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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): January 7, 1998
SFX BROADCASTING, INC.
(Exact name of registrant as specified in charter)
Delaware 0-22486 13-3649750
- ---------------------------- --------------------- -------------------
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
650 Madison Avenue, New York, New York 10022
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 407-9191
N/A
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
CONSENT SOLICITATION.
On January 7, 1998, SFX Broadcasting, Inc. (the "Company") commenced
solicitations of consents (the "Consent Solicitations") to holders of its
outstanding 10-3/4% Senior Subordinated Notes, due 2006 (the "Notes") and
holders of its 12-5/8% Series E Cumulative Exchangeable Preferred Stock, due
October 31, 2006 (the "Shares") to certain proposed amendments to the indenture
pursuant to which the Notes were issued and the Certificate of Designations in
respect of the Shares. As of January 5, 1998 there was $450.0 million in
principal amount of Notes outstanding, and 2,250,000 Shares outstanding. There
will be a payment for each consent delivered pursuant to the Consent
Solicitations of $10.00 per $1,000.00 in principal amount of Notes and $1.00
per Share.
The Company had previously announced that it had entered into a merger
agreement (the "Merger Agreement") with an affiliate of Hicks, Muse, Tate &
Furst pursuant to which the radio business of the Company would be merged into
an affiliate of Hicks, Muse, Tate & Furst, with each holder of the Company's
Class A Common Stock receiving cash consideration of $75.00 per share subject
to adjustment in certain instances. Additionally, the Merger Agreement
contemplates that the Company will spin-off all of its assets related to the
live entertainment business into a new public company, SFX Entertainment, which
will be owned by the present shareholders of the Company. The Company has
announced a series of acquisitions (the "Pending Acquisitions") by SFX
Entertainment of companies engaged in the live entertainment business. The
purpose of the consent solicitations is to facilitate the spin-off of SFX
Entertainment and the financing by SFX Entertainment of the Pending
Acquisitions prior to the spin-off.
The description of the Consent Solicitations set forth above does not
purport to be complete and is qualified in its entirety by reference to the
Consent Solicitation Statements attached hereto as exhibits, which are
incorporated herein by reference. A copy of the press release announcing the
commencement of the Consent Solicitations is also attached hereto as an
exhibit.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
(c) Exhibits
4.1 Consent Solicitation Statement, dated January 7, 1998, of SFX
Broadcasting, Inc. with respect to its 10-3/4% Senior
Subordinated Notes, due 2006.
4.2 Consent Solicitation Statement, dated January 7, 1998, of SFX
Broadcasting, Inc. with respect to its 12-5/8% Series E
Cumulative Exchangeable Preferred Stock, due 2006.
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99.1 Press release, dated January 7, 1998, announcing the
commencement of a consent solicitation by SFX Broadcasting,
Inc. in respect of its 10-3/4% Senior Subordinated Notes, due
2006, and its 12-5/8% Series E Cumulative Exchangeable
Preferred Stock, due October 31, 2006.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereto duly authorized.
SFX BROADCASTING, INC.
By: /s/ Robert F.X. Sillerman
-------------------------------------
Name: Robert F.X. Sillerman
Title: Executive Chairman
Date: January 7, 1998
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CONSENT SOLICITATION STATEMENT
SFX BROADCASTING, INC.
SOLICITATION OF CONSENTS TO WAIVER AND AMENDMENT
WITH RESPECT TO THE INDENTURE GOVERNING ITS
$450,000,000 10 3/4% SENIOR SUBORDINATED NOTES DUE 2006
CUSIP NUMBER: 784174 AE 4
CONSENT FEE: $10.00 PER $1,000 IN PRINCIPAL AMOUNT
RECORD DATE: 5:00 P.M., NEW YORK CITY TIME, ON JANUARY 6, 1998
THE CONSENT SOLICITATION WILL BE OPEN UNTIL THE EXPIRATION DATE WHICH WILL
BE 5:00 P.M., NEW YORK CITY TIME, ON THE LATER OF (I) JANUARY 21, 1998 AND
(II) THE DAY ON WHICH SFX BROADCASTING, INC. (THE "COMPANY"), A DELAWARE
CORPORATION, THE GUARANTORS AND THE TRUSTEE (EACH AS DEFINED) EXECUTE THE
SUPPLEMENTAL INDENTURE (THE "SUPPLEMENTAL INDENTURE") CONTAINING THE PROPOSED
AMENDMENTS (AS DEFINED) WHICH WILL BE PROMPTLY AFTER THE COMPANY HAS RECEIVED
DULY EXECUTED AND VALID CONSENTS TO THE PROPOSED AMENDMENTS FROM HOLDERS (AS
DEFINED) HOLDING A MAJORITY IN PRINCIPAL AMOUNT OF THE NOTES (AS DEFINED)
OUTSTANDING (THE "REQUISITE CONSENTS") AS OF THE RECORD DATE. UPON EXECUTION
OF THE SUPPLEMENTAL INDENTURE, CONSENTS WILL BECOME IRREVOCABLE (THE
"EFFECTIVE TIME"). CONSENTS MAY ONLY BE REVOKED UNDER THE CIRCUMSTANCES
DESCRIBED IN THIS CONSENT SOLICITATION STATEMENT AND IN THE LETTER OF CONSENT
(AS DEFINED). IMMEDIATELY PRIOR TO THE CONSUMMATION OF ANY OF THE PROPOSED
TRANSACTIONS DESCRIBED HEREIN FOR WHICH CONSENTS ARE BEING SOLICITED (THE
"PROPOSED TRANSACTIONS"), THE PROPOSED AMENDMENTS WILL BECOME OPERATIVE (THE
"OPERATIVE TIME"). PROMPTLY AFTER THE EFFECTIVE TIME, THE COMPANY WILL PAY TO
EACH HOLDER OF NOTES WHO HAS THERETOFORE DELIVERED A VALID CONSENT A PORTION
OF THE CONSENT FEE (THE "PARTIAL PAYMENT") EQUAL TO $1.00 IN CASH FOR EACH
$1,000 IN PRINCIPAL AMOUNT OF THE NOTES. PROMPTLY AFTER THE EXPIRATION DATE,
THE COMPANY WILL MAKE THE PARTIAL PAYMENT TO ANY HOLDERS WHO DELIVERED
CONSENTS AFTER THE EFFECTIVE TIME AND PRIOR TO THE EXPIRATION DATE. PROMPTLY
AFTER THE OPERATIVE TIME, THE COMPANY WILL PAY THE BALANCE OF THE CONSENT FEE
TO THOSE HOLDERS WHO PREVIOUSLY RECEIVED A PARTIAL PAYMENT. TO RECEIVE ANY
PORTION OF THE CONSENT FEE, HOLDERS MUST DELIVER THEIR VALID CONSENTS BEFORE
THE EXPIRATION DATE.
