<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): May 29, 1998
------------------------------
SFX ENTERTAINMENT, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 0-24017 13-3977880
- ------------------------------- --------------------- -------------
(State or Other Jurisdiction of (Commission File No.) (IRS Employer
Incorporation) Identification No.)
650 Madison Avenue, 16th Floor, New York, New York 10022
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 838-3100
----------------------------
N/A
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS.
Attached hereto as Annex A are the Unaudited Pro Forma Condensed
Combined Financial Statements for SFX Entertainment, Inc., a Delaware
corporation (the "Company"). Capitalized terms appearing but not defined
therein, have the same meaning as set forth in the Company's Registration
Statement on Form S-1, as amended (No. 333-50079).
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired
The financial statements set forth under the section "Index to
Financial Statements" which are included at pages F-4 to F-166 of the
Company's prospectus filed pursuant to Rule 424(b) relating to the
Registration Statement on Form S-1 (Reg. No. 333-50079), filed with the
Securities and Exchange Commission on May 21, 1998, are incorporated
herein by reference.
(c) Exhibits
1.1 Underwriting Agreement, dated May 20, 1998, by and between
SFX Entertainment, Inc. and the several underwriters listed
on Schedule 1 thereto
2.1 Amendment No. 1 to Distribution Agreement among SFX
Entertainment, Inc, SFX Broadcasting, Inc. and SBI Holding
Corporation
2.2 Amended and Restated Tax Sharing Agreement among SFX
Entertainment, Inc, SFX Broadcasting, Inc. and SBI Holding
Corporation
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
SFX ENTERTAINMENT, INC.
By: /s/ Thomas P. Benson
--------------------------------
Name: Thomas P. Benson
Title: Chief Financial Officer
Date: May 29, 1998
<PAGE>
ANNEX A
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 Acquisitions 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 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 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 and
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."
<PAGE>
SFX ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA FOR PENDING ACQUISITIONS
------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
SFX OTHER FOR PENDING
ENTERTAINMENT FAME DON LAW ACQUISITIONS(1) ACQUISITIONS
(ACTUAL) I II III IV
--------------- ------------- ------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets ........ $149,375 $ (80,497) $ (66,855) $ (53,803) $ (6,000)
Property and
equipment, net ....... 196,732 60 32,000 15,032
Intangible assets,
net .................. 470,721 127,155 57,479 35,675 6,000
2,400
Other assets .......... 41,598 348 -- 11,357 (1,379)
-------- --------- --------- --------- --------
TOTAL ASSETS .......... $858,426 $ 47,066 $ 22,624 $ 8,261 $ 1,021
======== ========= ========= ========= ========
LIABILITIES &
STOCKHOLDERS'
EQUITY:
Current liabilities ... 245,982 2,405 6,574 5,085
Deferred taxes ........ 50,559 2,400
Senior Subordinated
Notes ................ 350,000
Credit Facility ....... 150,000
Other long-term
debt ................. 30,701
Capital lease
obligations .......... 12,302
Other liabilities ..... 5,858 1,411 50 97
Minority interest ..... 1,570 3,079 (1,379)
Temporary equity--
stock subject to
redemption ........... 16,500
Stockholders' Equity... (5,046) 43,250 16,000
-------- --------- --------- --------- --------
TOTAL LIABILITIES &
STOCKHOLDERS'
EQUITY ............... $858,426 $ 47,066 $ 22,624 $ 8,261 $ 1,021
======== ========= ========= ========= ========
</TABLE>
A-2
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR PRO FORMA PRO FORMA FOR
THE SPIN-OFF ADJUSTMENTS FOR THE SPIN-OFF, THE SFX MERGER,
AND THE SFX MERGER THE FINANCING(1) THE PENDING ACQUISITIONS
V VI AND THE FINANCING
-------------------- ------------------ ------------------------------
<S> <C> <C> <C>
ASSETS:
Current assets ........ $ (122,987) $326,504 $ 165,773
20,036
--
Property and
equipment, net ....... 243,824
Intangible assets,
net .................. 699,430
Other assets .......... 51,924
----------
TOTAL ASSETS .......... $ (122,987) $346,540 $1,160,951
========== ============= ==========
LIABILITIES &
STOCKHOLDERS'
EQUITY:
Current liabilities ... (120,000) 140,046
Deferred taxes ........ 52,959
Senior Subordinated
Notes ................ 350,000
Credit Facility ....... 20,036 170,036
Other long-term
debt ................. 30,701
Capital lease
obligations .......... 12,302
Other liabilities ..... 7,416
Minority interest ..... 3,270
Temporary equity--
stock subject to
redemption ........... 16,500
Stockholders' Equity... (5,000) 326,504 377,721
2,013
---------- -------- -------
TOTAL LIABILITIES &
STOCKHOLDERS'
EQUITY ............... $ (122,987) $346,540 $1,160,951
========== ============= ==========
</TABLE>
- -------
(1) On May 14, 1998, the Company consummated the acquisition of Avalon and
borrowed $27,500,000 under the Credit Facility in connection with such
acquisition. The borrowing was repaid on May 28, 1998 with the proceeds
of the Offering.
A-3
<PAGE>
I. FAME ACQUISITION
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998 (IN THOUSANDS)
--------------------------------------------------
PRO FORMA FAME
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------------- ------------
<S> <C> <C> <C>
ASSETS:
Current assets ................................... $ 1,743 $ (82,240)(a) $ (80,497)
Property and equipment, net ...................... 60 -- 60
Intangible assets, net ........................... -- 127,155 (b) 127,155
Other assets ..................................... 348 -- 348
-------- ---------- ---------
TOTAL ASSETS ..................................... $ 2,151 $ 44,915 $ 47,066
======== ========== =========
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities .............................. 2,405 -- 2,405
Other long-term debt ............................. 344 (344)(c) --
Other liabilities ................................ 1,411 1,411
Stockholders' Equity ............................. (2,009) 2,009 (d) 43,250
43,250
----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ......... $ 2,151 $ 44,915 $ 47,066
======== ========== =========
</TABLE>
- ----------
PRO FORMA ADJUSTMENTS:
(a) To reflect the FAME acquisition for $82,240,000 in cash (including
$7,900,000 which the Company anticipates paying in connection with
certain taxes to be incurred by FAME and the FAME sellers) and the
issuance of 1.0 million shares of Class A Common Stock.
(b) To reflect the excess of the purchase price over the net tangible
assets acquired.
(c) To reflect the repayment by the Company of FAME's long-term debt at
closing.
(d) To reflect the elimination of FAME's stockholders' equity.
A-4
<PAGE>
II. DON LAW ACQUISITION
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998 (IN THOUSANDS)
-----------------------------------------------
PRO FORMA DON LAW
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------------- ------------
<S> <C> <C> <C>
ASSETS:
Current assets ................................... $ 7,145 $ (74,000)(a) $ (66,855)
Property and equipment, net ...................... 13,025 18,975 (b) 32,000
Intangible assets, net ........................... 157 57,322 (c) 57,479
------- ---------- ---------
TOTAL ASSETS ..................................... $20,327 $ 2,297 $ 22,624
======= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities .............................. $ 6,574 6,574
Long-term debt ................................... 10,514 (10,000)(a) --
(514)(d)
Other liabilities ................................ 50 -- 50
Stockholders' Equity ............................. 3,189 (3,189)(e) 16,000
16,000 (a)
------- ---------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ......... $20,327 $ 2,297 $ 22,624
======= ========== =========
</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.
(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.
(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 stockholders' equity.
A-5
<PAGE>
III. OTHER ACQUISITIONS
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998 (IN THOUSANDS)
---------------------------------------------------------------------------
TOTAL
AVALON OAKDALE EMI PRO FORMA OTHER
ACQUISITION ACQUISITION ACQUISITION ADJUSTMENTS ACQUISITIONS
------------- ------------- ------------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets ......................... $2,871 $4,997 $1,300 $ (26,800)(a) $ (53,803)
(23,250)(a)
(9,250)(a)
(2,871)(c)
(800)(f)
Property and equipment, net ............ 3,505 364 11,163 (b) 15,032
Intangible assets, net ................. 257 11,001 (b) 35,675
24,417 (b)
Other assets ........................... 2,337 7 11,350 (a) 11,357
(2,337)(c)
------ ------ ------ ---------- ---------
TOTAL ASSETS ........................... $8,970 $5,361 $1,307 $ (7,377) $ 8,261
====== ====== ====== ========== =========
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities .................... $2,493 $4,624 $ 461 $ (2,493)(c) $ 5,085
Long term debt ......................... 1,124 800 (1,124)(c) --
(800)(f)
Other liabilities ...................... -- 97 -- 97
Minority interest ...................... 1,379 1,700 (g) 3,079
Stockholders' Equity ................... 3,974 737 (51) (737)(d) --
51 (e)
(3,974)(c)
------ ------ ------ ---------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $8,970 $5,361 $1,307 $ (7,377) $ 8,261
====== ====== ====== ========== =========
</TABLE>
- ----------
PRO FORMA ADJUSTMENTS:
(a) To reflect the consummation of the Avalon acquisition on May 14,
1998 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 to reflect the
Oakdale acquisition for $23,250,000 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 EMI acquisition for $9,250,000 in cash
(including a loan to the EMI sellers of approximately $750,000).
(b) To reflect the excess of the purchase price paid over the fair value
of net tangible assets of $24,417,000 and $11,001,000 for the Avalon
and EMI acquisitions, respectively. Also to reflect the increase in
fair value allocated to fixed assets of $11,163,000 associated with
the Oakdale acquisition.
(c) To reflect the elimination of the historical balances of current
assets, current liabilities, other assets, long term debt, and
stockholders' equity of the Avalon acquisition.
(d) To reflect the elimination of Oakdale stockholders' equity.
(e) To reflect the elimination of EMI's stockholders' deficiency.
(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
A-6
<PAGE>
Company.
IV. PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS
Reflects $6,000,000 in estimated fees and expenses associated with the Pending
Acquisitions.
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.
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.
V. PRO FORMA ADJUSTMENTS FOR THE SPIN-OFF AND THE SFX MERGER
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. On a pro forma basis, as of March 31, 1998, the amount of Working
Capital to be paid by SFX Broadcasting to the Company would have been
$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.
VI. PRO FORMA ADJUSTMENTS FOR THE FINANCING
Represents amounts used to finance the Pending Acquisitions including the
estimated net proceeds from the Offering of $326,504,000 and additional
borrowings under the Credit Facility of $20,036,000.
A-7
<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>
PRO FORMA FOR THE PENDING ACQUISITIONS
---------------------------------------------------
PRO FORMA
SFX ADJUSTMENTS
ENTERTAINMENT PRO FORMA FOR FOR THE PENDING
(ACTUAL) THE TRANSACTIONS FAME DON LAW OTHER(2) ACQUISITIONS
I II III IV V VI
-------------- ------------------ ---------- ----------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenue .......................... $96,144 $ 646,719 $10,881 $50,588 $70,826
Operating expenses ............... 83,417 576,913 3,457 43,741 64,319
Depreciation & amortization ...... 5,431 39,639 115 2,033 461 $ 14,433
Corporate expenses ............... 2,206 4,206 -- -- -- 1,000
------- --------- ------- ------- ------- ---------
Operating income (loss) .......... 5,090 25,961 7,309 4,814 6,046 (15,433)
Interest expense ................. 1,590 47,296 79 1,072 1,643 (2,794)
Other (income) expenses .......... (295) (595) (143) (329) (121)
Equity (income) loss from
investments ..................... (509) (5,417) -- -- 70
Other expenses ................... (38)
-------- ---------
Income/(loss) before income
tax expense ..................... 4,304 (15,285) 7,373 4,071 4,454 (12,639)
Income tax expense (benefit) 490 3,500 700 -- 949 (949)
------- --------- ------- ------- ------- ---------
Net income (loss) ................ $ 3,814 $ (18,785) $ 6,673 $ 4,071 $ 3,505 $ (11,690)
======= ======= ======= ======= =========
Accretion on temporary equity (3,300)
---------
Net loss applicable to
common shares ................... $ (22,085)
=========
Net loss per common share ........
Weighted average common
shares outstanding (1) ..........
</TABLE>
A-8
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR PRO FORMA FOR
ADJUSTMENTS FOR THE TRANSACTIONS, THE
THE FINANCING(2) PENDING ACQUISITIONS
VII AND THE FINANCING
------------------ ----------------------
<S> <C> <C>
Revenue .......................... $ -- $ 779,014
Operating expenses ............... -- 688,430
Depreciation & amortization ...... -- 56,681
Corporate expenses ............... -- 5,206
-------- ---------
Operating income (loss) .......... -- 28,697
Interest expense ................. 1,628 48,924
Other (income) expenses .......... -- (1,188)
Equity (income) loss from
investments ..................... -- (5,347)
Other expenses ................... (38)
---------
Income/(loss) before income
tax expense ..................... (1,628) (13,654)
Income tax expense (benefit) -- 4,200
-------- ---------
Net income (loss) ................ $ (1,628) $ (17,854)
========
Accretion on temporary equity (3,300)
---------
Net loss applicable to
common shares ................... $ (21,154)
=========
Net loss per common share ........ $ (0.74)
=========
Weighted average common
shares outstanding (1) .......... 29,236
=========
</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) and the assumed
issuance of 8,050,000 and approximately 1,500,000 shares of Class A
Common Stock in connection with the Offering and the Pending
Acquisitions, respectively.
(2) On May 14, 1998, the Company consummated the acquisition of Avalon and
borrowed $27,500,000 under the Credit Facility in connection with such
acquisition. The borrowing was repaid on May 28, 1998 with the
proceeds of the Offering.
A-9
<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, the Spin-Off and the SFX Merger. $150.0
million in initial borrowings under the Credit Facility used to fund
the Recent Acquisitions and certain obligations related to the
Spin-off and the SFX Merger.
A-10
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
------------------------------------------------------------
PRO FORMA PACE
SFX FOR 1997 AND PAVILION CONTEMPORARY
ENTERTAINMENT ACQUISITIONS ACQUISITIONS ACQUISITION
(ACTUAL) A B C
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue ........................... $96,144 $14,243 $284,360 $103,300
Operating expenses ................ 83,417 13,293 260,256 91,220
Depreciation & amortization ....... 5,431 1,402 6,053 1,320
Corporate expenses ................ 2,206 -- --
Other expenses .................... -- -- --
------- -------- --------
Operating income (loss) ........... 5,090 (452) 18,051 10,760
Interest expense .................. 1,590 171 6,772 266
Other (income) expenses ........... (295) (1) 1,328 (357)
Equity (income) loss from
investments ...................... (509) -- (7,399) --
Other expenses .................... -- -- (38) --
------- -------- -------- --------
Income (loss) before income tax
expense .......................... 4,304 (622) 17,388 10,851
Income tax expense (benefit) ...... 490 -- 3,569 --
------- -------- -------- --------
Net income (loss) ................. $ 3,814 $ (622) $ 13,819 $ 10,851
======= ======== ======== ========
Accretion on temporary equity .....
