<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 13, 1999
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SFX ENTERTAINMENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 7922 13-3977880
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
650 MADISON AVENUE, 16TH FLOOR
NEW YORK, NEW YORK 10022
(212) 838-3100
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
ROBERT F.X. SILLERMAN, EXECUTIVE CHAIRMAN
SFX ENTERTAINMENT, INC.
650 MADISON AVENUE, 16TH FLOOR
NEW YORK, NEW YORK 10022
(212) 838-3100
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
----------------
Copies to:
AMAR BUDARAPU, ESQ. DANIEL A. NINIVAGGI, ESQ.
BAKER & MCKENZIE WINSTON & STRAWN
1200 SMITH STREET, SUITE 1200 200 PARK AVENUE
HOUSTON, TEXAS 77002 NEW YORK, NEW YORK 10166
(713) 427-5000 (212) 294-6700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
----------------
If only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box:
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED (1) SHARE (2) PRICE (2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, $.01 par
value............................ 118,000 Shares $65.125 $7,684,750.00 $2,136.36
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include an additional 2,618,448 shares of Registrant's Class A
common stock previously registered by the Registrant under its
Registration Statement on Form S-1 (File No. 333-57511), which are being
carried forward pursuant to Rule 429 under the Securities Act of 1933, as
amended, and for which Registrant has paid $46,129.39 of registration fees
with respect to such unsold securities.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based upon the average of the high and low sales
prices of the Class A common stock on April 7, 1999, as reported on the
Nasdaq Stock Market National Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, THE PROSPECTUS
INCLUDED IN THIS REGISTRATION STATEMENT IS A COMBINED PROSPECTUS RELATING ALSO
TO REGISTRATION STATEMENT NO. 333-57511 PREVIOUSLY FILED BY THE REGISTRANT ON
FORM S-1. THIS REGISTRATION STATEMENT, WHICH IS A NEW REGISTRATION STATEMENT,
ALSO CONSTITUTES POST-EFFECTIVE AMENDMENT NO. 3 TO REGISTRATION STATEMENT NO.
333-57511, AND SUCH POST-EFFECTIVE AMENDMENT NO. 3 SHALL HEREAFTER BECOME
EFFECTIVE CONCURRENTLY WITH THE EFFECTIVENESS OF THIS REGISTRATION STATEMENT
AND IN ACCORDANCE WITH SECTION 8(C) OF THE SECURITIES ACT OF 1933.
===============================================================================
<PAGE>
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 13, 1999
PROSPECTUS
2,736,448 SHARES
[SFX LOGO]
CLASS A COMMON STOCK
The prospectus relates to the sale from time to time of up to
2,736,448 shares of Class A common stock of SFX Entertainment, Inc. by certain
selling stockholders. SFX will not receive any part of the proceeds from the
sale of these shares.
The selling stockholders propose to sell the shares from time to time
in public or private transactions occurring on or off the Nasdaq Stock Market,
at prevailing market prices or at negotiated prices. Sales may be made directly
to purchasers or through brokers or to dealers, who are expected to receive
customary commissions or discounts.
------------------
The Class A common stock is quoted on The Nasdaq Stock Market's
National Market under the symbol "SFXE." On April 9, 1999, the last reported
sale price for the Class A common stock was $69 7/8 per share. SFX's Class B
common stock is not publicly traded and generally has ten votes per share.
------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 3
BEFORE MAKING A DECISION TO PURCHASE THESE SHARES.
------------------
- -------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
- -------------------------------------------------------------------------------
The date of this prospectus is April ___, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
Where You Can Find More Information........................................1
Incorporation of Certain Documents by Reference............................1
Safe Harbor for Forward-Looking Statements.................................2
The Company................................................................3
Risk Factors...............................................................3
Use of Proceeds............................................................8
Management.................................................................9
Principal Stockholders....................................................23
Selling Stockholders......................................................26
Plan of Distribution......................................................31
Certain Relationships and Related Transactions............................32
Legal Matters.............................................................37
Experts...................................................................37
- --------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
CONTAINED IN THIS PROSPECTUS OR ANY SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE
TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS DATED
APRIL ____, 1999. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE AS OF ANY OTHER DATE, AND NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER WILL CREATE ANY IMPLICATION TO THE
CONTRARY.
-i-
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may inspect
and copy such material at the public reference facilities maintained by the
Securities and Exchange Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the Securities and Exchange Commission's
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. You may
also obtain copies of such material from the Securities and Exchange Commission
at prescribed rates by writing to the Public Reference Section of the
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549.
Please call the Securities and Exchange Commission at 1-800-SEC-0330
for more information on the public reference rooms. You can also find our
Securities and Exchange Commission filings at the commission's website at
http://www.sec.gov.
This prospectus, which constitutes a part of the registration
statement, does not contain all the information you can find in the
registration statement on Form S-3 or its exhibits. You may read and copy the
registration statement on Form S-3 and any of its supplements and amendments,
including exhibits, at the Securities and Exchange Commission's public
reference rooms, or request copies by writing or calling the Securities
Exchange Commission or downloading it from the Securities and Exchange
Commission's website.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to incorporate by
reference the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information that we file later with the Securities and Exchange
Commission will automatically update and supersede the information in this
prospectus. Accordingly, we incorporate by reference the documents listed
below:
1. Annual Report on Form 10-K for the fiscal year ended December
31, 1998, filed March 31, 1999;
2. SFX's Current Report on Form 8-K dated April __, 1999; and
3. The description of SFX Class A common stock contained in the
registration statement on Form 8-A filed on April 13, 1998.
All reports and other documents we subsequently file pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus and before the filing of a post-effective amendment which indicates
that all securities offered under this prospectus have been sold or which
deregisters all securities remaining unsold, shall be incorporated by reference
into this prospectus and deemed to be part of this prospectus from the date of
the filing of such reports and documents.
We will provide without charge to each person, including any
beneficial owner, to whom this prospectus is delivered, upon written or oral
request, a copy of any or all documents that are
1
<PAGE>
incorporated into this prospectus by reference, other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
the documents that this prospectus incorporates. You should direct such
requests to: SFX Entertainment, Inc., 650 Madison Avenue, 16th Floor, New York,
New York 10022, (212) 838-3100, Attention: Director of Investor Relations.
--------------------------
ABOUT THIS PROSPECTUS
This prospectus is a part of a registration statement that we have
filed with the Securities and Exchange Commission utilizing a "shelf
registration" process. You should read both this prospectus and any related
prospectus supplement together with additional information described under
"Where You Can Find More Information" and "Incorporation of Certain Documents
by Reference."
All references in this prospectus to "SFX," "Company," "we," "us," or
"our" mean SFX Entertainment, Inc., including the entities acquired by SFX and
its subsidiaries.
--------------------------
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
We believe that certain statements contained or incorporated by
reference in this prospectus are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 and are
considered prospective. The following statements are or may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995:
o statements before, after or including the words "may,"
"will," "could," "should," "believe," "expect," "future,"
"potential," "anticipate," "intend," "plan," "estimate" or
"continue" or the negative or other variations of these
words; and
o other statements about matters that are not historical facts.
We may be unable to achieve future results covered by the
forward-looking statements. The statements are subject to risks, uncertainties
and other factors that could cause actual results to differ materially from the
future results that the statements express or imply. See "Risk Factors." Please
do not put undue reliance on these forward-looking statements, which speak only
as of the date of this prospectus.
2
<PAGE>
THE COMPANY
SFX ENTERTAINMENT, INC.
650 Madison Avenue, 16th Floor
New York, New York 10022
(212) 838-3100
SFX is the world's largest diversified promoter, producer and venue
operator for live entertainment events. In addition, SFX is a leading
fully-integrated sports marketing and management company specializing in the
representation of athletes and broadcasters, integrated event management,
television programming and production and marketing consulting services. SFX
owns, partially or entirely, and/or operates under lease or exclusive booking
arrangements, the largest network of venues used principally for music concerts
and other live entertainment events in the United States, with 82 venues in 31
of the top 50 markets, including 16 amphitheaters in the top 10 markets. SFX
also develops and manages touring Broadway shows selling subscription series in
38 markets.
RISK FACTORS
You should carefully consider and evaluate the risk factors discussed
below, as well as all of the other business, financial and legal information
incorporated by reference into or contained elsewhere in this prospectus,
before making an investment in the Class A common stock.
IF SFX IS UNABLE TO INTEGRATE THE OPERATIONS OF ITS VARIOUS BUSINESSES, ITS
OVERALL BUSINESS MAY SUFFER
SFX has grown rapidly since it was formed in December 1997, mainly by
acquiring established live entertainment businesses. For example, as of
December 31, 1998, on a pro forma basis, SFX's 1999 acquisitions represented
15% of SFX's revenues and 25% of its assets. If SFX is unable to integrate its
various businesses effectively, then SFX's business, financial condition and
operating results may suffer.
As you evaluate SFX's prospects, you should consider the many risks
SFX will encounter during its process of integrating these acquired businesses,
including:
o the distraction of management's attention from other business
concerns;
o SFX's entry into markets where it has previously limited or
no experience; and
o potential loss of key employees or customers of the acquired
businesses.
Although SFX's management has significant experience, it may be unable to
effectively integrate the acquired businesses without encountering the
difficulties described above, and the combined companies may not benefit as
expected from the integration.
3
<PAGE>
SFX HAS A SUBSTANTIAL AMOUNT OF DEBT, WHICH MAY HARM IT AND ITS STOCKHOLDERS
SFX has a substantial amount of debt, and the amount of its debt is
likely to substantially increase in the future. SFX's consolidated debt as of
April 8, 1999 was approximately $846.0 million, including $17.1 million of notes
issued in connection with certain acquisitions that is included in deferred
purchase consideration.
The amount of SFX's debt could harm the holders of its Class A common
stock by, among other things:
o making SFX more vulnerable to general adverse economic and
industry conditions;
o limiting SFX's ability to obtain money to pay for future
acquisitions, working capital, capital expenditures and other
general corporate requirements;
o dedicating more of SFX's cash flow to paying off its debt,
which will reduce the amount of cash available to pay for
working capital, capital expenditures or other general
corporate needs;
o limiting SFX's flexibility in planning for, or reacting to,
changes in its business and the industry; and
o placing SFX at a competitive disadvantage to competitors that
have less debt.
SFX's ability to pay principal and interest on its debt on time, to
refinance its debt, or to pay for planned expenditures will depend on various
factors, some of which it will not be able to control. These factors include
restrictions contained in its credit facility and the indentures relating to
its notes, which may limit SFX's ability to, among other things, borrow
additional funds. SFX may be unable to generate enough money to pay its debts
because of insufficient cash flow from operations or because it is not able to
raise additional capital funds by selling securities. SFX may also be required
to refinance a part of its debt before the debt matures.
SFX'S CREDIT FACILITY AND INDENTURES RESTRICT ITS OPERATIONS
SFX's indentures and its credit facility restrict its and its
subsidiaries' ability to, among other things:
o sell or transfer assets;
o incur additional debt;
o repay other debt;
o pay dividends;
o make certain investments or acquisitions;
o repurchase or redeem capital stock;
o engage in mergers or consolidations; and
4
<PAGE>
o engage in certain transactions with subsidiaries and
affiliates.
The indentures and the credit facility also require SFX to comply with
certain financial ratios. These restrictions may interfere with SFX's ability
to obtain financing or to engage in other necessary or desirable business
activities.
If SFX cannot comply with the requirements in its credit facility,
then the lenders may require SFX to repay immediately all of its outstanding
debt under its credit facility. If SFX's debt payments were accelerated, SFX's
assets might not be sufficient to fully repay its debt. These lenders may also
require SFX to use all of its available cash to repay its debt or may prevent
SFX from making payments to other creditors on certain portions of its
outstanding debt.
SFX may not be able to obtain a waiver of these provisions or
refinance its debt, if needed. In such a case, SFX's business, results of
operations and financial condition would suffer.
IF SFX IS UNABLE TO COMPLETE OTHER ACQUISITIONS IN THE FUTURE, SFX'S BUSINESS
AND STOCK PRICE MAY SUFFER
SFX is currently negotiating additional acquisitions and expects to
seek additional acquisitions of live entertainment and related businesses in
the future. However, it may be unable to:
o identify and acquire additional suitable businesses;
o obtain the financing necessary to acquire the businesses; or
o obtain lenders' consents under its credit facility to acquire
the businesses.
