As filed with the Securities and Exchange Commission on December 20, 1996
Registration No. 333-13127
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MAGICWORKS ENTERTAINMENT INCORPORATED
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7922 87-0425513
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
BRAD KRASSNER
MAGICWORKS ENTERTAINMENT INCORPORATED
930 WASHINGTON AVENUE 930 WASHINGTON AVENUE
MIAMI BEACH, FLORIDA 33139 MIAMI BEACH, FLORIDA 33139
(305) 532-1566 (305) 532-1566
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF TELEPHONE NUMBER, INCLUDING AREA CODE,
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) OF AGENT FOR SERVICE)
COPY OF COMMUNICATIONS TO:
GARY EPSTEIN, ESQ.
GREENBERG, TRAURIG, HOFFMAN,
LIPOFF, ROSEN & QUENTEL, P.A.
1221 BRICKELL AVENUE
MIAMI, FLORIDA 33131
(305) 579-0500
(FACSIMILE) (305) 579-0717
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Approximate Date of Commencement of Proposed Sale to the Public: From
time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering.[_]
---------------
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS
SUBJECT TO COMPLETION, DECEMBER 20, 1996
26,226,465 SHARES
MAGICWORKS ENTERTAINMENT INCORPORATED
COMMON STOCK
This Prospectus relates to the offer and sale from time to
time of 26,226,465 shares (the "Shares") of Common Stock, $.001 par value (the
"Common Stock"), along with 1,481,643 redeemable warrants ("Redeemable
Warrants") that may be issued upon prepayment of the Notes (as defined below) in
certain circumstances and 500,000 warrants issued in connection with the Private
Placement, as defined below ("Placement Agent Warrants," and together with the
Redeemable Warrants, the "Warrants") of Magicworks Entertainment Incorporated, a
Delaware corporation (the "Company"), by certain securityholders of the Company
(collectively, the "Selling Securityholders"). Of the 26,226,465 Shares offered
hereby, 2,074,300 Shares were issued in connection with the Private Placement
and 1,481,643 Shares are issuable upon conversion of outstanding Notes ("Note
Shares") issued in connection with the Company's private placement (the "Private
Placement") of 414.86 of its Units ("Units"), each Unit consisting of (a) an
unsecured senior convertible note (collectively, the "Notes") in the principal
amount of $12,500 and (b) 5,000 shares of Common Stock. Also included in the
Shares of Common Stock offered hereby are 1,481,643 Shares underlying the
Redeemable Warrants ("Redeemable Warrant Shares") which may be issued in the
future, as described below, and Shares underlying Placement Agent Warrants to
purchase an aggregate of 500,000 Shares of Common Stock ("Placement Agent
Warrant Shares") that expire in July 2001 and have an exercise price of $3.50
per share which are held by Capital Growth International, L.L.C., the Company's
placement agent in the Private Placement, and its designees ("Capital Growth").
The Shares, the Redeemable Warrants and the Placement Agent Warrants are
sometimes referred to herein collectively as the "Securities." See "Description
of Securities" and "Certain Transactions."
The Company will not receive any proceeds from this offering;
however, the maximum gross proceeds payable to the Company from the exercise of
all of the Warrants, if exercised in full, would be $6,935,751. The Company has
agreed to bear the expenses of registration of the Securities under federal and
state securities laws.
Currently there is no active trading market for the Common
Stock. The Common Stock is listed on the Nasdaq over-the-counter market
(the "OTC Bulletin Board") under the trading symbol "MAJK". The Company has
applied for the listing of its Common Stock on the NASDAQ National Market
("NMS"). On December 4, 1996, the last reported bid price of the Common Stock
was $3.00 per share. See "Price Range of Common Stock." Currently there is no
public market for the Warrants, nor is one expected to develop.
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SEE "RISK FACTORS" ON PAGES 7 THROUGH 10 FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Company has been advised by the Selling Securityholders
that the Securities offered hereby may be sold from time to time on the OTC
Bulletin Board through brokers, dealers, underwriters or agents on terms
to be determined at the times of such sales. The Company is registering the
Securities pursuant to the Company's obligations under certain registration
rights agreements and pursuant to requests by certain Selling Securityholders,
but the registration of the Securities does not necessarily mean that any of the
Securities will be offered or sold hereunder. To the extent required, the
specified Securities to be sold, the names of the Selling Securityholders, the
respective purchase prices and public offering prices, the names of any such
broker, dealer, underwriter or agent, and any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying Prospectus Supplement or, if appropriate, a post-effective
amendment to the Registration Statement of which this Prospectus is a part.
See "Plan of Distribution."
The Selling Securityholders and any dealers or agents that
participate in the distribution of the Securities offered hereby may be deemed
to be "underwriters" as defined in the Securities Act of 1933, as amended (the
"Securities Act"), and any profit on the sale of such Securities offered hereby
by them and any discounts, commissions or concessions received by any such
dealers or agents might be deemed to be underwriting discounts and commissions
under the Securities Act.
THE DATE OF THIS PROSPECTUS IS DECEMBER __, 1996
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AVAILABLE INFORMATION
The Company intends to furnish to its stockholders annual
reports containing financial statements audited by independent accountants, and
such other periodic reports as it may determine to furnish or be required by
law, including Sections 13(a) and 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
The Company has filed with the Commission a Registration
Statement on Form S-1 (the "Registration Statement") under the Securities Act
with respect to the Securities offered hereby. This Prospectus, which is a part
of the Registration Statement, does not contain all the information set forth
in, or annexed as exhibits to, such Registration Statement, certain portions of
which have been omitted pursuant to rules and regulations of the Commission. For
further information with respect to the Company and the Securities, reference is
hereby made to such Registration Statement, including the exhibits thereto.
Copies of the Registration Statement, including exhibits, may be obtained from
the aforementioned public reference facilities of the Commission upon payment of
the fees prescribed by the Commission, or may be examined without charge at such
facilities. Statements contained herein concerning any document filed as an
exhibit are not necessarily complete and, in each instance, reference is made to
the copy of such document filed as an exhibit to the Registration Statement.
Each such statement is qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto may be inspected and copied (at
prescribed rates) at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at
the regional offices of the Commission located at Seven World Trade Center,
Suite 1300, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. In addition, the Registration Statement can be obtained
from the Commission's web site at http://www.sec.gov. Quotations relating to the
Company's Common Stock appear on the OTC Bulletin Board, and reports, proxy
statements and other information concerning the Company may be inspected at the
offices of the National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH
PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. UNLESS
OTHERWISE NOTED, THE INFORMATION IN THIS PROSPECTUS GIVES EFFECT TO THE
CONSUMMATION OF THE CONSOLIDATION AND THE MERGER DESCRIBED UNDER "CONSOLIDATION
TRANSACTIONS AND S CORPORATION DISTRIBUTIONS."
THE COMPANY
Magicworks Entertainment Incorporated (the "Company") acquires
domestic and international stage and ancillary rights to theatrical productions,
produces and promotes live entertainment, manages and books performances and
shows, and merchandises a broad range of products associated with its
productions and performers. The Company is also involved in the management of
performing arts facilities. The Company has experienced significant growth over
the past several years. Revenues and pre-tax income have increased from $7.5
million and $1.0 million, respectively, in 1992 to $42.7 million and $3.7
million, respectively, in 1995. However, the Company had pre-tax income of
$2,026,725 for the nine months ended September 30, 1996 compared to $4,113,332
for the nine months ended September 30, 1996.
The Company's strategy has been to integrate the financing,
production, booking and ancillary exploitation of live entertainment, which
allows the Company to exercise control over all aspects of its productions,
including theatrical production, booking, marketing and merchandising. Prior to
1992, the Company focused primarily on, and derived the majority of its profits
from, the worldwide production of "The Magic of David Copperfield," as well as
its management and booking agency and its merchandising business, and was not
involved in other large scale productions. However, because artists and
producers wishing to gauge the market's receptivity to their productions
typically approached the Company in its capacity as booking agent early in a
show's development process, the Company perceived an opportunity to participate
in additional roles beyond its traditional management, booking agency and
merchandising operations.
In 1992, the Company began to act as producer and co-producer
of productions for which the Company believed market demand was strong, based on
the responses to its booking inquiries. In some cases, in addition to production
rights, the Company obtained other rights associated with the show, such as the
ability to present the show in certain venues.
The Company's successful productions since 1992 have included
"Ken Hill's The Phantom of the Opera" and "South Pacific," starring Robert
Goulet, and its major current productions include "Jesus Christ Superstar," "The
Magic of David Copperfield," "Hello, Dolly!" starring Carol Channing and
"Deathtrap," starring Elliot Gould and Mariette Hartley. In addition, the
Company has the rights to produce and anticipates producing "Singin' in the
Rain," "Gershwin on Ice" and "The Hunchback of Notre Dame."
The Company plans to continue to seek to acquire touring
rights for well-established star musicals, and to utilize its management and
booking division to determine the demand for live entertainment productions.
Since the determination of demand is made in advance of any significant
commitment by the Company, the Company believes that its success has been
related in part to its ability to produce only those shows which appear
prospectively to have limited risk and the potential for significant reward.
After obtaining the production rights to a show, the Company
typically casts the lead role with recognized talent, and then solicits
commitments from promoters in various locations in which the show could be
presented. The promoters guarantee the Company a minimum amount of weekly
revenues (which guarantee is often secured by a letter of credit) as well as a
share of any profits above the guaranteed amount. The Company frequently
receives a deposit from the local promoters, the amount of which is based on the
Company's past relationship with the individual promoter. For foreign
productions, the deposit is generally equivalent to the total amount of the
guarantee. In this manner, the Company seeks to further minimize its production
risk.
In addition to its production business, the Company acts as
the management and booking agent for a variety of live entertainment events. As
management and booking agent, the Company is retained by producers to arrange
bookings for the tours of various theatrical presentations, musical acts and one
person shows. The Company then markets the productions to presenters throughout
the world, and is paid either a fixed fee or a percentage of
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proceeds for such bookings. These arrangements preclude the need for the Company
to invest any of its own capital in its capacity as management and booking
agent.
The Company currently acts as exclusive management and
booking agent for over 23 shows, including "The Magic of David Copperfield,"
"Nutcracker on Ice," "Jesus Christ Superstar," by Andrew Lloyd Webber and Tim
Rice, "The Pointer Sisters' Ain't Misbehavin'," "Hello, Dolly!" starring Carol
Channing, "Three Tall Women," "She Loves Me," "Deathtrap," "Mame" and the
national touring company of "A Chorus Line;" musical acts such as the Newport
Jazz All-Stars and the Preservation Hall Jazz Band; and one-person shows such as
Hal Holbrook in "Mark Twain Tonight," James Whitmore in "Will Rogers USA,"
Amanda Plummer in "The Belle of Amherst" and Kevin McCarthy in "Give 'Em Hell
Harry!" In addition, the Company has recently entered into an exclusive
agreement to represent the musical "Big" for all U.S. and Canadian tour bookings
(excluding New York, Los Angeles and Toronto).
The Company plans to continue to exploit its experience and
contacts with performers, venues, presenters and sponsors by expanding its
operations, as opportunities arise, in the areas of sports, speakers' bureaus,
music, movies and television. Further, the Company believes that its
relationships in the entertainment industry will facilitate its expansion into
other areas, particularly with respect to facility management, production and
presentation opportunities.
In addition, the Company perceives an opportunity to grow
through the acquisition of local and regional entertainment producers,
presenters, facilities owners and management companies. The Company believes
that there are significant acquisition opportunities available due to the highly
fragmented nature of the live entertainment industry.
In keeping with its strategy to further broaden its own
business by acquiring entertainment related businesses, on August 28, 1996, the
Company acquired all of the issued and outstanding capital stock of Movietime
Entertainment, Inc. ("Movietime") in exchange for 1,199,999 shares of Common
Stock. Movietime has developed and implemented an interactive telecommunications
service that provides digital telephone delivery systems to movie theaters.
Movietime's digital-based delivery system replaces the analog recording machines
now in use at movie theaters with an interactive digital voicemail system that
provides customized, site specific theater information such as show times,
ticket prices, location and travel directions. The Company believes that the
Movietime system enables a theater to increase ticket sales through improved
customer service by significantly increasing the number of telephone calls able
to reach the theater simultaneously. If Movietime achieves significant market
penetration, the Company hopes to generate revenues by selling advertising time
on the recorded announcements.
COMPANY BACKGROUND
The Company was incorporated under the laws of the State of
Utah in February 1985 under the name "Marino Investments, Inc." In April 1988,
the Company changed its name to "Rattlesnake Gold, Inc." and changed its state
of domicile from Utah to Delaware. In June 1995, the Company changed its name to
Shadow Wood Corporation. The Company was formed for the purpose of raising
capital and acquiring suitable property, assets or business by means of
completing a merger with, or acquisition of, any privately-held business
enterprise. The Company had no material operations until July 1996. In July
1996, Magicworks Entertainment Incorporated, a Florida corporation ("MEI"), was
merged (the "Merger") into the Company and the Company changed its name to
"Magicworks Entertainment Incorporated."
MEI was formed in June 1996 as a holding company to facilitate
the consolidation of the operations of each of Diamond Bullet Merchandising,
Inc., a Florida corporation, Touring Artists Group, Inc., an Ohio corporation
("TAGO"), Touring Artists Group, Inc., a Florida corporation, Performing Arts
Management of North Miami, Inc., a Florida corporation, Magic Promotions, Inc.,
a Florida corporation, and Magic Promotion, Inc., an Ohio corporation ("MPIO"),
all of which shared common control, but which had operated previously as
independent corporations (the foregoing corporations are referred to herein
collectively as the "Constituent Corporations"). Concurrently with the initial
closing of the Private Placement, 100% of the capital stock of each of the
Constituent Corporations was acquired by the Company (the "Consolidation"). See
"Consolidation Transactions and S Corporation Distributions" and "Certain
Transactions."
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The Company was the surviving corporation in the Merger.
Pursuant to the Merger, each outstanding share of common stock, $.001 par value
per share, of MEI was converted into the right to receive one share of Common
Stock. The Board of Directors and management of MEI were elected to
corresponding positions with the Company. Simultaneously with the consummation
of the Merger, the Company issued and sold 400.06 Units in connection with which
it received net proceeds of $8,919,350. On September 27, 1996, the Company
issued and sold an additional 14.8 Units pursuant to the Private Placement in
connection with which it received additional net proceeds of $333,000.
Subsequent to the Merger, on August 28, 1996, the Company
acquired (the "Movietime Acquisition") all of the outstanding capital stock of
Movietime, pursuant to the merger (the "Movietime Merger") of MT Acquisition Sub
Inc. ("MT Sub"), a newly-formed, wholly-owned subsidiary of the Company, with
and into Movietime. The Movietime Acquisition was consummated pursuant to that
certain Agreement and Plan of Merger dated August 28, 1996 (the "Movietime
Agreement") among the Company, MT Sub, Movietime and all of the stockholders of
Movietime (the "Movietime Stockholders"). Movietime was the surviving
corporation in the Movietime Merger. Pursuant to the Movietime Merger, each
share of Movietime common stock, par value $1.00 per share, was converted into
the right to receive 2,962.96 shares of Common Stock, rounded to the nearest
whole number, resulting in the issuance of 1,199,999 shares of Common Stock to
the Movietime Stockholders.
Unless the context requires otherwise, all references in this
Prospectus to the Company shall mean the Company as successor by merger to the
business of MEI and shall include its wholly-owned subsidiaries. The Company's
executive offices are located at 930 Washington Avenue, Miami Beach, Florida
33139 and its telephone number is (305) 532-1566.
THE OFFERING
Securities Offered.................... 26,226,465 shares of Common Stock,
including 22,763,179 outstanding shares
of Common Stock which may be sold by
Selling Securityholders and up to
3,463,286 Note Shares, Placement Agent
Warrant Shares and Redeemable Warrant
Shares which may be sold by the holders,
respectively, of outstanding Notes,
outstanding Placement Agent Warrants and
Redeemable Warrants which may be issued
in the future.
1,981,643 Warrants, including 500,000
Placement Agent Warrants which may be
sold by the Selling Securityholders and
up to 1,481,643 Redeemable Warrants that
may be issued upon the prepayment of the
Notes in certain circumstances.
Quotation............................ The Common Stock is listed on the OTC
Bulletin Board. The Company has applied
for the listing of the Common Stock on
NMS.
Trading Symbol....................... "MAJK"
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SUMMARY FINANCIAL DATA
The summary financial information set forth below has been
derived from the audited financial statements of the Company, giving effect to
the Consolidation and the Merger, which occurred effective July 30, 1996, and to
the Movietime Acquisition which occurred on August 28, 1996 and should be read
in conjunction with such financial statements and the notes thereto appearing
elsewhere in this Prospectus. MPIO was deemed to be the acquiring entity in the
Consolidation.(1)
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YEAR ENDED DECEMBER 31,
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1991 1992 1993 1994
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STATEMENT OF OPERATIONS DATA:
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Revenues:
Production .................. $ 0 $ 662,222 $18,250,149 $23,346,244
Promotion ................... 4,299,717 3,663,269 10,009,734 6,268,273
Total revenues........................ 7,284,234 7,525,156 32,167,251 33,416,193
Total operating expenses.............. 6,113 678 6,889 895 27,610,205 30,239,412
Income from operations................ 1,170,556 635,261 4,557,046 3,176,781
Net income............................ 1,295,027 1,003,866 3,020,557 2,128,198
Pro forma net income(2) .............. 789,966 612,358 1,842,540 1,298,201
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DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------- ------------------------ ----------
1995 1995 1995 1996 1996
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STATEMENT OF OPERATIONS DATA: ACTUAL PROFORMA(3) ACTUAL ACTUAL PROFORMA(3)
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Revenues:
Production .................. $31,638,078 $31,638,078 $20,665,310 $21,773,945 $21,773,945
Promotion ................... 6,668,672 6,668,672 4,738,992 7,412,528 7,412,528
Total revenues........................ 42,734,099 42,734,099 27,702,101 32,213,330 32,213,330
Total operating expenses.............. 38,440,260 38,596,482 23,881,534 29,936,188 30,053,354
Income from operations................ 4,293,839 4,137,617 3,820,567 2,277,142 2,159,976
Net income............................ 3,281,845 2,607,048 2,596,033 1,736,790 1,230,693
Pro forma net income(2) .............. 2,001,925 1,590,299 1,583,580 667,270 750,723
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SEPTEMBER 30, 1996
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BALANCE SHEET DATA:
Working capital.............. $ 6,234,223
Total assets................. 13,043,003
Total liabilities............ 8,729,999
Total shareholders' equity... 4,313,004
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(1) The Consolidation complies with the requirements of Staff Accounting
Bulletin No. 48 ("SAB 48") and has therefore been accounted for at the
historical cost bases of the transferors. The Movietime Acquisition
has been accounted for as a pooling-of-interests in accordance with
APB No. 16. See Note 1 to the Historical Supplemental Pooled Financial
Statements of Magic Promotion, Inc. and Movietime Entertainment, Inc.
appearing elsewhere herein.
(2) Reflects the effect of an adjustment for income taxes on historical
statement of operations data, assuming the Constituent Corporations
had been treated as C corporations for income tax purposes, and
assuming an effective income tax rate of 39% for the periods presented
and the income tax expense of the Company's switch in tax basis from
cash to accrual in connection with the Company's S Corporation status
as opposed to the C Corporation status of the Constituent Corporations.
See "Consolidation Transactions and S Corporation Distributions."
(3) Pro forma financial data gives effect to (i) the Private Placement and
the initial application of the net proceeds therefrom and (ii) the
Movietime Acquisition as though each transaction had occurred at the
beginning of the period presented.
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RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A
HIGH DEGREE OF RISK, INCLUDING, BUT NOT NECESSARILY LIMITED TO, THE RISK FACTORS
DESCRIBED BELOW. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS INHERENT IN AND AFFECTING THE BUSINESS OF THE COMPANY
BEFORE MAKING AN INVESTMENT DECISION. THIS PROSPECTUS CONTAINS CERTAIN
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT WHICH REPRESENT THE COMPANY'S EXPECTATION OR BELIEFS, INCLUDING, BUT NOT
LIMITED TO, STATEMENTS REGARDING GROWTH IN REVENUES FROM THE COMPANY'S
PRODUCTION AND PROMOTION ACTIVITIES AND THE SUFFICIENCY OF THE COMPANY'S CASH
FLOW FOR ITS FUTURE LIQUIDITY AND CAPITAL RESOURCE NEEDS. FOR THIS PURPOSE, ANY
STATEMENTS CONTAINED IN THIS PROSPECTUS THAT ARE NOT STATEMENTS OF HISTORICAL
FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE
FOREGOING, WORDS SUCH AS "MAY," "WILL," "EXPECT," "BELIEVE," "ANTICIPATE,"
"INTEND," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS THEREOF
OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES,
AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF FACTORS,
INCLUDING THOSE DESCRIBED BELOW.
SIGNIFICANT REVENUES DERIVED FROM ONE SHOW. The Company
derives a significant percentage of its total profits from "The Magic of David
Copperfield" worldwide tours. The Company has a contract with Mr. Copperfield
that expires on December 31, 1999. A termination of the Company's relationship
with Mr. Copperfield, the inability of "The Magic of David Copperfield" to
remain successful in the future, or the retirement or withdrawal of Mr.
Copperfield from the entertainment business would have a material adverse effect
on the Company's business.
AVAILABILITY OF THEATRICAL PRODUCTION RIGHTS. The success of
the Company is dependent in part on the availability of production rights to
quality theatrical properties and its ability to procure such rights. There can
be no assurance that the Company will be able to secure the production rights to
quality theatrical properties in sufficient numbers or on terms acceptable to
the Company in the future.
RECOUPMENT OF PRODUCTION COSTS. The costs of producing,
marketing and presenting live theatrical presentations are substantial and have
increased in recent years. Creative and artistic personnel participate in the
earnings, if any, of a production and reduce the amount realized by the Company.
The success of any theatrical presentation is dependent on a number of factors
outside the control of the Company, including public taste, which is
unpredictable and subject to change, the existence and popularity of other
theatrical presentations and other competing entertainment, price and weather
conditions. There can be no assurance that the Company will be able to stage
theatrical presentations in the future or that it will be able to recoup the
costs associated with any such presentations.
AVAILABILITY OF FINANCING. The Company depends on a variety of
financing sources, including credit facilities and limited partnerships or joint
ventures on a show-by-show basis, in addition to funds generated from
operations. The Company also has relied upon the guarantee of certain of its
debts by certain of its executive officers. The Company anticipates that no
further personal guarantees of the Company's indebtedness by its executive
officers will be made. There can be no assurance that financing to fund the
Company's future operations will be available on commercially reasonable terms,
or at all. If financing is not available, the Company could be limited in its
ability to compete favorably for attractive productions. Additionally, to the
extent that the Company elects to utilize its own capital to finance theatrical
productions, it will assume a greater degree of the financial risk associated
with such productions.
FLUCTUATIONS IN OPERATING RESULTS. The Company's operating
results have fluctuated significantly from year to year, primarily as a result
of the number of its shows or events in production, the timing and staging of
its productions, and its involvement in promotion as well as production in
certain instances. In addition, the season for most of the Company's theatrical
productions runs from September to June. Consequently, the Company's
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operating results have fluctuated significantly from year to year and also from
quarter to quarter, and are expected to continue to do so in the future. It is
likely that the Company's operating results will continue to fluctuate until
such time, if ever, that the Company has a sufficient number of productions or
diversifies sufficiently to eliminate such fluctuations. There can be no
assurance that the Company will ever have a sufficient number of productions or
will diversify sufficiently to produce a steady stream of revenues and earnings
or that the Company's operating results will not continue to fluctuate.
COMPETITION. The Company competes for its audiences with other
theatrical producers, some of whom may have greater financial and other
resources than the Company, as well as with a wide range of other entertainment
alternatives, including movies, sporting events and others. In addition, there
is competition within the theatrical entertainment industry for directors,
actors and rights to theatrical works. There are also significant competitors in
the management and booking industry, and the merchandising industry ancillary to
theatrical productions and concerts. There can be no assurance that the Company
will be able to compete successfully.
LABOR RELATIONS. Many individuals associated with the
Company's productions, including actors and directors, as well as the employees
of the theaters in which the Company's presentations are presented, are members
of guilds or unions which bargain collectively with producers on an
industry-wide basis from time to time. The Company's operations are dependent on
its ability to maintain harmonious relations with these guilds and unions.
DEPENDENCE ON MANAGEMENT AND OTHER KEY PERSONNEL. The Company
is largely dependent on its executive officers and, in particular, Brad
Krassner, its Co-Chairman of the Board and Chief Executive Officer, Joe Marsh,
its Co-Chairman of the Board, and Lee Marshall, its President and Chief
Operating Officer, all of whom were instrumental in the formation of the
Company's management, booking and merchandising operations. Management of the
Company will have substantial discretion in the selection, acquisition,
production, marketing and management of the Company's productions. The success
of the Company will depend upon the ability of its management to identify
commercially viable theatrical productions, accurately estimate the costs of
producing such properties, successfully negotiate for the allocation of
associated profits, if any, and effectively administer the production and
marketing of its theatrical properties. The loss of the services of any of the
Company's executive officers or other key personnel could have a material
adverse effect on the Company's business and prospects.
CONTROL BY MANAGEMENT. The Company's officers and directors
own approximately 82.4% of the Company's outstanding Common Stock. Accordingly,
they will be able to control the Company, elect all of the Company's directors,
increase the authorized capital, dissolve, merge, sell the assets of the Company
and generally direct the affairs of the Company.
LIMITED EXPERIENCE IN FACILITY MANAGEMENT; PROPOSED EXPANSION.
The Company recently became engaged in facility management, in which it has
limited experience. Furthermore, the Company may use a portion of the proceeds
of the Private Placement to expand its operations and acquire companies in the
live entertainment business. There can be no assurance that the Company will be
successful in any or all of these endeavors. See "Business."
RISKS ASSOCIATED WITH ACQUISITION OF MOVIETIME ENTERTAINMENT,
INC. There are a number of risks associated with Movietime: (a) the potential
inability of the Company to expand Movietime's operations, for which expansion
the Company expects to invest significant capital, (b) a decline in movie
theater attendance, (c) the Company's potential inability to maintain favorable
relations with Octel Communications Corporation ("Octel"), with which Movietime
has a contract to provide equipment and services related to the provision of its
MovieTime service to movie theaters, or Octel's inability to continue to provide
satisfactory service under its agreement with the Company, (d) Movietime's
potential inability to negotiate contracts to provide its MovieTime service to
theaters, or to sell advertising time with respect to such service and (e) the
interruption of telephone services. Movietime has commenced the servicing of
contracts to provide its Movietime service with a number of movie theaters,
although to date Movietime has incurred significant losses without generating
meaningful revenues. Any or all of such risks could adversely affect the
Company's operating results and financial condition.
-8-
<PAGE>
AUTHORIZATION OF PREFERRED STOCK. The Company's Certificates
of Incorporation authorizes the issuance of 5,000,000 shares of "blank check"
preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights that could
adversely affect the voting power or other rights of the holders of the Common
Stock. In the event of issuance, the preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. Although the Company has no present intention
to issue any shares of its preferred stock, the Company may do so in the future.
NO PAYMENT OF CASH DIVIDENDS. The Company does not intend to
declare any cash dividends with respect to its Common Stock in the foreseeable
future. Instead, the Company intends to retain future earnings, if any, for use
in its business operations. Furthermore, the Company is prohibited from paying
cash dividends while the Notes are outstanding.
PAYMENT OF THE NOTES. The Notes are direct, senior obligations
of the Company. The Company is required to pay interest and principal on the
Notes, including amounts with respect to the mandatory sinking fund provisions
contained therein, regardless of the Company's profitability at the time any
such payments are due. The payment of such principal and interest could
materially and adversely affect the Company's ability to meet its other
obligations. If the Company is unable to make principal and interest payments on
the Notes when due, or to make required sinking fund payments when due, the
consequences to the Company would be material and adverse.
EXERCISE OF THE WARRANTS AND/OR THE CONVERSION OF THE NOTES
INTO COMMON STOCK WILL HAVE DILUTIVE EFFECT. The Warrants will provide an
opportunity for the holders thereof to profit from a rise in the market price of
the Common Stock, of which there is no assurance, with resulting dilution in the
ownership interest in the Company held by the then present shareholders. Holders
of the Warrants or the Notes most likely would exercise such Warrants or convert
the Notes and purchase the Common Stock underlying such securities at a time
when the Company may be able to obtain capital by a new offering of securities
on terms more favorable than those provided by such Warrants or Notes, in which
event the terms on which the Company may be able to obtain additional capital
would be affected adversely.
NO ACTIVE TRADING MARKET; DISCLOSURE RELATING TO LOW PRICED
STOCKS. The Common Stock presently has no active trading market. The Common
Stock is listed for quotation on the OTC Bulletin Board; however, there can
be no assurance that a trading market will develop or, if developed, that it
will be maintained. In addition, there can be no assurance that the Company
will succeed in obtaining a listing for the Common Stock on NMS, or that if it
is successful in obtaining such listing that it will be able to meet the
maintenance criteria for continued quotation of the Common Stock on NMS. If the
Company were to be listed and subsequently removed from NMS, trading, if any,
in the Common Stock might thereafter have to be conducted in the
over-the-counter market in the so-called "pink sheets" or, if then available,
the Nasdaq SmallCap Market or the OTC Electronic Bulletin Board. As a result,
an investor might find it more difficult to dispose of, or to obtain accurate
quotations as to the value of, the Common Stock.
In addition, if the Common Stock is delisted from trading on
an active trading market and the trading price of the Common Stock is less than
$5.00 per share, trading in the Common Stock would also be subject to the
requirements of Rule 15g-9 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Under such rule, broker/dealers who
recommend such low-priced securities to persons other than established customers
and accredited investors must satisfy special sales practice requirements,
including a requirement that they make an individualized written suitability
determination for the purchase and receive the purchaser's written consent prior
to the transaction. The Securities Enforcement Remedies and Penny Stock Reform
Act of 1990 also requires additional disclosure in connection with any trades
involving a stock defined as a penny stock (generally, according to recent
regulations adopted by the Securities and Exchange Commission, any equity
security not traded on an exchange or quoted on Nasdaq that has a market price
of less than $5.00 per share, subject to certain exceptions), including the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith. Such
requirements could severely limit the market liquidity of
-9-
<PAGE>
the Common Stock and the ability of purchasers in this offering to sell their
securities in the secondary market. There can be no assurance that the Common
Stock will not be delisted or treated as a penny stock.
SHARES ELIGIBLE FOR FUTURE SALE. 22,763,179 of the Company's
23,074,299 currently outstanding shares of Common Stock are "restricted
securities" and, in the future, may be sold upon compliance with Rule 144,
adopted under the Act. Rule 144 provides, generally, that a person holding
"restricted securities" for a period of two years may sell only an amount every
three months equal to the greater of (a) one percent of the Company's issued and
outstanding Common Stock, or (b) the average weekly volume of sales during the
four calendar weeks preceding the sale. The amount of "restricted securities"
which non-affiliates of the Company may sell is not so limited, since
non-affiliates may sell without volume limitation their shares held for three
years if there is adequate current public information available concerning the
Company. All of the Shares held by the former shareholders of MEI (a total of
19,000,000 Shares) and the former shareholders of Movietime (a total of
1,199,999 Shares), all of the Shares issued to the investors in the Private
Placement (a total of 2,074,300 Shares), all of the Shares issued to the
placement agent in the Private Placement (a total of 488,820 Shares) and all of
the Common Stock underlying the Notes, the Placement Agent Warrants and the
Redeemable Warrants are being registered in the registration statement of which
this Prospectus forms a part. However, the former shareholders of both MEI and
Movietime have agreed not to resell their Shares (a total of 20,199,999 Shares)
or any portion thereof for a period ending on August 30, 1997.
After reserving a total of 5,213,243 shares of Common Stock
for issuance upon (i) the exercise of the Placement Agent Warrants, (ii) the
conversion of the Notes and/or upon redemption of the Redeemable Warrants, and
(iii) the exercise of options to purchase up to an aggregate of 1,750,000 shares
of Common Stock under the Company's 1996 Employee Stock Option Plan (the "Stock
Option Plan") and Directors Stock Option Plan (the "Directors Plan" and together
with the Stock Option Plan, the "Plans"), the Company will have at least
21,712,458 shares of authorized but unissued Common Stock available for issuance
without further stockholder approval. As a result, any issuance of additional
shares of Common Stock may cause current shareholders of the Company to suffer
significant dilution which may adversely affect the market for the securities of
the Company. See "Description of Securities."
Prospective investors should be aware that the possibility of
sales of shares of Common Stock in the future may depress the price of the
Common Stock in any market which may develop and, therefore, the ability of any
investor to market shares may be dependent directly upon the number of shares
that are offered and sold. Affiliates of the Company may sell their shares
during a favorable movement in the market price of the Common Stock which may
have a negative effect on its price per share. See "Description of Securities."
-10-
<PAGE>
THE MERGER
GENERAL
In conjunction with the initial closing of the Private
Placement on July 30, 1996, the Company consummated the Merger. The Company was
the surviving entity in the Merger. Pursuant to the Merger, the Company issued
one share of Common Stock for each share of common stock of MEI then
outstanding, and changed its name from Shadow Wood Corp. to "Magicworks
Entertainment Incorporated." In addition, the Company amended its Certificate of
Incorporation to increase the number of authorized shares of Common Stock to
50,000,000 and to authorize 5,000,000 shares of preferred stock, $.001 par
value, to be issued in such series and with such rights, preferences and
designations as determined by the Company's Board of Directors.
By virtue of the Merger, the Company has succeeded to all of
the rights, duties and obligations of MEI, including, but not limited to, the
contractual rights, duties and obligations arising under the Notes, the
Placement Agent Warrants and all other obligations incurred in connection with
the Private Placement. See "Certain Transactions."
Prior to the consummation of the Merger, the Company
effectuated a reverse stock split on a 1 for 12.5 basis which reduced its issued
and outstanding shares of common stock to 311,180 shares. All fractional shares
were rounded up to the nearest whole share.
CONSOLIDATION TRANSACTIONS AND S CORPORATION DISTRIBUTIONS
CONSOLIDATION TRANSACTIONS
MEI was formed in June 1996 as a holding company to facilitate
the consolidation of the operations of each of Diamond Bullet Merchandising,
Inc., a Florida corporation, Touring Artists Group, Inc., an Ohio corporation,
Touring Artists Group, Inc., a Florida corporation, Performing Arts Management
of North Miami, Inc., a Florida corporation, Magic Promotions, Inc., a Florida
corporation, and Magic Promotion, Inc., an Ohio corporation, all of which shared
common control, but which had operated previously as independent corporations
(the foregoing corporations are referred to herein collectively as the
"Constituent Corporations"). Concurrently with the initial closing of the
Private Placement on July 30, 1996, 100% of the outstanding capital stock of
each of the Constituent Corporations was acquired by the Company (the
"Consolidation").
The Consolidation complies with the requirements of SAB 48
and has therefore been accounted for at the historical cost bases of the
transferors.
On August 28, 1996, the Company consummated the Movietime
Acquisition in accordance with the terms of the Movietime Agreement. As a result
of the Movietime Acquisition, Movietime became a wholly-owned subsidiary of the
Company. Brad Krassner, Lee Marshall and Joe Marsh, the Co-Chairman of the Board
and Chief Executive Officer, President and Chief Operating Officer and
Co-Chairman of the Board of the Company, respectively, and Glenn Bechdel, a
principal stockholder of the Company, owned an aggregate of approximately 44.4%
of the common stock of Movietime outstanding immediately prior to the
Acquisition. See "Certain Transactions."
The Movietime Acquisition has been accounted for as a
pooling-of-interests in accordance with APB No. 16.
-11-
<PAGE>
S CORPORATION DISTRIBUTIONS
Prior to the consummation of the Consolidation, MEI and the
Constituent Corporations elected to be treated as S corporations for federal and
state income tax purposes. As a result, MEI and the Constituent Corporations
paid no federal or state income tax, and all earnings of MEI and the Constituent
Corporations were subject to federal and state taxation directly at the
shareholder level. The practice of MEI and the Constituent Corporations was to
pay cash distributions to shareholders equal to the excess operating cash flow
generated by the operations of the Constituent Corporations.
In the fiscal year ended December 31, 1995, the Constituent
Corporations had retained undistributed earnings aggregating $5,625,113, of
which $3,816,129 was distributed to the shareholders of the Constituent
Corporations.
During 1996, the Company made S corporation distributions
aggregating $2,509,445 to the shareholders of MEI (including all of the
shareholders of the Constituent Corporations). No further S corporation
distributions will be made. Effective upon the consummation of the
Consolidation, the Company ceased to be treated as an S corporation, and,
accordingly, is now fully subject to federal and state income tax.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of
the Securities offered hereby. Management estimates that the aggregate expenses
of this offering will be approximately $1.0 million, all of which will be borne
by the Company.
PRICE RANGE OF COMMON STOCK
The Common Stock is currently quoted on the OTC Bulletin Board
under the symbol "MAJK". The following table sets forth the high and low bid
prices of the Common Stock for the period indicated in 1996. Prior to the
Merger, there was no active trading market for the Common Stock.
1996 HIGH LOW
- -----------------------------------------------------------------------------
Third Quarter $4.25 $3.50
Fourth Quarter (October 1 through December 13) $4.00 $3.00
On December 4, 1996, the last reported bid price of the
Common Stock was $3.00 per share. As of that date, there were approximately 400
holders of record of the Common Stock.
-12-
<PAGE>
DIVIDEND POLICY
Holders of Common Stock are entitled to dividends when, as and
if declared by the Board of Directors out of funds legally available therefor.
Prior to the Consolidation, the Constituent Corporations had elected to be
treated as S Corporations for federal and state income tax purposes, and paid
cash distributions to their shareholders equal to their excess operating cash
flow from operations. No further S Corporation distributions will be made. See
"Consolidation Transactions and S Corporation Distributions." The Company does
not anticipate the payment of any dividends in the foreseeable future. The
Company intends to retain future earnings, if any, to finance the development
and expansion of its business. Future dividend policy will be subject to the
discretion of the Board of Directors and will be contingent upon future
earnings, if any, the Company's financial condition, capital requirements,
general business conditions and other factors. Therefore, there can be no
assurance that any dividends of any kind will ever be paid. Further, the Notes
provide that the Company will not (i) declare or pay any dividend or make any
other distribution to the stockholders of the Company, except dividends or
distributions payable in equity securities of the Company, or (ii) purchase,
redeem or otherwise acquire or retire for value any equity securities of the
Company, except (a) an equity security acquired upon conversion thereof into
other equity securities of the Company and (b) any equity security issued to
employees, directors or other performing services in accordance with agreements
providing for such repurchase at original cost upon termination of employment,
membership on the Board of Directors or other affiliation with the Company.
-13-
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1996, the
capitalization of the Company after giving effect to the Consolidation and the
Merger, which occurred effective July 30, 1996.
SEPTEMBER 30, 1996
------------------
Short-term debt................................. $ 225,000
-------------
Long-term debt.................................. 5,699,248
-------------
Stockholders' Equity:
Preferred Stock, par value $.001 per
share, 5,000,000 shares authorized,
no shares issued and outstanding.... --
Common Stock, par value $.001 per
share, 50,000,000 shares authorized,
23,074,299 shares issued and
outstanding(1)...................... $ 23,074
Additional paid in capital...................... 4,151,759
Retained earnings............................... 138,171
-------------
Total stockholders' equity ..................... 4,313,004
-------------
Total capitalization............................ $4,151,759
=============
- --------------------------------------
(1) Does not include shares issuable upon the conversion of the
Notes, the exercise of the Placement Agent Warrants or the
exercise of Redeemable Warrants that may be issued upon
prepayment of the Notes in certain circumstances.
-14-
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below has been derived
from the financial statements of the Company after giving effect to the
Consolidation and the Merger which occurred effective July 30 1996, and to the
Movietime Acquisition which occurred on August 28, 1996. See Footnote 1, below.
The combined financial statements as of and for the years ended December 31,
1993, 1994 and 1995 have been audited by Ernst & Young LLP, independent
certified public accountants, and such combined financial statements and the
report thereon are included in this Prospectus. See Note 1 to the Combined
Financial Statements. The combined financial statements as of and for the years
ended December 31, 1991 and 1992 and the nine month periods ended September 30,
1995 and 1996 are derived from the unaudited combined financial statements of
the Company, which in the opinion of management, include all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the information set forth therein. Interim results are not
necessarily indicative of results for the entire year.
The selected financial data information set forth below should
be read in conjunction with the combined financial statements appearing
elsewhere in this Prospectus, including the notes thereto.(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1991 1992 1993 1994
------------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Production........................... $ 0 $ 662,222 $18,250,149 $23,346,244
Promotion............................ 4,299,717 3,663,269 10,009,734 6,268,273
Merchandising........................ 2,557,099 2,368,060 2,461,577 2,338,619
Other ............................... 427,418 831,605 1,445,791 1,463,057
------------- ---------- ----------- -----------
7,284,234 7,525,156 32,167,251 33,416,193
Operating expenses:
Talent and other show................ 2,774,278 3,287,594 23,254,751 25,449,871
Salaries, wages and benefits......... 441,216 679,244 1,333,330 1,529,300
Cost of goods sold................... 2,175,998 1,929,003 1,860,777 1,824,102
General and administrative........... 722,186 994,054 1,161,347 1,436,139
------------- ---------- ---------- -----------
6,113,678 6,889,895 27,610,205 30,239,412
Income from operations.................... 1,170,556 635,261 4,557,046 3,176,781
Other income (expense):
Interest income ..................... 0 0 6,579 14,801
Interest expense..................... (40,351) (75,998) (79,686) (20,011)
From investments in noncombining
productions...................... 163,732 440,963 364,976 417,071
Minority interests................... 1,090 3,640 (1,828,358) (1,460,444)
------------- ---------- ---------- ----------
124,471 368,605 (1,536,489) (1,048,583)
Net income................................ 1,295,027 1,003,866 3,020,557 2,128,198
Pro forma adjustment for income taxes(2).. (505,061) (391,508) (1,178,017) (829,997)
------------- ---------- ---------- ----------
Pro forma net income(2)................... $ 789,966 $ 612,358 $ 1,842,540 $ 1,298,201
============= ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------ -----------------------------------------
1995 1995 1995 1996 1996
---------- ------------ ------------- ------------ ------------
ACTUAL PROFORMA(3) ACTUAL ACTUAL PROFORMA(3)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Production........................... $31,638,078 $31,638,078 $20,665,310 $21,773,945 $21,773,945
Promotion............................ 6,668,672 6,668,672 4,738,992 7,412,528 7,412,528
Merchandising........................ 2,474,214 2,474,214 1,568,183 1,635,596 1,635,596
Other ............................... 1,953,135 1,953,135 729,616 1,391,261 1,391,261
----------- ------------ ----------- ----------- -----------
Total revenues............................ 42,734,099 42,734,099 27,702,101 32,213,330 32,213,330
Operating expenses:
Talent and other show................ 32,945,744 32,945,744 20,134,211 24,897,793 24,897,793
Salaries, wages and benefits......... 2,056,339 2,056,339 1,350,282 1,957,251 1,957,251
Cost of goods sold................... 1,462,364 1,462,364 1,099,714 1,149,876 1,149,876
General and administrative........... 1,975,813 2,132,035 1,297,327 1,931,268 2,048,434
----------- ----------- ---------- ----------- -----------
Total operating expenses.................. 38,440,260 38,596,482 23,881,534 29,936,188 30,053,354
Income from operations.................... 4,293,839 4,137,617 3,820,567 2,277,142 2,159,976
Other income (expense):
Interest income ..................... 109,060 109,060 85,218 55,786 55,786
Interest expense..................... (92,845) (611,420) (47,572) (334,024) (722,955)
From investments in noncombining
productions...................... 418,679 418,679 255,119 27,821 27,821
Minority interests................... (1,446,888) (1,446,888) (1,517,299) (289,935) (289,935)
----------- ----------- ---------- ----------- -----------
(1,011,994) (1,530,569) (1,224,534) (540,352) (929,283)
Net income................................ 3,281,845 2,607,048 2,596,033 1,736,790 1,230,693
Pro forma adjustment for income taxes(2).. (1,279,920) (1,016,749) (1,012,453) (1,069,520) (479,970)
----------- ----------- ---------- ----------- -----------
Pro forma net income(2)................... $ 2,001,925 $ 1,590,299 $1,583,580 $ 667,270 $ 750,723
=========== =========== ========== =========== ===========
Pro forma net income per share $0.10 $0.07 $0.08 $0.03 $0.03
Weighted average common shares and
common stock equivalents outstanding 20,199,999 23,074,299 20,199,999 23,074,299 23,074,299
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------- --------------------------
1991 1992 1993 1994 1995 1995 1996
--------- ---------- --------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............. $ 134,458 $ 910,154 $ (423,788) $1,039,416 $ 144,174 $1,628,148 $ 6,234,223
Total assets................. 1,015,338 3,137,895 3,270,656 6,206,271 7,610,297 6,909,158 13,043,003
Total liabilities............ 639,139 2,483,147 1,881,671 4,305,966 5,801,313 4,226,088 8,729,999
Total shareholders' equity... 376,199 654,748 1,388,985 1,900,305 1,808,984 2,683,070 4,313,004
<FN>
- ------------------------------
(1) The Consolidation complies with the requirements of SAB 48 and has
therefore been accounted for at the historical cost bases of the
transferors. The Movietime Acquisition has been accounted for as a
pooling-of-interests in accordance with APB No. 16.
(2) Reflects the effect of an adjustment for income taxes on historical
statement of operations data, assuming the Constituent Corporations
had been treated as C corporations rather than S corporations for
income tax purposes, and assuming an effective income tax rate of 39%
for the periods presented. See "Consolidation Transactions and S
Corporation Distributions."
(3) Pro forma financial data gives effect to (i) the Private Placement and
the initial application of the net proceeds therefrom and (ii) the
Movietime Acquisition as though each transaction had occurred at the
beginning of the period presented.
</FN>
</TABLE>
-15-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MEI, the predecessor by merger to the Company, was formed in
June 1996 as a holding company to facilitate the consolidation of the operations
of each of the Constituent Corporations. Concurrently with the initial closing
of the Private Placement, MEI consummated the Consolidation.
The Consolidation complies with the requirements of SAB No. 48
and has therefore been accounted for at the historical cost bases of the
transferors. The Movietime Acquisition has been accounted for as a
pooling-of-interests in accordance with APB No. 16.
The following discussion is based upon the combined financial
statements of the Company. See the Combined Financial Statements of the Company.
GENERAL
The Company's revenues are derived principally from its
production and promotion activities, which, in 1995, accounted for approximately
74.0% and 15.6%, respectively, of the Company's total revenues. Additional
revenues are generated through the Company's merchandising division and its
management and booking operations, which in 1995 accounted for 5.8% and 1.8% of
revenues, respectively.
The Company's operating results have fluctuated significantly
from quarter to quarter and year to year, primarily as a result of the number of
shows or events in production, the timing and staging of productions, and the
Company's involvement in promotion as well as production in certain instances.
In addition, the season for most of the Company's theatrical productions runs
from September to June. While the Company engages in other businesses and
productions, including summer music tours, during the rest of the year, its
operating results have fluctuated significantly from quarter to quarter and year
to year, and may be expected to continue to do so in the future. Production
revenue results from the sale to local promoters of shows produced by the
Company in exchange for a guaranteed weekly fee, plus a percentage of box office
receipts and other revenue. In cases where the Company participates in the
promotion of a show it is producing, it becomes involved in the local
presentation, enhancing its opportunity for profits and exposing itself to
greater risk. In addition, the Company has derived a significant percentage of
its revenues and profits to date from one production, "The Magic of David
Copperfield." Although the percentage of revenues has decreased as the number of
the Company's other productions has increased, "David Copperfield" remains the
most significant component of the Company's earnings. This situation results in
part from the successful expansion of the "David Copperfield" production in
Europe and Asia, where the Company participates as a producer and a non-managing
promoter. With respect to its share of promotion receipts when it is the
non-managing promoter, the Company records its share of the net profits, but
does not record the corresponding revenues or expenses.
The majority of the Company's operating expenses consist of
preproduction and operating costs of its theatrical productions. Preproduction
costs include pre-opening advertising, publicity and promotions, set
construction, props, costumes, and salaries and fees paid to the cast, crew and
musicians and creative participants during rehearsals. Preproduction costs
incurred prior to the opening performance are capitalized to the balance sheet,
net of amounts received from investors. These costs are then amortized over the
guaranteed terms of the respective shows, which range from 12 to 24 months.
Operating costs are expensed as incurred. As discussed above, with respect to
revenues from promotions, when the Company participates in the promotion of a
profitable production, the managing promoter remits to the Company its share of
the net profits; accordingly, the Company's revenues are enhanced without any
charge to expenses. When the Company is the managing promoter, it records both
the associated revenues and expenses.
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<PAGE>
As is typical in the industry, the Company generally
capitalizes its shows on an individual basis through limited partnerships and
joint ventures. Of the principal Company productions discussed below, the
Company owns a 50.0% interest in "Jesus Christ Superstar," a 57.1% interest in
"Hello Dolly!," a 72.3% interest in "Man of La Mancha," a 77.9% interest in "She
Loves Me," and a 33.3% interest in "Ain't Misbehavin'." The Company includes the
accounts of the entities that own those productions in its consolidated
financial statements, because the Company exercises significant control over
their operating and financial policies. The portions not owned by the Company
are presented as minority interests in the consolidated financial statements of
the Company.
The following table sets forth the shows that the Company
either produced or co-produced in each year from 1992 through 1995:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1992 1993 1994 1995
<S> <C> <C> <C>
Phantom of the Opera Phantom of the Opera Jesus Christ Superstar Jesus Christ Superstar
David Copperfield David Copperfield Man of La Mancha Hello, Dolly!
Jesus Christ Superstar Hello, Dolly! David Copperfield
Man of La Mancha David Copperfield Nutcracker on Ice
Nutcracker on Ice She Loves Me
Ain't Misbehavin'
Total for 1992: 2 Total for 1993: 4 Total for 1994: 5 Total for 1995: 6
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Revenues increased by $4.5 million, or 16.3%, to $32.2 million in the nine
months ended September 30, 1996, from $27.7 million in the nine months ended
September 30, 1995, primarily because of increases in promotion and production
revenue as discussed below.