Net income (loss) applicable to
common share .....................
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
---------------------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
PRO FORMA FOR THE
CONCERTS ADJUSTMENTS FINANCING OF
BGP NETWORK SOUTHERN FOR THE RECENT THE RECENT PRO FORMA
ACQUISITION ACQUISITION ACQUISITION ACQUISITIONS ACQUISITIONS FOR THE
D E F G H TRANSACTIONS
------------- ------------- ------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ........................... $105,553 $28,322 $14,797 $ -- $ 646,719
Operating expenses ................ 96,630 19,577 12,520 -- 576,913
Depreciation & amortization ....... 1,027 351 79 23,976 (a) 39,639
Corporate expenses ................ -- -- -- 2,000 (b) 4,206
Other expenses .................... -- -- -- -- --
-------- ------- ------- ---------- --------- ---------
Operating income (loss) ........... 7,896 8,394 2,198 (25,976) 25,961
Interest expense .................. 917 195 -- (8,150)(c) 45,535 47,296
--
Other (income) expenses ........... (270) (78) (60) (862)(d) (595)
Equity (income) loss from
investments ...................... -- -- 48 862 (d) (5,417)
1,581 (g)
Other expenses .................... -- -- -- (38)
-------- ------- ------- ---------- --------- ---------
Income (loss) before income tax
expense .......................... 7,249 8,277 2,210 (19,407) (45,535) (15,285)
Income tax expense (benefit) ...... 1,687 127 -- (2,373)(e) 3,500
-------- ------- ------- ---------- --------- ---------
Net income (loss) ................. $ 5,562 $ 8,150 $ 2,210 $ (17,034) $ (45,535) $ (18,785)
======== ======= ======= =========
Accretion on temporary equity ..... (3,300)(f) (3,300)
---------- ---------
Net income (loss) applicable to
common share ..................... $ (20,334) $ (22,085)
========== =========
</TABLE>
A-11
<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.
A-12
<PAGE>
(d) To eliminate PACE's income from its 33 1/3% equity investment in
Pavilion Partners.
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>
A-13
<PAGE>
- ----------
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.
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.
A-14
<PAGE>
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.
G. 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 $8,150,000 of historical interest
expense.
(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
$3,500,000. The calculation treats all companies acquired pursuant
A-15
<PAGE>
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.
H. PRO FORMA ADJUSTMENTS FOR THE FINANCING OF THE RECENT ACQUISITIONS
Reflects interest expense associated with the Notes, the initial
borrowings under the Credit Facility and other debt and deferred
compensation costs related to the 1997 and the Recent Acquisitions.
III. 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.
A-16
<PAGE>
IV. DON LAW ACQUISITION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
-----------------------------------------------
PRO FORMA DON LAW
AS REPORTED ADJUSTMENTS(C) ACQUISITION
------------- ---------------- ------------
<S> <C> <C> <C>
Revenue ......................................... $50,588 $50,588
Operating expenses .............................. 44,401 (610)(a) 43,741
(50)(b)
Depreciation & amortization ..................... 2,033 2,033
------- ------- -------
Operating income (loss) ......................... $ 4,154 660 $ 4,814
Interest expense ................................ 1,072 1,072
Other (income) expenses ......................... (329) (329)
------- ------- -------
Income/(loss) before income tax expense ......... $ 3,411 660 $ 4,071
Income tax expense (benefit) .................... --
-------
Net income (loss) ............................... $ 3,411 $ 660 $ 4,071
======= ======= =======
</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) 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."
A-17
<PAGE>
V. OTHER ACQUISITIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
------------------------------------------------------------------------
AVALON OAKDALE EMI PRO FORMA OTHER
ACQUISITION ACQUISITION ACQUISITION ADJUSTMENTS ACQUISITION
------------- ------------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue ................................... $27,265 $16,435 $27,126 $70,826
Operating expenses ........................ 24,404 14,720 27,035 (1,840)(a) 64,319
Depreciation & amortization ............... 410 51 461
Corporate expenses ........................ --
Other expenses ............................ --
------- ------- ------- ------ -------
Operating income (loss) ................... 2,451 $ 1,664 $ 91 1,840 6,046
Interest expense .......................... 94 1,508 41 1,643
Other (income) expenses ................... -- (79) (42) (121)
Equity (income) loss from investments ..... 70 70
Other expenses ............................ 1,581 (1,581)(b) --
------- ------- ------- ------ -------
Income/(loss) before income tax
expense .................................. $ 776 $ 235 22 3,421 4,454
Income tax expense (benefit) .............. 249 700 (c) 949
------- ------- ------- ------ -------
Net income (loss) ......................... $ 527 $ 235 $ 22 $ 2,721 $ 3,505
======= ======= ======= ========= =======
</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.
(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.
VI. PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS
Reflects the $14,433,000 increase in depreciation and amortization
resulting from the preliminary purchase accounting treatment of the
Pending Acquisitions. The Company amortizes goodwill over 15 years. To
record incremental corporate overhead charges of $1,000,000 associated
with incremental headquarters personnel and general and administrative
expenses that management estimates will be necessary as a result of the
Pending Acquisitions.
Reflects the elimination of $2,794,000 of historical interest expense.
Represents an adjustment to the provision for their state and local income
taxes to reflect an approximate pro forma tax provision of $4,200,000. The
calculation treats all companies to be acquired pursuant to the Pending
Acquisitions as "C" Corporations.
A-18
<PAGE>
VII. PRO FORMA ADJUSTMENTS FOR THE FINANCING
Reflects interest expense of $1,628,000 to finance the Pending
Acquisitions associated with the additional borrowings under the Credit
Facility.
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 PENDING ACQUISITIONS
------------------------------------------------
PRO FORMA
SFX ADJUSTMENTS
ENTERTAINMENT PRO FORMA FOR FOR THE PENDING
(ACTUAL) THE TRANSACTIONS FAME DON LAW OTHER(2) ACQUISITIONS
I II III IV V VI
--------------- ------------------ --------- --------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenue .................................... $ 60,994 $ 173,828 $1,813 $4,549 $7,155
Operating expenses ......................... 58,175 159,565 716 4,718 7,423
Depreciation & amortization ................ 4,428 9,910 14 475 124 $ 3,648
Corporate expenses ......................... 1,314 1,314 -- -- -- 303
Other expenses ............................. -- -- -- -- --
--------- --------- ------ ------ ------ --------
Operating income (loss) .................... $ (2,923) $ 3,039 $1,083 $ (644) $ (392) $ (3,951)
Interest expense ........................... 6,748 11,824 21 201 55 (277)
Other (income) expenses .................... (897) (1,274) (24) (30) (21)
Equity (income) loss from investments ...... (445) (77) -- -- --
Other expenses (principally relating to the
Spin-off) ................................. 18,467 18,599 -- -- --
--------- --------- ------ ------ ------ --------
Income/(loss) before income tax expense..... $ (26,796) $ (26,033) $1,086 $ (815) $ (426) $ (3,674)
Income tax expense (benefit) ............... 500 600 100 -- -- (50)
--------- --------- ------ ------ ------ --------
Net income (loss) .......................... (27,296) $ (26,633) $ 986 $ (815) $ (426) $ (3,624)
========= ========= ====== ====== ====== ========
Accretion on temporary equity .............. (275) (825)
--------- ---------
Net income (loss) applicable to common
shares .................................... $ (27,571) $ (27,458)
========= =========
Net income (loss) per common share .........
Weighted Average common shares
outstanding (1) ...........................
</TABLE>
A-19
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
TRANSACTIONS,
PRO FORMA THE PENDING
FOR THE FINANCING(2) ACQUISITIONS,
VII AND THE FINANCING
---------------------- ------------------
<S> <C> <C>
Revenue .................................... $ -- $ 187,345
Operating expenses ......................... -- 172,422
Depreciation & amortization ................ -- 14,171
Corporate expenses ......................... -- 1,617
Other expenses ............................. -- --
-------- ---------
Operating income (loss) .................... -- (865)
Interest expense ........................... $ 407 12,231
Other (income) expenses .................... -- (1,349)
Equity (income) loss from investments ...... -- (77)
Other expenses (principally relating to the
Spin-off) ................................. -- 18,599
-------- ---------
Income/(loss) before income tax expense..... $ (407) $ (30,269)
Income tax expense (benefit) ............... -- 650
-------- ---------
Net income (loss) .......................... $ (407) $ (30,919)
======== =========
Accretion on temporary equity .............. (825)
---------
Net income (loss) applicable to common
shares .................................... $ (31,744)
=========
Net income (loss) per common share ......... $ (1.11)
=========
Weighted Average common shares
outstanding (1) ........................... 29,236
=========
</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) and the assumed
issuance of 8,050,000 and approximately 1,500,000 shares of Class A
Common Stock in connection with the Offering and the Pending
Acquisitions, respectively.
(2) On May 14, 1998, the Company consummated the acquisition of Avalon and
borrowed $27,500,000 under the Credit Facility in connection with such
acquisition. The borrowing was repaid on May 28, 1998 with the proceeds
of the Offering.
A-20
<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
$14,006,000 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 $15,466,000 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, and
Concert/Southern on February 25, 1998, February 27, 1998, February 24,
1998, February 27, 1998, and March 4, 1998, respectively. The following
represent the operating results of these companies prior to their
acquisition by the Company.
A-21
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
-----------------------------------------------------------
SFX PACE &
ENTERTAINMENT PAVILION CONTEMPORARY BGP
(ACTUAL) ACQUISITIONS ACQUISITION ACQUISITION
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenue ........................... $ 60,994 $ 84,199 $7,882 $ 16,075
Operating expenses ................ 58,175 83,643 8,255 16,801
Depreciation & amortization ....... 4,428 1,049 254 213
Corporate expenses ................ 1,314
Other expenses .................... --
--------- -------- ------ --------
Operating income (loss) ........... $ (2,923) (493) (627) (939)
Interest expense .................. 6,748 1,148 -- 165
Other (income) expenses ........... (897) (195) (122) (46)
Equity (income) loss from
investments ...................... (445) 549
Other expenses .................... 18,467 19 113
--------- -------- --------
Income/(loss) before income tax
expense .......................... $ (26,796) (2,014) (505) (1,171)
Income tax expense (benefit) ...... 500 (475)
--------- -------- ------ --------
Net income (loss) ................. $ (27,296) $ (1,539) $ (505) $ (1,171)
======== ====== ========
Accretion on temporary equity ..... (275)
---------
Net income (loss) applicable to
common share ..................... $ (27,571)
=========
</TABLE>
A-22
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
-----------------------------------------------------------------------------
PRO FORMA
PRO FORMA ADJUSTMENTS
ADJUSTMENTS FOR THE FINANCING
CONCERT/ FOR THE RECENT OF THE RECENT PRO FORMA
NETWORK SOUTHERN ACQUISITIONS ACQUISITIONS FOR THE
ACQUISITION ACQUISITION A B TRANSACTIONS
------------- ------------- ---------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Revenue ........................... $4,154 $ 524 $ 173,828
Operating expenses ................ 3,949 638 $ (10,723) 159,565
(1,173)
Depreciation & amortization ....... 51 9 3,906 9,910
Corporate expenses ................ 1,314
Other expenses .................... --
---------
Operating income (loss) ........... 154 (123) 7,990 -- 3,039
Interest expense .................. 37 (8,098) 11,824 11,824
Other (income) expenses ........... (14) (1,274)
Equity (income) loss from
investments ...................... 20 (201) (77)
Other expenses .................... 18,599
------- -------- ---------
Income/(loss) before income tax
expense .......................... 131 (143) 16,289 (11,824) (26,033)
Income tax expense (benefit) ...... 3 572 600
------ ------ --------- --------- ---------
Net income (loss) ................. $ 128 $ (143) $ 15,717 $ (11,824) $ (26,633)
====== ====== =========
Accretion on temporary equity ..... (550) (825)
--------- ---------
Net income (loss) applicable to
common share ..................... $ 15,167 $ (27,458)
========= =========
</TABLE>
A-23
<PAGE>
A. 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 $3,906,000 in depreciation and amortization
resulting from the preliminary purchase accounting treatment of the Recent
Acquisitions. The Company amortizes goodwill over 15 years. Reflects the
elimination of $8,098,000 of historical interest expense. 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 $600,000. 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.
B. PRO FORMA ADJUSTMENTS FOR THE FINANCING OF THE RECENT ACQUISITIONS:
Reflects interest expense of $11,824,000 associated with the Notes, the
Credit Facility and other debt related to the Recent Acquisitions.
III. 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
A-24
<PAGE>
$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.
IV. DON LAW ACQUISITION
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 (IN
THOUSANDS)
--------------------------------------------
PRO FORMA DON LAW
AS REPORTED ADJUSTMENTS (A) ACQUISITION
------------- ----------------- ------------
<S> <C> <C> <C>
Revenue ................................ $4,549 $4,549
Operating expenses ..................... 4,718 4,718
Depreciation & amortization ............ 475 475
------ -- ------
Operating income (loss) ................ $ (644) -- $ (644)
Interest expense ....................... 201 201
Other (income) expenses ................ (30) (30)
------ -- ------
Income/(loss) before income tax expense $ (815) -- $ (815)
Income tax expense (benefit) ........... -- --
------ ------
Net income (loss) ...................... $ (815) -- $ (815)
====== == ======
</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."
A-25
<PAGE>
V. OTHER ACQUISITIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 (IN THOUSANDS)
---------------------------------------------------------------------
AVALON OAKDALE EMI PRO FORMA OTHER
ACQUISITION ACQUISITION ACQUISITION ADJUSTMENTS ACQUISITIONS
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue .................................... $ 1,071 $4,610 $1,474 $7,155
Operating expenses ......................... 2,043 3,838 1,542 7,423
Depreciation & amortization ................ 110 14 124
-------- ------ ------ ------ ------
Operating income (loss) .................... (1,082) $ 758 $ (68) -- $ (392)
Interest expense ........................... 20 31 4 55
Other (income) expenses .................... (21) (21)
Other expenses ............................. (201) $ 201(a) --
-------- ------ ------ ------- ------
Income/(loss) before income tax expense..... $ (901) $ 748 $ (72) $ (201) $ (426)
Income tax expense (benefit) ............... --
-------- ------ ------ ------- ------
Net income (loss) .......................... $ (901) $ 748 $ (72) $ (201) $ (426)
======== ====== ====== ======= ======
</TABLE>
- ----------
PRO FORMA ADJUSTMENTS:
(a) To reclassify PACE's equity income in Avalon following the Avalon
acquisition (which was consummated on May 14, 1998).