SFX's inability to obtain financing for future acquisitions or to complete
acquisitions due to regulatory concerns could damage SFX's business, financial
condition and results of operations, and, therefore, adversely affect its stock
price.
Even if SFX is able to complete future acquisitions, they could result
in SFX: issuing more of its stock, which may dilute the value of existing
common stock; incurring a substantial amount of additional debt; and/or
amortizing expenses related to goodwill and other intangible assets. Any or all
of these actions could damage SFX's business, financial condition and results
of operations.
SFX WILL BE REQUIRED TO MAKE LARGE PAYMENTS UPON A CHANGE OF CONTROL, WHICH MAY
HARM SFX'S FINANCIAL CONDITION
SFX has obligations to make payments upon certain change of control
events. If it makes the payments, it may lose necessary operating funds. If it
cannot make the payments, it may be sued or forced into bankruptcy.
If Mr. Sillerman directly or indirectly owns less than 30% of the
combined voting power of the Class A and Class B common stock, then a "Change
in Control" will occur under SFX's credit facility. This would require SFX to
repay all outstanding debt under its credit facility. Mr.
5
<PAGE>
Sillerman currently holds approximately 34.4% of SFX's voting power. This
amount will decrease if SFX sells additional voting stock to third parties or
issues it in acquisitions.
Additionally, if anyone other than Mr. Sillerman becomes the
beneficial owner of over 35% of the voting power of SFX's outstanding common
stock, then a "Change in Control" will occur under SFX's indentures. This would
require SFX to offer to repurchase its outstanding notes at a premium.
SFX MAY BE FORCED TO SELL SOME OF ITS SUBSIDIARIES, WHICH MAY PREVENT SFX FROM
REALIZING THE FULL VALUE OF THESE SUBSIDIARIES
SFX has granted rights to re-purchase some of its subsidiaries. These
rights may discourage potential bidders for the affected assets from
negotiating with SFX, and may keep SFX from realizing the full productive value
of these subsidiaries over time.
PACE. In connection with SFX's acquisition of PACE Entertainment
Corporation, Brian Becker received an option to acquire PACE's motor sports
business--or, if that business is sold, PACE's theatrical business--at its fair
market value. Mr. Becker may only exercise this option within 15 days after
February 25, 2000. Mr. Becker's exercise of this option would result in
termination of his employment agreement. Mr. Becker's exercise of this option
could damage SFX's business, financial condition and results of operations.
In addition, from February 25, 1999 to February 25, 2000, Mr. Becker
will also have a right of first refusal under certain circumstances to acquire
PACE's theatrical or motor sports line of business at a price equal to 95% of
any proposed purchase price by a third party. On a pro forma basis for SFX's
1998 and 1999 acquisitions, specialized motor sports would have accounted for
approximately 4.1%, and theatrical would have accounted for approximately 17.5%,
of SFX's total net revenues for the year ended December 31, 1998.
Don Law. In connection with SFX's acquisition of Blackstone
Entertainment, LLC, also known as "Don Law," SFX granted the seller a right of
first offer and refusal. The right allows the seller to purchase, with certain
exceptions, the assets SFX acquired in the acquisition if SFX elects to sell
those assets before July 2, 2000.
BGP. SFX has agreed that it will not sell the assets of BG Presents,
Inc. before February 24, 2001, without giving the sellers the opportunity to
purchase the assets on the same terms.
Other Acquisitions. In addition, SFX has granted similar rights of
first refusal to sellers in certain other acquisitions.
SFX MAY HAVE LOWER REVENUES IF IT IS UNABLE TO SECURE APPROPRIATE ARTISTS,
EVENTS AND VENUES
As a participant in the live entertainment industry, SFX's ability to
generate revenues is highly sensitive to public tastes, which are
unpredictable. A change in public tastes, an increase in competition or a lack
of performer or event availability could damage SFX's business, financial
condition and results of operations. Similarly, SFX's ability to generate
revenues from live entertainment events may be limited if other competitive
forms of entertainment are
6
<PAGE>
available. Since SFX relies on unrelated parties to create and perform live
entertainment content, any lack of availability of popular musical artists,
touring Broadway shows, specialized motor sports talent and other performers
could limit SFX's ability to generate revenues.
SFX requires access to venues to generate revenues from live
entertainment events. It operates a number of its live entertainment venues
under leasing or booking agreements. SFX's long-term success will depend in
part on its ability to renew these agreements when they expire or end. SFX may
be unable to renew these agreements on acceptable terms or at all, and may be
unable to obtain favorable agreements with new venues.
SFX MAY HAVE ENVIRONMENTAL LIABILITIES THAT COULD AFFECT ITS RESULTS OF
OPERATIONS OR FINANCIAL CONDITION
SFX may be subject to significant environmental liabilities. SFX owns
or leases, or has other contractual interests in, numerous pieces of real
property, many of which SFX recently acquired. SFX's properties are subject to
environmental laws and regulations relating to the use, storage, disposal,
emission and release of hazardous and non-hazardous substances or materials.
SFX's properties may also be subject to noise level restrictions, which may
affect, among other things, the hours of operation of SFX's venues.
Additionally, certain laws and regulations could hold SFX strictly, jointly and
severally responsible for the correction of hazardous substance contamination
at its facilities or at third-party waste disposal sites, and could hold it
responsible for any personal or property damage related to the contamination.
THE DEPARTMENT OF JUSTICE INVESTIGATION MAY HARM SFX'S OPERATIONS
SFX has received a preliminary inquiry from the Department of Justice
seeking information on SFX's acquisitions of live entertainment venues and
businesses throughout the United States. The Department of Justice is
investigating whether these acquisitions might give SFX undue market power in
producing, promoting or exhibiting live entertainment events. SFX has
cooperated with the Department of Justice, and believes that its operations and
plan of acquisitions comply with applicable antitrust laws. However, if the
Department of Justice disagrees, it might file a lawsuit to force SFX to divest
itself of some of its operations. If such a lawsuit were filed, SFX would
vigorously defend the case. However, if such lawsuit were decided adversely to
SFX, it could have a material adverse impact on SFX's business, results of
operations and financial condition.
BECAUSE A CHANGE OF CONTROL OF SFX WOULD BE DIFFICULT TO ACHIEVE, HOLDERS OF
SFX STOCK MAY NOT HAVE THE OPPORTUNITY TO RECEIVE A PREMIUM FOR THEIR SHARES
Holders of Class A common stock could receive a premium for their
shares upon a change of control of SFX. The holders of Class A common stock may
be less likely to receive a premium for their shares, however, because a change
of control would be difficult to achieve without the cooperation of SFX's
principal stockholders and its board of directors. There are several factors
that would make a change of control difficult, including:
o SFX has issued, and may issue in the future, shares of Class
B common stock, which has 10 votes per share in most matters.
The two current holders of Class B common stock control
approximately 38.0% of SFX's total voting power. Therefore,
they
7
<PAGE>
probably will be able to block any potential change of
control transaction that they oppose.
o SFX's certificate of incorporation allows its board of
directors to issue up to 25 million shares of preferred
stock. If SFX issues shares of preferred stock with voting
rights, this issuance could dilute the voting rights of
holders of SFX's common stock and could delay or prevent a
change in control.
o Section 203 of the Delaware General Corporation Law prohibits
SFX from engaging in a "business combination" with an
"interested stockholder" for three years after the person
became an interested stockholder, unless the business
combination is approved in a particular manner. Therefore,
Section 203 could delay or prevent a change in control of
SFX.
o SFX's board of directors has also adopted other programs,
plans and agreements that may make a change of control more
expensive, such as severance payments and immediate vesting
of stock options upon a change of control.
SFX'S OPERATIONS MAY SUFFER FROM YEAR 2000 COMPUTER PROBLEMS
Year 2000 issues exist when computers record dates using two digits
rather than four, and then use the dates for arithmetic operations, comparisons
or sorting. A two-digit recording may recognize a date using "00" as 1900
rather than 2000, which could cause computer systems to perform inaccurate
computations or fail to operate. Although SFX does not anticipate being subject
to a material impact in this area, if it and the companies with which it does
business do not take adequate preventative action, then the Year 2000 problem
could damage SFX's business, financial condition and results of operations.
USE OF PROCEEDS
SFX will not receive any of the proceeds from sales of the shares
being offered by this prospectus. See "Selling Stockholders" for a list of the
persons who will receive the proceeds from these sales.
8
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Pursuant to the Certificate of Incorporation and Bylaws, the board of
directors (the "Board") manages the business of SFX. The Board conducts its
business through meetings of the Board and its committees. The standing
committees of the Board are described below.
The Bylaws authorize the Board to fix the number of directors from
time to time. The number of directors of SFX is currently eleven. All directors
hold office until the next annual meeting of stockholders following their
election or until their successors are elected and qualified. Officers of SFX
are to be elected annually by the Board and serve at the Board's discretion. In
the election of directors, the holders of the Class A common stock are entitled
by class vote, exclusive of all other stockholders, to elect two-sevenths,
rounded up, of the directors to serve on the Board, with each share of the
Class A common stock entitled to one vote.
Currently, the Board consists of:
o the individuals who previously served as directors of SFX
Broadcasting ("Broadcasting");
o Brian Becker, who was appointed to the SFX board of directors
upon the consummation of the PACE acquisition; and
o David Falk, the Chairman and a founder of FAME, who was
appointed as a director and a Member of the Office of the
Chairman of SFX upon the consummation of the FAME
acquisition.
All of the individuals who previously served as directors of
Broadcasting ceased to be directors of Broadcasting at the time of the
Broadcasting merger.
In addition, SFX appointed Robert Gutkowski and John Boyle as
non-voting observers to the Board. Mr. Gutkowski was appointed upon the
consummation of the Marquee merger and John Boyle was appointed upon the
consummation of the Cellar Door acquisition.
All of the executive officers of Broadcasting entered into five-year
employment agreements with SFX, except D. Geoffrey Armstrong, who resigned as
an executive officer of SFX. See "--Employment Agreements and Arrangements with
Certain Officers and Directors."
The following table sets forth information as to the directors and the
executive officers of SFX:
<TABLE>
<CAPTION>
AGE AS OF
NAME POSITION(S) HELD WITH SFX APRIL 5, 1999
------------------------------- --------------------------------------------------------- ---------------------
<S> <C> <C>
Robert F.X. Sillerman......... Director, Executive Chairman and Member of the Office 50
of the Chairman
9
<PAGE>
Michael G. Ferrel ............ Director, President, Chief Executive Officer and Member 50
of the Office of the Chairman
Brian E. Becker .............. Director, Executive Vice President and Member of the 42
Office of the Chairman
David Falk ................... Director and Member of the Office of the Chairman 48
Howard J. Tytel .............. Director, Executive Vice President, General Counsel, 52
Secretary and Member of the Office of the Chairman
Thomas P. Benson ............. Director, Vice President and Chief Financial Officer 36
Richard A. Liese ............. Director, Senior Vice President and Associate General 48
Counsel
D. Geoffrey Armstrong ........ Director 41
James F. O'Grady, Jr. ........ Director 71
Paul Kramer .................. Director 67
Edward F. Dugan .............. Director 64
Robert M. Gutkowski .......... Non-voting observer to Board of Directors 51
John J. Boyle ................ Non-voting observer to Board of Directors 65
</TABLE>
ROBERT F.X. SILLERMAN has served as the Executive Chairman, a Member
of the Office of the Chairman and a director of SFX since its formation in
December 1997. Mr. Sillerman also served as the Executive Chairman of
Broadcasting from July 1, 1995 until the consummation of the Broadcasting
merger. From 1992 through June 30, 1995, Mr. Sillerman served as Chairman of
the board of directors and Chief Executive Officer of Broadcasting. Mr.
Sillerman is Chairman of the board of directors and Chief Executive Officer of
SCMC, a private company that makes investments in and provides financial
consulting services to companies engaged in the media business, and of TSC, a
private company that makes investments in and provides financial advisory
services to media-related companies. Through privately held entities, Mr.
Sillerman controls the general partner of Sillerman Communications Partners,
L.P., an investment partnership. Mr. Sillerman is also the Chairman of the
board of directors and a founding stockholder of Marquee, which was a
publicly-traded company prior to its merger with SFX in 1999; Marquee is engaged
in various aspects of the sports, news and other entertainment industries. Mr.
