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Filed Pursuant to Rule 424(b)(3)
Registration File No.:333-72275
PROSPECTUS
[SFX LOGO]
OFFER TO EXCHANGE ALL
OUTSTANDING 9 1/8% SENIOR SUBORDINATED NOTES DUE DECEMBER 2008
$200,000,000 PRINCIPAL AMOUNT
FOR
REGISTERED 9 1/8% SENIOR SUBORDINATED NOTES DUE DECEMBER 2008
$200,000,000 PRINCIPAL AMOUNT
We are offering you the opportunity to exchange your 9 1/8% Senior Subordinated
Notes due December 2008 for our new 9 1/8% Senior Subordinated Notes due
December 2008 that are registered under the Securities Act of 1933 in the
exchange offer. Your Old Notes are not registered under the Securities Act of
1933. Exchanging your Old Notes for New Notes will provide you with notes that
may be easier to sell and transfer.
Material terms of the exchange offer:
o EXPIRATION. The exchange offer will expire at 5:00 p.m., New York City
time, on May 14, 1999, unless we extend it.
o EXCHANGE. We will exchange all outstanding Old Notes that are validly
tendered and not validly withdrawn before the exchange offer expires.
o TERMS OF THE NOTES. The terms of the New Notes are substantially
identical to the Old Notes, except that the New Notes are registered
under the Securities Act of 1933. Certain transfer restrictions and
registration rights relating to the Old Notes do not apply to the New
Notes.
o WITHDRAWAL RIGHTS. You may withdraw tenders of Old Notes at any time
before the exchange offer expires.
o TAX CONSEQUENCES. We believe that the exchange of notes will not be a
taxable event for U.S. federal income tax purposes, but you should see
"United States Federal Tax Considerations" on page 92 for more
information.
o USE OF PROCEEDS. We will not receive any proceeds from the exchange
offer.
o TRADING. There is no existing market for the New Notes and we will not
apply to list them on any securities exchange.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN RISKS
THAT YOU SHOULD CONSIDER BEFORE YOU TENDER YOUR OLD NOTES AND PARTICIPATE IN
THIS EXCHANGE OFFER.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the New Notes or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
This prospectus is dated April 15, 1999.
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WHERE YOU CAN FIND MORE INFORMATION
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS AND IMPORTANT BUSINESS
AND FINANCIAL INFORMATION ABOUT SFX THAT IS NOT INCLUDED IN OR DELIVERED WITH
THIS PROSPECTUS. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM
THE DIRECTOR OF INVESTOR RELATIONS OF SFX ENTERTAINMENT, INC., 650 MADISON
AVENUE, 16TH FLOOR, NEW YORK, NEW YORK 10022, TELEPHONE NUMBER (212) 838-3100.
TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MAY 7,
1999.
We are subject to the informational requirements of the Securities Exchange
Act of 1934 and file periodic reports, registration statements and other
information with the Securities and Exchange Commission. You may inspect and
copy the registration statement on Form S-4, including exhibits, and our
periodic reports, registration statements and other information filed with the
Commission at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the Commission's regional offices located at 7 World Trade Center, New York,
New York 10048 and at Citicorp Center, 500 West Madison Street (Suite 1400),
Chicago, Illinois 60661. You may obtain copies from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Please call the Commission at 1-800-SEC-0330 for more
information on the public reference rooms. The Commission also maintains a Web
site at http://www.sec.gov which contains our reports, registration statements
and proxy and information statements and other information.
We have filed with the Commission a registration statement on Form S-4
under the Securities Act with respect to our offering of New Notes. This
prospectus, which constitutes part of the registration statement, does not
contain all of the information in the registration statement on Form S-4. You
will find additional information about us and the New Notes in the registration
statement on Form S-4. All statements made in this prospectus concerning the
provisions of legal documents are not necessarily complete and you should read
the documents which are filed as exhibits to the registration statement or
otherwise filed by us with the Commission.
We "incorporate by reference" into this prospectus the information we file
with the Commission, which means that we can disclose important information to
you by referring you to those documents. The information incorporated by
reference is an important part of this prospectus and information that we file
subsequently with the Commission will automatically update and supersede this
prospectus. We have filed our Annual Report on Form 10-K for the year ended
December 31, 1998 with the Commission and it is incorporated in this prospectus
by reference. All reports and documents we subsequently file with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this prospectus and prior to the termination of this
offering, 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.
You should not assume that the information in this prospectus is accurate
as of any date other than the date of this prospectus, or the respective dates
of those documents we incorporate herein by reference, regardless of the time
of delivery of this prospectus. You should rely on the information incorporated
by reference or provided in this prospectus. We have not authorized anyone else
to provide you with different information.
If we are not required to be subject to the reporting requirements of the
Exchange Act in the future, we will be required under the indenture for the New
Notes to continue to file with the Commission and to furnish to holders of the
New Notes the information, documents and other reports specified in Sections 13
and 15(d) of the Exchange Act.
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PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus and does
not contain all of the information that is important to you. We encourage you to
read all of the information in this prospectus carefully, including the "Risk
Factors" section, before you exchange your Old Notes. Unless otherwise
indicated, 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. The pro forma information contained in this prospectus gives
effect to our 1998 and 1999 acquisitions and related financings as if they had
occurred on January 1, 1998.
SFX
We are the world's largest diversified promoter, producer and venue
operator for live entertainment events. Our major areas of focus within the live
entertainment industry include music, theater, sports and family entertainment.
We believe that our leadership position in the industry enhances our ability to
maximize ancillary revenue opportunities, including corporate sponsorship sales,
advertising, concession sales and product merchandising. For the year ended
December 31, 1998, we had pro forma net revenue of approximately $1.3 billion,
assuming all of our 1998 and 1999 acquisitions described in our Form 10-K for
the year ended December 31, 1998 were completed as of January 1, 1998.
We own, partially or entirely, and/or operate 82 venues, constituting the
largest network of venues in the United States used principally for music
concerts and other live entertainment events. As a venue owner/operator, we
book and promote events in the venues that we control. We have 16 amphitheaters
in the top 10 markets, and own and/or operate venues in 31 of the top 50
markets overall. We also develop and manage touring Broadway shows, selling
subscription series in 38 markets.
During 1998, giving effect to our 1998 and 1999 acquisitions,
approximately 37 million people attended approximately 13,200 events promoted
and/or produced by us, including approximately 6,250 music concerts, 5,800
theatrical shows, over 800 family entertainment shows and over 350 specialized
motor sports shows.
Our principal objectives are to maximize revenue and cash flow growth
opportunities by owning and/or operating leading live entertainment venues,
being a leading promoter and producer of live entertainment events and a
leading provider of talent representation services.
Since our formation in December 1997, we have pursued an aggressive
acquisition strategy, completing in excess of 20 acquisitions. We recently
acquired The Marquee Group, Inc., the Cellar Door group of companies, interests
in seven venues and other assets from entities controlled by members of the
Nederlander family, and certain other acquisitions. We are currently
negotiating additional acquisitions of live entertainment and related
businesses.
The address and telephone number of our principal executive offices are:
650 Madison Avenue, 16th Floor, New York, New York 10022; (212) 838-3100.
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THE EXCHANGE OFFER
The Exchange Offer.......... We are offering to exchange up to $200,000,000
aggregate principal amount of our new 9 1/8%
Senior Subordinated Notes due December 2008, or
New Notes, which have been registered under the
Securities Act of 1933, for a like amount of our
outstanding 9 1/8% Senior Subordinated Notes due
December 2008, or Old Notes, which we issued on
November 25, 1998 in a private offering. To
exchange your Old Notes, you must properly tender
them and we must accept them.
Expiration Date............. The exchange offer expires at 5:00 p.m., New
York City time, on May 14, 1999, unless we extend
it.
Withdrawal Rights........... You may withdraw the tender of your Old Notes
at any time before 5:00 p.m., New York City time,
on the expiration date. If we decide for any
reason not to accept any Old Notes for exchange,
we will return your Old Notes without expense to
you promptly after the expiration or termination
of the exchange offer.
Conditions to the Exchange
Offer...................... The exchange offer is subject to customary
conditions, some of which we may waive. We
reserve the right to terminate and amend the
exchange offer at any time if any such condition
occurs before the expiration date.
Interest Payments........... The New Notes will bear interest from December
1, 1998. If we accept your Old Notes for
exchange, then you will waive all interest
accrued but not paid on such Old Notes.
Procedures for Tendering Old
Notes...................... If you are a holder of Old Notes who wishes to
accept the exchange offer for New Notes:
o you must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof;
o arrange for The Depository Trust Company to
transmit certain required information to the
exchange agent in connection with a
book-entry transfer; or
o mail or otherwise deliver such
documentation, together with your Old Notes,
to the exchange agent at the address set
forth under "The Exchange Offer--Exchange
Agent."
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Do not send Letters of Transmittal and
certificates representing Old Notes to us.
By tendering your Old Notes in this manner, you
will be representing, among other things, that:
o the New Notes you acquire pursuant to the
exchange offer are being acquired in the
ordinary course of your business;
o you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate,
in the distribution of the New Notes issued
to you in the exchange offer; and
o you are not an "affiliate" of ours.
Special Procedures for
Beneficial Owners........... If you are a beneficial owner whose Old Notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and wish to tender your Old Notes in the exchange
offer, please contact the registered owner as
soon as possible and instruct it to tender on
your behalf. If you wish to tender on your own
behalf, you must, prior to completing and
executing the Letter of Transmittal and
delivering your Old Notes, either arrange to have
your Old Notes registered in your name or obtain
a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time.
Guaranteed Delivery
Procedures.................. If you wish to tender your Old Notes and time
will not permit your required documents to reach
the exchange agent by the expiration date, or the
procedure for book-entry transfer cannot be
completed on time, you may tender your Old Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Procedures for
Tendering Notes."
Appraisal or Dissenters'
Rights...................... Owners of Old Notes do not have any appraisal or
dissenters' rights in the exchange offer.
Consequences of Not Exchanging
Old Notes.................. If you do not tender your Old Notes or we
reject your tender, you will not be entitled to
any further registration rights or exchange
rights, except under limited circumstances, and
your Old Notes will continue to be subject to
certain restrictions on transfer. However, your
Old Notes will remain outstanding and entitled to
the benefits of the indenture governing them.
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Resales..................... We believe that you can offer for resale,
resell or otherwise transfer the New Notes
without complying with further registration and
prospectus delivery requirements of the
Securities Act if you make the representations
described above under "Procedures for Tendering
Old Notes."
If you are unable to make any of such
representations and you transfer any New Notes
without delivering a proper prospectus or
without qualifying for a registration exemption,
you may incur liability under the Securities Act
and applicable state securities laws. We will
not assume or indemnify you against such
liability.
Federal Tax Consequences.... Your exchange of Old Notes for New Notes
pursuant to the exchange offer generally will not
result in any gain or loss to you for United
States federal income tax purposes. For more
information, see "United States Federal Tax
Considerations."
Use of Proceeds............. We will receive no proceeds from the exchange
offer. We will pay all of our expenses related to
the exchange offer.
Exchange Agent.............. ChaseMellon Shareholder Services, L.L.C. is the
exchange agent for the exchange offer.
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SUMMARY DESCRIPTION OF THE NEW NOTES
The form and terms of the New Notes are substantially identical as the form
and terms of the Old Notes, except that the New Notes are registered under the
Securities Act. As a result, the New Notes do not bear legends restricting their
transfer and are not subject to the registration rights and liquidated damage
provisions relating to the Old Notes, except in limited circumstances. The New
Notes represent the same debt as the Old Notes. Both the Old Notes and the New
Notes are governed by the same indenture.
Securities Offered.......... $200,000,000 principal amount of our new 9 1/8%
Senior Subordinated Notes due December 2008.
Maturity.................... December 1, 2008.
Interest Payment Dates...... June 1 and December 1, beginning June 1, 1999.
Subsidiary Guarantors....... Each guarantor is our subsidiary. However, not
all of our subsidiaries are guarantors of the New
Notes. If we cannot make payments on the New
Notes when they are due, the subsidiary
guarantors must make them instead.
Ranking..................... The New Notes and the subsidiary guarantees:
o are senior subordinated debts;
o are general unsecured obligations of ours;
o rank behind all of our existing and future
senior debt, and ahead or even with all of
our other debt; and
o rank even with our 9 1/8% Senior Subordinated
Notes due February 1, 2008.
Assuming we had completed the exchange of the
New Notes for the Old Notes on December 31,
1998, the New Notes and the subsidiary
guarantees:
o would have been subordinated to $234.1
million of senior debt; and
o would have ranked equally with $350.0
million of other senior subordinated debt.
Optional Redemption......... On or after December 1, 2003, we may redeem at
our option some or all of the New Notes at any
time at the redemption prices listed in the
section "Description of the New Notes--Optional
Redemption."
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Before December 1, 2001, we may redeem up to
$70.0 million of the New Notes with the proceeds
of certain public offerings of our equity at the
redemption price listed in the section
"Description of the New Notes--Optional
Redemption."
Mandatory Redemption........ If we sell certain assets or experience
specific kinds of changes of control, we must
offer to repurchase your New Notes at 101% of the
principal amount plus accrued interest through
the repurchase date. For more information, see
"Description of the New Notes-- Repurchase at the
Option of Holders--Change of Control."
Certain Covenants........... The indenture covering the notes contains
covenants that, among other things, restrict our
ability and the ability of our subsidiaries to:
o borrow money;
o sell assets;
o pay dividends on stock or purchase stock;
o make certain payments or investments;
o use assets as security in other
transactions; and
o sell or transfer certain assets or merge
with or into other companies.
For more information on covenants, see
"Description of the New Notes--Certain
Covenants."
RISK FACTORS
You should consider carefully all of the information set forth in this
prospectus and, in particular, the specific factors set forth under "Risk
Factors" before deciding to tender your Old Notes and participate in the
exchange offer.
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SELECTED COMBINED FINANCIAL DATA
The Selected Combined Financial Data of SFX includes the historical
consolidated financial statements of Delsener/Slater and affiliated companies,
the predecessor of SFX, for each of the three years ended December 31, 1996 and
the historical consolidated financial statements of SFX for each of the years
ended December 31, 1997 and 1998. The financial information has been derived
from the audited and unaudited financial statements of SFX and Delsener/Slater,
and should be read in conjunction therewith.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO AMOUNTS)
----------------------------------------------------------------------
PREDECESSOR
---------------------------------------
1994 1995 1996 1997 1998
------------- ---------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ............................................ $92,785 $47,566 $50,362 $96,144 $884,286
Cost of revenue .................................... 83,361 39,691 41,584 73,881 678,756
Selling, general & administrative expenses ......... 7,237 7,487 9,102 9,536 111,748
Depreciation & amortization (1) .................... 755 750 747 5,431 62,197
Corporate expenses (2) ............................. -- -- -- 2,206 11,194
Non-cash charges ................................... -- -- -- -- 34,051
Non-recurring charges .............................. -- -- -- -- 5,600
------- ------- -------- --------- ----------
Operating income (loss) ............................ 1,432 (362) (1,071) 5,090 (19,260)
Interest expense ................................... (144) (144) (60) (1,590) (50,759)
Other income, net .................................. 138 178 198 295 2,455
Equity income (loss) from investments .............. (9) 488 524 509 4,630
--------- ------- -------- --------- ----------
Income (loss) before income taxes .................. 1,417 160 (409) 4,304 (62,934)
Provision for income taxes ......................... 5 13 106 490 3,000
-------- ------- -------- --------- ----------
Net income (loss) .................................. $1,412 $ 147 $ (515) $ 3,814 $(65,934)
======== ======= ======== ========= ==========
Net income (loss) per common share ................. $ .26 $ (2.75)
========= ==========
OTHER OPERATING DATA:
EBITDA (3) ......................................... $2,187 $ 388 $ (324) $10,521 $ 42,937
======== ======= ======== ========= ==========
Ratio of earnings to fixed charges (4) ............. 4.6x 1.4x -- 2.5x --
CASH FLOW FROM:
Operating activities ............................... $2,959 $ (453) $4,214 $ 1,005 $ 27,441
Investing activities ............................... -- -- (435) (73,296) (891,920)
Financing activities ............................... (477) (216) (1,431) 78,270 906,521
BALANCE SHEET DATA (AS OF END OF PERIOD):
Current assets ..................................... $4,453 $3,022 $6,191 $11,220 $148,733
Property and equipment, net ........................ 3,728 2,978 2,231 59,685 292,626
Intangible assets, net ............................. -- -- -- 60,306 898,433
Total assets ....................................... 8,222 6,037 8,880 146,942 1,383,452
Current liabilities ................................ 3,423 3,138 7,973 22,437 163,414
Long-term debt, including current portion .......... 1,830 -- -- 16,178 773,776
Temporary equity ................................... -- -- -- -- 16,500
Stockholders' equity ............................... 2,969 2,900 907 102,144 378,536
</TABLE>
- ----------
(1) Includes $2,406 of integration and start-up costs for the year ended
December 31, 1998.
(2) Net of Triathlon Broadcasting Company, a related party, fees of $1,794
and $530 for the years ended December 31, 1997 and 1998, respectively.
(3) "EBITDA" is defined as earnings before interest, taxes, other income, net
equity income (loss) from investments and depreciation and amortization.
Although EBITDA is not a measure of performance calculated in accordance
with generally accepted accounting principals ("GAAP"), SFX believes that
EBITDA is accepted by the entertainment industry as a generally
recognized measure of performance and is used by analysts who report
publicly on the performance of entertainment companies. Nevertheless,
this measure should not be considered in isolation or as a substitute for
operating income, net income, net cash provided by operating activities
or any other measure for determining SFX's operating performance or
liquidity which is calculated in accordance with GAAP. SFX believes that
the operating performance of entertainment companies, such as SFX, is
measured, in part, by their ability to generate EBITDA. Further, SFX uses
EBITDA as its primary indicator of operating performance and as a measure
of liquidity.
(4) Earnings were insufficient to cover fixed charges by $393 and $60,125 for
the years ended December 31, 1996 and 1998, respectively.
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RISK FACTORS
You should consider carefully the following risk factors and all of the
information set forth in this prospectus before tendering your Old Notes and
participating in the exchange offer. This prospectus contains forward-looking
statements which involve risks and uncertainties. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth in the following risk
factors and elsewhere in this prospectus. See "Safe Harbor for Forward-Looking
Statements."
RISKS RELATING TO THE NOTES
YOU MAY SUFFER NEGATIVE CONSEQUENCES IF YOU DO NOT EXCHANGE YOUR NOTES.
If you do not exchange your Old Notes for the New Notes pursuant to the
exchange offer, you will continue to be subject to the restrictions on transfer
of your Old Notes described in the legend on your Old Notes. In general, you
may only offer or sell the Old Notes if they are registered under the
Securities Act and applicable state securities laws, or offered and sold
pursuant to an exemption from such requirements. We do not intend to register
the Old Notes under any law. In addition, if you exchange your Old Notes in the
exchange offer for the purpose of participating in a distribution of the
exchange notes, you may be deemed to have received restricted securities and,
if so, will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
To the extent Old Notes are tendered and accepted in the exchange offer, the
trading market, if any, for the Old Notes would be damaged. For more
information on the consequences of not exchanging your Old Notes, see "The
Exchange Offer--Consequences of Failure to Exchange."
SFX HAS A SUBSTANTIAL AMOUNT OF DEBT, WHICH MAY HARM OUR FINANCIAL HEALTH
AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
We have a substantial amount of debt, and the amount of our debt is likely
to substantially increase in the future. Our consolidated debt as of April 8,
1999 was approximately $846.0 million.
The amount of our debt could harm us and harm your investment in us. These
consequences include:
o making it more difficult for us to make payments required by the notes;
o making us more vulnerable to general adverse economic and industry
conditions;
o limiting our ability to obtain money to pay for future acquisitions,
working capital, capital expenditures and other general corporate
requirements;
o dedicating more of our cash flow to paying off our debt, which will
reduce the amount of cash available to pay for working capital, capital
expenditures or other general corporate needs;
o limiting our flexibility in planning for, or reacting to, changes in
our business and the industry; and
o placing us at a competitive disadvantage to competitors that have less
debt.