VI. PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS
Reflects the increase of $3,648,000 in depreciation and amortization
resulting from the preliminary purchase accounting treatment of the Pending
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 Pending
Acquisitions.
Reflects the elimination of $277,000 of historical interest expense.
Represents an adjustment to the provision for their state and local income
taxes to reflect an approximate pro forma tax benefit of $650,000. The
calculation treats all companies to be acquired pursuant to the Pending
Acquisitions as "C" Corporations.
A-26
<PAGE>
VII. PRO FORMA ADJUSTMENTS FOR THE FINANCING
Reflects interest expense associated with the additional borrowings under
the Credit Facility to finance the Pending Acquisitions.
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 FOR THE PENDING ACQUISITIONS
----------------------------------------------------
PRO FORMA
ADJUSTMENTS
SFX FOR THE
ENTERTAINMENT PRO FORMA FOR THE OTHER PENDING
(ACTUAL) TRANSACTIONS FAME DON LAW ACQUISITIONS ACQUISITIONS
I II III IV V(2) VI
--------------- ------------------- ---------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ............................. $ 149,349 $ 693,101 $11,475 $49,494 $73,846
Operating expenses .................. 133,854 615,343 2,814 42,894 68,434
Depreciation & amortization ......... 9,199 39,639 99 2,006 481 $ 14,456
Corporate expenses .................. 2,662 4,662 -- -- -- 903
Other expenses ...................... -- -- -- -- --
--------- --------- ------- ------- ------- ---------
Operating income (loss) ............. 3,634 33,457 8,562 4,594 4,931 (15,359)
Interest expense .................... 8,235 47,296 -- 1,055 304 (1,359)
Other (income) expenses ............. (1,166) (1,854) (54) (351) (137)
Equity (income) loss from
investments ........................ (954) (6,432) -- -- 70
Other expenses (primarily
related to the Spin-off) ........... 18,467 19,532 -- -- --
--------- --------- ------- ------- ------- ---------
Income/(loss) before income tax
expense ............................ (20,948) (25,085) 8,616 3,890 4,694 (14,000)
Income tax expense (benefit) ........ 870 2,500 900 -- 948 (1,348)
--------- --------- ------- ------- ------- ---------
Net income (loss) ................... $ (21,818) $ (27,585) $ 7,716 $ 3,890 $ 3,746 $ (12,652)
======= ======= ======= =========
Accretion on temporary equity ....... (275) (3,300)
--------- ---------
Net income (loss) applicable to
common shares ...................... $ (22,093) $ (30,885)
========= =========
Net income (loss) per common
share ..............................
Weighted average common
shares outstanding (1) .............
</TABLE>
A-27
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR THE TRANSACTIONS,
ADJUSTMENTS THE PENDING
FOR THE FINANCING(2) ACQUISITIONS
VII AND THE FINANCING
---------------------- ----------------------
<S> <C> <C>
Revenue ............................. $ -- $ 827,916
Operating expenses .................. -- 729,485
Depreciation & amortization ......... -- 56,681
Corporate expenses .................. -- 5,565
Other expenses ...................... -- --
-------- ---------
Operating income (loss) ............. -- 36,185
Interest expense .................... 1,628 48,924
Other (income) expenses ............. -- (2,396)
Equity (income) loss from
investments ........................ -- (6,362)
Other expenses (primarily
related to the Spin-off) ........... -- 19,532
-------- ---------
Income/(loss) before income tax
expense ............................ (1,628) (23,513)
Income tax expense (benefit) ........ -- 3,000
-------- ---------
Net income (loss) ................... $ (1,628) $ (26,513)
========
Accretion on temporary equity ....... (3,300)
---------
Net income (loss) applicable to
common shares ...................... $ (29,813)
=========
Net income (loss) per common
share .............................. $ (1.04)
=========
Weighted average common
shares outstanding (1) ............. 29,236
=========
</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) and the assumed
issuance of 8,050,000 and approximately 1,500,000 shares of Class A
Common Stock in connection with the Offering and the Pending
Acquisitions, respectively.
(2) On May 14, 1998, the Company consummated the acquisition of Avalon and
borrowed $27,500,000 under the Credit Facility in connection with such
acquisition. The borrowing was repaid on May 28, 1998 with the proceeds
of the Offering.
A-28
<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.
A-29
<PAGE>
II. PRO FORMA FOR THE TRANSACTIONS
The Company acquired Sunshine Promotions, PACE & Pavilion, Contemporary,
BGP, Network, and Concert/Southern, on June 24, 1997, February 25, 1998,
February 27, 1998, February 24, 1998, February 27, 1998, March 4, 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 (primarily
related to the Spin-off) ..... 18,467 -- 1,415 -- 156
-------- ------ -------- -------- --------
Income/(loss) before
income tax expenses .......... (20,948) (208) 10,652 218 6,082
Income tax expense
(benefit) .................... 870 -- 683
-------- ------ -------- -------- -------
Net income (loss) ............. $(21,818) $ (208) $ 9,969 $ 218 $ 6,082
====== ======== ======== ========
Accretion on put option ....... (275)
--------
Net income (loss)
applicable to common
shares ....................... $(22,093)
========
</TABLE>
A-30
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
------------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
FOR THE
FINANCING
CONCERT/ PRO FORMA OF THE RECENT
NETWORK SOUTHERN ADJUSTMENTS ACQUISITIONS PRO FORMA
ACQUISITION ACQUISITION A B FOR THE TRANSACTIONS
------------- ------------- ------------- -------------- ---------------------
<S> <C> <C> <C> <C> <C>
Revenue ....................... $28,364 $13,924 $ 1,000 $ 693,101
(2,170)
Operating expenses ............ 28,321 12,027 (2,170) 615,343
(11,423)
(23,790)
Depreciation &
amortization ................. 378 72 21,960 39,639
Corporate expenses ............ 2,000 4,662
Other expenses ................ -- (1,139) --
------- ------- ------- ------ ---------
Operating income (loss) ....... (335) 1,825 13,392 -- 33,457
Interest expense .............. 151 (16,137) 47,296 47,296
Other (income) expenses........ 28 (50) (1,854)
Equity (income) loss from
investments .................. 65 2,566 (6,432)
1,380
1,002
(32)
Other expenses (primarily
related to the Spin-off) ..... (506) 19,532
------- ------- ------- -------- ---------
Income/(loss) before
income tax expenses .......... (8) 1,810 24,613 (47,296) (25,085)
Income tax expense
(benefit) .................... (503) 1,450 2,500
------- ------- ---------
Net income (loss) ............. $ 495 $1,810 $23,163 $(47,296) $ (27,585)
======= ======= ========
Accretion on put option ....... (3,025) (3,300)
------- ---------
Net income (loss)
applicable to common
shares ....................... $20,138 $ (30,885)
======= =========
</TABLE>
A. 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.
A-31
<PAGE>
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 $21,960,000 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 $2,000,000 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 $16,137,000 of historical interest expense.
Represents an adjustment to the provision for their state and local income
taxes to reflect an approximate pro forma tax provision of $2,500,000. 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.
B. PRO FORMA FOR FINANCING OF THE RECENT ACQUISITIONS:
Reflects interest expense associated with the Notes, initial borrowings
under the Credit Facility and other debt and deferred compensation costs
related to the Recent Acquisitions.
III. 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-32
<PAGE>
(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.
IV. DON LAW ACQUISITION
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED MARCH 31, 1998 (IN
THOUSANDS)
--------------------------------------------
PRO FORMA DON LAW
AS REPORTED ADJUSTMENTS (C) ACQUISITION
------------- ----------------- ------------
<S> <C> <C> <C>
Revenue ......................................... $49,494 $49,494
Operating expenses .............................. 43,554 $ (610)(a) 42,894
(50)(b)
Depreciation & amortization ..................... 2,006 2,006
------- ------- -------
Operating income (loss) ......................... 3,934 660 4,594
Interest expense ................................ 1,055 1,055
Other (income) expenses ......................... (351) (351)
------- ------- -------
Income (loss) before income tax expense ......... 3,230 660 3,890
Income tax expense (benefit) .................... -- --
------- ------- -------
Net income (loss) ............................... $ 3,230 $ 660 $ 3,890
======= ======= =======
</TABLE>
PRO FORMA ADJUSTMENTS:
(a) Reflects 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 FAME. Accordingly, no such bonus is reflected in the pro forma statement
of operations because, if FAME's results were similar to those in these pro
forma statements of operations, the Company would not be contractually
obligated to pay a bonus.
A-33
<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 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."
V. OTHER ACQUISITIONS
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED MARCH 31, 1998 (IN THOUSANDS)
---------------------------------------------------------------------------
TOTAL
AVALON OAKDALE EMI PRO FORMA OTHER
ACQUISITION ACQUISITIONS ACQUISITIONS ADJUSTMENTS ACQUISITIONS
------------- -------------- -------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue .................................... $27,795 $17,756 $28,295 $73,846
Operating expenses ......................... 25,310 16,806 28,158 (1,840)(a) 68,434
Depreciation & amortization ................ 426 55 -- 481
Corporate expenses ......................... -- --
Other expenses ............................. -- --
------- ------- ------- ------ -------
Operating income (loss) .................... 2,059 895 137 1,840 4,931
Interest expense ........................... 99 160 45 304
Other (income) expenses .................... (95) (42) (137)
Equity (income) loss from investments ...... 70 70
Other expenses ............................. 1,380 -- (1,380)(b) --
------- ------- ------- ------ -------
Income/(loss) before income tax expense..... 580 830 64 3,220 4,694
Income tax expense (benefit) ............... 248 -- -- 700 (c) 948
------- ------- ------- ------ -------
Net income (loss) .......................... $ 332 $ 830 $ 64 $ 2,520 $ 3,746
======= ======= ======= ========= =======
</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 EMI. Accordingly, no such bonus is reflected in the pro forma statement
of operations because, if EMI'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.
VI. PRO FORMA ADJUSTMENTS FOR PENDING ACQUISITIONS:
Reflects the increase of $14,456,000 in depreciation and amortization
resulting from the preliminary purchase accounting treatment of the Pending
Acquisitions. The Company amortizes goodwill over 15 years. To record
incremental corporate overhead charges of $903,000 associated with
incremental headquarters personnel and general and administrative expenses
that management estimates will be necessary as a result of the Pending
Acquisitions.
A-34
<PAGE>
To reflect the elimination of $1,359,000 of historical interest expense.
Represents an adjustment to the provision for their state and local income
taxes to reflect an approximate pro forma tax provision of $2,500,000. The
calculation treats all companies to be acquired pursuant to the Pending
Acquisitions as "C" Corporations.
VII. PRO FORMA ADJUSTMENTS FOR THE FINANCING:
Reflects interest expense associated with the additional borrowings under
the Credit Facility and other debt to finance the Pending Acquisitions.
A-35
<PAGE>
EXECUTION COPY
SFX ENTERTAINMENT, INC.
CLASS A COMMON STOCK
(par value $.01 per share)
----------------
UNDERWRITING AGREEMENT
May 20, 1998
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS INC.
BEAR, STEARNS & CO. INC.
COWEN & COMPANY
MORGAN STANLEY & CO. INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
SFX Entertainment, Inc., a Delaware corporation (the "COMPANY"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "UNDERWRITERS") an
aggregate of 7,000,000 shares (the "FIRM SHARES") and, at the election of the
Underwriters, up to 1,050,000 additional shares (the "OPTIONAL SHARES") of
Class A Common Stock, par value $.01 per share (the "STOCK"), of the Company
(the Firm Shares and the Optional Shares that the Underwriters elect to
purchase pursuant to Section 2 hereof being collectively called the "SHARES").
