................................. $ 2,906,153 $ 6,721,459
Accrued expenses and other current liabilities................... 1,994,036 6,169,861
Accounts payable................................................. 1,733,676 1,347,539
Current portion of note payable.................................. 667,138 1,075,000
-------------- -------------
Total current liabilities......................................... 7,301,003 15,313,859
Deferred revenue and other liabilities............................ 2,586,880 5,570,295
Note payable, less current portion................................ 1,659,723 739,424
Combined stockholders' equity..................................... 3,982,773 6,692,268
-------------- -------------
Total liabilities and combined stockholders' equity............... $15,530,379 $28,315,846
============== =============
</TABLE>
See accompanying notes.
F-94
<PAGE>
CONTEMPORARY GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Operating revenues:
Event promotion revenue ............ $39,159,137 $38,023,454 $48,057,060
Marketing revenue .................. 7,670,138 12,969,621 30,195,359
Other event revenue ................ 8,813,999 8,859,218 10,800,118
------------- ------------- -------------
55,643,274 59,852,293 89,052,537
Cost of revenue ..................... 44,240,953 46,410,935 66,940,088
------------- ------------- -------------
11,402,321 13,441,358 22,112,449
Operating expenses:
Salary and bonus expense ........... 5,944,644 8,010,991 18,992,476
Depreciation and amortization ..... 559,980 566,573 540,986
General and administrative expenses 3,468,742 3,767,111 4,887,615
------------- ------------- -------------
9,973,366 12,344,675 24,421,077
Income (loss) from operations ....... 1,428,955 1,096,683 (2,308,628)
Other income (expense):
Interest income .................... 226,024 158,512 201,310
Interest expense ................... (140,773) (213,658) (192,130)
Loss on asset disposal ............. -- -- (84,261)
Equity in income of Riverport ..... 1,332,898 822,716 1,002,204
------------- ------------- -------------
1,418,149 767,570 927,123
------------- ------------- -------------
Income before income taxes .......... 2,847,104 1,864,253 (1,381,505)
Federal and state taxes ............. 20,677 35,367 --
------------- ------------- -------------
Net income (loss) ................... $ 2,826,427 $ 1,828,886 $(1,381,505)
============= ============= =============
</TABLE>
See accompanying notes.
F-95
<PAGE>
CONTEMPORARY GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income .......................................... $ 2,826,427 $ 1,828,886 $(1,381,505)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ...................... 559,980 566,573 540,986
Loss on asset disposal ............................. -- -- 84,261
Non cash interest expense........................... 142,068 148,113 154,701
Equity in income of Riverport, net of distributions
received .......................................... (82,897) (222,716) (502,204)
Changes in operating assets and liabilities:
Accounts receivable ............................... (1,451,090) (659,486) (3,604,743)
Prepaid expenses and other current assets ........ (331,184) 225,754 61,465
Reimbursable event costs .......................... (75,913) (361,599) 321,852
Deferred event expenses ........................... (15,608) (45,150) (151,487)
Other assets ...................................... (1,575) (29,923) (79,262)
Accounts payable .................................. 398,369 970,553 (386,137)
Accrued compensation and bonuses .................. 665,488 954,175 3,815,306
Accrued expenses and other current liabilities ... 907,053 301,652 4,175,825
Deferred revenue .................................. (1,569,486) 245,216 3,227,827
Other liabilities ................................. -- 162,860 (244,412)
------------- ------------- --------------
Net cash provided by operating activities .......... 1,971,632 4,084,908 6,032,473
INVESTING ACTIVITIES
Loan to related party ............................... -- -- (1,000,000)
Purchase of property and equipment .................. (281,306) (1,159,382) (1,063,848)
Proceeds from sale of property and equipment ....... -- -- 62,909
------------- ------------- --------------
Net cash used in investing activities ............... (281,306) (1,159,382) (2,000,939)
FINANCING ACTIVITIES
Borrowings .......................................... 226,970 626,970 --
Payments of notes payable ........................... (75,000) (336,802) (667,138)
Proceeds received from capital contributions ....... -- -- 5,000,000
Distributions paid .................................. (2,578,000) (2,993,000) (909,000)
------------- ------------- --------------
Net cash provided by (used in) financing activities (2,426,030) (2,702,832) 3,423,862
------------- ------------- --------------
Net increase in cash ................................ (735,704) 222,694 7,455,396
Cash at beginning of period ......................... 3,485,419 2,749,715 2,972,409
------------- ------------- --------------
Cash at end of period ............................... $ 2,749,715 $ 2,972,409 $10,427,805
============= ============= ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest .............................. $ 24,000 $ 143,271 $ 37,421
============= ============= ==============
Cash paid for income taxes .......................... $ 45,805 $ 34,550 $ 27,077
============= ============= ==============
</TABLE>
See accompanying notes.
F-96
<PAGE>
CONTEMPORARY GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C>
Balance, January 1, 1995........................ $ 4,898,460
Distributions to stockholders.................. (2,578,000)
Net income for the year ended December 31,
1995.......................................... 2,826,427
-------------
Balance, December 31, 1995 ..................... 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 ................. (909,000)
Capital contributions ......................... 5,000,000
Net loss for the year ended December 31, 1997 (1,381,505)
-------------
Balance, December 31, 1997 ..................... $ 6,692,268
=============
</TABLE>
See accompanying notes.
F-97
<PAGE>
CONTEMPORARY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, n/k/a
Contemporary Group, Inc., 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 8.
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.
CIC is a 50% partner in Riverport Performing Arts Centre Joint Venture
("Riverport"), a Missouri general partnership which 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
As of December 31, 1997, all of the entities combined are either "S
Corporations" or partnerships and therefore no tax provision has been
provided. In 1996 and 1995, certain of the entities were "C Corporations" for
which a tax provision has been provided.
For the year ended December 31, 1996 and 1995, with respect to the "C
Corporations," the total provision for income taxes is $35,367 and $20,677
respectively.
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 the year
ended December 31, 1997. These Companies have subsequently revoked the
election to be taxed as "S Corporations", effective January 1, 1998.
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 December 31, 1997, 1996 and 1995 to be collectible;
accordingly, no allowance for doubtful accounts is recorded.
Revenue Recognition
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.
Sales under long-term contracts for the Company's marketing division are
recorded under the percentage-of-completion method, wherein revenues and
estimated costs are recorded as the work is performed.
F-98
<PAGE>
CONTEMPORARY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Significant Customer
CMI's most significant customer is AT&T, which provided approximately 23%
and 12% of the Companies' combined revenues for the years ended December 31,
1997 and 1996, respectively. In March 1998, AT&T has indicated that it will
no longer be using the services of CMI.
Advertising Costs
Advertising costs are expensed as incurred. For the year ended December
31, 1997, 1996 and 1995, advertising costs were $115,634 and $71,879 and
$44,226, 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.
Reclassification
Certain prior year amounts in the financial statements have been
reclassified to conform with the current year's presentation.
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, 1995, 1996
and 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Current assets .......................... $ 350,532 $ 473,275 $ 284,424
Property and equipment .................. 12,388,989 11,815,552 11,188,826
Other assets ............................ 27,573 16,553 --
------------- ------------- -------------
Total assets ............................ $12,767,094 $12,305,380 $11,473,250
============= ============= =============
Current liabilities ..................... $ 1,524,364 $ 1,993,981 $ 318,028
Other liabilities ....................... 1,819,136 442,374 281,789
Partners' capital ....................... 9,423,594 9,869,025 10,873,433
------------- ------------- -------------
Total liabilities and partners' capital $12,767,094 $12,305,380 $11,473,250
============= ============= =============
Revenue ................................. $15,256,314 $11,693,138 $14,247,109
Net operating income .................... $ 3,200,738 $ 1,970,887 $ 2,616,839
Net income .............................. $ 2,665,796 $ 1,645,431 $ 2,004,408
</TABLE>
F-99
<PAGE>
CONTEMPORARY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
During the years ended December 31, 1997, 1996 and 1995, CIC received a
cash distribution of $500,000, $600,000 and $1,250,000, respectively, from
Riverport.
3. NOTES PAYABLE
In November 1995, the Company obtained a $750,000 unsecured line of credit
with a bank which matured in May 1996. The note bore a rate of interest based
on the prime lending rate (8.75% in 1995). At December 31, 1995, $226,970 was
outstanding under this line of credit.
At December 31, 1997, 1996 and 1995, CIC held a $2,322,500 non
interest-bearing note payable to its partner in Riverport. The carrying value
of the note was $1,814,424, $1,734,723 and $1,661,610 at December 31, 1997,
1996 and 1995, respectively, which includes imputed interest at a rate of
approximately 9%. The note, which was payable in installments through
December 1, 2000 and was secured by CIC's investment in Riverport, was repaid
in 1998 in connection with the transaction described in Note 8.
At December 31, 1996, the Companies had a $592,138 bank note payable which
bore interest based on the prime lending rate (8.25% in 1996, 8.5% in 1997)
and was repaid in full during 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. 300 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 years ended December 31, 1997, 1996 and 1995
was $705,489, $818,123 and $734,785, respectively.
F-100
<PAGE>
CONTEMPORARY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under noncancellable operating leases as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 ......... $ 858,757
1999 ......... 863,757
2000 ......... 440,050
2001 ......... 264,000
Thereafter .. 317,000
-----------
$2,743,564
===========
</TABLE>
Compensation
During 1996, CMI entered into an employment agreement with one of its
employees which provided her rights to future cash payments based on the fair
value of CMI, as defined. These rights would vest on January 1, 2002 or upon
the occurrence of certain transactions, including a change of control. On
December 31, 1997, in connection with an amendment to her employment
agreement, the rights became fully vested and CMI paid this employee
$1,329,284. In addition, she is entitled to receive as a bonus $2,854,899
under the amendment, which will be paid in 1998 and is accrued at December
31, 1997.
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, after discussions with 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 years ended December 31, 1997, 1996 and 1995, the
Companies contributions totaled approximately $37,769, $25,600 and $18,887,
respectively.
7. RELATED PARTY TRANSACTIONS
During 1997, the Company loaned $1,000,000 to its co-presidents. The loans
which bore a rate of interest of approximately 5.8% were repaid in full in
early 1998.
8. SUBSEQUENT EVENTS
In February 1998, the owners of the Companies sold 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 $62,300,000 in cash and the issuance of preferred stock which was
converted into 1,402,850 shares of SFX Entertainment Class A Common Stock. In
connection with this transaction, SFX Entertainment and its affiliates also
acquired the 50% interest of Riverport not owned by CIC for $12,585,000.
F-101
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Riverport Performing Arts Centre, Joint Venture:
We have audited the accompanying balance sheets of Riverport Performing
Arts Centre, Joint Venture (a Missouri General Partnership) as of December
31, 1997 and 1996, and the related statements of income and changes in
partners' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Joint Venture'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 Riverport Performing Arts
Centre, Joint Venture as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 27, 1998
F-102
<PAGE>
RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE
BALANCE SHEETS -- AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................. $ 202,251 $ 76,231
Accounts receivable....................... -- 324,275
Prepaid expenses and other current
assets................................... 82,173 72,769
------------- -------------
Total current assets....................... 284,424 473,275
------------- -------------
FACILITY:
Land and leasehold interest............... 5,156,342 5,156,342
Buildings and improvements................ 8,516,251 8,449,225
Furniture, fixtures and equipment ........ 2,293,356 2,218,987
Less-Allowance for depreciation........... (4,777,123) (4,009,002)
------------- -------------
11,188,826 11,815,552
------------- -------------
OTHER ASSETS--Deferred financing fees, net -- 16,553
------------- -------------
$11,473,250 $12,305,380
============= =============
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ..... $ 160,585 $ 1,376,762
Accounts payable and accrued expenses .... 120,043 453,804
Deferred income........................... 37,400 163,415
------------- -------------
Total current liabilities.................. 318,028 1,993,981
LONG-TERM DEBT............................. 281,789 442,374
------------- -------------
599,817 2,436,355
PARTNERS' EQUITY........................... 10,873,433 9,869,025
------------- -------------
$11,473,250 $12,305,380
============= =============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-103
<PAGE>
RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE
STATEMENTS OF INCOME AND CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
REVENUES:
Show admission............................ $ 9,901,214 $ 8,053,939
Sponsorships and promotions............... 1,113,100 914,690
Concession rental......................... 1,970,742 1,724,060
Parking................................... 1,122,979 843,283
Other..................................... 139,074 157,166
------------- -------------
Operating revenues....................... 14,247,109 11,693,138
------------- -------------
EXPENSES:
Talent.................................... 5,825,962 4,382,735
Other show expenses....................... 1,866,910 1,706,317
Advertising and marketing................. 1,037,048 887,673
Producer fees and commissions............. 1,187,253 1,071,946
General and administrative................ 1,713,097 1,673,580
------------- -------------
Operating expenses....................... 11,630,270 9,722,251
------------- -------------
Net operating income..................... 2,616,839 1,970,887
------------- -------------
OTHER EXPENSES (INCOME):
Depreciation and amortization............. 779,278 767,258
Interest, net............................. 13,167 112,947
Other income.............................. (180,014) (554,749)
------------- -------------
Other expenses, net...................... 612,431 325,456
------------- -------------
Net income............................... 2,004,408 1,645,431
PARTNERS' EQUITY AT THE BEGINNING OF
PERIOD..................................... 9,869,025 9,423,594
DISTRIBUTION TO PARTNERS................... (1,000,000) (1,200,000)
------------- -------------
PARTNERS' EQUITY AT THE END OF THE PERIOD . $10,873,433 $ 9,869,025
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-104
<PAGE>
RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 2,004,408 $ 1,645,431
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization............................ 779,278 767,258
Change in accounts receivable............................ 324,275 (215,712)
Change in prepaid expenses and other current assets ..... (4,008) (3,606)
Change in accounts payable and accrued expenses ......... (333,761) 284,945
Change in deferred income................................ (126,015) (31,505)
------------- -------------
Net cash provided by operating activities............... 2,644,177 2,446,811
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Facility additions........................................ (141,395) (182,801)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt......................................... (1,376,762) (1,160,585)
Distribution to Partners.................................. (1,000,000) (1,200,000)
------------- -------------
Net cash used in financing activities................... (2,376,762) (2,360,585)
------------- -------------
Change in cash and cash equivalents..................... 126,020 (96,575)
CASH AND CASH EQUIVALENTS, beginning of year............... 76,231 172,806
------------- -------------
CASH AND CASH EQUIVALENTS, end of year..................... $ 202,251 $ 76,231
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-105
<PAGE>
RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SIGNIFICANT ACCOUNTING POLICIES:
Organization
The Riverport Performing Arts Centre, Joint Venture (the Joint Venture) is
a Missouri General Partnership between Contemporary Investments Corporation
(Contemporary) and Sverdrup/BRC Joint Venture (formerly Sverdrup/MDRC Joint
Venture). The partners each hold a 50% interest in the equity and operations
of the Joint Venture. The term of the Joint Venture continues until December
31, 2045. The Joint Venture is the developer, owner and operator of a 20,000
seat outdoor amphitheater located in St. Louis, Missouri. The Joint Venture
contracts with popular musical performing artists for the entertainment of
its guests. Entertainment is provided during the months of April through
October to guests primarily from the St. Louis metropolitan area.
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.
Cash and Cash Equivalents
Cash equivalents consist of investments with a maturity of three months or
less when purchased. Cash equivalents are carried at cost, which approximates
market. Interest income of $61,199 and $56,708 for 1997 and 1996,
respectively, is netted against interest expense in the accompanying
statements of income.
Depreciation and Amortization
Depreciation is provided using the straight-line method over estimated
useful lives of 5 to 20 years. Deferred financing fees are amortized over the
life of the related debt.
Leasehold Interest
The facility was constructed on land obtained through a leasehold interest
that expires on April 25, 2011. The Sverdrup/BRC Joint Venture sold to
Contemporary an undivided 50% interest in the leasehold interest.
Concurrently, both Sverdrup/BRC Joint Venture and Contemporary contributed
their undivided 50% interests in the leasehold interest into the Joint
Venture. Ground rent is $1 per year under the lease with the Joint Venture
assigned as landlord.
Deferred Income
Deferred income reflects advance sales of season tickets for the
subsequent operating season and is amortized into show admission revenues as
the subsequent operating season progresses.
Income Taxes
Income taxes have not been provided for in the financial statements since
the Joint Venture is organized as a partnership, and each partner is liable
for its own tax payments.
F-106
<PAGE>
RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. LONG-TERM DEBT
Notes payable outstanding at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ------------
<S> <C> <C>
Mortgage note due in installments through 1997, bearing
interest at prime plus 1/2% which averaged 8.875%
during 1997 and 1996.................................... $ -- $1,216,178
Noninterest-bearing note due in installments through
2000.................................................... 442,374 602,958
---------- ------------
442,374 1,819,136
Less-Current maturities.................................. 160,585 1,376,762
---------- ------------
$281,789 $ 442,374
========== ============
</TABLE>
The mortgage note contains covenants that require the Joint Venture to
maintain certain financial ratios and also prohibit certain transactions. The
mortgage note is secured by buildings, improvements, furniture, fixtures and
equipment, limited to the remaining term of the leasehold interest expiring
April 25, 2011. The mortgage note was paid off on September 25, 1997. The
noninterest-bearing note is secured by all concession equipment. Cash paid
for interest totaled $79,391 and $173,172 for 1997 and 1996, respectively.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998... $160,585
1999... 160,585
2000... 121,204
----------
$442,374
==========
</TABLE>
3. CONCESSION RENTAL:
The Joint Venture rents certain premises at its location for the sale of
concessions under a lease that expires in 2000. Rental income is based on a
percentage of gross receipts for some products sold and gross margin for
other products sold.
4. RELATED-PARTY TRANSACTIONS
Contempro Group, Inc., an affiliate of Contemporary, provides various
services to the Joint Venture. These services include marketing, media
placement, sales and show production. Approximately $2,235,000 and $1,766,000
was paid for these services in 1997 and 1996, respectively.
In addition to the payments described above, the Joint Venture also
compensates Contempro Group, Inc. as an agent for the procurement of these
services.
Sverdrup Investments, Inc., an affiliate of Sverdrup/BRC Joint Venture,
was paid $36,000 for accounting services in 1997 and $147,000 for accounting
and landscaping services in 1996.
Riverport Trust, an affiliate of Sverdrup/BRC Joint Venture, provides
ground maintenance to the tenants of the Riverport complex. The fees charged
for these services is based on the total space occupied by the tenant. The
Joint Venture paid approximately $62,000 and $73,000 for these services in
1997 and 1996, respectively.
The Joint Venture had liabilities for related-party transactions and
pass-through costs to affiliates of Contemporary totaling approximately
$56,000 and $416,000 as of December 31, 1997 and 1996, respectively. The
Joint Venture also had receivables for income collected by Contemporary
totaling approximately $273,000 as of December 31, 1996.
F-107
<PAGE>
RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CONTINGENCIES:
From time to time, the Joint Venture is a party to certain lawsuits and
other claims related to the normal conduct of its business. Management
believes that liabilities, if any, resulting from the resolution of pending
or threatened proceedings would not materially affect the financial condition
or results of operations of the Joint Venture.
6. SUBSEQUENT EVENT:
On February 27, 1998, Sverdrup/BRC Joint Venture and Contemporary sold
their 50% interests in the equity and operations of the Joint Venture to SFX
Entertainment, Inc. and Contemporary Acquisition Corporation, respectively.
F-108
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
SJS Entertainment Corporation
We have audited the accompanying combined balance sheets of SJS
Entertainment Corporation as of December 31, 1996 and 1997, and the related
combined statements of operations and retained earnings 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 combined financial statements referred to above
present fairly, in all material respects, the financial position of SJS
Entertainment Corporation at December 31, 1996 and 1997 and the combined
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
March 18, 1998
F-109
<PAGE>
SJS ENTERTAINMENT CORPORATION
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................... $ 230,280 $ 330,315
Accounts receivable ................................ 2,257,110 2,954,730
Due from officers .................................. 616,177 --
Prepaid expenses ................................... 27,962 54,475
------------ -------------
Total current assets................................. 3,131,529 3,339,520
Fixed assets, at cost:
Furniture, fixtures and office equipment .......... 309,756 414,904
Production equipment ............................... 95,317 190,721
Leasehold improvements ............................. 61,228 61,228
------------ -------------
466,301 666,853
Accumulated depreciation and amortization .......... 187,546 314,940
------------ -------------
Net fixed assets .................................... 278,755 351,913
Other assets ........................................ 23,658 24,737
------------ -------------
Total assets ........................................ $3,433,942 $3,716,170
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable--bank ................................ $1,900,000 1,500,000
Accounts payable ................................... 694,055 955,876
Accrued expenses ................................... 857,423 399,614
Due to officers .................................... -- 1,294,291
------------ -------------
Total current liabilities............................ 3,451,478 4,149,781
Stockholders' equity:
Common stock ....................................... 27,200 27,200
Retained earnings (deficit) ........................ 30,264 (385,811)
Treasury stock ..................................... (75,000) (75,000)
------------ -------------
Total stockholders' equity (deficit) ................ 17,536 (433,611)
------------ -------------
Total liabilities and combined stockholders' equity $3,433,942 $3,716,170
============ =============
</TABLE>
See accompanying notes.
F-110
<PAGE>
SJS ENTERTAINMENT CORPORATION
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Net sales, including management fees from related
party
(Note 2) ............................................. $11,374,672 $14,218,435
Cost of sales ......................................... 4,039,320 4,320,654
------------- -------------
Gross profit........................................... 7,335,352 9,897,781
------------- -------------
Operating expenses:
Officers salaries and bonus .......................... 2,965,353 4,000,000
Employee payroll and taxes ........................... 2,211,372 3,087,185
Consulting fees ...................................... 272,233 290,693
Messengers and delivery expense ...................... 208,697 255,814
Telephone and utilities .............................. 341,649 468,878
Travel and Transportation expenses ................... 240,218 351,748
Advertising and promotion ............................ 149,907 382,640
Rent expense, net .................................... 182,012 261,834
Depreciation and amortization ........................ 84,001 127,394
Other, net ........................................... 648,128 1,002,727
------------- -------------
7,303,570 10,228,913
------------- -------------
Income (loss) from operations ......................... 31,782 (331,132)
Interest expense--net ................................. (3,229) (35,657)
Other income .......................................... -- 77,510
------------- -------------
Income before provision for income taxes .............. 28,553 (289,279)
Provision for income taxes ............................ 91,197 126,796
------------- -------------
Net loss .............................................. (62,644) (416,075)
Retained earnings at beginning of year ................ 92,908 30,264
------------- -------------
Retained earnings (deficit) at end of year ............ $ 30,264 $ (385,811)
============= =============
</TABLE>
See accompanying notes.
F-111
<PAGE>
SJS ENTERTAINMENT CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss ............................................. $ (62,644) $ (416,075)
Adjustments to reconcile net loss to net cash
provided
by (used in) operating activities:
Depreciation and amortization ...................... 84,001 127,394
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ....... 241,679 (697,620)
(Increase) in prepaid expenses .................... (5,445) (26,513)
(Increase) Decrease in other assets ............... 4,737 (1,079)
Increase (decrease) in accounts payable .......... (130,667) 261,821
Increase (decrease) in accrued expenses .......... 636,011 (457,809)
Increase in due to affiliate ...................... 22,137 --
------------- -------------
Net cash provided by operating activities ............ 789,809 (1,209,881)
------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES
Cash used to acquire fixed assets .................... (184,132) (200,552)
------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES
Officers' loans, net ................................. (2,204,564) 1,910,468
Repayments of bank loan .............................. (275,760) (1,900,000)
Proceeds from new bank loans ......................... 1,900,000 1,500,000
Payments towards treasury stock financing agreement . (12,500) --
------------- -------------
Net cash provided by (used by) financing activities . (592,824) 1,510,468
------------- -------------
Net increase in cash ................................. 12,853 100,035
------------- -------------
Cash at beginning of year ............................ 217,427 230,280
------------- -------------
Cash at end of year .................................. $ 230,280 $ 330,315
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid during period .......................... $ 9,003 $ 33,222
============= =============
Income taxes paid during period ...................... $ 180,636 $ 77,333
============= =============
</TABLE>
See accompanying notes.
F-112
<PAGE>
SJS ENTERTAINMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements present the combined financial position and
results of operations of SJS Entertainment Corporation and its wholly-owned
subsidiary SJS Research Corporation, and Urban Entertainment Corp.
(collectively, the "Company") which is affiliated through common management
and ownership. All intercompany balances and transactions have been
eliminated in combination.
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.
Through SJS Research, incorporated in September 1997, the Company provides
statistical information relating to the Entertainment Industry based upon
telephone surveys.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management use of 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.
<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>
Concentration of Credit Risk
The Company maintains bank balances with Sterling National Bank in excess
of the federally insured limit of $100,000.
Reclassification
Certain 1996 amounts have been reclassified to conform to the 1997
presentation. Retained earnings at January 1, 1996 was adjusted to reflect
the underaccrual of $51,831 of state and local taxes and $115,000 of sales
commissions related to 1995.
2. RELATED PARTY TRANSACTIONS
Due from/to 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.
As of January 1, 1996, the Company owed its officers $1,589,146. During
1996, the officers loaned the Company an additional $354,780, while the
Company paid to its officers a total of $2,560,103.
As of January 1, 1997, the officers owed the companies $616,177. During
the year, the officers paid back this amount, and loaned the Company an
additional $1,294,291.
F-113
<PAGE>
SJS ENTERTAINMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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 each of the years ended December 31, 1996 and
1997.
Salaries and bonuses paid to officers is determined annually by the
Company's board of directors.
Management Services
The Company managed the operations of a related company which is 40% owned
by the officers of the Company. In exchange for the services provided, the
Company received management fees of $40,000 per month. In addition, the
Company had subleased a portion of its premises to this related company 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 years ended December 31, 1996 and 1997, the Company received
the following amounts from this related company:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Management fees ................. $480,000 $160,000
Rental income ................... 69,780 32,490
Direct expense reimbursement ... 25,519 13,347
Indirect overhead reimbursement 108,000 27,914
---------- ----------
$683,299 $233,751
========== ==========
</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.
The Company received $77,510 from an unrelated third party as
consideration for the termination of the management services agreement and
sublease agreement, which was recorded as other income in 1997.
3. LOANS PAYABLE--BANK
At December 31, 1997, the Company owed to Sterling National Bank a term
loan of $1,500,000, which was secured by all corporate receivables and is
personally guaranteed by the officers of the Company. Interest charged to the
Company was at a rate of prime plus 1%. This amount was fully repaid on
February 28, 1998.
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 $1,600,000 and a $300,000 line-of-credit which was secured by all
corporate assets and guaranteed by the officers/shareholders. Interest
charged to the Company was at the rate of prime plus 1%.
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. In 1997, the Company also repaid the $300,000
line-of-credit from Sterling National Bank.
4. COMMITMENTS AND CONTINGENCIES
Automobile Lease
The Company leases automobiles with monthly payments of $1,834 due through
February, 1999.
F-114
<PAGE>
SJS ENTERTAINMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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>
1998 ......... $ 311,200
1999 ......... 300,000
2000 ......... 267,000
2001 ......... 240,100
2002 ......... 246,200
Thereafter .. 852,500
-----------
$2,217,000
===========
</TABLE>
Rent expense for offices and production studios, net of the subtenant
lease income (see note 2 below), totaled $261,834 for the year ended December
31, 1997 compared to $182,012 for the year ended December 31, 1996, while the
automobile lease cost was approximately $22,000 for both 1996 and 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.
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>
6. INCOME TAXES
Urban Entertainment Corporation 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 eight state and local jurisdictions.
The provision for income taxes for the years ended December 31, 1997 and
1996 is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
<S> <C> <C>
Current:
Federal..... $ 9,647 $ 28,266
State....... 81,550 98,530
Deferred: .. -- --
--------- ----------
Total....... $91,197 $126,796
========= ==========
</TABLE>
F-115
<PAGE>
SJS ENTERTAINMENT CORPORATION
NOTES TO COMBINED 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. As of December 31,
1997, the Company had deferred tax assets of approximately $124,000 relating
to start-up costs which is offset in full by a valuation allowance.
The provision for income taxes differed from the U.S. statutory rate
principally due to nondeductible meals and entertainment expense, state and
local taxes and in 1997 only, the valuation allowance.
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 $2,000,
whichever is less.
During the years ended December 31, 1996 and 1997, employer contributions
totaled $16,758 and $18,747 respectively.
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.
9. SUBSEQUENT EVENTS
On February 27, 1998, the Company was acquired by SFX Entertainment Inc.
F-116
<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
F-117
<PAGE>
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
COMBINED BALANCE SHEET
<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 $914,513 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 ........................ 339,551 224,011
Current portion of long-term debt .................................. 636,723 506,228
------------- -------------
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.
F-118
<PAGE>
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
COMBINED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 169,498
Accounts receivable, less allowance for doubtful
accounts of $157,682 .............................................. 2,268,205
Officers' loans receivable ......................................... 406,421
Prepaid expenses and other current assets .......................... 133,293
-------------
Total current assets ................................................ 2,977,417
Property, plant and equipment, at cost, less accumulated
depreciation of $1,098,747 ......................................... 307,096
Deferred software costs, less accumulated amortization of $127,116 . 282,453
Other noncurrent assets ............................................. 9,525
-------------
Total assets ........................................................ $ 3,576,491
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and other accrued expenses ........................ $ 1,346,095
Officers' loans payable ............................................ 717,336
Unearned subscription income ....................................... 558,358
Taxes payable and other current liabilities ........................ 749,108
Current portion of long-term debt .................................. 635,464
-------------
Total current liabilities ........................................... 4,006,361
Long-term debt ...................................................... 939,200
Deferred income taxes ............................................... 53,575
Combined stockholders' deficit ...................................... (1,422,645)
-------------
Total liabilities and stockholders' deficit ......................... $ 3,576,491
=============
</TABLE>
See accompanying notes.
F-119
<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.
F-120
<PAGE>
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENT OF OPERATIONS AND
STOCKHOLDERS' DEFICIT
THREE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
OPERATING REVENUES
Advertising revenue .................................. $ 1,605,422
Research services revenue ............................ 604,961
Direct mail & subscription revenue ................... 521,851
Broadcast revenue .................................... 825,686
Other revenue ........................................ 97,437
-------------
3,655,357
Direct costs of revenue .............................. 1,056,785
-------------
2,598,572
OPERATING EXPENSES
Officers' salary expense ............................. 209,424
Other salary expense ................................. 1,090,662
Depreciation and amortization ........................ 62,535
General and administrative expenses .................. 1,034,159
-------------
2,396,780
-------------
Income from operations ............................... 201,792
OTHER INCOME (EXPENSE)
Interest income--officers' loans ..................... 4,171
Interest income--third party ......................... 169
Interest expense--officers' loans .................... (15,596)
Interest expense--third party ........................ (26,921)
-------------
Income before income taxes ........................... 163,615
INCOME TAXES
Provision for income taxes ........................... 65,000
-------------
Net income (loss) .................................... 98,615
Combined stockholders' deficit at beginning of period (1,521,260)
-------------
Combined stockholders' deficit at end of period ..... $(1,422,645)
=============
</TABLE>
See accompanying notes.
F-121
<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 (109,356)
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 (165,256)
Taxes payable and other current liabilities ..................... 143,423 (115,540)
------------ ------------
Net cash provided by operating activities .......................... 940,949 930,501
------------ ------------
INVESTING ACTIVITIES
Purchase of property and equipment ................................. (65,731) (166,892)
Deferred software costs ............................................ (97,463) (150,630)
------------ ------------
Net cash used in investing activities .............................. (163,194) (317,522)
------------ ------------
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.
F-122
<PAGE>
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net income ......................................................... $ 98,615
Adjustment to reconcile net income to net cash (used in) provided
by operating activities:
Depreciation and amortization .................................... 62,535
Provision for doubtful accounts .................................. 3,954
Changes in operating assets and liabilities:
Accounts receivable ............................................. (42,922)
Prepaid expenses and other current assets ....................... 101,621
Other non current assets ........................................ 27,508
Accounts payable and accrued expenses ........................... 137,671
Unearned subscription income .................................... 151,829
Accrued officers' bonus ......................................... (1,251,000)
Deferred income taxes ........................................... (60,603)
Taxes payable and other current liabilities ..................... 525,097
-------------
Net cash used in operating activities .............................. (245,695)
INVESTING ACTIVITIES
Purchase of property and equipment ................................. (45,540)
Deferred software costs ............................................ (40,869)
-------------
Net cash used in investing activities .............................. (86,409)
FINANCING ACTIVITIES
Payments on long term debt ......................................... (112,681)
Proceeds from additional debt borrowings ........................... 129,236
Proceeds from officers' loans, net ................................. 212,624
-------------
Net cash provided by financing activities .......................... 229,179
-------------
Net decrease in cash and cash equivalents .......................... (102,925)
Cash and cash equivalents at beginning of year ..................... 272,423
-------------
Cash and cash equivalents at end of year ........................... $ 169,498
=============
</TABLE>
See accompanying notes.
F-123
<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". 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%).
F-124
<PAGE>
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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.
Reclassification
Certain amounts in the financial statements have been reclassified to
conform with the current presentations.
Interim Financial Information
Financial information as of December 31, 1997 and for the three months
ended December 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. 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 ............................................................. $ 96,994 $ 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
Other.............................................................. 12,000 80,000
------------ -----------
1,930,856 1,558,109
Less current portion .............................................. 636,723 506,228
------------ -----------
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.
F-125
<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.
F-126
<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 (UNAUDITED)
On February 27, 1998, the Company was acquired by SFX Entertainment Inc.
F-127
<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 1998, and the
related consolidated statements of income, cash flows and stockholders'
equity for each of the three years in the period ended January 31, 1998.
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 1998, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended January 31, 1998, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
New York, New York
March 20, 1998
F-128
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31
---------------------------
1997 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $11,819,831 $ 5,380,984
Accounts receivable--trade ............................. 3,164,543 5,460,915
Accounts receivable--related parties ................... 1,347,150 776,174
Investments ............................................ 370,000 --
Inventories ............................................ 236,078 227,766
Prepaid assets ......................................... 450,883 3,001,450
Income tax receivable .................................. 418,528 --
Deferred income taxes .................................. 94,000 --
Other current assets.................................... -- 118,455
------------- -------------
Total current assets .................................... 17,901,013 14,965,744
Property and equipment, net ............................. 9,661,910 8,904,509
Goodwill, net of accumulated amortization of $238,400
and $357,600 at January 31, 1997 and 1998,
respectively............................................ 1,549,600 1,430,400
Other assets (Note 6).................................... 167 4,100,011
------------- -------------
Total assets ............................................ $29,112,690 $29,400,664
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--current portion ......................... $ 722,966 $ 879,040
Lease commitment--current portion ...................... 35,676 --
Accounts payable ....................................... 3,229,054 1,816,959
Deferred revenue ....................................... 1,362,533 1,480,145
Accrued liabilities and other current liabilities ...... 3,721,749 3,753,613
------------- -------------
Total current liabilities ............................... 9,071,978 7,929,757
Lease commitment, less current portion .................. 6,704,719 --
Notes payable, less current portion ..................... 5,233,709 11,134,834
Deferred income taxes ................................... 2,617,000 2,617,000
Stockholders' equity:
Common stock, no par value; 10,000,000 shares
authorized; 1,000,000 shares issued and outstanding in
1997 and 1998.......................................... 1,198,947 1,198,947
Retained earnings....................................... 4,286,337 6,520,126
------------- -------------
Total stockholders' equity............................... 5,485,284 7,719,073
------------- -------------
Total liabilities and stockholders' equity............... $29,112,690 $29,400,664
============= =============
</TABLE>
See accompanying notes.
F-129
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-------------------------------------------
1996 1997 1998
------------- ------------- --------------
<S> <C> <C> <C>
REVENUES
Concert revenues......................... $62,996,606 $74,981,534 $ 75,898,464
Contract management ..................... 7,844,248 10,255,060 23,632,596
Concessions/merchandise ................. 5,536,287 7,094,593 6,021,845
------------- ------------- --------------
76,377,141 92,331,187 105,552,905
Cost of revenues ........................ 54,383,763 69,916,840 81,092,377
------------- ------------- --------------
21,993,378 22,414,347 24,460,528
EXPENSES
General and administrative .............. 17,614,296 17,602,501 18,866,259
Depreciation and amortization ........... 1,441,439 1,474,414 1,026,684
------------- ------------- --------------
Income from operations .................. 2,937,643 3,337,432 4,567,585
OTHER INCOME (EXPENSE)
Interest expense ........................ (1,324,219) (1,257,758) (916,723)
Interest income ......................... 307,756 295,057 294,888
Miscellaneous ........................... 535,191 289,222 (24,300)
------------- ------------- --------------
Income before provision for income taxes 2,456,371 2,663,953 3,921,450
Provision for income taxes .............. 1,160,718 1,272,190 1,687,661
------------- ------------- --------------
Net income............................... $ 1,295,653 $ 1,391,763 $ 2,233,789
============= ============= ==============
</TABLE>
See accompanying notes.
F-130
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................... $ 1,295,653 $ 1,391,763 $ 2,233,789
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property and
equipment.......................................... 1,322,239 1,355,214 907,484
Amortization of goodwill............................ 119,200 119,200 119,200
Loss on sale of property and equipment ............. 13,603 -- --
Changes in operating assets and liabilities:
Accounts receivable--trade ........................ 524,566 (1,356,263) (2,296,372)
Accounts receivable--related parties .............. (496,971) (821) 570,976
Inventories ....................................... (228,294) (7,784) 8,312
Prepaid assets and other .......................... (322,524) 478,391 (2,550,567)
Income tax receivable ............................. (50,888) (328,390) 300,073
Accounts payable and accrued expenses ............. (491,982) 3,128,476 (1,380,231)
Deferred income taxes ............................. 1,139,000 45,000 94,000
Deferred revenue .................................. (67,859) 379,748 117,612
Other ............................................. 288,367 160 74,347
------------- ------------- -------------
Net cash provided by (used in) operating activities 3,044,110 5,204,694 (1,801,377)
INVESTING ACTIVITIES
Purchase of SAP limited partnership interest ....... (4,250,000) -- --
Proceeds from sale of equipment ..................... 13,150 -- --
Capital expenditures, including White River
Amphitheatre........................................ (469,447) (367,678) (4,247,528)
Other ............................................... (644,496) (247,000) 293,254
------------- ------------- -------------
Net cash used in investing activities ............... (5,350,793) (614,678) (3,954,274)
FINANCING ACTIVITIES
Payments of notes payable ........................... (444,985) (775,756) --
Borrowings on notes payable.......................... -- 1,000,000 6,057,199
Payments of lease commitments ....................... (395,330) (405,275) (6,740,395)
Retirement of stock ................................. -- (21,053) --
------------- ------------- -------------
Net cash used in financing activities ............... (840,315) (202,084) (683,196)
Net increase (decrease) in cash and cash equivalents (3,146,998) 4,387,932 (6,438,847)
Cash and cash equivalents at beginning of year ..... 10,578,897 7,431,899 11,819,831
------------- ------------- -------------
Cash and cash equivalents at end of year............. $ 7,431,899 $11,819,831 $ 5,380,984
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest............................... $ 1,324,219 $ 1,257,664 $ 1,092,356
Cash paid for income taxes .......................... 888,738 1,280,000 1,325,000
</TABLE>
See accompanying notes.
F-131
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C>
Balance--January 31, 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 the year ended January 31, 1998 2,233,789
------------
Balance--January 31, 1998 ...................... $7,719,073
============
</TABLE>
See accompanying notes.
F-132
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
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 Mountain View, 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 San Francisco Bay Area. FF provides table service (food
and beverage) for two theatres located in Los Angeles owned by third parties.
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. The Company's revenue included $305,017, $14,562,000 and
$13,483,683 during the fiscal years ended January 31, 1996, 1997 and 1998,
respectively, 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, 1996,
1997 and 1998, 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, 1996, 1997 and 1998 were fully collectible; therefore, no
allowance for doubtful accounts was recorded.
F-133
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
(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.
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.
Advertising and Promotion Costs
The Company expenses all advertising and promotion costs as incurred,
except in instances where management believes these costs generate a direct
response from customers. Advertising expenses were $3,408,322, $4,319,291 and
$4,519,049 for the fiscal years ended January 31, 1996, 1997 and 1998,
respectively.
2. INCOME TAXES
The provision for income taxes for the fiscal years ended January 31, 1997
and 1998 is summarized as follows:
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Current:
Federal .. $ 984,500 $1,304,837
State...... 285,800 378,824
------------ ------------
1,270,300 1,683,661
Deferred:
Federal .. 1,500 3,100
State ..... 400 900
------------ ------------
1,900 4,000
------------ ------------
$1,272,200 $1,687,661
============ ============
</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 1998 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
nondeductible items.