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Our ability to pay principal and interest on our debt on time, to
refinance our debt, or to pay for planned expenditures will depend on various
factors, some of which we will not be able to control. These factors include
restrictions contained in our credit facility and the indentures relating to
the Old Notes and the Notes due February 2008, which may limit our ability to,
among other things, borrow additional funds. We may be unable to generate
enough money to pay our debts because of insufficient cash flow from operations
or because we are not able to raise additional capital funds by selling
securities. We may also be required to refinance a part of our debt before the
debt matures.
SFX, AS A HOLDING COMPANY, DEPENDS ON ITS SUBSIDIARIES TO MEET ITS
FINANCIAL OBLIGATIONS.
We are a holding company with no significant assets other than the stock
of our subsidiaries. In order to meet our financial needs, we will rely
exclusively on repayments of interest and principal on intercompany loans made
by us to our operating subsidiaries and income from dividends and other cash
flow from such subsidiaries. We cannot assure you that our operating
subsidiaries will generate sufficient net income to pay upstream dividends or
cash flow to make payments of interest and principal to us in respect of our
intercompany loans.
YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES IS JUNIOR TO OUR EXISTING
INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS.
The notes and the subsidiary guarantees rank behind all the indebtedness
of us and our subsidiaries which guarantee the notes, other than trade
payables, and all of our and their future borrowings, other than trade
payables, except any future indebtedness that expressly provides that it ranks
equal with, or subordinated in right of payment to, the notes and the
guarantees. The notes rank the same as our Notes due February 2008 in the
principal amount of $350.0 million. As a result, upon any distribution to our
creditors or the creditors of the Subsidiary Guarantors in a bankruptcy,
liquidation or reorganization or similar proceeding relating to us or the
Subsidiary Guarantors or our or their property, the holders of our senior debt
and of the Subsidiary Guarantors will be entitled to be paid in full in cash
before any payment may be made with respect to the notes or the subsidiary
guarantees.
In addition, all payments on the notes and the guarantees will be blocked
in the event of a payment default on senior debt and may be blocked for up to
179 days each year in the event of certain non-payment defaults on senior debt.
If a bankruptcy, liquidation or reorganization or similar proceeding
relating to us or the Subsidiary Guarantors occurs, holders of the notes will
participate with trade creditors and all other holders of our subordinated
indebtedness and of the Subsidiary Guarantors in the assets remaining after we
and the Subsidiary Guarantors have paid all of the senior debt. In any of these
cases, we and the Subsidiary Guarantors may not have sufficient funds to pay
all of our creditors and holders of notes may receive less, pro rata, than the
holders of senior debt.
Our obligations under the notes are subordinate and junior in right of
payment to all of our existing and future senior debt. As of December 31, 1998,
on a pro forma basis giving effect to the 1999 acquisitions and the application
of the net proceeds from the 1999 equity offering, approximately $275.0 million
of our total consolidated indebtedness would have been senior debt, including
approximately $229.0 million of borrowings under the senior credit facility.
The indenture allows us to borrow substantial additional indebtedness,
including senior debt, in the future. See "Description of Indebtedness."
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YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES COULD BE ADVERSELY AFFECTED IF
ANY OF SFX'S NON-GUARANTOR SUBSIDIARIES DECLARES BANKRUPTCY, LIQUIDATES OR
REORGANIZES.
Some but not all of our subsidiaries guarantee the notes. In a bankruptcy,
liquidation or reorganization of any of the non-guarantor subsidiaries, holders
of their indebtedness and their trade creditors will generally be entitled to
payment of their claims from the assets of those subsidiaries before any assets
are made available for distribution to us. As of December 31, 1998, the notes
would have been effectively junior to $275.0 million of indebtedness and other
liabilities, including trade payables, of these non-guarantor subsidiaries and
approximately $121.0 million would have been available to those subsidiaries
for future borrowing under our credit facility after giving effect to our 1999
acquisitions. The non-guarantor subsidiaries generated 1.9% of our consolidated
revenues and 2.8% of our consolidated EBITDA in the year ended December 31,
1998 and held 2.1% of our consolidated assets as of December 31, 1998, in each
case after giving effect to our 1999 acquisitions.
SFX'S CREDIT FACILITY AND INDENTURES RESTRICT ITS OPERATIONS.
Our indentures and our credit facility restrict our ability and our
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
o engage in certain transactions with subsidiaries and affiliates.
The indentures and the credit facility also require us to comply with
certain financial ratios.
These restrictions may interfere with our ability to obtain financing or
to engage in other necessary or desirable business activities.
If we cannot comply with the requirements in our credit facility, then the
lenders may require us to repay immediately all of the outstanding debt under
our credit facility. If our debt payments were accelerated, our assets might
not be sufficient to fully repay our debt. These lenders may also require us to
use all of our available cash to repay our debt or may prevent us from making
payments to other creditors on certain portions of our outstanding debt.
We may not be able to obtain a waiver of these provisions or refinance our
debt, if needed. In such a case, our business, results of operations and
financial condition would suffer.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO
VOID GUARANTEES AND REQUIRE NOTE HOLDERS TO RETURN PAYMENTS FROM GUARANTORS.
Any of our creditors may file a lawsuit objecting to our obligations under
the New Notes or the use of the proceeds from the Old Notes. A court could void
our obligations
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under the New Notes, subordinate the New Notes to our other debt or order the
holders to return any amounts paid for the Old Notes to us or to a fund
benefitting the creditors if the court finds we intended to defraud a creditor,
or did not receive fair value for the Old Notes, and we either:
o were insolvent or became insolvent by offering the Old Notes;
o did not have enough capital to engage in our business; or
o intended to or believed that we overextended our debt obligations.
Creditors of the Subsidiary Guarantors may also object to the Subsidiary
Guarantors' guarantees of the New Notes. In such circumstances, a court could
order the relief outlined above for the same reasons outlined above. In
addition, the creditors of the Subsidiary Guarantors could claim that since the
guarantees were made for our benefit, the Subsidiary Guarantors did not receive
fair value for the guarantees.
The measure of insolvency for fraudulent transfer laws will vary in
different jurisdictions. We believe that at the time we incurred the debt
constituting the Old Notes and the subsidiary guarantees, we and the Subsidiary
Guarantors were neither insolvent nor to be rendered insolvent as a result. We
cannot assure you, however, that a court passing on the same questions would
reach the same conclusions.
SFX MAY NOT HAVE THE FUNDS NECESSARY TO FINANCE A CHANGE OF CONTROL OFFER
FOR THE NOTES.
Upon the occurrence of certain change of control events, we will be
required to repay significant debt and offer to repurchase all outstanding
notes. If Mr. Sillerman directly or indirectly owns less than 30% of the
combined voting power of the Class A and Class B common stock of SFX, then a
"Change in Control" will occur under the senior credit facility. This would
require us to repay all outstanding debt under the senior credit facility. Mr.
Sillerman currently holds approximately 34.4% of SFX's voting power. This
amount will decrease if we sell additional voting stock to third parties or
issue it in future acquisitions or upon the exercise of currently outstanding
options or options to be issued in the future.
In addition, if anyone other than Mr. Sillerman owns over 35% of the
voting power of SFX common stock, we are required to offer to repurchase the
notes and the Notes due February 2008 at 101% of their principal amount plus
accrued interest and liquidated damages. If a change of control were to occur,
we cannot assure you that we would have sufficient money or be able to arrange
financing to perform the obligations or that the restrictions in other
indebtedness permit us from performing our obligations. The indenture does not
protect holders of notes from certain corporate transactions such as a highly
leveraged transaction, reorganization, restructuring, merger or similar event
that does not result in a change of control. You should read "Description of
the New Notes--Repurchase at the Option of Holders--Change of Control" and
"Description of Indebtedness" for more information.
IF AN ACTIVE TRADING MARKET DOES NOT DEVELOP FOR THESE NOTES, IT WILL BE
DIFFICULT TO SELL THESE NOTES OR TO RECEIVE AN ATTRACTIVE PRICE.
The New Notes have no existing trading market. We do not intend to apply
for listing or quotation of the New Notes on any exchange. Therefore, we do not
know the extent to which investor interest will lead to the development of a
trading market or how liquid that market might be. We also cannot assure you
regarding your ability to sell New Notes or the price at which the New Notes
might be sold. Although the initial purchasers of the Old Notes have informed
us that they currently intend to make a market in the New Notes, they
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are not obligated to do so, and any such market-making may be discontinued at
any time without notice. As a result, the market price of the New Notes could
be harmed. Historically, the market for non-investment grade debt, such as the
New Notes, has been subject to disruptions that have caused substantial
volatility in the prices of such securities. Any such disruptions may reduce
the value of the New Notes.
COMPANY SPECIFIC RISKS
IF SFX IS UNABLE TO INTEGRATE THE OPERATIONS OF ITS VARIOUS BUSINESSES,
ITS OVERALL BUSINESS MAY SUFFER.
We have grown rapidly since our formation in December 1997, mainly by
acquiring established live entertainment businesses. For example, as of
December 31, 1998, on a pro forma basis, our 1999 acquisitions represented 15%
of our revenues and 25% of our assets. If we are unable to integrate our
various businesses effectively, then our business, financial condition and
operating results may suffer.
As you evaluate our prospects, you should consider the many risks we will
encounter during our process of integrating these acquired businesses,
including:
o the distraction of management's attention from other business concerns;
o our entry into markets where we have previously limited or no
experience; and
o potential loss of key employees or customers of the acquired
businesses.
Although our management has significant experience, it may be unable to
effectively integrate the acquired businesses, if such acquisitions are
consummated, without encountering the difficulties described above, and the
combined companies may not benefit as expected from the integration.
IF SFX IS UNABLE TO COMPLETE OTHER ACQUISITIONS IN THE FUTURE, SFX'S
BUSINESS MAY SUFFER.
We are currently negotiating additional acquisitions and expect to seek
additional acquisitions of live entertainment and related businesses in the
future. However, we 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 our credit facility to acquire the
businesses.
Our inability to obtain financing for future acquisitions or to complete
acquisitions due to regulatory concerns could damage our business, financial
condition and results of operations.
Even if we are able to complete future acquisitions, they could result in
our issuance of more of our 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 our business, financial condition and results of
operations.
SFX MAY BE FORCED TO SELL SOME OF ITS SUBSIDIARIES, WHICH MAY PREVENT SFX
FROM REALIZING THE FULL VALUE OF THESE SUBSIDIARIES.
We have granted rights to re-purchase some of our subsidiaries. These
rights may discourage potential bidders for the affected assets from
negotiating with us, and may keep us from realizing the full productive value
of these subsidiaries over time.
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PACE. In connection with our 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 our 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 our 1998
and 1999 acquisitions, specialized motor sports would have accounted for
approximately 4.1%, and theatrical would have accounted for approximately
17.5%, of our total revenues for the year ended December 31, 1998.
DON LAW. In connection with our acquisition of Blackstone Entertainment,
LLC, also known as "Don Law," we granted the seller a right of first offer and
refusal. The right allows the seller to purchase, with certain exceptions, the
assets we acquired in the acquisition if we elect to sell those assets before
July 2, 2000.
BGP. We have agreed that we 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, we have granted similar rights of first
refusal to sellers in certain other acquisitions.
SFX MAY HAVE LOWER REVENUES BECAUSE IT IS UNABLE TO SECURE APPROPRIATE
ARTISTS, EVENTS AND VENUES.
As a participant in the live entertainment industry, our 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 our business, financial
condition and results of operations. Similarly, our ability to generate
revenues from live entertainment events may be limited if other competitive
forms of entertainment are available. Since we rely 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 our ability to generate revenues.
We require access to venues to generate revenues from live entertainment
events. We operate a number of our live entertainment venues under leasing or
booking agreements. Our long-term success will depend in part on our ability to
renew these agreements when they expire or end. We may be unable to renew these
agreements on acceptable terms or at all, and we may be unable to obtain
favorable agreements with new venues.
SFX MAY HAVE ENVIRONMENTAL LIABILITIES THAT COULD AFFECT ITS RESULTS OR
OPERATIONS OR FINANCIAL CONDITION.
We may be subject to significant environmental liabilities. We own or
lease, or have other contractual interests in, numerous pieces of real
property, many of which we recently acquired. Our 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.
Our properties may also be subject to noise level restrictions, which may
affect, among other things, the hours of operation of our venues. Additionally,
certain laws and
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regulations could hold us strictly, jointly and severally responsible for the
correction of hazardous substance contamination at our facilities or at
third-party waste disposal sites, and could hold us responsible for any
personal or property damage related to the contamination.
THE DEPARTMENT OF JUSTICE INVESTIGATION MAY HARM SFX'S OPERATIONS.
We have received a preliminary inquiry from the Department of Justice
seeking information on our acquisitions of live entertainment venues and
businesses throughout the United States. The Department of Justice is
investigating whether these acquisitions might give us undue market power in
producing, promoting or exhibiting live entertainment events. We have cooperated
with the Department of Justice, and believe that our operations and plan of
acquisitions comply with applicable antitrust laws. However, if the Department
of Justice disagrees, it might file a lawsuit to force us to divest ourselves of
some of our operations. If such a lawsuit were filed, SFX would vigorously
defend the case. However, if such a lawsuit were decided adversely to SFX, it
could have a material adverse impact on our business, results of operations and
financial condition.
POTENTIAL CONFLICTS OF INTEREST MAY AFFECT SFX'S OPERATIONS.
We are subject to potential conflicts of interest arising out of our
relationship with our affiliates. We have issued, and may issue in the future,
shares of Class B common stock, which have 10 votes per share in most matters.
Robert F.X. Sillerman and Michael G. Ferrel currently hold all of the issued and
outstanding shares of Class B common stock, which represents approximately 32.3%
of our total voting power. Together, Messrs. Sillerman and Ferrel beneficially
control approximately 38.0% of the combined voting power of SFX. Messrs.
Sillerman and Ferrel are also officers and directors of ours. The holders of
these shares will probably have the ability to control certain decisions
concerning our management which may present conflicts of interest between the
holders of the notes and the holders of the Class B common stock. The holders of
Class B common stock generally will have the ability to control our business
affairs and to determine the outcome of most corporate transactions or other
matters requiring stockholder approval. Such matters requiring stockholder
approval include, among others:
o an amendment to our articles of incorporation;
o the authorization of additional shares of capital stock; and
o a merger, consolidation or sale of all or substantially all of our assets
or stock.
The holders of Class B common stock thus can prevent or cause a change of
control of SFX, either of which may adversely affect us or our results of
operations.
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 we do not anticipate being subject to a material
impact in this area, if we and the companies with which we do business do not
take adequate preventative action, then the Year 2000 problem could damage our
business, financial condition and results of operations.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We sold the Old Notes on November 25, 1998 to Morgan Stanley & Co.
Incorporated, Lehman Brothers Inc., BancBoston Roberston Stephens Inc. and BNY
Capital Markets, Inc. (collectively, the "Initial Purchasers") pursuant to a
purchase agreement. These Initial Purchasers subsequently placed the Old Notes
with qualified institutional buyers in reliance on Rule 144A under the
Securities Act of 1933 and in non-U.S. transactions pursuant to Regulation S
under the Securities Act. As a condition to the sale of the Old Notes, SFX, the
Subsidiary Guarantors and the Initial Purchasers entered into the Registration
Rights Agreement on November 25, 1998.
Pursuant to the Registration Rights Agreement, we agreed that, unless the
exchange offer is not permitted by applicable law or Commission policy, we
would:
o file with the Commission a registration statement under the Securities Act
with respect to the New Notes within 100 days of such agreement's
execution;
o use our best efforts to cause such registration statement to become
effective under the Securities Act within 145 days of such agreement's
execution; and
o upon effectiveness of the registration statement, commence the exchange
offer and use our best efforts to maintain the effectiveness of the
registration statement and keep the exchange offer open for at least 20
business days.
A copy of the Registration Rights Agreement is filed as a copy to the
registration statement of which this prospectus is a part. We are making this
exchange offer to satisfy our obligations under the Registration Rights
Agreement. The term "holder," with respect to the exchange offer, means any
person in whose name Old Notes are registered on our books or any other person
who has obtained a properly completed bond power from the registered holder, or
any person whose Old Notes are held of record by The Depository Trust Company
("DTC"). Other than pursuant to the Registration Rights Agreement, we are not
required to file any registration statement to register any outstanding Old
Notes. Holders of Old Notes who do not tender their Old Notes or whose Old Notes
are tendered but not accepted would have to rely on exemptions to registration
requirements under the securities laws, including the Securities Act, if they
wish to sell their Old Notes.
RESALE OF THE NEW NOTES
We are making the exchange offer in reliance on the position of the staff
of the Commission as set forth in certain interpretive letters addressed to
third parties in other transactions. However, we have not sought our own
interpretive letter and there can be no assurance that the staff would make a
similar determination with respect to the exchange offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff of the Commission, we believe that a holder who exchanges the Old Notes
for the New Notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement with any
person to participate, in the distribution of the New Notes, will be allowed to
resell the New Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the New Notes a
prospectus that satisfies the requirements of the Securities Act.
Any holder of Old Notes who is an "affiliate" of ours or who intends to
distribute the New Notes, or any broker-dealer who purchased Old Notes from us
to resell pursuant to Rule 144A or any other available exemption under the
Securities Act:
o cannot rely on the staff's interpretations in the above-mentioned
interpretive letters;
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o cannot tender Old Notes in the exchange offer; and
o must comply with the registration and prospectus delivery requirements of
the Securities Act to transfer the Old Notes, unless the sale is exempt.
In addition, if any broker-dealer acquired Old Notes for its own account as
a result of market-making or other trading activities and exchanges the Old
Notes for the New Notes, the broker-dealer must deliver a prospectus with any
resales of the New Notes.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. A broker-dealer will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act if it makes this acknowledgment and
delivers a prospectus in connection with any resale. A broker-dealer may use
this prospectus, as it may be amended or supplemented from time to time, in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
or other trading activities. Pursuant to the Registration Rights Agreement, we
agreed to make this prospectus, as it may be amended or supplemented from time
to time, available to broker-dealers for use in connection with any resale for a
period of 180 days after the Commission declares the registration statement
effective. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING NOTES
Subject to the terms and conditions set forth in this prospectus and in the
accompanying Letter of Transmittal, we will accept for exchange Old Notes which
are properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. We will issue $1,000 principal amount of New Notes in exchange
for each $1,000 principal amount of outstanding Old Notes surrendered pursuant
to the exchange offer. As used in this prospectus, the term "Expiration Date"
means 5:00 p.m., New York City time, on May 14, 1999; provided, however, that if
we, in our sole discretion, have extended the period of time for which the
exchange offer is open, the term "Expiration Date" means the latest time and
date to which we extend the exchange offer.
The form and terms of the New Notes are substantially identical as the form
and terms of the Old Notes, except that:
o the New Notes are registered under the Securities Act and, therefore, the
New Notes do not bear legends restricting their transfer; and
o holders of the New Notes will not be entitled to the rights of holders of
Old Notes under the Registration Rights Agreement, which rights will
terminate upon the consummation of the exchange offer.
The New Notes will evidence the same debt as the Old Notes, which they replace.
The New Notes will be issued under, and be entitled to the benefits of, the
indenture, which authorized the issuance of the Old Notes. The indenture will
treat the Old Notes and the New Notes as a single class of debt securities.
As of the date of this prospectus, $200.0 million aggregate principal
amount of the Old Notes are outstanding. This prospectus and the Letter of
Transmittal are first being sent on or about April 15, 1999, to all holders of
Old Notes known to us. Our obligation to accept Old Notes for exchange pursuant
to the exchange offer is subject to certain conditions as set forth below under
"--Certain Conditions to the Exchange Offer."