The Company hereby solicits (the "Consent Solicitation") from Holders of
its 10 3/4% Senior Subordinated Notes due 2006 (the "Notes") consents (the
"Consents"), upon the terms and subject to the conditions set forth in this
Consent Solicitation Statement (as the same may be amended or supplemented
from time to time, the "Consent Solicitation Statement") and in the
accompanying Letter of Waiver & Consent (the "Letter of Consent" and,
together with this Consent Solicitation Statement, the "Solicitation
Documents"), to certain waivers in respect of, and amendments to (such
waivers and amendments being referred to herein as the "Proposed
Amendments"), the Indenture dated as of May 31, 1996, as amended by
supplemental indentures, dated as of November 25, 1996, January 10, 1997,
January 13, 1997, January 29, 1997, May 15, 1997, July 8, 1997, October 9,
1997 and October 10, 1997 (as amended, the "Indenture"), among the Company,
the Guarantors (as defined in the Indenture) and The Chase Manhattan Bank, as
trustee (the "Trustee"), pursuant to which the Notes were issued.
As more fully described herein, the purpose of the Proposed Amendments is
to confirm the Company's interpretation of "Consolidated Cash Flow" under the
Indenture, to waive any Default or Event of Default (each as defined in the
Indenture) and any and all consequences under the Indenture that would have
occurred, either historically or prospectively, were the Company's
interpretation of the Indenture incorrect and to permit (i) the distribution
by the Company of the stock of SFX Entertainment, Inc. ("SFX Entertainment"),
a Delaware corporation and a wholly-owned subsidiary of the Company, to the
Company's stockholders in a spin-off transaction (the "Spin-Off"), (ii) the
Financing (as defined) by SFX Entertainment, (iii) the release of the
guarantees (the "Entertainment Guarantees") by SFX Entertainment and its
subsidiaries of the Company's obligations under the Indenture and the Notes
and (iv) certain other transactions. Prior to the Spin-Off, the Company
intends to (i) transfer to SFX Entertainment the stock of all subsidiaries
principally engaged in the concert and entertainment business (collectively,
the "Concert Business") or which are parties to the Acquisition Agreements
(as defined) and consummate certain other transfers intended to allocate
assets and liabilities relating to the Concert Business to SFX Entertainment
while assets and liabilities relating to the Company's radio broadcast
business (the "Radio Business") will be retained by the Company and (ii)
acquire additional entities or assets in or related to the Concert Business.
The Working Capital (as defined) of the Company will be allocated in the
Spin-Off between the Company and SFX Entertainment in the manner set forth
herein. See "The Spin-Off." Consent to the Proposed Amendments will
constitute a waiver of any other provisions of the Indenture that would
otherwise prohibit any such transactions and will serve to remove SFX
Entertainment and its subsidiaries from the purview of restrictive covenants
in the Indenture and to exempt the proposed transactions described herein
from any restrictions or prohibitions in the Indenture. See "Proposed
Amendments."
(cover page continued on next page)
The Solicitation Agent for the Consent Solicitation is:
LEHMAN BROTHERS
The Date of this Consent Solicitation Statement is January 7, 1998
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At the Effective Time, Consents will become irrevocable. Consents may only
be revoked under the circumstances described in this Consent Solicitation
Statement and in the Letter of Consent. Promptly after the Effective Time,
the Company will make the Partial Payment to each Holder of Notes as of the
Record Date whose duly executed and valid Consent is received prior to the
Effective Time. Promptly after the Expiration Date, the Company will make the
Partial Payment to any Holders who delivered Consents after the Effective
Time and prior to the Expiration Date. The Proposed Amendments will become
operative at the Operative Time. Promptly after the Operative Time, the
Company will pay the balance of the Consent Fee to those Holders who
previously received a Partial Payment (the "Final Consent Payment Date"). To
receive any portion of the Consent Fee, Holders must deliver their Consents
before the Expiration Date.
Only (i) persons in whose name the Notes are registered in the registry
maintained by the registrar under the Indenture as of the Record Date or (ii)
persons who hold valid proxies substantially in the form attached to the
Letter of Consent which authorize them (or any persons claiming title by or
through them) to vote the Notes with respect to the Consent Solicitation
(collectively, the "Holders"), will be eligible to consent to the Proposed
Amendments. The Company anticipates that the Depository Trust Company (the
"DTC"), as nominee holder of the Notes, will execute an omnibus proxy that
will authorize its participants (the "DTC Participants") to consent with
respect to the Notes owned by such DTC Participants and held in the name of
Cede & Co. as specified on the DTC position listing as of the Record Date.
IMPORTANT
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS CONSENT SOLICITATION
STATEMENT. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION CANNOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, LEHMAN BROTHERS INC.
(THE "SOLICITATION AGENT"), D.F. KING & CO., INC. (THE "INFORMATION AGENT")
OR THE CHASE MANHATTAN BANK (THE "DEPOSITORY"). THE COMPANY IS NOT AWARE OF
ANY JURISDICTION IN WHICH THE MAKING OF THE CONSENT SOLICITATION IS NOT IN
COMPLIANCE WITH APPLICABLE LAW. IF THE COMPANY BECOMES AWARE OF ANY
JURISDICTION IN WHICH THE MAKING OF THE CONSENT SOLICITATION WOULD NOT BE IN
COMPLIANCE WITH APPLICABLE LAW, IT WILL MAKE A GOOD FAITH EFFORT TO COMPLY
WITH SUCH LAW. IF, AFTER SUCH GOOD FAITH EFFORT, IT CANNOT COMPLY WITH ANY
SUCH LAW, CONSENTS WILL NOT BE SOLICITED FROM HOLDERS RESIDING IN SUCH
JURISDICTIONS. IN ANY JURISDICTION WHERE THE SECURITIES, BLUE SKY OR OTHER
LAWS REQUIRE THE CONSENT SOLICITATION TO BE MADE BY A LICENSED BROKER OR
DEALER, THE CONSENT SOLICITATION WILL BE DEEMED TO BE MADE ON BEHALF OF THE
COMPANY BY THE SOLICITATION AGENT OR ONE OR MORE REGISTERED BROKERS OR
DEALERS LICENSED UNDER THE LAWS OF SUCH JURISDICTION.
The delivery of this Consent Solicitation Statement shall not under any
circumstances create any implication that the information contained herein is
correct as of any time subsequent to the date hereof or that there has been
no change in the information set forth herein or in the affairs of the
Company since the date hereof.