F-134
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment as of January 31, 1997 and 1998 consists of the
following:
<TABLE>
<CAPTION>
1997 1998
-------------- --------------
<S> <C> <C>
Buildings ................... $ 8,234,231 $ 8,251,729
Leasehold improvements ..... 10,326,553 10,403,033
Equipment ................... 2,166,037 2,184,855
Office furniture ............ 693,068 711,235
Computer equipment .......... 330,367 343,493
Vehicle ..................... 61,211 67,205
-------------- --------------
21,811,467 21,961,550
Accumulated depreciation and
amortization ............... (12,783,510) (13,528,140)
-------------- --------------
9,027,957 8,443,410
Land ........................ 633,953 633,953
-------------- --------------
$ 9,661,910 $ 9,067,363
============== ==============
</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
21 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% 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
$182,000, $186,000 and $213,049 for the years ended January 31, 1996, 1997
and 1998, respectively.
F-135
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE
Notes payable as of January 31, 1997 and 1998 consists of the following:
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Note payable to Midland Loan Services LP; monthly
payments of $16,574, including interest at the bank's
index rate plus 3.5% (8.4% and 8.375% at January 31,
1997 and 1998, respectively; matures May 1, 2004;
secured by deed ........................................ $2,215,001 $ 2,193,732
Note payable to Sanwa Bank; quarterly payments range
from $75,000 to $200,000, interest accrued monthly at
the bank's prime rate plus 0.5% (8.75% and 8.75% at
January 31, 1997 and 1998, respectively); matures
January 31, 2001........................................ 2,925,000 2,425,000
Note payable to Sanwa Bank; monthly payments of $16,666,
including interest at a rate of London Inter-Bank
Offered Rate (LIBOR) plus 2.5%; matures January 31,
2002; secured by assets of the Company (excluding the
office building)........................................ 816,674 616,682
Note payable to Sanwa Bank; monthly payments range from
$12,000 to $25,000, interest accrued monthly at the
bank's index rate plus 2.375%; matures March 1, 2007;
secured by deed......................................... -- 6,778,460
------------ ------------
5,956,675 12,013,874
Less current portion .................................... (722,966) (879,040)
------------ ------------
$5,233,709 $11,134,834
============ ============
</TABLE>
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, 1998,
there were no borrowings outstanding against this credit line.
F-136
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE (CONTINUED)
At January 31, 1998, 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.
Maturities of long-term debt are approximately as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ended January 31:
1999 ................. $ 879,040
2000 ................. 893,998
2001 ................. 1,851,908
2002 ................. 227,764
2003 ................. 246,791
Thereafter ............ 7,914,373
------------
$12,013,874
============
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases nightclubs, theaters and storage space 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 leases expire on various dates through June 2021.
At January 31, 1998, the future minimum operating lease payments under
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ended January 31:
1999 ................. $ 543,354
2000 ................. 547,211
2001 ................. 485,961
2002 ................. 451,694
2003 ................. 425,633
Thereafter ............ 2,367,353
-----------
$4,821,206
===========
</TABLE>
Total minimum rental expense included in operating expenses for the years
ended January 31, 1996, 1997 and 1998 was $810,956, $438,500 and $706,219,
respectively, and the contingent rental expense was $541,334, $627,222 and
$725,787, respectively. Included in cost of revenues is $6,145,944,
$6,392,616 and $7,265,769 of contingent rentals paid based on gross sales for
the years ended January 31, 1996, 1997 and 1998, respectively.
Shoreline Amphitheater Lease and Agreement
The Shoreline Amphitheater Lease and Agreement, as amended, provides for,
among other things, that 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 35 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.
F-137
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense charged to operations for the years ended January 31, 1996,
1997 and 1998 amounted to $594,002, $396,789 and $613,933, respectively.
As of the year ended January 31, 1997, the Company was obligated to pay
the City $93,200 monthly, which related to $9,500,000 of funds provided the
Company by the City pursuant to the lease. Prior to the refinancing of this
arrangement as a $6.9 million note payable to Sanwa Bank (see Note 5), the
Company had 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 were being
amortized monthly. At January 31, 1997, the outstanding balance amounted to
$6,740,395, of which $35,676 was current.
Seattle White River Amphitheatre
The Company has committed payments for the construction of an amphitheatre
in the Seattle, Washington market totaling $10 million. Through January 31,
1998, the Company has paid $3,921,812 toward this project. This amount is
included in other assets on the balance sheet. The Company has also
capitalized interest pertaining to the capital expenditures for the
amphitheatre of $175,633 at January 31, 1998, which is also included in other
assets on the balance sheet.
Employment Contracts
The Company has entered into employment contracts with certain key
employees which amount to $2,300,000 per year. These contracts are in effect
until the first note payable to Sanwa Bank (see Note 5) 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.
7. SUBSEQUENT EVENTS
Acquisition of Companies by SFX Entertainment, Inc.
On February 24, 1998, the stockholders of the Company sold all of the
outstanding capital stock of the Companies to SFX Entertainment, Inc. for
cash consideration of $60.8 million (including the repayment of $12 million
in the Companies' debt and the issuance of 562,640 shares of common stock of
SFX Entertainment, Inc.). The Company has agreed to have net working capital,
as defined, at the closing at least equal to the Company's debt.
F-138
<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 December 31, 1997,
and the related combined statements of operations, cash flows and
stockholders' equity 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, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Concert/Southern
Promotions and Affiliated Companies at December 31, 1997, and the combined
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
March 13, 1998
F-139
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
COMBINED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 612,967
Accounts receivable ................................ 185,437
Due from owners (Note 3) ........................... 332,754
Prepaid expenses and other current assets ......... 115,844
------------
Total current assets ................................ 1,247,002
Investments in equity investees (Note 2)............. 895,790
Property and equipment:
Land ............................................... 19,638
Leasehold improvements ............................. 286,998
Furniture and equipment ............................ 496,265
------------
802,901
Accumulated depreciation and amortization ......... 460,483
------------
342,418
------------
Total assets ........................................ $2,485,210
============
LIABILITIES AND COMBINED STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .............. $ 229,558
Deferred income .................................... 368,150
------------
Total current liabilities ........................... 597,708
Combined stockholders' equity (Note 4) .............. 1,887,502
------------
Total liabilities and combined stockholders' equity $2,485,210
============
</TABLE>
See accompanying notes.
F-140
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Operating revenues:
Concert revenue .................... $14,796,977
Cost of concerts.................... 9,877,586
-------------
4,919,391
Operating expenses:
Salaries--officers ................. 364,000
Bonuses--officers .................. 564,767
Salaries--other .................... 367,356
Rent expense ....................... 207,220
Legal and accounting fees .......... 201,435
Depreciation and amortization ..... 78,682
General and administrative expenses 1,367,304
-------------
3,150,764
-------------
Income from operations............... 1,768,627
Other income:
Interest income .................... 59,624
Losses from equity investees ...... (79,629)
-------------
Net income .......................... $ 1,748,622
=============
</TABLE>
See accompanying notes.
F-141
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net income ...................................................................... $ 1,748,622
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ................................................. 78,682
Losses from equity investees................................................... 79,629
Changes in operating assets and liabilities:
Accounts receivable .......................................................... 1,000,781
Prepaid expenses and other current assets .................................... 69,896
Accounts payable and accrued expenses ........................................ (452,361)
Deferred income .............................................................. 368,150
Net cash provided by operating activities ....................................... 2,893,399
FINANCING ACTIVITIES
Due to/from owner ............................................................... (398,080)
Distributions paid to stockholder ............................................... (2,722,827)
-------------
Net cash used in financing activities ........................................... (3,120,907)
-------------
Net decrease in cash and cash equivalents ....................................... (227,508)
Cash and cash equivalents at beginning of year .................................. 840,475
-------------
Cash and cash equivalents at end of year ........................................ $ 612,967
=============
</TABLE>
See accompanying notes.
F-142
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Balance, January 1, 1997 .... $ 2,861,707
Distributions to stockholder (2,722,827)
Net income ................... 1,748,622
-------------
Balance, December 31, 1997 .. $ 1,887,502
=============
</TABLE>
See accompanying notes.
F-143
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 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 52.6% 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. Deferred income relates
primarily to deposits received in advance of the concert season.
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 $16,576 at December 31, 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.
F-144
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS IN EQUITY INVESTEES
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
December 31, 1997:
<TABLE>
<CAPTION>
CHASTAIN
PARK AMPHITHEATER HC PROPERTIES
----------------- ---------------
(50% OWNED) (52.6% OWNED)
<S> <C> <C>
Current assets .......................... $322,527 $ 51,820
Property and equipment .................. 468,145 810,480
Other assets ............................ -- 415,145
----------------- ---------------
Total assets ............................ $790,672 $1,277,445
================= ===============
Current liabilities ..................... $129,953 $ 1,927
Partners' capital ....................... 660,719 1,275,518
----------------- ---------------
Total liabilities and partners' capital $790,672 $1,277,445
================= ===============
Revenue ................................. $653,251 $ 87,407
Expenses ................................ 747,055 165,328
----------------- ---------------
Net income (loss) ....................... $(93,804) $ (77,921)
================= ===============
</TABLE>
3. RELATED PARTY TRANSACTIONS
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
of $281,058 is recorded as due from owner.
In addition, CCMI has recorded a receivable from its stockholders of
$51,696.
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>
F-145
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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 December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Year ended December 31:
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.
Legal Matters
On October 10, 1997, Concert/Southern settled a lawsuit agreeing to pay
$100,000. Such amount has been provided for in the accompanying combined
statement of operations.
The Companies have also been named in various other 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
On March 4, 1998, SFX Entertainment Inc. acquired the Companies for a
total cash purchase price of $16,900,000 (including a working capital payment
of $300,000).
Prior to the sale of the Companies to SFX, the sole shareholder of High
Cotton received a distribution of High Cotton's interest in HC Properties,
Inc.
F-146
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Falk Associates Management Enterprises, Inc.
We have audited the accompanying combined balance sheets of Falk
Associates Management Enterprises, Inc. as of December 31, 1996 and 1997, and
the related combined statements of operations and stockholders' equity
(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 combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Falk Associates Management Enterprises, Inc. at December 31, 1996 and 1997,
and the combined results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
April 10, 1998
F-147
<PAGE>
FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------- MARCH 31
1996 1997 1998
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash ................................................. $ 964,265 $ 34,586 $ 691,718
Cash surrender value of officers' life insurance .... 73,336 115,436 125,436
Accounts receivable .................................. 641,204 614,051 663,484
Current portion of stockholder loan receivable ...... 92,669 116,524 237,528
Other current assets ................................. 13,428 33,456 24,904
------------ ------------- -------------
1,784,902 914,053 1,743,070
------------ ------------- -------------
Fixed assets, net of accumulated depreciation and
amortization ......................................... 85,200 63,714 62,377
Certificate of deposit, noncurrent .................... 200,906 211,331 202,044
Accounts receivable ................................... 514,051 -- --
Stockholder loan receivable ........................... 506,400 389,873 136,542
Other ................................................. 58,900 7,119 7,119
------------ ------------- -------------
Total assets .......................................... $3,150,359 $ 1,586,090 $ 2,151,152
============ ============= =============
LIABILITIES AND COMBINED STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable and accrued expenses ................ $ 221,952 $ 165,504 $ 898,054
Payroll taxes payable ................................ 907,446 - --
Stockholder loan payable ............................. 95,000 95,000 95,000
Current portion of settlement agreement .............. 134,552 145,652 149,253
Current portion of deferred revenue .................. 673,744 1,358,149 1,263,080
Current portion of long-term debt .................... 309,313 310,162 310,472
------------ ------------- -------------
2,342,007 2,074,467 2,715,859
------------ ------------- -------------
Settlement agreement, less current portion ............ 658,756 513,103 473,103
Deferred revenue, less current portion ................ -- 1,031,250 937,500
Long-term debt, less current portion .................. 46,548 36,200 33,428
Combined stockholders' equity (deficit) ............... 103,048 (2,068,930) (2,008,738)
------------ ------------- -------------
Total liabilities and combined stockholders' equity
(deficit) ............................................ $3,150,359 $ 1,586,090 $ 2,151,152
============ ============= =============
</TABLE>
See accompanying notes.
F-148
<PAGE>
FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
COMBINED STATEMENTS OF OPERATIONS AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31
---------------------------- ---------------------------
1996 1997 1997 1998
------------ -------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Agent fees ................................ $6,364,503 $10,881,588 $1,219,282 $ 1,812,804
EXPENSES
Stockholders' salary expense .............. 4,732,430 10,594,773 1,173,341 1,289,251
Other salary expense ...................... 969,293 1,177,197 130,372 143,250
Depreciation and amortization ............. 113,486 115,309 29,897 14,053
Travel and entertainment .................. 503,475 552,951 118,418 140,141
General and administrative expenses ...... 627,174 677,453 137,664 169,452
------------ -------------- ------------ -------------
6,945,858 13,117,683 1,589,692 1,756,147
------------ -------------- ------------ -------------
(Loss) income from operations ............. (581,355) (2,236,095) (370,410) 56,657
OTHER INCOME (EXPENSE)
Interest income--stockholders' loan ...... 32,305 27,237 6,810 9,288
Interest income--third party .............. 142,917 115,714 28,148 15,171
Interest expense--third party ............. (91,996) (78,834) (21,414) (20,924)
Other income .............................. 2,200 -- -- --
------------ -------------- ------------ -------------
85,426 64,117 13,544 3,535
Net (loss) income ......................... (495,929) (2,171,978) (356,866) 60,192
Combined stockholders' equity at beginning
of year .................................. 598,977 103,048 103,048 (2,068,930)
------------ -------------- ------------ -------------
Combined stockholders' equity (deficit) at
end of year .............................. $ 103,048 $(2,068,930) $ (253,818) $(2,008,738)
============ ============== ============ =============
</TABLE>
See accompanying notes.
F-149
<PAGE>
FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
----------------------------- -------------------------
1996 1997 1997 1998
------------ --------------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income ................................. $(495,929) $ (2,171,978) $(356,866) $ 60,192
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization ................... 113,486 115,309 29,897 14,053
Non-cash interest expense ....................... 75,702 65,447 16,399 13,601
Non-cash interest income ........................ (32,188) (37,753) (9,402) 4,041
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ..... 17,538 541,204 47,786 (49,433)
Decrease (increase) in other current assets .... 559 (20,028) (7,736) 8,552
Increase (decrease) in accounts payable and
accrued expenses ............................... 71,526 (56,448) 325,813 732,550
Increase (decrease) in payroll taxes payable .... 461,584 (907,446) (907,446) --
Increase (decrease) in deferred revenue ........ 479,319 1,715,655 229,918 (188,819)
------------ --------------- ------------ -----------
Net cash provided by (used in) operating
activities ....................................... 691,597 (756,038) (631,637) 594,737
------------ --------------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets .......................... (70,467) (42,042) (20,441) (12,716)
Increase in cash surrender value of officers' life
insurance ........................................ (31,336) (42,100) (10,000) (10,000)
------------ --------------- ------------ -----------
Net cash used in investing activities ............. (101,803) (84,142) (30,441) (22,716)
------------ --------------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt ........................ (300,000) (309,499) (102,432) (2,462)
Proceeds from long-term debt borrowings .......... 355,861 300,000 -- --
Proceeds from stockholder loan receivable ........ -- 120,000 120,000 137,573
Payment on settlement agreement ................... (200,000) (200,000) (50,000) (50,000)
------------ --------------- ------------ -----------
Net cash (used in) provided by financing
activities ....................................... (144,139) (89,499) (32,432) 85,111
------------ --------------- ------------ -----------
Net increase (decrease) in cash ................... 445,655 (929,679) (694,510) 657,132
Cash at beginning of period ....................... 518,610 964,265 964,265 34,586
------------ --------------- ------------ -----------
Cash at end of period ............................. $ 964,265 $ 34,586 $ 269,755 $ 691,718
============ =============== ============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest ............................ $ 16,294 $ 13,386 $ 5,014 $ 7,324
============ =============== ============ ===========
</TABLE>
See accompanying notes.
F-150
<PAGE>
FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The accompanying combined financial statements include the accounts of
Falk Associates Management Enterprises, Inc. ("FAME") and Financial Advisory
Management Enterprises, Inc. ("FINAD") (collectively, the "Companies").
Transactions and balances among the Companies have been eliminated in
combination. The Companies are subject to common ownership.
In exchange for a percentage fee or commission, FAME provides
representation services regarding the negotiation of professional sporting
contracts and marketing and endorsement contracts. FINAD provides financial
management services including, but not limited to, the implementation of
financial planning to meet clients' savings and financial goals, the receipt
and deposit of funds, cash flow budgeting and analysis, preparation of
financial statements and tax return services, in exchange for an annual fixed
fee and an additional percentage fee based on the dollar value of assets
managed and monitored.
Revenue Recognition
The Companies revenues arise primarily from percentage fees or commissions
received for the negotiation of professional sporting contracts and marketing
and endorsement contracts. The Companies recognize revenue ratably over the
period of the associated contract. Deferred revenue is recorded on the
accompanying combined balance sheets when funds are received in advance of
the performance period and is recognized over the period of performance.
Accounts Receivable
Accounts receivable consist of amounts due from professional athletes for
services rendered or for fees due related to prior performance that has been
contractually deferred to a later date. Management considers these accounts
receivable as of December 31, 1996 and 1997 to be collectible; accordingly,
no allowance for doubtful accounts is recorded.
Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization of fixed
assets is provided on the straight-line method over the estimated useful
lives of the assets including 5 years for technical equipment, 7 years for
furniture and office equipment and 10 years for leasehold improvements.
Income Taxes
The Companies are cash-basis taxpayers and have elected to be taxed as S
Corporations for federal and state income tax purposes. All items of income,
loss and credits are reported by the Companies stockholders on their
respective personal income tax returns. Accordingly, no current and deferred
federal corporate income taxes have been provided in the accompanying
combined financial statements. However, since the Companies operate in the
District of Columbia ("D.C.") they are subject to D.C. income tax. No D.C.
income tax benefits have been provided on the Companies' D.C. net operating
loss carryforwards and other deductible temporary differences due to the
uncertainty of recognizing future tax benefits for these items.
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 combined financial
statements and accompanying notes. Actual results could differ from those
estimates.
The Companies derive substantially all of its agent fees from the
representation services they provide regarding the negotiation of
professional sporting contracts and marketing and endorsement contracts for
professional athletes in the National Basketball Association ("NBA"). In
March 1998, the NBA Board of
F-151
<PAGE>
FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Governors voted to exercise the league's right to re-open its Collective
Bargaining Agreement (the "Agreement") with the National Basketball Players
Association. As a result, the Agreement will expire as of June 30, 1998. As a
matter of Collective Bargaining, the Agreement, when it expires, continues in
place until it is replaced by a successor agreement, or until some other
labor remedies are utilized by one party or the other, meaning a strike or a
lockout or a moratorium collectively. Should there be a work stoppage due to
either a lockout or strike and NBA games are not played, it would be likely
that the Companies agent fees would be negatively impacted.
Significant Customer
The Companies three most significant sources of revenue provided a
majority of the Companies combined agent fees for the year ended December 31,
1996 and 1997, respectively.
Interim Financial Information
The interim financial data as of March 31, 1998 and for three-month
periods ended March 31, 1997 and 1998 is unaudited and certain information
and disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted.
However, in the opinion of Management, the interim data includes all
adjustments, consisting only of normal recurring adjustments necessary for a
fair statement of the results for the interim periods. The results of
operations for the interim periods are not necessarily indicative of the
results to be expected for the entire year.
2. FIXED ASSETS
Fixed assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Furniture and office equipment ................. $ 150,739 $ 159,467
Technical equipment ............................ 169,112 200,300
Leasehold improvements ......................... 4,841 6,967
----------- -----------
324,692 366,734
Less accumulated depreciation and amortization (239,492) (303,020)
----------- -----------
$ 85,200 $ 63,714
=========== ===========
</TABLE>
3. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Time note (A) ........... $ 200,000 $ 200,000
Line of credit (B) ...... 100,000 100,000
Note payable (C) ........ 55,861 46,362
----------- -----------
Long term debt .......... 355,861 346,362
Less current maturities (309,313) (310,162)
----------- -----------
Total long-term debt ... $ 46,548 $ 36,200
=========== ===========
</TABLE>
- ------------
(A) On December 31, 1996 and 1997, respectively, the Companies had
outstanding a six-month $200,000 time note (the "Time Note") with a
bank (the "Bank"). Interest was set at the prime rate which
approximated 8.25% at both December 31, 1996 and 1997, respectively.
Interest is payable monthly in arrears. The Companies may repay the
principal at any time during the six-month period ended June 30, 1998,
with all remaining principal and outstanding interest in full on June
30, 1998. The time note contains covenants which, among other things,
restrict the pledging of assets without prior written approval of the
Bank.
F-152
<PAGE>
FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(B) On December 31, 1996 and 1997, respectively, the Companies had
outstanding a $100,000 one-year line of credit with the Bank which was
fully drawn as of those dates. Interest was set at the prime rate which
approximated 8.25% at both December 31, 1996 and 1997, respectively.
Interest is payable monthly in arrears. Principal and any outstanding
interest is payable in full at December 31, 1998. The line of credit
contains covenants which are similar to those in the Time Note.
(C) In December 1996, the Companies entered into a five year $55,861 note
payable with the Bank. Interest was fixed at 8.75%. Commencing January
1997, the note became payable in 59 monthly installments consisting of
principal and interest with the final payment equal to any remaining
principal and interest due. The note is secured by specific computer
hardware and software which was purchased with the proceeds of the note
payable.
At December 31, 1997, the aggregate amounts of long-term debt due during
the next four years are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
- ----------------------- ----------
<S> <C>
1998 .................. $310,162
1999 .................. 11,088
2000 .................. 12,098
2001 .................. 13,014
----------
$346,362
==========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Companies are obligated under certain noncancellable operating leases.
Rent expense, principally for office space, amounted to approximately
$149,400 and $167,300 for the years ended December 31, 1996 and 1997,
respectively. In March 1998, the Companies entered into a sublease for
additional office space.
Future minimum rental payments under noncancellable operating leases are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 OPERATING LEASES
- ----------------------- ----------------
<S> <C>
1998 .................. $ 214,000
1999 .................. 244,000
2000 .................. 247,000
2001 .................. 250,000
2002 .................. 184,000
----------------
$1,139,000
================
</TABLE>
Settlement Agreement
In 1994, the Companies were party to a $1.9 million legal settlement
arising from a civil suit wherein they were jointly and severally liable to
make settlement payments over a seven year period. The carrying value of the
settlement agreement was approximately $793,300 and $658,800 at December 31,
1997 and 1996, respectively, discounted at a 8.25% interest rate.
Agreement and Memorandum of Understanding
In January 1992, an Agreement and Memorandum of Understanding (the
"Agreement") was executed between the Companies' principal stockholder and a
third party which formerly employed the principal stockholder. Under the
terms of the Agreement, the Companies are obligated to remit to the third
party a percentage of the Companies fees as received for the representation
services provided regarding the negotiation of professional sporting
contracts and marketing and endorsement contracts. Agreement terms are
limited to those professional athletes who became clients of the Companies at
the time of the Companies formation and generally does not give the third
party any right to fees related to contract renewals.
F-153
<PAGE>
FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Stock Appreciation Rights
In December 1996, the Companies issued stock appreciation rights ("SARs")
to a stockholder and executive vice president of the Companies. The SARs are
exercisable only upon the occurrence of defined terms and conditions,
including the sale or merger of the Companies to a third party or upon
termination of employment. Accordingly, upon the exercise of the SAR's, the
Companies will record expense in the combined statement of operations equal
to the fair value of the SARs.
5. RELATED PARTY TRANSACTIONS
Stockholder Loan Receivable
In January 1993, the Companies entered into two eight-year promissory loan
notes with a stockholder of the Companies for face amounts of $384,000 and
$96,000. The loans accrue interest at a fixed rate of 5.7% with monthly
payments of principal and accrued interest commencing January 1, 1997.
Stockholder Loan Payable
In January 1993, the principle stockholder of the Companies made a $95,000
non-interest bearing advance to the Companies in connection with its
formation. This advance is due on demand and has been classified as a current
liability in the accompanying combined balance sheets.
Stockholders' Life Insurance
The Companies are the owners and beneficiaries of key-man life insurance
policies carried on the lives of its stockholders' with cash surrender values
totaling approximately $73,300 and $115,400 as of December 31, 1996 and 1997,
respectively. No loans are outstanding against the policies, but there is no
restriction in the policy regarding loans.
The life insurance contracts are accompanied by mandatory stock purchase
agreements relating to the amount of the proceeds of the life insurance. Upon
death, the insured's estate will be obligated to sell, and the Companies will
be obligated to purchase the insured's stock up to the value of the stock or
the proceeds of insurance, whichever is lesser. The purpose is to protect the
Companies against an abrupt change in ownership.
6. EMPLOYEE BENEFIT PLAN
During 1997, the Companies began sponsoring a deferred contribution plan
(the "Plan"). The Plan enables all full time employees who have completed one
year of service with the Companies to make voluntary contributions to the
Plan not to exceed the dollar limits as prescribed by the Internal Revenue
Service. Under the Plan, the Companies matches an employee's contribution up
to a maximum of 3% of their salary. The Companies contribution for the year
ended December 31, 1997 was approximately $40,800.
7. STOCKHOLDERS AGREEMENT
The stockholders of the Companies currently maintain a Stockholders
Agreement (the "Agreement") which place restrictions on the transfer (as
defined in the Agreement) of their stock.
8. SUBSEQUENT EVENT
On June 4, 1998 the stockholders of the Companies completed the sale of
the Companies to a subsidiary of SFX Entertainment, Inc. ("SFX") whereby SFX
acquired all of the outstanding capital stock of the Companies for a total
purchase price of approximately $82.2 million (including approximately $7.9
million which the Companies received for the reimbursement of certain taxes
incurred and excluding $4.7 million of taxes paid on behalf of the Companies
which will be refunded to SFX in 1999) and the issuance of 1.0 million shares
of SFX's Class A Common Stock. The sale agreement also provides for payments by
SFX to the Companies for additional amounts up to an aggregate of $15.0 million
in equal annual installments over five years contingent on the achievement of
certain EBITDA (as defined) targets and for additional payments by SFX if the
companies EBITDA performance exceeds the targets by certain amounts.
F-154
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Members
Blackstone Entertainment LLC
We have audited the accompanying combined balance sheets of Blackstone
Entertainment LLC as of December 31, 1996 and 1997, and the related combined
statements of income, members' equity 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 have 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 combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Blackstone Entertainment LLC at December 31, 1996 and 1997, and the combined
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
May 1, 1998 ERNST & YOUNG LLP
New York, New York
F-155
<PAGE>
BLACKSTONE ENTERTAINMENT LLC
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------- MARCH 31
1996 1997 1998
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including $50,000
and $55,000 of restricted cash at December 31,
1996 and 1997, respectively ................... $ 2,025,731 $ 3,529,135 $ 5,034,279
Accounts receivable ............................ 551,776 275,820 1,354,621
Due from related parties........................ 60,751 310,874 192,968
Due from members................................ 234,822 165,117 --
Other current assets............................ 151,872 219,789 562,984
------------- ------------- -------------
Total current assets............................. 3,024,952 4,500,735 7,144,852
Fixed assets, net................................ 14,680,344 13,394,676 13,024,735
Intangible assets, net........................... 212,682 177,823 157,344
------------- ------------- -------------
Total assets..................................... $17,917,978 $18,073,234 $20,326,931
============= ============= =============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........... $ 819,690 $ 1,675,061 $ 2,596,363
Notes payable, current portion.................. 1,427,172 1,388,806 1,423,426
Capital leases payable, current portion ........ 344,038 487,334 497,232
Deferred income................................. 545,537 547,270 3,198,080
Due to related parties.......................... 241,677 -- 780,000
Loans payable to members........................ 1,500,000 2,461,239 1,500,000
------------- ------------- -------------
Total current liabilities....................... 4,878,114 6,559,710 9,995,101
Notes payable, net of current portion............ 8,564,888 6,816,668 6,560,442
Capital leases payable, net of current portion .. 1,080,959 693,061 533,141
Other............................................ 50,825 -- 49,496
------------- ------------- -------------
Total liabilities................................ 14,574,786 14,069,439 17,138,180
Members' equity.................................. 3,343,192 4,003,795 3,188,751
------------- ------------- -------------
Total liabilities and members' equity............ $17,917,978 $18,073,234 $20,326,931
============= ============= =============
</TABLE>
See accompanying notes.
F-156
<PAGE>
BLACKSTONE ENTERTAINMENT LLC
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
---------------------------- --------------------------
1996 1997 1997 1998
------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Gross revenues ...................... $48,824,066 $50,587,721 $5,642,625 $4,548,894
Operating costs and expenses:
Operating costs .................... 35,631,428 35,806,833 4,389,928 3,268,329
Promotion expenses ................. 2,596,861 2,837,208 321,145 313,471
General and administrative expenses 4,634,399 5,756,993 853,379 1,136,621
Depreciation and amortization ..... 2,026,637 2,033,245 502,259 475,193
------------- ------------- ------------ ------------
Total operating costs and expenses . 44,889,325 46,434,279 6,066,711 5,193,614
Operating income (loss) ............. 3,934,741 4,153,442 (424,086) (644,720)
Investment income ................... 189,970 329,696 7,767 30,314
Interest expense .................... (1,132,556) (1,071,731) (218,196) (200,638)
------------- ------------- ------------ ------------
Net income (loss) ................... $ 2,992,155 $ 3,411,407 $ (634,515) $ (815,044)
============= ============= ============ ============
</TABLE>
See accompanying notes.
F-157
<PAGE>
BLACKSTONE ENTERTAINMENT LLC
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 THREE MONTHS ENDED MARCH 31
---------------------------
1996 1997 1997 1998
------------- ------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ...................... $ 2,992,155 $ 3,411,407 $ (634,515) $ (815,044)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 2,226,637 2,033,245 502,259 425,156
Other ................................ 543 -- -- --
(Increase) decrease in assets:
Accounts receivable.................... (180,773) 275,956 (161,847) (1,078,801)
Other current assets................... 284,240 (67,917) (125,747) (343,195)
Increase (decrease) in liabilities:
Deferred income...................... (149,523) 1,733 877,437 2,650,810
Accounts payable and accrued
expenses............................ (34,164) 855,371 1,774,627 921,302
Due to/from related parties and
members ............................ (68,475) (422,095) 122,758 1,063,023
Other................................ (11,461) (50,825) 12,164 49,496
------------- ------------- ------------ -------------
Net cash provided by operating
activities............................. 5,059,179 6,036,875 2,367,136 2,872,747
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed assets............. (1,678,666) (386,983) (13,776) (34,736)
------------- ------------- ------------ -------------
Net cash used in investing activities .. (1,678,666) (386,983) (13,776) (34,736)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable and
consulting agreement .................. (1,227,498) (1,986,586) (214,062) (221,606)
Payments on to capital leases........... (17,182) (370,337) (72,510) (150,022)
Changes in loans payable to members .... (119,189) -- -- (961,239)
Distributions to members ............... (1,720,546) (1,789,565) (237,098) --
------------- ------------- ------------ -------------
Net cash used in financing activities .. (3,084,415) (4,146,488) (523,670) (1,332,867)
------------- ------------- ------------ -------------
Net increase in cash and cash
equivalents............................ 296,098 1,503,404 1,829,690 1,505,144
Cash and cash equivalents, beginning of
period................................. 1,729,633 2,025,731 2,025,731 3,529,135
------------- ------------- ------------ -------------
Cash and cash equivalents, end of
period................................. $ 2,025,731 $ 3,529,135 $3,855,421 $ 5,034,279
============= ============= ============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Capital lease additions ................ $ 125,735 $ 538,526 $ -- $ --
Cash paid during the year for interest $ 1,301,210 $ 1,017,371 $ 234,218 $ 262,638
</TABLE>
See accompanying notes.
F-158
<PAGE>
BLACKSTONE ENTERTAINMENT LLC
COMBINED STATEMENT OF MEMBERS' EQUITY
<TABLE>
<CAPTION>
MEMBERS'
EQUITY
-------------
<S> <C>
Balance, January 1, 1996............. $ 2,071,583
Net income .......................... 2,992,155
Distributions to members ............ (1,770,546)
Capital contributions ............... 50,000
-------------
Balance, December 31, 1996 .......... 3,343,192
Net income .......................... 3,411,407
Distributions to members ............ (2,750,804)
-------------
Balance, December 31, 1997........... 4,003,795
Net loss ............................ (815,044)
-------------
Balance, March 31, 1998 (unaudited) $ 3,188,751
=============
</TABLE>
See accompanying notes.
F-159
<PAGE>
BLACKSTONE ENTERTAINMENT LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Blackstone Entertainment LLC ("the Company") was organized on October 1,
1997 as a Massachusetts Limited Liability Company. On that date, the net
assets of the following companies (collectively, "Don Law and Affiliates"),
which had been commonly controlled and functionally related, and a related
parcel of land located in Mansfield, Massachusetts were contributed in
formation of the Company:
o Great Woods, Inc.
o Time Trust Associates Joint Venture
o Harborlights Pavilion, Inc.
o NEXT, Inc.
o Don Law Company, Inc.
o Orpheum Management Corporation
o Black and Copper, Ltd.
o Andrew Trust LLC
These financial statements reflect the businesses subject to the
transaction described in Note 10 and accordingly, represent the combined
results of Blackstone Entertainment LLC and Don Law and Affiliates as a
predecessor. The net assets transferred to the Company have been recorded at
their historical book values.
Nature of Business
Great Woods, Inc., a Massachusetts corporation, managed and operated the
Great Woods Center for the Performing Arts in Mansfield, Massachusetts. Time
Trust Associates Joint Venture, a Massachusetts general partnership, held
title to the real estate on which the facility is situated.
Harborlights Pavilion, Inc., a Massachusetts corporation, managed and
operated the Harborlights Pavilion in Boston, Massachusetts.
NEXT, Inc., a Massachusetts corporation, operated a computerized ticketing
system for entertainment facilities and theaters throughout the New England
area.
Don Law Company, Inc., a Massachusetts corporation, promoted concerts and
other entertainment events throughout the New England area.
Orpheum Management Corporation, a Massachusetts corporation, managed the
Orpheum Theatre in Boston, Massachusetts.
Black and Copper, Ltd., a Massachusetts corporation, provided graphic
design, advertising, marketing and promotional services principally to its
related entities.
Andrew Trust LLC owned additional parcels of land surrounding the Great
Woods Center for the Performing Arts in Mansfield, Massachusetts.
Limited Liability Company
The Company's operating agreement provides that liability of its members
is limited to their capital invested in the Company. The Company's operating
agreement does not limit its term of existence, and provides for dissolution
upon the occurrence of certain events, one of which is the acquisition by one
member of all of the outstanding ownership interest.
F-160
<PAGE>
BLACKSTONE ENTERTAINMENT LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Member Classes and Priorities
The Company's operating agreement provides for one of its members to
receive a priority distribution of current year earnings and liquidation
proceeds to $2,250,000. The remaining members receive a matching distribution
subsequent to the priority distribution of $2,250,000. All additional
proceeds are then divided evenly among the members. The operating agreement
provides for both priorities to disappear upon the Company's attainment of
certain distribution levels.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, time deposits, commercial paper
and money market mutual funds. The Company invests its excess cash in highly
rated companies and financial institutions. These deposits have original
maturities that do not exceed three months. During the course of the year,
the Company maintained balances in financial institutions in excess of FDIC
insured limits. Included in cash and cash equivalents at December 31, 1996
and 1997 is approximately $50,000 and $55,000, respectively, of restricted
cash to be used for future Orpheum Theatre renovations and improvements.
Fixed Assets
Fixed assets are stated at cost. Depreciation is computed over estimated
useful lives ranging from three to thirty-nine years utilizing straight-line
and accelerated methods. Depreciation expense charged to operations was
$1,992,321 and $1,798,386 during the years ended December 31, 1996 and 1997,
respectively.
Intangible Assets, Net
Intangible assets consisting of goodwill which is being amortized over
fifteen years using the straight-line method and organization costs incurred
when Harborlights Pavilion, Inc. and NEXT, Inc. were established are being
amortized over five years using the straight-line method. These assets are
shown on the combined balance sheets net of accumulated amortization of
$125,665 and $360,524 as of December 31, 1996 and 1997. Total amortization
expense charged to operations was $34,316 and $234,859 during the years ended
December 31, 1996 and 1997.
Revenue Recognition
All divisions, except for NEXT, recognize event-related revenue upon
completion of each performance. Advance ticket receipts for performances are
recorded as deferred revenue. Costs incurred which relate to future
performances are recorded as prepaid expenses. The NEXT division recognizes
revenues as tickets are sold and services are performed.
Income Taxes
The Company is treated as a partnership for federal and state income tax
purposes. The Company's earnings and losses are included in the members'
income tax returns in relation to their respective ownership interests;
accordingly, no provision is required for federal and state income taxes.
Advertising Expense
The Company expenses advertising costs as incurred. Advertising expense
amounted to approximately $1,849,000 and $2,061,000 during the years ended
December 31, 1996 and 1997, respectively.
F-161
<PAGE>
BLACKSTONE ENTERTAINMENT LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Year 2000 (unaudited)
The Company has addressed the risks associated with year 2000 compliance
with respect to its ticketing system based on consultation with its vendors.
Future costs associated with such compliance are not expected to be
significant.
Interim Financial Information
The interim financial data as of March 31, 1998 and for the three-month
periods ending March 31, 1997 and 1998 is unaudited and certain information
and disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted.
However, in the opinion of Management, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the interim period. The results of
operations for the interim periods are not necessarily indicative of the
results to be expected for the entire year.
2. FIXED ASSETS, NET
Fixed assets, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Performing art facilities ..... $ 21,454,305 $ 21,496,711
Land and site improvements .... 2,133,905 2,327,127
Equipment under capital leases 1,426,874 1,567,690
Machinery and equipment ........ 1,484,682 1,628,996
Furniture and fixtures ......... 494,480 522,372
Leasehold improvements ......... 243,982 244,982
Motor vehicles ................. 156,135 189,663
-------------- --------------
27,394,363 27,977,541
Less accumulated depreciation . (12,714,019) (14,582,865)
-------------- --------------
$ 14,680,344 $ 13,394,676
============== ==============
</TABLE>
F-162
<PAGE>
BLACKSTONE ENTERTAINMENT LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1996 1997
------------ ------------
<S> <C> <C>
1.The Company is obligated under a note payable to the FDIC
dated May 11, 1988 in the original amount of $10,600,000.
On May 9, 1995, the note was modified and extended to
mature February 15, 2005. At such time, a balloon payment
of approximately $3,500,000 will be required. The note is
payable in monthly principal installments of $44,167 plus
interest at 8.98% per annum. The note is collateralized by
substantially all assets of the Great Woods Inc. and Time
Trust Join Venture, including a mortgage on the real estate
and facility, and a security interest in all operating
permits and licenses, programming and concession contracts,
and insurance policies on the lives of two members. ........ $7,752,942 $7,222,942
2.The Company is obligated to a concessionaire under an
unsecured five-year installment note in the original amount
of $1,600,000 which matures on June 30, 1998. The note is
payable in annual principal installments of $320,000 with
interest payable quarterly at 1.5% over the prime rate. .... 640,000 320,000
3.The Company is obligated under a five-year installment note
dated May 18, 1994 payable to a bank in the original amount
of $1,600,000. The note is payable in monthly installments
of $33,136 including interest at 8.9% per annum and is
collateralized by all assets of the Harborlights Pavilion
Inc......................................................... 829,118 492,532
4.The Company is obligated to a concessionaire under an
unsecured installment note dated August 19, 1994 in the
original amount of $350,000 bearing interest at 1% over the
prime rate. The remaining outstanding principal balance and
any accrued interest is due November 1, 1998. The note is
personally guaranteed by the members of the Company. ....... 210,000 140,000
5.The Company is obligated to a concessionaire under an
unsecured and noninterest bearing note dated July 11, 1994
in the original amount of $150,000. The note is due in
annual installments of $30,000 with the final installment
due October 15, 1998........................................ 60,000 30,000
6.The Company is obligated under a note payable from Andrew
Trust LLC to a bank dated December 12, 1996 in the original
amount of $500,000. Interest is payable monthly at 0.75%
over the prime rate and the principal reaches maturity on
December 12, 1999........................................... 500,000 --
------------ ------------
9,992,060 8,205,474
Current maturities ......................................... 1,427,172 1,388,806
------------ ------------
Long-term debt ............................................. $8,564,888 $6,816,668
============ ============
</TABLE>
F-163
<PAGE>
BLACKSTONE ENTERTAINMENT LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Maturities of long-term debt are as follows:
December 31:
<TABLE>
<CAPTION>
<S> <C>
1999 ......... $ 653,726
2000 ......... 530,000
2001 ......... 530,000
2002 ......... 530,000
2003 ......... 530,000
Thereafter .. 4,042,942
-----------
$6,816,668
===========
</TABLE>
The Company has an unsecured demand line of credit with a bank of
$2,000,000 which expires April 30, 1998. Interest is payable monthly at 1%
over the prime rate. The Company had no amounts outstanding under this line
of credit as of December 31, 1996 and 1997.
The bank note payable collaterialized by the assets of Harborlights
Pavilion, Inc. and the demand line of credit are subject to several financial
covenants which the company is currently in the process of renegotiating. For
the years ended December 31, 1996 and 1997, Harborlights Pavilion, Inc.
failed at least one of these financial covenants. Management anticipates that
based upon discussions with the bank, the loan will not be called.