Sillerman is also a founder and a significant stockholder of Triathlon, a
publicly-traded company that owns and operates radio stations in medium and
small-sized markets in the mid-western and western United States. For the last
twenty years, Mr. Sillerman has been a senior executive of and principal
investor in numerous entities in the broadcasting business. In 1993, Mr.
Sillerman became the Chancellor of the Southampton campus of Long Island
University.
MICHAEL G. FERREL has served as the President, Chief Executive
Officer, a Member of the Office of the Chairman and a director of SFX since its
formation in December 1997. Mr. Ferrel also served as the President, Chief
Executive Officer and a director of Broadcasting from November 22, 1996 until
the consummation of the Broadcasting merger. Mr. Ferrel served as
10
<PAGE>
President and Chief Operating Officer of Multi-Market Radio, Inc., a
wholly-owned subsidiary of Broadcasting ("MMR"), and a member of MMR's board of
directors since MMR's inception in August 1992 and as Co-Chief Executive
Officer of MMR from January 1994 to January 1996, when he became the Chief
Executive Officer. From 1990 to 1993, Mr. Ferrel served as Vice President of
Goldenberg Broadcasting, Inc., the former owner of radio station WPKX-FM,
Springfield, Massachusetts, which was acquired by MMR in July 1993.
BRIAN E. BECKER has served as an Executive Vice President, a Member of
the Office of the Chairman and a director of SFX since the consummation of the
PACE acquisition in February 1998. Mr. Becker has served as Chief Executive
Officer of PACE since 1994 and as President of PACE in 1996. He first joined
PACE as the Vice President and General Manager of PACE's theatrical division at
the time of that division's formation in 1982, and subsequently directed PACE's
amphitheater development efforts. He served as Vice Chairman of PACE from 1992
until he was named its Chief Executive Officer in 1994.
DAVID FALK serves as a Member of the Office of the Chairman and a
director of SFX. Mr. Falk serves as a director and as Chairman of SFX's sports
group and several subsidiaries within SFX's sports group, which includes FAME.
Mr. Falk, who has represented professional athletes for over twenty years, is
presently a Director, Chairman and Chief Executive Officer of FAME, positions
he has held since he founded FAME in 1992. Mr. Falk also serves as Chairman of
the HTS Sports-a-Thon to benefit the Leukemia Society of America, is a member
of the Executive Committee of the College Fund and is on the Board of Directors
of the Juvenile Diabetes Foundation and Share the Care for Children.
HOWARD J. TYTEL has served as an Executive Vice President, General
Counsel, Secretary and a director of SFX since its formation in December 1997.
In January 1999, Mr. Tytel was elected as a Member of the Office of the
Chairman. Mr. Tytel also served as a director, General Counsel, Executive Vice
President and Secretary of Broadcasting from 1992 until the consummation of the
Broadcasting merger. Mr. Tytel is Executive Vice President, General Counsel and
a Director of SCMC and TSC and holds an economic interest in those companies.
Mr. Tytel is a Director and a founder of Marquee and a founder of Triathlon.
Mr. Tytel was a Director of Country Music Television from 1988 to 1991. From
March 1995 until March 1997, Mr. Tytel was a Director of Interactive Flight
Technologies, Inc., a publicly-traded company providing computer-based
in-flight entertainment. For the last twenty years, Mr. Tytel has been
associated with Mr. Sillerman in various capacities with entities operating in
the broadcasting business. From 1993 to 1998, Mr. Tytel was Of Counsel to the
law firm of Baker & McKenzie, which represented Broadcasting and currently
represents SFX and other entities with which Messrs. Sillerman and Tytel are
affiliated on various matters.
THOMAS P. BENSON has served as the Vice President, Chief Financial
Officer and a director of SFX since its formation in December 1997. Mr. Benson
also served as the Chief Financial Officer and a director of Broadcasting,
having served in such capacity from November 22, 1996 until the consummation of
the Broadcasting merger. Mr. Benson became the Vice President of Financial
Affairs of Broadcasting in June 1996. He was the Vice President--External and
International Reporting for American Express Travel Related Services Company
from September 1995 to June 1996. From 1984 through September 1995, Mr. Benson
worked at Ernst & Young LLP as a staff accountant, senior accountant, manager
and senior manager.
11
<PAGE>
RICHARD A. LIESE has served as a Senior Vice President since
September, 1998, and as a Vice President, Associate General Counsel and a
director of SFX since its formation in December 1997. Mr. Liese also served as
a director, Vice President and Associate General Counsel of Broadcasting,
having served in such capacity from 1995 until the consummation of the
Broadcasting merger. Mr. Liese has also been the Assistant General Counsel and
Assistant Secretary of SCMC since 1988. In addition, from 1993 until April
1995, he served as Secretary of MMR.
D. GEOFFREY ARMSTRONG has served as a director of SFX since its
formation in December 1997. He served as an Executive Vice President of SFX
from its formation until September 1, 1998. Mr. Armstrong currently serves as a
director of Capstar Broadcasting Corporation, a publicly-traded radio
broadcasting company. Mr. Armstrong also served as the Chief Operating Officer
and an Executive Vice President of Broadcasting, having served in such capacity
from November 22, 1996 until the consummation of the Broadcasting merger. Mr.
Armstrong served as a director of Broadcasting from 1993 until the consummation
of the Broadcasting merger. Mr. Armstrong became the Chief Operating Officer of
Broadcasting in June 1996 and the Chief Financial Officer, Executive Vice
President and Treasurer of Broadcasting in April 1995. Mr. Armstrong was Vice
President, Chief Financial Officer and Treasurer of Broadcasting from 1992
until March 1995. He had been Executive Vice President and Chief Financial
Officer of Capstar, a predecessor of Broadcasting, since 1989. From 1988 to
1989, Mr. Armstrong was the Chief Executive Officer of Sterling Communications
Corporation.
JAMES F. O'GRADY, JR. has served as a director of SFX since its
formation in December 1997. Mr. O'Grady also served as a director of
Broadcasting prior to the consummation of the Broadcasting merger. Mr. O'Grady
has been President of O'Grady and Associates, a media brokerage and consulting
company, since 1979. Mr. O'Grady has been a director of Orange and Rockland
Utilities, Inc. and of Video for Broadcast, Inc. since 1991, respectively. Mr.
O'Grady has been the co-owner of Allcom Marketing Corp., a corporation that
provides marketing and public relations services for a variety of clients,
since 1985, and has been Of Counsel to Cahill and Cahill, Brooklyn, New York,
since 1986. He also served on the Board of Trustees of St. John's University
from 1984 to 1996, and has served as a director of The Insurance Broadcast
System, Inc. since 1994.
PAUL KRAMER has served as a director of SFX since its formation in
December 1997, served as a director of Broadcasting prior to the Broadcasting
merger and currently serves as a director of Nations Flooring, Inc. Mr. Kramer
has been a partner in Kramer & Love, financial consultants specializing in
acquisitions, reorganizations and dispute resolution, since 1994. From 1992 to
1994, Mr. Kramer was an independent financial consultant. Mr. Kramer was a
partner in the New York office of Ernst & Young LLP from 1968 to 1992.
EDWARD F. DUGAN has served as a director of SFX since its formation in
December 1997. Mr. Dugan also served as a director of Broadcasting prior to the
Broadcasting merger. Mr. Dugan is President of Dugan Associates Inc., a
financial advisory firm to media and entertainment companies, which he founded
in 1991. Mr. Dugan was an investment banker with Paine Webber Inc., as a
Managing Director, from 1978 to 1990, with Warburg Paribas Becker Inc., as
President, from 1975 to 1978 and with Smith Barney Harris Upham & Co., as a
Managing Director, from 1961 to 1975.
12
<PAGE>
ROBERT M. GUTKOWSKI has served as a non-voting observer to the board
of directors of SFX since the consummation of the Marquee merger in March 1999.
Mr. Gutkowski served as President, Chief Executive Officer and a director of
Marquee from December 1995 until the consummation of the Marquee merger. Since
March 1997, Mr. Gutkowski has been a member of the board of directors of the
Professional Bowlers Association. Mr. Gutkowski has more than 20 years of
experience in the television, sports and entertainment industries. From
September 1994 until December 1995, Mr. Gutkowski was a consultant to
sports-related businesses. From November 1991 to September 1994, he served as
President and Chief Executive Officer of Madison Square Garden Corporation,
where he oversaw the operations of the New York Knicks, the New York Rangers,
the MSG Entertainment Group, the MSG Cable Network, Madison Square Garden and
the Paramount Theater. From July 1990 to November 1991, Mr. Gutkowski served as
President of MSG Entertainment Group, having served as Executive Vice President
thereof from September 1987 to July 1990. From October 1985 to September 1987,
he served as President of Madison Square Garden Network. Prior to his tenure at
Madison Square Garden, Mr. Gutkowski was Vice President-Sales for Paramount
Television Domestic Distribution. From February 1981 to September 1983, Mr.
Gutkowski was Vice President-Programming for ESPN.
JOHN J. BOYLE has served as a non-voting observer to the board of
directors of SFX and the Chairman of SFX's Music Group since the consummation
of the Cellar Door acquisition in February 1999. Mr. Boyle served as the Chief
Executive Officer and Chairman of the board of directors of Cellar Door prior
to the consummation of the Cellar Door acquisition. Mr. Boyle purchased Cellar
Door in 1963, and has been in the concert promotion business for over thirty
years.
AUDIT COMMITTEE
The Audit Committee reviews and reports to the Board on various
auditing and accounting matters, including the selection, quality and
performance of SFX's internal and external accountants and auditors, the
adequacy of its financial controls and the reliability of financial information
reported to the public. The Audit Committee also reviews certain related-party
transactions and potential conflict-of-interest situations involving officers,
directors or stockholders of SFX. The members of the Audit Committee are
Messrs. Kramer, O'Grady and Dugan.
COMPENSATION COMMITTEE
The Compensation Committee reviews and makes recommendations with
respect to certain SFX compensation programs and compensation arrangements with
respect to certain officers, including Messrs. Sillerman, Ferrel, Tytel, Benson
and Liese. The members of the Compensation Committee are Messrs. Kramer,
O'Grady and Dugan, none of whom is a current or former employee or officer of
Broadcasting or SFX.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board approved the issuance of shares of Class A common stock to
holders, as of the SFX spin-off record date, of stock options or SARs of
Broadcasting, whether or not vested. These holders included the members of the
Compensation Committee. The issuance was approved to allow the holders of these
options and SARs to participate in the SFX spin-off in a
13
<PAGE>
similar manner as holders of Broadcasting's Class A common stock and as
consideration for past services to SFX. In connection with this issuance, Mr.
Kramer received 13,000 shares of Class A common stock, Mr. O'Grady received
13,000 shares of Class A common stock and Mr. Dugan received 3,000 shares of
Class A common stock.
STOCK OPTION COMMITTEE
The Stock Option Committee grants options, determines which employees
and other individuals performing substantial services to SFX may be granted
options and determines the rights and limitations of options granted under
SFX's plans. The members of the Stock Option Committee are Messrs. Kramer,
O'Grady and Dugan.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
FOR THE YEAR ENDED DECEMBER 31, 1998
The following table sets forth the annual and long-term compensation
earned by the Executive Chairman and SFX's four other most highly compensated
executive officers (the "Named Executive Officers") during 1998. SFX did not
pay any compensation to its executive officers in 1997 or 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------- -------------------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING
NAME AND POSITION SALARY(1) BONUS AWARDS($)(2) OPTION AWARDS (#)
- --------------------------------------------- ----------- ------------ --------------- ------------------
<S> <C> <C> <C> <C>
Robert F.X. Sillerman $291,667 -- $14,250,000 620,000
Executive Chairman and Member of the
Office of the Chairman
Michael G. Ferrel 204,167 -- 4,275,000 225,000
President, Chief Executive Officer and
Member of the Office of the Chairman
Brian E. Becker 245,000 -- -- 75,000
Executive Vice President and Member of
the Office of the Chairman
David Falk 183,750 -- -- 100,000
Member of the Office of the Chairman
Howard J. Tytel 175,000 -- 2,280,000 105,000
Executive Vice President, General
Counsel, Secretary and Member of the
Office of the Chairman
</TABLE>
- --------------------
(1) SFX began compensating Messrs. Sillerman and Ferrel upon the consummation
of the Broadcasting merger, which occurred on May 29, 1998. SFX began
compensating Mr. Falk on June 4, 1998, upon the consummation of the FAME
acquisition. SFX began compensating Mr. Tytel on June 1, 1998. SFX began
compensating Mr. Becker upon the consummation of the PACE acquisition,
which occurred on February 25, 1998. See "Certain Relationships and
Related Party Transactions" for additional transactions between SFX and
the Named Executive Officers.