Revenues from production increased by $1.1 million (5.4%), to $21.8 million
in the nine months ended September 30, 1996, from $20.7 million in the nine
months ended September 30, 1995. The increase was largely a result of the
commencement of the concert productions of "The Styx/Kansas" and "The Lynryd
Skynryd/Doobie Brothers" tours in the second quarter of 1996 and an increase in
production revenues attributable to "Ain't Misbehavin" and "She Loves Me" as
compared to the corresponding period in 1995, offset in part by the reduction in
production revenues from each of "Jesus Christ Superstar," which had generated
significant production revenues in the 1995 period in connection with certain
dates played at Madison Square Garden, and "Hello Dolly!"
Promotion revenues increased by $2.7 million or 43.0%, from $4.7 million to
$7.4 million, largely as a result of the commencement of concert promotional
activity which did not exist in the prior corresponding period. During May 1996,
the Company's "Styx/Kansas" and "Lynryd Skynryd/Doobie Brothers" tours commenced
a 17 week tour. A portion of the increase was also attributable to increased
promotional revenues from David Copperfield as compared to the prior period.
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<PAGE>
Merchandising revenues remained relatively constant for the nine months
ended September 30, 1996 primarily because the Company handled the same number
of performance weeks in 1996 compared to the corresponding period in 1995. The
Company's merchandising revenue is largely dependent on the number of
productions for which it has acquired merchandising rights and to the number of
performance weeks played by such productions. The Company maintains such rights
for all its own productions and negotiates for merchandising rights to other
touring shows.
Other revenues increased by $0.7 million, or 90.7%, to $1.4 million in the
nine months ended September 30, 1996 from $0.7 million in the nine months ended
September 30, 1995 primarily as a result of a reorganizational fee of $0.6
million, $0.3 million of which was booked in the quarter ended September 30,
1996 and the remainder of which will be booked during the fourth quarter of
1996. Such reorganizational fee related primarily to the change of MPIO from
S-Corporation status to C-Corporation status and secondarily to an increase in
the number of events booked by the Company during the 1996 period as compared to
the corresponding period in 1995.
Operating expenses increased by $6.0 million, or 20.0% to $29.9 million for
the nine months ended September 30, 1996 from $23.9 million in the corresponding
period in 1995, primarily because of the commencement of the "The Styx/Kansas"
and "The Lynryd Skynryd/Doobie Brothers" tours in May 1996. The increase is also
due to the inclusion of the expenses of Movietime, which commenced operations in
May 1995, added staffing and overhead relating to the Company's change from
private to public ownership and to the hiring of additional employees in the
booking, busing and promotion divisions in anticipation of future growth. As a
percentage of revenues, operating expenses increased to 92.9% in 1996 from 86.2%
in 1995, primarily due to the inclusion of nine months of Movietime expenses
during the 1996 period and to increased costs associated with going public.
Talent and other show expenses increased $4.8 million, or 23.7%, to $24.9
million in the 1996 period from $20.1 million in the corresponding period in
1995, primarily because of the additional promoter expenses associated with the
"The Styx/Kansas" and "The Lynryd Skynryd/Doobie Brothers" tours in the 1996
period. As a percentage of revenues, talent and other show expenses increased to
77.3% for the nine months ended September 30, 1996 from 72.7% in the
corresponding period in 1995.
Salaries, wages and benefits increased by $0.6 million, or 45.0%, to $2.0
million during the nine months ended September 30, 1996 from $1.4 million during
the corresponding period in 1995 due to a non-recurring pension expense charge
of $0.1 million to close out the pension fund of one of the Constituent
Corporations and to the hiring of five additional employees in the
transportation division, two additional marketing employees, and six additional
administrative employees. As a percentage of revenues, salaries, wages and
benefits increased to 6.1% for the nine months ended September 30, 1996 from
4.9% in the corresponding period in 1995.
Cost of goods sold relates to expenses involved in the generation of
merchandising revenue, including costs of merchandise, producer, venue and
vendor commissions, and shipping and other similar costs. As a percentage of
merchandising revenue, the costs of goods sold remained relatively constant with
a slight increase from 70.3% for the nine months ended September 30, 1996 from
70.1% in the corresponding period in 1995.
General and administrative expenses increased by $0.6 million, or 48.9%, to
$1.9 million in the 1996 period from $1.3 million in the corresponding prior
period. The primary reason for the increase was the inclusion of nine months of
Movietime expenses in the 1996 period ($0.3 million) as compared to the
inclusion of four months of Movietime expenses ($65,000) in the corresponding
period of 1995, additional depreciation and repairs and maintenance on the
Company's buses, five of which were acquired in the fourth quarter of 1995. As a
percentage of revenues, general and administrative expenses increased to 6.0% in
the nine months ended September 30, 1996 from 4.7% in the corresponding period
in 1995.
The Company incurred interest expense of $0.3 million during the nine months
ended September 30, 1996 compared to $48,000 during the corresponding period of
1995. The increase was primarily due to the interest accrued on the Notes sold
in the Private Placement, borrowings under a line of credit to support the
operations of Movietime and preproduction expenses in connection with the "She
Loves Me," "The Styx/Kansas" and "The Lynryd Skynryd/Doobie Brothers" tours and
the "Deathtrap" production and secondarily to the write down of accrued interest
receivable during the period.
Minority interests decreased by $1.2 million to $0.3 million in the nine
months ended September 30, 1996, from $1.5 million in the corresponding prior
period primarily due to increased costs incurred from the production of "Jesus
Christ Superstar" and "Hello Dolly"; both of such shows were on hiatus during
most of the third quarter. During such hiatus the Company incurred expenses in
connection with such shows but realized no corresponding revenues.
As a result of the foregoing, the Company had net income of $0.7 million in
the nine months ended September 30, 1996 as compared to net income of $1.6
million in the corresponding period in 1995. The Company incurred provision for
income taxes and pro forma adjustment for income taxes of $1.1 million in the
nine months ended September 30, 1996, of which $0.4 million is attributable to
the Company's switch from S-Corporation to C-Corporation status, compared to
$1.0 million in the corresponding prior period.
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<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues increased by $9.3 million, or 27.9%, to $42.7 million
in 1995 from $33.4 million in 1994, primarily because the Company produced more
shows in 1995, including "Jesus Christ Superstar," "David Copperfield," "Hello
Dolly!," "She Loves Me" and "Ain't Misbehavin'." In 1994, the Company realized
production revenues from full seasons of "David Copperfield" and "Jesus Christ
Superstar" but only partial seasons of "Hello, Dolly!" and "Man of La Mancha."
While revenue from promotion stayed relatively constant ($6.7
million in 1995 compared to $6.3 million in 1994) as a result of the Company
promoting approximately the same number of shows in both years, production
revenue increased by $8.3 million (35.5%), from $23.3 million to $31.6 million.
The increase resulted primarily
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<PAGE>
from the addition of revenues from "Hello, Dolly!" (which opened at the end of
1994 and ran through January 1996), "She Loves Me" and "Ain't Misbehavin'" to
the existing productions of "David Copperfield" and "Jesus Christ Superstar,"
partially offset by the loss of revenues from "Man of La Mancha." Revenue from
"Hello, Dolly!" increased from $7.9 million in 1994 to $16.4 million in 1995,
which offset the reduction in revenue from "Jesus Christ Superstar" from $14.7
million in 1994 to $10.4 million in 1995.
Merchandising revenues increased by $0.2 million, or 5.8%, to
$2.5 million in 1995 from $2.3 million in 1994. In 1995, the Company provided
merchandising for eight shows, as opposed to nine shows in 1994. It was able to
increase revenue, however, by increasing the number of tour dates for David
Copperfield in 1995.
As a percentage of revenues, operating expenses decreased to
89.0% in 1995 from 90.5% in 1994, primarily because the 1995 results included
revenues, but no expenses, from promotions in which the Company was not the
managing promoter. Talent and other show running expenses increased $7.5
million, or 29.5%, to $32.9 million in 1995 from $25.4 million in 1994,
primarily as a result of the significant increase in expenses for "Hello,
Dolly!," from $7.3 million in 1994 to $14.6 million in 1995, reflecting the
increased period of operation. As a percentage of revenues, talent and other
show expenses remained relatively constant, at 77.1% in 1995 and 76.2% in 1994.
Salaries, wages and benefits increased by $.4 million, or
23.6%, to $1.9 million in 1995 from $1.5 million in 1994. The increase resulted
from additional personnel, primarily in the booking operation, and additional
personnel to oversee the "David Copperfield" tour. As a percentage of revenues,
salaries, wages and benefits decreased to 4.4% as compared to 4.6% in 1994.
As a percentage of merchandising revenue, the costs of goods
sold declined to 59.1% in 1995 from 78.0% in 1994, primarily because of a
decrease in the unit cost of the merchandise in 1995. General and other
operating expenses increased by $0.3 million, or 21.4%, to $1.7 million in 1995
from $1.4 million in 1994. The primary reason for the increase related to
increased maintenance and repairs for tour buses and additional costs associated
with the leasing of buses as compared to costs associated with Company-owned
buses purchased in 1995.
Income from investments in limited partnership productions not
produced by the Company remained stable at $0.4 million in 1995 and 1994.
The Company had net interest income of $21,045 in 1995
compared to net interest expense of $5,210 in 1994. The increase was primarily
attributable to interest earned on S-Corporation distributions advanced to
certain affiliates of the Company.
Minority interest expense was constant at $1.5 million in 1995
and 1994. In 1995, the expense related primarily to the portions of "Hello,
Dolly!," "She Loves Me," "Jesus Christ Superstar" and "Ain't Misbehavin'" not
owned by the Company. In 1994, the expenses related to such interests in "Jesus
Christ Superstar," "Hello, Dolly!" and "Man of La Mancha."
Net income increased by $1.6 million (73.1%) as a result of
the foregoing, to $3.7 million in 1995 from $2.1 million in 1994. Pro forma net
income increased by $0.9 million (73.1%) to $2.2 in 1995 from $1.3 in 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenues increased by $1.2 million, or 3.9%, to $33.4 million
in 1994 from $32.2 million in 1993, primarily because the Company produced more
shows in 1994, including "Jesus Christ Superstar," "David Copperfield," "Hello
Dolly!" and "Man of La Mancha." In 1993, the Company realized production
revenues from "David Copperfield," "Jesus Christ Superstar," "Man of La Mancha"
and "Ken Hill's Phantom of the Opera."
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<PAGE>
While revenues from production increased from $18.3 million in
1993 to $23.3 million in 1994 as a result of the Company producing more
performances in 1994, including $7.9 million in revenues from "Hello, Dolly!"
which opened at the end of 1994, promotion revenues decreased by $3.7 million
(37.4%), from $10.0 million to $6.3 million. The decrease resulted primarily
from the fact that the Company promoted a successful subscription series in
Mexico City during 1993, including "Man of La Mancha," "David Copperfield" and
"Ken Hill's Phantom of the Opera," as well as certain first-class presentations
of "Jesus Christ Superstar." During 1994, as a result of uncertainty involving
the devaluation of the peso, the Company declined to present a series in Mexico
City. It also did not recognize the same level of promotion revenues from its
ongoing presentation of "Jesus Christ Superstar" in 1994.
Merchandising revenues remained relatively constant,
decreasing by $0.1 million, or 5.0%, to $2.3 million in 1994 from $2.4 million
in 1993. The Company's merchandising revenue is largely dependent on the number
of productions for which it has acquired merchandising rights. The Company
maintains such rights for all its own productions and negotiates for
merchandising rights to other touring shows. In each of 1994 and 1993, the
Company provided merchandising for nine shows.
As a percentage of revenues, operating expenses increased to
90.5% in 1994 from 85.8% in 1993, primarily because the 1993 results included
revenues, but not expenses, from promotions in which the Company was not the
managing promoter. Talent and other show running expenses increased $2.2
million, or 9.4%, to $25.5 million in 1994 from $23.3 million in 1993, primarily
as a result of the inclusion of expenses for "Hello, Dolly!" of $7.3 million in
1994, reflecting its opening in late 1994. For the same primary reason, talent
and other show expenses as a percentage of revenues increased from 72.3% in 1993
to 76.2% in 1994. The increase also reflected production costs related to "Hello
Dolly!" in 1994.
Salaries, wages and benefits increased by $0.2 million, or
14.7%, to $1.5 million in 1994 from $1.3 million in 1993. The increase resulted
from additional personnel. As a percentage of revenues, salaries, wages and
benefits increased slightly to 4.6% in 1994 from 4.1% in 1993.
As a percentage of merchandising revenues, the costs of goods
sold increased slightly to 78.0% in 1994 from 75.6% in 1993. General and other
operating expenses increased by $0.3 million, or 23.7%, to $1.4 million in 1994
from $1.1 million in 1993.
Expenses in respect of minority interests decreased from $1.8
million in 1993 to $1.5 million in 1994. In 1993, the additional expense related
primarily to the significant portions of "Jesus Christ Superstar" not owned by
the Company in light of the significant contribution of that production to
profits for that year. In 1994, the expenses related to such interests in "Jesus
Christ Superstar," "Hello, Dolly!" and "Man of La Mancha."
As a result of the foregoing, net income decreased by $0.9
million (29.5%) to $2.1 million in 1994 from $3.0 million in 1993. Pro forma net
income decreased by $0.5 million (29.5%) to $1.3 million in 1994 from $1.8
million in 1993.
LIQUIDITY AND SOURCES OF CAPITAL
At September 30, 1996, the Company had working capital of $6.2 million
compared to $0.4 million at December 31, 1995. Since inception, the Company has
financed its operations primarily through borrowings and cash flow from
operations. During the third quarter of 1996, the Company received net proceeds
of $9.2 million from the sale of the Units in the Private Placement. See
"Description of Securities -- Notes."
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<PAGE>
During 1996, the Company made S-Corporation distributions aggregating
$2,600,052, as compared to $3,816,129 in 1995, to the stockholders of the
Constituent Corporations. On July 29, 1996, the Company converted its corporate
income tax status from S-Corporation to C-Corporation. No further S Corporation
distributions will be made.
The Company has two lines of credit and other short-term borrowings which are
payable on demand (the "Credit Lines"). The Credit Lines provide for short-term
borrowings of up to $1.6 million in the aggregate, with interest ranging from
prime plus 3/4% to prime plus 1%. The Credit Lines are collateralized by
substantially all of the Company's assets and are guaranteed by certain
executive officers to the Company. At September 30, 1996, no amount was
outstanding under the Credit Lines and the full amount thereof was available for
borrowing. The Company's remaining indebtedness consists of $0.9 million,
collateralized by buses used in the Company's business and $5.2 million of
Notes sold in the Private Placement.
The Company's principal anticipated capital expenditures over the next
several years will relate to investments in equipment for Movietime,
acquisitions, if suitable opportunities arise, and the production of additional
theatrical productions.
Net cash provided by operating activities decreased in 1995 to $3.3 million
as compared to $4.1 million and $6.0 million in 1994 and 1993, respectively. The
decrease in net cash provided by operating activities in 1995 related primarily
to a decrease in accounts payable and an increase in accounts receivable,
partially offset by a reduction in the increase in preproduction costs. The
decrease in net cash provided by operating activities in 1994 related primarily
to a substantial increase in preproduction costs during the period relating
primarily to "Hello Doly!" offset in part by an increase in accounts payable.
Net cash used by investing activities totaled $1.4 million in 1995, $0.4
million in 1994 and in 1995 $0.6 million in 1993. The increase in cash used in
investing activities related primarily to the purchase of tour buses. The
decrease in cash used in investing activities in 1994 related primarily to
investments relating to the Company's management agreement with the City of
North Miami.
The Company received net proceeds from the Private Placement of approximately
$9,250,000 after deduction of all fees and expenses associated therewith. Such
net proceeds have been and will be used by the Company for investment in
theatrical productions, expansion of venue operations, repayment of
indebtedness, product development and implementation in connection with
merchandising operations, the expansion of the business of, and the purchase of
equipment for, Movietime and general working capital purposes, including
potential acquisitions.
CHANGE IN ACCOUNTANTS
In November 1996, the Company's Board of Directors replaced Ernst & Young,
LLP, certified public accountants ("Ernst & Young"), with Arthur Andersen & Co.
as its independent auditor. The report of Ernst & Young on the financial
statements of the Company as of and for the year ended December 31, 1995
contained no adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principle and there were
no disagreements with Ernst & Young on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure which,
if not resolved to the satisfaction of Ernst & Young, would have caused it to
make reference thereto in its report on the Company's consolidated financial
statements for such year.
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<PAGE>
BUSINESS
GENERAL
The Company acquires domestic and international stage and
ancillary rights to theatrical productions, produces and promotes live
entertainment, manages and books performances and shows, and merchandises a
broad range of products associated with its productions and performers. Prior to
1992, the Company focused primarily on, and generated the majority of its
revenue from, the worldwide production of "The Magic of David Copperfield," as
well as its management and booking agency and merchandising businesses, and was
not involved in other large scale productions. In 1992, the Company began to act
regularly as producer and co-producer in cases in which the Company determined,
based on the responses to its booking inquiries, that the demand for a
production was strong. In some cases, the Company also obtained additional
rights associated with the show, such as the ability to present the show in
certain venues.
In keeping with its strategy to further broaden its own
business by acquiring entertainment related businesses, on August 28, 1996, the
Company acquired all of the issued and outstanding capital stock of Movietime.
Movietime has developed and implemented an interactive telecommunications
service that provides digital telephone delivery systems to movie theaters.
GROWTH STRATEGY
The Company has recently experienced significant growth,
primarily as a result of the success of its productions as well as its continued
diversification. The Company's strategy has been to integrate the financing,
production, booking and ancillary exploitation of live entertainment. The
Company believes that its integrated approach enables it to exercise control
over the significant aspects of its productions--theater management, theatrical
production and promotion, marketing and merchandising.
The Company believes that the touring live entertainment
industry is a high-growth industry. The Company seeks to acquire touring rights
for well-established, popular musicals. The Company's strategy is to use its
management and booking division to determine the demand for live entertainment
productions prior to financing such productions. The Company plans to exploit
its experience and contacts with performers, venues, presenters and sponsors by
expanding its operations, as opportunities arise, in the areas of sports,
management speakers bureaus, fashion management, corporate sponsorship, music,
movies and television. The Company believes that its relationships in the
entertainment industry will facilitate its expansion into other areas,
particularly with respect to facility management, production and presentation
opportunities.
The Company also perceives an opportunity to grow through
acquisitions of regional, national and international entertainment producers and
presenters and related businesses. Consistent with its growth strategy, the
Company will also seek to expand its operations, as opportunities arise, by
acquiring local and regional companies with market niches in the entertainment
industry. The Company believes that there are significant acquisition
opportunities available due to the highly fragmented nature of the live
entertainment industry.
THE THEATRICAL PRODUCTION BUSINESS
The development and production of musical stage productions
requires a substantial investment of time and capital. A period of one to 24
months typically elapses between the time a producer acquires the theatrical
stage rights and the date on which the production is first performed before the
public. The production budgets for the Company's major touring musical
productions, including pre-opening advertising costs, typically range from
approximately $1 million to $3 million, depending on the nature of the
production. By comparison, dramatic
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<PAGE>
productions, musical acts and one-person shows generally have smaller production
budgets, shorter preproduction periods and lower operating costs, and tend to
occupy smaller theaters for shorter runs.
Initially, the producer acquires the theatrical stage rights
in a musical work created by a composer, lyricist and book writer (collectively
the "Authors"). In consideration for these rights, the Authors typically receive
royalties calculated as a percentage of box office receipts and occasionally a
share of production profits. The producer then assembles all of the elements
necessary to mount the production, first engaging a director. The producer and
director, in collaboration with the Authors, select other key creative personnel
who are then engaged by the producer. The contractual arrangements with key
creative personnel (other than principal performers except in rare
circumstances) usually include royalties and, less commonly, production profit
participation.
Following auditions, performers are customarily engaged by
negotiations with talent agents. During a production's preproduction phase, the
producers arrange for or coordinate set construction, costume preparation,
lighting and sound equipment (leased or purchased), rehearsal and theater
bookings and generally develop the production to the point where it is ready to
be performed before an audience. Well in advance of the opening, the producer
develops and begins to execute a marketing plan for the production.
A producer typically finances a theatrical production at least
in part with project financing from third parties. A limited partnership or
joint venture often is created for that purpose, with the limited partners or
joint venturers investing funds to defray the production costs in order to earn
a negotiated portion of any production profits. Limited partnerships and joint
ventures are common in the theater and motion picture industries and enable
producers to limit risk and conserve working capital for other productions.
Investors in limited partnerships frequently bear substantially all of the
financial risk associated with a production and typically receive approximately
50% of the profits, if any, after their initial investment is recouped.
Expenses of developing a production that are incurred prior to
the first performance of that production are usually described as preproduction
costs or production costs. Preproduction costs include expenses for pre-opening
advertising, publicity and promotions, set construction, props, costumes, and
salaries and fees paid to the cast, crew, musicians and other creative personnel
during rehearsals. In the case of a touring production, preproduction costs also
include all expenses associated with moving the production from venue to venue.
Expenses incurred after a production's first performance are
termed operating costs or running costs. Operating costs include post-opening
advertising, publicity and promotions, salaries of the cast, crew and musicians,
equipment rental, theater rental, royalties payable to creative personnel and,
after the recovery of all production costs, third-party profit participation, if
any.
For touring productions presented in a series of venues, the
allocation between preproduction costs and operating costs is more complicated.
For example, for a production that is to tour in four cities, advertising
expenses incurred after the first performance in the first city may be operating
costs (if incurred in the first city) or preproduction costs (if incurred in any
of the other cities before the first performance in that city). Similarly,
moving costs typically are accounted for as preproduction costs. As a result,
unrecouped preproduction costs of a touring production may fluctuate upward,
even if the tour is generating operating profits, depending upon the levels of
advertising, moving and other costs incurred during the tour.
A production's revenues are only recognized as each
performance is presented. While tickets are usually sold well in advance of the
performance date, the revenue from each advance ticket is offset by the
potential liability that may arise if the performance is not presented and the
ticket price must be refunded. The arrangements for investing advance box office
receipts and the allocation of interest earned on those funds prior to the
performance by which such funds have been generated are often complex and the
subject of negotiations among the producer, the theater owner or manager, and
any ticket-selling agency engaged for the particular production.
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<PAGE>
Royalties payable to the Authors, to creative production
personnel and to producers are generally calculated as a percentage (typically
8% to 16% in total) of box office receipts (gross ticket sales revenues, net
only of taxes, credit card charges and other agreed deductions). Alternatively,
Authors and creative talent can be remunerated on a profit pool basis whereby
they receive an agreed percentage of weekly operating profits (box office
receipts net of operating costs).
The point at which aggregate operating profits from the
production are equivalent to the preproduction costs is called recoupment and
operating profits earned by the production thereafter are called production
profits. Some royalty arrangements provide that recoupment triggers an increase
in the percentage of royalties to which creative personnel are entitled. Of
course, for an unsuccessful production recoupment may not occur.
THE COMPANY'S THEATRICAL AND CONCERT PRODUCTIONS
GENERAL
After the Company or one of its co-producers acquires the
right to produce a show, typically by paying a fee to the owner of the rights to
the show, the Company secures written offers from local presenters who guarantee
the Company minimum levels of weekly revenues. When the Company has secured
enough guaranteed contracts, it then finances the show. As is typical in the
industry, the Company finances its shows on an individual basis by selling
limited partnership interests to investors who assume much of the financial risk
associated with the show. The Company acts as general partner and attempts to
solicit as limited partners entities that will have a stake in the success of
the show, such as presenters and theater owners, as well as other investors. In
addition, the Company itself will occasionally have a limited partnership
interest in its productions, thereby assuming a greater portion of the risk
itself. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- General."
Since 1992, the Company has acted as producer or co-producer
for seven major productions in addition to "The Magic of David Copperfield:" the
national tour of "Jesus Christ Superstar," by Andrew Lloyd Webber and Tim Rice,
"Man of La Mancha," "Hello, Dolly!" starring Carol Channing, "South Pacific"
starring Robert Goulet, "Nutcracker on Ice" starring Olympic gold medal figure
skater Oksana Baiul (as well as Olympic figure skaters Brian Boitano and Viktor
Petrenko), "The Pointer Sisters Ain't Misbehavin'" and "She Loves Me." In the
year ended December 31, 1995, the Company produced or co-produced five
productions: "Jesus Christ Superstar," by Andrew Lloyd Webber and Tim Rice, "The
Magic of David Copperfield," "She Loves Me," "Hello, Dolly!" and "Nutcracker on
Ice." The Company currently is producing or has the rights to produce six
additional productions: "Deathtrap," "A Chorus Line," "Gershwin on Ice," "The
Pointer Sisters Ain't Misbehavin'," a concert tour of Styx together with Lynyrd
Skynyrd and "The Hunchback of Notre Dame."
The Company's revenues from its production activities have
increased significantly, from $18.2 million in the year ended December 31, 1993
to $31.6 million in the year ended December 31, 1995. For the years ended
December 31, 1994 and 1995, production activities accounted for approximately
69.9% and 74.0%, respectively, of the Company's revenues.
MAJOR PRODUCTIONS
The following is a summary discussion of the major productions
that the Company is currently producing or co-producing:
"JESUS CHRIST SUPERSTAR"
Since the opening of the Company's production of "Jesus Christ
Superstar" by Andrew Lloyd Webber and Tim Rice in December 1992, the tour has
generated revenues for the Company in excess of $75.5 million. Total
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pre-production costs for this show were approximately $1.1 million, of which the
Company's total capital investment was approximately $0.5 million. The
production stars Ted Neeley and Carl Anderson, the original stars from the
motion picture, and is currently booked through February 1997.
"DAVID COPPERFIELD"
"The Magic of David Copperfield" has been produced by the
Company on a continuous basis since 1982, and is presently booked through 1997.
The Company's contract with David Copperfield runs through December 1999.
"HELLO, DOLLY!"
The Company launched a tour of "Hello, Dolly!" starring Carol
Channing, in July 1994. The show is expected to tour the United States through
the middle of 1997 and to date has generated ticket sales in excess of $35.0
million. Total preproduction costs for this show were approximately $2.5
million, of which the Company's total capital investment was approximately $1.0
million.
"AIN'T MISBEHAVIN'"
The Company co-owns the North American touring rights for
"Ain't Misbehavin'" formerly starring the Pointer Sisters and currently starring
Martha Reeves and the Vandellas. The show opened in September 1995 and is
scheduled to run through February 1997 after which time the Company expects to
restage the show to tour smaller markets. To date the show has generated
revenues of $7.0 million for the Company. Total preproduction costs for this
show were approximately $1.2 million, of which the Company's total capital
investment was approximately $0.4 million.
"DEATHTRAP"
The Company is currently co-producing a revival of
"Deathtrap," Ira Levin's comedy thriller, and one of the longest running
non-musical plays in Broadway history. The Company's revival, which stars
Elliott Gould and Mariette Hartley, is the first major touring revival of this
show. Preproduction costs associated with this show were approximately $0.8
million, of which the Company's total capital investment aggregated
approximately $0.5 million. The show's tour commenced in September 1996.
"SINGIN' IN THE RAIN"
The Company expects to co-produce a touring production of
"Singin' in the Rain," which is based on the movie of the same name. This stage
production will feature the original Comden and Green book and is expected to
include all of the song-and-dance numbers associated with the cinematic
production, such as SINGIN' IN THE RAIN. Preproduction costs associated with
this show are expected to aggregate approximately $0.4 million, of which the
Company's total capital investment is expected to aggregate approximately $0.2
million. The Company anticipates that the show's tour will commence in January
1997 and has generated approximately 20 weeks in guaranteed bookings to date.
"GERSHWIN ON ICE"
The Company expects to co-produce "Gershwin on Ice," a tribute
celebrating the music of George and Ira Gershwin. The production features 26
Gershwin classics, including RHAPSODY IN BLUE, AN AMERICAN IN PARIS and SOMEONE
TO WATCH OVER ME, as well as a cast of thirteen Olympic, World and National
Champion skaters, and was conceived to combine grace and athleticism, music and
dance, art and sport. The tour is expected to feature some of the most
recognizable names in professional figure skating, including Dorothy Hamill and
Nancy Kerrigan.
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Preproduction costs associated with this show are expected to
aggregate approximately $0.3 million, of which the Company's total capital
investment is expected to aggregate approximately $0.1 million. The Company
anticipates that the show's tour will commence in January 1997.
"THE HUNCHBACK OF NOTRE DAME"
The Company expects to co-produce this new musical which is
based on Victor Hugo's classic novel of the same name. The Company's production
was written by Dennis DeYoung (the lead singer and songwriter of Styx). The show
is currently in the workshop stage and is expected to be ready for production in
1997. Preproduction costs associated with this show are expected to aggregate
approximately $3.0 million, of which the Company's total capital investment is
expected to aggregate approximately $1.5 million. The Company anticipates that
the show's tour will commence in September 1997.
VARIETY SERIES
The Company is currently co-producing a variety series in
Chicago, Illinois. The series is expected to feature performances by such
artists as Wayne Newton, Barry Manilow, the Righteous Brothers, Mannheim
Steamroller Christmas Show and David Copperfield.
SUMMER MUSIC TOURS
The Company has recently completed co-producing two major
summer tours in 1996, the first of which was: a 65-city summer tour of the
musical group Styx, and which featured all of the band's original members
(headed by singer/songwriter Dennis DeYoung), together with Kansas, and the
second of which was a coast-to-coast amphitheater tour featuring Lynyrd Skynyrd
together with the Doobie Brothers. The Company's total capital investment in
these shows aggregated approximately $0.4 million and $0.3 million,
respectively.
MANAGEMENT AND BOOKING
The Company acts as the management and booking agent for a
variety of live entertainment events. As management and booking agent, the
Company is retained by producers to arrange bookings for the tours of various
theatrical presentations, musical acts and one person shows. The Company then
markets the productions to presenters throughout the world, and is paid a fixed
fee or a percentage of proceeds, without investing any of its own capital. The
Company currently acts as exclusive management and booking agent for over 23
shows, including "Three Tall Women," "She Loves Me" and the national touring
company of "A Chorus Line;" musical acts such as the Newport Jazz All-Stars and
the Preservation Hall Jazz Band; and one-person shows such as Hal Holbrook in
"Mark Twain Tonight," James Whitmore in "Will Rogers USA," Amanda Plummer in
"The Belle of Amherst," Kevin McCarthy in "Give 'Em Hell Harry!" and comedian
George Carlin. In addition, the Company's booking division has recently signed
an exclusive agreement to represent the new musical "Big," which is now playing
on Broadway, for all touring bookings in the U.S. and Canada except for New
York, Los Angeles and Toronto.
The Company's revenues from its management and booking
activities have increased from $0.5 million in the year ended December 31, 1992
to $1.2 million in the year ended December 31, 1995. In 1992, the Company
successfully booked and managed "Jesus Christ Superstar" by Andrew Lloyd Webber
and Tim Rice. This success was followed by the Company's booking of "Hello
Dolly!" starring Carol Channing in 1994 and "She Loves Me" and "The Pointer
Sisters Ain't Misbehavin'" in 1995. The Company is currently acting as exclusive
booking agent for "Blue Suede Shoes." As a result of these and other successes
of its booking and management activities, the Company believes it has become a
significant factor in the industry in bringing first class touring Broadway
shows to secondary U.S. and major foreign markets. The management and booking
division continues to book the Company's touring production of "Jesus Christ
Superstar" and has generated $2.0 million in guaranteed bookings for the "Hello,
Dolly!" tour. The Company has continued to book long-term clients such as David
Copperfield and
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Hal Holbrook and the Company's management and booking division has continued to
expand the Company's international booking power by booking profitable tours
overseas. The management and booking division generated booking guarantees for
its clients aggregating in excess of $27.0 million in 1995.
VENUE OPERATIONS
The Company is involved in the operation, management and
development of venues for the presentation of a wide variety of live
entertainment. The Company believes that its relationships in the entertainment
industry will facilitate the expansion of its venue operations. As part of its
growth strategy, the Company intends to continue to expand its venue operations.
NORTH MIAMI PERFORMING ARTS AMPHITHEATER
The Company has a long term management contract with the City
of North Miami, Florida to develop, construct, manage and operate the City's
proposed $2.0 million Amphitheater. The project is planned to be constructed on
Biscayne Bay, 15 miles south of Fort Lauderdale and 15 miles north of downtown
Miami. The project is currently in the permitting stage, and in addition to
permitting, is subject to substantial contingencies relating to environmental
concerns.
With a planned open air capacity in excess of 25,000 people
and an under-roof capacity ranging from 3,000 to 15,000 people, the facility is
expected to be capable of accommodating at least one million people per year. If
construction were to begin and proceed on schedule, the facility would be
expected to open during 1998; however, construction has been delayed as a result
of the inability of the City to obtain certain permits and, consequently, the
Company is unable to predict when construction will commence.
The 30-year term of the Company's management contract with the
City of North Miami will commence on the date of occupancy. Pursuant to the
agreement, the Company has agreed to pay to the City: (i) an annual minimum
return of $0.2 million, which amount will be adjusted annually to reflect
changes in the consumer price index but will not exceed $0.5 million per annum,
(ii) a use fee charge equal to 5% of revenues from box office ticket sales for
productions presented at the facility and (iii) 5% of the gross revenues
received by the Company from concessions and parking. In addition, the Company
has agreed to remit a refundable deposit to the City in the sum of $1.5 million
(upon the receipt of all governmental approvals required for construction of the
facility and approval of a financing package acceptable to the Company), to be
applied toward the payment of construction, operation and monitoring costs
related to the facility.
In November, 1996, the Company received a notice of default from the City of
North Miami relating to the Company's management contract with the City. The
Company does not believe that it is in default under the management contract and
intends to preserve its rights under the contract by appropriate action,
including the possible commencement of an arbitration proceeding, an action for
declaratory judgment, and, if appropriate, an action for damages or other
available remedies.
BUCKEYE LAKE AMPHITHEATER
The Company has a long-term oral agreement to manage and book
the Buckeye Lake Amphitheater, an outdoor facility located in Columbus, Ohio.
The facility accommodates over 50,000 people and is designed to handle
large-scale rock music productions. In 1996, the facility booked, among other
events, Jimmy Buffet's Margaritaville show. In addition, the Company owns an
option to buy 40% of the equity in the real estate and facilities that comprise
the Buckeye Lake Amphitheater. The Company intends to invest approximately
$500,000 in this facility to modernize its staging area and to refurbish certain
of its common areas.
TRANSPORTATION
The Company owns ten custom-built sleeper tour buses which it
leases to touring productions under long and short term contracts for use in
transporting entertainers and crews during a show's tour. In addition, the
Company leases various show related equipment to touring productions (i.e.,
sound systems, rigging and musical equipment). The Company has serviced all of
the tours of its own production tours of "The Magic of David Copperfield,"
"Jesus Christ Superstar" as well as others, with a variety of rentals.
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MERCHANDISING AND CONCESSIONS
The Company offers merchandise in connection with most of the
productions with which it is involved as a producer and/or a promoter, and also
in connection with certain other productions on a contract basis. The Company
merchandises cast recordings, videos, t-shirts and other memorabilia related to
a given show or client. The Company also sells food and beverages at its venues.
The Company's merchandising and concession clients in 1995 included tours of
"Fiddler on the Roof," "Hello, Dolly!," "Stomp," "A Chorus Line," "Carousel,"
"Tap Dogs," "Funny Girl", "Applause," "Kerri Strug's U.S. Gymnastics Tour,"
"Ain't Misbehavin'," "The Magic of David Copperfield" and "Jesus Christ
Superstar." In addition, the Company expects to acquire the merchandising rights
to an upcoming tour of "Annie."
ADVERTISING, MARKETING AND SPONSORSHIPS
The Company's marketing, promotion and sponsorship division
oversees diverse production projects for the Company. The division is
responsible for advertising and promotion of the Company's various productions.
Every television spot, radio spot and print advertisement relating to the
Company's productions is produced under the supervision of the Company's
in-house marketing staff. Sales figures are monitored on a daily basis so that
any marketing mix changes necessary for a production are made promptly.
In 1995, the advertising division oversaw the marketing of
such diverse events as a Jimmy Buffet Margaritaville concert, the Akron Rib and
Music Festival, "Jesus Christ Superstar" and "The Magic of David Copperfield."
MOVIETIME
On August 28, 1996, the Company comsummated the Movietime
Acquisition. Movietime has developed and implemented an interactive
telecommunications service called "MovieTime" that provides digital telephone
delivery systems to movie theaters. Movietime's digital-based delivery system
replaces the analog recording machines now in use at many movie theaters with an
interactive digital voicemail system that provides customized, site specific,
theater information such as show times, ticket prices, location and travel
directions.
The Company believes that the MovieTime system enables a
theater to increase ticket sales through improved customer service by
significantly increasing the number of telephone calls able to reach the theater
simultaneously.
In connection with its MovieTime service, Movietime enters
into contracts with theaters, pursuant to which it currently receives minimal or
no service charges, and sells advertising time on the opening announcement of
the recorded message. Although the Company anticipates that such sale of
advertising time will be the primary source of revenue to be derived from the
MovieTime service, the Company believes that additional revenues can be
generated through related services, such as advance ticketing and database
sales. Movietime has generated only minimal revenues to date.
To date, Movietime has entered into service agreements for its
MovieTime service with four major theater chains: Cineplex Odeon, Pacific
Theaters, Sony Theaters and United Artists. In addition, it is in active
negotiations with over 40 independent theaters to provide such service.
Movietime's digital network is presently utilized at 60 theaters in nine major
markets and has systems in place for operation in an additional 17 markets.
The Company believes that there may be significant
opportunities for Movietime's interactive telemedia network. The Company intends
to pursue a strategy of growth and will seek to penetrate new geographic markets
and expand the range of its services. The Company intends to commence a rollout
of its network to approximately 200 theaters by February 1997.
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COMPETITION
The Company competes with a wide range of other entertainment
alternatives, including movies, theatrical presentations, sporting events,
concerts, and others. Within its own industry segment, the Company competes with
other producers and other booking agencies for attractive theatrical properties
and artistic talent.
The Company's merchandising division services the
merchandising needs of the in-house productions, venues and clients represented
by the Company, but competes for contracts for other productions with a number
of other companies.
The Company believes that there is currently only one other
company, MovieFone, offering services similar to Movietime's MovieTime service.
Like Movietime, MovieFone provides information regarding show times and sells
advertising time on the recorded message. MovieFone's service differs in that it
serves all theaters in each of its markets with only one central phone number,
whereas Movietime's service is theater specific.
PROPERTIES
The Company's principal executive offices are located in
approximately 2,700 square feet of leased office space in Miami Beach, Florida.
The Company leases such space from a corporation owned by Messrs. Krassner and
Marsh, the Company's Co-Chairman of the Board and Chief Executive Officer and
Co-Chairman of the Board, respectively, pursuant to a lease that expires in 2001
and which provides for an annual rent of $39,000. The Company also leases
approximately 3,500 square feet of office space in Aurora, Ohio pursuant to a
lease expiring in November 2002. The Company leases such space from Lee
Marshall, the Company's President and Chief Operating Officer, for an annual
rent of approximately $41,000. See "Certain Transactions."
EMPLOYEES
As of November 30, 1996, the Company employed 56 full time
employees, including 15 employees engaged in production activities, 11 employees
engaged in booking activities, 11 in the transportation and leasing division and
19 engaged in general and administrative capacities. The Company employs
additional personnel as needed on a production-by-production basis.
LEGAL PROCEEDINGS
An arbitration proceeding (the "Statement of Claim") has been
instituted by Diamond Bullet Corporation, an affiliate of the Company ("DBC"),
against Robert L. Ferman ("Ferman"), a former financial advisor to certain of
the Constituent Corporations. DBC's claim is for rescission, fraud and breach of
fiduciary duty in connection with a consulting agreement (the "Consulting
Agreement") under which DBC agreed to pay Ferman a monthly retainer fee of
$2,500 and an equity position in DBC in the event that Ferman was successful in
locating an acceptable underwriter for a proposed initial public offering of the
securities of the Company or its affiliates. The proceeding originated as a
state court action between DBC and Ferman. That claim sought the enforcement of
a settlement agreement reached by the Company and Ferman pursuant to which DBC
agreed to pay a monthly retainer fee of $2,500 and $200,000 in the event DBC or
its affiliates were successful in consummating a public offering of any of their
securities. Ferman has responded to the Statement of Claim by filing an answer,
affirmative defenses and counterclaim (the "Answer"). Ferman's counterclaim
seeks damages for fraud in the inducement, anticipatory breach of contract and
malicious prosecution. After DBC responded to the Answer, Ferman amended his
counterclaim to seek damages relating to the Private Placement. DBC has denied
all such claims. The Company intends to seek to recover all compensation paid to
Ferman and to rescind the Consulting Agreement due to, among other things,
Ferman's failure to be properly licensed and his failure to disclose to DBC past
NASD administrative proceedings against him which resulted in his suspension
from securities trading. Ferman's claims are believed by
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the Company to approximate $1.0 million. The Company intends to vigorously
defend Ferman's counterclaim and to pursue its arbitration proceeding.
In October 1994, a former independent contractor filed a
complaint against the limited partnership that produces "Jesus Christ Superstar"
in the Common Pleas Court of Philadelphia County seeking consequential damages
of $5,000,000 arising from the termination of an employment contract by such
limited partnership. A court date has not been set. Management believes, based
on the advice of counsel, that the lawsuit is without merit, and that the
outcome of this suit will not have a material adverse effect on its financial
condition or results of operations.
In November, 1996, the Company received a notice of default from the City of
North Miami relating to the Company's management contract with the City. The
Company does not believe that it is in default under the management contract and
intends to preserve its rights under the contract by appropriate action,
including the possible commencement of an arbitration proceeding, an action for
declaratory judgment, and, if appropriate, an action for damages or other
available remedies.
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MANAGEMENT
The directors, executive officers and key employees of the
Company are as follows:
NAME AGE POSITION
- ---------------------- --- ------------------------------------------------
Brad Krassner......... 44 Co-Chairman of the Board and Chief
Executive Officer
Joe Marsh............. 43 Co-Chairman of the Board
Lee Marshall.......... 39 President, Chief Operating Officer and
Director
Steven Chaby.......... 30 Chief Financial Officer
H. Yale Gutnick....... 54 Director
Glenn Bechdel......... 52 Vice President, Magic Promotions
Larry Turk............ 49 President and Chief Operating Officer,
Diamond Bullet Merchandising
Michel Vega........... 29 President, Touring Artists Group
Ronald J. Korn........ 56 Director
BRAD KRASSNER founded or co-founded certain of the Constituent
Corporations and has been the Company's Co-Chairman of the Board and Chief
Executive Officer since the consummation of the Merger. Mr. Krassner has had a
diversified career in the production, promotion, marketing and merchandising of
live entertainment. He has been in the entertainment business since 1974, when
he was employed by the marketing department of Ringling Brothers Barnum & Bailey
Circus. Over the past 20 years, Mr. Krassner has produced and/or presented a
variety of touring shows, including "Ice Capades," "Moscow Circus," "Swatch
Watch NYC Fresh Festival" and "The Kool Jazz Festivals." Mr. Krassner is
responsible for all of the Company's strategic planning and development and
oversees corporate expansion activities.
JOE MARSH founded or co-founded certain of the Constituent
Corporations and has been the Company's Co-Chairman of the Board since the
consummation of the Merger. Mr. Marsh has been the president of Magic
Promotions, Inc. since 1988, and is primarily responsible for the production of
the tour of "The Magic of David Copperfield." He also oversees the theatrical
division, which includes such shows as "Hello, Dolly!" starring Carol Channing,
"Jesus Christ Superstar," "Man of La Mancha," "Ken Hill's The Phantom of the
Opera," "South Pacific" starring Robert Goulet and "Elvis, a Musical
Celebration."
LEE MARSHALL founded or co-founded certain of the Constituent
Corporations and has been the Company's President, Chief Operating Officer and a
director since the consummation of the Merger. Mr. Marshall is responsible for
the day-to-day operations of Magic Promotions, Inc., the Company's theatrical
production division. He is responsible for supervision of the production and
promotion of such shows as "Hello, Dolly!" starring Carol Channing, "Jesus
Christ Superstar," "Man of La Mancha," "Ken Hill's The Phantom of the Opera,"
"South Pacific" starring Robert Goulet and "Elvis, a Musical Celebration." Mr.
Marshall also oversees the Company's booking agency division. Mr. Marshall has
also served as the secretary and treasurer of Magic Promotions since 1984, and
has been the president of Touring Artists Group since 1992.
STEVEN CHABY has been Chief Financial Officer and Treasurer of
MEI since May 1996 and has held the same positions with the Company since the
consummation of the Merger. Mr. Chaby is a certified public accountant in the
State of Florida. From 1994 to 1996, Mr. Chaby was an accountant with Ernst &
Young/Kenneth Leventhal Real Estate
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Group LLP, certified public accountants, in Miami, Florida. From 1991 to 1994,
Mr. Chaby worked as an accountant with the certified public accounting firm of
James and Surman in Boca Raton, Florida.
H. YALE GUTNICK has been a director of MEI since May 1996 and
has held the same position with the Company since the consummation of the
Merger. Mr. Gutnick is the senior shareholder/member of the law firm of
Strassburger McKenna Gutnick & Potter, which has offices in Pittsburgh,
Pennsylvania and Greensburg, Pennsylvania. Mr. Gutnick graduated with honors
from Ohio Wesleyan University in 1964 and from the University of Pittsburgh Law
School in 1967. He began his legal career in the Honors Program with the United
States Department of Justice in Washington, D.C., where he was a trial and
appellate lawyer from 1967 through 1969, when he entered private practice in
Pittsburgh, Pennsylvania. In the 25 years he has been in private practice, Mr.
Gutnick has specialized in complex civil and criminal litigation and
entertainment and media law.
RONALD J. KORN, has been a director of the Company since
September 1996. Since July 1991, Mr. Korn has served as President of Ronald Korn
Consulting, a business consulting firm, and as Chairman of the Board of Carole
Korn Interiors, Inc., an interior design firm. From 1961 to 1991, Mr. Korn was a
partner with the certified public accounting firm of KPMG Peat Marwick,
including six years in which Mr. Korn served as Managing Partner of KPMG Peat
Marwick's Miami, Florida office. Mr. Korn serves as a director of Engle Homes,
Inc. and Vacation Break U.S.A., Inc., the common stock of each of which is
publicly traded.
GLENN BECHDEL, Vice President of Magic Promotions, has been an
officer of certain of the Constituent Corporations since 1983. Mr. Bechdel's
primary responsibility since co-founding Magic Promotions in 1983 has been to
act as operations officer of the transportation and merchandising division of
such corporation. Throughout his 13 years with the Company, Mr. Bechdel has been
active in all Company business and productions such as "The Magic of David
Copperfield," "Elvis, a Musical Celebration," "Jesus Christ Superstar," and
"South Pacific," among others.
LARRY TURK, the President and Chief Operating Officer of
Diamond Bullet Merchandising, has been an officer of DBM since 1988, acting from
1988-1993 as the Vice President and Chief Operating Officer of such Constituent
Corporations, and since that date in the offices he now holds.
MICHEL VEGA, the President of the Touring Artists Group, has
been an officer of TAGO since March 1992. Mr. Vega has also served as Vice
President and Senior Vice President of such Constituent Corporations. Prior to
joining the Company, Mr. Vega was the tour director for NAMCO Booking, a
theatrical booking agency.
The Company's officers are elected annually by the Board of
Directors and serve at the discretion of the Board. The Company's directors hold
office until the next annual meeting of shareholders and until their successors
have been duly elected and qualified. The Company will reimburse all directors
for their expenses in connection with their activities as directors of the
Company. Directors of the Company who are not employees also receive stipend of
$2,000 per meeting of the Board of Directors or of any Committee thereof upon
which such director sits and a grant of an option to purchase 2,000 shares of
Common Stock upon election as a director, and an option to purchase 2,000 shares
of Common Stock upon re-election as a director, under the Directors' Stock
Option Plan. All such options are required to have an exercise price equal to
not less than the fair market value of the Common Stock at the date of grant.
Directors of the Company who are also employees of the Company do not receive
additional compensation for their services as directors.
The Company maintains a audit committee and a compensation committee each of
which is composed of Messrs. Gutnick and Korn.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or
accrued by the Company, for services rendered during 1995 to the Company's Chief
Executive Officer and each of the Company's other executive officers whose total
1995 salary and bonus exceeded $100,000 (collectively the "Named Officers"). The
Company did not grant any stock awards or stock appreciation rights in 1995.
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION COMPENSATION(1)(2)
- -------------------------------------------------- -------- --------- ------------ ------------------
<S> <C> <C> <C> <C>
Brad Krassner..................................... -0- ___ ___ $ 471,000
Chief Executive Officer and Co-Chairman of
the Board
Joe Marsh......................................... $300,000 ___ ___ $2,081,057
Co-Chairman of the Board
Lee Marshall...................................... $130,000 ___ ___ $ 760,044
President and Chief Operating Officer
Glenn Bechdel..................................... $130,000 ___ ___ $ 701,839
Vice President, Magic Promotions, Inc.
Michel Vega....................................... $104,000 ___ ___ $ 38,905
President, Touring Artists Group, Inc.
</TABLE>
- -----------------------------
(1) The aggregate amount of perquisites and other personal benefits provided
to each Named Officer is less than 10% of the total annual salary and
bonus of such officer.
(2) Each of the Named Officers in the past has received S Corporation
distributions based on their interests in certain of the Constituent
Corporations. The aggregate of such distributions received by Messrs.
Krassner, Marsh, Marshall, Bechdel and Vega in 1995 were $223,210,
$2,081,057, $760,044, $701,839 and $38,905, respectively. In addition,
Mr. Krassner received additional compensation aggregating $247,790 as a
result of royalty payments received pursuant to certain contractual rights
with respect to certain of the Company's productions ($194,572), and
management fees paid by Diamond Bullet Merchandising, Inc. ($53,218).
See "Certain Transactions" and "Consolidation Transactions and S
Corporation Distributions."