4. CAPITAL LEASE OBLIGATIONS
The Company is obligated under capital lease agreements for certain
business equipment. The leases have been capitalized at the fair value of the
leased equipment with a corresponding liability recorded. Each payment is
allocated between a reduction of the liability and interest expense to yield
a constant periodic rate of interest on the remaining balance of the
obligation.
At December 31, 1997, future minimum payments due on the lease agreements
are as follows:
Year ended December 31:
<TABLE>
<CAPTION>
<S> <C>
1998 ........................................ $ 564,474
1999 ........................................ 564,625
2000 ........................................ 155,095
2001 ........................................ 15,961
-----------
1,300,155
Amount representing interest ................ 119,760
-----------
Present value of net minimum lease payments 1,180,395
Current portion ............................. 487,334
-----------
Long-term portion ........................... $ 693,061
===========
</TABLE>
5. LOANS PAYABLE TO MEMBERS
The Company is obligated to members in the amount of $961,239 which
represents the balance of advances made by them in conjunction with the
transfer of assets on October 1, 1997. The loans are unsecured and
noninterest bearing, and are expected to be repaid during 1998.
The Company is obligated to two members for loans totaling $1,500,000 at
both December 31, 1996 and 1997. The loans are unsecured, bear interest at
6.5% per annum, and have no formal repayment terms.
F-164
<PAGE>
BLACKSTONE ENTERTAINMENT LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND RELATED PARTY TRANSACTIONS
Lease Commitments and Rent Expense
Total rent expense amounted to approximately $487,000 and $577,000 for the
years ended December 31, 1996 and 1997, respectively, of which $92,700 was
paid to an affiliate during 1996 and 1997. At December 31, 1997, the Company
is committed under the following noncancellable operating leases:
1) The Company is obligated under a five-year license agreement dated
March 31, 1994 for the lease of a parcel of real estate located on Fan Pier
in Boston, Massachusetts. The agreement provides for a minimum annual rent of
$250,000 through 1998. Additional rent is required based on the number of
tickets sold annually in excess of a 100,000 ticket base. The landlord has
the right to terminate the license agreement upon giving written notice by
November of each year, for termination in the following calendar year.
2) Under an agreement with the owner of the Orpheum Theatre, the Company
has exclusive booking and scheduling rights for the Theatre and sole
responsibility for granting concessions for the sale of food and refreshments
at the Theatre. Under the terms of the agreement, the Company is required to
pay a hall rental charge of $4,750 per performance for the period January
1998 through December 2000, plus additional amounts for artist rehearsals.
The Company is reimbursed for the hall rental charges by the shows' promoters
and earns commissions from the Theatre's owner based on the annual volume of
rental fees paid.
3) The company is obligated under three leases with an affiliate. During
1996 and 1997, the combined rent for these three leases was $92,700 each
year.
4) The company is obligated under a one year lease for the NEXT, Inc.
premises for rent payments of $53,750 through December 31, 1998.
Other Commitments
The Company is obligated under a ten-year consulting agreement with the
former owner of a concert promotion business which was acquired in 1992. The
consulting agreement requires scheduled annual payments totaling of $828,000
over the next four years.
The Company is obligated under a consulting agreement with a member
requiring annual payments of $100,000 renewable annually.
7. PROFIT SHARING PLANS
The Company maintains 401(k) profit sharing plans covering eligible
employees who meet certain age and length of service requirements. Employees
may elect voluntary salary reductions; company contributions are made at the
discretion of the managing member. The Company did not make any matching
contributions during the years ended December 31, 1996 and 1997.
8. LITIGATION
Great Woods, Inc. is a defendant in several lawsuits that management
believes are without merit. In the event of an adverse judgment, management
believes its insurance coverage is sufficient to cover any potential losses.
9. EMPLOYMENT AGREEMENTS
Two employees have employment agreements pursuant to which they may
received contingent consideration upon the occurrence of specified events.
One of the employees is entitled to 0.6% of the net proceeds from the sale,
refinancing or other disposition of the Company or its ownership interests.
The
F-165
<PAGE>
BLACKSTONE ENTERTAINMENT LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
other is entitled to 5% of the defined after tax proceeds from the sale of
Great Woods , Inc. less certain defined contingent consideration paid prior
to the date of sale. The Company is obligated under an informal employment
arrangement with the General Manager of the NEXT, Inc. which provides for a
base salary of $150,000 in addition to a bonus based on performance. The
arrangement is renewable annually.
In connection with employment agreements, certain employees were paid
$610,000 in 1997 in connection with the sale of membership interests by the
principal owner to the Company. Such amount was recorded as a charge to
earnings in 1997.
10. SUBSEQUENT EVENT
On April 29, 1998 the members of the Company entered into an agreement
with SFX Entertainment, Inc. ("SFX") whereby SFX will acquire certain assets
of the Company for a total purchase price of approximately $90.0 million,
including the repayment of $10.0 million in debt. SFX, may at its option, pay
up to $16.0 million or the purchase price in 531,782 shares of SFX's Class A
Common Stock. The purchase price will be increased or decreased, as
applicable, to the extent that the Company's Net Working Capital (as defined
in the acquisition agreement) is positive or negative at the closing. The
Company has received a $100,000 non-refundable deposit in connection with the
proposed sale.
F-166
<PAGE>
===============================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES OR JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Available Information ................... 2
Summary ................................. 3
Risk Factors ............................ 18
The Exchange Offer ...................... 32
Capitalization .......................... 40
Selected Consolidated Financial Data ... 41
Unaudited Pro Forma Condensed Combined
Financial Statements ................... 43
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................. 65
Overview of the Live Entertainment
Industry ............................... 83
Business ................................ 86
Agreements Related to the Pending
Acquisitions............................ 103
Management .............................. 105
Principal Stockholders .................. 113
Certain Relationships and Related
Transactions ........................... 115
Description of Credit Facility and Other
Indebtedness ........................... 119
Description of the Notes ................ 122
Description of the Exchange Notes ...... 122
Certain United States Federal Tax
Considerations ......................... 151
Plan of Distribution .................... 154
Legal Matters ........................... 155
Experts ................................. 155
Index to Defined Terms .................. 157
Index to Financial Statements ........... F-1
</TABLE>
===============================================================================
===============================================================================
[SFX ENTERTAINMENT, INC. LOGO]
OFFER TO EXCHANGE
9 1/8% SENIOR SUBORDINATED NOTES
DUE 2008, SERIES B
($350,000,000 PRINCIPAL AMOUNT)
FOR
9 1/8% SENIOR SUBORDINATED NOTES
DUE 2008, SERIES A
($350,000,000 PRINCIPAL AMOUNT
OUTSTANDING)
The Information Agent for the Offer is:
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll Free: 1-800-223-2065
JUNE 9, 1998
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 Company's Certificate of Incorporation (the "Company Certificate")
provides that no director of the Company will be personally liable to the
Company 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 the Company 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 the Company is not
personally liable as set forth above, no director will be liable to the
Company or its stockholders to such further extent as permitted by any law
enacted after the date of the Company Certificate, including any amendment to
the DGCL.
The Company Certificate requires the Company 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 the Company or (b) is or was serving at the request of the Company 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 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 the Company or elects to continue to serve
as a director or officer of the Company while this provision of the Company
Certificate is in effect. The right to indemnification includes the right to
be paid by the Company 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 the Company within 60 days after a written
claim has been received by the Company, the claimant may, at any time
thereafter, bring suit against the Company 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 the Company. 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 the Company require the Company to indemnify its officers,
directors, employees and agents to the full extent permitted by the DGCL. The
by-laws also require the Company to pay expenses incurred by a director in
defending a civil or criminal action, suit or proceeding by reason of the
fact that
II-1
<PAGE>
he is/was a director (or was serving at the Company'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 the Company 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 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
2.1 Distribution Agreement between SFX Entertainment and SFX Broadcasting (incorporated by reference
to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC filed on May 5, 1998)
2.2 Tax Sharing Agreement between SFX Entertainment and SFX Broadcasting (incorporated by reference
to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC filed on May 5, 1998)
2.3 Employee Benefits Agreement between SFX Entertainment and SFX Broadcasting (incorporated by
reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC filed on May 5,
1998)
3.1 Amended and Restated Certificate of Incorporation of SFX Entertainment (incorporated by reference
to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC filed on May 5, 1998)
3.2 Bylaws of SFX Entertainment (incorporated by reference to Registration Statement on Form S-1
(File No. 333-43387) filed with the SEC on March 11, 1998).
3.3 Certificate of Amendment to the Certificate of Incorporation of the Company, as filed with the
Secretary of State of Delaware on February 25, 1998 (incorporated by reference to Report on Form
8-K (File No. 333-43287) filed with the SEC on March 11, 1998)
3.4 Certificate of Designations relating to the Series A Preferred Stock of the Company as filed with
the Secretary of State of Delaware on February 27, 1998 (incorporated by reference to Report on
Form 8-K (File No. 333-43287) filed with the SEC on March 11, 1998)
3.5* Restated Articles of Incorporation of AKG, Inc.
3.6* Bylaws of AKG, Inc.
3.7* Certificate of Incorporation of American Broadway, Inc.
3.8* Bylaws of American Broadway, Inc.
3.9* Certificate of Incorporation of Ardee Festivals N.J., Inc.
3.10* Bylaws of Ardee Festivals N.J., Inc.
3.11* Certificate of Incorporation of Ardee Productions, Ltd.
3.12* Bylaws of Ardee Productions, Ltd.
3.13* Certificate of Incorporation of Atlanta Concerts, Inc.
3.13A* Bylaws of Atlanta Concerts, Inc.
3.13B* Certificate of Incorporation of Beach Concerts, Inc.
3.14* Bylaws of Beach Concerts, Inc.
II-2
<PAGE>
EXHIBIT
NO. DESCRIPTION
--- -----------
3.15* Certificate of Formation of BGP Acquisition, LLC.
3.16* Articles of Incorporation of Bill Graham Enterprises, Inc.
3.17* Bylaws of Bill Graham Enterprises, Inc.
3.18* Articles of Incorporation of Bill Graham Management, Inc.
3.19* Bylaws of Bill Graham Management, Inc.
3.20* Articles of Incorporation of Bill Graham Presents, Inc.
3.21* Amended and Restated Bylaws of Bill Graham Presents, Inc.
3.22* Articles of Incorporation of BG Presents, Inc.
3.23* Bylaws of BG Presents, Inc.
3.24* Certificate of Incorporation of Broadway Concerts, Inc.
3.25* Bylaws of Broadway Concerts, Inc.
3.26* Articles of Incorporation of Cooley and Conlon Management Co.
3.27* Bylaws of Cooley and Conlon Management Co.
3.28* Articles of Incorporation of Concerts, Inc.
3.29* Bylaws of Concerts, Inc.
3.30* Certificate of Incorporation of Connecticut Amphitheater Development Corporation
3.31* Bylaws of Connecticut Amphitheater Development Corporation
3.32* Certificate of Incorporation of Connecticut Concerts, Incorporated.
3.33* Bylaws of Connecticut Concerts, Incorporated.
3.34* Certificate of Incorporation of Connecticut Performing Arts, Inc.
3.35* Bylaws of Connecticut Performing Arts, Inc.
3.36* Certificate of Limited Partnership of Connecticut Performing Arts Partners
3.37* Certificate of Limited Partnership of Conn Ticketing Company.
3.38* Certificate of Incorporation of Contemporary Group Acquisition Corp.
3.39* Bylaws of Contemporary Group Acquisition Corp.
3.40* Articles of Incorporation of Contemporary Group, Inc.
3.41* Bylaws of Contemporary Group, Inc.
3.42* Certificate of Incorporation of Contemporary Marketing, Inc.
3.43* Bylaws of Contemporary Marketing, Inc.
3.44* Certificate of Incorporation of Contemporary Productions, Inc.
3.45* Bylaws of Contemporary Productions, Incorporated
3.46* Certificate of Incorporation of Contemporary Sports, Incorporated
3.47* Bylaws of Contemporary Sports, Incorporated
3.48* Certificate of Incorporation of Deer Creek Amphitheater Concerts, Inc.
3.49* Bylaws of Deer Creek Amphitheater Concerts, Inc.
II-3
<PAGE>
EXHIBIT
NO. DESCRIPTION
--- -----------
3.50* Certificate of Limited Partnership of Deer Creek Amphitheater Concerts, LP.
3.51* Certificate of Incorporation of Delsener/Slater Enterprises, Ltd.
3.52* Bylaws of Delsener/Slater Enterprises, Ltd.
3.53* Certificate of Incorporation of Dumb Deal, Inc.
3.54* Bylaws of Dumb Deal, Inc.
3.55* Articles of Incorporation of Entertainment Performing Arts, Inc.
3.56* Bylaws of Entertainment Performing Arts, Inc.
3.57* Certificate of Incorporation of Exit 116 Revisited, Inc.
3.58* Bylaws of Exit 116 Revisited, Inc.
3.59* Certificate of Incorporation of Festival Productions, Inc.
3.60* Bylaws of Festival Productions, Inc.
3.61* Restated Certificate of Incorporation of Fillmore Corporation
3.62* Bylaws of Fillmore Corporation
3.63* Restated Articles of Incorporation of Fillmore Fingers, Inc.
3.64* Bylaws of Fillmore Fingers, Inc.
3.65* Certificate of Incorporation of FPI Concerts, Inc.
3.66* Bylaws of FPI Concerts, Inc.
3.67* Certificate of Limited Partnership of GSAC Partners
3.68* Articles of Incorporation of High Cotton, Inc.
3.69* Bylaws of High Cotton, Inc.
3.70* Certificate of Incorporation of In House Tickets, Inc.
3.71* Bylaws of In House Tickets, Inc.
3.72* Certificate of Incorporation of Irving Plaza Concerts, Inc.
3.73* Bylaws of Irving Plaza Concerts, Inc.
3.74* Certificate of Incorporation of Murat Center Concerts, Inc.
3.75* Bylaws of Murat Center Concerts, Inc.
3.76* Certificate of Limited Partnership of Murat Center Concerts, LP.
3.77* Certificate of Incorporation of NOC, Inc.
3.78* Bylaws of NOC, Inc.
3.79* Certificate of Incorporation of Northeast Ticketing Company.
3.80* Bylaws of Northeast Ticketing Company
3.81* Articles of Incorporation of Old PCI, Inc.
3.82* Bylaws of Old PCI, Inc.
3.83* Articles of Incorporation of PACE AEP Acquisition, Inc.
3.84* Bylaws of PACE AEP Acquisition, Inc.
II-4
<PAGE>
EXHIBIT
NO. DESCRIPTION
--- -----------
3.85* Articles of Incorporation of PACE Amphitheaters, Inc.
3.86* Bylaws of PACE Amphitheaters, Inc.
3.87* Articles of Incorporation of PACE Amphitheater Management, Inc.
3.88* Bylaws of PACE Amphitheater Management, Inc.
3.89* Articles of Incorporation of PACE Bayou Place, Inc.
3.90* Bylaws of PACE Bayou Place, Inc.
3.91* Articles of Incorporation of PACE Communications, Inc.
3.92* Bylaws of PACE Communications, Inc.
3.93* Articles of Incorporation of PACE Concerts GP, Inc.
3.94* Bylaws of PACE Concerts GP, Inc.
3.95* Certificate of Limited Partnership for PACE Concerts, Ltd.
3.96 Reserved.
3.97* Certificate of Incorporation of PACE Entertainment Corporation
3.98* Bylaws of PACE Entertainment Corporation
3.99* Articles of Incorporation of PACE Entertainment GP Corp.
3.100* Bylaws of PACE Enterainment GP Corp.
3.101* Certificate of Limited Partnership for PACE Entertainment Group, Ltd.
3.102 Reserved.
3.103* Articles of Incorporation of PACE Milton Keynes, Inc.
3.104* Bylaws of PACE Milton Keynes, Inc.
3.105* Articles of Incorporation of PACE Motor Sports, Inc.
3.106* Bylaws of PACE Motor Sports, Inc.
3.107* Certificate of Incorporation of PACE Music Group, Inc.
3.108* Bylaws of PACE Music Group, Inc.
3.109* Certificate of Incorporation of PACE Productions, Inc.
3.110* Bylaws of PACE Productions, Inc.
3.111* Articles of Incorporation of PACE Theatrical Group, Inc.
3.112* Bylaws of PACE Theatrical Group, Inc.
3.113* Articles of Incorporation of PACE Touring, Inc.
3.114* Bylaws of PACE Touring, Inc.
3.115* Certificate of Incorporation of PACE Variety Entertainment, Inc.
3.116* Bylaws of PACE Variety Entertainment, Inc.
3.117* Articles of Incorporation of PACE UK Holding Corporation
3.118* Bylaws of PACE UK Holding Corporation
3.119* Certificate of Limited Partnership of Pavilion Partners
II-5
<PAGE>
EXHIBIT
NO. DESCRIPTION
--- -----------
3.119A* Certificate of Incorporation of PEC, Inc.
3.119B* Bylaws of PEC, Inc.
3.120* Certificate of Incorporation of Polaris Amphitheater Concerts, Inc.
3.120A* Bylaws of Polaris Amphitheater Concerts, Inc.
3.121* Articles of Incorporation of PTG-Florida, Inc.
3.122* Bylaws of PTG-Florida, Inc.
3.123 Reserved.
3.124* Certificate of Incorporation of QN Corp.
3.125* Bylaws of QN Corp.
3.126* Certificate of Incorporation of SFX Broadcasting of the Midwest, Inc.
3.127* Bylaws of SFX Broadcasting of the Midwest, Inc.
3.128* Certificate of Incorporation of SFX Concerts, Inc.
3.129* Bylaws of SFX Concerts, Inc.
3.129A* Certificate of Incorporation of SFX Delaware, Inc.
3.129B* Bylaws of SFX Delaware, Inc.
3.130* Certificate of Formation of SFX Network Group, LLC.
3.131* Articles of Incorporation of Shoreline Amphitheatre, Ltd.
3.132* Bylaws of Shoreline Amphitheatre, Ltd.
3.133* Certificate of Limited Partnership of Shoreline Amphitheatre Partners
3.134* Articles of Incorporation of SJS Entertainment Corporation
3.135* Bylaws of SJS Entertainment Corporation
3.136* Certificate of Incorporation of SM/PACE, Inc.
3.137* Bylaws of SM/PACE, Inc.
3.138* Certificate of Incorporation of Southeast Ticketing Company.
3.138A* Bylaws of Southeast Ticketing Company
3.139* Articles of Incorporation of Southern Promotions, Inc.
3.140* Bylaws of Southern Promotions, Inc.
3.141* Certificate of Formation of Sunshine Concerts, LLC.
3.142* Certificate of Incorporation of Sunshine Designs, Inc.
3.143* Bylaws of Sunshine Designs, Inc.
3.144* Certificate of Limited Partnership of Sunshine Design, LP
3.145* Certificate of Incorporation of Suntex Acquisition, Inc.
3.146* Bylaws of Suntex Acquisition, Inc.
3.147* Certificate of Limited Partnership of Suntex Acquisition, LP
3.148* Certificate of Incorporation of The Album Network, Inc.
II-6
<PAGE>
EXHIBIT
NO. DESCRIPTION
--- -----------
3.149* Bylaws of The Album Network Inc.
3.150* Articles of Incorporation of Touring Productions, Inc.
3.151* Bylaws of Touring Productions, Inc.
3.152* Articles of Incorporation of Tuneful Company, Inc.
3.153* Bylaws of Tuneful Company, Inc.
3.154* Certificate of Formation of Westbury Music Fair, LLC
3.155* Articles of Incorporation of Wolfgang Records
3.156* Bylaws of Wolfgang Records
3.157+ Certificate of Incorporation of Oakdale Theater Concerts, Inc.
3.158+ Bylaws of Oakdale Theater Concerts, Inc.
3.159+ Certificate of Incorporation of SFX Touring, Inc.
3.160+ Bylaws of SFX Touring, Inc.
4.1 Indenture relating to the 9 1/8% Senior Subordinated Notes due 2008 (incorporated by reference to
Current Report on Form 8-K (File No. 333-43287) filed with the SEC on March 11, 1998)
4.2 Registration Rights Agreement relating to the 9 1/8% Senior Subordinated Notes due 2008
(incorporated by reference to Current Report on Form 8-K (File No. 333-43287) filed with the SEC
on March 11, 1998)
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., Arden
Productions, Ltd., In-house Tickets, Inc., Exit 116 Revisited, Inc., Ron Delsener, Mitch Slater
and SFX Broadcasting, Inc. (incorporated by reference to Registration Statement on Form S-1 (File
No. 333-43287) filed with the SEC)
10.2 License Agreement, dated January 29, 1990, by and between the State of New York and Beach
Concerts, Inc. (incorporated by reference to Registration Statement on Form S-1 (File No.
333-43287) filed with the SEC)
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. (incorporated by reference to Registration
Statement on Form S-1 (File No. 333-43287) filed with the SEC)
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 (incorporated by reference to
Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC)
10.5 Partnership Agreement, dated as of November 18, 1996, by and between Pavilion Partners Exit 116
Revisited, Inc. (incorporated by reference to Registration Statement on Form S-1 (File No.
333-43287) filed with the SEC)
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
(incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287) filed with
the SEC)
II-7
<PAGE>
EXHIBIT
NO. DESCRIPTION
--- -----------
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 (incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287)
filed with the SEC)
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 (incorporated by reference
to Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC)
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
(incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287) filed with
the SEC)
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 (incorporated by reference to
Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC)
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 (incorporated by
reference to Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC)
10.12 Indenture of Lease, dated as of September 1, 1995, by and between Murat Temple Association, Inc.
and Murat Centre, L.P. (incorporated by reference to Registration Statement on Form S-1 (File No.
333-43287) filed with the SEC)
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. (incorporated by reference to
Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC)
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. (incorporated by reference to
Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC)
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.
(incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287) filed with
the SEC)
10.16 Lease Agreement, dated as of September 14, 1994, by and between The City of Hartford and
Connecticut Performing Arts Partners (incorporated by reference to Registration Statement on Form
S-1 (File No. 333-43287) filed with the SEC)
II-8
<PAGE>
EXHIBIT
NO. DESCRIPTION
--- -----------
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 (incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287)
filed with the SEC)
10.18 Lease Agreement, dated December 13, 1992, by and between Wyandotte County, Kansas and Wyandotte
County Parks Board and Sandstone Amphitheater Joint Venture (incorporated by reference to
Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC)
10.19 Stock Purchase Agreement, dated as of December 11, 1997, among each of the shareholders of BGP
Presents, Inc. and BGP Acquisitions, LLC (incorporated by reference to Registration Statement on
Form S-1 (File No. 333-43287) filed with the SEC)
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 (incorporated
by reference to Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC)
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.
(incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287) filed with
the SEC)
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. (incorporated by reference to Registration Statement on Form S-1 (File No.
333-43287) filed with the SEC)
10.23 Stock Purchase Agreement, dated as of December 12, 1997 by and between Pace Entertainment
Corporation and SFX Entertainment, Inc. (incorporated by reference to Registration Statement on
Form S-1 (File No. 333-43287) filed with the SEC)
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 Report on Form
8-K (File No. 333-43287) filed with the SEC on March 11, 1998)
10.25 Reserved
10.26 Non-Negotiable Promissory Note, dated as of June 23, 1997, between SFX (as maker) and Sunshine
Promotions, Inc. (as payee)(incorporated by reference to Registration Statement on Form S-1 (File
No. 333-43287) filed with the SEC)
10.31 Operator Lease Agreement, dated as of September 26, 1989, by and between the City of Phoenix and
The Westside Amphitheatre Corp. (incorporated by reference to Registration Statement on Form S-1
(File No. 333-43287) filed with the SEC)
10.32 Addendum to Operator Lease Agreement, dated as of September 26, 1989, by and between the City of
Phoenix and Pavilion Partners (incorporated by reference to Registration Statement on Form S-1
(File No. 333-43287) filed with the SEC)
II-9
<PAGE>
EXHIBIT
NO. DESCRIPTION
--- -----------
10.33 Memorandum of Lease, dated as of April 1, 1994, by and between the City of Phoenix and Pavilion
Partners (incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287)
filed with the SEC)
10.34 Lease Agreement, dated as of February 9, 1994, by and between New Jersey Development Authority
and Sony Music/Pace Partnership (incorporated by reference to Registration Statement on Form S-1
(File No. 333-43287) filed with the SEC)
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 (incorporated by reference to Registration
Statement on Form S-1 (File No. 333-43287) filed with the SEC)
10.36 Second Amendment to Lease Agreement, dated as of June 7, 1994, by and between New Jersey Economic
Development Authority and Pavilion Partners (incorporated by reference to Registration Statement
on Form S-1 (File No. 333-43287) filed with the SEC)
10.37 Third Amendment to Lease Agreement, dated as of March 15, 1995, by and between New Jersey
Economic Development Authority and Pavilion Partners (incorporated by reference to Registration
Statement on Form S-1 (File No. 333-43287) filed with the SEC)
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 (incorporated by reference to Registration
Statement on Form S-1 (File No. 333-43287) filed with the SEC)
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 (incorporated by
reference to Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC)
10.40 Lease Agreement, dated as of December 1, 1989, between Crossroads Properties, Incorporated and
Pace Entertainment Group, Inc. (incorporated by reference to Registration Statement on Form S-1
(File No. 333-43287) filed with the SEC)
10.41 Assignment of Ground Lease, dated as of April 6, 1990, by and between Pace Entertainment Group,
Inc. and YM/Pace Partnership (incorporated by reference to Registration Statement on Form S-1
(File No. 333-43287) filed with the SEC)
10.42 Partnership Agreement, dated as of July 1, 1991, by and between SM/PACE Partnership and CDC
Amphitheaters/I, Inc. (incorporated by reference to Registration Statement on Form S-1 (File No.
333-43287) filed with the SEC)
10.43 First Amendment to Partnership Agreement, dated as of January 31, 1992, by and between SM/PACE
Partnership and CDC Amphitheaters/I, Inc. (incorporated by reference to Registration Statement on
Form S-1 (File No. 333-43287) filed with the SEC)
10.44 Lease Agreement, dated as of December 1, 1990, by and between the City of Raleigh, North Carolina
and Sony Music/Pace Partnership (incorporated by reference to Registration Statement on Form S-1
(File No. 333-43287) filed with the SEC)
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 (incorporated by reference to
Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC)
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 (incorporated by reference to
Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC)
II-10
<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 (incorporated by reference to
Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC)
10.48 Partnership Agreement, dated as of February 28, 1986, by and between Belz Investment Company,
Inc., Martin S. Belz and Pace Productions, Inc. (incorporated by reference to Registration
Statement on Form S-1 (File No. 333-43287) filed with the SEC)
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. (incorporated by
reference to Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC)
10.50 Partnership Agreement, dated as of May 15, 1996, by and between Pavilion Partners and CDC/SMT,
Inc. (incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287) filed
with the SEC)
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 (incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287)
filed with the SEC)
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 (incorporated by reference to
Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC)
10.53 Partnership Agreement, dated as of April 4, 1997, by and between Pavilion Partners and Irvine
Meadows Amphitheater (incorporated by reference to Registration Statement on Form S-1 (File No.
333-43287) filed with the SEC)
10.54 Amended and Restated Agreement, dated as of October 1, 1991, by and between The Irvine Company
and Irvine Meadows (incorporated by reference to Registration Statement on Form S-1 (File No.
333-43287) filed with the SEC)
10.55 Concession Lease, dated as of October 19, 1992, by and between the County of San Bernardino and
Amphitheater Entertainment Corporation (incorporated by reference to Registration Statement on
Form S-1 (File No. 333-43287) filed with the SEC)
10.56 Partnership Formation Agreement, dated as of January 22, 1988, by and among MCA Concerts II, Inc.
and Pace Entertainment Group, Inc. (incorporated by reference to Registration Statement on Form
S-1 (File No. 333-43287) filed with the SEC)
10.57 Lease and Use Agreement, dated as of December 9, 1987, by and between City of Dallas and Pace
Entertainment Group, Inc. (incorporated by reference to Registration Statement on Form S-1 (File
No. 333-43287) filed with the SEC)
10.58 Agreement, dated as of October 10, 1988, by and between the City of Atlanta and MCA Concerts,
Inc. (incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287) filed
with the SEC)
10.59 Amended Indenture of Lease, February 2, 1984, by and between the City of Atlanta and Filmworks
U.S.A., Inc. (incorporated by reference to Registration Statement on Form S-1 (File No.
333-43287) filed with the SEC)
10.60 Amendment to Lease Agreement, dated as of October 10, 1988, between the City of Atlanta, Georgia
and Filmworks U.S.A., Inc. (incorporated by reference to Registration Statement on Form S-1 (File
No. 333-43287) filed with the SEC)
II-11
<PAGE>
EXHIBIT
NO. DESCRIPTION
--- -----------
10.61 Agreement Regarding Sublease, dated as of January 20, 1988, by and between Filmworks U.S.A., Inc.
and MCA Concerts, Inc. (incorporated by reference to Registration Statement on Form S-1 (File No.
333-43287) filed with the SEC)
10.62 First Amendment to Sublease, dated as of January 21, 1988, between Filmworks U.S.A., Inc. and MCA
Concerts, Inc. (incorporated by reference to Registration Statement on Form S-1 (File No.
333-43287) filed with the SEC)
10.63 Second Amendment to Sublease, dated as of April 19, 1988, between Filmworks U.S.A., Inc. and MCA
Concerts, Inc. (incorporated by reference to Registration Statement on Form S-1 (File No.
333-43287) filed with the SEC)
10.64 Third Amendment to Sublease, dated as of September 15, 1988, between Filmworks U.S.A., Inc. and
MCA Concerts, Inc. (incorporated by reference to Registration Statement on Form S-1 (File No.
333-43287) filed with the SEC)
10.65 Memorandum of Agreement, dated as of October 10, 1988, by and between the City of Atlanta and MCA
Concerts, Inc. (incorporated by reference to Registration Statement on Form S-1 (File No.
333-43287) filed with the SEC)
10.66 Assignment of Sublease, dated as of June 15, 1989, by Filmworks U.S.A., Inc. and MCA Concerts,
Inc. (incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287) filed
with the SEC)
10.67 Assignment of Sublease, dated as of June 23, 1989, by Filmworks U.S.A., Inc. and MCA Concerts,
Inc. (incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287) filed
with the SEC)
10.68 Assignment of Agreement, dated as of June 15, 1989, by the City of Atlanta and MCA Concerts, Inc.
(incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287) filed with
the SEC)
10.69 Assignment of Agreement, dated as of June 23, 1989, by the City of Atlanta and MCA Concerts, Inc.
(incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287) filed with
the SEC)
10.70 Lease, dated as of June, 1997, by and between 500 Texas Avenue Limited Partnership and Bayou
Place Performance Hall General Partnership (incorporated by reference to Registration Statement
on Form S-1 (File No. 333-43287) filed with the SEC)
10.71 Master Licensed User Agreement, dated as of February 1, 1996, by and between Ticketmaster
Ticketing Co., Inc. and Pace Entertainment Corporation (incorporated by reference to Registration
Statement on Form S-1 (File No. 333-43287) filed with the SEC)
10.72 Joint Venture Agreement, dated as of July, 1995 by and between American Broadway, Inc. and Gentry
& Associates, Inc. (incorporated by reference to Registration Statement on Form S-1 (File No.
333-43287) filed with the SEC)
10.73 Amended and Restated Employment Agreement, dated as of December 12, 1997, by and between SFX
Entertainment, Inc. and Brian E. Becker (incorporated by reference to Registration Statement on
Form S-1 (File No. 333-43287) filed with the SEC)
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.
(incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287) filed with
the SEC)
II-12
<PAGE>
EXHIBIT
NO. DESCRIPTION
--- -----------
10.75 Employment Agreement, dated as of January 2, 1997, between Delsener/Slater Enterprises, Inc., SFX
Broadcasting, Inc. and Ron Delsener (incorporated by reference to Registration Statement on Form
S-1 (File No. 333-43287) filed with the SEC)
10.76 Employment Agreement, dated as of January 2, 1997, between Delsener/Slater Enterprises, Inc., SFX
Broadcasting, Inc. and Mitch Slater (incorporated by reference to Registration Statement on Form
S-1 (File No. 333-43287) filed with the SEC)
10.77 1998 Stock Option and Restricted Stock Plan of the Company (incorporated by reference to
Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC)
10.78 Reserved
10.79 Credit and Guarantee Agreement, dated as of February 26, 1998, by and among SFX Entertainment,
the Subsidiary Guarantors party thereto, the Lenders party thereto, Goldman Sachs Partners, L.P.,
as co-documentation agent, Lehman Commercial Paper, Inc., as co-documentation agent and the Bank
of New York, as administrative agent (incorporated by reference to Report on Form 8-K (File No.
333-43287) filed with the SEC on March 11, 1998)
10.80 Purchase Agreement, dated February 5, 1998, relating to the 9 1/8% Senior Subordinated Notes due
2008 of SFX Entertainment, Inc., by and among SFX Entertainment, Inc., Lehman Brothers Inc.,
Sachs & Co., BNY Capital Markets, Inc. and ING Barings (incorporated by reference to Report on
Form 8-K (File No. 333-43287) filed with the SEC on March 11, 1998)
10.81 Amendment No. 2 to Agreement and Plan of Merger among SBI Holdings Corporation, SBI Radio
Acquisition Corporation and SFX Broadcasting, Inc., dated March 9, 1998 (incorporated by
reference to Annual Report on Form 10-K (File No. 333-43287) filed with the SEC on March 18,
1998)
10.82 Stock Purchase Agreement, dated as of April 29, 1998, among SFX Sports Group, Inc., SFX
Entertainment, Inc. and David Falk, Curtis Polk and G. Michael Higgins (incorporated by reference
to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC)
10.83 Asset Purchase Agreement, dated April 29, 1998, by and among Blackstone Entertainment LLC, its
members, DLC Acquisition Corp., and SFX Entertainment, Inc. (incorporated by reference to
Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC)
10.84 Purchase Agreement, dated April 29, 1998, by and among Oakdale Concerts, LLC, Oakdale Development
Limited Partnership and Oakdale Theater Concerts, Inc. (incorporated by reference to Amendment
No. 1 to Form S-1 (File No. 333-50079) filed with the SEC)
10.85 Stock Purchase and Redemption Agreement, dated May 1, 1998, among Event Merchandising, Inc., its
stockholders and EMI Acquisition Sub, Inc. (incorporated by reference to Amendment No. 1 to Form
S-1 (File No. 333-50079) filed with the SEC)
10.86 Purchase Agreement, dated as of May 13, 1998, among SFX Entertainment, Inc., TBA Entertainment
Corporation and AWC Acquisition Corp. (incorporated by reference to Amendment No. 2 to Form S-1
(File No. 333-50079) filed with the SEC on May 19, 1998)
10.87 Purchase Agreement, dated as of May 13, 1998, among SFX Entertainment Inc., Irving Azoff, Peach
Street Partners, Ltd., Robert E. Geddes, Individually and as trustee of the Robert E. Geddes
Family Trust, Thomas Miserendino and Kristyne Miserendino, as co-trustee of the Miserendino
Family Trust, and Brian F. Murphy (incorporated by reference to Amendment No. 2 to Form S-1 (File
No. 333-50079) filed with the SEC on May 19, 1998)
10.88 Employment agreement between the Company and David Falk, dated as of April 29, 1998 (incorporated
by reference to Amendment No. 2 to Form S-1 (File No. 333-50079) filed with the SEC on May 19,
1998)
II-13
<PAGE>
EXHIBIT
NO. DESCRIPTION
--- -----------
10.89+ Employment Agreement between SFX Entertainment, Inc. and Robert F.X. Sillerman, dated as of May
28, 1998.
10.90+ Employment Agreement between SFX Entertainment, Inc. and Michael G. Ferrel, dated as of May 28,
1998.
10.91+ Employment Agreement between SFX Entertainment, Inc. and Thomas P. Benson, dated as of May 28,
1998.
10.92+ Employment Agreement between SFX Entertainment, Inc. and Howard J. Tytel, dated as of May 28,
1998.
10.93 Underwriting Agreement (incorporated by reference to Exhibit 1.1 to Form 8-K filed with the SEC
on June 3, 1998)
10.94 Amendment No. 1 to Distribution Agreement (incorporated by reference to Exhibit 1.1 to Form 8-K
filed with the SEC on June 3, 1998)
10.95 Amended and Restated Tax Sharing Agreement (incorporated by reference to Exhibit 1.1 to Form 8-K
filed with the SEC on June 3, 1998)
12.1+ Calculation of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of the Registrant (incorporated by reference to Annual Report on Form 10-K (File No.
333-43287) filed with the SEC on March 18, 1998)
23.1+ Consent of Baker & McKenzie (included in Exhibit 5.1).
23.2+ Consent of Ernst & Young LLP.
23.3+ Consents of Arthur Andersen LLP.
23.4+ Consent of Price Waterhouse LLP.
24.1* Power of Attorney for D. Geoffrey Armstrong
24.2* Power of Attorney for Allen Becker
24.3* Power of Attorney for Brian Becker
24.4* Power of Attorney for Gary Becker
24.5* Power of Attorney for Thomas P. Benson
24.6* Power of Attorney for Bill Brusca
24.7* Power of Attorney for Nicholas P. Clainos
24.8* Power of Attorney for Peter Conlon
24.9* Power of Attorney for Alex Cooley
24.10* Power of Attorney for Ron Delsener
24.11* Power of Attorney for Edward Dugan
24.12* Power of Attorney for Michael G. Ferrel
24.13* Power of Attorney for Kraig G. Fox
24.14* Power of Attorney for Paul Kramer
24.15* Power of Attorney for Richard A. Liese
24.16* Power of Attorney for P. David Lucas
24.17* Power of Attorney for James F. O'Grady, Jr.
II-14
<PAGE>
EXHIBIT
NO. DESCRIPTION
--- -----------
24.18* Power of Attorney for Gregg D. Perloff
24.19* Power of Attorney for Franklin D. Rockwell, Jr.
24.20* Power of Attorney for Mitch Slater
24.21* Power of Attorney for Robert F.X. Sillerman
24.22* Power of Attorney for Peter Strauss
25.1+ Statement of Eligibility and Qualification of Trustee on Form T-1 of The Chase Manhattan Bank
99.1+ Form of Letter of Transmittal for the 9 1/8% Senior Subordinated Notes due 2008
99.2+ Form of Notice of Guaranteed Delivery
99.3+ Form of Letter to Clients
99.4+ Form of Letter to Broker-Dealers
99.5+ Consent of David Falk
</TABLE>
- --------------
+ Filed herewith.
* Previously filed.
(b) Financial Schedules.
None.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or 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; 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.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such posteffective 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.
(3) 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.
(b) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
SFX Entertainment, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman, Member of the June 8, 1998
- ----------------------------- Office of the Chairman and Director
Robert F.X. Sillerman (principal executive officer)
* President, Chief Executive Officer, June 8, 1998
- ----------------------------- Member of the Office of the
Michael G. Ferrel Chairman and Director
- ----------------------------- Member of the Office of the Chairman June 8, 1998
David Falk and Director
* Executive Vice President and Director June 8, 1998
- -----------------------------
D. Geoffrey Armstrong
* Chief Financial Officer, Vice President June 8, 1998
- ----------------------------- and Director (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tyte Executive Vice President, General June 8, 1998
- ----------------------------- Counsel, Secretary and Director
Howard J. Tytel
* Vice President, Associate General June 8, 1998
- ----------------------------- Counsel and Director
Richard A. Liese
* Director June 8, 1998
- -----------------------------
James F. O'Grady, Jr.
* Director June 8, 1998
- -----------------------------
Paul Kramer
* Director June 8, 1998
- -----------------------------
Edward F. Dugan
* Director June 8, 1998
- -----------------------------
Brian Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
AKG, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Director June 8, 1998
- -----------------------------
Gregg D. Perloff
* Director June 8, 1998
- -----------------------------
Franklin D. Rockwell, Jr.
* Director June 8, 1998
- -----------------------------
Nicholas P. Clainos
* Chief Financial Officer, Vice President June 8, 1998
- ----------------------------- and Director (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
American Broadway, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Attorney-in-Fact for Kraig G.
Fox, Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Gary Becker
* Vice President (principal executive June 8, 1998
- ----------------------------- officer, principal financial officer and
Kraig G. Fox principal accounting officer)
* Director June 8, 1998
- -----------------------------
Peter Straus
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Ardee Festivals, N.J., Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Mitch Slater
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Ardee Productions, Ltd.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Mitch Slater
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Atlanta Concerts, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Chief Financial Officer, Vice President June 8, 1998
- ----------------------------- (principal financial and principal
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, General June 8, 1998
- ----------------------------- Counsel, Secretary and Director
Howard J. Tytel
* Co-President and Director June 8, 1998
- -----------------------------
Peter Conlon
* Co-President June 8, 1998
- -----------------------------
Alex Cooley
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Beach Concerts, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Mitch Slater
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
BGP Acquisition, LLC
By: SFX Entertainment, Inc.,
its managing member
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman, Member of the June 8, 1998
- ----------------------------- Office of the Chairman and Director
Robert F.X. Sillerman (principal executive officer)
* President, Chief Executive Officer, June 8, 1998
- ----------------------------- Member of the Office of the
Michael G. Ferrel Chairman and Director
* Executive Vice President and Director June 8, 1998
- -----------------------------
D. Geoffrey Armstrong
* Chief Financial Officer, Vice President June 8, 1998
- ----------------------------- an Director (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, General June 8, 1998
- ----------------------------- Counsel, Secretary and Director
Howard J. Tytel
* Vice President, Associate General June 8, 1998
- ----------------------------- Counsel and Director
Richard A. Liese
* Director June 8, 1998
- -----------------------------
James F. O'Grady, Jr.