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Holders of the Old Notes do not have any appraisal or dissenters' rights
under the indenture in connection with the exchange offer. We intend to conduct
the exchange offer in accordance with the provisions of the registration rights
agreement and the applicable requirements of the Securities Act, the Securities
and Exchange Act of 1934, as amended, and the related rules and regulations of
the Commission.
If holders do not tender Old Notes or tender Old Notes that we do not
accept, their Old Notes will remain outstanding. Any Old Notes will be entitled
to the benefits of the indenture, but will not be entitled to any further
registration, except under limited circumstances. See "Risk Factors--Risks
Relating to the Notes--You may suffer negative consequences if you do not
exchange your notes."
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the exchange offer is open, and thereby delay
acceptance for exchange of any Old Notes, by giving written notice of such
extension to the Old Note holders as described below. During any such extension,
all Old Notes previously tendered will remain subject to the exchange offer, and
we may accept such notes for exchange. We will return at no expense to the
holder, any Old Notes not accepted for exchange as promptly as practicable after
the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer,
and not to accept for exchange any Old Notes not already accepted for exchange,
if any of the events specified below under "--Certain Conditions to the Exchange
Offer" should occur. We will give written notice of any extension, amendment,
nonacceptance or termination to the holders of the Old Notes as promptly as
practicable. We will issue notices, in the case of any extension of the exchange
offer, by means of a press release or other public announcement no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled expiration date.
PROCEDURES FOR TENDERING NOTES
Tender
When an Old Note holder validly tenders, and we accept, the Old Notes, this
will constitute a binding agreement between us and such holder subject to the
terms and conditions set forth in this prospectus and the Letter of Transmittal.
To validly tender in the exchange offer, a holder must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to Chase Mellon Shareholder Services,
L.L.C., the exchange agent, at one of the addresses set forth below under
"Exchange Agent" on or prior to the Expiration Date. In addition, either:
o the exchange agent must receive the certificates for the Old Notes and the
Letter of Transmittal; or
o the exchange agent must receive, prior to May 14, 1999, a timely
confirmation of a book-entry transfer of such Old Notes into the exchange
agent's account at DTC according to the procedure for book-entry transfer
described below; or
o the holder must comply with the guaranteed delivery procedures described
below.
If you tender fewer than all of your Old Notes, you should fill in the
amount of notes tendered in the appropriate box on the Letter of Transmittal. If
you do not indicate the amount tendered in the appropriate box, we will assume
you are tendering all Old Notes that you hold.
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THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT YOUR OWN ELECTION AND RISK. DELIVERY OF DOCUMENTS TO
DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, WE RECOMMEND REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES, YOU SHOULD ALLOW
SUFFICIENT TIME TO ASSURE TIMELY DELIVERY. DO NOT SEND LETTERS OF TRANSMITTAL OR
OLD NOTES TO US.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder of Old Notes promptly and
instruct such registered holder of Old Notes to tender on behalf of the
beneficial owner. If such beneficial owner wishes to tender on its own behalf,
such beneficial owner must, prior to completing and executing the Letter of
Transmittal and delivering its Old Notes, either:
o make appropriate arrangements to register ownership of the Old Notes in such
beneficial owner's name; or
o obtain a properly completed bond power from the registered holder of the Old
Notes.
The transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
are tendered:
o by a registered Old Note holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the
Letter of Transmittal; or
o for the account of an Eligible Institution.
An "Eligible Institution" is a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or by a commercial bank or trust company having an office or
correspondent in the United States. If signatures on a Letter of Transmittal or
a notice of withdrawal are required to be guaranteed, the guarantor must be an
Eligible Institution. If Old Notes are registered in the name of a person other
than a signer of the Letter of Transmittal, the Old Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by us
in our sole discretion, duly executed by the registered holder with the
signature thereon guaranteed by an Eligible Institution.
Determination of Validity
We, in our sole discretion, will determine all questions as to the
validity, form, eligibility, including time of receipt, and acceptance of Old
Notes tendered for exchange. Our determination will be final and binding. We
reserve the absolute right to reject any and all tenders of Old Notes improperly
tendered or to not accept any Old Notes which acceptance might, in our judgment
or that of our counsel, be unlawful. We also reserve the absolute right to waive
any defects or irregularities or conditions of the exchange offer as to any Old
Notes either before or after the Expiration Date, including the right to waive
the ineligibility of any holder who seeks to tender Old Notes in the exchange
offer. We need not waive similar conditions or irregularities in the case of
other Old Notes. Our interpretation of the terms and conditions of the exchange
offer as to any particular Old Notes either before or after the Expiration Date,
including the Letter of Transmittal and the instructions thereto, will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes for exchange must be cured within such
reasonable
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period of time as we shall determine. Neither we, the exchange agent nor any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall
any of us incur any liability for failure to give such notification.
If a person or persons other than the registered holder or holders of Old
Notes signs the Letter of Transmittal, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the Old
Notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the Letter of Transmittal or any Old Notes or powers of attorney,
such persons should so indicate when signing, and you must submit proper
evidence satisfactory to us of such persons' authority to so act unless we waive
this requirement.
By tendering, each holder will represent to us that, among other things:
(1) the New Notes to be acquired by the holder of the Old Notes in connection
with the exchange offer are being acquired by the holder in the ordinary
course of business of the holder;
(2) the holder has no arrangement or understanding with any person to
participate in the distribution of New Notes;
(3) the holder acknowledges and agrees that any person who is a broker-dealer
registered under the Exchange Act or is participating in the exchange
offer for the purposes of distributing the New Notes must comply with the
registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the New Notes
acquired by such person and cannot rely on the position of the staff of
the Commission set forth in certain no-action letters;
(4) the holder understands that a secondary resale transaction described in
clause (3) above and any resales of New Notes obtained by such holder in
exchange for Old Notes acquired by such holder directly from us should be
covered by an effective registration statement containing the selling
security holder information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the Commission; and
(5) the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of ours.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
We will issue to the exchange agent New Notes for Old Notes validly
tendered and accepted and not validly withdrawn promptly after the Expiration
Date. See "--Certain Conditions to the Exchange Offer" below. For purposes of
the exchange offer, we will be deemed to have accepted properly tendered Old
Notes for exchange when, as and if we have given oral or written notice to the
exchange agent, with written confirmation of any oral notice to be given
promptly thereafter. The exchange agent might not deliver the New Notes to all
tendering holders at the same time. The timing of delivery depends upon when the
exchange agent receives and processes the required documents.
For each Old Note accepted for exchange, the Old Note holder will receive a
New Note having a principal amount at maturity equal to that of the surrendered
Old Note. The New Notes bear interest at a rate equal to 9 1/8% per annum.
Interest on the New Notes is payable semi-annually on each December 1 and June
1, commencing on June 1, 1999. Registered holders of the New Notes on the
relevant record date for the first interest payment date
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following the consummation of the exchange offer will receive interest accruing
from the most recent date to which interest has been paid on the Old Notes.
Holders of Old Notes that are accepted for exchange will be deemed to have
waived the right to receive any interest accrued on the Old Notes.
In all cases, the issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the exchange offer will be made only after the exchange
agent timely receives either certificates for such Old Notes or book-entry
confirmation of such Old Notes into the exchange agent's account at DTC, a
properly completed and duly executed Letter of Transmittal and all other
required documents. If for any reason set forth in the terms and conditions of
the exchange offer we do not accept any tendered Old Notes, or if Old Notes are
submitted for a greater amount than the holder desires to exchange, we will
return such unaccepted or non-exchanged Old Notes without expense to the
tendering holder--or, in the case of Old Notes tendered by book-entry procedures
described below, such non-exchanged Old Notes will be credited to an account
maintained with DTC--as promptly as practicable after the expiration or
termination of the exchange offer.
The exchange agent is an agent for SFX for receiving tenders of the Old
Notes, Letters of Transmittal and related documents. The exchange agent is also
an agent for tendering holders for receiving the Old Notes, Letters of
Transmittal and related documents and transmitting the New Notes to validly
tendering holders. If for any reason, we:
o delay the acceptance or exchange of any Old Notes;
o extend the exchange offer; or
o are unable to accept or exchange Old Notes,
then the exchange agent may, on behalf of SFX and subject to Rule 14e-1(c)
under the Exchange Act, retain tendered notes. Notes retained by the exchange
agent may not be withdrawn, except according to the withdrawal procedures
outlined in the section entitled "--Withdrawal Rights" below.
In tendering Old Notes, you must warrant in the Letter of Transmittal that:
o you have full power and authority to tender, exchange, sell, assign and
transfer Old Notes;
o SFX will acquire good, marketable and unencumbered title to the tendered Old
Notes, free and clear of all liens, restrictions, charges and other
encumbrances; and
o the Old Notes tendered for exchange are not subject to any adverse claims or
proxies.
You also must warrant and agree that you will, upon request, execute and
deliver any additional documents requested by us or the exchange agent to
complete the exchange, sale, assignment and transfer of the Old Notes.
BOOK-ENTRY TRANSFER
In order to facilitate the exchange offer, the exchange agent will request
DTC to establish an account with respect to the Old Notes for the exchange offer
within two business days after the date of this prospectus. Additionally, any
financial institution that is a participant in DTC's book-entry systems may make
book-entry delivery of Old Notes by causing DTC to transfer such Old Notes into
the exchange agent's account at DTC in accordance with DTC's procedures for
transfer. Although delivery of Old Notes may be effected through book-entry
transfer at DTC, the Letter of Transmittal or facsimile thereof, with any
required signature guarantees and other required documents, must in any case be
20
<PAGE>
transmitted to and received by the exchange agent at one of the addresses set
forth below under "--Exchange Agent" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the exchange agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, then a tender may be effected if:
o the tender is made through an Eligible Institution;
o before the Expiration Date, the exchange agent receives from such Eligible
Institution a properly completed and duly executed Letter of Transmittal,
or a facsimile thereof, and notice of guaranteed delivery, substantially in
the form provided by us, by telegram, telex, facsimile transmission, mail
or hand delivery, setting forth the name and address of the holder of the
Old Notes and the amount of Old Notes tendered, stating that the tender is
being made thereby and guaranteeing that within three New York Stock
Exchange trading days after the date of execution of the notice of
guaranteed delivery, the certificates for all physically tendered Old
Notes, in proper form for transfer, or a book-entry confirmation, as the
case may be, and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the exchange agent; and
o the exchange agent receives the certificates for all physically tendered Old
Notes, in proper form for transfer, or a book-entry confirmation, as the
case may be, and all other documents required by the Letter of Transmittal,
within five New York Stock Exchange trading days after the date of
execution of the notice of guaranteed delivery.
WITHDRAWAL RIGHTS
You may withdraw tenders of Old Notes at any time on or before the
Expiration Date.
To validly withdraw, you must send a written notice of withdrawal to the
exchange agent at one of the addresses set forth below under "--Exchange Agent."
Any such notice of withdrawal must:
o specify the name of the person who tendered the Old Notes to be withdrawn;
o identify the Old Notes you want to withdraw, including the total amount of
such Old Notes; and
o where certificates for Old Notes have been transmitted, specify the name in
which such Old Notes are registered, if different from that of the
withdrawing holder.
If certificates for Old Notes have been delivered or otherwise identified
to the exchange agent, then, before the release of such certificates the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and signed notice of withdrawal with signatures
guaranteed by an Eligible Institution unless such holder is an Eligible
Institution. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn Old
Notes and otherwise comply with the procedures of such facility. We will
determine all questions as to the validity, form and eligibility, including time
of receipt, of such notices. Our determination will be final
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<PAGE>
and binding on all parties. Any Old Notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the exchange offer. Any
Old Notes which have been tendered for exchange but which are not exchanged for
any reason will be returned to the holder thereof without cost to such holder,
or, in the case of Old Notes tendered by book-entry transfer into the exchange
agent's account at DTC pursuant to the book-entry transfer procedures described
above, such Old Notes will be credited to an account with DTC specified by the
holder, as soon as practicable after withdrawal, rejection of tender or
terminations of the exchange offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering" above at any time on or before the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we will not be
required to accept for exchange, or to issue New Notes in exchange for, any Old
Notes. We may terminate or amend the exchange offer, if at any time before the
acceptance of such Old Notes for exchange or the exchange of the New Notes for
such Old Notes, any of the following events will occur, which in our sole
judgment in any case, and regardless of the circumstances, including any action
by us, giving rise to any event described below, makes it inadvisable to proceed
with the exchange offer and/or acceptance for exchange or with such exchange:
o if any court, governmental agency or other governmental regulatory or
administrative agency or commission threatens, institutes or issues any
action, injunction or order of decree seeking to restrain or prohibit the
making or consummation of the exchange offer or any other transaction
contemplated by the exchange offer, or assessing or seeking any damage as a
result of the exchange offer or resulting in a material delay in our
ability to accept or exchange some or all of the Old Notes pursuant to the
exchange offer;
o if any government or governmental authority, agency or court, domestic or
foreign, takes, proposes to take or threatens to take any action, or seeks,
proposes, introduces, enacts, promulgates or deems applicable to the
exchange offer or any of the transactions contemplated by the exchange
offer any statute, rule, regulation, order or injunction that in our sole
judgment might directly or indirectly result in any of the consequences
referred to above, holders having obligations with respect to resales and
transfers of New Notes greater than those described in the Commission's
interpretation referred to in this section under the heading
"--Consequences of Exchanging Notes," or other consequences, which would
otherwise make it inadvisable to proceed with the exchange offer;
o the staff no longer allows the New Notes to be offered for resale, resold
and otherwise transferred by certain holders without compliance with the
registration and prospectus delivery provisions of the Securities Act;
o if any general suspension of or general limitation on prices for, or trading
in, securities on any national securities exchange or in the
over-the-counter market occurs;
o if any limitation by any governmental agency or authority which may
adversely affect our ability to complete the transactions contemplated by
the exchange offer occurs;
o if a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States or any limitation by any governmental
agency or authority which adversely affects the extension of credit occurs;
o if a commencement of a war, armed hostilities or other similar international
calamity
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<PAGE>
directly or indirectly involving the United States, or, in the case of any
of the foregoing existing at the time of the commencement of the exchange
offer, a material acceleration or worsening thereof occurs; or
o if any change, or any development involving a prospective change, occurs or
is threatened in our and our subsidiaries' business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects taken as a whole that, in our sole judgment, is or may be adverse
to us, or we become aware of facts that, in our sole judgment have or may
have adverse significance with respect to the value of the Old Notes or the
New Notes.
The foregoing conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any such condition or we may
waive them in whole or in part at any time and from time to time in our sole
discretion. Our failure at any time to exercise any of the foregoing rights will
not be deemed a waiver of any such right and each such right will be deemed an
ongoing right which we may assert at any time and from time to time.
In addition, we will not accept for exchange any Old Notes tendered, and no
New Notes will be issued in exchange for any such Old Notes, if at such time any
stop order shall be threatened or in effect with respect to the registration
statement of which this prospectus constitutes a part, or the qualification of
the indenture under the Trust Indenture Act of 1939.
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<PAGE>
EXCHANGE AGENT
ChaseMellon Shareholder Services, L.L.C. will be the exchange agent for the
exchange offer. All executed Letters of Transmittal should be directed to the
exchange agent at the addresses set forth below.
<TABLE>
<S> <C>
By U.S. Mail: By Hand:
ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C.
Post Office Box 3301 120 Broadway, 13th Floor
South Hackensack, NJ 07606 New York, NY 10271
Attn: Reorganization Department Attn: Reorganization Department
By Overnight Delivery:
ChaseMellon Shareholder Services, L.L.C.
85 ChallengerRoad--Mail Drop--Reorg
Ridgefield Park, NJ 07660
Attn: Reorganization Department
By Facsimile: (201) 296-4293
Confirm Facsimile Only: (201) 296-4860
</TABLE>
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE
LISTED ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
INFORMATION AGENT
Georgeson & Company Inc. will be the information agent for the exchange
offer. Questions and requests for assistance, requests for additional copies of
this prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the information agent at the address
set forth below:
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll Free: 1-800-223-2065
FEES AND EXPENSES
We will not make any payment to brokers, dealers or others soliciting
acceptances of the exchange offer other than to the information agent.
We will pay the estimated cash expenses to be incurred in connection with
the exchange offer, which are estimated in the aggregate to be $500,000.
ACCOUNTING TREATMENT
For accounting purposes, we will recognize no gain or loss as a result of
the exchange offer. We will amortize the expenses of the exchange offer over the
term of the New Notes.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
us to register New Notes in the name of, or request that Old Notes not tendered
or not accepted in the exchange offer be returned to, a person other than the
registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
24
<PAGE>
REGULATORY MATTERS
We are not aware of any governmental or regulatory approvals that are
required in order to consummate the exchange offer.
CONSEQUENCES OF EXCHANGING NOTES
Based on interpretations by the staff of the Commission as set forth in
no-action letters issued to third parties in other transactions, we believe that
New Notes issued pursuant to the exchange offer in exchange for Old Notes may be
offered for resale, resold or otherwise transferred by a holder thereof, other
than any holder which is an "affiliate" of ours within the meaning of Rule 405
under the Securities Act or a holder that is a broker-dealer who acquires New
Notes to resell pursuant to Rule 144A or any other available exemption under the
Securities Act, without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business and such holder has no arrangement
or understanding with any person to participate in the distribution of such New
Notes. However, we do not intend to request the Commission to consider, and the
Commission has not considered, the exchange offer in the context of a no-action
letter and we cannot guarantee that the staff of the Commission would make a
similar determination with respect to the exchange offer as in such other
circumstances. If any holder is an affiliate of ours, is engaged in or intends
to engage in or has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the exchange offer,
such holder must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes must acknowledge that such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such New Notes.
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the exchange offer is voluntary. You are urged to consult
with your financial and tax advisors in making your decision on what action to
take.
The Old Notes which are not exchanged for the New Notes pursuant to the
exchange offer will remain restricted securities. Accordingly, such Old Notes
may be resold only:
o to a person whom the seller reasonably believes is a qualified institutional
buyer, as defined in Rule 144A under the Securities Act, in a transaction
meeting the requirements of Rule 144A;
o in a transaction meeting the requirements of Rule 144 under the Securities
Act;
o outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act;
o in accordance with another exemption from the registration requirements of
the Securities Act, and based upon an opinion of counsel, if we so request,
to us; or
o pursuant to an effective registration statement;
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<PAGE>
and, in each case, in accordance with any applicable securities laws of any
state of the United States or any other applicable jurisdiction. We do not
currently anticipate that we will register the Old Notes under the Securities
Act.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this exchange offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Old Notes who do not tender their Old Notes in the
exchange offer will continue to hold such Old Notes and will be entitled to all
the rights and limitations applicable thereto under the Indenture, except for
any such rights under the Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a result of the making of
this exchange offer. All untendered Old Notes will continue to be subject to the
restrictions on transfer set forth in the Indenture. To the extent that Old
Notes are tendered and accepted in the exchange offer, the trading market for
untendered Old Notes could be adversely affected.
26
<PAGE>
USE OF PROCEEDS
SFX will not receive any proceeds from the exchange offer.
SFX used $178.0 million of the net proceeds of the offering of the Old
Notes to repay substantially all outstanding borrowings under the revolving
portion of its senior credit facility.
27
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Pursuant to the Certificate of Incorporation and Bylaws, 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 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 50
of the Office of the Chairman
Michael G. Ferrel ............. Director, President, Chief Executive Officer 50
and Member of the Office of the Chairman
Brian E. Becker ............... Director, Executive Vice President and 42
Member of the Office of the Chairman
David Falk .................... Director and Member of the Office of the 48
Chairman
Howard J. Tytel ............... Director, Executive Vice President, General 52
Counsel, Secretary and Member of the
Office of the Chairman
Thomas P. Benson. ............. Director, Vice President and Chief Financial 36
Officer
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
AGE AS OF
NAME POSITION(S) HELD WITH SFX APRIL 5, 1999
- ------------------------------- ------------------------------------------- --------------
<S> <C> <C>
Richard A. Liese .............. Director, Senior Vice President and 48
Associate General 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 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.
