<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission file number: 000-24017
SFX ENTERTAINMENT, INC.
(Exact Name Of Registrant As Specified In Its Charter)
DELAWARE 13-3977880
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
650 MADISON AVENUE, 16TH FLOOR
NEW YORK, NEW YORK 10155
(Address of Principal Executive Offices)
(212) 838-3100
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: As of July 27, 1999, the
number of shares outstanding of the registrant's Class A Common Stock, $.01
par value, and Class B Common Stock, $.01 par value, was 53,705,446 and
2,545,555, respectively.
<PAGE>
SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I -- FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
PAGE NO.
------------
<S> <C> <C>
ITEM 1 Financial Statements
Consolidated Balance Sheets at June 30, 1999 (unaudited) and December 31, 1998 . 1
Consolidated Statements of Operations for the Three Months Ended June 30, 1999
and 1998 (unaudited) ......................................................... 3
Consolidated Statements of Operations for the Six Months Ended June 30, 1999
and 1998 ..................................................................... 4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999
and 1998 (unaudited).......................................................... 5
Consolidated Statements of Shareholders' Equity for the Six Months Ended June
30, 1999 and 1998 (unaudited) ................................................ 6
Notes to Consolidated Financial Statements (unaudited).......................... 7
ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 16
PART II--OTHER INFORMATION:
ITEM 1 Legal Proceedings .............................................................. 32
ITEM 2 Changes in Securities and Use of Proceeds ...................................... 32
ITEM 4 Submission of Matters to a Vote of Security Holders............................. 33
ITEM 5 Other Information............................................................... 33
ITEM 6 Exhibits and Reports on Form 8-K ............................................... 33
SIGNATURES...................................................................... 34
</TABLE>
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
--------------- -----------------
<S> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents ............................................. $ 99,353 $ 48,021
Accounts receivable, net .............................................. 100,841 53,162
Prepaid event expenses ................................................ 40,241 23,043
Investments in and receivables from theatrical and other productions . 6,504 12,222
Notes receivables from related parties and employees .................. 2,145 972
Other current assets .................................................. 19,474 11,313
--------------- -----------------
Total current assets ................................................. 268,558 148,733
Property and equipment, net of accumulated depreciation and
amortization of $29,619 and $16,988 in 1999 and 1998, respectively ... 352,397 292,626
Goodwill and other intangible assets, net of accumulated amortization
of
$89,571 and $46,709 in 1999 and 1998, respectively .................... 1,221,494 898,433
Investment in and receivables from equity investees .................... 73,956 18,450
Notes receivable from related parties and employees, less current
portion ............................................................... 18,406 12,464
Other assets ........................................................... 20,788 12,746
--------------- -----------------
Total Assets ......................................................... $ 1,955,599 $1,383,452
=============== =================
[continues on next page]
</TABLE>
See accompanying notes.
1
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
--------------- -----------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED)
Current liabilities:
Accounts payable .................................................. $ 23,360 $ 17,712
Accrued expenses .................................................. 59,203 50,887
Accrued interest payable .......................................... 18,274 17,241
Deferred revenue .................................................. 205,701 60,142
Current portion of long-term debt ................................. 4,787 5,581
Current portion of deferred purchase consideration ................ 13,015 11,851
--------------- -----------------
Total current liabilities ........................................ 324,340 163,414
Long-term debt, less current portion ............................... 809,396 768,195
Deferred purchase consideration, less current portion ............. 21,015 7,983
Deferred income taxes .............................................. 39,877 38,826
Other liabilities .................................................. 5,005 1,940
--------------- -----------------
Total liabilities .................................................. 1,199,633 980,358
Minority interest .................................................. 7,812 8,058
Temporary equity--stock subject to redemption ...................... 19,920 16,500
Shareholders' equity:
Preferred Stock, $.01 par value, 25,000,000 shares authorized,
none issued and outstanding as June 30, 1999 and December 31,
1998, respectively ............................................... -- --
Class A common stock, $.01 par value, 100,000,000 shares
authorized,
53,299,683 and 42,919,791 shares issued and outstanding as of
June 30, 1999 and December 31, 1998, respectively ................ 533 429
Class B common stock, $.01 par value, 10,000,000 shares
authorized,
2,545,557 shares issued and outstanding as of June 30, 1999 and
December 31, 1998, respectively .................................. 26 26
Additional paid in capital ......................................... 826,859 449,484
Deferred compensation .............................................. (4,900) (6,533)
Accumulated deficit ................................................ (94,284) (64,870)
--------------- -----------------
Total shareholders' equity ......................................... 728,234 378,536
--------------- -----------------
Total liabilities and shareholders' equity ......................... $ 1,955,599 $1,383,452
=============== =================
</TABLE>
See accompanying notes.
2
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenue ....................................................... $404,753 $231,348
Income from equity investments ................................ 2,932 1,380
------------- -------------
Total revenue................................................. 407,685 232,728
Operating expenses:
Cost of revenues .............................................. 298,029 182,818
Selling, general and administrative expenses................... 53,954 28,667
Corporate expenses ............................................ 5,531 3,036
Depreciation and amortization, including $1,594 of start-up
and integration costs in 1999................................. 32,928 14,746
Non-cash charges .............................................. 1,164 32,052
------------- -------------
391,606 261,319
------------- -------------
Income (loss) from operations.................................. 16,079 (28,591)
Interest expense............................................... (20,004) (11,473)
Investment income.............................................. 998 1,602
Minority interest.............................................. (410) (316)
------------- -------------
Loss before provision for income taxes......................... (3,337) (38,778)
Provision for income taxes..................................... (6,715) (850)
------------- -------------
Net loss....................................................... (10,052) (39,628)
Accretion on stock subject to redemption....................... (912) (825)
------------- -------------
Net loss applicable to common shares........................... $(10,964) $ (40,453)
============= =============
Basic and dilutive net loss per common share................... $ (0.20) $ (1.12)
============= =============
Weighted average basic and dilutive common shares outstanding . 55,822,251 36,126,561
============= =============
</TABLE>
See accompanying notes.
3
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenue...................................................... $679,900 $292,342
Income from equity investments .............................. 3,906 1,825
------------- -------------
Total revenue............................................... 683,806 294,167
Operating expenses:
Cost of revenues ............................................ 509,158 231,665
Selling, general and administrative expenses................. 91,916 37,995
Corporate expenses .......................................... 9,772 4,350
Depreciation and amortization, including $3,022
of start-up and integration costs in 1999................... 59,156 19,174
Non-cash charges ............................................ 2,147 32,052
------------- -------------
672,149 325,236
------------- -------------
Income (loss) from operations................................ 11,657 (31,069)
Interest expense............................................. (38,809) (18,221)
Investment income............................................ 1,588 2,499
Minority interest............................................ (494) (398)
------------- -------------
Loss before provision for income taxes....................... (26,058) (47,189)
Provision for income taxes................................... (1,619) (1,350)
------------- -------------
Net loss..................................................... (27,677) (48,539)
Accretion on stock subject to redemption..................... (1,737) (1,100)
------------- -------------
Net loss applicable to common shares......................... $(29,414) $ (49,639)
============= =============
Basic and dilutive net loss per common share................. $ (0.55) $ (1.71)
============= =============
Weighted average basic and dilutive common shares
outstanding................................................. 53,121,386 29,072,018
============= =============
</TABLE>
See accompanying notes.
4
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net loss ..................................................................... $ (27,677) $ (48,539)
Adjustment to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization................................................ 56,134 19,174
Income from equity investments, net of distributions received ............... 2,932 1,219
Non-cash charges ............................................................ 2,147 32,052
Minority interest............................................................ 494 398
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable, net..................................................... (20,646) (2,546)
Prepaid event expenses, other prepaid expenses and other current assets ..... (13,907) (26,691)
Other assets and notes receivable from related parties and employees ........ (6,741) 1,867
Accounts payable, accrued expenses and other liabilities..................... (32,299) 2,001
Accrued interest payable..................................................... 1,033 13,271
Deferred revenue............................................................. 132,884 79,062
----------- -----------
Net cash provided by operating activities..................................... 94,354 71,268
----------- -----------
Investing activities:
Purchases of businesses, net of cash acquired ............................... (308,933) (515,893)
Purchases of property and equipment.......................................... (26,588) (35,956)
----------- -----------
Net cash used in investing activities......................................... (335,521) (551,849)
----------- -----------
Financing activities:
Proceeds from issuance of Senior Subordinated Notes and
borrowings under the Senior Credit Facility................................. 199,000 527,500
Proceeds from sale of common stock .......................................... 260,697 330,683
Repayment of debt............................................................ (166,285) (32,428)
Payments made to SFX Broadcasting pursuant to the Spin-Off................... -- (89,230)
Other, principally debt issuance costs ...................................... (913) (17,485)
----------- -----------
Net cash provided by financing activities..................................... 292,499 719,040
----------- -----------
Net increase in cash and cash equivalents..................................... 51,332 238,459
Cash and cash equivalents at beginning of period.............................. 48,021 5,979
----------- -----------
Cash and cash equivalents at end of period.................................... $ 99,353 $ 244,438
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest ....................................................... $ 36,299 $ 4,052
=========== ===========
Cash paid for income taxes.................................................... $ 2,715 $ 284
=========== ===========
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
o Issuance of equity securities, including deferred equity security issuance
and assumption of debt in connection with certain acquisitions (see Note 2).
See accompanying notes.
5
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL ACCUMULATED
COMMON COMMON PAID-IN DEFERRED (DEFICIT)
STOCK STOCK CAPITAL COMPENSATION EARNINGS TOTAL
--------- --------- ------------ -------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1998.................... $204 $15 $ 98,111 $ -- $ 3,814 $ 102,144
Net liabilities assumed and shares issued to
employees in the Spin-Off, principally
income taxes ............................... 19 -- (128,564) -- -- (128,545)
Sale of 12,075,000 shares of Class A
common stock................................ 121 -- 328,883 -- -- 329,004
Issuance of 7,951,046 of Class A
common stock for acquisitions............... 79 -- 87,385 -- -- 87,464
Issuance of Class A and B common stock
pursuant to employment agreements........... 3 10 34,608 (8,625) -- 25,996
Amortization of deferred compensation ....... -- -- -- 198 198
Accretion on stock subject to redemption .... -- -- 1,100 -- (1,100) --
Net loss..................................... -- -- -- -- (48,539) (48,539)
--------- --------- ------------ -------------- ------------- -----------
Balances, June 30, 1998 (unaudited) ........ $426 $25 $ 421,523 $ (8,427) $ (45,825) $ 367,722
========= ========= ============ ============== ============= ===========
Balances, January 1, 1999 ................... $429 $26 $ 449,484 $ (6,533) $ (64,870) $ 378,536
Sale of 7,423,500 shares of Class A
common stock................................ 75 -- 260,622 -- -- 260,697
Issuance of 2,925,117 shares of Class A
common stock for acquisitions............... 29 -- 114,499 -- -- 114,528
Issuance of 31,300 shares of Class A common
stock pursuant to the exercise of employee
stock options............................... -- -- 517 -- -- 517
Amortization of deferred compensation ....... -- -- -- 1,633 1,633
Accretion on stock subject to redemption .... -- -- 1,737 -- (1,737) --
Net loss..................................... -- -- -- (27,677) (27,677)
--------- --------- ------------ -------------- ------------- -----------
Balances, June 30, 1999 (unaudited).......... $533 $26 $ 826,859 $ (4,900) $ (94,284) $ 728,234
========= ========= ============ ============== ============= ===========
</TABLE>
See accompanying notes.
6
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
SFX Entertainment, Inc. ("SFX" or the "Company") is the world's largest
diversified promoter, producer and venue operator for live entertainment
events. In addition, SFX is a leading fully integrated sports marketing and
management company specializing in the representation of sports athletes and
broadcasters, integrated event management, television programming and
production and marketing consulting services. SFX owns, partially or
entirely, and/or operates under lease or exclusive booking arrangements the
largest network of venues used principally for music concerts and other live
entertainment events in the United States, with 82 venues in 31 of the top 50
markets, including 16 amphitheaters in the top 10 markets. SFX operates in
four major business segments within the live entertainment industry: music,
theater, sports and family entertainment and other.
SFX was formed as a wholly-owned subsidiary of SFX Broadcasting, Inc.
("SFX Broadcasting") in December 1997 and as the parent company of SFX
Concerts, Inc ("Concerts"). Concerts was formed in January 1997 to acquire
and hold SFX Broadcasting's live entertainment operations.
In August 1997, SFX Broadcasting agreed to the merger among SBI Holdings,
Inc. (the "Buyer"), SBI Radio Acquisition Corporation, a wholly-owned
subsidiary of the Buyer, and SFX Broadcasting (the "Broadcasting Merger") and
to the spin-off of the Company to the shareholders of SFX Broadcasting (the
"Spin-Off"). The Spin-Off was completed on April 27, 1998 and the
Broadcasting Merger was completed on May 29, 1998. Prior to the Spin-Off, SFX
Broadcasting provided various administrative services to the Company. SFX
Broadcasting allocated these expenses on the basis of direct usage. In the
opinion of management, this method of allocation was reasonable and allocated
expenses approximated what the Company would have incurred on a stand-alone
basis. The Company recorded the Spin-Off at the historical cost of the assets
and liabilities contributed by SFX Broadcasting.
In July 1999, the Company completed a three-for-two split of SFX's Class A
and Class B Common Stock. The financial information presented herein has been
restated to reflect the effect of the stock split.
Information with respect to the three and six months ended June 30, 1999
and 1998 is unaudited. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited interim
consolidated financial statements contain all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation of the
consolidated financial position, results of operations and cash flows of the
Company, for the periods presented.
2. ACQUISITIONS AND FINANCING
1999 EQUITY OFFERING
In February 1999, SFX consummated an offering of 7,423,500 shares of the
Company's Class A Common Stock at an offering price of $37.00 per share (the
"1999 Equity Offering") and received net proceeds of approximately $260.7
million. SFX used the proceeds to finance certain of the 1999 Acquisitions.
1999 ACQUISITIONS
Cellar Door
On February 19, 1999, SFX purchased all of the issued and outstanding
capital stock of the Cellar Door group of companies for a purchase price of
$70.0 million in cash, 519,357 shares of Class A Common Stock with an issue
date value of $20.0 million, and $8.5 million payable in five equal annual
installments beginning on the first anniversary of the closing date. In
addition, SFX agreed to issue to the seller options
7
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
to purchase 150,000 shares of Class A Common Stock in equal installments over
the five-year period following the closing date. SFX financed the acquisition
with the proceeds of the 1999 Equity Offering.
Nederlander
On March 16, 1999, SFX acquired certain interests in seven venues and
other assets from entities controlled by members of the Nederlander family
and other persons for an aggregate purchase price of approximately $95.6
million in cash. SFX may also be required to make an additional payment to
the sellers in 2000 of up to $3.2 million depending on the level of earnings
generated by the operations of the Crown Arena in Cincinnati. If SFX sells or
transfers any of the interests in the Crown Arena within ten years of the
closing, SFX will be obligated to pay a portion of the consideration it
receives to the sellers of Nederlander. In addition, the agreement relating
to Mesa del Sol Centre for the Performing Arts provides for additional
payments based on the financial performance of this venue. SFX financed the
acquisition with the proceeds of the 1999 Equity Offering and borrowings
under the Senior Credit Facility.
Marquee
On March 16, 1999, SFX merged with The Marquee Group, Inc. In connection
with the merger, SFX issued approximately 2.1 million shares of SFX Class A
Common Stock with a value of approximately $81.7 million on the date of the
merger and repaid $33.5 million of Marquee's debt. SFX financed the cash
portion of the acquisition with borrowings under the Senior Credit Facility.
Other Acquisitions
During the first quarter of 1999, SFX also completed the acquisitions of:
The Entertainment Group, Inc., a concert and theatrical producer and promoter
with operations in Chicago and Mexico City; Integrated Sports International,
Inc., a full-service sports marketing company; and The RZO Companies a
company involved in business management and tour production in music and the
performing arts. In addition, SFX entered into a long-term marketing and
consulting agreement with respect to the Rosemont Horizon and Rosemont
Theater in the Chicago area and purchased a theater in Denver, Colorado. The
total consideration for these acquisitions and the long-term marketing and
consulting agreement consisted of $68.6 million in cash and 142,766 shares of
Class A Common Stock. SFX financed these acquisitions with the proceeds from
the 1999 Equity Offering and borrowings under the Senior Credit Facility. In
addition, SFX may be required to make additional payments of up to $13.0
million in cash and issue 75,000 shares of Class A Common Stock based on the
financial performance of certain of these acquired companies.
During the second quarter of 1999, SFX also completed the acquisitions of
a fifty percent interest in A.H. Enterprises, a leading promoter of urban
music and Hendricks Management Company, Inc. which represents and provides
financial consulting services to team sports athletes, primarily in
professional baseball. The total consideration for these acquisitions was
approximately $23.2 million in cash and $4.1 million in deferred purchase
consideration. SFX financed these acquisitions with borrowings under the
Senior Credit Facility and cash on hand. In addition, SFX may be required to
make additional payments, in shares of SFX Class A Common Stock, based on the
cumulative financial performance of Hendricks Management Company, Inc.
through December 31, 2002. In addition, the company invested $8.7 million in
certain entertainment-related Internet companies.
1998 ACQUISITIONS
As more fully described in SFX's 1998 Annual Report on Form 10-K, the
Company completed significant acquisitions in each of its four business
segments during 1998. The total purchase price for these acquisitions was
approximately $1.0 billion, including $907.0 million in cash and assumed debt
and
8
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8.25 million shares of Class A Common Stock with a value of approximately
$101.3 million. The shares of Class A Common Stock used to consummate the
1998 Acquisitions that occurred prior to the Spin-Off date were not issued
until the Spin-Off date, which was April 27, 1999.
The 1998 Acquisitions were financed through the $350.0 million Senior
Subordinated Note Offering, the Senior Credit Facility and the 1998 Equity
Offering.
SFX's 1999 and 1998 Acquisitions were accounted for using the purchase
method of accounting. The purchase price of certain of the 1999 and 1998
Acquisitions have been preliminarily allocated to the assets acquired and
liabilities assumed and are subject to change. Operating results for the 1998
and 1999 Acquisitions are included herein from their respective acquisition
dates. The intangible assets created in the purchase transactions will
generally be amortized over periods up to 15 years. The amount of
amortization will be substantial and will continue to affect SFX's operating
results in the future.
The following unaudited pro forma summary represents the consolidated
results of operations for the six months ended June 30, 1999 and the year
ended December 31, 1998 as if the 1998 Acquisitions, the 1999 Acquisitions
and related financings had occurred as of January 1, 1998. These pro forma
results have been included for comparative purposes only and do not purport
to be indicative of what would have occurred had the acquisitions and related
financings been made as of those dates or of the results which may occur in
the future (in thousands, except per share data).
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
---------------- -----------------
<S> <C> <C>
Revenue............................... $697,474 $1,344,074
Net loss.............................. $(24,584) $ (73,091)
Loss applicable to basic and dilutive
common shares........................ $ (.48) $ (1.33)
</TABLE>
3. BUSINESS SEGMENTS
SFX classifies its operations into four major business segments in the
live entertainment industry: music, theater, sports and family entertainment
and other. The music segment primarily consists of the promotion and
production of live entertainment events, most significantly for concert and
other music performances in venues owned (partially or entirely) and/or
operated by SFX and in third party venues. The theater segment develops and
manages touring Broadway shows and other theatrical productions. The sports
segment is as a full-service integrated marketing and management company
specializing in the representation of team sports athletes, as well as
promoting specialized motor sports events. The family entertainment and other
segment primarily consists of the promotion and marketing of family-oriented
events, marketing and consulting of local, regional and national live
marketing programs, subscription or fee based radio and music industry data
compilation and distribution, the creation and distribution of network radio
special events and live concert programming and merchandising at live events.
SFX's operations and revenues have been largely seasonal in nature, with
generally higher revenues generated in the second and third quarters. SFX's
outdoor venues are primarily used in the summer months and do not generate
substantial revenue in the late fall, winter and early spring. SFX's
entertainment marketing and consulting in connection with musical concerts
also predominantly generate revenues in the second and third quarters.
Therefore, the seasonality of SFX's business causes, and will continue to
cause, a significant variation in SFX's quarterly operating results. However,
this variation may be somewhat offset with non-summer seasonal businesses
such as motor sports, which is winter-seasonal, and touring Broadway shows,
which typically tour between September and May. In addition, the acquisition
of Marquee and Integrated Sports International in the first quarter of 1999
and FAME in the second quarter of 1998 are expected to lessen the seasonal
variations, since these sports segment businesses generally earn revenue
ratably over the year.
9
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company evaluates performance based on several factors, of which the
primary financial measure is EBITDA since this measure approximates the cash
flow generated by each segment. EBITDA is defined as earnings before
interest, taxes, other income and depreciation and amortization. The Company
also excludes non-cash charges from EBITDA. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies contained in SFX's 1998 Annual Report on Form 10-K.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS)
-------------------------------------------------------------------------------
FAMILY
ENTERTAINMENT
MUSIC THEATRICAL SPORTS AND OTHER CORPORATE TOTAL
------------ ------------ ---------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total revenue.................... $ 243,457 $ 60,593 $ 26,809 $ 76,826 $ -- $ 407,685
============ ============ ========== =============== =========== ===========
EBITDA........................... $ 37,933 $ 4,611 $ 4,611 $ 8,547 $(5,531) $ 50,171
Depreciation and amortization .. 20,021 1,606 5,970 4,873 458 32,928
Non-cash charges................. -- -- -- -- 1,164 1,164
------------ ------------ ---------- --------------- ----------- -----------
Income (loss) from operations .. $ 17,912 $ 3,005 $ (1,359) $ 3,674 $ (7,153) $ 16,079
============ ============ ========== =============== =========== ===========
Total assets as of June 30,
1999............................ $1,131,446 $210,651 $372,257 $176,081 $65,164 $1,955,599
============ ============ ========== =============== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998 (IN THOUSANDS)
-----------------------------------------------------------------------------
FAMILY
ENTERTAINMENT
MUSIC THEATRICAL SPORTS AND OTHER CORPORATE TOTAL
---------- ------------ ---------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total revenue................... $151,281 $ 49,361 $ 6,069 $ 26,017 $ -- $ 232,728
========== ============ ========== =============== =========== ===========
EBITDA.......................... $ 11,176 $ 5,195 $ (211) $ 5,083 $ (3,036) $ 18,207
Depreciation and amortization . 8,116 918 830 2,190 2,692 14,746
Non-cash charges ............... -- -- -- -- 32,052 32,052
---------- ------------ ---------- --------------- ----------- -----------
Income (loss) from operations . $ 3,060 $ 4,277 $ (1,041) $ 2,893 $(37,780) $ (28,591)
========== ============ ========== =============== =========== ===========
Total assets as of December 31,
1998........................... $734,043 $223,672 $188,390 $171,246 $ 66,102 $1,383,452
========== ============ ========== =============== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS)
---------------------------------------------------------------------------
FAMILY
ENTERTAINMENT
MUSIC THEATRICAL SPORTS AND OTHER CORPORATE TOTAL
---------- ------------ --------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total revenue.................. $353,270 $140,976 $82,697 $106,863 $ -- $683,806
========== ============ ========= =============== =========== ==========
EBITDA......................... $ 39,769 $ 12,193 $18,841 $ 11,929 $ (9,772) $ 72,960
Depreciation and amortization 35,307 4,078 9,016 9,510 1,245 59,156
Non-cash charges............... -- -- -- -- 2,147 2,147
---------- ------------ --------- --------------- ----------- ----------
Income (loss) from operations $ 4,462 $ 8,115 $ 9,825 $ 2,419 $(13,164) $ 11,657
========== ============ ========= =============== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998 (IN THOUSANDS)
---------------------------------------------------------------------------
FAMILY
ENTERTAINMENT
MUSIC THEATRICAL SPORTS AND OTHER CORPORATE TOTAL
---------- ------------ --------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total revenue.................. $177,724 $68,463 $11,865 $36,115 $ -- $294,167
========== ============ ========= =============== =========== ==========
EBITDA......................... $ 9,291 $ 7,821 $ 792 $ 6,603 $ (4,350) $ 20,157
Depreciation and amortization 10,743 1,484 1,019 2,342 3,586 19,174
Non-cash charges .............. -- -- -- -- 32,052 32,052
---------- ------------ --------- --------------- ----------- ----------
Income (loss) from operations $ (1,452) $ 6,337 $ (227) $ 4,261 $(39,988) $(31,069)
========== ============ ========= =============== =========== ==========
</TABLE>
10
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Certain items in the three months ended March 31, 1999 and 1998 have been
reclassified to conform to the three months ended June 30, 1999 presentation.
In addition, certain reclassifications have been made to the total assets as
of December 31, 1998 to conform to the presentation of total assets as of
June 30, 1999.
4. DILUTIVE EARNINGS PER SHARE
Outstanding stock options at June 30, 1999 and 1998 had no dilutive effect
on basic earnings per share during the three and six months ended June 30,
1999 and 1998 due to the Company's net loss position.
5. GUARANTEES BY SUBSIDIARIES
The Company is a holding company that has no operating assets or
operations of its own. Substantially all of the Company's subsidiaries are
wholly owned and have jointly and severally guaranteed the Company's Senior
Subordinated Notes (the "Guarantors"). A certain subsidiary which is not
wholly owned (the "Non-Wholly Owned Guarantor Subsidiary") guarantees such
indebtedness and certain subsidiaries (the "Non-Guarantor Subsidiaries") do
not guarantee such indebtedness.
Full financial statements of the Guarantors, Non-Guarantor Subsidiaries or
the Non-Wholly Owned Guarantor Subsidiary have not been included because,
pursuant to their respective guarantees, the Guarantors are jointly and
severally liable with respect to the Senior Subordinated Notes and management
believes that the Non-Guarantor Subsidiaries and Non-Wholly Owned Guarantor
Subsidiary are not material to the Company on a consolidated basis.
Accordingly, the Company does not believe that the information contained in
separate full financial statements of the Guarantors, Non-Guarantor
Subsidiaries or the Non-Wholly Owned Guarantor Subsidiary would be material
to investors. The following are summarized unaudited statements setting forth
certain financial information concerning the Guarantors, the Non-Guarantor
Subsidiaries and the Non-Wholly Owned Guarantor Subsidiary as of and for the
six months ended June 30, 1999 (in thousands).
<TABLE>
<CAPTION>
SFX NON-WHOLLY SFX
ENTERTAINMENT, NON- OWNED ENTERTAINMENT,
INC. GUARANTOR GUARANTOR INC.
(PARENT) GUARANTORS SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- ------------ -------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Current assets................... $ 14,319 $ 231,074 $17,888 $ 5,277 $ -- $ 268,558
Property and equipment, net ..... 13,524 328,419 10,384 70 -- 352,397
Goodwill and other intangible
assets, net..................... 23,725 1,162,775 25,138 9,856 -- 1,221,494
Investment in subsidiaries and
equity investees................ 1,515,494 73,956 -- -- (1,515,494) 73,956
Other non-current assets......... 5,427 31,642 2,125 -- -- 39,194
-------------- ------------ -------------- ------------ -------------- --------------
Total assets.................... $1,572,489 $1,827,866 $55,535 $15,203 $(1,515,494) $1,955,599
============== ============ ============== ============ ============== ==============
Current liabilities.............. $ 48,103 $ 266,591 $11,475 $ 2,350 $ (4,179) $ 324,340
Long-term debt, less current
portion......................... 784,734 24,662 7,574 -- (7,574) 809,396
Other non-current liabilities ... 50,806 15,091 -- -- -- 65,897
Minority interest................ -- 5,589 -- 2,223 -- 7,812
Temporary equity................. 16,500 3,420 -- -- -- 19,920
Shareholders' equity............. 672,346 1,512,513 36,486 10,630 (1,503,741) 728,234
-------------- ------------ -------------- ------------ -------------- --------------
Total liabilities and
shareholders' equity .......... $1,572,489 $1,827,866 $55,535 $15,203 $(1,515,494) $1,955,599
</TABLE>
11
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
SFX NON-WHOLLY SFX
ENTERTAINMENT, NON- OWNED ENTERTAINMENT,
INC. GUARANTOR GUARANTOR INC.
(PARENT) GUARANTORS SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- ------------ -------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................... $ -- $665,436 $7,882 $10,488 $ -- $ 683,806
Operating expenses .............. 10,067 645,225 7,077 9,780 -- 672,149
Interest expense, net ........... 37,417 (725) 994 -- (465) 37,221
Minority interest ............... -- 501 -- (7) -- 494
Provision for income taxes ..... (760) 2,379 -- -- -- 1,619
-------------- ------------ -------------- ------------ -------------- --------------
Net (loss) income............... $ (46,724) $ 18,056 $ (189) $ 715 $ 465 $ (27,677)
============== ============ ============== ============ ============== ==============
Cash flows (used in) provided by
operating activities ........... $ (39,045) $129,780 $1,105 $ 2,514 $ -- $ 94,354
Cash flows used in investing
activities ..................... (260,409) (74,227) (810) (75) -- (335,521)
Cash flows provided by (used in)
financing activities ........... 306,203 (13,423) (281) -- -- 292,499
Cash at the beginning of the
period ......................... 3,685 44,132 111 93 -- 48,021
Cash at the end of the period .. 10,434 86,262 125 2,532 -- 99,353
</TABLE>
The following are summarized unaudited statements setting forth certain
financial information concerning the Guarantors, the Non-Guarantor
Subsidiaries and the Non-Wholly Owned Guarantor Subsidiary for the three
months ended June 30, 1999 (in thousands).
<TABLE>
<CAPTION>
SFX NON-WHOLLY SFX
ENTERTAINMENT, NON- OWNED ENTERTAINMENT,
INC. GUARANTOR GUARANTOR INC.