* Director June 8, 1998
- -----------------------------
Paul Kramer
* Director June 8, 1998
- -----------------------------
Edward F. Dugan
* Director June 8, 1998
- -----------------------------
Brian Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Bill Graham Enterprises, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Nicholas P. Clainos
* Director June 8, 1998
- -----------------------------
Gregg D. Perloff
* Director June 8, 1998
- -----------------------------
Franklin D. Rockwell, Jr.
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Bill Graham Management, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Nicholas P. Clainos
* Director June 8, 1998
- -----------------------------
Gregg D. Perloff
* Director June 8, 1998
- -----------------------------
Franklin D. Rockwell, Jr.
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Bill Graham Presents, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Nicholas P. Clainos
* Director June 8, 1998
- -----------------------------
Gregg D. Perloff
* Director June 8, 1998
- -----------------------------
Franklin D. Rockwell, Jr.
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Broadway Concerts, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Mitch Slater
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Cooley and Conlon Management Co.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer (principal June 8, 1998
- ----------------------------- financial and accounting officer)
Thomas P. Benson
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Co-President and Director June 8, 1998
- -----------------------------
Peter Conlon
* Co-President June 8, 1998
- -----------------------------
Alex Cooley
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Concerts, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President and Co-Chief Executive June 8, 1998
- ----------------------------- Officer
Ron Delsener
* Co-President and Co-Chief Executive June 8, 1998
- ----------------------------- Officer
Mitch Slater
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Connecticut Amphitheater Development
Corp.
By: /s/ Howard J. Tytel
----------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Mitch Slater
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Connecticut Concerts, Incorporated
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Mitch Slater
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Connecticut Performing Arts, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Mitch Slater
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Connecticut Performing Arts
Partners
By: NOC, Inc., a general partner
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Mitch Slater
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Conn Ticketing Company
By: Northeast Ticketing Company, a general
partner
By: /s/ Howard J. Tytel
--------------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Mitch Slater
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Contemporary Group Acquisition
Corp.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Chief Executive Officer and Director June 8, 1998
- ----------------------------- (principal executive officer)
Michael G. Ferrel
* Chief Financial Officer June 8, 1998
- ----------------------------- (principal financial and accounting
Thomas P. Benson officer)
/s/ Howard J. Tytel Executive Vice President, June 8, 1998
- ----------------------------- Secretary and Director
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Contemporary Group, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Chief Executive Officer and Director June 8, 1998
- ----------------------------- (principal executive officer)
Michael G. Ferrel
* Chief Financial Officer June 8, 1998
- ----------------------------- (principal financial and accounting
Thomas P. Benson officer)
/s/ Howard J. Tytel Executive Vice President, June 8, 1998
- ----------------------------- Secretary and Director
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-36
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Contemporary Marketing, Inc
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Chief Executive Officer and Director June 8, 1998
- ----------------------------- (principal executive officer)
Michael G. Ferrel
* Chief Financial Officer June 8, 1998
- ----------------------------- (principal financial and accounting
Thomas P. Benson officer)
/s/ Howard J. Tytel Executive Vice President, June 8, 1998
- ----------------------------- Secretary and Director
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Contemporary Productions,
Incorporated
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Chief Executive Officer, and Director June 8, 1998
- ----------------------------- (principal executive officer)
Michael G. Ferrel
* Chief Financial Officer June 8, 1998
- ----------------------------- (principal financial and accounting
Thomas P. Benson officer)
/s/ Howard J. Tytel Executive Vice President, June 8, 1998
- ----------------------------- Secretary and Director
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-38
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Contemporary Sports, Incorporated
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Chief Executive Officer and Director June 8, 1998
- ----------------------------- (principal executive officer)
Michael G. Ferrel
* Chief Financial Officer June 8, 1998
- ----------------------------- (principal financial and accounting
Thomas P. Benson officer)
/s/ Howard J. Tytel Executive Vice President, June 8, 1998
- ----------------------------- Secretary and Director
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Deer Creek Amphitheater Concerts,
Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer, President June 8, 1998
- ----------------------------- and Director
P. David Lucas
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-40
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Deer Creek Amphitheater Concerts
L.P.
By: Deer Creek Amphitheater
Concerts, Inc., its general
partner
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer, President June 8, 1998
- ----------------------------- and Director
P. David Lucas
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-41
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Delsener/Slater Enterprises, Ltd.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* President, Chief Executive Officer, June 8, 1998
- ----------------------------- Member of the Office of the
Michael G. Ferrel
Chairman and Director
/s/ Howard J. Tytel Executive Vice President, General June 8, 1998
- ----------------------------- Counsel, Secretary and Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer and Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer and Director
Mitch Slater
* Vice President, Chief Financial Officer June 8, 1998
- ----------------------------- (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-42
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Dumb Deal, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Mitch Slater
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-43
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Entertainment Performing Arts, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer, Vice President June 8, 1998
- ----------------------------- and Director (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer and Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer and Director
Mitch Slater
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-44
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Exit 116 Revisited, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Mitch Slater
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-45
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Festival Productions, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-46
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Fillmore Corporation
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Nicholas P. Clainos
* Director June 8, 1998
- -----------------------------
Gregg D. Perloff
* Director June 8, 1998
- -----------------------------
Franklin D. Rockwell, Jr.
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-47
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Fillmore Fingers, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Nicholas P. Clainos
* Director June 8, 1998
- -----------------------------
Gregg D. Perloff
* Director June 8, 1998
- -----------------------------
Franklin D. Rockwell, Jr.
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-48
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
FPI Concerts, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Mitch Slater
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-49
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
GSAC Partners
By: Pavilion Partners, its general
partner
By: SM/PACE, Inc., its general
partner
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-50
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
High Cotton, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Co-President and Director June 8, 1998
- -----------------------------
Peter Conlon
* Chief Executive Officer and Director June 8, 1998
- ----------------------------- (principal executive officer)
Michael G. Ferrel
* Chief Financial Officer June 8, 1998
- ----------------------------- (principal financial and accounting
Thomas P. Benson officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President June 8, 1998
- -----------------------------
Alex Cooley
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-51
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
In House Tickets, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Mitch Slater
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-52
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Irving Plaza Concerts, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Attorney-in-Fact for Thomas P.
Benson, Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President and Director June 8, 1998
- ----------------------------- (principal executive officer)
Bill Brusca
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal executive officer
Thomas P. Benson and principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-53
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Murat Center Concerts, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer June 8, 1998
- ----------------------------- (principal financial and accounting
Thomas P. Benson officer)
/s/ Howard J. Tytel Executive Vice President, General June 8, 1998
- ----------------------------- Counsel, Secretary and Director
Howard J. Tytel (principal executive officer)
* Chief Executive Officer and President June 8, 1998
- -----------------------------
P. David Lucas
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-54
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Murat Center Concerts, L.P.
By: Murat Center Concerts, Inc., its
general partner
By: /s/ Howard J. Tytel
--------------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer June 8, 1998
- ----------------------------- (principal financial and accounting
Thomas P. Benson officer)
/s/ Howard J. Tytel Executive Vice President, General June 8, 1998
- ----------------------------- Counsel, Secretary and Director
Howard J. Tytel (principal executive officer)
* Chief Executive Officer and President June 8, 1998
- -----------------------------
P. David Lucas
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-55
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
NOC, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, General June 8, 1998
- ----------------------------- Counsel, Secretary and Director
Howard J. Tytel
* Vice President, Chief Financial Officer June 8, 1998
- ----------------------------- (principal financial officer and
Thomas P. Benson principal accounting officer)
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer and Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer and Director
Mitch Slater
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-56
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Northeast Ticketing Company
By: NOC, Inc., its general partner
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* President, Chief Executive Officer and June 8, 1998
- ----------------------------- Director
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, General June 8, 1998
- ----------------------------- Counsel, Secretary and Director
Howard J. Tytel
* Vice President, Chief Financial Officer June 8, 1998
- ----------------------------- (principal financial officer and
Thomas P. Benson principal accounting officer)
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer and Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer and Director
Mitch Slater
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-57
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Old PCI, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-58
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE AEP Acquisition, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-59
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE Amphitheaters, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-60
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE Amphitheater Management, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-61
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE Bayou Place, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-62
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE Communications, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-63
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE Concerts GP, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-64
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE Concerts, Ltd.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-65
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE Entertainment Corporation
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-66
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE Entertainment GP Corp.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-67
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE Entertainment Group, Ltd.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-68
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE Milton Keynes, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-69
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE Motor Sports, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-70
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE Music Group, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-71
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE Productions, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-72
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE Theatrical Group, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-73
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE Touring, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-74
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE Variety Entertainment, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Attorney-in-Fact for Thomas P.
Benson, Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer) (principal
executive officer)
* Director June 8, 1998
- -----------------------------
Kraig Fox
* Director June 8, 1998
- -----------------------------
Gary Becker
* Director June 8, 1998
- -----------------------------
Peter Straus
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-75
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PACE UK Holding Corporation
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-76
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Pavilion Partners
By: SM/PACE, Inc., its general
partner
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-77
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PEC, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-78
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Polaris Amphitheater Concerts, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer, President and June 8, 1998
- ----------------------------- Director
P. David Lucas
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-79
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
PTG-Florida, Inc.
By: PACE Theatrical Group, Inc. its
general partner
By: /s/ Howard J. Tytel
--------------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-80
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
QN Corp.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Mitch Slater
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-81
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
SFX Broadcasting of the Midwest,
Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Attorney-in-Fact for
Thomas P. Benson, Vice
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President and Director June 8, 1998
- -----------------------------
P. David Lucas
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
/s/ Howard J. Tytel Director June 8, 1998
- -----------------------------
Howard J. Tytel
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal executive officer)
Thomas P. Benson (principal financial officer and
principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-82
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
SFX Concerts, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Mitch Slater
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-83
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
SFX Network Group, LLC
By: SFX Entertainment, Inc., its Managing
Member
By: /s/ Howard J. Tytel
--------------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman, Member of the June 8, 1998
- ----------------------------- Office of the Chairman and Director
Robert F.X. Sillerman
(principal executive officer)
* President, Chief Executive Officer, June 8, 1998
- ----------------------------- Member of the Office of the
Michael G. Ferrel Chairman and Director
* Executive Vice President and Director June 8, 1998
- -----------------------------
D. Geoffrey Armstrong
* Chief Financial Officer, Vice President June 8, 1998
- ----------------------------- and Director (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, General June 8, 1998
- ----------------------------- Counsel, Secretary and Director
Howard J. Tytel
* Vice President, Associate General June 8, 1998
- ----------------------------- Counsel and Director
Richard A. Liese
* Director June 8, 1998
- -----------------------------
James F. O'Grady, Jr.
* Director June 8, 1998
- -----------------------------
Paul Kramer
* Director June 8, 1998
- -----------------------------
Edward F. Dugan
* Director June 8, 1998
- -----------------------------
Brian Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-84
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Shoreline Amphitheatre, Ltd.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Nicholas P. Clainos
* Director June 8, 1998
- -----------------------------
Gregg D. Perloff
* Director June 8, 1998
- -----------------------------
Franklin D. Rockwell, Jr.
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-85
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Shoreline Amphitheatre Partners
By: Shoreline Ampitheatre, Ltd., its
general partner
By: /s/ Howard J. Tytel
--------------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Nicholas P. Clainos
* Director June 8, 1998
- -----------------------------
Gregg D. Perloff
* Director June 8, 1998
- -----------------------------
Franklin D. Rockwell, Jr.
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-86
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
SJS Entertainment Corporation
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1938, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Vice President, Chief Financial Officer June 8, 1998
- ----------------------------- and Director (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Assistant June 8, 1998
- ----------------------------- Secretary and Director (principal
Howard J. Tytel executive officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-87
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
SM/PACE, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-88
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Southeast Ticketing Company
By: Connecticut Amphitheatre Development
Corp., its general partner
By: /s/ Howard J. Tytel
--------------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman and Director June 8, 1998
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Ron Delsener
* Co-President, Co-Chief Executive June 8, 1998
- ----------------------------- Officer, Director
Mitch Slater
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-89
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Southern Promotions, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Co-President and Director June 8, 1998
- -----------------------------
Peter Conlon
* Chief Executive Officer and Director June 8, 1998
- ----------------------------- (principal executive officer)
Michael G. Ferrel
* Chief Financial Officer (principal June 8, 1998
- ----------------------------- financial and accounting officer)
Thomas P. Benson
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director
Howard J. Tytel
* Co-President June 8, 1998
- -----------------------------
Alex Cooley
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-90
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Sunshine Concerts, LLC
By: SFX Broadcasting of the Midwest,
Inc., its managing member
By: /s/ Howard J. Tytel
----------------------------------
Howard J. Tytel,
Attorney-in-Fact for
Thomas P. Benson, Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President and Director June 8, 1998
- -----------------------------
P. David Lucas
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Director June 8, 1998
- -----------------------------
Howard J. Tytel
* Vice President, Chief Financial Officer June 8, 1998
- ----------------------------- (principal executive officer) (principal
Thomas P. Benson financial officer and principal
accounting officer)
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-91
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Sunshine Designs, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and President June 8, 1998
- -----------------------------
P. David Lucas
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-92
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Sunshine Designs, LP
By: Sunshine Design, Inc., its
general partner
By: /s/ Howard J. Tytel
----------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and President June 8, 1998
- -----------------------------
P. David Lucas
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-93
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Suntex Acquisition, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer June 8, 1998
- -----------------------------
P. David Lucas
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-94
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Suntex Acquisition, LP
By: Suntex Acquisition, Inc., its
general partner
By: /s/ Howard J. Tytel
-----------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer June 8, 1998
- -----------------------------
P. David Lucas
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Vice President and Chief Financial June 8, 1998
- ----------------------------- Officer (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-95
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
The Album Network, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and Director June 8, 1998
- ----------------------------- (principal executive officer)
Michael G. Ferrel
* Vice President, Chief Financial Officer June 8, 1998
- ----------------------------- and Director (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Assistant June 8, 1998
- ----------------------------- Secretary and Director
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-96
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Touring Productions, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-97
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Tuneful Company, Inc.
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
* Director June 8, 1998
- -----------------------------
Brian Becker
* Director June 8, 1998
- -----------------------------
Allen Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-98
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Westbury Music Fair, LLC
By: SFX Entertainment, Inc., its managing
member
By: /s/ Howard J. Tytel
--------------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Chairman, Member of the June 8, 1998
- ----------------------------- Office of the Chairman and Director
Robert F.X. Sillerman (principal executive officer)
* President, Chief Executive Officer, June 8, 1998
- ----------------------------- Member of the Office of the
Michael G. Ferrel Chairman and Director
* Executive Vice President and Director June 8, 1998
- -----------------------------
D. Geoffrey Armstrong
* Chief Financial Officer, Vice President June 8, 1998
- ----------------------------- and Director (principal financial and
Thomas P. Benson accounting officer)
/s/ Howard J. Tytel Executive Vice President, General June 8, 1998
- ----------------------------- Counsel, Secretary and Director
Howard J. Tytel
* Vice President, Associate General June 8, 1998
- ----------------------------- Counsel and Director
Richard A. Liese
* Director June 8, 1998
- -----------------------------
James F. O'Grady, Jr.
* Director June 8, 1998
- -----------------------------
Paul Kramer
* Director June 8, 1998
- -----------------------------
Edward F. Dugan
* Director June 8, 1998
- -----------------------------
Brian Becker
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-99
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment 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 June 8, 1998.
Wolfgang Records
By: /s/ Howard J. Tytel
-------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registrant, its general partner or managing member, as the case
may be, and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 8, 1998
- -----------------------------
Robert F.X. Sillerman
* Director June 8, 1998
- -----------------------------
Nicholas P. Clainos
* Director June 8, 1998
- -----------------------------
Gregg D. Perloff
* Director June 8, 1998
- -----------------------------
Franklin D. Rockwell, Jr.
* Chief Financial Officer and Vice June 8, 1998
- ----------------------------- President (principal financial
Thomas P. Benson and accounting officer)
/s/ Howard J. Tytel Executive Vice President, Secretary and June 8, 1998
- ----------------------------- Director (principal executive officer)
Howard J. Tytel
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-100
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "OAKDALE THEATER CONCERTS, INC.", FILED IN THIS OFFICE ON THE
THIRTIETH DAY OF MARCH, A.D. 1998, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-------------------
EDWARD J. FREEL, SECRETARY OF STATE
<PAGE>
CERTIFICATE OF INCORPORATION
----------------------------
OF
OAKDALE THEATER CONCERTS, INC.
------------------------------
The undersigned, a natural person, for the purpose of
organizing a corporation for conducting the business and promoting the purposes
hereinafter stated, under the provisions and subject to the requirements of the
laws of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware
Code and the acts amendatory thereof and supplemental thereto, and known,
identified, and referred to as the "General Corporation Law of the State of
Delaware"), hereby certifies that:
FIRST: The name of the corporation (hereinafter called the
"corporation") is Oakdale Theater Concerts, Inc.
SECOND: The address, including street, number, city and
county, of the registered office of the corporation in the State of Delaware is
1013 Centre Road, City of Wilmington 19805, County of New Castle; and the name
of the registered agent of the corporation in the State of Delaware at such
address is Corporation Service Company.
THIRD: The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the
corporation shall have authority to issue is one thousand. The par value of
each of such shares is one cent. All such shares are of one class and are
shares of Common Stock.
FIFTH: The name and the mailing address of the incorporator
is as follows:
NAME MAILING ADDRESS
---- ---------------
Deborah Goldman-Levi 650 Madison Avenue, 16th Floor
New York, NY 10022
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them and/or between
this corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in
a summary way of this corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for this corporation
under Section 291 of Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
corporation under Section 279 of Title 8 of the Delaware Code order a meeting
<PAGE>
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
EIGHTH: For the management of the business and for the
conduct of the affairs of the corporation, and in further definition,
limitation, and regulation of the powers of the corporation and of its
directors and of its stockholders or any class thereof, as the case may be, it
is further provided:
1. The management of the business and the conduct of the
affairs of the corporation shall be vested in its Board of Directors. The
number of directors which shall constitute the whole Board of Directors shall
be fixed by, or in the manner provided in, the Bylaws. The phrase "whole Board"
and the phrase "total number of directors" shall be deemed to have the same
meaning, to wit, the total number of directors which the corporation would have
if there were no vacancies. No election of directors need be by written ballot.
2. After the original or other Bylaws of the corporation have
been adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and, after the corporation has received any payment for any of its
stock, the power to adopt, amend, or repeal the Bylaws of the corporation may
be exercised by the Board of Directors of the corporation; provided, however,
that any provision for the classification of directors of the corporation for
staggered terms pursuant to the provisions of subsections (d) of Section 141 of
the General Corporation Law of the State of Delaware shall be set forth in an
initial Bylaw or in a Bylaw adopted by the stockholders entitled to vote of the
corporation unless provisions for such classification shall be set forth in this
certificate of incorporation.
3. Whenever the corporation shall be authorized to issue only
one class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever the
corporation shall be authorized to issue more than one class of stock, no
outstanding share of any class of stock which is denied voting power under the
provisions of the certificate of incorporation shall entitle the holder thereof
to the right to vote at any meeting of stockholders except as the provisions of
paragraph (2) of subsection (b) of Section 242 of the General Corporation Law
of the State of Delaware shall otherwise require; provided, that no share of
any such class which is otherwise denied voting power shall entitle the holder
thereof to vote upon the increase to decrease in the number of authorized
shares of said class.
-2-
<PAGE>
NINTH: The personal liability of the directors of the
corporation is hereby eliminated to the fullest extent permitted by the
provisions of paragraph (7) of subsection (b) of Section 102 of the General
Corporation Law of the State of Delaware, as the same may be amended and
supplemented.
TENTH: The corporation shall, to the fullest extent permitted
by the provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities, or other matters referred to
in or covered by said section, and the indemnification provided for herein
shall not be deemed exclusive of any other rights to which those indemnified
may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
ELEVENTH: From time to time any of the provisions of this
certificate of incorporation maybe amended, altered, or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the corporation
by this certificate of incorporation are granted subject to the provisions of
this Article ELEVENTH.
Signed on March 30, 1998
/s/ Deborah Goldman-Levi
----------------------------------
Deborah Goldman-Levi, Incorporator
-3-
<PAGE>
BY-LAWS
OF
OAKDALE THEATER CONCERTS, INC.
ARTICLE I
OFFICES
-------
1.1 Registered Office: The registered office shall be
established and maintained at and shall be the registered agent of the
Corporation in charge hereof.
1.2 Other Offices: The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require, provided, however, that the corporation's books and
records shall be maintained at such place within the continental United States
as the Board of Directors shall from time to time designate.
ARTICLE II
STOCKHOLDERS
------------
2.1 Place of Stockholders' Meetings: All meetings of the
stockholders of the corporation shall be held at such place or places, within
or outside the State of Delaware as may be fixed by the Board of Directors from
time to time or as shall be specified in the respective notices thereof.
2.2 Date and Hour of Annual Meetings of Stockholders: An
annual meeting of stockholders shall be held each year within five months after
the close of the fiscal year of the Corporation.
2.3 Purpose of Annual Meetings: At each annual meeting, the
stockholders shall elect the members of the Board of Directors for the
succeeding year. At any such annual meeting any further proper business may be
transacted.
2.4 Special Meetings of Stockholders: Special meetings of the
stockholders or of any class or series thereof entitled to vote may be called
by the President or by the Chairman of the Board of Directors, or at the
request in writing by stockholders of record owning at least fifty (50%)
percent of the issued and outstanding voting shares of common stock of the
corporation.
2.5 Notice of Meetings of Stockholders: Except as otherwise
expressly required or permitted by law, not less than ten days nor more than
sixty days before the date of every stockholders' meeting the Secretary shall
give to each stockholder of record entitled to vote at such
<PAGE>
meeting, written notice, served personally by mail or by telegram, stating the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. Such notice, if mailed
shall be deemed to be given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address for notices to such
stockholder as it appears on the records of the corporation.
2.6 Quorum of Stockholders: (a) Unless otherwise provided by
the Certificate of Incorporation or by law, at any meeting of the stockholders,
the presence in person or by proxy of stockholders entitled to cast a majority
of the votes thereat shall constitute a quorum. The withdrawal of any
shareholder after the commencement of a meeting shall have no effect on the
existence of a quorum, after a quorum has been established at such meeting.
(b) At any meeting of the stockholders at which a quorum
shall be present, a majority of voting stockholders, present in person or by
proxy, may adjourn the meeting from time to time without notice other than
announcement at the meeting. In the absence of a quorum, the officer presiding
thereat shall have power to adjourn the meeting from time to time until a
quorum shall be present. Notice of any adjourned meeting, other than
announcement at the meeting, shall not be required to be given except as
provided in paragraph (d) below and except where expressly required by law.
(c) At any adjourned session at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting originally called but only those stockholders entitled to vote at the
meeting as originally noticed shall be entitled to vote at any adjournment or
adjournments thereof, unless a new record date is fixed by the Board of
Directors.
(d) If an adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
2.7 Chairman and Secretary of Meeting: The President, shall
preside at meetings of the stockholders. The Secretary shall act as secretary
of the meeting or if he is not present, then the presiding officer may appoint
a person to act as secretary of the meeting.
2.8 Voting by Stockholders: Except as may be otherwise
provided by the Certificate of Incorporation or these by-laws, at every meeting
of the stockholders each stockholder shall be entitled to one vote for each
share of voting stock standing in his name on the books of the corporation on
the record date for the meeting. Except as otherwise provided by these by-laws,
all elections and questions shall be decided by the vote of a majority in
interest of the stockholders present in person or represented by proxy and
entitled to vote at the meeting.
-2-
<PAGE>
2.9 Proxies: Any stockholder entitled to vote at any meeting
of stockholders may vote either in person or by proxy. Every proxy shall be in
writing, subscribed by the stockholder or his duly authorized attorney-in-fact,
but need not be dated, sealed, witnessed or acknowledged.
2.10 Inspectors: The election of directors and any other vote
by ballot at any meeting of the stockholders shall be supervised by at least
two inspectors. Such inspectors may be appointed by the presiding officer
before or at the meeting; or if one or both inspectors so appointed shall
refuse to serve or shall not be present, such appointment shall be made by the
officer presiding at the meeting.
2.11 List of Stockholders: (a) At least ten days before every
meeting of stockholders, the Secretary shall prepare and make a complete list
of the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder.
(b) During ordinary business hours, for a period of at least
ten days prior to the meeting, such list shall be open to examination by any
stockholder for any purpose germane to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting
is to be held.
(c) The list shall also be produced and kept at the time and
place of the meeting during the whole time of the meeting, and it may be
inspected by any stockholder who is present.
(d) The stock ledger shall be the only evidence as to who
are the stockholders entitled to examine the stock ledger, the list required by
this Section 2.11 or the books of the corporation, or to vote in person or by
proxy at any meeting of stockholders.
2.12 Procedure at Stockholders' Meetings: Except as otherwise
provided by these by-laws or any resolutions adopted by the stockholders or
Board of Directors, the order of business and all other matters of procedure at
every meeting of stockholders shall be determined by the presiding officer.
2.13 Action By Consent Without Meeting: Unless otherwise
provided by the Certificate of Incorporation, any action required to be taken
at any annual or special meeting of stockholders, or any action which may be
taken at any annual or special meeting, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
-3-
<PAGE>
ARTICLE III
DIRECTORS
---------
3.1 Powers of Directors: The property, business and affairs
of the corporation shall be managed by its Board of Directors which may
exercise all the powers of the corporation except such as are by the law of the
State of Delaware or the Certificate of Incorporation or these by-laws required
to be exercised or done by the stockholders.
3.2 Number, Method of Election, Terms of Office of Directors:
The number of directors which shall constitute the Board of Directors shall be
(___) unless and until otherwise determined by a vote of a majority of the
entire Board of Directors. Each Director shall hold office until the next
annual meeting of stockholders and until his successor is elected and
qualified, provided, however, that a director may resign at any time. Directors
need not be stockholders.
3.3 Vacancies on Board of Directors; Removal: (a) Any
director may resign his office at any time by delivering his resignation in
writing to the Chairman of the Board or to the President. It will take effect
at the time specified therein or, if no time is specified, it will be effective
at the time of its receipt by the corporation. The acceptance of a resignation
shall not be necessary to make it effective, unless expressly so provided in
the resignation.
(b) Any vacancy in the authorized number of directors may be
filled by majority vote of the stockholders and any director so chosen shall
hold office until the next annual election of directors by the stockholders and
until his successor is duly elected and qualified or until his earlier
resignation or removal.
(c) Any director may be removed with or without cause at any
time by the majority vote of the stockholders given at a special meeting of the
stockholders called for that purpose.
3.4 Meetings of the Board of Directors: (a) The Board of
Directors may hold their meetings, both regular and special, either within or
outside the State of Delaware.
(b) Regular meetings of the Board of Directors may be held
at such time and place as shall from time to time be determined by resolution
of the Board of Directors. No notice of such regular meetings shall be
required. If the date designated for any regular meeting be a legal holiday,
then the meeting shall be held on the next day which is not a legal holiday.
(c) The first meeting of each newly elected Board of
Directors shall be held immediately following the annual meeting of the
stockholders for the election of officers and the transaction of such other
business as may come before it. If such meeting is held at the place of the
stockholders' meeting, no notice thereof shall be required.
-4-
<PAGE>
(d) Special meetings of the Board of Directors shall be held
whenever called by direction of the Chairman of the Board or the President or
at the written request of any one director.
(e) The Secretary shall give notice to each director of any
special meeting of the Board of Directors by mailing the same at least three
days before the meeting or by telegraphing, telexing, or delivering the same
not later than the date before the meeting.
Unless required by law, such notice need not include a
statement of the business to be transacted at, or the purpose of, any such
meeting. Any and all business may be transacted at any meeting of the Board of
Directors. No notice of any adjourned meeting need be given. No notice to or
waiver by any director shall be required with respect to any meeting at which
the director is present.
3.5 Quorum and Action: Unless provided otherwise by law or by
the Certificate of Incorporation or these by-laws, a majority of the Directors
shall constitute a quorum for the transaction of business; but if there shall
be less than a quorum at any meeting of the Board, a majority of those present
may adjourn the meeting from time to time. The vote of a majority of the
Directors present at any meeting at which a quorum is present shall be
necessary to constitute the act of the Board of Directors.
3.6 Presiding Officer and Secretary of the Meeting: The
President, or, in his absence a member of the Board of Directors selected by
the members present, shall preside at meetings of the Board. The Secretary
shall act as secretary of the meeting, but in his absence the presiding officer
may appoint a secretary of the meeting.
3.7 Action by Consent Without Meeting: Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes or proceedings of the Board or committee.
3.8 Action by Telephonic Conference: Members of the Board of
Directors, or any committee designated by such board, may participate in a
meeting of such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in such a meeting shall
constitute presence in person at such meeting.
3.9 Committees: The Board of Directors shall, by resolution
or resolutions passed by a majority of Directors designate one or more
committees, each of such committees to consist of one or more Directors of the
Corporation, for such purposes as the Board shall determine. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee.
-5-
<PAGE>
3.10 Compensation of Directors: Directors shall receive such
reasonable compensation for their service on the Board of Directors or any
committees thereof, whether in the form of salary or a fixed fee for attendance
at meetings, or both, with expenses, if any, as the Board of Directors may from
time to time determine. Nothing herein contained shall be construed to preclude
any Director from serving in any other capacity and receiving compensation
therefor.
ARTICLE IV
OFFICERS
--------
4.1 Officers, Title, Elections, Terms: (a) The elected
officers of the corporation shall be a President, a Treasurer and a Secretary,
and such other officers as the Board of Directors shall deem advisable. The
officers shall be elected by the Board of Directors at its annual meeting
following the annual meeting of the stockholders, to serve at the pleasure of
the Board or otherwise as shall be specified by the Board at the time of such
election and until their successors are elected and qualified.
(b) The Board of Directors may elect or appoint at any time,
and from time to time, additional officers or agents with such duties as it may
deem necessary or desirable. Such additional officers shall serve at the
pleasure of the Board or otherwise as shall be specified by the Board at the
time of such election or appointment. Two or more offices may be held by the
same person.
(c) Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
(d) Any officer may resign his office at any time. Such
resignation shall be made in writing and shall take effect at the time
specified therein or, if no time has been specified, at the time of its receipt
by the corporation. The acceptance of a resignation shall not be necessary to
make it effective, unless expressly so provided in the resignation.
(e) The salaries of all officers of the corporation shall be
fixed by the Board of Directors.
4.2 Removal of Elected Officers: Any elected officer may be
removed at any time, either with or without cause, by resolution adopted at any
regular or special meeting of the Board of Directors by a majority of the
Directors then in office.
4.3 Duties: (a) President: The President shall be the
principal executive officer of the corporation and, subject to the control of
the Board of Directors, shall supervise and control all the business and
affairs of the corporation. He shall, when present, preside at all meetings of
the stockholders and of the Board of Directors. He shall see that all orders
and resolutions of the Board of Directors are carried into effect (unless any
such order or resolution shall provide otherwise), and
-6-
<PAGE>
in general shall perform all duties incident to the office of president and
such other duties as may be prescribed by the Board of Directors from time to
time.
4.4 Treasurer: The Treasurer shall (1) have charge and
custody of and be responsible for all funds and securities of the Corporation;
(2) receive and give receipts for moneys due and payable to the corporation
from any source whatsoever; (3) deposit all such moneys in the name of the
corporation in such banks, trust companies, or other depositories as shall be
selected by resolution of the Board of Directors; and (4) in general perform
all duties incident to the office of treasurer and such other duties as from
time to time may be assigned to him by the President or by the Board of
Directors. He shall, if required by the Board of Directors, give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties
as the Board of Directors shall determine.
4.5 Secretary: The Secretary shall (1) keep the minutes of
the meetings of the stockholders, the Board of Directors, and all committees,
if any, of which a secretary shall not have been appointed, in one or more
books provided for that purpose; (2) see that all notices are duly given in
accordance with the provisions of these by-laws and as required by law; (3) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents, the execution of
which on behalf of the corporation under its seal, is duly authorized; (4) keep
a register of the post office address of each stockholder which shall be
furnished to the Secretary by such stockholder; (5) have general charge of
stock transfer books of the corporation; and (6) in general perform all duties
incident to the office of secretary and such other duties as from time to time
may be assigned to him by the President or by the Board of Directors.
ARTICLE V
CAPITAL STOCK
-------------
5.1 Stock Certificates: (a) Every holder of stock in the
corporation shall be entitled to have a certificate signed by, or in the name
of, the corporation by the President and by the Treasurer or the Secretary,
certifying the number of shares owned by him.
(b) If such certificate is countersigned by a transfer agent
other than the corporation or its employee, or by a registrar other than the
corporation or its employee, the signatures of the officers of the corporation
may be facsimiles, and, if permitted by law, any other signature may be a
facsimile.
(c) In case any officer who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the corporation
with the same effect as if he were such officer at the date of issue.
-7-
<PAGE>
(d) Certificates of stock shall be issued in such form not
inconsistent with the Certificate of Incorporation as shall be approved by the
Board of Directors, and shall be numbered and registered in the order in which
they were issued.
(e) All certificates surrendered to the corporation shall be
canceled with the date of cancellation, and shall be retained by the Secretary,
together with the powers of attorney to transfer and the assignments of the
shares represented by such certificates, for such period of time as shall be
prescribed from time to time by resolution of the Board of Directors.
5.2 Record Ownership: A record of the name and address of the
holder of such certificate, the number of shares represented thereby and the
date of issue thereof shall be made on the corporation's books. The corporation
shall be entitled to treat the holder of any share of stock as the holder in
fact thereof, and accordingly shall not be bound to recognize any equitable or
other claim to or interest in any share on the part of any other person,
whether or not it shall have express or other notice thereof, except as
required by law.
5.3 Transfer of Record Ownership: Transfers of stock shall be
made on the books of the corporation only by direction of the person named in
the certificate or his attorney, lawfully constituted in writing, and only upon
the surrender of the certificate therefor and a written assignment of the
shares evidenced thereby. Whenever any transfer of stock shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer if, when the certificates are presented to the corporation for
transfer, both the transferor and the transferee request the corporation to do
so.
5.4 Lost, Stolen or Destroyed Certificates: Certificates
representing shares of the stock of the corporation shall be issued in place of
any certificate alleged to have been lost, stolen or destroyed in such manner
and on such terms and conditions as the Board of Directors from time to time
may authorize.
5.5 Transfer Agent; Registrar; Rules Respecting Certificates:
The corporation may maintain one or more transfer offices or agencies where
stock of the corporation shall be transferable. The corporation may also
maintain one or more registry offices where such stock shall be registered. The
Board of Directors may make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of stock certificates.
5.6 Fixing Record Date for Determination of Stockholders of
Record: The Board of Directors may fix, in advance, a date as the record date
for the purpose of determining stockholders entitled to notice of, or to vote
at, any meeting of the stockholders or any adjournment thereof, or the
stockholders entitled to receive payment of any dividend or other distribution
or the allotment of any rights, or entitled to exercise any rights in respect
of any change, conversion or exchange of stock, or to express consent to
corporate action in writing without a meeting, or in order to make a
determination of the stockholders for the purpose of any other lawful action.
Such record date in any case shall be not more than sixty days nor less than
ten days before the date of a meeting
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<PAGE>
of the stockholders, nor more than sixty days prior to any other action
requiring such determination of the stockholders. A determination of
stockholders of record entitled to notice or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
5.7 Dividends: Subject to the provisions of the Certificate
of Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the Board of Directors from time to time in
their discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
Board of Directors shall deem conducive to the interests of the corporation.
ARTICLE VI
SECURITIES HELD BY THE CORPORATION
----------------------------------
6.1 Voting: Unless the Board of Directors shall otherwise
order, the President, the Secretary or the Treasurer shall have full power and
authority, on behalf of the corporation, to attend, act and vote at any meeting
of the stockholders of any corporation in which the corporation may hold stock,
and at such meeting to exercise any or all rights and powers incident to the
ownership of such stock, and to execute on behalf of the corporation a proxy or
proxies empowering another or others to act as aforesaid. The Board of
Directors from time to time may confer like powers upon any other person or
persons.
6.2 General Authorization to Transfer Securities Held by the
Corporation: (a) Any of the following officers, to wit: the President and the
Treasurer shall be, and they hereby are, authorized and empowered to transfer,
convert, endorse, sell, assign, set over and deliver any and all shares of
stock, bonds, debentures, notes, subscription warrants, stock purchase
warrants, evidence of indebtedness, or other securities now or hereafter
standing in the name of or owned by the corporation, and to make, execute and
deliver, under the seal of the corporation, any and all written instruments of
assignment and transfer necessary or proper to effectuate the authority hereby
conferred.
(b) Whenever there shall be annexed to any instrument of
assignment and transfer executed pursuant to and in accordance with the
foregoing paragraph (a), a certificate of the Secretary of the corporation in
office at the date of such certificate setting forth the provisions of this
Section 6.2 and stating that they are in full force and effect and setting
forth the names of persons who are then officers of the corporation, then all
persons to whom such instrument and annexed certificate shall thereafter come,
shall be entitled, without further inquiry or investigation and regardless of
the date of such certificate, to assume and to act in reliance upon the
assumption that the shares of stock or other securities named in such
instrument were theretofore duly and properly
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<PAGE>
transferred, endorsed, sold, assigned, set over and delivered by the
corporation, and that with respect to such securities the authority of these
provisions of the by-laws and of such officers is still in full force and
effect.
ARTICLE VII
MISCELLANEOUS
-------------
7.1 Signatories: All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
7.2 Seal: The seal of the corporation shall be in such form
and shall have such content as the Board of Directors shall from time to time
determine.
7.3 Notice and Waiver of Notice: Whenever any notice of the
time, place or purpose of any meeting of the stockholders, directors or a
committee is required to be given under the law of the State of Delaware, the
Certificate of Incorporation or these by-laws, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or
after the holding thereof, or actual attendance at the meeting in person or, in
the case of any stockholder, by his attorney-in-fact, shall be deemed
equivalent to the giving of such notice to such persons.
7.4 Indemnity: The corporation shall indemnify its directors,
officers and employees to the fullest extent allowed by law, provided, however,
that it shall be within the discretion of the Board of Directors whether to
advance any funds, in advance of disposition of any action, suit or proceeding,
and provided further that nothing in this section 7.4 shall be deemed to
obviate the necessity of the Board of Directors to make any determination that
indemnification of the director, officer or employee is proper under the
circumstances because he has met the applicable standard of conduct set forth
in subsections (a) and (b) of Section 145 of the Delaware General Corporation
Law.
7.5 Fiscal Year: Except as from time to time otherwise
determined by the Board of Directors, the fiscal year of the corporation shall
end on .
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<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
---------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "SFX TOURING, INC.", FILED IN THIS OFFICE ON THE ELEVENTH DAY
OF MARCH, A.D. 1998, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------
EDWARD J. FREEL, SECRETARY OF STATE
<PAGE>
CERTIFICATE OF INCORPORATION
----------------------------
OF
SFX TOURING, INC.
-----------------
The undersigned, a natural person, for the purpose of
organizing a corporation for conducting the business and promoting the purposes
hereinafter stated, under the provisions and subject to the requirements of the
laws of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware
Code and the acts amendatory thereof and supplemental thereto, and known,
identified, and referred to as the "General Corporation Law of the State of
Delaware"), hereby certifies that:
FIRST: The name of the corporation (hereinafter called the
"corporation") is SFX Touring, Inc.
SECOND: The address, including street, number, city and
county, of the registered office of the corporation in the State of Delaware is
1013 Centre Road, City of Wilmington 19805, County of New Castle; and the name
of the registered agent of the corporation in the State of Delaware at such
address is Corporation Service Company.
THIRD: The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the
corporation shall have authority to issue is one thousand. The par value of
each of such shares is one cent. All such shares are of one class and are
shares of Common Stock.
FIFTH: The name and the mailing address of the incorporator
is as follows:
NAME MAILING ADDRESS
---- ---------------
Deborah Goldman-Levi 150 East 58th Street, 19th Floor
New York, NY 10155
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them and/or between
this corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in
a summary way of this corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for this corporation
under Section 291
<PAGE>
of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation
under Section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
EIGHTH: For the management of the business and for the
conduct of the affairs of the corporation, and in further definition,
limitation, and regulation of the powers of the corporation and of its
directors and of its stockholders or any class thereof, as the case may be, it
is further provided:
1. The management of the business and the conduct of the
affairs of the corporation shall be vested in its Board of
Directors. The number of directors which shall constitute
the whole Board of Directors shall be fixed by, or in the
manner provided in, the Bylaws. The phrase "whole Board" and
the phrase "total number of directors" shall be deemed to
have the same meaning, to wit, the total number of directors
which the corporation would have if there were no vacancies.