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<PAGE>
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.
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
30
<PAGE>
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.
ROBERT M. GUTKOWSKI has served as a non-voting observer to the board of
directors of SFX since 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 February 1999. Mr. Boyle
currently serves as the
31
<PAGE>
Chief Executive Officer and Chairman of the board of directors of Cellar Door.
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 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.
32
<PAGE>
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
--------------------- --------------------------------
SECURITIES
UNDERLYING
RESTRICTED STOCK OPTION
NAME AND POSITION SALARY(1) BONUS AWARDS(2) 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.
(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 indiviual 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 $4,230,000, respectively. All calculations of the value of
the restricted stock assumes that the shares of Class B common stock are
equal in value to the shares of Class A common stock.
In addition to the foregoing, SFX has approved the issuance of stock
options to the Named Executive Officers under the newly adopted incentive stock
option plan, which is subject to stockholder approval. SFX expects to submit
such stock option plan for stockholder approval at its annual meeting scheduled
to be held in the spring of 1999. See "--Proposed Stock Option Plan."
33
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth, for each of the Named Executive Officers,
certain information concerning the exercise of stock options during 1998,
including the year-end value of unexercised options.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED IN-
OPTIONS AT THE-MONEY OPTIONS
FY-END (#) AT FY-END ($)(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 ($54.875) and the exercise price of the options.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to each grant of
stock options during 1998 to the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
------------------------------------------------------------- ASSUMED
ANNUAL RATES OF STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION
SECURITIES OPTIONS FOR OPTION TERM (10 YEARS)(1)
UNDERLYING GRANTED TO EXERCISE OR ---------------------------------
OPTIONS/ EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARE)(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.
34
<PAGE>
SFX has 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 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 proposed 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
35
<PAGE>
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 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 "--Summary Compensation Table" and "--Option Grants in Last Fiscal
Year."
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.
36
<PAGE>
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
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;
37
<PAGE>
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.
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.
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."
38
<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 B
COMMON STOCK COMMON STOCK
--------------------------------- --------------------------------- PERCENT OF
NAME AND ADDRESS OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF TOTAL VOTING
BENEFICIAL OWNER(1) SHARES CLASS SHARES CLASS POWER
- ----------------------------------- ------------------ ------------ ------------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Directors and Executive
Officers:
Robert F.X. Sillerman ............. 2,875,704(2) 8.0% 1,524,168(2) 89.8% 34.4%
Michael G. Ferrel ................. 180,303(3) * 172,169(3) 10.2 3.6
Brian E. Becker ................... 44,402(4) * -- -- *
David Falk ........................ 425,000(5) 1.2 -- -- *
Howard J. Tytel ................... 486,340(6) 1.4 -- -- *
Thomas P. Benson .................. 29,833(7) * -- -- *
Richard A. Liese .................. 4,800(8) * -- -- *
D. Geoffrey Armstrong ............. 192,133(9) * -- -- *
James F. O'Grady, Jr. ............. 17,272(10) * -- -- *
Paul Kramer ....................... 18,422(11) * -- -- *
Edward F. Dugan ................... 8,422(10) * -- -- *
All directors and executive
officers as a group
(11 persons) ..................... 3,796,291 10.6% 1,697,037 100.0% 39.2%
5% Stockholders:
Ark Asset Management Co.
Inc.(12)
125 Broad Street
New York, New York 10004 ......... 2,230,000 6.3% -- -- 4.2%
</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."
39
<PAGE>
(3) Includes options to purchase an aggregate of 51,566 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 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 which 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 aggretate of 2,500 shares of Class A
common stock held by each of Messrs. O'Grady and Dugan which are
currently exercisable. Excludes 3,455 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 on a Schedule 13G filed with the
Commission 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
40
<PAGE>
pledged shares. Although the Class B common stock has 10 votes per share in
most matters, the pledged shares will automatically convert into shares of
Class A common stock upon such a sale. Such a sale of the pledged shares would
reduce Mr. Sillerman's share of the voting power of SFX's common stock, and
would therefore be likely to result in a change of control of SFX. See "Risk
Factors--Risks Relating to the Notes--SFX may not have the funds necessary to
finance a change of control offer for the notes."
41
<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--Company Specific Risks--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:
<TABLE>
<CAPTION>
NAME SHARES OF SFX BROADCASTING
- --------------------------------------- ----------------------------------
<S> <C>
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
Paul Kramer .................... 15,922 of Class A common stock
Edward F. Dugan ................ 5,922 of Class A common stock
</TABLE>
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
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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 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, Marquee 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."
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TRIATHLON FEES
SCMC, a corporation controlled by Mr. Sillerman and in which Mr. Tytel has
an equity interest, has an agreement to provide consulting and marketing
services to Triathlon, a publicly-traded company in which Mr. Sillerman is a
significant stockholder. Under the terms of the agreement, SCMC has agreed to
provide consulting and marketing services to Triathlon until June 1, 2005 for an
annual fee of $500,000, together with a refundable advance of $500,000 per year
against fees earned in respect of transactional investment banking services.
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 owns
approximately 34.4% of the combined voting power of SFX, and Messrs. Sillerman
and Ferrel may be deemed to control approximately 38.0% 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
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<PAGE>
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 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 SFX
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.
DESCRIPTION OF INDEBTEDNESS
SENIOR CREDIT FACILITY
The following is a summary of the material terms of the credit agreement
for the Senior Credit Facility. This summary is not complete. It is subject to,
and qualified in its entirety by reference to, the credit agreement for the
Senior Credit Facility, which has been filed as an exhibit to the registration
statement of which this prospectus is a part. See "Where You Can Find More
Information."
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<PAGE>
In February 1998, SFX executed a Credit and Guarantee Agreement (the
"Senior Credit Facility") which established $300.0 million of senior secured
credit facilities. The Senior Credit Facility was then comprised of the $150.0
million eight-year term loan and the $150.0 million seven-year reducing
revolver. Borrowings under the Senior Credit Facility are secured by
substantially all the assets of SFX, including a pledge of the outstanding stock
of substantially all of its subsidiaries, and are guaranteed by substantially
all of SFX's subsidiaries. On February 27, 1998, SFX borrowed $150.0 million
pursuant to the term loan in connection with certain of its 1998 acquisitions.
On September 10, 1998, SFX entered into an agreement with The Bank of New York
to increase its borrowing availability under the revolving portion of the Senior
Credit Facility by an additional $50.0 million to $200.0 million, which
increased the aggregate amount of borrowing availability under the Senior Credit
Facility to approximately $350.0 million. SFX is currently in discussions with
the lenders under the Senior Credit Facility to increase the total borrowing
availability thereunder to $550.0 million. While SFX expects to be able to
secure such additional borrowing availability, no assurances can be given that
it will be able to do so. As of April 8, 1999, SFX had approximately $250.0
million of borrowings under the Senior Credit Facility.
GENERAL
The Senior Credit Facility provides for borrowings in a principal amount of
up to $350.0 million, subject to certain covenants and conditions. Borrowings
under the Senior Credit Facility may be used by SFX to finance Permitted
Acquisitions (as defined in the Senior Credit Facility) and for working capital
and general corporate purposes. Up to $20.0 million of the revolver is available
for the issuance of standby letters of credit. Each Permitted Acquisition must
be in the same line of business, or other business incidental or related
thereto, as SFX and must have the prior written consent of the Required Lenders
(as defined in the Senior Credit Facility) if the cost of the Permitted
Acquisition exceeds $50.0 million.
INTEREST RATES; FEES
Loans outstanding under the Senior Credit Facility bear interest, at SFX's
option, at certain spreads over LIBOR or the greater of the Federal Funds rate
plus 0.50% or The Bank of New York's prime rate. The interest rate spreads on
the term loan and the revolver are adjusted based on SFX's Total Leverage Ratio,
as defined below. SFX pays an annual commitment fee on unused availability under
the revolver of 0.50% if SFX's Total Leverage Ratio is greater than or equal to
4.0 to 1.0, and 0.375% if that ratio is less than 4.0 to 1.0. SFX also pays an
annual letter of credit fee equal to the Applicable LIBOR Margin, as defined in
the Senior Credit Facility, for the revolver then in effect.
MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS
Commitments to lend under the revolver will be reduced in equal quarterly
installments commencing March 31, 2000, in annual percentages of the borrowings
under the revolver as of December 31, 1999 according to the following schedule:
by 10.0% in 2000; by 15.0% in 2001; by 20.0% in 2002; by 25.0% in 2003; by 25.0%
in 2004; and by the remaining 5.0% upon final maturity. The term loan will be
reduced by $1.0 million per year until final maturity, at which point the
remaining balance will be due and payable. Amounts outstanding under the Senior
Credit Facility will be subject to, among others, the following mandatory
prepayments, which will also permanently reduce commitments:
o 100.0% of the net cash proceeds received from permitted Asset Sales (as
defined in the Senior Credit Facility), subject to standard reinvestment
provisions;
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o 50.0% of Excess Cash Flow (as defined in the Senior Credit Facility),
calculated for each fiscal year beginning with the year ending December
31, 2000; and
o 50.0% of net proceeds of any equity issuance, to the extent that the
Total Leverage Ratio is greater than or equal to 5.0 to 1.0.
COLLATERAL AND GUARANTEES
Each of SFX's present and future direct and indirect domestic subsidiaries
(the "Senior Guarantors") must provide guarantees under the Senior Credit
Facility. In order to secure its obligations under the Senior Credit Facility,
SFX and each of the Senior Guarantors must also grant to the lenders a
continuing security interest in all of their assets, subject to certain
non-material exceptions, all of the capital stock of each Senior Guarantor and
not less than 66% of the capital stock of SFX's present and future direct and
indirect foreign subsidiaries.
The Senior Credit Facility contains various covenants that, subject to
certain specified exceptions, restrict SFX's and its subsidiaries' ability to:
o incur additional indebtedness and other obligations;
o grant liens;
o consummate mergers, acquisitions, investments and asset dispositions;
o declare or pay Restricted Payments (as defined in the Senior Credit
Facility);
o declare or pay dividends, distributions and other prepayments or
repurchases of other indebtedness;
o amend certain agreements, including SFX's organizational documents, and
its outstanding senior subordinated notes and indentures;
o make acquisitions and dispositions;
o engage in transactions with affiliates;
o engage in sale and leaseback transactions; and
o change lines of business.
The Senior Credit Facility also includes covenants relating to compliance with
ERISA, environmental and other laws, payment of taxes, maintenance of corporate
existence and rights, maintenance of insurance and financial reporting. In
addition, the Senior Credit Facility requires SFX to maintain compliance with
certain specified financial covenants relating to:
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o a maximum ratio (the "Total Leverage Ratio") of all outstanding amounts
under the Senior Credit Facility and any other borrowed money and
similar type indebtedness, including capital lease obligations, of SFX
and its subsidiaries, on a consolidated basis ("Total Debt"), less cash
and cash equivalents in excess of $5.0 million, to, for the most
recently completed four fiscal quarters:
(a) revenues, less
(b) expenses, excluding depreciation, amortization other than
amortization of capitalized pre-production costs, interest expense
and income tax expense, plus
(c) non-recurring expense items or non-cash expense items mutually
agreed upon by SFX and the Required Lenders, plus
(d) the lesser of the equity income from Unconsolidated Investments (as
defined in the Senior Credit Facility) and cash dividends and other
cash distributions from Unconsolidated Investments, however, the
total amount determined under this clause (d) will not exceed 10.0%
of Operating Cash Flow before overhead, (the amount referred to
"Operating Cash Flow"); Operating Cash Flow is to be adjusted to
reflect acquisitions and dispositions consummated during the
calculation period as if those transactions were consummated at the
beginning of the period (with adjustment, "Adjusted Operating Cash
Flow");
o a maximum ratio (the "Senior Leverage Ratio") of Total Debt less the
principal amount outstanding under the Notes, less cash and cash
equivalents in excess of $5.0 million, to Operating Cash Flow;
o minimum ratio (the "Pro Forma Interest Expense Ratio") of Adjusted
Operating Cash Flow to the sum of all interest expense and commitment
fees calculated for the four fiscal quarters following the calculation
quarter, giving effect to the Total Debt outstanding and the interest
rates in effect as of the date of the determination and the commitment
reductions and debt amortization scheduled during that period;
o minimum ratio (the "Debt Service Ratio") of Adjusted Operating Cash
Flow, to the sum of:
(a) the sum of all interest expense and commitment fees calculated for
the four fiscal quarters following the calculation quarter, giving
effect to the Total Debt outstanding and the interest rates in
effect as of the date of the determination and the commitment
reductions and debt amortization scheduled during that period, and
(b) the scheduled current maturities of Total Debt and current
commitment reductions with respect to the revolver, each measured
for the four fiscal quarters immediately succeeding the date of
determination; and
o a minimum ratio (the "Fixed Charges Ratio") of the sum of Operating
Cash Flow to the sum of, for the four most recently completed fiscal
quarters, the following paid during that period:
(a) Interest Expense (as defined in the Senior Credit Facility) plus the
scheduled maturities of Total Debt and current commitment
reductions with respect to the revolver,
(b) cash income taxes,
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(c) capital expenditures, excluding certain special capital expenditures
to be mutually agreed upon, and
(d) Unconsolidated Investments (as defined in the Senior Credit
Facility).
The Total Leverage Ratio for the most recently completed 12 month period
may not at any time exceed: 6.50x from September 30, 1998 to December 30, 1998;
6.25x from December 31, 1998 to June 29, 1999; 5.75x from June 30, 1999 to
December 30, 1999; 5.25x from December 31, 1999 to December 30, 2000; 4.50x from
December 31, 2000 to December 30, 2001; and 3.75x on December 31, 2001 and
thereafter.
The Senior Leverage Ratio for the most recently completed 12 month period
may not at any time exceed: 3.25x from September 30, 1998 to December 30, 1999;
3.00x from December 31, 1999 to December 30, 2000; and 2.50x on December 31,
2000 and thereafter.
The Pro Forma Interest Expense Ratio may not at the end of any fiscal
quarter be less than 1.50x before December 31, 1998, and 2.00x on January 1,
1999 and thereafter.
The Pro Forma Debt Service Ratio may not at any fiscal quarter end be less
than 1.25x before December 31, 1998, and 1.50x on January 1, 1999 and
thereafter.
The Fixed Charges Ratio may not at any quarter end be less than 1.05x.
The Senior Credit Facility also prohibits prepayment of any subordinated
notes, including the Notes.
EVENTS OF DEFAULT
The Senior Credit Facility contains customary events of default, including
payment defaults, the occurrence of a Change of Control (as defined below), the
invalidity of guarantees or security documents under the Senior Credit Facility,
any Material Adverse Change (as defined in the Senior Credit Facility), breach
of any representation or warranty under the Senior Credit Facility and any
cross-default to other indebtedness of SFX and its subsidiaries. The occurrence
of any event of default could result in termination of the commitments to extend
credit under the Senior Credit Facility and foreclosure on the collateral
securing those obligations, each of which, individually, could have a material
adverse effect on SFX.
CHANGE OF CONTROL
"Change of Control" is defined in the Senior Credit Facility as the failure
of Mr. Sillerman, any Affiliate (as defined therein) of Mr. Sillerman, or any
Affiliate of Mr. Sillerman together with any executor, heir or successor
appointed to take control of Mr. Sillerman's affairs in the event of his death,
disability or incapacity, to own directly or indirectly, in the aggregate, of
record and beneficially, more than 30% of the voting power of all issued and
outstanding capital stock of SFX; or the occurrence of any Person (as defined in
the Senior Credit Facility), other than as provided above, owning, beneficially,
more than 10% of the voting power of all issued and outstanding capital stock of
SFX.
DESCRIPTION OF THE FEBRUARY 2008 NOTES
The following is a summary of the material terms contained in the indenture
governing the February 2008 Notes. This summary is not complete. It is subject
to the terms of an indenture, which was filed as an exhibit to the registration
statement of which this prospectus is a part. See "Where You Can Find More
Information."
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On February 11, 1998, SFX consummated the private placement of $350.0
million in aggregate principal amount of 9 1/8% Senior Subordinated Notes due
February 1, 2008. The February 2008 Notes bear interest at an annual interest
rate of 9 1/8%, and interest payments are due semi-annually, commencing August
1, 1998. The February 2008 Notes will mature on February 1, 2008. The February
2008 Notes do not contain any sinking fund provision.
RANKING
The February 2008 Notes are general unsecured obligations of SFX,
subordinate in right to all Senior Debt (as defined in the February 2008 Note
indenture), whether outstanding on the date of the Feburary 2008 Note indenture
or thereafter incurred, of SFX and senior in right of payment to or pari passu
with all other indebtedness of SFX. See "Capitalization."
SUBSIDIARY GUARANTEES
SFX's payment obligations under the February 2008 Notes are jointly
and severally guaranteed on a senior subordinated basis by all of its current
and future domestic subsidiaries, with certain specified exceptions.
OPTIONAL REDEMPTION
Except as noted below, the February 2008 Notes are not redeemable at
SFX's option before February 1, 2003. Thereafter, the February 2008 Notes will
be subject to redemption at any time at the option of SFX, in whole or in part,
at specified redemption prices plus accrued and unpaid interest and Liquidated
Damages (as defined in the February 2008 Note indenture), if any, thereon to
the applicable redemption date. In addition, at any time prior to February 1,
2001, SFX may on any one or more occasions redeem up to 35.0% of the original
aggregate principal amount of the February 2008 Notes at a redemption price of
109.125% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of redemption, with the net
proceeds of one or more offerings of common equity of SFX. However, at least
65.0% of the original aggregate principal amount of the February 2008 Notes
must remain outstanding immediately after each occurrence of redemption.
CHANGE OF CONTROL
After the occurrence of a Change of Control (as defined in the
February 2008 Note indenture), SFX will be required to make an offer to
repurchase the February 2008 Notes at a price equal to 101% of their principal
amount, together with accrued and unpaid interest and Liquidated Damages, if
any, to the date of purchase.
CERTAIN COVENANTS
The February 2008 Note indenture contains certain covenants that,
among other things, significantly limit the ability of SFX and its subsidiaries
to
o incur additional Indebtedness (as defined in the February 2008 Note
indenture);
o issue preferred stock;
o pay dividends;
o make certain other restricted payments;
o create certain Liens (as defined in the February 2008 Note indenture);
o enter into certain transactions with affiliates;
o sell assets of SFX or its Restricted Subsidiaries (as defined in the
February 2008 Note indenture);
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o issue or sell Equity Interests (as defined in the February 2008 Note
indenture) of SFX's Restricted Subsidiaries; or
o enter into certain mergers and consolidations.
In addition, under certain circumstances, SFX will be required to offer to
purchase February 2008 Notes at a price equal to 100.0% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to
the date of purchase, with the proceeds of certain Asset Sales (as defined in
the February 2008 Note indenture).
EXCHANGE OFFER
On July 15, 1998, SFX consummated the exchange of substantially identical
publicly registered February 2008 Notes for all outstanding February 2008 Notes.
All original February 2008 Notes were tendered for exchange and were cancelled
upon the issuance of the same principal amount of exchanged February 2008 Notes.
OTHER DEBT
In addition to the amounts outstanding under the Senior Credit Facility,
the February 2008 Notes and the Old Notes described below, SFX had approximately
$38.1 million of long-term debt outstanding at December 31, 1998 including $10.3
million of notes issued in connection with certain of our 1998 acquisitions that
is included in deferred purchase consideration.
DESCRIPTION OF THE OLD NOTES
On November 25, 1998, SFX consummated the $200.0 million private placement
of the Old Notes. The terms of the Old Notes are substantially identical to
those of the New Notes, including ranking, guarantees by subsidiaries of SFX,
redemption, and restrictive covenants. See "Description of the New Notes."