EMPLOYMENT AGREEMENTS
In July 1996, the Company entered into five-year employment
agreements with each of Messrs. Krassner, Marsh, Marshall and Bechdel, which
provide for annual base salaries of $150,000, $250,000, $250,000 and $150,000,
respectively, with automatic annual increases of $25,000. If any of these
executives is terminated for cause, as defined in his employment agreement, the
executive is not entitled to receive severance pay. If the executive is
terminated without cause, he is entitled to receive his then current salary for
the remaining term of the employment agreement but in no event less than two
years of such salary. Each of the employment agreements contains a provision
that the executive will not compete or engage in a business competitive with the
current or anticipated business of the Company for the term of the agreement and
for one year thereafter if the executive is terminated for cause or the
executive terminates his employment. In addition, each executive agreed not to
disclose confidential information of the Company during the term of his
employment or thereafter.
STOCK OPTION PLANS
Under the Company's 1996 Employee Stock Option Plan (the
"Stock Option Plan") and Directors Stock Option Plan (the "Directors Plan", and
together collectively with the Stock Option Plan, the "Plans"), 1,700,000 shares
of Common Stock and 50,000 shares of Common Stock, respectively, are reserved
for issuance upon exercise of options. The Plans are designed to serve as an
incentive for retaining qualified and competent employees and directors.
The Company's Board of Directors, or a committee thereof,
administers and interprets the Stock Option Plan and is authorized, in its
discretion, to grant options thereunder to all eligible employees of the Company
(currently 45 individuals), including officers and directors (whether or not
employees) of the Company. The Stock Option Plan provides for the granting of
both "incentive stock options" (as defined in Section 422A of the Internal
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Revenue Code) and nonstatutory stock options. Options can be granted under the
Stock Option Plan on such terms and at such prices as determined by the Board,
or a committee thereof, except that the per share exercise price of options will
not be less than the fair market value of the Common Stock on the date of grant,
and, in the case of an incentive stock option granted to a 10% shareholder, the
per share exercise price will not be less than 110% of such fair market value.
The aggregate fair market value of the shares covered by incentive stock options
granted under the Plans that become exercisable by a grantee for the first time
in any calendar year is subject to a $100,000 limit.
Only nonemployee directors are eligible to receive options
under the Directors Plan. The Directors Plan provides for an automatic grant of
options to purchase 2,000 shares of Common Stock upon a person's election as a
director of the Company and an automatic grant of options to purchase 2,000
shares of Common Stock upon such person's re-election as a director of the
Company. All such options are required to have an exercise price equal to not
less than the fair market value of the Common Stock at the date of grant.
Options granted under the Stock Option Plan will be
exercisable after the period or periods specified in the option agreement
relating to such grant, and options granted under the Directors Plan are
exercisable immediately. Options granted under the Plans are not exercisable
after the tenth anniversary of the date of grant and are not transferable other
than by will or by the laws of descent and distribution. The Plans also
authorize the Company to make loans to optionees to enable them to exercise
their options.
As of the date of this Prospectus, the Company has not granted
any options pursuant to the Plans.
401(K) PLAN
The Company plans to implement a 401(k) pension plan in the
fourth quarter of 1996. The Company currently intends to match employee
contributions at a rate to be determined, subject to the availability of funds.
The Company is not required to match employee contributions in the future. The
plan will be administered by, and offer the funds of, a national mutual fund
company which has yet to be selected. The Company match may be made in the
Company's Common Stock.
-35-
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date of this
Prospectus, information with respect to the beneficial ownership of the Common
Stock by (i) each person known by the Company to be the owner of more than 5% of
the outstanding Common Stock, (ii) each director, (iii) each of the Named
Officers, and (iv) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
AMOUNT AND NATURE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP OWNED(2)
- --------------------------------------- -------------------- -------------
<S> <C> <C>
Joe Marsh........................................................ 8,465,480 36.7%
Brad Krassner................................................... 3,270,102(3) 15.0%
Lee Marshall..................................................... 3,450,338 15.0%
Glenn Bechdel.................................................... 3,228,846 14.0%
H. Yale Gutnick.................................................. 7,000 *
Michel Vega...................................................... 385,069 1.7%
Larry Turk....................................................... 238,624 1.0%
Ronald J. Korn................................................... 2,000 *
All directors and executive officers as a group (8 persons)...... 19,231,569 82.4%
<FN>
- -------------------------------------
* Less than 1%.
(1) Each beneficial owner has an address in care of Magicworks Entertainment Incorporated, 930 Washington Avenue,
Miami Beach, Florida 33139.
(2) Based on a total of 23,074,299 shares outstanding.
(3) Excludes 184,110 shares of Common Stock held by Mr. Krassner as nominee on behalf of certain members of his
family and as to which Mr. Krassner disclaims beneficial ownership.
</FN>
</TABLE>
- 36 -
<PAGE>
SELLING SECURITYHOLDERS
The shares of Common Stock offered hereby are owned by the
Selling Shareholders. The following table sets forth certain information with
respect to the ownership of the Common Stock by each Selling Shareholder as of
December 13, 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF SHARES
OWNED PRIOR TO OF COMMON STOCK NUMBER OF
NAME AND ADDRESS OF OFFERING(1)(2) HELD PRIOR SHARES OFFERED
SELLING SHAREHOLDER (3) TO OFFERING HEREBY(4)
- ------------------------------------------------------------- ---------------- ----------------- --------------
<S> <C> <C> <C>
Abraxas Partners, Ltd. 5,178 * 5,250
Windermere House
404 East Bay Street
P.O. Box SS-6238
Nassau, The Bahamas
Philip Altheim 8,631 * 8,750
270 Pond Crossing
Lawrence, NY 11559
Apec Arc, Inc. 8,632 * 17,500
c/o Clifford Spelke
2001 Marcus Avenue, Su. N-215
Lake Success, NY 11042
Arbinter-Omnivalor, S.A. 138,096 * 140,000
4 Cours De Rive
1211 Geneve 3
Switzerland
Jack Balter and Deborah Balter, JTWROS 8,631 * 8,750
8919 Atwell
Houston, TX 77096
Banca Del Gottardo 172,620 * 175,000
Viale Stefano Franscini 8
6901 Lugano, Switzerland
Attn: Diego Lucchini (MFTB)
Banque de Patrimoines Prives Geneve BPG SA 8,631 * 8,750
Attn: Mr. Dan Caropiche
20-22, Avenue de Miremont
CH-1211 Geneve 25
Switzerland
Banque Populaire Suisse Geneva 34,524 * 35,000
Attn: Mr. Laurent Perrin
Case Postale 2054
1211 Geneve 2
Switzerland
Banque Privee Endmond de Rothschild S.A. 94,941 * 96,250
Geneva
Attn: Mrs. Lisiane Spicher
18 rue de Hesse
1204 Geneva, Switzerland
Beatrice Barnett 8,631 * 8,750
Attn: Ian Barnett
c/o 7A Albert Br. Road
London SW11 4PX
England
Gary Barnett 8,631 * 8,750
621 South Saltair Avenue
Los Angeles, CA 90049
Banque De Financement & D'Investissement Geneve 43,155 * 43,750
Mr. Marcel Cerutti
2, rue Jean-Petitot
Case postale 5710
1211 Geneve 11, Switzerland
Glenn Bechdel 3,228,846 14.0% 3,228,846
c/o Magicworks Entertainment Incorporated
930 Washington Avenue
Miami Beach, Florida 33139
Brad Leigh Benjamin 240,000 1.0% 240,000
3410 B. 21st Court
Olympia, WA 98501
Oystein Bjorge 8,631 * 8,750
Bastadruggen 21
1370 Asker, Norway
George L. Black Trust 8,631 * 8,750
11401 Highway 301 North
Thonotosassa, FL 33592
Ronald L. Book, P.A. Employees Profit Sharing Trust 8,631 * 8,750
2999 N.E. 191 Street
Penthouse 6
Aventura, FL 33180
</TABLE>
- 37 -
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF SHARES
OWNED PRIOR TO OF COMMON STOCK NUMBER OF
NAME AND ADDRESS OF OFFERING(1)(2) HELD PRIOR SHARES OFFERED
SELLING SHAREHOLDER (3)(4) TO OFFERING HEREBY
- ------------------------------------------------------------- ---------------- ----------------- --------------
<S> <C> <C> <C>
Erling U. Borg 8,631 * 8,750
P.B. 1128
2601 Lillehammer, Norway
Bostar A/S 34,524 * 35,000
Parkveien 55
P.O.B. 2416, Solli
N-0201, Oslo
Norway
Attn: Ove Hoegh
8,631 * 8,750
Harvey R. Brice BSSC Master Defined Contribution M/P Pension Plan
70 Bethone Street
New York, NY 10014-1758
Attn: Harvey R. Brice
Norman Brooks 103,572 * 105,000
c/o Magicworks Entertainment Incorporated
930 Washington Avenue
Miami Beach, Florida 33139
Michael J. Brown 133,333 * 133,333
216 E. 95th Street
New York, NY 10128
Lawrence Burstein 8,631 * 8,750
114 East 90th Street
Apt. 3-B
New York, NY 10128
C.N. Limited 8,631 * 8,750
c/o the Company Secretary
P.O. Box 316, Jardine House No. 1
Wesley Street
St. Helier, Jersey Channel Islands
U.K.
Caco A/S 8,631 * 8,750
Apalveien 30
0371 Oslo
Norway
Attn: Ole J. Gjerpen
Cameo Trust Corporation Limited 8,636 * 38,500
c/o Chris Bateson
Cameo House, 18 Hope Street
Douglas, Isle of Man
British Isles IM1 1AQ
Jeffrey Capas and Katherine Capas, JTWROS 8,631 * 8,750
2808 Palamore Drive
Tampa, FL 33618
Capital Growth International, L.L.C.(5) 291,615 1.2% 291,615
666 Steamboat Road
Greenwich, CT 06830-7150
Attn: Michael Jacobs
Casita Linda Corp. 8,631 * 8,750
c/o 7A Albert Br. Road
London SW11 4PX
England
Clariden Bank 8,631 * 8,750
Clariden Street, 26
CH-8002 Zurich
Switzerland
Attn: Karl Wiedmer
Rona Coty 8,631 * 8,750
7612 Mar Della Terrace
Boca Raton, FL 33433
Crescent Capital Company, LLC 43,155 * 43,750
135 Wood Road
Braintree, MA 02184-2503
Attn: Richard W. Brown
Philip Datlof, M.D. 8,631 * 8,750
17867 Lake Estates Drive
Boca Raton, FL 33496
Delaware Charter Guarantee & Trust Co. 4,315 * 4,375
TTEE FBO Robert Zelinka IRA
c/o Bear Sterns & Co.
Acct. #686-747-31-1-5 (R. Zelinka IRA)
1 Metro Tech Center
Brooklyn, NY 11021-2859
</TABLE>
- 38 -
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF SHARES
OWNED PRIOR TO OF COMMON STOCK NUMBER OF
NAME AND ADDRESS OF OFFERING(1)(2) HELD PRIOR SHARES OFFERED
SELLING SHAREHOLDER (3)(4) TO OFFERING HEREBY
- ------------------------------------------------------------- ---------------- ----------------- --------------
<S> <C> <C> <C>
Edgeport Nominees Ltd. 44,000 * 44,000
44 Worship Street
London, EC2A 2JT
England
Attn: Ian Goldbart
Emanon Partners, L.P. 81,132 * 82,250
237 Park Avenue
Suite 901
New York, NY 10017
Attn: Michael Schaenen
David Ettinger & Beth Ettinger, JTWROS 8,631 * 8,750
21873 Town Place Drive
Boca Raton, FL 33433
Attn: Mr. and Mrs. D. Ettinger
Falcon Management Corporation 17,262 * 17,500
James Leitner - President
c/o Anne-Lee Shachian
795 B. Franklin Avenue
Franklin Lakes, NJ 07417
Christopher Fox 25,000 * 25,000
Schaenen, Fox Capital Management
237 Park Avenue, Suite 900
New York, NY 10017
Leonard Frankel 103,572 * 105,000
3686 N.W. 195 Lane
Aventura, FL 33180
Jonathan Fryd 77,679 * 78,750
c/o Magicworks Entertainment Incorporated
930 Washington Avenue
Miami Beach, Florida 33139
Mitchell Fullerton 240,000 1.0% 240,000
3410 B. 21st Court
Olympia, WA 98501
Galaxy Investments, Inc. 17,262 * 17,500
1280 Terminal Way Suite
Reno, NV 89502
Attn: Gladys Greene, President
Goran Enterprises Limited 17,262 * 17,500
Rea Brothers (Guernsey) Limited
Attn: G. D'Arcy
Commerce House
Les Banques, St. Peter Port
Guernsey, GY1 3EZ, Channel Islands
G.P.S. Fund Ltd. 17,262 * 17,500
International Trade Center TM 126
Piscadera Bay
Curacao
Netherlands Antilles
Charles L. Greenberg and Donna Greenberg, JTWROS 17,262 * 17,500
120 S.E. 5th Avenue
Apartment #333
Boca Raton, FL 33432
Attn: Mr. and Mrs. Charles L. Greenberg
Greenberg and Panish, APC, Defined Benefit Pension Plan Dated 2/1/88 8,631 * 8,750
3832 Wilshire Boulevard
Los Angeles, CA 90010
Attn: Mr. David Greenberg
Bear, Stearns Securities Corp. 8,631 * 8,750
Custodian David Greenberg
IRA Rollover #402-95170-1-0-353
245 Park Avenue
New York, NY 10167
Susan Greenberg 8,631 * 8,750
1185 Corsica Drive
Los Angeles, CA 90272
Donald Gross 8,631 * 8,750
474 Fulton Avenue
Hempstead, NY 11550
H. Yale Gutnick 8,631 * 8,750
1000 Grandview Avenue, #501
Pittsburgh, PA 15211
Edward Haymes 17,262 * 17,500
7108 Queenferry Circle
Boca Raton, FL 33496
Heptagon Investments Limited 34,524 * 35,000
c/o FSC Summit Trust
5 Rue Cesar Soulie
1260 Nyon
Switzerland
</TABLE>
- 39 -
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF SHARES
OWNED PRIOR TO OF COMMON STOCK NUMBER OF
NAME AND ADDRESS OF OFFERING(1)(2) HELD PRIOR SHARES OFFERED
SELLING SHAREHOLDER (3)(4) TO OFFERING HEREBY
- ------------------------------------------------------------- ---------------- ----------------- --------------
<S> <C> <C> <C>
Herald Investment Trust PLC 517,860 1.3% 525,000
c/o Brown Brothers Harriman & Co.
69 Wall Street
New York, NY 10005
Attn: OSG Dept.
Heritage Finance & Trust Co. (Geneva) 34,524 * 35,000
Acct No.: 4608840
c/o Brown Brothers Harriman, NY
Attn: OSG Dept.
69 Wall Street
New York, NY 10005
Stanley Hollander IRA 17,262 * 17,500
c/o Cowen & Co.
IRA Dept., A/C 58-03120-1-7-44
(S. Hollander IRA)
Financial Square
New York, NY 10005
Intergalactic Growth Fund, Inc. 17,262 * 17,500
c/o Peter B. Evans
P.O. Box N-341
Charlotte House, Charlotte Street
Nassau, Bahamas
Alan Jacobs 97,205 * 97,205
6840 Lion's Head
Boca Raton, FL 33496
Alan D. Jacobson, IRA 17,262 * 17,500
c/o 122 East 42nd Street
New York, New York 10168
Lenard E. Jacobson, M.D. 8,631 * 8,750
150 East 69th Street
New York, NY 10021
Christopher D. Jennings 12,947 * 13,125
1431 Warnall Avenue
Los Angeles, CA 90024
Kamdex International Limited 8,631 * 8,750
Celtic House
Victoria Street
Douglas, Isle of Man
UK 1M1 2SJ
Attn: Martin Neville
A/S Kapitalutvikling 8,631 * 8,750
Strandveien 20
N-1324 Lysaker
Norway
Attn: Knut W. Wang
Kensington Partners L.P. 69,048 * 70,000
c/o Keim Wilson Associates
237 Park Avenue, 9th Floor
New York, NY 10017
Attn: Richard Keim
Peter Barrington Kirk 25,893 * 26,250
Overbergum 22B
1315 Nesoya
Norway
Ronald Koenig 17,262 * 17,500
Capital Growth International
660 Steamboat Road, 2nd Floor
Greenwich, CT 06830
Kirsti M.B. Kolbeinsen 8,631 * 8,750
Holger Lysto, 23C
0280 Oslo
Norway
Stephen Kornfeld IRA 17,262 * 17,500
719 North Ocean Boulevard
Delray Beach, FL 33483
Brad L. Krassner(6) 3,454,212 15.0% 3,454,212
c/o Magicworks Entertainment Incorporated
930 Washington Ave., 5th Floor
Miami Beach, FL 33139
KTB Enterprises, Ltd. 8,631 * 8,750
c/o 7A Albert Br. Road
London SW11 4PX
England
Attn: Ian Barnett
William Kunzweiler 34,524 * 35,000
5420 LBJ Freeway, Suite 515
Dallas, TX 75240
</TABLE>
- 40 -
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF SHARES
OWNED PRIOR TO OF COMMON STOCK NUMBER OF
NAME AND ADDRESS OF OFFERING(1)(2) HELD PRIOR SHARES OFFERED
SELLING SHAREHOLDER (3)(4) TO OFFERING HEREBY
- ------------------------------------------------------------- ---------------- ----------------- --------------
<S> <C> <C> <C>
Legong Investments, N.V. 86,310 * 87,500
International Trade Center TM 126
Piscadera Bay
Curacao
Netherlands Antilles
Joel Lewis and Patricia Lewis JTWROS 8,631 * 8,750
11501 N.W. 4th Street
Plantation, FL 33325
Larry Magrid and Barbara Magrid, JTWROS 8,631 * 8,750
1231 Vine Street
Philadelphia, PA 19107
Attn: Larry Magrid
Dr. Mannie Magrid and Jeanette Magrid, JTWROS 8,631 * 8,750
8111 Meadow Crest
Houston, TX 77071
William P. Marino 8,631 * 8,750
1041 4th Street N.E.
New Philadelphia, OH 44663
Brian W. Marsh 8,631 * 8,750
6167 Harmony Valley Road
Newcomerstown, OH 43832
Joe Marsh 8,465,480 36.8% 8,465,480
2040 North Bay Road
Miami Beach, FL
John J. Marsh, Jr. 8,631 * 8,750
217 Gooding Avenue, N.W.
New Philadelphia, OH 44663
Lee Marshall 3,450,338 15.0% 3,450,338
c/o Magicworks Entertainment Incorporated
930 Washington Avenue
Miami Beach, Florida 33139
Gordon R. Miller, M.D. 8,631 * 8,750
10250 Collins Avenue, #304
Bal Harbor, FL 33154
Morgan Steel Ltd. 34,524 * 35,000
c/o P. Kevin Perry
One Sydney Mount, Circular Rd.
Douglas, Isle of Man, U.K.
Napier Brown Holdings Ltd. 25,893 * 26,250
International House
1 St. Katherine's Way
London E1 9UN
England
Attn: A.S.P. Drake
Ronald L. Nilsen and Carolyn M. Nilsen, JTWROS 8,631 * 8,750
22 Candlestick Road
Clementon, NJ 08021
Attn: Ronald L. Nilsen
Panache Partnership 34,524 * 35,000
c/- Azzurra
P.O. Box 12075
Penrose Auckland, New Zealand
Sid Paterson 8,631 * 8,750
1385 York Avenue
New York, NY 10021
Sherry E. Perrupato 8,631 * 8,750
2635 South Holbrook Street
Philadelphia, PA 19142
Pictet & Cie 8,631 * 8,750
29 bd Georges-Favon
1204 Geneva
Switzerland
Attn: Claude-Alain Cherubini
Cowen & Company 4,316 * 4,375
IRA Dept. Asher Plaut
IRA #58-03134
Financial Square
New York, NY 10005
Pyramid Partners, LP 19,506 * 19,775
c/o Steven Blatt
Tanner Mainstain Hoffer
10866 Wilshire Blvd., 10th Floor
Los Angeles, CA 90024
Michael Ralby 50,000 * 50,000
Concorde Centre II, PH 8
2999 N.E. 191st Street
Aventura, FL 33180
</TABLE>
- 41 -
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF SHARES
OWNED PRIOR TO OF COMMON STOCK NUMBER OF
NAME AND ADDRESS OF OFFERING(1)(2) HELD PRIOR SHARES OFFERED
SELLING SHAREHOLDER (3)(4) TO OFFERING HEREBY
- ------------------------------------------------------------- ---------------- ----------------- --------------
<S> <C> <C> <C>
David Rees 34,524 * 35,000
22B Stafford Court
174 Kensington High Street
London W8 7DJ
England
P.G. Ridgwell 25,893 * 26,250
c/o Napier Brown Holdings Ltd.
International House
1 St. Katherine's Way
London E1 9UN
England
Republic National Bank of NY (Luxembourg) SA 112,203 * 113,750
32, Boulevard Royal
L-2449 Luxembourg
Attn: Jean-Louis Thill
RNB (France) Monaco 17,260 * 17,500
15 Bis-17, Avenue D'Ostende
MC 98000 Monaco
Attn: Rachel Balet
Trond Ronning 8,631 * 8,750
Revesporet 9B
N-1347
Hosle, Norway
Rosebud Capital Growth Fund Ltd. 290,000 * 294,000
Charlotte House
Charlotte Street
Nassau, Bahamas
Attn: Dawn E. Davies
Cheryl Lynn Rubin 8,631 * 8,750
Billingstadaasen 20
Billingstad 1362, Norway
Bear, Stearns Securities Corp. 8,631 * 8,750
Custodian Allan Rudnick
IRA Rollover #402-95158-1-6-300
245 Park Avenue
New York, NY 10167
Rush & Co. 34,520 * 35,000
c/o European Stockbrokers, Ltd.
20 Conduit Street
London W1R 9TD
England
Attn: Philip Gould
Rush & Co. 276,160 * 280,000
Swiss American Securities, Inc.
100 Wall Street, 4th Floor
New York, NY 10005
Saracen International Incorporated 25,893 * 26,250
Celtic House, 3rd Floor
Victoria Street
Douglas, Isle of Man
UK 1M1 2SJ
Attn: Luay Allawi
Michael Schaenen 25,000 * 25,000
Schaenen, Fox Capital Management
237 Park Avenue, Suite 900
New York, New York 10017
Albert Schmier 8,631 * 8,750
17879 Lake Estates Drive
Boca Raton, FL 33496
Seth H. Schreiber 8,631 * 8,750
460 West 34th Street
New York, NY 10001
SEIF Limited 25,893 * 26,250
c/o Barings (Guernsey) Ltd.
Arnold House, St. Julian's Ave.
St. Peter Port
Guernsey, GY1 3DA, Channel Islands
Attn: Shaun Baker
Richard Shack 112,650 * 112,650
c/o Magicworks Entertainment Incorporated
930 Washington Avenue
Miami Beach, Florida 33139
Hy Shapiro 8,630 * 8,750
2400 South Dixie Highway
Miami, FL 33133
Walter Shealy 34,524 * 35,000
c/o Magicworks Entertainment Incorporated
930 Washington Avenue
Miami Beach, Florida 33139
Steven Simon 53,333 * 53,333
Autolend
930 Washington Avenue
Miami Beach, FL 33139
Skips A/S Canopus 8,631 * 8,750
c/o Knut W. Wang
Standveien 20
1324 Lysaker Norway
</TABLE>
- 42 -
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF SHARES
OWNED PRIOR TO OF COMMON STOCK NUMBER OF
NAME AND ADDRESS OF OFFERING(1)(2) HELD PRIOR SHARES OFFERED
SELLING SHAREHOLDER (3)(4) TO OFFERING HEREBY
- ------------------------------------------------------------- ---------------- ----------------- --------------
<S> <C> <C> <C>
Skips A/S Lodd 8,631 * 8,750
P.O. Box 2472 Solli
0202 Oslo, Norway
Fred Snitzer 8,631 * 8,750
75 Henry Street
Brooklyn, NY 11201
Daniel Sokoloff and Deena Sokoloff, as Tenants by the Entirety 8,631 * 8,750
10230 Seagrape Way
Palm Beach Gardens, FL 33418
Attn: Daniel Sokoloff
Clifford W. Spelke 17,262 * 17,500
2001 Marcus Avenue, Su. N-215
Lake Success, NY 11042
Adam Spivak 8,631 * 8,750
136 Chinaberry Drive
Lafayette, PA 19444
Allen Spivak 8,631 * 8,750
713 Waverly Road
Bryn Mawr, PA 19010
Merrill Lynch Acct. #53M 13719 (R. Spivak) 17,262 * 17,500
Suite 210A
794 Pennllyn Pike
Bluebill, PA 19422
Attn: Adam Goldman
Orrin S. Stern and Jeffrie K. Stern TBE 8,631 * 8,750
2409 N.W. 64th Street
Boca Raton, FL 33496
Attn: Orrin S. Stern
Sylvaner Corporation 8,631 * 8,750
c/o 7A Albert Br. Road
London SW11 4PX
England
James D. Tate 73,114 * 73,114
c/o Magicworks Entertainment Incorporated
930 Washington Avenue
Miami Beach, Florida 33139
Larry Turk 238,624 1.0% 238,624
c/o Magicworks Entertainment Incorporated
930 Washington Avenue
Miami Beach, Florida 33139
Matias A. Vega and Carmella K. Vega JTWROS 8,631 * 8,750
31 Gedney Way
Chappaqua, NY 10510
Attn: Matias A. Vega
Michel Vega 385,069 1.7% 385,069
c/o Magicworks Entertainment Incorporated
930 Washington Avenue
Miami Beach, Florida 33139
Vital Miljo AS 8,631 * 8,750
Raadfhusgaten 7B
0151 Oslo, Norway
Attn: Bjarne Odegaard
W&P Bank & Trust Company Ltd. 51,786 * 52,500
Cumberland House
27 Cumberland Street
Nassau, Bahamas
Attn: Pascal Cristiano
Dr. Lawrence S. Weisman IRA 34,524 * 35,000
c/o Bear Sterns Corp.
IRA Acct #: 689-95590-14-E73
245 Park Avenue
New York, NY 10167
Dr. Lawrence S. Weisman 8,631 * 8,750
12216 134th Way
Scottsdale, AZ 85259-2235
Mark L. Weiss and Tobi Weiss, JTWROS 8,631 * 8,750
12926 Cherry Road
North Miami, FL 33181
Attn: Mark L. Weiss
Joel S. Weissglass 8,631 * 8,750
14 Takolusa Drive
Holmdel, NJ 07733-1232
Lago Wernstedt and Mi Wernstedt 17,262 * 17,500
Fritiofsy 5
S-18264 Djursholm
430908-0838
Attn: Lago Wernstedt
</TABLE>
- 43 -
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF SHARES
OWNED PRIOR TO OF COMMON STOCK NUMBER OF
NAME AND ADDRESS OF OFFERING(1)(2) HELD PRIOR SHARES OFFERED
SELLING SHAREHOLDER (3)(4) TO OFFERING HEREBY
- ------------------------------------------------------------- ---------------- ----------------- --------------
<S> <C> <C> <C>
Ruth Zelinka 4,316 * 4,375
200 E. 57th Street
Apt. 11-B
New York, NY 10022
<FN>
- ------------------------------------
* Less than 1%.
(1) Unless otherwise indicated, each shareholder has sole voting and
investment power with respect to the Common Stock indicated as
owned thereby.
(2) In accordance with Rule 13d-2 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), shares that are not outstanding, but
that are issuable pursuant to (i) the exercise of outstanding Warrants
and (ii) the conversion of the Notes, all of which are exercisable or
convertible within 60 days of the date of this Prospectus, have been
deemed to be outstanding for the purpose of computing the percentage of
outstanding shares owned by the individual having such right, but have
not been deemed outstanding for the purpose of computing the percentage
for any other person. These amounts do not include the exercise of
certain warrants to purchase an aggregate of 500,000 shares of Common
Stock. See "Description of Securities."
(3) These share amounts include up to an aggregate of 1,481,643 shares
which may be issued to certain Selling Shareholders either upon (i) the
conversion of the Notes or (ii) upon the exercise of the Redeemable
Warrants which may be issued, in certain circumstances, upon the
prepayment of the Notes.
(4) With respect to the Selling Shareholders, it has been assumed that all
their shares so offered will be sold. Further, these amounts include
shares which may be issued to certain Selling Shareholders upon
conversion of accrued interest payable upon their Notes.
(5) Does not include the shares owned of record by various officers and/or
employees of Capital Growth International, LLC, including Messrs. R.
Koenig and A. Jacobs, whose share totals are included elsewhere in this
table.
(6) Includes 184,110 Shares held by Mr. Krassner as nominee on behalf of
certain members of his family and as to which Mr. Krassner disclaims
beneficial ownership.
</FN>
</TABLE>
PLACEMENT AGENT WARRANTS
The following table sets forth certain information with
respect to the beneficial ownership of the Company's outstanding Placement Agent
Warrants as of December 13, 1996, and as adjusted to reflect the sale of such
Warrants offered by the holder thereof.
<TABLE>
<CAPTION>
BEFORE OFFERING
----------------------------
NAME AND ADDRESS WARRANTS PERCENT WARRANTS OFFERED
- ------------------------------------- ------------ ------------- ----------------
<S> <C> <C> <C>
Capital Growth International, L.L.C. 314,087 61.4% 314,087
666 Steamboat Road
Greenwich, CT 06830-7150
Attn: Michael Jacobs
Rush & Co. 40,000 8.0 40,000
C/O Swiss American Securities
Mr. Glenn Pizer
100 Wall Street, 4th Floor
New York, NY 10005
Josephthal Lyon & Ross Incorporated 9,375 1.9 9,375
Robert Moses
200 Park Avenue
New York, NY 10166
Michael Ralby 10,625 2.1 10,625
Concorde Centre II, PH 8
2999 N.E. 191st Street
Aventura, FL 33180
Christopher Fox 2,500 * 2,500
Schaenen, Fox Capital Management
237 Park Avenue, Suite 900
New York, NY 10017
First National Fund 3,750 * 3,750
C/O Josephthal Lyon & Ross Incorporated
Hershel Krasnow
1111 Kane Concourse
Bay Harbor Islands, FL 33154
Sachem Corporate Finance 3,100 * 3,100
Mira Merme
Eagle Court
6-7 St. John's Lane
London, England EC1M 4BH
Edgeport Nominees, Ltd. 5,500 1.1 5,500
C/O Townsley & Co.
44 Worship Street
London, England EC2A 2JT
Robert Zelinka 5,000 1.0 5,000
C/O Capital Growth International, L.L.C.
777 South Flagler Drive
West Tower, 8th Floor
West Palm Beach, FL 33401
Pellet Investments C/O Capital Management 3,125 * 3,125
Attn: Ron Pearson
305 Walnut Street
Newtonville, MA 02160
Cheviot Capital 1,250 * 1,250
Devonshire House
146 Bishopsgate
London, England EC1
Helix Investments, Ltd. 5,063 1.0 5,063
Cameo House
18 Hope Street
Douglas, Isle of Man
British Isles IM1 1AQ
Brill Securities 625 * 625
Asher Plaut
152 W. 57th Street
New York, NY 10019
Michael Schaenen 2,500 * 2,500
Schaenen, Fox Capital Management
237 Park Avenue, Suite 900
New York, NY 10017
Brookbank Holdings Limited 1,875 * 1,875
C/O Latour Trust Limited
Elaine Heuston
P.O. Box 344, Osprey house
5 Old Street
St. Helier, Jersey, JE4 8UZ
Channel Islands
Credit Suisse (Guernsey) Ltd. 14,540 2.9 14,540
Mark Trenchard
Helvetia Court
P.O. Box 368
St. Peter Port, Guernsey, GY1 4EJ
Channel Islands
Vital Miljo 15,625 3.1 15,625
C/O Abacus Management AS
Raadhusgaten 7B
Oslo, Norway
0151
Prime Grieb & Co. 2,500 * 2,500
Walter Prime
19 Loudon Road
London, England NW8 OLY
Gesico International 18,585 3.7 18,585
C/O Brown Brothers Harriman
Attn: Ralph Firmeno, OSG Dept.
59 Wall Street
New York, NY 10005
Eurocapital Ltd. 12,500 1.5 12,500
C/O GFI Servizi Finanziari SA
Attn: Oscar Garzotto
Via Balestra 27
Lugano, Switzerland 6900
Gibesgelt 27,875 5.6 27,875
C/O BFI Banque De Financement &
D'Investissement, geneve
Attn: Xavier Justo
2, rue Jean-Petitot
Casa Postale 5710
1211 Geneve 11, Switzerland
</TABLE>
RELATIONSHIP BETWEEN THE COMPANY AND CERTAIN SELLING SHAREHOLDERS
Capital Growth International, LLC acted as the placement agent
in connection with the Private Placement and received compensation therefor in
the form of cash and securities. See "Certain Transactions." The following
Selling Shareholders may be deemed affiliates of Capital Growth: Ronald Koenig,
Alan L. Jacobs and Stanley Hollander IRA.
- 44 -
<PAGE>
CERTAIN TRANSACTIONS
MEI was formed in June 1996 for the purpose of combining the
operations of the Constituent Corporations. Effective at the closing of the
Private Placement, MEI issued shares of Common Stock to the shareholders of each
of the Constituent Corporations in exchange for their respective interests in
the Constituent Corporations, as a result of which each of the Constituent
Corporations became a wholly-owned subsidiary of the Company. The number of
shares of Common Stock issued to each such shareholder was determined by mutual
agreement, based on their respective ownership interests in the Constituent
Corporations. In connection with the Consolidation, Messrs. Marsh, Marshall,
Krassner, Bechdel, Vega and Turk received 8,381,372, 3,402,644, 2,896,769,
3,195,971, 384,819 and 238,468 shares of Common Stock, respectively. Prior to
the Consolidation, from time to time certain of the Constituent Corporations
made non-interest bearing advances to certain other Constituent Corporations.
Prior to being consolidated with MEI, the Constituent
Corporations operated as S corporations under the applicable provisions of the
Code. In connection therewith, the Constituent Corporations declared and paid
distributions during 1995 in the amounts of $223,210, $2,081,057 and $760,041
and $701,839 to Messrs. Krassner, Marsh, Marshall and Bechdel, respectively. In
1996, the Company declared and paid distributions to Messrs. Krassner, Marsh,
Marshall and Bechdel in the respective amounts of $82,839, $1,410,300, $470,100
and $470,100. Such distributions were in addition to the salaries paid to
Messrs. Marsh, Marshall and Bechdel. The respective amounts of distributions
made to Messrs. Krassner, Marsh, Marshall and Bechdel were $58,547, $1,317,196,
439,065 and 439,066 during 1993 and $88,393, $888,813, $296,272 and $296,272
during 1994.
In May 1996, the Company entered into a lease agreement with
respect to its Miami Beach office with a corporation that is owned by Messrs.
Krassner and Marsh. The agreement calls for monthly lease payments of $3,250 for
a five-year term. The agreement further provides for annual increases of $200
per month during its term. The Company paid rent pursuant to a prior lease for
such property for the year ended December 31, 1995 in the amount of $39,000.
In November 1994, the Company entered into a lease for its
Ohio office, which is owned by Mr. Marshall. The agreement calls for monthly
rental payments of approximately $3,417, and expires in November 2002. The
Company paid rent pursuant to such lease during 1995 in the aggregate amount of
$33,000.
In November 1995, one of the Constituent Corporations issued
to an individual its convertible promissory note in the amount of $100,000
exchangeable into shares of common stock of such Constituent Corporation. Such
individual assigned such convertible promissory note to Mr. Krassner in exchange
for 75,167 shares of the Company owned by Mr. Krassner. Mr. Krassner then
canceled the note, and, as a result, the Company extinguished $89,235 of a
$100,000 debt owed by Mr. Krassner to the Company, leaving a balance owing from
the Company to Mr. Krassner of $10,765 with respect to such debt.
In July and September 1996, the Company closed the Private
Placement in which it received aggregate gross proceeds of $10,371,500. A total
of 120 investors purchased Units in the Private Placement. Brad Krassner, Joe
Marsh, Lee Marshall and H. Yale Gutnick, a director of the Company, also
invested in the Private Placement (purchasing 11,000, 22,000, 11,000 and 5,000
Shares of Common Stock and $25,500, $51,000, $25,500 and $12,500 of principal
amount of Notes, respectively).
All of the Company's indebtedness under its existing lines of
credit has been personally guaranteed by Messrs. Krassner, Marsh, Marshall and
Bechdel. The Company anticipates that no further personal guarantees of the
Company's indebtedness by its executive officers will be made.
The Company has paid management fees for accounting, general
management, office and other administrative services to Diamond Bullet
Corporation, an entity controlled by Mr. Krassner. Such fees aggregated $53,218
and $75,378 in 1995 and 1994, respectively.
Prior to the Movietime Acquisition, from time to time certain
of the Constituent Corporations made advances to Movietime bearing interest at
the prime rate plus 2.9%. As of August 27, 1996, Movietime was indebted to the
Company in the amount of $907,000. As a result of the Movietime Acquisition, the
indebtedness to the Company (as successor in interest to the Constituent
Corporations) was eliminated in consolidation.
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<PAGE>
Messrs. Krassner, Marsh, Marshall and Bechdel owned 31.1%,
6.7%, 3.9% and 2.7%, respectively, of the issued and outstanding common stock of
Movietime immediately prior to the Company's acquisition of Movietime, which
ownership interests were exchanged for 373,333, 80,827, 47,268 and 31,905 shares
of Common Stock of the Company, respectively. See "Principal Shareholders".
In connection with the Private Placement, the Company paid
Capital Growth (as the placement agent for such Private Placement) an aggregate
cash commission of $790,120 and a nonaccountable expense allowance of $172,530.
In addition, the Company issued to Capital Growth and its
designees an aggregate of 488,820 shares of the Company's Common Stock and an
aggregate of 500,000 Placement Agent Warrants. These Shares and the Shares
underlying the Placement Agent Warrants are included in this offering.
The Company has agreed to indemnify Capital Growth against
certain liabilities in connection with the Private Placement, including
liabilities under the Securities Act.
The Company has retained Capital Growth for a period of
twenty-four months at a fee of $2,500 per month, to render various financial
advisory services thereto, and specified fees for additional financings and
other transactions.
FUTURE TRANSACTIONS
The Company will require that any future transactions between
the Company and its officers, directors, principal shareholders and the
affiliates of the foregoing persons be on terms no less favorable to the Company
than could be reasonably obtained in arm's length transactions with independent
third parties, and that any transactions not in the ordinary course of business
also be approved by a majority of the Company's outside independent directors
who are disinterested in the transaction.
DESCRIPTION OF SECURITIES
COMMON STOCK - The Company is authorized to issue 50,000,000
shares of Common Stock, par value $.001 per share. Each holder of Common Stock
is entitled to one vote for each share held of record on all matters to be voted
on by shareholders. There is no cumulative voting with respect to the election
of directors, with the result that the holders of more than 50 percent of the
shares voted for the election of directors can elect all of the directors. The
holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available therefor. In
the event of liquidation, dissolution or winding up of the Company, the holders
of Common Stock are entitled to share ratably in all assets remaining available
for distribution to them after payment of liabilities and after provision has
been made for each class of stock, if any, having preference over the Common
Stock. Holders of shares of Common Stock, as such, have no conversion,
preemptive or other subscription rights, and there are no redemption provisions
applicable to the Common Stock. All of the outstanding shares of Common Stock
are, and the shares of Common Stock offered hereby when issued will be, fully
paid and nonassessable. To vary the rights of the Common Stock the approval of
holders of a majority of the outstanding shares of Common Stock is required.
PREFERRED STOCK - The Company's Articles of Incorporation
authorize the issuance of 5,000,000 shares of Preferred Stock, $.001 par value.
The Preferred Stock may be issued in series from time to time with such
designation, rights, preferences and limitations as the Board of Directors may
determine. The rights, preferences and limitations of separate series of
Preferred Stock may differ with respect to such matters as may be determined by
the Board of Directors, including, without limitation, the rate of dividends,
method and nature of payment of dividends, terms of redemption, amounts payable
on liquidation, sinking fund provisions (if any), conversion rights
- 46 -
<PAGE>
(if any) and voting rights. The potential exists, therefore, that preferred
stock might be issued which would grant dividend preferences and liquidation
preferences to preferred stockholders over common stockholders. Unless the
nature of a particular transaction and applicable statute require such approval,
the Board of Directors has the authority to issue these shares without
stockholder approval. The issuance of Preferred Stock may have the effect of
delaying or preventing a change in control of the Company without any further
action by stockholders.
NOTES
The following is a brief summary of certain provisions of the
Notes, but such summary does not purport to be complete and is qualified in all
respects by reference to the actual text of the Notes, a copy of which has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part.
MATURITY; INTEREST - The principal amount of the Notes,
together with any accrued but unpaid interest thereon, is due and payable July
30, 2001 (the "Maturity Date") unless converted by the holder or prepaid by the
Company. The Notes bear interest at a rate of 10% per annum. Interest shall be
paid semi-annually on June 30 and December 31, commencing December 31, 1996.
CONVERSION OPTION - All, but not less than all, of the
principal amount and accrued but unpaid interest on each Note may be converted
at the option of the holder at any time prior to the Maturity Date or prepayment
at a conversion price of $3.50 per share (subject to adjustment for stock
splits, combinations and reclassifications).
PREPAYMENT - All, but not less than all, of the outstanding
principal amount of the Notes, together with accrued but unpaid interest, may be
prepaid at the option of the Company (a) provided that the Circumstances (as
defined below) exist, or (b) at any time, provided that for each $3.50 (subject
to adjustment under certain circumstances) in principal amount of each Note that
is prepaid, the Company shall issue to the holder thereof one Redeemable
Warrant. Each Redeemable Warrant entitles the holder thereof to purchase one
share of Common Stock (the "Redeemable Warrant Shares") at an exercise price of
$3.50 per share (subject to adjustment for stock splits, combinations and
reclassifications). The Redeemable Warrants may be redeemed by the Company at
$.10 per Redeemable Warrant, provided that the Circumstances exist.
The "Circumstances" shall exist if (i) the Securities are
registered under the Act and applicable state "blue sky" law, (ii) a current
prospectus is then available for the sale of the Securities, and (iii) the
closing bid price of the Common Stock as reported by Nasdaq, the OTC Bulletin
Board, or such other market on which the Common Stock is then traded, equals or
exceeds the Threshold Price for the twenty consecutive trading days ending on
the fifth trading day prior to the date of the notice of redemption or
prepayment, as the case may be. The Threshold Price with respect to the
prepayment of the Notes and the redemption of the Redeemable Warrants is $5.00
per share.
COVENANTS - The Company has covenanted so long as the Notes
are outstanding, to: (a) punctually pay principal and interest, when due; (b)
maintain its corporate existence and the corporate existence of each of MPIO and
Magic Promotions, Inc., each of which is a wholly-owned subsidiary of the
Company (the "Specified Subsidiaries") and keep its various rights and
franchises and those of the Specified Subsidiaries in good standing; (c) pay or
discharge all taxes, assessments and governmental charges; (d) comply in all
material respects with all applicable federal, state and local laws and
regulations; (e) refrain from paying dividends or redeeming equity securities;
(f) refrain from creating or incurring liens on its assets or properties unless
incurred in connection with business purposes; and (g) limit "insider" or
affiliate transactions with the Company to those which are on terms which are
fair to the Company and which are reasonably similar to, or more beneficial to
the Company than terms available from third parties.
EVENTS OF DEFAULT - The following events shall constitute
events of default under the Notes: (a) if the Company defaults in the payment or
performance of its obligations under the Notes or the Note Escrow Agreement
executed in connection with the Private Placement; (b) if the Company or a
Specified Subsidiary is dissolved or
- 47 -
<PAGE>
liquidated or fails to maintain its corporate existence; (c) if the Company or a
Specified Subsidiary is the subject of bankruptcy, insolvency or reorganization
proceedings; (d) if the Company or a Specified Subsidiary ceases its usual
business; (e) if the Company's warranties, representations or statements of fact
in the Notes or the Note Escrow Agreement were false or misleading when made; or
(f) if a receiver or trustee is sought against the Company, or a Specified
Subsidiary or any of their property, which is not dismissed within 60 days.
REDEEMABLE WARRANTS
The following is a brief summary of certain provisions of the
Redeemable Warrants, but such summary does not purport to be complete and is
qualified in all respects by reference to the actual text of the Redeemable
Warrant Certificates, the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
Upon prepayment of the Notes under certain circumstances, the
Company will deliver to the subject noteholder a Redeemable Warrant for each
$3.50 in principal amount of the Note that is prepaid. Warrant certificates for
the Redeemable Warrants may be exchanged for new certificates of different
denominations, and may be exercised or transferred by presenting them at the
appropriate office described in the certificates representing the Redeemable
Warrants.
Each Redeemable Warrant entitles the registered holder to
purchase one share of Common Stock (the "Warrant Shares") at an exercise price
of $3.50 per Warrant Share (subject to adjustment for stock splits, combinations
and reclassifications) at any time prior to redemption from the date of issuance
until the Maturity Date. The exercise price of the Redeemable Warrants bears no
relationship to any objective criteria of value and should in no event be
regarded as an indication of any future market price of the Securities offered
hereby. Redeemable Warrants may be redeemed by the Company at $.10 per share on
thirty days' notice at any time, if the Circumstances exist.
Each Redeemable Warrant may be exercised by surrendering the
warrant certificate, with the subscription form attached to the warrant
certificate properly completed and executed, together with payment of the
exercise price to the warrant agent. The Redeemable Warrants may be exercised in
whole or from time to time in part. If less than all of the Redeemable Warrants
evidenced by a warrant certificate are exercised, a new warrant certificate will
be issued for the remaining number of Redeemable Warrants.
The Redeemable Warrants do not confer upon the holders thereof
any voting, dividend or other rights as shareholders of the Company.
The Redeemable Warrants are not exercisable or redeemable
unless, at the time of the exercise or redemption, the Company has a current
prospectus covering the shares of Common Stock issuable upon the exercise of
such warrants, or such shares have been registered, qualified or deemed to be
exempt under the securities laws of the state of residence of the exercising
holder of such warrants.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is
Interwest Transfer & Trust Company.
- 48 -
<PAGE>
PLAN OF DISTRIBUTION
This Prospectus covers the sale of Shares by the Selling
Shareholders and the sale of Placement Agent Warrants by the holders thereof
(such holders, together with the Selling Shareholders are referred to herein
collectively as the "Selling Securityholders"). See "Selling Shareholders." Any
distribution of any such securities by the Selling Securityholders, or by their
pledgees, donees, transferees or other successors in interest may be effected
from time to time in one or more of the following transactions: (a) to
underwriters who will acquire securities for their own account and resell them
in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale (any
public offering price and any discount or concessions allowed or reallowed or
paid to dealers may change from time to time); (b) through brokers, acting as
principal or agent, in transactions (which may involve block transactions) on
the OTC Bulletin Board or on one or more exchanges on which the securities are
then listed, in special offerings, exchange distributions pursuant to the
rules of the applicable exchanges or in the over-the-counter market, or
otherwise, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices, at negotiated prices or at fixed prices;
(c) directly or through brokers or agents in private sales at negotiated
prices; or (d) by any other legally available means.
The Company will not receive any proceeds from the sale of the
Securities offered hereby. The aggregate proceeds to the Selling Shareholders
from the securities offered hereby will be the offering price less applicable
commissions or discounts, if any. There is no assurance that the Selling
Securityholders will sell any of the securities offered hereby.
The Selling Securityholders and such underwriters, brokers,
dealers or agents, upon effecting a sale of securities, may be considered
"underwriters" as that term is defined in the Securities Act. Sales effected
through agents, brokers or dealers will ordinarily involve payment of customary
brokerage commissions although some brokers or dealers may purchase such
securities as agents for others or as principals for their own account. The
Selling Securityholders will pay any sales commissions or other sellers'
compensation applicable to such transactions. A portion of any proceeds of sales
and discounts, commissions or other sellers' compensation may be deemed to be
underwriting compensation for purposes of the Securities Act.
Pursuant to applicable rules and regulations under the
Exchange Act, any person engaged in the distribution of the securities offered
hereby may not simultaneously engage in market making activities for the Common
Stock for a period of two business days prior to the commencement of such
distribution. In addition, each Selling Securityholder and any other person who
participates in a distribution of the securities will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including Rules 10b-2, 10b-6 and 10b-7, which provisions may limit the timing of
purchases and may affect the marketability of the securities and the ability of
any person to engage in market making activities for the Common Stock.
At the time a particular offering of securities is made, to
the extent required, a Prospectus supplement will be distributed which will set
forth the number of securities being offered and the terms of the offering,
including the purchase price or the public offering price, the name or names of
any underwriters, dealers or agents, the purchase price paid by any underwriters
for securities purchased from the Selling Securityholders, any discounts,
commissions and other items constituting compensation from the Selling
Securityholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.
In order to comply with the securities laws of certain states,
if applicable, the securities will be sold in such jurisdictions, if required,
only through registered or licensed brokers or dealers. In addition, in certain
states the securities may not be sold unless the securities have been registered
or qualified for sale in such state or an exemption from registration or
qualification is available and the conditions of such exemption have been
satisfied.
The Company has agreed that it will bear all costs, expenses
and fees in connection with the registration or qualification of the Shares and
the Placement Agent Warrants under federal and state securities laws. The
Company and each Selling Securityholder
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<PAGE>
have agreed to indemnify each other and certain other persons against certain
liabilities in connection with the offering of the securities, including
liabilities arising under the Securities Act.
SHARES ELIGIBLE FOR FUTURE SALE
As of December 13, 1996, the Company had 23,000,299 shares of
Common Stock outstanding. Of these shares, 22,689,179 shares being registered
pursuant to the registration statement of which this Prospectus forms a part
will be, and the remaining 311,120 shares are, freely tradeable without
restriction or further registration under the Securities Act, except for any
shares purchased by an "affiliate" of the Company (in general, a person who has
a control relationship with the Company) which will be subject to the
limitations of Rule 144 adopted under the Securities Act.
In general, under Rule 144 as currently in effect, subject to
the satisfaction of certain other conditions, a person, including an affiliate
of the Company (or other persons whose shares are aggregated), who has owned
restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of one percent of the total number of outstanding shares
of the same class or the average weekly trading volume during the four calendar
weeks preceding the sale. A person who has not been an affiliate of the Company
for at least the three months immediately preceding the sale and who has
beneficially owned shares of Common Stock for at least three years is entitled
to sell such shares under Rule 144 without regard to any of the limitations
described above.