(PARENT) GUARANTORS SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- ------------ -------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue.................... $ -- $399,553 $7,077 $8,132 $ -- $407,685
Operating expenses......... 5,635 378,851 3,524 7,120 -- 391,606
Interest expense, net ..... 19,408 (173) (230) -- (229) 19,006
Minority interest.......... -- 354 -- 56 -- 410
Provision for income
taxes..................... 5,681 1,034 -- -- -- 6,715
-------------- ------------ -------------- ------------ -------------- --------------
Net (loss) income......... $(30,724) $ 19,487 $3,783 $ 956 $ 229 $(10,052)
============== ============ ============== ============ ============== ==============
</TABLE>
The summarized consolidating balance sheet concerning the Guarantors, the
Non-Guarantor Subsidiaries and the Non-Wholly Owned Guarantor Subsidiaries as
of December 31, 1998 is included in the Company's 1998 Annual Report on Form
10-K.
12
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following are summarized unaudited statements setting forth certain
financial information concerning the Guarantors, the Non-Guarantor
Subsidiaries and the Non-Wholly Owned Guarantor Subsidiary for the six months
ended June 30, 1998 (in thousands).
<TABLE>
<CAPTION>
SFX NON-WHOLLY SFX
ENTERTAINMENT, NON- OWNED ENTERTAINMENT,
INC. GUARANTOR GUARANTOR INC.
(PARENT) GUARANTORS SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- ------------ -------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................... $ -- $291,205 $2,962 $-- $ -- $ 294,167
Operating expenses .............. 40,302 281,874 3,060 -- 325,236
Interest expense, net ........... 15,308 387 299 -- (272) 15,722
Minority interest ............... -- 399 (1) -- 398
Provision for income taxes ..... 1,350 -- -- -- -- 1,350
-------------- ------------ -------------- ------------ -------------- --------------
Net (loss) income .............. $ (56,960) $ 8,545 $ (396) $-- $ 272 $ (48,539)
============== ============ ============== ============ ============== ==============
Cash flows (used in) provided by
operating activities ........... $ (74,347) $141,056 $4,559 $-- $ -- $ 71,268
Cash flows used in investing
activities ..................... (515,893) (35,671) (285) -- -- (551,849)
Cash flows provided by (used in)
financing activities ........... 723,968 (4,834) (94) -- -- 719,040
Cash at the beginning of the
period ......................... -- 2,915 3,064 -- 5,979
Cash at the end of the period .. 133,728 103,466 7,244 -- -- 244,438
</TABLE>
The following are summarized unaudited statements setting forth certain
financial information concerning the Guarantors, the Non-Guarantor
Subsidiaries and the Non-Wholly Owned Guarantor Subsidiary for the three
months ended June 30, 1998 (in thousands).
<TABLE>
<CAPTION>
SFX NON-WHOLLY SFX
ENTERTAINMENT, NON- OWNED ENTERTAINMENT,
INC. GUARANTOR GUARANTOR INC.
(PARENT) GUARANTORS SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- ------------ -------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue.................... $ -- $229,766 $2,962 $-- $ -- $232,728
Operating expenses......... 37,761 220,856 2,702 -- -- 261,319
Interest expense, net ..... 9,922 (74) 227 -- (204) 9,871
Minority interest.......... -- 218 98 -- 316
Provision for income
taxes..................... 850 -- -- -- -- 850
-------------- ------------ -------------- ------------ -------------- --------------
Net (loss) income......... $(48,533) $ 8,766 $ (65) $-- $ 204 $(39,628)
============== ============ ============== ============ ============== ==============
</TABLE>
6. STOCK OPTIONS
Following a recommendation of SFX's compensation committee in the fourth
quarter of 1998, SFX adopted a new incentive stock option plan covering
options to acquire up to 4.5 million shares of Class A Common Stock and
approved the grant of options thereunder to acquire approximately 3.45
million shares of Class A Common Stock at the then fair market value on the
date of approval.
7. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
While the Company is involved in several lawsuits and claims arising in
the ordinary course of business, the Company is not currently a party to any
legal proceeding that management believes would have a material adverse
effect on its business, financial position or results of operations.
13
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SUBSEQUENT EVENTS
PENDING ACQUISITIONS
Apollo
On August 2, 1999, SFX entered into an agreement to acquire Apollo Leisure
Group plc, the largest live theater operator as well as one of the largest
providers of entertainment and leisure management services in the U.K. The
total purchase price for the acquisition is approximately $254 million (based
on the exchange rate as of July 30, 1999) including 979,667 shares of Class A
common stock with a value of approximately $45 million (based on an assumed
market price of $46 per share). The total purchase price is subject to
certain adjustments. Apollo operates, among other venues, three arenas, and a
network of 13 theaters. In connection with the Apollo acquisition, SFX also
expects to acquire 100% of Barry Clayman Concerts, which is a leading
promoter of concert and other live entertainment events in the U.K. SFX
expects to close the Apollo acquisition in the third quarter of 1999.
The non-stock portion of the purchase price will be funded by loan notes.
Under the terms of the loan notes, any one or more of the selling
stockholders may require payment of all or a portion of the principal amount
of the loan notes (together with interest accrued thereon to the date of
payment) at any time commencing nine months after the closing of the
acquisition until the maturity date of the loan notes. The loan notes will
bear interest at a rate of 90% of LIBOR per annum and mature on [the sixth
anniversary of the closing of the Apollo acquisition. SFX's obligations under
the loan notes will be unconditionally guaranteed by certain financial
institutions. In the event that any selling stockholder exercises its right
to require repayment of the loan notes, such repayment is expected to be made
with funds drawn under SFX's New Senior Credit Facility.
Livent
On May 28, 1999, the Company entered into an agreement to purchase certain
assets of Livent Inc. and its affiliates, including three theaters and
intellectual property rights to several current and future Broadway
productions, including Ragtime, Fosse, Phantom of the Opera and Seussical.
The purchase price for this acquisition is approximately $114.2 million
(including a $5.0 million contingent payment), subject to closing and
post-closing adjustments. This transaction has been approved by the
bankruptcy courts in the U.S. and Canada having jurisdiction over Livent's
assets and is expected to close in the third quarter of 1999.
PROPOSED NEW SENIOR CREDIT FACILITY
In July 1999, SFX received a commitment from its lenders for a new
seven-year $1.1 billion senior credit facility which would replace the
existing $350 million Senior Credit Facility and modify certain covenants.
Although no assurances can be given, SFX expects to complete the transaction
in the third quarter of of 1999. At the time of completion, the Company
expects to record an extraordinary charge of $4.3 million in the third
quarter of 1999 related to the write-off of unamortized costs of the Existing
Senior Credit Facility.
CONSENT SOLICITATION
In July 1999, SFX completed a consent solicitation with respect to its
outstanding 9 1/8% Senior Subordinated Notes, whereby it obtained approval
from the holders to modifications of certain covenants in the indentures
governing the notes. The modifications, among other things, provide the
Company with greater flexibility to pursue its operating strategy, including
foreign acquisitions. Fees associated with the transaction of approximately
$13.7 million will be recorded as deferred financing costs on SFX's balance
sheet in the third quarter of 1999.
REGISTRATION STATEMENT
On August 3, 1999, SFX filed a registration statement on Form S-3 to
register an approximate 8.6 million shares of Class A Common Stock. No
assurances can be given regarding the timing or completion of the proposed
equity offering.
14
<PAGE>
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of SFX should be read in conjunction with the consolidated
financial statements and related notes thereto included in this report and
SFX's 1998 Annual Report on Form 10-K. The following discussion contains
certain forward-looking statements that involve risks and uncertainties.
SFX's actual results could differ materially from those discussed herein. SFX
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements made to reflect any future events or
circumstances.
GENERAL
SFX operates primarily in four major business segments within the live
entertainment industry:
o the music segment, which includes booking and promoting music events
and tours, producing music events and tours, owning and operating
concert and other music-related entertainment venues;
o the theater segment, which includes the production and promotion of
theatrical events, particularly touring Broadway shows and owning and
operating theaters;
o the sports segment, which includes talent representation and marketing
of professional athletes and broadcasters and the production and
promotion of motor sports events; and
o the family entertainment & other segment, which includes the
production and promotion of family-orientated events, marketing and
consulting services, publishing of music related trade magazines and
the production and distribution of network radio special events and
concert programming.
SFX sells corporate sponsorships and advertising in each of its segments.
Music
SFX's concert promotion and venue operation business consists primarily of
the promotion of concerts and operation of venues primarily for use in the
presentation of musical events. SFX's primary source of revenues from its
concert promotion activities is ticket sales at events promoted by SFX. As a
venue operator, SFX's primary sources of revenue are sponsorships,
concessions, parking and other ancillary services, derived principally from
events promoted by SFX.
Revenue from ticket sales is affected primarily by the number of events
SFX promotes, the average ticket price and the number of tickets sold. The
average ticket price depends on the popularity of the artist whom SFX is
promoting, the size and type of venue and the general economic conditions and
consumer tastes in the market where the event is being held. Revenue and
margins are also affected significantly by the type of contract entered into
with the artist or the artist's representative. Generally, the promoter or
producer will agree to pay the artist the greater of a minimum guarantee or a
profit sharing payment based on ticket revenue, less certain show expenses.
The promoter or producer assumes the financial risk of ticket sales and is
responsible for local production and advertising of the event. However, in
certain instances, the promoter or producer agrees to accept a fixed fee from
the artist for its services, and the artist assumes all financial risk. When
the promoter or producer assumes the financial risk, all revenue and expenses
associated with the event are recorded. When the artist assumes the risk,
only the fee is recorded. As a result, operating margins would be
significantly greater for fee-based events as opposed to events for which SFX
assumes the risk of ticket sales, although profits per event would tend to be
lower.
15
<PAGE>
SFX's most significant operating expenses are talent fees, production
costs, venue operating expenses, including rent, advertising costs and
insurance expense. The booking of talent in the concert promotion business
generally involves contracts for limited engagements, often involving a small
number of performances. As a producer, SFX is generally responsible for the
booking of talent for a larger number of events, often an artist's entire
tour. Talent fees depend primarily on the popularity of the artist, the
ticket price that the artist can command at a particular venue and the
expected level of ticket sales. Production costs and venue operating expenses
have substantial fixed cost components and lesser variable costs primarily
related to expected attendance.
Theater
SFX's theatrical operations are directed mainly towards the production and
promotion of touring Broadway shows, which generate revenues primarily from
ticket sales and sponsorships. Touring Broadway shows are typically revivals
of previous commercial successes or reproductions of established theatrical
shows currently playing on Broadway in New York City. SFX may also
participate in ancillary revenues, such as concessions and merchandise sales,
depending on its agreement with a particular local promoter/venue operator.
Revenue from ticket sales is primarily affected by the popularity of the
production and the general economic conditions and consumer tastes in the
particular market and venue where the production is presented. To reduce its
dependency on the success of any single touring production, SFX sells advance
annual subscriptions that provide the purchaser with tickets for all of the
shows that SFX intends to promote in the particular market during the touring
season. Historically, approximately 28% of ticket sales for touring Broadway
shows presented by SFX were sold through advance annual subscriptions.
Subscription related revenues received before the event date and other
advance ticket sales are initially recorded on the balance sheet as deferred
revenue; after the event occurs, they are recorded on the statement of
operations as gross revenue. Expenses are capitalized on the balance sheet as
prepaid event expenses until the event occurs. Production expenses are
capitalized on the balance sheet as prepaid event expenses until the tour
begins, at which time all costs are amortized over the expected life of the
tour, which is generally less than one year. Subscriptions for touring
Broadway shows typically cover approximately two-thirds of SFX's break-even
cost point for those shows.
Principal operating expenses related to touring shows include talent,
rent, advertising and royalties. Talent costs are generally fixed once a
production is cast. Rent and advertising expense may be either fixed or
variable based on the arrangement with the particular local promoter/venue
operator. Royalties are generally paid as a percentage of gross ticket sales.
SFX also makes less than 50% equity investments in original Broadway
productions, principally as a means to obtain the touring rights for such
shows. These investments are generally accounted for using either the equity
method or the cost method of accounting, based on the percentage of
ownership. SFX monitors the recoverability of these investments on a regular
basis, and SFX may be required to take write-downs if the original production
closes sooner than expected or if SFX otherwise determines that the
production will not recoup the investment. The timing of any write-downs
could adversely affect operating results in a particular quarter.
Sports
SFX is a leading fully integrated sports marketing and management company
specializing in the representation of sports athletes and broadcasters,
integrated event management, television programming and production and
marketing consulting services. SFX's talent representation and marketing
activities consist principally of the representation of team sports athletes
and broadcasters in contract and endorsement negotiations. SFX also provides
certain investment advisory services to its clients. SFX typically receives a
percentage of monies earned by its clients and a percentage of the
endorsement deals negotiated by SFX. Revenue from these sources is recognized
ratably over the period of the negotiated agreement. Revenue from these
sources is dependent upon a number of variables, many of which are
16
<PAGE>
outside SFX's control, including a player's skill, health, public appeal and
the appeal of the sport in which the player participates. Principal operating
expenses include salaries, wages and travel and entertainment expenses.
The owners of the teams in the NBA had locked out their players from
participation in league activities causing cancellation of some of the games
for the 1998-99 basketball season. The suspension of the NBA season ended on
January 6, 1999, and the NBA season began February 5, 1999 with a reduced
game schedule. The cancellation of over 30 games per team for the current NBA
season had a negative impact on the Sports segment's revenues and EBITDA in
the first quarter of 1999.
SFX's motor sports activities consist principally of the production and
promotion of specialized motor sports, which generate revenues primarily from
ticket sales and sponsorships, as well as merchandising and video rights
associated with producing motor sports events. Ticket prices for these events
are generally lower than for theatrical or music concert events, generally
ranging from $5 to $30. Revenue from these sources is primarily affected by
the type of event and the general economic conditions and consumer tastes in
the particular markets and venues where the events are presented.
Event-related revenues received before the event date are initially recorded
on the balance sheet as deferred revenue. After the event occurs, they are
recorded on the statement of operations as gross revenue.
Operating expenses associated with motor sports activities include talent,
rent, track preparation costs, security and advertising. These operating
expenses are generally fixed costs that vary based on the type of event and
venue where the event is held. Expenses are deferred on the balance sheet as
prepaid event expenses until the event occurs.
Family Entertainment & Other
The family entertainment segment produces and presents family-oriented
entertainment such as children's theatrical shows, dance shows, ice-skating,
and gymnastics shows.
SFX's other principal businesses include the production and distribution
of radio industry trade magazines, the production of radio programming
content and show-prep material and the provision of radio air play and music
retail research services. The primary sources of revenues from these
activities include the sale of advertising space in its publications and the
sale of advertising time on radio stations that carry its syndicated shows,
subscription fees for its trade publications and subscription fees for access
to its database of radio play lists and audience data. Revenues generally
vary based on the overall advertising environment and competition.
SFX also provides marketing and consulting services pursuant to contracts
with individual clients for specific projects. Revenues from and costs
related to these services vary based on the type of service being provided
and the incremental associated costs.
1998 ACQUISITIONS
During 1998, SFX completed the following acquisitions (financial data and
number of shares, adjusted for the July 1999 3-for-2 stock split, in
thousands):
17
<PAGE>
<TABLE>
<CAPTION>
CASH
CONSIDERATION VALUE OF NUMBER
DATE AND ASSUMED STOCK OF SHARES BUSINESS
COMPANY ACQUIRED DEBT ISSUED ISSUED SEGMENT
- ------------------ ---------- --------------- ---------- ----------- ---------------------------------
<S> <C> <C> <C> <C> <C>
Bill Graham 2/24/98 $ 72,827 $ 7,500 845 Music and Family Entertainment &
Presents Other
PACE and Pavilion 2/25/98 220,683 20,000 2,250 Music, Theatrical and Sports
Contemporary 2/27/98 82,702 16,834 1,895 Music and Family Entertainment &
Other
Network 2/27/98 56,784 10,000 1,125 Other
Concert/Southern 3/4/98 16,908 -- -- Music
FAME 6/4/98 82,241 35,960 1,500 Sports
Don Law 7/2/98 92,195 -- -- Music
Magicworks 9/11/98 115,740 -- -- Theatrical and Family
Entertainment & Other
Other acquisitions Various 166,961 11,000 563 Music, Theatrical, Sports, Family
Entertainment & Other
--------------- ---------- -----------
Total $907,041 $101,294 8,178
=============== ========== ===========
</TABLE>
The above table is a summary of the 1998 Acquisitions. The funds required to
finance the 1998 Acquisitions were obtained from SFX's $350.0 million note
offering in February 1998, SFX's existing senior credit facility (the "Existing
Senior Credit Facility") and the SFX 1998 equity offering (the "1998 Equity
Offering."). A detailed description of the 1998 Acquisitions is also included in
SFX's 1998 Annual Report on Form 10-K.
Pursuant to the 1998 Acquisition agreements and the related agreements,
SFX:
o under certain circumstances, may be required to repurchase shares of
its Class A Common Stock or make additional payments in connection
therewith (see "--Liquidity and Capital Resources--Future Contingent
Payments");
o has granted certain rights of first refusal, certain of which are
exercisable at 95% of the proposed purchase price; and
o in connection with the PACE acquisition, has granted Brian Becker, an
Executive Vice President, a Member of the Office of the Chairman and a
director of SFX, the option to acquire, after February 25, 2000, SFX's
then existing motor sports line of business or, if that business has
previously been sold, SFX's then existing theatrical line of business,
in each case at its then fair market value.
1999 ACQUISITIONS
<TABLE>
<CAPTION>
CASH
CONSIDERATION VALUE OF NUMBER
DATE AND ASSUMED STOCK OF SHARES BUSINESS
COMPANY ACQUIRED DEBT ISSUED ISSUED SEGMENT
- ------------------ ---------- --------------- ---------- ----------- -------------------------
<S> <C> <C> <C> <C> <C>
Cellar Door 2/19/99 $ 76,788 $ 20,000 519 Music
Marquee 3/16/99 33,546 81,669 2,103 Sports
NEDCO 3/16/99 95,625 -- -- Music
Other Acquisitions various 100,563 5,233 143 Music, Theatrical, Sports
& Family Entertainment
--------------- ---------- -----------
$306,522 $106,902 2,765
=============== ========== ===========
</TABLE>
The above table is a summary of the 1999 Acquisitions. The following is a
detailed description of the acquisitions.
18
<PAGE>
Cellar Door
On February 19, 1999, SFX purchased all of the issued and outstanding
capital stock of the Cellar Door group of companies for a purchase price of
$70.0 million in cash, 519,357 shares of Class A Common Stock with an issue
date value of $20.0 million, and $8.5 million payable in five equal annual
installments beginning on the first anniversary of the closing date. In
addition, SFX has agreed to issue to the seller options to purchase 150,000
shares of Class A Common Stock in equal installments over the five-year
period following the closing date. SFX financed this acquisition with the
proceeds of the 1999 Equity Offering.
Nederlander
On March 16, 1999, SFX acquired certain interests in seven venues and
other assets of Nederlander for an aggregate purchase price of approximately
$95.6 million in cash. The agreement relating to the former Nederlander
venues in Cincinnati requires SFX to make a payment to the sellers in 2000 of
up to $3.2 million depending on the level of earnings generated by the
operations of the Crown Arena. If SFX sells or transfers any of the interests
in Crown Arena within ten years of the closing, SFX will be obligated to pay
a portion of the consideration it receives to the sellers of Nederlander. The
agreement relating to the Mesa del Sol Centre for the Performing Arts
provides for additional payments based on the financial performance of this
venue. SFX financed this acquisition with the proceeds of the 1999 Equity
Offering and borrowings under the Existing Senior Credit Facility.
Marquee
On March 16, 1999, a wholly owned subsidiary of SFX was merged with and
into The Marquee Group, Inc. and Marquee became a wholly owned subsidiary of
SFX. In connection with the merger, SFX issued approximately 2.1 million
shares of SFX Class A Common Stock with a value of approximately $81.7
million on the date of the merger and repaid $33.5 million of Marquee's debt.
SFX financed the cash portion of this acquisition with borrowings under the
Existing Senior Credit Facility.
Other Acquisitions
During the first quarter of 1999, SFX also completed the acquisitions of:
The Entertainment Group, Inc., a concert and theatrical producer and promoter
with operations in Chicago and Mexico City; Integrated Sports International,
Inc., a full-service sports marketing company; and a company involved in
business management and tour production in music and the performing arts. In
addition, SFX entered into a long-term marketing and consulting agreement
with respect to the Rosemont Horizon and Rosemont Theater in the Chicago Area
and purchased a theater in Denver, Colorado. The total consideration for
these acquisitions and the long-term marketing and consulting agreement
consisted of $68.6 million in cash and 142,766 shares of Class A Common
Stock. SFX financed these acquisitions with the proceeds from its 1999 Equity
Offering. In addition, SFX may be required to make additional payments of up
to $13.0 million in cash and 75,000 shares of Class A Common Stock based on
the financial performance of certain of these acquired companies.
During the second quarter of 1999, SFX also completed the acquisitions of
a fifty percent interest in A.H. Enterprises, a leading promoter of urban
music, and Hendricks Management Company, Inc., which represents and provides
financial consulting services to team sports athletes, primarily in
professional baseball. The total consideration for these acquisitions was
approximately $23.2 million in cash and $4.1 million in deferred purchase
consideration. SFX financed these acquisitions with borrowings under the
Existing Senior Credit Facility and cash on hand. In addition, SFX may be
required to make additional payments, in shares of SFX Class A Common Stock,
based on the cumulative financial performance of Hendricks Management
Company, Inc. through December 31, 2002. In addition, SFX invested $8.7
million in certain entertainment-related Internet companies.
SFX's 1998 and 1999 acquisitions were accounted for using the purchase
method of accounting. The purchase price of certain of the 1998 and 1999
acquisitions has been preliminarily allocated to the assets acquired and the
liabilities assumed and are subject to change. Operating results of the 1998
and 1999
19
<PAGE>
acquisitions are included herein from their respective acquisition dates. The
intangible assets created in the purchase transactions will generally be
amortized against future earnings, if any, over periods up to 15 years. The
amount of amortization will be substantial and will continue to affect SFX's
operating results in the future. These expenses, however, do not result in an
outflow of cash by SFX and do not impact EBITDA.
Pending Acquisitions
Apollo
On August 2, 1999, SFX entered into an agreement to acquire Apollo Leisure
Group plc, the largest live theater operator as well as one of the largest
providers of entertainment and leisure management services in the U.K. The
total purchase price for the acquisition is approximately $254 million (based
on the exchange rate as of July 30, 1999) including 979,667 shares of Class A
common stock with a value of approximately $45 million (based on an assumed
market price of $46 per share). The total purchase price is subject to
certain adjustments. Apollo operates, among other venues, three arenas, and a
network of 13 theaters. In connection with the Apollo acquisition, SFX also
expects to acquire 100% of Barry Clayman Concerts, which is a leading
promoter of concert and other live entertainment events in the U.K. SFX
expects to close the Apollo acquisition in the third quarter of 1999.
The non-stock portion of the purchase price will be funded by loan notes.
Under the terms of the loan notes, any one or more of the selling
stockholders may require payment of all or a portion of the principal amount
of the loan notes (together with interest accrued thereon to the date of
payment) at any time commencing nine months after the closing of the
acquisition until the maturity date of the loan notes. The loan notes will
bear interest at a rate of 90% of LIBOR per annum and mature on the sixth
anniversary of the closing of the Apollo acquisition. SFX's obligations under
the loan notes will be unconditionally guaranteed by certain financial
institutions. In the event that any selling stockholder exercises its right
to require repayment of the loan notes, such repayment is expected to be made
with funds drawn under SFX's New Senior Credit Facility.
Livent
On May 28, 1999, the Company entered into an agreement to purchase certain
assets of Livent Inc. and its affiliates, including three theaters and
intellectual property rights to several current and future Broadway
productions, including Ragtime, Fosse, Phantom of the Opera and Seussical.
The purchase price for this acquisition is approximately $114.2 million
(including a $5.0 million contingent payment), subject to closing and
post-closing adjustments. This transaction has been approved by the
bankruptcy courts in the U.S. and Canada having jurisdiction over Livent's
assets and is expected to close in the third quarter of 1999.
SFX is also currently pursuing certain additional acquisitions in the
United States and Europe; however, it has not entered into any definitive
agreements with respect to such acquisitions, and there can be no assurance
that it will do so.
1999 FINANCINGS
1999 Equity Offering
In February, 1999, SFX consummated an offering of 4,949,000 shares of
Class A Common Stock (7,423,500 shares on a post-split basis) at an offering
price of $55.50 per share, or $37.00 on a post-split basis (the "1999 Equity
Offering"). SFX received net proceeds of approximately $260.7 million from
the offering. SFX used the proceeds to finance certain of the 1999
Acquisitions and to repay indebtedness under the revolving portion of the
Existing Senior Credit Facility.
Consent Solicitation
In July 1999, SFX completed a consent solicitation with respect to its
outstanding 9 1/8% senior subordinated notes whereby it obtained approval
from the holders to modifications of certain covenants
20
<PAGE>
in the indentures governing the notes. The modifications, among other things,
provide SFX with greater flexibility to pursue its operating strategy,
including foreign acquisitions. Fees associated with the transaction of
approximately $13.7 million will be recorded as deferred financing costs on
SFX's balance sheet in the third quarter of 1999.
Proposed New Senior Credit Facility
In July 1999, SFX received a commitment for the New Senior Credit
Facility, which is expected to be comprised of a $250.0 million multi-draw,
multi-currency term loan maturing on December 31, 2005 (the "Term A Loan"), a
$600.0 million single-draw, U.S. dollar term loan maturing on June 30, 2006
(the "Term B Loan") and a $250.0 million reducing revolver (having a letter
of credit sub-limit of $75.0 million) maturing on December 31, 2005. No
assurances can be given that the New Senior Credit Facility will be
consummated on the terms described herein or at all. Upon consummation of the
Proposed New Senior Credit Facility SFX expects to record an extraordinary
charge of $2.7 million (net of tax of $1.7 million) in the third quarter of
1999 related to the unamortized costs associated with the Existing Senior
Credit Facility.
RESULTS OF OPERATIONS
The operating performances of entertainment companies, such as SFX, are
measured, in part, by their ability to generate EBITDA. Further, SFX uses
EBITDA, excluding non-cash compensation, as the primary indicator of its
operating performance and as a measure of liquidity. "EBITDA" is defined as
earnings before interest, taxes, minority interest and depreciation and
amortization. Although EBITDA is not a measure of performance calculated in
accordance with GAAP, SFX believes that the entertainment industry accepts
EBITDA as a generally recognized measure of performance and analysts who
report publicly on the performance of entertainment companies use EBITDA.
Nevertheless, you should not consider this measure in isolation or as a
substitute for operating income, net income, net cash provided by operating
activities or any other measure for determining our operating performance or
liquidity that is calculated in accordance with GAAP. EBITDA, as SFX
calculates it, may not be comparable to calculations of similarly titled
measures presented by other companies.
SFX's operations and revenues have been largely seasonal in nature, with
generally higher revenues generated in the second and third quarters. For
example, on a pro forma basis for the 1998 and 1999 Acquisitions, SFX
generated approximately 60% of its revenues in the second and third quarters
for the year ended December 31, 1998. SFX's outdoor venues are primarily used
in the summer months and do not generate substantial revenue in the late
fall, winter and early spring. Similarly, the musical concerts that SFX
promotes largely occur in the second and third quarters. SFX's entertainment
marketing and consulting in connection with musical concerts also
predominately generate revenues in the second and third quarters.
Therefore, the seasonality of SFX's business causes--and will probably
continue to cause--a significant variation in SFX's quarterly operating
results. These variations in demand could have a material adverse effect on
the timing of SFX's cash flows and, therefore, on its ability to service its
obligations with respect to its indebtedness. However, SFX believes that this
variation may be somewhat offset with the acquisition of typically non-summer
seasonal businesses in several of the 1998 and 1999 Acquisitions, such as
motor sports, which is winter-seasonal, and touring Broadway shows, which
typically tour between September and May.
HISTORICAL RESULTS
Three months ended June 30, 1999 as compared to the three months ended June
30, 1998
During 1998 and the first six months of 1999, SFX made significant
acquisitions. These acquisitions significantly increased the concert
promotion and venues operation business and expanded SFX's business
21
<PAGE>
to include the theatrical, sports and family entertainment & other segments. The
1998 and 1999 Acquisitions were the primary reason for each of the segment's
1999 increases in revenue, EBITDA and operating income, before corporate charges
as compared to the same period in 1998. The following table summarizes each
segment's operating performance for the three months ended June 30, 1999 and
1998 (in thousands):
<TABLE>
<CAPTION>
REVENUE EBITDA OPERATING (LOSS) INCOME
----------------------- -------------------- -----------------------
1999 1998 1999 1998 1999 1998
---------- ----------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Segments:
Music ...................... $243,457 $151,281 $37,933 $11,176 $17,912 $ 3,060
Theatrical ................. 60,593 49,361 4,611 5,195 3,005 4,277
Sports ..................... 26,809 6,069 4,611 (211) (1,359) (1,040)
Family entertainment &
other...................... 76,826 26,017 8,547 5,083 3,674 2,893
---------- ----------- --------- --------- ---------- -----------
Segment performance ......... $407,685 $232,728 $55,702 $21,243 $23,232 $ 9,189
Corporate expenses and
non-cash compensation .... -- -- (5,531) (3,036) (7,153) (37,780)
---------- ----------- --------- --------- ---------- -----------
Total ....................... $407,685 $232,728 $50,171 $18,207 $16,079 $ (28,591)
========== =========== ========= ========= ========== ===========
</TABLE>
SFX's total revenue increased by $175.0 million to $407.7 million for the
three months ended June 30, 1999, compared to $232.7 million for the three
months ended June 30, 1998, primarily as a result of $119.8 million attributable
to the 1998 Acquisitions acquired subsequent to June 30, 1998 and the 1999
Acquisitions. The acquisitions of Cellar Door, Don Law and Nederlander were the
primary contributors to the $44.3 million increase in revenue relating to
acqusitions in the music segment. The acquisitions of Magicworks and EMI
contributed to the $44.6 million increase in revenue relating to acquisitions in
the family entertainment & other segment.