However, the Old Notes have not been registered under the Securities Act, and
may not be offered or sold except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.
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DESCRIPTION OF THE NEW NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the words
"Company" and "SFX" refer only to SFX Entertainment, Inc. and not to any of its
subsidiaries.
The Old Notes were, and the New Notes will be, issued by SFX under the
Indenture dated November 25, 1998 (the "Indenture") among itself, the Guarantors
and The Chase Manhattan Bank, as trustee (the "Trustee"). The terms of the Old
Notes and the New Notes (collectively, the "Notes") include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The New Notes are
substantially identical to the terms and provisions of the Old Notes, except for
certain transfer restrictions and registration rights relating to the Old Notes.
The term "Notes" refers to both the Old Notes and the New Notes.
The following description is a summary of the material provisions of the
Indenture. It does not restate the Indenture in its entirety. Because this is a
summary, we urge you to read the Indenture and the relevant portions of the
Trust Indenture Act because they, and not this description, define your rights
as holders of the Notes. We have filed copies of the Indenture as an exhibit to
the registration statement which includes this prospectus.
GENERAL
The Notes are:
o general unsecured obligations of SFX;
o subordinated in right of payment to all existing and future Senior Debt
of SFX;
o equivalent in ranking to February 2008 Notes; and
o unconditionally guaranteed by the Subsidiary Guarantors.
As of December 31, 1998, after giving pro forma effect to the offering of
the Old Notes and the application of the net proceeds therefrom, borrowings
under the Senior Credit Facility, the consummation of the 1999 acquisitions and
the consummation of our recent $274.7 million equity offering and the
applications of the proceeds therefrom, SFX would have had approximately $275.0
million of Senior Debt outstanding. The Indenture permits SFX to incur
additional debt, including additional Senior Debt, subject to certain
restrictions. See "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock."
PRINCIPAL, MATURITY AND INTEREST
SFX issued the Old Notes with a maximum aggregate principal amount of
$200.0 million. SFX will issue Notes in denominations of $1,000 and integral
multiples of $1,000. The Notes will mature on December 1, 2008.
Interest on the Notes will accrue at the rate of 9 1/8% per annum and will
be payable semi-annually in arrears on December 1 and June 1 of each year,
commencing on June 1, 1999. SFX will make each interest payment to the holders
of record of these Notes on the immediately preceding November 15 and May 15.
Interest on the Notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
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METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder of a Note has given wire transfer instructions to SFX, SFX will
make all principal, premium and interest payments on those Notes in accordance
with those instructions. All other payments on these Notes will be made at the
office or agency of the Paying Agent and Registrar within the City and State of
New York unless SFX elects to make interest payments by check mailed to the
holders at their address set forth in the register of holders.
SUBORDINATION
The payment of principal, premium, interest and Liquidated Damages, if any,
on the Notes will be subordinated to the prior payment in full of all Senior
Debt of SFX.
The holders of Senior Debt of SFX will be entitled to receive payment in
full of all Obligations due in respect of such Senior Debt--including interest
after the commencement of any such proceeding at the rate specified in the
applicable Senior Debt--before the holders of Notes will be entitled to receive
any payment with respect to the Notes. However, holders of Notes may receive
Permitted Junior Securities and payments made from the trust described under
"--Legal Defeasance and Covenant Defeasance" if any distribution to SFX's
creditors occurs:
(1) in a liquidation or dissolution of SFX;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to SFX or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of SFX's assets or liabilities.
SFX also may not make any payment in respect of the Notes except in
Permitted Junior Securities or from the trust described under the caption
"--Legal Defeasance and Covenant Defeasance," if:
(1) a payment default on any Designated Senior Debt occurs and is
continuing beyond any applicable grace period; or
(2) any other default occurs and is continuing with respect to any
Designated Senior Debt that permits holders of that Designated Senior
Debt to accelerate its maturity and the Trustee receives a notice of
such default (a "Payment Blockage Notice") from SFX or the holders of
such Designated Senior Debt.
Payments on the Notes may and must be resumed:
(1) in the case of a payment default, upon the date on which such default
is cured or waived or has ceased to exist or such Designated Senior
Debt has been discharged or repaid in full; and
(2) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received or has ceased
to exist or such Designated Senior Debt has been discharged or repaid
in full, unless the maturity of any Designated Senior Debt has been
accelerated.
No new period of payment blockage may be commenced unless and until 360
days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice. No nonpayment default that existed or was continuing on the
date of delivery of any Payment
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Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice unless such default has been cured or waived.
SFX must promptly notify holders of Senior Debt if payment of the Notes is
accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of Notes may recover less ratably than
creditors of SFX who are holders of Senior Debt. See "Risk Factors--Risks
Relating to the Notes--Your right to receive payments on these notes is junior
to our existing indebtedness and possibly all of our future borrowings."
SUBSIDIARY GUARANTEES
Each of SFX's current and future domestic Restricted Subsidiaries (the
"Guarantors"), except for the Non-Guarantor Subsidiaries, will jointly and
severally guarantee SFX's obligations under the Notes (the "Subsidiary
Guarantees"). See "Risk Factors--Risks Relating to the Notes--SFX has a
substantial amount of debt, which may harm our financial health and prevent us
from fulfilling our obligations under the notes." Each Subsidiary Guarantee will
be subordinated in right of payment to all existing and future Senior Debt of
such Guarantor. The Indenture will permit the Guarantors to incur additional
indebtedness, including additional Senior Debt, subject to certain restrictions.
See "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock." The obligations of each Guarantor under its Subsidiary Guarantee will be
limited as necessary to prevent that Subsidiary Guarantee from constituting a
fraudulent conveyance under applicable law.
A Guarantor may not consolidate with or merge with or into, whether or not
such Guarantor is the surviving Person, another corporation, Person or entity
unless:
(1) the Person formed by or surviving any such consolidation or merger,
if other than such Guarantor, assumes all the obligations of such
Guarantor pursuant to a supplemental indenture reasonably satisfactory
to the Trustee, under the Notes, the Indenture and the Registration
Rights Agreement;
(2) immediately after giving effect to such transaction, no Default or
Event of Default exists; and
(3) SFX would be permitted by virtue of SFX's pro forma Debt to Cash Flow
Ratio, immediately after giving effect to such transaction, to incur
at least $1.00 of additional Indebtedness pursuant to the Debt to Cash
Flow Ratio test set forth in the covenant described below under the
caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock."
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor, including by way of
merger or consolidation, if SFX applies the Net Proceeds of that sale
or other disposition, in accordance with the applicable provisions of
the Indenture; or
(2) in connection with any sale of all of the capital stock of a
Guarantor, if SFX applies the Net Proceeds of that sale in accordance
with the applicable provisions of the Indenture.
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OPTIONAL REDEMPTION
Before December 1, 2001, SFX may, on any one or more occasions, redeem up
to 35% of the aggregate principal amount of Notes originally issued under the
Indenture at a redemption price of 109.125% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of an offering of common equity of
SFX, other than Disqualified Stock; provided that:
(1) at least 65% of the aggregate principal amount of the Notes
originally issued in the offering remain outstanding immediately after
the occurrence of each such redemption, excluding Notes held by SFX
and its Subsidiaries; and
(2) each such redemption shall occur within 75 days after the date of the
closing of any such offering of common equity of SFX.
Except pursuant to the preceding paragraph, SFX will not be able to redeem
the Notes prior to December 1, 2003.
After December 1, 2003, SFX may redeem all or a part of the Notes upon not
less than 30 nor more than 60 days' notice, at the redemption prices, expressed
as percentages of principal amount, set forth below, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on December 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------- -------------
<S> <C>
2003 ......................... 104.563%
2004 ......................... 103.042
2005 ......................... 101.521
2006 and thereafter .......... 100.000%
</TABLE>
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, the Trustee
will select Notes for redemption in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed.
If the Notes are not so listed, the Trustee will make the selection of Notes for
redemption on a pro rata basis, by lot or by such method as the Trustee shall
deem fair and appropriate. No Notes of $1,000 or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each holder of Notes to be
redeemed at its registered address. Notices of redemption may not be
conditional.
If any Note is to be redeemed in part only, the notice of redemption that
relates to such Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original Note. Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on Notes
or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under the caption "--Repurchase at the Option of
Holders," SFX is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
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REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each holder of Notes will have the right to
require SFX to make an offer (a "Change of Control Offer") to each holder of
Notes to repurchase all or any part, equal to $1,000 or an integral multiple
thereof, of such holder's Notes. In the Change of Control Offer, SFX will offer
payment in cash equal to 101% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of purchase
(the "Change of Control Payment"). Within ten days following a Change of
Control, SFX will mail a notice to each holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice. SFX will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, SFX will, to the extent lawful:
(1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Notes or portions thereof so
tendered; and
(3) deliver or cause to be delivered to the Trustee the Notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of Notes or portions thereof being purchased by SFX.
The Paying Agent will promptly mail to each holder of Notes so tendered the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail, or cause to be transferred by book entry, to each holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof.
Prior to complying with the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, SFX
will either repay all outstanding Senior Debt or obtain the requisite consents,
if any, under all agreements governing outstanding Senior Debt to permit the
repurchase of Notes required by this covenant. SFX will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
The provisions described above that require SFX to make a Change of Control
Offer following a Change of Control will be applicable whether or not any other
provisions of the Indenture are applicable. Except as described above with
respect to a Change of Control, the Indenture does not contain provisions that
permit the holders of the Notes to require SFX to repurchase or redeem the Notes
in the event of a takeover, recapitalization or similar transaction.
The Senior Credit Facility prohibits SFX from purchasing any Notes
following a Change of Control and provide that certain change of control events
with respect to SFX would constitute a default thereunder. Any other future
credit agreements or other agreements relating to Senior Debt to which SFX
becomes a party may contain similar restrictions. If a
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Change of Control occurs at a time when SFX is prohibited from purchasing
Notes, SFX could seek the consent of its lenders to the purchase of Notes or
could attempt to refinance the borrowings that contain such prohibition. If SFX
does not obtain such a consent or repay such borrowings, SFX will remain
prohibited from purchasing Notes. SFX's failure to purchase tendered Notes
following a Change of Control would constitute an Event of Default under the
Indenture which, in turn, is expected to constitute as default under the Senior
Credit Facility. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the holders of Notes. See
"--Subordination."
SFX will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by SFX and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
ASSET SALES
SFX will not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) SFX or the Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of; and
(2) at least 75% of the consideration therefor received by SFX or such
Restricted Subsidiary is in the form of cash. For purposes of this
provision, each of the following shall be deemed cash:
(a) any liabilities, as shown on SFX's or such Restricted Subsidiary's
most recent balance sheet, of SFX or such Restricted Subsidiary,
other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any guarantee thereof, that are
assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases SFX or such Restricted
Subsidiary from further liability;
(b) any securities, notes or other obligations received by SFX or such
Restricted Subsidiary from such transferee that are immediately
converted by SFX or such Restricted Subsidiary into cash, to the
extent of the cash received; and
(c) escrowed cash that SFX reasonably believes will be released from
escrow within 365 days from the date of consummation of such Asset
Sale.
However, SFX and its Restricted Subsidiaries will be permitted to
consummate an Asset Sale without complying with the preceding paragraph if:
(1) SFX or the applicable Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal
to the fair market value of the assets or other property sold, issued
or otherwise disposed of; and
(2) at least 75% of the consideration for such Asset Sale constitutes a
controlling interest in a Permitted Business, long-term assets used or
useful in a Permitted Business and/or cash or Cash Equivalents;
provided that any cash or Cash Equivalents received by SFX or any of its
Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall constitute Net Proceeds subject to the
provisions of the next paragraph.
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Within 365 days of the receipt of any Net Proceeds from an Asset Sale, SFX
may apply such Net Proceeds, at its option:
(1) to repay Senior Debt;
(2) to acquire a controlling interest in another Permitted Business; and
(3) to make a capital expenditure or to acquire other long-term assets
that are used or useful in a Permitted Business.
Pending the final application of any such Net Proceeds, SFX may temporarily
reduce Senior Debt or otherwise invest such Net Proceeds in any manner that is
not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10.0 million, SFX will be required
to make an offer to all holders of Notes and all holders of other pari passu
Indebtedness containing provisions similar to those set forth in the Indenture
with respect to offers to purchase or redeem such other pari passu Indebtedness
with the proceeds of sales of assets (an "Asset Sale Offer"). The offer price in
any Asset Sale Offer will be equal to 100% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase and will be paid in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, SFX may use such Excess Proceeds for any
purpose not otherwise prohibited by the Indenture. If the aggregate principal
amount of Notes and such other pari passu Indebtedness surrendered by holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes and such other pari passu Indebtedness to be purchased on a pro rata
basis. Upon completion of an Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
SFX will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of SFX's or any of its Restricted Subsidiary's Equity
Interests, including, without limitation, any payment in connection
with any merger or consolidation involving SFX or any Restricted
Subsidiary, or to any direct or indirect holders of SFX's Equity
Interests in their capacity as such, other than dividends or
distributions payable in Equity Interests, other than Disqualified
Stock, of SFX to SFX or any Wholly Owned Restricted Subsidiary of SFX;
(2) purchase, redeem or otherwise acquire or retire for value, including,
without limitation, in connection with any merger or consolidation
involving SFX, any Equity Interests of SFX or any of its Restricted
Subsidiaries or any direct or indirect parent of SFX, other than any
such Equity Interests owned by SFX or any Restricted Subsidiary of
SFX;
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness of SFX or
any Restricted Subsidiary that is subordinated to the Notes or any
guarantee of the Notes, except a payment of interest or principal at
Stated Maturity; or
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(4) make any Restricted Investment, all such payments and other actions
set forth in clauses (1) through (4) above being collectively referred
to as "Restricted Payments;"
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(2) SFX would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Debt to Cash Flow Ratio test set forth in the first paragraph
of the covenant described below under caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by SFX and its Restricted Subsidiaries
after November 25, 1998, excluding Restricted Payments permitted by
clauses (2), (3) and (4) of the next paragraph, is less than the sum,
without duplication, of:
(a) 50% of the Consolidated Net Income of SFX for the period, taken as
one accounting period, from the beginning of the first fiscal
quarter commencing after November 25, 1998 to the end of SFX's most
recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment,
or, if such Consolidated Net Income for such period is a deficit,
less 100% of such deficit; plus
(b) 100% of the aggregate net cash proceeds received by SFX as a
contribution to its common equity capital or from the issue or sale
since November 25, 1998 of Equity Interests of SFX, other than
Disqualified Stock, or from the issue or sale of Disqualified Stock
or debt securities of SFX that have been converted into such Equity
Interests, other than Equity Interests, or Disqualified Stock or
convertible debt securities, sold to a Subsidiary of SFX and other
than Disqualified Stock or convertible debt securities that have
been converted into Disqualified Stock; plus
(c) 50% of any dividends received by SFX or a Wholly Owned Restricted
Subsidiary after November 25, 1998 from an Unrestricted Subsidiary
of SFX, to the extent that such dividends were not otherwise
included in Consolidated Net Income of SFX for such period; plus
(d) to the extent that any Restricted Investment that was made after
November 25, 1998 is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (i) the cash return of capital with
respect to such Restricted Investment, less the cost of
disposition, if any, and (ii) the initial amount of such Restricted
Investment.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after its date of
declaration, if at the date of declaration such payment would have
complied with the provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any Equity Interests of SFX or subordinated
Indebtedness of SFX or any Guarantor in
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exchange for, or out of the net cash proceeds of the substantially
concurrent sale, other than to a Subsidiary of SFX, of other Equity
Interests of SFX, other than any Disqualified Stock; provided that the
amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition
shall be excluded from clause (3)(b) of the preceding paragraph; and
provided further that no Default or Event of Default shall have
occurred and be continuing immediately after such transaction;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness; provided that no
Default or Event of Default shall have occurred and be continuing
immediately after such transaction;
(4) the payment of any dividend by a Restricted Subsidiary of SFX to the
holders of Equity Interests on a pro rata basis;
(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of SFX or any Restricted Subsidiary of
SFX held by any member of SFX's--or any of its Restricted
Subsidiaries'--management or board of directors pursuant to any
management equity subscription agreement, stock option agreement or
other similar agreement; provided that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed $250,000 in any twelve-month period and no Default or
Event of Default shall have occurred and be continuing immediately
after such transaction; and
(6) the repurchase, redemption or other acquisition or retirement for
value or payment made in respect of any Equity Interests of SFX or any
Restricted Subsidiary of SFX pursuant to any of the agreements
relating to the Pending Acquisitions, each as in effect on the date of
the Indenture; provided that no Default or Event of Default shall have
occurred and be continuing immediately after such transaction.
The amount of all Restricted Payments, other than cash, shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by SFX or such Restricted Subsidiary, as
the case may be, pursuant to the Restricted Payment. The Board of Directors
shall determine in good faith the fair market value of any non-cash Restricted
Payment. The Board of Directors' resolution with respect thereto shall be
delivered to the Trustee. Not later than the date of making any Restricted
Payment, SFX shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, the aggregate fair market value of all
outstanding Investments by SFX and its Restricted Subsidiaries in the Subsidiary
so designated will be deemed to be a Restricted Payment at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. Such designation will only be permitted if
such Restricted Payment would be permitted at such time and if such Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions. If, at any time, any
Unrestricted Subsidiary would fail to meet the
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definition of an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture. Any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of SFX as
of such date, and, if such Indebtedness is not permitted to be incurred as of
such date under the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock," SFX shall be in default of such
covenant. The Board of Directors of SFX may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary. However, such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of SFX of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if:
(1) such Indebtedness is permitted under the covenant described under the
caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period; and
(2) no Default or Event of Default would be in existence immediately
following such designation.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
SFX will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Indebtedness, including Acquired Debt, and SFX will not issue any
shares of Disqualified Stock and will not permit any of its Subsidiaries to
issue any shares of preferred stock; provided, that, if no Default or Event of
Default has occurred and is continuing, SFX may incur Indebtedness, including
Acquired Debt, or issue shares of Disqualified Stock and the Guarantors may
issue shares of preferred stock if, SFX's Debt to Cash Flow Ratio at such time
after giving pro forma effect to such incurrence or issuance as of such date and
to the use of the proceeds therefrom as if the same had occurred at the
beginning of the most recently ended four full fiscal quarter period of SFX for
which internal financial statements are available, would have been no greater
than 7.0 to 1.0, if such incurrence or issuance is prior to December 31, 1999,
or 6.5 to 1.0 thereafter.
So long as no Default shall have occurred and be continuing or would be
caused thereby, the preceding paragraph will not apply to the incurrence of any
of the following types of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by SFX, and the guarantee thereof by Guarantors, of
Indebtedness and Letters of Credit under one or more Credit Facilities;
provided that the aggregate principal amount at any time outstanding
does not exceed $400.0 million, with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of SFX
and the Guarantors thereunder, less the aggregate amount of all
repayments, optional or mandatory, of the principal of any term
Indebtedness under a Credit Facility that have been made since the date
of the Indenture and less the aggregate amount of all commitment
reductions of any revolving Indebtedness under a Credit Facility
pursuant to clause (1) of the third paragraph of the covenant described
above under the caption "--Repurchase at the Option of Holders--Asset
Sales";
(2) the incurrence by SFX and the guarantee thereof by the Guarantors of
Indebtedness represented by the Notes and the Subsidiary Guarantees;
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(3) the incurrence by SFX and its Restricted Subsidiaries of the Existing
Indebtedness;
(4) the incurrence by SFX or its Restricted Subsidiaries of Indebtedness
represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction
or improvement of property, plant or equipment used in the business of
SFX or such Restricted Subsidiary, in an aggregate amount not to exceed
$5.0 million at any time outstanding;
(5) the incurrence by SFX or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness, other
than intercompany Indebtedness, that was permitted by the Indenture to
be incurred by the first paragraph of this covenant, or by clauses (2),
(3), (4), (5), (7) or (10) of this paragraph;
(6) the incurrence of Indebtedness between or among SFX and any of its
Restricted Subsidiaries; provided that:
(a) if SFX is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full of all
Obligations with respect to the Notes; and
(b) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
SFX or a Restricted Subsidiary, and any sale or other transfer of
any such Indebtedness to a Person that is not either SFX or a
Restricted Subsidiary, shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by SFX or such
Restricted Subsidiary, as the case may be;
(7) the incurrence by SFX or any of its Restricted Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that
is permitted by the terms of this Indenture to be outstanding;
(8) the guarantee by SFX or any of the Guarantors of Indebtedness that was
permitted to be incurred by another provision of this covenant;
(9) the incurrence by SFX's Unrestricted Subsidiaries of Non-Recourse
Debt, provided that if any such Indebtedness ceases to be Non-Recourse
Debt of an Unrestricted Subsidiary, such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of
SFX that was not permitted by this clause (9);
(10) the issuance of preferred stock by SFX pursuant to the Contemporary
Agreement, as in effect on the date of the Indenture; and
(11) the incurrence by SFX or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount at any time
outstanding, including all Permitted Refinancing Indebtedness incurred
pursuant to clause (5) above to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (11), not to exceed
$10.0 million.