1. The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-50079) (the
"INITIAL REGISTRATION Statement") in respect of the Shares has been filed with
the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you, and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective by the Commission
in such form; other than a registration statement, if any, increasing the size
of the offering (a "RULE 462(B) REGISTRATION STATEMENT"), filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended (the "ACT"), which
became effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission; and no
stop order suspending the effectiveness of the Initial Registration Statement,
any post-effective amendment thereto or the Rule 462(b) Registration Statement,
if any, has been issued and no proceeding for that purpose has been initiated
or threatened by
<PAGE>
the Commission (any preliminary prospectus included in the Initial Registration
Statement or filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Act is hereinafter called a
"PRELIMINARY PROSPECTUS;" the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the
Act to be part of the Initial Registration Statement at the time it was
declared effective or such part of the Rule 462(b) Registration Statement, if
any, became or hereafter becomes effective, each as amended at the time such
part of the Initial Registration Statement became effective, is hereinafter
collectively called the "REGISTRATION STATEMENT;" and such final prospectus, in
the form first filed pursuant to Rule 424(b) under the Act, is hereinafter
called the "PROSPECTUS;"
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the
Act and the rules and regulations of the Commission thereunder and do not and
will not, as of the applicable effective date as to the Registration Statement
and any amendment thereto, and as of the applicable filing date as to the
Prospectus and any amendment or supplement thereto, contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein;
(d) None of the Company nor any of its subsidiaries has taken, nor
will any of them take, directly or indirectly, any action designed to, or that
could reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Shares to facilitate the sale and resale of
the Shares;
(e) None of the Company, its subsidiaries nor, to the knowledge of the
Company, any of the businesses to be acquired in the Pending Acquisitions (as
defined in the Prospectus) (collectively, the "ACQUISITION ENTITIES") have
sustained since the date of the latest audited financial statements included in
the Prospectus any material loss or interference with their businesses, taken
as a whole, from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in the
Prospectus; and, since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any change in
the capital stock or long-term debt of the Company, any of its subsidiaries or,
to the knowledge of the Company, the Acquisition Entities or any material
adverse change, or any development involving a prospective material adverse
change, in or affecting the general affairs, management, financial position,
stockholders' equity
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or results of operations of the Company, its subsidiaries and the Acquisition
Entities, otherwise than as set forth or contemplated in the Prospectus;
(f) The Company, its subsidiaries and, to the knowledge of the
Company, each of the Acquisition Entities have good and marketable title in fee
simple to all real property and good and marketable title to all personal
property owned by them, in each case free and clear of all liens, encumbrances
and defects except as described in the Prospectus or where the failure to be so
qualified would not have a material adverse effect on the assets, liabilities,
results of operations, management, condition (financial or other), properties,
business or net worth of the Company and its direct and indirect subsidiaries,
taken as a whole (a "MATERIAL ADVERSE Effect"), and any real property and
buildings held under lease by the Company, its subsidiaries and, to the
knowledge of the Company, each of the Acquisition Entities are held by them
under valid, subsisting and enforceable leases, except as would not have a
Material Adverse Effect after giving effect to the Pending Acquisitions;
(g) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus, is and, after giving effect to the
Pending Acquisitions, will be duly registered and qualified to conduct its
business and is and, after giving effect to the Pending Acquisitions, will be
in good standing, in each jurisdiction or place where the nature of its
business requires such registration or qualification, except where the failure
to be so qualified would not have a Material Adverse Effect;
(h) Each subsidiary is a corporation duly organized, validly existing
and in good standing in the jurisdiction of its incorporation, with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus is, and after giving effect
to the Pending Acquisitions will be, duly registered and qualified to conduct
its business and is, and after giving effect to the Pending Acquisitions will
be, in good standing, in each jurisdiction or place where the nature of its
business requires such registration or qualification, except where the failure
to be so qualified would not have a Material Adverse Effect;
(i) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description of the Stock contained in the Prospectus; and
all of the issued shares of capital stock of each subsidiary of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and free of any preemptive or similar rights, and (except for
directors' qualifying shares and except as set forth in the Prospectus) are
owned directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims and have been issued in compliance with all
applicable federal and state securities laws;
(j) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
(k) The Company and each of its subsidiaries, as applicable, have full
corporate power and authority to enter into this Agreement and the acquisition
agreements relating to each of the Pending Acquisitions (the "ACQUISITION
DOCUMENTS") (each, a "TRANSACTION DOCUMENT" and, collectively, the "TRANSACTION
DOCUMENTS"), and to carry out all the terms and provisions, as provided herein
and therein;
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(l) The execution and delivery of each of the Transaction Documents to
which the Company or any of its subsidiaries are a party have been duly
authorized by the Company and each of its subsidiaries party thereto and each
of such Transaction Documents which has been executed prior to or on the date
hereof has been duly executed and delivered by the Company and each of its
subsidiaries party thereto and is the legal, valid and binding agreement of the
Company and each of its subsidiaries party thereto (assuming it is a legal,
valid and binding agreement of the other parties thereto), enforceable against
the Company and each its subsidiaries party thereto in accordance with its
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;
(m) Except (i) as disclosed in the Prospectus, (ii) for approvals of
the lenders under the Credit Facility with respect to the Pending Acquisitions
(iii) for approvals under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 with respect to the Pending Acquisitions and (iv) as disclosed in the
Acquisition Documents relating to the Pending Acquisitions (including all
schedules and attachments) with respect to the Pending Acquisitions, the issue
and sale of the Shares by the Company, the execution, delivery and performance
of this Agreement by the Company, the execution, delivery and performance of
the other Transaction Documents, and the consummation by the Company and its
subsidiaries of the transactions contemplated hereby and thereby will not (A)
require any consent, approval, authorization or other order (which has not been
obtained) of any court, regulatory body, administrative agency or other
governmental body except such as may be required under the Securities Act,
securities regulatory bodies (including self-regulatory bodies), securities
exchanges or the securities or Blue Sky laws of the various states and under
the Hart-Scott-Rodino Anti-Trust Improvement Act of 1976; (B) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company, or any of its subsidiaries; (C) require
any consent or approval (which has not been obtained) of the parties to, or
conflict with or constitute a breach of any of the terms or provisions of, or a
default under, any agreement or other instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its subsidiaries
or their respective property is bound; (D) violate or conflict with any laws or
administrative regulations, rulings of court, decrees applicable to the
Company, any of its subsidiaries or their respective property; or (E) result in
the creation or imposition of any lien on any asset of the Company or any of
its subsidiaries, except, in the case of (A), (C), (D), or (E) above, such as
would not, either singly or in the aggregate, have a Material Adverse Effect or
prevent the Company from performing its obligations hereunder;
(n) Neither the Company, any of its subsidiaries nor, to the knowledge
of the Company, any of the Acquisition Entities is in violation of its
Certificate of Incorporation or By-laws or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which it or any of
its properties may be bound;
(o) The capital stock of the Company conforms in all material respects
to the description thereof contained in the Prospectus under the caption
"DESCRIPTION OF CAPITAL STOCK," and the statement contained under the caption
"AGREEMENTS RELATED TO THE PENDING ACQUISITIONS," insofar as they purport to
describe the provisions of the documents referred to therein, are accurate,
complete and fair in all material respects;
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(p) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company, any of its subsidiaries
or, to the knowledge of the Company, any of the Acquisition Entities is a party
or of which any property of the Company, any of its subsidiaries or any of the
Acquisition Entities is the subject which, if determined adversely to the
Company, any of its subsidiaries or any of the Acquisition Entities, would
individually or in the aggregate have a Material Adverse Effect on the Company,
its subsidiaries and the Acquisition Entities, taken as a whole and, to the
best of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(q) Except as disclosed in the Prospectus, there are no outstanding
(A) securities or obligations of the Company or any of its subsidiaries
convertible into or exchangeable for any capital stock of the Company, (B)
warrants, rights or options to subscribe for or purchase from the Company or
any of its subsidiaries any such capital stock or any such convertible or
exchangeable securities or obligations, or (C) obligations of the Company or
any of its subsidiaries to issue any shares of capital stock, any such
convertible or exchangeable securities or obligations, or any such warrants,
rights or options;
(r) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting such
person the right to require the Company to file a registration statement under
the Securities Act with respect to any securities owned or to be owned by such
person or to require the Company to include such securities in any securities
being registered pursuant to any registration statement filed by the Company
under the Securities Act;
(s) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be (i) an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT"), or
(ii) a "holding company" or a "subsidiary company" or an "affiliate" of a
holding company within the meaning of the Public Utility Holding Company Act of
1935, as amended;
(t) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba within
the meaning of Section 517.075, Florida Statutes;
(u) The consolidated financial statements of the Company, each of its
subsidiaries and, to the knowledge of the Company, the Acquisition Entities
included in the Prospectus present fairly in all material respects the
financial position of the Company on a consolidated basis and of each of the
Acquisition Entities, respectively, and the results of operations and changes
in financial condition as of the dates and for the periods therein specified.
Such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved (except as otherwise noted therein). The selected financial data set
forth under the captions "PROSPECTUS SUMMARY--SUMMARY CONSOLIDATED FINANCIAL
Data," in the Prospectus fairly present, on the basis stated in the Prospectus,
the information included. The other financial and statistical information and
data set forth in the Prospectus is, in all material respects, accurately
presented and prepared on a basis consistent with such financial statements and
the books and records of the Company, its subsidiaries and, to the knowledge of
the Company, the Acquisition Entities, as applicable. The unaudited pro forma
condensed combined financial statements and the related notes thereto included
in the Prospectus present fairly, as stated therein, the pro forma financial
position and results of operations at the respective dates and for the
respective
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periods indicated. The pro forma adjustments are factually supportable. All
adjustments necessary to fairly present this pro forma information have been
made;
(v) Each of (i) Ernst & Young LLP, (ii) Arthur Anderson LLP and (iii)
Price Waterhouse LLP, who have certified certain financial statements of the
Company, its subsidiaries and the Acquisition Entities, are each independent
public accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(w) Each of the Transaction Documents conforms in all material
respects to the respective statements relating thereto contained in the
Prospectus;
(x) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions which would be required to be
disclosed therein by Item 404 of Regulation S-K of the Commission and each
business relationship or related party transaction described therein is a fair
and accurate description of the relationships and transactions so described;
(y) None of the Company nor any of its subsidiaries, nor, to the
Company's knowledge, any of the Acquisition Entities or any director, officer,
agent, employee or other person associated with or acting on behalf of the
Company, any of its subsidiaries or the Acquisition Entities, has used any
corporate funds during the last five years for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political activity; made
any unlawful payment to any foreign or domestic government official or employee
from corporate funds; violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment, except such as
would not have a Material Adverse Effect;
(z) Except as disclosed in the Prospectus, each of the Company, its
subsidiaries and, to the knowledge of the Company, the Acquisition Entities is
operating in material compliance with all (and has not violated any) laws,
regulations, administrative orders or rulings or court decrees applicable to it
or to any of its property (including without limitation those relating to
environmental, safety or similar matters, federal or state laws relating to the
hiring, promotion or pay of employees), except for violations which would not
have a Material Adverse Effect;
(aa) Except as, singly or in the aggregate, would not have a Material
Adverse Effect, (i) the Company and its subsidiaries, have (A) such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("PERMITS") as are necessary to own, lease and operate their
properties and to conduct their businesses as presently conducted, and (B)
fulfilled and performed all of their material obligations with respect to the
Permits, and (ii) no event has occurred that would allow, or after notice or
lapse of time would allow, revocation or termination of any Permit or that
would result in any other material impairment of the rights granted to the
Company or any of its subsidiaries under any Permit, and (iii) neither the
Company nor any of its subsidiaries has any reason to believe that any
governmental body or agency is considering limiting, suspending or revoking any
Permit;
(bb) The Company, its subsidiaries and, to the knowledge of the
Company, the sellers of each of the Acquisition Entities own or possess
adequate rights to use all material trademarks, service marks, tradenames,
trademark registrations, service mark registrations and copyrights necessary
for the conduct of their businesses, and to the Company's knowledge, the
conduct of their businesses will not conflict with, and neither the Company nor
any of its subsidiaries has received any notice of any claim of conflict with,
any such rights of others (except in any such case for any conflict that would
not have a Material Adverse Effect);
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(cc) Each of the Company, its subsidiaries and, to the knowledge of
the Company, the Acquisition Entities are in compliance in all material
respects with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event" (as
defined in ERISA) has occurred with respect to any "pension plan" (as defined
in ERISA) for which the Company or any of its subsidiaries would have any
liability; none of the Company or its subsidiaries has incurred or expects to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Section 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "CODE"); and each "pension plan" for which the
Company or any of its subsidiaries would have any liability that is intended to
be qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act,
which would cause the loss of such qualification, except, in each case, as
would not have a Material Adverse Effect;
(dd) There is (i) no material unfair labor practice complaint pending
against the Company, any of its subsidiaries or, to the knowledge of the
Company, any of the Acquisition Entities, or, to the best knowledge of the
Company, threatened against any of them, before the National Labor Relations
Board or any state or local labor relations board, and no significant grievance
or significant arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Company, any of its subsidiaries
or, to the knowledge of the Company, any of the Acquisition Entities, or, to
the best knowledge of the Company, threatened against any of them and (ii) no
material strike, labor dispute, slowdown or stoppage pending against the
Company, any of its subsidiaries or, to the best knowledge of the Company, any
of the Acquisition Entities nor, to the knowledge of the Company, threatened
against the Company, any of its subsidiaries or, to the knowledge of the
Company, any of the Acquisition Entities, except, in each case, as would not
have a Material Adverse Effect;
(ee) The Company and each of its subsidiaries has reviewed the effect
of Environmental Laws (as defined below) and the disposal of hazardous or toxic
substances, wastes, pollutants and contaminants on the business, assets,
operations and properties of the Company, each of the subsidiaries and each of
the Acquisition Entities, as applicable, and identified and evaluated
associated costs and liabilities (including, without limitation, any material
capital and operating expenditures required for clean-up, closure of properties
and compliance with Environmental Laws, all permits, licenses and approvals,
all related constraints on operating activities and all potential liabilities
to third parties). On the basis of such reviews, the Company has reasonably
concluded that such associated costs and liabilities would not have a Material
Adverse Effect. None of the Company, its subsidiaries or, to the knowledge of
the Company, the Acquisition Entities has violated any environmental, safety or
similar law or regulation applicable to it or its business or property relating
to the protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"),
lacks any permit, license or other approval required of it under applicable
Environmental Laws or is violating any term or condition of such permit,
license or approval which could reasonably be expected to, either individually
or in the aggregate, have a Material Adverse Effect;
(ff) The Company, its subsidiaries and, to the knowledge of the
Company, the Acquisition Entities have filed all federal, state and local
income and franchise tax returns required to be filed through the date hereof
and have paid, or made adequate reserve or provision for the payment of, all
taxes shown as due thereon except in any case where such
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<PAGE>
failure would not have a Material Adverse Effect, and the Company has no
knowledge of any tax deficiency that has had (or would have) a Material Adverse
Effect;
(gg) The Company and its subsidiaries (i) make and keep accurate books
and records and (ii) maintain internal accounting controls which provide
reasonable assurance that (A) transactions are executed in accordance with
management's specific or general authorization, (B) transactions are recorded
as necessary to permit preparation of their consolidated financial statements
and to maintain accountability for their assets, (C) access to their assets is
permitted only in accordance with management's specific or general
authorization and (D) the reported accountability for their assets is compared
with existing assets at reasonable intervals;
(hh) None of the Company, its subsidiaries nor any agent thereof
acting on behalf of any of them has taken, and none of them will take, any
action that might cause this Agreement or the issuance of the Shares to violate
Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220),
Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the
Board of Governors of the Federal Reserve;
(ii) The Company has delivered to the Underwriters true and correct,
executed copies of each Transaction Document that has been executed prior to
the date hereof and there have been no amendments, alterations, modifications
or waivers thereto or in the exhibits or schedules thereto other than those as
to which the Underwriters shall previously have been advised and shall not have
reasonably objected after being furnished a copy thereof; and
(jj) Other than as contemplated by the Transaction Documents and the
Prospectus, there is no broker, finder or other party that is entitled to
receive from the Company or any of its subsidiaries any brokerage or finder's
fee or other fee or commission as a result of any of the transactions
contemplated by any of the Transaction Documents.
Notwithstanding the foregoing, any exceptions to the representations
and warranties contained in the Acquisition Documents shall be deemed to be
included in the applicable representation or warranty contained in this
Agreement.
2. Subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company,
at a purchase price per Share of $40.87, the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to issue and sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at the purchase price per Share set
forth in clause (a) of this Section 2, that portion of the number of Optional
Shares as to which such election shall have been exercised (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying such number
of Optional Shares by a fraction, the numerator of which is the maximum number
of Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 1,050,000 Optional Shares, at the purchase price per Share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to
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the Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate number of Optional Shares to be
purchased and the date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Company otherwise agree in
writing, earlier than two or later than ten business days after the date of
such notice.