In connection with the Private Placement, all of the Company's
officers and directors, the MEI Shareholders and the shareholders of Movietime
agreed not to sell or otherwise dispose of any of their shares of Common Stock
for a period ending December 30, 1997.
No prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of such shares for
sale will have on the market prices prevailing from time to time. Nevertheless,
the possibility that substantial amounts of Common Stock may be sold in the
public market may adversely affect prevailing market prices for the Common Stock
and could impair the Company's ability to raise capital through the sale of its
equity securities.
LEGAL MATTERS
The legality of the Securities offered hereby will be passed
upon for the Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
P.A., Miami, Florida.
EXPERTS
The combined financial statements of Magicworks Entertainment
at December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995; the combined financial statements of Magic Promotion,
Inc. as of December 31, 1995 and 1994 and for each of the three years in the
period ended December 31, 1995; the financial statements of Diamond Bullet
Merchandising as of December 31, 1995 and for the year then ended; the financial
statements of Movietime Entertainment, Inc. as of December 31, 1995 and for the
period from May 24, 1995 (inception) to December 31, 1995; the historical
supplemental pooled financial statements of Magic Promotion, Inc. and Movietime
Entertainment, Inc. as of December 31, 1995 and 1994 and for each of the three
years in the period ended December 31, 1995, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
certified public accountants, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
- 50 -
<PAGE>
<TABLE>
<CAPTION>
MAGICWORKS ENTERTAINMENT INCORPORATED
INDEX TO FINANCIAL STATEMENTS
PAGE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
MAGIC PROMOTION, INC. COMBINED FINANCIAL
STATEMENTS
Report of Independent Certified Public Accountants' - Ernst & Young, LLP..................................... F-3
Combined Balance Sheets for the Years Ended December 31, 1995, 1994
and 1993.................................................................................................. F-4
Combined Statements of Income for the Years Ended December 31, 1995,
1994 and 1993............................................................................................. F-5
Combined Statements of Changes in Stockholders' Equity for the Years ended December
31, 1995, 1994, 1993 and 1992............................................................................. F-6
Combined Statements of Cash Flows for the Years Ended December 31,
1995, 1994 and 1993....................................................................................... F-7
Notes to Combined Financial Statements .......................................................................F-9
DIAMOND BULLET MERCHANDISING FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants' - Ernst & Young LLP.......................................F-19
Balance Sheets for the Year Ended December 31, 1995...........................................................F-20
Statements of Income for the Year Ended December 31, 1995.....................................................F-21
Statements of Stockholders' Deficit for the Years ended December 31, 1995.....................................F-22
Statements of Cash Flows for the Year Ended December 31, 1995.................................................F-23
Notes to Financial Statements.................................................................................F-24
MOVIETIME ENTERTAINMENT, INC. FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants' - Ernst & Young LLP.......................................F-27
Balance Sheets - September 30, 1996 and December 31, 1995.....................................................F-28
Statement of Operations for the Years ended December 31, 1995.................................................F-29
Statements of Stockholders' Deficit for the Years ended December 31, 1995.....................................F-30
Statements of Cash Flows for the Years ended December 31, 1995................................................F-31
Notes to Financial Statements.................................................................................F-32
F-1
<PAGE>
MAGIC PROMOTION, INC. AND MOVIETIME ENTERTAINMENT, INC.
HISTORICAL SUPPLEMENTAL POOLED FINANCIAL
STATEMENTS
Report of Independent Certified Public Accountants' - Ernst & Young, LLP......................................F-35
Historical Supplemental Pooled Balance Sheets ................................................................F-36
Historical Supplemental Pooled Statements of Income - for the Years Ended
December 31, 1995, 1994 and 1993...........................................................................F-37
Historical Supplemental Pooled Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1995, 1994 and 1993......................................................F-38
Historical Supplemental Pooled Statements of Cash Flows - for the Years
Ended December 31, 1995, 1994 and 1993.....................................................................F-39
Notes to Historical Supplemental Pooled Financial Statements .................................................F-41
MAGICWORKS ENTERTAINMENT COMBINED
FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants' - Ernst & Young, LLP......................................F-53
Combined Balance Sheet - for the Years Ended December 31, 1995, 1994
and 1993..................................................................................................F-54
Combined Statements of Income - for the Years Ended December 31, 1995,
1994 and 1993.............................................................................................F-55
Combined Statements of Changes in Capital - for the Years Ended December 31,
1995, 1994 and 1993.......................................................................................F-56
Combined Statements of Cash Flows - for the Years Ended December 31,
1995, 1994 and 1993.......................................................................................F-57
Notes to Combined Financial Statements........................................................................F-58
Combined Balance Sheet at September 30, 1996
and the Year Ended December 31, 1995(Unaudited)............................................................F-71
Condensed Combined Statements of Income for the nine month periods
ended September 30, 1996 and 1995 (Unaudited).............................................................. F-72
Condensed Combined Statements of Cash Flows for the Nine Month Periods
ended September 30, 1996 and 1995 (Unaudited).............................................................. F-73
Notes to Condensed Combined Financial Statements .............................................................F-74
MAGICWORKS ENTERTAINMENT INCORPORATED PRO FORMA COMBINED FINANCIAL
STATEMENTS
Magicworks Entertainment Incorporated Pro Forma Combined Financial Statements.................................P-1
Pro Forma Combined Statements of Income (Unaudited) for the Year Ended
December 31, 1995.........................................................................................P-2
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Magic Promotion, Inc.
We have audited the accompanying combined balance sheets of Magic Promotion,
Inc. (the Company) as of December 31, 1995 and 1994, and the related combined
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Magic Promotion, Inc.
at December 31, 1995 and 1994, and the combined results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
September 13, 1996
Miami, Florida
F-3
<PAGE>
MAGIC PROMOTION, INC.
COMBINED BALANCE SHEETS
DECEMBER 31,
1995 1994
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 734,945 $1,903,936
Accounts receivable 1,107,451 525,172
Preproduction costs, net 1,508,314 1,058,681
Notes receivable from affiliates 159,520 460,057
Other current assets 353,463 71,128
---------- ----------
Total current assets 3,863,693 4,018,974
Property and equipment, net 1,091,010 195,233
Investments in partnerships 199,677 452,336
Advances and deposits 293,850 219,318
Deferred costs 207,823 94,462
Management agreements, net 364,415 385,834
========== ==========
Total assets $6,020,468 $5,366,157
========== ==========
LIABILITIES AND CAPITAL
Current liabilities:
Accounts payable and accrued liabilities $1,111,590 $2,063,931
Current maturities of long-term debt 137,870 97,882
Short-term debt 1,128,138 --
Due to affiliates 265,243 86,500
---------- ----------
Total current liabilities 2,642,841 2,248,313
Long-term debt, less current maturities 392,699 94,484
Commitments and contingencies
Minority interests 1,496,453 1,422,306
Stockholders' equity:
Common stock, $1 par value; 100 shares
authorized; 100 shares issued and
outstanding 100 100
Additional paid-in capital 50,174 50,174
Retained earnings 1,438,201 1,550,780
---------- ----------
Total stockholders' equity 1,488,475 1,601,054
========== ==========
Total liabilities and stockholders' equity $6,020,468 $5,366,157
========== ==========
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
<TABLE>
<CAPTION>
MAGIC PROMOTION, INC.
COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Production $ 31,638,078 $ 23,313,026 $ 18,151,149
Promotion 6,668,672 6,268,273 10,009,734
Merchandising 1,160,519 687,755 876,740
Other 1,237,126 873,032 475,630
------------ ------------ ------------
40,704,395 31,142,086 29,513,253
Operating expenses:
Talent and other show 33,346,544 25,871,621 23,561,001
Salaries, wages and benefits 1,185,911 975,400 877,983
Cost of goods sold 408,697 470,775 589,356
General and administrative 1,160,873 801,361 551,888
------------ ------------ ------------
36,102,025 28,119,157 25,580,228
Income from operations 4,602,370 3,022,929 3,933,025
Other income (expense):
Interest income 108,427 32,076 3,835
Interest expense (60,488) (19,590) (16,369)
From investments in noncombined
productions
418,679 417,071 364,976
Minority interests (1,688,531) (1,535,495) (2,108,791)
------------ ------------ ------------
Net income 3,380,457 1,916,991 2,176,676
Pro forma adjustment for income taxes (1,318,378) (747,626) (848,904)
------------ ------------ ------------
Pro forma net income $ 2,062,079 $ 1,169,365 $ 1,327,772
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
<TABLE>
<CAPTION>
MAGIC PROMOTION, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances, December 31, 1992 $ 100 $ 50,174 $ 562,640 $ 612,914
Distributions -- -- (1,748,626) (1,748,626)
Net income -- -- 2,176,676 2,176,676
----------- ----------- ----------- -----------
Balances, December 31, 1993 100 50,174 990,690 1,040,964
Distributions -- -- (1,356,901) (1,356,901)
Net income -- -- 1,916,991 1,916,991
----------- ----------- ----------- -----------
Balances, December 31, 1994 100 50,174 1,550,780 1,601,054
Distributions -- -- (3,493,036) (3,493,036)
Net income -- -- 3,380,457 3,380,457
=========== =========== =========== ===========
Balances, December 31, 1995 $ 100 $ 50,174 $ 1,438,201 $ 1,488,475
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
<TABLE>
<CAPTION>
MAGIC PROMOTION, INC.
COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,380,457 $ 1,916,991 $ 2,176,676
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,367,598 707,464 1,492,077
Write-down of investment in partnerships 101,994 16,500 --
Minority interests 1,688,531 1,535,495 2,108,791
(Increase) decrease in:
Accounts receivable (582,279) 63,655 (402,868)
Other current assets (282,335) (35,601) (25,427)
Preproduction costs (2,690,538) (1,676,245) (389,540)
Advances and deposits (74,532) (230) (10,136)
Increase (decrease) in:
Accounts payable and accrued liabilities (952,341) 1,595,421 240,946
----------- ----------- -----------
Net cash provided by operating activities 2,956,555 4,123,450 5,190,519
INVESTING ACTIVITIES
Purchase of property and equipment (959,137) (41,227) (184,009)
Investments in partnerships 150,665 (153,342) (234,000)
Notes receivable from affiliates 300,537 (78,289) (169,552)
Investment in management agreements (41,914) (130,000) --
----------- ----------- -----------
Net cash used by investing activities (549,849) (402,858) (587,561)
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
MAGIC PROMOTION, INC.
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Due to affliates $ 178,743 $ 52,600 $ (80,000)
Proceeds of borrowings 1,731,326 239,909 115,320
Repayment of borrowings (264,985) (413,979) --
Payment of deferred costs (113,361) (94,462) --
Distributions to minority interests (2,740,158) (1,950,932) (2,949,710)
Capital contributions from minority
interests 1,125,774 1,691,200 70,000
Distributions (3,493,036) (1,356,901) (1,748,626)
----------- ----------- -----------
Net cash used by financing activities (3,575,697) (1,832,565) (4,593,016)
----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents (1,168,991) 1,888,027 9,942
Cash and cash equivalents at
beginning of year 1,903,936 15,909 5,967
=========== =========== ===========
Cash and cash equivalents at
end of year $ 734,945 $ 1,903,936 $ 15,909
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for interest $ 60,488 $ 19,590 $ 16,369
=========== =========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES
Distribution of notes receivable
from Stockholders $ 809,563 $ -- $ --
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-8
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS OF COMBINED SUBSIDIARIES
Magic Promotion, Inc. and Magic Promotions Inc. (collectively, Magic or the
Company) were formed in 1984 and 1993, in the states of Ohio and Florida,
respectively, as S-Corporations to produce and promote live theatrical
entertainment and to provide ancillary services including merchandising and
transportation. Magic is owned by Messrs. Marsh, Marshall and Bechdel
(collectively, the Stockholders). Magic owns a 50.0% interest in The Judas
Company (Judas), a 57.1% interest in Dolliko and a 77.88% interest in the
Impossible Touring Company (Impossible) and a 33.33% interest in the Ain't
Misbehavin' Company (Ain't Misbehavin), each of which is a general partnership
involved in equity and non-equity theatrical production which commenced
operations during 1993 and 1994. In October 1995, Impossible commenced a new
show with Magic owning a 77.88% interest. The Company has included the accounts
of Judas, Dolliko, Ain't Misbehavin and Impossible in its combined financial
statements as the Stockholders exercise significant control over operating and
financial policies of these general partnerships. The interests of Ain't
Misbehavin, Judas, Dolliko and Impossible not owned by Messrs. Marsh, Marshal
and Bechdel are presented as minority interests in the combined financial
statements. Promotion revenues from Ain't Misbehavin, Judas, Dolliko and
Impossible included in the combined statements of income were $4,930,471,
$3,075,627, and $5,081,851 in 1995, 1994 and 1993, respectively. All significant
intercompany balances and transactions have been eliminated in the combined
financial statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and investments in short-term highly
liquid financial instruments, primarily time deposits and money market accounts,
with original maturities of three months or less. Due to the short maturity
period of the cash equivalents, the carrying amount of these instruments
approximates their fair values.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Property and equipment are depreciated using the straight-line method over the
estimated useful lives of 10 years for leasehold improvements, 3 to 7 years for
furniture and equipment and 10 years for vehicles.
F-9
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED)
Repairs of property and equipment and minor replacements and renewals are
charged to maintenance expense, which is included in general and administrative
expenses, as incurred.
PREPRODUCTION COSTS
Preproduction costs consist mainly of rehearsal salaries, set design and
construction expenditures incurred prior to the first performance of the
theatrical productions. These costs are amortized over the terms of the
respective shows, which range from 12 to 24 months.
DEFERRED COSTS
Deferred costs consist mainly of professional fees incurred in connection with
the proposed private offering of securities by the Company (see Note 10). The
costs associated with the private offering which totaled $207,823 and $94,462 at
December 31, 1995 and 1994, respectively, will be deducted from the net proceeds
of the private securities offering or accounted for as deferred financing costs
based on the types of securities sold.
MANAGEMENT AGREEMENTS
Management and booking agreements consist primarily of the cost to acquire
certain booking rights. Those costs are being amortized over the terms of the
respective agreements. Amortization expense related to these agreements amounted
to $63,333, $29,166 and $7,500, for 1995, 1994 and 1993, respectively.
Accumulated amortization was $99,999 and $36,666 at December 31, 1995 and 1994,
respectively.
REVENUES
Revenues are recognized when earned, which is generally at the time of the
theatrical performance or entertainment events. Cash received in advance of a
performance is reflected in other current liabilities in the accompanying
balance sheets.
F-10
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
REVENUES (CONTINUED)
The Company provides an allowance for losses on accounts receivable based on a
monthly review of the outstanding receivables and evaluation of their
collectibility.
The Company's revenues are primarily derived from the production and promotion
of live theater throughout the United States, Canada and Mexico. Changes in the
entertainment preferences of the general populations could affect the Company's
future revenues.
INCOME TAXES
The Company and its stockholders have elected to be treated as either
S-Corporations under Subchapter S of the Internal Revenue Code or are general
partnerships. As such, the stockholders or partners include their proportionate
share of the Company's income in their respective tax returns.
Upon completion of the transaction discussed in Note 10, the Company will become
subject to state and U.S. corporate income tax.
The accompanying combined statements of income include pro forma adjustments for
income taxes which would have been recorded had the Company been subject to
federal and state corporate income taxes, based on the tax laws in effect during
those periods and statutory rates applied to pre-tax accounting income.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the combined financial statements and
accompanying notes. Actual results could differ from those estimates.
F-11
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash and short-term debt - the carrying amounts of these items are a
reasonable estimate of their fair value.
Long-term debt - interest rates currently available to the Company either
fluctuate with the prime rate of the lending institution or are comparable to
current market rates, and thus the carrying value of long-term debt
approximates fair value.
INVESTMENTS IN PARTNERSHIPS
The Company has limited partnership and joint venture interests, ranging from 1%
to 10%, in various theatrical productions. Because the Company does not exercise
significant influence over the operating and financial policies of these
productions, these investments are carried in the accompanying combined balance
sheets at cost and income is only recognized when received in the form of
distributions.
The Company has four joint venture interests ranging from 25% to 35%, in various
seasonal productions. Because of the short-term nature of these productions, the
investments are carried in the accompanying combined balance sheets at cost and
revenue is recognized using the cost recovery method, whereby no income is
recognized until the investment is recouped.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
approximately $5,200,000, $4,000,000 and $8,100,000 in advertising expense for
the years ended December 31, 1995, 1994 and 1993, respectively, which is
included in talent and other show expenses in the accompanying combined
statements of income.
F-12
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1994 consist of the following:
1995 1994
---------- ----------
Leasehold improvements $ 64,444 $ 64,444
Furniture and equipment 48,898 44,949
Vehicles 1,254,646 299,458
Vehicle under capital lease 198,500 198,500
---------- ----------
1,566,488 607,351
Less accumulated depreciation 475,478 412,118
========== ==========
Property and equipment, net $1,091,010 $ 195,233
========== ==========
3. SHORT-TERM DEBT
Short-term debt consists of the following at December 31, 1995:
$350,000 unsecured demand promissory note,
interest at prime rate charged by
Society National Bank plus 3/4%,
interest due monthly. Guaranteed by
certain Stockholders of the Company. $ 340,982
$500,000 unsecured commercial demand note,
interest at prime rate charged by
National City Bank plus 1.0%, interest
due quarterly. Guaranteed by certain
Stockholders of the Company. 435,156
$400,000 note payable, interest at 10%,
interest due monthly, collateralized
by vehicles. 352,000
----------
Total short-term debt $1,128,138
==========
The weighted average interest rate on the short-term debt was 9.58% as of
December 31, 1995.
F-13
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
1995 1994
-------- --------
10.90% note payable, principal and interest
due monthly through May 2000.
Collateralized by vehicle. $120,627 $ --
10.75% note payable, principal and interest
due monthly through August 1999 .
Collateralized by vehicle. 148,610 --
10.75% note payable, principal and interest
due monthly through October 2000.
Collateralized by vehicle. 166,807 --
7.5% unsecured note payable, principal and
interest due monthly through December
1994. Guaranteed by certain Stockholders
of the Company. -- 50,000
9.0% note payable, principal and interest
due monthly through October 1997.
Collateralized by a vehicle. 53,747 81,286
Capital lease obligation payable in monthly
installments through September 1997
including interest imputed at a rate of
10%, collateralized by a vehicle. 40,778 61,080
-------- --------
530,569 192,366
Less current maturities 137,870 97,882
======== ========
Total long-term debt $392,699 $ 94,484
======== ========
F-14
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
Scheduled maturities of long-term debt are as follows:
Year Ending December 31:
1996 $137,870
1997 136,874
1998 105,710
1999 100,275
2000 49,840
--------
Total maturities of long-term debt $530,569
========
5. MANAGEMENT AGREEMENTS
The Company entered into management agreements with Niko Associates (Niko) for
daily general operations management during the entire periods of production of
Dolliko, Judas and Impossible. Management fees are calculated based on fixed
weekly fees ranging from $2,000 to $5,000 per performance week plus the
reimbursement of certain overhead related costs. Management fees paid by the
Company to Niko amounted to $309,498, $238,408 and $191,300 in 1995, 1994 and
1993, respectively, and are reflected in talent and other show expenses in the
accompanying statements of income.
6. EMPLOYEE BENEFIT PLANS
Effective January 1, 1988, Magic initiated a Money Purchase Plan and Trust (the
Plan) for all full-time employees who have completed one year of service and are
at least 21 years of age. Magic contributes an amount not to exceed 25% of the
participating employee's compensation or $30,000. In addition, the Plan permits
Magic to make additional discretionary contributions to the Plan. Total
contributions to the Plan by Magic were $65,000, $66,446, and $20,268 in 1995,
1994 and 1993, respectively. Employees vest in the Company's discretionary
contributions at the rate of 20% per year upon completion of two years of
service.
F-15
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. LEASES
The Company leases office space from affiliated (See Note 8) and non-affiliated
entities under operating lease agreements which extend through December 31,
1997. The following is a schedule of approximate future minimum lease payments
required under such non-cancelable operating leases at December 31, 1995:
Year Ending December 31:
1996 $37,515
1997 37,515
=======
Total minimum lease payments $75,030
=======
Rent expense amounted to $41,111, $36,914 and $21,676 for the years ended
December 31, 1995, 1994 and 1993, respectively, and is included in general and
administrative expenses in the accompanying combined statements of income.
8. RELATED PARTY TRANSACTIONS
In the normal course of its business, the Company conducts business with
entities related through common ownership.
The Company has entered into two three-year noncancellable operating leases for
office space with related entities. The Company is required to pay taxes,
maintenance, insurance and utility costs. Payments under these leases totaled
$41,111, $36,914 and $21,676 in 1995, 1994 and 1993, respectively.
The Company has notes receivable from entities controlled by certain
Stockholders with an outstanding balance, including accrued interest, of
$159,520 and $460,057 at December 31, 1995 and 1994, respectively. Interest
income related to these receivables totaled $84,520, $28,589 and $-0- in 1995,
1994 and 1993, respectively. These unsecured notes, which bear interest at prime
plus 2.9%, are due on demand.
The Company has payables due to certain Stockholders with an outstanding balance
(including accrued interest), of approximately $265,243 and $86,500 at December
31, 1995 and 1994, respectively. These payables bear no interest and have no
stated repayment terms.
F-16
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company has entered into an agreement with an entity controlled by certain
Stockholders which provided for the exclusive booking during the entire periods
of production of Judas, Impossible, Dolliko and Ain't Misbehavin. Booking
expense related to these agreements was approximately $400,800, $403,000 and
$306,250 for 1995, 1994 and 1993, respectively, and is reflected in talent and
other show expenses in the accompanying statement of income.
9. COMMITMENTS AND CONTINGENCIES
The Company has royalty and employment agreements with certain authors, actors,
directors and choreographers and their respective unions. These agreements are
generally one to three years in length and provide for minimum compensation
levels. These agreements may include incentive bonuses based upon specified
goals. The aggregate commitment for future salaries and royalties, excluding
bonuses, as of December 31, 1995 was approximately $2,288,000, which will be
paid during 1996.
In October 1994, a former independent contractor filed a complaint against Judas
in the Common Pleas Court of Philadelphia County seeking consequential damages
of $5,000,000 arising from the termination of an employment contract by Judas. A
court date has not been set. Management of Judas believes that the lawsuit is
without merit, and that the outcome of this suit will not have a material
adverse effect on the Company's combined financial condition or results of
operations.
Litigation has been threatened by a former financial advisor to the Company with
respect to an alleged contract with the Company that provided that such
individual would receive the right to purchase 5% of the equity in the Company
at a discount upon consummation of a public financing. The Company believes that
it was fraudulently induced to enter into such contract, and that, in any event
the alleged contract was terminated under circumstances in which the individual
is not entitled to any compensation. The Company believes that if the individual
commences an action, his claims will be without merit. The Company intends to
vigorously defend any suit that the defendant might bring in the future based on
the contract and the Company may pursue its own action for declaratory judgment.
F-17
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS
On July 30, 1996, the Company, along with other entities affiliated through
common ownership, became wholly-owned subsidiaries of Magicworks Entertainment
Incorporated (Magicworks) through a stock exchange transaction. Contemporaneous
with this transaction, Magicworks consummated a $10 million private placement
offering of units consisting of unsecured senior convertible notes and common
stock. Also, contemporaneous with these transactions, Magicworks merged with and
into Shadow Wood Corporation, an inactive public company.
F-18
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Diamond Bullet Merchandising, Inc.
We have audited the accompanying balance sheet of Diamond Bullet Merchandising,
Inc. (the Company) as of December 31, 1995, and the related statements of
income, stockholders' deficit and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Diamond Bullet Merchandising,
Inc. at December 31, 1995, and the results of its operations and its cash flows
for the year the ended, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
September 11, 1996
Miami, Florida
F-19
<PAGE>
DIAMOND BULLET MERCHANDISING, INC.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
Current assets:
Cash $ 58,331
Accounts receivable 11,290
Inventories 160,930
Other current assets 44,781
---------
Total current assets 275,332
Furniture and equipment, net of accumulated
depreciation of $34,701 4,858
Due from affiliates 827,571
----------
Total assets $1,107,761
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 315,645
Short-term debt 792,351
Due to stockholders 95,338
----------
Total current liabilities 1,203,334
Contingency
Stockholders' deficit:
Common stock, $1 par value;
100 shares authorized; 100 shares issued and outstanding 100
Additional paid-in capital 900
Accumulated deficit (96,573)
----------
Total stockholders' deficit (95,573)
==========
Total liabilities and stockholders' deficit $1,107,761
==========
SEE ACCOMPANYING NOTES.
F-20
<PAGE>
DIAMOND BULLET MERCHANDISING, INC.
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
Merchandising revenues $1,313,695
Operating expenses:
Cost of goods sold 1,053,667
Salaries, wages and benefits 85,795
General and administrative 140,036
-----------
1,279,498
-----------
Income from operations 34,197
Interest expense (6,417)
-----------
Net income 27,780
Pro forma adjustment for income taxes (10,834)
-----------
Pro forma net income $ 16,946
===========
SEE ACCOMPANYING NOTES.
F-21
<PAGE>
<TABLE>
<CAPTION>
DIAMOND BULLET MERCHANDISING, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
YEAR ENDED DECEMBER 31, 1995
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1994
$ 100 $ 900 $(124,353) $(123,353)
Net income -- -- 27,780 27,780
--------- --------- --------- ---------
Balance at December 31, 1995
$ 100 $ 900 $ (96,573) $ (95,573)
========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
F-22
<PAGE>
DIAMOND BULLET MERCHANDISING, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
OPERATING ACTIVITIES
Net income $ 27,780
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 107,913
Increase in:
Accounts receivable (11,290)
Inventories (16,289)
Other current assets (100,000)
Increase in:
Accounts payable and accrued liabilities 51,455
---------
Net cash provided by operating activities 59,569
INVESTING ACTIVITIES
Purchase of equipment (4,893)
Notes receivable from affiliates (715,620)
---------
Net cash used in investing activities (720,513)
FINANCING ACTIVITIES
Proceeds of borrowings 792,351
Repayments of advances from stockholders (78,684)
---------
Net cash provided by financing activities 713,667
---------
Net increase in cash 52,723
Cash at beginning of year 5,608
---------
Cash at end of year $ 58,331
=========
SEE ACCOMPANYING NOTES.
F-23
<PAGE>
DIAMOND BULLET MERCHANDISING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Diamond Bullet Merchandising, Inc. (DBM) was formed in 1988 in the state of
Florida to sell souvenir related merchandise to theatrical productions produced
by an affiliate and to third parties throughout the United States.
INVENTORIES
Inventories consist of goods held for sale which are valued at the lower of
cost, determined on a first-in first-out basis, or net realizable value.
FURNITURE AND EQUIPMENT
Furniture and equipment are carried at cost less accumulated depreciation.
Furniture and equipment are depreciated using the straight-line method over the
estimated useful lives of 3 to 7 years.
Repairs and minor replacements and renewals are charged to maintenance expense,
which is included in general and other administrative expenses, as incurred.
INCOME TAXES
The Company has elected to be treated as an S-Corporation under Subchapter S of
the Internal Revenue Code. As such, the stockholders include their proportionate
share of the Company's income in their respective tax returns.
Upon completion of the transaction discussed in Note 5, the Company will become
subject to state and U.S. corporate income tax.
The accompanying statement of income includes a pro forma adjustment for income
taxes which would have been recorded had the Company been subject to federal and
state corporate income taxes, based on the tax laws in effect during the year
and statutory rates applied to pre-tax accounting income.
F-24
<PAGE>
DIAMOND BULLET MERCHANDISING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash, short term debt, due from affiliates
and due to stockholders approximate their fair market values.
2. SHORT-TERM DEBT
Short-term debt consisted of a $750,000 revolving credit line, of which $692,351
was outstanding at December 31, 1995. The line of credit accrued interest at a
30-day commercial paper rate charged by Merrill Lynch plus 2.9% (8.7% at
December 31, 1995) payable monthly through August 31, 1996, at which time the
principal balance was due. The line of credit was collateralized by certain
assets of the Company and was guaranteed by certain stockholders of the Company.
On August 5, 1996 the Company repaid the entire outstanding balance of this
revolving credit line with proceeds from the private placement as discussed in
Note 5.
Short-term debt also includes a $100,000 unsecured convertible note payable to
one of the Company's stockholders which accrues interest at 8.5% and matures in
November 1996. On January 1, 1996 the stockholder exercised his option to
convert the outstanding balance of the note to 10 shares of the Company's common
stock.
3. RELATED PARTY TRANSACTIONS
In the normal course of its business, the Company conducts business with its
stockholders and their respective affiliates.
The Company has amounts due to certain stockholders with an aggregate
outstanding balance, including accrued interest, of approximately $95,338 at
December 31, 1995. These amounts bear interest at 8.5% and have no stated
repayment terms.
F-25
<PAGE>
3. RELATED PARTY TRANSACTIONS (CONTINUED)
Fees paid by the Company for accounting, general management, office and other
administrative services to affiliates were $53,218 and are included in general
and administrative expenses in the accompanying statement of income.
The Company has advanced $552,772 of proceeds received from the Company's
revolving credit line to certain affiliates. The Company allocated interest
expense to these affiliates related to these advances of $6,417 in 1995.
Additionally, the Company has advanced funds aggregating $274,799 to certain
affiliates. These advances do not bear interest and have no stated repayment
terms.
4. CONTINGENCY
Litigation has been threatened by a former financial advisor to the Company with
respect to an alleged contract with the Company that provided that such
individual would receive the right to purchase 5% of the equity in the Company
at a discount upon consummation of a public financing. The Company believes that
it was fraudulently induced to enter into such contract, and that, in any event
the alleged contract was terminated under circumstances in which the individual
is not entitled to any compensation. The Company believes that if the individual
commences an action, his claims will be without merit. The Company intends to
vigorously defend any suit that the defendant might bring in the future based on
the contract and the Company may pursue its own action for declaratory judgment.
5. SUBSEQUENT EVENTS
On July 30, 1996, the Company, along with other companies affiliated through
common ownership, became wholly-owned subsidiaries of Magicworks Entertainment
Incorporated, (Magicworks) through a stock exchange transaction. Contemporaneous
with this transaction, Magicworks consummated a $10 million private placement
offering of units consisting of unsecured senior convertible notes and
Magickworks' common stock. Also, contemporaneous with these transactions,
Magicworks merged with and into Shadow Wood Corporation, an inactive public
company.
F-26
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Movietime Entertainment, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of Movietime Entertainment, Inc.
(A Development Stage Company) as of December 31, 1995, and the related
statements of operations, stockholders' deficit and cash flows for the period
from May 24, 1995 (inception) through December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Movietime Entertainment, Inc.
(A Development Stage Company) at December 31, 1995, and the results of its
operations and its cash flows for the period from May 24, 1995 (inception)
through December 31, 1995, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
September 13, 1996
Miami, Florida
F-27
<PAGE>
MOVIETIME ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
Current assets:
Cash $ 4,477
Equipment, net of accumulated depreciation of $13,292 146,208
=========
Total assets $ 150,685
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 1,152
Due to affiliates and stockholder 430,158
---------
Total current liabilities 431,310
Commitments
Stockholders' deficit:
Common stock, $1 par value; 500 shares authorized;
405 shares issued and outstanding 405
Additional paid-in capital 122,176
Subscriptions receivable (243)
Deficit accumulated during the development stage (402,963)
---------
Total stockholders' deficit (280,625)
---------
Total liabilities and stockholders' deficit $ 150,685
=========
SEE ACCOMPANYING NOTES.
F-28
<PAGE>
MOVIETIME ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
For the Period from May 24, 1995 (inception) through December 31, 1995
Expenses:
Salaries, wages and benefits $ 165,401
General and administrative 232,732
---------
398,133
Interest expense 4,830
---------
Net loss $(402,963)
=========
SEE ACCOMPANYING NOTES.
F-29
<PAGE>
<TABLE>
<CAPTION>
MOVIETIME ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIT
DEFICIT
ACCUMULATED
SHARES OF ADDITIONAL DURING THE
COMMON COMMON PAID-IN SUBSCRIPTIONS DEVELOPMENT
STOCK STOCK CAPITAL RECEIVABLE STAGE TOTAL
--------- --------- ---------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Common stock subscriptions 243 $ 243 $ -- $(243) $ -- $ --
Contribution of net assets for
common stock 162 162 122,176 -- -- 122,338
Net loss (402,963) (402,963)
-------- --------- -------- ----- --------- ---------
BALANCE AT DECEMBER 31, 1995 405 $ 405 $122,176 $(243) $(402,963) $(280,625)
======== ========= ======== ===== ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
F-30
<PAGE>
MOVIETIME ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
For the Period from May 24, 1995 (inception) through December 31, 1995
OPERATING ACTIVITIES
Net loss $(402,963)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation 13,292
Decrease in:
Accounts payable and accrued liabilities (36,010)
----------
Net cash used in operating activities (425,681)
FINANCING ACTIVITIES
Proceeds from borrowings from affiliates and stockholder 430,158
----------
Net cash provided by financing activities 430,158
----------
Net increase in cash at December 31, 1995 $ 4,477
=========
SEE ACCOMPANYING NOTES.
F-31
<PAGE>
MOVIETIME ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Movietime Entertainment, Inc. (Movietime or the Company) was formed on May 24,
1995, in the state of Florida, to develop and operate interactive digital phone
systems that provide telephone advertising, information and ticketing services
to the motion picture industry.
On August 10, 1995, certain stockholders contributed equipment with an estimated
fair market value of $159,500 and accounts payable of $37,162 to the Company in
exchange for 162 shares of common stock.
DEVELOPMENT STAGE
The Company has operated as a development stage enterprise since its inception
by devoting substantially all of its efforts to financial planning, raising
capital, research and development and marketing for its products. Accordingly,
the financial statements of the Company have been prepared in accordance with
the accounting and reporting principles prescribed by Statement of Financial
Accounting Standards (SFAS) No. 7 ACCOUNTING AND REPORTING BY DEVELOPMENT STAGE
ENTERPRISE, issued by the Financial Accounting Standards Board. During 1996, the
Company commenced its planned principal operations.
EQUIPMENT
Equipment is carried at cost less accumulated depreciation. Equipment is
depreciated using the straight-line method over its estimated useful life of 5
years.
Repairs and minor replacements and renewals are charged to maintenance expense,
which is included in general and administrative expenses, as incurred.
ADVERTISING COSTS
Advertising costs are expensed as incurred. The Company incurred approximately
$19,000 in advertising costs for the period ending December 31, 1995.
F-32
<PAGE>
MOVIETIME ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company and its stockholders have elected to be treated as an S-Corporation
under Subchapter S of the Internal Revenue Code. As such, the stockholders
include their proportionate share of the Company's income or loss in their
respective tax returns.
Upon completion of the transaction discussed in Note 4, the Company will be a
wholly owned subsidiary of a company that is subject to state and U.S. corporate
income tax.
Since the Company has incurred losses during its development stage and the
utilization of such losses on a carry-forward basis is not ascertainable, no pro
forma benefit for income taxes has been provided.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and due to affiliates and stockholder approximate
their fair values.
2. RELATED PARTY TRANSACTIONS
The Company has amounts payable to companies affiliated by common ownership with
an aggregate outstanding balance, including accrued interest, of $405,158 at
December 31, 1995. These amounts bear interest at prime plus 2.9% and are due
upon demand. Interest expense related to these borrowings totaled $4,830 for the
period ended December 31, 1995. No interest was paid during the period.
The Company received a non-interest bearing advance in the amount of $25,000
from a stockholder. The advance is due upon demand.
F-33
<PAGE>
MOVIETIME ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. COMMITMENTS
The Company has two employment agreements which expire on May 25, 1997. The
agreements provide for incentive bonuses based upon specified goals. The
aggregate commitment for future salaries, excluding bonuses, as of December 31,
1995 was approximately $192,000.
On December 20, 1995, the Company entered into a service contract with a vendor
(the Vendor) to supply voice mail information services. The agreement calls for
an initial fee of $34,950 payable on or before January 31, 1996. The agreement
also requires a minimum subscription of thirty movie theaters to each of the
vendor's fifteen service centers. If the Company does not satisfy such
obligation, Movietime shall pay the vendor $175 per subscriber under the minimum
requirement as defined in the agreement.
4. SUBSEQUENT EVENT
On August 28, 1996, the Company entered into a merger agreement with Magicworks
Entertainment Incorporated (Magicworks) whereby Magicworks issued 1,199,999
shares of its common stock in exchange for all issued and outstanding common
shares of Movietime. As a result, Movietime became a wholly owned subsidiary of
Magicworks.
F-34
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Magic Promotion, Inc. and
Movietime Entertainment, Inc.
We have audited the accompanying historical supplemental pooled balance sheets
of Magic Promotion, Inc. and Movietime Entertainment, Inc. (the Company) as of
December 31, 1995 and 1994, and the related historical supplemental pooled
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company' management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the historical supplemental pooled financial position of
Magic Promotion, Inc. and Movietime Entertainment, Inc. at December 31, 1995 and
1994, and the historical supplemental pooled results of their operations and
their cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
September 13, 1996
Miami, Florida
F-35
<PAGE>
MAGIC PROMOTION, INC. AND
MOVIETIME ENTERTAINMENT, INC.
HISTORICAL SUPPLEMENTAL POOLED BALANCE SHEETS
DECEMBER 31
1995 1994
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 739,422 $1,903,936
Accounts receivable 1,107,451 525,172
Notes receivable from affiliates 159,520 460,057
Preproduction costs, net 1,508,314 1,058,681
Other current assets 353,463 71,128
--------- ---------
Total current assets 3,868,170 4,018,974
Property and equipment, net 1,237,218 195,233
Investments in partnerships 199,677 452,336
Advances and deposits 293,850 219,318
Deferred costs 207,823 94,462
Management agreements, net 364,415 385,834
--------- ---------
Total assets $6,171,153 $5,366,157
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $1,112,742 $2,063,931
Short-term debt 1,128,138 --
Due to affiliates 695,401 86,500
Current maturities of long-term debt 137,870 97,882
--------- ---------
Total current liabilities 3,074,151 2,248,313
Long-term debt, less current maturities 392,699 94,484
Minority interests 1,496,453 1,422,306
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value; 100 shares
authorized; 100 shares issued and outstanding 100 100
Additional paid-in capital 172,512 50,174
Retained earnings 1,035,238 1,550,780
--------- ---------
Total stockholders' equity 1,207,850 1,601,054
--------- ---------
Total liabilities and stockholders' equity $6,171,153 $5,366,157
========= =========
SEE ACCOMPANYING NOTES.
F-36
<PAGE>
<TABLE>
<CAPTION>
MAGIC PROMOTION, INC. AND
MOVIETIME ENTERTAINMENT, INC.
HISTORICAL SUPPLEMENTAL POOLED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Production $ 31,638,078 $ 23,313,026 $ 18,151,149
Promotion 6,668,672 6,268,273 10,009,734
Merchandising 1,160,519 687,755 876,740
Other 1,237,126 873,032 475,630
------------ ------------ ------------
40,704,395 31,142,086 29,513,253
Operating expenses:
Talent and other show 33,346,544 25,871,621 23,561,001
Salaries, wages and benefits 1,351,312 975,400 877,983
Cost of goods sold 408,697 470,775 589,356
General and administrative 1,393,605 801,361 551,888
------------ ------------ ------------
36,500,158 28,119,157 25,580,228
Income from operations 4,204,237 3,022,929 3,933,025
Other income (expense):
Interest income 108,427 32,076 3,835
Interest expense (65,318) (19,590) (16,369)
From investments in noncombined
productions 418,679 417,071 364,976
Minority interests (1,688,531) (1,535,495) (2,108,791)
------------ ------------ ------------
Net income 2,977,494 1,916,991 2,176,676
Pro forma adjustment for income taxes (1,318,378) (747,626) (848,904)
------------ ------------ ------------
Pro forma net income $ 1,659,116 $ 1,169,365 $ 1,327,772
============ ============ ============
</TABLE>
F-37
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
MAGIC PROMOTION, INC. AND
MOVIETIME ENTERTAINMENT, INC.
HISTORICAL SUPPLEMENTAL POOLED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances, December 31, 1992 $ 100 $ 50,174 $ 562,640 $ 612,914
Distributions -- -- (1,748,626) (1,748,626)
Net income -- -- 2,176,676 2,176,676
----------- ----------- ----------- -----------
Balances, December 31, 1993 $ 100 50,174 990,690 1,040,964
Distributions -- -- (1,356,901) (1,356,901)
Net income -- -- 1,916,991 1,916,991
----------- ----------- ----------- -----------
Balances, December 31, 1994 $ 100 50,174 1,550,780 1,601,054
Contribution of net assets -- 122,338 -- 122,338
Distributions -- -- (3,493,036) (3,493,036)
Net income -- -- 2,977,494 2,977,494
----------- ----------- ----------- -----------
Balances, December 31, 1995 $ 100 $ 172,512 $ 1,035,238 $ 1,207,850
=========== =========== =========== ===========
</TABLE>
F-38
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
MAGIC PROMOTION, INC. AND
MOVIETIME ENTERTAINMENT, INC.
HISTORICAL SUPPLEMENTAL POOLED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,977,494 $ 1,916,991 $ 2,176,676
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,380,890 707,464 1,492,077
Write-down of investment in
partnerships
101,994 16,500 --
Minority interests 1,688,531 1,535,495 2,108,791
(Increase) decrease in:
Accounts receivable (582,279) 63,655 (402,868)
Other current assets (282,335) (35,601) (25,427)
Preproduction costs (2,690,538) (1,676,245) (389,540)
Advances and deposits (74,532) (230) (10,136)
Increase (decrease) in:
Accounts payable and accrued
liabilities (988,351) 1,595,421 240,946
----------- ----------- -----------
Net cash provided by operating activities 2,530,874 4,123,450 5,190,519
INVESTING ACTIVITIES
Purchase of property and equipment (959,137) (41,227) (184,009)
Investments in partnerships 150,665 (153,342) (234,000)
Notes receivable from affiliates 300,537 (78,289) (169,552)
Investment in management and booking
agreements (41,914) (130,000) --
----------- ----------- -----------
Net cash used by investing activities (549,849) (402,858) (587,561)
</TABLE>
F-39
<PAGE>
<TABLE>
<CAPTION>
MAGIC PROMOTION, INC. AND
MOVIETIME ENTERTAINMENT, INC.
HISTORICAL SUPPLEMENTAL POOLED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31
1995 1994 1993
----------- ----------- -----------
FINANCING ACTIVITIES
<S> <C> <C> <C>
Due to affiliates $ 608,901 $ 52,600 $ (80,000)
Proceeds of borrowings 1,731,326 239,909 115,320
Repayment of borrowings (264,985) (413,979) --
Payment of deferred costs (113,361) (94,462) --
Distributions to minority interests (2,740,158) (1,950,932) (2,949,710)
Capital contributions from minority
interests 1,125,774 1,691,200 70,000
Distributions (3,493,036) (1,356,901) (1,748,626)
----------- ----------- -----------
Net cash used by financing activities (3,145,539) (1,832,565) (4,593,016)
----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents (1,164,514) 1,888,027 9,942
Cash and cash equivalents at
beginning of year 1,903,936 15,909 5,967
=========== =========== ===========
Cash and cash equivalents at
end of year $ 739,422 $ 1,903,936 $ 15,909
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for interest $ 60,488 $ 19,590 $ 16,369
=========== =========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Contribution of assets, net of liabilities
assumed of $ 37,162 $ 122,338 $ --
=========== =========== ===========
Distribution of notes receivable
from affiliates $ 809,563 $ -- $ --
=========== =========== ===========
</TABLE>
F-40
SEE ACCOMPANYING NOTES.
<PAGE>
MAGIC PROMOTION, INC. AND
MOVIETIME ENTERTAINMENT, INC.
NOTES TO HISTORICAL SUPPLEMENTAL POOLED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The historical supplemental pooled financial statements include the assets,
liabilities and operations of Magic Promotion, Inc. and Movietime Entertainment,
Inc. (collectively, the Company). All significant intercompany balances and
transactions have been eliminated in the historical supplemental pooled
financial statements.
The historical supplemental pooled financial statements have been prepared for
purposes of presenting the historical pooled results of Magic Promotion, Inc.
and Movietime Entertainment, Inc., as a result of the acquisition of Movietime
by Magicworks Entertainment Incorporated, as discussed in Note 10.
NATURE OF OPERATIONS OF CONSOLIDATED SUBSIDIARIES
Magic Promotion, Inc. and Magic Promotions, Inc. (collectively Magic) were
formed in 1984 and 1993, in the states of Ohio and Florida, respectively, as
S-Corporations to produce and promote live theatrical entertainment and to
provide ancillary services including merchandising and transportation. Magic is
owned by Messrs. Marsh, Marshall and Bechdel. Magic owns a 50.0% interest in The
Judas Company (Judas), a 57.1% interest in Dolliko and a 77.88% interest in the
Impossible Touring Company (Impossible) and a 33.33% interest in the Ain't
Misbehavin' Company (Ain't Misbehavin), four general partnerships involved in
equity and non-equity theatrical production which commenced operations during
1993 and 1994. In October 1995, Impossible commenced a new show with Magic
owning a 77.88% interest. The Company has included the accounts of Judas,
Dolliko and Impossible in its combined financial statements as the stockholders
exercise significant control over operating and financial policies of these
general partnerships. The interests of Ain't Misbehavin, Judas, Dolliko and
Impossible not owned by Magic are presented as minority interests in the
combined financial statements. Promotion revenues from Ain't Misbehavin, Judas,
Dolliko and Impossible included in the supplemental pooled statements of income
were $4,930,471, $3,075,627, and $5,081,851 in 1995, 1994 and 1993,
respectively.
F-41
<PAGE>
MAGIC PROMOTION, INC. AND
MOVIETIME ENTERTAINMENT, INC.
NOTES TO HISTORICAL SUPPLEMENTAL POOLED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
NATURE OF OPERATIONS OF CONSOLIDATED SUBSIDIARIES (CONTINUED)
Movietime Entertainment, Inc. (Movietime) was formed on May 24, 1995 in the
state of Florida as an S-Corporation to develop and operate interactive phone
systems that provide telephone advertising, information and ticketing services
to the motion picture industry. Movietime has operated as a development stage
enterprise since its inception by devoting substantially all of its efforts to
financial planning, raising capital, research and development and marketing for
its products. During 1996, Movietime commenced its planned principal operations.
On August 10, 1995, certain stockholders contributed equipment with an
agreed-upon market value of $159,500 and accounts payable of $37,162 to
Movietime in exchange for shares of common stock.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and investments in short-term highly
liquid financial instruments, primarily time deposits and money market accounts,
with original maturities of three months or less. Due to the short maturity
period of the cash equivalents, the carrying amount of these instruments
approximates their fair values.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Property and equipment are depreciated using the straight-line method over the
estimated useful lives of 10 years for leasehold improvements, 3 to 7 years for
furniture and equipment and 10 years for vehicles.
F-42
<PAGE>
MAGIC PROMOTION, INC. AND
MOVIETIME ENTERTAINMENT, INC.
NOTES TO HISTORICAL SUPPLEMENTAL POOLED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED)
Repairs of property and equipment and minor replacements and renewals are
charged to maintenance expense, which is included in general and administrative
expenses, as incurred.
PREPRODUCTION COSTS
Preproduction costs consist mainly of rehearsal salaries, set design and
construction expenditures incurred prior to the first performance of the
theatrical productions. These costs are amortized over the terms of the
respective shows, which range from 12 to 24 months.
DEFERRED COSTS
Deferred costs consist mainly of professional fees incurred in connection with
the proposed private offering of debt and equity securities by the Company (see
Note 10). The costs associated with the private offering which totaled $207,823
and $94,462 at December 31, 1995 and 1994, respectively, will be deducted from
the net proceeds of the private offering or accounted for as deferred financing
costs based on the types of securities sold.
MANAGEMENT AGREEMENTS
Management agreements consist primarily of the cost to acquire certain booking
rights. Those costs are being amortized over the terms of the respective
agreements. Amortization expense related to these agreements amounted to
$63,333, $29,166 and $7,500, for 1995, 1994 and 1993, respectively. Accumulated
amortization was $99,999 and $36,666 at December 31, 1995 and 1994,
respectively.
REVENUES
Revenues are recognized when earned, which is generally at the time of the
theatrical performance or entertainment events. Cash received in advance of a
performance is reflected in other current liabilities in the accompanying
balance sheets.
F-43
<PAGE>
MAGIC PROMOTION, INC. AND
MOVIETIME ENTERTAINMENT, INC.
NOTES TO HISTORICAL SUPPLEMENTAL POOLED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
REVENUES (CONTINUED)
The Company provides an allowance for losses on accounts receivable based on a
monthly review of the outstanding receivables and evaluation of their
collectibility.
The Company's revenues are primarily derived from the production and promotion
of live theater throughout the United States, Canada and Mexico. Changes in the
entertainment preferences of the general populations could affect the Company's
future revenues.
INCOME TAXES
The Company and its stockholders have elected to be treated as either
S-Corporations under Subchapter S of the Internal Revenue Code or are general
partnerships. As such, the stockholders or partners include their proportionate
share of the Company's income in their respective tax returns.
Upon completion of the transaction discussed in Note 10, the Company will become
subject to state and U.S. corporate income tax.
The accompanying combined statements of operations include pro forma adjustments
for income taxes which would have been recorded had the Company been subject to
federal and state corporate income taxes, based on the tax laws in effect during
those periods and statutory rates applied to pre-tax accounting income.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the combined financial statements and
accompanying notes. Actual results could differ from those estimates.
F-44
<PAGE>
MAGIC PROMOTION, INC. AND
MOVIETIME ENTERTAINMENT, INC.
NOTES TO HISTORICAL SUPPLEMENTAL POOLED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash and short-term debt - carrying amounts of these items are a reasonable
estimate of their fair value.
Long-term debt - interest rates currently available to the Company either
fluctuate with the prime rate of the lending institution or are comparable to
current market rates, and thus their carrying value approximates fair value.