For purposes of determining compliance with this covenant, if an item of
Indebtedness meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (11) above or is entitled to be incurred
pursuant to the first paragraph of this covenant, SFX shall, in its sole
discretion, classify such item of Indebtedness in any manner that complies with
this covenant and such item of Indebtedness will be treated as having been
incurred pursuant to only one of such clauses or pursuant to the first paragraph
hereof.
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LIMITATION ON OTHER SENIOR SUBORDINATED DEBT
The Indenture provides that:
(1) SFX will not directly or indirectly incur any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior
in any respect in right of payment to the Notes; and
(2) no Guarantor will incur any Indebtedness that is subordinate or junior
in right of payment to its Guarantor Senior Debt and senior in any
respect in right of payment to such Guarantor's Subsidiary Guarantee.
LIENS
SFX will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien
securing Indebtedness or trade payables on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except Permitted Liens.
SALE AND LEASEBACK TRANSACTIONS
SFX will not, and will not permit any of its Restricted Subsidiaries to,
enter into any sale and leaseback transaction; provided that SFX and the
Guarantors may enter into a sale and leaseback transaction if:
(1) SFX or such Guarantor could have
(a) incurred Indebtedness in an amount equal to the Attributable
Debt relating to such sale and leaseback transaction
pursuant to the Debt to Cash Flow Ratio test set forth in
the first paragraph of the covenant described above under
the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock;" and
(b) incurred a Lien to secure such Indebtedness pursuant to the
covenant described above under the caption "--Liens;"
(2) the gross cash proceeds of such sale and leaseback transaction are at
least equal to the fair market value of the property that is the
subject of such sale and leaseback transaction; and
(3) the transfer of assets in such sale and leaseback transaction is
permitted by, and the proceeds of such transaction are applied in
compliance with, the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales."
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
SFX will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
SFX or any of its Restricted Subsidiaries, or with respect to any other
interest or participation in, or measured by, its profits, or pay any
indebtedness owed to SFX or any of its Restricted Subsidiaries;
(2) make loans or advances to SFX or any of its Restricted Subsidiaries;
or
(3) transfer any of its properties or assets to SFX or any of its
Restricted Subsidiaries.
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However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on November 25, 1998;
(2) the Senior Credit Facility and any amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, and any other agreement governing
or relating to Senior Debt, provided that such amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings and other agreements are no
more restrictive with respect to such dividend and other payment
restrictions than those contained in the Senior Credit Facility;
(3) the Indenture, the Notes and the Subsidiary Guarantees;
(4) applicable law;
(5) any instrument governing Indebtedness or Capital Stock of a Person
acquired by SFX or any of its Restricted Subsidiaries as in effect at
the time of such acquisition,except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition,
which encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired; provided that, in the
case of Indebtedness, such Indebtedness was permitted by the terms of
the Indenture to be incurred;
(6) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (3) above on the property so acquired;
(8) Permitted Refinancing Indebtedness; provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the
caption "--Liens" that limits the right of the debtor to dispose of the
assets securing such Indebtedness;
(10) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business; and
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business.
ISSUANCES AND SALES OF EQUITY INTERESTS IN RESTRICTED SUBSIDIARIES
SFX will not, and will not permit any Restricted Subsidiary of SFX to,
transfer, convey, sell, lease or otherwise dispose of any Equity Interests in
any Restricted Subsidiary of SFX to any Person, other than SFX or a Restricted
Subsidiary of SFX, unless:
(1) such transfer, conveyance, sale, lease or other disposition is of all
the Equity Interests in such Restricted Subsidiary; and
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(2) the cash Net Proceeds, if any, from such transfer, conveyance, sale,
lease or other disposition are applied in accordance with the covenant
described above under the caption "--Repurchase at the Option of
Holders--Asset Sales."
Further, SFX will not permit any Restricted Subsidiary of SFX to issue any of
its Equity Interests, other than, if necessary, shares of its Capital Stock
constituting directors' qualifying shares, to any Person other than to SFX or a
Restricted Subsidiary of SFX except as permitted pursuant to the covenant
described above under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock."
MERGER, CONSOLIDATION OR SALE OF ASSETS
SFX may not consolidate or merge with or into another corporation, Person
or entity, whether or not SFX is the surviving corporation, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity; unless:
(1) either
(a) SFX is the surviving corporation or
(b) the entity or the Person formed by or surviving any such
consolidation or merger, if other than SFX, or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall
have been made is a corporation organized or existing under the laws
of the United States, any state thereof or the District of Columbia;
(2) the entity or Person formed by or surviving any such consolidation or
merger, if other than SFX, or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall
have been made assumes all the obligations of SFX under the Notes, the
Indenture and the Registration Rights Agreement pursuant to a
supplemental indenture in a form reasonably satisfactory to the
Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) except in the case of a merger of SFX with or into a Wholly Owned
Restricted Subsidiary of SFX, SFX or the entity or Person formed by or
surviving any such consolidation or merger, if other than SFX, or to
which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made will, both immediately prior to and
immediately after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Debt to Cash Flow Ratio test
set forth in the first paragraph of the covenant described above under
the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock."
TRANSACTIONS WITH AFFILIATES
SFX will not, and will not permit any of its Restricted Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each of
the foregoing, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
SFX or such Restricted Subsidiary than those that would have been
obtained in a comparable transaction by SFX or such Restricted
Subsidiary with an unrelated Person; and
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(2) SFX delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate
consideration in excess of $1.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with
clause (1) above and that a majority of the disinterested
members of the Board of Directors approved such Affiliate
Transaction; and
(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate
consideration in excess of $5.0 million, an opinion as to the
fairness to SFX of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or
investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by, and any compensation paid by,
SFX or any of its Restricted Subsidiaries, in each case, approved by
the Compensation Committee;
(2) transactions between or among SFX and/or its Restricted Subsidiaries;
(3) payment of reasonable and customary directors fees to the Board of
Directors of SFX and of its Restricted Subsidiaries consistent with
past practices and the issuance of shares of SFX to the Directors who
were holders of options or stock appreciation rights in Broadcasting
as of the Spin-Off record date, whether or not vested;
(4) fees and compensation paid to, and indemnity provided on behalf of,
officers, directors or employees of SFX or any of its Restricted
Subsidiaries, as determined by the Board of Directors of SFX or of any
such Restricted Subsidiary, to the extent such fees and compensation
are reasonable, customary and consistent with past practices;
(5) the transactions specifically contemplated by the Merger Agreement,
the agreements relating to the Pending Acquisitions or by instruments
referred to in any such agreements, in each case, as the same are in
effect on the date of the Indenture;
(6) the Spin-Off Transactions;
(7) the transactions specifically contemplated by the Delsener/Slater
Employment Agreements, in each case, as in effect on the date of the
Indenture;
(8) the Meadows Repurchase and the Series E Preferred Repurchase;
provided that SFX receives either:
(a) a cash payment from Broadcasting or Broadcasting Buyer or an
Affiliate thereof at or prior to the date of the Merger at
least equal to the aggregate amount expended by SFX in the
Meadows Repurchase and the Series E Preferred Repurchase less
$3.0 million; or
(b) an increase in favor of SFX in the Working Capital
Adjustment, including the avoidance of a decrease,
contemplated by the Merger Agreement in an amount at least
equal to the aggregate amount expended by SFX in the Meadows
Repurchase and the Series E Preferred Repurchase less $3.0
million; or
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(c) any combination thereof adding up to an amount at least equal
to the aggregate amount expended by SFX in the Meadows
Repurchase and the Series E Preferred Repurchase less $3.0
million; and
(9) any Restricted Payment that is permitted by the provisions of the
Indenture described above under the caption "--Restricted Payments."
ADDITIONAL SUBSIDIARY GUARANTEES
If SFX or any of its Restricted Subsidiaries acquires or creates another
domestic Restricted Subsidiary after the date of the Indenture, other than the
Non-Guarantor Subsidiaries, or if any domestic Unrestricted Subsidiary becomes a
Restricted Subsidiary of SFX, then such Subsidiary will execute a Subsidiary
Guarantee of the Notes and deliver an opinion of counsel, in accordance with the
terms of the Indenture.
PAYMENTS FOR CONSENT
SFX will not, and will not permit any of its Subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration to any holder of any Notes
as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered to
be paid or is paid to all holders of the Notes that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.
BUSINESS ACTIVITIES
SFX will not, and will not permit any Restricted Subsidiary to, engage in
any business other than Permitted Businesses, unless it would not be material to
SFX and its Restricted Subsidiaries taken as a whole.
REPORTS
Whether or not required by the Commission, so long as any Notes are
outstanding, SFX will furnish to the holders of Notes, within the time periods
specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if
SFX were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
that describes the financial condition and results of operations of SFX
and its consolidated Subsidiaries and, with respect to the annual
information only, a report thereon by SFX's certified independent
accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if SFX were required to file such reports.
In addition, whether or not required by the Commission, SFX will file a
copy of all such information and reports referred to in clauses (1) and (2)
above with the Commission for public availability within the time periods
specified in the Commission's rules and regulations, unless the Commission will
not accept such a filing, and make such information available to securities
analysts and prospective investors upon request.
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EVENTS OF DEFAULT AND REMEDIES
Each of the following constitutes an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes, whether or not
prohibited by the subordination provisions of the Indenture;
(2) default in payment when due of the principal of or premium, if any,
on the Notes, whether or not prohibited by the subordination
provisions of the Indenture;
(3) failure by SFX or any Restricted Subsidiary to comply with the
provisions described under the captions "--Repurchase at the Option of
Holders--Change of Control" or "--Certain Covenants--Merger,
Consolidation or Sale of Assets";
(4) failure by SFX or any Restricted Subsidiary for 30 days after written
notice by the Trustee or the holders of at least 25% in principal
amount of the then outstanding Notes to comply with the provisions
described under the captions "--Repurchase at the Option of
Holders--Asset Sales," "--Certain Covenants--Restricted Payments" or
"--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock";
(5) failure by SFX or any Restricted Subsidiary for 60 days after written
notice by the Trustee or the holders of at least 25% in principal
amount of the then outstanding Notes to comply with any of its other
agreements in the Indenture or the Notes;
(6) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by SFX or any of its Restricted
Subsidiaries, or the payment of which is guaranteed by SFX or any of
its Restricted Subsidiaries, whether such Indebtedness or guarantee
now exists or is created after the date of the Indenture, if that
default:
(a) is caused by a failure to pay principal of or premium, if
any, or interest on such Indebtedness prior to the expiration
of the grace period provided in such Indebtedness on the date
of such default (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity;
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so
accelerated, aggregates $10.0 million or more;
(7) failure by SFX or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $10.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days;
(8) except as permitted by the Indenture, any Subsidiary Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny
or disaffirm its obligations under its Subsidiary Guarantee; and
(9) certain events of bankruptcy or insolvency with respect to SFX or any
of SFX's Restricted Subsidiaries that constitutes a Significant
Subsidiary or any group of Restricted Subsidiaries of SFX that, taken
together, would constitute a Significant Subsidiary.
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If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. However, if an Event
of Default arises from certain events of bankruptcy or insolvency, with respect
to SFX, any Restricted Subsidiary of SFX that constitutes a Significant
Subsidiary or any group of Restricted Subsidiaries of SFX that, taken together,
would constitute a Significant Subsidiary, all outstanding Notes will become
due and payable immediately.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
holders of the Notes notice of any continuing Default or Event of Default,
except a Default or Event of Default relating to the payment of principal or
interest, if it determines that withholding notice is in their interest.
If an Event of Default occurs by reason of any willful action or inaction
taken or not taken by or on behalf of SFX with the intention of avoiding
payment of the premium that SFX would have had to pay if SFX then had elected
to redeem the Notes pursuant to the optional redemption provisions of the
Indenture, an equivalent premium will also become immediately due and payable
to the extent permitted by law upon the acceleration of the Notes. If an Event
of Default occurs prior to December 1, 2003 by reason of any willful action or
inaction taken or not taken by or on behalf of SFX with the intention of
avoiding the prohibition on redemption of the Notes prior to such date, then
the premium specified in the Indenture will also become immediately due and
payable to the extent permitted by law upon the acceleration of the Notes.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
SFX is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture. Upon becoming aware of any Default or Event of
Default, SFX is required to deliver to the Trustee a statement specifying such
Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee or stockholder of SFX or any Guarantor, as
such, will have any liability for any obligations of SFX or any Guarantor under
the Notes, the Subsidiary Guarantees, the Indenture or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each holder
of Notes by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes. The waiver
may not be effective to waive liabilities under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SFX may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes and to have each
Guarantor's obligation discharged with respect to its Subsidiary Guarantee
("Legal Defeasance"), except for:
(1) the rights of holders of outstanding Notes to receive payments in respect
of the principal of and premium, interest and Liquidated Damages, if any,
on the Notes when such payments are due from the trust referred to below;
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(2) SFX's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes
and the maintenance of an office or agency for payment and money for
security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and
SFX's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, SFX may, at its option and at any time, elect to have the
obligations of SFX and each Guarantor released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. If Covenant Defeasance
occurs, certain events, not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events, described under the caption "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) SFX must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of and premium,
interest and Liquidated Damages, if any, on the outstanding Notes on the
stated maturity or on the applicable redemption date, as the case may be,
and SFX must specify whether the Notes are being defeased to maturity or
to a particular redemption date;
(2) in the case of Legal Defeasance, SFX shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that:
(a) SFX has received from, or there has been published by, the Internal
Revenue Service a ruling or
(b) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that,
and based thereon such opinion of counsel shall confirm that, the
holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, SFX shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that the holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit, other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit, or
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the
date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach
or violation of, or constitute a default under any material agreement or
instrument, other than the Indenture, to which SFX or any of its
Subsidiaries is a party or by which SFX or any of its Subsidiaries is
bound;
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(6) SFX shall have delivered to the Trustee an opinion of counsel to the
effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(7) SFX shall have delivered to the Trustee an Officers' Certificate stating
that the deposit was not made by SFX with the intent of preferring the
holders of Notes over the other creditors of SFX with the intent of
defeating, hindering, delaying or defrauding creditors of SFX or others;
and
(8) SFX shall have delivered to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent provided
for relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and SFX may require a
holder to pay any taxes and fees required by law or permitted by the Indenture.
SFX is not required to transfer or exchange any Note selected for redemption.
Also, SFX is not required to transfer or exchange any Note for a period of 15
days before a selection of Notes to be redeemed. The registered holder of a
Note will be treated as the owner of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
The Indenture, the Notes and the Subsidiary Guarantees may be amended or
supplemented with the consent of the holders of at least a majority in
principal amount of the Notes then outstanding, including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, Notes. Any existing default or compliance with any provision of the
Indenture, the Notes or the Subsidiary Guarantees may be waived with the
consent of the holders of a majority in principal amount of the then
outstanding Notes, including consents obtained in connection with a tender
offer or exchange offer for Notes.
However, without the consent of each holder affected, an amendment or
waiver may not, with respect to any Notes held by a non-consenting holder:
(1) reduce the principal amount of Notes whose holders must consent to an
amendment, supplement or waiver,
(2) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes,
other than provisions relating to the covenants described above under
the caption "--Repurchase at the Option of Holders;"
(3) reduce the rate of or change the time for payment of interest on any
Note;
(4) waive a Default or Event of Default in the payment of principal of or
premium, interest or Liquidated Damages, if any, on the Notes except a
rescission of acceleration of the Notes by the holders of at least a
majority in aggregate principal amount of the Notes and a waiver of
the payment default that resulted from such acceleration;
(5) make any Note payable in money other than that stated in the Notes;
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(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Notes to receive
payments of principal of or premium, interest or Liquidated Damages,
if any, on the Notes;
(7) waive a redemption payment with respect to any Note, other than a
payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders;"
(8) release any Guarantor from its Subsidiary Guarantee; or
(9) make any change in the foregoing amendment and waiver provisions.
In addition, any amendment to the provisions of Article 10 of the
Indenture relating to subordination will require the consent of the holders of
at least 75% in aggregate principal amount of the Notes then outstanding if
such amendment would adversely affect the rights of holders of Notes.
Notwithstanding the preceding, without the consent of any holder of Notes,
SFX, a Guarantor, with respect to a Subsidiary Guarantee or the Indenture to
which it is a party, and the Trustee may amend or supplement the Indenture, the
Notes or any Subsidiary Guarantee:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(3) to provide for the assumption of SFX's or any Guarantor's obligations
to holders of Notes in the case of a merger or consolidation or sale
of substantially all of SFX's assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture
Act.
CONCERNING THE TRUSTEE
If the Trustee becomes a creditor of SFX, the Indenture limits its right
to obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The Trustee
will be permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that if an Event of Default occurs
and continues, the Trustee will be required, in the exercise of its power, to
use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any holder of
Notes, unless such holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
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BOOK-ENTRY, DELIVERY AND FORM
The Old Notes have been sold in reliance on Rule 144A ("Rule 144A Notes")
and on Regulation S ("Regulation S Notes"). Rule 144A Notes are represented by
one or more Notes in registered, global form without interest coupons
(collectively, the "Rule 144A Global Notes"). Regulation S Notes initially are
represented by one or more Notes in registered, global form without interest
coupons (collectively, the "Regulation S Global Notes" and, together with the
Rule 144A Global Notes, the "Global Notes"). The Global Notes have been
deposited with the Trustee as custodian for DTC, in New York, New York, and are
registered in the name of DTC or its nominee, in each case, for credit to an
account of a direct or indirect participant in DTC.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
Notes in certificated form except in the limited circustances described below.
All Old Notes bear restrictive legends and some transfers of beneficial
interests in the Global Notes are subject to the applicable rules and
procedures of DTC and its direct or indirect participants including, if
applicable, those of Euroclear System ("Euroclear") and Cedel S.A. ("Cedel").
Initially, the Trustee will act as Paying Agent and Registrar. The Notes
may be presented for registration of transfer and exchange at the offices of
the Registrar.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC,
Euroclear and Cedel are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them.
DTC has advised SFX that it is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers
and dealers, including the Initial Purchasers, banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised SFX that, pursuant to procedures established by it:
(1) upon deposit of the Global Notes, DTC has credited the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes; and
(2) ownership of such interests in the Global Notes is shown on, and the
transfer of ownership thereof may be effected only through, records
maintained by DTC, with respect to the Participants, or by the
Participants and the Indirect Participants, with respect to other
owners of beneficial interest in the Global Notes.