In addition, revenue increased $55.2 million at businesses owned during both
periods. The music segment, which contributed $48.1 million of this increase
in revenue, benefited from increased tour production and concert activity.
Incremental sponsorship agreements and the impact of new supplier contracts also
contributed to the increased revenue.
Cost of revenue increased by $115.2 million to $298.0 million for the
three months ended June 30, 1999, compared to $182.8 million for the three
months ended June 30, 1998, primarily as a result of $87.2 million
attributable to the 1998 and 1999 Acquisitions and $28.0 million related to
the increase in tour production and concert activity in the music segment.
Selling, general and administrative expenses increased by $25.3 million to
$54.0 million for the three months ended June 30, 1999 as compared to $28.7
million for the three months ended June 30, 1998, primarily as a result of
$16.6 million attributable to the 1998 and 1999 Acquisitions and $8.7 million
related to the growth of the Company's touring operations in the music
segment and costs associated with the growth of the Company's overall
operations.
Corporate expenses were $5.5 million for the three months ended June 30,
1999 compared to $3.0 million for the three months ended June 30, 1998. The
increase in corporate expenses reflects the additional administrative
overhead needed to support the growth of SFX's operations and the costs
incurred to begin trading on the New York Stock Exchange.
Depreciation and amortization expense increased to $32.9 million for the
three months ended June 30, 1999, compared to $14.8 million for the three
months ended June 30, 1998, primarily as a result of the increase in the
amortization of goodwill related to the 1998 and 1999 Acquisitions. In
addition, SFX recorded $998,000 of start-up costs related to the opening of a
family entertainment project and $596,000 of costs to integrate the acquired
businesses during the three months ended June 30, 1999. SFX recorded the
fixed assets and identifiable intangible assets of its 1998 and 1999
Acquisitions at fair value and recorded goodwill equal to the excess of
purchase price over the fair value of the net tangible assets, which are
being amortized over periods ranging up to 15 years.
22
<PAGE>
Non-cash compensation of $1.2 million principally consisted of charges
related to 517,500 options which vest over six years and have an exercise
price of $3.67 per share.
Non-cash charges recorded in the second quarter of 1998 of $32.1 million
consisted of (a) $23.9 million of compensation related to sale of 975,000
shares of Class B Common Stock and 285,000 shares of Class A Common Stock at
a purchase price of $1.33 per share to certain executive officers pursuant to
employment agreements (b) $7.5 million associated issuance of 370,766 shares
of Class A Common Stock to Mr. Sillerman in connection with the Meadows
Repurchase and (c) $573,000 related to the issuance of stock options to
certain executive officers pursuant to employment agreements exercisable for
an aggregate of 378,750 shares of Class A Common Stock. These options vest
over three years and have an exercise price of $3.67 per share. The Company
is recording non-cash compensation charges of approximately $3.3 million
annually over the three-year exercise period.
The operating income was $16.1 million for the three months ended June 30,
1999, compared to an operating loss of $28.6 million for the three months
ended June 31, 1998, due to the matters discussed above.
Interest expense, net of investment income, was $19.0 million in the three
months ended June 30, 1999, compared to $9.9 million for the three months
ended June 30, 1998, primarily as a result of the additional debt incurred to
consummate the 1998 and 1999 Acquisitions.
Minority interest was $410,000 for the three months ended June 30, 1999,
compared to $316,000 for the three months ended June 30, 1998, primarily
relating to certain theatrical productions and a merchandising company which
were acquired in 1998.
The Company recorded a income tax provision of $6.7 million and $850,000
for the three months ended June 30, 1999 and 1998, respectively. The
provision is for federal, state and local taxes. The provision is different
from the statutory rate as a result of non-deductible goodwill amortization.
The provision for income taxes in 1998 was primarily related to state and
local taxes. No federal tax benefit was recorded in 1998 due to the
uncertainty of realizing a tax benefit for SFX's losses.
SFX's net loss decreased to $10.1 million for the three months ended June
30, 1999, as compared to net loss of $39.6 million for the three months ended
June 30, 1998, due to the factors discussed above. SFX's net loss applicable
to common shares decreased to $11.0 million for the three months ended June
30, 1999, as compared to $40.5 million for the three months ended June
30,1998 as a result of factors discussed above.
EBITDA, excluding non-cash compensation of $1.2 million in 1999 and $32.1
million in 1998, was $50.2 million for the three months ended June 30, 1999
compared to $18.2 million for the three months ended June 30, 1998. The
EBITDA increase of $32.0 million was primarily the result of an $20.5
improvement in operating performance in businesses owned for both periods,
partially offset by a $2.5 million increase in corporate expenses. The music
segment, which contributed $18.2 million of this $20.5 million increase
in EBITDA at businesses owned for both periods, benefited from increased tour
production and concert activity. Incremental sponsorship agreements and new
vendor contracts also contributed to the increase in EBITDA. In addition, the
1998 and 1999 Acquisitions contributed $14.0 million of the total $32.0 million
increase in EBITDA, principally in the music and sports segments.
Six months ended June 30, 1999, as compared to the six months ended June
30, 1998.
During 1998 and the first six months of 1999, SFX made significant
acquisitions in each of its business segments. These acquisitions
significantly increased the concert promotion and venues operation business
and expanded SFX's business to include the theatrical, sports and family
entertainment & other segments. The 1998 and 1999 Acquisitions were the primary
reason for each of the segment's 1999 increases in revenue, EBITDA and operating
income, before corporate charges as compared to the same period in 1998. The
following table summarizes each segment's operating performance for the six
months ended June 30, 1999 and 1998 (in thousands):
23
<PAGE>
<TABLE>
<CAPTION>
REVENUE EBITDA OPERATING (LOSS) INCOME
----------------------- -------------------- -----------------------
1999 1998 1999 1998 1999 1998
---------- ----------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Segments:
Music .................. $353,270 $177,724 $39,769 $ 9,291 $ 4,462 $ (1,452)
Theatrical ............. 140,976 68,463 12,193 7,821 8,115 6,337
Sports ................. 82,697 11,865 18,841 792 9,825 (227)
Family entertainment
and other ............. 106,863 36,115 11,929 6,603 2,419 4,261
---------- ----------- --------- --------- ---------- -----------
Segment performance .... $683,806 $294,167 $82,732 $24,507 $ 24,821 $ 8,919
Corporate expenses and
non-cash compensation -- -- (9,772) (4,350) (13,164) (39,988)
---------- ----------- --------- --------- ---------- -----------
Total ................... $683,806 $294,167 $72,960 $20,157 $ 11,657 $(31,069)
========== =========== ========= ========= ========== ===========
</TABLE>
SFX's total revenue increased by $389.6 million to $683.8 million for the
six months ended June 30, 1999, compared to $294.2 million for the six months
ended June 30, 1998, primarily as a result of $294.9 million attributable to the
1998 Acquisitions acquired subsequent to June 30, 1998 and the 1999
Acquisitions. The acquisitions of Cellar Door, Don Law and Nederlander were the
primary contributors to $108.4 million increase in revenue related to
acquisitions in the music segment. The acquisitions of Magicworks and EMI were
the primary contributors to the $69.6 million increase in revenue related to
acquisitions in the family entertainment & other segment.
In addition, revenue increased $94.7 million at businesses owned during
both periods. The music segment, which contributed $67.2 million of this
increase, benefited from increased tour production and concert activity.
Incremental sponsorship agreements and the impact of new supplier contracts also
contributed to the increased revenue.
Cost of revenue increased by $277.5 million to $509.2 million for the six
months ended June 30, 1999, compared to $231.7 million for the six months
ended June 30, 1998, primarily as a result of $205.6 million attributable to
the 1998 and 1999 Acquisitions and $71.9 million related to the increase in
tour production and concert activity in the music segment.
Selling, general and administrative expenses increased by $53.9 million to
$91.9 million for the six months ended June 30, 1999 as compared to $38.0
million for the six months ended June 30, 1998, primarily as a result of
$43.4 million attributable to the 1998 and 1999 Acquisitions and $10.5
million related to the growth of the Company's touring operations in the
music segment and costs associated with the growth of the Company's overall
operations.
Corporate expenses were $9.8 million for the six months ended June 30,
1999 compared to $4.4 million for the six months ended June 30, 1998. The
increase in corporate expenses reflects the additional administrative
overhead needed to support the growth of SFX's operations and the costs
incurred to begin trading on the New York Stock Exchange.
Depreciation and amortization expense increased to $59.2 million for the
six months ended June 30, 1999, compared to $19.2 million for the six months
ended June 30, 1998, primarily as a result of the increase in the
amortization of goodwill related to the 1998 and 1999 Acquisitions. In
addition, SFX recorded $2.4 million of start-up costs related to the opening
of a family entertainment project and $598,000 of costs to integrate the
acquired businesses during the six months ended June 30, 1999. SFX recorded
the fixed assets and identifiable net assets of its 1998 and 1999
Acquisitions at fair value and recorded goodwill equal to the excess of
purchase price over the fair value of the net tangible assets, which are
being amortized over periods ranging up to 15 years.
Non-cash compensation of $2.1 million consisted of charges related to
517,500 options which vest over six years and have an exercise price of $3.67
per share and a deferred compensation plan for each non-employee director,
adopted in January 1998, whereby each director was credited with the right to
receive 8,183 shares of Class A Common Stock based upon a stock price of
$3.67 per share.
Non-cash charges recorded in the second quarter of 1998 of $32.1 million
consisted of (a) $23.9 million of compensation related to sale of 975,000
shares of Class B Common Stock and 285,000
24
<PAGE>
shares of Class A Common Stock at a purchase price of $1.33 per share to
certain executive officers pursuant to employment agreements (b) $7.5 million
associated issuance of 370,766 shares of Class A Common Stock to Mr.
Sillerman in connection with the Meadows Repurchase and (c) $573,000 related
to the issuance of stock options to certain executive officers pursuant to
employment agreements exercisable for an aggregate of 378,750 shares of Class
A Common Stock. These options vest over three years and have an exercise
price of $3.67 per share. The Company is recording non-cash compensation
charges of approximately $3.3 million annually over the three-year exercise
period.
Income from operations was $11.7 million for the six months ended June 30,
1999, compared to an operating loss of $31.1 million for the six months ended
June 31, 1998, due to the matters discussed above.
Interest expense, net of investment income, was $37.2 million in the six
months ended June 30, 1999, compared to $15.7 million for the six months
ended June 30, 1998, primarily as a result of the additional debt incurred to
consummate the 1998 and 1999 Acquisitions.
Minority interest was $494,000 for the six months ended June 30, 1999,
compared to $398,000 for the six months ended June 30, 1998, primarily
relating to certain theatrical productions and a merchandising company which
were acquired in 1998.
The Company recorded an income tax provision of $1.6 million and $1.4
million for the six months ended June 30, 1999 and 1998, respectively. The
provision is for federal, state and local taxes. The provision is different
from the statutory rate as a result of non-deductible goodwill amortization.
The provision for income taxes in 1998 was primarily related to state and
local taxes. No federal tax benefit was recorded in 1998 due to the
uncertainty of realizing a tax benefit for SFX's losses.
SFX's net loss decreased to $27.7 million for the six months ended June
30, 1999, as compared to net loss of $48.5 million for the six months ended
June 30, 1998, due to the factors discussed above. SFX's net loss applicable
to common shares decreased to $29.4 million for the six months ended June 30,
1999, as compared to $49.6 million for the six months ended June 30,1998 as a
result of factors discussed above.
EBITDA, excluding non-cash compensation of $2.1 million in 1999 and $32.1
million in 1998, was $73.0 million for the six months ended June 30, 1999
compared to $20.2 million for the six months ended June 30, 1998. This
increase of $52.8 million was primarily the result of the acquisitions in
each of the segments, which contributed $40.3 million in EBITDA growth. In
addition, businesses owned for both periods contributed $17.9 million of
incremental EBITDA, partially offset by a $5.4 million increase in corporate
expenses. The increase in EBITDA for businesses owned for both periods resulted
from an increase in the music segment, principally due to increased tour
production and concert activity. In addition, incremental sponsorship agreements
and new vendor contracts enhanced operating performance.
LIQUIDITY AND CAPITAL RESOURCES
SFX's principal need for funds has been for acquisitions, interest
expense, working capital needs, certain payments in connection with the
Spin-Off and capital expenditures. SFX's principal sources of funds have been
proceeds from two note offerings, proceeds from two equity offerings,
borrowings under the Existing Senior Credit Facility and cash flows from
operations.
Historical Cash Flows
Net cash provided by operations was $94.4 million for the six months ended
June 30, 1999, as compared to $71.3 million for the six months ended June 30,
1998. The increase was primarily attributable to improved cash operating
results and a substantial increase in deferred revenue, partially offset by
other working capital changes.
Net cash used in investing activities for the six months ended June 30,
1999 was $335.5 million as compared to $551.8 million for the six months
ended June 30, 1998. The decrease in the use of funds was the result of less
acquisition activity in the six months of 1999 as compared to the comparable
period in 1998.
25
<PAGE>
Net cash provided by financing activities for the six months ended June
30, 1999, was $292.5 million as compared to $719.0 million for the six months
ended June 30, 1998. During 1999, SFX completed the 1999 Equity Offering,
yielding net proceeds of $260.7 million and had net borrowings of $38.0
million under the Existing Senior Credit Facility. The proceeds from the 1999
Equity Offering and borrowings under the Existing Senior Credit Facility were
used to finance the 1999 Acquisitions. During the first six months of 1998,
SFX completed a $350 million note offering, had borrowings of $150.0 million
under the Existing Senior Credit Facility, completed the 1998 Equity Offering
for $330.7 million of net proceeds and repaid other net debt of $5.3 million.
In addition, SFX made Spin-Off related payments of $89.2 million and incurred
debt issuance costs of $17.5 million.
Pending Acquisitions
In August 1999, SFX entered into an agreement to acquire Apollo Leisure
Group plc for a total purchase price of approximately $254.0 million (based
on the exchange rate as of July 30, 1999), including approximately 979,667
share of Class A common stock with a value of $45.0 million (based on an
assumed market price of $46.00 per share).On May 28 1999, SFX also entered
into an agreement to acquire certain assets of Livent, Inc. and its
affiliates for an aggregate purchase price of approximately $114.2 million
(including a contingent payment of $5.0 million). The purchase price for each
of the pending Apollo and Livent acquisitions is subject to certain
adjustments. SFX expects to fund these acquisitions with borrowings under the
New Senior Credit Facility and/or the proceeds of a public equity offering.
On August 2, 1999, SFX filed a registration statement covering the sale of
7,500,000 shares of Class A common stock (not including the underwriters'
over-allotment option). No assurances can be given that the proposed equity
offering or the pending acquisitions will be completed.
Under the terms of the loan notes, any one or more of the selling
stockholders may require payment of all or a portion of the principal amount
of the loan notes (together with interest accrued thereon oto the date of
payment) at any time commencing nine months after the closing of the
acquisition until the maturity date of the loan notes. The loan notes will
bear interest at a rate of % per annum and will be unconditionally
guaranteed by certain financial institutions. In the event that any selling
stockholder exercises its right to require repayment of the loan notes, such
repayment is expected to be made with funds drawn under the multi-currency
term loan portion of the New Senior Credit Facility.
The 1999 Equity Offering
In February 1999, SFX consummated an offering of 4,949,000 shares of Class
A common stock (7,423,500 shares on a post-split basis) at an offering price
of $55.50 per share, or $37.00 on a post-split basis. SFX received net
proceeds of approximately $263.7 million from the offering. SFX used the net
proceeds to finance certain of the 1999 acquisitions and to repay
indebtedness under the revolving portion of the Existing Senior Credit
Facility.
Proposed New Senior Credit Facility
In June 1999, SFX received a commitment for the New Senior Credit
Facility, which is expected to be comprised of a $250.0 million multi-draw,
multi-currency term loan maturing on December 31, 2005, a $600.0 million
single-draw, U.S. dollar term loan maturing on June 30, 2006 and a $250.0
million reducing revolver (having a letter of credit sub-limit of $75.0
million) maturing on December 31, 2005. SFX anticipates utilizing the
proceeds from the New Senior Credit Facility to refinance all outstanding
amounts under the Existing Senior Credit Facility. Accordingly, SFX expects
to record an extraordinary charge of $2.7 million (net of tax of $1.7
million) in the third quarter of 1999 related to the unamortized costs
associated with the Existing Senior Credit Facility.
Consent Solicitation
In July 1999, SFX completed a consent solicitation with respect to its
outstanding 9 1/8% senior subordinated notes whereby it obtained approval
from the holders to modifications of certain covenants in the indentures
governing the notes. The modifications, among other things, provide SFX with
more flexibility to make investments and acquisitions internationally and
permit SFX's foreign subsidiaries to incur indebtedness, subject to certain
limitations. Fees associated with the transaction of approximately $13.7
million have been recorded as deferred financing costs on SFX's balance
sheets.
26
<PAGE>
Future Acquisitions
Consistent with its operating strategy, SFX is currently negotiating
additional acquisitions in the United States and Europe and expects to pursue
additional acquisitions in the live entertainment business in the future.
However, SFX has not entered into any definitive agreements with respect to
such acquisitions and there can be no assurance that it will do so. Any such
acquisitions could result in SFX:
o issuing more of its stock, which may dilute the value of existing
stock of SFX;
o incurring a substantial amount of additional debt; and/or
o amortizing expenses related to goodwill and other intangible assets.
However, there can be no assurance that SFX will be able to obtain
financing for such acquisitions on terms acceptable to SFX or at all. Any or
all of these actions could have a material adverse impact on SFX's business,
financial condition and results of operations. See "--Safe Harbor for
Forward-Looking Statements--Risk Factors--If SFX is unable to complete other
acquisitions in the future, SFX's business and stock price may suffer" as
contained in SFX's 1998 Annual Report on Form 10-K
Interest on Notes and Borrowings under the Existing Senior Credit Facility
SFX has incurred and expects to continue to incur substantial amounts of
indebtedness to finance acquisitions, for capital expenditures and for other
corporate purposes. On February 11, 1998, SFX completed the private placement
of $350.0 million aggregate principal amount of its 9 1/8% senior
subordinated notes. Interest of approximately $16.0 million is payable on the
notes on February 1 and August 1 of each year, and the notes mature on
February 1, 2008. On November 25, 1998, SFX completed the offering of $200.0
million aggregate principal amount of its 9 1/8% Senior Subordinated Notes.
Interest of $9.1 million is payable on these notes on June 1 and December 1
of each year, and the notes mature on December 1, 2008.
In July 1999, SFX completed a consent solicitation with respect to its
outstanding 9 1/8% Senior Subordinated Notes which modified certain covenants
contained in the indentures governing the notes. The modifications provide
SFX greater flexibility to pursue its operating strategy, including foreign
acquisitions. SFX paid fees related to the transaction of approximately $13.7
million. Reference is hereby made to the supplemental indentures reflecting
the modifications to the note indentures which have been filed as exhibits to
this Report.
In addition, as of July 28, 1999, SFX had indebtedness of $301.0 million
outstanding under the Existing Senior Credit Facility. Loans outstanding
under the Existing Senior Credit Facility bear interest, at SFX's option, at
1.625 to 3.625 percentage points 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 revolving portion of the Senior Credit Facility
will be adjusted based on SFX's Total Leverage Ratio, as defined in the
Existing Senior Credit Facility. As of July 28, 1999 the average interest
rate for borrowings under the credit facility was 8.5%. SFX pays a per annum
commitment fee on unused availability under the revolver of 0.375% to 0.5%
and a per annum letter of credit fee on any outstanding letters of credit
equal to the Applicable LIBOR Margin, as defined in the Existing Senior
Credit Facility.
SFX's indebtedness under the Existing Senior Credit Facility is secured by
a pledge of the stock of its subsidiaries and by liens on substantially all
of its and its subsidiaries' tangible assets. Most of SFX's subsidiaries have
also guaranteed the notes and borrowings under the Existing Senior Credit
Facility. If SFX were unable to repay any borrowings when due, the lenders
could attempt to seize SFX's and its subsidiaries' assets and the capital
stock of SFX's subsidiaries.
In July 1999, SFX received a commitment from its lenders for a new
seven-year $1.1 billion senior credit facility (the "New Senior Credit
Facility") which would replace the $350 million Existing Credit Facility and
modify certain covenants. Although no assurances can be given, SFX expects to
complete the transaction in the third quarter of 1999. The New Senior Credit
Facility is expected to be comprised of a $250.0 million multi-draw,
multi-currency term loan (the "Term A Loan"), a single-draw, U.S. dollar term
loan (the "Term Loan B") and a $250.0 million reducing revolver having a
letter of credit sub-limit
27
<PAGE>
of $75.0 million. Total fees and expenses are expected to be approximately
$17.5 million. In addition, SFX expects to record an extraordinary charge of
approximately $4.3 million in the third quarter of 1999 related to the
write-off of costs incurred to complete the Existing Senior Credit Facility.
In addition, as of July 28, 1999, SFX had approximately $30.2 million of
other debt consisting of debt and capital leases assumed in acquisitions and
$20.1 million of deferred purchase consideration.
In the normal course of business, SFX is exposed to market risk associated
with fluctuations in interest rates. SFX does not enter into market risk
sensitive instruments for trading purposes. SFX's exposure as a result of
variable interest rates relates to its outstanding borrowing under the
Existing Senior Credit Facility. A 15% increase or decrease in the average
cost of SFX's variable rate debt under the Existing Senior Credit Facility
would not have a material effect on SFX's earnings.
Capital Expenditures
Capital expenditures totaled $26.6 million for the six months ended June
30, 1999. Based on its current level of operations, SFX expects capital
expenditures for 1999 to be approximately $50.0 million, including $28.0
million for major projects. These capital expenditures are expected to be
funded by cash flows from operations.
Future Contingent Payments
Certain of the agreements relating to SFX's 1998 and 1999 acquisitions
provide for purchase price adjustments and other future contingent payments
under certain circumstances, including payments based on the financial
performance of the acquired companies. As of June 30, 1999, SFX had recorded
$8.7 million related to such contingent payments. SFX will continue to accrue
additional amounts related to such contingent payments if and when it becomes
probable that the applicable financial performance target will be met.
In connection with the pending acquisition of Livent, SFX expects to incur
a contingent payment of $5.0 million based upon the ability of Livent to
deliver theatrical rights to the production Seussical in a form acceptable to
SFX.
The PACE acquisition agreement provides that each PACE seller will have an
option, exercisable for 90 days after the fifth anniversary of the closing of
the PACE acquisition, to require SFX to repurchase up to 750,000 shares of the
Class A common stock received by that seller for $22.00 in cash per share, for
an aggregate purchase price of up to $16.5 million. Pursuant to the terms of
Brian Becker's employment agreement with SFX, during the period between December
12, 1999, and December 27, 1999, Mr. Becker, an Executive Vice President, a
director and a Member of the Office of the Chairman of SFX, will have the option
to, among other things, require SFX to pay him an amount equal to the present
value of the compensation payable during the remaining term of his employment
agreement. Exercise of such option would result in termination of Mr. Becker's
employment agreement.
SFX also incurred future payment obligations in connection with the
Contemporary, Oakdale, FAME, Nederlander and certain other acquisitions.
Spin-Off
In connection with the Spin-Off, SFX entered into the tax sharing
agreement with SFX Broadcasting. Pursuant to such agreement, SFX is
responsible for certain taxes incurred by SFX Broadcasting, including
income taxes imposed with respect to income generated by SFX for periods
before the spin-off and taxes resulting from gain recognized by SFX
Broadcasting in the spin-off. SFX has made estimated payments of $109.7
million in federal and state taxes in connection with the Spin-Off.
Management's estimates of the amount of the indemnity payment are based on
assumptions which management believes are reasonable. However, upon the
completion of all final tax returns, including any potential tax audits, such
assumptions could be modified in a manner that would result in a significant
variance in the actual amount of the tax indemnity.
28
<PAGE>
Sources of Liquidity
As of June 30, 1999, SFX's cash and cash equivalents totaled $99.4
million, and its working capital was a negative $55.8 million. The negative
working capital reflects SFX's policy of funding acquisitions, to the extent
possible, with available cash on hand, in order to maintain minimum
borrowings under the Existing Senior Credit Facility. On February 18, 1999
SFX received approximately $260.7 million in net proceeds from the 1999
Equity Offering, which it used primarily to complete the Cellar Door, ISI,
Nederlander and Marquee acquisitions and to repay a portion of the revolving
portion of the Existing Senior Credit Facility.
As of July 28, 1999, SFX had approximately $37.0 million in borrowing
availability under the Existing Senior Credit Facility. SFX has received a
commitment from its lenders for a new seven-year $1.1 billion senior credit
facility which would replace the existing $350 million Existing Senior Credit
Facility and modify certain covenants. Although no assurances can be given,
SFX expects to complete the transaction in the third quarter of 1999.
In addition, on August 3, 1999, SFX filed a registration statement on Form
S-3 to issue additional shares of Class A Common Stock. No assurances can be
given regarding the timing or completion of the equity offering.
SFX believes that its cash from operations and borrowing availability
under its Existing Senior will be sufficient to support its existing
operations. However, there can be no assurance that SFX will be able to make
planned borrowings, that SFX's business will generate sufficient cash flow
from operations, or that future borrowings will be available in an amount to
enable SFX to service its debt and to make necessary capital or other
expenditures. In addition, SFX would require additional financing, including
the increased borrowing capacity under the proposed New Senior Credit
Facility, to complete the Apollo acquisition and to fully implement its
acquisition and growth strategy.
YEAR 2000 COMPLIANCE
SFX is currently working to resolve the potential impact of the Year 2000
on the processing of date-sensitive information by SFX's computer systems.
The Year 2000 problem is the result of computer programs being written using
two digits, rather than four, to define the applicable year. Any of SFX's
programs that have time-sensitive software may recognize a date using "00" as
the Year 1900 rather than the Year 2000, which could result in
miscalculations or system failures. The problem is not limited to computer
systems. Year 2000 issues will also potentially affect every non-information
technology system that has an embedded microchip, such as elevators.
Assessment. SFX management has been conducting a review of its exposure to
the Year 2000 problem. Based on SFX's internal review and discussions with
third parties regarding the Year 2000 problem, SFX believes that its exposure
to potential Year 2000 problems exists in two general areas: (1)
technological operations, including non-information technology systems, which
are in the sole control of SFX, and (2) technological operations which are
dependent in some way on one or more third parties. Failure to achieve high
levels of Year 2000 compliance in either area could have a material adverse
impact on SFX.
Remediation and Implementation. In the area of technological operations,
that are under SFX's exclusive control, SFX is currently involved in the
identification and remediation of affected technological functions, including
non-information technology systems. SFX is addressing the risks associated with
Year 2000 compliance with respect to its accounting and financial reporting
systems and is in the process of installing new accounting and reporting
systems. These systems will provide improved reporting, allow for more detailed
analysis, handle SFX's 1998 and 1999 Acquisitions and be Year 2000 compliant.
Business segments representing 88% of SFX's pro forma revenue for acquisitions
completed as of December 31, 1998 had the new year 2000 compliant accounting and
financial systems installed as of January 1, 1999. SFX expects its remaining
business segments and the businesses acquired through June 30, 1999 to have the
new year 2000 compliant accounting and financial systems installed by November
1, 1999. SFX is in the identification and assessment phase with respect to its
non-information technology systems, which is projected to continue until the
fall of 1999.
29
<PAGE>
Testing. SFX will begin updating and testing its systems after their
installation, and expects that all testing will be complete by the fall of
1999. Upon completion, SFX will be able to identify any internal computer
systems that remain non-compliant. At present, it is anticipated that SFX's
action plan for addressing Year 2000 problems will be successfully completed
in all material respects in advance of January 1, 2000.
Estimated Costs. The total financial effect that Year 2000 issues will
have on SFX cannot be predicted with any certainty at this time. In fact, in
spite of all efforts being made to rectify these problems, the success of
SFX's efforts will not be known with certainty until the year 2000 actually
arrives. SFX anticipates that the cost of implementing the new accounting and
reporting systems will be approximately $7.2 million, of which approximately
$5.4 million has been spent through June 30, 1999. Based on its assessment to
date, SFX does not believe that expenses related to addressing the Year 2000
problem will have a material effect on the operations and financial condition
of SFX.
Third Parties. In the area of technological operations dependent in some
way on one or more third parties, including vendors, suppliers, joint venture
partners or major customers, the situation is much less in SFX's ability to
predict or control. SFX has begun to assess the level of Year 2000 problems
associated with their various vendors, suppliers, joint venture partners and
major customers. SFX's significant vendors are ticketing companies, payroll
processors, utility companies and banks. SFX is communicating with some of
these third parties to assess their compliance efforts and SFX's exposure
resulting from Year 2000 issues. SFX is in the process of requesting written
assurances of Year 2000 compliance from each of its significant suppliers as
a part of SFX's contingency planning process. Although SFX is making these
efforts to ensure that the third parties on which it is heavily reliant are
Year 2000 compliant, it cannot predict the likelihood of such compliance
occurring nor the direct or indirect costs to SFX of non-compliance by those
third parties or of securing such services from compliant third parties. SFX
has no control over these third parties' compliance and cannot give
assurances that these third parties' representations to SFX are accurate.
Therefore, there can be no guarantee that Year 2000 problems originating with
a third party will not occur and no absolute assurance that third parties
will convert their systems in a timely manner. Assuming that such third
parties are not or do not become Year 2000 compliant in a timely manner, to
the extent SFX is unable to replace the goods, services or customers with
alternate sources of supply and demand on a timely and economically
equivalent basis, such failure would likely have a material adverse effect on
SFX's business and results of operations. However, SFX does not presently
anticipate that it will be subject to a material impact in this area.