The Consent Solicitation is being made to all Holders. A BENEFICIAL OWNER
OF NOTES (OTHER THAN A DTC PARTICIPANT) REGISTERED IN THE NAME OF A NOMINEE
MUST EITHER (I) INSTRUCT THE RELEVANT HOLDER TO DELIVER A CONSENT ON ITS
BEHALF OR (II) OBTAIN A WRITTEN PROXY FROM SUCH HOLDER IF SUCH BENEFICIAL
OWNER DESIRES TO DELIVER A CONSENT IN RESPECT OF SUCH NOTES. Holders must
deliver (and not revoke) Requisite Consents to approve the Proposed
Amendments. For purposes of the foregoing calculation, any Notes held by the
Company or any of its affiliates will not be counted as outstanding. As of
the date of this Consent Solicitation Statement, the aggregate principal
amount of Notes outstanding is $450.0 million none of which are held by the
Company or any of its affiliates.
THE LETTER OF CONSENT SHOULD BE SENT TO THE DEPOSITORY, NOT TO THE COMPANY
OR THE SOLICITATION AGENT. IN NO EVENT SHOULD A HOLDER TENDER OR DELIVER
NOTES.
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AVAILABLE INFORMATION
The Company is subject to the information and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Company with the Commission may be inspected and
copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at Seven World Trade
Center, New York, New York 10048 and 500 West Madison Street, Chicago,
Illinois 60661-2511. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
Statements made in this Consent Solicitation Statement concerning the
provisions of any contract, agreement or other document referred to herein
constitute accurate summaries of the provisions of such document which are
material to such statements, but such statements do not purport to be
complete. With respect to each such statement concerning a contract,
agreement or other document filed with the Commission, reference is made to
such filing for a more complete description of the matter involved, and each
such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company or SFX
Entertainment with the Commission under the Exchange Act or the Securities
Act of 1933, as amended, are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
(b) The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997;
(c) The Company's Current Reports on Form 8-K dated January 17, 1997,
January 21, 1997, January 22, 1997, January 27, 1997, April 15,
1997, June 16, 1997, July 11, 1997, August 25, 1997, December 11,
1997 and December 24, 1997 and the Company's Current Reports on
Form 8-K/A dated June 16, 1997 and December 10, 1997; and
(d) SFX Entertainment's Registration Statement on Form S-1
(Registration No. 333-43287) filed with the Commission on December
24, 1997 (as amended, the "Registration Statement") relating to
the shares of Class A common stock and Class B common stock of SFX
Entertainment to be distributed in the Spin-Off.
All documents filed by the Company or SFX Entertainment pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Consent Solicitation Statement and prior to the Operative Time and all
amendments to the Registration Statement filed after the date of this Consent
Solicitation Statement and prior to the Operative Time will be deemed to be
incorporated by reference into this Consent Solicitation Statement and to be
a part hereof from the date of filing of the documents. The Company will not
supplement or amend this Consent Solicitation Statement to notify Holders of
any such additional filings. Any such additional filings will be publicly
available. See "Available Information."
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein will be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in
any other subsequently filed document that is or is deemed to be incorporated
by reference herein) modifies or supersedes the previous statement. Any
statement so modified or superseded will not be deemed to constitute a part
hereof except as so modified or superseded.
THIS CONSENT SOLICITATION STATEMENT INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER
THAN EXHIBITS TO THE DOCUMENTS UNLESS THE EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON ORAL OR
WRITTEN REQUEST BY ANY PERSON TO WHOM THIS CONSENT SOLICITATION STATEMENT HAS
BEEN DELIVERED, FROM SFX
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BROADCASTING, INC., 650 MADISON AVENUE, NEW YORK, NEW YORK 10022, ATTENTION:
TIMOTHY KLAHS, DIRECTOR OF INVESTOR RELATIONS, TELEPHONE NUMBER (212)
407-9126. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE AS SOON AS POSSIBLE. THE COMPANY WILL DELIVER THE REQUESTED
DOCUMENTS BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN ONE
BUSINESS DAY OF RECEIPT OF THE REQUEST.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS CONSENT SOLICITATION STATEMENT. WE HAVE NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS CONSENT SOLICITATION STATEMENT. THIS CONSENT SOLICITATION
STATEMENT IS DATED JANUARY 7, 1998. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS CONSENT SOLICITATION STATEMENT IS ACCURATE AS
OF ANY DATE OTHER THAN THE DATE HEREOF.
FORWARD-LOOKING STATEMENTS
This Consent Solicitation Statement, including the documents incorporated
herein by reference, contains forward-looking statements. Future events and
actual results, financial or otherwise, may differ materially from the
results set forth in or implied in the forward-looking statements. Factors
that might cause such a difference include the risks and uncertainties
involved in the Company's business, including, but not limited to, the effect
of economic and market conditions, the level and volatility of interest
rates, the impact of current or pending legislation and regulation and the
other risks and uncertainties discussed in "Certain Considerations" in this
Consent Solicitation Statement and in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the Company's Form 10-K
for the fiscal year ended December 31, 1996, which is incorporated by
reference into this Consent Solicitation Statement.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY..................................... 1
CERTAIN CONSIDERATIONS...................... 16
THE CONSENT SOLICITATION.................... 20
PROPOSED AMENDMENTS......................... 25
THE SPIN-OFF................................ 28
CERTAIN FEDERAL INCOME TAX CONSEQUENCES .... 34
SOLICITATION AGENT.......................... 36
INDEPENDENT AUDITORS........................ 36
INDEX TO FINANCIAL STATEMENTS............... F-1
ANNEX A--AMENDMENTS TO INDENTURE............ A-1
</TABLE>
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SUMMARY
The following summary is qualified in its entirety by the detailed
information and Consolidated Financial Statements and notes thereto included
elsewhere in this Consent Solicitation Statement and in the Annex hereto and
the documents incorporated herein by reference. Unless the context indicates
otherwise, references in this Consent Solicitation to the "Company" refers to
SFX Broadcasting, Inc., the issuer of the Notes, and its consolidated
subsidiaries.
THE COMPANY
The Company was incorporated in Delaware in 1992 principally to acquire
and operate radio stations. At the time of the Company's initial public
offering in late 1993, the Company owned and operated or provided programming
to ten radio stations operating in six markets. During the past four years,
the Company has significantly expanded its radio station operations. The
Company currently owns or operates, provides programming to or sells
advertising on behalf of 82 radio stations operating in 19 markets. The
Company's radio stations are diverse in terms of format and geographic
markets and are organized into regional clusters. The Company has recently
agreed to acquire and dispose of certain additional radio stations, and, upon
consummation of the Company's pending acquisitions and dispositions, the
Company will own or operate, provide programming to or sell advertising on
behalf of 73 radio stations (55 FM and 18 AM stations) operating in 19
markets. In addition to owning and operating radio stations, the Company,
through its wholly-owned subsidiary, SFX Entertainment, has become a
significant operator of venues for, and promoter of, music concerts and other
live entertainment events through a series of completed acquisitions of venue
operators and concert promoters. The executive offices of the Company are
located at 650 Madison Avenue, New York, New York 10022. For a further
description of the business of the Company, see the reports filed by the
Company with the Commission that are incorporated herein by reference.