14
<PAGE>
(2) In connection with entering into new employment agreements, SFX awarded
Mr. Sillerman 500,000 and Mr. Ferrel 150,000 restricted shares of Class B
common stock and Mr. Tytel was awarded 80,000 restricted shares of Class A
common stock. Each such individual paid $2.00 per share for such restricted
stock. The price of Class A common stock, as reported on the Nasdaq
National Market, was $30.50. The value of the shares of restricted stock is
reported in the table above. On December 31, 1998, the closing price of
Class A common stock, as reported on the Nasdaq National Market, was
$54.875. On December 31, 1998, the value of the shares of restricted stock
held by Messrs. Sillerman, Ferrel and Tytel was $26,437,500, $7,931,250 and
$4,230,000, respectively. All calculations of the value of the restricted
stock assumes that the shares of Class B common stock are equal in value to
the shares of Class A common stock.
In addition to the foregoing, SFX has approved the issuance of stock
options to the Named Executive Officers under the newly adopted incentive stock
option plan, which is subject to stockholder approval. SFX expects to submit
such stock option plan for stockholder approval at its annual meeting
scheduled to be held in spring of 1999. See "-- Proposed Stock Option Plan."
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth, for each of the Named Executive
Officers, certain information concerning the exercise of stock options during
1998, including the year-end value of unexercised options.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END (#) FY-END ($)(1)
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------------- --------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Robert F.X. Sillerman 0 0 0/620,000 0/15,268,750
Michael G. Ferrel 0 0 0/225,000 0/5,562,500
Brian E. Becker 0 0 0/75,000 0/1,225,000
David Falk 0 0 0/100,000 0/1,325,500
Howard J. Tytel 0 0 0/105,000 0/2,588,125
</TABLE>
- ------------------
(1) Calculated by determining the difference between the closing price of
Class A common stock as reported on the Nasdaq National Market on December
31, 1998 ($54.875) and the exercise price of the options.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to each grant
of stock options during 1998 to the Named Executive Officers.
15
<PAGE>
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM (10 YEARS)
INDIVIDUAL GRANTS (1)
--------------------------------------------------------- --------------------------
NUMBER OF
SECURITIES EXERCISE
UNDERLYING % OF TOTAL OR BASE
OPTIONS/ OPTIONS GRANTED PRICE
GRANTED TO EMPLOYEES IN ($/SHARE) EXPIRATION
NAME (#) FISCAL YEAR (2) DATE (3) 5% ($) 10% ($)
- ---------------------------- ----------- --------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert F.X. Sillerman 250,000 12.9% $43.25 5/27/08 $6,812,500 $17,192,500
250,000 12.9 29.125 4/27/08 4,586,250 11,576,250
120,000 6.2 5.50 1/15/08 416,400 1,050,000
Michael G. Ferrel 100,000 5.2 43.25 5/27/08 2,725,000 6,877,000
75,000 3.9 29.125 4/27/08 1,375,875 3,472,875
50,000 2.6 5.50 1/15/08 173,500 437,500
Brian E. Becker 50,000 2.6 43.25 5/27/08 1,362,500 3,438,500
25,000 1.3 29.125 4/27/08 458,625 1,157,625
David Falk 100,000 5.2 41.62 6/4/08 2,622,000 6,618,000
Howard J. Tytel 50,000 2.6 43.25 5/27/08 1,362,500 3,438,500
30,000 1.6 29.125 4/27/08 550,350 1,389,150
25,000 1.3 5.50 1/15/08 86,250 218,750
</TABLE>
- ----------------------
(1) The dollar gains under these columns result from calculations required by
the Commission and assume 5% and 10% growth rates in the trading prices of
the Class A common stock. The figures given are not intended to forecast
future price appreciation of the Class A common stock. The gains reflect a
future value based upon growth at these prescribed rates.
(2) The $43.25 and $29.125 exercise prices represent the fair market value of
a share of Class A common stock on the date of grant. On January 15, 1998
the shares of Class A common stock had not yet commenced trading on the
Nasdaq National Market System. The Board of Directors of SFX determined
that $5.50 was the fair market value of a share of Class A common stock on
January 15, 1998.
(3) The stock options which expire on April 27, 2008 and May 27, 2008 vest over
five years, starting one year from their date of grant. The stock options
which expire on January 15, 2008 and June 4, 2008 vest entirely on the
first anniversary of their date of grant.
SFX and Broadcasting have also entered into certain agreements and
arrangements with their officers and directors from time to time in the past.
See "Certain Relationships and Related Transactions."
STOCK OPTION AND RESTRICTED STOCK PLAN
SFX's 1998 Stock Option and Restricted Stock Plan provides for the
issuance of options to purchase up to 2,000,000 shares of Class A common stock.
The purpose of the plan is to provide additional incentive to officers and
employees of SFX. Each option granted under the plan will be designated at the
time of grant as either an "incentive stock option" or a "non-qualified stock
option." The plan is administered by the Stock Option Committee. The Board has
approved the issuance of stock options exercisable for an aggregate of
1,982,166 shares under
16
<PAGE>
the plan. See "--Employment Agreements and Arrangements with Certain Officers
and Directors" and "--Option Grants."
PROPOSED STOCK OPTION PLAN
Following a recommendation of SFX's Compensation Committee, SFX has,
subject to stockholder approval, adopted a new incentive stock option plan
providing for the issuance of options to purchase up to 3,000,000 shares of
Class A common stock to officers and employees of SFX. The purpose of the plan
is to provide additional incentive to officers and employees of SFX. In October
1998, SFX's Stock Option Committee approved the grant of options to purchase
approximately 2.4 million shares to officers and employees of SFX, subject to
stockholder approval of the new plan. The exercise price, based upon the then
current market price of Class A common stock, would be $24 1/8 per share. Such
options would vest 20% each year beginning on the first anniversary of the
grant date in October 1998. SFX anticipates that the stock option plan will be
submitted to a vote of the stockholders at SFX's first annual meeting scheduled
to be held in the spring of 1999.
COMPENSATION OF DIRECTORS
Directors employed by SFX receive no compensation for attending
meetings. Each non-employee director receives a fee of $1,500 for each Board
meeting which he attends and is reimbursed for travel expenses. Each
non-employee director who is also a member of a committee receives an
additional $1,500 for each committee meeting he attends that is not held in
conjunction with a Board meeting. If the committee meeting occurs in
conjunction with a Board meeting, each committee member receives $500 for
attending the committee meeting.
In addition, SFX adopted a deferred compensation plan for the
non-employee directors effective as of January 1, 1998. Pursuant to the plan,
SFX pays each non-employee director a quarterly retainer of $7,500, at least
one-half of which must be paid in shares of Class A common stock which are
credited to a book-entry account maintained by SFX for each participant. Each
non-employee director's account was initially credited with 5,455 shares of
Class A common stock representing one year's annual retainer fee based upon
$5.50 per share.
The Board, other than Messrs. Kramer, O'Grady and Dugan, also approved
the issuance of stock options to purchase 2,500 shares of Class A common stock
to each of Messrs. Kramer, O'Grady and Dugan. The options will vest in one year
and will have an exercise price of $5.50 per share.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS WITH CERTAIN OFFICERS AND DIRECTORS
SFX has entered into employment agreements with each of its executive
officers. The employment agreements became effective upon the Broadcasting
merger or shortly thereafter, except for Mr. Becker's employment agreement,
which is described below.
AGREEMENTS WITH MESSRS. SILLERMAN, FERREL, TYTEL AND BENSON
The respective employment agreements provide for annual base salaries
of $500,000 for Mr. Sillerman, $350,000 for Mr. Ferrel, $300,000 for Mr. Tytel
and $235,000 for Mr. Benson, increased annually by the greater of five percent
or the rate of inflation. Each executive officer will receive a bonus to be
determined annually in the discretion of the Board, on the recommendation of
its Compensation Committee. Each employment agreement is for a term of
17
<PAGE>
five years, and unless terminated or not renewed by either party, the term will
continue thereafter on a year-to-year basis on terms identical to those at the
time of renewal.
If an executive officer is terminated by SFX without Cause or if there
is a Constructive Termination Without Cause as such terms are defined in the
respective employment agreements then such executive officer will be entitled
to receive the following payments:
o base salary for a period of three years following his
termination or until the end of the term of the employment
agreement, whichever is longer;
o a bonus for the unexpired term of the agreement, based on the
bonus received for the year before termination, multiplied by
the unexpired term; and
o options to purchase shares of Class A common stock.
If the executive officer is terminated for any reason other than
Cause, or if there is a Constructive Termination Without Cause as such terms
are defined in the respective employment agreements following a change in
control of SFX, then the executive officer will be entitled to receive, in
addition to the foregoing, additional options to purchase shares of Class A
common stock. SFX has also agreed to indemnify the executive officers for taxes
incurred if any of the change of control payments are deemed "parachute
payments" under the Internal Revenue Code. Mr. Tytel's agreement permits him or
SFX to end his employment after one year, in which case all of his options
would immediately vest, he would receive two years' salary paid in a lump sum
and would be granted options to purchase between 25,000 and 50,000 shares of
Class A common stock at the lowest exercise price of any options granted by SFX
during that year.
In connection with entering into the employment agreements, SFX sold
shares of restricted stock at a purchase price of $2.00 per share to Messrs.
Sillerman, Ferrel, Tytel and Benson. In addition, the Board, on the review and
recommendation of the Compensation Committee, also approved the issuance of
stock options exercisable for shares of Class A common stock to such executive
officers. See "--Executive Compensation" and "--Option Grants in Last Fiscal
Year."
18
<PAGE>
Upon the Broadcasting merger, SFX assumed Broadcasting's obligations
arising under the employment agreements or arrangements between Broadcasting
and SFX's executive officers, with certain exceptions. See "Certain
Relationships and Related Transactions -- Assumption of Employment Agreements;
Certain Change of Control Payments."
BECKER EMPLOYMENT AGREEMENT
As a condition to execution of the PACE agreement, SFX entered into an
employment agreement with Brian Becker, the Chief Executive Officer and
President of PACE. The agreement has a term of five years that commenced on
February 25, 1998. Mr. Becker continues to be President and Chief Executive
Officer of PACE. In addition, for the term of his employment, Mr. Becker will
serve as a member of SFX's Office of the Chairman, an Executive Vice President
of SFX and a director of each of PACE and SFX, subject to shareholder approval.
During the term of his employment, Mr. Becker will receive a base salary of
$294,000 for the first year, $313,760 for each of the second and third years
and $334,310 for each of the fourth and fifth years and an annual bonus at the
discretion of the Board.
SFX has agreed that it will not sell either the theatrical or motor
sports lines of business of PACE before February 25, 1999. If SFX sells one of
the lines of business after the first anniversary, it has agreed not to sell
the other line of business before March 11, 2000. Mr. Becker's employment
agreement gives him a right of first refusal if, between February 25, 1999 and
February 25, 2000, SFX receives a bona fide offer from a third party to
purchase all or substantially all of either the theatrical or motor sports
lines of business at a price equal to 95% of the proposed purchase price. The
Fifth Year Put Option, as defined in the PACE acquisition agreement, will also
be immediately exercisable as of such closing. If Mr. Becker does not exercise
his right of first refusal and either of the theatrical or motor sports lines
of business is sold, then he will have an identical right of first refusal for
the sale of the remaining line of business beginning on February 25, 2000, and
ending August 25, 2000. If Mr. Becker does not exercise his right of first
refusal and if SFX does not consummate the proposed sale, he will be paid an
administrative fee of $100,000. Mr. Becker would thereafter retain all rights
to Becker's right of first refusal.