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Investors in the Rule 144A Global Notes may hold their interests therein
directly through DTC, if they are Participants in such system, or indirectly
through organizations, including Euroclear and Cedel, which are Participants in
such system. Investors in the Regulation S Global Notes must initially hold
their interests therein through Euroclear or Cedel, if they are participants in
such systems, or indirectly through organizations that are participants in such
systems. After the expiration of a restricted distribution period, investors
may also hold interests in the Regulation S Global Notes through organizations
other than Euroclear and Cedel that are Participants in the DTC system.
Euroclear and Cedel hold interests in the Regulation S Global Note on behalf of
their Participants through customers' securities accounts in their respective
names on the books of their respective depositories. The depositories, in turn,
hold such interests in the Regulation S Global Notes in customers' securities
accounts in the depositories' names on the books of DTC. All interests in a
Global Note, including those held through Euroclear or Cedel, may be subject to
the procedures and requirements of DTC. Those interests held by Euroclear or
Cedel may be also be subject to the procedures and requirements of such system.
Except as described below, owners of interests in the Global Notes will
not have Notes registered in their names, will not receive physical delivery of
Notes in certificated form and will not be considered the registered owners or
"Holders" thereof under the Indenture for any purpose.
Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered holder
under the Indenture. Under the terms of the Indenture, SFX and the Trustee will
treat the persons in whose names the Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither SFX, the
Trustee nor any agent of SFX or the Trustee has or will have any responsibility
or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of any
beneficial ownership interest in the Global Notes, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or
Indirect Participant's records relating to the beneficial ownership
interests in the Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants.
DTC has advised SFX that its current practice, upon receipt of any payment
in respect of securities such as the Notes, including principal and interest,
is to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in the
principal amount of beneficial interest in the relevant security as shown on
the records of DTC unless DTC has reason to believe it will not receive payment
on such payment date. Payments by the Participants and the Indirect
Participants to the beneficial owners of Notes will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility of
DTC, the Trustee or SFX. Neither SFX nor the Trustee will be liable for any
delay by DTC or any of its Participants in identifying the beneficial owners of
the Notes, and SFX and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and Cedel participants,
interests in the Global Notes will trade in DTC's Same-Day Funds Settlement
System and secondary market
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trading activity in such interests will, therefore, settle in immediately
available funds, subject in all cases to the rules and procedures of DTC and
its participants.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
DTC has advised SFX that it will take any action permitted to be taken by
a holder of Notes only at the direction of one or more Participants to whose
account DTC has credited the interests in the Global Notes and only in respect
of such portion of the aggregate principal amount of the Notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Notes, DTC reserves the right to exchange the
Global Notes for legended Notes in certificated form, and to distribute such
Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the Global Notes among Participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued at
any time. Neither SFX nor the Trustee nor any of their respective agents will
have any responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
If:
(1) DTC
(a) notifies SFX that it is unwilling or unable to continue as
depositary for the Global Notes and SFX fails to appoint a
successor depositary or
(b) has ceased to be a clearing agency registered under the Exchange
Act;
(2) SFX, at its option, notifies the Trustee in writing that it elects to
cause the issuance of the certificated notes; or
(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the Notes,
a Global Note will be exchangeable for definitive Notes in registered form
("Certificated Notes"). Upon any such issuance, the Trustee is required to
register such Certificated Notes in the name of, and cause the same to be
delivered to, such person or persons, or the nominee of any thereof.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon request but only upon prior written notice given to the
Trustee by or on behalf of DTC in accordance with the Indenture. Further,
Certificated Notes may be exchanged for beneficial interests in Global Notes
upon a delivery by the holder of a certificate to the Trustee that the transfer
will comply with the transfer restrictions of the Note.
Neither SFX nor the Trustee will be liable for any delay by the Global
Note holder or the depositary in identifying the beneficial owners of Notes and
SFX and the Trustee may conclusively rely on, and will be protected in relying
on, instructions from the Global Note holder or the depositary for all
purposes.
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SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented
by the Global Notes (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note holder. With respect to
certificated Notes, SFX will make all payments of principal, premium, if any,
interest and Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the holder thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address. SFX expects that secondary trading in the certificated Notes will also
be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Holders of the New Notes are not entitled to any registration rights with
respect to the New Notes. SFX, the Guarantors and the Initial Purchasers
entered into the Registration Rights Agreement for the benefit of the holders
of the Old Notes, pursuant to which SFX and the Guarantors agreed to use its
best efforts to file with the Commission the Exchange Offer Registration
Statement with respect to the New Notes by March 5, 1999 and use their best
efforts to have the Exchange Offer Registration Statement declared effective by
the Commission on or prior to April 19, 1999. Unless the exchange offer would
not be permitted by applicable law or Commission policy, SFX will commence the
exchange offer and use its best efforts to issue, on or before 30 business days
after the date on which the Exchange Offer Registration Statement was declared
effective by the Commission, New Notes in exchange for all Old Notes tendered
prior thereto in the exchange offer. Upon the Exchange Offer Registration
Statement being declared effective, SFX will offer the New Notes in exchange
for surrender of the Old Notes.
If:
(1) SFX and the Guarantors are not required to file the Exchange Offer
Registration Statement or permitted to consummate the exchange offer
because the exchange offer is not permitted by applicable law or
Commission policy; or
(2) any holder of Transfer Restricted Securities notifies SFX before the
20th day following consummation of the exchange offer that:
(a) it is prohibited by law or Commission policy from participating
in the exchange offer; or
(b) that it may not resell the New Notes acquired by it in the
exchange offer to the public without delivering a prospectus and
the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales; or
(c) that it is a broker-dealer and owns Notes acquired directly from
SFX or an affiliate of SFX,
SFX and the Guarantors will file with the Commission no later than 30 days
after the filing obligation arises a Shelf Registration Statement to cover
resales of the Notes by the holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. SFX and the Guarantors will use their best efforts to
cause the applicable registration statement to be declared effective as
promptly as possible by the Commission on or prior to 90 days after such
obligation arises.
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For purposes of the foregoing, "Transfer Restricted Securities" means each
Note until:
(1) the date on which such Note has been exchanged by a person other than
a broker-dealer for a New Note in the exchange offer;
(2) following the exchange by a broker-dealer in the exchange offer of an
Old Note for a New Note, the date on which such New Note is sold to a
purchaser who receives from such broker-dealer on or prior to the
date of such sale a copy of the prospectus contained in the Exchange
Offer Registration Statement;
(3) the date on which such Old Note has been effectively registered under
the Securities Act and disposed of in accordance with the Shelf
Registration Statement; or
(4) the date on which such Old Note is distributed to the public pursuant
to Rule 144 under the Securities Act.
If:
(1) SFX and the Guarantors fail to file any of the Registration
Statements required by the registration rights agreement on or before
the date specified for such filing;
(2) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness
(the "Effectiveness Target Date");
(3) SFX fails to consummate the exchange offer within 30 business days of
the Effectiveness Target Date with respect to the Exchange Offer
Registration Statement; or
(4) the Shelf Registration Statement or the Exchange Offer Registration
Statement is declared effective but thereafter ceases to be effective
or usable in connection with resales of Transfer Restricted
Securities during the periods specified in the Registration Rights
Agreement--each such event referred to in clauses (1) through (4)
above a "Registration Default,"
then SFX and the Guarantors will pay Liquidated Damages to each holder of
Notes, with respect to the first 90-day period immediately following the
occurrence of the first Registration Default, equal to $.05 per week per $1,000
principal amount of Notes held by such holder. Liquidated Damages will increase
by an additional $.05 per week per $1,000 principal amount of Notes with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum Liquidated Damages for all Registration Defaults of
$.50 per week per $1,000 principal amount of Notes. SFX will pay all accrued
Liquidated Damages on each Damages Payment Date to the Global Note holder by
wire transfer of immediately available funds or by federal funds check and to
holders of Certificated Securities by wire transfer to the accounts specified
by them or by mailing checks to their registered addresses if no such accounts
have been specified. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such
specified Person, including, without
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limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming
a Subsidiary of such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of
the Voting Stock of a Person is deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings.
"Acquired Businesses" means each of the businesses to be acquired by SFX
pursuant to the Pending Acquisitions.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights--including, without limitation, by way of a sale and
leaseback--excluding sales of services and ancillary products in the
ordinary course of business consistent with past practices; provided
that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of SFX and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of
the Indenture described above under the caption "--Repurchase at the
Option of Holders--Change of Control" and/or the provisions described
above under the caption "--Certain Covenants--Merger, Consolidation
or Sale of Assets" and not by the provisions of the Asset Sale
covenant; and
(2) the issue or sale by SFX or any of its Subsidiaries of Equity
Interests of any of SFX's Subsidiaries, in the case of either clause
(1) or (2), whether in a single transaction or a series of related
transactions that have a fair market value in excess of $5.0 million,
or for net proceeds in excess of $5.0 million.
Notwithstanding the preceding, the following items will not be deemed to be an
Asset Sale:
(1) a transfer of assets by SFX to a Wholly Owned Restricted Subsidiary
or by a Wholly Owned Restricted Subsidiary to SFX or to another
Wholly Owned Restricted Subsidiary;
(2) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to SFX or to another Wholly Owned Restricted Subsidiary;
(3) the transfer of obsolete equipment in the ordinary course of
business;
(4) the sale and leaseback of any assets within 90 days of the
acquisition of such assets; and
(5) a Restricted Payment that is permitted by the covenant described
above under the caption "--Certain Covenants--Restricted Payments."
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction,
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including any period for which such lease has been extended or may, at the
option of the lessor, be extended. Such present value shall be calculated using
a discounted rate equal to the rate of interest implicit in such transaction,
determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person", as such term is used in Section 13(d)(3)
of the Exchange Act, such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire, whether such
right is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition.
"Broadcasting Merger" means the merger of SBI Radio Acquisition
Corporation with and into SFX Broadcasting, Inc., pursuant to which SFX
Broadcasting, Inc. became a subsidiary of SBI Holding Co.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents, however
designated, of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests, whether general or limited; and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof
having maturities of not more than six months from the date of
acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities
of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight
bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500.0 million and a Thompson Bank
Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within six months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of
this definition.
"Cellar Door Agreement" means any agreement by SFX to acquire the Cellar
Door music promotion and entertainment business, on terms similar to the letter
of intent dated August 12, 1998, and any additional agreements related thereto.
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"Change of Control" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition, other
than the Spin-Off or by way of merger or consolidation, in one or a
series of related transactions, of all or substantially all of the
assets of SFX and its Subsidiaries taken as a whole to any
"person"--as such term is used in Section 13(d)(3) of the Exchange
Act--other than the Principal or a Related Party of the Principal;
(2) the adoption of a plan relating to the liquidation or dissolution of
SFX;
(3) the consummation of any transaction, including, without limitation,
any merger or consolidation, the result of which is that any
"person," as defined above, other than the Principal and his Related
Parties, becomes the Beneficial Owner, directly or indirectly, of
more than 35% of the Voting Stock of SFX; or
(4) the first day on which a majority of the members of the Board of
Directors of SFX are not Continuing Directors.
"Compensation Committee" means a committee of at least two members of the
Board of Directors of SFX, a majority of whom are:
(1) independent directors elected by the holders of Class A common stock
of SFX; and
(2) not interested in the particular transactions being approved.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, without
duplication:
(1) an amount equal to any extraordinary loss plus any net loss realized
in connection with an Asset Sale, to the extent such losses were
deducted in computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or
not capitalized, including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect
of letter of credit or bankers' acceptance financings, and net
payments, if any, pursuant to Hedging Obligation, to the extent that
any such expense was deducted in computing such Consolidated Net
Income; plus
(4) depreciation expense for such period, to the extent the same was
deducted in computing such Consolidated Net Income; plus
(5) all amortization expense and other non-cash expenses--excluding any
such non-cash expense to the extent that it represents an accrual of
or reserve for cash expenses in any future period--for such period,
to the extent the same was deducted in computing such Consolidated
Net Income; plus
(6) unusual and nonrecurring charges paid or accrued in 1997 or 1998,
including, but not limited to, legal, accounting, investment banking,
severance, termination, non-compete and consent fees relating to the
Merger Agreement, the Spin-Off, the Pending Acquisitions and
transactions related thereto; minus
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(7) non-cash items increasing such Consolidated Net Income for such
period; minus
(8) except to the extent already deducted in computing Consolidated Net
Income for such period, preproduction expenses and investments in
theatrical productions incurred or made during such period by SFX or
any Restricted Subsidiary as set forth in SFX's Consolidated
Statement of Cash Flows; plus
(9) any cash return of capital paid to SFX or a Restricted Subsidiary
during such period associated with a preproduction expense or
investment in theatrical productions to the extent the same was
deducted pursuant to clause (8) above in computing Consolidated Cash
Flow for such period or a prior period, in each case, on a
consolidated basis and determined in accordance with GAAP.
"Consolidated Indebtedness" means, with respect to any Person as of any
date of determination, the sum, without duplication, of:
(1) the total amount of Indebtedness and Attributable Debt of such Person
and its Restricted Subsidiaries; plus
(2) the total amount of Indebtedness and Attributable Debt of any other
Person, to the extent that such Indebtedness or Attributable Debt has
been guaranteed by the referent Person or by one or more of its
Restricted Subsidiaries or is secured by a Lien on assets of the
referent Person or any of its Restricted Subsidiaries; plus
(3) the aggregate liquidation value of all Disqualified Stock of such
Person and all preferred stock of Restricted Subsidiaries of such
Person, in each case, determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income, but not loss, of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or a
Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental
approval, that has not been obtained, or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition
shall be excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded; and
(5) the Net Income, but not loss, of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to SFX or one of its Restricted
Subsidiaries.
"Contemporary Agreement" means the agreement by SFX to acquire The
Contemporary Group, dated as of December 12, 1997, and the agreements related
thereto, each as in effect on the date of the Indenture.
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"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of SFX who
(1) was a member of such Board of Directors on the date of the Indenture;
or
(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
"Credit Facility" or "Credit Facilities" means one or more debt
facilities, including, without limitation, the Senior Credit Facility, or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables financing, including
through the sale of receivables to such lenders or to special purpose entities
formed to borrow from such lenders against such receivables, or letters of
credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time. Indebtedness
under Credit Facilities outstanding on the date on which Notes are first issued
and authenticated under the Indenture shall be deemed to have been incurred on
such date in reliance on the exception provided by clause (1) of the definition
of Permitted Debt.
"Debt to Cash Flow Ratio" means, with respect to any Person as of any date
of determination (the "Calculation Date"), the ratio of the Consolidated
Indebtedness of such Person as of such date, to the Consolidated Cash Flow of
such Person for the four most recent full fiscal quarters ending immediately
prior to such date for which internal financial statements are available. Such
determination is made on a pro forma basis after giving effect to all
acquisitions and dispositions of assets made by such Person and its Restricted
Subsidiaries from the beginning of such four-quarter period through and
including such date of determination, including any related financing
transactions, as if such acquisitions and dispositions had occurred at the
beginning of such four-quarter period.
For purposes of making the computation referred to above:
(1) acquisitions that have been made by such Person or any of its
Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (3) of the proviso set forth in the
definition of Consolidated Net Income; and
(2) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of by SFX or any of its Restricted Subsidiaries prior to the
Calculation Date,
will be excluded.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Delsener/Slater Employment Agreements" means:
(1) the employment agreement dated January 2, 1997, among Broadcasting,
Delsener/Slater Enterprises, Inc. and Mitch Slater; and
(2) the employment agreement dated January 2, 1997 among Broadcasting,
Delsener/Slater Enterprises, Inc. and Ron Delsener, in each case as
in effect on the date of the Indenture.
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"Designated Senior Debt" means:
(1) any Indebtedness outstanding under the Senior Credit Facility; and
(2) any other Senior Debt or Guarantor Senior Debt permitted under the
Indenture the principal amount of which is $25.0 million or more and
that has been designated by SFX as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms, or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof, or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature. Notwithstanding the preceding sentence, any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require SFX to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale will not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Issuer
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with the covenant described above
under the caption "--Certain Covenants--Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.
"Existing Indebtedness" means Indebtedness in existence on the date of the
Indenture, other than Indebtedness under Credit Facilities, until such
Indebtedness is repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit and reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Hedging Obligations" means the obligations of any Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"Indebtedness" means, with respect to any Person without duplication, any
indebtedness of such Person, whether or not contingent, in respect of
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit, or reimbursement agreements in respect thereof;
(3) banker's acceptances;
(4) representing Capital Lease Obligations; or
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(5) the balance deferred and unpaid of the purchase price of any property
or representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness, other than letters of
credit and Hedging Obligations, would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP. In addition,
"Indebtedness" includes all indebtedness of others secured by a Lien on any
asset of such Person, whether or not such indebtedness is assumed by such
Person, and to the extent not otherwise included, the guarantee by such Person
of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons, including Affiliates, in the forms of direct or
indirect loans, including guarantees of Indebtedness or other obligations,
advances or capital contributions, excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business,
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If SFX or any Subsidiary of SFX sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of SFX such that, after giving
effect to any such sale or disposition, such Person is no longer a Subsidiary
of SFX, SFX shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Equity Interests of
such Subsidiary not sold or disposed of in an amount determined as provided in
the third paragraph of the covenant described above under the caption
"--Certain Covenants--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code, or equivalent statutes of any jurisdiction.
"Marquee" means The Marquee Group, Inc., a Delaware corporation.
"Marquee Merger Agreement" means the Agreement and Plan of Merger dated
July 23, 1998, as amended, providing for the merger of a wholly owned
subsidiary of SFX with and into Marquee, and all transactions and agreements
specifically contemplated thereby or by instruments referred to therein, each
as in effect on the date of the Indenture.
"Meadows Repurchase" means the transfer by Broadcasting to SFX of an
option to repurchase, and the purchase by SFX, of up to 250,838 shares of Class
A common stock of Broadcasting for $33.00 per share, pursuant to an option
granted in connection with the Agreement of Merger, dated February 12, 1997, by
and among Broadcasting, NOC Acquisition Corp., CAPCO Acquisition Corp., QN
Acquisition Corp., Nederlander of Connecticut, Inc., Connecticut Amphitheater
Development Corporation, QN Corp., Connecticut Performing Arts, Inc. and
Connecticut Performing Arts Partners and the
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stockholders of Nederlander of Connecticut, Inc., Connecticut Amphitheater
Development Corporation and QN Corp. listed on the signature pages thereto and
the transfer of such stock to Broadcasting prior to the Broadcasting Merger.
"Merger Agreement" means the Agreement and Plan of Merger dated as of
August 24, 1997, that provides for the Broadcasting Merger and all transactions
and agreements specifically contemplated thereby or by instruments referred to
therein, each as in effect on the date of the Indenture.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:
(1) any gain, but not loss, together with any related provision for taxes
on such gain, but not loss, realized in connection with:
(a) any Asset Sale, including, without limitation, dispositions
pursuant to sale and leaseback transactions; or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted
Subsidiaries; and
h (2) any extraordinary gain, but not loss, together with any related
provision for taxes on such extraordinary gain, but not loss.
"Net Proceeds" means the aggregate cash proceeds received by SFX or any of
its Restricted Subsidiaries in respect of any Asset Sale, including, without
limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale, net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, after
taking into account any available tax credits or deductions and any tax sharing
arrangements, amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"Non-Guarantor Subsidiaries" means Walnut Creek Amphitheater Partnership,
Coral Sky Amphitheater Partnership, PACE Entertainment Charitable Foundation
and PTG-Florida, Inc./BSMG Joint Venture.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither SFX nor any of its Restricted Subsidiaries
(a) provides credit support of any kind, including any undertaking,
agreement or instrument that would constitute Indebtedness,
(b) is directly or indirectly liable, as a guarantor or otherwise,
or
(c) constitutes the lender;
(2) no default with respect to which, including any rights that the
holders thereof may have to take enforcement action against an
Unrestricted Subsidiary, would permit, upon notice, lapse of time or
both, any holder of any other Indebtedness, other than the Notes
being offered hereby, of SFX or any of its Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity;
and
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(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of SFX or any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Pace Agreement" means the agreement by SFX to acquire PACE Entertainment
Corporation, including the Agreements relating to the Sony Acquisition and the
Blockbuster Acquisition to acquire a 100% interest in Pavilion Partners, dated
December 12, 1997 and the agreements related thereto, each as in effect on the
date of the Indenture.