BACKGROUND AND PURPOSE OF THE CONSENT SOLICITATION
In August 1997, the Company agreed to the merger of an affiliate of Hicks,
Muse, Tate and Furst, Inc. into the Company (the "Merger"). As a result of
the Merger, the Company, as the surviving corporation in the Merger, will
become a wholly-owned subsidiary of SBI Holdings Corporation ("Buyer"), a
Delaware corporation, and an affiliate of Hicks, Muse, Tate and Furst, Inc.,
and will no longer have any outstanding publicly-held shares of Common Stock
(as defined). Following the consummation of the Merger, the Notes will remain
outstanding as debt instruments of the surviving corporation in the Merger,
having in respect of the surviving corporation the same terms and conditions
as the Notes had in respect of the Company prior to the Merger. Prior to the
consummation of the Merger, the Company intends to effect the Spin-Off. The
Company is seeking consents to modify certain terms of the Indenture in order
to confirm the Company's interpretation of "Consolidated Cash Flow" under the
Indenture, to waive any Default or Event of Default and any and all
consequences under the Indenture that would have occurred, either
historically or prospectively, were the Company's interpretation of the
Indenture incorrect and to permit (i) the release of the Entertainment
Guarantees, (ii) the Spin-Off, (iii) the issuance in a private placement by
SFX Entertainment of debt securities in the approximate aggregate principal
amount of $275.0 million (the "New Notes") and the establishment by SFX
Entertainment of a senior credit facility in the approximate principal amount
of $350.0 million (the "New Credit Agreement"), which the Company is
currently negotiating and (iv) certain other transactions. The issuance of
the New Notes and the entering into of the New Credit Agreement are
collectively referred to herein as the "Financing." There can be no assurance
that the Financing, the Spin-Off or the Pending Acquisitions (as defined)
will ultimately be consummated on the terms described herein or at all. The
Company will not be the obligor under the New Credit Agreement or the
indenture pursuant to which the New Notes will be issued, nor will it be the
guarantor of SFX Entertainment's obligations under either such instrument.
See "--The Financing." However, the Company has agreed to guarantee certain
of SFX Entertainment's obligations under the agreements relating to the
Pending Acquisitions. See "--SFX Entertainment; The Spin-Off."
Concurrent with this Consent Solicitation, the Company intends to commence
solicitations of written consents (the "Series E Consent Solicitation" and,
together with this Consent Solicitation, the "Consent Solicitations") of the
holders of the Company's 12 5/8% Series E Cumulative Exchangeable Preferred
Stock Due October 31, 2006 (the "Series E Preferred Stock"), voting as a
separate class with respect to certain
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waivers in respect of, and amendments to (together, the "Series E
Amendments"), the Certificate of Designations (the "Series E Certificate")
relating to the Series E Preferred Stock required to permit the Spin-Off, the
Financing and certain related transactions. The consummation of each of the
Consent Solicitations is conditioned on the consummation of the other.
Neither the Indenture nor the Series E Certificate prohibit the Merger and
the Merger is not conditioned on obtaining the Consents.
THE FINANCING
SFX Entertainment intends to use the proceeds of the Financing to finance
the cash consideration to be paid for the Pending Acquisitions, to refinance
liabilities assumed in connection with the Pending Acquisitions, to pay
certain related fees and expenses, to fund planned capital expenditures
during 1998 of SFX Entertainment and for general corporate purposes of SFX
Entertainment. Although SFX Entertainment currently intends to use a portion
of the proceeds of the Financing in connection with the Pending Acquisitions,
there can be no assurance that any of the Pending Acquisitions will
ultimately be consummated on the terms described herein or at all. If any
Pending Acquisition is not consummated, SFX Entertainment will be free to
employ the allocable proceeds of the Financing for any other purpose
permitted by the terms of the New Credit Agreement and the indenture
governing the New Notes.
SFX Entertainment reserves the right to increase or decrease the total
amount of the Financing and to structure the Financing in a manner different
from that described in this Consent Solicitation Statement. In the event that
the Consent Solicitations are not successful, SFX Entertainment will consider
alternative financing arrangements to enable it to complete the Pending
Acquisitions, which may include obtaining additional bank financing, the sale
of additional fixed rate or variable rate debt securities, the issuance of
additional capital stock of SFX Entertainment or a combination of the
foregoing. SFX Entertainment believes that such alternative financing
arrangements will be available on acceptable terms; however, there can be no
assurance that such financing will be obtained.
THE MERGER; AMENDMENT OF CERTIFICATE OF INCORPORATION
On August 24, 1997, the Company entered into an Agreement and Plan of
Merger (as amended, the "Merger Agreement") among the Company, Buyer and SBI
Radio Acquisition Corporation ("Buyer Sub"), a Delaware corporation and
wholly-owned subsidiary of Buyer. Pursuant to the Merger Agreement, the
Company will become a wholly-owned subsidiary of Buyer, and, among other
things, each issued and outstanding share (except for shares held by persons
who exercise dissenters' appraisal rights) of the Company's (i) Class A
Common Stock, par value $.01 per share (the "Class A Common Stock"), will
convert into the right to receive $75.00, (ii) Class B Common Stock, par
value $.01 per share (the "Class B Common Stock" and, together with the Class
A Common Stock, the "Common Stock") will convert into the right to receive
$97.50, (iii) 6-1/2% Series D Cumulative Convertible Exchangeable Preferred
Stock (the "Series D Preferred Stock") will convert into the right to receive
an amount equal to the product of (a) $75.00 and (b) the number of shares of
Class A Common Stock into which each share of Series D Preferred Stock would
have been convertible immediately prior to the effective time of the Merger
(the "Merger Effective Time") and (iv) Series C Redeemable Convertible
Preferred Stock (the "Series C Preferred Stock") will convert into the right
to receive $1,000.00, plus any accrued but unpaid dividends. All such amounts
will be payable in cash, without interest. The consideration to be received
by holders of Class A Common Stock, Class B Common Stock and Series D
Preferred Stock is subject to increase in certain circumstances. Each issued
and outstanding share of Series E Preferred Stock will continue to be
outstanding after the Merger Effective Time as Series E Preferred Stock of
the surviving corporation of the Merger. In addition, the Notes will continue
to be outstanding after the Merger Effective Time as Notes of the surviving
corporation in the Merger.