INVESTMENTS IN PARTNERSHIPS
The Company has limited partnership and joint venture interests, ranging from 1%
to 10%, in various theatrical productions. Because the Company does not exercise
significant influence over the operating and financial policies of these
productions, these investments are carried in the accompanying combined balance
sheets at cost and income is only recognized when received in the form of
distributions.
The Company has four joint venture interests ranging from 25% to 35%, in various
seasonal productions. Because of the short-term nature of these productions, the
investments are carried in the accompanying combined balance sheets at cost and
revenue is recognized using the cost recovery method, whereby no income is
recognized until the investment is recouped.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
approximately $5,200,000, $4,000,000 and $8,100,000 in advertising expense for
the years ended December 31, 1995, 1994 and 1993, respectively, which is
included in talent and other show operating expenses in the accompanying
supplemental pooled statements of income.
F-45
<PAGE>
MAGIC PROMOTION, INC. AND
MOVIETIME ENTERTAINMENT, INC.
NOTES TO HISTORICAL SUPPLEMENTAL POOLED FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1994 consist of the following:
1995 1994
---------- ----------
Leasehold improvements $ 64,444 $ 64,444
Furniture and equipment 208,398 44,949
Vehicles 1,254,646 299,458
Vehicle under capital lease 198,500 198,500
---------- ----------
1,566,488 607,351
Less accumulated depreciation and
amortization 488,770 412,118
---------- ----------
Property and equipment, net $1,237,218 $ 195,233
========== ==========
3. SHORT-TERM DEBT
Short-term debt consists of the following at December 31, 1995:
$350,000 unsecured demand promissory
note, interest at prime rate charged
by Society National Bank plus 3/4%,
principal and interest due monthly.
Guaranteed by certain stockholders
of the Company. $ 340,982
$500,000 unsecured commercial demand
note, interest at prime rate
charged by National City Bank plus
1.0%, principal and interest due
quarterly. Guaranteed by certain
stockholders of the Company. 435,156
$400,000 note payable, principal and
interest due at 10%, principal and
interest due monthly, collateralized
by vehicles.
352,000
---------
Total short-term debt $1,128,138
=========
The weighted average interest rate on the short-term debt was 9.58% as of
December 31, 1995.
F-46
<PAGE>
MAGIC PROMOTION, INC. AND
MOVIETIME ENTERTAINMENT, INC.
NOTES TO HISTORICAL SUPPLEMENTAL POOLED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
1995 1994
-------- --------
10.90% note payable, principal and interest
due monthly through May 2000
Collateralized by vehicle $120,627 $ --
10.75% note payable, principal and interest
due monthly through August 1999
Collateralized by vehicle 148,610 --
10.75% note payable, principal and interest
due monthly through October 2000
Collateralized by vehicle 166,807 --
7.5% unsecured note payable, principal and
interest due monthly through December
1994. Personally guaranteed by certain
stockholders of the Company -- 50,000
9.0% note payable, principal and interest
due monthly through October 1997
Collateralized by a vehicle 53,747 81,286
Capital lease obligation payable in monthly
installments through September 1997
including interest imputed at a rate of
10%, collateralized by a vehicle 40,778 61,080
-------- --------
530,569 192,366
Less current maturities 137,870 97,882
======== ========
Total long-term debt $392,699 $ 94,484
======== ========
F-47
<PAGE>
MAGIC PROMOTION, INC. AND
MOVIETIME ENTERTAINMENT, INC.
NOTES TO HISTORICAL SUPPLEMENTAL POOLED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
Scheduled maturities of long-term debt are as follows:
Year Ending December 31:
1996 $137,870
1997 136,874
1998 105,710
1999 100,275
2000 49,840
--------
Total maturities of long-term debt $530,569
========
5. MANAGEMENT AGREEMENTS
The Company entered into management agreements with Niko Associates (Niko) for
daily general operations management during the entire periods of production of
Dolliko, Judas and Impossible. Management fees are calculated based on fixed
weekly fees ranging from $2,000 to $5,000 per performance week plus the
reimbursement of certain overhead related costs. Management fees paid by the
Company to Niko amounted to $309,498, $238,408 and $191,300 in 1995, 1994 and
1993, respectively, and are reflected in talent and other show expenses in the
accompanying statements of income.
6. EMPLOYEE BENEFIT PLANS
Effective January 1, 1988, Magic initiated a Money Purchase Plan and Trust (the
Plan) for all full-time employees who have completed one year of service and are
at least 21 years of age. Magic contributes an amount not to exceed 25% of the
participating employee's compensation or $30,000. In addition, the Plan permits
Magic to make additional discretionary contributions to the Plan. Total
contributions to the Plan by Magic were $65,000, $66,446 and $20,268 in 1995,
1994 and 1993, respectively. Employees vest in the Company's discretionary
contributions at the rate of 20% per year upon completion of two years of
service.
F-48
<PAGE>
MAGIC PROMOTION, INC. AND
MOVIETIME ENTERTAINMENT, INC.
NOTES TO HISTORICAL SUPPLEMENTAL POOLED FINANCIAL STATEMENTS (CONTINUED)
7. LEASES
The Company leases office space from affiliated (See Note 8) and non-affiliated
entities under operating lease agreements which extend through December 31,
1997. The following is a schedule of approximate future minimum lease payments
required under such non-cancelable operating leases at December 31, 1995:
Year Ending December 31:
1996 $37,515
1997 37,515
-------
Total minimum lease payments $75,030
=======
Rent expense amounted to $41,111, $36,914 and $21,676 for the years ended
December 31, 1995, 1994 and 1993, respectively, and is included in general and
administrative expenses in the accompanying combined statements of income.
8. RELATED PARTY TRANSACTIONS
In the normal course of its business, the Company conducts business with
entities related through common ownership.
The Company has entered into two three-year noncancelable operating leases for
office space with related entities. The Company is required to pay taxes,
maintenance, insurance and utility costs. Payments under these leases totaled
$41,111, $36,914 and $21,676 in 1995, 1994 and 1993, respectively.
The Company has notes receivable from entities controlled by certain
Stockholders with an outstanding balance, including accrued interest, of
$159,520 and $460,057 at December 31, 1995 and 1994, respectively. Interest
income related to these receivables totaled $84,520, $28,589 and $-0- in 1995,
1994 and 1993, respectively. These unsecured notes, which can be extended with
prior written notice, bear interest at prime plus 2.9% and are due in 1996.
F-49
<PAGE>
MAGIC PROMOTION, INC. AND
MOVIETIME ENTERTAINMENT, INC.
NOTES TO HISTORICAL SUPPLEMENTAL POOLED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company has payables due to companies affiliated by common ownership with an
aggregate outstanding balance, including accrued interest, of $405,158 at
December 31, 1995. These amounts bear interest at prime plus 2.9% and are due
upon demand. Interest expense related to these borrowings totaled $4,830 for the
year ended December 31, 1995.
The Company has payables due to certain stockholders with an outstanding balance
(including accrued interest), of approximately $265,243 and $86,500 at December
31, 1995 and 1994, respectively. These payables bear no interest and have no
stated repayment terms.
The Company received a noninterest bearing advance in the amount of $25,000 from
a stockholder. The advance is due upon demand.
The Company has entered into an agreement with an entity controlled by certain
stockholders which provided for the exclusive booking during the entire periods
of production of Judas, Impossible, Dolliko and Ain't Misbehavin. Booking
expense related to these agreements was $400,800, $403,000 and $306,250 for
1995, 1994 and 1993, respectively, and is reflected in talent and other show
expenses in the accompanying statement of income.
9. COMMITMENTS AND CONTINGENCIES
The Company has royalty and employment agreements with certain authors, actors,
directors and choreographers and their respective unions. These agreements are
generally one to three years in length and provide for minimum compensation
levels. These agreements may include incentive bonuses based upon specified
goals. The aggregate commitment for future salaries and royalties, excluding
bonuses, as of December 31, 1995 was approximately $2,480,000, which will be
paid during 1996.
In October 1994, a former independent contractor filed a complaint against Judas
in the Common Pleas Court of Philadelphia County seeking consequential damages
of $5,000,000 arising from the termination of an employment contract by Judas. A
court date has not been set. Management of Judas believes that the lawsuit is
without merit, and that the outcome of this suit will not have a material
adverse effect on the Company's combined financial condition or results of
operations.
F-50
<PAGE>
MAGIC PROMOTION, INC. AND
MOVIETIME ENTERTAINMENT, INC.
NOTES TO HISTORICAL SUPPLEMENTAL POOLED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation has been threatened by a former financial advisor to the Company with
respect to an alleged contract with the Company that provided that such
individual would receive the right to purchase 5% of the equity in the Company
at a discount upon consummation of a public financing. The Company believes that
it was fraudulently induced to enter into such contract, and that, in any event,
the alleged contract was terminated under circumstances in which the individual
is not entitled to any compensation. The Company believes that if the individual
commences an action, his claims will be without merit. The Company intends to
vigorously defend any suit that the defendant might bring in the future based on
the contract and the Company may pursue its own action for declaratory judgment.
The Company has employment agreements with two of its executives which expire on
May 25, 1997. The agreements provide for incentive bonuses based upon specified
goals. The aggregate commitment for future salaries, excluding bonuses, as of
December 31, 1995 was approximately $192,000.
On December 20, 1995, the Company entered into a service agreement with a vendor
(the Vendor) to supply voice mail information services. The agreement calls for
an initial fee of $34,950 payable on or before January 31, 1996. The agreement
also requires a minimum subscription of thirty movie theaters to each of the
Vendor's fifteen service centers. If the Company does not satisfy such
obligation, Movietime shall pay the Vendor $175 per subscriber under the minimum
requirement, as defined in the agreement.
10. SUBSEQUENT EVENTS
On July 30, 1996, the Company, along with other entities affiliated through
common ownership, became wholly-owned subsidiaries of Magicworks Entertainment,
Incorporated, (Magicworks), through a stock exchange transaction.
Contemporaneous with this transaction, Magicworks consummated a $10 million
private placement offering of units consisting of unsecured senior convertible
notes and common stock. Also, contemporaneous with these transactions,
Magicworks merged with and into Shadow Wood Corporation, an inactive public
company.
F-51
<PAGE>
MAGIC PROMOTION, INC. AND
MOVIETIME ENTERTAINMENT, INC.
NOTES TO HISTORICAL SUPPLEMENTAL POOLED FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS (CONTINUED)
On August 28, 1996, Magicworks entered into a merger agreement with Movietime
whereby Magicworks issued 1,199,999 shares of its common stock in exchange for
all issued and outstanding common stock of Movietime. As a result, Movietime
became a wholly-owned subsidiary of Magicworks. This transaction has been
accounted for as a pooling of interests.
F-52
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Principals of
Magicworks Entertainment
We have audited the accompanying combined balance sheets of the entities listed
in Note 1 (Magicworks Entertainment) as of December 31, 1995 and 1994, and the
related combined statements of income, changes in capital and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the entities' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Magicworks
Entertainment at December 31, 1995 and 1994, and the combined results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
April 11, 1996
Miami, Florida
F-53
<PAGE>
MAGICWORKS ENTERTAINMENT
COMBINED BALANCE SHEETS
DECEMBER 31
1995 1994
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 862,127 $1,955,315
Accounts receivable 1,196,297 615,073
Inventories 160,930 144,641
Preproduction costs, net 1,508,314 1,058,681
Other current assets 354,663 72,328
---------- ----------
Total current assets 4,082,331 3,846,038
Property and equipment, net 1,153,096 259,373
Investments in partnerships 347,783 502,220
Advances and deposits 343,194 281,089
Notes receivable from affiliates 665,419 460,057
Deferred costs 564,032 319,373
Management and booking agreements, net 454,442 538,121
---------- ----------
Total assets $7,610,297 $6,206,271
========== ==========
LIABILITIES AND CAPITAL
Current liabilities:
Current maturities of long-term debt $ 137,870 $ 97,882
Accounts payable and accrued liabilities 1,480,979 2,223,060
Short-term debt 1,920,489 --
Due to affiliates 398,819 485,680
---------- ----------
Total current liabilities 3,938,157 2,806,622
Long-term debt, less current maturities 392,699 94,484
Minority Interests 1,470,457 1,404,860
Commitments and contingencies
Capital:
Common stock 8,000 8,000
Partners' capital/retained earnings 1,800,984 1,892,305
---------- ----------
1,808,984 1,900,305
---------- ----------
Total liabilities and capital $7,610,297 $6,206,271
========== ==========
SEE ACCOMPANYING NOTES
F-54
<PAGE>
<TABLE>
<CAPTION>
MAGICWORKS ENTERTAINMENT
COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Production $ 31,638,078 $ 23,346,244 $ 18,250,149
Promotion 6,668,672 6,268,273 10,009,734
Merchandising 2,474,214 2,338,619 2,461,577
Other 1,953,135 1,463,057 1,445,791
----------- ----------- -----------
Total revenues 42,734,099 33,416,193 32,167,251
Operating expenses:
Talent and other show 32,945,744 25,449,871 23,254,751
Salaries, wages and benefits 1,890,938 1,529,300 1,333,330
Cost of goods sold 1,462,364 1,824,102 1,860,777
General and administrative 1,743,081 1,436,139 1,161,347
----------- ----------- -----------
Total operating expenses 38,042,127 30,239,412 27,610,205
Income from operations 4,691,972 3,176,781 4,557,046
Other income (expense):
Interest income 109,060 14,801 6,579
Interest expense (88,015) (20,011) (79,686)
From investments in productions 418,679 417,071 364,976
Minority interests (1,446,888) (1,460,444) (1,828,358)
----------- ----------- -----------
Net income 3,684,808 2,128,198 3,020,557
Pro forma adjustment for
income taxes (1,437,075) (829,997) (1,178,017)
----------- ----------- -----------
Pro forma net income $ 2,247,733 $ 1,298,201 $ 1,842,540
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
F-55
<PAGE>
MAGICWORKS ENTERTAINMENT
COMBINED STATEMENTS OF CHANGES IN CAPITAL
PARTNERS'
CAPITAL/
COMMON RETAINED
STOCK EARNINGS TOTAL
------ ----------- -----------
Balance at December 31, 1992 $8,000 $ 646,748 $ 654,748
Capital contributions -- 2,682 2,682
Distributions -- (2,289,002) (2,289,002
Net income -- 3,020,557 3,020,557
------ ---------- ----------
Balance at December 31, 1993 8,000 1,380,985 1,388,985
Distributions -- (1,616,878) (1,616,878)
Net income -- 2,128,198 2,128,198
------ ---------- ----------
Balance at December 31, 1994 8,000 1,892,305 1,900,305
Capital contributions -- 40,000 40,000
Distributions -- (3,816,129) (3,816,129)
Net income -- 3,684,808 3,684,808
------ ---------- ----------
Balance at December 31, 1995 $8,000 $ 1,800,984 $ 1,808,984
====== ========== ==========
SEE ACCOMPANYING NOTES
F-56
<PAGE>
<TABLE>
<CAPTION>
MAGICWORKS ENTERTAINMENT
COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $3,684,808 $2,128,198 $3,020,557
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 219,894 163,391 141,870
Write-down of investment in partnerships 101,994 68,715 -
Minority interests 1,446,888 1,460,444 1,828,358
(Increase) decrease in:
Accounts receivable (581,224) 15,032 (478,661)
Inventories (16,289) 2,598 29,217
Other current assets (282,335) (35,601) (11,064)
Preproduction costs (449,633) (1,058,681) 1,038,426
Advances and deposits (62,105) 76,344 34,958
Increase (decrease) in:
Accounts payable and accrued liabilities (742,081) 1,315,195 468,588
--------- --------- ---------
Net cash provided by operating activities 3,319,917 4,135,635 6,072,249
INVESTING ACTIVITIES
Investment in cultural facility (82,634) (20,054) (51,894)
Due to affiliates (86,861) 24,247 38,296
Notes receivable from affiliates (205,362) (57,464) (66,756)
Purchase of property and equipment (966,024) (46,260) (216,292)
Investments in partnerships 52,443 (132,941) (309,500)
Investment in management and
booking agreements (63,914) (160,289) -
--------- --------- ---------
Net cash used by investing activities (1,352,352) (392,761) (606,146)
FINANCING ACTIVITIES
Proceeds of borrowings 2,523,677 142,027 -
Repayment of borrowings (264,985) (326,054) (331,608)
Increase in public offering costs (162,025) (94,462) -
Distributions to minority interests (2,507,065) (1,882,764) (2,675,110)
Capital contributions from minority interests 1,125,774 1,691,200 70,000
Distributions (3,816,129) (1,616,878) (2,289,002)
Capital contributions 40,000 - 2,682
--------- --------- ---------
Net cash used by financing activities (3,060,753) (2,086,931) (5,223,038)
--------- --------- ---------
Net (decrease) increase in cash and
cash equivalents (1,093,188) 1,655,943 243,065
Cash and cash equivalents at
beginning of year 1,955,315 299,372 56,307
--------- --------- ---------
Cash and cash equivalents at end of year $ 862,127 $1,955,315 $ 299,372
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 66,905 $ 28,726 $ 58,200
========= ========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Distribution of notes receivable to affiliates $ 666,288 $ - $ -
========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES
F-57
<PAGE>
MAGICWORKS ENTERTAINMENT
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of certain wholly-owned
and majority-owned partnerships, joint ventures and corporations owned by
Messrs. Marsh, Marshall, Krassner, Turk and Bechdel (collectively the
"Principals"). The principal businesses include Magic Promotion Inc., Diamond
Bullet Merchandising, Inc., Touring Artists Group, Inc., Performing Arts
Management of North Miami, Inc., The Judas Company, Dolliko, The Impossible
Touring Company and certain affiliated entertainment production and promotion
related entities (collectively "Magicworks Entertainment" or the "Company"). The
Company's fiscal year ends on December 31. All significant intercompany balances
and transactions have been eliminated in the combined financial statements.
These entities have been combined for purposes of ultimately consummating a
financing transaction.
NATURE OF OPERATIONS OF CONSOLIDATED SUBSIDIARIES
Magic Promotion Inc. and Magic Promotions Inc. (collectively "Magic") were
formed in 1984 and 1993, in the states of Ohio and Florida, respectively, as
S-Corporations to produce and promote live theatrical entertainment and to
provide ancillary services including merchandising and transportation. Magic is
wholly-owned by the Principals. Magic owns a 50.0% interest in The Judas Company
("Judas"), a 57.1% interest in Dolliko, a 77.88% interest in the Impossible
Touring Company ("Impossible") and a 33.33% interest in the Ain't Misbehavin'
Company ("Ain't Misbehavin"), four general partnerships involved in equity and
non-equity theatrical production which commenced operations during 1993 and
1994. In October 1995, the Impossible Touring Company commenced a new show with
Magic owning a 77.88% interest. The Company has included the accounts of Judas,
Dolliko and Impossible in its combined financial statements as the Principals
exercise significant control over operating and financial policies of these
general partnerships. The interests of Ain't Misbehavin, Judas, Dolliko and
Impossible not owned by Magic are presented as minority interests in the
combined financial statements. Promotion revenues from Ain't Misbehavin, Judas,
Dolliko and Impossible included in the combined statements of income were
$4,930,471, $3,075,627 and $5,081,851 in 1995, 1994 and 1993, respectively.
F-58
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
NATURE OF OPERATIONS (CONTINUED)
Touring Artists Group, Inc. an Ohio Corporation, ("TAGO") and Touring Artists
Group, Inc., a Florida Corporation, were formed in 1993, in the states of Ohio
and Florida, respectively, as S-Corporations to promote live theatrical
performances and other entertainment related events throughout the United States
on behalf of the Company and third parties. TAG is wholly-owned by the
Principals.
In March 1992, TAG, acquired certain assets and assumed certain liabilities of
National Artists Management Company, Inc. ("NAMCO"). The acquisition has been
accounted for by the purchase method of accounting. The purchase price of
$395,000 approximated the fair value of the net assets acquired, which primarily
consisted of management contracts. The operating results of this acquisition are
included in the Company's combined results of operations from the date of
acquisition.
Performing Arts Management of North Miami, Inc. ("PAM") was formed in January
1991 in the state of Florida as an S-Corporation to operate, manage and engage
in the business of development, management and promotion of cultural performance
centers. The Principals own 59.5% of PAM.
Diamond Bullet Merchandising, Inc. ("DBM") was formed in 1988 in the state
of Florida as an S-Corporation to sell souvenir related merchandise for Company
produced and third party theatrical productions. DBM is wholly-owned by the
Principals.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and investments in short-term highly
liquid financial instruments, primarily time deposits and money market accounts,
with original maturities of three months or less. Due to the short maturity
period of the cash equivalents, the carrying amount of these instruments
approximates their fair values.
INVENTORIES
Inventories are valued at the lower of cost, determined on a first-in first-out
basis, or net realizable value.
F-59
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Property and equipment are depreciated using the straight-line method over the
estimated useful lives of 10 years for leasehold improvements, 3 to 7 years for
furniture and equipment and 10 years for buses.
Repairs of property and equipment and minor replacements and renewals are
charged to maintenance expense, which is included in general and administrative
expenses, as incurred.
PREPRODUCTION COSTS
Preproduction costs consist mainly of rehearsal salaries, set design and
construction expenditures incurred prior to the first performance of the
theatrical productions. These costs are amortized over the terms of the
respective shows, which range from 12 to 24 months.
DEFERRED COSTS
Deferred costs consist mainly of pre-opening legal and professional fees
incurred in connection with The Performing Art Center of North Miami (see Note
5) and the proposed private offering by the Company discussed in Note 10. The
costs relating to the Performing Arts Center which totaled $307,545 and $224,911
at December 31, 1995 and 1994, respectively, will be amortized over a maximum
period of three years, upon commencement of the facility's operations which is
anticipated to be in late 1997. The costs associated with the private offering
which totaled $256,487 and $94,462 at December 31, 1995 and 1994, respectively,
will be deducted from the net proceeds of the private offering which is
anticipated to occur in 1996.
F-60
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
MANAGEMENT AND BOOKING AGREEMENTS
Management and booking agreements consist primarily of the cost to acquire
certain booking rights and the rights to develop, construct, manage and operate
a cultural facility, as discussed in Note 5. Those costs are being amortized
over the terms of the respective agreements. Amortization expense related to
these agreements amounted to $147,593, $93,951 and $69,761, for 1995, 1994 and
1993, respectively. Accumulated amortization was $359,067 and $233,473 at
December 31, 1995 and 1994, respectively.
REVENUES
Revenues are recognized when earned, which is generally at the time of the
theatrical performance or entertainment events. Cash received in advance of a
performance is reflected in other current liabilities in the accompanying
balance sheets.
The Company provides an allowance for losses on accounts receivable based on a
monthly review of the outstanding receivables and evaluation of their
collectibility.
A substantial portion of the Company's revenues are derived from the production
and promotion of live theater throughout the United States, Canada and Mexico.
Changes in the entertainment preferences of the general populations could affect
the Company's future revenues.
INCOME TAXES
The Company and its stockholders have elected to be treated as either
S-Corporations under Subchapter S of the Internal Revenue Code or are general
partnerships. As such, the stockholders or partners include their proportionate
share of the Company's income in their respective tax returns.
Upon completion of the transaction discussed in Note 10, the Company will become
subject to state and U.S. corporate income tax.
F-61
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES (CONTINUED)
The accompanying combined statements of operations include pro forma adjustments
for income taxes which would have been recorded had the Company been subject to
federal and state corporate income taxes, based on the tax laws in effect during
those periods and statutory rates applied to pre-tax accounting income.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the combined financial statements and
accompanying notes. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash, receivables, accounts payable, accrued liabilities and short-term debt
- carrying amounts of these items are a reasonable estimate of their fair
value.
Long-term debt - interest rates currently available to the Company either
fluctuate with the prime rate of the lending institution or are comparable to
current market rates, and thus their carrying value approximates fair value.
INVESTMENTS IN PARTNERSHIPS
The Company has limited partnership and joint venture interests, ranging from 1%
to 10%, in various theatrical productions. Because the Company does not exercise
significant influence over the operating and financial policies of these
productions, these investments are carried in the accompanying combined balance
sheets at cost and income is only recognized when received in the form of
distributions.
F-62
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INVESTMENTS IN PARTNERSHIPS (CONTINUED)
The Company has four joint venture interests ranging from 25% to 35%, in various
seasonal productions. Because of the short-term nature of these productions, the
investments are carried in the accompanying combined balance sheets at cost and
revenue is recognized using the cost recovery method, whereby no income is
recognized until the investment is recouped.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
approximately $5,200,000, $4,000,000 and $8,100,000 in advertising expense for
the years ended December 31, 1995, 1994 and 1993, respectively, which is
included in talent and other show operating expenses in the accompanying
combined statements of income.
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1994 consist of the following:
1995 1994
--------- -------
Leasehold improvements $ 65,868 $ 65,868
Furniture and equipment 176,092 80,115
Vehicles 1,254,646 384,600
Vehicle under capital lease 198,500 198,500
--------- -------
1,695,106 729,083
Less accumulated depreciation
and amortization 542,010 469,710
--------- -------
Property and equipment, net $1,153,096 $259,373
========= =======
F-63
<PAGE>
3. SHORT-TERM DEBT
Short-term debt consists of the following at December 31, 1995:
$750,000 revolving credit line, interest at
30-day commercial paper rate charged
by Merrill Lynch plus 2.9% payable monthly
through August 31, 1996 at which time the
principal balance is due. Outstanding
borrowings are collateralized by certain
assets of the Company and are guaranteed
by certain Principals of the Company. $ 692,351
$350,000 unsecured demand promissory note,
interest at prime rate charged by
Society National Bank plus 3/4%,
interest due monthly. Personally
guaranteed by certain Principals
of the Company. 340,982
$500,000 unsecured commercial demand note,
interest at prime rate charged by
National City Bank plus 1.0%, payment
of interest to be paid quarterly.
Personally guaranteed by certain
Principals of the Company. 435,156
$400,000 note payable, interest at 10%
principal due monthly, collateralized
by vehicles. 352,000
$100,000 unsecured convertible note,
interest at 8.5%, principal and
interest convertible to 24% of stock
in DBM, due in November, 1996. 100,000
------------
Total short-term debt $ 1,920,489
============
F-64
<PAGE>
4. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
1995 1994
-------- ---------
10.90% note payable, principal due monthly
through May 2000. Collateralized by vehicle $120,627 $ --
10.75% note payable, principal due monthly
through August 1999. Collateralized by
vehicle 148,610 --
10.75% note payable, principal due monthly
through October 2000. Collateralized
by vehicle
166,807 --
7.5% unsecured note payable, principal due
monthly through December 1994
Personally guaranteed by certain
Principals of the Company
-- 50,000
9.0% note payable, principal due monthly
through October 1997. Collateralized
by a vehicle 53,747 81,286
Capital lease obligation payable in
monthly installments through
September 1997 including interest
imputed at a rate of 10%,
collateralized by a vehicle
40,778 61,080
-------- --------
530,569 192,366
Less current maturities 137,870 97,882
-------- --------
Total long-term debt $392,699 $ 94,484
======== ========
F-65
<PAGE>
4. LONG-TERM DEBT (CONTINUED)
Scheduled maturities of long-term debt are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ --------
1996 $ 137,870
1997 136,874
1998 105,710
1999 100,275
2000 49,840
--------
Total maturities of long-term debt $ 530,569
========
5. MANAGEMENT AGREEMENTS
GENERAL MANAGER AGREEMENTS
The Company entered into management agreements with Niko Associates ("Niko") for
daily general operations management during the entire periods of production of
Dolliko, Judas and Impossible. Management fees are calculated based on fixed
weekly fees ranging from $2,000 to $5,000 per performance week plus the
reimbursement of certain overhead related costs. Management fees paid by the
Company to Niko amounted to $309,498, $238,408, and $191,300 in 1995, 1994 and
1993, respectively, and are reflected in talent and other show expenses in the
accompanying statements of income.
MANAGEMENT OPERATING AGREEMENT
In May 1992, the Company and the City of North Miami, Florida (the "City")
entered into an agreement to develop, construct, manage and operate a cultural
facility for the performing and visual arts exclusively on behalf of the City.
The project will be owned by the City and is expected to be funded through the
issuance of 40 year industrial development revenue bonds without recourse to the
City. The term of the agreement will commence on the date of occupancy (expected
to be November 1997) and will continue for a period of 30 years.
F-66
<PAGE>
5. MANAGEMENT AGREEMENTS (CONTINUED)
Pursuant to the agreement, the Company will receive gross revenues, as defined,
generated by the facility and has agreed to pay to the City; (i) an annual
minimum return of $200,000 adjusted annually to reflect changes in the consumer
price index, but not to exceed $500,000 per annum, (ii) a use fee charge
equivalent to 5% of box office ticket sale revenue, and (iii) 5% of the gross
monies actually received by the Company for concessions and parking. In
addition, the Company has agreed to deposit with the City upon the approval by
all federal, state, county and local regulatory and administrative agencies with
jurisdiction over the project the refundable sum of $1,500,000, which is to be
applied toward the payment of construction, operation and monitoring costs of
the facility. In the event the cash flow generated by the facility is not
sufficient to pay the interest and principal on the bonds, the management rights
will revert to the City.
The Company's investment in this project which includes legal, feasibility and
architectural costs and the cost related to acquiring the management agreement
totaled approximately $600,000 and $500,000 at December 31, 1995 and 1994,
respectively. The recoverability of these costs is dependent on the resolution
of certain entitlement and permitting issues which have prevented development
and construction of the project.
6. EMPLOYEE BENEFIT PLANS
Effective January 1, 1988, Magic initiated a Money Purchase Plan and Trust (the
"Plan") for all full-time employees who have completed one year of service and
are at least 21 years of age. Magic contributes an amount not to exceed 25% of
the participating employee's compensation or $30,000. In addition, the Plan
permits Magic to make additional discretionary contributions to the Plan. Total
contributions to the Plan by Magic were $69,000, $70,446, and $68,815 in 1995,
1994 and 1993, respectively. Employees vest in the Company's discretionary
contributions at the rate of 20% per year upon completion of two years of
service.
F-67
<PAGE>
7. LEASES
The Company leases a bus under a capital lease. Future minimum rentals under
this capital lease at December 31, 1995 are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
1996 $ 25,497
1997 19,123
----------
Total minimum lease payments 44,620
Less amount representing interest 3,842
----------
Net obligation 40,778
Less current portion 22,428
----------
Long-term portion $ 18,350
==========
The capital lease obligation is included in long-term debt in the accompanying
balance sheets.
The Company leases office space from affiliated (See Note 8) and non-affiliated
entities under operating lease agreements which extend through December 31,
1997. The following is a schedule of approximate future minimum lease payments
required under such non-cancelable operating leases at December 31, 1995:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
1996 $ 86,032
1997 37,515
----------
Total minimum lease payments $ 123,547
==========
Rent expense amounted to $137,200, $137,021 and $98,250 for the years ended
December 31, 1995 , 1994 and 1993, respectively, and is included in general and
administrative expenses in the accompanying combined statements of income.
F-68
<PAGE>
8. RELATED PARTY TRANSACTIONS
In the normal course of its business, the Company conducts business with its
Principals and their respective affiliates.
Fees paid by the Company for accounting, general management, office and other
administrative services to entities controlled by the Principals were $53,218,
$75,378, and $78,984 in 1995, 1994 and 1993, respectively, and are reflected in
general and administrative expenses in the accompanying combined statements of
income.
In 1991 and 1993, the Company entered into two three-year noncancellable
operating leases for office space with related entities. The Company is required
to pay taxes, maintenance, insurance and utility costs. Payments under these
leases totalled $71,824, $74,726, and $59,488 in 1995, 1994 and 1993,
respectively.
The Company has notes receivable from entities controlled by certain Principals
with an outstanding balance, including accrued interest, of $665,419 and
$460,057 at December 31, 1995 and 1994, respectively. Interest income related to
these receivables totaled $84,520, $28,589 and $-0- in 1995, 1994 and 1993,
respectively. These unsecured notes bear interest at prime plus 2.9% and are due
in 1996.
The Company has payables due to certain Principals with an outstanding balance,
including accrued interest, of approximately $398,819 and $485,680 at December
31, 1995 and 1994, respectively. Interest expense related to these payables
totaled $83,518, $62,408 and $45,200 in 1995, 1994 and 1993, respectively. These
payables have no stated repayment terms.
9. COMMITMENTS AND CONTINGENCIES
The Company has royalty and employment agreements with certain authors, actors,
directors and choreographers and their respective unions. These agreements are
generally one to three years in length and provide for minimum compensation
levels. These agreements may include incentive bonuses based upon specified
goals. The aggregate commitment for future salaries and royalties, excluding
bonuses, as of December 31, 1995 was approximately $2,288,000, which will be
paid during 1996.
F-69
<PAGE>
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In October 1994, a former independent contractor filed a complaint against Judas
in the Common Pleas Court of Philadelphia County seeking consequential damages
of $5,000,000 arising from the termination of an employment contract by Judas. A
court date has not been set. Management of Judas believes that the lawsuit is
without merit, and that the outcome of this suit will not have a material
adverse effect on the Company's combined financial condition or results of
operations.
Litigation has been threatened by a former financial advisor to the Company with
respect to an alleged contract with the Company that provided that such
individual would receive the right to purchase 5% of the equity in the Company
at a discount upon consummation of a public financing. The Company believes that
it was fraudulently induced to enter into such contract, and that, in any event
the alleged contract was terminated under circumstances in which the individual
is not entitled to any compensation. The Company believes that if the individual
commences an action, his claims will be without merit. The Company intends to
vigorously defend any suit that the defendant might bring in the future based on
the contract and the Company may pursue its own action for declaratory judgment.
10. SUBSEQUENT EVENTS
On July 30, 1996 the Company consummated a $10 million private placement
offering of units consisting of unsecured senior convertible notes and the
Company's common stock. Management has used a portion of and expects to use the
remaining proceeds from the offering, after deducting offering expenses, to
repay certain loans and to provide working capital for expanding the Company's
operations and for general corporate purposes.
Immediately after the closing of the offering, the Company merged with and
into Shadow Wood Corporation, a corporation whose stock is publicly tradeable.
F-70
<PAGE>
<TABLE>
<CAPTION>
Magicworks Entertainment Incorporated
Condensed Consolidated Balance Sheets
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,338,278 $ 866,604
Accounts receivable 1,519,870 1,196,297
Inventories 234,505 160,930
Preproduction costs, net 1,105,974 1,508,314
Due from affiliates 11,214 665,419
Other current assets 332,888 354,663
------------------ -----------------
Total current assets 8,542,729 4,752,227
Property and equipment, net 1,533,187 1,299,304
Investments in unconsolidated entities 622,202 347,783
Advances and deposits 821,063 343,194
Deferred costs, net 1,154,645 564,032
Intangible assets, net 369,177 454,442
------------------ -----------------
Total assets $ 13,043,003 $ 7,760,982
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,442,068 $ 1,482,131
Current portion of long-term debt 212,288 137,870
Short-term debt 225,000 1,920,489
Deferred income taxes 391,000 -
Due to affiliates 38,150 828,977
------------------ -----------------
Total current liabilities 2,308,506 4,369,467
Long-term debt, net of current portion 5,699,248 392,699
Minority interests 722,245 1,470,457
Commitments and contingencies (Note 5)
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares
authorized; none issued and outstanding - -
Common stock, $.001 par value; 50,000,000
shares authorized, 23,074,299 and 20,199,999
issued and outstanding in 1996 and 1995,
respectively 23,074 20,199
Additional paid-in capital 4,151,759 110,139
Retained earnings 138,171 1,398,021
------------------ -----------------
Total stockholders' equity 4,313,004 1,528,359
------------------ -----------------
Total liabilities and stockholders' equity $ 13,043,003 $ 7,760,982
=================== =================
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
F-71
<PAGE>
Magicworks Entertainment Incorporated
Condensed Consolidated Statements of Operations
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1996 1995
----------- ------------
REVENUES:
Production $ 21,773,945 $ 20,665,310
Promotion 7,412,528 4,738,992
Merchandising 1,635,596 1,568,183
Other 1,391,261 729,616
------------ ------------
Total revenues 32,213,330 27,702,101
OPERATING EXPENSES:
Talent and other show 24,897,793 20,134,211
Salaries, wages and benefits 1,957,251 1,350,282
Cost of goods sold 1,149,876 1,099,714
General and administrative 1,931,268 1,297,327
------------ ------------
Total operating expenses 29,936,188 23,881,534
Income from operations 2,277,142 3,820,567
OTHER INCOME (EXPENSE):
Interest income 55,786 85,218
Interest expense (334,024) (47,572)
Income from investments in
nonconsolidated productions 27,821 255,119
------------ ------------
Total other income (expense (250,417) 292,765
INCOME (LOSS) BEFORE INCOME
TAXES AND MINORITY
INTERESTS 2,026,725 4,113,332
PROVISION FOR INCOME TAXES
OR PRO FORMA ADJUSTMENT
FOR INCOME TAXES 1,069,520 1,012,453
------------ ------------
Income (loss) before minority
interests 957,205 3,100,879
MINORITY INTERESTS (289,935) (1,517,299)
------------ ------------
Net (loss) income $ 667,270 $ 1,583,580
============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Primary $.03 $.08
============ ============
Fully Diluted $.03 $.08
============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Primary 21,259,000 20,511,000
============ ============
Fully Diluted 21,688,000 20,511,000
============ ============
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
F-72
<PAGE>
<TABLE>
<CAPTION>
Magicworks Entertainment Incorporated
Condensed Consolidated Statements of Cash Flows
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
------------------ --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 667,270 $ 1,583,580
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,848,149 1,180,847
Write-down of investment in partnerships - 49,994
Minority interests 289,935 1,517,299
Deferred income tax provision 391,000 -
Pro forma provision for income taxes 678,520 1,012,453
Changes in current assets and liabilities:
Accounts receivable (323,573) (115,385)
Inventories (73,575) 53,337
Other current assets 21,775 (285,052)
Preproduction costs (1,166,334) (1,779,716)
Advances and deposits (477,869) (114,301)
Accounts payable and accrued liabilities (40,063) (1,013,287)
------------------ -------------------
Net cash provided by operating activities 1,815,235 2,089,769
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in cultural facility (38,317) (16,452)
Due to affiliates (790,827) 94,930
Notes receivable from affiliates 654,205 (371,017)
Purchase of property and equipment (358,253) (179,592)
Investments in partnerships (274,419) (296,850)
Investments in management and booking agreements (69,840) (25,000)
------------------ -------------------
Net cash used in investment activities (877,451) (793,981)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of borrowings 6,113,963 1,072,238
Repayment of borrowings (2,428,485) (213,821)
Increase in offering costs (552,296) (114,052)
Issuance of common stock 21,869 405
Proceeds of issuance of stock 4,022,626 -
Contributions by minority interest 644,004 969,828
Distributions to minority interests (1,682,151) (2,507,065)
Distributions (2,605,640) (1,935,606)
------------------ -------------------
Net cash provided by (used in) financing 3,533,890 (2,728,073)
activities ------------------ -------------------
Net increase (decrease) in cash and cash equivalents 4,471,674 (1,432,285)
Cash and cash equivalents at beginning of period 866,604 1,955,315
------------------ -------------------
Cash and cash equivalents at end of period $ 5,338,278 $ 523,030
================== ===================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 247,926 $ 32,247
================== ===================
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
F-73
<PAGE>
Magicworks Entertainment Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) BUSINESS
Magicworks Entertainment Incorporated (the "Company"), through its wholly-owned
and majority-owned subsidiaries, produces and promotes live theatrical
entertainment and provides ancillary services including merchandising and
transportation.
On July 29, 1996, the Company consummated a simultaneous merger with certain
other affiliated businesses as more fully described in the Company's
Registrations Statement No. 333-13127. On the same date the Company issued and
sold 400.06 Units in a private placement (see note 2 ) from which it received
net proceeds in the amount of $8,919,350. On September 27, 1996, the Company
sold an additional 14.8 Units pursuant to the private placement from which it
received additional net proceeds in the amount $333,000.
On August 28, 1996, the Company acquired all of the outstanding capital stock of
Movietime in exchange for 1,199,999 shares of the Company's common stock. This
merger has been accounted for as a pooling of interests. In accordance with
generally accepted accounting principles, the financial statements included
herein have been restated to include the operations of Movietime for all periods
presented.
(B) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.
All significant intercompany balances and transactions have been eliminated in
the condensed consolidated financial statements.
F-74
<PAGE>
Magicworks Entertainment Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(C) PREPRODUCTION COSTS
Preproduction costs consist mainly of rehearsal salaries, set design and
construction expenditures incurred prior to the first performance of the
theatrical productions. These costs are amortized over the terms of the
respective shows, which range from 12 to 24 months.
(D) DEFERRED COSTS
Deferred costs consist mainly of legal and professional fees incurred in
connection with The Performing Arts Center of North Miami and the private
offerings of securities by the Company on July 29 and September 27, 1996. The
costs relating to the Performing Arts Center, which totaled $345,862 and
$307,545 at September 30, 1996 and December 31, 1995, respectively, will be
amortized over a maximum period of three years, upon commencement of the
facility's operations. The costs associated with the private offerings which
totaled $835,840 and $256,487 at September 30, 1996 and December 31, 1995,
respectively, were deducted from the gross proceeds of the offerings or
accounted for as deferred financing costs based on the type of securities sold.
Amortization expense relating to the deferred private placement offering costs
amounted to $27,057 for the nine months ended September 30, 1996.
(E) INCOME TAXES
As a result of the merger, the Company and its subsidiaries became subject to
state and U.S. corporate income tax. The Company and its stockholders will be
filing short year S- Corporation tax returns for the period ended July 29, 1996.
As such, the stockholders or partners include their proportionate share of the
Company's income for that period in their respective tax returns.
The accompanying condensed consolidated statements of operations include pro
forma adjustments for income taxes due for the period ended July 29, 1996 which
would have been recorded had the company been subject to Federal and state
corporate income taxes, based on the tax laws in effect during those periods and
statutory rates applied to pre-tax accounting income.
In addition, the accompanying condensed consolidated statements of operations
include income taxes due from July 30, 1996 through September 30, 1996, the
period of operation as a C-Corporation, as well as a deferred tax provision in
the amount of $391,000 to record deferred taxes resulting from the conversion
from S-Corporation to C-Corporation status.
F-75
<PAGE>
Magicworks Entertainment Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(F) INVESTMENTS IN PARTNERSHIPS
The Company has interests in certain partnerships and joint ventures, ranging
from 1% to 20%, in various theatrical productions, Such investments are carried
in the accompanying condensed consolidated balance sheets at cost and income is
only recognized when received in the form of distributions.
2. PRIVATE PLACEMENT:
On July 29, 1996, the Company issued and sold 400.06 Units in connection with
which it received net proceeds of $8,919,350. On September 27, 1996 the Company
sold an additional 14.8 Units pursuant to the private placement in connection
with which it received additional net proceeds of $333,000.
Each Unit consists of an unsecured senior convertible note (the "Notes") in the
principal amount of $12,500 bearing interest at the rate of 10% per annum, and
5,000 shares of common stock. The Notes will pay interest semi-annually on June
30 and December 31 (commencing December 31, 1996). The Notes contain mandatory
sinking fund requirements which are calculated to retire 75% of the face amount
of the Notes after payment of seven consecutive equal quarterly contributions,
the first such contribution to occur on October 1, 1999 and every ninety days
thereafter, provided that such day is a business day.
The principal amount and accrued and unpaid interest on each Note is convertible
(in whole but not in part), at any time prior to the Maturity Date, at a
conversion price of $3.50 per share (subject to adjustment in certain
circumstances). The Notes may be prepaid by the Company at its option at the
principal amount plus accrued but unpaid interest.
The Company has issued 500,000 placement agent warrants and has authorized up to
1,481,643 Redeemable Warrants that may be issued upon the prepayment of the
Notes in certain circumstances.
F-76
<PAGE>
<TABLE>
<CAPTION>
Magicworks Entertainment Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3. SHORT-TERM DEBT:
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------------------------------------
<S> <C> <C>
Various notes payable with interest ranging from
9.90% to 10.15%, principal due monthly
through January 1997. Collateralized by vehicles. 225,000 352,000
$100,000 unsecured commercial demand note,
converted to DBM stock in January of 1996. - 100,000
$350,000 unsecured demand promissory note,
interest at prime plus 3/4% interest due monthly.
Personally guaranteed by certain stockholders
of the Company. - 340,982
$500,000 unsecured commercial demand note, interest
at prime rate plus 1.0%, payment of interest to be
paid quarterly. Personally guaranteed by certain
stockholders of the Company. - 435,156
$750,000 revolving credit line was paid off and
closed in August of 1996. - 692,351
----------------------------------------
Total short-term debt $ 225,000 $ 1,920,489
========================================
F-77
<PAGE>
Magicworks Entertainment Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
4. LONG-TERM DEBT:
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------------------------------
<S> <C> <C>
Various notes payable with interest ranging from
9.90% to 10.9%, principal due monthly
through March 2001. Collateralized by vehicles. $ 701,617 $ 489,791
Convertible notes (see note 2) 5,185,750 -
Capital lease obligation payable in monthly
installments through September 1997
including interest imputed at a rate of 10%,
collaterized by a vehicle. 24,169 40,778
----------------------------------
5,911,536 530,569
Less current portion 212,288 137,870
----------------------------------
Total long-term debt $ 5,699,248 $ 392,699
===================================
</TABLE>
5. CONTINGENCIES:
In October 1994, a former independent contractor filed a complaint against a
subsidiary of the Company in the Common Pleas Court of Philadelphia County
seeking consequential damages of $5,000,000 arising from the termination of an
employment contract. A court date has not been set. Management believes that the
lawsuit is without merit, and that the outcome of this suit will not have a
material adverse effect on the Company's financial condition or results of
operations.
Litigation has been commenced by an individual with respect to an alleged
contract with the Company that provided that such individual would receive the
right to purchase 5% of the insider equity of the original companies, Magic,
TAG, DBM and PAM, at a discount upon consummation of a public financing. The
Company believes that the claims are without merit and it was fraudulently
induced to enter into the alleged contract, and that, in any event, the alleged
contract was terminated under circumstances in which the individual is not
entitled to any compensation. The Company intends to vigorously defend this
action and may pursue its own action for declaratory judgment and damages.
F-78
<PAGE>
MAGICWORKS ENTERTAINMENT INCORPORATED
PRO FORMA COMBINED FINANCIAL STATEMENTS
The Consolidation complies with the requirements of SAB Topic 5:G (SAB 48)
and should therefore be accounted for at the historical cost basis of the
transferors. The following unaudited pro forma condensed combined financial
statements present the Consolidation accounted for as a purchase at book value
by MPIO, which will begin to consolidate the other Constituent Corporations.
The pro forma condensed combined financial statements also present the
Movietime Acquisition accounted for as a pooling of interests in accordance
with APB No. 16. The pro forma information assumes that the Consolidation and
Movietime Acquisition had occurred as of the beginning of the respective periods
presented in the Pro Forma Condensed Combined Statements of Operations.
The pro forma condensed combined financial statements also give effect to
the Merger and the Private Placement as if these transactions occurred as of the
beginning of the respective periods presented in the Pro Forma Condensed
Combined Statements of Operations.
The unaudited pro forma condensed combined financial information as set
forth is derived from, and should be read in conjunction with, the combined
financial statements of the Company. The following pro forma financial data is
presented for informational purposes only and is not necessarily indicative of
the results of the future operations of the Company or the actual results that
would have been achieved had the transactions been consummated prior to the
periods presented.
P-1
<PAGE>
<TABLE>
<CAPTION>
MAGICWORKS ENTERTAINMENT, INC.
PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
MAGIC/ DIAMOND TOURING PERFORMING
MOVIETIME SHADOW WOOD BULLET ARTISITS ARTS
POOLED(G) CORPORATION MERCHANDISING GROUP MANAGEMENT SUBTOTAL(A) TOTAL(B)
---------- ----------- ------------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Production $31,638,078 $0 $0 $0 $0 $0 $31,638,078
Promotion 6,668,672 0 0 0 0 0 6,668,672
Merchandising 1,160,519 0 1,313,695 0 0 1,313,695 2,474,214
Other 1,237,126 0 0 1,186,809 0 1,186,809 2,423,935
-------------------------------------------------------------------------------------------------
40,704,395 0 1,313,695 1,186,809 0 2,500,504 43,204,899
Operating Expenses:
Talent and other show 33,346,544 0 0 0 0 0 33,346,544
Salaries, wages and benefits 1,351,312 0 85,795 627,294 0 713,089 2,064,401
Cost of goods sold 408,697 0 1,053,667 0 0 1,053,667 1,462,364
General and administrative 1,393,605 6,029 140,036 504,110 0 650,175 2,043,780
-------------------------------------------------------------------------------------------------
36,500,158 6,029 1,279,498 1,131,404 0 2,416,931 38,917,089
Income from operations 4,204,237 (6,029) 34,197 55,405 0 83,573 4,287,810
Other income(expense):
Interest income 108,427 0 0 633 0 633 109,060
Interest expense (65,318) 0 (6,417) 0 (21,110) (27,527) (92,845)
From investments in production 418,679 0 0 0 0 0 418,679
Minority interests (1,688,531) 0 0 0 0 0 (1,688,531)
-------------------------------------------------------------------------------------------------
(1,226,743) 0 (6,417) 633 (21,110) (26,894) (1,253,637)
Net income 2,977,494 (6,029) 27,780 56,038 (21,110) 56,679 3,034,173
Pro forma adjustment for income (1,318,378) 2,351 (10,834) (21,855) 8,233 (22,105) (1,183,327)
-------------------------------------------------------------------------------------------------
Pro forma net income (loss) $1,659,116 ($3,678) $16,946 $34,183 ($12,877) $34,574 $1,850,846
=================================================================================================
Primary earnings per share
Weighted average common shares outstanding
Fully dilutive earnings per share
Weighted average common shares & common stock equivalents outstanding
<CAPTION>
PROFORMA
ADJUSTMENTS COMBINED
----------- --------
<S> <C> <C>
Revenues:
Production $31,638,078
Promotion 6,668,672
Merchandising 2,474,214
Other (470,800)(E) 1,953,135
-----------------------
(470,800) 42,734,099
Operating Expenses:
Talent and other show (400,800)(E) 32,945,744
Salaries, wages and benefits (8,062)(E) 2,056,339
Cost of goods sold 1,462,364
General and administrative 155,637 (B) 2,137,479
(61,938)(E)
-----------------------
(315,163) 0 38,601,926
Income from operations (155,637) 4,132,173
Other income(expense):
Interest income 109,060
Interest expense (518,575)(C) (611,420)
From investments in production 418,679
Minority interests 241,643 (E) (1,446,888)
-----------------------
(276,932) (1,530,569)
Net income (432,569) 2,601,604
Pro forma adjustment for income 168,702 (D) (1,014,626)
-----------------------
Pro forma net income (loss) ($263,867) $1,586,978
=======================
Per share data:
Primary earnings per share $0.07
Weighted average common shares 23,074,299
Fully dilutive earnings per share $0.08
Weighted average common shares &
common stock equivalents outstanding 25,055,942
</TABLE>
(A) Includes historical financial data of the Company and Movietime.