Contingency Plan. SFX has not completed its implementation and testing of
Year 2000 compliant systems. However, a reasonably likely worst case scenario
is that certain of SFX's material suppliers or customers will be unable to
fully become Year 2000 compliant in a timely manner, which will disrupt SFX's
ability to provide services and generate revenues in certain areas in which
it does business. For example, disruptions in ticketing operations would
significantly reduce attendance. Disruptions in transportation could affect
the provision of concessions for sale at SFX's venues. These disruptions
would continue until alternate sources of supply and demand could be located.
Based on the results of the implementation and testing of SFX's Year 2000
affected systems and the ongoing assessment of the readiness of its vendors,
suppliers, joint venture partners and major customers, SFX will develop
appropriate contingency plans that address the most reasonably likely worst
case scenarios. SFX expects to have such contingency plans in place by the
fall of 1999. A failure to address Year 2000 issues successfully could have a
material adverse effect on SFX's business, financial condition or results of
operations.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
SFX believes that certain statements contained in this report are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and are considered prospective. The following
statements are or may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995:
o statements before, after or including the words "may," "will,"
"could," "should," "believe," "expect," "future," "potential,"
"anticipate," "intend," "plan," "estimate" or "continue" or the
negative or other variations of these words; and
o other statements about matters that are not historical facts.
30
<PAGE>
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, including SFX's inability to
successfully integrate its various businesses; SFX's substantial amount of
debt; SFX's ability to complete acquisitions in the future; SFX's ability to
secure attractive artists, events and venues; potential environmental
liabilities; Year 2000 issues; regulatory matters, including those relating
to compliance with applicable antitrust laws; risks and uncertainties
associated with conducting business in foreign jurisdictions; and the
restrictions placed on SFX's operations by its senior credit facility and
indentures. Please do not put undue reliance on these forward-looking
statements, which speak only as of the date of this report.
The risk factors should be considered carefully in evaluating SFX and its
business and the forward looking statements contained herein. SFX does not
undertake to release publicly any revisions to forward looking statements
that may be made to reflect events or circumstances after the date of this
report or to reflect the occurrence of unanticipated events. See our Annual
Report on Form 10-K for the year ended December 31, 1998, "Safe Harbor for
Forward-Looking Statements--Risk Factors."
OTHER MATTERS
Following a recommendation of SFX's compensation committee, SFX adopted a
new incentive stock option plan covering options to acquire up to 4.5 million
shares of Class A Common Stock and, in November of 1998, approved the grant
of options thereunder to acquire approximately 3.45 million shares of Class A
Common Stock.
31
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 20, 1998, a group of plaintiffs filed a complaint against 11
talent agencies and 29 promoters, including SFX and several of its
subsidiaries. According to the complaint, the plaintiffs are five individual
African-Americans and five corporations owned by such individuals. The
complaint alleges action by the defendants to exclude African-Americans from
promoting concerts and seeks injunctive relief and damages for civil rights
and antitrust violations. The focus of the action appears to be
industry-wide, rather than specifically directed at SFX. On May 25, 1999, the
complaint was dismissed without prejudice to plaintiffs' right to file an
amended pleading. The plaintiffs are obligated to file an amended complaint
by August 9, 1999. SFX intends to defend the action vigorously.
Although SFX is involved in several suits and claims in the ordinary
course of business, it is not currently a party to any legal proceeding that
it believes would have a material adverse effect on its business, financial
condition or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On April 21, 1999, SFX issued 78,171 shares to the Sellers of Network
Magazine Group of Class A Common Stock upon their achievement in 1998 of
certain financial performance targets by SFX Radio Network, LLC in connection
with SFX's acquisition of the Network Magazine Group and SJS Entertainment
Corporation (the "Network Acquisition").
On May 25, 1999, SFX issued 28,454 shares to the Sellers of Network
Magazine Group of Class A Common Stock upon their achievement in 1998 of
certain financial performance targets by SFX Radio Network, LLC in connection
with the Network Acquisition.
The sales of securities pursuant to the Network Acquisition were private
transactions not involving a public offering and were exempt from the
registration provisions of the Securities Act pursuant to Section 4(2)
thereof. Each of these sales was made without the use of an underwriter.
32
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of security holders during
the Company's Annual Meeting of Stockholders held June 8, 1999:
Description of Matter:
<TABLE>
<CAPTION>
VOTES CAST
--------------------------
FOR WITHHELD
------------ -------------
<S> <C> <C>
1. Election of Directors:
Directors elected by holders of
Class A Common Stock and
Class B Common Stock voting
together as a single class
Robert F.X. Sillerman .......... 47,193,169 165,500
Michael G. Ferrel .............. 47,193,164 165,505
Brian E. Becker ................ 47,193,189 165,480
David Falk ..................... 47,191,880 166,789
Howard J. Tytel ................ 47,192,529 166,140
Thomas P. Benson ............... 47,193,425 165,244
Richard A. Liese ............... 47,193,425 165,244
D. Geoffrey Armstrong .......... 47,223,825 134,844
Directors elected by holders of
Class A Common Stock only
James F. O'Grady, Jr. ........... 30,451,480 165,509
Paul Kramer .................... 30,481,895 135,094
Edward F. Dugan ................ 30,481,895 135,094
John D. Miller ................. 30,406,895 210,094
</TABLE>
<TABLE>
<CAPTION>
VOTES CAST
------------------------------------------------
BROKER
FOR AGAINST ABSTAIN NON-VOTES
------------ ----------- --------- -----------
<S> <C> <C> <C> <C>
2. Ratification of appointment
of independent accountants 30,432,527 1,857,870 760 N/A
3. Stockholder approval of
1999 Stock Option and
Restricted Stock Plan ..... 21,949,173 6,979,519 8,418 3,354,047
</TABLE>
ITEM 5. OTHER INFORMATION
On July 22, 1999 the Company's Board of Directors authorized the amendment
and restatement of the Company's 1998 and 1999 Stock Option and Restricted
Stock Plans (the "Plans") to provide that the Board of Directors may not
reprice, replace or regrant through cancellation any outstanding options
without the approval of the holders of a majority of the outstanding shares
entitled to vote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- -------------------------------------------------------------------------------------
<S> <C>
4.1* Supplemental Indenture No. 14 dated July 20, 1999, by and among SFX Entertainment,
certain of its subsidiaries and The Chase Manhattan Bank.
33
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- -------------------------------------------------------------------------------------
4.2* Supplemental Indenture No. 3 dated July 20, 1999, by and among SFX Entertainment,
certain of its subsidiaries and The Chase Manhattan Bank.
10.1* Amended and Restated 1998 Stock Option and Restricted Stock Plan
10.2* Amended and Restated 1999 Stock Option and Restricted Stock Plan
10.3* Director Deferred Stock Ownership Plan as Amended and Restated Effective June 1, 1999
27.1* Financial Data Schedule
</TABLE>
- ------------
* Filed herewith.
Reports on Form 8-K
On April 14, 1999, SFX filed a Form 8-K under Item 5 for the purpose of
filing historical financial statements of certain acquired businesses and the
unaudited pro forma condensed combined financial statements of SFX at and for
the year ended December 31, 1998, giving effect to certain acquisitions and
financial transactions since January 1, 1998.
On June 1, 1999, SFX filed a Form 8-K under Item 5 to report its entry
into an agreement to acquire substantially all of the assets of Livent Inc.
and its subsidiaries (collectively, "Livent"), including Livent's theaters in
New York, Chicago, and Toronto and the rights to current and future Livent
productions.
On June 22, 1999, SFX filed a Form 8-K under Item 5 to report its
development of a multi-faceted Internet strategy.
On June 23, 1999, SFX filed a Form 8-K under Item 5 to report its
solicitation of consents to amend the indentures under which its outstanding
9 1/8% Senior Subordinated Notes.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SFX ENTERTAINMENT, INC.
Date: August 2, 1999 By: /s/ Thomas P. Benson
----------------------------------------
Thomas P. Benson
Chief Financial Officer and
Senior Vice President
34
<PAGE>
- --------------------------------------------------------------------------------
SUPPLEMENTAL INDENTURE
NO. 14
TO
INDENTURE DATED AS OF FEBRUARY 11, 1998
RE:
UP TO $350,000,000 9-1/8% SENIOR SUBORDINATED NOTES DUE 2008
- --------------------------------------------------------------------------------
<PAGE>
This SUPPLEMENTAL INDENTURE NO. 14, dated as of July 20, 1999, to
INDENTURE (the "Supplemental Indenture") is entered into among SFX
Entertainment, Inc., a Delaware corporation (the "Company"), the Guarantors
party hereto (each a "Guarantor" and collectively, the "Guarantors"), each a
direct or indirect subsidiary of the Company, and The Chase Manhattan Bank, as
trustee (the "Trustee"), under the Indenture (defined below).
RECITALS
--------
WHEREAS, the Company, the Guarantors and the Trustee have entered into
that certain Indenture dated as of February 11, 1998, as amended by Supplemental
Indentures Nos. 1 through 13 (as amended and supplemented on or prior to the
date hereof, the "Indenture") providing for the issuance and delivery by the
Company of its 9-1/8% Senior Subordinated Notes due 2008 (the "Notes"); and
WHEREAS, the Company has proposed certain amendments to the terms of
the Indenture; and
WHEREAS, Article 9 of the Indenture provides the manner by which the
Indenture may be amended with the consent of the Holders of at least a majority
in aggregate principal amount of the then outstanding Notes by written act of
said Holders delivered to the Company and the Trustee; and
WHEREAS, the Holders of at least a majority in aggregate principal
amount of the outstanding Notes have delivered said consents to the Trustee and
the Company; and
WHEREAS, pursuant to and in accordance with Section 9.02 of the
Indenture, and with consent of the Holders of at least a majority in aggregate
principal amount of the outstanding Notes, the Company, the Guarantors and the
Trustee have agreed to enter into this Supplemental Indenture;
NOW THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows for the
benefit of each other party and for the equal and ratable benefit of the Holders
of the Notes:
Section 1. AMENDMENTS.
1.1 Subject to Section 2.2 hereof, the following definition of the term
"Foreign Subsidiary" is hereby added to Section 1.01 of the Indenture:
"'Foreign Subsidiary' means any Restricted Subsidiary of the Company
which is incorporated or otherwise organized under the laws of any
jurisdiction other than the United States of America, any state thereof or
the District of Columbia.
1.2. Subject to Section 2.2 hereof, the definition of the term
"Guarantor" contained in Section 1.01 of the Indenture is hereby amended to read
in its entirety as follows:
-1-
<PAGE>
"`Guarantor' means each of the Company's current and future Restricted
Subsidiaries that executes a Subsidiary Guarantee in accordance with the
provisions of this Indenture, and its respective successors and assigns."
1.3. Subject to Section 2.2 hereof, the definition of "Permitted
Investments" contained in Section 1.01 of the Indenture is hereby amended to
read in its entirety as follows:
"'Permitted Investments' means (i) any Investment in the Company or in
a Restricted Subsidiary of the Company; (ii) any Investment in Cash Equivalents;
(iii) any Investment by the Company or any Restricted Subsidiary of the Company
in a Person engaged in a Permitted Business, if (a) as a result of, or
concurrently with, such Investment such Person becomes a Restricted Subsidiary
of the Company or (b) as a result of, or concurrently with, such Investment such
Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the Company
or a Restricted Subsidiary of the Company; or (c) the Company or a Restricted
Subsidiary of the Company 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
Restricted Subsidiary of the Company or such transaction is consummated, as
applicable, in each case within 180 days of the date of such Investment; (iv)
any Restricted Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with Section 4.10 hereof; (v) any obligations or shares of Capital Stock
received in connection with or as a result of a bankruptcy, workout or
reorganization of the issuer of such obligations or shares of Capital Stock;
(vi) any Investment received involuntarily; (vii) any acquisition of assets
solely in exchange for the issuance of Equity Interests (other than Disqualified
Stock) of the Company; (viii) any Investment made under the Pace Acquisition
Facility pursuant to the Pace Agreement as in effect on the date hereof; (ix)
Investments owned by any of the Acquired Businesses as of the date such Acquired
Business is acquired; (x) other Investments in Persons engaged in Permitted
Businesses (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (x) that are at the time
outstanding, not to exceed 5% of Total Tangible Assets; (xi) the consummation of
the Pending Acquisitions; (xii) the Meadows Repurchase and the Series E
Preferred Repurchase; provided that the Company receives either (x) a cash
payment from Broadcasting or Broadcasting Buyer or an Affiliate thereof at or
prior to the date of the Broadcasting Merger at least equal to the aggregate
amount expended by the Company in the Meadows Repurchase and the Series E
Preferred Repurchase less $3.0 million or (y) an increase in favor of the
Company in the Working Capital Adjustment (including the avoidance of a
decrease) contemplated by the Merger Agreement in an amount at least equal to
the aggregate amount expended by the Company in the Meadows Repurchase and the
Series E Preferred Repurchase less $3.0 million or (z) any combination thereof
adding up to an amount at least equal to the aggregate amount expended by the
Company in the Meadows Repurchase and the Series E Preferred Repurchase less
$3.0 million; and (xiii) other Investments in any Person (measured on the date
each such Investment was made and without giving effect to subsequent changes in
value), when taken together with all other Investments made pursuant to this
clause (xiii) that are at the time outstanding, not to exceed $4.0 million.
Notwithstanding the foregoing, no Investment may be made under the foregoing
clauses (i) and (iii) in any Foreign Subsidiary (other than a Guarantor) if,
after giving pro forma effect to such Investment and all acquisitions and
dispositions of assets
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made by the Company and its Restricted Subsidiaries from the beginning of the
Measurement Period referred to below through and including the date of such
Investment, as if the same had occurred at the beginning of the four most recent
full fiscal quarters of the Company ending immediately prior to the date of such
Investment for which internal financial statements are available (the
"Measurement Period"), more than 35% of the pro forma Consolidated Cash Flow of
the Company for the Measurement Period would have been derived from operations
and businesses owned by Foreign Subsidiaries."
1.4. Subject to Section 2.2 hereof, Section 4.09 of the Indenture is
hereby amended to read in its entirety as follows:
"SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF
PREFERRED STOCK.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively "incur") any Indebtedness (including Acquired Debt) or issue any
shares of Disqualified Stock and will not permit any of its Subsidiaries to
issue any shares of preferred stock; provided, however, that, so long as no
Default or Event of Default has occurred and is continuing, the Company may
incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock and the Guarantors may issue shares of preferred stock if, in each case,
the Company's Debt to Cash Flow Ratio at the time of incurrence of such
Indebtedness or the issuance of such Disqualified Stock or preferred stock, as
the case may be, after giving pro forma effect to such incurrence or issuance as
of such date and to the use of the proceeds therefrom as if the same had
occurred at the beginning of the most recently ended four full fiscal quarter
period of the Company for which internal financial statements are available,
would have been no greater than (a) 7.0 to 1.0, if such incurrence or issuance
is prior to December 31, 1999 or (b) 6.0 to 1.0 thereafter.
The provisions of the first paragraph of this covenant will not apply
to the incurrence of any of the following (collectively, "Permitted Debt"):
(i) the incurrence by the Company (and the guarantee thereof by
Guarantors) of Indebtedness and letters of credit under one or more Credit
Facilities in an aggregate principal amount at any time outstanding not to
exceed $400.0 million (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
and the Guarantors thereunder), less the aggregate amount of all
repayments, optional or mandatory, of the principal of any term
Indebtedness under a Credit Facility that have been made since the date
hereof and less the aggregate amount of all commitment reductions of any
revolving Indebtedness under a Credit Facility pursuant to clause (i) of
the third paragraph of Section 4.10 hereof;
(ii) the incurrence by the Company and the guarantee thereof by the
Guarantors of Indebtedness represented by the Notes and the Subsidiary
Guarantees;
(iii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
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(iv) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or such Restricted Subsidiary, in an aggregate amount not to exceed
$5.0 million at any time outstanding, including all Permitted Refinancing
Debt incurred pursuant to clause (v) below to refund, replace or refinance
any Indebtedness pursuant to this clause (iv);
(v) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by this Indenture to be
incurred by the first paragraph of this Section 4.09, or by clauses (ii),
(iii), (iv), (v), (vii) or (x) of this paragraph;
(vi) the incurrence of Indebtedness between or among the Company and
any of its Restricted Subsidiaries; provided, however, that (a) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full of all Obligations with respect
to the Notes and (b) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person
other than the Company or a Restricted Subsidiary, and any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Restricted Subsidiary, shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding;
(viii) the guarantee by the Company or any of its Restricted
Subsidiaries of Indebtedness that was permitted to be incurred by another
provision of this Section 4.09;
(ix) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (ix);
(x) the issuance of preferred stock by the Company pursuant to the
Contemporary Agreement, as in effect on the date of this Indenture;
(xi) the incurrence by Foreign Subsidiaries of Indebtedness, provided
that at the time of, and after giving effect to, the incurrence of such
Indebtedness (a) no Default or Event of Default has occurred and is
continuing, (b) the Company would be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Debt to Cash Flow
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Ratio test set forth in the first paragraph of this Section 4.09 and (c)
the Debt to Cash Flow Ratio of the Company's Foreign Subsidiaries (on a
combined consolidated basis), after giving pro forma effect to such
incurrence and to the use of the proceeds therefrom and to all Investments
and acquisitions and dispositions of assets made by the Company and its
Restricted Subsidiaries from the beginning of the most recently ended four
full fiscal quarter period of the Company for which internal financial
statements are available to the date of determination, as if the same had
occurred at the beginning of such four-quarter period, would have been no
greater than 4.0 to 1.0;
(xii) the incurrence by Foreign Subsidiaries of Indebtedness as to
which the Company is directly or indirectly liable (as a guarantor,
co-borrower or otherwise), provided that the incurrence by the Company of
such Indebtedness was permitted under this Section 4.09; and
(xiii) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount at
any time outstanding, including all Permitted Refinancing Indebtedness
incurred pursuant to clause (v) above to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (xiii), not to exceed $10.0
million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xiii) above
or is entitled to be incurred pursuant to the first paragraph of this
covenant, the Company shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this Section 4.09 and such
item of Indebtedness will be treated as having been incurred pursuant to
only one of such clauses or pursuant to the first paragraph hereof. Accrual
of interest, the accretion of accreted value, the payment of interest on
any Indebtedness in the form of additional Indebtedness with the same terms
and the payment of dividends on Disqualified Stock in the form of
additional shares of the same class of Disqualified Stock will not be
deemed to be an incurrence of Indebtedness or an issuance of Disqualified
Stock for purposes of this covenant."
1.5. Subject to Section 2.2 hereof, Section 4.11 of the Indenture is
hereby amended to read in its entirety as follows:
"SECTION 4.11. TRANSACTIONS WITH AFFILIATES
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms that are no less favorable to the
Company or such Restricted Subsidiary than those that would have been obtained
in a comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustee (a) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1.0 million, a resolution of the
Board of Directors set forth in an
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<PAGE>
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the members of the Board of Directors that are disinterested as to
such Affiliate Transaction and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $5.0 million, an opinion as to the fairness to the Company of such
Affiliate Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing; provided that (1) any
employment agreement entered into by, and any compensation paid by, the Company
or any of its Restricted Subsidiaries, in each case, approved by the
Compensation Committee, (2) transactions between or among the Company and/or its
Restricted Subsidiaries, (3) fees and compensation paid to members of the Board
of Directors of the Company and of its Restricted Subsidiaries in their capacity
as such, to the extent such fees and compensation are reasonable, customary and
consistent with past practices and the issuance of shares of the Company to the
Directors who were holders of options or stock appreciation rights in
Broadcasting as of the Spin-Off record date, whether or not vested, (4) fees and
compensation paid to, and indemnity provided on behalf of, officers, directors
or employees of the Company or any of its Restricted Subsidiaries, as determined
by the Board of Directors of the Company or of any such Restricted Subsidiary,
to the extent such fees and compensation are reasonable, customary and
consistent with past practices, (5) the transactions specifically contemplated
by the Merger Agreement, the agreements relating to the Pending Acquisitions or
by instruments referred to in any such agreements, in each case, as the same are
in effect on the date hereof, (6) the Spin-Off Transactions, (7) the
transactions specifically contemplated by the Delsener/Slater Employment
Agreements, in each case as in effect on the date hereof, (8) the Meadows
Repurchase and the Series E Preferred Repurchase; provided that the Company
receives either (x) a cash payment from Broadcasting or Broadcasting Buyer or an
Affiliate thereof at or prior to the date of the Broadcasting Merger at least
equal to the aggregate amount expended by the Company in the Meadows Repurchase
and the Series E Preferred Repurchase less $3.0 million or (y) an increase in
favor of the Company in the Working Capital Adjustment (including the avoidance
of a decrease) contemplated by the Merger Agreement in an amount at least equal
to the aggregate amount expended by the Company in the Meadows Repurchase and
the Series E Preferred Repurchase less $3.0 million or (z) any combination
thereof adding up to an amount at least equal to the aggregate amount expended
by the Company in the Meadows Repurchase and the Series E Preferred Repurchase
less $3.0 million; (9) any Restricted Payment that is permitted by the
provisions of Section 4.07 hereof, in each case, shall not be deemed to be
Affiliate Transactions; and (10) notwithstanding clause (ii)(b) above, if the
subject Affiliate Transaction or series of related Affiliated Transactions is
with a Person that is an Affiliate solely by reason of the Company or any
Restricted Subsidiary of the Company owning an equity interest in such Person or
otherwise controlling such Person, an opinion as to the fairness to the Company
of such Affiliate Transaction from a financial point of view shall not be
required unless the subject Affiliate Transaction or series of related Affiliate
Transactions involves aggregate consideration in excess of $10 million."
1.7. Subject to Section 2.2 hereof, Section 4.17 of the Indenture is
hereby amended to read in its entirety as follows:
"SECTION 4.17 ISSUANCES AND SALES OF EQUITY INTERESTS IN RESTRICTED
SUBSIDIARIES.
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The Company (i) shall not, and shall not permit any Restricted
Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose
of any Equity Interests in any Restricted Subsidiary of the Company to any
Person (other than the Company or a Restricted Subsidiary of the Company),
unless (a) such transfer, conveyance, sale, lease or other disposition is of all
the Equity Interests in such Restricted Subsidiary or of not more than 20% of
the outstanding shares of any class of Capital Stock of such Restricted
Subsidiary and (b) the Net Cash Proceeds, if any, from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with
Section 4.10 hereof, and (ii) will not permit any Restricted Subsidiary of the
Company to issue any of its Equity Interests (other than, if necessary, shares
of its Capital Stock constituting directors' qualifying shares and other than up
to 20% of the outstanding shares of any class of Capital Stock of such
Restricted Subsidiary) to any Person other than to the Company or a Restricted
Subsidiary of the Company except as permitted pursuant to Section 4.09 hereof."
Section 2. MISCELLANEOUS.
2.1. GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS SUPPLEMENTAL INDENTURE.
2.2. Operative Date. Upon the execution and delivery of this
Supplemental Indenture by the Company, the Guarantors and the Trustee, the
Indenture shall be supplemented in accordance herewith, and this Supplemental
Indenture shall form a part of the Indenture for all purposes, and every Holder
of Notes heretofore or hereafter authenticated and delivered under the Indenture
shall be bound thereby; provided, however, that Section 1 hereof shall become
operative upon the satisfaction of the Conditions (as defined in the Consent
Solicitation Statement, dated June 23, 1999, as amended and supplemented, that
was provided to Holders of Notes in connection with the Company's solicitation
of consents by such Holders to the amendments set forth herein). Upon the
receipt by the Trustee of (i) an Officers' Certificate certifying that such
Conditions have been satisfied, and (ii) an Opinion of Counsel stating (a) that
the execution of this Supplemental Indenture is authorized or permitted by the
Indenture and (b) that this Supplemental Indenture complies with the Indenture,
the amendments set forth herein shall become operative.
2.3. Confirmation of the Indenture. Except as amended hereby, the
Indenture shall remain in full force and effect and is hereby ratified and
confirmed in all respects.
2.4. Multiple Counterparts. The parties may sign multiple counterparts
of this Supplemental Indenture. Each signed counterpart shall be deemed an
original, but all of them together represent one and the same agreement.
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<PAGE>
2.5. Separability. Each provision of this Supplemental Indenture shall
be considered separable and if for any reason any provision which is not
essential to the effectuation of the basic purpose of this Supplemental
Indenture shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be effected or
impaired thereby.
2.6. Headings. The captions of the various section headings of this
Supplemental Indenture have been inserted for convenience of reference only, are
not to be considered a part hereof, and shall in no way modify or restrict any
of the terms or provisions hereof.
2.7. The Trustee. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Company and the Guarantors.
2.8. Definitions. All terms defined in the Indenture shall have the
same meaning in this Supplemental Indenture unless otherwise defined herein.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Supplemental
Indenture No. 14 as of this ____ day of _______, 1999.
SFX ENTERTAINMENT, INC.
- -----------------------------
By: Richard A. Liese
Title: Senior Vice President
AIR SHOW PARTNERS
AKG, INC.
AMERICAN ARTISTS LIMITED, INC.
AMERICAN BROADWAY, INC.
AMPHITHEATER ENTERTAINMENT PARTNERSHIP
By: SM/PACE, INC., its general partner
ANT THEATRICAL PRODUCTIONS, INC.
ARDEE FESTIVALS N.J., INC.
ATHLETES AND ARTISTS, INC.
ATLANTA CONCERTS, INC.
AUDREY & JANE, INC.
AVALON ACQUISITION CORP.
BAYOU PLACE PERFORMANCE HALL GENERAL PARTNERSHIP
BEACH CONCERTS, INC.
BG PRESENTS, INC.
BGE YUBA LLC
By: BILL GRAHAM ENTERPRISES, INC., its sole member
BGP ACQUISITION, L.L.C.
By: SFX ENTERTAINMENT, INC., its managing member
BGP DENVER, INC.
BILL GRAHAM ENTERPRISES, INC.
BILL GRAHAM MANAGEMENT, INC.
BILL GRAHAM PRESENTS, INC.
BOSTON PLAYHOUSE REALTY, INC.
BOYLSTON STREET THEATRE CORP.
BROADWAY CONCERTS, INC.
BROADWAY SERIES ASSOCIATES, INC.
BROADWAY SERIES MANAGEMENT GROUP, INC.
CAMARILLO AMPHITHEATER MANAGING PARTNERS, INC.
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<PAGE>
CDC AMPHITHEATER/I, INC.
CDC OF NORTH CAROLINA, INC.
CDC/SMT, INC.
CDP, INC.
CELLAR DOOR AMPHITHEATRES/II, INC.
CELLAR DOOR AMPHITHEATER, INC.
CELLAR DOOR CONCERTS OF THE CAROLINAS, INC.
CELLAR DOOR CONCERTS OF FLORIDA, INC.
CELLAR DOOR CONSULTING, INC.
CELLAR DOOR HOLDING COMPANY
CELLAR DOOR NORTH CENTRAL, INC.
CELLAR DOOR PRODUCTIONS OF MICHIGAN, INC.
CELLAR DOOR PRODUCTIONS OF VIRGINIA, INC.
CELLAR DOOR SOUTH EAST, INC.
CELLAR DOOR VENUES, INC.
COL ARTS ASSOCIATES, INC.
CONCERT PRODUCTIONS INTERNATIONAL B.V.
CONCERTS, INC.
CONCERT PRODUCTIONS (UK) LIMITED
CONCERT/SOUTHERN CHASTAIN PROMOTIONS
By: SOUTHERN PROMOTION, INC., its majority interest holder
CONN TICKETING COMPANY
By: NORTHEAST TICKETING COMPANY, its general partner
CONNECTICUT AMPHITHEATER DEVELOPMENT CORPORATION
CONNECTICUT CONCERTS INCORPORATED
CONNECTICUT PERFORMING ARTS PARTNERS
By: NOC, INC., its general partner
CONNECTICUT PERFORMING ARTS, INC.
CONTEMPORARY GROUP ACQUISITION CORP.
CONTEMPORARY GROUP, INC.
CONTEMPORARY MARKETING, INC.
CONTEMPORARY PRODUCTIONS INCORPORATED
CONTEMPORARY SPORTS INCORPORATED
COOLEY AND CONLON MANAGEMENT CO.
DEER CREEK AMPHITHEATER CONCERTS, L.P.
By: Deer Creek Amphitheater Concerts, Inc., its general partner
DEER CREEK AMPHITHEATER CONCERTS, INC.
DELSENER/SLATER ENTERPRISES, LTD.
DELSENER/SLATER PRESENTS, INC.
DICESARE-ENGLER, INC.
DICESARE-ENGLER PROMOTIONS, INC.
DLC CORP.
DLC FUNDING CORP.
DUMB DEAL, INC.
EAGLE EYE ENTERTAINMENT, INC.
EAGLE EYE ENTERTAINMENT USA INC.
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EMI ACQUISITION SUB, INC.
ENTERTAINMENT PERFORMING ARTS, INC.
ETEK CORP.
EVENT MERCHANDISING, INC.
EXIT 116 REVISITED, INC.
FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
FILLMORE CORPORATION
FILLMORE FINGERS, INC.
FILLMORE THEATRICAL SERVICES
FINANCIAL ADVISORY MANAGEMENT ENTERPRISES, INC.
GRAHAM/GUND PARTNERSHIP
GRAND SLAM SPORTS MARKETING, INC.
GREATER DETROIT THEATRES, INC.
GSAC PARTNERS
By: PAVILION PARTNERS, its general partner; SM/PACE, INC., its general
partner
HALCYON DAYS PRODUCTIONS, INC.
HAYMON HOLDINGS, INC.
HIGH COTTON, INC.
IN HOUSE TICKETS, INC.
INTEGRATED SPORTS INTERNATIONAL, INC.