No election of directors need be by written ballot.
2. After the original or other Bylaws of the corporation
have been adopted, amended, or repealed, as the case may be,
in accordance with the provisions of Section 109 of the
General Corporation Law of the State of Delaware, and, after
the corporation has received any payment for any of its
stock, the power to adopt, amend, or repeal the Bylaws of the
corporation may be exercised by the Board of Directors of
the corporation; provided, however, that any provision for
the classification of directors of the corporation for
staggered terms pursuant to the provisions of subsections
(d) of Section 141 of the General Corporation Law of the State
of Delaware shall be set forth in an initial Bylaw or in a
Bylaw adopted by the stockholders entitled to vote of the
corporation unless provisions for such classification shall
be set forth in this certificate of incorporation.
3. Whenever the corporation shall be authorized to issue only
one class of stock, each outstanding share shall entitle the
holder thereof to notice of, and the right to vote at, any
meeting of stockholders. Whenever the corporation shall be
authorized to issue more than one class of stock, no
outstanding share of any class of stock which is denied
voting power under the provisions of the certificate of
incorporation shall entitle the holder thereof to the right
to vote at any meeting of stockholders
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<PAGE>
except as the provisions of paragraph (2) of subsection (b)
of Section 242 of the General Corporation Law of the State of
Delaware shall otherwise require; provided, that no share of
any such class which is otherwise denied voting power shall
entitle the holder thereof to vote upon the increase to
decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the
corporation is hereby eliminated to the fullest extent permitted by the
provisions of paragraph (7) of subsection (b) of Section 102 of the General
Corporation Law of the State of Delaware, as the same may be amended and
supplemented.
TENTH: The corporation shall, to the fullest extent permitted
by the provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities, or other matters referred to
in or covered by said section, and the indemnification provided for herein
shall not be deemed exclusive of any other rights to which those indemnified
may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
ELEVENTH: From time to time any of the provisions of this
certificate of incorporation maybe amended, altered, or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the corporation
by this certificate of incorporation are granted subject to the provisions of
this Article ELEVENTH.
Signed on March 11, 1998
/s/ Deborah Goldman-Levi
----------------------------------
Deborah Goldman-Levi, Incorporator
<PAGE>
BY-LAWS
OF
SFX TOURING, INC.
-------------------------
ARTICLE I
OFFICES
-------
1.1 Registered Office: The registered office shall be
established and maintained at and shall be the registered agent of the
Corporation in charge hereof.
1.2 Other Offices: The corporation may have other offices, either within or
without the State of Delaware, at such place or places as the Board of
Directors may from time to time appoint or the business of the corporation may
require, provided, however, that the corporation's books and records shall be
maintained at such place within the continental United States as the Board of
Directors shall from time to time designate.
ARTICLE II
STOCKHOLDERS
------------
2.1 Place of Stockholders' Meetings: All meetings of the
stockholders of the corporation shall be held at such place or places, within
or outside the State of Delaware as may be fixed by the Board of Directors from
time to time or as shall be specified in the respective notices thereof.
2.2 Date and Hour of Annual Meetings of Stockholders: An
annual meeting of stockholders shall be held each year within five months after
the close of the fiscal year of the Corporation.
2.3 Purpose of Annual Meetings: At each annual meeting, the
stockholders shall elect the members of the Board of Directors for the
succeeding year. At any such annual meeting any further proper business may be
transacted.
2.4 Special Meetings of Stockholders: Special meetings of the
stockholders or of any class or series thereof entitled to vote may be called
by the President or by the Chairman of the Board of Directors, or at the
request in writing by stockholders of record owning at least fifty (50%)
percent of the issued and outstanding voting shares of common stock of the
corporation.
2.5 Notice of Meetings of Stockholders: Except as otherwise
expressly required or permitted by law, not less than ten days nor more than
sixty days before the date of every
<PAGE>
stockholders' meeting the Secretary shall give to each stockholder of record
entitled to vote at such meeting, written notice, served personally by mail or
by telegram, stating the place, date and hour of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called.
Such notice, if mailed shall be deemed to be given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his address for
notices to such stockholder as it appears on the records of the corporation.
2.6 Quorum of Stockholders: (a) Unless otherwise provided by
the Certificate of Incorporation or by law, at any meeting of the stockholders,
the presence in person or by proxy of stockholders entitled to cast a majority
of the votes thereat shall constitute a quorum. The withdrawal of any
shareholder after the commencement of a meeting shall have no effect on the
existence of a quorum, after a quorum has been established at such meeting.
(b) At any meeting of the stockholders at which a quorum
shall be present, a majority of voting stockholders, present in person or by
proxy, may adjourn the meeting from time to time without notice other than
announcement at the meeting. In the absence of a quorum, the officer presiding
thereat shall have power to adjourn the meeting from time to time until a
quorum shall be present. Notice of any adjourned meeting, other than
announcement at the meeting, shall not be required to be given except as
provided in paragraph (d) below and except where expressly required by law.
(c) At any adjourned session at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting originally called but only those stockholders entitled to vote at the
meeting as originally noticed shall be entitled to vote at any adjournment or
adjournments thereof, unless a new record date is fixed by the Board of
Directors.
(d) If an adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
2.7 Chairman and Secretary of Meeting: The President, shall
preside at meetings of the stockholders. The Secretary shall act as secretary
of the meeting or if he is not present, then the presiding officer may appoint
a person to act as secretary of the meeting.
2.8 Voting by Stockholders: Except as may be otherwise
provided by the Certificate of Incorporation or these by-laws, at every meeting
of the stockholders each stockholder shall be entitled to one vote for each
share of voting stock standing in his name on the books of the corporation on
the record date for the meeting. Except as otherwise provided by these by-laws,
all elections and questions shall be decided by the vote of a majority in
interest of the stockholders present in person or represented by proxy and
entitled to vote at the meeting.
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<PAGE>
2.9 Proxies: Any stockholder entitled to vote at any meeting
of stockholders may vote either in person or by proxy. Every proxy shall be in
writing, subscribed by the stockholder or his duly authorized attorney-in-fact,
but need not be dated, sealed, witnessed or acknowledged.
2.10 Inspectors: The election of directors and any other vote
by ballot at any meeting of the stockholders shall be supervised by at least
two inspectors. Such inspectors may be appointed by the presiding officer
before or at the meeting; or if one or both inspectors so appointed shall
refuse to serve or shall not be present, such appointment shall be made by the
officer presiding at the meeting.
2.11 List of Stockholders: (a) At least ten days before every
meeting of stockholders, the Secretary shall prepare and make a complete list
of the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder.
(b) During ordinary business hours, for a period of at least
ten days prior to the meeting, such list shall be open to examination by any
stockholder for any purpose germane to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting
is to be held.
(c) The list shall also be produced and kept at the time and
place of the meeting during the whole time of the meeting, and it may be
inspected by any stockholder who is present.
(d) The stock ledger shall be the only evidence as to who
are the stockholders entitled to examine the stock ledger, the list required by
this Section 2.11 or the books of the corporation, or to vote in person or by
proxy at any meeting of stockholders.
2.12 Procedure at Stockholders' Meetings: Except as otherwise
provided by these by-laws or any resolutions adopted by the stockholders or
Board of Directors, the order of business and all other matters of procedure at
every meeting of stockholders shall be determined by the presiding officer.
2.13 Action By Consent Without Meeting: Unless otherwise
provided by the Certificate of Incorporation, any action required to be taken
at any annual or special meeting of stockholders, or any action which may be
taken at any annual or special meeting, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
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<PAGE>
ARTICLE III
DIRECTORS
---------
3.1 Powers of Directors: The property, business and affairs
of the corporation shall be managed by its Board of Directors which may
exercise all the powers of the corporation except such as are by the law of the
State of Delaware or the Certificate of Incorporation or these by-laws required
to be exercised or done by the stockholders.
3.2 Number, Method of Election, Terms of Office of Directors:
The number of directors which shall constitute the Board of Directors shall be
(___) unless and until otherwise determined by a vote of a majority of the
entire Board of Directors. Each Director shall hold office until the next
annual meeting of stockholders and until his successor is elected and
qualified, provided, however, that a director may resign at any time. Directors
need not be stockholders.
3.3 Vacancies on Board of Directors, Removal: (a) Any
director may resign his office at any time by delivering his resignation in
writing to the Chairman of the Board or to the President. It will take effect
at the time specified therein or, if no time is specified, it will be effective
at the time of its receipt by the corporation. The acceptance of a resignation
shall not be necessary to make it effective, unless expressly so provided in
the resignation.
(b) Any vacancy in the authorized number of directors may be
filled by majority vote of the stockholders and any director so chosen shall
hold office until the next annual election of directors by the stockholders and
until his successor is duly elected and qualified or until his earlier
resignation or removal.
(c) Any director may be removed with or without cause at any
time by the majority vote of the stockholders given at a special meeting of the
stockholders called for that purpose.
3.4 Meetings of the Board of Directors: (a) The Board of
Directors may hold their meetings, both regular and special, either within or
outside the State of Delaware.
(b) Regular meetings of the Board of Directors may be held
at such time and place as shall from time to time be determined by resolution
of the Board of Directors. No notice of such regular meetings shall be
required. If the date designated for any regular meeting be a legal holiday,
then the meeting shall be held on the next day which is not a legal holiday.
(c) The first meeting of each newly elected Board of
Directors shall be held immediately following the annual meeting of the
stockholders for the election of officers and the transaction of such other
business as may come before it. If such meeting is held at the place of the
stockholders= meeting, no notice thereof shall be required.
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<PAGE>
(d) Special meetings of the Board of Directors shall be held
whenever called by direction of the Chairman of the Board or the President or
at the written request of any one director.
(e) The Secretary shall give notice to each director of any
special meeting of the Board of Directors by mailing the same at least three
days before the meeting or by telegraphing, telexing, or delivering the same
not later than the date before the meeting.
Unless required by law, such notice need not include a
statement of the business to be transacted at, or the purpose of, any such
meeting. Any and all business may be transacted at any meeting of the Board of
Directors. No notice of any adjourned meeting need be given. No notice to or
waiver by any director shall be required with respect to any meeting at which
the director is present.
3.5 Quorum and Action: Unless provided otherwise by law or by
the Certificate of Incorporation or these by-laws, a majority of the Directors
shall constitute a quorum for the transaction of business; but if there shall
be less than a quorum at any meeting of the Board, a majority of those present
may adjourn the meeting from time to time. The vote of a majority of the
Directors present at any meeting at which a quorum is present shall be
necessary to constitute the act of the Board of Directors.
3.6 Presiding Officer and Secretary of the Meeting: The
President, or, in his absence a member of the Board of Directors selected by
the members present, shall preside at meetings of the Board. The Secretary
shall act as secretary of the meeting, but in his absence the presiding officer
may appoint a secretary of the meeting.
3.7 Action by Consent Without Meeting: Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes or proceedings of the Board or committee.
3.8 Action by Telephonic Conference: Members of the Board of
Directors, or any committee designated by such board, may participate in a
meeting of such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in such a meeting shall
constitute presence in person at such meeting.
3.9 Committees: The Board of Directors shall, by resolution
or resolutions passed by a majority of Directors designate one or more
committees, each of such committees to consist of one or more Directors of the
Corporation, for such purposes as the Board shall determine. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such Committee.
-5-
<PAGE>
3.10 Compensation of Directors: Directors shall receive such
reasonable compensation for their service on the Board of Directors or any
committees thereof, whether in the form of salary or a fixed fee for attendance
at meetings, or both, with expenses, if any, as the Board of Directors may from
time to time determine. Nothing herein contained shall be construed to preclude
any Director from serving in any other capacity and receiving compensation
therefor.
ARTICLE IV
OFFICERS
--------
4.1 Officers; Title; Elections; Terms: (a) The elected
officers of the corporation shall be a President, a Treasurer and a Secretary,
and such other officers as the Board of Directors shall deem advisable. The
officers shall be elected by the Board of Directors at its annual meeting
following the annual meeting of the stockholders, to serve at the pleasure of
the Board or otherwise as shall be specified by the Board at the time of such
election and until their successors are elected and qualified.
(b) The Board of Directors may elect or appoint at any time,
and from time to time, additional officers or agents with such duties as it may
deem necessary or desirable. Such additional officers shall serve at the
pleasure of the Board or otherwise as shall be specified by the Board at the
time of such election or appointment. Two or more offices may be held by the
same person.
(c) Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
(d) Any officer may resign his office at any time. Such
resignation shall be made in writing and shall take effect at the time
specified therein or, if no time has been specified, at the time of its receipt
by the corporation. The acceptance of a resignation shall not be necessary to
make it effective, unless expressly so provided in the resignation.
(e) The salaries of all officers of the corporation shall be
fixed by the Board of Directors.
4.2 Removal of Elected Officers: Any elected officer may be
removed at any time, either with or without cause, by resolution adopted at any
regular or special meeting of the Board of Directors by a majority of the
Directors then in office.
4.3 Duties: (a) President: The President shall be the
principal executive officer of the corporation and, subject to the control of
the Board of Directors, shall supervise and control all the business and
affairs of the corporation. He shall, when present, preside at all meetings of
the stockholders and of the Board of Directors. He shall see that all orders
and resolutions of the Board of Directors are carried into effect (unless any
such order or resolution shall provide otherwise), and
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<PAGE>
in general shall perform all duties incident to the office of president and
such other duties as may be prescribed by the Board of Directors from time to
time.
(b) Treasurer: The Treasurer shall (1) have charge and
custody of and be responsible for all funds and securities of the Corporation;
(2) receive and give receipts for moneys due and payable to the corporation
from any source whatsoever; (3) deposit all such moneys in the name of the
corporation in such banks, trust companies, or other depositories as shall be
selected by resolution of the Board of Directors; and (4) in general perform
all duties incident to the office of treasurer and such other duties as from
time to time may be assigned to him by the President or by the Board of
Directors. He shall, if required by the Board of Directors, give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties
as the Board of Directors shall determine.
(c) Secretary: The Secretary shall (1) keep the minutes of
the meetings of the stockholders, the Board of Directors, and all committees,
if any, of which a secretary shall not have been appointed, in one or more
books provided for that purpose; (2) see that all notices are duly given in
accordance with the provisions of these by-laws and as required by law; (3) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents, the execution of
which on behalf of the corporation under its seal, is duly authorized; (4) keep
a register of the post office address of each stockholder which shall be
furnished to the Secretary by such stockholder; (5) have general charge of
stock transfer books of the corporation; and (6) in general perform all duties
incident to the office of secretary and such other duties as from time to time
may be assigned to him by the President or by the Board of Directors.
ARTICLE V
CAPITAL STOCK
-------------
5.1 Stock Certificates: (a) Every holder of stock in the
corporation shall be entitled to have a certificate signed by, or in the name
of, the corporation by the President and by the Treasurer or the Secretary,
certifying the number of shares owned by him.
(b) If such certificate is countersigned by a transfer agent
other than the corporation or its employee, or by a registrar other than the
corporation or its employee, the signatures of the officers of the corporation
may be facsimiles, and, if permitted by law, any other signature may be a
facsimile.
(c) In case any officer who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the corporation
with the same effect as if he were such officer at the date of issue.
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<PAGE>
(d) Certificates of stock shall be issued in such form not
inconsistent with the Certificate of Incorporation as shall be approved by the
Board of Directors, and shall be numbered and registered in the order in which
they were issued.
(e) All certificates surrendered to the corporation shall be
canceled with the date of cancellation, and shall be retained by the Secretary,
together with the powers of attorney to transfer and the assignments of the
shares represented by such certificates, for such period of time as shall be
prescribed from time to time by resolution of the Board of Directors.
5.2 Record Ownership: A record of the name and address of the
holder of such certificate, the number of shares represented thereby and the
date of issue thereof shall be made on the corporation=s books. The corporation
shall be entitled to treat the holder of any share of stock as the holder in
fact thereof, and accordingly shall not be bound to recognize any equitable or
other claim to or interest in any share on the part of any other person,
whether or not it shall have express or other notice thereof, except as
required by law.
5.3 Transfer of Record Ownership: Transfers of stock shall be
made on the books of the corporation only by direction of the person named in
the certificate or his attorney, lawfully constituted in writing, and only upon
the surrender of the certificate therefor and a written assignment of the
shares evidenced thereby. Whenever any transfer of stock shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer if, when the certificates are presented to the corporation for
transfer, both the transferor and the transferee request the corporation to do
so.
5.4 Lost, Stolen or Destroyed Certificates: Certificates
representing shares of the stock of the corporation shall be issued in place of
any certificate alleged to have been lost, stolen or destroyed in such manner
and on such terms and conditions as the Board of Directors from time to time
may authorize.
5.5 Transfer Agent; Registrar, Rules Respecting Certificates:
The corporation may maintain one or more transfer offices or agencies where
stock of the corporation shall be transferable. The corporation may also
maintain one or more registry offices where such stock shall be registered. The
Board of Directors may make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of stock certificates.
5.6 Fixing Record Date for Determination of Stockholders of
Record: The Board of Directors may fix, in advance, a date as the record date
for the purpose of determining stockholders entitled to notice of, or to vote
at, any meeting of the stockholders or any adjournment thereof, or the
stockholders entitled to receive payment of any dividend or other distribution
or the allotment of any rights, or entitled to exercise any rights in respect
of any change, conversion or exchange of stock, or to express consent to
corporate action in writing without a meeting, or in order to make a
determination of the stockholders for the purpose of any other lawful action.
Such record date in any case shall be not more than sixty days nor less than
ten days before the date of a meeting
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<PAGE>
of the stockholders, nor more than sixty days prior to any other action
requiring such determination of the stockholders. A determination of
stockholders of record entitled to notice or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
5.7 Dividends: Subject to the provisions of the Certificate
of Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the Board of Directors from time to time in
their discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
Board of Directors shall deem conducive to the interests of the corporation.
ARTICLE VI
SECURITIES HELD BY THE CORPORATION
----------------------------------
6.1 Voting: Unless the Board of Directors shall otherwise
order, the President, the Secretary or the Treasurer shall have full power and
authority, on behalf of the corporation, to attend, act and vote at any meeting
of the stockholders of any corporation in which the corporation may hold stock,
and at such meeting to exercise any or all rights and powers incident to the
ownership of such stock, and to execute on behalf of the corporation a proxy or
proxies empowering another or others to act as aforesaid. The Board of
Directors from time to time may confer like powers upon any other person or
persons.
6.2 General Authorization to Transfer Securities Held by the
Corporation: (a) Any of the following officers, to wit: the President and the
Treasurer shall be, and they hereby are, authorized and empowered to transfer,
convert, endorse, sell, assign, set over and deliver any and all shares of
stock, bonds, debentures, notes, subscription warrants, stock purchase
warrants, evidence of indebtedness, or other securities now or hereafter
standing in the name of or owned by the corporation, and to make, execute and
deliver, under the seal of the corporation, any and all written instruments of
assignment and transfer necessary or proper to effectuate the authority hereby
conferred.
(b) Whenever there shall be annexed to any instrument of
assignment and transfer executed pursuant to and in accordance with the
foregoing paragraph (a), a certificate of the Secretary of the corporation in
office at the date of such certificate setting forth the provisions of this
Section 6.2 and stating that they are in full force and effect and setting
forth the names of persons who are then officers of the corporation, then all
persons to whom such instrument and annexed certificate shall thereafter come,
shall be entitled, without further inquiry or investigation and regardless of
the date of such certificate, to assume and to act in reliance upon the
assumption that the shares of stock or other securities named in such
instrument were theretofore duly and properly
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<PAGE>
transferred, endorsed, sold, assigned, set over and delivered by the
corporation, and that with respect to such securities the authority of these
provisions of the by-laws and of such officers is still in full force and
effect.
ARTICLE VII
MISCELLANEOUS
-------------
7.1 Signatories: All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
7.2 Seal: The seal of the corporation shall be in such form
and shall have such content as the Board of Directors shall from time to time
determine.
7.3 Notice and Waiver of Notice: Whenever any notice of the
time, place or purpose of any meeting of the stockholders, directors or a
committee is required to be given under the law of the State of Delaware, the
Certificate of Incorporation or these by-laws, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or
after the holding thereof, or actual attendance at the meeting in person or, in
the case of any stockholder, by his attorney-in-fact, shall be deemed
equivalent to the giving of such notice to such persons.
7.4 Indemnity: The corporation shall indemnify its directors,
officers and employees to the fullest extent allowed by law, provided, however,
that it shall be within the discretion of the Board of Directors whether to
advance any funds in advance of disposition of any action, suit or proceeding,
and provided further that nothing in this Section 7.4 shall be deemed to
obviate the necessity of the Board of Directors to make any determination that
indemnification of the director, officer or employee is proper under the
circumstances because he has met the applicable standard of conduct set forth
in subsections (a) and (b) of Section 145 of the Delaware General Corporation
Law.
7.5 Fiscal Year: Except as from time to time otherwise
determined by the Board of Directors, the fiscal year of the corporation shall
end on .
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<PAGE>
[BAKER & MCKENZIE LETTERHEAD]
June 2, 1998
SFX Entertainment, Inc.
650 Madison Avenue
New York, New York 10022
Ladies and Gentlemen:
We have acted as counsel to SFX Entertainment, Inc., a Delaware
corporation (the "Company"), in connection with its filing with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, of a
registration statement on Form S-4 (Reg. No. 333-50331) (the "Registration
Statement"), relating to the Company's 9-1/8% Senior Subordinated Notes Due
2008, Series B (the "Series B Notes") to be issued under an Indenture, dated as
of February 11, 1998 (the "Indenture") among the Company, the Guarantors (as
defined in the Registration Rights Agreement related thereto) and The Chase
Manhattan Bank, as Trustee.
We have examined the originals, or photostatic or certified copies, of
such records of the Company, certificates of officers of the Company and of
public officials, and such other documents as we have deemed relevant and
necessary as the basis of the opinion set forth below. In such examination, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as photostatic or certified copies and the
authenticity of the originals of such copies.
Based upon the foregoing, we are of the opinion that:
1. the Indenture is the legal, valid and binding agreement of the
Company and each of the Guarantors (assuming it is a legal, valid and
binding agreement of the Trustee), enforceable against the Company,
and each Guarantor in accordance with its terms except to the extent
that: (i) the same may be limited by bankruptcy,
<PAGE>
SFX Entertainment, Inc.
June 2, 1998
Page 2
insolvency, reorganization, fraudulent conveyance, moratorium or
other laws now or hereafter in effect relating to creditors' rights
generally or by general principles of equity whether asserted in an
action at law or in equity; and (ii) rights to indemnity and
contribution hereunder may be limited by state or federal securities
laws;
2. the Series B Notes, when duly executed, authenticated, issued and
delivered in exchange for outstanding 9-1/8% Senior Subordinated Notes
Due 2008 of the Company, will be the legal, valid and binding
obligations of the Company, entitled to the benefits of the Indenture
and enforceable against the Company in accordance with their terms
except to the extent that: (i) the same may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other
laws now or hereafter in effect relating to creditors' rights
generally or by general principles of equity whether asserted in an
action at law or in equity; and (ii) rights to indemnity and
contribution hereunder may be limited by state or federal securities
laws.
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the prospectus forming a part of the Registration
Statement. This consent is not to be construed as an admission that we are a
person whose consent is required to be filed with the Registration Statement
under the provisions of the Securities Act.
Very Truly Yours,
/s/ Baker & McKenzie
HMB/JHJB/dmb/ac
2
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Employment Agreement"), made as of May 28,
1998, between SFX ENTERTAINMENT, INC., a Delaware corporation (the "Employer"),
and ROBERT F.X. SILLERMAN (the "Executive").
WHEREAS, the Executive is currently employed by SFX Broadcasting,
Inc., a Delaware corporation ("SFX Broadcasting");
WHEREAS, SFX Broadcasting has entered into an Agreement and Plan of
Merger, dated as of August 24, 1997, as amended (the "Merger Agreement"), with
SBI Holding Corporation (the "Buyer") and SBI Radio Acquisition Corporation, a
wholly-owned subsidiary of Buyer ("Buyer Sub") pursuant to which Buyer Sub will
merge with and into SFX Broadcasting (the "Merger") and SFX Broadcasting will
become a wholly-owned subsidiary of the Buyer;
WHEREAS, the Merger Agreement provides for SFX Broadcasting to
spin-off the Employer to certain stockholders of SFX Broadcasting on a pro rata
basis (the "Spin-Off");
WHEREAS, the Spin-Off was consummated on April 27, 1998;
WHEREAS, the Employer has required the services of the Executive in a
senior management position since the formation of the Employer and the
Executive has agreed in principle, as set forth in and in conformity with the
January 15, 1998 minutes of the Board of Directors of the Employer, to provide
such services;
WHEREAS, the terms and conditions of this Employment Agreement satisfy
the parties' obligations as set forth in such minutes;
WHEREAS, the Employer wishes to employ the Executive in a senior
management position and be assured of his services on the terms and subject to
the conditions hereinafter set forth;
WHEREAS, the Executive has served as an executive officer of the
Employer since its formation and in January 1998, in order to retain the
services of the Executive, the Employer reached an agreement in principle to
issue to the Executive shares of stock of the Employer and options to purchase
shares of the Employer; and, pursuant to such agreement, on the review and
recommendation of the Compensation Committee (the "Compensation Committee") of
the Board of Directors of the Employer (the "Board"), the Employer has sold to
the Executive 500,000 shares of Class B Common Stock, par value $.01 per share
(the "Class B Common Stock"), of the Employer at a purchase price of $2.00 per
share and the Employer has granted to the Executive options to purchase 120,000
shares of Class A Common Stock, par value $.01 per share (the "Class A Stock"),
of the Employer at a purchase price of $5.50 per share; and
WHEREAS, the Compensation Committee and the Board approved the terms
and conditions of this Employment Agreement;
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the Employer and the Executive
agree as follows:
1. Employment. Upon the terms and subject to the conditions of this
Employment Agreement, the Employer hereby employs the Executive and the
Executive hereby accepts employment by the Employer.
2. Term.
2.1 The term of the Executive's employment hereunder shall commence
immediately upon the consummation of the Merger and continue until the fifth
anniversary thereof, unless terminated earlier in accordance with the
provisions of this Employment Agreement; provided, however, that this
Employment Agreement shall automatically be renewed for additional one-year
periods thereafter unless and until terminated by the Employer or the Executive
as of the end of such five-year initial period or at the end of any renewal
period by written notice given at least 30 days prior to the scheduled
termination or scheduled renewal of this Employment Agreement. The date of the
commencement of employment pursuant to this Employment Agreement is hereinafter
referred to as the "Effective Date," the term of employment pursuant to this
Employment Agreement is hereinafter referred to as the "Term" and the last date
of employment pursuant to this Employment Agreement is hereinafter referred to
as the "Termination Date."
3. Executive's Position, Duties, and Authority.
3.1 The Employer shall employ the Executive, and the Executive shall
serve, as Executive Chairman and as a Member of the Office of the Chairman of
the Employer and of any successor by merger, acquisition of substantially all
of the assets of the Employer or otherwise.
3.2 The Executive shall have executive duties, functions, authority
and responsibilities commensurate with the office or offices he from time to
time holds with the Employer.
3.3 The Executive shall serve without additional remuneration as (a) a
member of any committee of the Board, as determined by the Board; and (b) a
director and/or officer of one or more of the Employer's subsidiaries, if
appointed to such position by the Employer.
4. Full-time Services. The Executive shall devote substantially all of
his business time to the business and affairs of the Employer and to the
fulfillment of his duties hereunder in a diligent and competent fashion to the
best of his abilities. Notwithstanding the foregoing, (a) the Executive shall
have the right to continue to fulfill his obligations as a director and officer
of companies in which he currently serves in such capacity, including without
limitation, Sillerman Communications Management Corporation, The Sillerman
Companies, Inc., Sillerman Management Company, Inc. and The Marquee Group,
Inc., and (b) shall have the right to devote a portion of his business time to
personal investments and commitments not related to the Prohibited Business (as
such term is defined in Section 16.1 hereof). In addition, except as provided
in Section 16, the Executive may
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<PAGE>
serve on the boards of directors of other organizations and companies; provided
that the service on such other boards of directors does not interfere with the
performance of the Executive's services hereunder.
5. Location of Employment. Unless the Executive consents otherwise in
writing, the headquarters for performance of his services hereunder shall be
the principal offices of the Employer in New York, New York, or at such other
location within 25 miles of residence of the Executive as the Executive shall
approve of.
6. Base Salary. During the Term, the Employer shall pay or cause to be
paid to the Executive an initial base salary per annum (the "Base Salary")
which shall initially be $500,000, payable in monthly installments. Upon each
anniversary of the commencement of the Executive's employment hereunder, the
Base Salary then in effect shall be increased by an amount equal to the greater
of (a) five percent of the Base Salary then in effect or (b) the product of (i)
the Base Salary then in effect and (ii) the percentage increase in the Consumer
Price Index during the previous twelve full calendar months. In addition, the
Board shall review the Executive's Base Salary at least annually and may by
action of the Board, after and pursuant to the affirmative recommendation of
the Compensation Committee, increase, but not decrease, such Base Salary, as
such salary may have been increased, at any time and from time-to-time during
the Term.
7. Bonus. The Executive shall be entitled to receive an annual
incentive bonus (the "Bonus"), in cash, stock, options or other compensation,
during the continuance of the Executive's employment hereunder as determined by
the Board, after and pursuant to the affirmative recommendation of the
Compensation Committee. The Bonus shall be payable within a reasonable period
of time not to exceed ninety (90) days following the end of each fiscal year of
the Employer. To the extent that the Executive is granted options to acquire
shares of the Class A Stock of the Employer, such options shall have an
exercise price equal to the average closing ask and bid price of the Class A
Stock on the date of the grant and shall be exercisable for 10 years and shall
vest on a schedule to be determined by the Board but in no event shall the
vesting schedule be more than five years. Notwithstanding the foregoing, in the
event that the Executive ceases to be employed by the Employer for any reason
whatsoever, all options issued pursuant to this Section 7 shall vest
immediately and the Executive shall retain the right to exercise each such
option during the remaining term of each such grant.
8. Expenses. The Employer shall pay or reimburse the Executive for all
reasonable expenses actually incurred or paid by the Executive during the Term
of employment in the performance of the Executive's services hereunder upon
presentation of expense statements or vouchers or such other supporting
information as the Employer may reasonably require of the Executive. The
Employer shall make an automobile available for Executive's exclusive use while
employed under this Employment Agreement.
9. Benefits. During the Term, the Executive shall be eligible to
participate in any pension or profit-sharing plan or program of the Employer
now existing or established hereafter, in
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accordance with and to the extent that he is eligible under the general
provisions thereof. The Executive shall also be eligible to participate in any
group life insurance, hospitalization, medical, health and accident, disability
or similar plan or program of the Employer, now existing or established
hereafter, in accordance with and to the extent that he is eligible under the
general provisions thereof.
10. Existing Life Insurance. The Employer shall have the right to
obtain up to $5,000,000 of life insurance on the life of Executive and to be
the beneficiary of such policy. The Executive shall cooperate in assisting the
Employer to obtain such insurance. The Employer shall continue to pay all
premiums on such policies and shall maintain such policies, subject to the
insurability of the Executive, if required to keep such policies in effect
during the Term.
11. Indemnification. The Executive shall be entitled in connection
with his employment hereunder to the benefit of the indemnification provisions
contained on the date hereof in the bylaws and certificate of incorporation of
the Employer, as the same may hereafter be amended (not including any
amendments or additions that limit or narrow, but including any that add to or
broaden, the protection afforded to the Executive), to the fullest extent
permitted by applicable law. The Employer shall in addition cause the Executive
to be indemnified in accordance with Section 145 of the Delaware General
Corporation Law to the fullest extent permitted by such section, to the extent
required to make the Executive whole in connection with any loss, costs or
expense indemnifiable thereunder.
In addition to the foregoing, the Employer hereby indemnifies the
Executive to the extent the Executive waived, released or agreed to limit in
any way any rights to indemnification from SFX Broadcasting, the Buyer and
Buyer Sub pursuant to the terms of that certain letter agreement, dated August
24, 1997, among the Executive, SFX Broadcasting, the Buyer and Buyer Sub.
12. Confidential Information.
The Executive acknowledges that his employment by the Employer has
brought and will bring him into close contact with confidential proprietary
information of the Employer, including information regarding costs, profits,
markets, sales, products, key personnel, pricing policies, operational methods,
technical processes, other business affairs and methods, plans for future
developments, and other information not readily available to the public, the
disclosure of which to third parties would in each case have a material adverse
effect on the Employer's business operations (the "Confidential Information").
In recognition of the foregoing, the Executive covenants and agrees that:
(a) he will keep secret all Confidential Information and will not
intentionally disclose Confidential Information to anyone outside of the
Employer and its representatives other than in the course of performance of his
duties hereunder, either during or for a one year period after the Term except
with the Employer's written consent, provided that (i) the Executive shall have
no such
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<PAGE>
obligation to the extent Confidential Information is or becomes publicly known
other than as a result of the Executive's breach of his obligations hereunder
and (ii) the Executive may, after giving prior notice to the Employer to the
extent practicable under the circumstances, disclose such matters to the extent
required by applicable laws or governmental regulations or judicial or
regulatory process; and
(b) he will, at the Executive's option, either (i) deliver promptly to
the Employer on termination of his employment by the Employer or at any other
time the Employer may so request, and at the Employer's request, all memoranda,
notes, records, reports and other documents (and all copies thereof) relating
to the Employer's business, which he obtained while employed by, or otherwise
serving or acting on behalf of, the Employer and which he may then possess or
have under his control (the "'Records"); or (ii) in lieu of subclause (i)
above, the Executive shall destroy all of the Records and shall deliver to the
Employer a certificate to that affect.
13. Termination.
13.1 For purposes of this Employment Agreement the following
definitions shall apply:
13.1.1 "Cause" shall mean:
(a) the Executive is convicted of a felony involving moral turpitude
which would render the Executive unable to perform his duties set forth in this
Employment Agreement; or
(b) the Executive engages in conduct that constitutes willful gross
neglect or willful gross misconduct in carrying out his duties under this
Employment Agreement, resulting, in either case, in material economic harm to
the Employer, unless the Executive believed in good faith that such act or
nonact was in the best interests of the Employer.
13.1.2 A "Change in Control" shall mean the occurrence of any one of
the following events:
(a) any "person," as such term is used in Sections 3(a)(9) and 13(d)
of the Securities Exchange Act of 1934, as amended (other than the Executive or
entities controlled by the Executive), becomes a "beneficial owner," as such
term is used in Rule 13d-3 promulgated under that act, of 25% or more of the
voting power of the Employer;
(b) all or substantially all of the assets or business of the Employer
is disposed of pursuant to a merger, consolidation or other transaction (unless
the shareholders of the Employer immediately prior to such merger,
consolidation or other transaction beneficially own, directly or indirectly, in
substantially the same proportion as they owned the voting power of the
Employer, all of the voting power or other ownership interests of the entity or
entities, if any, that succeed to the business of the Employer);
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<PAGE>
(c) the Employer combines with another company and is the surviving
corporation but, immediately after the combination, the shareholders of the
Employer immediately prior to the combination hold, directly or indirectly, 50%
or less of the voting power of the combined company; or
(d) the majority of the Board consists of individuals other than
"incumbent directors," which term means members of the Board as of the date of
this Employment Agreement, except that any person who becomes a director
subsequent to such date whose election or nomination was supported by
two-thirds of the directors who then comprise the incumbent directors shall be
considered an incumbent director.
13.1.3 "Constructive Termination Without Cause" shall mean a
termination of the Executive's employment at his initiative as provided in this
Section 13 following the occurrence, without the Executive's written consent,
of one or more of the following events:
(a) a reduction in the Executive's then current Base Salary or failure
by the Employer to fulfill its obligations under Sections 6, 7, 8 or 9 above;
(b) the failure to elect or reelect the Executive to any of the
positions described in Section 3 hereof or the removal of him from any such
position;
(c) a material diminution in the Executive's duties or the assignment
to the Executive of duties which are materially inconsistent with his duties or
which materially impair the Executive's ability to function as the Executive
Chairman and Member of the Office of the Chairman of the Employer; or
(d) the failure of the Employer to obtain the assumption in writing of
its obligation to perform this Employment Agreement by any successor to all or
substantially all of the assets of the Employer within 15 days after a merger,
consolidation, sale or similar transaction.
13.2 Termination by the Employer for Cause.
A termination for Cause shall not take effect unless all of the
provisions of this Section 13.2 are complied with. The Executive shall be given
written notice by the Board of the intention to terminate him for Cause, such
notice (a) to state in detail the particular act or acts or failure of failures
to act that constitute the grounds on which the proposed termination for Cause
is based and (b) to be given within three months of the Board learning of such
act or acts or failure or failures to act. The Executive shall have 10 business
days after the date that such written notice has been given to the Executive in
which to cure such conduct, to the extent such cure is possible. If he fails to
cure such conduct, the Executive shall then be entitled to a hearing before the
Board. Such hearing shall be held within 15 business days of such notice to the
Executive, provided he requests such hearing within 10 business days of the
written notice from the Board of the intention to terminate him for Cause. If,
within five business days following such hearing, the Executive is furnished
written notice
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<PAGE>
by the Board confirming that, in its judgment, grounds for Cause on the basis
of the original notice exist, he shall thereupon be terminated for Cause.
13.2.1 In the event the Employer terminates the Executive's employment
for Cause, he shall be entitled to:
(a) the Base Salary through the date of the termination of his
employment for Cause; and
(b) a Bonus for the year in which he was terminated equal to the Bonus
for the year prior to such termination, prorated over the time elapsed during
the year in which he was terminated.
13.2.2 In the event the Employer terminates the Executive's employment
for Cause, the Executive shall have no further obligations or liability to the
Employer (except his obligations under Sections 12 and 16, which shall
survive).
13.3 Termination Without Cause or Constructive Termination Without
Cause. In the event the Executive's employment is terminated without Cause,
other than due to disability or death, or in the event there is a Constructive
Termination Without Cause, the Executive shall be entitled to:
(a) the Base Salary through the date of termination of the Executive's
employment;
(b) the Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment (or in the event a reduction in Base
Salary is the basis for a Constructive Termination Without Cause, then the Base
Salary in effect immediately prior to such reduction), for a period of 36
months following such termination or until the end of the Term, whichever is
longer; provided that, at the Executive's option, the Employer shall pay him
the present value of such salary continuation payments in a lump sum (using as
the discount rate 75% of the prime rate (as published by The Wall Street
Journal) for the first business day of the month in which such termination
occurs);
(c) (i) in the event that such termination occurs during the initial
five-year term of this Employment Agreement, immediately vested options to
purchase shares of Class A Stock in an amount equal to 500,000 shares less the
product of (A) 100,000 shares and (B) the number of full years elapsed under
the Term of this Employment Agreement at an exercise price per share equal to
the lowest exercise price of any stock option granted by the Employer in the
twelve months prior to termination;
(ii) in the event that such termination occurs after the initial
five-year term of this Employment Agreement, immediately vested exercisable
options to purchase 100,000 shares of Class A Stock at an exercise price per
share equal to the lowest exercise price of any stock option granted by the
Employer in the twelve months prior to termination;
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(d) a Bonus for the unexpired Term, based on the Bonus received for
the year prior to termination (the "Base Bonus Amount") multiplied by the then
unexpired Term; provided that, at the Executive's option, the Employer shall
pay him the present value of such salary and bonuses in a lump sum (using as
the discount rate 75% of the prime rate (as published by The Wall Street
Journal) for the first business day of the month in which such termination
occurs). Notwithstanding the foregoing, in no event shall the Base Bonus Amount
be less than $1,250,000; and
(e) all benefits provided in Section 9 hereof until the end of the
Term.
13.4 Termination of Employment Following a Change in Control. If,
following a Change in Control, the Executive's employment is terminated for any
reason other than for Cause, whether voluntary or involuntary or there is a
Constructive Termination Without Cause, the Executive shall be entitled to the
payments and benefits provided in Section 13.3 above, provided that the
payments shall be paid in a lump sum without any discount. In addition, the
Executive shall receive immediately vested 10-year options to purchase 500,000
shares of Class A Stock which shall be exercisable at the lowest exercise price
of any other options the Executive shall own as of the date of the Change in
Control. The Executive shall forfeit any rights granted pursuant to this
Section 13.4 if the Executive accepts a written offer to remain with the
surviving company in an executive position with equivalent duties, authority
and responsibility as the Executive currently holds (other than as a
non-employee director).
13.4.1 Payment Following a Change in Control. In the event that the
termination of the Executive's employment is as a result of a Change in Control
and the aggregate of all payments or benefits made or provided to the Executive
under this Employment Agreement and under all other plans and programs of the
Employer (the "Aggregate Payment") is determined to constitute a Parachute
Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"), the Employer shall pay
to the Executive, prior to the time any excise tax imposed by Section 4999 of
the Internal Revenue Code ("Excise Tax") is payable with respect to such
Aggregate Payment, an additional amount which, after the imposition of all
income and excise taxes thereon, is equal to 100% of the Excise Tax on the
Aggregate Payment. The determination of whether the Aggregate Payment
constitutes a Parachute Payment and, if so, the amount to be paid to the
Executive and the time of payment pursuant to this subsection shall be made by
an independent auditor (the "Auditor") jointly selected by the Employer and the
Executive and paid by the Employer. The Auditor shall be a nationally
recognized United States public accounting firm which has not, during the two
years preceding the date of its selection, acted in any way on behalf of the
Employer or any affiliate thereof. If the Executive and the Employer cannot
agree on the firm to serve as the Auditor, then the Executive and the Employer
shall each select one accounting firm and those two firms shall jointly select
the accounting firm to serve as the Auditor.