(B) Reflects the amortization of deferred costs attributable to the Private
Placement through December 31, 1995 as if the Private Placement had
occurred on January 1, 1995.
(C) Reflects interest expense on the debt portion of the securities issued in
the Private Placement for the year ended December 31, 1995.
(D) Reflects a tax adjustment due to (B) and (C).
(E) To eliminate intercompany transactions among the Constituent Corporations.
P-2
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY
JURISDICTION IN WHICH SUCH OFFER TO OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, IMPLY THAT THE INFORMATION HEREIN CONTAINED IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
Available Information.............................................. 2
Prospectus Summary................................................. 3
Risk Factors....................................................... 7
The Merger......................................................... 11
Consolidation Transactions and S Corporation Distributions......... 11
Dividend Policy.................................................... 13
Use of Proceeds.................................................... 12
Price Range of Common Stock........................................ 12
Capitalization..................................................... 14
Selected Financial Data............................................ 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 16
Business........................................................... 23
Management......................................................... 32
Principal Shareholders............................................. 36
Selling Securityholders............................................ 37
Certain Transactions............................................... 45
Description of Securities.......................................... 46
Plan of Distribution............................................... 49
Shares Eligible for Future Sale.................................... 50
Legal Matters...................................................... 50
Experts............................................................ 50
Index to Financial Statements..................................... F-1
------------------------
26,226,465 SHARES
MAGICWORKS
ENTERTAINMENT
INCORPORATED
------------------------
PROSPECTUS
------------------------
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses in connection
with the offering described in this registration statement will be as follows:
Securities and Exchange Commission registration fee............. $32,196
NASD filing fee................................................. $17,500
Printing expenses............................................... $77,000
Accounting fees and expenses.................................... $305,000
Legal fees and expenses......................................... $500,000
Listing fees.................................................... $50,000
Fees and expenses (including legal fees) for qualifications
under state securities laws..................................... $15,000
Transfer agent's fees and expenses.............................. $10,000
Miscellaneous................................................... $20,000
------------
Total........................................................... $1,026,696
============
All amounts except the Securities and Exchange
Commission registration fee and the NASD filing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under Section 607.0850 of
the Florida Business Corporation Act to indemnify its directors and officers to
the extent provided for in such statute. The Registrant's Articles of
Incorporation provide that the Registrant shall indemnify and may insure its
officers and directors to the fullest extent not prohibited by law. The
Registrant has also entered into an agreement (the form of which is filed as
Exhibit 10.3 hereto) with each of its directors and executive officers wherein
it has agreed to indemnify each of them to the fullest extent permitted by law.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities that were not registered under the 1933
Act have been issued or sold by the Registrant within the past three years
except as follows:
<TABLE>
<CAPTION>
CASH
AMOUNT AND TYPES OF SECURITIES DATE OF SALE PURCHASER(S) CONSIDERATION
- ------------------------------------------------------- ------------------- --------------------------- -------------
<S> <C> <C> <C>
414.86 Units(1) July 30, 1996 and Various private placement $10,371,500
(2,074,300 shares of common stock, and $5,185,750 September 27, 1996 "accredited" investors and
(principal amount) unsecured senior convertible notes) foreign investors
July 30, 1996 Capital Growth International, (2)
488,820 shares of Common Stock and 500,000 Warrants LLC
19,000,000 shares of Common Stock July 30, 1996 Former shareholders of the (3)
Constituent Corporations
1,199,999 shares of Common Stock August 28, 1996 Former shareholders of Movietime (4)
Entertainment Incorporated
<FN>
- --------------------------
(1) Each unit consisted of (a) an unsecured senior convertible note in the
principal amount of $12,500, which bears interest at the rate of 10%
per annum, and (b) 5,000 shares of the Company's Common Stock, $.001
par value. Capital Growth International, L.L.C., acted as placement
agent for the Private Placement for which it was paid a non-accountable
expense allowance of $207,430 and sales commissions of $829,720.
(2) Issued as consideration pursuant to a Placement Agent Agreement dated
June 16, 1996 between MEI and Capital Growth International, L.L.C.
(3) Such shares were issued in exchange for the ownership interests of all
of the former shareholders of the Constituent Corporation in connection
with the Consolidation.
(4) Such shares were issued in exchange for the ownership interests of all
of the former shareholders of Movietime in connection with the
Movietime Acquisition.
</FN>
</TABLE>
The aforementioned issuances and sales were made in
reliance upon the exemption from the registration provisions of the 1933 Act
afforded by Section 4(2) thereof and/or Regulation D promulgated thereunder, as
transactions by an issuer not involving a public offering. The purchasers of the
securities described above acquired them for their own account and not with a
view to any distribution thereof to the public. The certificates evidencing the
securities bear legends stating that the securities may not be offered, sold or
transferred other than pursuant to an effective registration statement under the
1933 Act, or an exemption from such registration requirements. The Company will
place stop transfer instructions with its transfer agent with respect to all
such securities.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C> <C>
3.1 Registrant's Articles of Incorporation*
3.2 Registrant's By-Laws
4.1 Form of Specimen Common Stock Certificate
4.2 Form of Redeemable Common Stock Purchase Warrant*
4.3 Form of Unsecured Senior Convertible Note*
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.
10.1 Registrant's Stock Option Plan*
10.2 Registrant's Directors Stock Option Plan*
10.3 Form of Indemnification Agreement between Registrant and each of Registrant's
Directors and Executive Officers*
10.4 Employment Agreement, dated as of July 22, 1993, between Touring Artists Group Inc.
and Michel Vega*
10.5 Employment Agreement dated June 30, 1996 but effective as of August 1, 1996 between
the Registrant and Joe Marsh*
10.6 Employment Agreement dated June 30, 1996 but effective as of August 1, 1996 between
the Registrant and Brad L. Krassner*
10.7 Employment Agreement dated June 30, 1996 but effective as of August 1, 1996 between
the Registrant and Lee Marshall*
10.8 Employment Agreement dated June 30, 1996 but effective as of August 1, 1996 between
Magic Promotions, Inc. and Glenn Bechdel*
10.9 Note Escrow Agreement dated as of July 30, 1996 by and among the Registrant Capital
Growth International, L.L.C. and Sterling National Bank and Trust Company of New York
10.10 Equipment Lease dated August, 1994 by and between Magic Promotions, Inc. and Star
Trax, Inc.*
10.11 Management Operating Agreement dated May 27, 1992 by and between the City of North
Miami, Florida and Performing Arts Management of North Miami, Inc.
10.12 Lease Agreement dated July 1, 1996 between Marbrad, Inc. and Magicworks Entertainment
Incorporated
10.13 Lease Agreement dated November 4, 1994 between Karen and Lee Marshall and Magic
Promotions, Inc.
21.1 Subsidiaries of Registrant*
23.1 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel P.A. (included in
Exhibit 5.1)
23.2 Consents of Ernst & Young LLP
<FN>
- ---------------------
* Previously filed
</FN>
</TABLE>
(b) Financial Statement Schedules:
Schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable, and therefore
have been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby
undertakes:
(1) To file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement:
(i) To include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in
the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
(iii) To include any
additional or changed material information with respect to the plan of
distribution not previously disclosed in the registration statement. and
(2) That, for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration
by means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
II-3
<PAGE>
(b) Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby
undertakes that:
(1) For purposes of determining
any liability under the Securities Act of 1933, the information omitted from the
form of prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of the registration statement as of the time it was declared effective.
(2) For the purpose of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Miami Beach, State of Florida, on December 18, 1996.
MAGICWORKS ENTERTAINMENT INCORPORATED
By: /s/ BRAD KRASSNER
---------------------------------------
Brad Krassner, Co-Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ BRAD KRASSNER Co-Chairman of the Board and December 18, 1996
- -------------------- Chief Executive Officer
Brad Krassner (Principal Executive Officer)
/s/ JOE MARSH Co-Chairman of the Board December 18, 1996
- --------------------
Joe Marsh
/s/ LEE MARSHALL President, Chief Operating Officer December 18, 1996
- -------------------- and Director
Lee Marshall
/s/ STEVEN CHABY Chief Financial Officer and December 18, 1996
- -------------------- Treasurer (Principal Financial and
Steven Chaby Accounting Officer)
/s/ H. YALE GUTNICK Director December 18, 1996
- --------------------
H. Yale Gutnick
/s/ RONALD J. KORN Director December 18, 1996
- --------------------
Ronald J. Korn
II-5
BYLAWS
OF
MAGICWORKS ENTERTAINMENT INCORPORATED
(A DELAWARE CORPORATION)
<PAGE>
INDEX
-----
PAGE
NUMBER
------
ARTICLE ONE - OFFICES
1. Registered Office........................................ 1
2. Other Offices............................................ 1
ARTICLE TWO - MEETINGS OF SHAREHOLDERS
1. Place.................................................... 1
2. Time of Annual Meeting................................... 1
3. Call of Special Meetings................................. 1
4. Conduct of Meetings...................................... 1
5. Notice and Waiver of Notice.............................. 2
6. Business of Special Meeting.............................. 2
7. Quorum................................................... 2
8. Voting Per Share......................................... 3
9. Voting of Shares......................................... 3
10. Proxies.................................................. 3
11. Shareholder List......................................... 4
12. Action Without Meeting................................... 4
13. Fixing Record Date....................................... 4
14. Inspectors and Judges.................................... 5
15. Voting for Directors..................................... 5
ARTICLE THREE - DIRECTORS
1. Number, Election and Term................................ 5
2. Vacancies................................................ 6
3. Powers................................................... 6
4. Place of Meetings........................................ 6
5. Annual Meeting........................................... 6
6. Regular Meetings......................................... 6
7. Special Meetings and Notice.............................. 6
8. Quorum; Required Vote; Presumption
of Assent............................................. 7
9. Action Without Meeting................................... 7
10. Conference by Telephone or Similar
Communications Equipment Meetings..................... 7
11. Committees............................................... 7
- i -
<PAGE>
12. Compensation of Directors................................. 8
13. Chairman of the Board..................................... 8
ARTICLE FOUR - OFFICERS
1. Positions................................................. 8
2. Election of Specified Officers by Board................... 8
3. Election or Appointment of Other
Officers................................................ 8
4. Salaries.................................................. 9
5. Term; Resignation......................................... 9
6. President................................................. 9
7. Vice Presidents........................................... 9
8. Secretary................................................. 9
9. Treasurer................................................. 10
10. Other Officers, Employees and Agents...................... 10
ARTICLE FIVE - CERTIFICATES FOR SHARES
1. Issue of Certificates..................................... 10
2. Legends for Preferences and Restrictions
on Transfer............................................. 10
3. Facsimile Signatures...................................... 11
4. Lost Certificates......................................... 11
5. Transfer of Shares........................................ 11
6. Registered Shareholders................................... 11
7. Redemption of Control Shares.............................. 11
ARTICLE SIX - GENERAL PROVISIONS
1. Dividends................................................. 12
2. Reserves.................................................. 12
3. Checks.................................................... 12
4. Fiscal Year............................................... 12
5. Seal...................................................... 12
6. Gender.................................................... 12
ARTICLE SEVEN - AMENDMENTS OF BYLAWS.................................... 12
- ii -
<PAGE>
MAGICWORKS ENTERTAINMENT INCORPORATED
BYLAWS
ARTICLE ONE
OFFICES
Section 1. REGISTERED OFFICE. The registered office of MAGICWORKS
ENTERTAINMENT INCORPORATED, a Delaware corporation (the "Corporation"), shall be
located in the City of Tallahassee, State of Florida, unless otherwise
designated by the Board of Directors.
Section 2. OTHER OFFICES. The Corporation may also have offices at such
other places, either within or without the State of Florida, as the Board of
Directors of the Corporation (the "Board of Directors") may from time to time
determine or as the business of the Corporation may require.
ARTICLE TWO
MEETINGS OF SHAREHOLDERS
Section 1. PLACE. All annual meetings of shareholders shall be held at
such place, within or without the State of Florida, as may be designated by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof. Special meetings of shareholders may be held at such
place, within or without the State of Florida, and at such time as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. TIME OF ANNUAL MEETING. Annual meetings of shareholders
shall be held on such date and at such time fixed, from time to time, by the
Board of Directors, provided that there shall be an annual meeting held every
year at which the shareholders shall elect a Board of Directors and transact
such other business as may properly be brought before the meeting.
Section 3. CALL OF SPECIAL MEETINGS. Special meetings of the
shareholders shall be held if called by the Board of Directors, the President,
or if the holders of not less than fifty percent (50%) of all the votes entitled
to be cast on any issue proposed to be considered at the proposed special
meeting sign, date, and deliver to the Secretary one or more written demands for
the meeting describing the purpose or purposes for which it is to be held.
Section 4. CONDUCT OF MEETINGS. The Chairman of the Board (or in his
absence, the President or such other designee of the Chairman of the Board)
shall preside at the annual and special meetings of shareholders and shall be
given full discretion in establishing the rules
<PAGE>
and procedures to be followed in conducting the meetings, except as otherwise
provided by law or in these Bylaws.
Section 5. NOTICE AND WAIVER OF NOTICE. Except as otherwise provided by
law, written or printed notice stating the place, day and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (10) nor more than sixty
(60) days before the day of the meeting, either personally or by first-class
mail, by or at the direction of the President, the Secretary, or the officer or
person calling the meeting, to each shareholder of record entitled to vote at
such meeting. If the notice is mailed at least thirty (30) days before the date
of the meeting, it may be done by a class of United States mail other than
first-class. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail addressed to the shareholder at his address
as it appears on the stock transfer books of the Corporation, with postage
thereon prepaid. If a meeting is adjourned to another time and/or place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the Board
of Directors, after adjournment, fixes a new record date for the adjourned
meeting. Whenever any notice is required to be given to any shareholder, a
waiver thereof in writing signed by the person or persons entitled to such
notice, whether signed before, during or after the time of the meeting stated
therein, and delivered to the Corporation for inclusion in the minutes or filing
with the corporate records, shall be equivalent to the giving of such notice.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the shareholders need be specified in any written waiver of
notice. Attendance of a person at a meeting shall constitute a waiver of (a)
lack of or defective notice of such meeting, unless the person objects at the
beginning to the holding of the meeting or the transacting of any business at
the meeting, or (b) lack of defective notice of a particular matter at a meeting
that is not within the purpose or purposes described in the meeting notice,
unless the person objects to considering such matter when it is presented.
Section 6. BUSINESS OF SPECIAL MEETING. Business transacted at any
special meeting shall be confined to the purposes stated in the notice thereof.
Section 7. QUORUM. Shares entitled to vote as a separate voting group
may take action on a matter at a meeting only if a quorum of these shares exists
with respect to that matter. Except as otherwise provided in the Articles of
Incorporation or by law, a majority of the shares entitled to vote on the matter
by each voting group, represented in person or by proxy, shall constitute a
quorum at any meeting of shareholders, but in no event shall a quorum consist of
less than one-third (1/3) of the shares of each voting group entitled to vote.
If less than a majority of outstanding shares entitled to vote are represented
at a meeting, a majority of the shares so represented may adjourn the meeting
from time to time without further notice. After a quorum has been established at
any shareholders' meeting, the subsequent withdrawal of shareholders, so as to
reduce the number of shares entitled to vote at the meeting below the number
required for a quorum, shall not affect the validity of any action taken at the
meeting or any adjournment thereof. Once a share is represented for any purpose
at a meeting, it is deemed present for
2
<PAGE>
quorum purposes for the remainder of the meeting and for any adjournment of that
meeting unless a new record date is or must be set for that adjourned meeting.
Section 8. VOTING PER SHARE. Except as otherwise provided in the
Articles of Incorporation or by law, each shareholder is entitled to one (1)
vote for each outstanding share held by him on each matter voted at a
shareholders' meeting.
Section 9. VOTING OF SHARES. A shareholder may vote at any meeting of
shareholders of the Corporation, either in person or by proxy. Shares standing
in the name of another corporation, domestic or foreign, may be voted by the
officer, agent or proxy designated by the bylaws of such corporate shareholder
or, in the absence of any applicable bylaw, by such person or persons as the
board of directors of the corporate shareholder may designate. In the absence of
any such designation, or, in case of conflicting designation by the corporate
shareholder, the chairman of the board, the president, any vice president, the
secretary and the treasurer of the corporate shareholder, in that order, shall
be presumed to be fully authorized to vote such shares. Shares held by an
administrator, executor, guardian, personal representative, or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name or the name of his
nominee. Shares held by or under the control of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by such person without the transfer thereof into his name. If shares stand of
record in the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary of the Corporation is given
notice to the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, then
acts with respect to voting shall have the following effect: (a) if only one
votes, in person or by proxy, his act binds all; (b) if more than one vote, in
person or by proxy, the act of the majority so voting binds all; (c) if more
than one vote, in person or by proxy, but the vote is evenly split on any
particular matter, each faction is entitled to vote the share or shares in
question proportionally; or (d) if the instrument or order so filed shows that
any such tenancy is held in unequal interest, a majority or a vote evenly split
for purposes hereof shall be a majority or a vote evenly split in interest. The
principles of this paragraph shall apply, insofar as possible, to execution of
proxies, waivers, consents, or objections and for the purpose of ascertaining
the presence of a quorum.
Section 10. PROXIES. Any shareholder of the Corporation, other person
entitled to vote on behalf of a shareholder pursuant to law, or attorney-in-fact
for such persons may vote the shareholder's shares in person or by proxy. Any
shareholder of the Corporation may appoint a proxy to vote or otherwise act for
him by signing an appointment form, either personally or by his
attorney-in-fact. An executed telegram or cablegram appearing to have been
transmitted by such person, or a photographic, photostatic, or equivalent
reproduction of an appointment form, shall be deemed a sufficient appointment
form. An appointment of a proxy is effective when received by the Secretary of
the Corporation or such other officer or agent which is authorized
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<PAGE>
to tabulate votes, and shall be valid for up to 11 months, unless a longer
period is expressly provided in the appointment form. The death or incapacity of
the shareholder appointing a proxy does not affect the right of the Corporation
to accept the proxy's authority unless notice of the death or incapacity is
received by the secretary or other officer or agent authorized to tabulate votes
before the proxy exercises his authority under the appointment. An appointment
of a proxy is revocable by the shareholder unless the appointment is coupled
with an interest.
Section 11. SHAREHOLDER LIST. After fixing a record date for a meeting
of shareholders, the Corporation shall prepare an alphabetical list of the names
of all its shareholders who are entitled to notice of the meeting, arranged by
voting group with the address of, and the number and class and series, if any,
of shares held by each. The shareholders' list must be available for inspection
by any shareholder for a period of ten (10) days prior to the meeting or such
shorter time as exists between the record date and the meeting and continuing
through the meeting at the Corporation's principal office, at a place identified
in the meeting notice in the city where the meeting will be held, or at the
office of the Corporation's transfer agent or registrar. Any shareholder of the
Corporation or his agent or attorney is entitled on written demand to inspect
the shareholders' list (subject to the requirements of law), during regular
business hours and at his expense, during the period it is available for
inspection. The Corporation shall make the shareholders' list available at the
meeting of shareholders, and any shareholder or his agent or attorney is
entitled to inspect the list at any time during the meeting or any adjournment.
Section 12. ACTION WITHOUT MEETING. Any action required by law to be
taken at a meeting of shareholders, or any action that may be taken at a meeting
of shareholders, may be taken without a meeting or notice if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted with respect to the subject
matter thereof, and such consent shall have the same force and effect as a vote
of shareholders taken at such a meeting.
Section 13. FIXING RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purposes, the
Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than sixty
(60) days, and, in case of a meeting of shareholders, not less than ten (10)
days, prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
date on which the notice of the meeting is mailed or the date on which the
resolutions of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section 13, such determination
shall apply to any adjournment thereof, except where the Board of Directors
fixes a new record date for the adjourned meeting or as required by law.
4
<PAGE>
Section 14. INSPECTORS AND JUDGES. The Board of Directors in advance of
any meeting may, but need not, appoint one or more inspectors of election or
judges of the vote, as the case may be, to act at the meeting or any
adjournment(s) thereof. If any inspector or inspectors, or judge or judges, are
not appointed, the person presiding at the meeting may, but need not, appoint
one or more inspectors or judges. In case any person who may be appointed as an
inspector or judge fails to appear or act, the vacancy may be filled by the
Board of Directors in advance of the meeting, or at the meeting by the person
presiding thereat. The inspectors or judges, if any, shall determine the number
of shares of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots and consents, hear and determine
all challenges and questions arising in connection with the right to vote, count
and tabulate votes, ballots and consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all shareholders.
On request of the person presiding at the meeting, the inspector or inspectors
or judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by him or them, and execute a certificate of any
fact found by him or them.
Section 15. VOTING FOR DIRECTORS. Unless otherwise provided in the
Articles of Incorporation, directors shall be elected by a plurality of the
votes cast by the shares entitled to vote in the election at a meeting at which
a quorum is present.
ARTICLE THREE
DIRECTORS
Section 1. NUMBER, ELECTION AND TERM. The number of directors of the
Corporation shall be fixed from time to time, within the limits specified by the
Articles of Incorporation, by resolution of the Board of Directors; provided,
however, no director's term shall be shortened by reason of a resolution
reducing the number of directors. The directors shall be elected at the annual
meeting of the shareholders, except as provided in Section 2 of this Article,
and each director elected shall hold office for the term for which he is elected
and until his successor is elected and qualified or until his earlier
resignation, removal from office or death. Directors must be natural persons who
are 18 years of age or older but need not be residents of the State of Florida,
shareholders of the Corporation or citizens of the United States. Any director
may be removed at any time, with or without cause, at a special meeting of the
shareholders called for that purpose.
Section 2. VACANCIES. A director may resign at any time by giving
written notice to the Corporation, the Board of Directors or the Chairman of the
Board. Such resignation shall take effect when the notice is delivered unless
the notice specifies a later effective date, in which event the Board of
Directors may fill the pending vacancy before the effective date if they provide
that the successor does not take office until the effective date. Any vacancy
occurring in the Board of Directors and any directorship to be filled by reason
of an increase in the size of the Board of Directors shall be filled by the
affirmative vote of a majority of the current
5
<PAGE>
directors though less than a quorum of the Board of Directors, or may be filled
by an election at an annual or special meeting of the shareholders called for
that purpose, unless otherwise provided by law. A director elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in office, or
until the next election of one or more directors by shareholders if the vacancy
is caused by an increase in the number of directors.
Section 3. POWERS. Except as provided in the Articles of Incorporation
and by law, all corporate powers shall be exercised by or under the authority
of, and the business and affairs of the Corporation shall be managed under the
direction of, its Board of Directors.
Section 4. PLACE OF MEETINGS. Meetings of the Board of Directors,
regular or special, may be held either within or without the State of Florida.
Section 5. ANNUAL MEETING. The first meeting of each newly elected
Board of Directors shall be held, without call or notice, immediately following
each annual meeting of shareholders.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may also be held without notice at such time and at such place as shall from
time to time be determined by the Board of Directors.
Section 7. SPECIAL MEETINGS AND NOTICE. Special meetings of the Board
of Directors may be called by the Chairman of the Board or by the President and
shall be called by the Secretary on the written request of any two directors.
Written notice of special meetings of the Board of Directors shall be given to
each director at least forty-eight (48) hours before the meeting. Except as
required by statute, neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting. Notices to directors shall be
in writing and delivered personally or mailed to the directors at their
addresses appearing on the books of the Corporation. Notice by mail shall be
deemed to be given at the time when the same shall be received. Notice to
directors may also be given by telegram, teletype or other form of electronic
communication. Notice of a meeting of the Board of Directors need not be given
to any director who signs a written waiver of notice before, during or after the
meeting. Attendance of a director at a meeting shall constitute a waiver of
notice of such meeting and a waiver of any and all objections to the place of
the meeting, the time of the meeting and the manner in which it has been called
or convened, except when a director states, at the beginning of the meeting or
promptly upon arrival at the meeting, any objection to the transaction of
business because the meeting is not lawfully called or convened.
Section 8. QUORUM; REQUIRED VOTE; PRESUMPTION OF ASSENT. A majority of
the number of directors fixed by, or in the manner provided in, these bylaws
shall constitute a quorum for the transaction of business; provided, however,
that whenever, for any reason, a vacancy occurs in the Board of Directors, a
quorum shall consist of a majority of the remaining directors until the vacancy
has been filled. The act of a majority of the directors present at a
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<PAGE>
meeting at which a quorum is present when the vote is taken shall be the act of
the Board of Directors. A director of the Corporation who is present at a
meeting of the Board of Directors or a committee of the Board of Directors when
corporate action is taken shall be presumed to have assented to the action
taken, unless he objects at the beginning of the meeting, or promptly upon his
arrival, to holding the meeting or transacting specific business at the meeting,
or he votes against or abstains from the action taken.
Section 9. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the Board of Directors or a committee thereof may be
taken without a meeting if a consent in writing, setting forth the action taken,
is signed by all of the members of the Board of Directors or the committee, as
the case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting. Action taken under this section is effective when
the last director signs the consent, unless the consent specifies a different
effective date. A consent signed under this Section 9 shall have the effect of a
meeting vote and may be described as such in any document.
Section 10. CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT
MEETINGS. Members of the Board of Directors may participate in a meeting of the
Board by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participation in such a meeting shall constitute presence in
person at the meeting, except where a person participates in the meeting for the
express purpose of objecting to the transaction of any business on the ground
the meeting is not lawfully called or convened.
Section 11. COMMITTEES. The Board of Directors, by resolution adopted
by a majority of the full Board of Directors, may designate from among its
members an executive committee and one or more other committees, each of which,
to the extent provided in such resolution, shall have and may exercise all of
the authority of the Board of Directors in the business and affairs of the
Corporation except where the action of the full Board of Directors is required
by statute. Each committee must have two or more members who serve at the
pleasure of the Board of Directors. The Board of Directors, by resolution
adopted in accordance with this Article Three, may designate one or more
directors as alternate members of any committee, who may act in the place and
stead of any absent member or members at any meeting of such committee.
Vacancies in the membership of a committee shall be filled by the Board of
Directors at a regular or special meeting of the Board of Directors. The
executive committee shall keep regular minutes of its proceedings and report the
same to the Board of Directors when required. The designation of any such
committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility imposed
upon it or him by law.
Section 12. COMPENSATION OF DIRECTORS. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and
7
<PAGE>
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
Section 13. CHAIRMAN OF THE BOARD. The Board of Directors may, in its
discretion, choose a chairman of the board or Co-Chairman of the Board who shall
preside at meetings of the shareholders and of the directors and shall be ex
officio member(s) of all standing committees. The Chairman of the Board shall
have such other powers and shall perform such other duties as shall be
designated by the Board of Directors. The Chairman of the Board shall be a
member of the Board of Directors but no other officers of the Corporation need
be a director. The Chairman of the Board shall serve until his successor is
chosen and qualified, but he may be removed at any time by the affirmative vote
of a majority of the Board of Directors.
ARTICLE FOUR
OFFICERS
Section 1. POSITIONS. The officers of the Corporation shall consist of
a President, a Secretary, a Treasurer, and, if elected by the Board of Directors
by resolution, a Chairman or Co-Chairman of the Board and/or one or more Vice
Presidents and such other officers as may be determined by the Board of
Directors. Any two or more offices may be held by the same person.
Section 2. ELECTION OF SPECIFIED OFFICERS BY BOARD. The Board of
Directors at its first meeting after each annual meeting of shareholders shall
elect a President, a Secretary, a Treasurer and may elect one or more Vice
Presidents.
Section 3. ELECTION OR APPOINTMENT OF OTHER OFFICERS. Such other
officers and assistant officers and agents as may be deemed necessary may be
elected or appointed by the Board of Directors, or, unless otherwise specified
herein, appointed by the President of the Corporation. The Board of Directors
shall be advised of appointments by the President at or before the next
scheduled Board of Directors meeting.
Section 4. SALARIES. The salaries of all officers of the Corporation to
be elected by the Board of Directors pursuant to Article Four, Section 2 hereof
shall be fixed from time to time by the Board of Directors or pursuant to its
discretion. The salaries of all other elected or appointed officers of the
Corporation shall be fixed from time to time by the President of the Corporation
or pursuant to his direction.
Section 5. TERM; RESIGNATION. The officers of the Corporation shall
hold office until their successors are chosen and qualified. Any officer or
agent elected or appointed by the Board of Directors or the President of the
Corporation may be removed, with or without cause, by the Board of Directors.
Any officers or agents appointed by the President of the Corporation pursuant to
Section 3 of this Article Four may also be removed from such officer positions
by the President, with or without cause. Any vacancy occurring in any office of
the Corporation by
8
<PAGE>
death, resignation, removal or otherwise shall be filled by the Board of
Directors, or, in the case of an officer appointed by the President of the
Corporation, by the President or the Board of Directors. Any officer of the
Corporation may resign from his respective office or position by delivering
notice to the Corporation. Such resignation is effective when delivered unless
the notice specifies a later effective date. If a resignation is made effective
at a later date and the Corporation accepts the future effective date, the Board
of Directors may fill the pending vacancy before the effective date if the Board
provides that the successor does not take office until the effective date.
Section 6. PRESIDENT. The President shall be the Chief Executive
Officer of the Corporation, shall have general and active management of the
business of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. In the absence of the Chairman of
the Board or in the event the Board of Directors shall not have designated a
chairman of the board, the President shall preside at meetings of the
shareholders and the Board of Directors.
Section 7. VICE PRESIDENTS. The Vice Presidents in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President. They shall perform such other duties and have such
other powers as the Board of Directors shall prescribe or as the President may
from time to time delegate.
Section 8. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the shareholders and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the shareholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or President, under whose supervision he shall be. He shall keep in
safe custody the seal of the Corporation and, when authorized by the Board of
Directors, affix the same to any instrument requiring it.
Section 9. TREASURER. The Treasurer shall have the custody of corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors at its regular meetings or when the
Board of Directors so requires an account of all his transactions as treasurer
and of the financial condition of the Corporation unless otherwise specified by
the Board of Directors, the Treasurer shall be the Corporation's Chief Financial
Officer.
Section 10. OTHER OFFICERS, EMPLOYEES AND AGENTS. Each and every other
officer, employee and agent of the Corporation shall possess, and may exercise,
such power and authority,
9
<PAGE>
and shall perform such duties, as may from time to time be assigned to him by
the Board of Directors, the officer so appointing him and such officer or
officers who may from time to time be designated by the Board of Directors to
exercise such supervisory authority.
ARTICLE FIVE
CERTIFICATES FOR SHARES
Section 1. ISSUE OF CERTIFICATES. The Corporation shall deliver
certificates representing all shares to which shareholders are entitled; and
such certificates shall be signed by the Chairman of the Board, President or a
Vice President, and by the Secretary or an Assistant Secretary of the
Corporation, and may be sealed with the seal of the Corporation or a facsimile
thereof.
Section 2. LEGENDS FOR PREFERENCES AND RESTRICTIONS ON TRANSFER. The
designations, relative rights, preferences and limitations applicable to each
class of shares and the variations in rights, preferences and limitations
determined for each series within a class (and the authority of the Board of
Directors to determine variations for future series) shall be summarized on the
front or back of each certificate. Alternatively, each certificate may state
conspicuously on its front or back that the Corporation will furnish the
shareholder a full statement of this information on request and without charge.
Every certificate representing shares that are restricted as to the sale,
disposition, or transfer of such shares shall also indicate that such shares are
restricted as to transfer and there shall be set forth or fairly summarized upon
the certificate, or the certificate shall indicate that the Corporation will
furnish to any shareholder upon request and without charge, a full statement of
such restrictions. If the Corporation issues any shares that are not registered
under the Securities Act of 1933, as amended, and registered or qualified under
the applicable state securities laws, the transfer of any such shares shall be
restricted substantially in accordance with the following legend:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER
THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW, OR (2) AT
HOLDER'S EXPENSE, AN OPINION (SATISFACTORY TO THE CORPORATION) OF
COUNSEL (SATISFACTORY TO THE CORPORATION) THAT REGISTRATION IS NOT
REQUIRED."
Section 3. FACSIMILE SIGNATURES. The signatures of the Chairman of the
Board, the President or a Vice President and the Secretary or Assistant
Secretary upon a certificate may be facsimiles, if the certificate is manually
signed by a transfer agent, or registered by a registrar, other than the
Corporation itself or an employee of the Corporation. In case any officer who
has signed or whose facsimile signature has been placed upon such certificate
shall have ceased to
10
<PAGE>
be such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date of the
issuance.
Section 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost or destroyed.
Section 5. TRANSFER OF SHARES. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. REGISTERED SHAREHOLDERS. The Corporation shall be entitled
to recognize the exclusive rights of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of the State
of Florida.
Section 7. REDEMPTION OF CONTROL SHARES. As provided by the Florida
Business Corporation Act, if a person acquiring control shares of the
Corporation does not file an acquiring person statement with the Corporation,
the Corporation may redeem the control shares at fair market value at any time
during the 60-day period after the last acquisition of such control shares. If a
person acquiring control shares of the Corporation files an acquiring person
statement with the Corporation, the control shares may be redeemed by the
Corporation only if such shares are not accorded full voting rights by the
shareholders as provided by law.
ARTICLE SIX
GENERAL PROVISIONS
Section 1. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
cash, property, or its own shares pursuant to law and subject to the provisions
of the Articles of Incorporation.
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<PAGE>
Section 2. RESERVES. The Board of Directors may by resolution create a
reserve or reserves out of earned surplus for any proper purpose or purposes,
and may abolish any such reserve in the same manner.
Section 3. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the Corporation shall end on
December 31 of each year and may be changed from time to time by resolution of
the Board of Directors.
Section 5. SEAL. The corporate seal shall have inscribed thereon the
name and state of incorporation of the Corporation. The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
Section 6. GENDER. All words used in these Bylaws in the masculine
gender shall extend to and shall include the feminine and neuter genders.
ARTICLE SEVEN
AMENDMENTS OF BYLAWS
Unless otherwise provided by law, these Bylaws may be altered, amended
or repealed or new Bylaws may be adopted by action of the Board of Directors.
12
*SEE REVERSE FOR RESTRICTIVE LEGEND*
NUMBER SHARES
[MAGICWORKS LOGO]
Magicworks Entertainment
I n c o r p o r a t e d
AUTHORIZED COMMON STOCK: 50,000,000 SHARES
PAR VALUE: $.001
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
SHARES OF COMMON STOCK OF MAGICWORKS ENTERTAINMENT INCORPORATED
TRANSFERABLE ON THE BOOKS OF THE CORPORATION IN PERSON OR BY DULY AUTHORIZED
ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE
IS NOT VALID UNTIL COUNTERSIGNED BY THE TRANSFER AGENT AND REGISTERED BY THE
REGISTRAR.
WITNESS THE FACSIMILE SEAL OF THE CORPORATION AND THE FACSIMILE
SIGNATURES OF ITS DULY AUTHORIZED OFFICERS.
DATED:
MAGICWORKS ENTERTAINMENT INCORPORATED
CORPORATE SEAL
DELAWARE
_____________________________ _____________________________
SECRETARY PRESIDENT
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a
saving bank), or a trust company. The following abbreviations,
when used in the inscription on the face of this certificate,
shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM -- a tenants in common UNIF GIFT MIN ACT -- _______Custodian_______
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received,________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably consitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ------------------
--------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN THE EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (I) PURSUANT TO A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT
WITH RESPECT TO THESE SECURITIES, OR (II) PURSUANT TO A SPECIFIC EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT, BUT ONLY UPON A HOLDER HEREOF FIRST
HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE ISSUER, OR OTHER COUNSEL,
REASONABLY ACCEPTABLE TO THE ISSUER, THAT THE PROPOSED DISPOSITION IS CONSISTENT
WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE
"BLUE SKY" OR OTHER SIMILAR SECURITIES LAW.
</TABLE>
December 18, 1996
Magicworks Entertainment Incorporated
930 Washington Avenue, 5th Floor
Miami Beach, Florida 33193
Re: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have acted as counsel to Magicworks Entertainment Incorporated, a
Delaware corporation (the "Company"), in connection with the registration
statement on Form S-1, as amended (the Registration Statement"), filed by the
Company under the Securities Act of 1933, as amended, with respect to 26,226,465
shares (the "Shares") of the Company's common stock, par value $.001 per share
(the "Common Stock"), and 500,000 warrants to purchase Common Stock (the
"Placement Agent Warrants") which may be sold from time to time by the selling
securityholders (the "Selling Securityholders") named therein. Of the Shares to
be sold by the Selling Securityholders, (i) 22,763,179 of such Shares (the
"Outstanding Shares") are issued and outstanding; (ii) 500,000 of such Shares
(the "Placement Agent Warrant Shares") are issuable to certain of the Selling
Securityholders upon exercise of Placement Agent Warrants held by such
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Magicworks Entertainment Incorporated
December 18, 1996
Page 2
Selling Securityholders; (iii) 1,481,643 of such Shares (the "Notes Shares") are
issuable to certain of the Selling Securityholders upon conversion of the
Company's unsecured senior convertible notes (collectively, the "Notes"); and
(iv) 1,481,643 of such Shares (the "Redeemable Warrant Shares") are issuable to
certain of the Selling Securityholders upon exercise of certain redeemable
warrants (the "Redeemable Warrants") that are issuable upon conversion of the
Notes in certain circumstances.
In connection with the Registration Statement, we have examined,
considered and relied upon the following documents (collectively, the
"Documents"): the Registration Statement; the Agreement and Plan of Merger dated
July 24, 1996 among the Company, Shadow Wood Corporation, Robert L. Wright and
Mark Archibald; the Placement Agent Warrants; the form of Redeemable Warrant;
the form of Note; the Placement Agent Agreement dated June 12, 1996 between the
Company and Capital Growth International LLC, the Company's Certificate of
Incorporation and Bylaws, each as amended to date, and corporate minute book;
and such matters of law as we have considered necessary or appropriate for the
expression of the opinions contained herein.
In rendering the opinions set forth below, we have assumed without
investigation the genuineness of all signatures and the authenticity of all
documents submitted to us as originals, the conformity to authentic original
documents of all documents submitted to us as copies, and the veracity of the
Documents. As to questions of fact material to the opinions expressed herein, we
have relied upon the representations and warranties of the Company, the Selling
Securityholders and the other parties to the Documents.
Based solely upon and subject to the Documents, and subject to the
qualifications set forth below, we are of the opinion that (i) the Outstanding
Shares have been duly authorized and are validly issued, fully paid and
non-assessable; (ii) the Placement Agent Warrant Shares, the Redeemable Warrant
Shares and the Note Shares have been duly authorized and, when issued and
delivered in accordance with the terms of the Placement Agent Warrants, the
Redeemable Warrants and the Notes, respectively, will be validly issued, fully
paid and non-assessable; and (iii) the Placement Agent Warrants have been duly
authorized and are validly issued
Although we have acted as counsel to the Company in connection with
certain other matters, our engagement is limited to matters about which we have
been consulted. Consequently, there exist matters of a legal nature involving
the Company in which we have not been consulted and have not represented the
Company. This opinion letter is limited to the matters stated herein and no
opinions may be implied or inferred beyond the matters expressly stated herein.
The opinions expressed herein are given as of this date, and we assume no
obligation to update or supplement our opinions to reflect any facts or
circumstances that may come to our attention or any change in law that may occur
or become effective at a later date.
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Magicworks Entertainment Incorporated
December 18, 1996
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus contained in the Registration Statement.
Very truly yours,
GREENBERG, TRAURIG, HOFFMAN,
LIPOFF, ROSEN & QUENTEL, P.A.
By: /s/ FERN S. WATTS
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Fern S. Watts
MANAGEMENT OPERATING AGREEMENT
THIS AGREEMENT, made and entered into as of the 27th day of May, 1992,
by and between the City of North Miami, Florida (hereinafter called the ~CITY"),
a body corporate and a political subdivision of the State of Florida, duly
organized and existing under the laws of said State, and PERFORMING ARTS
MANAGEMENT OF NORTH MIAMI, INC., a corporation organized under the laws of the
State of Florida (hereinafter sometimes referred to as "OPERATOR");
WHEREAS, the CITY desires to contract with OPERATOR for OPERATOR to
develop and construct thereon, and manage pursuant to the terms hereof, a
cultural facility for the performing and visual arts (hereinafter sometimes
referred to as the "Facility" or "Premises"); and
WHEREAS, CITY desires the OPERATOR to prepare plans and specifications
and arrange the financing for the construction of a modern performing arts
facility and related facilities on the Site (the Site and Facilities together
are sometimes hereinafter referred to as the "ProJect"); and
WHEREAS, it in the intention of the CITY that the ProJect be acquired,
financed, constructed and operated so that the citizens of the City of North
Miami and the South Florida area shall have the benefit of the finest performing
and visual arts programs and events essential to the educational, recreational,
historical, political and cultural development of the community to be served;
and
WHEREAS, the parties acknowledge that the development, operation and
management of the ProJect must be undertaken in a manner which will produce the
desired results and anticipated benefits for the CITY and the community, and
that such undertaking presents unusual and difficult problems demanding
extraordinary and specialized knowledge and experience;
NOW, THEREFORE, in consideration of the payments hereinafter required
to be made and the performance of the mutual promises herein contained at the
time and in the manner specified, the parties hereto agree as follows:
SECTION 1. GENERAL OBLIGATIONS OF OPERATOR
1.1. The OPERATOR shall, undertake the following obligations and
undertakings, all of which shall 1.1.t theThe OPERATOR shall, undertake the
following obligations and undertakings, all of which shall be at the sole cost
and expense of the OPERATOR:
a. Design the ProJect subject to the approval of CITY to
accommodate and fulfill the purpose and intent of this
Agreement. OPERATOR is directed to design a ProJect on
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behalf of CITY which ProJect is to be a first class
state-of-the-art outdoor performing arts facility with a
capacity of 7,900 permanent seats and additional room to
accommodate temporary and berm seating.
b. Obtain, with the approval and cooperation of CITY, all
necessary governmental regulatory approvals and
authorizations required to permit the development of the
ProJect in accordance with the plans at no cost to CITY.
OPERATOR shall prepare all plans and specifications for
the construction of the Facility and obtain all required
building permits for the construction of all improvements
specified by the plans and specifications. OPERATOR shall
not be charged fees for building permits required and
issued by CITY.
All plans and specifications shall be subject to review
and approval by CITY, and no substantial modification
thereto shall be made once-so approved without CITY
Council approval which approvals shall not be arbitrarily
or capriciously denied.
CITY may, at its expense, utilize an outside consultant to
review and monitor such plans and specifications including
but not limited to structural, electrical, plumbing, etc.,
and to monitor construction activities for compliance with
such Plans. CITY Council review shall be in addition to
review and approval by CITY'S building official. It is
understood and agreed that CITY'S costs for construction
review and monitoring shall be an item eligible for soft
cost reimbursement to CITY in the event a bond issue
financing mechanism is utilized under Section l.l(d) and
Section 29, of this Agreement, to the extent allowed by
law.
c. Develop and construct the Facility on a site of up to
fifteen (15) acres, the location of which is to be
indicated by CITY within thirty (30) days of execution of
this Agreement, with the location to be designated within
the Site Plan required under Section 1.1(c)(5) below; and
to develop and construct all parking areas referenced in
Section 7.8 upon an area to be designated in the Site Plan
referenced above. Such development and construction shall
be in accordance with the plans and specifications to be
prepared by OPERATOR.
Both the Facility location and the parking area location
shall be subject to final designation within CITY'S
Landfill Closure Plan. The total ProJect Site size (made
available from CITY land) shall be of sufficient size to
enable OPERATOR to provide parking areas for at least
6,500 vehicles (2,000 to serve the
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Facility and 4,500 to serve all authorized users of the
former Landfill Site), if necessary.
In the event that the OPERATOR finds the Facility location
or parking area location, as established by the above
procedure, to be unacceptable, this Agreement shall
immediately be terminated upon written notice by either
party to the other, with no party being obligated to the
other.
It is recognized that a sufficient roadway segment within
the four (4) acres + entrance way delineated on Exhibit
"A" shall remain preserved as an ingress/egress for this
ProJect as well as for an ingress/egress for any other
uses which May be hereafter constructed on land adjacent
to the ProJect or upon the landfill.
c.1 It is acknowledged by OPERATOR and CITY that in
OPERATOR'S planning, development and management of
the facility that N.E. 135 Street shall not now,
or ever, be used or developed as an ingress or
egress to the Facility. OPERATOR shall construct
and develop the entrance road area depicted on
Exhibit ~A" as the primary access to the ProJect
and shall likewise develop and construct road
access in the vicinity of N.E. 151 Street if so
designated.
c.2 CITY shall make available (at no charge to
OPERATOR) enough non-exclusive property (from
available CITY lands) to the OPERATOR and OPERATOR
shall provide thereon for two (2) separate ingress
and egress entrances for locations as described in
c.1. above. OPERATOR agrees that, at its expense,
it shall pay for all improvements related to the
ingress and egress. OPERATOR further agrees that
during the course of the Contract, it shall pay
for all maintenance required during the time that
it is the exclusive user of the ingress and
egress. At such time that additional users are
incorporated into the landsite, each new user may
be assessed a portion of such initial cost for
development, operation and maintenance of the
ingress and egress as determined by the CITY
Council based upon such additional user's,
pro-rata of CITY owned land.
c.3 OPERATOR shall commence the construction of the
Facility and related improvements and site work
within ninety (90) days after obtaining CITY'S
approvals and authorizations of CITY pursuant to
l.l(b), l.l(c)(4) and l.l(d) hereof and approval
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of an applicable funding program, which
construction shall be completed within one (1)
year of said commencement. SubJect to the terms of
Section l.l(c)(6), if such construction is not so
commenced, the contract shall be deemed terminated
immediately upon the written notice from either
party to the other, and no party shall have any
obligation to the other.
c.4 As a component of OPERATOR'S Facility design work,
OPERATOR, through its engineering and
architectural consultants, shall provide all
necessary information, data and plans to enable
CITY'S Munisport Landfill Site closure Project
Manager, to include the Facility and all parking
areas, as a component of CITY'S Munisport Landfill
closure design, which CITY is preparing under
D.E.R. Contract SW-48. CITY shall include the
Facility in its Landfill Closure Design. CITY
shall use its best efforts to obtain government
approval of CITY'S Landfill Closure Design.
Once the Landfill Closure Design is approved by
all government entities with Jurisdiction thereof,
OPERATOR shall be responsible for providing for
the building and construction of the Facility into
the Landfill Closure. OPERATOR shall be
responsible for the cost of site preparation,
clearing of brush, drainage, grading, methane gas
control and venting, application of clean fill
material, construction of foundation and all other
components and appurtenances of the Facility. The
above described responsibility of OPERATOR shall
not extend to other portions of the 170 acre
Landfill site which are not used either for the
Facility or not used for the parking space" to be
constructed hereunder.
The OPERATOR'S responsibilities described above
shall be fulfilled directly by OPERATOR'S
construction of such item. in coordination with
CITY'S construction of closure of the entire 170
acre landfill (exclusive of the Facility and
parking sites). At CITY'S option, if required by
any regulatory authority, the OPERATOR shall pay
the CITY, in advance, all necessary funds for CITY
to complete those items which are OPERATOR'S
responsibility regarding the closure of OPERATOR'S
segment of the 170 acre landfill site and
including the Facility Site location and parking
areas referred to in Section 7.8. The
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term "necessary funds" shall include all actual
construction costs, as well as the fees and costs
paid by CITY for an engineer to supervise such
construction. In exercising this option, CITY
shall take into consideration OPERATOR'S
construction costs and shall seek to obtain and
use the best cost factors available. In either
event, all work shall be subject to the approval
of CITY'S Landfill Closure Project Manager, all
items shall be accomplished, and no reimbursement
shall be made or owing to OPERATOR. The option
provision of this section shall apply only to
aspects of closure and not general construction of
the Facility.