INTERNATIONAL MUSIC (CANADA) INC.
INTERNATIONAL MUSIC LTD.
INTERNATIONAL MUSIC TOUR I LTD.
INTERNATIONAL MUSIC TOUR II LTD.
INTERNATIONAL MUSIC TOUR I (USA) INC.
INTERNATIONAL MUSIC TOUR II (USA) INC.
TNA (USA) INC.
IRVINE MEADOWS AMPHITHEATER
By: AVALON ACQUISITION CORP., as general partner
IRVING PLAZA CONCERTS, INC.
J&H TOURING COMPANY LIMITED PARTNERSHIP
JJB & DHW, INC.
JJJ AMPHITHEATER LIMITED PARTNERSHIP
By: CELLAR DOOR AMPHITHEATER, INC., its general partner
MAGICSPORTS - GRAND SLAM MANAGEMENT, INC.
MAGICWORKS CONCERTS, INC.
MAGICWORKS ENTERTAINMENT ASIA LIMITED
MAGICWORKS ENTERTAINMENT INCORPORATED
MAGICWORKS ENTERTAINMENT INTERNATIONAL, INC.
MAGICWORKS EXHIBITIONS, INC.
MAGICWORKS FASHION MANAGEMENT, INC.
MAGICWORKS MERCHANDISING, INC.
MAGICWORKS SPORTS MANAGEMENT, INC.
MAGICWORKS THEATRICALS, INC.
MAGICWORKS TRANSPORTATION, INC.
MAGICWORKS WEST, INC.
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<PAGE>
MARCO ENTERTAINMENT, INC.
MARQUEE ALPHABET CITY RECORDS, INC.
MARQUEE CAMBRIDGE GOLF, INC.
MARQUEE TOLLIN/ROBBINS, INC.
MELODY TENT AND AMPHITHEATER, INC.
MURAT CENTER CONCERTS, INC.
MURAT CENTER CONCERTS, L.P.
By: MURAT CENTER CONCERTS, INC., its general partner
NED PROP JOINT VENTURE
NEJA GROUP, L.L.C.
NETWORK PRESENTATIONS LLC
NEW AVALON, INC.
NEW URBAN ENTERTAINMENT PRODUCTIONS AND MARKETING CO., LLC
NOC, INC.
NORTHEAST TICKETING COMPANY
By: NOC, INC., its general partner
NTC HOLDINGS, INC.
OAKDALE THEATER CONCERTS, INC.
PACE AEP ACQUISITION, INC.
PACE AMPHITHEATRES, INC.
PACE BAYOU PLACE, INC.
PACE CONCERTS, LTD.
PACE CONCERTS GP, INC.
PACE/CONTEMPORARY MOTOR SPORTS, LTD.
By: PACE MOTOR SPORTS, INC., its general partner
PACE ENTERTAINMENT CHARITABLE FOUNDATION
PACE ENTERTAINMENT CORPORATION
PACE ENTERTAINMENT GP CORP.
PACE ENTERTAINMENT GROUP, LTD.
PACE MILTON KEYNES, INC.
PACE MOTOR SPORTS, INC.
PACE MUSIC GROUP, INC.
PACE PRODUCTIONS, INC.
PACE SEASON TICKETS, INC.
PACE SIGNATURES GROUP, J.V.
PACE THEATRICAL GROUP, INC.
PACE (UK)
PACE U.K. HOLDING CORPORATION
PACE VARIETY ENTERTAINMENT, INC.
PALACE THEATRE OPERATING GROUP, LLC
By: PACE THEATRICAL GROUP, INC., its sole member
PAVILION PARTNERS
By: SM/PACE, INC., its general partner
PCMT, INC.
PEC, INC.
PERFORMING ARTS MANAGEMENT OF NORTH MIAMI, INC.
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POLARIS AMPHITHEATER CONCERTS, INC.
PROSERV, INC.
PROSERV UK, INC.
PROTIX CONNECTICUT GENERAL PARTNERSHIP
PTG-FLORIDA, INC.
PTG-FLORIDA, INC./BSMG JOINT VENTURE
By: PTG-FLORIDA, INC., its majority interest holder
QBQ ENTERTAINMENT, INC.
QN CORP.
RAINBOW CONCERT PRODUCTIONS, INC.
ROBBINS ENTERTAINMENT GROUP, INC.
ROSEMONT CONSULTING, INC.
RUGRATS AMERICAN TOUR, LTD.
By: PACE VARIETY ENTERTAINMENT, INC., as general partner
RZO LIVE, INC.
RZO MUSIC, INC.
RZO PRODUCTIONS, INC.
RZO TOURS, INC.
SFX ARENA MANAGEMENT, LLC
By: SFX/NEDCO, INC., its sole member
SFX CHICAGO, INC.
SFX CINCINNATI, LLC
By: SFX/NEDCO, INC., its sole member
SFX CLUB MANAGEMENT, LLC
By: SFX/NEDCO, INC., its sole member
SFX CONCERTS OF THE MIDWEST, INC.
SFX CONCERTS, INC.
SFX DELAWARE, INC.
SFX FAMILY ENTERTAINMENT, INC.
SFX FESTIVALS, INC.
SFX LIVE, INC.
SFX MEDIA MARKETING, INC.
SFX/NEDCO, INC.
SFX NETWORK GROUP, L.L.C.
By: SFX ENTERTAINMENT, INC., its managing member
SFX OF NEW MEXICO, LLC
By: SFX/NEDCO, INC., its sole member
SFX PRODUCTIONS AND PUBLISHING, INC.
SFX RADIO NETWORK, INC.
SFX REALTY COMPANY OF ILLINOIS, INC.
SFX RIGHTS, INC.
SFX/SJS PUBLISHING, INC.
SFX SPORTS GROUP, INC.
SFX TOURING, INC.
SHELLI MEADOWS, INC.
SHORELINE AMPHITHEATRE, LTD.
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<PAGE>
SHORELINE AMPHITHEATRE PARTNERS
By: SHORELINE AMPHITHEATRE, LTD., its general partner
SJS RESEARCH CORPORATION
SM/PACE, INC.
SOUTHEAST TICKETING COMPANY
By: CONNECTICUT AMPHITHEATER DEVELOPMENT CORPORATION, its general partner
SOUTHERN PROMOTIONS, INC.
SPORTS MARKETING AND TELEVISION INTERNATIONAL, INC.
STEP ENTERTAINMENT SERVICES INC.
SUNSHINE CONCERTS, L.L.C.
By: SFX CONCERTS OF THE MIDWEST, INC., its managing member
SUNSHINE DESIGNS, L.P.
By: SUNSHINE DESIGNS, INC., its general partner
SUNSHINE DESIGNS, INC.
SUNTEX ACQUISITION, INC.
SUNTEX ACQUISITION, L.P.
By: SUNTEX ACQUISITION, INC., its general partner
TBA MEDIA, INC.
TENNIS EVENTS, INC.
THE ALBUM NETWORK, INC.
THE BOATHOUSE FOOD SERVICE CO.
THE BOOKING GROUP, L.L.C.
By: PACE THEATRICAL GROUP, INC., its majority interest holder
THE DUKE OF YORK THEATRE (HOLDINGS)
THE ENTERTAINMENT GROUP, INC.
THE ENTERTAINMENT GROUP, SA. DE C.V.
THE JEKYLL COMPANY LIMITED PARTNERSHIP
THE MARQUEE GROUP, INC.
THE MARQUEE GROUP (AUSTRALIA) PTY LTD.
THE MARQUEE GROUP (UK) LIMITED
THE RASCOFF/ZYSBLAT ORGANIZATION, INC.
THE WEDDING TOUR COMPANY
By: PACE VARIETY ENTERTAINMENT, INC., as a majority holder
TEXAS TARPS
TICKET SERVICE, INC.
TOLLIN/ROBBINS MANAGEMENT, LLC
By: ROBBINS ENTERTAINMENT GROUP, INC., its sole member
TOLLIN ROBBINS PRODUCTIONS
By: ROBBINS ENTERTAINMENT GROUP, INC., its majority interest holder
TOURING ARTISTS GROUP, INC. (FL)
TOURING ARTISTS GROUP, INC. (OH)
TREMONT STREET THEATRE CORPORATION II, INC.
UNIVERSAL/PACE AMPHITHEATRES GROUP, L.P.
WEST COAST AMPHITHEATER CORP.
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WESTBURY MUSIC FAIR, L.L.C.
By: DELSENER/SLATER ENTERPRISES, LTD., its managing member
WOLFGANG RECORDS
By:_______________________
Name: Richard A. Liese
Title: Authorized Agent
THE CHASE MANHATTAN BANK
By:_______________________
Name:
Title:
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SUPPLEMENTAL INDENTURE
NO. 3
TO
INDENTURE DATED AS OF NOVEMBER 25, 1998
RE:
UP TO $200,000,000 9-1/8% SENIOR SUBORDINATED NOTES DUE 2008
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This SUPPLEMENTAL INDENTURE NO. 3, dated as of July 20, 1999, to
INDENTURE (the "Supplemental Indenture") is entered into among SFX
Entertainment, Inc., a Delaware corporation (the "Company"), the Guarantors
party hereto (each a "Guarantor" and collectively, the "Guarantors"), each a
direct or indirect subsidiary of the Company, and The Chase Manhattan Bank, as
trustee (the "Trustee"), under the Indenture (defined below).
RECITALS
WHEREAS, the Company, the Guarantors and the Trustee have entered into
that certain Indenture dated as of November 25, 1998, as amended by supplemental
indentures dated as of January 13, 1999 and June 21, 1999 (as amended and
supplemented on or prior to the date hereof, the "Indenture") providing for the
issuance and delivery by the Company of its 9-1/8% Senior Subordinated Notes due
2008 (the "Notes"); and
WHEREAS, the Company has proposed certain amendments to the terms of
the Indenture; and
WHEREAS, Article 9 of the Indenture provides the manner by which the
Indenture may be amended with the consent of the Holders of at least a majority
in aggregate principal amount of the then outstanding Notes by written act of
said Holders delivered to the Company and the Trustee; and
WHEREAS, the Holders of at least a majority in aggregate principal
amount of the outstanding Notes have delivered said consents to the Trustee and
the Company; and
WHEREAS, pursuant to and in accordance with Section 9.02 of the
Indenture, and with consent of the Holders of at least a majority in aggregate
principal amount of the outstanding Notes, the Company, the Guarantors and the
Trustee have agreed to enter into this Supplemental Indenture;
NOW THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows for the
benefit of each other party and for the equal and ratable benefit of the Holders
of the Notes:
Section 1. AMENDMENTS.
1.1 Subject to Section 2.2 hereof, the following definition of the term
"Foreign Subsidiary" is hereby added to Section 1.01 of the Indenture:
"'Foreign Subsidiary' means any Restricted Subsidiary of the Company
which is incorporated or otherwise organized under the laws of any
jurisdiction other than the United States of America, any state thereof or
the District of Columbia.
1.2. Subject to Section 2.2 hereof, the definition of the term
"Guarantor" contained in Section 1.01 of the Indenture is hereby amended to read
in its entirety as follows:
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"`Guarantor' means each of the Company's current and future Restricted
Subsidiaries that executes a Subsidiary Guarantee in accordance with the
provisions of this Indenture, and its respective successors and assigns."
1.3. Subject to Section 2.2 hereof, the definition of "Permitted
Investments" contained in Section 1.01 of the Indenture is hereby amended to
read in its entirety as follows:
"'Permitted Investments' means (i) any Investment in the Company or in
a Restricted Subsidiary of the Company; (ii) any Investment in Cash Equivalents;
(iii) any Investment by the Company or any Restricted Subsidiary of the Company
in a Person engaged in a Permitted Business, if (a) as a result of, or
concurrently with, such Investment such Person becomes a Restricted Subsidiary
of the Company or (b) as a result of, or concurrently with, such Investment such
Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the Company
or a Restricted Subsidiary of the Company; or (c) the Company or a Restricted
Subsidiary of the Company 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
Restricted Subsidiary of the Company or such transaction is consummated, as
applicable, in each case within 180 days of the date of such Investment; (iv)
any Restricted Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with Section 4.10 hereof; (v) any obligations or shares of Capital Stock
received in connection with or as a result of a bankruptcy, workout or
reorganization of the issuer of such obligations or shares of Capital Stock;
(vi) any Investment received involuntarily; (vii) any acquisition of assets
solely in exchange for the issuance of Equity Interests (other than Disqualified
Stock) of the Company; (viii) any Investment made under the Pace Acquisition
Facility pursuant to the Pace Agreement as in effect on the date hereof; (ix)
Investments owned by any of the Acquired Businesses as of the date such Acquired
Business is acquired; (x) other Investments in Persons engaged in Permitted
Businesses (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (x) that are at the time
outstanding, not to exceed 5% of Total Tangible Assets; (xi) the consummation of
the Pending Acquisitions; (xii) the Meadows Repurchase and the Series E
Preferred Repurchase; provided that the Company receives either (x) a cash
payment from Broadcasting or Broadcasting Buyer or an Affiliate thereof at or
prior to the date of the Broadcasting Merger at least equal to the aggregate
amount expended by the Company in the Meadows Repurchase and the Series E
Preferred Repurchase less $3.0 million or (y) an increase in favor of the
Company in the Working Capital Adjustment (including the avoidance of a
decrease) contemplated by the Merger Agreement in an amount at least equal to
the aggregate amount expended by the Company in the Meadows Repurchase and the
Series E Preferred Repurchase less $3.0 million or (z) any combination thereof
adding up to an amount at least equal to the aggregate amount expended by the
Company in the Meadows Repurchase and the Series E Preferred Repurchase less
$3.0 million; and (xiii) other Investments in any Person (measured on the date
each such Investment was made and without giving effect to subsequent changes in
value), when taken together with all other Investments made pursuant to this
clause (xiii) that are at the time outstanding, not to exceed $4.0 million.
Notwithstanding the foregoing, no Investment may be made under the foregoing
clauses (i) and (iii) in any Foreign Subsidiary (other than a Guarantor) if,
after giving pro forma effect to such Investment and all acquisitions and
dispositions of assets
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made by the Company and its Restricted Subsidiaries from the beginning of the
Measurement Period referred to below through and including the date of such
Investment, as if the same had occurred at the beginning of the four most recent
full fiscal quarters of the Company ending immediately prior to the date of such
Investment for which internal financial statements are available (the
"Measurement Period"), more than 35% of the pro forma Consolidated Cash Flow of
the Company for the Measurement Period would have been derived from operations
and businesses owned by Foreign Subsidiaries."
1.4. Subject to Section 2.2 hereof, Section 4.09 of the Indenture is
hereby amended to read in its entirety as follows:
"SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF
PREFERRED STOCK.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively "incur") any Indebtedness (including Acquired Debt) or issue any
shares of Disqualified Stock and will not permit any of its Subsidiaries to
issue any shares of preferred stock; provided, however, that, so long as no
Default or Event of Default has occurred and is continuing, the Company may
incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock and the Guarantors may issue shares of preferred stock if, in each case,
the Company's Debt to Cash Flow Ratio at the time of incurrence of such
Indebtedness or the issuance of such Disqualified Stock or preferred stock, as
the case may be, after giving pro forma effect to such incurrence or issuance as
of such date and to the use of the proceeds therefrom as if the same had
occurred at the beginning of the most recently ended four full fiscal quarter
period of the Company for which internal financial statements are available,
would have been no greater than (a) 7.0 to 1.0, if such incurrence or issuance
is prior to December 31, 1999 or (b) 6.0 to 1.0 thereafter.
The provisions of the first paragraph of this covenant will not apply
to the incurrence of any of the following (collectively, "Permitted Debt"):
(i) the incurrence by the Company (and the guarantee thereof by
Guarantors) of Indebtedness and letters of credit under one or more Credit
Facilities in an aggregate principal amount at any time outstanding not to
exceed $400.0 million (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
and the Guarantors thereunder), less the aggregate amount of all
repayments, optional or mandatory, of the principal of any term
Indebtedness under a Credit Facility that have been made since the date
hereof and less the aggregate amount of all commitment reductions of any
revolving Indebtedness under a Credit Facility pursuant to clause (i) of
the third paragraph of Section 4.10 hereof;
(ii) the incurrence by the Company and the guarantee thereof by the
Guarantors of Indebtedness represented by the Notes and the Subsidiary
Guarantees;
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(iii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iv) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or such Restricted Subsidiary, in an aggregate amount not to exceed
$5.0 million at any time outstanding, including all Permitted Refinancing
Debt incurred pursuant to clause (v) below to refund, replace or refinance
any Indebtedness pursuant to this clause (iv);
(v) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by this Indenture to be
incurred by the first paragraph of this Section 4.09, or by clauses (ii),
(iii), (iv), (v), (vii) or (x) of this paragraph;
(vi) the incurrence of Indebtedness between or among the Company and
any of its Restricted Subsidiaries; provided, however, that (a) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full of all Obligations with respect
to the Notes and (b) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person
other than the Company or a Restricted Subsidiary, and any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Restricted Subsidiary, shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding;
(viii) the guarantee by the Company or any of its Restricted
Subsidiaries of Indebtedness that was permitted to be incurred by another
provision of this Section 4.09;
(ix) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (ix);
(x) the issuance of preferred stock by the Company pursuant to the
Contemporary Agreement, as in effect on the date of this Indenture;
(xi) the incurrence by Foreign Subsidiaries of Indebtedness, provided
that at the time of, and after giving effect to, the incurrence of such
Indebtedness (a) no Default or Event of Default has occurred and is
continuing, (b) the Company would 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 this Section 4.09 and (c) the Debt to Cash
Flow
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Ratio of the Company's Foreign Subsidiaries (on a combined consolidated
basis), after giving pro forma effect to such incurrence and to the use of
the proceeds therefrom and to all Investments and acquisitions and
dispositions of assets made by the Company and its Restricted Subsidiaries
from the beginning of the most recently ended four full fiscal quarter
period of the Company for which internal financial statements are available
to the date of determination, as if the same had occurred at the beginning
of such four-quarter period, would have been no greater than 4.0 to 1.0;
(xii) the incurrence by Foreign Subsidiaries of Indebtedness as to
which the Company is directly or indirectly liable (as a guarantor,
co-borrower or otherwise), provided that the incurrence by the Company of
such Indebtedness was permitted under this Section 4.09; and
(xiii) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount at
any time outstanding, including all Permitted Refinancing Indebtedness
incurred pursuant to clause (v) above to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (xiii), not to exceed $10.0
million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xiii) above
or is entitled to be incurred pursuant to the first paragraph of this
covenant, the Company shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this Section 4.09 and such
item of Indebtedness will be treated as having been incurred pursuant to
only one of such clauses or pursuant to the first paragraph hereof. Accrual
of interest, the accretion of accreted value, the payment of interest on
any Indebtedness in the form of additional Indebtedness with the same terms
and the payment of dividends on Disqualified Stock in the form of
additional shares of the same class of Disqualified Stock will not be
deemed to be an incurrence of Indebtedness or an issuance of Disqualified
Stock for purposes of this covenant."
1.5. Subject to Section 2.2 hereof, Section 4.11 of the Indenture is
hereby amended to read in its entirety as follows:
"SECTION 4.11. TRANSACTIONS WITH AFFILIATES
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms that are no less favorable to the
Company or such Restricted Subsidiary than those that would have been obtained
in a comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustee (a) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1.0 million, a resolution of the
Board of Directors set forth in an
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Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the members of the Board of Directors that are disinterested as to
such Affiliate Transaction and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $5.0 million, an opinion as to the fairness to the Company of such
Affiliate Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing; provided that (1) any
employment agreement entered into by, and any compensation paid by, the Company
or any of its Restricted Subsidiaries, in each case, approved by the
Compensation Committee, (2) transactions between or among the Company and/or its
Restricted Subsidiaries, (3) fees and compensation paid to members of the Board
of Directors of the Company and of its Restricted Subsidiaries in their capacity
as such, to the extent such fees and compensation are reasonable, customary and
consistent with past practices and the issuance of shares of the Company to the
Directors who were holders of options or stock appreciation rights in
Broadcasting as of the Spin-Off record date, whether or not vested, (4) fees and
compensation paid to, and indemnity provided on behalf of, officers, directors
or employees of the Company or any of its Restricted Subsidiaries, as determined
by the Board of Directors of the Company or of any such Restricted Subsidiary,
to the extent such fees and compensation are reasonable, customary and
consistent with past practices, (5) the transactions specifically contemplated
by the Merger Agreement, the agreements relating to the Pending Acquisitions or
by instruments referred to in any such agreements, in each case, as the same are
in effect on the date hereof, (6) the Spin-Off Transactions, (7) the
transactions specifically contemplated by the Delsener/Slater Employment
Agreements, in each case as in effect on the date hereof, (8) the Meadows
Repurchase and the Series E Preferred Repurchase; provided that the Company
receives either (x) a cash payment from Broadcasting or Broadcasting Buyer or an
Affiliate thereof at or prior to the date of the Broadcasting Merger at least
equal to the aggregate amount expended by the Company in the Meadows Repurchase
and the Series E Preferred Repurchase less $3.0 million or (y) an increase in
favor of the Company in the Working Capital Adjustment (including the avoidance
of a decrease) contemplated by the Merger Agreement in an amount at least equal
to the aggregate amount expended by the Company in the Meadows Repurchase and
the Series E Preferred Repurchase less $3.0 million or (z) any combination
thereof adding up to an amount at least equal to the aggregate amount expended
by the Company in the Meadows Repurchase and the Series E Preferred Repurchase
less $3.0 million; (9) any Restricted Payment that is permitted by the
provisions of Section 4.07 hereof, in each case, shall not be deemed to be
Affiliate Transactions; and (10) notwithstanding clause (ii)(b) above, if the
subject Affiliate Transaction or series of related Affiliated Transactions is
with a Person that is an Affiliate solely by reason of the Company or any
Restricted Subsidiary of the Company owning an equity interest in such Person or
otherwise controlling such Person, an opinion as to the fairness to the Company
of such Affiliate Transaction from a financial point of view shall not be
required unless the subject Affiliate Transaction or series of related Affiliate
Transactions involves aggregate consideration in excess of $10 million."
1.7. Subject to Section 2.2 hereof, Section 4.17 of the Indenture is
hereby amended to read in its entirety as follows:
"SECTION 4.17 ISSUANCES AND SALES OF EQUITY INTERESTS IN RESTRICTED
SUBSIDIARIES.
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The Company (i) shall not, and shall not permit any Restricted
Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose
of any Equity Interests in any Restricted Subsidiary of the Company to any
Person (other than the Company or a Restricted Subsidiary of the Company),
unless (a) such transfer, conveyance, sale, lease or other disposition is of all
the Equity Interests in such Restricted Subsidiary or of not more than 20% of
the outstanding shares of any class of Capital Stock of such Restricted
Subsidiary and (b) the Net Cash Proceeds, if any, from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with
Section 4.10 hereof, and (ii) will not permit any Restricted Subsidiary of the
Company to issue any of its Equity Interests (other than, if necessary, shares
of its Capital Stock constituting directors' qualifying shares and other than up
to 20% of the outstanding shares of any class of Capital Stock of such
Restricted Subsidiary) to any Person other than to the Company or a Restricted
Subsidiary of the Company except as permitted pursuant to Section 4.09 hereof."
Section 2. MISCELLANEOUS.
2.1. GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS SUPPLEMENTAL INDENTURE.
2.2. Operative Date. Upon the execution and delivery of this
Supplemental Indenture by the Company, the Guarantors and the Trustee, the
Indenture shall be supplemented in accordance herewith, and this Supplemental
Indenture shall form a part of the Indenture for all purposes, and every Holder
of Notes heretofore or hereafter authenticated and delivered under the Indenture
shall be bound thereby; provided, however, that Section 1 hereof shall become
operative upon the satisfaction of the Conditions (as defined in the Consent
Solicitation Statement, dated June 23, 1999, as amended and supplemented, that
was provided to Holders of Notes in connection with the Company's solicitation
of consents by such Holders to the amendments set forth herein). Upon the
receipt by the Trustee of (i) an Officers' Certificate certifying that such
Conditions have been satisfied, and (ii) an Opinion of Counsel stating (a) that
the execution of this Supplemental Indenture is authorized or permitted by the
Indenture and (b) that this Supplemental Indenture complies with the Indenture,
the amendments set forth herein shall become operative.
2.3. Confirmation of the Indenture. Except as amended hereby, the
Indenture shall remain in full force and effect and is hereby ratified and
confirmed in all respects.
2.4. Multiple Counterparts. The parties may sign multiple counterparts
of this Supplemental Indenture. Each signed counterpart shall be deemed an
original, but all of them together represent one and the same agreement.
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2.5. Separability. Each provision of this Supplemental Indenture shall
be considered separable and if for any reason any provision which is not
essential to the effectuation of the basic purpose of this Supplemental
Indenture shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be effected or
impaired thereby.
2.6. Headings. The captions of the various section headings of this
Supplemental Indenture have been inserted for convenience of reference only, are
not to be considered a part hereof, and shall in no way modify or restrict any
of the terms or provisions hereof.
2.7. The Trustee. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Company and the Guarantors.
2.8. Definitions. All terms defined in the Indenture shall have the
same meaning in this Supplemental Indenture unless otherwise defined herein.
[Signature Page Follows]
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IN WITNESS WHEREOF, the undersigned have executed this Supplemental
Indenture No. 3 as of this ____ day of _______, 1999.
SFX ENTERTAINMENT, INC.
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By: Richard A. Liese
Title: Senior Vice President
AIR SHOW PARTNERS
AKG, INC.
AMERICAN ARTISTS LIMITED, INC.
AMERICAN BROADWAY, INC.
AMPHITHEATER ENTERTAINMENT PARTNERSHIP
By: SM/PACE, INC., its general partner
ANT THEATRICAL PRODUCTIONS, INC.
ARDEE FESTIVALS N.J., INC.
ATHLETES AND ARTISTS, INC.
ATLANTA CONCERTS, INC.
AUDREY & JANE, INC.
AVALON ACQUISITION CORP.
BAYOU PLACE PERFORMANCE HALL GENERAL PARTNERSHIP
BEACH CONCERTS, INC.
BG PRESENTS, INC.
BGE YUBA LLC
By: BILL GRAHAM ENTERPRISES, INC., its sole member
BGP ACQUISITION, L.L.C.
By: SFX ENTERTAINMENT, INC., its managing member
BGP DENVER, INC.
BILL GRAHAM ENTERPRISES, INC.
BILL GRAHAM MANAGEMENT, INC.
BILL GRAHAM PRESENTS, INC.
BOSTON PLAYHOUSE REALTY, INC.
BOYLSTON STREET THEATRE CORP.
BROADWAY CONCERTS, INC.
BROADWAY SERIES ASSOCIATES, INC.
BROADWAY SERIES MANAGEMENT GROUP, INC.
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CAMARILLO AMPHITHEATER MANAGING PARTNERS, INC.
CDC AMPHITHEATER/I, INC.
CDC OF NORTH CAROLINA, INC.
CDC/SMT, INC.
CDP, INC.
CELLAR DOOR AMPHITHEATRES/II, INC.
CELLAR DOOR AMPHITHEATER, INC.
CELLAR DOOR CONCERTS OF THE CAROLINAS, INC.
CELLAR DOOR CONCERTS OF FLORIDA, INC.
CELLAR DOOR CONSULTING, INC.
CELLAR DOOR HOLDING COMPANY
CELLAR DOOR NORTH CENTRAL, INC.
CELLAR DOOR PRODUCTIONS OF MICHIGAN, INC.
CELLAR DOOR PRODUCTIONS OF VIRGINIA, INC.
CELLAR DOOR SOUTH EAST, INC.
CELLAR DOOR VENUES, INC.
COL ARTS ASSOCIATES, INC.
CONCERT PRODUCTIONS INTERNATIONAL B.V.
CONCERTS, INC.
CONCERT PRODUCTIONS (UK) LIMITED
CONCERT/SOUTHERN CHASTAIN PROMOTIONS
By: SOUTHERN PROMOTION, INC., its majority interest holder
CONN TICKETING COMPANY
By: NORTHEAST TICKETING COMPANY, its general partner
CONNECTICUT AMPHITHEATER DEVELOPMENT CORPORATION
CONNECTICUT CONCERTS INCORPORATED
CONNECTICUT PERFORMING ARTS PARTNERS
By: NOC, INC., its general partner
CONNECTICUT PERFORMING ARTS, INC.
CONTEMPORARY GROUP ACQUISITION CORP.
CONTEMPORARY GROUP, INC.
CONTEMPORARY MARKETING, INC.
CONTEMPORARY PRODUCTIONS INCORPORATED
CONTEMPORARY SPORTS INCORPORATED
COOLEY AND CONLON MANAGEMENT CO.
DEER CREEK AMPHITHEATER CONCERTS, L.P.
By: Deer Creek Amphitheater Concerts, Inc., its general partner
DEER CREEK AMPHITHEATER CONCERTS, INC.
DELSENER/SLATER ENTERPRISES, LTD.
DELSENER/SLATER PRESENTS, INC.
DICESARE-ENGLER, INC.
DICESARE-ENGLER PROMOTIONS, INC.
DLC CORP.
DLC FUNDING CORP.
DUMB DEAL, INC.
EAGLE EYE ENTERTAINMENT, INC.
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EAGLE EYE ENTERTAINMENT USA INC.
EMI ACQUISITION SUB, INC.
ENTERTAINMENT PERFORMING ARTS, INC.
ETEK CORP.
EVENT MERCHANDISING, INC.
EXIT 116 REVISITED, INC.
FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
FILLMORE CORPORATION
FILLMORE FINGERS, INC.
FILLMORE THEATRICAL SERVICES
FINANCIAL ADVISORY MANAGEMENT ENTERPRISES, INC.
GRAHAM/GUND PARTNERSHIP
GRAND SLAM SPORTS MARKETING, INC.