13.5 Voluntary Termination. In the event of a termination of employment
by the Executive on his own initiative other than a termination due to death
or disability or a Constructive Termination without Cause, the Executive
shall have the same entitlements as provided in Section 13.2 above for
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a termination for Cause. A voluntary termination under this Section 13.5 shall
be effective upon 30 days prior written notice to the Employer and shall not be
deemed a breach of this Employment Agreement.
13.6 Stock Options. Notwithstanding anything to the contrary, upon
termination for any reason whatsoever, the Executive shall have the immediate
right to exercise any stock options in full, whether or not such option is
fully exercisable on the date of termination, for the remainder of the original
term of each such stock option.
13.7 No Mitigation; No Offset. In the event of any termination of
employment under this Employment Agreement, the Executive shall be under no
obligation to seek other employment and there shall be no offset against
amounts due the Executive under this Employment Agreement on account of any
remuneration attributable to any subsequent employment that he may obtain.
13.8 Assumption of Certain Obligations of SFX Broadcasting. The
Employer hereby assumes the obligations of SFX Broadcasting set forth in
Section 13.4.1 of the Amended and Restated Employment Agreement, dated as of
January 1, 1997, between the Executive and SFX Broadcasting.
13.9. Option Adjustment. The number of options issuable pursuant to
this Article 13 and the per share exercise price thereof shall be subject to
appropriate adjustment to give effect to any increase or decrease in the number
of issued shares resulting from a reorganization, recapitalization, stock
split, spin-off or other similar action.
14. Disability.
14.1 If during his active employment hereunder the Executive shall
become physically or mentally disabled, whether totally or partially, so that
he is prevented from performing his usual duties for a period of six consecutive
months, the Employer shall, nevertheless, pay the Executive his full Base Salary
and Bonus in respect of the period ending on the last day of the sixth
consecutive month of disability (such last day being referred to herein as the
"Disability Date") and the following additional provisions shall apply:
14.2 If the Executive has not resumed his usual duties on or prior to
the Disability Date, the Executive's employment shall terminate and the
Employer shall pay, unless prior to the date the Executive became physically or
mentally disabled a notice of termination was delivered to the Executive, 75%
of his Base Salary from the Disability Date through the end of the Term
(without giving effect to any early termination provisions contained in this
Employment Agreement) and, except as provided in Section 14.4, the Employer
shall have no obligation to pay Bonus to the Executive in respect of periods
after the Disability Date. Any Base Salary payable pursuant to this Section
14.2 shall be reduced by the amount of any benefits payable to the Executive
under any group or individual disability insurance plan or policy, the premiums
for which are paid primarily by the Employer;
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14.3 Unless the Employer exercises its option under Section 14.4 to
restore the Executive to his full compensation, duties, functions, authority
and responsibilities hereunder, the Executive shall have no obligations or
liabilities hereunder from and after the Disability Date (except for his
obligations under Sections 12 and 16, which shall survive); and
14.4 If during the Term and subsequent to a Disability Date, the
Executive shall recover fully from a disability, the Employer, by action of the
Board, shall have the right (exercisable within sixty days after notice from
the Executive of such recovery), but not the obligation, to restore the
Executive to employment and to full compensation and his full level of duties,
functions, authority and responsibilities hereunder.
15. Death of Executive.
15.1 Upon the Executive's death, whether prior to or subsequent to his
Disability Date and prior to the delivery of a notice of termination, this
Employment Agreement and all of the Employer's obligations to pay salary and
Bonus hereunder shall terminate, except as provided in Sections 15.2 through
15.4.
15.2 The Executive's estate or designated beneficiary shall be
entitled to receive (a) any unpaid portions of the Executive's Base Salary in
respect of the period ending on the Executive's date of death, (b) unpaid Bonus
in respect of years prior to the year of death, and (c) immediately vested
options to purchase 100,000 shares of Class A Stock at an exercise price equal
to the exercise price of the last stock option granted by the Employer to the
Executive prior to the Executive's death. In addition, the Employer shall pay
to such estate or beneficiary an amount equal to the present value of all the
remaining Base Salary, calculated assuming annual compound interest at 75% of
the prime rate (as published in The Wall Street Journal) for the first business
day of the month in which the Executive's death occurs
15.3 The Base Salary and Bonus payable pursuant to this Section 15
shall be reduced by the value of any benefits payable to the Executive's estate
or designated beneficiary under any life insurance plan or policy the premiums
for which are paid primarily by the Employer, other than such insurance
identified in Section 10.
16. Non-competition.
16.1 During the Term, the Executive will not, without the prior
written approval of the Board, become employed by, or become an officer,
director, or general partner of, any partnership, corporation or other entity
which acts as a promoter, producer or venue operator in the live entertainment
business or which acts as a marketing and management company specializing in
the representation of team sports athletes (the "Prohibited Business");
provided that nothing herein shall prohibit the Executive from continuing to
fulfill his obligations as an officer, director or partner of companies or
entities in which he currently serves in any such capacities.
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16.2 Subject to the following proviso, for a period of one year
following the termination of the Executive's employment hereunder the Executive
will not become employed by, or become an officer, director or general partner
of, any partnership, corporation or other entity which is primarily engaged in
the Prohibited Business; provided however, that during such one year period the
Employer shall employ the Executive as a consultant with compensation at a rate
equal to fifty percent of the Employer's Base Salary immediately prior to such
termination. If the Employer elects not to employ the Executive as a consultant
for such one year period as provided herein, the provisions of this Section
16.2 shall not apply and the Executive shall be free to engage in any activity
referred to herein.
17. Notices. All notices, requests, consents and other communications,
required or permitted to be given hereunder, shall be in writing and shall be
deemed to have been duly given if delivered personally or sent by prepaid
telegram, or mailed first class, postage prepaid, by registered or certified
mail, as follows (or to such other or additional address as either party shall
designate by notice in writing to the other in accordance herewith):
17.1 If to the Employer:
SFX Entertainment, Inc.
650 Madison Avenue, 16th Floor
New York, New York 10022
Attention: Board of Directors
17.2 If to the Executive:
Robert F.X. Sillerman
157 East 70th Street
New York, NY 10021
17.3 Copies of all communications given hereunder shall also be
delivered or sent, in like fashion, to Baker & McKenzie (attention: Michael
Burrows, Esq.) at 805 Third Avenue, New York, New York 10022.
18. General.
18.1 Governing Law. This Employment Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York.
18.2 Captions. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Employment Agreement.
18.3 Entire Agreement. This Employment Agreement including any Exhibits
attached hereto sets forth the entire agreement and understanding of the parties
relating to the subject matter
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hereof, and supersedes all prior agreements, hereof, and supersedes all prior
agreements, arrangements and understandings, written or oral, between the
parties (including the Employment Agreement, made as of May 8, 1998, between the
Employer and the Executive), except as specifically provided herein.
18.4 Successors and Assigns. This Employment Agreement, and the
Executive's rights and obligations hereunder, may not be assigned by the
Executive, except that the Executive may designate pursuant to Section 18.6 one
or more beneficiaries to receive any amounts that would otherwise be payable
hereunder to the Executive's estate. This Employment Agreement shall be binding
on any successor to the Employer, whether by merger, acquisition of
substantially all of the Employer's assets or otherwise, as fully as if such
successor were a signatory hereto and the Employer shall cause such successor
to, and such successor shall, expressly assume the Employer's obligations
hereunder. Notwithstanding anything else herein contained, the term "Employer"
as used in this Employment Agreement, shall include all such successors.
18.5 Amendments; Waivers. This Employment Agreement cannot be changed,
modified or amended, and no provision or requirement hereof may be waived,
without an affirmative vote of the Board after the affirmative recommendation
of the Compensation Committee of the Board, and the consent in writing of the
Executive and the Employer. The failure of a party at any time or times to
require performance of any provision hereof shall in no manner affect the right
of such party at a later time to enforce the same. No waiver by a party of the
breach of any term or covenant contained in this Employment Agreement, whether
by conduct or otherwise, in any one or more instances, shall be deemed to be,
or construed as, a further or continuing waiver of any such breach, or a waiver
of the breach of any other term or covenant contained in this Employment
Agreement.
18.6 Beneficiaries. Whenever this Employment Agreement provides for
any payment to the Executive's estate, such payment may be made instead to such
beneficiary or beneficiaries as the Executive may have designated in a writing
filed with the Employer. The Executive shall have the right to revoke any such
designation and to redesignate a beneficiary or beneficiaries by written notice
to the Employer (and to any applicable insurance company) to such effect.
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IN WITNESS WHEREOF, the parties have duly executed this Employment
Agreement as of the date first above written.
SFX ENTERTAINMENT, INC.
By: /s/ Michael G. Ferrel
----------------------
Name: Michael G. Ferrel
Title: President and Chief
Executive Officer
/s/ Robert F.X. Sillerman
-------------------------
ROBERT F.X. SILLERMAN
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Employment Agreement"), made as of May 28,
1998, between SFX ENTERTAINMENT, INC., a Delaware corporation (the "Employer"),
and MICHAEL G. FERREL (the "Executive").
WHEREAS, the Executive is currently employed by SFX Broadcasting,
Inc., a Delaware corporation ("SFX Broadcasting");
WHEREAS, SFX Broadcasting has entered into an Agreement and Plan of
Merger, dated as of August 24, 1997, as amended (the "Merger Agreement"), with
SBI Holding Corporation (the "Buyer") and SBI Radio Acquisition Corporation, a
wholly-owned subsidiary of Buyer ("Buyer Sub") pursuant to which Buyer Sub will
merge with and into SFX Broadcasting (the "Merger") and SFX Broadcasting will
become a wholly-owned subsidiary of the Buyer;
WHEREAS, the Merger Agreement provides for SFX Broadcasting to
spin-off the Employer to certain stockholders of SFX Broadcasting on a pro rata
basis (the "Spin-Off");
WHEREAS, the Spin-Off was consummated on April 27, 1998;
WHEREAS, the Employer has required the services of the Executive in a
senior management position since the formation of the Employer and the
Executive has agreed in principle, as set forth in and in conformity with the
January 15, 1998 minutes of the Board of Directors of the Employer, to provide
such services;
WHEREAS, the terms and conditions of this Employment Agreement satisfy
the parties' obligations as set forth in such minutes;
WHEREAS, the Employer wishes to employ the Executive in a senior
management position and be assured of his services on the terms and subject to
the conditions hereinafter set forth;
WHEREAS, the Executive has served as an executive officer of the
Employer since its formation and in January 1998, in order to retain the
services of the Executive, the Employer reached an agreement in principle to
issue to the Executive shares of stock of the Employer and options to purchase
shares of the Employer; and, pursuant to such agreement, on the review and
recommendation of the Compensation Committee (the "Compensation Committee") of
the Board of Directors of the Employer (the "Board"), the Employer has sold to
the Executive 150,000 shares of Class B Common Stock, par value $.01 per share,
of the Employer (the "Class B Stock") at a purchase price of $2.00 per share
and the Employer has granted to the Executive options to purchase 50,000 shares
of Class A Common Stock, par value $.01 per share (the "Class A Stock"), of the
Employer at a purchase price of $5.50 per share; and
<PAGE>
WHEREAS, the Compensation Committee and the Board approved the terms
and conditions of this Employment Agreement;
NOW, THEREFORE, for good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the Employer and the Executive
agree as follows:
1. Employment. Upon the terms and subject to the conditions of this
Employment Agreement, the Employer hereby employs the Executive and the
Executive hereby accepts employment by the Employer.
2. Term.
2.1 The term of the Executive's employment hereunder shall commence
immediately upon the consummation of the Merger and continue until the fifth
anniversary thereof, unless terminated earlier in accordance with the
provisions of this Employment Agreement; provided, however, that this
Employment Agreement shall automatically be renewed for additional one-year
periods thereafter unless and until terminated by the Employer or the Executive
as of the end of such five-year initial period or at the end of any renewal
period by written notice given at least 30 days prior to the scheduled
termination or scheduled renewal of this Employment Agreement. The date of the
commencement of employment pursuant to this Employment Agreement is hereinafter
referred to as the "Effective Date," the term of employment pursuant to this
Employment Agreement is hereinafter referred to as the "Term" and the last date
of employment pursuant to this Employment Agreement is hereinafter referred to
as the "Termination Date."
3. Executive's Position, Duties, and Authority.
3.1 The Employer shall employ the Executive, and the Executive shall
serve, as President, Chief Executive Officer and as a Member of the Office of
the Chairman of the Employer and of any successor by merger, acquisition of
substantially all of the assets of the Employer or otherwise.
3.2 The Executive shall have executive duties, functions, authority
and responsibilities commensurate with the office or offices he from time to
time holds with the Employer.
3.3 The Executive shall serve without additional remuneration as (a) a
member of any committee of the Board, as determined by the Board; and (b) a
director and/or officer of one or more of the Employer's subsidiaries, if
appointed to such position by the Employer.
4. Duties.
4.1 Full-time Services. The Executive shall devote substantially all
of his business time to the business and affairs of the Employer and to the
fulfillment of his duties hereunder in a diligent and competent fashion to the
best of his abilities; provided, however, that the Executive may engage
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in other activities such as charitable, educational, religious and similar
types of activities, to the extent that such activities do not prohibit or
prevent the performance of the Executive's duties under this Agreement, or
inhibit or conflict in any material way with the business of the Employer.
4.2 Business Opportunities. The Executive covenants and agrees that
for so long as he is actively employed by the Employer he shall inform the
Employer of each business opportunity related to the business of the Employer
of which he becomes aware, and that he will, not directly or indirectly,
exploit any such opportunity for his own account, nor will he render any
services to any other person or business or acquire any interest of any type in
any other business, which is in competition with the Employer; provided,
however, that the foregoing shall not be deemed to prohibit the Executive from
acquiring, solely as an investment (a) up to 10% of any securities of a
partnership, trust, corporation or other entity so long as he remains a passive
invest in such entity an such entity is not, directly or indirectly, in
competition with the Employer, or (b) up to 0.5% of any securities of any
publicly traded partnership, trust, corporation or other entity provided he
remains a passive investor in such entity.
5. Location of Employment. Unless the Executive consents otherwise in
writing, the headquarters for performance of his services hereunder shall be
the principal offices of the Employer in New York, New York, or at such other
location within 25 miles of residence of the Executive as the Executive shall
approve of.
6. Base Salary. During the Term, the Employer shall pay or cause to be
paid to the Executive an initial base salary per annum (the "Base Salary")
which shall initially be $350,000, payable in monthly installments. Upon each
anniversary of the commencement of the Executive's employment hereunder, the
Base Salary then in effect shall be increased by an amount equal to the greater
of (a) five percent of the Base Salary then in effect or (b) the product of (i)
the Base Salary then in effect and (ii) the percentage increase in the Consumer
Price Index during the previous twelve full calendar months. In addition, the
Board shall review the Executive's Base Salary at least annually and may by
action of the Board, after and pursuant to the affirmative recommendation of
the Compensation Committee, increase, but not decrease, such Base Salary, as
such salary may have been increased, at any time and from time-to-time during
the Term.
7. Bonus. The Executive shall be entitled to receive an annual
incentive bonus (the "Bonus"), in cash, stock, options or other compensation,
during the continuance of the Executive's employment hereunder as determined by
the Board, after and pursuant to the affirmative recommendation of the
Compensation Committee.
8. Expenses. The Employer shall pay or reimburse the Executive for all
reasonable expenses actually incurred or paid by the Executive during the Term
of employment in the performance of the Executive's services hereunder upon
presentation of expense statements or vouchers or such other supporting
information as the Employer may reasonably require of the Executive.
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9. Benefits. During the Term, the Executive shall be eligible to
participate in any pension or profit-sharing plan or program of the Employer
now existing or established hereafter, in accordance with and to the extent
that he is eligible under the general provisions thereof. The Executive shall
also be eligible to participate in any group life insurance, hospitalization,
medical, health and accident, disability or similar plan or program of the
Employer, now existing or established hereafter, in accordance with and to the
extent that he is eligible under the general provisions thereof.
10. Existing Life Insurance. The Employer shall have the right to
obtain life insurance on the life of Executive and to be the beneficiary of
such policy. The Executive shall cooperate in assisting the Employer to obtain
such insurance. The Employer shall continue to pay all premiums on such
policies and shall maintain such policies, subject to the insurability of the
Executive, if required to keep such policies in effect during the Term.
11. Indemnification. The Executive shall be entitled in connection
with his employment hereunder to the benefit of the indemnification provisions
contained on the date hereof in the bylaws and certificate of incorporation of
the Employer, as the same may hereafter be amended (not including any
amendments or additions that limit or narrow, but including any that add to or
broaden, the protection afforded to the Executive), to the fullest extent
permitted by applicable law. The Employer shall in addition cause the Executive
to be indemnified in accordance with Section 145 of the Delaware General
Corporation Law to the fullest extent permitted by such section, to the extent
required to make the Executive whole in connection with any loss, costs or
expense indemnifiable thereunder.
12. Confidential Information.
The Executive acknowledges that his employment by the Employer has
brought and will bring him into close contact with confidential proprietary
information of the Employer, including information regarding costs, profits,
markets, sales, products, key personnel, pricing policies, operational methods,
technical processes, other business affairs and methods, plans for future
developments, and other information not readily available to the public, the
disclosure of which to third parties would in each case have a material adverse
effect on the Employer's business operations (the "Confidential Information").
In recognition of the foregoing, the Executive covenants and agrees that:
(a) he will keep secret all Confidential Information and will not
intentionally disclose Confidential Information to anyone outside of the
Employer and its representatives other than in the course of performance of his
duties hereunder, either during or for a one year period after the Term except
with the Employer's written consent, provided that (i) the Executive shall have
no such obligation to the extent Confidential Information is or becomes publicly
known other than as a result of the Executive's breach of his obligations
hereunder and (ii) the Executive may, after giving prior notice to the Employer
to the extent practicable under the circumstances, disclose such matters to
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the extent required by applicable laws or governmental regulations or judicial
or regulatory process; and
(b) he will, at the Executive's option, either (i) deliver promptly to
the Employer on termination of his employment by the Employer or at any other
time the Employer may so request, and at the Employer's request, all memoranda,
notes, records, reports and other documents (and all copies thereof) relating
to the Employer's business, which he obtained while employed by, or otherwise
serving or acting on behalf of, the Employer and which he may then possess or
have under his control (the "Records"); or (ii) in lieu of subclause (i) above,
the Executive shall destroy all of the Records and shall deliver to the
Employer a certificate to that affect.
13. Termination.
13.1 For purposes of this Employment Agreement the following
definitions shall apply:
13.1.1 "Cause" shall mean:
(a) the Executive is convicted of a felony involving moral turpitude
which would render the Executive unable to perform his duties set forth in this
Employment Agreement; or
(b) the Executive engages in conduct that constitutes willful gross
neglect or willful gross misconduct in carrying out his duties under this
Employment Agreement, resulting, in either case, in material economic harm to
the Employer, unless the Executive believed in good faith that such act or
nonact was in the best interests of the Employer.
13.1.2 A "Change in Control" shall mean the occurrence of any one of
the following events:
(a) any "person," as such term is used in Sections 3(a)(9) and 13(d)
of the Securities Exchange Act of 1934, as amended (other than the Executive or
members of management on the date hereof or otherwise appointed by the Board
which is comprised of a majority of "incumbent directors" or entities
controlled by them), becomes a "beneficial owner," as such term is used in Rule
13d-3 promulgated under that act, of 25% or more of the voting power of the
Employer;
(b) all or substantially all of the assets or business of the Employer
is disposed of pursuant to a merger, consolidation or other transaction (unless
the shareholders of the Employer immediately prior to such merger,
consolidation or other transaction beneficially own, directly or indirectly, in
substantially the same proportion as they owned the voting power of the
Employer, all of the voting power or other ownership interests of the entity or
entities, if any, that succeed to the business of the Employer);
(c) the Employer combines with another company and is the surviving
corporation but, immediately after the combination, the shareholders of the
Employer immediately prior to the
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combination hold, directly or indirectly, 50% or less of the voting power of the
combined company; or
(d) the majority of the Board consists of individuals other than
"incumbent directors," which term means members of the Board as of the date of
this Employment Agreement, except that any person who becomes a director
subsequent to such date whose election or nomination was supported by
two-thirds of the directors who then comprise the incumbent directors shall be
considered an incumbent director.
13.1.3 "Constructive Termination Without Cause" shall mean a
termination of the Executive's employment at his initiative as provided in this
Section 13 following the occurrence, without the Executive's written consent,
of one or more of the following events:
(a) a reduction in the Executive's then current Base Salary or failure
by the Employer to fulfill its obligations under Sections 6, 7, 8 or 9 above;
(b) the failure to elect or reelect the Executive to any of the
positions described in Section 3 hereof or the removal of him from any such
position;
(c) a material diminution in the Executive's duties or the assignment
to the Executive of duties which are materially inconsistent with his duties or
which materially impair the Executive's ability to function as the President,
Chief Executive Officer and Member of the Office of the Chairman of the
Employer; or
(d) the failure of the Employer to obtain the assumption in writing of
its obligation to perform this Employment Agreement by any successor to all or
substantially all of the assets of the Employer within 15 days after a merger,
consolidation, sale or similar transaction.
13.2 Termination by the Employer for Cause.
A termination for Cause shall not take effect unless all of the
provisions of this Section 13.2 are complied with. The Executive shall be given
written notice by the Board of the intention to terminate him for Cause, such
notice (a) to state in detail the particular act or acts or failure of failures
to act that constitute the grounds on which the proposed termination for Cause
is based and (b) to be given within three months of the Board learning of such
act or acts or failure or failures to act. The Executive shall have 10 business
days after the date that such written notice has been given to the Executive in
which to cure such conduct, to the extent such cure is possible. If he fails to
cure such conduct, the Executive shall then be entitled to a hearing before the
Board. Such hearing shall be held within 15 business days of such notice to the
Executive, provided he requests such hearing within 10 business days of the
written notice from the Board of the intention to terminate him for Cause. If,
within five business days following such hearing, the Executive is furnished
written notice by the Board confirming that, in its judgment, grounds for Cause
on the basis of the original notice exist, he shall thereupon be terminated for
Cause.
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13.2.1 In the event the Employer terminates the Executive's employment
for Cause, he shall be entitled to:
(a) the Base Salary through the date of the termination of his
employment for Cause; and
(b) a Bonus for the year in which he was terminated equal to the Bonus
for the year prior to such termination, prorated over the time elapsed during
the year in which he was terminated.
13.2.2 In the event the Employer terminates the Executive's employment
for Cause, the Executive shall have no further obligations or liability to the
Employer (except his obligations under Sections 12 and 16, which shall
survive).
13.3 Termination Without Cause or Constructive Termination Without
Cause. In the event the Executive's employment is terminated without Cause,
other than due to disability or death, or in the event there is a Constructive
Termination Without Cause, the Executive shall be entitled to:
(a) the Base Salary through the date of termination of the Executive's
employment;
(b) the Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment (or in the event a reduction in Base
Salary is the basis for a Constructive Termination Without Cause, then the Base
Salary in effect immediately prior to such reduction), for a period of 36
months following such termination or until the end of the Term, whichever is
longer; provided that, at the Executive's option, the Employer shall pay him
the present value of such salary continuation payments in a lump sum (using as
the discount rate 75% of the prime rate (as published by The Wall Street
Journal) for the first business day of the month in which such termination
occurs);
(c) (i) in the event that such termination occurs during the initial
five-year term of this Employment Agreement, immediately vested options to
purchase shares of Class A Stock in an amount equal to 166,667 shares less the
product of (A) 33,333 shares and (B) the number of full years elapsed under the
Term of this Employment Agreement at an exercise price per share equal to the
lowest exercise price of any stock option granted by the Employer in the twelve
months prior to termination;
(ii) in the event that such termination occurs after the initial
five-year term of this Employment Agreement, immediately vested exercisable
options to purchase 33,333 shares of Class A Stock at an exercise price per
share equal to the lowest exercise price of any stock option granted by the
Employer in the twelve months prior to termination;
(d) a Bonus for the unexpired Term, based on the Bonus received for
the year prior to termination (the "Base Bonus Amount") multiplied by the then
unexpired Term; provided that, at the Executive's option, the Employer shall
pay him the present value of such salary and bonuses in
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a lump sum (using as the discount rate 75% of the prime rate (as published by
The Wall Street Journal) for the first business day of the month in which such
termination occurs); and
(e) all benefits provided in Section 9 hereof until the end of the
Term.
13.4 Termination of Employment Following a Change in Control. If,
following a Change in Control, the Executive's employment is terminated for any
reason other than for Cause, whether voluntary or involuntary or there is a
Constructive Termination Without Cause, the Executive shall be entitled to the
payments and benefits provided in Section 13.3 above, provided that the
payments shall be paid in a lump sum without any discount. In addition, the
Executive shall receive immediately vested 10-year options to purchase 166,667
shares of Class A Stock which shall be exercisable at the lowest exercise price
of any other options the Executive shall own as of the date of the Change in
Control. The Executive shall forfeit any rights granted pursuant to this
Section 13.4 if the Executive accepts a written offer to remain with the
surviving company in an executive position with equivalent duties, authority
and responsibility as the Executive currently holds (other than as a
non-employee director).
13.4.1 Payment Following a Change in Control. In the event that the
termination of the Executive's employment is as a result of a Change in Control
and the aggregate of all payments or benefits made or provided to the Executive
under this Employment Agreement and under all other plans and programs of the
Employer (the "Aggregate Payment") is determined to constitute a Parachute
Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"), the Employer shall pay
to the Executive, prior to the time any excise tax imposed by Section 4999 of
the Internal Revenue Code ("Excise Tax") is payable with respect to such
Aggregate Payment, an additional amount which, after the imposition of all
income and excise taxes thereon, is equal to 100% of the Excise Tax on the
Aggregate Payment. The determination of whether the Aggregate Payment
constitutes a Parachute Payment and, if so, the amount to be paid to the
Executive and the time of payment pursuant to this subsection shall be made by
an independent auditor (the "Auditor") jointly selected by the Employer and the
Executive and paid by the Employer. The Auditor shall be a nationally
recognized United States public accounting firm which has not, during the two
years preceding the date of its selection, acted in any way on behalf of the
Employer or any affiliate thereof. If the Executive and the Employer cannot
agree on the firm to serve as the Auditor, then the Executive and the Employer
shall each select one accounting firm and those two firms shall jointly select
the accounting firm to serve as the Auditor.
13.5 Voluntary Termination. In the event of a termination of
employment by the Executive on his own initiative other than a termination due
to death or disability or a Constructive Termination without Cause, the
Executive shall have the same entitlements as provided in Section 13.2 above
for a termination for Cause. A voluntary termination under this Section 13.5
shall be effective upon 30 days prior written notice to the Employer and shall
not be deemed a breach of this Employment Agreement.
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13.6 Stock Options. Notwithstanding anything to the contrary, upon
termination for any reason whatsoever, the Executive shall have the immediate
right to exercise any stock options in full, whether or not such option is
fully exercisable on the date of termination, for the remainder of the original
term of each such stock option.
13.7 No Mitigation; No Offset. In the event of any termination of
employment under this Employment Agreement, the Executive shall be under no
obligation to seek other employment and there shall be no offset against
amounts due the Executive under this Employment Agreement on account of any
remuneration attributable to any subsequent employment that he may obtain.
13.8 Payment of Certain Obligations Relating to SFX Broadcasting. In
the event that, in connection with the Merger and the transactions contemplated
thereby, the aggregate of all payments or benefits made or provided to the
Executive under this Employment Agreement, dated as of November 22, 1996,
between the Executive and SFX Broadcasting and under all other plans and
programs of SFX Broadcasting (the "Aggregate Payment") is determined to
constitute a Parachute Payment, as such term is defined in Section 280G(b)(2)
of the Internal Revenue Code, the Employer shall pay to the Executive, prior to
the time any excise tax imposed by Section 4999 of the Internal Revenue Code
("Excise Tax") is payable with respect to such Aggregate Payment, an additional
amount which, after the imposition of all income and excise taxes thereon, is
equal to one-half of the Excise Tax on the Aggregate Payment.
13.9. Option Adjustment. The number of options issuable pursuant to
this Section 13 and the per share exercise price thereof shall be subject to
appropriate adjustment to give effect to any increase or decrease in the number
of issued shares resulting from a reorganization, recapitalization, stock
split, spin-off or other similar action.
14. Disability.
14.1 If during his active employment hereunder the Executive shall
become physically or mentally disabled, whether totally or partially, so that
he is prevented from performing his usual duties for a period of six
consecutive months, the Employer shall, nevertheless, pay the Executive his
full Base Salary and Bonus in respect of the period ending on the last day of
the sixth consecutive month of disability (such last day being referred to
herein as the "Disability Date") and the following additional provisions shall
apply:
14.2 If the Executive has not resumed his usual duties on or prior to
the Disability Date, the Executive's employment shall terminate and the Employer
shall pay, unless prior to the date the Executive became physically or mentally
disabled a notice of termination was delivered to the Executive, 75% of his Base
Salary from the Disability Date through the end of the Term (without giving
effect to any early termination provisions contained in this Employment
Agreement) and, except as provided in Section 14.4, the Employer shall have no
obligation to pay Bonus to the Executive in respect of periods after the
Disability Date. Any Base Salary payable pursuant to this Section 14.2 shall be
reduced by the amount of any benefits payable to the Executive under any
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group or individual disability insurance plan or policy, the premiums for which
are paid primarily by the Employer;
14.3 Unless the Employer exercises its option under Section 14.4 to
restore the Executive to his full compensation, duties, functions, authority
and responsibilities hereunder, the Executive shall have no obligations or
liabilities hereunder from and after the Disability Date (except for his
obligations under Sections 12 and 16, which shall survive); and
14.4 If during the Term and subsequent to a Disability Date, the
Executive shall recover fully from a disability, the Employer, by action of the
Board, shall have the right (exercisable within sixty days after notice from
the Executive of such recovery), but not the obligation, to restore the
Executive to employment and to full compensation and his full level of duties,
functions, authority and responsibilities hereunder.
15. Death of Executive.
15.1 Upon the Executive's death, whether prior to or subsequent to his
Disability Date and prior to the delivery of a notice of termination, this
Employment Agreement and all of the Employer's obligations to pay salary and
Bonus hereunder shall terminate, except as provided in Sections 15.2 through
15.4.
15.2 The Executive's estate or designated beneficiary shall be
entitled to receive (a) any unpaid portions of the Executive's Base Salary in
respect of the period ending on the Executive's date of death, (b) unpaid Bonus
in respect of years prior to the year of death, and (c) immediately vested
options to purchase 33,333 shares of Class A Stock at an exercise price equal
to the exercise price of the last stock option granted by the Employer to the
Executive prior to the Executive's death. In addition, the Employer shall pay
to such estate or beneficiary an amount equal to the present value of all the
remaining Base Salary, calculated assuming annual compound interest at 75% of
the prime rate (as published in The Wall Street Journal) for the first business
day of the month in which the Executive's death occurs.
15.3 The Base Salary and Bonus payable pursuant to this Section 15
shall be reduced by the value of any benefits payable to the Executive's estate
or designated beneficiary under any life insurance plan or policy the premiums
for which are paid primarily by the Employer, other than such insurance
identified in Section 10.
16. Non-competition.
16.1 During the Term, the Executive will not, without the prior
written approval of the Board, become employed by, or become an officer,
director, or general partner of, any partnership, corporation or other entity
which acts as a promoter, producer or venue operator in the live entertainment
business or which acts as a marketing and management company specializing in
the representation of team sports athletes (the "Prohibited Business").
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16.2 Subject to the following proviso, for a period of one year
following the termination of the Executive's employment hereunder the Executive
will not become employed by, or become an officer, director or general partner
of, any partnership, corporation or other entity which is primarily engaged in
the Prohibited Business; provided however, that during such one year period the
Employer shall employ the Executive as a consultant with compensation at a rate
equal to fifty percent of the Employer's Base Salary immediately prior to such
termination. If the Employer elects not to employ the Executive as a consultant
for such one year period as provided herein, the provisions of this Section
16.2 shall not apply and the Executive shall be free to engage in any activity
referred to herein.
17. Notices. All notices, requests, consents and other communications,
required or permitted to be given hereunder, shall be in writing and shall be
deemed to have been duly given if delivered personally or sent by prepaid
telegram, or mailed first class, postage prepaid, by registered or certified
mail, as follows (or to such other or additional address as either party shall
designate by notice in writing to the other in accordance herewith):
17.1 If to the Employer:
SFX Entertainment, Inc.
650 Madison Avenue, 16th Floor
New York, New York 10022
Attention: Board of Directors
17.2 If to the Executive:
Michael G. Ferrel
525 East 72nd Street, Apt. 19A
New York, New York 10021
17.3 Copies of all communications given hereunder shall also be
delivered or sent, in like fashion, to Baker & McKenzie (attention: Michael
Burrows, Esq.) at 805 Third Avenue, New York, New York 10022.
18. General.
18.1 Governing Law. This Employment Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York.
18.2 Captions. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Employment Agreement.
18.3 Entire Agreement. This Employment Agreement including any
Exhibits attached hereto sets forth the entire agreement and understanding of
the parties relating to the subject matter
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hereof, and supersedes all prior agreements, arrangements and understandings,
written or oral, between the parties (including the Employment Agreement, made
as of May 8, 1998, between the Employer and the Executive), except as
specifically provided herein.
18.4 Successors and Assigns. This Employment Agreement, and the
Executive's rights and obligations hereunder, may not be assigned by the
Executive, except that the Executive may designate pursuant to Section 18.6 one
or more beneficiaries to receive any amounts that would otherwise be payable
hereunder to the Executive's estate. This Employment Agreement shall be binding
on any successor to the Employer, whether by merger, acquisition of
substantially all of the Employer's assets or otherwise, as fully as if such
successor were a signatory hereto and the Employer shall cause such successor
to, and such successor shall, expressly assume the Employer's obligations
hereunder. Notwithstanding anything else herein contained, the term "Employer"
as used in this Employment Agreement, shall include all such successors.
18.5 Amendments; Waivers. This Employment Agreement cannot be changed,
modified or amended, and no provision or requirement hereof may be waived,
without an affirmative vote of the Board after the affirmative recommendation
of the Compensation Committee of the Board, and the consent in writing of the
Executive and the Employer. The failure of a party at any time or times to
require performance of any provision hereof shall in no manner affect the right
of such party at a later time to enforce the same. No waiver by a party of the
breach of any term or covenant contained in this Employment Agreement, whether
by conduct or otherwise, in any one or more instances, shall be deemed to be,
or construed as, a further or continuing waiver of any such breach, or a waiver
of the breach of any other term or covenant contained in this Employment
Agreement.
18.6 Beneficiaries. Whenever this Employment Agreement provides for
any payment to the Executive's estate, such payment may be made instead to such
beneficiary or beneficiaries as the Executive may have designated in a writing
filed with the Employer. The Executive shall have the right to revoke any such
designation and to redesignate a beneficiary or beneficiaries by written notice
to the Employer (and to any applicable insurance company) to such effect.
[The remainder of this page has intentionally been left blank.]
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IN WITNESS WHEREOF, the parties have duly executed this Employment
Agreement as of the date first above written.
SFX ENTERTAINMENT, INC.
By: /s/ Robert F.X. Sillerman
-------------------------------
Name:
Title:
/s/ Michael G. Ferrel
---------------------
MICHAEL G. FERREL
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Employment Agreement"), made as of May 28,
1998, between SFX ENTERTAINMENT, INC., a Delaware corporation (the "Employer"),
and THOMAS P. BENSON (the "Executive").
WHEREAS, the Executive is currently employed by SFX Broadcasting,
Inc., a Delaware corporation ("SFX Broadcasting");
WHEREAS, SFX Broadcasting has entered into an Agreement and Plan of
Merger, dated as of August 24, 1997, as amended (the "Merger Agreement"), with
SBI Holding Corporation (the "Buyer") and SBI Radio Acquisition Corporation, a
wholly-owned subsidiary of Buyer ("Buyer Sub") pursuant to which Buyer Sub will
merge with and into SFX Broadcasting (the "Merger") and SFX Broadcasting will
become a wholly-owned subsidiary of the Buyer;
WHEREAS, the Merger Agreement provides for SFX Broadcasting to
spin-off the Employer to certain stockholders of SFX Broadcasting on a pro rata
basis (the "Spin-Off");
WHEREAS, the Spin-Off was consummated on April 27, 1998;
WHEREAS, the Employer has required the services of the Executive in a
management position since the formation of the Employer and the Executive has
agreed in principle, as set forth in and in conformity with the January 15,
1998 minutes of the Board of Directors of the Employer, to provide such
services;
WHEREAS, the terms and conditions of this Employment Agreement satisfy
the parties' obligations as set forth in such minutes;
WHEREAS, the Employer wishes to employ the Executive in a management
position and be assured of his services on the terms and subject to the
conditions hereinafter set forth;
WHEREAS, the Executive has served as an officer of the Employer since
its formation and in January 1998, in order to retain the services of the
Executive, the Employer reached an agreement in principle to issue to the
Executive shares of stock of the Employer and options to purchase shares of the
Employer; and, pursuant to such agreement, on the review and recommendation of
the Compensation Committee (the "Compensation Committee") of the Board of
Directors of the Employer (the "Board"), the Employer has sold to the Executive
10,000 shares of Class A Common Stock, par value $.01 per share (the "Class A
Stock"), of the Employer at a purchase price of $2.00 per share and the
Employer has granted to the Executive options to purchase 10,000 shares of
Class A Stock at a purchase price of $5.50 per share; and
WHEREAS, the Compensation Committee and the Board approved the terms
and conditions of this Employment Agreement;
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the Employer and the Executive
agree as follows:
1. Employment. Upon the terms and subject to the conditions
of this Employment Agreement, the Employer hereby employs the Executive and the
Executive hereby accepts employment by the Employer.
2. Term.
2.1 The term of the Executive's employment hereunder shall commence
immediately upon the consummation of the Merger and continue until the fifth
anniversary thereof, unless terminated earlier in accordance with the
provisions of this Employment Agreement; provided, however, that this
Employment Agreement shall automatically be renewed for additional one-year
periods thereafter unless and until terminated by the Employer or the Executive
as of the end of such five-year initial period or at the end of any renewal
period by written notice given at least 30 days prior to the scheduled
termination or scheduled renewal of this Employment Agreement. The date of the
commencement of employment pursuant to this Employment Agreement is hereinafter
referred to as the "Effective Date," the term of employment pursuant to this
Employment Agreement is hereinafter referred to as the "Term" and the last date
of employment pursuant to this Employment Agreement is hereinafter referred to
as the "Termination Date."
3. Executive's Position, Duties, and Authority.
3.1 The Employer shall employ the Executive, and the Executive shall
serve, as a Vice President and the Chief Financial Officer of the Employer and
of any successor by merger, acquisition of substantially all of the assets of
the Employer or otherwise.
3.2 The Executive shall have executive duties, functions, authority
and responsibilities commensurate with the office or offices he from time to
time holds with the Employer.
3.3 The Executive shall serve without additional remuneration as (a) a
member of any committee of the Board, as determined by the Board; and (b) a
director and/or officer of one or more of the Employer's subsidiaries, if
appointed to such position by the Employer.
4. Full-time Services. The Executive shall devote substantially all of
his business time to the business and affairs of the Employer and to the
fulfillment of his duties hereunder in a diligent and competent fashion to the
best of his abilities.
5. Business Opportunities. The Executive covenants and agrees that for
so long as he is actively employed by the Employer he shall inform the Employer
of each business opportunity directly related to the business of the Employer
of which he becomes aware, and that he will not, directly or indirectly,
exploit any such opportunity for his own account, nor will he render any
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services to any other person or business, or acquire any interest of any type
in any other business, which is in competition with the Employer; provided,
however, that the foregoing shall not be deemed to prohibit the Executive from
acquiring, solely as an investment, (i) up to 10% of any securities of a
partnership, trust, corporation or other entity so long as he remains a passive
investor in such entity and such entity is not, directly or indirectly, in
competition with the Employer, or (ii) up to .5% of any securities of any
publicly-traded partnership, trust, corporation or other entity provided he
remains a passive investor in such entity.
6. Base Salary. During the Term, the Employer shall pay or cause to be
paid to the Executive an initial base salary per annum (the "Base Salary")
which shall initially be $235,000, payable in monthly installments. Upon each
anniversary of the commencement of the Executive's employment hereunder, the
Base Salary then in effect shall be increased by an amount equal to the greater
of (a) five percent of the Base Salary then in effect or (b) the product of (i)
the Base Salary then in effect and (ii) the percentage increase in the Consumer
Price Index during the previous twelve full calendar months. In addition, the
Board shall review the Executive's Base Salary at least annually and may by
action of the Board, after and pursuant to the affirmative recommendation of
the Compensation Committee, increase, but not decrease, such Base Salary, as
such salary may have been increased, at any time and from time-to-time during
the Term.