3. Upon the authorization by you of the release of the Firm Shares,
the several Underwriters propose to offer the Firm Shares for sale upon the
terms and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered
in such names as Goldman, Sachs & Co. may request upon at least
forty-eight hours' prior notice to the Company shall be delivered by
or on behalf of the Company to Goldman, Sachs & Co. for the account of
such Underwriter, against payment by or on behalf of such Underwriter
of the purchase price therefor by wire transfer of Federal (same-day)
funds to the account specified by the Company to Goldman, Sachs & Co.
at least forty-eight hours in advance. The Company will cause the
certificates representing the Shares to be made available for checking
and packaging at least twenty-four hours prior to the Time of Delivery
(as defined below) with respect thereto at the office of Goldman,
Sachs & Co., 85 Broad Street, New York, New York 10004 (the
"DESIGNATED OFFICE"). The time and date of such delivery and payment
shall be, with respect to the Firm Shares, 9:30 a.m., New York City
time, on May 27, 1998 or such other time and date as Goldman, Sachs &
Co. and the Company may agree upon in writing, and, with respect to
the Optional Shares, 9:30 a.m., New York time, on the date specified
by Goldman, Sachs & Co. in the written notice given by Goldman, Sachs
& Co. of the Underwriters' election to purchase such Optional Shares,
or such other time and date as Goldman, Sachs & Co. and the Company
may agree upon in writing. Such time and date for delivery of the Firm
Shares is herein called the "FIRST TIME OF DELIVERY," such time and
date for delivery of the Optional Shares, if not the First Time of
Delivery, is herein called the "SECOND TIME OF DELIVERY," and each
such time and date for delivery is herein called a "TIME OF DELIVERY."
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including
the cross receipt for the Shares and any additional documents
requested by the Underwriters pursuant to Section 7(j) hereof, will be
delivered at the offices of Baker & McKenzie, 805 Third Avenue, New
York, New York 10022 (the "CLOSING LOCATION"), and the Shares will be
delivered at the Designated Office, all at such Time of Delivery. A
meeting will be held at the Closing Location at 5:00 p.m., New York
City time, on the New York Business Day next preceding such Time of
Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for
review by the parties hereto. For the purposes of this Section 4, "NEW
YORK BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions
in New York are generally authorized or obligated by law or executive
order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved, subject to
the requirements of applicable law and regulation, by you and to file
such Prospectus
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pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution
and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus which shall be reasonably disapproved by you promptly after
reasonable notice thereof; to advise you, promptly after it receives
notice thereof, of the time when any amendment to the Registration
Statement has been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish you
with copies thereof; to advise you, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus
or prospectus, of the suspension of the qualification of the Shares
for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request
by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information;
and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or
prospectus or suspending any such qualification, promptly to use its
best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under
the securities laws of such jurisdictions as you may request and to
comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary
to complete the distribution of the Shares, provided that in
connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process
in any jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time
to time, to furnish the Underwriters with copies of the Prospectus in
New York City in such quantities as you may reasonably request, and,
if the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of issue of the Prospectus in
connection with the offering or sale of the Shares and if at such time
any event shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it shall be necessary during
such period to amend or supplement the Prospectus in order to comply
with the Act, to notify you and upon your request to prepare and
furnish without charge to each Underwriter and to any dealer in
securities as many copies as you may from time to time reasonably
request of an amended Prospectus or a supplement to the Prospectus
which will correct such statement or omission or effect such
compliance, and in case any Underwriter is required to deliver a
prospectus in connection with sales of any of the Shares at any time
nine months or more after the time of issue of the Prospectus, upon
your request but at the expense of such Underwriter, to prepare and
deliver to such Underwriter as many copies as you may request of an
amended or supplemented Prospectus complying with Section 10(a)(3) of
the Act;
(d) To make generally available to its securityholders as
soon as practicable, but in any event not later than eighteen months
after the effective date of the
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Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not
be audited) complying with Section 11(a) of the Act and the rules and
regulations thereunder (including, at the option of the Company, Rule
158);
(e) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose
of, except as provided hereunder, any securities of the Company that
are substantially similar to the Shares, including but not limited to
any securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially
similar securities (other than (i) as described in the Prospectus,
(ii) as may be issued in connection with the acquisition of Marquee,
and (iii) pursuant to employee stock option plans existing on, or upon
the conversion or exchange of convertible or exchangeable securities
outstanding as of, the date of this Agreement), without the prior
written consent of Goldman, Sachs & Co., which shall not be
unreasonably withheld;
(f) To furnish to its stockholders as soon as practicable
after the end of each fiscal year an annual report (including a
balance sheet and statements of income, stockholders' equity and cash
flows of the Company and its consolidated subsidiaries certified by
independent public accountants) and, as soon as practicable after the
end of each of the first three quarters of each fiscal year (beginning
with the fiscal quarter ending after the effective date of the
Registration Statement), consolidated summary financial information of
the Company and its subsidiaries for such quarter in reasonable
detail;
(g) During a period of five years from the effective date of
the Registration Statement, to furnish to you copies of all reports or
other communications (financial or other) furnished to stockholders,
and to deliver to you (i) as soon as they are available, copies of any
reports and financial statements furnished to or filed with the
Commission or any national securities exchange on which any class of
securities of the Company is listed; and (ii) such additional
information concerning the business and financial condition of the
Company as you may from time to time reasonably request (such
financial statements to be on a consolidated basis to the extent the
accounts of the Company and its subsidiaries are consolidated in
reports furnished to its stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of
the Shares pursuant to this Agreement in the manner specified in the
Prospectus under the caption "USE OF PROCEEDS;"
(i) To use its best efforts to list for quotation the Shares
on the National Association of Securities Dealers Automated Quotations
National Market System ("NASDAQ") and;
(j) If the Company elects to rely upon Rule 462(b), the
Company shall file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement, and the Company shall at the
time of filing either pay to the Commission the filing fee for the
Rule 462(b) Registration Statement or give irrevocable instructions
for the payment of such fee pursuant to Rule 111(b) under the Act.
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6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
reasonable expenses in connection with the preparation, printing and filing of
the Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for
offering and sale under state securities laws as provided in Section 5(b)
hereof, including the reasonable fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky survey (iv) all fees and expenses in connection with listing the
Shares on the NASDAQ; (v) the filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with, securing any
required review by the National Association of Securities Dealers, Inc. of the
terms of the sale of the Shares; (vi) the cost of preparing stock certificates;
(vii) the cost and charges of any transfer agent or registrar; and (viii) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section. It
is understood, however, that, except as provided in this Section, and Sections
8 and 11 hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, stock transfer taxes on resale of any of
the Shares by them, and any advertising expenses connected with any offers they
may make.
7. The obligations of the Underwriters hereunder, as to the Shares to
be delivered at each Time of Delivery, shall be subject, in their discretion,
to the condition that all representations and warranties and other statements
of the Company herein are, at and as of such Time of Delivery, true and
correct, the condition that the Company shall have performed all of its
obligations hereunder therefore to be performed, and the following additional
conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Act and in
accordance with Section 5(a) hereof; if the Company has elected to
rely upon Rule 462(b), the Rule 462(b) Registration Statement shall
have become effective by 10:00 P.M., Washington, D.C. time, on the
date of this Agreement; no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued
and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional
information on the part of the Commission shall have been complied
with to your reasonable satisfaction;
(b) Latham & Watkins, counsel for the Underwriters, shall
have furnished to you such written opinion or opinions, dated such
Time of Delivery, with respect to such matters as you may reasonably
request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon
such matters;
(c) Baker & McKenzie, counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is
attached as Annex I hereto), dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
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(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware with full corporate power and authority to
own, lease and operate its properties and to conduct its
business as described in the Prospectus, is in good standing,
in each jurisdiction or place where the nature of its
business requires such registration or qualification, except
where the failure to be so qualified would not have a
material adverse effect on the assets, liabilities, results
of operations, management, condition (financial or other),
properties, business or net worth of the Company and its
direct and indirect subsidiaries, taken as a whole (a
"MATERIAL ADVERSE EFFECT");
(ii) Each subsidiary listed on Schedule III (the
"Subsidiaries") is validly existing and in good standing in
the jurisdiction of its formation, with full corporate or
analogous power and authority to own, lease and operate its
properties and to conduct its business as described in the
Prospectus, is duly registered and qualified to conduct its
business and is in good standing, in each jurisdiction or
place where the nature of its business requires such
registration or qualification, except where the failure to be
so qualified would not have a Material Adverse Effect;
(iii) The Company has an authorized capitalization
as set forth in the Prospectus and the Shares to be issued
and sold by the Company to the Underwriters pursuant to this
Agreement have been duly and validly authorized and, when
issued and delivered against payment therefor as provided in
this Agreement, will be duly and validly issued and fully
paid and non-assessable;
(iv) The Company and each of the Subsidiaries has
full power and authority to enter into this Agreement and the
acquisition agreements relating to each of the Pending
Acquisitions (the "ACQUISITION DOCUMENTS") (each a
"TRANSACTION DOCUMENT" and collectively the "TRANSACTION
DOCUMENTS"), and to carry out all the terms and provisions,
as provided herein and therein;
(v) The execution and delivery of each of the
Transaction Documents to which the Company or any of the
Subsidiaries are a party have been duly authorized by the
Company and each of the Subsidiaries party thereto and each
of such other Transaction Documents which has been executed
prior to or on the date hereof has been duly executed and
delivered by the Company and each of the Subsidiaries party
thereto and is the legal, valid and binding agreement of the
Company and each of the Subsidiaries party thereto (assuming
it is a legal, valid and binding agreement of the other
parties thereto), enforceable against the Company and each of
the Subsidiaries party thereto in accordance with its 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;
(vi) Except (i) as disclosed in the Prospectus, (ii)
for approvals of the lenders under the Credit Facility with
respect to the Pending Acquisitions, (iii) for approvals
under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 with respect to the Pending Acquisitions and (iv) as
disclosed in the Acquisition
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Documents relating to the Pending Acquisitions (including all
schedules and attachments) with respect to the Pending
Acquisitions, the issue and sale of the Shares, the
execution, delivery and performance of this Agreement by the
Company, the execution, delivery and performance by the
Company of the other Transaction Documents, and the
consummation by the Company and the Subsidiaries of the
transactions contemplated hereby and thereby will not (A) to
the knowledge of such counsel require any consent, approval,
authorization or other order (which has not been obtained) of
any court, regulatory body, administrative agency or other
governmental body except such as may be required under the
Securities Act, securities regulatory bodies (including
self-regulatory bodies), securities exchanges or the
securities or Blue Sky laws of the various states and under
the Hart-Scott-Rodino Anti-Trust Improvement Act of 1976; (B)
conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of
the Company, or any of the Subsidiaries; (C) to the knowledge
of such counsel require any consent or approval (which has
not been obtained) of the parties to, or conflict with or
constitute a breach of any of the terms or provisions of, or
a default under, any agreement or other instrument to which
the Company or any of the Subsidiaries is a party or by which
the Company or any of the Subsidiaries or their respective
property is bound; (D) to the knowledge of such counsel
violate or conflict with any laws or administrative
regulations, rulings of court, decrees applicable to the
Company, any of the Subsidiaries or their respective
property; or (E) to the knowledge of such counsel result in
the creation or imposition of any lien, other than under the
Credit Facility, on any asset of the Company or any of the
Subsidiaries, except, in the case of (A), (C), (D), or (E)
above, such as would not, either singly or in the aggregate,
have a Material Adverse Effect or prevent the Company from
performing its obligations hereunder;
(vii) The capital stock of the Company conforms in
all material respects to the description thereof contained in
the Prospectus under the caption "DESCRIPTION OF CAPITAL
Stock," and the statement contained under the caption
"AGREEMENTS RELATED TO THE PENDING ACQUISITIONS" insofar as
they purport to describe the provisions of the documents
referred to therein, are accurate, complete and fair in all
material respects;
(viii) To such counsel's knowledge, other than as
set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any
of the Subsidiaries are a party or of which any property of
the Company or any of the Subsidiaries are the subject which,
if determined adversely to the Company, any of the
Subsidiaries would individually or in the aggregate have a
Material Adverse Effect; and, to the best of such counsel's
knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others;
(ix) The Company is not and, after giving effect to
the offering and sale of the Shares, will not be (i) an
"investment company" or an entity "controlled" by an
"investment company," as such terms are defined in the
Investment Company Act of 1940, as amended (the "INVESTMENT
COMPANY ACT"), or (ii) a "holding company" or a "subsidiary
company" or an "affiliate" of a holding company within the
meaning of the Public Utility Holding Company Act of 1935, as
amended;
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(x) The Registration Statement and the Prospectus
and any further amendments and supplements thereto made by
the Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to
which such counsel need express no opinion) comply as to form
in all material respects with the requirements of the Act and
the rules and regulations thereunder.
Such counsel shall also state that they have
participated in conferences with officers and other
representatives of the Company and the Subsidiaries,
representatives of the independent public accountants of the
Company and the Subsidiaries and representatives of and
counsel for the Underwriters at which the contents of the
Registration Statement and the Prospectus and related matters
were discussed and, although such counsel has not undertaken
to investigate or verify independently, and does not assume
any responsibility for, the accuracy, completeness or
fairness of the statements contained in the Registration
Statement and the Prospectus, on the basis of the foregoing,
no information has come to such counsel's attention that
causes such counsel to believe that the Registration
Statement (except as to (a) financial statements, including
the notes thereto, (b) statistical data and (c) other
financial information (including, without limitation, the pro
forma financial information, as to which such counsel express
no opinion)), on the effective date thereof (or any amendment
thereof made prior to the date hereof, as of the date of such
amendment), contained an untrue statement of a material fact
or omitted to state a material fact necessary in order to
make the statements therein not misleading, or that the
Prospectus (except as to (a) financial statements, including
the notes thereto, (b) statistical data and (c) other
financial information, (including, without limitation, the
pro forma financial information, as to which we express no
opinion), as of its date or the date hereof contained or
contains an untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading;
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on
certificates of responsible officers of the Company and the
subsidiaries and public officials. Such counsel may also state that in
rendering such opinion, any statement or opinion set forth therein
that is qualified by the phrase "to our knowledge" or any similar
phrase, is intended to indicate that, during the course of such
counsel's representation of the Company in the subject transaction, no
information that would give actual knowledge of the inaccuracy of such
statement or opinion has come to the attention of the lawyer who has
worked on matters on behalf of the Company and who is still currently
employed by or a member of Baker & McKenzie. Further, such counsel may
state that Howard J. Tytel, a Director, Executive Vice President,
Secretary and General Counsel of the Company and Executive Vice
President, General Counsel and Secretary of SFX Broadcasting, Inc.
("BROADCASTING") and Executive Vice President and General Counsel of
Sillerman Communications Management Corporation, Inc. ("SCMC") and The
Sillerman Companies, Inc. ("TSC") and a Director of The Marquee Group,
Inc. ("MARQUEE"), is of Counsel to Baker & McKenzie, and that no
assumption should be made that Baker & McKenzie is privy to
information and knowledge which is available to and known by Mr. Tytel
in his capacities with the Company, Broadcasting, SCMC, TSC and
Marquee. Such counsel may further state that they have not undertaken
any independent investigation to
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<PAGE>
determine the accuracy of such statement or opinion and no inference
as to their knowledge of any matters bearing on the accuracy of any
such statement or opinion should be drawn from the fact of their
representation of the Company.