The consummation of the Merger is subject to certain conditions and the
receipt of certain consents including, among other things, the approval of
the Common Stock voting together as a single class, and the approval of each
of the Class A Common Stock and Series D Preferred Stock, voting separately
as a class. In addition, the Merger is subject to certain regulatory
approvals. The approval and adoption of
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the Merger Agreement will be considered at a special meeting of the
stockholders of the Company (the "Special Meeting") that is anticipated to be
held during the first quarter of 1998.
The Company anticipates that the Merger will be consummated in the second
quarter of 1998 and that the Spin-Off will occur prior thereto. Although
management of the Company believes that all necessary approvals and consents
will be obtained in order to permit the Spin-Off and the Merger to occur,
there can be no assurance to such effect.
The Board of Directors of the Company and its committee of independent
members ("Independent Committee") have unanimously approved the Merger
Agreement and the transactions contemplated thereby and have determined that
they are fair to and in the best interests of the holders of Class A Common
Stock. Concurrent with the execution of the Merger Agreement, Robert F.X.
Sillerman entered into a Stockholder Agreement with the Company, Buyer and
Buyer Sub pursuant to which Mr. Sillerman is required to vote all shares of
Class A Common Stock and Class B Common Stock which he owns in favor of the
Merger.
At the Special Meeting, the Company's stockholders will also be asked to
approve two proposals relating to the approval and adoption of amendments to
the Certificate of Incorporation of the Company. The amendments contained in
the first proposal will allow the holders of shares of Class B Common Stock
to receive a higher consideration per share in the Merger than the holders of
shares of Class A Common Stock, as set forth in the Merger Agreement. The
amendments contained in the second proposal will permit the holders of shares
of Class A Common Stock to receive shares of Class A common stock of SFX
Entertainment in connection with the Spin-Off, and the holders of shares of
Class B Common Stock to receive shares of Class B common stock of SFX
Entertainment (with 10-1 voting rights similar to the Class B Common Stock of
the Company) in connection with the Spin-Off (the "Spin-Off Shares
Proposal"). The Company's stockholders will also be asked to transact any
other business that may properly come before the Special Meeting and any
adjournments or postponements thereof. The Company will disseminate to its
stockholders a proxy statement which describes in detail the proposals to be
acted upon at the Special Meeting.
The Company has been advised that Buyer intends to finance its obligations
under the Merger Agreement through one or more financing transactions, which
may include (but will not be limited to) the following: borrowings under a
senior bank facility, borrowings under one or more tranches of senior
subordinated debt, the issuance of one or more classes of preferred stock,
the issuance of one or more classes of equity securities and the issuance of
rights to purchase equity securities. Buyer's and Buyer Sub's obligations
under the Merger Agreement are not subject to any conditions regarding their
ability to obtain financing. In the Merger Agreement, Buyer and Buyer Sub
represented and warranted (assuming compliance by the Company and its
affiliates with the Merger Agreement and the documents relating to the
Spin-Off) that the surviving corporation in the Merger would have a
Consolidated Net Worth (as defined in the Indenture) immediately following
the Merger and a Debt to Cash Flow Ratio (as defined in the Indenture) at the
time of the Merger sufficient to comply with the applicable provisions of the
Indenture. There can be no assurance by the Company that the surviving
corporation in the Merger will remain in compliance with the provisions of
the Indenture after the Merger. Simultaneously with the execution of the
Merger Agreement, Buyer placed into escrow an irrevocable letter of credit
for $100.0 million, which amount will be released to the Company if the
Merger is not consummated for certain reasons.
Section 4.14 of the Indenture requires that upon the occurrence of a
"Change of Control," which is defined to include a merger which results in a
person becoming the beneficial owner of capital stock of the Company having
more than 35% of the combined voting power of all classes of voting stock of
the Company, each holder has the right to require the Company to make a
"Change of Control Offer." A Change of Control Offer is an offer by the
Company to repurchase all or any part of such holder's Notes at an offer
price in cash equal to 101% of their principal amount plus accrued and unpaid
interest, if any. The Merger will be a Change of Control and will require the
Surviving Corporation (as defined in the Merger Agreement) to make a Change
of Control Offer.
3
<PAGE>
SFX ENTERTAINMENT; THE SPIN-OFF
SFX Entertainment's core business is the promotion and production of live
entertainment events, most significantly for concert and other music
performances in venues owned and/or operated by SFX Entertainment and in
third-party venues. SFX Entertainment typically markets events and tours,
sells tickets, rents or otherwise provides event venues and arranges for
local production services (such as stage, set, sound and lighting).
SFX Entertainment was formed as a subsidiary of the Company in 1997. The
Company acquired Delsener/Slater Enterprises, Ltd. ("Delsener/Slater"), a New
York-based concert promotion company, in January 1997. Delsener/Slater will
be a wholly-owned subsidiary of SFX Entertainment. Delsener/Slater has
long-term leases or is the exclusive promoter for several of the major
concert venues in the New York City metropolitan area, including the Jones
Beach Amphitheater, an 11,200-seat complex located in Wantagh, New York, and
the PNC Bank Arts Center (formerly known as the Garden State Arts Center), a
10,800-seat complex located in Holmdel, New Jersey. In March 1997,
Delsener/Slater acquired a 37-year lease to operate the Meadows, a
25,000-seat indoor/outdoor complex located in Hartford, Connecticut. In June
1997, Delsener/Slater acquired Sunshine Promotions, Inc., a concert promoter
in the Midwest, and certain other related companies ("Sunshine Promotions").
As a result of the acquisition of Sunshine Promotions, SFX Entertainment owns
the Deer Creek Music Theater, a 21,000-seat complex located in Indianapolis,
Indiana, and the Polaris Amphitheater, a 20,000-seat complex located in
Columbus, Ohio, and has a long-term lease to operate the Murat Centre, a
2,700-seat theater and 2,200-seat ballroom located in Indianapolis, Indiana.
The following chart sets forth information with respect to venues
currently owned by SFX Entertainment. The Proposed Amendments would amend the
Indenture to release the Entertainment Guarantees and will make the
restrictive covenants of the Indenture generally inapplicable to SFX
Entertainment and its subsidiaries. Accordingly, the Holders of Notes will
lose the following venues as assets and the related cash flow associated with
such assets. See "Proposed Amendments."