GREATER DETROIT THEATRES, INC.
GSAC PARTNERS
By: PAVILION PARTNERS, its general partner; SM/PACE, INC., its general
partner
HALCYON DAYS PRODUCTIONS, INC.
HAYMON HOLDINGS, INC.
HIGH COTTON, INC.
IN HOUSE TICKETS, INC.
INTEGRATED SPORTS INTERNATIONAL, INC.
INTERNATIONAL MUSIC (CANADA) INC.
INTERNATIONAL MUSIC LTD.
INTERNATIONAL MUSIC TOUR I LTD.
INTERNATIONAL MUSIC TOUR II LTD.
INTERNATIONAL MUSIC TOUR I (USA) INC.
INTERNATIONAL MUSIC TOUR II (USA) INC.
TNA (USA) INC.
IRVINE MEADOWS AMPHITHEATER
By: AVALON ACQUISITION CORP., as general partner
IRVING PLAZA CONCERTS, INC.
J&H TOURING COMPANY LIMITED PARTNERSHIP
JJB & DHW, INC.
JJJ AMPHITHEATER LIMITED PARTNERSHIP
By: CELLAR DOOR AMPHITHEATER, INC., its general partner
MAGICSPORTS - GRAND SLAM MANAGEMENT, INC.
MAGICWORKS CONCERTS, INC.
MAGICWORKS ENTERTAINMENT ASIA LIMITED
MAGICWORKS ENTERTAINMENT INCORPORATED
MAGICWORKS ENTERTAINMENT INTERNATIONAL, INC.
MAGICWORKS EXHIBITIONS, INC.
MAGICWORKS FASHION MANAGEMENT, INC.
MAGICWORKS MERCHANDISING, INC.
MAGICWORKS SPORTS MANAGEMENT, INC.
MAGICWORKS THEATRICALS, INC.
MAGICWORKS TRANSPORTATION, INC.
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MAGICWORKS WEST, INC.
MARCO ENTERTAINMENT, INC.
MARQUEE ALPHABET CITY RECORDS, INC.
MARQUEE CAMBRIDGE GOLF, INC.
MARQUEE TOLLIN/ROBBINS, INC.
MELODY TENT AND AMPHITHEATER, INC.
MURAT CENTER CONCERTS, INC.
MURAT CENTER CONCERTS, L.P.
By: MURAT CENTER CONCERTS, INC., its general partner
NED PROP JOINT VENTURE
NEJA GROUP, L.L.C.
NETWORK PRESENTATIONS LLC
NEW AVALON, INC.
NEW URBAN ENTERTAINMENT PRODUCTIONS AND MARKETING CO., LLC
NOC, INC.
NORTHEAST TICKETING COMPANY
By: NOC, INC., its general partner
NTC HOLDINGS, INC.
OAKDALE THEATER CONCERTS, INC.
PACE AEP ACQUISITION, INC.
PACE AMPHITHEATRES, INC.
PACE BAYOU PLACE, INC.
PACE CONCERTS, LTD.
PACE CONCERTS GP, INC.
PACE/CONTEMPORARY MOTOR SPORTS, LTD.
By: PACE MOTOR SPORTS, INC., its general partner
PACE ENTERTAINMENT CHARITABLE FOUNDATION
PACE ENTERTAINMENT CORPORATION
PACE ENTERTAINMENT GP CORP.
PACE ENTERTAINMENT GROUP, LTD.
PACE MILTON KEYNES, INC.
PACE MOTOR SPORTS, INC.
PACE MUSIC GROUP, INC.
PACE PRODUCTIONS, INC.
PACE SEASON TICKETS, INC.
PACE SIGNATURES GROUP, J.V.
PACE THEATRICAL GROUP, INC.
PACE (UK)
PACE U.K. HOLDING CORPORATION
PACE VARIETY ENTERTAINMENT, INC.
PALACE THEATRE OPERATING GROUP, LLC
By: PACE THEATRICAL GROUP, INC., its sole member
PAVILION PARTNERS
By: SM/PACE, INC., its general partner
PCMT, INC.
PEC, INC.
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PERFORMING ARTS MANAGEMENT OF NORTH MIAMI, INC.
POLARIS AMPHITHEATER CONCERTS, INC.
PROSERV, INC.
PROSERV UK, INC.
PROTIX CONNECTICUT GENERAL PARTNERSHIP
PTG-FLORIDA, INC.
QBQ ENTERTAINMENT, INC.
QN CORP.
RAINBOW CONCERT PRODUCTIONS, INC.
ROBBINS ENTERTAINMENT GROUP, INC.
ROSEMONT CONSULTING, INC.
RUGRATS AMERICAN TOUR, LTD.
By: PACE VARIETY ENTERTAINMENT, INC., as general partner
RZO LIVE, INC.
RZO MUSIC, INC.
RZO PRODUCTIONS, INC.
RZO TOURS, INC.
SFX ARENA MANAGEMENT, LLC
By: SFX/NEDCO, INC., its sole member
SFX CHICAGO, INC.
SFX CINCINNATI, LLC
By: SFX/NEDCO, INC., its sole member
SFX CLUB MANAGEMENT, LLC
By: SFX/NEDCO, INC., its sole member
SFX CONCERTS OF THE MIDWEST, INC.
SFX CONCERTS, INC.
SFX DELAWARE, INC.
SFX FAMILY ENTERTAINMENT, INC.
SFX FESTIVALS, INC.
SFX LIVE, INC.
SFX MEDIA MARKETING, INC.
SFX/NEDCO, INC.
SFX NETWORK GROUP, L.L.C.
By: SFX ENTERTAINMENT, INC., its managing member
SFX OF NEW MEXICO, LLC
By: SFX/NEDCO, INC., its sole member
SFX PRODUCTIONS AND PUBLISHING, INC.
SFX RADIO NETWORK, INC.
SFX REALTY COMPANY OF ILLINOIS, INC.
SFX RIGHTS, INC.
SFX/SJS PUBLISHING, INC.
SFX SPORTS GROUP, INC.
SFX TOURING, INC.
SHELLI MEADOWS, INC.
SHORELINE AMPHITHEATRE, LTD.
SHORELINE AMPHITHEATRE PARTNERS
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By: SHORELINE AMPHITHEATRE, LTD., its general partner
SJS RESEARCH CORPORATION
SM/PACE, INC.
SOUTHEAST TICKETING COMPANY
By: CONNECTICUT AMPHITHEATER DEVELOPMENT CORPORATION, its general partner
SOUTHERN PROMOTIONS, INC.
SPORTS MARKETING AND TELEVISION INTERNATIONAL, INC.
STEP ENTERTAINMENT SERVICES INC.
SUNSHINE CONCERTS, L.L.C.
By: SFX CONCERTS OF THE MIDWEST, INC., its managing member
SUNSHINE DESIGNS, L.P.
By: SUNSHINE DESIGNS, INC., its general partner
SUNSHINE DESIGNS, INC.
SUNTEX ACQUISITION, INC.
SUNTEX ACQUISITION, L.P.
By: SUNTEX ACQUISITION, INC., its general partner
TBA MEDIA, INC.
TENNIS EVENTS, INC.
THE ALBUM NETWORK, INC.
THE BOATHOUSE FOOD SERVICE CO.
THE BOOKING GROUP, L.L.C.
By: PACE THEATRICAL GROUP, INC., its majority interest holder
THE DUKE OF YORK THEATRE (HOLDINGS)
THE ENTERTAINMENT GROUP, INC.
THE ENTERTAINMENT GROUP, SA. DE C.V.
THE JEKYLL COMPANY LIMITED PARTNERSHIP
THE MARQUEE GROUP, INC.
THE MARQUEE GROUP (AUSTRALIA) PTY LTD.
THE MARQUEE GROUP (UK) LIMITED
THE RASCOFF/ZYSBLAT ORGANIZATION, INC.
THE WEDDING TOUR COMPANY
By: PACE VARIETY ENTERTAINMENT, INC., as a majority holder
TEXAS TARPS
TICKET SERVICE, INC.
TOLLIN/ROBBINS MANAGEMENT, LLC
By: ROBBINS ENTERTAINMENT GROUP, INC., its sole member
TOLLIN ROBBINS PRODUCTIONS
By: ROBBINS ENTERTAINMENT GROUP, INC., its majority interest holder
TOURING ARTISTS GROUP, INC. (FL)
TOURING ARTISTS GROUP, INC. (OH)
TREMONT STREET THEATRE CORPORATION II, INC.
UNIVERSAL/PACE AMPHITHEATRES GROUP, L.P.
WEST COAST AMPHITHEATER CORP.
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WESTBURY MUSIC FAIR, L.L.C.
By: DELSENER/SLATER ENTERPRISES, LTD., its managing member
WOLFGANG RECORDS
By:_______________________
Name: Richard A. Liese
Title: Authorized Agent
THE CHASE MANHATTAN BANK
By:_______________________
Name:
Title:
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SFX ENTERTAINMENT, INC.
1998 STOCK OPTION AND RESTRICTED STOCK PLAN
EFFECTIVE JANUARY 15, 1998
SECTION 1
ESTABLISHMENT AND PURPOSE
-------------------------
This Plan is established to (i) offer selected, directors, officers,
Employees and Consultants of the Company or its Subsidiaries an equity ownership
interest in the financial success of the Company, (ii) provide the Company an
opportunity to attract and retain the best available personnel for positions of
substantial responsibility and (iii) to encourage equity participation in the
Company by eligible Participants. This Plan provides for the grant by the
Company of (i) Options to purchase Shares, and (ii) shares of Restricted Stock.
Options granted under this Plan may include Nonstatutory Options as well as ISOs
intended to qualify under section 422 of the Code.
SECTION 2
DEFINITIONS
-----------
"BOARD OF DIRECTORS" shall mean the board of directors of the Company, as
duly elected from time to time.
"CHANGE IN CONTROL" shall mean such time as either (i) any "person", as
such term is used in section 14(d) of the Exchange Act (other than the Company,
a whollyowned subsidiary of the Company, any employee benefit plan of the
Company or its Subsidiaries or Mr. Sillerman together with his affiliates (as
such term is defined in Rule 12b-2 of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d3 under the Exchange Act (or any
successor rule), directly or indirectly, of fifty percent (50%) or more of the
combined voting power of the Company's common stock or (ii) individuals who
constitute the Board of the Directors on the effective date of this Plan (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election or nomination for election by the Company's shareholders
was approved by a vote of at least three quarters of the directors comprising
the Incumbent Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee for the
director without objection to such nomination) shall be, for purposes of this
clause (ii) considered as though such person was a member of the Incumbent
Board.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and as
interpreted by the regulations thereunder.
"COMMITTEE" shall mean the Stock Option Committee of the Company, or such
other Committee as may be appointed by the Board of Directors from time to time.
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"COMPANY" shall mean SFX Entertainment, Inc., a Delaware corporation.
"CONSULTANT" shall mean any individual that is expressly designated as a
consultant of the Company or its Subsidiaries by the Committee in its sole
discretion.
"DATE OF GRANT" shall mean the date on which the Committee resolves to
grant an Option to an Optionee or grant Restricted Stock to a Participant, as
the case may be.
"DISINTERESTED DIRECTOR" shall mean a member of the Board of Directors
who is both (a) a Non-Employee Director, within the meaning of Rule 16b-3
promulgated under the Exchange Act, as amended from time to time and (b) an
Outside Director, within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder, as amended from time to time.
"EMPLOYEE" shall include every individual performing Services to the
Company or its Subsidiaries if the relationship between such individual and the
Company or its Subsidiaries is the legal relationship of employer and employee.
This definition of "Employee" is qualified in its entirety and is subject to the
definition set forth in section 3401(c) of the Code and the regulations
thereunder.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and as interpreted by the rules and regulations promulgated thereunder.
"EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement, but in no event less than the par value per
Share.
"FAIR MARKET VALUE" shall mean the closing price of the shares on the
national securities exchange on which the Shares are listed (if the shares are
so listed) as reported in the Wall Street Journal on the applicable date (or, if
not so reported, as otherwise reported by the National Association of Securities
Dealers Automated Quotation System) or on the NASDAQ National Market System (if
the Shares are regularly quoted thereon), or, if not so listed or regularly
quoted, the mean of the closing bid and asked prices of the securities in the
over-the-counter market, on the applicable date or, if such bid and asked prices
shall not be available, as reported by any nationally recognized quotation
service selected by the Company, or as determined by the Committee in a manner
consistent with the provisions of the Code.
"ISO" shall mean a stock option which is granted to an individual and
which meets the requirements of section 422(b) of the Code, pursuant to which
the Optionee has no tax consequences resulting from the grant or, subject to
certain holding period requirements, exercise of the option and the employer is
not entitled to a business expense deduction with respect thereto.
"NONSTATUTORY OPTION" shall mean any Option granted by the Committee that
does not meet the requirements of sections 421 through 424 of the Code, as
amended.
"OPTION" shall mean either an ISO or Nonstatutory Option, as the context
requires.
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"OPTIONEE" shall mean a Participant who holds an Option.
"PARTICIPANTS" shall mean those individuals described in Section 1 of
this Plan selected by the Committee who are eligible under Section 4 of this
Plan for grants of either Options or Restricted Stock under this Plan.
"PERMANENT AND TOTAL DISABILITY" shall mean that an individual is unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
more than twelve (12) months. An individual shall not be considered to suffer
from Permanent and Total Disability unless such individual furnishes proof of
the existence thereof in such form and manner, and at such times, as the
Committee may reasonably require. The scope of this definition shall
automatically be reduced or expanded to the extent that section 22(e)(3) of the
Code is amended to reduce or expand the scope of the definition of Permanent and
Total Disability thereunder.
"PLAN" shall mean this SFX Entertainment, Inc. 1998 Stock Option and
Restricted Stock Plan, as amended from time to time.
"PLAN AWARD" shall mean the grant of either an Option or Restricted
Stock, as the context requires.
"RESTRICTED STOCK" shall have that meaning set forth in Section 7(a) of
this Plan.
"RESTRICTED STOCK ACCOUNT" shall have that meaning set forth in Section
7(a)(ii) of this Plan.
"RESTRICTED STOCK CRITERIA" shall have that meaning in Section 7(a)(iv)
of this Plan.
"RESTRICTION PERIOD" shall have that meaning in Section 7(a)(iii) of this
Plan.
"SERVICES" shall mean services rendered to the Company or any of its
Subsidiaries by a Participant.
"SHARE" shall mean one share of Stock, as adjusted in accordance with
Section 9 of this Plan (if applicable).
"STOCK" shall mean the Class A Common Stock of the Company, par value
$.01 per share.
"STOCK OPTION AGREEMENT" shall mean the agreement executed between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to the granting of an Option.
"SUBSIDIARY" shall mean any corporation as to which more than fifty (50%)
percent of the outstanding voting stock or shares shall now or hereafter be
owned or controlled, directly by a person, any Subsidiary of such person, or any
Subsidiary of such Subsidiary.
"TENPERCENT SHAREHOLDER" shall mean a person that owns more than ten
percent (10%) of the total combined voting power of all classes of outstanding
stock of the Company or any Subsidiary, taking into account the attribution
rules set forth in section 424 of the Code, as amended. For purposes of this
definition of "Ten Percent Shareholder" the term "outstanding stock" shall
include all stock actually issued and
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outstanding immediately after the grant of an Option to an Optionee.
"Outstanding stock" shall not include reacquired shares or shares authorized for
issuance under outstanding Options held by the Optionee or by any other person.
"VEST DATE" shall have that meaning in Section 7(a)(v) of this Plan.
SECTION 3
ADMINISTRATION
--------------
(a) GENERAL ADMINISTRATION. This Plan shall be administered by the
Committee, which shall consist of at least two persons, each of whom shall be
Disinterested Directors. The members of the Committee shall be appointed by the
Board of Directors for such terms as the Board of Directors may determine. The
Board of Directors may from time to time remove members from, or add members to,
the Committee. Vacancies on the Committee, however caused, may be filled by the
Board of Directors.
(b) COMMITTEE PROCEDURES. The Board of Directors shall designate one of
the members of the Committee as chairman. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by a majority of all Committee members, shall be valid
acts of the Committee. A majority of the Committee shall constitute a quorum.
(c) AUTHORITY OF COMMITTEE. This Plan shall be administered by, or under
the direction of, the Committee constituted in such a manner as to comply at all
times with Rule 16b3 (or any successor rule) under the Exchange Act. The
Committee shall administer this Plan so as to comply at all times with the
Exchange Act and, subject to the Code, shall otherwise have absolute and final
authority to interpret this Plan and to make all determinations specified in or
permitted by this Plan or deemed necessary or desirable for its administration
or for the conduct of the Committee's business including without limitation the
authority to take the following actions:
(i) To interpret this Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms
relating to this Plan;
(iii) To authorize any person to execute, on behalf of the
Company, any instrument required to carry out the purposes of this Plan;
(iv) To determine when Plan Awards are to be granted under
this Plan;
(v) To select the Optionees and Participants;
(vi) To determine the number of Shares to be made subject to
each Plan Award;
(vii) To prescribe the terms, conditions and restrictions of
each Plan Award, including
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without limitation., the Exercise Price, the vesting schedule and the
determination whether an Option is to be classified as an ISO or a Nonstatutory
Option;
(viii) To amend any outstanding Stock Option Agreement (other
than the Exercise Price) or the terms, conditions and restrictions of a grant of
Restricted Stock, subject to applicable legal restrictions and the consent of
the Optionee or Participant, as the case may be, who entered into such
agreement, or accelerate the vesting of any Plan Award;
(ix) To establish procedures so that an Optionee may obtain a
loan through a registered brokerdealer under the rules and regulations of the
Federal Reserve Board, for the purpose of exercising an Option;
(x) To establish procedures for an Optionee (1) to have
withheld from the total number of Shares to be acquired upon the exercise of an
Option that number of Shares having a Fair Market Value, which, together with
such cash as shall be paid in respect of fractional shares, shall equal the
Exercise Price, and (2) to exercise a portion of an Option by delivering that
number of Shares already owned by an Optionee having a Fair Market Value which
shall equal the partial Exercise Price and to deliver the Shares thus acquired
by such Optionee in payment of Shares to be received pursuant to the exercise of
additional portions of the Option, the effect of which shall be that an Optionee
can in sequence utilize such newly acquired shares in payment of the Exercise
Price of the entire Option, together with such cash as shall be paid in respect
of fractional shares;
(xi) To establish procedures whereby a number of Shares may be
withheld from the total number of Shares to be issued upon exercise of an
Option, to meet the obligation of withholding for federal and state income and
other taxes, if any, incurred by the Optionee upon such exercise; and
(xii) To take any other actions deemed necessary or advisable
for the administration of this Plan.
All interpretations and determinations of the Committee made with respect
to the granting of Plan Awards shall be final, conclusive, and binding on all
interested parties. The Committee may make grants of Plan Awards on an
individual or group basis. No member of the Committee shall be liable for any
action that is taken or is omitted to be taken if such action or omission is
taken in good faith with respect to this Plan or grant of any Plan Award.
(d) HOLDING PERIOD. The Committee may in its sole discretion require as a
condition to the granting of any Plan Award, that a Participant hold the Plan
Awards for a period of six months following the date of such acquisition. This
condition shall be satisfied with respect to a derivative security if at least
six months elapse from the date of acquisition of the derivative security to the
date of disposition of the derivative security (other than upon exercise or
conversion) or its underlying equity security.
SECTION 4
ELIGIBILITY
-----------
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(a) GENERAL RULE. Subject to the limitations set forth in subsection b
below or elsewhere in this Plan, Participants shall be eligible to participate
in this Plan.
(b) NONEMPLOYEE INELIGIBLE FOR ISOS. In no event shall an ISO be granted
to any individual who is not an Employee on the Date of Grant.
SECTION 5
SHARES SUBJECT TO PLAN
----------------------
BASIC LIMITATION. Shares offered under this Plan may be
authorized but unissued Shares or Shares that have been reacquired by the
Company. The aggregate number of Shares that are available for issuance under
this Plan shall not exceed two million (2,000,000) Shares, subject to adjustment
pursuant to Section 9 of this Plan. The Committee shall not issue more Shares
than are available for issuance under this Plan. The number of Shares that are
subject to unexercised Options at any time under this Plan shall not exceed the
number of Shares that remain available for issuance under this Plan. The
Company, during the term of this Plan, shall at all times reserve and keep
available sufficient Shares to satisfy the requirements of this Plan.
ADDITIONAL SHARES. In the event any outstanding Option for any
reason expires, is canceled or otherwise terminates, the Shares allocable to the
unexercised portion of such Option shall again be available for issuance under
this Plan. In the event that Shares issued under this Plan revert to the Company
prior to the Vest Date under a grant of Restricted Stock, such Shares shall
again be available for issuance under this Plan.
SECTION 6
TERMS AND CONDITIONS OF OPTIONS
-------------------------------
(a) TERM OF OPTION. The term of each Option shall be ten (10) years from
the Date of Grant or such shorter term as may be determined by the Committee;
provided, however, in the case of an ISO granted to a TenPercent Shareholder,
the term of such ISO shall be five (5) years from the Date of Grant or such
shorter time as may be determined by the Committee.
(b) EXERCISE PRICE AND METHOD OF PAYMENT.
(i) EXERCISE PRICE. The Exercise Price shall be such price as
is determined by the Committee in its sole discretion and set forth in the Stock
Option Agreement; provided, however, in the case of an ISO granted to an
Optionee, the Exercise Price shall not be less than 100% of the Fair Market
Value of the Shares subject to such option on the Date of Grant (or 110% in the
case of an Option granted to a Participant who is a Ten Percent Shareholder on
the Date of Grant).
(ii) PAYMENT OF SHARES. Payment for the Shares upon exercise of
an Option shall be made in cash, by certified check, or if authorized by the
Committee, by delivery of other Shares having a Fair Market Value on the date of
delivery equal to the aggregate exercise price of the Shares as to which said
Option is
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being exercised, or by any combination of such methods of payment or
by any other method of payment as may be permitted under applicable law and this
Plan and authorized by the Committee under Section 3(c) of this Plan.
(c) EXERCISE OF OPTION.
(i) PROCEDURE FOR EXERCISE; RIGHTS OF SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times under such conditions as
shall be determined by the Committee, including without limitation performance
criteria with respect to the Company and/or the Optionee and in accordance with
the terms of this Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the Stock
Option Agreement by the Optionee entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Committee,
consist of any form of consideration and method of payment allowable under
Section 6(b)(ii) of this Plan. Upon the receipt of notice of exercise and full
payment for the Shares, the Shares shall be deemed to have been issued and the
Optionee shall be entitled to receive such Shares and shall be a shareholder
with respect to such Shares, and the Shares shall be considered fully paid and
nonassessable. No adjustment will be made for a dividend or other right for
which the record date is prior to the date on which the stock certificate is
issued, except as provided in Section 9 of this Plan.
Each exercise of an Option shall reduce, by an equal number, the total
number of Shares that may thereafter be purchased under such Option.
(ii) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. Except
as provided in Subsections 6(c)(iii) and 6(c)(iv) below, an Optionee holding an
Option who ceases to be an Employee, a Consultant or a director of the Company
may, but only until the earlier of the date (x) the Option held by the Optionee
expires, or (y) thirty (30) days after the date such Optionee ceases to be an
Employee, a Consultant or a director, exercise the Option to the extent that the
Optionee was entitled to exercise it on such date; provided, however, that in
the event the Optionee is an Employee and is terminated without cause (as
determined in the sole discretion of the Committee) then the thirty (30) day
period described in this sentence shall be automatically extended to ninety (90)
days (and in the case of a Nonstatutory Option, such period shall be
automatically extended to six (6) months), unless the Committee further extends
such period in its sole discretion. To the extent that the Optionee was not
entitled to exercise an Option on such date, or if the Optionee does not
exercise it within the time specified herein, such Option shall terminate. The
Committee shall have the authority to determine the date an Optionee ceases to
be an Employee, a Consultant or a director.
(iii) PERMANENT AND TOTAL DISABILITY.
Notwithstanding the provisions of Section 6(c)(ii) above, in the event an
Optionee is unable to continue to perform Services for the Company or any of its
Subsidiaries as a result of such Optionee's Permanent and Total Disability (and,
for ISOs, at the time such Permanent and Total Disability begins, the
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Optionee was an Employee and had been an Employee since the Date of Grant), such
Optionee may exercise an Option in whole or in part notwithstanding that such
Option may not be fully exercisable, but only until the earlier of the date (x)
the Option held by the Optionee expires, or (y) twelve (12) months from the date
of termination of Services due to such Permanent and Total Disability. To the
extent the Optionee is not entitled to exercise an Option on such date or if the
Optionee does not exercise it within the time specified herein, such Option
shall terminate.
(iv) DEATH OF AN OPTIONEE. Upon the death of an Optionee, any
Option held by an Optionee shall terminate and be of no further effect;
provided, however, notwithstanding the provisions of Section 6(c)(ii) above, in
the event an Optionee's death occurs during the term of an Option held by such
Optionee and, at the time of death, the Optionee was an Employee, Consultant or,
director (and, for ISOs, the Optionee had been an Employee since the Date of
Grant), the Option may be exercised in whole or in part notwithstanding that
such Option may not have been fully exercisable on the date of the Optionee's
death, but only until the earlier of the date (x) the Option held by the
Optionee expires, or (y) twelve (12) months from the date of the Optionee's
death, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance. To the extent the Option is not
entitled to be exercised on such date or if the Option is not exercised within
the time specified herein, such Option shall terminate.
(d) NONTRANSFERABILITY OF OPTIONS. Except as may be permitted by the
Committee in its sole discretion, any Option granted under this Plan may not be
sold, pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder, and is not
assignable by operation of law or subject to execution, attachment or similar
process. During the Optionee=s lifetime, any Option granted under this Plan can
only be exercised by such Optionee. Any attempted sale, pledge, assignment,
hypothecation or other transfer of the Option contrary to the provisions hereof
and the levy of any execution, attachment or similar process upon the Option
shall be null and void and without force or effect. No transfer of the Option by
will or by the laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished written notice thereof and
an authenticated copy of the will and/or such other evidence as the Committee
may deem necessary to establish the validity of the transfer and the acceptance
by the transferee or transferees of the terms and conditions of the Option. The
terms of any Option transferred by will or by the laws of descent and
distribution shall be binding upon the executors, administrators, heirs and
successors of Optionee.
(e) TIME OF GRANTING OPTIONS. Any Option granted hereunder shall be
deemed to be granted on the Date of Grant. Written notice of the Committee's
determination to grant an Option to a Participant, evidenced by a Stock Option
Agreement, dated as of the Date of Grant, shall be given to such Participant
within a reasonable time after the Date of Grant.
(f) MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Within the
limitations of this Plan, the Committee may modify, extend or renew outstanding
Options or may accept the cancellation of outstanding Options (to the extent not
previously exercised) for the granting of new Options in substitution therefor.
The foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair the Optionee's rights or obligations
under such Option; provided that the Committee may, in its sole discretion, and
without the consent of the Optionee or any other person, accelerate the vesting
of all or part
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of any Option.
(g) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares issued upon exercise
of an Option shall be subject to such rights of repurchase and other transfer
restrictions as the Committee may determine in its sole discretion. Such
restrictions shall be set forth in the applicable Stock Option Agreement.
(h) SPECIAL LIMITATION ON ISOS. To the extent that the aggregate Fair
Market Value (determined on the Date of Grant) of the Shares with respect to
which ISOs are exercisable for the first time by an individual during any
calendar year under this Plan, and under all other plans maintained by the
Company, exceeds $100,000, such Options shall be treated as Options that are not
ISOs.
(i) LEAVES OF ABSENCE. Leaves of absence approved by the Committee which
conform to the policies of the Company shall not be considered termination of
employment if the employeremployee relationship as defined under the Code or the
regulations promulgated thereunder otherwise exists.
(j) LIMITATION ON GRANTS OF OPTIONS TO COVERED EMPLOYEES. The total
number of Shares for which Options may be granted and which may be awarded as
Restricted Stock to any "covered employee" within the meaning of Section 162(m)
of the Code and the regulations promulgated thereunder, as amended from time to
time, during any one-year period shall not exceed 350,000 in the aggregate.
(k) DISQUALIFYING DISPOSITIONS. The Stock Option Agreement evidencing any
ISO granted under this Plan shall provide that if the Optionee makes a
disposition, within the meaning of Section 425(c) of the Code and the
regulations promulgated thereunder, of any share or shares issued to him
pursuant to the exercise of the ISO within the two-year period commencing on the
day after the Date of Grant of such Option or within a one-year period
commencing on the day after the date of transfer of the share or shares to him
pursuant to the exercise of such Option, he shall, within ten days of such
disposition, notify the Company thereof and immediately deliver to the Company
any amount of federal income tax withholding required by law.
(l) WITHHOLDING TAXES. The Committee shall require an Optionee to pay to
the Company at the time of exercise of an Option the amount that the Company
deems necessary to satisfy its obligation to withhold federal, state or local
income or other taxes incurred by reason of the exercise. Upon the exercise of
an Option requiring tax withholding, an Optionee may either pay such taxes in
cash or make a written election to have Shares withheld by the Company from the
shares otherwise to be received by the Optionee. The acceptance of any such
election by an Optionee shall be at the sole discretion of the Committee. In
addition, the Committee may require the Company to withhold Shares from the
Shares otherwise to be received by an Optionee upon exercise of an option. The
number of Shares withheld pursuant to this paragraph shall have an aggregate
Fair Market Value on the date of exercise sufficient to satisfy the applicable
withholding taxes.