CITY shall furnish OPERATOR with closure cost
estimates relating to OPERATOR'S landfill closure
construction responsibilities under this Section
prior to any closure work being done at OPERATOR'S
expense. No construction on the Amphitheater
project will commence prior to OPERATOR and CITY
mutually agreeing to OPERATOR'S closure cost
responsibilities under this Agreement. If the CITY
and OPERATOR fail to agree, this Agreement shall
immediately be terminated upon written notice from
either party to the other, and no party shall have
any obligation to the other.
c.5 OPERATOR recognizes that the adoption of a site
approval ordinance of the CITY, pursuant to
Section 29.12.1 of the City code is a condition
precedent to the development of the property under
this Agreement, and that OPERATOR shall apply to
CITY for such site approval and diligently pursue
same.
c.6 Upon commencement of construction said
construction shall be diligently prosecuted to
completion, excepting only~delays caused by acts
of God which OPERATOR could not have reasonably
foreseen and provided for, or strikes, boycotts or
like obstructive action" by employee or labor
organizations which are beyond the control of
OPERATOR and which OPERATOR cannot overcome with
reasonable effort and could not reasonably have
foreseen and provided for, or any war or
declaration of a state of national emergency, or
the imposition by government action or authority
of restrictions upon the procurement of labor or
materials necessary for the completion of the
ProJect, or any litigation (which litigation is
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not initiated or directly caused by actions of
OPERATOR) relating to the validity of this
Agreement or the proposed plan of financing,
acquisition, construction, equipping and operation
of the Project. It is recognized by OPERATOR and
the CITY that the ProJect or a portion of the
Project will be constructed on a former sanitary
landfill site, and that construction problems,
which problems, if any, are currently unknown and
hence as of this date are not herein capable of
definition, that reasonable delay in completion of
the Project due to its construction on or near
said sanitary landfill will be considered an "Act
of God H " Any act or event not within the
reasonable control of either party shall be deemed
an "Act of God". Provided, however, no extension
of time to perform shall be granted for more than
a two (2) year period.
c.7 All improvements constructed pursuant to this
Agreement shall be so constructed that upon
completion they will fully comply with the
requirements of all applicable laws, rules,
orders, codes, ordinances, requirements and
regulations of municipal, regional, state, federal
and other governmental authorities having
Jurisdiction, whether or not the same are now in
the contemplation of the parties or require
amendments to the plans or specifications or
require reconstruction of work in progress or work
in place, and whether the same be structural or
otherwise.
c.8 OPERATOR shall promptly obtain any and all
certificates of occupancy and permits which are
required to be obtained to permit the improvements
to be used for the purposes contemplated by this
Agreement. CITY shall not charge OPERATOR for any
City of North Miami required permits.
c.9 Upon the completion of the construction OPERATOR
shall provide the CITY with two complete sets of
"as built plans" of facility, along with a survey
of the project.
d. Within thirty (30) days after all governmental approvals
of CITY 'So landfill closure design, OPERATOR shall
arrange a financing package so as to finance the costs of
the construction and development of the Project. Any
financing shall be in form satisfactory to
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the governing body of the CITY and the CITY'S attorney. It
being acknowledged that an express condition of such
financing shall be that the CITY shall have no general
fiscal obligation pursuant thereto, and that the financing
arranged shall have guarantees satisfactory to the CITY
and its counsel so as to insure that the CITY in not
obligated pursuant thereto or encumbered thereby. The CITY
shall cooperate with the OPERATOR in arranging any such
financing including therein, issuing a thirty (30) year
Industrial/Development revenue bond pursuant to Chapter
159, Florida Statutes, or other applicable statutory
provisions, upon confirmation by the City Council and City
Attorney that the CITY is not liable thereon and that no
recourse to the CITY is created by such financing. The
attorney may require the opinion of Bond Counsel prior to
issuance of such Bonds. OPERATOR may apply in CITY'S name,
with approval of the CITY for participation in any grant
or tax sharing revenue programs which might include but
not be limited to tourist development packages or State or
Federal packages so long a" there is no recourse or
reimbursement required on behalf of CITY. The financing
package shall include a demolition bond in favor of CITY
should OPERATOR or its approved successors abandon the
ProJect prior to successful completion. It is recognized
that construction shall not commence unless and until the
financing plan is approved by the CITY Council, which
approval shall not be arbitrarily or capriciously denied.
Once construction commences, OPERATOR shall provide weekly
written progress reports to the City Council in a format
approved by the City Manager. The parties agree that if a
financing package is not approved in accordance herewith
or in the event funds to be provided by the approved
financing are not provided within six (6) months after
approval, either party may immediately terminate this
contract upon written notice to the other, and no party
shall be obligated to the other.
e. To manage and operate the Facility pursuant to the terms
of this Agreement.
SECTION 2. TERM OF AGREEMENT
2.1. CITY and OPERATOR hereby agree that OPERATOR shall be the
exclusive Operator of the ProJect for and during the term of this Agreement in
furtherance of the public purpose for which the Project is to be built, to wit:
performing and visual arts facility and exhibit hall. Such use shall include,
without limitation the presentation of performing artists, shows, concerts,
cultural displays, exhibits and other types of similar performances and all
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other incidental and related uses. The term of this Agreement shall commence on
the date hereof and the OPERATOR'S management and the operation term shall
commence on the date of occupancy of the 2.1.ect aCITY and OPERATOR hereby agree
that OPERATOR shall be the exclusive Operator of the ProJect for and during the
term of this Agreement in furtherance of the public purpose for which the
Project is to be built, to wit: performing and visual arts facility and exhibit
hall. Such use shall include, without limitation the presentation of performing
artists, shows, concerts, cultural displays, exhibits and other types of similar
performances and all other incidental and related uses. The term of this
Agreement shall commence on the date hereof and the OPERATOR'S management and
the operation term shall commence on the date of occupancy of the Project and
shall continue for a period of thirty (30) years thereafter. .
2.2. date of occupancy of Project" or Date of occupancy" shall mean the
date the ProJect is completed and ready for operation as evidenced by a
Certificate of Occupancy and a written notice thereof (pursuant to Section 2.3)
has been served on OPERATOR or the date when OPERATOR commences operation of the
ProJect, or January 1, 1996, whichever shall first occur.
2.3. When the Project is completed and ready for occupancy, CITY shall
give notice of the same to OPERATOR in writing and the term hereof shall
commence pursuant to the terms hereof.
SECTION 3. OPERATING POLICY AND INTENT
3.1. CITY and OPERATOR hereby agree that the Project shall be managed
so as to furnish educational, recreational, athletic, historical, political and
cultural benefits to the community, without 3.1.ncialCITY and OPERATOR hereby
agree that the Project shall be managed so as to furnish educational,
recreational, athletic, historical, political and cultural benefits to the
community, without financial burden to the taxpayer. of the City of North Miami,
Florida.
3.2. The CITY agrees that during the term of this Agreement it will
not, without the OPERATOR'S consent, levy any special tax or assessment on the
Facility and/or the use of said Facility and will in all ways, endeavor to
cooperate with OPERATOR in carrying out the terms and intent of this Agreement,
as determined reasonably by City Council. The OPERATOR recognizes that CITY may
levy a special tax or assessment authorized by law if it is a prerequisite to
CITY'S authority to levy such special tax or assessment against other similarly
situated Facilities or uses that such special tax or assessment be levied on the
Facility or the use of said Facility.
SECTION 4. SCOPE OF OPERATOR SERVICES
4.1. In operating and managing the Facility, the OPERATOR shall provide
to the CITY, at 4.1.ATOR'In operating and managing the Facility, the OPERATOR
shall provide to the CITY, at OPERATOR'S sole cost and expense, the following
services:
a. OPERATOR shall provide all day to day and general
management policy making and implementation thereof for
the ProJect, and all necessary personnel and equipment to
handle the day to day management, operation and
maintenance of the Facility including therein the
dispensing of food and beverage service, the manning of
all concession and ticket booths, accounting and
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budgeting, advertising, the booking and acquisition of
entertainment, maintenance, security, market research,
parking, supervision of ushers and insurance.
b. Performance and payment bonds and other financing
guaranty. in form satisfactory to the CITY fully insuring
the development and construction of the Facility and
further guaranteeing the CITY the minimum payment, a.
defined herein, together with assurance in form
satisfactory to the CITY that the CITY will be held
harmless as not liable for the costs of acquisition,
construction, operation and management of the Facility.
All surety companies shall meet the standards applicable
to sureties acceptable for CITY public works construction
projects. All bonds and guarantees shall be subject to
approval of CITY attorney and CITY Risk Management
Division. The maintenance and repair of the Facility shall
be further assured by the escrow fund to be established
under Section 18.4 hereof. No building permit shall be
issued until all necessary performance and payment bonds
are posted pertaining to such construction activities.
SECTION 5. PAYMENT TO CITY
5 1
5.1.1 MINIMUM RETURN ON CITY INVESTMENT: OPERATOR agrees to pay to CITY
in equal quarterly installments in arrears, beginning on or before the tenth
(10th) day of the third full calendar month next following the Commencement Date
and by the tenth (10th) day of each quarter thereafter, an annual minimum return
on CITY investment of Two Hundred Thousand ($200,000.00) Dollars, which sum
shall be adjusted annually to reflect any changes occasioned by cost of living
increases as shown by the Consumer Price Index prepared by the Department of
Labor for the local geographic area with a maximum cap of said minimum return
not to exceed Five Hundred Thousand ($500,000.00) Dollars per annum during the
term hereof. It is recognized that this Consumer Price Index cap shall not, in
any way, operate to reduce payments due to CITY directly udder Section 5.1.2 or
Section 5.1.3 of this Agreement.
5.1.2 PER TICKET USE CHARGE DUE CITY: OPERATOR shall collect and pay to
the CITY by OPERATOR as a use fee charge a sum equivalent to five (5%) percent
of the box office ticket sale revenues, less any sales, use or excise tax
thereon. This fee shall be added to the established box office sales price of
the ticket. The use fees collected by the OPERATOR pursuant to this provision
shall be totally due to the CITY and shall be remitted to the CITY by OPERATOR
on a quarterly bases. This remittance to CITY pursuant to this provision shall
be credited against payments due pursuant to section 5.1.1. Except for tickets
donated to or used by charitable, educational or philanthropic organizations and
for
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tickets distributed for promotional purposes not exceeding 7.5% (percent) of
the total number of tickets available for any show or event, (which promotional
tickets shall be used exclusively to market the Facility or to promote an event
at the Facility and as to which promotional tickets, no trade or barter not
benefiting the Facility occurs), OPERATOR shall account for and pay to CITY the
use fee charge provided herein for all tickets used for admission.
OPERATOR shall facilitate compliance with these provisions pertaining
to promotional tickets by placing contractual provisions reflecting such in its
contracts with third parties, an necessary.
5.1.3 PERCENTAGE PAYMENT FROM OPERATIONS; In addition, during the term
of this Agreement, OPERATOR shall pay CITY on or before the tenth (10th) day of
each third calendar month, a percentage from the operations of the Facility in
an amount equal to five (5%) percent of the gross monies actually received by
OPERATOR, as defined in section 5.2 of this Agreement. Any remittance to CITY
pursuant to this provision shall be credited against payments due pursuant to
section 5.1.1.
5.1.4 INITIAL PAYMENT: OPERATOR shall deposit with CITY, immediately
upon the approval by all Federal, State, County and local regulatory and
administrative agencies with Jurisdiction of a closure plan for the entire 170
acre landfill site including therein authority for construction of this ProJect,
as an approved part of said closure, and approval by the CITY of OPERATOR'S
financing package pursuant to the terms hereof, a sum of One Million Five
Hundred Thousand ($1,500,000.00) Dollars which money shall be used by CITY
toward payment of construction, operation and monitoring costs associated with
the landfill site, exclusive of OPERATOR'S responsibilities under section
1.1.(c)(4) above. CITY may additionally use such funds towards CITY'S C.E.R.C.
L.A. site remediation after paying all of its cost of closure.
5.1.5 OPERATOR REIMBURSEMENT: With reference to that payment made by
OPERATOR pursuant to 5.1.4 OPERATOR shall be entitled to a repayment from CITY'S
share of Facility revenues of said sum as follows:
a. In years one (1) through ten (10) of the term thereof,
CITY shall be responsible for payment of interest only on
that sum set forth in section 5.1.4 above at the prime
rate, not to exceed a rate of eight (8%) percent.
b. In years eleven (11) through thirty (30), CITY shall pay
interest and principal amortized over the twenty (20) year
term at the prime rate, not to exceed the rate of eight
(8%) percent.
c. All payments as set forth in "a" and "b" above shall be
paid quarterly.
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d. The CITY may reduce the amount to be reimbursed pursuant
to this provision from contributions or reimbursements
from third parties which third parties may include but not
be limited to other users of CITY owned property. Any such
third party user may be required as a condition of its USE
to pro-rata contribute to the CITY funds to reduce the
CITY'S obligation to OPERATOR, as determined by CITY. The
CITY shall reserve the right to pre-pay principal at any
time with no penalty.
e. In the case of any third party contributions or
reimbursements OF the obligations of the CITY to the
OPERATOR a. set forth in this subsection, CITY'S
obligation shall be reduced by said sums so paid to the
OPERATOR and the amortized payments as set forth above
shall be proportionately reduced over the remaining term
of said amortization.
5.1.6 PAYMENT OF DEBT SERVICE: If required by any lender as a segment
of OPERATOR'S approved financing package and notwithstanding and in addition to
the other terms of this Agreement, OPERATOR shall, on or before the tenth (10th)
day of each calendar month, pay the bond trustee or lender an amount equal to
1/12th of the annual debt service of any financing packages, including revenue
bonds, which are issued under the name of CITY. The CITY and the OPERATOR
acknowledge that the payment of debt service is to be undertaken and made by
OPERATOR before any distribution to the OPERATOR is made from the revenues of
the Project.
5.2. DEFINITION OF GROSS REVENUES:OSS REVENUES:
Gross Revenues are defined as follows:
a. All food, beverages and novelty sales, (except that food
provided to the performers which shall not be included),
derived from direct sales made by OPERATOR and monies
received by OPERATOR from concessionaires engaged in the
sale of food, beverage or novelties.
b. Miscellaneous income, including all other gross monies
received by OPERATOR relating to the Facility, and related
improvements (such as, but not limited to, parking,
advertising contracts, off-site video and corporate
sponsorships, telecast, project, performances, flat rental
fees, broadcast and video production payments and
corporate and other sponsorships, all less applicable tax
and outside commission.
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c. Revenues expressly not included in definition of Gross
Revenues are Box Office ticket sales revenues, taxes, CITY
Use Fees, money escrowed pursuant to section 18.4 and
reimbursable equipment and labor fees.
5.3. PLACE OF PAYMENTS: All payments due and payable by OPERATOR to
CITY shall be paid to the office of the City Manager of the CITY during the
regular working hours at 776 N.E. 125 Street, North Miami, Florida 33161, unless
otherwise authorized in writing by the CITY.
5.4. ANNUAL RECONCILIATION: Within ninety (90) days after the close of
each calendar year, an annual reconciliation of Gross Revenues for such calendar
year shall be provided to CITY by OPERATOR for determination of compliance with
this Agreement and determine what, if any, remaining funds are due and owing
CITY based upon the provisions of this Agreement. If such reconciliation
reflects an overpayment, then that amount shall be deducted from the next
payment due CITY from OPERATOR, if OPERATOR has underpaid CITY during such
calendar year, then, in that event, OPERATOR shall forthwith pay CITY said
funds, and if such underpayment was the result of fraud, gross negligence or
willful neglect on the part of OPERATOR, the OPERATOR shall additionally pay to
CITY such underpayment amount together with interest at twelve (12%) percent per
annum, calculated from the date reconciliation reflects such funds are due.
Each annual reconciliation provided by OPERATOR to CITY pursuant to the
provisions of this section shall be accompanied with an "Opinion as to Accuracy
and Sufficiency" prepared by a certified public accounting firm retained by
OPERATOR, subject to the approval of CITY, based upon a review of OPERATOR'S
books, records and accounting procedures. The parties recognize that material
underpayments caused directly by the fraud or willful act of OPERATOR'S
principals shall constitute a breach of this Agreement by OPERATOR.
5.4.1 OPERATOR agrees to keep within Dade County, Florida, full,
complete and proper accounts of all gross sales, which books and accounts shall
be at all reasonable times open to inspection by CITY or its auditors or other
authorized representative or agent. Acceptance by CITY of any monies paid by
OPERATOR in accordance with such statement shall not be an admission of the
accuracy of such statement nor of the sufficiency of the amount of such
additional percentage payment, but CITY shall be entitled at any time within two
(2) years after receipt of such statement to question the sufficiency thereof or
the accuracy of such statement. OPERATOR shall accordingly, for a period of two
(2) years after furnishing such statement, keep safe and intact all of its gross
sales and any authorized deduction therefrom. If CITY does not question the
amount of any such payment so paid by OPERATOR by giving OPERATOR written demand
for an audit within said two (2)
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years and proceeding therewith within sixty (60) days after the end of such two
(2) years, CITY shall be 'deemed finally and conclusively to have accepted the
amount paid by OPERATOR as full performance of OPERATOR!S obligation. for
additional percentage payment for the year(s) involved.
5.4.2 OPERATOR shall maintain and shall require OPERATOR'S
subcontractors, concessionaires and licensees to maintain at the premises, or at
such other addresses within Dade County, Florida, as OPERATOR from time to time
shall designate, complete, permanent, and accurate financial record" including
books of account and records of all gross sales upon the Premises, together with
all supporting records. Such books and record. shall be preserved intact for at
least two (2) years following the close of this calendar year to which they
relate. CITY and its agents may at any reasonable time inspect and audit any of
said books and records.
5.4.3 Any audit made by CITY pursuant to Section 5.5.1 shall be at the
expense of CITY, except that if CITY makes any such audit for any year and if
the gross sales shown by OPERATOR'S statement (including statements of
any-subcontractor, concessionaire or licensees) for such are found to be
understated by more than five (5%) percent, OPERATOR shall pay to CITY the
reasonable expense of such audit. Any willful or fraudulent understatement made
directly by OPERATOR'S principals shall constitute a breach of this Agreement.
5.4.4 All statements and accounting procedures of OPERATOR shall be
prepared in accordance with generally accepted accounting principles. OPERATOR
shall utilize procedures in conformance with industry standards for like
Facilities to assure accuracy of records and secure revenue handling and
reporting procedures.
SECTION 6. PROHIBITION AGAINST WASTE
OPERATOR shall not keep, use, sell or offer for Male at the Premises
any article which may be prohibited by the standard form of fire insurance
policies or other applicable provisions of law. OPERATOR shall not commit or
suffer to be committed any waste upon the Premises.
SECTION 7. USE OF FACILITY OR PREMISES
7.1. OPERATOR may use the Premises only for the purpose of producing
and staging entertainment, cultural events and special events (including
recording, filming, broadcasting, etc.) to be held in the Facility or the Site
and conducting food, beverage and merchandise sales incidental to said events.
CITY will cooperate with OPERATOR in any effort of OPERATOR to obtain an
alcoholic beverage license for the Facility. OPERATOR shall develop and
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implement a comprehensive program to control alcohol consumption so as to
maintain decorum at the Facility subject to CITY'S approval. No part of the
Premises may be used for any purpose other than as specified in this section
without prior written consent of CITY, which consent shall not be arbitrarily or
capriciously denied or withheld.
7.2. For each year of the Management and Operating term of this
Agreement, an to the then current calendar year only, at least two (2) months
prior to the opening of any event at the Facility the OPERATOR shall provide in
writing to the CITY a calendar of tentative operating days. OPERATOR shall
continuously advise CITY of any changes in ! the calendar.
7.3. CITY DAYS AND OTHER COMMUNITY USES: The CITY may, if it so
desires, schedule CITY sponsored non-commercial events seven (7) days a year at
the ProJect, with all operating maintenance and repair costs (excluding any debt
service and cost of road maintenance) attributable to CITY'S use to be at the
CITY'S expense ("CITY DAYS"), but at no use charge for the Facility and all
parking areas. Unless expressly approved by OPERATOR, no more than two (2)
calendar days of "City Days" shall be consecutive. No later than January 1st of
each year, CITY shall give OPERATOR written notice of the seven (7) days which
CITY desires to designate as City Days" during the current year. OPERATOR agrees
to reserve for CITY the 4th of July each year as "City Day". CITY shall not
designate Labor Day Weekend or the days November 25 -January 2, March 25 - April
7; May 20 - 27 for "City Days". All costs and expenses of operating the Facility
during "City Days" (except as provided above as to debt service and road
maintenance) shall be borne by City, including CITY'S Special Event liability
insurance premium, if any, traffic and crowd control, clean-up, and employee
salaries and benefits, catering, and entertainers used. CITY shall be permitted
to assess patrons a nominal charge for noncommercial City Days.
OPERATOR and CITY shall establish a fund into which each year both
parties shall contribute a sum based on a 60/40 OPERATOR/CITY ratio for the sum
of $50,000 per year which funds shall be used by the parties for the purpose of
having OPERATOR produce at least two community events which can provide free
admission for the young or disadvantaged members of the North Miami Community.
7.4. OTHER OPERATIONS: OPERATOR agrees that OPERATOR shall not, without
CITY'S prior written consent, during the term of this Agreement engage in any
business which directly competes with the Facility with respect to entertainment
facilities with a seating capacity (fixed plus lawn) of more than 7,000 people
located within a 35 mile radius of the Facility. This provision shall apply even
in the event OPERATOR sells or otherwise hypothecates its interest under this
Agreement. In its proprietary capacity, CITY shall not authorize or engage in
any other performing arts arena or similar
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performing arts entertainment facility which would directly or indirectly
compete with the ProJect or Facility. This provision shall not apply to
performances held at CITY community centers or stadium, or to sporting
exhibitions.
7.5. BALANCING OF PROGRAMMING: Part of the consideration inherent in
CITY executing this Agreement is the fact that CITY considers the Facility a
significant community asset, but only so long as programming at the Facility is
balanced in substantially the manner hereinafter provided. Facility programming
shall be balanced so as to ensure a reasonably proportioned blend of special
events, cultural experiences, recognizing and accepting the fact that some
(e.g., so called, "high arts) may not be as profitable an others (e.g.,"rock and
roll"). For the purpose of this Agreement, "balance" shall mean in addition to
dance, drama, symphony, comedy and theater a reasonable assortment of varied
types of music events appealing to the varied tastes of the general population
including, without limitation, popular, rock and roll, blues, soul, Jazz, folk,
classical, country and western music, dance, comedy and theater. CITY and
OPERATOR acknowledge that the examples contained in this section, though
applicable to 1992 tastes may not so exist during the entire term of this
Agreement. It is the intent of the parties throughout the term of this Agreement
to appeal to the varied entertainment tastes of the general public as such
tastes change over time. Failure to provide balanced programming shall
constitute a BREACH.
7.6. HIRING PRACTICES: OPERATOR shall, when reasonably possible, hire
its personnel from City of North Miami residents. Further, OPERATOR shall
develop and implement an unpaid internship program to benefit students and
residents of the community.
7.7. SOUND: OPERATOR shall design, construct and operate the Facility
in a reasonable manner such that sound emanating from the Facility, parking or
related improvements shall not create a nuisance or annoyance to nearby homes.
In this regard the CITY and OPERATOR realize that the placement of the Facility
on the site is of primary importance. CITY reserves the right to impose by
resolution of the City Council specific reasonable operational and/or sound
level limitations on the operation of the Facility, including, but not limited
to, restricting hours of operation of the Facility should any decibel sound
emanating from the Facility exceed an average performance reading of 50 decibels
as established by the current code of CITY, at the property line of any
homeowner's property.
7.8. PARKING: The primary parking area to be built by OPERATOR on CITY
land designated by CITY, at OPERATOR'S sole cost and expense, to serve the
Facility shall be a parking area of 2,000 parking spaces in close proximity to
the Facility. Except as provided below in this Section and except as to the CITY
or
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community days under Section 7.3, these 2,000 spaces are intended to exclusively
serve the Facility.
In addition, OPERATOR shall provide to the CITY as additional
consideration under this Agreement, at OPERATOR'S sole cost and expense, the
design and construction, including all necessary permits and regulatory
approval, of a supplemental parking area consisting of an additional 4,500
parking spaces on other land of the CITY (in reasonable close proximity)
situated upon the Munisport Landfill Site, which land shall be designated by
CITY and provided at no cost to OPERATOR.
This supplemental parking area shall be so designed and constructed as
to primarily serve as a component of the Landfill Closure, while incidentally
serving as a supplemental parking area. Moreover, OPERATOR recognizes that CITY
may use (at no charge) the 4,500 parking space area for multiple or other uses,
so long as such does not conflict with the use of such area for parking
purposes.
The CITY may use this supplemental parking area at no charge during the
term hereof on a non-exclusive basin for parking purposes for other facilities
or uses to be placed on other CITY owned property or on the former Landfill
Site. Except as otherwise provided below as to CITY'S reservation, OPERATOR
shall have a first priority use of the supplemental parking spaces for any
performance, function or events conducted by the OPERATOR at the Facility and
OPERATOR shall notify the CITY, except as may otherwise be mutually agreed upon,
at least thirty (30) days in advance of OPERATOR'S use of said additional
parking.
CITY may reserve, upon at least ninety ( 90) days prior notice to
OPERATOR, fifteen (15) days per year (not more than ten (10) days in any month
and not more than two (2) weekends in any month) for CITY'S use of all the
primary and supplemental parking areas described above for special events
conducted by the CITY or operators of other facilities which may be built on
CITY land. These fifteen (15) days shall be in addition to the seven (7)
potential days to be utilized by CITY under Section 7.3, and are intended to
accommodate substantial exhibitions or attractions that may be located on the
CITY'S lands.
OPERATOR shall cooperate with all other lawful users of other portions
of the former Landfill Site, including CITY and other operators authorized by
CITY to operate on other CITY lands or premises. OPERATOR shall not claim the
priority use of the parking at the Project under Section 7.8, unless OPERATOR
actually has a regularly scheduled show, so as to assure that such parking will
be available to CITY or operators of other facilities on CITY'S lands.
Under those circumstances in which CITY or other operator of CITY
(other than OPERATOR hereunder) uses the primary or
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supplemental parking described above for an event or exhibition for CITY or such
other operator, CITY'S covenant of indemnification under Section 12.B of this
agreement shall be applicable (a" to CITY'S events), and CITY shall require any
such other operators to provide a Special Events Insurance policy in the minimum
amount of One Million ($1,000,000.00) Dollars combined single limit, for
personal injury and property damage, with CITY and OPERATOR named an additional
insured. CITY may, in its discretion, require a higher limit from third party
users. In lieu of such Special Events policy, CITY may require a covenant of
indemnification from such other operator, so as to protect CITY and OPERATOR.
These indemnification and Special Event policy provisions are intended to
protect OPERATOR from liability to third persons for incidents which occur when
such other operators or CITY are using and are in control of these parking areas
as to damage. or injuries which are solely caused by CITY'S or by such other
operator's activities.
7.9. TRAFFIC CROWD CONTROL AND CLEANUP: OPERATOR, at its expense, shall
be responsible for cleanup of the Facility and related parking areas, as well as
crowd control, security and traffic control satisfactory to the Chief of Police.
OPERATOR shall also pay CITY no more than fifteen (15) days after billing, any
and all extra costs actually incurred by CITY related to any performance at the
Facility. If not otherwise provided by OPERATOR, CITY shall provide at
OPERATOR'S sole cost, those services, which according to industry standards, are
provided by a municipality at levels which are consistent with said industry
standards. It shall be the primary responsibility of OPERATOR to provide the
above services at its costs relating to any event occurring at the Facility. The
Chief of Police may establish guidelines for public safety purposes, which may
include, at OPERATOR'S expense, the hiring of City of North Miami Police
officers for assistance in traffic and crowd control. OPERATOR agree's to use at
least one North Miami Police officer per scheduled event to coordinate security
at the facility.
SECTION 8. ASSIGNMENT
8.1. OPERATOR may transfer or assign this Agreement or any interest
therein held by OPERATOR to any person or entity whomsoever only with the
consent in writing of CITY; provided however, the CITY shall not unreasonably
withhold consent to any proposed assignment. Prior to determining whether
consent shall be given, the CITY may hold two (2) public hearings directed
solely to determine as to whether the proposed assignee or transferee is
qualified to perform this Agreement. The determination of the qualifications of
the transferee or assignee shall be based on experience, financial resources and
track record at similar facilities. Such consent shall be deemed given or waived
unless written objection is made within sixty (60) days of receipt of written
notice by CITY of OPERATOR'S intent to assign hereunder.
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Upon presentation of its financing package, OPERATOR shall disclose to CITY the
identity and address of all directors and officers of OPERATOR and those
shareholders owning five (5~) percent or greater of the outstanding shares of
stock in the corporate entity. Each year, at the time for filing its corporate
report with the Secretary of State, OPERATOR shall advise CITY of the latest
officer, director and shareholder information as initially required above.
Subsequent to approval of financing, a sale or transfer of in excess of
thirty-five (35%) percent of outstanding shares of stock or a transfer or sale
which shifts the controlling interest from one shareholder to another
shareholder (outside of the shareholders on the date of execution of this
Agreement) shall be considered to be an assignment or transfer under Section 8.1
of this Agreement.
8.2. Any consent given by CITY to OPERATOR to transfer or assign the
Agreement or any portion thereof or to assign this Agreement shall not be
construed as a consent to any other assignment or transfer, or a. a wolves of
CITY'S right to object to any assignment or transfer to which CITY'S consent in
writing has not been obtained. Any assignment contrary to the provisions of thin
Agreement shall be null and void.
8.3. OPERATOR shall not have the right to assignment if in default.
8.4. Any assignee or transferee shall assume the responsibility for any
past obligations of the OPERATOR, unless otherwise agreed in writing by CITY.
SECTION 9. ENCUMBRANCE OF OPERATOR'S CONTRACT
9.1. OPERATOR, as part of its financing package, may encumber to a
lender its interest in this Management Operating Agreement. The holder of any
encumbrance or lien against thin Contract shall effectuate and hold same with no
recourse to the CITY and shall at the time of the creation of said encumbrance
or lien notify the CITY in writing that said encumbrance or lien holder agrees
to be bound by this Management Operating Agreement, and shall perform all terms
and provisions and obligations contained herein, should said lien or encumbrance
holder inure to, or by any means whatsoever, take over position of the OPERATOR
in this Agreement.
9.2. The CITY shall recognize such lien or encumbrance holder as above
set forth as successor to OPERATOR subject to the terms and provisions as
hereinabove set forth and the full and faith performance of all of the
OPERATOR'S obligations as set forth herein by such lien or encumbrance holder.
Any lien or encumbrance shall be subject to CITY'S interests hereunder as owner,
and CITY'S interests shall not be subordinated to such lien or encumbrances.
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9.3. CITY shall send any lien or encumbrance holder (i) a copy of all
notices sent by CITY to OPERATOR or received by CITY from OPERATOR pertaining to
an event of default and (ii) a copy of all notices pertaining to an event of
default received by the CITY from, or sent by the CITY to, any other party. CITY
shall not have any duty to send a copy of any notice to any lien holder or
encumbrance holder who doe" not by written notice to CITY specify the address to
which copies are to be sent. All notices and copies required to be sent or
delivered pursuant to thy subsection shall be sent certified or registered mall,
return receipt requested. Failure by CITY to send any notice required hereunder
shall have no effect if the lien or encumbrance holder has actual notice of the
event of default.
9.4. Lien or encumbrance holders shall have the same curative rights
after written notice as OPERATOR except such lien or encumbrance holders shall
have ninety (90) days to cure or in the event of a material breach which cannot
be cured within said ninety (90) day period, to commence such cure within such
ninety (90) day period and diligently prosecute to completion a cure of said
breach, as set forth in Section 12.
9.5. Any lien or encumbrance holder shall have the right to cure any
default of OPERATOR under this Agreement, and CITY shall accept such performance
by or at the instance of such lien or encumbrance holder as if the same had been
made by OPERATOR. Upon the failure of lien or encumbrance holder to cure such
default, all outstanding interests and rights of such lien or encumbrance
holders shall be terminated.
9.6. In the event that a lien or encumbrance holder shall succeed to
the interest of OPERATOR, any further transfer or assignment by such lien or
encumbrance holder shall be subject to the provisions of Section " 8 n hereof.
SECTION 10. DEBT SERVICE AND UTILITY PAYMENTS
AND PERSONAL PROPERTY TAXES
10.1. OPERATOR shall pay, throughout the term of this Agreement and
before delinquency, all charges for water, power and other utilities or
necessary services supplied to the Premises and any or all of debt service
payments relevant to the Project. Said utilities shall be separately metered for
the Premises 10.1.gh mOPERATOR shall pay, throughout the term of this Agreement
and before delinquency, all charges for water, power and other utilities or
necessary services supplied to the Premises and any or all of debt service
payments relevant to the Project. Said utilities shall be separately metered for
the Premises through meters to be installed and paid for by OPERATOR.
10.2. OPERATOR shall also pay prior to delinquency any and all taxes
and assessments levied or assessed, and becoming payable during the term hereof,
upon OPERATOR'S personal property, possessory or other interests located upon or
in connection with the Premises.
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SECTION 11. RIGHT OF INSPECTION
CITY shall have the right to enter upon the Premises for the purposes
of inspection, serving or posting notices, making any necessary repairs to the
Premises, complying with laws, ordinances or regulations, including, but not
limited to, all landfill closure monitoring, protecting the Premises or any
other lawful purpose. CITY shall exercise such rights reasonably, at any time,
and in such manner as not to interfere with the business or security of
OPERATOR.
SECTION 12. OPERATOR'S DEFAULTSECTION 12. OPERATOR'S DEFAULT
12.1. In the event of any material breach of this Agreement by
OPERATOR, which breach is not cured within sixty (60) days after giving of
written notice thereof from CITY to OPERATOR, and any approved lien or
encumbrance holder, or in the event of a material breach which cannot be cured
within said sixty (60) day period, if OPERATOR has not commenced within sixty
(60) days of written notice and thereafter diligently prosecuted a cure of such
breach, or upon OPERATOR'S abandonment of the property, CITY, along with all
other rights and remedies it may have, shall have the following rights:
a. To elect to allow thin Agreement to continue in full force
and effect without terminating OPERATOR'S right of
possession and to enforce all of CITY'S rights and
remedies under this Agreement, including the right to
recover payment as it becomes due under the Agreement.
b. To elect to terminate the Agreement, to reenter and remove
all persons and property from the Premises, and to store
at OPERATOR'S cost all of OPERATOR'S property on the
Premises, and to recover from OPERATOR the following
amounts, less any amounts received by CITY on account of
retaining the Premises after the date of Agreement
termination during the balance of the Agreement term
specified herein:
(1) Any unpaid sums which had been earned at the time
of termination, and
(2) Any other ascertainable and calculable amounts
necessary to compensate CITY for all damages
proximately caused by OPERATOR'S failure to
perform its obligations under the Agreement.
12.2. An a precondition to pursuing any remedy for an alleged default
by OPERATOR, CITY shall, before pursuing any such remedy, give notice of default
to OPERATOR and to all qualifying subcontractor. whose names and addresses were
previously given to CITY in a notice or notices from OPERATOR or any qualifying
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encumbrance stating that the notice was for the purpose of notice under this
provision. A qualifying subcontractor is a subcontractor in possession under an
existing agreement which is proper under this Agreement. A qualifying
encumbrance is an encumbrance under any documented securing device then existing
and relating to construction or financing of improvements to or in connection
with the Premises or any part thereof, which encumbrance has been approved or
authorized by the CITY. Each notice of default shall describe the alleged
default. CITY shall afford any such qualified lien or encumbrance holder all
rights to cure OPERATOR'S default as set forth in this Agreement.
12.3. If OPERATORS principals are found upon clear and convincing
evidence by Judgment of a Court of Law to have committed a willful or fraudulent
understatement of gross revenues it shall be deemed that such finding is a
default.
12.4. Notwithstanding the above, the CITY shall have all rights and
remedies as provided by law. Any damage award shall not exceed revenues which
the CITY would have received.
SECTION 12.A. CITY'S DEFAULT
12.A.1 In the event of any material breach of this Agreement by CITY,
which breach is not cured within ninety (90) days after giving of written notice
thereof from OPERATOR to CITY, or in the event of a material breach which cannot
be cured within said ninety (90) day period,,!if CITY has not commenced within
ninety (90) days of written notice and thereafter diligently prosecuted a cure
of such breach, OPERATOR shall have all rights and remedies at law or equity
subsequent to completion of construction. Subsequent to completion of
construction, CITY shall not be liable for damages in excess of total revenues
received by CITY over prior years of this Agreement, not to exceed the total
actual revenues received over the prior seven and one-half (7 1/2) year period.
SECTION 12.B. CITY INDEMNIFICATION
Subject to the monetary limits of section 768.28 Florida Statute., CITY
shall hold OPERATOR, and its respective agents, employees, officers, lien and/or
encumbrance holders harmless and defend OPERATOR and said parties against any
and all losses, damages, claims and/or liabilities for any damage to any
property or person caused solely by reason of the gross negligence or willful
misconduct which may hereafter be caused by CITY, its employees or agents.
Throughout the term of this Agreement, CITY covenants to defend and indemnify
the OPERATOR for any claim made against OPERATOR to the extent such claim is
made against OPERATOR on a technical basis as a result of the status of OPERATOR
as the present operator of this Facility situated upon a portion of the
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property which constituted a portion of the former Munisport Landfill site, if
such claim i" solely predicated or based upon those operations and activities
which occurred at the landfill site prior to the execution of this Agreement,
and subject to the limitation and restriction that this covenant shall not
operate to expand the CITY'S liability exposure which already results from the
CITY'S status as owner of the former landfill site during the course of disposal
activities which previously occurred at the site at such time that the site was
an active landfill and that would exist as a result of CITY'S status as owner
during the term of this Agreement. Thin provision shall survive the termination
of this Agreement.
SECTION 12.C. HOLD HARMLESS
OPERATOR does further expressly agree to indemnify and defend and save
the CITY, its officers, agents and employees harmless from any and all claims
for loss, damage, injury including death or liability of whatsoever nature and
howsoever or to whomsoever the same may be caused or may arise resulting
directly or indirectly from the exercise of this Agreement, the condition of the
Facility or Project site, including all parking areas used by OPERATOR, or the
occupation of the Premises herein permitted to be used or the Premises of the
CITY to which the OPERATOR, its agents, employees, or licensees may have access
by reason of this Agreement, except only as to matters arising from the sole
gross negligence or willful acts of the CITY.
SECTION 13. OPERATOR'S LIABILITY INSURANCE
13.1. During the entire term of this Agreement, OPERATOR shall maintain
and pay all premiums for a policy or policies of comprehensive public Liability
insurance in an amount of not less than Five Million ($5,000,000.00) Dollars,
combined single limit covering any occurrence on or adjacent to the Project
resulting in property damage or bodily injury or death to person or persons.
Insurance shall be re-evaluated no more frequently then every five (5) years of
the term and mutually readjusted upon such reevaluation. Such insurance shall
never be less than the monetary limits of section 768.28(5) Florida Statutes.
13.2. All such policies shall name the CITY, and at OPERATOR'S option
the holder of any encumbrance covering the Premises, as additional insureds with
respect to the operations and activities of OPERATOR on or in any way connected
with the Premises, including the parking and access areas.
13.3. Each such policy shall include as a condition that before any
such action can be taken by the insurer, the insurer must give CITY thirty (30)
days prior written notice of any cancellation or change in scope or amount of
coverage of such
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policy. CITY shall be furnished a certificate of insurance and an endorsement to
the insurance policies evidencing OPERATOR'S compliance with the requirements of
this section. CITY will not be liable for any premiums or assessments on
insurance required. OPERATOR shall not open the facility to the public on any
day in which the insurance is not in full force and effect, unless agreed to in
writing by CITY.
SECTION 13A. WORKERS' COMPENSATION INSURANCE
OPERATOR and each of its subcontractors shall comply with the Florida
Workers' Compensation Law, Chapter 440, Florida Statutes, as applicable, and
provide proof of current compliance therewith at all time-, throughout the term
hereof.
SECTION 14. BUILDING INSURANCE AND CASUALTY DAMAGE
14.1. At all times during the term of this Agreement and any extension
hereof, OPERATOR shall cause to be effected upon the improvements upon the
Premise" installed or constructed, fire insurance with extended coverage
provisions (including Builder's Risk Insurance during any term of construction
of the Facility) in the amount not less than full replacement cost of said
Facility. CITY and OPERATOR shall be named as insureds in any policy above
provided for, and the loss under any such policy, if any, shall be payable to
CITY and OPERATOR Jointly for the purpose of the repair and restoration of said
building and improvements subject to the provisions of this Section 14. Any
portion of the proceeds of such insurance not required to be used to repair and
restore or to payoff any approved debt as aforesaid shall be paid to and be
equally divided between OPERATOR and CITY, but only to the extent CITY is not
otherwise fully compensated for lost revenues. Excess proceeds payable to
OPERATOR shall be used for the marketing or improvement of the Facility.
OPERATOR agrees to provide CITY with certificates of insurance issued by the
insurance carriers, which certificates shall show compliance with the
requirements of this section and shall provide that such insurance may not be
altered or canceled except after thirty (30) days notice in writing to CITY.
14.2. If by reason of the provisions of any lawful encumbrance on the
Facility, fire insurance is required to be made payable to the Lien holder
and/or the policies of insurance placed in its custody, CITY hereby consents
thereto, provided that the Lien holder in question shall first agree in writing
that the proceeds of said insurance shall be available for the repair and
restoration of the improvements.
14.3. The failure of OPERATOR to effect or maintain said insurance in
the names and amounts herein called for, or to pay the premiums therefor, or to
deliver said policies or a certificate of
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insurance unto CITY, shall permit CITY itself to effect said insurance and pay
the requisite premiums therefore, which premiums shall be repayable unto CITY
with the next installment of payment. This shall not excuse any breach.
14.4. Any premiums paid by OPERATOR on insurance, the term of which
extends beyond the term of this Agreement, shall be, upon the termination of the
Agreement, due OPERATOR and CITY shall have no obligation thereon.
14.5. Unless this Agreement is terminated as provided in Section 14.7,
if the Premises or any improvements thereon made or installed by OPERATOR, are
damaged or destroyed by an insured casualty during the term of this Agreement or
any extensions or renewals thereof, OPERATOR, to the extent insurance proceeds
are available therefor, shall commence within sixty (60) days after the
occurrence of such casualty and shall thereafter diligently prosecute the
restoration sod the replacement of the same substantially to the condition
thereof immediately prior to such damage or destruction.
14.6. INTERRUPTION OF BUSINESS POLICY: The OPERATOR shall carry at its
expense a business interruption insurance policy, if available, to at least the
extent any debt service with any lien or encumbrance holder being the payee on
the policy to the extent of said debt.
14.7. If any casualty occurs within the last ten (10) years of the term
hereof to the extent of twenty (201) percent or more of the then replacement
costs thereof, and which damages OPERATOR is obligated to restore, then, and in
any such event, within thirty (30) days after the event of casualty, OPERATOR
may terminate this Agreement by giving written notice to CITY. In the event of
such termination any insurance proceeds shall be paid to and be the exclusive
property of CITY and OPERATOR and shall be used to pay off any indebtedness of
the ProJect, and at CITY'S option to demolish facility, with the balance after
such payment to be equitably divided between OPERATOR and CITY upon the basis
that OPERATOR'S share shall be in proportion to the balance of the remaining
term of this Agreement and any renewals hereto.
SECTION 15. WAIVER OF SUBROGATION RIGHTS
CITY and OPERATOR shall each, forthwith after the execution of this
Agreement, procure from and cause each of the insurers under all policies of
insurance, including but not limited to liability, fire and property, now or
hereafter during the term hereof existing and purchased by either or both
insuring or covering the Premises, or any part of the Facility and/or any
improvements thereon, a waiver of all rights of subrogation which the insurer
under said
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policies might otherwise, if at all, have as against the other hereto, said
waiver to be in writing and for the express benefit of the other. Said waiver
shall extend only to claims arising within the Facility and the areas adjacent
thereto including parking and access areas used in connection with the Facility.
SECTION 16. CONDEMNATIONSECTION 16. CONDEMNATION
16.1. TOTAL CONDEMNATION: In the event of condemnation of the Premises,
the award made shall first be paid to lien holders then to CITY for value of
CITY land and the balance divided between CITY and OPERATOR as they may mutually
agree or if they fail to reach such agreement within forty-five (45) days of the
making of the 16.1., thTOTAL CONDEMNATION: In the event of condemnation of the
Premises, the award made shall first be paid to lien holders then to CITY for
value of CITY land and the balance divided between CITY and OPERATOR as they may
mutually agree or if they fail to reach such agreement within forty-five (45)
days of the making of the award, then as a court of competent jurisdiction may
decree.
16.2. PARTIAL CONDEMNATION: In the event proceedings be taken, on one
or more occasions, by any lawful authority to condemn or otherwise acquire by
eminent domain, a substantial part of the Premises or, in the aggregate, in
excess of twenty-five (25%) percent of the parking area available to, or
reserved for OPERATOR, the OPERATOR shall have the option at any time after such
proceedings are instituted, and prior to thirty (30) days after such taking of
acquisition, to terminate this Agreement upon giving fifteen (15) days notice in
writing to CITY. Said termination shall be effective as of the date possession
of the building or Premises is taken by the condemning authority. In the event
of such termination, any unearned payment shall be refunded to OPERATOR and the
award for the condemnation shall be appropriated in the manner set forth in
Section 16.1 hereof.
16.2.A. CITY may avoid a termination by OPERATOR by supplying
comparable additional parking in replacement of parking taken.
Should OPERATOR not elect to so terminate this Agreement, or should any
taking not be sufficient to allow OPERATOR such option to terminate, thin
Agreement shall continue in full force and effect, and OPERATOR, at its own cost
and expense, but only to the extent the condemnation award is made available
therefor, shall restore, repair and remodel the improvements to the Premises to
a condition suitable for the business of OPERATOR permitted to be conducted
therein under the provisions of this Agreement. Provided OPERATOR demonstrates
that the revenue production capabilities of the Facility are reduced by the
taking, OPERATOR shall be entitled to a reasonable reduction in the annual
minimum payment provided for in the Agreement, thereafter required to be paid
hereunder taking into consideration the potential revenue loss. OPERATOR shall
also be entitled to a reasonable suspension or diminution of the payment
required to be paid hereunder during the time required for any restoration and
repair required by reason of the exercise of eminent domain according to the
portion of the Premises rendered
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unusable, taking into consideration the time and extent of interference with
OPERATOR'S business therein.
Should OPERATOR not elect to terminate this Agreement, or should any
taking not be Sufficient to allow OPERATOR the option to terminate, all sums,
including damages and interest awarded shall be deposited promptly with a
federally insured depository and shall be distributed and disbursed in the
following order of priority:
First, to OPERATOR the cost of restoring the improvements;
Second, to OPERATOR, the cost of restoring any and all improvements
originally installed by OPERATOR, plus any amount awarded for detriment to
business and/or for the reduction in the value of OPERATOR'S Agreement;
Third, to CITY a sum equal to the value of the Premises taken, valued
as land exclusive of improvements and unburdened by all Agreements;
Fourth, to CITY any expenses or disbursements reasonably and
necessarily incurred or paid by or on behalf of CITY or in connection with the
condemnation proceedings;
Fifth, to OPERATOR any expenses or disbursements reasonably and
necessarily incurred or paid by or on behalf of OPERATOR for or in connection
with the condemnation proceedings;
Sixth, to CITY any residue.
16.3. APPLICABILITY. This Section 16, shall only apply to formal
eminent domain proceedings, and shall not apply to actions for inverse
condemnation or regulatory taking litigation.
SECTION 17. ALTERATIONS BY CITY OR OPERATOR
17.1. OPERATOR with the written approval of the CITY shall have the
right to make any alterations or additions to the improvements to be constructed
on the Facility which OPERATOR deems necessary or desirable in the exercise of
prudent business Judgment, for the purpose of fulfilling the purposes for which
this Agreement was granted. CITY shall not unreasonably withhold it" approval.
CITY'S approval shall not be required for any alteration or addition costing
less than Twenty-Five Thousand ($25,000.00) Dollars.
17.2. Except as otherwise required by this Agreement, CITY shall not,
without the prior written consent of OPERATOR, which consent shall not be
unreasonably withheld, make or perform or suffer to be made or performed any of
the following:
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a. Any alterations or additions to any of the improvements on
or to the ProJect, except the non-exclusive parking areas.
b. Any mayor alterations to any elements or item. of
landscaping to the ProJect (excluding the non-exclusive
parking area). Provided, however, CITY may modify
landscaping provided that CITY pays for such
modifications. Such alteration. or modifications shall not
disrupt the functioning of the Facility.
SECTION 18. REPAIRS AND MAINTENANCE
18.1. OPERATOR during the entire term of this Agreement shall keep,
maintain and repair all improvements to the ProJect, including all parking areas
and access roads made or installed by CITY or OPERATOR, including but without
being limited to, structure, fixtures and furnishings, in good order, condition
and repair, and upon termination of this Agreement by lapse of time or
otherwise, OPERATOR shall deliver up said improvement-, including but without
being limited to, structure, fixtures and furnishings, in good condition and
repair, ordinary wear and tear thereof from reasonable and normal use and wear
excepted. OPERATOR and CITY shall mutually agree on a formula for CITY or other
parties to contribute a fair share to the cost of maintaining access roads and
parking area. based on the extent of such parties use thereof. However, upon
failure of the parties to agree on a fair share formula, the matter shall be
subject to the CITY'S reasonable discretion as to a fair pro-ration for a period
of one (1) year. At the conclusion of one (1) year if OPERATOR is not satisfied
with CITY'S formula, OPERATOR may ask for binding arbitration to set a formula
for future years.
18.2. Should OPERATOR, after notice from CITY, fail to make with
reasonable promptness any repairs which are the obligation of OPERATOR
hereunder, CITY may (but shall not be required to do so) enter the ProJect and
put the same in good order, condition and repair; and the reasonable cost
thereof shall become due and payable by OPERATOR to CITY upon demand. When CITY
makes such demand for payment, CITY shall furnish OPERATOR an itemized statement
of the repairs and charges at the time such demand is made and thereafter shall
substantiate such demand by proper invoices.
18.3. OPERATOR shall during the term of this Agreement and any
extensions or renewals thereof maintain or cause to be maintained in a manner
befitting a first-class public facility all of the land and improvements under
OPERATOR'S control.
18.4. Commencing in year two (2) of the term, the first two (2~)
percent of Gross Revenue. as hereinabove defined shall
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annually be escrowed by OPERATOR as a reserve against the necessity for mayor
repairs or maintenance. The conditions of the escrow and the depository shall be
subject to the approval of the CITY, which approval shall not be unreasonably
withheld. For the period after the first five (5) years of the term, OPERATOR
may present to CITY an adjustable mechanism to cap or limit accrual of funds in
this account so as to adequately address potential or scheduled mayor repair
items. Said reserve fund shall be accounted for in accordance with the terms
hereof and be used by OPERATOR to accomplish any mayor repairs that are
required. This reserve fund shall not be deemed part of Gross Revenues as
defined herein for distribution purposes. All unexpended funds shall be
distributed to CITY upon termination of this Agreement. Funds in this account
shall not be used for any purpose other than repairs and maintenance. The
account shall be an interest bearing account.
SECTION 19. GOVERNMENTAL COMPLIANCE
19.1. OPERATOR shall duly observe, conform to and comply with all valid
requirements of any governmental authority relative to the ProJect and shall
require all persons using the same or attending events therein to conform to and
comply with all such requirements. This provision shall not in any way shift
OPERATOR'S management and operational duties to CITY nor shall any rights be
created hereby for the benefit of any third party.