<TABLE>
<CAPTION>
SFX TOTAL AVG. NO. TOTAL
MARKET TYPE OF ENTERTAINMENT'S SEATING ATTENDANCE EVENTS SEATS SOLD
MARKET AND VENUE RANK(1) VENUE INTEREST CAPACITY IN 1996 IN 1996 IN 1996
- ----------------------------- -------- -------------------- -------------------- ---------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
New York--Northern New
Jersey--
Long Island: 1
PNC Bank Arts Center
(formerly The Garden State
Arts Center)(Holmdel, NJ) . amphitheater 33 1/3% interest in 17,500(2) 6,512 48 312,595
22-year lease
(expires October 31,
2017)
Jones Beach Marine
Amphitheater (Wantagh, NY) . amphitheater 10-year license 14,000(2) 8,712 44 383,314
agreement (expires
December 31, 1999)
Roseland Theater............. theater exclusive booking 3,200 2,765 57 157,605
agent
Indianapolis: 28
Deer Creek Music Center ..... amphitheater owned 21,000 10,187 38 387,119
Murat Centre................. theater and ballroom 50-year lease 4,880 1,900 85 161,500(3)
(expires August 31,
2045)
Columbus: 30
Polaris Amphitheater......... amphitheater owned 20,000 6,751 38 256,553
Hartford: 36
Meadows Music Theater........ amphitheater facility owned; land 25,000 6,914 38 262,741
leased for 37 years
(expires September
13, 2034)
Rochester: 39
Finger Lakes Amphitheater ... amphitheater 3-year lease 12,700 4,203 15 63,044
(expires 1999)
</TABLE>
(1) Based on population of metropolitan statistical areas as set forth in
the 1996 Statistical Abstracts of the United States.
(2) Assumes completion of current expansion projects, which are anticipated
to be completed by summer 1998.
(3) Data shown are for 1997. Data for 1996 are unavailable.
4
<PAGE>
In December 1997, SFX Entertainment entered into agreements to acquire,
for an aggregate purchase price of approximately $482.8 million, consisting
of $352.8 million in cash, the assumption and repayment of $73.8 million of
debt and the issuance of approximately 4.2 million shares of SFX
Entertainment Class A common stock, the following live entertainment
businesses (collectively, the "Pending Acquisitions"):
PACE Entertainment Corporation ("PACE"), one of the largest
diversified producers and promotors of live entertainment in the
United States, having a large distribution network in the United
States in each of its music concerts, theatrical shows and
motorsports events businesses (the "PACE Acquisition"), for a total
purchase price of $155.0 million (including the issuance of capital
stock of SFX Entertainment valued by the parties at approximately $20
million and the assumption of $25.5 million of debt). In connection
with the PACE Acquisition, SFX Entertainment will obtain 100% of
Pavilion Partners (a partnership that owns interests in 10 venues,
"Pavilion"), by acquiring one-third through the acquisition of PACE
and the remaining two-thirds through separate agreements with Viacom,
Inc. and certain of its subsidiaries ("Blockbuster") and YM Corp.
("Sony") for a combined consideration of $89.4 million (including the
assumption of $48.3 million of liabilities for such two-third
interest (the acquisition of such two-thirds interest, the "Pavilion
Acquisition")). In connection with the PACE Acquisition, the Company
has agreed to loan to PACE up to $25.0 million to fund certain
acquisitions by PACE. If the PACE Acquisition Agreement is
terminated, under certain circumstances, the loan may be prepaid
without interest or converted into a five-year term loan. Unless the
Proposed Amendments are approved, such loan would violate the Note
Indenture. Neither the consummation of the PACE Acquisition nor the
Pavilion Acquisition is a condition precedent to the closing of the
other. Under certain circumstances, SFX Entertainment may be required
to sell either its motor sports or theatrical lines of business at
fair market value to a principal of PACE.
The Contemporary Group ("Contemporary"), a fully-integrated live
entertainment and special event producer, venue operator and consumer
marketer, for a total purchase price of $91.5 million (including
issuance of capital stock of SFX Entertainment valued by the parties
at $18.7 million) (the "Contemporary Acquisition"). In addition to
the venues that it owns or controls and operates, Contemporary is a
leading producer and tour developer of Christian performers, and is a
major promoter and producer of comedy tours;
BG Presents, Inc. ("BGP"), one of the oldest producers and promoters
of live entertainment in the United States and the principal promoter
of live entertainment in the San Francisco Bay area, for a total
purchase price of $68.3 million (including issuance of capital stock
of SFX Entertainment valued by the parties at $7.5 million or, at SFX
Entertainment's option, an equivalent amount in cash);
The Network Magazine Group, a leading publisher of trade magazines
for the radio broadcasting industry, and SJS Entertainment, a leading
independent creator, producer and distributor of music related radio
programming for a total purchase price of $62 million (including the
issuance of capital stock of SFX Entertainment valued by the parties
at approximately $10 million); and
Concert/Southern Promotions, a principal promoter of live
entertainment in the Atlanta metropolitan area, for a total purchase
price of $16.6 million (including payment of the $1.6 million present
value of a deferred liability).
The Company has (i) guaranteed all of SFX Entertainment's obligations
under the PACE Acquisition agreement until the payment of the cash portion of
the purchase price and the issuance and delivery of SFX Entertainment's
capital stock and (ii) in the acquisition of Network, guaranteed the payment
of the cash portion of the purchase price. The Company's guarantees of SFX
Entertainment's obligations under the agreement relating to the PACE
Acquisition will terminate upon the consummation of the Spin-Off. The
Company's guarantee of SFX Entertainment's obligations under the Network
Acquisition may survive the Spin-Off. In the event that the Company is
required to perform any of its guarantees, there can be no assurance that the
Company will be able to fund any such required payments.
5
<PAGE>
In connection with the Contemporary Acquisition, under certain
circumstances, SFX Entertainment will be required to issue shares of its
preferred stock with a redemption value of $18.7 million and, if the Spin-Off
does not occur before July 1, 1998, the preferred stock is required to be
redeemed for $18.7 million. The Company is required to guarantee the $18.7
million in the event that the Spin-Off does not occur prior to the closing of
the Contemporary Acquisition. This guarantee will terminate upon consummation
of the Spin-Off. Unless the Proposed Amendments are approved, issuance of the
preferred stock would violate the Note Indenture and the failure to issue the
preferred stock would be a default of the Contemporary Acquisition agreement.
While management believes that an amendment to the Contemporary Acquisition
agreement can be obtained, there can be no assurance that such amendment
would be forthcoming or the terms under which such amendment can be obtained.
SFX Entertainment expects to complete all of the Pending Acquisitions as
soon as practicable after the Financing and prior to the Merger. SFX
Entertainment anticipates that it will consummate all of the Pending
Acquisitions in the first quarter of 1998. However, the timing and completion
of the Pending Acquisitions are subject to a number of conditions, certain of
which are beyond the Company's control, and there can be no assurance that
such transactions will be completed during such periods on the terms
described herein, or at all.
Based on consultation with its advisors, and assuming the successful
completion of the Consent Solicitations, management of the Company believes
that SFX Entertainment will be able to consummate the Financing and the
Pending Acquisitions in compliance with the terms of the Indenture. SFX
Entertainment has made significant deposits and SFX Entertainment and the
Company have incurred significant contingent liabilities in connection with
the Pending Acquisitions. If the Financing is not consummated as a result of
the failure to obtain the Requisite Consents (or for any other reason) and
satisfactory alternative financing is unable to be arranged, SFX
Entertainment might not be able to consummate the Pending Acquisitions on the
terms currently contemplated and might be in default under the agreements
relating to the Pending Acquisitions. Such defaults might materially
adversely affect the financial position and prospects of the Company. None of
the Pending Acquisitions are subject to any condition regarding financing.