Beginning on December 12, 1999, Mr. Becker will have the option (the
"Becker Second Year Option"), exercisable within 15 days thereafter, to one or
more of the following:
o to sell to SFX any stock or options and/or any compensation
to be paid to Mr. Becker by SFX;
o to become a consultant to SFX for no more than an average of
20 hours per week for the remainder of the term at the same
level of compensation set forth in his employment agreement;
or
19
<PAGE>
o to acquire PACE's motor sports line of business--or, if that
line of business was previously sold, PACE's theatrical line
of business--at its fair market value as determined in his
employment agreement.
Exercise of the Becker Second Year Option would result in the
termination of Mr. Becker's employment agreement.
Mr. Becker's employment agreement may be terminated by SFX for Cause,
as defined in the agreement, by SFX upon Mr. Becker's death or permanent
disability, by Mr. Becker at any time for any reason or upon exercise of the
Becker Second Year Option.
In addition, Mr. Becker's employment may be terminated by SFX at any
time in SFX's sole discretion or by Mr. Becker at any time after one of the
following, among other things:
o failure to elect or re-elect Mr. Becker as a director of SFX;
o a reduction in Mr. Becker's base salary or in the formula to
calculate his bonus;
o discontinuation of Mr. Becker's participation in any stock
option, bonus or other employee benefit plan;
o the sale of either the motor sports or theatrical line of
business to any person other than Mr. Becker before March 7,
2000, unless Mr. Becker elected not to exercise Becker's
right of first refusal;
o the sale of all or substantially all of the assets of PACE;
o a change of control of SFX; or
o the failure by SFX to contribute any acquired business, which
derives a majority of its revenues from either a theatrical
or motor sports line of business, to PACE.
If Mr. Becker's employment is terminated, then, among other things:
o from the date of termination until February 25, 2003, SFX
must pay Mr. Becker the base salary and any bonus to which he
would otherwise be entitled and Mr. Becker will be entitled
to participate in all of the profit-sharing, retirement
income, stock purchase, savings and executive compensation
plans to the same extent he would otherwise have been
entitled to participate;
o for one year after the date of termination, SFX will maintain
Mr. Becker's life, accident, medical, health care and
disability programs or arrangements and provide Mr. Becker
with use of the same office and related facilities; and
o if the termination occurs before March 11, 2000, Mr. Becker
will retain the Becker Second Year Option and Becker's right
of first refusal.
20
<PAGE>
Throughout the term of his employment and for a period of 18 months
thereafter, Mr. Becker has agreed not to, directly or indirectly, engage in any
activity or business that is directly competitive with SFX or its affiliates or
solicit any employees to leave SFX or its affiliates. However, these
restrictions will not apply if Mr. Becker exercises his rights, or SFX breaches
its obligations, with respect to Becker's right of first refusal or the Becker
Second Year Option.
FALK EMPLOYMENT AGREEMENT
On April 29, 1998, SFX entered into an employment agreement with David
Falk. The agreement has a term of five years commencing June 4, 1998. Mr. Falk
is the Chairman of FAME and SFX's Sports Group and is a Member of the Office of
Chairman of SFX and a director of SFX. Pursuant to the agreement, Mr. Falk
directs the day to day operations of FAME and SFX's Sports Group and any other
sports businesses acquired by SFX. The agreement provides for an annual base
salary of $315,000, reviewed annually and increased by a minimum of 4.0% per
year. In addition, Mr. Falk will be considered for an annual bonus consistent
with the bonuses given to other senior executives of SFX. Mr. Falk received an
option to purchase 100,000 shares of Class A common stock at an exercise price
of $41.62 per share. The option will fully vest on June 4, 1999. In addition,
SFX has agreed to make annual stock option grants to Mr. Falk to purchase at
least 30,000 shares of Class A common stock in the first four years of his
employment agreement.
SFX may terminate Mr. Falk's employment at any time With or Without
Cause, as defined in the agreement. If the agreement is terminated for any
reason other than a voluntary termination or termination for cause, then:
o all stock options granted pursuant to the agreement will
immediately vest and become exercisable;
o any remaining stock options to be granted pursuant to the
agreement will immediately be granted and will vest and
become exercisable; and
o SFX will be obligated to pay Mr. Falk his base salary and
annual bonuses at a rate equal to 50% of his base salary
through the original term of the agreement, as well as
certain additional benefits.
In addition, if a Change in Control, as defined in the agreement, occurs, SFX
may be required to pay a portion of certain taxes incurred by Mr. Falk as a
result of the Change of Control.
For one year following the termination of the employment agreement by
Mr. Falk or termination by SFX for Cause, as defined in the agreement, except
in certain events, Mr. Falk has agreed that he will not become employed in any
capacity by, or become an officer, director, shareholder or general partner of
any entity that competes with any material business of FAME as conducted as of
the closing date of the FAME acquisition and he will not solicit any employee
of SFX or any entities that are directly or indirectly controlled by SFX to
leave such employment.
21
<PAGE>
In the past, SFX and Broadcasting have also entered into certain
additional agreements and arrangements with their officers and directors. See
"Certain Relationships and Related Transactions."
22
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding ownership of
SFX's common stock as of April 4, 1999, by each executive officer of SFX, each
director of SFX, the directors and executive officers of SFX as a group and
each person known by SFX to own beneficially more than 5% of any class of SFX's
common stock.
<TABLE>
<CAPTION>
CLASS A CLASS A COMMON STOCK CLASS B PERCENT OF
COMMON STOCK AFTER THIS OFFERING COMMON STOCK TOTAL VOTING
-------------------- -------------------- ------------------- POWER AFTER
NAME AND ADDRESS OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF THIS
BENEFICIAL OWNER (1) SHARES CLASS SHARES CLASS SHARES CLASS OFFERING (1)
-------------------------- ---------- ---------- ---------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Directors and Executive
Officers:
Robert F.X. Sillerman. 2,875,704(2) 8.0% 2,875,704(2) 8.0% 1,524,168(2) 89.8% 34.4%
Michael G. Ferrel..... 180,303(3) * 180,303(3) * 172,869(3) 10.2 3.6
Brian E. Becker....... 44,402(4) * 44,402(4) * -- -- *
David Falk............ 425,000(5) 1.2 100,000(5) * -- -- *
Howard J. Tytel....... 486,340(6) 1.4 486,340(6) 1.4 -- -- *
Thomas P. Benson...... 29,833(7) * 10,833(7) * -- -- *
Richard A. Liese...... 4,800(8) * 2,000(8) * -- -- *
D. Geoffrey Armstrong. 192,133(9) * 30,333(9) * -- -- *
James F. O'Grady, Jr. 17,272(10) * 4,272(10) * -- -- *
Paul Kramer........... 18,422(11) * 5,422(11) * -- -- *
Edward F. Dugan....... 8,422(10) * 5,422(10) * -- -- *
All directors and executive
officers as a group
(11 persons)....... 3,796,291 10.6% 3,258,691 9.1% 1,697,037 100.0% 38.2%
5% Stockholders:
Ark Asset Management Co., Inc.(12)
125 Broad Street 2,230,000 6.3% 2,230,000 6.3% -- -- 4.2%
New York, NY 10004
</TABLE>
- ----------
* Less than 1%
(1) Unless otherwise set forth above, the address of each stockholder is
the address of SFX, which is 650 Madison Avenue, 16th Floor, New York,
New York 10022. Pursuant to Rule 13d-3 of the Exchange Act, as used in
this table, "beneficial ownership" means the sole or shared power to
vote, or to direct the disposition of, a security, and a person is
deemed to have "beneficial ownership" of any security that the person
has the right to acquire within 60 days of April 4, 1999. Unless noted
otherwise, information as to beneficial ownership is based on
statements furnished to SFX by the beneficial owners, and stockholders
possess sole voting and dispositive power with respect to shares
listed on this table. As of April 4, 1999, there were issued and
outstanding 35,548,238 shares of Class A common stock and 1,697,037
shares of Class B common stock.
(2) Includes 39,343 shares of Class A common stock held by SCMC, warrants
to purchase an aggregate of 5,329 shares of Class A common stock and
options to purchase an aggregate of 157,957 shares of Class A common
stock held by Mr. Sillerman which are, or will become, exercisable
within 60 days of April 4, 1999. Also includes 458,213 shares of Class
A common stock, warrants to purchase 941 shares of Class A common
stock and options to purchase 27,185 shares of Class A common stock
held by Mr. Tytel that Mr. Sillerman has the right to vote. Excludes
options to purchase an aggregate of 489,060 shares of Class A common
stock held by Mr. Sillerman which are not exercisable within 60 days
of April 4, 1999. If the 1,524,168 shares of Class B common stock
held by Mr. Sillerman were included in calculating his ownership of the
Class A common stock, Mr. Sillerman would beneficially own 4,399,872
shares of Class A common stock, representing approximately 11.8% of
the class. See "Management--Employment Agreements and Arrangements
with Certain Officers and Directors."
(3) Includes options to purchase an aggregate of 51,666 shares of Class A
common stock held by Mr. Ferrel which are, or will become, exercisable
within 60 days of April 4, 1999. Excludes options to purchase an
aggregate of 173,334 shares of Class A common stock held by Mr. Ferrel
which are not exercisable within
23
<PAGE>
60 days of April 4, 1999. If the 172,869 shares of Class B common stock
held by Mr. Ferrel were included in calculating his ownership of Class
A common stock, then Mr. Ferrel would beneficially own 353,172 shares
of Class A common stock, representing less than 1% of the class upon
closing of this offering. See "Management-- Employment Agreements and
Arrangements with Certain Officers and Directors."
(4) Includes options to purchase an aggregate of 15,000 shares of Class A
common stock held by Mr. Becker which will become exercisable within
60 days of April 4, 1999. Excludes options to purchase an aggregate of
65,000 shares of Class A common stock held by Mr. Becker which are not
exercisable within 60 days of April 4, 1999.
(5) Includes options to purchase an aggregate of 100,000 shares of Class A
common stock held by Mr. Falk which will become exercisable within 60
days of April 4, 1999.
(6) Includes warrants to purchase an aggregate of 941 shares of Class A
common stock and options to purchase an aggregate of 27,185 shares of
Class A common stock held by Mr. Tytel which are, or will become,
exercisable within 60 days of April 4, 1999. Excludes options to
purchase an aggregate of 109,049 shares of Class A common stock held
by Mr. Tytel which are not exercisable within 60 days of April 4,
1999. Mr. Tytel also has an economic interest in SCMC, which
beneficially owns 39,343 shares of Class A common stock, although he
lacks voting or dispositive power with respect to the shares
beneficially held by SCMC. Mr. Sillerman has the right to vote all of
the shares of Class A common stock beneficially owned by Mr. Tytel.
See "Management--Employment Agreements and Arrangements with Certain
Officers and Directors."
(7) Includes options to purchase an aggregate of 10,833 shares of Class A
common stock held by Mr. Benson which are, or will become, exercisable
within 60 days of April 4, 1999. Excludes options to purchase an
aggregate of 39,167 shares of Class A common stock held by Mr. Benson
which are not exercisable within 60 days of April 4, 1999.
(8) Includes options to purchase an aggregate of 2,000 shares of Class A
common stock held by Mr. Liese that will become exercisable within 60
days of April 4, 1999. Excludes options to purchase an aggregate of
8,000 shares of Class A common stock held by Mr. Liese which are not
exercisable within 60 days of April 4, 1999.
(9) Includes options to purchase an aggregate of 30,333 shares of Class A
common stock held by Mr. Armstrong which are, or will become,
exercisable within 60 days of April 4, 1999. Excludes options to
purchase an aggregate of 94,667 shares of Class A common stock held by
Mr. Armstrong which are not exercisable within 60 days of April 4,
1999.
(10) Includes options to purchase an aggregate of 2,500 shares of Class A
common stock held by each of Messrs. O'Grady and Dugan which are
currently exercisable. Excludes 5,455 shares credited to each of these
individuals' accounts in the deferred compensation plan for
non-employee directors.
(11) Excludes 5,455 shares credited to Mr. Kramer's account in the deferred
compensation plan for non-employee directors.
(12) Based on information contained in a Schedule 13G filed with the SEC on
February 4, 1999.