SECTION 7
RESTRICTED STOCK
----------------
(a) AUTHORITY TO GRANT RESTRICTED STOCK. The Committee shall have the
authority to grant to Participants Shares that are subject to certain terms,
conditions and restrictions (the "Restricted Stock"). The
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Restricted Stock may be granted by the Committee either separately or in
combination with Options. The terms, conditions and restrictions of the
Restricted Stock shall be determined from time to time by the Committee without
limitation, except as otherwise provided in this Plan; provided, however, that
each grant of Restricted Stock shall require the Participant to remain an
Employee of (or otherwise provide Services to) the Company or any of its
Subsidiaries for at least six (6) months from the Date of Grant. The granting,
vesting and issuing of the Restricted Stock shall also be subject to the
following provisions:
(i) NATURE OF GRANT. Restricted Stock shall be granted to
Participants for Services rendered and at no additional cost to Participant;
provided, however, that the value of the Services performed must, in the opinion
of the Committee, equal or exceed the par value of the Restricted Stock to be
granted to the Participant.
(ii) RESTRICTED STOCK ACCOUNT. The Company shall establish a
restricted stock account (the "Restricted Stock Account") for each Participant
to whom Restricted Stock is granted, and such Restricted Stock shall be credited
to such account. No certificates will be issued to the Participant with respect
to the Restricted Stock until the Vest Date as provided herein. Every credit of
Restricted Stock under this Plan to a Restricted Stock Account shall be
considered "contingent" and unfunded until the Vest Date. Such contingent
credits shall be considered bookkeeping entries only, notwithstanding the
"crediting" of "dividends" as provided herein. Such accounts shall be subject to
the general claims of the Company's creditors. The Participant's rights to the
Restricted Stock Account shall be no greater than that of a general creditor of
the Company. Nothing contained herein shall be construed as creating a trust or
fiduciary relationship between the Participants and the Company, the Board of
Directors or the Committee.
(iii) RESTRICTIONS. The terms, conditions and restrictions of
the Restricted Stock shall be determined by the Committee on the Date of Grant.
The Restricted Stock may not be sold, assigned, transferred, redeemed, pledged
or otherwise encumbered during the period in which the terms, conditions and
restrictions apply (the "Restriction Period"). More than one grant of Restricted
Stock may be outstanding at any one time, and the Restriction Periods may be of
different lengths. Receipt of the Restricted Stock is conditioned upon
satisfactory compliance with the terms, conditions and restrictions of this Plan
and those imposed by the Committee.
(iv) RESTRICTED STOCK CRITERIA. At the time of each grant of
Restricted Stock, the Committee in its sole discretion may establish certain
criteria to determine the times at which restrictions placed on Restricted Stock
shall lapse (i.e., the termination of the Restriction Period), which criteria
may include without limitation performance measures and targets and/or holding
period requirements (the "Restricted Stock Criteria"). The Committee may
establish a corresponding relationship between the Restricted Stock Criteria and
(x) the number of Shares of Restricted Stock that may be earned, and (y) the
extent to which the terms, conditions and restrictions on the Restricted Stock
shall lapse. Restricted Stock Criteria may vary among grants of Restricted
Stock; provided, however, that once the Restricted Stock Criteria are
established for a grant of Restricted Stock, the Restricted Stock Criteria shall
not be modified with respect to such grant.
(v) VESTING. On the date the Restriction Period terminates, the
Restricted Stock shall vest in the Participant (the "Vest Date"), who may then
require the Company to issue certificates evidencing the Restricted Stock
credited to the Restricted Stock Account of such Participant.
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(vi) DIVIDENDS. The Committee may provide from time to time that
amounts equivalent to dividends shall be payable with respect to the Restricted
Stock held in the Restricted Stock Account of a Participant. Such amounts shall
be credited to the Restricted Stock Account and shall be payable to the
Participant on the Vest Date.
(vii) TERMINATION OF SERVICES. If a Participant (x) with the
consent of the Committee, ceases to be an Employee of, or otherwise ceases to
provide Services to, the Company or any of its Subsidiaries, or (y) dies or
suffers from Permanent and Total Disability, the vesting or forfeiture
(including without limitation the terms, conditions and restrictions) of any
grant under this Section 7 shall be determined by the Committee in its sole
discretion, subject to any limitations or terms of this Plan. If the Participant
ceases to be an Employee of, or otherwise ceases to provide Services to, the
Company or any of its Subsidiaries for any other reason, all grants of
Restricted Stock under this Plan shall be forfeited (subject to the terms of
this Plan).
(b) DEFERRAL OF PAYMENTS.
The Committee may establish procedures by which a Participant
may elect to defer the transfer of Restricted Stock to the Participant. The
Committee shall determine the terms and conditions of such deferral in its sole
discretion.
SECTION 8
---------
ISSUANCE OF SHARES
As a condition to the transfer of any Shares issued under this Plan, the
Company may require an opinion of counsel, satisfactory to the Company, to the
effect that such transfer will not be in violation of the Securities Act of
1933, as amended (the "Securities Act"), or any other applicable securities
laws, rules or regulations, or that such transfer has been registered under
federal and all applicable state securities laws. The Company may refrain from
delivering or transferring Shares issued under this Plan until the Committee has
determined that the Participant has tendered to the Company any and all
applicable federal, state or local tax owed by the Participant as the result of
the receipt of a Plan Award, the exercise of an Option or the disposition of any
Shares issued under this Plan, in the event that the Company reasonably
determines that it might have a legal liability to satisfy such tax. The Company
shall not be liable to any person or entity for damages due to any delay in the
delivery or issuance of any stock certificate evidencing any Shares for any
reason whatsoever.
SECTION 9
CAPITALIZATION ADJUSTMENTS; MERGER; CHANGE IN CONTROL
-----------------------------------------------------
(a) ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Option, the aggregate number of Shares that have been authorized for
issuance under this Plan and the number of Shares of Restricted Stock credited
to any Restricted Stock Account of a Participant (as well as the Exercise Price
covered by any outstanding
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Option), shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, payment of a stock
dividend with respect to the Stock or any other increase or decrease in the
number of issued Shares effected without receipt of consideration by the
Company. Such adjustment shall be made by the Committee in its sole discretion,
which adjustment shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares subject to an Option.
(b) DISSOLUTION, LIQUIDATION, SALE OF ASSETS OR MERGER. In the event of
the dissolution or liquidation of the Company, other than pursuant to a
Reorganization (hereinafter defined), any Option granted under the Plan shall
terminate as of a date to be fixed by the Committee, provided that not less than
30 days written notice of the date so fixed shall be given to each Optionee and
each such Optionee shall have the right during such period to exercise his
Options as to all or any part of the Shares covered thereby including Shares as
to which such Options would not otherwise be exercisable by reason of an
insufficient lapse of time.
In the event of a Reorganization in which the Company is not the
surviving or acquiring company, or in which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization, then
(i) if there is no plan or agreement respecting the
Reorganization ("Reorganization Agreement") or if the
Reorganization Agreement does not specifically provide for
the change, conversion or exchange of the Shares under
outstanding unexercised Options for securities of another
corporation, then the Committee shall take such action,
and the Options shall terminate, as provided above; or
(ii) if there is a Reorganization Agreement and if the
Reorganization Agreement specifically provides for the
change, conversion or exchange of the shares under
outstanding or unexercised options for securities of
another corporation, then the Committee shall adjust the
shares under such outstanding unexercised Options (and
shall adjust the Shares which are then available to be
optioned, if the Reorganization Agreement makes specific
provisions therefore) in a manner not inconsistent with
the provisions of the Reorganization Agreement for the
adjustment, change, conversion or exchange of such stock
and such options.
The term "Reorganization" as used in this Subsection 9(b) shall mean any
statutory merger, statutory consolidation, sale of all or substantially all of
the assets of the Company, or sale, pursuant to an agreement with the Company,
of securities of the Company pursuant to which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization.
Except as provided above in this Section 9(b) and except as otherwise
provided by the Committee in its sole discretion, any Options shall terminate
immediately prior to the consummation of such proposed action.
Fractional shares resulting from any adjustments pursuant to this Section
may be settled in cash or otherwise as the Committee shall determine. Notice of
any adjustment shall be given by the Company to each holder of an Option or
share of Restricted Stock which shall have been so adjusted and such adjustment
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<PAGE>
(whether or not such notice is given) shall be effective and binding for all
purposes of the Plan.
(c) CHANGE IN CONTROL. Subject to Section 9(b), in the event there occurs
a Change of Control, (i) the Optionees shall have the right to exercise from and
after the date of the Change in Control the Option held by such Optionee in
whole or in part notwithstanding that such Option may not be fully exercisable,
and (ii) any and all restrictions on any Restricted Stock credited to a
Restricted Stock Account shall lapse and such stock shall immediately vest in
the Participants notwithstanding that the Restricted Stock held in such account
was unvested.
SECTION 10
NO EMPLOYMENT RIGHTS
--------------------
No provision of this Plan, under any Stock Option Agreement or under any
grant of Restricted Stock shall be construed to give any Participant any right
to remain an Employee of, or provide Services to, the Company or any of its
Subsidiaries or to affect the right of the Company to terminate any
Participant's service at any time, with or without cause.
SECTION 11
TERM OF PLAN; EFFECT OF AMENDMENT OR TERMINATION
------------------------------------------------
(a) EFFECTIVE DATE; TERM OF PLAN. This Plan shall become effective upon
its adoption by the Board of Directors. This Plan shall continue in effect for a
term of ten (10) years unless sooner terminated under this Section 11.
(b) AMENDMENT AND TERMINATION. The Board of Directors in its sole
discretion may terminate this Plan at any time. The Board of Directors may amend
this Plan at any time in such respects as the Board of Directors may deem
advisable; provided, that the Board may not (i) change the aggregate number of
Shares that may be issued under this Plan, other than in connection with an
adjustment under Section 9 of this Plan; or (ii) reprice, replace or regrant
through cancellation any outstanding options, without the approval of the
holders of a majority of the outstanding Shares entitled to vote.
(c) EFFECT OF TERMINATION. In the event this Plan is terminated, no
Shares shall be issued under this Plan, except upon exercise of an Option
granted prior to such termination or issuance of Shares of Restricted Stock
previously credited to a Restricted Stock Account. The termination of this Plan,
or any amendment thereof, shall not affect any Shares previously issued to a
Participant, any Option previously granted under this Plan or any Restricted
Stock previously credited to a Restricted Stock Account.
SECTION 12
GOVERNING LAW
-------------
THIS PLAN AND ANY AND ALL STOCK OPTION AGREEMENTS AND AGREEMENTS RELATING
TO THE GRANT
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OF RESTRICTED STOCK EXECUTED IN CONNECTION WITH THIS PLAN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES.
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SFX ENTERTAINMENT, INC.
1999 STOCK OPTION AND RESTRICTED STOCK PLAN
EFFECTIVE OCTOBER 8, 1998
SECTION 1
ESTABLISHMENT AND PURPOSE
-------------------------
This Plan is established to (i) offer selected, directors, officers,
Employees and Consultants of the Company or its Subsidiaries an equity ownership
interest in the financial success of the Company, (ii) provide the Company an
opportunity to attract, retain and motivate the best available personnel for
positions of substantial responsibility and (iii) to encourage equity
participation in the Company by eligible Participants. This Plan provides for
the grant by the Company of (i) Options to purchase Shares, and (ii) shares of
Restricted Stock. Options granted under this Plan may include Nonstatutory
Options as well as ISOs intended to qualify under section 422 of the Code.
SECTION 2
DEFINITIONS
-----------
"BOARD OF DIRECTORS" shall mean the board of directors of the Company, as
duly elected from time to time.
"CHANGE IN CONTROL" shall mean such time as either (i) any "person", as
such term is used in section 14(d) of the Exchange Act (other than the Company,
a wholly-owned subsidiary of the Company, any employee benefit plan of the
Company or its Subsidiaries or Mr. Sillerman together with his affiliates (as
such term is defined in Rule 12b-2 of the Exchange Act)) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act (or any
successor rule), directly or indirectly, of fifty percent (50%) or more of the
combined voting power of the Company's common stock or (ii) individuals who
constitute the Board of the Directors on the effective date of this Plan (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election or nomination for election by the Company's shareholders
was approved by a vote of at least three quarters of the directors comprising
the Incumbent Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee for the
director without objection to such nomination) shall be, for purposes of this
clause (ii) considered as though such person was a member of the Incumbent
Board.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and as
interpreted by the regulations thereunder.
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"COMMITTEE" shall mean the Stock Option Committee of the Company, or such
other Committee as may be appointed by the Board of Directors from time to time.
"COMPANY" shall mean SFX Entertainment, Inc., a Delaware corporation.
"CONSULTANT" shall mean any individual that is expressly designated as a
consultant of the Company or its Subsidiaries by the Committee in its sole
discretion.
"COVERED EMPLOYEE" shall mean an individual who, on the last day of the
taxable year, is the chief executive officer of the Company or any one of the
four most highly compensated officers of the Company other than the chief
executive, as described in Section 162(m)(e) of the Code.
"DATE OF GRANT" shall mean the date on which the Committee resolves to
grant an Option to an Optionee or grant Restricted Stock to a Participant, as
the case may be.
"DISINTERESTED DIRECTOR" shall mean a member of the Board of Directors
who is both (i) a Non-Employee Director, within the meaning of Rule 16b-3
promulgated under the Exchange Act, as amended from time to time and (ii) an
Outside Director, within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder, as amended from time to time.
"EMPLOYEE" shall include every individual performing Services to the
Company or its Subsidiaries other than as a Consultant and only if the
relationship between such individual and the Company or its Subsidiaries is the
legal relationship of employer and employee. This definition of "Employee" is
qualified in its entirety and is subject to the definition set forth in section
3401(c) of the Code and the regulations thereunder.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and as interpreted by the rules and regulations promulgated thereunder.
"EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement, but in no event less than the par value per
Share.
"FAIR MARKET VALUE" shall mean the closing price of the shares on the
national securities exchange on which the Shares are listed (if the shares are
so listed) as reported in the Wall Street Journal on the applicable date (or, if
not so reported, as otherwise reported by the National Association of Securities
Dealers Automated Quotation System) or on the NASDAQ National Market System (if
the Shares are regularly quoted thereon), or, if not so listed or regularly
quoted, the mean of the closing bid and asked prices of the securities in the
over-the-counter market, on the applicable date or, if such bid and asked prices
shall not be available, as reported by any nationally recognized quotation
service selected by the Company, or as determined by the Committee in a manner
consistent with the provisions of the Code.
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<PAGE>
"ISO" shall mean a stock option which is granted to an individual and
which meets the requirements of section 422 of the Code.
"NONSTATUTORY OPTION" shall mean any Option granted by the Committee that
is not an ISO.
"OPTION" shall mean either an ISO or Nonstatutory Option, as the context
requires, granted under this Plan.
"OPTIONEE" shall mean a Participant who holds an Option.
"PARTICIPANTS" shall mean those individuals described in Section 1 of
this Plan selected by the Committee who are eligible under Section 4 of this
Plan for grants of either Options or Restricted Stock under this Plan.
"PERMANENT AND TOTAL DISABILITY" shall mean that an individual is unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
more than twelve (12) months. An individual shall not be considered to suffer
from Permanent and Total Disability unless such individual furnishes proof of
the existence thereof in such form and manner, and at such times, as the
Committee may reasonably require. The scope of this definition shall
automatically be reduced or expanded to the extent that section 22(e)(3) of the
Code is amended to reduce or expand the scope of the definition of Permanent and
Total Disability thereunder.
"PLAN" shall mean this SFX Entertainment, Inc. 1999 Stock Option and
Restricted Stock Plan, as amended from time to time.
"PLAN AWARD" shall mean the grant of either an Option or Restricted
Stock, as the context requires.
"RESTRICTED STOCK" shall have that meaning set forth in Section 7(a) of
this Plan.
"RESTRICTED STOCK ACCOUNT" shall have that meaning set forth in Section
7(a)(ii) of this Plan.
"RESTRICTED STOCK CRITERIA" shall have that meaning in Section 7(a)(iv)
of this Plan.
"RESTRICTION PERIOD" shall have that meaning in Section 7(a)(iii) of this
Plan.
"SERVICES" shall mean services rendered to the Company or any of its
Subsidiaries by a Participant.
"SHARE" shall mean one share of Stock, as adjusted in accordance with
Section 9 of this Plan (if applicable).
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<PAGE>
"STOCK" shall mean the Class A Common Stock of the Company, par value
$.01 per share.
"STOCK OPTION AGREEMENT" shall mean the agreement executed between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to the granting of an Option.
"SUBSIDIARY" shall mean any corporation as to which more than fifty (50%)
percent of the outstanding voting stock or shares shall now or hereafter be
owned or controlled, directly by a person, any Subsidiary of such person, or any
Subsidiary of such Subsidiary.
"TEN-PERCENT SHAREHOLDER" shall mean a person that owns more than ten
percent (10%) of the total combined voting power of all classes of outstanding
stock of the Company or any Subsidiary, taking into account the attribution
rules set forth in section 424 of the Code, as amended. For purposes of this
definition of "Ten Percent Shareholder" the term "outstanding stock" shall
include all stock actually issued and outstanding immediately after the grant of
an Option to an Optionee. "Outstanding stock" shall not include reacquired
shares or shares authorized for issuance under outstanding Options held by the
Optionee or by any other person.
"VEST DATE" shall have that meaning in Section 7(a)(v) of this Plan.
SECTION 3
ADMINISTRATION
--------------
(a) GENERAL ADMINISTRATION. This Plan shall be administered by the
Committee, which shall consist of at least two persons, each of whom shall be
Disinterested Directors. The members of the Committee shall be appointed by the
Board of Directors for such terms as the Board of Directors may determine. The
Board of Directors may from time to time remove members from, or add members to,
the Committee. Vacancies on the Committee, however caused, may be filled by the
Board of Directors.
(b) COMMITTEE PROCEDURES. The Board of Directors shall designate one of
the members of the Committee as chairman. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by a majority of all Committee members, shall be valid
acts of the Committee. A majority of the Committee shall constitute a quorum.
(c) AUTHORITY OF COMMITTEE. This Plan shall be administered by, or under
the direction of, the Committee constituted in such a manner as to comply at all
times with Rule 16b-3 (or any successor rule) under the Exchange Act. The
Committee shall administer this Plan so as to comply at all times with the
Exchange Act and the Code and shall have absolute and final authority, subject
to the provisions of the Plan, to interpret this Plan and to make all
determinations specified in or permitted by this Plan or deemed necessary or
desirable for its
4
<PAGE>
administration or for the conduct of the Committee's business including without
limitation the authority to take the following actions:
(i) To interpret this Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms
relating to this Plan;
(iii) To authorize any person to execute, on behalf of the
Company, any instrument required to carry out the purposes of this Plan;
(iv) To determine when Plan Awards are to be granted under
this Plan;
(v) To select the Optionees and Participants;
(vi) To determine the number of Shares to be made subject to
each Plan Award;
(vii) To prescribe the terms, conditions and restrictions of
each Plan Award, including without limitation, the Exercise Price, the vesting
schedule and the determination whether an Option is to be classified as an ISO
or a Nonstatutory Option;
(viii) To amend or cancel any outstanding Stock Option
Agreement (other than the Exercise Price) or the terms, conditions and
restrictions of a grant of Restricted Stock, subject to applicable legal
restrictions and the consent of the Optionee or Participant, as the case may be,
who entered into such agreement, or accelerate the vesting of any Plan Award;
(ix) To establish procedures so that an Optionee may obtain a
loan through a registered broker-dealer under the rules and regulations of the
Federal Reserve Board, for the purpose of exercising an Option;
(x) To establish procedures for an Optionee (1) to have withheld
from the total number of Shares to be acquired upon the exercise of an Option
that number of Shares having a Fair Market Value, which, together with such cash
as shall be paid in respect of fractional shares, shall equal the Exercise
Price, and (2) to exercise a portion of an Option by delivering that number of
Shares already owned by an Optionee having a Fair Market Value which shall equal
the partial Exercise Price and to deliver the Shares thus acquired by such
Optionee in payment of Shares to be received pursuant to the exercise of
additional portions of the Option, the effect of which shall be that an Optionee
can in sequence utilize such newly acquired shares in payment of the Exercise
Price of the entire Option, together with such cash as shall be paid in respect
of fractional shares;
(xi) To establish procedures whereby a number of Shares may
be withheld from the total number of Shares to be issued upon exercise of an
Option, to meet the obligation of withholding for federal and state income and
other taxes, if any, incurred by the Optionee upon such exercise; and
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<PAGE>
(xii) To take any other actions deemed necessary or advisable
for the administration of this Plan.
All interpretations and determinations of the Committee made with respect
to the administration and interpretation of the Plan and the granting of Plan
Awards shall be final, conclusive, and binding on all interested parties. The
Committee may make grants of Plan Awards on an individual or group basis. The
provisions and conditions of the Plan Awards need not be the same with respect
to each Optionee or Participant or with respect to each Plan Award. No member of
the Committee shall be liable for any action that is taken or is omitted to be
taken if such action or omission is taken in good faith with respect to this
Plan or grant of any Plan Award.
(d) HOLDING PERIOD. The Committee may in its sole discretion require as a
condition to the granting of any Plan Award, that a Participant hold the Plan
Awards for a period of six months following the date of such acquisition. This
condition shall be satisfied with respect to an Option if at least six months
elapse from the date of acquisition of the Option to the date of disposition of
the Option (other than upon exercise or conversion) or its underlying equity
security.
SECTION 4
ELIGIBILITY
-----------
(a) GENERAL RULE. Subject to the limitations set forth in subsection b
below or elsewhere in this Plan, Participants shall be eligible to participate
in this Plan.
(b) NON-EMPLOYEE INELIGIBLE FOR ISOS. In no event shall an ISO be granted
to any individual who is not an Employee on the Date of Grant.
SECTION 5
SHARES SUBJECT TO PLAN
----------------------
BASIC LIMITATION. Shares offered under this Plan may be
authorized but unissued Shares or Shares that have been reacquired by the
Company. The aggregate number of Shares that are available for issuance under
this Plan shall not exceed three million (3,000,000) Shares, subject to
adjustment pursuant to Section 9 of this Plan. The Committee shall not issue
more Shares than are available for issuance under this Plan. The number of
Shares that are subject to unexercised Options at any time under this Plan shall
not exceed the number of Shares that remain available for issuance under this
Plan. The Company, during the term of this Plan, shall at all times reserve and
keep available sufficient Shares to satisfy the requirements of this Plan.
ADDITIONAL SHARES. In the event any outstanding Option for any
reason expires, is canceled or otherwise terminates, the Shares allocable to the
unexercised portion of such Option shall again be available for issuance under
this Plan. In the event that Shares issued under this Plan revert to the Company
prior to the Vest Date under a grant of Restricted Stock, such Shares shall
again be available for issuance under this Plan.
6
<PAGE>
SECTION 6
TERMS AND CONDITIONS OF OPTIONS
-------------------------------
(a) TERM OF OPTION. The term of each Option shall be ten (10) years from
the Date of Grant or such shorter term as may be determined by the Committee;
provided, however, in the case of an ISO granted to a Ten-Percent Shareholder,
the term of such ISO shall be five (5) years from the Date of Grant or such
shorter time as may be determined by the Committee.
(b) EXERCISE PRICE AND METHOD OF PAYMENT.
(i) EXERCISE PRICE. The Exercise Price shall be such price as is
determined by the Committee in its sole discretion and set forth in the Stock
Option Agreement; provided, however, in the case of an ISO granted to any
Optionee and a Nonstatutory Option to an Optionee who is also a Covered
Employee, the Exercise Price shall not be less than 100% of the Fair Market
Value of the Shares subject to such Option on the Date of Grant (or 110% in the
case of an ISO granted to a Participant who is a Ten-Percent Shareholder on the
Date of Grant).
(ii) PAYMENT OF SHARES. Payment for the Shares upon exercise of
an Option shall be made in cash, by certified check, or if authorized by the
Committee, by delivery of other Shares having a Fair Market Value on the date of
delivery equal to the aggregate exercise price of the Shares as to which said
Option is being exercised, or by any combination of such methods of payment or
by any other method of payment as may be permitted under applicable law and this
Plan and authorized by the Committee under Section 3(c) of this Plan.
(c) EXERCISE OF OPTION.
(i) PROCEDURE FOR EXERCISE; RIGHTS OF SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times under such conditions as
shall be determined by the Committee including, without limitation performance
criteria with respect to the Company and/or the Optionee and in accordance with
the terms of this Plan. To the extent that Options granted hereunder are ISOs,
the Committee shall designate such Options as ISOs in the written instrument
evidencing such Option. If the written instrument does not designate the Options
as ISOs, then the Option shall be a Nonstatutory Option.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the Stock
Option Agreement by the Optionee entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Committee,
consist of any form of consideration and method of payment allowable under
Section 6(b)(ii) of this Plan. Upon the receipt of notice of exercise and full
payment for the Shares, the Shares shall be deemed to have been issued and the
Optionee shall be entitled to
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<PAGE>
receive such Shares and shall be a shareholder with respect to such Shares, and
the Shares shall be considered fully paid and nonassessable. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date on which the stock certificate is issued, except as provided in Section 9
of this Plan.
Each exercise of an Option shall reduce, by an equal number, the total
number of Shares that may thereafter be purchased under such Option.
(ii) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. Except
as provided in Subsections 6(c)(iii) and 6(c)(iv) below, an Optionee holding an
Option who ceases to be an Employee, a Consultant or a director of the Company
may, but only until the earlier of the date (x) the Option held by the Optionee
expires, or (y) thirty (30) days after the date such Optionee ceases to be an
Employee, a Consultant or a director, exercise the Option to the extent that the
Optionee was entitled to exercise it on such date; provided, however, that in
the event the Optionee is an Employee and is terminated without cause (as
determined in the sole discretion of the Committee) then the thirty (30) day
period described in this sentence shall be automatically extended to ninety (90)
days (and in the case of a Nonstatutory Option, such period shall be
automatically extended to six (6) months), unless the Committee further extends
such period in its sole discretion. To the extent that the Optionee was not
entitled to exercise an Option on such date, or if the Optionee does not
exercise it within the time specified herein, such Option shall terminate. The
Committee shall have the authority to determine the date an Optionee ceases to
be an Employee, a Consultant or a director.
(iii) PERMANENT AND TOTAL DISABILITY. Notwithstanding the
provisions of Section 6(c)(ii) above, in the event an Optionee is unable to
continue to perform Services for the Company or any of its Subsidiaries as a
result of such Optionee's Permanent and Total Disability (and, for ISOs, at the
time such Permanent and Total Disability begins, the Optionee was an Employee
and had been an Employee since the Date of Grant), such Optionee may exercise an
Option in whole or in part notwithstanding that such Option may not be fully
exercisable, but only until the earlier of the date (x) the Option held by the
Optionee expires, or (y) twelve (12) months from the date of termination of
Services due to such Permanent and Total Disability. To the extent the Optionee
is not entitled to exercise an Option on such date or if the Optionee does not
exercise it within the time specified herein, such Option shall terminate.
(iv) DEATH OF AN OPTIONEE. Upon the death of an Optionee, any
Option held by an Optionee shall terminate and be of no further effect;
provided, however, notwithstanding the provisions of Section 6(c)(ii) above, in
the event an Optionee's death occurs during the term of an Option held by such
Optionee and, at the time of death, the Optionee was an Employee, Consultant or,
director (and, for ISOs, the Optionee had been an Employee since the Date of
Grant), the Option may be exercised in whole or in part notwithstanding that
such Option may not have been fully exercisable on the date of the Optionee's
death, but only until the earlier of the date (x) the Option held by the
Optionee expires, or (y) twelve (12) months from the date of the Optionee's
death, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance. To the extent the Option is not
entitled to be exercised on
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such date or if the Option is not exercised within the time specified herein,
such Option shall terminate.
(d) NON-TRANSFERABILITY OF OPTIONS. Except as may be permitted by the
Committee in its sole discretion, any Option granted under this Plan may not be
sold, pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder, and is not
assignable by operation of law or subject to execution, attachment or similar
process. During the Optionee's lifetime, any Option granted under this Plan can
only be exercised by such Optionee. Any attempted sale, pledge, assignment,
hypothecation or other transfer of the Option contrary to the provisions hereof
and the levy of any execution, attachment or similar process upon the Option
shall be null and void and without force or effect. No transfer of the Option by
will or by the laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished written notice thereof and
an authenticated copy of the will and/or such other evidence as the Committee
may deem necessary to establish the validity of the transfer and the acceptance
by the transferee or transferees of the terms and conditions of the Option. The
terms of any Option transferred by will or by the laws of descent and
distribution shall be binding upon the executors, administrators, heirs and
successors of Optionee.
(e) TIME OF GRANTING OPTIONS. Any Option granted hereunder shall be
deemed to be granted on the Date of Grant. Written notice of the Committee's
determination to grant an Option to a Participant, evidenced by a Stock Option
Agreement, dated as of the Date of Grant, shall be given to such Participant
within a reasonable time after the Date of Grant.
(f) MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Within the
limitations of this Plan, the Committee may modify, extend or renew outstanding
Options or may accept the cancellation of outstanding Options (to the extent not
previously exercised) for the granting of new Options in substitution therefor.
The foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair the Optionee's rights or obligations
under such Option; provided that the Committee may, in its sole discretion, and
without the consent of the Optionee or any other person accelerate the vesting
of all or part of any Option.
(g) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares issued upon exercise
of an Option shall be subject to such rights of repurchase and other transfer
restrictions as the Committee may determine in its sole discretion. Such
restrictions shall be set forth in the applicable Stock Option Agreement.
(h) SPECIAL LIMITATION ON ISOS. To the extent that the aggregate Fair
Market Value (determined on the Date of Grant) of the Shares with respect to
which ISOs are exercisable for the first time by an individual during any
calendar year under this Plan, and under all other plans maintained by the
Company, exceeds $100,000, such Options shall be treated as Nonstatutory
Options.
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(i) LEAVES OF ABSENCE. Leaves of absence approved by the Committee which
conform to the policies of the Company shall not be considered termination of
employment until the employer-employee relationship, as defined under the Code
or the regulations promulgated thereunder, ends or, if earlier, the leave of
absence period expires and the individual fails to return to active employment
with the Company.