The Merger Agreement requires the Company to consummate the Spin-Off or an
Alternate Transaction (as defined in the Merger Agreement) prior to the
Merger Effective Time. If the Spin-Off Shares Proposal is approved at the
Special Meeting, SFX Entertainment will amend and restate its Certificate of
Incorporation to, among other things, increase its authorized capital stock
and will issue to the Company, in exchange for the issued and outstanding
shares of stock of SFX Entertainment then held by the Company, the number of
shares of SFX Entertainment's common stock necessary to consummate the
Spin-Off. The Company will then consummate the Spin-Off by distributing
shares of SFX Entertainment as a dividend to holders of Class A Common Stock,
Class B Common Stock, Series D Preferred Stock and certain warrants to
purchase Class A Common Stock. The Spin-Off is subject to a number of terms
and conditions, including obtaining consents of certain creditors and
preferred stockholders of the Company and apportioning assets (including
Working Capital, as defined in "The Spin-Off") and liabilities between the
Company and SFX Entertainment. As of September 30, 1997, the Company
estimates that Working Capital to be received by SFX Entertainment, would
have been approximately $2.1 million, and that approximately $135.5 million
of additional assets and $34.1 million of liabilities would have been
apportioned to SFX Entertainment.
If the Spin-Off is not permitted to occur due to certain legal or
contractual impediments (including the failure of the Company to obtain the
Requisite Consents), the Company may dispose of SFX Entertainment in an
Alternate Transaction. If the Company does not dispose of SFX Entertainment,
whether through the Spin-Off or an Alternate Transaction, the Buyer may elect
whether to consummate the Merger (in which case it will be required to
increase the consideration paid to holders of the Class A Common Stock and
Class B Common Stock by an aggregate of $42.5 million) or to terminate the
Merger Agreement. The Company's management believes that SFX Entertainment
has a value substantially in excess of $42.5 million and expects to
consummate the Spin-Off or otherwise dispose of SFX
6
<PAGE>
Entertainment prior to the Merger. In addition, even if the Merger or the
Financing do not occur for any reason, the Company intends to consummate the
Spin-Off. Although the approval of the Spin-Off Shares Proposal is necessary
in order to enable the Company to consummate the Spin-Off as currently
contemplated, stockholder approval of the Spin-Off is not required, and will
not be sought in connection with the Special Meeting.
7
<PAGE>
THE CONSENT SOLICITATION
Purpose of the Proposed
Amendments ................... The purpose of the Proposed Amendments is to
confirm the Company's interpretation of
"Consolidated Cash Flow" under the
Indenture, to waive any Default or Event of
Default that would have occurred, either
historically or prospectively, were the
Company's interpretation of the Indenture
incorrect and to permit (i) the Spin-Off,
(ii) the Financing, (iii) the release of the
Entertainment Guarantees and (iv) certain
other transactions. See "Proposed
Amendments."
Total Consent Fee ............. The Consent Fee will be $10.00 in cash for
each $1,000 in principal amount of Notes.
Promptly after the Effective Time, the
Company will make the Partial Payment of
$1.00 in cash for each $1,000 in principal
amount of the Notes to each Holder of Notes
as of the Record Date whose duly executed
and valid Consent is received prior to the
Effective Time.
Promptly after the Expiration Date, the
Company will make the Partial Payment to any
Holders who delivered Consents after the
Effective Time and prior to the Expiration
Date.
On the Final Consent Payment Date, the
Company will pay the balance of the Consent
Fee to Holders who previously received a
Partial Payment.
HOLDERS OF NOTES WHO DO NOT CONSENT TO THE
PROPOSED AMENDMENTS PRIOR TO THE EXPIRATION
DATE WILL NOT BE ELIGIBLE TO RECEIVE THE
CONSENT FEE EVEN THOUGH THE PROPOSED
AMENDMENTS WILL BE BINDING UPON THEM AT THE
OPERATIVE TIME.
Operative Time ................ The time when, pursuant to the terms of the
Supplemental Indenture, the Proposed
Amendments become operative, which is
expected to occur immediately prior to the
consummation of the first of any of the
Proposed Transactions.
In no event shall the Operative Time occur
after September 1, 1998.
Proposed Transactions ......... The Spin-Off, the Financing, the Meadows
Repurchase (as defined), the release of the
Entertainment Guarantees and the
transactions between the Company and SFX
Entertainment pursuant to the Tax Sharing
Agreement (as defined), the Distribution
Agreement (as defined) and the Acquisition
Agreements. See "--SFX Entertainment, The
Spin-Off."
Final Consent Payment Date .... Promptly after the Operative Time, which is
expected to occur immediately prior to the
consummation of any of the Proposed
Transactions.
Requisite Consents ............ The Consent of the Holders of a majority in
aggregate principal amount of the Notes
outstanding and not owned by the
8
<PAGE>
Company or any of its affiliates as of the
Record Date. As of the date of this Consent
Solicitation Statement, $450.0 million in
aggregate principal amount of Notes were
outstanding, none of which are held by the
Company or any of its affiliates.
Record Date ................... January 6, 1998. Holders of Notes as of the
close of business on the Record Date will be
entitled to notice of, and to consent to,
the Proposed Amendments.
Expiration Date ............... The term "Expiration Date" means 5:00 p.m.,
New York City time, on the later of (i)
January 21, 1998 and (ii) the date on which
the Supplemental Indenture is executed. The
Company reserves the right to terminate the
Consent Solicitation at any time and from
time to time, whether or not the Requisite
Consents have been received, by giving oral
or written notice to the Depository. Any
such termination will be followed as
promptly as practicable by notice thereof by
press release or other public announcement
(or by written notice to the Holders).
Effective Time ................ The Effective Time occurs upon the execution
of the Supplemental Indenture. After the
Effective Time, Consents will be
irrevocable.
Revocation of Consents ........ Prior to the Effective Time, any Holder (or
a duly designated proxy) may revoke any
Consent given as to its Notes, including any
Holder who acquires Notes subsequent to the
Record Date. Consents will become
irrevocable at the Effective Time. See "The
Consent Solicitation--Revocation of
Consents."
Consequences to Non-Consenting
Holders ...................... At the Effective Time, Consents will become
irrevocable. As of the Operative Time, all
then current holders of Notes, including
nonconsenting holders, and all subsequent
holders of Notes will be bound by the
Proposed Amendments.