(d) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and also at
such Time of Delivery, (i) Ernst & Young LLP, (ii) Arthur Andersen LLP
and (iii) Price Waterhouse LLP shall have furnished to you a letter or
letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you;
(e) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference with
its business from fire, explosion, flood or other calamity, whether or
not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have
been any change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any change, or any development involving
a prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of
the Company or its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case
described in Clause (i) or (ii), is in the judgment of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in
the manner contemplated in the Prospectus;
(f) The Company shall have entered into each of the
Transaction Documents, the form and substance of each of which shall
be reasonably acceptable to the Underwriters (provided that any
Transaction Document that was entered into and delivered to each of
the Underwriters and their counsel prior to the date of this Agreement
shall be deemed acceptable to the Underwriters) in form and substance
for purposes of this Section (7), and the Underwriters shall have
received counterparts, conformed as executed, thereof and of all other
documents and agreements entered into in connection therewith. There
shall exist at and as of the Closing Date, after giving effect to the
transactions contemplated by this Agreement and the other Transaction
Documents, no conditions that would constitute a default (or an event
that with notice or the lapse of time, or both, would constitute a
default) under any of the other Transaction Documents or that would
have a Material Adverse Effect on the Company's ability to consummate
the Pending Acquisitions as described in the Prospectus. Each
Transaction Document shall be in full force and effect.
(g) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities by any
"nationally recognized statistical rating organization," as that term
is defined by the Commission for purposes of Rule 436(g)(2) under the
Act, and (ii) no such organization shall have publicly announced that
it has under surveillance or review, with possible negative
implications, its rating of any of the Company's debt securities;
(h) On or after the date hereof there shall not have occurred
any of the following: (i) a suspension or material limitation in
trading in securities generally on the
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New York Stock Exchange or on NASDAQ; (ii) a suspension or material
limitation in trading in the Company's securities on NASDAQ; (iii) a
general moratorium on commercial banking activities declared by either
Federal or New York, State authorities; or (iv) the outbreak or
escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if
the effect of any such event specified in this Clause (iv) in the
judgment of the Representatives makes it impracticable or inadvisable
to proceed with the public offering or the delivery of the Shares
being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(i) The Shares to be sold at such Time of Delivery shall have
been duly listed for quotation on NASDAQ;
(j) The Company has obtained and delivered to the
Underwriters executed copies of an agreement from the stockholders
listed on Schedule II hereto, substantially to the effect set forth in
Subsection 5(e) hereof in the form previously specified by you;
(k) The Company shall have complied with the provisions of
Section 5(c) hereof with respect to the furnishing of prospectuses on
the New York Business Day next succeeding the date of this Agreement;
(l) (i) The Company shall have filed with the Commission a
rescission offer registration statement on Form S-1 relating to the
shares of Stock to be issued pursuant to the Pending Acquisitions,
(ii) the Commission shall have declared such rescission offer
registration statement to be effective and (iii) the Company shall
have consummated such rescission offer; and
(m) The Company shall have furnished or caused to be
furnished to you at such Time of Delivery certificates of officers of
the Company satisfactory to you as to the accuracy of the
representations and warranties of the Company herein at and as of such
Time of Delivery, as to the performance by the Company of all of its
obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a), (e) and (g)
of this Section and as to such other matters as you may reasonably
request.
(n) The Company shall have furnished to you a letter, in form
and substance satisfactory to you, to the effect that the Company will
not waive any provisions of the Don Law Agreement or any agreement
associated therewith that provides for a customary "lock-up" period
without the prior written consent of Goldman, Sachs & Co.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any
17
<PAGE>
Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman, Sachs
& Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through Goldman, Sachs & Co. expressly for use therein; and will
reimburse the Company for any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such action or
claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares.
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If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company on the one hand and the Underwriters on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof), as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this subsection
(d) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above
in this subsection (d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (d) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations of
the Underwriters under this Section 8 shall be in addition to any liability
which the respective Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of the Company and to
each person, if any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such
19
<PAGE>
Shares, then the Company shall be entitled to a further period of thirty-six
hours within which to procure another party or other parties satisfactory to
you to purchase such Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company that you have so arranged
for the purchase of such Shares, or the Company notifies you that it has so
arranged for the purchase of such Shares, you or the Company shall have the
right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person
had originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
as provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall
have the right to require each non-defaulting Underwriter to purchase the
number of shares which such Underwriter agreed to purchase hereunder at such
Time of Delivery and, in addition, to require each non-defaulting Underwriter
to purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
as provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter or the Company, except for the expenses to be
borne by the Company and the Underwriters as provided in Section 6 hereof and
the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the several Underwriters, as
set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless
of any investigation (or any statement as to the results thereof) made by or on
behalf of any Underwriter or any controlling person of any Underwriter, or the
Company, or any officer or director or controlling person of the Company, and
shall survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, the Company shall not then be under any liability to any Underwriter
except as provided in Sections 6 and 8 hereof; but, if for any other reason,
any Shares are not delivered by or on behalf of the Company as provided herein,
the Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company
shall then be under no further liability to any Underwriter except as provided
in Sections 6 and 8 hereof.
20
<PAGE>
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to you as the representatives in care of Goldman,
Sachs & Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail to the
address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the Company by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Shares from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
[Signature page(s) follow]
21
<PAGE>
If the foregoing is in accordance with your understanding, please sign
and return to us counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Underwriters and the
Company. It is understood that your acceptance of this letter on behalf of each
of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
SFX ENTERTAINMENT, INC.
By: /s/ Howard J. Tytel
--------------------------------
Name: Howard J. Tytel
Title: Executive Vice President
Underwriting signature page(s)
<PAGE>
Accepted as of the date hereof:
Goldman, Sachs & Co.
By /s/ Goldman, Sachs & Co.
---------------------------
(Goldman, Sachs & Co.)
Lehman Brothers Inc.
By: /s/ Jack Langer
--------------------------
Name: Jack Langer
Title:
Bear, Stearns & Co. Inc.
By: /s/ Lisbeth Barron
---------------------------
Name: Lisbeth Barron
Title: Senior Managing Director
Cowen & Company
By: /s/ John B. Dunphy
---------------------------
Name: John B. Dunphy
Title:
Morgan Stanley & Co. Incorporated
By: /s/ Jonathan A. Knee
---------------------------
Name: Jonathan A. Knee
Title: Principal
Prudential Securities Incorporated
By: /s/ Jean-Claude Canfin
--------------------------
Name: Jean-Claude Canfin
Title: Managing Director
On behalf of each of the Underwriters
Underwriting signature page(s)
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF
OPTIONAL SHARES
TOTAL NUMBER OF TO BE PURCHASED
FIRM SHARES IF MAXIMUM
TO BE PURCHASED OPTION EXERCISED
UNDERWRITER
<S> <C> <C>
Goldman, Sachs & Co.................................................... 1,750,000 262,500
Lehman Brothers Inc.................................................... 1,750,000 262,500
Bear, Stearns & Co. Inc................................................ 875,000 131,250
Cowen & Company........................................................ 875,000 131,250
Morgan Stanley & Co. Incorporated...................................... 875,000 131,250
Prudential Securities Incorporated..................................... 875,000 131,250
--------- ---------
TOTAL......................................................... 7,000,000 1,050,000
========= =========
</TABLE>
Schedule I
<PAGE>
SCHEDULE II
List of required Lock-Up Letters
1. Robert F.X. Sillerman
2. Michael G. Ferrel
3. Brian Becker
4. Howard J. Tytel
5. Thomas P. Benson
6. Richard A. Liese
7. D. Geoffrey Armstrong
8. James F. O'Grady, Jr.
9. Paul Kramer
10. Edward F. Dugan
Schedule II
<PAGE>
AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT
AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT ("Amendment"), dated May __,
1998, by and between SFX Broadcasting, Inc., a Delaware corporation ("SFX"),
SFX Entertainment, Inc., a Delaware corporation ("Entertainment"), and SBI
Holding Corporation, a Delaware corporation ("Parent").
WHEREAS, SFX, Entertainment and Parent have entered into a
Distribution Agreement dated as of April 20, 1998 (the "Distribution
Agreement");
WHEREAS, SFX and Entertainment desire to amend the calculation of
"Working Capital" in the Distribution Agreement, and Parent desires to consent
to such amendment, as contemplated by Section 12.4 of the Distribution
Agreement; and
WHEREAS, capitalized terms used and not defined in this Amendment have
the respective meanings ascribed them in the Distribution Agreement;
NOW, THEREFORE, SFX and Entertainment hereby agree as follows, and
Parent consents to such agreement:
1. The second paragraph of Section 2.2(d) of the Distribution
Agreement is hereby amended by inserting at the end of such paragraph the
following:
, and (xiv) be increased by any amounts paid by SFX prior to the
Effective Time for insurance required to be maintained by Parent
pursuant to Section 5.04(c) of the Merger Agreement, such amounts not
to exceed $280,000.
2. The last sentence of Section 2.2(d) of the Distribution Agreement
is hereby amended to read as follows:
The term "Average Trading Price" shall mean the highest of the
following amounts: (i) the difference between (A) the average of the
last sales price of the Series E Preferred Stock during the 15
consecutive business days ending on the Closing Date, less (B) an
amount equal to $250,000 divided by 142,032, or (ii) the average of
the last sales price of the Series E Preferred Stock during the 15
consecutive business days immediately preceding February 9, 1998.
[Signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered as of the day and year first above written.
SFX BROADCASTING, INC. SBI HOLDING CORPORATION,
consenting to this Amendment
By: /s/ Howard J. Tytel By: /s/ William S. Banowsky, Jr.
----------------------------- -----------------------------
Howard J. Tytel Name: William S. Banowsky, Jr.
Executive Vice President Title:
SFX ENTERTAINMENT, INC.
By: /s/ Howard J. Tytel
-----------------------------
Howard J. Tytel
Executive Vice President
<PAGE>
AMENDED AND RESTATED
TAX SHARING AGREEMENT
This AMENDED AND RESTATED TAX SHARING AGREEMENT (this "Agreement"),
effective as of May 27, 1998 among SFX Broadcasting, Inc., a Delaware
corporation ("SFX"), and SFX Entertainment, Inc., a Delaware corporation
("Entertainment") and with respect to Section 5.15 only, SBI Holding
Corporation, a Delaware corporation ("Parent").
RECITALS
WHEREAS, pursuant to the Distribution Agreement SFX has distributed
all of the shares of Entertainment it owns to SFX's stockholders.
WHEREAS, Entertainment and its subsidiaries have been or will be
included in the consolidated Federal Income Tax returns filed by SFX, and
Entertainment and certain of its subsidiaries have been or will be included
with one or more members of the SFX Group in state and local unitary or
combined Income Tax and franchise tax returns.
WHEREAS, the parties desire to set forth their agreement with respect
to the Federal, state, and local Taxes attributable to each of them and their
subsidiaries for all taxable periods beginning before the day following the
date defined herein as the "Distribution Date" (including the effect on such
Taxes of carrybacks and other transactions and occurrences that may arise in
taxable periods ending after the Distribution Date).
WHEREAS, the parties entered into the original Tax Sharing Agreement
effective as of April 20, 1998 (the "Prior Agreement") and desire to amend and
restate their Agreement according to the terms stated in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following definitions shall apply
in addition to those set forth above:
(a) "Adjustment" shall mean a formal notice given by the IRS or any
other relevant taxing authority which either proposes or assesses a change in
any Pre-Distribution Tax Liability or Post-Distribution Tax Liability (in each
case whether creating a Tax Benefit or a Tax Detriment).
<PAGE>
(b) "Affiliated Group" shall mean an affiliated group of corporations
within the meaning of section 1504(a) of the Code for the taxable period in
question.
(c) "Carryback Item" shall mean any net operating loss, net capital
loss, unused general business tax credit, or any other Tax Item of the
Entertainment Affiliated Group which under the Code or any other applicable
Income Tax law can be used to generate a Tax Benefit for the SFX Affiliated
Group.
(d) "Code" shall mean the Internal Revenue Code of 1986 (or, if
relevant, the Internal Revenue Code of 1954), as amended, in effect for the
taxable period in question and corresponding provisions of any subsequent
federal tax laws.
(e) "Distribution" shall mean the distribution by SFX of the stock of
Entertainment to the holders of SFX stock pursuant to the terms of the
Distribution Agreement.
(f) "Distribution Agreement" shall mean the distribution agreement
between SFX Broadcasting, Inc. and SFX Entertainment, Inc. dated as of April
20, 1998.
(g) "Distribution Date" shall mean the date on which the Distribution
occurs.
(h) "Entertainment Affiliated Group shall mean, for each taxable
period beginning after the Distribution Date, the Affiliated Group of which
Entertainment is the "common parent" within the meaning of section 1504(a) of
the Code.
(i) "Entertainment Group" shall mean, with respect to any taxable
period, the corporations that were members of the SFX Affiliated Group and that
are members of the Entertainment Affiliated Group immediately after the
Distribution Date, including, without limitation, Entertainment.
(j) "Final Determination" shall mean the final resolution of any tax
liability (including all related interest and penalties) for a taxable period.
A Final Determination shall result from the first to occur of:
(i) The expiration of 30 days after official IRS acceptance
of a Waiver of Restrictions on Assessment and Collection of Deficiency
in Tax and Acceptance of Overassessment on IRS Form 870 or 870-AD (or
any successor comparable form or the expiration of a comparable period
with respect to any comparable agreement or form under the laws of
other jurisdictions), unless, within such period, the taxpayer gives
notice to the
-2-
<PAGE>
other party of the taxpayer's intention to attempt to recover all or
part of any amount paid or to be paid pursuant to the Waiver or
comparable form by the filing of a timely claim for refund;
(ii) a decision, judgment, decree, or other order by a court
of competent jurisdiction that has become final and is not subject to
further judicial review (by appeal or otherwise);
(iii) the execution of a closing agreement under section 7121
of the Code or the official acceptance by the IRS of an offer in
compromise under section 7122 of the Code, or comparable agreements
under the laws of other jurisdictions;
(iv) the expiration of the time for filing a claim for refund
or for instituting suit in respect of a claim for refund disallowed in
whole or part by the IRS or any other taxing authority with which a
claim for refund could be or was filed;
(v) any other final disposition of the tax liability for such
period by reason of the expiration of the applicable statute of
limitations; or
(vi) any other event that the parties agree is a final and
irrevocable determination of the liability at issue.
(k) "Income Taxes" shall mean all federal, state and local Taxes
imposed upon, or measured by, income (including the federal alternative minimum
tax under Section 55 of the Code), and those franchise, excise and similar
Taxes which have been customarily included in the provision for Income Taxes on
SFX's financial statements, together with all related interest, penalties and
additions to tax.