POSSIBLE CHANGE IN CONTROL
Mr. Sillerman has pledged an aggregate of 793,401 of his shares of
Class B common stock as collateral for a line of credit, under which he
currently has no outstanding borrowings. He continues to be entitled to
exercise voting and consent rights with respect to the pledged shares, with
certain restrictions. However, if he defaults in the payment of any future
loans extended to him under the line of credit, the bank will be entitled to
sell the pledged shares. Although the Class B common stock has 10 votes per
share in most matters, the pledged shares will automatically convert into
shares of Class A common stock upon such a sale. Such a sale of
24
<PAGE>
the pledged shares would reduce Mr. Sillerman's share of the voting power of
SFX's common stock, and would therefore be likely to result in a change of
control of SFX. See "Risk Factors--SFX will be required to make large payments
upon a change of control, which may harm SFX's financial condition."
25
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information known to SFX with
respect to the beneficial ownership of the Class A common stock as of April 4,
1999 by each selling stockholder. After this offering, each selling stockholder
will own less than 1% of the Class A common stock.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE SHARES BEING OWNED AFTER THIS
THIS OFFERING(1) OFFERED OFFERING
---------------- ------------ -------------------
<S> <C> <C> <C>
David Falk(2) ....................................... 425,000(3) 325,000 100,000(3)
Thomas P. Benson(4) ................................. 29,833(5) 19,000 10,833(5)
Richard A. Liese(6) ................................. 4,800(7) 2,800 2,000(7)
D. Geoffrey Armstrong(8) ............................ 192,133(9) 161,800 30,333(9)
James F. O'Grady(10) ................................ 17,272(11) 13,000 4,272(11)
Paul Kramer(10) ..................................... 18,422 13,000 5,422
Edward Dugan(10) .................................... 8,422(11) 3,000 5,422(11)
Ron Delsener (12).................................... 90,333(13) 75,000 15,333(13)
Mitch Slater (12).................................... 92,000(14) 70,000 22,000(14)
Kraig G. Fox (15).................................... 5,498(16) 4,298 1,200(16)
Terry Moloney (17)................................... 1,600(18) 1,000 600(18)
John Coughlin (19)................................... 900(20) 500 400(20)
Lori Boxer (21)...................................... 3,800(22) 3,000 800(22)
Regina Maresca (21).................................. 700(23) 500 200(23)
Steven F. Schankman Living Trust(24)(25) ............ 282,725(26) 280,725 2,000(26)
Schankman Family Capital Limited
Partnership(24)(25) ............................... 210,000 210,000 0
Irving P. Zuckerman Living Trust(24)(27) ............ 282,725(26) 280,725 2,000(26)
Zuckerman Family Capital Limited
Partnership(24)(27) ............................... 210,000 210,000 0
June E. Brody and Steven A. Saslow, Joint
Tenants(28)(29)(30) ............................... 307,577 307,577 0
Bird Family Trust u/d/o 11/18/92(28)(29)(31) ........ 44,129 44,129 0
Gary F. Bird and Valerie Bird, Cotrustees of the Bird
Family Trust established 2/4/94(28)(29)(31) ....... 80,915 80,915 0
Smith Family Trust u/d/o 7/17/89(28)................. 70,781 70,781 0
Nicholas P. Clainos Revocable Trust(33)(34) ......... 74,182 74,182 0
Gregg W. Perloff(12)(33) ............................ 61,182(32) 59,182 2,000(32)
David Graham 1996 Irrevocable Trust dated March
14, 1996(33)(35) .................................. 43,734 43,734 0
Trust f/b/o Alexander K. Graham-Sult u/w/o William
Graham(33)(35) .................................... 12,000 12,000 0
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE SHARES BEING OWNED AFTER THIS
THIS OFFERING(1) OFFERED OFFERING
---------------- ------------ -------------------
<S> <C> <C> <C>
Peter Barsotti(33) .................................. 24,734 24,734 0
Robert Barsotti(19)(33) ............................. 24,734 24,734 0
Michael Brigden(33)(36) ............................. 24,734 24,734 0
Stan Feig(33)(36) ................................... 6,734(32) 4,734 2,000(32)
David M. Mayeri(19)(33) ............................. 20,434(37) 19,734 700(37)
Gerard Pompili(33) .................................. 24,734 24,734 0
Arnold Pustilnik(19)(33) ............................ 18,318(38) 18,068 250(38)
Franklin D. Rockwell, Jr.(33) ....................... 24,734 24,734 0
Daniel L. Scher(19)(33) ............................. 24,734 24,734 0
Lee A. Smith(19)(33) ................................ 5,234(39) 4,734 500(39)
Sherry Wasserman(19)(33) ............................ 25,234(39) 24,734 500(39)
Steven Welkom(12)(33) ............................... 25,134(40) 24,734 400(40)
Bruce Morrow ........................................ 7,458 7,458 0
Donald Dell (21) .................................... 49,204 (41) 20,000 29,204(42)
William J. Allard (21) ............................. 20,624(43) 17,500 3,124(44)
Ivan G. Blumberg (21) .............................. 17,699(45) 15,000 2,699(46)
David A. Paro (21) .................................. 2,714(47) 2,500 214(46)
Patricio Apey (21) .................................. 3,535(48) 3,000 535(46)
Frank Vuono(21)(49).................................. 14,400 14,400 0
Frederick Fried(21)(49).............................. 14,400 14,400 0
Steven Rosner(21)(49)................................ 14,400 14,400 0
Peter L. Hughes(21)(49).............................. 300 300 0
E.J. Narcise(21) and Jenifer Taschner-Narcise, as Joint
Tenants (49)....................................... 300 300 0
Jeff Sofka(21)(49)................................... 900 900 0
Eric Bechtel(21) and Felicia Bechtel, as Joint Tenants
(49)............................................... 300 300 0
Leigh Steinberg(49).................................. 7,500 7,500 0
Deerwood Associates, L.P. (49)....................... 7,500 7,500 0
</TABLE>
- ---------------------------
(1) Pursuant to Rule 13d-3 of the Exchange Act, as used in this table,
"beneficial ownership" means the sole or shared power to vote, or to
direct the disposition of, a security and a person is deemed to have
"beneficial ownership" of any security that the person has the right
to acquire within 60 days of April 4, 1999.
(2) Mr. Falk acquired these shares of Class A common stock in the FAME
acquisition. Mr. Falk has served as a Member of the Office of the
Chairman and a director of SFX since June, 1998. See "Management."
(3) Includes options to purchase an aggregate of 100,000 shares of Class A
common stock which will become exercisable within 60 days of April 4,
1999.
27
<PAGE>
(4) Mr. Benson has served as Vice President, Chief Financial Officer and a
director of SFX since December 1997. See "Management."
(5) Includes options to purchase an aggregate of 10,833 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(6) Mr. Liese has served as a Senior Vice President since September 1998
and as a Vice President and Associate General Counsel of SFX since
December 1997. See "Management."
(7) Includes options to purchase an aggregate of 2,000 shares of Class A
common stock which will become exercisable within 60 days of April 4,
1999.
(8) Mr. Armstrong has served as a director of SFX since December 1997. Mr.
Armstrong also served as an Executive Vice President of SFX from
December 1997 until September 1998. See "Management."
(9) Includes options to purchase an aggregate of 30,333 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(10) This selling stockholder has served as a director of SFX since
December 1997.
(11) Includes options to purchase an aggregate of 2,500 shares of Class A
common stock which are currently exercisable.
(12) This selling stockholder holds officer and director positions with
several of SFX's subsidiaries.
(13) Includes options to purchase an aggregate of 15,333 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(14) Includes options to purchase an aggregate of 22,000 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(15) Mr. Fox serves as the Vice President of Business/Legal Affairs of SFX
and holds several officer and director positions with several of SFX's
subsidiaries.
(16) Includes options to purchase an aggregate of 1,200 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(17) Mr. Moloney serves as the Controller of SFX.
(18) Includes options to purchase an aggregate of 600 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(19) This selling stockholder holds officer positions with several of SFX's
subsidiaries.
(20) Includes options to purchase an aggregate of 400 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(21) This selling stockholder is an employee of SFX.
(22) Includes options to purchase an aggregate of 800 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(23) Includes options to purchase an aggregate of 200 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(24) These selling stockholders acquired these shares of Class A common
stock in the Contemporary acquisition. Pursuant to the Contemporary
acquisition agreement, 70,000 shares held by each of the Steven F.
Schankman Living Trust and the Irving P. Zuckerman Living Trust were
placed in escrow. SFX may, at any time prior to May 18, 1999, cancel
such shares in full settlement of certain claims which SFX may make
pursuant to the Contemporary acquisition agreement.
28
<PAGE>
(25) Steven Schankman, who is the trustee of the Steven F. Schankman Living
Trust and controls the Schankman Family Capital Limited Partnership,
holds officer positions with several of SFX's subsidiaries.
(26) Includes options to purchase an aggregate of 2,000 shares of Class A
common stock which will become exercisable within 60 days of April 4,
1999.
(27) Irving D. Zuckerman, who is the trustee of the Irving D. Zuckerman
Living Trust and controls the Zuckerman Family Capital Limited
Partnership, holds officer positions with several of SFX's
subsidiaries.
(28) These selling stockholders acquired these shares of Class A common
stock in the Network acquisition.
(29) An aggregate of 112,529 shares held by these selling stockholders are
subject to claims of indemnification by SFX with respect to certain
taxes.
(30) Each of these persons previously held officer positions with SFX;
however, each is no longer employed by SFX.
(31) Gary Bird is the trustee of the Bird Family Trust u/d/o 11/18/92 and a
co-trustee of the Bird Family Trust established February 4, 1994, and
holds officer positions with several of SFX's subsidiaries.
(32) Includes options to purchase an aggregate of 2,000 shares of Class A
common stock which will become exercisable within 60 days of April 4,
1999.
(33) These selling stockholders acquired these shares of Class A common
stock in the BGP acquisition.
(34) Mr. Clainos is the trustee of the Nicholas P. Clainos Revocable Trust
and holds several officer and director positions with SFX's
subsidiaries.
(35) Mr. Clainos is the trustee of the Trust f/b/o Alexander K. Graham-Sult
u/w/o William Graham and holds several officer and director positions
with SFX's subsidiaries.
(36) This selling stockholder holds an officer position with an SFX
subsidiary.
(37) Includes options to purchase an aggregate of 700 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(38) Includes options to purchase an aggregate of 250 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(39) Includes options to purchase an aggregate of 500 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(40) Includes options to purchase an aggregate of 400 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(41) Includes options to purchase an aggregate of 23,531 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(42) Includes options to purchase an aggregate of 4,329 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(43) Includes options to purchase an aggregate of 19,809 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(44) Includes options to purchase an aggregate of 3,107 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
29
<PAGE>
(45) Includes options to purchase an aggregate of 17,699 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(46) Represents options to purchase shares of Class A common stock, which
are, or will become, exercisable within 60 days of April 4, 1999.
(47) Includes options to purchase an aggregate of 2,714 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(48) Includes options to purchase an aggregate of 3,535 shares of Class A
common stock which are, or will become, exercisable within 60 days of
April 4, 1999.
(49) These selling stockholders acquired these shares of Class A common
stock in the ISI acquisition.
Certain officers and directors of SFX, including David Falk, Thomas P.
Benson, Richard A. Liese, D. Geoffrey Armstrong, James F. O'Grady, Paul Kramer
and Edward Dugan, have agreed, subject to certain exceptions, that they will
not, without the prior written consent of Bear, Stearns & Co. Inc., directly or
indirectly, sell any shares of Class A common stock or any securities
convertible into or exercisable or exchangeable for Class A common stock
beneficially owned by them during the 90 day period following February 11,
1999. However, Bear, Stearns & Co. Inc. may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements.
30
<PAGE>
PLAN OF DISTRIBUTION
The selling stockholders may sell the shares of Class A common stock
covered by this prospectus from time to time at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The selling stockholders may offer their shares for sale in
one or more of the following transactions:
o through the Nasdaq National Market;
o through the facilities of any national securities exchange or
U.S. automated inter-dealer quotation system of a registered
national securities association on which any of the shares of
Class A common stock are then listed, admitted to unlisted
trading privileges or included for quotation in privately
negotiated transactions; or
o in a combination of such methods of sale.
The selling stockholders may sell their shares directly, or indirectly
through underwriters, broker-dealers or agents acting on their behalf. In
connection with such sales, the broker-dealers or agents may receive
compensation in the form of commissions, concessions, allowances or discounts
from the selling stockholders and/or the purchasers of the shares for whom they
may act as agent or to whom they sell the shares as principal or both. Such
commissions, concessions, allowances or discounts might be in excess of
customary amounts. Selling stockholders will make sales only through
broker-dealers registered as such in a subject jurisdiction or in transactions
exempt from such registration. We are not aware of any definitive selling
arrangement at the date of this prospectus between any selling stockholder and
any broker-dealer or agent. We will not receive any of the proceeds from the
sale of the shares by the selling stockholders.