7. Bonus. The Executive shall be entitled to receive an annual
incentive bonus (the "Bonus"), in cash, stock, options or other compensation,
during the continuance of the Executive's employment hereunder as determined by
the Board, after and pursuant to the affirmative recommendation of the
Compensation Committee.
8. Expenses. The Employer shall pay or reimburse the Executive for all
reasonable expenses actually incurred or paid by the Executive during the Term
of employment in the performance of the Executive's services hereunder upon
presentation of expense statements or vouchers or such other supporting
information as the Employer may reasonably require of the Executive.
9. Benefits. During the Term, the Executive shall be eligible to
participate in any pension or profit-sharing plan or program of the Employer
now existing or established hereafter, in accordance with and to the extent
that he is eligible under the general provisions thereof. The Executive shall
also be eligible to participate in any group life insurance, hospitalization,
medical, health and accident, disability or similar plan or program of the
Employer, now existing or established hereafter, in accordance with and to the
extent that he is eligible under the general provisions thereof.
10. [Intentionally left blank]
11. Indemnification. The Executive shall be entitled in connection
with his employment hereunder to the benefit of the indemnification provisions
contained on the date hereof in the bylaws and certificate of incorporation of
the Employer, as the same may hereafter be amended (not
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including any amendments or additions that limit or narrow, but including any
that add to or broaden, the protection afforded to the Executive), to the
fullest extent permitted by applicable law. The Employer shall in addition
cause the Executive to be indemnified in accordance with Section 145 of the
Delaware General Corporation Law to the fullest extent permitted by such
section, to the extent required to make the Executive whole in connection with
any loss, costs or expense indemnifiable thereunder.
12. Confidential Information.
The Executive acknowledges that his employment by the Employer has
brought and will bring him into close contact with confidential proprietary
information of the Employer, including information regarding costs, profits,
markets, sales, products, key personnel, pricing policies, operational methods,
technical processes, other business affairs and methods, plans for future
developments, and other information not readily available to the public, the
disclosure of which to third parties would in each case have a material adverse
effect on the Employer's business operations (the "Confidential Information").
In recognition of the foregoing, the Executive covenants and agrees that:
(a) he will keep secret all Confidential Information and will not
intentionally disclose Confidential Information to anyone outside of the
Employer and its representatives other than in the course of performance of his
duties hereunder, either during or for a one year period after the Term except
with the Employer's written consent, provided that (i) the Executive shall have
no such obligation to the extent Confidential Information is or becomes
publicly known other than as a result of the Executive's breach of his
obligations hereunder and (ii) the Executive may, after giving prior notice to
the Employer to the extent practicable under the circumstances, disclose such
matters to the extent required by applicable laws or governmental regulations
or judicial or regulatory process; and
(b) he will, at the Executive's option, either (i) deliver promptly to
the Employer on termination of his employment by the Employer or at any other
time the Employer may so request, and at the Employer's request, all memoranda,
notes, records, reports and other documents (and all copies thereof) relating
to the Employer's business, which he obtained while employed by, or otherwise
serving or acting on behalf of, the Employer and which he may then possess or
have under his control (the "Records"); or (ii) in lieu of subclause (i) above,
the Executive shall destroy all of the Records and shall deliver to the
Employer a certificate to that affect.
13. Termination.
13.1 For purposes of this Employment Agreement the following
definitions shall apply:
13.1.1 "Cause" shall mean:
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(a) the Executive is convicted of a felony involving moral turpitude
which would render the Executive unable to perform his duties set forth in this
Employment Agreement; or
(b) the Executive engages in conduct that constitutes willful gross
neglect or willful gross misconduct in carrying out his duties under this
Employment Agreement, resulting, in either case, in material economic harm to
the Employer, unless the Executive believed in good faith that such act or
nonact was in the best interests of the Employer.
13.1.2 A "Change in Control" shall mean the occurrence of any one of
the following events:
(a) any "person," as such term is used in Sections 3(a)(9) and 13(d)
of the Securities Exchange Act of 1934, as amended (other than the Executive or
members of management on the date hereof or otherwise appointed by the Board
which is comprised of a majority of "incumbent directors" or entities
controlled by them), becomes a "beneficial owner," as such term is used in Rule
13d-3 promulgated under that act, of 25% or more of the voting power of the
Employer;
(b) all or substantially all of the assets or business of the Employer
is disposed of pursuant to a merger, consolidation or other transaction (unless
the shareholders of the Employer immediately prior to such merger,
consolidation or other transaction beneficially own, directly or indirectly, in
substantially the same proportion as they owned the voting power of the
Employer, all of the voting power or other ownership interests of the entity or
entities, if any, that succeed to the business of the Employer);
(c) the Employer combines with another company and is the surviving
corporation but, immediately after the combination, the shareholders of the
Employer immediately prior to the combination hold, directly or indirectly, 50%
or less of the voting power of the combined company; or
(d) the majority of the Board consists of individuals other than
"incumbent directors," which term means members of the Board as of the date of
this Employment Agreement, except that any person who becomes a director
subsequent to such date whose election or nomination was supported by
two-thirds of the directors who then comprise the incumbent directors shall be
considered an incumbent director.
13.1.3 "Constructive Termination Without Cause" shall mean a
termination of the Executive's employment at his initiative as provided in this
Section 13 following the occurrence, without the Executive's written consent,
of one or more of the following events:
(a) a reduction in the Executive's then current Base Salary or failure
by the Employer to fulfill its obligations under Sections 6, 7, 8 or 9 above;
(b) the failure to elect or reelect the Executive to any of the
positions described in Section 3 hereof or the removal of him from any such
position;
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(c) a material diminution in the Executive's duties or the assignment
to the Executive of duties which are materially inconsistent with his duties or
which materially impair the Executive's ability to function as a Vice President
and the Chief Financial Officer of the Employer; or
(d) the failure of the Employer to obtain the assumption in writing of
its obligation to perform this Employment Agreement by any successor to all or
substantially all of the assets of the Employer within 15 days after a merger,
consolidation, sale or similar transaction.
13.2 Termination by the Employer for Cause.
A termination for Cause shall not take effect unless all of the
provisions of this Section 13.2 are complied with. The Executive shall be given
written notice by the Board of the intention to terminate him for Cause, such
notice (a) to state in detail the particular act or acts or failure of failures
to act that constitute the grounds on which the proposed termination for Cause
is based and (b) to be given within three months of the Board learning of such
act or acts or failure or failures to act. The Executive shall have 10 business
days after the date that such written notice has been given to the Executive in
which to cure such conduct, to the extent such cure is possible. If he fails to
cure such conduct, the Executive shall then be entitled to a hearing before the
Board. Such hearing shall be held within 15 business days of such notice to the
Executive, provided he requests such hearing within 10 business days of the
written notice from the Board of the intention to terminate him for Cause. If,
within five business days following such hearing, the Executive is furnished
written notice by the Board confirming that, in its judgment, grounds for Cause
on the basis of the original notice exist, he shall thereupon be terminated for
Cause.
13.2.1 In the event the Employer terminates the Executive's employment
for Cause, he shall be entitled to:
(a) the Base Salary through the date of the termination of his
employment for Cause; and
(b) a Bonus for the year in which he was terminated equal to the Bonus
for the year prior to such termination, prorated over the time elapsed during
the year in which he was terminated.
13.2.2 In the event the Employer terminates the Executive's employment
for Cause, the Executive shall have no further obligations or liability to the
Employer (except his obligations under Sections 12 and 16, which shall
survive).
13.3 Termination Without Cause or Constructive Termination Without
Cause. In the event the Executive's employment is terminated without Cause,
other than due to disability or death, or in the event there is a Constructive
Termination Without Cause, the Executive shall be entitled to:
(a) the Base Salary through the date of termination of the Executive's
employment;
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(b) the Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment (or in the event a reduction in Base
Salary is the basis for a Constructive Termination Without Cause, then the Base
Salary in effect immediately prior to such reduction), for a period of 36
months following such termination or until the end of the Term, whichever is
longer; provided that, at the Executive's option, the Employer shall pay him
the present value of such salary continuation payments in a lump sum (using as
the discount rate 75% of the prime rate (as published by The Wall Street
Journal) for the first business day of the month in which such termination
occurs);
(c) (i) in the event that such termination occurs during the initial
five-year term of this Employment Agreement, immediately vested options to
purchase shares of Class A Stock in an amount equal to 25,000 shares less the
product of (A) 5,000 shares and (B) the number of full years elapsed under the
Term of this Employment Agreement at an exercise price per share equal to the
lowest exercise price of any stock option granted by the Employer in the twelve
months prior to termination;
(ii) in the event that such termination occurs after the
initial five-year term of this Employment Agreement, immediately vested
exercisable options to purchase 5,000 shares of Class A Stock at an exercise
price per share equal to the lowest exercise price of any stock option granted
by the Employer in the twelve months prior to termination;
(d) a Bonus for the unexpired Term, based on one-half of the Bonus
received for the year prior to termination (the "Base Bonus Amount") multiplied
by the then unexpired Term; provided that, at the Executive's option, the
Employer shall pay him the present value of such salary and bonuses in a lump
sum (using as the discount rate 75% of the prime rate (as published by The Wall
Street Journal) for the first business day of the month in which such
termination occurs); and
(e) all benefits provided in Section 9 hereof until the end of the
Term.
13.4 Termination of Employment Following a Change in Control. If,
following a Change in Control, the Executive's employment is terminated for any
reason other than for Cause, whether voluntary or involuntary or there is a
Constructive Termination Without Cause, the Executive shall be entitled to the
payments and benefits provided in Section 13.3 above, provided that the
payments shall be paid in a lump sum without any discount. In addition, the
Executive shall receive immediately vested 10-year options to purchase (a)
25,000 shares of Class A Stock which shall be exercisable at the lowest
exercise price of any other options the Executive shall own as of the date of
the Change in Control and (b) that number of shares of Class A Stock equal to
the number of options granted by the Employer to the Executive in the last year
in which he was granted options at an exercise price equal to the lowest
exercise price of any options granted by the Employer in such year. The
Executive shall forfeit any rights granted pursuant to this Section 13.4 if the
Executive accepts a written offer to remain with the surviving company in an
executive position with equivalent duties, authority and responsibility as the
Executive currently holds (other than as a non-employee director).
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13.4.1 Payment Following a Change in Control. In the event that the
termination of the Executive's employment is as a result of a Change in Control
and the aggregate of all payments or benefits made or provided to the Executive
under the Employment Agreement and under all other plans and programs of the
Employer (the "Aggregate Payment") is determined to constitute a Parachute
Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"), the Employer shall pay
to the Executive, prior to the time any excise tax imposed by Section 4999 of
the Internal Revenue Code ("Excise Tax") is payable with respect to such
Aggregate Payment, an additional amount which, after the imposition of all
income and excise taxes thereon, is equal to 100% of the Excise Tax on the
Aggregate Payment. The determination of whether the Aggregate Payment
constitutes a Parachute Payment and, if so, the amount to be paid to the
Executive and the time of payment pursuant to this subsection shall be made by
an independent auditor (the "Auditor") jointly selected by the Employer and the
Executive and paid by the Employer. The Auditor shall be a nationally
recognized United States public accounting firm which has not, during the two
years preceding the date of its selection, acted in any way on behalf of the
Employer or any affiliate thereof. If the Executive and the Employer cannot
agree on the firm to serve as the Auditor, then the Executive and the Employer
shall each select one accounting firm and those two firms shall jointly select
the accounting firm to serve as the Auditor.
13.5 Voluntary Termination. In the event of a termination of
employment by the Executive on his own initiative other than a termination due
to death or disability or a Constructive Termination without Cause, the
Executive shall have the same entitlements as provided in Section 13.2 above
for a termination for Cause. A voluntary termination under this Section 13.5
shall be effective upon 30 days prior written notice to the Employer and shall
not be deemed a breach of this Employment Agreement.
13.6 Stock Options. Notwithstanding anything to the contrary, upon
termination for any reason whatsoever, the Executive shall have the immediate
right to exercise any stock options in full, whether or not such option is
fully exercisable on the date of termination, for the remainder of the original
term of each such stock option.
13.7 No Mitigation; No Offset. In the event of any termination of
employment under this Employment Agreement, the Executive shall be under no
obligation to seek other employment and there shall be no offset against
amounts due the Executive under this Employment Agreement on account of any
remuneration attributable to any subsequent employment that he may obtain.
13.8. Option Adjustment. The number of options issuable pursuant to
this Section 13 and the per share exercise price thereof shall be subject to
appropriate adjustment to give effect to any increase or decrease in the number
of issued shares resulting from a reorganization, recapitalization, stock
split, spin-off or other similar action.
14. Disability.
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14.1 If during his active employment hereunder the Executive shall
become physically or mentally disabled, whether totally or partially, so that
he is prevented from performing his usual duties for a period of six
consecutive months, the Employer shall, nevertheless, pay the Executive his
full Base Salary and Bonus in respect of the period ending on the last day of
the sixth consecutive month of disability (such last day being referred to
herein as the "Disability Date") and the following additional provisions shall
apply:
14.2 If the Executive has not resumed his usual duties on or prior to
the Disability Date, the Executive's employment shall terminate and the
Employer shall pay, unless prior to the date the Executive became physically or
mentally disabled a notice of termination was delivered to the Executive, 75%
of his Base Salary from the Disability Date through the end of the Term
(without giving effect to any early termination provisions contained in this
Employment Agreement) and, except as provided in Section 14.4, the Employer
shall have no obligation to pay Bonus to the Executive in respect of periods
after the Disability Date. Any Base Salary payable pursuant to this Section
14.2 shall be reduced by the amount of any benefits payable to the Executive
under any group or individual disability insurance plan or policy, the premiums
for which are paid primarily by the Employer;
14.3 Unless the Employer exercises its option under Section 14.4 to
restore the Executive to his full compensation, duties, functions, authority
and responsibilities hereunder, the Executive shall have no obligations or
liabilities hereunder from and after the Disability Date (except for his
obligations under Sections 12 and 16, which shall survive); and
14.4 If during the Term and subsequent to a Disability Date, the
Executive shall recover fully from a disability, the Employer, by action of the
Board, shall have the right (exercisable within sixty days after notice from
the Executive of such recovery), but not the obligation, to restore the
Executive to employment and to full compensation and his full level of duties,
functions, authority and responsibilities hereunder.
15. Death of Executive.
15.1 Upon the Executive's death, whether prior to or subsequent to his
Disability Date and prior to the delivery of a notice of termination, this
Employment Agreement and all of the Employer's obligations to pay salary and
Bonus hereunder shall terminate, except as provided in Sections 15.2 through
15.4.
15.2 The Executive's estate or designated beneficiary shall be
entitled to receive (a) any unpaid portions of the Executive's Base Salary in
respect of the period ending on the Executive's date of death, and (b) unpaid
Bonus in respect of years prior to the year of death. In addition, the Employer
shall pay to such estate or beneficiary an amount equal to the present value of
all the remaining Base Salary, calculated assuming annual compound interest at
75% of the prime rate (as published in The Wall Street Journal) for the first
business day of the month in which the Executive's death occurs.
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15.3 The Base Salary and Bonus payable pursuant to this Section 15
shall be reduced by the value of any benefits payable to the Executive's estate
or designated beneficiary under any life insurance plan or policy the premiums
for which are paid primarily by the Employer.
16. Non-competition.
16.1. For a period of one year following the termination of the
Executive's employment hereunder the Executive will not become employed by, or
become an officer, director or general partner of, any partnership, corporation
or other entity which is engaged in a business which is directly competitive in
any city with any business in which the Employer is engaged on the date of such
termination or in which the Employer has an agreement to engage in business;
provided, however, the Executive shall not be prohibited from engaging in any
otherwise restricted conduct if the competition of such competing entity with
the Employer is insubstantial to the entire business of such entity and the
Executive does not have significant involvement in such competing business.
16.2. The Executive hereby acknowledges that:
(a) the respective times and area provided in Section 16.1, above, are
reasonable in scope and necessary for the protection of the business and good
will of the Employer and that a significant portion of the Base Salary payable
hereunder has been allocated to the provisions of Section 16.1:
(b) since it is the understanding and desire of the parties hereto
that the covenants contained in Section 16.1, above, be enforced to the fullest
extent possible under the laws and public policies applied in each jurisdiction
in which enforcement may be sought, should any particular provision of such
covenant be deemed invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the invalid portion, and the deletion shall apply
only with respect to the operation of such provisions;
(c) to the extent a provision is deemed unenforceable by virtue of its
scope, but may be made enforceable by limitation thereof, such provision shall
be enforceable only to the extent permissible under the laws and public
policies applied in the jurisdiction to which enforcement is sought; and
(d) the Executive's obligation and undertaking provided for in this
Section 16 shall, to the extent applicable, continue beyond the termination of
the Executive's relationship with the Employer hereunder to the extent provided
herein.
16.3. The Executive acknowledges that the services to be rendered by
him hereunder are extraordinary and unique and are vital to the success of the
Employer's business, and that the breach of any of the covenants undertaken
hereunder would cause substantial damage to the Employer impossible to exact
ascertainment. Therefore, in the event of the breach or threatened breach by
the Executive of any of the terms and conditions of this Employment Agreement
to be performed by him, the Employer shall be entitled, in addition to any
other rights or remedies available to it, to
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institute and prosecute proceedings in any court of competent jurisdiction, to
seek immediate injunctive relief with notice but without bond.
17. Notices. All notices, requests, consents and other communications,
required or permitted to be given hereunder, shall be in writing and shall be
deemed to have been duly given if delivered personally or sent by prepaid
telegram, or mailed first class, postage prepaid, by registered or certified
mail, as follows (or to such other or additional address as either party shall
designate by notice in writing to the other in accordance herewith):
17.1 If to the Employer:
SFX Entertainment, Inc.
650 Madison Avenue, 16th Floor
New York, New York 10022
Attention: Board of Directors
17.2 If to the Executive:
Thomas P. Benson
27 Radcliffe Drive
Huntington, NY 11743
17.3 Copies of all communications given hereunder shall also be
delivered or sent, in like fashion, to Baker & McKenzie (attention: Michael
Burrows, Esq.) at 805 Third Avenue, New York, New York 10022.
18. General.
18.1 Governing Law. This Employment Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York.
18.2 Captions. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Employment Agreement.
18.3 Entire Agreement. This Employment Agreement including any
Exhibits attached hereto sets forth the entire agreement and understanding of
the parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understandings, written or oral, between the
parties (including the Employment Agreement, made as of May 8, 1998 between the
Employer and the Executive), except as specifically provided herein.
18.4 Successors and Assigns. This Employment Agreement, and the
Executive's rights and obligations hereunder, may not be assigned by the
Executive, except that the Executive may designate pursuant to Section 18.6 one
or more beneficiaries to receive any amounts that would
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otherwise be payable hereunder to the Executive's estate. This Employment
Agreement shall be binding on any successor to the Employer, whether by merger,
acquisition of substantially all of the Employer's assets or otherwise, as
fully as if such successor were a signatory hereto and the Employer shall cause
such successor to, and such successor shall, expressly assume the Employer's
obligations hereunder. Notwithstanding anything else herein contained, the term
"Employer" as used in this Employment Agreement, shall include all such
successors.
18.5 Amendments; Waivers. This Employment Agreement cannot be changed,
modified or amended, and no provision or requirement hereof may be waived,
without an affirmative vote of the Board after the affirmative recommendation
of the Compensation Committee of the Board, and the consent in writing of the
Executive and the Employer. The failure of a party at any time or times to
require performance of any provision hereof shall in no manner affect the right
of such party at a later time to enforce the same. No waiver by a party of the
breach of any term or covenant contained in this Employment Agreement, whether
by conduct or otherwise, in any one or more instances, shall be deemed to be,
or construed as, a further or continuing waiver of any such breach, or a waiver
of the breach of any other term or covenant contained in this Employment
Agreement.
18.6 Beneficiaries. Whenever this Employment Agreement provides for
any payment to the Executive's estate, such payment may be made instead to such
beneficiary or beneficiaries as the Executive may have designated in a writing
filed with the Employer. The Executive shall have the right to revoke any such
designation and to redesignate a beneficiary or beneficiaries by written notice
to the Employer (and to any applicable insurance company) to such effect.
18.7 Vacation. The Executive shall be entitled to paid vacation time
at the rate of not less than four weeks per year.
[The remainder of this page has intentionally been left blank.]
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IN WITNESS WHEREOF, the parties have duly executed this Employment
Agreement as of the date first above written.
SFX ENTERTAINMENT, INC.
By: /s/ Robert F.X. Sillerman
-----------------------------
Name:
Title:
/s/ Thomas P. Benson
-------------------
THOMAS P. BENSON
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of May 28, 1998, between SFX
ENTERTAINMENT, INC., a Delaware corporation (the "Employer"), and HOWARD J.
TYTEL (the "Executive").
WHEREAS, the Employer has required the services of the Executive in a
senior management position since the formation of the Employer and the
Executive has agreed in principle, as set forth in and in conformity with the
January 15, 1998 minutes of the Board of Directors of the Employer, to provide
such services;
WHEREAS, the terms and conditions of this Employment Agreement satisfy
the parties' obligations as set forth in such minutes;
WHEREAS, the Employer wishes to employ the Executive in a senior
management position and be assured of his services on the terms and subject to
the conditions hereinafter set forth;
WHEREAS, the Executive has served as an executive officer of the
Employer since its formation and in January 1998, in order to retain the
services of the Executive, the Employer reached an agreement in principle to
issue to the Executive shares of stock of the Employer and options to purchase
shares of the Employer; and, pursuant to such agreement, on the review and
recommendation of the Compensation Committee (the "Compensation Committee") of
the Board of Directors of the Employer (the "Board"), the Employer has sold to
the Executive 80,000 shares of Class A Common Stock, par value $.01 per share
(the"Class A Stock"), of the Employer at a purchase price of $2.00 per share
and the Employer has granted to the Executive options to purchase 25,000 shares
of Class A Stock at a purchase price of $5.50 per share;
WHEREAS, the Compensation Committee and the Board approved the terms
and conditions of this Employment Agreement;
NOW, THEREFORE, for good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the Employer and the Executive
agree as follows:
1. Employment. Upon the terms and subject to the conditions of
this Employment Agreement, the Employer hereby employs the Executive and the
Executive hereby accepts employment by the Employer.
2. Term.
2.1 The term of the Executive's employment hereunder shall
commence on June 1, 1998 and continue until the fifth anniversary thereof,
unless terminated earlier in accordance with the provisions of this Employment
Agreement; provided, however, that this Employment Agreement shall
automatically be renewed for additional one-year periods thereafter unless and
until terminated
<PAGE>
by the Employer or the Executive as of the end of such five-year initial period
or at the end of any renewal period by written notice given at least 30 days
prior to the scheduled termination or scheduled renewal of this Employment
Agreement. The date of the commencement of employment pursuant to this
Employment Agreement is hereinafter referred to as the "Effective Date," the
term of employment pursuant to this Employment Agreement is hereinafter
referred to as the "Term" and the last date of employment pursuant to this
Employment Agreement is hereinafter referred to as the "Termination Date."
3. Executive's Position, Duties, and Authority.
3.1 The Employer shall employ the Executive, and the Executive
shall serve, as Executive Vice President, General Counsel and Secretary of the
Employer and of any successor by merger, acquisition of substantially all of
the assets of the Employer or otherwise.
3.2 The Executive shall have executive duties, functions,
authority and responsibilities commensurate with the office or offices he from
time to time holds with the Employer.
3.3 The Executive shall serve without additional remuneration as
(a) a member of any committee of the Board, as determined by the Board; and
(b) a director and/or officer of one or more of the Employer's subsidiaries,
if appointed to such position by the Employer.
4. Full-time Services. The Executive shall devote substantially
all of his business time to the business and affairs of the Employer and to the
fulfillment of his duties hereunder in a diligent and competent fashion to the
best of his abilities. Notwithstanding the foregoing, (a) the Executive shall
have the right to continue to fulfill his obligations as a director and officer
of companies in which he currently serves in such capacity, including without
limitation, Sillerman Communications Management Corporation, The Sillerman
Companies, Inc., Sillerman Management Company, Inc. and The Marquee Group, and
(b) shall have the right to devote a portion of his business time to personal
investments and commitments not related to the Prohibited Business (as such
term is defined in Section 16.1 hereof). In addition, except as provided in
Section 16, the Executive may serve on the boards of directors of other
organizations and companies; provided that the service on such other boards of
directors does not interfere with the performance of the Executive's services
hereunder.
5. Location of Employment. Unless the Executive consents
otherwise in writing, the headquarters for performance of his services
hereunder shall be the principal offices of the Employer in New York, New York,
or at such other location within 25 miles of residence of the Executive as the
Executive shall approve of.
6. Base Salary. During the Term, the Employer shall pay or cause
to be paid to the Executive an initial base salary per annum (the "Base
Salary") which shall initially be $300,000, payable in monthly installments.
Upon each anniversary of the commencement of the Executive's employment
hereunder, the Base Salary then in effect shall be increased by an amount equal
to the
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greater of (a) five percent of the Base Salary then in effect or (b) the
product of (i) the Base Salary then in effect and (ii) the percentage increase
in the Consumer Price Index during the previous twelve full calendar months. In
addition, the Board shall review the Executive's Base Salary at least annually
and may by action of the Board, after and pursuant to the affirmative
recommendation of the Compensation Committee, increase, but not decrease, such
Base Salary, as such salary may have been increased, at any time and from
time-to-time during the Term.
7. Bonus. The Executive shall be entitled to receive an annual
incentive bonus (the "Bonus"), in cash, stock, options or other compensation,
during the continuance of the Executive's employment hereunder as determined by
the Board, after and pursuant to the affirmative recommendation of the
Compensation Committee.
8. Expenses. The Employer shall pay or reimburse the Executive
for all reasonable expenses actually incurred or paid by the Executive during
the Term of employment in the performance of the Executive's services hereunder
upon presentation of expense statements or vouchers or such other supporting
information as the Employer may reasonably require of the Executive.
9. Benefits. During the Term, the Executive shall be eligible to
par now existing or established hereafter, in accordance with and to the extent
that he is eligible under the general provisions thereof. The Executive shall
also be eligible to participate in any group life insurance, hospitalization,
medical, health and accident, disability or similar plan or program of the
Employer, now existing or established hereafter, in accordance with and to the
extent that he is eligible under the general provisions thereof.
10. [Intentionally left blank]
11. Indemnification. The Executive shall be entitled in connection
with his employment hereunder to the benefit of the indemnification provisions
contained on the date hereof in the bylaws and certificate of incorporation of
the Employer, as the same may hereafter be amended (not including any
amendments or additions that limit or narrow, but including any that add to or
broaden, the protection afforded to the Executive), to the fullest extent
permitted by applicable law. The Employer shall in addition cause the Executive
to be indemnified in accordance with Section 145 of the Delaware General
Corporation Law to the fullest extent permitted by such section, to the extent
required to make the Executive whole in connection with any loss, costs or
expense indemnifiable thereunder.
12. Confidential Information.
The Executive acknowledges that his employment by the Employer has
brought and will bring him into close contact with confidential proprietary
information of the Employer, including information regarding costs, profits,
ticipate in any pension or profit-sharing plan or program of the Employer
markets, sales, products, key personnel, pricing policies,
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operational methods, technical processes, other business affairs and methods,
plans for future developments, and other information not readily available to
the public, the disclosure of which to third parties would in each case have a
material adverse effect on the Employer's business operations (the
"Confidential Information"). In recognition of the foregoing, the Executive
covenants and agrees that:
(a) he will keep secret all Confidential Information and will not
intentionally disclose Confidential Information to anyone outside of the
Employer and its representatives other than in the course of performance of his
duties hereunder, either during or for a one year period after the Term except
with the Employer's written consent, provided that (i) the Executive shall have
no such obligation to the extent Confidential Information is or becomes
publicly known other than as a result of the Executive's breach of his
obligations hereunder and (ii) the Executive may, after giving prior notice to
the Employer to the extent practicable under the circumstances, disclose such
matters to the extent required by applicable laws or governmental regulations
or judicial or regulatory process; and
(b) he will, at the Executive's option, either (i) deliver promptly
to the Employer on termination of his employment by the Employer or at any
other time the Employer may so request, and at the Employer's request, all
memoranda, notes, records, reports and other documents (and all copies thereof)
relating to the Employer's business, which he obtained while employed by, or
otherwise serving or acting on behalf of, the Employer and which he may then
possess or have under his control (the "Records"); or (ii) in lieu of subclause
(i) above, the Executive shall destroy all of the Records and shall deliver to
the Employer a certificate to that affect.
13. Termination.
13.1 For purposes of this Employment Agreement the following
definitions shall apply:
13.1.1 "Cause" shall mean:
(a) the Executive is convicted of a felony involving moral
turpitude which would render the Executive unable to perform his duties set
forth in this Employment Agreement; or
(b) the Executive engages in conduct that constitutes willful
gross neglect or willful gross misconduct in carrying out his duties under this
Employment Agreement, resulting, in either case, in material economic harm to
the Employer, unless the Executive believed in good faith that such act or
nonact was in the best interests of the Employer.
13.1.2 A "Change in Control" shall mean the occurrence of any one of
the following events:
(a) any "person," as such term is used in Sections 3(a)(9) and
13(d) of the Securities Exchange Act of 1934, as amended (other than the
Executive or members of management on the date hereof or otherwise appointed
by the Board which is comprised of a majority of "incumbent
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directors" or entities controlled by them), becomes a "beneficial owner," as
such term is used in Rule 13d-3 promulgated under that act, of 25% or more of
the voting power of the Employer;
(b) all or substantially all of the assets or business of the
Employer is disposed of pursuant to a merger, consolidation or other
transaction (unless the shareholders of the Employer immediately prior to such
merger, consolidation or other transaction beneficially own, directly or
indirectly, in substantially the same proportion as they owned the voting power
of the Employer, all of the voting power or other ownership interests of the
entity or entities, if any, that succeed to the business of the Employer);
(c) the Employer combines with another company and is the
surviving corporation but, immediately after the combination, the shareholders
of the Employer immediately prior to the combination hold, directly or
indirectly, 50% or less of the voting power of the combined company; or
(d) the majority of the Board consists of individuals other than
"incumbent directors," which term means members of the Board as of the date of
this Employment Agreement, except that any person who becomes a director
subsequent to such date whose election or nomination was supported by
two-thirds of the directors who then comprise the incumbent directors shall be
considered an incumbent director.
13.1.3 "Constructive Termination Without Cause" shall mean a
termination of the Executive's employment at his initiative as provided in this
Section 13 following the occurrence, without the Executive's written consent,
of one or more of the following events:
(a) a reduction in the Executive's then current Base Salary or
failure by the Employer to fulfill its obligations under Sections 6, 7, 8 or
9 above;
(b) the failure to elect or reelect the Executive to any of the
positions described in Section 3 hereof or the removal of him from any such
position;
(c) a material diminution in the Executive's duties or the
assignment to the Executive of duties which are materially inconsistent with
his duties or which materially impair the Executive's ability to function as
Executive Vice President, General Counsel and Secretary of the Employer; or
(d) the failure of the Employer to obtain the assumption in
writing of its obligation to perform this Employment Agreement by any successor
to all or substantially all of the assets of the Employer within 15 days after
a merger, consolidation, sale or similar transaction.
13.2 Termination by the Employer for Cause.
A termination for Cause shall not take effect unless all of the
provisions of this Section 13.2 are complied with. The Executive shall be given
written notice by the Board of the intention to
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terminate him for Cause, such notice (a) to state in detail the particular act
or acts or failure of failures to act that constitute the grounds on which the
proposed termination for Cause is based and (b) to be given within three months
of the Board learning of such act or acts or failure or failures to act. The
Executive shall have 10 business days after the date that such written notice
has been given to the Executive in which to cure such conduct, to the extent
such cure is possible. If he fails to cure such conduct, the Executive shall
then be entitled to a hearing before the Board. Such hearing shall be held
within 15 business days of such notice to the Executive, provided he requests
such hearing within 10 business days of the written notice from the Board of
the intention to terminate him for Cause. If, within five business days
following such hearing, the Executive is furnished written notice by the Board
confirming that, in its judgment, grounds for Cause on the basis of the
original notice exist, he shall thereupon be terminated for Cause.
13.2.1 In the event the Employer terminates the Executive's
employment for Cause, he shall be entitled to:
(a) the Base Salary through the date of the termination of his
employment for Cause; and
(b) a Bonus for the year in which he was terminated equal to the
Bonus for the year prior to such termination, prorated over the time elapsed
during the year in which he was terminated.
13.2.2 In the event the Employer terminates the Executive's
employment for Cause, the Executive shall have no further obligations or
liability to the Employer (except his obligations under Sections 12 and 16,
which shall survive).
13.3 Termination Without Cause or Constructive Termination Without
Cause. In the event the Executive's employment is terminated without Cause,
other than due to disability or death, or in the event there is a Constructive
Termination Without Cause, the Executive shall be entitled to:
(a) the Base Salary through the date of termination of the
Executive's employment;
(b) the Base Salary, at the annualized rate in effect on the date
of termination of the Executive's employment (or in the event a reduction in
Base Salary is the basis for a Constructive Termination Without Cause, then the
Base Salary in effect immediately prior to such reduction), for a period of 36
months following such termination or until the end of the Term, whichever is
longer; provided that, at the Executive's option, the Employer shall pay him
the present value of such salary continuation payments in a lump sum (using as
the discount rate 75% of the prime rate (as published by The Wall Street
Journal) for the first business day of the month in which such termination
occurs);
(c) (i) in the event that such termination occurs during the
initial five-year term of this Employment Agreement, immediately vested options
to purchase shares of Class A Stock in an amount equal to 100,000 shares less
the product of (A) 20,000 shares and (B) the number of full years elapsed under
the Term of this Employment Agreement at an exercise price per share equal
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to the lowest exercise price of any stock option granted by the Employer in the
twelve months prior to termination;
(ii) in the event that such termination occurs after the initial
five-year term of this Employment Agreement, immediately vested exercisable
options to purchase 20,000 shares of Class A Stock at an exercise price per
share equal to the lowest exercise price of any stock option granted by the
Employer in the twelve months prior to termination;
(d) a Bonus for the unexpired Term, based on the Bonus received
for the year prior to termination (the "Base Bonus Amount") multiplied by the
then unexpired Term; provided that, at the Executive's option, the Employer
shall pay him the present value of such salary and bonuses in a lump sum (using
as the discount rate 75% of the prime rate (as published by The Wall Street
Journal) for the first business day of the month in which such termination
occurs); and
(e) all benefits provided in Section 9 hereof until the end of the
Term.
13.4 Termination of Employment Following a Change in Control. If,
following a Change in Control, the Executive's employment is terminated for any
reason other than for Cause, whether voluntary or involuntary or there is a
Constructive Termination Without Cause, the Executive shall be entitled to the
payments and benefits provided in Section 13.3 above, provided that the
payments shall be paid in a lump sum without any discount. In addition, the
Executive shall receive immediately vested 10-year options to purchase 100,000
shares of Class A Stock which shall be exercisable at the lowest exercise price
of any other options the Executive shall own as of the date of the Change in
Control. The Executive shall forfeit any rights granted pursuant to this
Section 13.4 if the Executive accepts a written offer to remain with the
surviving company in an executive position with equivalent duties, authority
and responsibility as the Executive currently holds (other than as a
non-employee director).
13.4.1 Payment Following a Change in Control. In the event that the
termination of the Executive's employment is as a result of a Change in Control
and the aggregate of all payments or benefits made or provided to the Executive
under this Employment Agreement and under all other plans and programs of the
Employer (the "Aggregate Payment") is determined to constitute a Parachute
Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"), the Employer shall pay
to the Executive, prior to the time any excise tax imposed by Section 4999 of
the Internal Revenue Code ("Excise Tax") is payable with respect to such
Aggregate Payment, an additional amount which, after the imposition of all
income and excise taxes thereon, is equal to 100% of the Excise Tax on the
Aggregate Payment. The determination of whether the Aggregate Payment
constitutes a Parachute Payment and, if so, the amount to be paid to the
Executive and the time of payment pursuant to this subsection shall be made by
an independent auditor (the "Auditor") jointly selected by the Employer and the
Executive and paid by the Employer. The Auditor shall be a nationally
recognized United States public accounting firm which has not, during the two
years preceding the date of its selection, acted in any way on behalf of the
Employer or any affiliate thereof. If the Executive and the Employer
7
<PAGE>
cannot agree on the firm to serve as the Auditor, then the Executive and the
Employer shall each select one accounting firm and those two firms shall
jointly select the accounting firm to serve as the Auditor.
13.5 Voluntary Termination. In the event of a termination of
employment by the Executive on his own initiative, other than a termination
that is subject to the provisions of Section 13.8 of this Employment Agreement
and other than a termination due to death or disability or a Constructive
Termination without Cause, the Executive shall have the same entitlements as
provided in Section 13.2 above for a termination for Cause. A voluntary
termination under this Section 13.5 shall be effective upon 30 days prior
written notice to the Employer and shall not be deemed a breach of this
Employment Agreement.
13.6 Stock Options. Notwithstanding anything to the contrary, upon
termination for any reason whatsoever, the Executive shall have the immediate
right to exercise any stock options in full, whether or not such option is
fully exercisable on the date of termination, for the remainder of the original
term of each such stock option.
13.7 No Mitigation; No Offset. In the event of any termination of
employment under this Employment Agreement, the Executive shall be under no
obligation to seek other employment and there shall be no offset against
amounts due the Executive under this Employment Agreement on account of any
remuneration attributable to any subsequent employment that he may obtain.
13.8 Termination After One Year. Notwithstanding anything else
herein contained, and in lieu thereof, on the first anniversary of the
Executive's employment hereunder, by written notice given at least 15 days
prior thereto, the Executive may voluntarily terminate his employment with the
Employer or the Employer may terminate the Executive's employment without Cause
and the Executive shall be entitled to receive the payments described in this
Section 13.8.
(a) In the event that the Executive voluntarily terminates his
employment pursuant to this Section 13.8, then all options to purchase shares
of Class A Stock held by him shall immediately vest (regardless of the original
vesting schedule set forth in any stock option or other instrument) as of the
date of termination and, in addition, he shall be entitled to:
(i) the Base Salary through the date of termination of the
Executive's employment;
(ii) the Base Salary, at the annualized rate in effect on the date
of termination of the Executive's employment, for a period of 24 months
following such termination; provided that, at the Executive's option, the
Employer shall pay him the present value of such salary continuation payments
in a lump sum (using as the discount rate 75% of the prime rate (as published
by The Wall Street Journal) for the first business day of the month in which
such termination occurs); and
8
<PAGE>
(iii) immediately vested options to purchase 25,000 shares of
Class A Stock at an exercise price per share equal to the lowest exercise price
of any options granted by the Employer during the preceding 12 months.
(b) In the event that the Employer terminates the Executive's
employment pursuant to this Section 13.8, then all options to purchase shares
of Class A Stock held by the Executive shall immediately vest (regardless of
the original vesting schedule set forth in any stock option or other
instrument) as of the date of termination and, in addition, he shall be
entitled to:
(i) the Base Salary through the date of termination of the
Executive's employment;
(ii) the Base Salary, at the annualized rate in effect on the date
of termination of the Executive's employment, for a period of 24 months
following such termination; provided that, at the Executive's option, the
Employer shall pay him the present value of such salary continuation payments
in a lump sum (using as the discount rate 75% of the prime rate (as published
by The Wall Street Journal) for the first business day of the month in which
such termination occurs); and
(iii) immediately vested options to purchase options to purchase
that number of shares of Class A Stock equal to the product of (A) 50,000 and
(B) the number of unexpired years in the initial five-year Term of this
Employment Agreement, at an exercise price per share equal to the lowest
exercise price of any options granted by the Employer during the preceding 12
months.
13.9 Option Adjustment. The number of options issuable pursuant to
this Article 13 and the per share exercise price thereof shall be subject to
appropriate adjustment to give effect to any increase or decrease in the number
of issued shares resulting from a reorganization, recapitalization, stock
split, spin-off or other similar action.
14. Disability.
14.1 If during his active employment hereunder the Executive shall
become physically or mentally disabled, whether totally or partially, so that
he is prevented from performing his usual duties for a period of six
consecutive months, the Employer shall, nevertheless, pay the Executive his
full Base Salary and Bonus in respect of the period ending on the last day of
the sixth consecutive month of disability (such last day being referred to
herein as the "Disability Date") and the following additional provisions shall
apply:
14.2 If the Executive has not resumed his usual duties on or prior
to the Disability Date, the Executive's employment shall terminate and the
Employer shall pay, unless prior to the date the Executive became physically or
mentally disabled a notice of termination was delivered to the Executive, 75%
of his Base Salary from the Disability Date through the end of the Term
(without giving effect to any early termination provisions contained in this
Employment Agreement) and, except as provided in Section 14.4, the Employer
shall have no obligation to pay Bonus to the Executive in respect of periods
after the Disability Date. Any Base Salary payable pursuant to this
9
<PAGE>
Section 14.2 shall be reduced by the amount of any benefits payable to the
Executive under any group or individual disability insurance plan or policy,
the premiums for which are paid primarily by the Employer;
14.3 Unless the Employer exercises its option under Section 14.4 to
restore the Executive to his full compensation, duties, functions, authority
and responsibilities hereunder, the Executive shall have no obligations or
liabilities hereunder from and after the Disability Date (except for his
obligations under Sections 12 and 16, which shall survive); and
14.4 If during the Term and subsequent to a Disability Date, the
Executive shall recover fully from a disability, the Employer, by action of the
Board, shall have the right (exercisable within sixty days after notice from
the Executive of such recovery), but not the obligation, to restore the
Executive to employment and to full compensation and his full level of duties,
functions, authority and responsibilities hereunder.