(j) LIMITATION ON GRANTS OF OPTIONS TO COVERED EMPLOYEES. The total
number of Shares for which Options may be granted and which may be awarded as
Restricted Stock to any Covered Employee during any one-year period shall not
exceed 1,200,000 in the aggregate.
(k) DISQUALIFYING DISPOSITIONS. The Stock Option Agreement evidencing any
ISO granted under this Plan shall provide that if the Optionee makes a
disposition, within the meaning of Section 425(c) of the Code and the
regulations promulgated thereunder, of any share or shares issued to him
pursuant to the exercise of the ISO within the two-year period commencing on the
day after the Date of Grant of such Option or within a one-year period
commencing on the day after the date of transfer of the share or shares to him
pursuant to the exercise of such Option, he shall, within ten days of such
disposition, notify the Company thereof and immediately deliver to the Company
any amount of federal income tax withholding required by law.
(l) WITHHOLDING TAXES. The Committee shall require an Optionee to pay to
the Company at the time of exercise of an Option the amount that the Company
deems necessary to satisfy its obligation to withhold federal, state or local
income or other taxes incurred by reason of the exercise. Upon the exercise of
an Option requiring tax withholding, an Optionee may either pay such taxes in
cash or make a written election to have Shares withheld by the Company from the
shares otherwise to be received by the Optionee. The acceptance of any such
election by an Optionee shall be at the sole discretion of the Committee. In
addition, the Committee may require the Company to withhold Shares from the
Shares otherwise to be received by an Optionee upon exercise of an option. The
number of Shares withheld pursuant to this paragraph shall have an aggregate
Fair Market Value on the date of exercise sufficient to satisfy the applicable
withholding taxes.
SECTION 7
RESTRICTED STOCK
----------------
(a) AUTHORITY TO GRANT RESTRICTED STOCK. The Committee shall have the
authority to grant to Participants Shares that are subject to certain terms,
conditions and restrictions (the "Restricted Stock"). The Restricted Stock may
be granted by the Committee either separately or in combination with Options.
The terms, conditions and restrictions of the Restricted Stock shall be
determined from time to time by the Committee without limitation, except as
otherwise provided in this Plan; provided, however, that each grant of
Restricted Stock shall require the Participant to remain an Employee of (or
otherwise provide Services to) the Company or any of its Subsidiaries for at
least six (6) months from the Date of Grant. The granting, vesting and issuing
of the Restricted Stock shall also be subject to the following provisions:
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(i) NATURE OF GRANT. Restricted Stock shall be granted to
Participants for Services rendered and at no additional cost to Participant;
provided, however, that the value of the Services performed must, in the opinion
of the Committee, equal or exceed the par value of the Restricted Stock to be
granted to the Participant.
(ii) RESTRICTED STOCK ACCOUNT. The Company shall establish a
restricted stock account (the "Restricted Stock Account") for each Participant
to whom Restricted Stock is granted, and such Restricted Stock shall be credited
to such account. No certificates will be issued to the Participant with respect
to the Restricted Stock until the Vest Date as provided herein. Every credit of
Restricted Stock under this Plan to a Restricted Stock Account shall be
considered "contingent" and unfunded until the Vest Date. Such contingent
credits shall be considered bookkeeping entries only, notwithstanding the
"crediting" of "dividends" as provided herein. Such accounts shall be subject to
the general claims of the Company's creditors. The Participant's rights to the
Restricted Stock Account shall be no greater than that of a general creditor of
the Company. Nothing contained herein shall be construed as creating a trust or
fiduciary relationship between the Participants and the Company, the Board of
Directors or the Committee.
(iii) RESTRICTIONS. The terms, conditions and restrictions of
the Restricted Stock shall be determined by the Committee on the Date of Grant.
The Restricted Stock may not be sold, assigned, transferred, redeemed, pledged
or otherwise encumbered during the period in which the terms, conditions and
restrictions apply (the "Restriction Period"). More than one grant of Restricted
Stock may be outstanding at any one time, and the Restriction Periods may be of
different lengths. Receipt of the Restricted Stock is conditioned upon
satisfactory compliance with the terms, conditions and restrictions of this Plan
and those imposed by the Committee.
(iv) RESTRICTED STOCK CRITERIA. At the time of each grant of
Restricted Stock, the Committee in its sole discretion may establish certain
criteria to determine the times at which restrictions placed on Restricted Stock
shall lapse (i.e., the termination of the Restriction Period), which criteria
may include without limitation performance measures and targets and/or holding
period requirements (the "Restricted Stock Criteria"). The Committee may
establish a corresponding relationship between the Restricted Stock Criteria and
(x) the number of Shares of Restricted Stock that may be earned, and (y) the
extent to which the terms, conditions and restrictions on the Restricted Stock
shall lapse. Restricted Stock Criteria may vary among grants of Restricted
Stock; provided, however, that once the Restricted Stock Criteria are
established for a grant of Restricted Stock, the Restricted Stock Criteria shall
not be modified with respect to such grant.
(v) PERFORMANCE BASED GRANTS TO COVERED EMPLOYEES. Grants of
Restricted Stock to Covered Employees shall be designed to be performance-based
in order to qualify as performance-based compensation under Section 162(m) of
the Code. The performance period will be determined by the Committee, but no
performance period will be less than one year. Within 90 days after the
beginning of a performance period, the Committee will establish in writing one
or more objective criteria for the performance period. The criteria may include
an
11
<PAGE>
increase in [earnings per Share, Share price, market share, revenue, net
profits, and operating profit margin]. Each Covered Employee who is granted
Restricted Stock will begin to vest in the number of Shares of Restricted Stock
at the close of the performance period based on the attainment of the objective
criteria during the performance period as determined by the Committee within the
first 90 days of that period.
Prior to the vesting of Restricted Stock by the Covered
Employees, the Committee shall certify in writing the actual performance of the
criteria. No vesting of Restricted Stock under the Plan shall occur until the
Stockholders have approved this Plan.
(vi) VESTING. On the date the Restriction Period terminates, the
Restricted Stock shall vest in the Participant (the "Vest Date"), who may then
require the Company to issue certificates evidencing the Restricted Stock
credited to the Restricted Stock Account of such Participant.
(vii) DIVIDENDS. The Committee may provide from time to time
that amounts equivalent to dividends shall be payable with respect to the
Restricted Stock held in the Restricted Stock Account of a Participant. Such
amounts shall be credited to the Restricted Stock Account and shall be payable
to the Participant on the Vest Date.
(viii) TERMINATION OF SERVICES. If a Participant (x) with the
consent of the Committee, ceases to be an Employee of, or otherwise ceases to
provide Services to, the Company or any of its Subsidiaries, or (y) dies or
suffers from Permanent and Total Disability, the vesting or forfeiture
(including without limitation the terms, conditions and restrictions) of any
grant under this Section 7 shall be determined by the Committee in its sole
discretion, subject to any limitations or terms of this Plan. If the Participant
ceases to be an Employee of, or otherwise ceases to provide Services to, the
Company or any of its Subsidiaries for any other reason, all grants of
Restricted Stock under this Plan shall be forfeited (subject to the terms of
this Plan).
(b) DEFERRAL OF PAYMENTS.
The Committee may establish procedures by which a Participant
may elect to defer the transfer of Restricted Stock to the Participant. The
Committee shall determine the terms and conditions of such deferral in its sole
discretion.
SECTION 8
ISSUANCE OF SHARES
------------------
As a condition to the transfer of any Shares issued under this Plan, the
Company may require an opinion of counsel, satisfactory to the Company, to the
effect that such transfer will not be in violation of the Securities Act of
1933, as amended (the "Securities Act"), or any other applicable securities
laws, rules or regulations, or that such transfer has been registered under
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federal and all applicable state securities laws. The Company may refrain from
delivering or transferring Shares issued under this Plan until the Committee has
determined that the Participant has tendered to the Company any and all
applicable federal, state or local tax owed by the Participant as the result of
the receipt of a Plan Award, the exercise of an Option or the disposition of any
Shares issued under this Plan, in the event that the Company reasonably
determines that it might have a legal liability to satisfy such tax. The Company
shall not be liable to any person or entity for damages due to any delay in the
delivery or issuance of any stock certificate evidencing any Shares for any
reason whatsoever.
SECTION 9
CAPITALIZATION ADJUSTMENTS; MERGER; CHANGE IN CONTROL
-----------------------------------------------------
(a) ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Option, the aggregate number of Shares that have been authorized for
issuance under this Plan and the number of Shares of Restricted Stock credited
to any Restricted Stock Account of a Participant (as well as the Exercise Price
covered by any outstanding Option), shall be proportionately adjusted for any
increase or decrease in the number of issued Shares resulting from a stock
split, payment of a stock dividend with respect to the Stock or any other
increase or decrease in the number of issued Shares effected without receipt of
consideration by the Company. Such adjustment shall be made by the Committee in
its sole discretion, which adjustment shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of Shares subject to an Option.
(b) DISSOLUTION, LIQUIDATION, SALE OF ASSETS OR MERGER. In the event of
the dissolution or liquidation of the Company, other than pursuant to a
Reorganization (hereinafter defined), any Option granted under the Plan shall
terminate as of a date to be fixed by the Committee, provided that not less than
30 days written notice of the date so fixed shall be given to each Optionee and
each such Optionee shall have the right during such period to exercise his
Options as to all or any part of the Shares covered thereby including Shares as
to which such Options would not otherwise be exercisable by reason of an
insufficient lapse of time.
In the event of a Reorganization in which the Company is not the
surviving or acquiring company, or in which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization, then
(i) if there is no plan or agreement respecting the
Reorganization ("Reorganization Agreement") or if the
Reorganization Agreement does not specifically provide for
the change, conversion or exchange of the Shares under
outstanding unexercised Options for securities of another
corporation, then the Committee shall take such action,
and the Options shall terminate, as provided above; or
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<PAGE>
(ii) if there is a Reorganization Agreement and if the
Reorganization Agreement specifically provides for the
change, conversion or exchange of the shares under
outstanding or unexercised options for securities of
another corporation, then the Committee shall adjust the
shares under such outstanding unexercised Options (and
shall adjust the Shares which are then available to be
optioned, if the Reorganization Agreement makes specific
provisions therefore) in a manner not inconsistent with
the provisions of the Reorganization Agreement for the
adjustment, change, conversion or exchange of such stock
and such options.
The term "Reorganization" as used in this Subsection 9(b) shall mean any
statutory merger, statutory consolidation, sale of all or substantially all of
the assets of the Company, or sale, pursuant to an agreement with the Company,
of securities of the Company pursuant to which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization.
Except as provided above in this Section 9(b) and except as otherwise
provided by the Committee in its sole discretion, any Options shall terminate
immediately prior to the consummation of such proposed action.
Fractional shares resulting from any adjustments pursuant to this Section
may be settled in cash or otherwise as the Committee shall determine. Notice of
any adjustment shall be given by the Company to each holder of an Option or
share of Restricted Stock which shall have been so adjusted and such adjustment
(whether or not such notice is given) shall be effective and binding for all
purposes of the Plan.
(c) CHANGE IN CONTROL. Subject to Section 9(b), in the event there occurs
a Change of Control, (i) the Optionees shall have the right to exercise from and
after the date of the Change in Control the Option held by such Optionee in
whole or in part notwithstanding that such Option may not be fully exercisable,
and (ii) any and all restrictions on any Restricted Stock credited to a
Restricted Stock Account shall lapse and such stock shall immediately vest in
the Participants notwithstanding that the Restricted Stock held in such account
was unvested.
SECTION 10
NO EMPLOYMENT RIGHTS
--------------------
No provision of this Plan, under any Stock Option Agreement or under any
grant of Restricted Stock shall be construed to give any Participant any right
to remain an Employee of, or provide Services to, the Company or any of its
Subsidiaries or to affect the right of the Company to terminate any
Participant's service at any time, with or without cause.
14
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SECTION 11
TERM OF PLAN; EFFECT OF AMENDMENT OR TERMINATION
------------------------------------------------
(a) EFFECTIVE DATE; TERM OF PLAN. This Plan shall become effective as
determined by the Board of Directors, but no Options granted under this Plan
shall be exercised and no grants of Restricted Stock shall have their
restrictions lapse unless and until this Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date this Plan is adopted by the Board of Directors. This
Plan shall continue in effect for a term of ten (10) years unless sooner
terminated under this Section 11.
(b) AMENDMENT AND TERMINATION. The Board of Directors in its sole
discretion may terminate this Plan at any time. The Board of Directors may amend
this Plan at any time in such respects as the Board of Directors may deem
advisable; provided, that the Board may not (i) change the aggregate number of
Shares that may be issued under this Plan, other than in connection with an
adjustment under Section 9 of this Plan or (ii) reprice, replace or regrant
through cancellation any outstanding options, without the approval of the
holders of a majority of the outstanding Shares entitled to vote.
(c) EFFECT OF TERMINATION. In the event this Plan is terminated, no
Shares shall be issued under this Plan, except upon exercise of an Option
granted prior to such termination or issuance of Shares of Restricted Stock
previously credited to a Restricted Stock Account. The termination of this Plan,
or any amendment thereof, shall not affect any Shares previously issued to a
Participant, any Option previously granted under this Plan or any Restricted
Stock previously credited to a Restricted Stock Account.
SECTION 12
GOVERNING LAW
THIS PLAN AND ANY AND ALL STOCK OPTION AGREEMENTS AND AGREEMENTS
RELATING TO THE GRANT OF RESTRICTED STOCK EXECUTED IN CONNECTION WITH THIS PLAN
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
15
<PAGE>
SFX ENTERTAINMENT, INC.
DIRECTOR DEFERRED STOCK OWNERSHIP PLAN
AS AMENDED AND RESTATED
EFFECTIVE JUNE 1, 1999
1. NAME OF PLAN. This plan shall be known as the "SFX Entertainment,
Inc. Director Deferred Stock Ownership Plan" and is hereinafter referred to as
the "Plan."
2. PURPOSES OF PLAN. The purposes of the Plan are to enable SFX
Entertainment, Inc., a Delaware corporation (the "Company"), to attract and
retain qualified persons to serve as Directors, to enhance the equity interest
of Directors in the Company, to solidify the common interests of its Directors
and stockholders, and to encourage the highest level of Director performance by
providing such Directors with an ongoing proprietary interest in the Company's
performance and progress, by crediting them quarterly with notional shares of
the Company's Class A Common Stock, par value $.01 per share (the "Common
Stock").
3. EFFECTIVE DATE AND TERM. The Plan shall be effective as of January
1, 1998. The Plan shall remain in effect until terminated by action of the
Board, or until no shares of Common Stock remain available under the Plan, if
earlier.
4. DEFINITIONS. The following terms shall have the meanings set forth
below:
"Beneficiary" means the person or legal entity the Participant
designates in accordance with Section 7(d) to receive payments under the Plan
after the Participant's death.
"Change of Control" means any of the following events:
(a) The acquisition (other than from the Company) by any person, entity
or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (excluding, for this
purpose, the Company or its subsidiaries, or any employee benefit plan of the
Company or its subsidiaries, or Robert F.X. Sillerman or any of his affiliates)
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 30% or more of either the then outstanding shares of Common
Stock or the combined voting power of the Company's then outstanding voting
securities entitled to vote generally in the election of directors; or
(b) Individuals who, as of the date hereof, constitute the Board of
Directors (as of the date hereof the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors, provided that any
person becoming a Director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a vote of
at least a majority of the Directors then comprising the Incumbent Board
-1-
<PAGE>
(other than an election or nomination of an individual whose initial assumption
of office is in connection with an actual or threatened election contest
relating to the election of the Directors of the Company, as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be,
for purposes of this Plan, considered as though such person were a member of the
Incumbent Board; or
(c) Approval by the stockholders of the Company of a reorganization,
merger, or consolidation, in each case, with respect to which persons who were
the stockholders of the Company immediately prior to such reorganization, merger
or consolidation do not, immediately thereafter, own, directly or indirectly,
more than 50% of the combined voting power entitled to vote generally in the
election of Directors of the reorganized, merged or consolidated company's then
outstanding voting securities, or a liquidation or dissolution of the Company or
of the sale of all or substantially all of the assets of the Company.
"Change of Control Consideration" means, with respect to each share of
Common Stock credited to a Deferred Stock Account, (i) the amount of any cash,
plus the value of any securities and other noncash consideration, constituting
the highest consideration per share of Common Stock paid to any shareholder in
the transaction or series of transactions that results in a Change of Control or
(ii) if no consideration per share of Common Stock is paid to any shareholder in
the transaction or series of transactions that results in a Change of Control,
the highest reported sales price, regular way, of a share of Common Stock in any
transaction reported on the Nasdaq Stock Market or on any national exchange on
which such shares are listed during the 60-day period prior to and including the
date of a Change of Control. To the extent that such consideration consists all
or in part of securities or other noncash consideration, the value of such
securities or other noncash consideration shall be determined by the Committee
in good faith.
"Committee" means the committee that administers the Plan, as more
fully defined in Section 12.
"Common Stock" has the meaning set forth in Section 2.
"Company" has the meaning set forth in Section 2.
"Deferred Stock Account" means a bookkeeping account maintained by the
Company for a Director representing an unfunded and unsecured promise to deliver
the shares credited to such account pursuant to Section 6.
"Delivery Date" has the meaning set forth in Section 7(a).
"Director" means an individual who is a member of the Board of
Directors of the Company.
"Dividend Equivalent" for a given dividend or distribution means the
fraction of a
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share of Common Stock (rounded to the nearest one-thousandth) with a value based
on the closing sales price of a share of Common Stock on the date immediately
preceding the payment date for such dividend, equal to the amount of cash, plus
the fair market value on the date of distribution of any property, that is
distributed with respect to one share of Common Stock pursuant to such dividend
or distribution.
"Participant" has the meaning set forth in Section 5.
"Plan Year" means each twelve month period beginning on June 1, 1998,
and ending on the following May 31.
"Plan Quarter" means each of the three month periods of a Plan Year
beginning on June 1, September 1, December 1, and March 1; provided, that the
last Plan Quarter with respect to a Director who ceases to be a Participant
during a Plan Quarter shall begin on the first day of such Plan Quarter and end
on the day such Director ceases to be a Participant.
"Share Amount" means fifty percent (50%) of a Director's quarterly
retainer, or such larger percentage that a Director elects, that is payable in
shares of Common Stock under the Plan.
The "Value" of a share of Common Stock as of the first day of a given
Plan Quarter shall mean the closing price of a share of Common Stock on the last
trading day of the immediately preceding Plan Quarter as reported on the Nasdaq
National Market System (or, if the Common Stock is not listed on the Nasdaq
National Market System, on any national securities exchange on which the Common
Stock is listed).
5. ELIGIBLE PARTICIPANTS. Each individual who is a non-employee
Director on January 1, 1998, and each individual who becomes a Director of, but
is not otherwise employed by, the Company or any of its subsidiaries thereafter,
during the term of the Plan, shall be a participant ("Participant") in the Plan,
in each case during such period as such individual remains a Director. After a
Participant has ceased to be a Director, and until delivery of all the shares
credited to his or her a Deferred Stock Account, the individual shall become an
inactive Participant ("Inactive Participant").
6. ACCOUNTS; CREDIT OF SHARES. (a) The Company shall maintain a
Deferred Stock Account for each Participant. As part of the compensation payable
to each Participant for service on the Board, the Deferred Stock Account of each
Participant shall be credited with notional shares of Common Stock as set forth
in this Section 6.
(b) The Deferred Stock Account of each of the three Participants as of
January 1, 1998 shall be credited as of such date with five thousand four
hundred and fifty-five (5,455) shares of Common Stock, representing the retainer
for such Participants payable through May 31, 1999.
-3-
<PAGE>
(c) At least ten days prior to the beginning of each Plan Year
beginning on and after June 1, 1999, each Participant shall provide the Company
with a written notice setting forth the Share Amount which such Director elects
to have payable in shares of Common Stock pursuant to the Plan. In the event
that a Participant does not make such an election prior to the ten days before a
particular Plan Year, then the Share Amount with respect to such Participant
shall be equal to fifty percent (50%) of such Participant's quarterly retainer.
A Participant may amend his or her Share Amount for subsequent Plan Quarters by
providing the Company with written notice of the amended Share Amount at least
ten days prior to any Plan Quarter.
(d) In the event that a Director ceases to be a Participant during the
first Plan Year or any subsequent Plan Quarter, the number of shares credited to
the Director's Deferred Stock Account shall be not be reduced or forfeited,
regardless of the fact that the Director did not serve the Company for the
entire Plan Year or Plan Quarter, whichever shall apply.
(e) As of the first day of each Plan Quarter beginning on and after
June 1, 1998, each Deferred Stock Account that has not, as of such date, been
delivered in full pursuant to Section 7 shall be credited with a number of
shares equal to:
(i) the number of notional shares of Common Stock having a
Value equal to the Share Amount for such Plan Quarter; plus
(ii) the number of notional shares equal to (A) the number of
notional shares of Common Stock credited as of the last day of the
prior Plan Quarter reduced by (B) the number of notional shares of
Common Stock that were actually delivered during the immediately
preceding Plan Quarter to the Director (or his or her Beneficiary,
estate or legal guardian, as applicable) before the record date for
dividends or distributions in such prior Plan Quarter, multiplied by
(C) the Dividend Equivalent for each dividend paid or other
distribution made with respect to the Common Stock, the record date for
which occurred during such preceding Plan Quarter and at a time when
such individual was a Participant or an Inactive Participant.
(f) The Deferred Stock Account shall represent only an unsecured and
unfunded promise by the Company to deliver shares of Common Stock in the future
under the terms of the Plan.
7. DELIVERY OF SHARES. (a) Unless the Director has made either one or
both elections described in Sections 7(b) and 7(c) below, shares of Common Stock
equal to the notional shares credited to a Director's Deferred Stock Account
shall be delivered as soon as practicable after (i) June 1, 1999 for the number
of notional shares of Common Stock credited pursuant to Section 6(b), as
adjusted pursuant to Section 6(d), (ii) for all other notional shares, the date
which is twelve (12) months from the first day of the Plan Quarter as of which
such notional shares were initially credited to such Director's Deferred Stock
Account, or (iii) the date
-4-
<PAGE>
the Director ceases to be a Director for any reason if that is earlier (the
"Delivery Date"); provided, however, that if the number of shares so credited
includes a fractional share, such number shall be rounded to the nearest whole
number of shares.
(b) Except as otherwise provided in Section 7(c) below, and subject to
Section 11 below, a Director may make an irrevocable election in writing on the
form attached hereto as Appendix 1 to receive delivery of the shares of Common
Stock on the date that is between two (2) years and five (5) years after the
first day of the Plan Quarter as of which such notional shares were initially
credited to such Director's Deferred Stock Account or following the date of the
Director's death, if that occurs earlier. Any such election must be made at
least ten (10) days in advance of the Plan Quarter in which such notional shares
were initially credited to the Deferred Stock Account of the electing Director.
(c) Subject to Section 11 below, a Participant whose Deferred Stock
Account was credited with five thousand four hundred and fifty-five (5,455)
shares of Common Stock as of January 1, 1998 pursuant to Section 6(b) above may
make an irrevocable election in writing not later than December 31, 1998 on the
form attached hereto as Appendix 2 to defer delivery of such shares to a date
that is between one (1) year and four (4) years after the Delivery Date that
would otherwise occur pursuant to Section 7(a) above or following the date of
the Director's death, if that occurs earlier.
(d) Each Director may, by written notice to the Committee, designate
any person or legal entity as the Director's Beneficiary to receive payments
upon the Director's death. A Director may revoke or change the Beneficiary
designation at any time by written notice to the Committee. The last such
designation received by the Committee shall control any prior designation;
provided, however, that no designation shall be effective unless received by the
Committee prior to a Director's death. The form of notice to designate a
Beneficiary or change a Beneficiary shall be prescribed by the Committee. If the
Director does not designate a Beneficiary, then any shares that are to be
delivered after the Director has died or become legally incompetent shall be
delivered to the Director's estate or legal guardian, as the case may be.
References to a Director, Participant or Inactive Participant in this Plan shall
be deemed to refer to the Director's Beneficiary, estate or legal guardian,
where appropriate.
8. SHARE CERTIFICATES; VOTING AND OTHER RIGHTS. The certificates for
shares delivered to a Director pursuant to Section 7 above shall be issued in
the name of the Director, and the Director shall be entitled to all rights of a
shareholder with respect to Common Stock for all such shares issued in his or
her name, including the right to vote the shares, and the Director shall receive
all dividends and other distributions paid or made with respect thereto.
9. GENERAL RESTRICTIONS. (a) Notwithstanding any other provision of the
Plan or agreements made pursuant thereto, the Company shall not be required to
issue or deliver any certificate or certificates for shares of Common Stock
under the Plan prior to
-5-
<PAGE>
fulfillment of all of the following conditions:
(i) Listing or approval for listing upon official notice of
issuance of such shares on the Nasdaq Stock Market, or such other
securities exchange as such shares of Common Stock shall trade;
(ii) Any registration or other qualification of such shares
under any state or federal law or regulation, or the maintaining in
effect of any such registration or other qualification which the
Committee shall, in its absolute discretion upon the advice of counsel,
deem necessary or advisable; and
(iii) Obtaining any other consent, approval, or permit from
any state or federal governmental agency which the Committee shall, in
its absolute discretion after receiving the advice of counsel,
determine to be necessary or advisable.
(b) Nothing contained in the Plan shall prevent the Company
from adopting other or additional compensation arrangements for the
Participants.
(c) No Common Stock delivered to a Director pursuant to the
Plan may be sold until at least six months after the Delivery Date; provided,
however, that the six month period shall not apply to any person not subject to
the reporting requirement of Section 16(a) of the U.S. Security and Exchange Act
of 1934.
10. SHARES AVAILABLE. Subject to Section 11 below, the maximum number
of notional shares of Common Stock which may be credited to Deferred Stock
Accounts pursuant to the Plan is 40,000. Shares of Common stock issuable under
the Plan may be taken from authorized but unissued or treasury shares of the
Company or purchased on the open market.
11. CHANGE IN CAPITAL STRUCTURE; CHANGE OF CONTROL. (a) In the event
that there is, at any time after the Board adopts the Plan, any change in the
Common Stock by reason of any stock dividend, stock split, combination of
shares, exchange of shares, warrants or rights offering to purchase Common Stock
at a price below its fair market value, reclassification, recapitalization,
merger, consolidation, spin-off or other change in capitalization of the
Company, appropriate adjustment shall be made in the number and kind of notional
shares or other property subject to the Plan and the number and kind of shares
or other property held in the Deferred Stock Accounts, and any other relevant
provisions of the Plan by the Committee, whose determination shall be binding
and conclusive on all persons.
(b) Without limiting the generality of the foregoing, and
notwithstanding any other provision of this Plan, in the event of a Change of
Control, the following shall occur on the date of the Change of Control (the
"Change of Control Date"): (i) the last day of the then current Plan Quarter
shall be deemed to occur on the Change of Control Date; (ii) the Company shall
-6-
<PAGE>
immediately pay to each Director in a lump sum the Change of Control
Consideration multiplied by the number of notional shares of Common Stock held
in each Director's Deferred Stock Account immediately before such Change of
Control (including notional shares of Common Stock credited to each Directors
Deferred Stock Account as a result of the Change of Control); and (iii) the Plan
shall be terminated.
(c) If the notional shares of Common Stock credited to the Deferred
Stock Accounts are converted pursuant to this Section 11 into another form of
property, references in the Plan to the Common Stock shall be deemed, where
appropriate, to refer to such other form of property, with such other
modifications as may be required for the Plan to operate in accordance with its
purposes. Without limiting the generality of the foregoing, references to
delivery of certificates for shares of Common Shares shall be deemed to refer to
delivery of cash and the incidents of ownership of any other property held in
the Deferred Stock Accounts.
12. ADMINISTRATION; AMENDMENT. (a) The Plan shall be administered by a
committee consisting of directors who are not eligible to participate in the
Plan (the "Committee"), which shall have full authority to construe and
interpret the Plan, to establish, amend and rescind rules and regulations
relating to the Plan, and to take all such actions and make all such
determinations in connection with the Plan as it may deem necessary or
desirable.
(b) The Board may from time to time make such amendments to the Plan as
it may deem proper and in the best interest of the Company. No amendment to the
Plan shall be made more than once in any six-month period that would change the
amount, price or timing of the grants of Common Stock hereunder other than to
comport with changes in the Internal Revenue Code of 1986, as amended, or the
regulations thereunder.
(c) The Board may terminate the Plan at any time.
(d) Notwithstanding any other provision of the Plan, neither the Board
nor the Committee shall be authorized to exercise any discretion with respect to
the selection of persons to receive credits of notional shares of Common Stock
under the Plan or concerning the amount or timing of such credits under the
Plan, and no amendment or termination of the Plan shall adversely affect any
Director's Deferred Stock Account without that Director's express written
consent.
13. MISCELLANEOUS. (a) Nothing in the Plan shall be deemed to create
any obligation on the part of the Board to nominate any Director for reelection
by the Company's shareholders or to limit the rights of the shareholders to
remove any Director.
(b) The Company shall have the right to require, prior to the issuance
or delivery of any shares of Common Stock pursuant to the Plan, that a Director
make arrangements satisfactory to the Committee for the withholding of any taxes
required by law to be withheld with respect to the issuance or delivery of such
shares, including without limitation by the
-7-
<PAGE>
withholding of shares that would otherwise be so issued or delivered, by
withholding from any other payment due to the Director, or by a cash payment to
the Company by the Director.
14. GOVERNING LAW. The Plan and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware.
-8-
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 99,353,000
<SECURITIES> 0
<RECEIVABLES> 101,660,000
<ALLOWANCES> 819,000
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<CURRENT-ASSETS> 268,558,000
<PP&E> 382,016,000
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0
0
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