In connection with the distribution of their shares, certain of the
selling stockholders may enter into hedging transactions with broker-dealers.
In connection with such transactions, broker-dealers may engage in short sales
of the shares in the course of hedging the positions they assume with the
selling stockholders.
The selling stockholders may also sell the shares short and redeliver
the shares to close out the short positions.
The selling stockholders may also enter into option or other
transactions with broker-dealers which require the delivery of the shares to
the broker-dealer.
The selling stockholders may also loan or pledge their shares to a
broker-dealer. The broker-dealer may then sell the loaned shares or, upon a
default, may sell the pledged shares.
The selling stockholders and any dealer acting in connection with the
offering or any broker executing a sell order on behalf of a selling
stockholder may be deemed to be "underwriters" within the meaning of the
Securities Act. In that case, any profit on the sale of shares by a selling
stockholder and any commissions or discounts received by any such broker or
dealer may be deemed to be underwriting compensation under the Securities Act.
In addition, any such broker or dealer may be required to deliver a copy of
this prospectus to any person who purchases any of the shares from or through
such broker or dealer.
31
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
POTENTIAL CONFLICTS OF INTEREST
Pursuant to the employment agreement entered into between Brian Becker
and SFX in connection with the acquisition of PACE, Mr. Becker has the option,
exercisable within 15 days after February 25, 2000, to purchase SFX's motor
sports line of business or, if that line of business has been sold, SFX's
theatrical line of business--at its then fair market value. Exercise of such
option would result in the termination of Mr. Becker's employment agreement.
Mr. Becker's option may present a conflict of interest in his role as a
director of SFX. See "Risk Factors--SFX may be forced to sell some of its
subsidiaries, which may prevent SFX from realizing the full value of these
subsidiaries" and "Management."
AGREEMENTS PRIOR TO THE SPIN-OFF
In January 1998, to retain the services of certain officers and
directors of SFX and, if necessary, to facilitate Broadcasting's ability to
pursue an alternative transaction to the SFX spin-off, as contemplated in the
Broadcasting merger agreement, SFX reached an agreement with such individuals
to waive the individuals' right to receive shares of SFX in the spin-off in
return for the right to receive one share of Class A common stock regardless of
the number of shares that were otherwise distributable in the spin-off or, in
an alternative transaction, receive $4.20 in value of stock of the acquiring
company or $4.20 in cash depending on the circumstances for each share of
Broadcasting common stock held by them or were entitled to receive. The amount
of $4.20 was based on the value attributed to the Class A common stock in the
fairness opinion obtained by Broadcasting in connection with the Broadcasting
merger. If the spin-off was consummated, SFX was permitted to satisfy its
obligations by delivering shares in connection with the spin-off. The following
table sets forth the executive officers and directors who entered into such an
agreement, along with the number of shares of Broadcasting common stock that
they held or were entitled to receive:
NAME SHARES OF SFX BROADCASTING
- ------------------------------------------ ---------------------------------
Robert F.X. Sillerman..................... 1,326,248 of Class A common stock
1,024,168 of Class B common stock
Michael G. Ferrel......................... 98,637 of Class A common stock
22,869 of Class B common stock
Howard J. Tytel........................... 248,615 of Class A common stock
Thomas P. Benson.......................... 9,000 of Class A common stock
Richard A. Liese.......................... 2,800 of Class A common stock
D. Geoffrey Armstrong..................... 161,800 of Class A common stock
James F. O'Grady, Jr...................... 14,772 of Class A common stock
32
<PAGE>
Paul Kramer............................... 15,922 of Class A common stock
Edward F. Dugan........................... 5,922 of Class A common stock
In accordance with this agreement, SFX's obligations were deemed
satisfied upon delivery of the shares in connection with the SFX spin-off. No
cash payment was made.
ASSUMPTION OF EMPLOYMENT AGREEMENTS; CERTAIN CHANGE OF CONTROL PAYMENTS
Pursuant to the terms of the distribution agreement, at the time of
the consummation of the Broadcasting merger, SFX assumed all obligations under
any employment agreement or arrangement between Broadcasting, or any of its
subsidiaries, and any employee of SFX, including Messrs. Sillerman and Ferrel,
other than obligations relating to Messrs. Sillerman's and Ferrel's change of
control options and existing rights to indemnification. These assumed
obligations included the obligation to make cash payments aggregating
approximately $3.3 million to Mr. Sillerman, $1.5 million to Mr. Ferrel and
$200,000 to Mr. Benson after the termination of their employment with
Broadcasting following the Broadcasting merger. SFX has paid these amounts. In
addition, SFX's assumed obligations include the duty to indemnify Messrs.
Sillerman and Ferrel to the extent permitted by law for one-half of the cost of
any excise tax that may be assessed against them for any change-of-control
payments made to them by Broadcasting in connection with the Broadcasting
merger.
INDEMNIFICATION OF MR. SILLERMAN
On August 24, 1997, Mr. Sillerman entered into an agreement with
Broadcasting and the Broadcasting buyer to waive his right to receive
indemnification, except to the extent covered by
33
<PAGE>
directors' and officers' insurance, from Broadcasting, its subsidiaries, the
Broadcasting buyer and its subsidiaries for claims and damages arising out of
the Broadcasting merger and related transactions. Mr. Sillerman's employment
agreement with SFX provides that SFX will indemnify Mr. Sillerman for these
claims and damages to the fullest extent permitted by applicable law.
RELATIONSHIP BETWEEN HOWARD J. TYTEL AND BAKER & MCKENZIE
Howard J. Tytel, who is the Executive Vice President, General Counsel,
Secretary, Member of the Office of the Chairman and a director of SFX, was "Of
Counsel" to the law firm of Baker & McKenzie from 1993 to May 31, 1998. Mr.
Tytel was also an executive vice president, the general counsel and a director
of Broadcasting. Baker & McKenzie served as counsel to Broadcasting and
currently serves as counsel to SFX and certain other affiliates of Mr.
Sillerman. Baker & McKenzie formerly compensated Mr. Tytel based, in part, on
the fees it received from providing legal services to Broadcasting, SFX,
Marquee, other affiliates of Mr. Sillerman and other clients introduced to the
firm by Mr. Tytel. Baker & McKenzie has agreed to a severance arrangement with
Mr. Tytel, which is not based on fees received by Baker & McKenzie. From April
27, 1998, the date of the spin-off, until May 31, 1998, SFX incurred and paid
Baker & McKenzie approximately $1.5 million for legal services. SFX believes
that this arrangement was as fair to SFX as any that could have been obtained
from an unrelated party on an arms-length basis.
ARRANGEMENT BETWEEN ROBERT F.X. SILLERMAN AND HOWARD J. TYTEL
Since 1978, Messrs. Sillerman and Tytel have been jointly involved in
numerous business ventures, including SCMC, TSC, MMR, Triathlon, Marquee,
Broadcasting and SFX. In consideration for certain services provided by Mr.
Tytel in connection with those ventures, Mr. Tytel has generally received from
Mr. Sillerman either a minority equity interest in the businesses, with Mr.
Sillerman retaining the right to control the voting and disposition of Mr.
Tytel's interest, or cash fees in an amount mutually agreed upon. Although
Broadcasting did not compensate Mr. Tytel directly, except for ordinary fees
paid to him in his capacity as a director, he receives compensation from TSC
and SCMC, companies controlled by Mr. Sillerman, as well as from Mr. Sillerman
personally, with respect to the services he provides to various entities
affiliated with Mr. Sillerman, including Broadcasting. In 1997, these cash fees
aggregated approximately $5.0 million. In connection with the consummation of
the Broadcasting merger and certain related transactions, Mr. Tytel received
308,374 shares of SFX's Class A common stock, with Mr. Sillerman retaining the
right to vote these shares, and cash fees from TSC, SCMC and Mr. Sillerman
personally. Mr. Tytel has also granted Mr. Sillerman the right to vote all
other shares of SFX Class A common stock beneficially owned by him. In
addition, Mr. Tytel continues to have an economic interest in SCMC, which
beneficially owns 39,343 shares of Class A common stock. See "--Assumption of
Employment Agreements; Certain Change of Control Payments" and "--Employment
Agreements."
TRIATHLON FEES
SCMC, a corporation controlled by Mr. Sillerman and in which Mr. Tytel
has an equity interest, has an agreement to provide consulting and marketing
services to Triathlon, a publicly-traded company in which Mr. Sillerman is a
significant stockholder. Under the terms of the agreement, SCMC has agreed to
provide consulting and marketing services to Triathlon until
34
<PAGE>
June 1, 2005 for an annual fee of $500,000, together with a refundable advance
of $500,000 per year against fees earned in respect of transactional investment
banking services. Triathlon paid fees of $3,000,000 for the year ended December
31, 1996, fees of $1,794,000 for the year ended December 31, 1997 and fees of
$530,000 for the year ended December 31, 1998. These fees vary above the
minimum annual fee of $500,000 depending on the level of acquisition and
financing activities of Triathlon. SCMC previously assigned its rights to
receive fees payable under this agreement to Broadcasting. Pursuant to the
terms of the distribution agreement, Broadcasting assigned its rights to
receive these fees to SFX. All services provided by SCMC are provided by
employees of SFX. Triathlon has announced that it has agreed to be acquired by
a third party. Triathlon will pay a fee to SFX in connection with such
acquisition. When Triathlon is acquired, it will cease paying consulting fees
for SCMC's services.
AGREEMENTS WITH BROADCASTING
SFX and Broadcasting have entered into various agreements with respect
to the spin-off and related matters. For the terms of these agreements, see the
distribution agreement, tax sharing agreement and the employment benefits
agreement, each of which has been filed as an exhibit to the registration
statement of which this prospectus is a part.
COMMON STOCK RECEIVED IN THE SPIN-OFF
In the SFX spin-off, the holders of Broadcasting's Class A common
stock, Series D preferred stock and warrants, upon exercise, received shares of
Class A common stock, whereas Messrs. Sillerman and Ferrel, as the holders of
Broadcasting's Class B common stock, which is entitled to ten votes per share
on most matters, received shares of Class B common stock. Class A common stock
and Class B common stock have similar rights and privileges, except that the
Class B common stock has greater voting rights. The issuance of the Class B
common stock in the spin-off was intended to preserve Messrs. Sillerman's and
Ferrel's relative voting power after the spin-off. Mr. Sillerman currently
holds approximately 33.9% of the combined voting power of SFX, and Messrs.
Sillerman and Ferrel control approximately 37.9% of the combined voting power
of SFX. Accordingly, Mr. Sillerman, alone and together with SFX's current
directors and executive officers, will generally be able to control the outcome
of the votes of the stockholders on most matters. See "Principal Stockholders."
In addition, in August 1997, the board of directors of Broadcasting
approved amendments to certain warrants to purchase an aggregate of 600,000
shares of Broadcasting's Class A common stock. The warrants were held by SCMC,
an entity controlled by Mr. Sillerman. The amendments memorialized the original
intent of the directors of Broadcasting that SCMC receive the aggregate number
of shares of Class A common stock that it would have received if it had
exercised the warrants immediately before the spin-off. Because of these
amendments, SCMC received 600,000 shares of Class A common stock in the
spin-off.
ISSUANCE OF STOCK TO HOLDERS OF SFX BROADCASTING'S OPTIONS AND SARS
On April 27, 1998, SFX issued 522,941 shares of its Class A common
stock to holders as of the spin-off record date of the stock options or SARs of
Broadcasting, whether or not vested. SFX also issued 325,000 shares to Mr.
Sillerman and 70,000 shares to Mr. Ferrel with respect to options issuable
under their employment agreements with Broadcasting. In addition, SFX issued
35
<PAGE>
325,000 shares of its Class A common stock to Mr. Sillerman and 30,000 shares
of SFX Class A common stock to Mr. Ferrel, which corresponded to
change-of-control options of Broadcasting that they waived in connection with
the Broadcasting merger. The issuances were made in consideration for past
services to SFX and to allow holders of such options and SARs to participate in
the spin-off in a manner similar to holders of Broadcasting's Class A common
stock. Additionally, many of the option and SAR holders are officers, directors
or employees of SFX. The members of the Board, other than Messrs. Becker and
Falk, received an aggregate of 850,479 shares pursuant to such issuances.