(l) "Indemnified Party" shall have the meaning ascribed to such term
in Section 4.01(a) of this Agreement.
(m) "Indemnifying Party" shall have the meaning ascribed to such term
in Section 4.01(a) of this Agreement.
(n) "IRS" means the United States Internal Revenue Service or any
successor thereto, including, but not limited to, its agents, representatives,
and attorneys.
(o) "Merger Agreement" shall mean the agreement and plan of merger
among SBI Holding Corporation, SBI Radio Acquisition Corporation and SFX
Broadcasting, Inc. dated as of August 24, 1997.
(p) "Other Taxes" shall mean all Taxes (including all related
interest, penalties and additions to tax) other than Income Taxes.
-3-
<PAGE>
(q) "Post-Distribution Tax Liabilities" shall mean the respective
liabilities of the members of the SFX Affiliated Group and the Entertainment
Affiliated Group for Income Taxes for all taxable periods beginning on or after
the day following the Distribution Date.
(r) "Pre-Distribution Tax Liabilities" shall mean the liability of
members of the SFX Affiliated Group for Income Taxes for all taxable periods
beginning before the day following the Distribution Date. A liability described
in the previous sentence is a Pre-Distribution Tax Liability whether the
liability has been previously assessed in whole or in part or is assessed in
whole or in part after the date of this Agreement, and whether the liability is
or was imposed on the SFX Affiliated Group collectively or on any member of
such Group separately.
(s) "SFX Affiliated Group" shall mean, for each taxable period, the
Affiliated Group of which SFX or any successor of SFX is the "common parent"
within the meaning of section 1504(a) of the Code.
(t) "SFX Group" shall mean, with respect to any taxable period, the
corporations that were members of the SFX Affiliated Group during such period
(including, without limitation, SFX), exclusive of the corporations that are
included in the Entertainment Affiliated Group immediately after the
Distribution Date.
(u) "Tax Benefit" shall mean a reduction in the Income Tax liability
of a corporation (or of the Affiliated Group of which it is a member) for any
taxable period. Except as otherwise provided in this Agreement, a Tax Benefit
shall be deemed to have been realized or received from a Tax Item in a taxable
year only if and to the extent that the Income Tax liability of the taxpayer
(or the Affiliated Group of which it is a member) for such period is less than
it would have been if such liability were determined without regard to such Tax
Item.
(v) "Tax Detriment" shall mean an increase in the Income Tax liability
of a corporation (or of the Affiliated Group of which it is a member) for any
taxable period. Except as otherwise provided in this Agreement, a Tax Detriment
(i) shall be deemed to have been realized or suffered from a Tax Item in a
taxable year only if and to the extent that the Income Tax liability of the
taxpayer (or the Affiliated Group of which it is a member) for such period is
greater than it would have been if such liability were determined without
regard to such Tax Item and (ii) shall include the several liability imposed on
a corporation by the provisions of Treasury Regulation ss. 1.1502-6 to the
extent such liability is for Income Taxes for which such corporation is not
responsible pursuant to this Agreement.
(w) "Taxes" shall mean Income Taxes and Other Taxes.
(x) "Tax Item" shall mean any item of income, gain, loss, deduction,
credit, recapture of credit, or any other item which increases or decreases
Income Taxes paid or payable.
-4-
<PAGE>
ARTICLE II
FILING OF TAX RETURNS
SECTION 2.01. PRE-DISTRIBUTION TAX RETURNS.
(a) SFX shall file all consolidated Federal Income Tax returns (and
any unitary, combined or consolidated state and local Income Tax returns or tax
returns for Other Taxes filed on a unitary, combined or consolidated basis) for
each member of the SFX Affiliated Group that are required to be filed for
periods beginning before (or beginning and ending on) the Distribution Date and
shall pay all Taxes attributable to these periods, including any deferred
income triggered into income under Treas. Reg. ss. 1.1502-13 and Treas. Reg.
ss. 1.1502-14 and any excess loss accounts taken into income under Treas. Reg.
ss. 1.1502-19. Entertainment acknowledges that Treas. Reg. ss. 1.1502-77(a)
confers certain authority on SFX, as the common parent of the SFX Affiliated
Group, with respect to Federal Income Tax matters for all taxable periods
beginning before the day following the Distribution Date and agrees to enter
into any election or consent reasonably requested by SFX with respect to such
matters for such taxable years. Entertainment agrees (on behalf of itself and
members of the Entertainment Group) (i) not to make any election to exclude any
member of the Entertainment Group from the SFX consolidated Federal Income Tax
return (or any comparable state or local combined or consolidated return) for
taxable periods beginning before (or beginning and ending on) the Distribution
Date and (ii) not to take, advocate or fail to oppose any position relating to
the tax treatment of any transaction occurring prior to the Distribution Date
which is inconsistent with the manner in which such transaction was treated on
the consolidated return of the SFX Affiliated Group for the taxable periods
during which members of the Entertainment Group were members of the SFX
Affiliated Group. SFX agrees not to take, advocate or fail to oppose any
position relating to the tax treatment of any transaction occurring prior to
the Distribution which is inconsistent with the manner in which such
transaction was treated on the consolidated return of the SFX Affiliated Group
for the taxable periods during which members of the Entertainment Group were
members of the SFX Affiliated Group, except for any such actions requested by
Entertainment.
(b) SFX shall be responsible for filing all returns relating to
members of the SFX Group with respect to Other Taxes and with respect to any
Income Taxes as to which consolidated, unitary or combined returns are not made
for a period beginning before (or beginning and ending on) the Distribution
Date. Entertainment shall be responsible for filing all returns relating to
members of the Entertainment Group with respect to Other Taxes and with respect
to any Income Taxes as to which consolidated, unitary or combined returns are
not made for a period beginning before (or beginning and ending on) the
Distribution Date.
SECTION 2.02. POST-DISTRIBUTION TAX RETURNS. For taxable periods
beginning after the Distribution Date: (i) SFX shall be responsible for filing
tax returns relating to members of the SFX Group; and (ii) Entertainment shall
be responsible for filing tax returns relating to members of the Entertainment
Group.
-5-
<PAGE>
ARTICLE III
PAYMENT OF TAXES
SECTION 3.01. PRE-DISTRIBUTION CONSOLIDATED INCOME TAXES AND CERTAIN
OTHER TAXES.
(a) So as to enable the SFX Affiliated Group to prepare accurately and
completely the consolidated returns which include the Income Tax liability of
members of the Entertainment Group and in order to provide for accurate
financial reporting for tax periods or portions thereof ending on or before the
Distribution Date, Entertainment shall prepare and submit to SFX, no later than
180 days after the end of each such tax period or portion thereof (or such
later date as consented to by SFX, which consent shall not be unreasonably
withheld), complete draft Federal Income Tax returns reflecting the Tax Items
of the members of the Entertainment Group for each such tax period or portion
thereof, modified as provided in the following sentence and provide such other
information with respect to Income Taxes (or Other Taxes, the returns for which
are filed on a unitary, combined or consolidated basis) as SFX may reasonably
request. Income Taxes shall be calculated (i) using, to the extent permitted by
law, such methods, conventions and principles of taxation and making such
elections as are consistent with the methods, conventions, principles and
elections previously used by the SFX Affiliated Group or such member of the
Entertainment Group in preparing prior Income Tax returns; and (ii) for the
taxable period which ends on the Distribution Date, by apportioning Tax Items
based upon an interim closing of the books of the Entertainment Group as of the
end of the Distribution Date. Entertainment agrees not to make a ratable
allocation election under Treas. Reg. ss. 1.1502-76(b)(2)(ii)(D). Entertainment
shall bear all costs and expenses of preparation and submission of such
information, including accountants' and attorneys' fees.
(b) For taxable periods in which the Entertainment Group is included
in the SFX Affiliated Group, Entertainment shall pay to SFX an amount equal to
the Income Tax liability of the Entertainment Group (and any liability of the
Entertainment Group for Other Taxes the returns for which are filed on a
unitary, combined or consolidated basis), as determined on a separate company
basis; but only to the extent such separate Income Tax Liability of the
Entertainment Group (or separate Other Tax liability of the Entertainment
Group) is not included in the computation of working capital under Section
5.07(i) of the Merger Agreement. In addition, Entertainment shall not be
obligated to SFX under the preceding sentence to the extent the SFX Affiliated
Group's Income Tax Liability for the tax period including the Distribution Date
is less than the Income Tax Liability of the Entertainment Group for the tax
period of the Entertainment Group ending on the Distribution Date as result of
a net operating losses of the SFX Group.
SECTION 3.02. RESPONSIBILITY FOR TAX ADJUSTMENTS.
(a) Entertainment shall pay, reimburse and indemnify SFX as common
parent of the SFX Affiliated Group for any Pre-Distribution Tax Liabilities
arising from an Adjustment with respect to a Tax Item of a member of the
Entertainment Group; and
-6-
<PAGE>
(b) SFX shall pay, reimburse and indemnify Entertainment as common
parent of the Entertainment Affiliated Group for:
(i) any Tax Benefit derived by the SFX Group from an
Adjustment with respect to a Tax Item of a member of the Entertainment
Group; and
(ii) any Tax Detriment suffered by any member of the
Entertainment Group from an Adjustment with respect to a Tax Item of a
member of the SFX Group.
SECTION 3.03. NON-CONSOLIDATED OTHER TAXES AND INCOME TAXES. Unless
otherwise provided in this Agreement, the SFX Group shall pay all Other Taxes
and any Income Taxes as to which consolidated, unitary or combined returns are
not made (and shall be entitled to receive and retain all refunds of such
Taxes) that are attributable to members of the SFX Group. Unless otherwise
provided in this Agreement, the Entertainment Group shall pay all Other Taxes
and any Income Taxes as to which consolidated, unitary or combined returns are
not made (and shall be entitled to receive and retain all refunds of such
Taxes) which are attributable to members of the Entertainment Group.
SECTION 3.04. CARRYBACKS.
(a) To the extent that any carryback period for a Carryback Item would
include any taxable period beginning before the day following the Distribution
Date, Entertainment agrees to elect (under section 172(b)(3) of the Code and,
to the extent feasible, any similar provision of any applicable state or local
Income Tax law) to relinquish such carryback period as to any Carryback Item
which could thereby be used to create or carry forward a Tax Benefit for the
SFX Group (in which event no payment shall be due from SFX to Entertainment in
respect of such Carryback Item). SFX shall not elect to retain any net
operating loss carryovers or capital loss carryovers of the Entertainment
Group.
(b) If, notwithstanding the foregoing, for any taxable period ending
after the Distribution Date, a Carryback Item is incurred, then SFX shall pay
to Entertainment an amount equal to the Tax Benefit (adjusted as provided in
the next sentence) obtained by the SFX Affiliated Group in any taxable year as
a direct consequence of the Carryback Item. In determining the Tax Benefit
obtained by SFX with respect to a taxable year, if, in addition to the
Entertainment Group Carryback Items, there are also any Tax Items or Carryback
Items generated by the SFX Group which are properly taken into account in
determining the Income Tax liability of the SFX Affiliated Group for such
taxable year, SFX shall be credited with a pro rata portion of any resulting
Tax Benefit; the amount of such Tax Benefit to be paid to Entertainment shall
be reduced by the present value (determined at the then applicable short-term
Federal rate under the Code) of any future Tax Detriment that may be suffered
by any member of the SFX Group as a consequence of such Entertainment Group
Carryback Item. Entertainment agrees to indemnify and hold the SFX Group
harmless from any Taxes resulting from the disallowance of a Tax Benefit which
previously resulted in a payment from SFX to Entertainment under this Section
3.04(b).
-7-
<PAGE>
(c) SFX shall cooperate fully in obtaining the Tax Benefit
attributable to any Carryback Item, but any reasonable out-of-pocket expenses
incurred by SFX that are directly attributable to such efforts shall be borne
by Entertainment. In lieu of such cooperation, SFX may elect to pay to
Entertainment the Tax Benefit which would have been payable under this section
if such Carryback Item were allowed.
(d) Any refund of Tax (including any interest thereon) attributable to
the SFX Affiliated Group for any period beginning before (or beginning and
ending on) the Distribution Date shall be the property of SFX and any refund of
Tax (including any interest thereon) attributable to the Entertainment Group
for the period beginning before (or beginning and ending on) the Distribution
Date shall be the property of Entertainment.
SECTION 3.05. RESPONSIBILITY FOR DISTRIBUTION TAXES. Subject to
Section 4.01, Entertainment and any successor corporation shall be responsible
for, and shall indemnify and hold harmless SFX and each member of the SFX Group
from Income Taxes, Other Taxes and all reasonable out-of-pocket costs and
expenses arising out of, based upon or attributable to the Distribution, but,
in the case of Income Taxes, only to the extent such Income Taxes are based
upon any gain recognized by the SFX Group as a result of the Distribution in
excess of the net operating losses of the SFX Affiliated Group that are
available to offset such gain in the tax period including the Distribution
(without regard to subsequent tax years). SFX agrees to consult in good faith
with Entertainment regarding the amount of gain, if any, recognized by SFX as a
result of the Distribution.
SECTION 3.06. PAYMENT.
(a) GENERAL. If SFX is required to make a payment to a member of the
Entertainment Group under this Agreement, such payment shall be made to
Entertainment or any successor corporation as the parent of the Entertainment
Affiliated Group, and any payment due under this Agreement from any member of
the Entertainment Group to SFX shall be made by Entertainment to SFX or any
successor corporation as common parent of the SFX Group. Subject to Section
3.06(b), the payment shall be made by the earlier of (i) 20 days after SFX (or
a member of the Entertainment Group, as applicable) (x) receives a refund
(including, without limitation, a refund in the form of a credit against tax
liability) or realizes a reduction in its tax liability (including, without
limitation, estimated Taxes) or (y) makes a tax payment (including, without
limitation, any payment made in connection with either an estimated or annual
tax liability), (ii) 20 days after a Final Determination with respect to such
tax or (iii) 20 days after the determination by the parties or pursuant to
Article V that such payment is due. The amount of any payment required to be
made by any party to another under this Agreement shall be an amount which,
after subtraction of any additional federal, state or local Taxes payable by
the recipient in respect of the receipt of such payment, is equal to the amount
payable hereunder. SFX and Entertainment agree that, without limiting the
ultimate payment obligation of the payor set forth in the preceding sentence,
to the extent there is substantial authority (within the meaning of section
6662 of the Code) for such position or such position is otherwise permissible
under applicable law, any payment shall be reported as non-deductible and
non-taxable.