15. Death of Executive.
15.1 Upon the Executive's death, whether prior to or subsequent to
his Disability Date and prior to the delivery of a notice of termination, this
Employment Agreement and all of the Employer's obligations to pay salary and
Bonus hereunder shall terminate, except as provided in Sections 15.2 through
15.4.
15.2 The Executive's estate or designated beneficiary shall be
entitled to receive (a) any unpaid portions of the Executive's Base Salary in
respect of the period ending on the Executive's date of death, (b) unpaid Bonus
in respect of years prior to the year of death, and (c) immediately vested
options to purchase 20,000 shares of Class A Stock at an exercise price equal
to the exercise price of the last stock option granted by the Employer to the
Executive prior to the Executive's death. In addition, the Employer shall pay
to such estate or beneficiary an amount equal to the present value of all the
remaining Base Salary, calculated assuming annual compound interest at 75% of
the prime rate (as published in The Wall Street Journal) for the first business
day of the month in which the Executive's death occurs
15.3 The Base Salary and Bonus payable pursuant to this Section 15
shall be reduced by the value of any benefits payable to the Executive's estate
or designated beneficiary under any life insurance plan or policy the premiums
for which are paid primarily by the Employer.
16. Non-competition.
16.1 During the Term, the Executive will not, without the prior
written approval of the Board, become employed by, or become an officer,
director, or general partner of, any partnership, corporation or other entity
which acts as a promoter, producer or venue operator in the live entertainment
business or which acts as a marketing and management company specializing in
the representation of team sports athletes (the "Prohibited Business");
provided that nothing herein shall
10
<PAGE>
prohibit the Executive from continuing to fulfill his obligations as an
officer, director or partner of companies or entities in which he currently
serves in any such capacities.
16.2 Subject to the following proviso, for a period of one year
following the termination of the Executive's employment hereunder the Executive
will not become employed by, or become an officer, director or general partner
of, any partnership, corporation or other entity which is primarily engaged in
the Prohibited Business; provided however, that during such one year period the
Employer shall employ the Executive as a consultant with compensation at a rate
equal to fifty percent of the Employer's Base Salary immediately prior to such
termination. If the Employer elects not to employ the Executive as a consultant
for such one year period as provided herein, the provisions of this Section
16.2 shall not apply and the Executive shall be free to engage in any activity
referred to herein.
17. Notices. All notices, requests, consents and other
communications, required or permitted to be given hereunder, shall be in
writing and shall be deemed to have been duly given if delivered personally
or sent by prepaid telegram, or mailed first class, postage prepaid, by
registered or certified mail, as follows (or to such other or additional
address as either party shall designate by notice in writing to the other in
accordance herewith):
17.1 If to the Employer:
SFX Entertainment, Inc.
650 Madison Avenue, 16th Floor
New York, New York 10022
Attention: Board of Directors
17.2 If to the Executive:
Howard J. Tytel
41 Beverly Road
Great Neck, New York 11021
17.3 Copies of all communications given hereunder shall also be
delivered or sent, in like fashion, to Baker & McKenzie (attention: Michael
Burrows, Esq.) at 805 Third Avenue, New York, New York 10022.
18. General.
18.1 Governing Law. This Employment Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York.
18.2 Captions. The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Employment Agreement.
11
<PAGE>
18.3 Entire Agreement. This Employment Agreement including any
Exhibits attached hereto sets forth the entire agreement and understanding of
the parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understandings, written or oral, between the
parties, except as specifically provided herein.
18.4 Successors and Assigns. This Employment Agreement, and the
Executive's rights and obligations hereunder, may not be assigned by the
Executive, except that the Executive may designate pursuant to Section 18.6 one
or more beneficiaries to receive any amounts that would otherwise be payable
hereunder to the Executive's estate. This Employment Agreement shall be binding
on any successor to the Employer, whether by merger, acquisition of
substantially all of the Employer's assets or otherwise, as fully as if such
successor were a signatory hereto and the Employer shall cause such successor
to, and such successor shall, expressly assume the Employer's obligations
hereunder. Notwithstanding anything else herein contained, the term "Employer"
as used in this Employment Agreement, shall include all such successors.
18.5 Amendments; Waivers. This Employment Agreement cannot be
changed, modified or amended, and no provision or requirement hereof may be
waived, without an affirmative vote of the Board after the affirmative
recommendation of the Compensation Committee of the Board, and the consent in
writing of the Executive and the Employer. The failure of a party at any time
or times to require performance of any provision hereof shall in no manner
affect the right of such party at a later time to enforce the same. No waiver
by a party of the breach of any term or covenant contained in this Employment
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as, a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Employment Agreement.
18.6 Beneficiaries. Whenever this Employment Agreement provides for
any payment to the Executive's estate, such payment may be made instead to such
beneficiary or beneficiaries as the Executive may have designated in a writing
filed with the Employer. The Executive shall have the right to revoke any such
designation and to redesignate a beneficiary or beneficiaries by written notice
to the Employer (and to any applicable insurance company) to such effect.
[The remainder of this page has intentionally been left blank.]
12
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Employment
Agreement as of the date first above written.
SFX ENTERTAINMENT, INC.
By: /s/ Michael G. Ferrel
----------------------
Name: Michael G. Ferrel
Title: President and Chief
Executive Officer
/s/ Robert F.X. Sillerman
-------------------------
ROBERT F.X. SILLERMAN
13
<PAGE>
EXHIBIT 12.1
SFX ENTERTAINMENT, INC.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------ THREE MONTHS
PREDECESSOR ENDED MARCH 31,
-------------------------------- --------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1996 1997 1997 1998 1998
------ -------- ------ -------- -------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net income (loss) before provision
for income taxes..................... $ 66 $1,417 $160 $(409) $4,304 $(13,828) $(8,411) $(11,927)
Equity income (loss) from
investments, net of distributions ... -- 73 2 16 (479) 5,347 445 77
Interest expense...................... 148 144 144 60 1,590 49,098 6,748 12,274
Portion of rents representative of an
interest factor...................... 258 268 278 291 918 3,112 396 778
------ -------- ------ -------- -------- ----------- ---------- -----------
Total earnings....................... $472 $1,902 $584 $ (42) $6,333 $ 43,729 $ 822 $ 1,202
====== ======== ====== ======== ======== =========== ========== ===========
Fixed Charges:
Interest expense...................... $148 $ 144 $144 $ 60 $1,590 $ 49,098 $ 6,748 $ 12,274
Portion of rents representative of an
interest factor...................... 258 268 278 291 918 3,112 396 778
------ -------- ------ -------- -------- ----------- ---------- -----------
Total fixed charges.................. $406 $ 412 $422 $ 351 $2,508 $ 52,210 $(7,144) $(13,052)
====== ======== ====== ======== ======== =========== ========== ===========
Ratio of earnings to combined fixed
charges and preferred stock
dividends (deficiency in the coverage
of combined fixed charges by
earnings before fixed charges)(a) .... 1.2x 4.6x 1.4x $(393) 2.5x $ (8,481) $(7,966) $(11,850)
====== ======== ====== ======== ======== =========== ========== ===========
- ------------
(a) For the purposes of the ratio of earnings to combined fixed charges,
earnings were calculated by adding pretax income, interest expense,
amortization of debt issuance costs, and the portion of rents
representative of an interest factor. Combined fixed charges consist of
interest expense, and the portion of rents representative of an
interest factor. For the periods in which earnings were insufficient to
cover combined fixed charges, the dollar amount of coverage deficiency,
instead of the ratio is disclosed.
</TABLE>
<PAGE>
EXHIBIT 23.2
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) March 5, 1998, except for Notes 1 and 11 as to
which the date is April 27, 1998, with respect to the consolidated financial
statements of SFX Entertainment, Inc., (ii) October 2, 1997 with respect to the
consolidated financial statements of Delsener/Slater Enterprises, Ltd. and
Affiliated Companies, (iii) December 13, 1996 with respect to the consolidated
financial statements of PACE Entertainment Corporation and Subsidiaries, (iv)
May 22, 1998 with respect to the consolidated financial statements of the
Contemporary Group, (v) March 18, 1998 with respect to the combined financial
statements of SJS Entertainment Corporation, (vi) November 20, 1997 with
respect to the combined financial statements of The Album Network, Inc. and
Affiliated Companies, (vii) March 20, 1998 with respect to the consolidated
financial statements of BG Presents, Inc and Subsidiaries, (viii) March 13,
1998 with respect to the combined financial statements of Concert/Southern
Promotions and Affiliated Companies, (ix) April 10, 1998 with respect to the
combined financial statements of Falk Associates Management Enterprises, Inc,
and (x) May 1, 1998 with respect to the combined financial statements of
Blackstone Entertainment, LLC, all included in Amendment No. 2 to the
Registration Statement (Form S-4, No. 333-50331) and related Prospectus of
SFX Entertainment, Inc. for the registration of $350,000,000 in aggregate
principal of 9 1/8% Senior Subordinated Notes due 2008.
/s/ ERNST & YOUNG LLP
New York, New York
June 5, 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 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 Amendment No. 2 to
the Registration Statement on Form S-4.
/s/ Arthur Andersen LLP
Hartford, Connecticut
June 5, 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 Amendment No.
2 to Form S-4 Registration Statement (No. 333-50331) of SFX Entertainment, Inc.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
June 5, 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.
(formerly Sand 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
the amendment to the registration statement on Form S-4 of SFX Entertainment,
Inc.
/s/ ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
June 5, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated February 27, 1998, on the financial statements of Riverport
Performing Arts Centre, Joint Venture, as of and for the years ended December
31, 1997 and 1996, (and all references to our firm) included or made part of
Amendment No. 2 to the Registration Statement on Form S-4.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri
June 5, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 2 to the Registration Statement on Form S-4 (No. 333-50331) 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
Houston, Texas
June 5, 1998
<PAGE>
EXHIBIT 25.1
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------------------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------------------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) _______
-----------------------------------------------------
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
NEW YORK 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 PARK AVENUE
NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)
WILLIAM H. MCDAVID
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
-----------------------------------------------------
SFX ENTERTAINMENT, INC.*
(Exact name of obligor as specified in its charter)
* A complete list of Registrants is set forth in
Form S-4 Registration No. 333-50331
DELAWARE 13-3977880
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
650 MADISON AVENUE, 16TH FLOOR 10022
NEW YORK, NEW YORK (Zip Code)
(Address of principal executive offices)
-----------------------------------------------------------------------
91/8% SENIOR SUBORDINATED NOTES DUE 2008
(Title of the indenture securities)
-----------------------------------------------------------------------
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
New York State Banking Department, State House, Albany,
New York 12110.
Board of Governors of the Federal Reserve System, Washington,
D.C., 20551
Federal Reserve Bank of New York, District No. 2,
33 Liberty Street, New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
<PAGE>
ITEM 16. LIST OF EXHIBITS
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of
Amendment dated February 17, 1969, August 31, 1977, December 31, 1980,
September 9, 1982, February 28, 1985, December 2, 1991 and July 10,
1996 (see Exhibit 1 to Form T-1 filed in connection with Registration
Statement No. 333-06249, which is incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with
Registration Statement No. 33-50010, which is incorporated by
reference. On July 14, 1996, in connection with the merger of Chemical
Bank and The Chase Manhattan Bank (National Association), Chemical
Bank, the surviving corporation, was renamed The Chase Manhattan
Bank).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No.
333-06249, which is incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July
14, 1996, in connection with the merger of Chemical Bank and The Chase
Manhattan Bank (National Association), Chemical Bank, the surviving
corporation, was renamed The Chase Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining
authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York and State of New York, on the 9th day
of April, 1998.
THE CHASE MANHATTAN BANK
By /s/ F. Springer
--------------------
F. Springer
Assistant Vice President
<PAGE>
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business December 31, 1997,
in accordance with a call made by the Federal Reserve
Bank of this District pursuant to the provisions of
the Federal Reserve Act.
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
ASSETS IN MILLIONS
<S> <C> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin............................. $ 12,428
Interest-bearing balances......................... 3,428
Securities:
Held to maturity securities............................ 2,561
Available for sale securities.......................... 43,058
Federal funds sold and securities purchased
under agreements to resell........................ 29,633
Loans and lease financing receivables:
Loans and leases, net of unearned income.......... $ 129,260
Less: Allowance for loan and lease losses......... 2,783
Less: Allocated transfer risk reserve............. 0
----------
Loans and leases, net of unearned
income, allowance and reserve................. 126,477
Trading Assets......................................... 62,575
Premises and fixed assets (including capitalized
lease)............................................ 2,943
Other real estate owned................................ 295
Investments in unconsolidated subsidiaries and
associated companies.............................. 231
Customers' liability to this bank on acceptances
outstanding....................................... 1,698
Intangible assets...................................... 1,466
Other assets........................................... 10,268
----------
TOTAL ASSETS........................................... $ 297,061
==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
Deposits
<S> <C> <C> <C>
In domestic offices............................... $ 94,524
Noninterest-bearing............................... $ 39,487
Interest-bearing.................................. 55,037
----------
In foreign offices, Edge and Agreement,
subsidiaries and IBFs......................... 71,162
Noninterest-bearing........................... $ 3,205
Interest-bearing.............................. 67,957
Federal funds purchased and securities sold
under agreements to repurchase.................... 43,181
Demand notes issued to the U.S. Treasury............... 1,000
Trading liabilities.................................... 48,903
Other borrowed money (includes mortgage
indebtedness and obligations under
capitalized leases):
With a remaining maturity of one year
or less....................................... 3,599
With a remaining maturity of more than
one year...................................... 253
With a remaining maturity of more than
three years................................... 132
Bank's liability on acceptances executed and
outstanding....................................... 1,698
Subordinated notes and debentures...................... 5,715
Other liabilities...................................... 9,896
TOTAL LIABILITIES...................................... 280,063
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus.......... 0
Common stock........................................... 1,211
Surplus (exclude all surplus related to preferred
stock)............................................ 10,291
Undivided profits and capital reserves................. 5,502
Net unrealized holding gains (losses) on
available-for-sale securities..................... (22)
Cumulative foreign currency translation
adjustments....................................... 16
TOTAL EQUITY CAPITAL................................... 16,998
----------
TOTAL LIABILITIES AND EQUITY CAPITAL................... $ 297,061
==========
</TABLE>
I, Joseph L. Sclafani, E.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the instruction
issued by the appropriate Federal regulatory authority and is true and correct.
<PAGE>
WALTER V. SHIPLEY )
THOMAS G. LABRECQUE ) DIRECTORS
WILLIAM B. HARRISON, JR. )
<PAGE>
LETTER OF TRANSMITTAL
[SFX ENTERTAINMENT, INC. LOGO]
OFFER TO EXCHANGE
9 1/81/8% Senior Subordinated Notes Due 2008, Series B
for any and all of its outstanding
9 1/81/8% Senior Subordinated Notes Due 2008, Series A
Pursuant to the Prospectus, dated June 9, 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
JULY 9, 1998 UNLESS EXTENDED IN THE SOLE DISCRETION OF THE COMPANY
Delivery to: ChaseMellon Shareholder Services, L.L.C., the Exchange Agent
By U.S. Mail:
ChaseMellon Shareholder Services, L.L.C.
Post Office Box 3301
South Hackensack, NJ 07606
Attn: Reorganization Department
By Hand:
ChaseMellon Shareholder Services, L.L.C.
120 Broadway, 13th Floor
New York, NY 10271
Attn: Reorganization Department
By Overnight Delivery:
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Mail Drop-Reorg
Ridgefield Park, NJ 07660
Facsimile Number:
(201)296-4293
Confirm Facsimile Only:
(201)296-4860
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
Georgeson & Company Inc. has been appointed as Information Agent for the
Exchange Offer. Any questions or requests for assistance or additional copies
of this Prospectus, the Letter of Transmittal and/or the Notice of Guaranteed
Delivery may be directed to the Information Agent at its telephone number and
address set forth below. You may also contact your broker, dealer, commercial
bank or trust company or other nominee for assistance concerning the Exchange
Offer.
GEORGESON & COMPANY INC.
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll Free: 1-800-223-2065
The undersigned acknowledges that he or she has received the Prospectus,
dated June 8, 1998 (the "Prospectus"), of SFX Entertainment, Inc., a Delaware
corporation (the "Company"), and this Letter of Transmittal (this "Letter"),
which together constitute the Company's offer (the "Exchange Offer") to
exchange $1,000 principal amount of its outstanding 9 1/8% Senior
Subordinated Notes due 2008, Series B (the "Exchange Notes") for each $1,000
principal amount of 9 1/8% Senior Subordinated Notes due 2008, Series A (the
"Notes") of which $350.0 million in aggregate principal amount are
outstanding.
With respect to the Notes accepted for exchange, the holders of such Notes
will receive Exchange Notes which will bear interest at the same rate and on
the same terms as their Notes. Consequently, interest on the Exchange Notes
will be payable semi-annually on February 1 and September 1, 1998, at the
rate of 9 1/8% per annum. The
<PAGE>
Exchange Notes will bear interest from and including February 11, 1998, the
date of issuance of the Notes. Holders whose Notes are accepted for exchange
will be deemed to have waived the right to receive any interest accrued on
the Notes.
This Letter is to be completed by a holder of Notes either if certificates
are to be forwarded herewith or if a tender of certificates for Notes, if
available, is to be made by book-entry transfer to the account maintained by
the Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. Holders of
Notes whose certificates are not immediately available, or who are unable to
deliver their certificates or confirmation of the book-entry tender of their
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility
(a "Book-Entry Confirmation") and all other documents required by this Letter
to the Exchange Agent on or prior to the Expiration Date, must tender their
Notes according to the guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus.
Delivery of Documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact such registered holder of Notes promptly and instruct
such registered holder of Notes to tender on behalf of the beneficial owner.
If such beneficial owner wishes to tender on its own behalf, such beneficial
owner must, prior to completing and executing this Letter and delivering its
Notes, either make appropriate arrangements to register ownership of the
Notes in such beneficial owner's name or obtain a properly completed bond
power from the registered holder of Notes. The transfer of record ownership
may take considerable time.
The undersigned has completed the appropriate boxes below and signed this
letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and the aggregate principal
amount of the Notes should be listed on a separate signed schedule affixed
hereto.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
DESCRIPTION OF NOTES 1 2 3
- --------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED
HOLDER(S) CERTIFICATE AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
(PLEASE FILL IN, IF BLANK) NUMBERS(S)* AMOUNT AMOUNT TENDERED**
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
TOTAL
- --------------------------------------------------------------------------------------------------------------
* Need not be completed if Notes are being tendered by book-entry transfer.
- --------------------------------------------------------------------------------------------------------------
** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Notes
represented by the Notes indicated in column 2. See Instruction 2.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH
THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
------------------------------------------
Account Number Transaction Code Number
---------------------------------
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)
----------------------------------------
Window Ticket Number (if any)
------------------------------------------
2
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all rights, title and
interest in and to such Notes as is being tendered hereby, and hereby
appoints the Exchange Agent as the true and lawful agent and attorney-in-fact
(with full knowledge that the Exchange Agent also acts as agent of the
Company) of such holder of Notes, or transfer ownership of such Notes on the
account books maintained by The Depositary Trust Company (together, in any
such case, with all accompanying evidences of transfer and authenticity), to
the Company, (ii) present and deliver such Notes for transfer on the books of
the Company and (iii) receive all benefits and otherwise exercise all rights
and incidents of beneficial ownership with respect to such Notes, all in
accordance with the terms of the Exchange Offer. The power of attorney
granted in this paragraph shall be deemed to be irrevocable and coupled with
an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim when the same is accepted by the
Company. The undersigned hereby further represents that any Exchange Notes
acquired in exchange for Notes tendered hereby will have been acquired in the
ordinary course of business of the person receiving such Exchange Notes,
whether or not such person is the undersigned, that neither the holder of
such Notes nor any such other person has an arrangement or understanding with
any person to participate in the distribution of such Exchange Notes and that
neither the holder of such Notes nor any such other person is an "affiliate,"
as defined in Rule 405 under the Securities Act of 1933, as amended (the
"Securities Act"), of the Company.
The undersigned hereby represents and warrants that (i) the undersigned
has a net long position within the meaning of Rule 14e-4 under the Securities
Exchange Act, as amended ("Rule 144"), equal to or greater than the principal
amount of Notes tendered hereby; and (ii) the tender of such Notes complies
with Rule 14e-4 (to the extent that Rule 14e-4 is applicable to such
exchange).
The undersigned hereby further represents to the Company that the Exchange
Notes to be acquired by the undersigned in exchange for the Notes tendered
hereby and any beneficial owner(s) of such Notes in connection with the
Exchange Offer will be acquired by the undersigned and such beneficial
owner(s) in the ordinary course of business of the undersigned, the
undersigned (if not a broker-dealer referred to in the last sentence of this
paragraph) are not participating and do not intend to participate in the
distribution of the Exchange Notes, the undersigned have no arrangement or
understanding with any person to participate in the distribution of the
Exchange Notes, the undersigned and each beneficial owner acknowledge and
agree that any person participating in the Exchange Offer for the purpose of
distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the Exchange Notes acquired by such person
and cannot rely on the position of the staff of the Commission set forth in
certain no-action letters, the undersigned and each beneficial owner
understand dug a secondary resale transaction described in clause, above
should be covered by an effective registration statement containing the
selling security holder information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the Commission and neither the undersigned
nor any beneficial owner is an "affiliate" of the Company, as defined under
Rule 405 under the Securities Act. If the undersigned is a broker-dealer that
will receive Exchange Notes for its own account in exchange for Notes that
were acquired as a result of market making activities or other trading
activities, it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes received in respect of such Notes pursuant to the Exchange
Offer however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of
the undersigned hereunder shall be binding upon the successors, assigns,
heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer--Withdrawal Rights" section of the Prospectus.
3
<PAGE>
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the Exchange Notes (and, if applicable,
substitute certificates representing Notes for any Notes not exchanged) in
the name of the undersigned or, in the case of a book-entry delivery of
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box
entitled "Special Delivery Instructions" below, please send the Exchange
Notes (and, if applicable, substitute certificates representing Notes for any
Notes not exchanged) to the undersigned at the address shown above in the box
entitled "Description of Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED |mKDESCRIPTION OF NOTES|mK
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE NOTES AS
SET FORTH IN SUCH BOX ABOVE.
===============================================================================
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Notes not exchanged and/or
Exchange Notes are to be issued in the name of and sent to someone other
than the person or persons whose signature(s) appear(s) on this Letter
above, or if Notes delivered by book-entry transfer which is not accepted
for exchange is to be returned by credit to an account maintained at the
Book-Entry Transfer Facility other than the account indicated above.
Issue: Exchange Notes and/or Notes to:
Name(s) ....................................................................
(Please type or print)
............................................................................
(Please type or print)
Address ....................................................................
............................................................................
(Zip Code)
(COMPLETE SUBSTITUTE FORM W-9)
[ ] Credit unexchanged Notes delivered by
Book-Entry Transfer Facility set forth
below.
- -------------------------------------------------------------------------------
(Book-Entry Transfer Facility
Account Number, if applicable)
===============================================================================
===============================================================================
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Notes not exchanged and/or
Exchange Notes are to be sent to someone other than the person or persons
whose signature(s) appear(s) on this Letter above, or to such person or
persons at an address other than shown in the box entitled "Description of
Notes" on this Letter above.
Mail: Exchange Notes and/or Notes to:
Name(s) ...................................................................
(Please type or print)
............................................................................
(Please type or print)
Address ...................................................................
............................................................................
(Zip Code)
===============================================================================
IMPORTANT: THIS LETTER (TOGETHER WITH THE CERTIFICATES FOR NOTES OR A
BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF
GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00
P.M. NEW YORK CITY TIME, ON THE EXPIRATION DATE.
4
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE
===============================================================================
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
Dated: ........................................................... 1998
X ................................................................. 1998
X ................................................................. 1998
Signature(s) of Owner Date
Area Code and telephone Number .............................................
If a holder is tendering any Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the
Notes, or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If a signature is by a
trustee, executor, administrator, guardian, officer or other person acting in
a fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s): .................................................................
..........................................................................
(Please Type or Print)
Capacity: ................................................................
Address: ..................................................................
..........................................................................
(Including Zip Code)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution: ..................................................
(Authorized Signature)
..........................................................................
(Title)
..........................................................................
(Name and Firm)
Dated: ............................................................ , 1998
===============================================================================
5
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF OFFER TO EXCHANGE
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
OF SFX ENTERTAINMENT, INC.
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This letter is to be completed by securityholders either if certificates
are to be forwarded herewith or if tenders are to be made pursuant to the
procedures for delivery by book-entry transfer set forth in "The Exchange
Offer--Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Notes, or Book-Entry Confirmation, as the case may be, as
well as a properly completed and duly executed Letter (or manually signed
facsimile hereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below.
Securityholders whose certificates for Notes are not immediately available
or who cannot deliver their certificates and all other required documents to
the Exchange Agent on or prior to the Expiration Date, or who cannot complete
the procedure for book-entry transfer on a timely basis, may tender their
Notes pursuant to the guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus.
Pursuant to such procedures, (i) such tender must be made through an Eligible
Institution, (ii) prior to the Expiration Date, the Exchange Agent must
receive from such Eligible Institution a properly completed and duly executed
Letter (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Notes and the amount of Notes tendered, stating that
the tender is being made thereby and guaranteeing that within three New York
Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered
Notes in proper format for transfer, or a Book-Entry Confirmation as the case
may be, and any other documents required by this Letter will be deposited by
the Eligible Institution with the Exchange Agent, and (iii) the certificates
for all physically tendered Notes, in proper form for transfer, or Book-Entry
Confirmation, as the case may be, and all other documents required by this
Letter, are received by the Exchange Agent within three NYSE trading days
after the date or execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Notes, and all other required
documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Notes are sent by mail, it is suggested that registered
mail, properly insured, with return receipt requested, be used and that the
mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO SECURITYHOLDERS WHO TENDER BY
BOOK-ENTRY TRANSFER).
If less than all of the Notes evidenced by a submitted certificate are to
be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Notes to be tendered in the box above entitled "Description of
Notes--Aggregate Principal Amount Tendered." A reissued certificate
representing the balance of nontendered Notes will be sent to such tendering
holder, unless otherwise provided in the appropriate box on this Letter,
promptly after the Expiration Date. All of the Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
3. SIGNATURES ON THIS LETTER; POWERS OF ATTORNEY AND ENDORSEMENTS; GUARANTEE
OF SIGNATURES.
If this letter is signed by the registered holder of the Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever.
<PAGE>
If any tendered Notes are owned of record by two or more joint owners, all
of such owners must sign this Letter.
If any tendered Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered holder or holders of the
Notes specified herein and tendered hereby, no endorsements of certificates
or separate powers of attorney are required. If, however, the Exchange Notes
are to be issued, or any untendered Notes are to be reissued, to a person
other than the registered holder, then endorsements or any certificates
transmitted hereby or separate powers of attorney are required to be
submitted together with the Certificates for Notes. Signatures on such
certificate(s) must be guaranteed by an Eligible Institution as defined
below.
If this Letter is signed by a person or persons other than the registered
holder or holders of any certificate(s) specified herein, such certificate(s)
must be endorsed or accompanied by appropriate powers of attorney, in either
case signed exactly as the name or names of the registered holder or holders
appear(s) on the certificate(s) and signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
If this Letter or any certificates or powers of attorney are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers
or corporations or other acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and, unless waived by the
Company, proper evidence satisfactory to the Company or their authority to so
act must be submitted.
Endorsements on certificates for Notes or signatures on powers of attorney
required by this Instruction 3 must be guaranteed by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust
company having an office of correspondent in the United States (an "Eligible
Institution").
Signatures on this Letter need not be guaranteed by an Eligible
Institution, provided the Notes are tendered: (i) by a registered holder of
Notes (which term, for purposes of the Exchange Offer, includes any
participant in the Book-Entry Transfer Facility system whose name appears on
a security position listing as the holder of such Notes) who has not
completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on this Letter, or (ii) for the account of an Eligible
Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Notes should indicate in the applicable box above the
name and address to which Exchange Notes issued pursuant to the Exchange
Offer and/or substitute certificates evidencing Notes not exchanged are to be
issued or sent, if different from the name or address of the person signing
this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. Securityholders tendering Notes by book-entry may request that
Notes not exchanged be credited to such account maintained at the Book-Entry
Transfer Facility as such securityholder may designate hereon. If no such
instructions are given, such Notes not exchanged will be returned to the name
or address of the person signing this Letter.
5. TAX IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose
Notes are accepted for exchange must provide the Company (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form
W-9 below, which in the case of a tendering holder who is an individual, is
his or her social security number. If the Company is not provided with the
correct TIN or an adequate basis for an exemption, such tendering holder may
be subject to a $50 penalty imposed by the Internal Revenue Service. In
addition, delivery to such tendering holder of Exchange Notes may be subject
to backup withholding in an amount equal to 31% of all reportable payments
made after the exchange. If withholding results in an overpayment of taxes, a
refund may be obtained.
<PAGE>
Exempt holders of Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines")
for additional instructions.
To prevent backup withholding, each tendering holder of Notes must provide
its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting
a TIN) and that (i) the holder is exempt from backup withholding, or (ii) the
holder has not been notified by the Internal Revenue Service that such holder
is subject to backup withholding as a result of a failure to report all
interest or dividends or (iii) the Internal Revenue Service has notified the
holder that such holder is no longer subject to backup withholding. If the
tendering holder of Notes is a nonresident alien or foreign entity not
subject to backup withholding, such holder must give the Company a completed
Form W-8, Certificate of Foreign Status. These forms may be obtained from the
Exchange Agent. If the Notes are in more than one name or are not in the name
of the actual owner, such holder should consult the W-9 Guidelines for
information on which TIN to report. If such holder does not have a TIN, such
holder should (i) consult the W-9 Guidelines for instructions on applying for
a TIN, (ii) check the box in Part 2 of the Substitute Form W-9 and (iii)
write "applied for" in lieu of its TIN. Note: Checking this box and writing
"applied for" on the form means that such holder has already applied for a
TIN or that such holder intends to apply for one in the near future. If such
holder does not provide its TIN to Holdings within 60 days, backup
withholding will begin and continue until such holder furnishes its TIN to
holders.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the
transfer or Notes to it or its order pursuant to the Exchange Offer. If
however, Exchange Notes and/or substitute Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person
other than the registered holder of the Notes tendered hereby, or if tendered
Notes are registered in the name of any person other than the person signing
this Letter, or if a transfer tax is imposed for any reason other than the
transfer of Notes to the Company or its order pursuant to the Exchange Offer,
the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. Of
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly
to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE NOTES SPECIFIED IN THIS LETTER.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or
all conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice or any defect or irregularity with respect to any tender of
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED NOTES.
Any holder whose Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
<PAGE>
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<CAPTION>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN TIN:
FORM W-9 THE BOX AT RIGHT AND CERTIFY BY -----------------------------------
DEPARTMENT OF THE TREASURY SIGNING AND DATING BELOW Social Security Number or
INTERNAL REVENUE SERVICE Employer Identification Number
-------------------------------------------------------------------------------
PAYER'S REQUEST FOR TAXPAYER PART 2--TIN Applied for []
IDENTIFICATION NUMBER -------------------------------------------------------------------------------
("TIN") AND 11.CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
CERTIFICATION
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me).
(2) I am not subject to backup withholding because (a) I am exempt from
backup withholding or (b) I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends or (c) the IRS
has notified me that I am no longer subject to backup withholding, and
(3) any other information provided on this form is true and correct.
SIGNATURE ......................................................... DATE..................................
- ----------------------------------------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been notified by the IRS that you are
subject to backup withholding because of underreporting of interest or dividends on your tax return and
you have not been notified by the IRS that you are no longer subject to backup withholding.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31
percent of all reportable payments made to me will be withheld until I provide
a number.
- ----------------------------- -----------------------------
Signature Date
<PAGE>
NOTICE OF GUARANTEED DELIVERY FOR
SFX ENTERTAINMENT, INC.
This form or one substantially equivalent hereto must be used to accept
the Exchange Offer of SFX Entertainment, Inc. (the "Company") made pursuant
to the Prospectus, dated June 9, 1998 (the "Prospectus"), if certificates for
9 1/8% Senior Subordinated Notes due 2008, Series A (the "Notes") of the
Company are not immediately available or if the procedure for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach the Company prior to 5:00 p.m., New York City
time, on the Expiration Date of the Exchange Offer. Such form may be
delivered or transmitted by mail, hand or overnight courier to The Chase
Manhattan Bank (the "Exchange Agent") as set forth below. In addition, in
order to utilize the guaranteed delivery procedure to tender the Notes
pursuant to the Exchange Offer, a completed, signed and dated Letter of
Transmittal must also be received by the Exchange Agent prior to 5:00 p.m.,
New York City time, on the Expiration Date. Capitalized terms not defined
herein are defined in the Prospectus.
Delivery to: Chase Manhattan Bank, the Exchange Agent
By U.S. Mail:
ChaseMellon Shareholder Services, L.L.C.
Post Office Box 3301
South Hackensack, NJ 07606
Attn: Reorganization Department
By Hand:
ChaseMellon Shareholder Services, L.L.C.
120 Broadway, 13th Floor
New York, NY 10271
Attn: Reorganization Department
By Overnight Delivery:
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Mail Drop-Reorg
Ridgefield Park, NJ 07660
Facsimile Number:
(201)296-4293
Confirm Facsimile Only:
(201)296-4860
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
above will not constitute a valid delivery.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the Aggregate Principal amount of Notes set forth below, pursuant to
the guaranteed delivery procedure described in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus.
Aggregate Principal Amount of Notes tendered:
$
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Certificate Nos. (if available):
- --------------------------------------------------
Aggregate Principal Amount Represented by Old
Certificates(s):
$
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If Notes will be delivered by book-entry
transfer to The Depository Trust Company,
provide account number.
Account Number
- --------------------------------------------------
<PAGE>
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
PLEASE SIGN HERE
X , 1998
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X , 1998
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Signature(s) of Owners(s) or Date
Authorized Signatory
Area Code and Telephone
Number:
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Must be signed by the holder(s) of Notes as their name(s) appear(s) on
certificates for Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person
must set forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): ----------------------------------------------------------------
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Capacity: ----------------------------------------------------------------
Address(es): ----------------------------------------------------------------
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GUARANTEE
The undersigned, a member of a registered national securities exchange, or
a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the
United States, hereby guarantees that the certificates representing the
aggregate principal amount of Notes tendered hereby in proper form for
transfer, or timely confirmation of the book-entry transfer of such Notes
into the Exchange Agent's account at The Depository Trust Company pursuant to
the procedures set forth in "The Exchange Offer-Guaranteed Delivery
Procedures" section of the Prospectus, together with a properly completed and
duly executed Letter of Transmittal (or a manually signed facsimile thereof)
with any required signature guarantee and any other documents required by the
Letter of Transmittal, will be received by the Exchange Agent at the address
set forth above, no later than three New York Stock Exchange trading days
after the date of execution hereof.
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Name of Firm
- -----------------------------------------------------------------------------
Address
- -----------------------------------------------------------------------------
City State Zip Code
Area Code and Tel. No.
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Authorized Signature
- -----------------------------------------------------------------------------
Title
Name:
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(Please Type or Print)
Dated:
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NOTE: DO NOT SEND CERTIFICATES FOR NOTES WITH THIS FORM. CERTIFICATES FOR
NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE>
SFX ENTERTAINMENT, INC.
OFFER TO EXCHANGE
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated June 9, 1998 (the
"Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of SFX
Entertainment, Inc. (the "Company") to exchange (the "Exchange Offer") $1,000
principal amount of its 9 1/8% Senior Subordinated Notes due 2008, Series B
(the "Exchange Notes"), which exchange has been registered under the
Securities Act of 1933, as amended, pursuant to a registration statement of
which the Prospectus is part for each $1,000 principal amount of its
outstanding 9 1/8% Senior Subordinated Notes due 2008, Series A (the "Notes")
of which $350.0 million in aggregate principal amount are outstanding as of
the date hereof. The Exchange Offer is made upon the terms and subject to the
conditions described in the Prospectus and the Letter of Transmittal. The
Exchange Offer is being made in order to satisfy certain obligations of the
Company contained in the Registration Rights Agreement dated February 11,
1998, among the Company and Lehman Brothers, Goldman, Sachs & Co., BNY
Capital Market Inc. and ING Barings, Inc. (the "Initial Purchasers").
This material is being forwarded to you as the beneficial owner of the
Notes carried by us in your account but not registered in your name. A tender
of such Notes may only be made by us as the holder of record and pursuant to
your instructions.
Accordingly, we request instructions as to whether you wish us to tender
on your behalf the Notes held by us for your account, pursuant to the terms
and conditions set forth in the enclosed Prospectus and Letter of
Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00
p.m., New York City time, on July 9, 1998. Notes tendered pursuant to the
Exchange Offer may be withdrawn at any time before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all of the outstanding Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Certain Conditions
to the Exchange Offer."
3. Any transfer taxes incident to the transfer of Notes from the holder to
the Company will be paid by the Company, except as otherwise provided in the
Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on July 9,
1998, unless extended by the Company in its sole discretion.
If you wish to have us tender your Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION
ONLY AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER NOTES.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by SFX
Entertainment, Inc. with respect to its Notes.
This will instruct you to tender the Notes held by you for the account of
the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Please tender the Notes held by you for my account as indicated below:
PRINCIPAL AMOUNT OF NOTES
9 1/8% Senior Subordinated Notes due
2008, Series A ........................
[ ] Please do not tender any Notes
held by you for my account.
Dated: , 1998
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Signature(s)
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Please print name(s) here
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Address(es)
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Area Code and Telephone
Number
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Tax Identification or
Social Security No(s).
None of the Notes held by us for your account will be tendered unless we
receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Notes held by us for your
account.
<PAGE>
SFX ENTERTAINMENT, INC.
OFFER TO EXCHANGE
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
TO: BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
SFX Entertainment, Inc. (the "Company") is offering, upon and subject to
the terms and conditions set forth in the Prospectus, dated June 9, 1998 (the
"Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), to exchange (the "Exchange Offer") $1,000 principal amount of
its 9 1/8% Senior Subordinated Notes due 2008, Series B (the "Exchange
Notes"), which exchange has been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a registration statement of
which this Prospectus is a part (the "Registration Statement") for each
$1,000 principal amount of its outstanding 9 1/8% Senior Subordinated Notes
due 2008, Series A (the "Notes") of which $350.0 million in aggregate
principal amount are outstanding as of the date hereof. The Exchange Offer is
being made in order to satisfy certain obligations of the Company contained
in the Registration Rights Agreement dated February 11, 1998 among the
Company and Lehman Brothers, Goldman, Sachs & Co., BNY Capital Markets, Inc.
and ING Barings, Inc. (the "Initial Purchasers").
We are requesting that you contact your clients for whom you hold Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Notes registered in your name or in the name of
your nominee, or who hold Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated June 9, 1998;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer, if certificates for Notes are not immediately available, or time will
not permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below), or if the procedure for book-entry
transfer cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account
you hold Notes registered in your name or the name of your nominee, with
space provided for obtaining such clients' instructions with regard to the
Exchange Offer; and
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., New York City time, on July 9, 1998, unless extended.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent, and certificates representing the Notes should be delivered
to the Exchange Agent, all in accordance with the instructions set forth in
the Letter of Transmittal and the Prospectus.
If holders of Notes wish to tender, but it is impracticable for them to
forward their certificates for Notes prior to the expiration of the Exchange
Offer or to comply with the book-entry transfer procedures on a timely basis,
a tender may be effected by following the guaranteed delivery procedures
described in the Prospectus under "The Exchange Offer--Guaranteed Delivery
Procedures."
The Company will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the
<PAGE>
related documents to the beneficial owners of Notes held by them as nominee
or in a fiduciary capacity. The Company will pay or cause to be paid all
stock transfer taxes applicable to the exchange of Notes pursuant to the
Exchange Offer, except as set forth in the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to
Georgeson & Company Inc., the Information Agent for the Exchange Offer, at
its address and telephone number set forth on the front of the Letter of
Transmittal.
Very truly yours,
SFX ENTERTAINMENT, INC.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT OR THE INFORMATION
AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY
STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER,
EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF
TRANSMITTAL.
Enclosures
<PAGE>
EXHIBIT 99.5
CONSENT
The undersigned hereby consents, under the Securities Act of 1933, as
amended, to his being named as a director of SFX Entertainment, Inc. in such
company's amendment to the Registration Statement on Form S-4.
Dated as of: June 5, 1998
/s/ David Falk
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David Falk