MEADOWS REPURCHASE
In connection with the acquisition of Meadows Music Theater,
Broadcasting obtained an option, as subsequently amended, to repurchase 247,177
shares of its Class A common stock (the "Meadows Shares") for an aggregate
purchase price of $8.2 million. However, Broadcasting was restricted from
exercising the Meadows Repurchase by certain loan covenants and other
restrictions. Pursuant to the terms of the Broadcasting merger agreement, since
the Meadows Shares were outstanding at the effective time of the Broadcasting
merger, working capital was decreased by approximately $10.3 million.
In January 1998, Mr. Sillerman committed to finance the $8.2 million
exercise price of the Meadows Repurchase to offset the $10.3 million reduction
to working capital. In consideration for his commitment, the board of directors
of Broadcasting agreed that Mr. Sillerman would receive approximately the
number of shares of Class A common stock to be issued in the spin-off with
respect to the Meadows Shares. At the time Broadcasting accepted Mr.
Sillerman's commitment, the board of directors of Broadcasting valued Class A
common stock to be issued in the spin-off at $4.20 per share, the value
attributed to such shares in the fairness opinion obtained by Broadcasting in
connection with the Broadcasting merger. The transaction was approved by
Broadcasting's board of directors, including the independent directors.
In April 1998, Broadcasting assigned the option for the Meadows Shares
to an unaffiliated third party and, in connection therewith, agreed to pay such
party a fee of $75,000. Mr. Sillerman subsequently advanced such party the $8.2
million exercise price for the Meadows Repurchase, the repayment of which
became due upon the Broadcasting merger. The third party has exercised the
option and transferred to Mr. Sillerman Class A common stock issued in the
spin-off with respect to the Meadows Shares. The Meadows Shares were tendered
in the Broadcasting merger by the third party in exchange for the per share
Broadcasting merger consideration of $75. The third party subsequently repaid
the advance from Mr. Sillerman and transferred $10.3 million, the remainder of
such consideration net of the third party fee, to SFX.
36
<PAGE>
LEGAL MATTERS
The validity of the Class A common stock offered hereby has been
passed upon for the Company by Baker & McKenzie, Houston, Texas.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of (i) SFX as of December 31, 1998 and 1997 and for the
years ended December 31, 1998 and 1997 and (ii) Delsener/Slater Enterprises,
Ltd. and affiliated companies (predecessor) for the year ended December 31,
1996. The consolidated financial statements, as included in SFX's Annual Report
on Form 10-K for the year ended December 31, 1998, are incorporated herein by
reference, given upon their authority as experts in accounting and auditing.
37
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with
the distribution of the securities being registered. All amounts shown are
estimates except for the SEC registration fee.
SEC Registration Fee.................................... $ 2,087
Transfer Agent and Registrar Fees....................... 1,000
Accounting Fees and Expenses............................ 25,000
Legal Fees and Expenses................................. 25,000
Printing, Engraving and Mailing Expenses................ 1,000
Miscellaneous........................................... 5,913
-----------
Total.............................................. $ 60,000
===========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of Delaware Law empowers a Delaware corporation to
indemnify any person who is, or is threatened to be made, a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal administrative or investigative, other than an action by or in the
right of the corporation, by reason of the fact that the person is or was an
officer or director of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses, including
attorney's fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with the action, suit or
proceeding, provided that he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which he actually and
reasonably incurred in connection therewith.
The SFX Certificate of Incorporation provides that no director of SFX
will be personally liable to SFX or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability:
o for any breach of the director's duty of loyalty to SFX or
its stockholders;
o for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
o under Section 174 of Delaware Law; or
o for any transaction from which the director derived an
improper personal benefit.
In addition to the circumstances in which a director of SFX is not
personally liable as set forth above, no director will be liable to SFX or its
stockholders to such further extent as permitted by any law
II-1
<PAGE>
enacted after the date of the SFX Certificate of Incorporation, including any
amendment to Delaware Law.
The SFX Certificate of Incorporation requires SFX to indemnify any
person who was, is, or is threatened to be made a party to any action, suit or
proceeding, by reason of the fact that he (1) is or was a director or officer
of SFX or (2) is or was serving at the request of SFX as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
of another corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan, or other enterprise. This indemnification is to be to
the fullest extent permitted by Delaware Law. The right to indemnification will
be a contract right and, as such, will run to the benefit of any director or
officer who is elected and accepts the position of director or officer of SFX
or elects to continue to serve as a director or officer of SFX while this
provision of the SFX Certificate of Incorporation is in effect. The right to
indemnification includes the right to be paid by SFX for expenses incurred in
defending any such action, suit or proceeding in advance of its final
disposition to the maximum extent permitted under Delaware Law. If a claim for
indemnification or advancement of expenses is not paid in full by SFX within 60
days after a written claim has been received by SFX, the claimant may, at any
time thereafter, bring suit against SFX to recover the unpaid amount of the
claim and, if successful in whole or in part, expenses of prosecuting his
claim. It will be a defense to any such action that the requested
indemnification or advancement of costs of defense are not permitted under
Delaware Law, but the burden of proving this defense will be on SFX.
The rights described above do not exclude any other right that any
person may have or acquire under any statute, by-law, resolution of
stockholders or directors, agreement or otherwise.
The SFX Bylaws require SFX to indemnify its officers, directors,
employees and agents to the full extent permitted by Delaware Law. The SFX
Bylaws also require SFX to pay expenses incurred by a director in defending a
civil or criminal action, suit or proceeding by reason of the fact that he
is/was a director--or was serving at SFX's request as a director or officer of
another corporation--in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director to
repay the advance if it ultimately is determined that the director is not
entitled to be indemnified by SFX as authorized by relevant sections of
Delaware Law. The indemnification and advancement of expenses provided in the
SFX Bylaws are not to be deemed exclusive of any other rights provided by any
agreement, vote of stockholders or disinterested directors or otherwise.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
NO. DESCRIPTION
- ------- -----------
4.1 Indenture, dated February 11, 1998, by and among SFX Entertainment,
Inc., certain of its subsidiaries and the Chase Manhattan Bank
(incorporated by reference to Current Report on Form 8-K of SFX
Broadcasting, Inc. (File No. 000-22486) filed with the SEC on February
18, 1998)
4.2 Indenture, dated November 25, 1998, by and among SFX Entertainment,
Inc., certain of its subsidiaries and Chase Manhattan Bank
(incorporated by reference to Registration Statement on Form S-4 (File
No. 333-71195) filed with the SEC on January 26, 1999)
II-2
<PAGE>
4.3 Registration Rights Agreement, dated as of November 25, 1998, relating
to the 9 1/8% Senior Subordinated Notes due December 1, 2008
(incorporated by reference to Registration Statement on Form S-4 (File
No. 333-71195) filed with the SEC on January 26, 1999)
5.1+ Opinion of Baker & McKenzie
23.1+ Consent of Baker & McKenzie (included in Exhibit 5.1)
23.2+ Consent of Ernst & Young LLP
24.1+ Power of Attorney (included on signature page)
- ----------
+Filed herewith.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE>
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of New York, State of New York, on April 13, 1999.
SFX ENTERTAINMENT, INC.
By: /s/ Howard J. Tytel
----------------------------------------
Howard J. Tytel
Executive Vice President, General
Counsel, Member of the Office of the
Chairman and Secretary
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Each person whose
signature to this Registration Statement appears below hereby constitutes and
appoints each of Robert F.X. Sillerman and Howard J. Tytel or either of them,
as his true and lawful attorney-in-fact and agent, with full power of
substitution, to do any and all acts and things in his respective name and on
his respective behalf that Robert F.X. Sillerman and Howard J. Tytel, or any of
them, may deem necessary or advisable to enable SFX Entertainment, Inc. to
comply with the Securities Act of 1933, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but not limited to, power
and authority to sign on his behalf, individually and in the capacities stated
below, and to file any and all amendments and post-effective amendments to this
Registration Statement, which amendment or amendments may make such changes and
additions as such attorney-in-fact may deem necessary or appropriate.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert F.X. Sillerman Executive Chairman, Member of the Office April 13, 1999
- ------------------------------- of the Chairman and Director (principal
Robert F.X. Sillerman executive officer)
/s/ Michael G. Ferrel Director April 13, 1999
- -------------------------------
Michael G. Ferrel
/s/ Brian Becker Director April 13, 1999
- -------------------------------
Brian Becker
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David Falk Director April 13, 1999
- -------------------------------
David Falk
/s/ Howard J. Tytel Director April 13, 1999
- -------------------------------
Howard J. Tytel
/s/ Thomas P. Benson Chief Financial Officer, Vice President
- ------------------------------- and Director (principal financial and April 13, 1999
Thomas P. Benson accounting officer)
/s/ Richard A. Liese Director April 13, 1999
- -------------------------------
Richard A. Liese
/s/ D. Geoffrey Armstrong Director April 13, 1999
- -------------------------------
D. Geoffrey Armstrong
/s/ James F. O'Grady, Jr. Director April 13, 1999
- -------------------------------
James F. O'Grady, Jr.
/s/ Paul Kramer Director April 13, 1999
- -------------------------------
Paul Kramer
/s/ Edward F. Dugan Director April 13, 1999
- -------------------------------
Edward F. Dugan
</TABLE>
II-6
<PAGE>
April 9, 1999
SFX Entertainment, Inc.
650 Madison Avenue, 16th Floor
New York, New York 10022
Re: Registration Statement on Form S-3
Gentlemen:
As counsel to SFX Entertainment, Inc., a Delaware corporation (the
"Company"), we have assisted in the preparation of the Company's Registration
Statement on Form S-3 (the "Registration Statement"), filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), covering 118,000 shares of the Company's Class A Common
Stock, par value $.01 per share (the "Class A Common Stock"), which may be
distributed, sold or otherwise transferred from time to time by and for the
account of the holders thereof (the "Selling Stockholders"). Such Class A
Common Stock was issued pursuant to the acquisition of Integrated Sports
International (the "ISI Acquisition") or will be issued pursuant to outstanding
employee stock option agreements (the "Options").
In this connection, we have examined and considered the original or
copies, certified or otherwise identified to our satisfaction, of the Company's
Amended and Restated Certificate of Incorporation, as amended to date, its
by-laws, as amended to date, resolutions of its Board of Directors, and such
other documents and corporate records relating to the Company and the issuance
and sale of the Class A Common Stock as we have deemed appropriate for purposes
of rendering this opinion.
In all examinations of documents, instruments and other papers, we
have assumed the genuineness of all signatures on original and certified
documents and the conformity to original and certified documents of all copies
submitted to us as conformed, photostat or other copies. As to matters of fact
which have not been independently established, we have relied upon
representations of officers of the Company.
<PAGE>
Based upon the foregoing examination, and the information thus
supplied, it is our opinion that:
(1) The shares of Class A Common Stock issued pursuant to the ISI
Acquisition have been validly issued, fully paid and
non-assessable.
(2) The shares of Class A Common Stock which may be issued from
time to time upon the exercise of the Options have been duly
and validly authorized, and upon payment of the exercise
price in accordance with the applicable Option agreement, and
assuming no change in the applicable law or facts, will be
legally issued, fully paid and non-assessable.
We hereby expressly consent to the reference to our Firm in the
Registration Statement under the Prospectus caption "Legal Matters," to the
inclusion of this opinion as an exhibit to the Registration Statement, and to
the filing of this opinion with any other appropriate government agency. In
giving such consent, we do not admit that we come within the category of
persons whose consent is required by Section 7 of the Act or the rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
BAKER & McKENZIE
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of SFX Entertainment,
Inc. for the registration of 2,736,448 shares of its Class A Common Stock and
to the incorporation by reference therein of our reports dated: i) February 25,
1999, with respect to the consolidated financial statements of SFX
Entertainment, Inc. and ii) October 2, 1997, with respect to the consolidated
financial statements of Delsener / Slater Enterprises, Ltd. and Affiliated
Companies, both included in its Annual Report (Form 10-K) for the year ended
December 31, 1998, filed with the Securities and Exchange Commission.
Ernst & Young LLP
New York, New York
April 12, 1999