19.2. CITY represents that it will comply with all terms and provisions
of a certain Consent Agreement and Decree entered into on the 24th day of
September, 1991, between CITY and the Environmental Protection Agency, sad all
provisions and obligations contained therein. Further, CITY represents that it
will comply with all lawful regulatory and administrative directions, orders and
laws, and otherwise fully comply with all applicable federal, state and local
laws and regulations dealing with, or having to do with, the former landfill
site. The above representations shall not prejudice CITY'S right to contest any
administrative or regulatory orders or directives. This shall not release
OPERATOR of its responsibilities under 1.1.(c)(4).
SECTION 20. OPERATOR'S RIGHT TO SUBCONTRACT
OPERATOR may perform any obligation or duty required of it pursuant to
this Agreement by itself through its own personnel or by contracting for the
performance thereof by others. This provision shall not supersede restriction on
assignment. Any subcontractor must be bonded and insured to same extent as
OPERATOR and shall likewise name the CITY as additional insured, and provide
evidence of compliance to CITY.
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SECTION 21. OPERATOR'S RIGHT TO CONTRACT
SubJect to the limitations, conditions and restrictions of this
Agreement, all agreements relating to the use of the Project, or any part
thereof, including specifically but without limitation, advertising contracts,
contracts with restaurant or club operators, contracts or agreements with
persons conducting events in the Project, shall be negotiated solely by OPERATOR
and shall be executed by OPERATOR without recourse to the CITY.
CITY shall receive a copy of any such agreement. from OPERATOR, upon
CITY'S request.
All such Contracts shall specifically state that CITY has no liability
thereunder.
No such contract shall be entered into that would be detrimental to
CITY'S image a. a prominent and progressive municipality.
SECTION 22. NAME OF FACILITY, SIGNAGE AND LANDSCAPE
OPERATOR shall conspicuously use the name and term "North Miami. in all
advertising of the Facility and events to be held at the Facility.
OPERATOR shall develop with the approval of CITY appropriate
directional and identifying signage and landscaping for the Project and shall
maintain same at OPERATOR'S cost during the term hereof. The CITY shall not
unreasonably withhold approval of the signage and landscaping plans upon their
submission to CITY.
SECTION 23. LIENSSECTION 23. LIENS
OPERATOR will not permit any Liens or encumbrances of whatsoever nature
or kind to stand against the Premises for any labor or material furnished in
connection with any work performed by or at the direction of OPERATOR. OPERATOR
shall secure a completion bond for any construction done by or at OPERATOR'S
direction, for any construction over Twenty-Five Thousand ($25,000.00) Dollars.
Only encumbrances approved by CITY shall be permitted.
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SECTION 24. NOTICESSECTION 24. NOTICES
24.1. All notices or demands of any kind which either party is required
or desires to give or make upon the other in connection with the Agreement or
arising out of the relationship created hereby, shall be in writing and shall be
given or made (subject to the right of either party to designate a different
address by notice given as provided herein) by United States registered or
certified mail, postage prepaid, addressed in the case of CITY to:
City of North Miami
776 N.E. 125 Street
North Miami, FL 33161
Attention: City Manager and City Attorney
and addressed in the case of OPERATOR to:
PERFORMING ARTS MANAGEMENT OF NORTH MIAMI, INC.
930 Washington Avenue, Fifth Floor
Miami Beach, FL 33140
24.2. Any notice so sent shall be deemed to have been given forty-eight
(48) hours after the same has been deposited in the United States mail,
registered or certified mail, within the State of Florida with postage thereof
fully prepaid.
SECTION 25. VALIDITY OF AMENDMENTS
No amendment, nor modification, nor interpretation of this Agreement
shall be valid unless signed by both of the parties hereto. Unless otherwise
provided for, the City Council shall act for CITY. CITY Council action on an
amendment shall be by resolution at a duly advertised public hearing.
SECTION 26. RENEWAL PROVISION
If this Agreement is otherwise in full force and effect and not
otherwise in material default upon the conclusion of the thirty (30) year term
hereof, the OPERATOR may, by giving written notice to CITY at least six (6)
months before the termination of the term, shall be granted an extension of this
Agreement for an additional ten (10) year term upon the terms as contained
herein. OPERATOR shall likewise have a second and final ten (10) year extension
after conclusion of first extension. Provided, however, that notwithstanding any
other provision of this Section, the renewal period shall be provided upon a
revision to Section 5 "Payments to CITY," so that CITY is paid 25% of the
additional monies made available as a result of the retiring and extinguishment
of the initial debt service by OPERATOR, in addition to other funds paid to CITY
under Section 5. Such additional monies shall be paid to
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CITY by OPERATOR each month. Each month subsequent to the thirty (30) year
initial term, OPERATOR shall provide at least one (1) show per month during any
renewal term(s).
SECTION 27. MISCELLANEOUS PROVISIONS
27.1. Captions of sections and parts of this Agreement are for
convenience only and shall not be 27.1.dereCaptions of sections and parts of
this Agreement are for convenience only and shall not be considered in resolving
any questions of interpretation or construction.
27.2. Whenever in this Agreement words of obligation or duty are used,
such words shall have the force and effect of covenants; subject in each case to
grace periods provided. Any obligation imposed on either party hereto shall
included the imposition on such party of the obligations to pay all costs and
expenses necessary to perform such obligation. The timely and complete
performance of every duty, and the-trust and accuracy of each and every warranty
and representation made by either party hereunder, shall be a condition
precedent to the other parties' obligations hereunder; and the complete
performance of every provision of this Agreement to be performed by the OPERATOR
shall be a condition precedent to its right to retain operation and management
of the Premises.
27.3. Each and all of the covenants, provision. and conditions of this
Agreement are to be performed by or on the part of the CITY or OPERATOR, whether
affirmative or negative in nature, are intended to and shall bind CITY or
OPERATOR, its Successors and assigns at any time and from time to time, and
shall inure to the benefit of OPERATOR or CITY, its successors and assigns.
27.4. Both parties certify to their full familiarity with the
provisions hereof and agree that the provisions hereof are not to be construed
either for or against either party.
27.5. Nothing herein contained shall be deemed for any purpose as
creating any relation between the parties hereto other than the relationship of
independent contracting parties. A landlord-tenant relationship is not hereby
created.
27.6. This Agreement and Exhibits hereto contain all the terms,
covenants and conditions between CITY and OPERATOR relating in any manner to the
payments, use and occupancy of the Premises, and shall supersede any prior
discussions or negotiations, specifically the Agreement of January 22, 1991 as
approved by Resolution R-91-5 is hereby canceled and superseded.
27.7. This Agreement shall be governed exclusively by the provisions
hereof and by the laws of the State of Florida as the same from time to time may
exist.
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27.8. As used in this Agreement and when required by the context, each
number (singular or plural) shall include all numbers, and each gender shall
include all genders.
27.9. Time is and shall be of the essence of this Agreement and of each
term and provision hereof.
27.10. Should any provision of this Agreement be held as illegal,
unconstitutional or unenforceable, all other terms and provisions not so held
shall remain in full force and effect.
27.11. All disputes that may occur between CITY and OPERATOR if not
amicably resolved by said parties shall be submitted to binding arbitration in
accordance with the rules of the American Arbitration Association. Either party
may withdraw dispute from arbitration by written notice to the other party
within fifteen (15) days of receipt of notice of the demand for arbitration from
(or notice of exercise of Jurisdiction by) the American Arbitration Association.
Thereupon, arbitration shall not be applicable as to such dispute.
27.12. Nothing in this Agreement shall be construed to waive or limit
CITY'S governmental authority an a political subdivision of the State of
Florida. Unless specified otherwise, where approval or consent of CITY is
required under this Agreement, such consent or approval shall be deemed to refer
to the CITY'S consent or approval as owner, and such consent or approval shall
be contractual in nature and shall not be in lieu of any required governmental
approval of CITY. It in understood that CITY'S approval shall be at its
discretion (unless otherwise specified herein) and denial of such approval shall
not be the basis for a cause of action by OPERATOR. The City Council shall act
for CITY in matters relating to contractual approvals hereunder, except as
otherwise provided by the City Council or specified herein. The City Council in
exercising its discretion shall not act in an arbitrary and/or capricious
manner.
27.13. OPERATOR shall allow a representative of CITY Finance Department
to be present at show" to monitor the receipt and handling of monies.
27.14. OPERATOR shall post a sufficient demolition bond to assure
removal and demolition at CITY'S option only, of the facility in the event the
facility ceases or abandons regular operations during the first five (5) years
of the term. CITY must exercise such option within six (6) months of any such
abandonment.
27.15. OPERATOR recognizes that CITY shall not issue building permits
for the project unless OPERATOR shall make necessary improvements if required to
Biscayne Boulevard access required for efficient ingress and egress to facility.
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27.16. OPERATOR agrees that under any circumstances in which OPERATOR
shall make any claim against CITY for any matter in any way arising under this
Agreement prior to completion of construction, CITY shall not be liable for
OPERATOR'S loss of time, profit or incidental or consequential damage, and
OPERATOR'S claim shall solely be limited to actual out-of-pocket loss or
expense. This provision shall not waive any limitation on CITY'S liability
provided under other provisions of this Agreement or law.
27.17. CITY shall have the right to relocate all the nonexclusive
parking areas for the ProJect to another location on the Landfill Site, at any
time, at CITY'S sole cost and expense without disruption of the Facility.
27.18. Subject to final resolution by Judicial action, CITY shall have
the authority to fairly settle and resolve any dispute between OPERATOR and
other operators of other facilities developed upon the former Landfill Site.
CITY'S decision shall control unless arbitrary or capricious.
27.19. SubJect to CITY imposing the same restriction on other operators
of commercial facilities developed on the CITY'S Landfill Site, OPERATOR agrees
that OPERATOR shall not conduct concession sales on dates upon which it does not
have a show upon those days which operator's of other facilities on CITY lands
do have an event or exhibition, so that such other operators will have the
exclusive opportunity to make concession sale. to patrons of its events. It is
the intent of this provision that each operator of a facility have the exclusive
opportunity to make concession sales to the patrons of its events. This shall
not preclude concession sales from any public park facility, if any, to visitors
of such facility.
27.20. CITY shall not enter into contracts with third parties for
development of projects upon the former Munisport Landfill Site, which would
directly disrupt and interfere with OPERATOR'S activities under this Agreement
and would be directly in conflict with the purposes of this Agreement. Any Claim
hereunder shall be subject to resolution by the City Manager, and if unresolved,
shall be subject to arbitration, with no right of withdrawal from arbitration.
SECTION 28. NONDISCRIMINATION
OPERATOR and its employees shall not discriminate because of race, age,
religion, color, ancestry, sex, physical handicap or national origin against any
person by refusing to furnish such person any accommodation, facility, service
or privilege offered to or enjoyed by the general public. Nor shall OPERATOR or
its employees publicize the accommodations, facilities, services or privileges
in any manner that would directly or inferentially
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reflect upon or question the unacceptability of the patronage of any person
because of race, age, religion, color, ancestry, sex, physical handicap or
national origin.
In the performance of this contract, OPERATOR will not discriminate
against any employee or applicant for employment because of race, age, color,
religion, ancestry, sex, physical handicap or national origin. OPERATOR will
take affirmative action to ensure that applicants are employed and that
employees are treated during employment, without regard to their race, color,
religion, age, ancestry, sex, physical handicap or national origin. Such action
shall include, but not be limited to the following: employment upgrading,
demotion or transfer, recruitment or recruitment advertising, layoff or
termination, rates of pay or other forms of compensation and selection for
training, including apprenticeship.
OPERATOR will permit access to his records of employment, employment
advertising, application form" and other pertinent data and records by the CITY.
SECTION 29. SOFT COSTS REIMBURSEMENT
OPERATOR shall be entitled, if applicable, to receive reasonable
reimbursement for such out-of-pocket soft costs as defined in Florida Statute
159.02(13) for soft costs incurred in the acquisition, development or
construction of the Project from the proceeds of any revenue bond issued and
CITY shall cooperate with OPERATOR in obtaining such reimbursement to the extent
of funds available.
SECTION 30. TITLE TO PROPERTY
Title to the ProJect shall remain in CITY. Title of all personal
property and fixtures placed in the ProJect by OPERATOR shall remain in
OPERATOR. Title to all fixtures placed in the ProJect by OPERATOR which replace
fixtures owned by CITY shall belong to CITY. Title to personal property and
fixtures placed in ProJect by OPERATOR'S suboperators or concessionaires shall,
subject to the provisions of this Agreement, be controlled by OPERATOR'S
contract with any such suboperator or concessionaire, as the case may be, but
shall not be deemed property of CITY. CITY shall have a lien on all personal
property and fixtures owned by OPERATOR, which lien shall be subordinate to
OPERATORS lender. This lien shall secure OPERATORS compliance with the
provisions of this agreement.
IN WITNESS WHEREOF, this Agreement in executed as of the date hereto:
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PERFORMING ARTS MANAGEMENT OF
Attest: NORTH MIAMI, INC.
______________________________ By:__________________________
Secretary President
CITY OF NORTH MIAMI
By:__________________________
City Manager
APPROVED BY:
Attest:
______________________________ _____________________________
CITY ATTORNEY City Clerk
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LEASE
Lease between MARBRAD, INC., a Florida corporation having an office c/o
Streamline Management Corp., 1125 Washington Avenue, Miami Beach, Florida
("Landlord") and the tenant described in Line 1 of the Terms Sheet attached
hereto as Exhibit A ("Tenant").
1. GRANT
Upon the terms and conditions set forth in this Lease, Landlord leases
to Tenant and Tenant leases from Landlord, the "Premises" described in
Line 2 of the Terms Sheet, which Premises are located in the
Intercontinental Bank Office Building, 930 Washington Avenue, Miami
Beach, Florida (the "Real Property"). The approximate boundaries of the
Premises are shown hatched in the schematic sketch attached to this
Lease as Exhibit "B".
2. TERM OF LEASE
The Term of this Lease shall be as set forth in Line 3 of the Terms
Sheet.
3. BASE RENT
As Base Rent, Tenant shall pay Landlord, at Landlord's address set
forth above, or at such other address specified in writing by Landlord,
the amount set forth in Line 4 of the Terms Sheet. Base Rent is payable
in advance, without setoff, further notice, or demand on the first day
of each calendar month. In addition to each monthly installment of Base
Rent, Tenant shall pay all applicable rental or sales taxes. If the
Commencement Date or the Expiration Date of the Term are on a day other
than the first day of a calendar month, the Base Rent for said
fractional month shall be prorated on a per diem basis. Payment of the
first month's installment of Base Rent is hereby acknowledged.
4. SECURITY DEPOSIT
As security for the full and prompt performance of all Tenant's
obligations under the Lease, concurrent with the execution of this
Lease, Tenant shall deposit with Landlord a Security Deposit in the
amount set forth in Line 5 of the Terms Sheet. If Tenant fails to make
any payments under this Lease when due, or fails to comply with each of
the terms, covenants, and conditions of this Lease, Landlord may, but
is not obligated to, apply the Security Deposit to the payments due or
to the payment of Landlord's costs and expenses (including reasonable
attorneys fees) in connection with performing Tenant Is obligations on
Tenant's behalf, regaining possession of the Premises, or reletting the
Premises, without
<PAGE>
thereby curing Tenant's default or releasing Tenant from any of
Tenant's obligations under this Lease. Landlord may commingle the
Security Deposit with Landlord's other funds, and Landlord shall not be
required to pay Tenant any interest on the Security Deposit. If Tenant
fully and promptly performs all Tenant's obligations under this Lease,
within 30 days following the Expiration Date, Landlord shall return the
Security Deposit to Tenant at Tenant's address set forth in this Lease
or at such other address specified by Tenant in a notice to Landlord
received by Landlord before the Expiration Date.
5. PARKING
Tenant is hereby granted the exclusive use of the parking spaces set
forth in Line 6 of the Terms Sheet. Landlord reserves the right to
change the location of Tenant's designated parking spaces from time to
time so long as the number of spaces is not affected thereby. Tenant
acknowledges' that all other spaces in the parking facility serving the
Building are allocated for the exclusive use of other tenants of the
Building and that neither Tenant, nor Tenant's guests or invitees shall
use any spaces other then the ones set forth in Line 6 of the Terms
Sheet. Tenant further acknowledges that the parking facility is
patrolled by a towing company and cars parked in a space allocated to
another tenant may be towed.
6. USE
Tenant may use the Premises for general and administrative offices and
for no other purpose. Tenant shall not permit the Premises to be used
for any unlawful or immoral purpose. In the conduct of Tenant's
business, Tenant shall, at Tenant's expense, comply with all applicable
laws, ordinances, rules and regulations, the reasonable requirements of
all insurance underwriters providing insurance to ' the Premises and
the Building, and the Rules and Regulations attached to this Lease as
Exhibit "C", as they may be amended by Landlord from time to time.
Tenant shall not use the Premises in a manner that increases the fire
insurance premiums for the Building. Tenant shall not install safes,
heavy file cabinets, or other heavy equipment in the Premises without
Landlord's prior approval of the installation, location, and method of
installation. In the conduct of Tenant's business operations, Tenant
shall not make any noise or odor objectionable to other tenants, the
public, or Landlord, and Tenant shall not create or maintain a nuisance
in the Premises. Tenant shall not use, create, store or permit any
toxic or hazardous material anywhere on the Real Property. Tenant shall
keep the Premises free of debris, dangerous, noxious, or offensive
items, fire hazards, and undue vibration, heat or noise.
2
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In Tenant's use of the Premises, Tenant shall not obstruct or permit
the obstruction of the sidewalks, driveways, entrances, passages,
lobby, corridors, stairs, or elevators of the Building. Tenant may not
move Tenant's furniture, equipment, supplies, or other persona property
or permit deliveries of such items through the Common Areas except at
such hours and upon such conditions as Landlord may reasonably require
from time to time. Tenant shall reimburse Landlord with 10 days after
Landlord's demand for any damage or injury to persons or property
resulting from Tenant's movement of such items or delivery to tenant of
such items through the Common Areas. Landlord may, as a condition for
granting permission to Tenant to move furniture and equipment through
the common areas of the Building, require a damage deposit from Tenant.
7. UTILITIES AND SERVICES
Landlord shall furnish the following utilities and services to the
Building and the Premises as reasonably required in connection with
Tenant's use of the Premises, Monday through Friday, during business
hours (8:00 a.m. to 6:00 p.m.) except on federal bank holidays:
(a) janitorial services (during non-business hours Monday through
Friday), except that shampooing and replacement of carpet as
required by Tenant shall be at Tenant's expenses;
(b) Periodic trash removal;
(c) Elevator service in common with other tenants;
(d) Air conditioning is provided on Monday through Friday from 8:00
a.m. to 6:00 p.m. and on Saturday from 8:00 a.m. to 1:00 p.m.,
except on Memorial Day, Fourth of July, Labor Day, Thanksgiving
Day, Christmas Day and New Year's Day.
(e) Electricity for standard lights, air-conditioning, and standard
office equipment. Electricity for extraordinary office
equipment and additional air-conditioning required in
connection with computers or other extraordinary office
equipment shall be separately metered and shall be available to
Tenant only with Landlord's prior written approval;
(f) Water for drinking, ordinary lavatory purposes, and the fire
sprinkler system (if applicable);
(g) Common use restrooms on each floor of the Building, including
maintenance, periodic cleaning, and supplies.
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Landlord is not responsible to Tenant for any interruption in utility
and other services unless caused by Landlord's negligence or willful
misconduct.
Should Tenant desire utilities or services to be provided by Landlord
at times other than those times set forth in this Lease, Landlord may,
but is not obligated to, furnish such additional utilities or services
as are requested by Tenant. In a written notice to Landlord at least 48
hours before Tenant requires the utilities or services. Tenant shall
pay Landlord, within 10 days after Landlord's demand, for all
Landlord's costs in providing such additional utilities or services.
8. TENANT'S APPURTENANT RIGHTS
During the Term, Landlord grants Tenant a non-exclusive right to use
the Common Assets, including the right of ingress and egress to the
Premises. This right may be exercised by Tenant, its agents, employees,
independent contractors, invitees, and customers, subject to similar
rights granted from time to time to other parties, and subject to the
Rules and Regulations attached to this Lease as Exhibit "C", as they
may be amended by Landlord from time to time.
9. LANDLORD'S RIGHT OF ACCESS
Landlord, and other authorized by Landlord, may enter the Premises at
reasonable times and upon reasonable prior verbal or written notice to
Tenant for those purposes reasonably related to Landlord's ownership
and operation of the Building, including inspection, maintenance and
repair, emergencies, and showing the Premises to prospective tenants or
purchasers.
10. MAINTENANCE, REPAIR AND REPLACEMENT
Tenant shall, at Tenant's sole expense, keep the interior of the
Premises in good condition and repair. Tenant shall promptly repair any
injury or damage to the Building, the parking facility serving the
Building, or the Real Property caused by Tenant's unauthorized use of
the Premises or by the fault or neglect of Tenant, Tenant's employees,
customers, invitees, and others permitted on the Premises by Tenant's
employees, customer, invitees, and others permitted on the Premises by
Tenant. If Tenant does not promptly and adequately perform its
obligations under this paragraph after written notice from Landlord
specifying the nature of Tenant's failure, in addition to any other
remedy Landlord may have under this Lease or pursuant to law, Landlord
may perform Tenant's obligations on Tenant's behalf and Tenant shall,
upon demand, reimburse Landlord for the reasonable costs and expenses
so incurred. Landlord shall maintain and repair all
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other elements of the Building, the parking facility serving the
Building, and the Real Property, including plumbing, lighting, HVAC
service, plate glass,k and structural components.
All repairs, maintenance, and replacements by Landlord and Tenant shall
be performed in a good and workmanlike manner, in compliance with all
applicable governmental laws, regulations, ordinances, rules, and
codes, and shall incorporate materials and techniques equal to or
exceeding the quality of the items repaired, maintained, replaced.
11. CONDITION OF PREMISES
Tenant acknowledges that Tenant has inspected the Premises and that the
Premises are suitable for Tenant's use. Tenant accepts the Premises in
"as-is" condition. Tenant acknowledges that no work needs to be
performed by Landlord to prepare the Premises for Tenant's occupancy.
Landlord makes no warranties or representations as to the condition of
the Premises or their suitability for Tenant's use.
12. NO LEASEHOLD IMPROVEMENTS
Tenant shall not make any alterations, additions, or improvements
within, or to the Premises, without first obtaining Landlord's approval
in writing, which approval may be denied for any reason whatsoever.
13. TENANT'S INSURANCE
From the date Landlord grants Tenant access to the Premises and during
the Term, Tenant shall at Tenant's sole expense, maintain comprehensive
general liability insurance with a combined single limit coverage of
not less than $500,000.00, with a reputable insurance underwriter
reasonably acceptable to Landlord. The comprehensive policy shall name
Landlord and Landlord's agent as an additional insured and provide that
Landlord's right to insurance proceeds shall not be subject to
invalidation by reason of Tenant's acts or omissions. All insurance
policies shall include a provision that the coverage may not be reduced
or cancelled without 30 days prior written notice to Landlord.
14. WAIVER OF SUBROGATION
To the extent that any loss suffered by Tenant is covered by insurance,
Tenant waives all claims it may have against Landlord, and, to the
extent possible without voiding the insurance coverage, each insurance
policy obtained by Tenant concerning the Premises and the Building
shall include a waiver of subrogation endorsement.
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15. TENANT'S INDEMNIFICATION
Tenant shall indemnify, defend Landlord from, and hold Landlord
harmless against any claim, suit, liability, loss, damage, cost, and
expense in connection with any construction work, additions,
alterations, or improvements by Tenant in or about the Premises, or in
connection with loss of life, personal injury, or damage to property
arising from Tenant's use or occupancy of the Premises, but not to the
extent caused by the willful misconduct of Landlord, its agents or
employees. This indemnity applies to Tenant's use and occupancy of the
Premises prior to the Commencement Date and throughout the Term and
shall survive the termination of this Lease.
16. LANDLORD'S EXCULPATION AND TENANT'S ATTORNMENT
If Landlord defaults under this Lease, Tenant agrees to look solely to
the Landlord's interest in the Building and the Real Property, and
neither Landlord nor any of its partners, officers, directors or
shareholders shall have any personal liability to Tenant for Landlord's
defaults under this Lease or for the breach of any representation,
warranty, covenant or agreement. Any judgments entered against Landlord
based upon Landlord's default under this Lease shall be satisfied
solely from the proceeds of the sale of Landlord's interest in the
Building and the Real Property. If Landlord sells the Building,
Landlord shall be released from any future obligation or liability to
Tenant under this Lease.
17. DAMAGE BY FIRE AND OTHER CASUALTY
Tenant shall give Landlord prompt notice of any damage to the Premises
by fire or casualty. If the Building is partially or totally destroyed
Landlord may, at its option, terminate this Lease as of the date of the
casualty, and all periodic payments required of Tenant under this Lease
shall be equitably adjusted.
18. CONDEMNATION
If the Building and the Real Property are taken by the power of eminent
domain (or conveyed to the condemning authority under threat of
condemnation), this Lease shall terminate on the date the condemning
authority takes possession, and all periodic payments made by Tenant
under this Lease shall be equitably adjusted.
If a portion of the Building or Real Property is taken by the power of
eminent domain (or conveyed to the condemning authority under threat of
condemnation), at Landlord's option exercised on or before the date the
condemning authority takes
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possession, this Lease shall terminate effective as of the date the
condemning authority takes possession. If Landlord does not exercise
its option to terminate this Lease, to the extent possible following
the taking, Landlord shall repair and restore those portions of the
Premises and the Building originally provided by Landlord, and Tenant
shall repair and restore all other portions of the Premises.
During the period of Landlord's repair and restoration of the Premises,
all Base Rent and Adjusted Rent shall abate in an amount bearing the
same ratio to the Base Rent and Adjusted Rent otherwise due for such
period as the untenantable portion of the Premises from time to time
bears to the entire Premises. All periodic payments required of Tenant
under this Lease shall be equitably adjusted as of the date the
condemning authority takes possession to reflect any permanent
reduction in the usable portion of the Premises.
Tenant waives Tenant's right to all proceeds of condemnation (or of
conveyance to the condemning authority under threat of condemnation)
representing the value of Tenant's leasehold interest or of the
leasehold improvements in the Premises. Nothing in this paragraph,
however, shall prevent Tenant from pursuing a separate claim for
business damages or moving expenses against the condemning authority,
so long as the award or proceeds paid to Tenant does not reduce the
award or proceeds otherwise payable to Landlord.
19. SURRENDER
On the Expiration Date (or sooner termination of the Term) Tenant shall
remove all Tenant's personal property and trade fixtures from the
Premises, and Tenant shall surrender possession of the Premises to
Landlord in as good condition, as existed when Tenant took possession,
reasonable wear and tear and insured casualty damages excepted. All
personal property or trade fixtures not removed by Tenant shall, upon
the Expiration Date (or sooner termination of the Term) become
Landlord's property, and Landlord may, at its option, either retain the
personal property and trade fixtures or dispose of all or any portion
of them at Tenant's expense. Tenant shall reimburse Landlord upon
demand for all Landlord's expenses incurred in connection with
disposing of Tenant's personal property and trade fixtures. This
obligation shall survive the expiration or termination of this Lease.
If this Lease terminates as a result of an insured casualty, Tenant is
not obliged to repair and restore the Premises, but Landlord is
entitled to a portion of the proceeds from Tenant's insurance
sufficient to reimburse Landlord for the reasonable cost of returning
the interior to the Premises to the condition existing immediately
before the casualty.
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20. DEFAULT
Time is of the essence with regard to the performance of the Tenant s
obligations under this Lease. Any of the following constitutes a
Default of this Lease by Tenant:
(a) Failure to pay any periodic payment of Base Rent or any other
payment required of Tenant under this Lease within 5 days after
any such payment is due.
Tenant shall pay Landlord interest at the rate of 18% simple
interest per year on all periodic payments due under this Lease
that are not made on the date when due, from the date when due
until paid in full. All partial payments of past due amounts
shall be applied first to interest accrued, then to past due
installments of Base Rent.
(b) Failure to cure any other default of Tenant s obligations under
this Lease for a period of 15 days after notice specifying the
nature of the default.
(c) Abandonment of the Premises.
(d) Tenant files a voluntary petition in bankruptcy or is
adjudicated insolvent or a bankrupt, or makes an assignment for
the benefit of creditors, or files a petition for relief under
any applicable bankruptcy law, or consents to the appointment
of a trustee or receiver of all or any substantial part of its
property.
(e) An involuntary petition under any applicable bankruptcy law is
filed against Tenant and is not vacated within 60 days.
21. LANDLORD'S REMEDIES
Upon Tenant's default and the expiration or any applicable grace
period, Landlord may, at Landlord's option take any one or more of the
following actions without further notice or demand;
(a) Declare all Base Rent or Adjusted Rent for the entire remaining
portion of the Term immediately due and payable.
(b) Bring an action against Tenant to collect all Base Rent or
other sums due and owing the Landlord, or to enforce any other
term or provision of this Lease.
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(c) Terminate this Lease by three days' written notice to Tenant.
In the event of termination, Tenant agrees to immediately
surrender possession of the Premises. If Landlord terminates
this Lease, Landlord may recover from Tenant all damages
Landlord incurs by reason of Tenant's default, including
damages equal to the present value of the difference between
the Base Rent and Adjusted Rent due for the remainder of the
term and the market value rent rate for the remainder of the
term, and all Landlord's costs and expenses (including
reasonable attorneys' fees).
(d) Landlord may pay or perform, or cause to be paid or performed,
any obligation of Tenant under this Lease, for Tenant's
account, and Tenant shall promptly reimburse Landlord, upon
demand, for all Landlord's costs and expenses (including
reasonable attorneys' fees) so incurred.
(e) Relet the Premises for Tenant's account without terminating
this Lease. All sums received by Landlord's from reletting
shall be applied first to Landlord's reasonable costs and
expenses incurred in relation (including, without limitation,
reasonable attorneys' fees, advertising costs, brokerage
commissions, and alterations, improvements, and repairs to the
Premises), then to the payment of all sums due under this
Lease. Upon Landlord's demand, Tenant shall pay any deficiency
to Landlord as it arises.
Landlord's remedies in this paragraph are cumulative and in addition to
any other remedies available at law or in equity.
22. ATTORNEYS' FEES
In any legal action (including appellate proceedings) filed with
respect to this Lease, the prevailing party shall receive reimbursement
from the other party of its costs and expenses (including reasonable
attorneys' fees awarded by a court of competent jurisdiction).
23. ASSIGNMENT AND SUBLETTING
Tenant shall not assign Lease or encumber or sublet the Premises
without Landlord's prior written consent.
24. SUBORDINATION
Tenant's right, title, and interest in the Premises shall be subject
and subordinate to any present or future lease of the entire Building
or to the lien of any mortgage now or hereafter encumbering the
Premises, the Building, or the Real
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Property. Although no further act by Tenant is necessary to effectuate
Tenant's subordination, Tenant shall, upon Landlord's request, execute,
acknowledge, and deliver to Landlord all documents Landlord may
reasonably require confirming Tenant's subordination of its interest in
the Premises to the interest of any holder of a mortgage encumbering
the Premises, the Building, or the Real Property.
25. TENANT ESTOPPEL CERTIFICATE
Tenant shall, upon Landlord's request, execute, acknowledge, and
deliver to Landlord, a written statement certifying that this Lease is
in full force and effect, that it is unmodified (or specifying the
modifications), specifying the date through which all periodic payments
required under this Lease have been paid, and specifying any defaults
of this Lease to the Tenant.
26. HOLD OVER
If Tenant holds over after the expiration of this Lease, Landlord shall
be entitled to collect rent at a rate equal to twice the Base Rent or
Adjusted Rent in effect on the Expiration Date.
27. QUIET ENJOYMENT
Landlord covenants that, if Tenant pays all sums required under this
Lease and performs all the terms, covenants, and conditions required of
Tenant under this Lease, Tenant may peaceably and quietly have, hold,
and enjoy the Premises during the Term, subject to:
(a) The claims or all persons arising other than by, through, or
under Landlord,
(b) the rights of all existing and future ground leases or lessees
of the entire Building, and
(c) all existing and future lenders holding mortgages encumbering
the Premises, the Building, or the Real Property.
28. NOTICES
All notices given in connection with this Lease shall be in writing,
and shall be considered delivered when mailed by United States
certified mail, return receipt requested, postage prepaid, if to
Landlord, at the address set forth in the preamble of this Lease and if
to Tenant, at the Premises.
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Either Landlord or Tenant may change the address for notices by giving
proper notice of the new address to the other party.
29. BENEFITS AND BURDENS
The provisions of this Lease bind, and are for the benefit of the
Landlord, the Tenant, and their respective successors and assigns.
30. BROKER S FEES
Tenant warrants to Landlord that no broker other than the one set forth
on Line 7 of the Terms Sheet was a procuring cause of this Lease.
Tenant shall indemnify, defend, and hold Landlord harmless from all
claims, losses, suits, damages, costs, and expenses (including
attorneys fees) that Landlord may suffer in connection with an
assertion by a broker or other finding agent (other than the broker
specified on Line 7 of the Terms Sheet) that he or she assisted or
otherwise dealt with Tenant with respect to the negotiation or
execution of this Lease.
31. MECHANICS LIENS
Tenant is not required or obliged under this Lease to make alterations
or improvements to the Premises, and nothing in this Lease shall be
construed as a consent by Landlord to subject Landlord's reversionary
interest in the Premises to liability under the Florida Mechanics' Lien
Law. If, as a result of the installation of any improvements by Tenant
on the Premises, or Tenant's maintenance and repair of the Premises, a
claim of lien is filed against the Premises, the Building or the Real
Property, within ten (10) days after it is filed, Tenant shall either
satisfy the claim of lien or transfer it to a bond as permitted by
Chapter 713 of the Florida Statutes. If Tenant fails to do so within
the ten (10) day period, Landlord may transfer the lien to a bond as
permitted by Chapter 713 of the Florida Statutes, and Tenant shall
reimburse Landlord for all Landlord's costs and expenses (including
reasonable attorneys fees) incurred in connection therewith.
32. ALL PAYMENTS CONSTITUTE RENT
All payments required of Tenant under this Lease constitute "rent" and
are due without setoff or deduction in legal United States tender, at
the times and at the addresses specified in this Lease, or so otherwise
specified from time to time by Landlord, together with all sales taxes
or similar taxes imposed by the State of Florida upon or with respect
to rent.
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33. ENTIRE AGREEMENT
This Lease and the attached exhibits, addendums, and riders (if any)
constitute the entire agreement between the parties. No subsequent
alteration, amendment, or addition to this Lease will bind the Landlord
or the Tenant unless it is in writing and signed by the party to be
bound.
34. COUNTERPARTS
This Lease may be executed in two or more identical counterparts, each
of which shall be treated as an original.
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"RADON GAS: Radon is a naturally occurring radioactive gas that when it has
accumulated in a building in sufficient quantities may present health risks to
persons who are exposed to it over time. Levels of radon that exceed federal and
state guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from your county public health
unit."
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EXHIBIT "C"
RULES AND REGULATIONS
1. Lessee will refer all contractors, contractors' representatives and
installation technicians rendering any service for Lessee to Lessor for
Lessors' supervision and approval before performance of any such
contractual services. This shall apply to all work performed in the
building including, but not limited to, installation of telephones,
telegraph equipment, electrical devices and attachments, and
installations of any and every nature affecting floors, walls,
woodwork, trim, windows, ceilings, equipment or any other physical
portion of the building. None of this work will be done by Lessee
without Lessor's written approval first had and obtained.
2. The work of the janitor or cleaning personnel shall not be hindered by
Lessee after 5:30 p.m., and such work may be done at any time when the
offices are vacant. The windows, doors, and fixtures may be cleaned at
any time. Lessee shall provide adequate waste and rubbish receptacles,
cabinets, book cases, map cases, etc. necessary to prevent unreasonable
hardship to Lessor in discharging its obligation regarding cleaning
service.
3. Movement in or out or flee building or furniture or office equipment,
or dispatch or receipt by Lessee of any merchandise which requires the
use of elevators or stairways, or movement through the building
entrances or lobby shall be restricted to the hours designated by
Lessor from time to time. All such movement shall be as directed by
Lessor and in a manner to be agreed upon between Lessee and Lessor by
prearrangement before performance. Such prearrangement initiated by
Lessee shall include termination by Lessor, and subject to its decision
and control of the time, method, and routing of movement, limitations
imposed by safety or other concerns which may prohibit any article,
equipment or any other item from being brought into the building.
Lessee expressly assumes all risk of damage to any and all articles so
moved, as well as injury to any person or persons or to the public
engaged or not engaged in such movement, including equipment, property,
and personnel of Lessor if damaged or injured as a result of any acts
in connection with carrying out this service for Lessee from the time
of entering property to completion of the work; and Lessor shall not be
liable for the act or acts of any person or persons so engaged in, or
any damage or loss to any property of persons resulting directly or
indirectly from any act in connection with such service performed by or
for Lessee.
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4. No sign or signs will be allowed in any form on the exterior of
building or on any window or windows inside or outside of the building
and no sign or signs, except in uniform location and uniform style
fixed by Lessor, will be permitted in the public corridors or on
corridor doors or entrance to Lessee's space. All signs will be
contracted for by Lessor or Lessee at the rate fixed by Lessor from
time to time, and Lessee will be billed and pay for such service
accordingly. Written consent from Lessor is an absolute prerequisite
for any such sign or signs any Lessee may be so permitted to use.
5. Nothing shall be placed on the outside of the building or on the
windows, window sills or projections.
6. Lessee shall not place, install or operate on the demised premises or
in any part of the building, any engine, stove, or machinery, or
conduct mechanical operations or cook thereon or therein, or place, use
in, or about the demised premises any explosives, gasoline, kerosene,
oil, acids, caustics, or any other inflammable, explosive or hazardous
material without the written consent of Lessor first had and obtained.
7. Lessor will not be responsible for any lost or stolen personal
property, equipment, money or jewelry from the leased premises, the
building or the parking area regardless of whether such loss occurs
when the area is locked against entry or not.
8. No birds, animals bicycles or vehicle shall be brought into or kept in
or about the building.
9. Lessor may permit entrance to Lessee's offices by use of pass keys
controlled by Lessor or employees, contractors, or service personnel,
supervised or employed by Lessor.
10. None of the entries, passages, doors, elevators, elevator doors,
hallways, or stairways shall be blocked or obstructed, or any rubbish,
litter, trash, or material of any nature placed, emptied or thrown into
these areas, nor shall such areas be used at any time for access or
egress by Lessee, Lessee's agents, employees or invitees.
11. Lessor shall have the right to determine and prescribe the weight and
proper position of any unusually heavy equipment including safes, large
files, etc., that are to be placed in the building, and only those
which in the opinion of Lessor will not do damage to the floors,
structure or elevators may be moved into said building. Any damage
occasioned in connection with the moving or installing of such
aforementioned articles in the buildings or the existence of same in
the building shall be paid for by Lessee.
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12. No additional locks shall be placed on any door or changes be made to
existing locks in Building without proper written consent of Lessor.
Lessor will furnish two keys to each lock on doors in the Leased
Premises and Lessor, upon the request of Lessee, shall provide
additional duplicate keys at Lessee's expense. Lessor may at all times
keep a pass key to the Leased Premises. All keys shall be returned to
Lessor promptly upon termination of this Lease.
13. Lessee, its officers, agents, servants and employees shall, before
leaving Leased Premises unattended, close and lock all doors and shut
off all utilities; damage resulting from failure lo do so shall be paid
by Lessee.
14. Lessee, its employees, agents or invitees shall not use Leased Premises
for lodging, sleeping or cooking of food without the prior written
consent of Lessor.
15. The plumbing/ballroom facilities shall not be used for any other
purpose than that for which they are constructed, and no foreign
substance of any kind shall be thrown therein, and the expense of any
breakage, stoppage, or damage resulting from a violation of this
provision shall be borne by Lessee, who shall, or whose officers,
employees, agents, servants, patrons, customers, licensees, visitors or
invitees shall have caused it.
16. Canvassing, soliciting and peddling in the building or parking
facilities is prohibited and each Lessee shall cooperate to prevent the
same. In this respect, Lessee shall promptly report such activities to
the Building Manager's office.
THE ABOVE RULES, HEREBY ACCEPTED BY LESSEE, ARE PRESCRIBED BY LESSOR TO ENABLE
LESSOR TO MAINTAIN HIGH STANDARDS OF ENVIRONMENT, COMFORT AND CONVENIENCE FOR
ITS LESSEES. IT WILL BE APPRECIATED IF ANY UNDESIRABLE CONDITIONS OR LACK OF
COURTESY OR ATTENTION BY ITS EMPLOYEES OR CONTRACTORS IS REPORTED DIRECTLY TO
LESSOR.
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EXHIBIT A - TERMS SHEET
This Terms Sheet is attached to and is a part of that certain lease between
MARBRAD, INC. and the tenant described below.
1. TENANT: Consolidated Entertainment, Inc.
930 Washington Avenue
Miami Beach, Florida 33139
2. LEASED PREMISES: The entire fifth (5th) floor.
3. TERM: Five (5) years beginning July 1, 1996 (the
"Commencement Date") and ending June 30, 2001
(tine Expiration Date").
4. BASE RENT: 07/01/96 - 06/30/97 $3,250/mo plus sales tax
07/01/97 - 06/30/98 $3,400/mo plus sales tax
07/01/98 - 06/30/99 $3,600/mo plus sales tax
07/01/99 - 06/30/00 $3,800/mo plus sales tax
07/01/00 - 06/30/01 $4,000/mo plus sales tax
5. SECURITY DEPOSIT: None
6. ASSIGNED PARKING: Spaces 1, 2, 3 and 4 in the main parking lot.
Spaces 12-15 in annex parking lot at 910
Pennsylvania Ave.
7. BROKER: None
8. Wherever the phrase "Base Rent" is used in the Lease, the phrase "Gross
Rent" shall be deemed substituted therefor.
9. Modifying Section 5 of the Lease:
During the term of this Lease, no charge will be passed through to
Tenant for parking.
10. Modifying Section 7 of the Lease:
Section 7(b) is hereby deemed deleted. The words "including trash
removal" are added to Section 7(a) after the words "Janitorial
services".
The hours during which air conditioning shall be provided, at no
additional cost to Tenant, are changed as follows: Monday through Friday
8:00 AM to 8:00 PM and on Saturday none.
11. Modifying Section 12 of the Lease:
The words "may be denied for any reason whatsoever" shall be deemed
deleted and the words "shall not be unreasonably withheld" shall be
substituted therefor.
12. Modifying Section 17 of the Lease:
If Tenant's means of ingress or egress to the Premises is eliminated by
fire or casualty or if more than twenty (20%) percent of the Premises is
damaged by fire or casualty, then Tenant shall have the option to cancel
this lease by notice to Landlord given within thirty (30) days of the
occurrence of the casualty, such cancellation effective upon the giving
of said notice.
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13. Modifying Section 18 of the Lease:
The following words in the last sentence of the second paragraph shall
be deemed deleted "and Tenant shall repair and restore all other
portions of the Premises".
14. Modifying Section 20 of the Lease:
(a) The five (5) day period set forth in clause (a) shall be
increased to ten (10) days.
(b) The late charge shall only be imposed if the rent is not paid
prior to the expiration of the ten (10) day grace period.
(c) The fifteen (15) day period set forth in clause (b) shall be
increased to thirty (30) days.
15. Modifying Section 23 of the Lease:
Landlord shall not unreasonably withhold its consent to an assignment of
the Lease or a subletting of the Premises.
16. Modifying Section 26 of the Lease:
The holdover rent shall be reduced from twice the Gross Rent to one and
one-half times the Gross Rent.
17. Modifying Rule and Regulation Number 12:
Tenant is hereby granted permission by Landlord to install its own
burglar alarm system.
IN WITNESS WHEREOF, Landlord and Tenant have _______ to be executed as
of July 1, 1996.
LANDLORD:
MARBRAD, INC.
By:_____________________________
Brad Krassner, President
TENANT:
CONSOLIDATED ENTERTAINMENT, INC.
By:_____________________________
Brad Krassner, President
18
LEE & KAREN MARSHALL
615 Len Court
Aurora, OH 44202
This Lease Agreement, made this Fourth day of November, 1994, by and
between Karen and Lee Marshall, hereinafter referred to as "Lessor" and
Magic Promotions and Theatricals, a Florida Corporation, hereinafter
referred to as "Lessee,"
WITNESSETH:
1. DESCRIPTION OF PREMISES. The premises subject to this Lease consist
of the property commonly known as 199 East Garfield Road, together with the
building erected thereon, located at Aurora, Ohio and being situated in Summit
County.
2. PURPOSE. Said premises are to be used for the purpose of carrying on
the business of an office for promoting theatrical touring shows, concerts and
entertainment events.
3. TERM. The period of Thirty Eight (38) months beginning on the 1st
day of November, 1994 and terminating on the 31st day of December, 1997.
4. RENT. Lessee shall pay Lessor as rent for said premises a monthly
installment of Three Thousand One Hundred and Twenty Six Dollars and Twenty Nine
Cents ($3,126.29), due no later than the last day of each month. The payment
shall be made directly to National City Bank as the monthly payment in full on a
fixed rate loan payment.
5. UTILITIES. Lessee shall be responsible for and shall make direct
payment for water, sewer, gas, and electric current together with any license
fees, inspections fees and other charges in connection with the operation of the
business which may be assessed or charged against said Lessee during said term.
6. REAL ESTATE TAXES. Lessee shall be responsible for all real estate
taxes on the premises.
7. PARKING AREA AND LANDSCAPING MAINTENANCE. Lessee agrees to provide,
at its expense the maintenance of the parking, sidewalk and landscaped areas
including grass mowing, snow and ice removal and other normal and necessary
repairs. Lessee shall store all trash and rubbish within the premises and
arrange for a regular pickup of such trash and rubbish at Lessee's expense if
required.
8. REPAIRS AND MAINTENANCE. The Lessee shall make, at its own expense,
all necessary repairs and replacements to the leased property.
Page 1 of 2
<PAGE>
IN WITNESS WHEREOF, the Lessor and Lessee have agreed to the above terms and
acknowledge by the signatures hereunder.
LESSOR:
_______________________________________
Lee Marshall for Karen and Lee Marshall
LESSEE:
_______________________________________
Joe Marsh for Magic Promotions and Theatricals
Page 2 of 2
<PAGE>
c/o Joe Marsh
805 Surfside Drive
Akron, OH 44319
This Lease Agreement, made this Twenty Second day of December, 1991, by and
between Lee Marshall, Joe Marsh and Glenn Bechdel, hereinafter referred to as
"Lessor" and Magic Promotions, Inc., an Ohio Corporation, hereinafter referred
to as "Lessee,"
WITNESSETH:
1. DESCRIPTION OF PREMISES. The premises subject to this Lease consist
of the property commonly known as 9263 Olde Eight Road, together with the
building erected hereon, located at Northfield Center, Ohio and being situated
in Summit County.
2. PURPOSE. Said premises are to be used for the purpose of carrying on
the business of an office for promoting theatrical touring shows, concerts and
entertainment events.
3. TERM. The period of Two (2) years beginning on the 1st day of
January, 1992 and terminating on this 31st day of December, 1993.
4. RENT. Lessee shall pay Lessor as rent for said premises a monthly
installment of approximately Six Hundred and Ten Dollars ($610.00), due no later
than the last day of each month. The payment shall be made directly to National
City bank as the monthly payment in full on a variable rate loan payment.
5. UTILITIES. Lessee shall be responsible for and shall make direct
payment for water, sewer, gas, and electric current together with any license
fees, inspections fees and other charges in connection with the operating of the
business which may be assessed or charged against said Lessee during said term.
6. REAL ESTATE TAXES. Lessee shall be responsible for all real estate
taxes on the premises.
7. PARKING AREA AND LANDSCAPING MAINTENANCE. Lessee agrees to provide,
at its expense the maintenance of the parking, sidewalk and landscaped areas
including grass mowing, snow and ice removal and other normal and necessary
repairs. Lessee shall store all trash and rubbish within the premises and
arrange for a regular pickup of such trash and rubbish at Lessee's expense if
required.
Page 1 of 2
<PAGE>
8. REPAIRS AND MAINTENANCE. The Lessee shall make, at its own expense,
all necessary repairs and replacements to the leased property.
IN WITNESS WHEREOF, the Lessor and Lessee have agreed to the above terms and
acknowledge by the signatures hereunder.
LESSOR:
______________________________________
Joe Marsh for Lee Marshall, Joe Marsh
and Glenn Bechdel
LESSEE:
______________________________________
Lee Marshall for Magic Promotions, Inc.
Page 2 of 2
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the captions "Experts" and
"Selected Combined Financial Data" and to the use of our report dated September
13, 1996, with respect to the combined financial statements of Magic Promotion,
Inc. included in Amendment No. 1 to the Registration Statement (Form S-1 -
Registration No. 333-13127) of Magicworks Entertainment Incorporated for the
registration of shares of its common stock.
Ernst & Young LLP
Miami, Florida
December 17, 1996
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the captions "Experts" and to the
use of our report dated September 11, 1996, with respect to the financial
statements of Diamond Bullet Merchandising, Inc. included in Amendment No. 1 to
the Registration Statement (Form S-1 - Registration No. 333-13127) of Magicworks
Entertainment Incorporated for the registration of shares of its common stock.
Ernst & Young LLP
Miami, Florida
December 17, 1996
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the captions "Experts" and to the
use of our report dated September 13, 1996, with respect to the financial
statements of Movietime Entertainment, Inc. included in Amendment No. 1 to the
Registration Statement (Form S-1 - Registration No. 333-13127) of Magicworks
Entertainment Incorporated for the registration of shares of its common stock.
Ernst & Young LLP
Miami, Florida
December 17, 1996
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the captions "Experts" and to the
use of our report dated September 13, 1996, with respect to the historical
supplemental pooled financial statements of Magic Promotion, Inc. and Movietime
Entertainment, Inc. included in Amendment No. 1 to the Registration Statement
(Form S-1 - Registration No. 333-13127) of Magicworks Entertainment Incorporated
for the registration of shares of its common stock.
Ernst & Young LLP
Miami, Florida
December 17, 1996
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the captions "Experts" and to the
use of our report dated April 11, 1996, with respect to the combined financial
statements of Magicworks Entertainment, included in Amendment No. 1 to the
Registration Statement (Form S-1 - Registration No. 333-13127) of Magicworks
Entertainment Incorporated for the registration of shares of its common stock.
Ernst & Young LLP
Miami, Florida
December 17, 1996