"Pace Acquisition Facility" means the agreement by SFX, pursuant to the
Pace Agreement, to provide to PACE Entertainment Corporation up to an aggregate
of $25.0 million to be used to fund certain acquisitions, as in effect on the
date of the Indenture.
"Pending Acquisitions" means the acquisition by SFX of
(1) Cellar Door; and
(2) Marquee and including the transactions and agreements specifically
related thereto.
"Permitted Business" means the live entertainment business and any
business reasonably similar, complementary, ancillary or related thereto,
including the Pending Acquisitions.
"Permitted Investments" means:
(1) any Investment in SFX or in a Guarantor;
(2) any Investment in Cash Equivalents;
(3) any Investment by SFX or any Restricted Subsidiary of SFX in a Person
engaged in a Permitted Business, if:
(a) as a result of, or concurrently with, such Investment such
Person becomes a Guarantor; or
(b) as a result of, or concurrently with, such Investment such
Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, SFX or a Guarantor; or
(c) SFX or a Guarantor has entered into a binding agreement to
acquire such Person or all or substantially all of the assets of
such Person, which agreement is in effect on the date of such
Investment, and such Person becomes a Guarantor or such
transaction is consummated, in each case within 180 days of the
date of such Investment;
(4) any Restricted Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales;"
(5) any obligations or shares of Capital Stock received in connection
with or as a result of a bankruptcy, workout or reorganization of the
issuer of such obligations or shares of Capital Stock;
(6) any Investment received involuntarily;
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(7) any acquisition of assets solely in exchange for the issuance of
Equity Interests, other than Disqualified Stock, of SFX;
(8) any Investment made under the Pace Acquisition Facility pursuant to
the Pace Agreement as in effect on the date of the Indenture;
(9) any Investment owned by any of the Acquired Businesses as of the date
such Acquired Business is acquired;
(10) other Investments in Persons engaged in Permitted Businesses,
measured on the date each such Investment was made and without giving
effect to subsequent changes in value, when taken together with all
other Investments made pursuant to this clause (10) that are at the
time outstanding, not to exceed 5% of Total Tangible Assets;
(11) the consummation of the Pending Acquisitions;
(12) the Meadows Repurchase and the Series E Preferred Repurchase;
provided that SFX receives either;
(a) a cash payment from Broadcasting or Broadcasting Buyer or an
Affiliate thereof at or prior to the date of the Merger at least
equal to the aggregate amount expended by SFX in the Meadows
Repurchase and the Series E Preferred Repurchase less $3.0
million, or
(b) an increase in favor of SFX in the Working Capital Adjustment,
including the avoidance of a decrease, contemplated by the
Merger Agreement in an amount at least equal to the aggregate
amount expended by SFX in the Meadows Repurchase and the Series
E Preferred Repurchase less $3.0 million or
(c) any combination thereof adding up to an amount at least equal to
the aggregate amount expended by SFX in the Meadows Repurchase
and the Series E Preferred Repurchase less $3.0 million; and
(13) other Investments in any Person, measured on the date each such
Investment was made and without giving effect to subsequent changes
in value, when taken together with all other Investments made
pursuant to this clause (13) that are at the time outstanding, not to
exceed $4.0 million.
"Permitted Junior Securities" means Equity Interests in SFX or debt
securities of SFX or the relevant Guarantor that are subordinated to all Senior
Debt, and any debt securities issued in exchange for Senior Debt, or Guarantor
Senior Debt, and any debt securities issued in exchange for Guarantor Senior
Debt, as applicable, to substantially the same extent as, or to a greater
extent than, the Notes are subordinated to Senior Debt or the Subsidiary
Guarantees are subordinated to Guarantor Senior Debt, as applicable, pursuant
to the Indenture.
"Permitted Liens" means:
(1) Liens securing Senior Debt that was permitted by the terms of the
Indenture to be incurred;
(2) Liens in favor of SFX or any of its Restricted Subsidiaries;
(3) Liens on property of a Person existing at the time such Person is
merged into or consolidated with SFX or any Restricted Subsidiary of
SFX, provided that such
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Liens were not incurred in contemplation of such merger or
consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with SFX;
(4) Liens on property existing at the time of acquisition thereof by SFX
or any Restricted Subsidiary of SFX, provided that such Liens were in
existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens existing on the date of the Indenture;
(7) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; and
(8) Liens incurred in the ordinary course of business of SFX or any
Restricted Subsidiary of SFX with respect to obligations that do not
exceed $2.0 million at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of SFX or any
of its Restricted Subsidiaries or any Disqualified Stock of SFX issued in
exchange for, or the net proceeds of which are used to extend, refinance,
renew, replace, defease or refund other Indebtedness of SFX or any of its
Restricted Subsidiaries; provided that:
(1) the principal amount, or accreted value or liquidation preference, if
applicable, of such Permitted Refinancing Indebtedness does not
exceed the principal amount of, or accreted value, if applicable,
plus accrued interest on, the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded, plus the amount of
reasonable expenses incurred in connection therewith;
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life
to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is pari passu with the Notes, such Permitted
Refinancing Indebtedness is pari passu with or subordinated in right
of payment to the Notes or is Disqualified Stock;
(4) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the
Notes, such Permitted Refinancing Indebtedness is subordinated in
right of payment to the Notes on terms at least as favorable to the
holders of Notes as those contained in the documentation governing
the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded or is Disqualified Stock; and
(5) such Indebtedness is incurred either by SFX or by the Restricted
Subsidiary that is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded, or such
Disqualified Stock is issued by SFX, as applicable.
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"Principal" means Robert F.X. Sillerman.
"Related Party" with respect to the Principal means:
(1) any spouse or immediate family member of the Principal; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding an 80% or more controlling interest of which consist of the
Principal and/or such other Persons referred to in the immediately
preceding clause (1).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Credit Facility" means that certain credit agreement by and among
SFX, the Guarantors, the lenders party thereto, The Bank of New York, as
Administrative Agent, Lehman Commercial Paper Inc. and Goldman Credit Partners
L.P., each as Co-Agents, as contemplated by that certain commitment letter by
and among SFX, the Guarantors, The Bank of New York, as Arranger, and Lehman
Brothers Inc. and Goldman, Sachs & Co., each as Co-Arrangers, each as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
"Senior Debt" means:
(1) all Indebtedness outstanding under Credit Facilities and all Hedging
Obligations with respect thereto;
(2) any other Indebtedness of SFX or any Guarantor permitted to be
incurred under the terms of the Indenture, other than the February
2008 Notes, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes or the Subsidiary
Guarantees; and
(3) all Obligations of SFX or any Guarantor with respect to the
foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will not
include:
(1) any liability for federal, state, local or other taxes owed or owing
by SFX;
(2) any Indebtedness of SFX or any Guarantor to any of its Subsidiaries
or other Affiliates;
(3) any trade payables; or
(4) any Indebtedness that is incurred in violation of the Indenture;
provided that Indebtedness under Credit Facilities will not cease to be Senior
Debt if borrowed based upon a written certificate from a purported officer of
SFX to the effect that such Indebtedness was permitted by the Indenture to be
incurred. The Notes will be pari passu with the February 2008 Notes.
"Series E Preferred Repurchase" means the purchase by SFX of up to $14.2
million in liquidation preference of 12 5/8% Series E Cumulative Exchangeable
Preferred Stock due October 31, 2006 of Broadcasting and the dividend or other
transfer of such stock to Broadcasting prior to the Broadcasting Merger.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
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"Spin-Off" means the distribution of the common stock of SFX pro rata to
the holders of Broadcasting or other disposition pursuant to, or as permitted
by, the Merger Agreement of all the capital stock and assets of SFX and its
Subsidiaries.
"Spin-Off Transaction" means the Spin-Off, the Merger Agreement and
related transactions described or referred to in the Offering Memorandum of SFX
dated February 5, 1998.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled, without regard to the occurrence of
any contingency, to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person, or a
combination thereof.
"Total Tangible Assets" means, as of any date,
(1) the total consolidated assets of SFX and its Restricted Subsidiaries,
as set forth on SFX's most recently available internal consolidated
balance sheet; minus
(2) the total consolidated intangible assets of SFX and its Restricted
Subsidiaries, as set forth on such consolidated balance sheet.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with SFX or any Restricted Subsidiary unless the terms of any such
agreement, contract, arrangement or understanding are no less
favorable to SFX or such Restricted Subsidiary than those that might
be obtained at the time from Persons who are not Affiliates of SFX;
(3) is a Person with respect to which neither SFX nor any of its
Restricted Subsidiaries has any direct or indirect obligation
(a) to subscribe for additional Equity Interests or
(b) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating
results;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of SFX or any of its Restricted
Subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of SFX or any of its Restricted
Subsidiaries and has at least one executive officer that is not a
director or executive officer of SFX or any of its Restricted
Subsidiaries.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board
of Directors of such Person.
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"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by
(b) the number of years, calculated to the nearest one-twelfth, that
will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which, other than directors' qualifying shares, will at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
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UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a general discussion of certain United States federal tax
consequences associated with the exchange of the Old Notes for the New Notes
pursuant to the exchange offer and disposition of the New Notes. This summary
applies only to a beneficial owner of New Notes who acquired Old Notes at the
initial offering for the original offering price thereof and who acquires the
New Notes pursuant to the exchange offer. This discussion is based upon the
United States federal tax law now in effect, which is subject to change,
possibly retroactively. This discussion does not consider any specific facts or
circumstances that may apply to a particular holder. Prospective investors are
urged to consult their tax advisors regarding the United States federal tax
consequences of acquiring, holding, and disposing of the New Notes, as well as
any tax consequences that may arise under the laws of any foreign, state,
local, or other taxing jurisdiction.
For purposes of this discussion, a "U.S. Holder" means a holder of New
Notes that is either a citizen or resident of the United States, a corporation,
partnership, or other entity created or organized in the United States or under
the laws of the United States or of any political subdivision thereof, an
estate whose income is includible in gross income for United States federal
income tax purposes regardless of its source, or a trust whose administration
is subject to the primary supervision of a United States court and which has
one or more United States persons who have the authority to control all
substantial decisions of the trust. A non-U.S. Holder is a holder of New Notes
other than a U.S. Holder.
EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the exchange offer
will not constitute a "significant modification" of the Old Notes for United
States federal income tax purposes and, accordingly, the New Notes received
will be treated as a continuation of the Old Notes in the hand of such holder.
As a result, there will be no United States federal income tax consequences to
a U.S. Holder who exchanges Old Notes for New Notes pursuant to the exchange
offer, and any such holder will have the same adjusted tax basis and holding
period in the New Notes for United States federal income tax purposes as it had
in the Old Notes immediately before the exchange.
STATED INTEREST
The holders of New Notes will include stated interest in gross income in
accordance with their methods of accounting for tax purposes as if the exchange
had not occurred (including interest on Old Notes to the date of the issuance
of the New Notes).
DISPOSITION
In general, a U.S. Holder of New Notes will recognize gain or loss upon
the sale, exchange, redemption or other taxable disposition of the New Notes
measured by the difference between the amount of cash and fair market value of
property received (not attributable to accrued, but unpaid interest) and the
holder's tax basis in the New Notes. Any such gain or loss will generally be
long-term capital gain or loss, provided that the New Notes constitute a
capital asset in the hands of the holder and had been held for more than one
year (including the period that such holder held the Old Notes exchanged for
such New Notes).
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NON-U.S. HOLDERS
Under present United States federal income and estate tax law, assuming
certain certification requirements are satisfied (which include identification
of the beneficial owner of the instrument), and subject to the discussion of
backup withholding below:
(a) payments of interest on the New Notes to any non-U.S. Holder will not
be subject to United States federal income or withholding tax, provided that:
(1) the holder does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of SFX entitled
to vote,
(2) the holder is not (i) a bank receiving interest pursuant to a loan
agreement entered into in the ordinary course of its trade or business
or (ii) a controlled foreign corporation that is related to SFX through
stock ownership, and
(3) such interest payments are not effectively connected with the
conduct of a United States trade or business of the holder;
(b) a holder of New Notes who is a non-U.S. Holder will not be subject to
the United States federal income tax on gain realized on the sale,
exchange, or other disposition of New Notes, unless:
(1) such holder is an individual who is present in the United States
for 183 days or more during the taxable year and certain other
requirements are met, or
(2) the gain is effectively connected with the conduct of a United
States trade or business of the holder; and
(c) if interest on the New Notes is exempt from withholding of United
States federal income tax under the rules described above (without regard
to the certification requirement), the New Notes will not be included in
the estate of a deceased non-U.S. Holder for United States federal estate
tax purposes.
The certification referred to above may be made on an Internal Revenue
Service Form W-8 or a substantially similar substitute form.
INFORMATION REPORTING AND BACKUP WITHHOLDING
SFX will, where required, report to the holders of New Notes and the
Internal Revenue Service the amount of any interest paid on the New Notes in
each calendar year and the amounts of federal tax withheld, if any, with
respect to such payments. A noncorporate U.S. Holder may be subject to
information reporting and to backup withholding at a rate of 31% with respect
to payments of principal and interest made on New Notes, or on proceeds of the
disposition of New Notes before maturity, unless such U.S. Holder provides a
correct taxpayer identification number or proof of an applicable exemption, and
otherwise complies with applicable requirements of the information reporting
and backup withholding rules. Such information may be made on an Internal
Revenue Service Form W-9 or a substantially similar substitute form.
Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally
not apply to interest paid on the New Notes to a non-U.S. Holder at an address
outside the United States. Payments by a United States office of a broker of
the proceeds of a sale of the New Notes are subject to both backup withholding
at a rate of 31% and information reporting unless the holder certifies its
non-U.S. Holder status under penalties of perjury and provides its name and
address or otherwise establishes an exemption. This certification may be made
on an Internal
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Revenue Service Form W-8 or a substantially similar substitute form.
Information reporting requirements (but not backup withholding) will also apply
to payments of the proceeds of sales of the New Notes by foreign offices of
United States brokers, or foreign brokers with certain types of relationships
to the United States, unless the broker has documentary evidence in its records
that the holder is a non-U.S. Holder and certain other conditions are met, or
the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amount withheld under the
backup withholding rules will be refunded or credited against the holder's
United States federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.
NEW TREASURY REGULATIONS APPLICABLE TO NON-U.S. HOLDERS
On October 6, 1997, the United States Treasury Department issued final
Treasury regulations governing certification procedures regarding both United
States federal withholding tax and backup withholding tax on certain amounts
paid to non-U.S. Holders after December 31, 1999. The new Treasury regulations
modify and, in general, unify the way in which non-U.S. Holders may establish
eligibility for United States federal withholding tax exemptions, including
that under a tax treaty, and an exemption from backup withholding.
For example, the new Treasury regulations will require new forms, which
non-U.S. Holders will generally have to provide earlier than you would have had
to provide replacements for expiring existing forms. The new Treasury
regulations also clarify the standards upon which withholding agents of
non-U.S. Holders may rely, add requirements in order for non-U.S. Holders to
claim reduced federal tax withholding under a tax treaty, and provide different
procedures in order for foreign intermediaries and flow-through entities (such
as foreign partnerships) to claim the benefit of applicable exemptions if they
receive payments on behalf of non-U.S. Holders.
The new Treasury regulations are particularly complex. Non-U.S. Holders
should consult their tax advisors concerning the effect, if any, of such new
Treasury regulations on their investment in the New Notes.
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PLAN OF DISTRIBUTION
Based on interpretations by the Commission set forth in no-action letters
issued to third parties in similar transactions, SFX believes that the New
Notes issued in the exchange offer for the Old Notes may be offered for resale,
resold and otherwise transferred by holders without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the New Notes are acquired in the ordinary course of such holders'
business and the holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of New Notes. This position does not apply to any holder that is:
(1) an "affiliate" of SFX within the meaning of Rule 406 under the
Securities Act;
(2) a broker-dealer who acquired Notes directly from SFX; or
(3) a broker-dealer who acquired Notes as a result of market-making or
other trading activities.
Any broker-dealers ("Participating Broker-Dealers") receiving New Notes in the
exchange offer are subject to a prospectus delivery requirement with respect to
resales of the New Notes. To date, the Commission has taken the position that
Participating Broker- Dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as the exchange pursuant to the exchange offer, other than a resale of an
unsold allotment from the sale of the Old Notes to the initial purchasers, with
this prospectus.
Each broker dealer that receives New Notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. A broker-dealer may use this
prospectus, as it may be amended or supplemented from time to time, in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. SFX has agreed that for a period of 180 days after the
Expiration Date, it will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. For
a period of 180 days after the Commission declares the registration statement
containing this prospectus effective, SFX will promptly send additional copies
of the prospectus and any amendment or supplement to this prospectus to any
broker-dealer that requests such document in the Letter of Transmittal.
SFX will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of New Notes and any
commission or concessions received by any persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
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SFX has agreed to pay all expenses incident to the exchange offer other
than commissions or concessions of any brokers or dealers and will indemnify
the holders of the Notes, including any broker-dealers, against certain
liabilities, including liabilities under the Securities Act.
Each broker-dealer that receives New Notes for its own account pursuant to
the exchange offer agrees that, upon receipt of notice from SFX of the
happening of any event which makes any statement in the prospectus untrue in
any material respect or which requires the making of any changes in the
prospectus in order to make the statements therein not misleading, which notice
SFX agrees to deliver promptly to such broker-dealer, such broker-dealer will
suspend use of the prospectus until SFX has amended or supplemented the
prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemental prospectus to such broker-dealer.
LEGAL MATTERS
Winston & Strawn, New York, New York, will pass upon certain legal matters
with respect to the validity of the issuance of the New Notes.
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EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of:
o SFX as of December 31, 1998 and 1997 and for the years ended December
31, 1998 and 1997 and
o Delsner/Slater Enterprises, Ltd. and Affiliated Companies
(predecessor) for the year ended December 31, 1996.
These consolidated financial statements (as included in SFX's Annual
Report on Form 10-K for the year ended December 31, 1998) are incorporated into
this prospectus by reference, and have been incorporated in reliance on the
reports of the firm based upon their authority as experts in accounting and
auditing.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
SFX believes that certain statements contained in this prospectus 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. These include statements contained in this
prospectus or incorporated by reference in this prospectus under the captions
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." 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.
SFX 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.
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WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE YOU ANY INFORMATION OR REPRESENT
ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR BUY ANY SECURITIES IN
ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS PROSPECTUS IS
CURRENT AS OF APRIL 15, 1999. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS ACCURATE AS OF ANY OTHER DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary .................... 1
Risk Factors .......................... 8
The Exchange Offer .................... 15
Use of Proceeds ....................... 27
Management ............................ 28
Principal Stockholders ................ 39
Certain Relationships and
Related Transactions ............... 42
Description of Indebtedness ........... 45
Description of the Old Notes .......... 51
Description of the New Notes .......... 52
United States Federal Tax
Considerations ..................... 92
Plan of Distribution .................. 95
Legal Matters ......................... 96
Experts ............................... 97
Safe Harbor for
Forward-Looking Statements.......... 97
</TABLE>
[SFX LOGO]
OFFER TO EXCHANGE ALL
OUTSTANDING 9 1/8% SENIOR
SUBORDINATED NOTES
DUE DECEMBER 2008
($200,000,000 PRINCIPAL AMOUNT)
FOR
REGISTERED 9 1/8% SENIOR
SUBORDINATED NOTES
DUE DECEMBER 2008
($200,000,000 PRINCIPAL AMOUNT)
The Information Agent for the Offer is:
[GRAPHIC OMITTED]
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
ALL OTHERS CALL TOLL FREE: 1-800-223-2064
APRIL 15, 1999
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