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(b) ESTIMATED PAYMENTS FOR DISTRIBUTION TAXES. Notwithstanding
anything to the contrary in this Agreement, in the case of Income Taxes payable
by the SFX Group as a result of the Distribution ("Distribution Taxes"), the
parties agree that the following procedures (collectively, the "Method") shall
be applicable to estimated Distribution Taxes: (i) SFX shall make the payment
of its estimated Taxes on the following basis: 50% on June 15, 1998, 25% on
September 15, 1998 and 25% on December 15, 1998, (ii) the amount of
Distribution Taxes shall be computed without reducing SFX's basis in its
Entertainment stock by the amount of any payments under this Agreement and
(iii) the payments by Entertainment to SFX provided for under this Section
3.06(b) shall include a "gross-up" as provided for in the penultimate sentence
of Section 3.06(a). SFX agrees to give Entertainment notice of the amount
payable by Entertainment hereunder at least five days prior to the payment of
such estimated Taxes. Entertainment agrees to wire the amount payable hereunder
to the bank designated by SFX in its notice, in immediately available funds, on
or before 10:30 a.m., New York, New York time on the following dates
corresponding to SFX's payment of estimated Taxes:
Estimated Tax Payment Date Indemnity Payment Date
-------------------------- ----------------------
June 15, 1998 June 30, 1998
September 15, 1998 September 30, 1998
December 15, 1998 December 31, 1998
The amount payable by Entertainment on each Indemnity Payment Date set forth
above (the "Indemnity Amount") shall be adjusted as follows: (i) in the case of
the indemnity payable on June 30, 1998, the Indemnity Amount shall be reduced
by an amount equal to 5 days of simple interest on the Indemnity Amount at a
rate of 5%; (ii) in the case of the indemnity payable on September 30, 1998,
the Indemnity Amount shall be reduced by an amount equal to 5 days of simple
interest on the Indemnity Amount at a rate of 7.5%; and (iii) in the case of
the indemnity payable on December 31, 1998, the Indemnity Amount shall be
reduced by an amount equal to 4 days of simple interest on the Indemnity Amount
at a rate of 7.5%. SFX's payment of its estimated Distribution Taxes pursuant
to the Method shall not in any way limit Entertainment's indemnity obligations
in this Agreement, except that Entertainment shall have no liability for, and
SFX shall indemnify and hold harmless Entertainment against any penalties and
interest resulting from the use of procedures (ii) and (iii) of the Method to
pay the SFX Group's estimated Taxes under this Section 3.06(b).
ARTICLE IV
COOPERATION AND EXCHANGE OF INFORMATION
SECTION 4.01. MATTERS GIVING RISE TO INDEMNITY.
(a) NOTICE. If any tax authority shall propose an Adjustment to the
tax liability of either Entertainment or SFX ("Indemnified Party") which would
result, if such Adjustment were to be confirmed by a Final Determination, in a
loss against which the other party ("Indemnifying Party") may be required to
indemnify Indemnified Party pursuant to this Agreement, Indemnified Party shall
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promptly notify Indemnifying Party thereof in writing. Such notice to
Indemnifying Party shall include sufficient information with respect to the
issues as to which indemnity may be sought to enable Indemnifying Party to
determine whether to request Indemnified Party to contest the Adjustment.
(b) CONDUCT OF EXAMINATIONS. Indemnified Party shall keep Indemnifying
Party informed as to the status and progress of all matters materially related
to any issue that arises on the audit of Indemnified Party's tax returns that
could give rise to an obligation of Indemnifying Party to make payments to
Indemnified Party hereunder. Indemnified Party shall discuss with
representatives of Indemnifying Party the course and conduct of all material
matters that are the subject of this Agreement and shall permit such
representatives to participate in discussions with such tax authorities.
Indemnified Party will consider in good faith written proposals in connection
with contesting such Adjustment that Indemnifying Party shall submit to it from
time to time, provided that Indemnified Party shall control the nature of all
action to be taken to contest such Adjustment.
(c) CONTEST RIGHTS AND CONDITIONS. Upon receipt of any formal notice
from the IRS (including, without limitation, a 30-day letter) or any other tax
authority proposing an Adjustment which could impose liability on Indemnifying
Party hereunder, Indemnified Party shall promptly give notice thereof to
Indemnifying Party, and Indemnified Party will contest such Adjustment if
Indemnifying Party shall so request in writing within 20 days of Indemnifying
Party's receipt of such notice from Indemnified Party. In no event, however,
shall Indemnified Party be required to contest any Adjustment unless coincident
with Indemnifying Party's request (A) Indemnified Party shall have received (i)
an indemnity from Indemnifying Party for any Income Taxes, Other Taxes and all
other liability, expense or loss arising out of or relating to the Indemnifying
Party's issues involved in the contest or claim (including, without limitation,
all out-of pocket expenses, costs, reasonable legal, accounting, engineers' and
other professional fees and disbursements, but excluding any independent
expense incurred by Indemnified Party for the purpose of monitoring the
progress of the issue) and (ii) an opinion of independent tax counsel to
Indemnifying Party (which counsel shall be reasonably acceptable to Indemnified
Party) to the effect that a reasonable basis exists for contesting the
Adjustment to the extent that the contest involves such issues; and (B) if such
contest is to be conducted in a manner requiring payment of a proposed tax
deficiency, Indemnifying Party shall have advanced to Indemnified Party, on an
interest-free basis, an amount sufficient to make payment of the proposed tax
deficiency attributable to the Adjustment, together with any required interest
or penalties in respect of such proposed tax deficiency. If any funds are
advanced by Indemnifying Party in connection with any tax contest, any refund
received to the extent fairly attributable to such advance shall be returned to
Indemnifying Party, together with any interest thereon paid by the relevant
taxing authority, promptly upon Indemnified Party's receipt of such funds. If
Indemnifying Party shall have requested Indemnified Party to contest an
Adjustment and complied with each of the terms and conditions set forth above,
such contest shall be conducted by independent tax counsel selected by
Indemnifying Party and reasonably acceptable to Indemnified Party.
(d) SETTLEMENT; RELEASE OF INDEMNIFICATION. If Indemnifying Party
shall have requested Indemnified Party to contest an Adjustment and complied
with each of the terms and conditions set
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forth above, Indemnified Party shall not settle or compromise any Adjustment
for which indemnity is sought hereunder without the written consent of
Indemnifying Party (which consent shall not be unreasonably withheld) unless it
simultaneously releases Indemnifying Party from its obligations to indemnify
and reimburse Indemnified Party with respect to the issues so settled or
compromised, and in the event that Indemnified Party concludes such a
settlement or compromise without Indemnifying Party's written consent,
Indemnifying Party shall be deemed conclusively to have been so released. If
Indemnifying Party shall fail to request Indemnified Party to contest any
Adjustment or shall fail to comply with the terms and conditions entitling it
to make such request as set forth in subparagraph (c), Indemnified Party may in
its sole discretion elect to contest (or not contest) such Adjustment with
counsel selected by it and may at any time settle or compromise the matter
without the consent of Indemnifying Party and without releasing its rights to
indemnity from Indemnifying Party. If Indemnifying Party shall be willing to
accept any settlement proposed by any taxing authority with respect to an issue
as to which Indemnifying Party has an indemnity obligation hereunder, but
Indemnified Party refuses to approve such settlement, Indemnifying Party's
obligation to indemnify Indemnified Party with respect to such issue shall
thereafter be limited in amount to the amount Indemnifying Party would have
been required to pay pursuant to such settlement.
SECTION 4.02. TAX RETURN INFORMATION. Without limiting Section 4.01
hereof, SFX and Entertainment agree to cooperate fully with each other in
connection with the preparation of any tax return or claim for refund or in
conducting any audit or other proceeding in respect of Taxes for all open
taxable periods. Such cooperation shall include making personnel and records
available promptly and within 30 days (or such other period as may be
reasonable under the circumstances) after a request for such personnel or
records is made by the tax-imposing authority or the other party, in either
such case at the expense of the requesting party or the party whose Taxes are
being examined by the tax-imposing authority. If any member of the SFX Group or
the Entertainment Group, as the case may be, fails to provide any information
requested pursuant to this section, then the requesting party shall have the
right to engage a public accountant of its choice to gather such information.
Entertainment and SFX agree to permit any such public accountant full access to
all appropriate records or other information in the possession of any member of
the SFX Group or the Entertainment Group, as the case may be, during reasonable
business hours, and to reimburse or pay directly all costs and expenses in
connection with the engagement of such public accountant.
SFX agrees to indemnify and hold harmless each member of the
Entertainment Group and its officers and employees, and Entertainment agrees to
indemnify and hold harmless each member of the SFX Group and its officers and
employees, against any cost, fine, penalty or other expense of any kind
attributable to the negligence or misconduct of a member of the SFX Group or
the Entertainment Group, as the case may be, in supplying a member of the other
group with inaccurate or incomplete information.
SECTION 4.03. RECORD RETENTION. SFX and Entertainment agree to retain
all records which may contain information or provide evidence relevant to the
determination of the Income Tax liability of the SFX Affiliated Group or the
Entertainment Affiliated Group or the shareholders of either for any taxable
period until such time as a Final Determination occurs with respect to such
taxable period, provided, however, that such records need not be retained
longer than 20 years after
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the end of the latest taxable period to which they relate so long as such
records are offered to the other party before they are destroyed by the party
that possesses them.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. EFFECTIVE DATE AND TERM OF AGREEMENT. This Agreement
shall become effective as of the day immediately prior to the Distribution
Date. Except as otherwise expressly provided herein, the respective covenants
of the parties contained herein shall continue in full force and effect
indefinitely.
SECTION 5.02. PRIOR TAX-SHARING AGREEMENTS. At the time this Agreement
becomes effective, this Agreement shall supersede any other tax-sharing or
allocation agreement or arrangement in effect between members of the SFX Group
and members of the Entertainment Group prior to the date hereof.
SECTION 5.03. ELECTION UNDER SECTION 1552 OF THE CODE. Nothing in this
Agreement is intended to change or otherwise affect any election made by or on
behalf of the SFX Affiliated Group with respect to the calculation of earnings
and profits under section 1552 of the Code or applicable Treasury Regulations.
SFX, in its sole discretion, is authorized to seek any change in the method of
calculating earnings and profits as it deems desirable, provided, however, that
no such change shall modify the rights or obligations of the parties hereto.
SECTION 5.04. INJUNCTIONS. The parties acknowledge that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or were otherwise
breached. The parties hereto shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof in any court having jurisdiction,
such remedy being in addition to any other remedy to which they may be entitled
at law or in equity.
SECTION 5.05. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any thereof which may be hereafter declared invalid, void or
unenforceable. In the event that any such term, provision, covenant or
restriction is held to be invalid, void or unenforceable, the parties hereto
shall use their best efforts to find and employ an alternate means to achieve
the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction.
SECTION 5.06. ASSIGNMENT. Except by operation of law or in connection
with the sale of all or substantially all the assets of a party hereto, this
Agreement shall not be assignable, in whole or
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in part, directly or indirectly, by any party hereby without the written
consent of the other party; and any attempt to assign any rights or obligations
arising under this Agreement without such consent shall be void; provided,
however, that the provisions of this Agreement shall be binding upon, inure to
the benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns.
SECTION 5.07. FURTHER ASSURANCES. Subject to the provisions hereof,
the parties hereto shall make, execute, acknowledge and deliver such other
instruments and documents, and take all such other actions, as may be
reasonably required in order to effectuate the purposes of this Agreement and
to cause the performance as contemplated by this Agreement. Subject to the
provisions hereof, each of the parties shall, in connection with entering into
this Agreement, performing its obligations hereunder and taking any and all
actions relating hereto, comply with all applicable laws, regulations, orders
and decrees, obtain all required consents and approvals and make all required
filings with any governmental agency, other regulatory or administrative
agency, commission or similar authority and promptly provide the other parties
with all such information as they may reasonably request in order to be able to
comply with the provisions of this sentence.
SECTION 5.08. PARTIES IN INTEREST. Except as herein otherwise
specifically provided, nothing in this Agreement expressed or implied is
intended to confer any right or benefit upon any person, firm or corporation
other than the parties and their respective successors and permitted assigns.
SECTION 5.09. WAIVERS, ETC. No failure or delay on the part of the
parties in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power,
or any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement
nor consent to any departure by the parties therefrom shall in any event be
effective unless the same shall be in writing, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.
SECTION 5.10. SETOFF. All payments to be made by any party under this
Agreement shall be made without setoff, counterclaim or withholding, all of
which are expressly waived.
SECTION 5.11. CHANGE OF LAW. If, due to any change in applicable law
or regulations or the interpretation thereof by any court of law or other
governing body having jurisdiction subsequent to the date of this Agreement,
performance of any provision of this Agreement or any transaction contemplated
thereby shall become impracticable or impossible, the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such provision.
SECTION 5.12. HEADINGS. Descriptive headings are for convenience only
and shall not control or affect the meaning or construction of any provision of
this Agreement.
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SECTION 5.13. COUNTERPARTS. For the convenience of the parties, any
number of counterparts of this Agreement may be executed by the parties hereto,
and each such executed counterpart shall be, and shall be deemed to be, an
original instrument.
SECTION 5.14. NOTICES. All notices, consents, requests, instructions,
approvals and other communications provided for herein shall be validly given,
made or served, if in writing and delivered personally, by telegram or sent by
registered mail, postage prepaid to
SFX at: SFX Broadcasting, Inc.
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Entertainment at: SFX Entertainment, Inc.
650 Madison Avenue
16th Floor
New York, New York 10022
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner. Notice given by telegram shall be deemed
delivered when received by the recipient. Notice given by mail as set out above
shall be deemed delivered five calendar days after the date the same is mailed.
SECTION 5.15. AMENDMENT AND MODIFICATION. This Agreement may be
amended, modified, supplemented, waived or otherwise modified or terminated
only by written agreement of SFX and Entertainment and with the consent of
Parent, which consent shall not be unreasonably withheld.
SECTION 5.16. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the domestic substantive laws of The
State of Delaware without regard to any choice or conflict of laws rule or
provision that would cause the application of the domestic substantive laws of
any other jurisdiction.
SECTION 5.17. PRIOR AGREEMENT. This Agreement shall supercede in all
respects the Prior Agreement.
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed by their respective officers, each of whom is duly authorized,
all as of the day and year first above written.
SFX BROADCASTING INC.
By: /s/ Thomas P. Benson
--------------------------------
Title: Chief Financial Officer
-----------------------------
SFX ENTERTAINMENT, INC.
By: /s/ Thomas P. Benson
--------------------------------
Title: Chief Financial Officer
-----------------------------
SBI HOLDING CORPORATION,
with respect to Section
5.15 only.
By: /s/ William S. Banowsky, Jr.
--------------------------------
Name: William S. Banowsky, Jr.
------------------------------
Title: Vice President -
Chief Legal Officer
-----------------------------
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