Consent Procedures ............ Consents must be delivered to the Depository
before the Expiration Date. Only Holders
(i.e., persons in whose name a Note was
registered as of the Record Date or their
duly designated proxies) may execute and
deliver a Letter of Consent. The DTC is
expected to grant an omnibus proxy
authorizing the DTC Participants who held
Notes through the DTC as of the Record Date
to deliver Consents. Accordingly, for the
purposes of this Consent Solicitation
Statement, the term "Holder" will be deemed
to include DTC Participants who held Notes
through the DTC as of the Record Date. In
order to cause a Consent to be given,
Holders or their duly authorized proxies
must complete and sign the Consent Letter
and mail or deliver it to the Depository at
its address or facsimile set forth on the
back cover page of this Consent Solicitation
Statement pursuant to the procedures set
forth herein and therein. A beneficial owner
of Notes held through a DTC Participant must
(i) instruct the DTC Participant through
which it holds Notes to complete and sign
the Letter of Consent and deliver the Letter
of Consent to the Depository in order to
cause a Consent to be
9
<PAGE>
given with respect to such Notes or (ii)
obtain a properly executed proxy from such
DTC Participant and deliver the Letter of
Consent, together with the Consent, to the
Depository. See "The Consent
Solicitation--Consent Procedures."
HOLDERS OF NOTES WHO WANT TO CONSENT SHOULD
MAIL, HAND DELIVER, SEND BY OVERNIGHT
COURIER OR FAX PRIOR TO THE EXPIRATION DATE
THEIR PROPERLY COMPLETED AND EXECUTED
CONSENTS TO THE DEPOSITORY AT THE ADDRESS
SET FORTH ON THE BACK COVER PAGE HEREOF AND
ON THE LETTER OF CONSENT IN ACCORDANCE WITH
THE INSTRUCTIONS SET FORTH HEREIN AND
THEREIN. THE METHOD OF DELIVERY OF THE
CONSENTS TO THE DEPOSITORY IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL IT IS RECOMMENDED THAT
HOLDERS USE REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED
TO ASSURE TIMELY DELIVERY. CONSENTS SHOULD
BE DELIVERED TO THE DEPOSITORY, NOT TO THE
COMPANY, THE SOLICITATION AGENT OR THE
INFORMATION AGENT. HOWEVER, THE COMPANY
RESERVES THE RIGHT TO ACCEPT ANY CONSENT
RECEIVED BY THE COMPANY, THE SOLICITATION
AGENT OR THE INFORMATION AGENT. IN NO EVENT
SHOULD A HOLDER TENDER OR DELIVER ANY NOTES.
Conditions to the Consent
Solicitation ................. Once commenced, the continuation of the
Consent Solicitation and the occurrence of
the Operative Time are conditioned upon
(subject to waiver by the Company) the
successful completion of the Series E
Consent Solicitation and the absence of any
(i) law or regulation and (ii) injunction or
action or other proceeding (pending or
threatened) that (in the case of any action
or proceeding, if adversely determined)
would, make unlawful or invalid or enjoin
the implementation of the Proposed
Amendments, the entering into of the
Supplemental Indenture or the payment of the
Consent Fee, or that questions the legality
or validity thereof, or otherwise adversely
affects the Spin-Off or any of the
transactions described herein for which a
Consent is sought.
Solicitation Agent ............ The Company has retained Lehman Brothers
Inc. ("Lehman Brothers") to act as the
Solicitation Agent in connection with the
Consent Solicitation. The Solicitation Agent
will solicit Consents and will respond to
inquiries of Holders and will receive a
customary fee for such services.
Information Agent ............. The Company has retained D.F. King & Co.,
Inc. as Information Agent in connection with
the Consent Solicitation. The
10
<PAGE>
Information Agent will distribute
Solicitation Documents, respond to inquiries
and receive a customary fee for such
services.
Requests for additional copies of this
Consent Solicitation Statement or the Letter
of Consent may be directed to the
Solicitation Agent or the Information Agent
at their respective addresses and/or
telephone numbers set forth on the back
cover of this Consent Solicitation
Statement.
The Depository ................ The Company has retained the Chase Manhattan
Bank as Depository in connection with the
Consent Solicitation. The Depository will
receive, collect and tabulate Consents. The
Depository will receive a customary fee for
such services and reimbursement for
reasonable out-of-pocket expenses.
Certain Federal Income Tax
Consequences ................. For a summary of the material United States
Federal income tax consequences to Holders
of the Proposed Amendments and the Consent
Fee, see "Certain Federal Income Tax
Consequences."
11
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF THE COMPANY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Summary Consolidated Financial Data of the Company includes the
historical financial statements of Capstar Communications, Inc., a
predecessor of the Company ("Capstar"), and the historical financial
statements of the Company since its formation on February 26, 1992. The
financial information presented below should be read in conjunction with the
information set forth in "Unaudited Pro Forma Condensed Combined Financial
Statements" and the notes thereto and the financial statements and the notes
of the Company incorporated by reference in this Information Statement. The
financial information has been derived from the audited and unaudited
financial statements of the Company and the entities acquired or to be
acquired by the Company since January 1, 1996. The pro forma summary data as
of September 30, 1997 and for the year ended December 31, 1996 and the nine
months ended September 30, 1997 are derived from the unaudited pro forma
condensed combined financial statements which, in the opinion of the
management, reflect all adjustments necessary for a fair presentation of the
transactions for which such pro forma financial information is given.
Operating results for the nine months ended September 30, 1997, are not
necessarily indicative of the results that may be achieved for the fiscal
year ending December 31, 1997. The historical consolidated financial results
for the Company are not comparable from year to year because of the
acquisition and disposition of various business operations during the periods
covered.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
PRO FORMA
FOR THE RECENT PRO FORMA
AND PENDING FOR THE
TRANSACTIONS(8) SPIN-OFF(9)
(UNAUDITED) (UNAUDITED)
1992 1993 1994 1995 1996 1996 1996
-------- --------- ------- -------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcasting revenue......... $15,003 $ 34,233 $55,556 $76,830 $143,061 $ 272,694 $272,694
Concert promotion revenue........ -- -- -- -- -- 552,100 --
Station and other operating
expenses........................ 9,624 21,555 33,956 51,039 92,816 184,267 184,267
Concert promotion operating
expenses........................ -- -- -- -- -- 508,357 --
Depreciation, amortization,
duopoly integration costs and
acquisition related costs(1) ... 3,208 4,475 5,873 9,137 17,311 85,451 47,656
Corporate expenses............... 769 1,808 2,964 3,797 6,313 8,000 5,000
Non-recurring charges including
adjustments to broadcast rights
agreement(2)(3)(4)(5)........... -- 13,980 -- 5,000 28,994 25,662 25,662
-------- --------- ------- -------- --------- -------------- ---------
Operating income (loss).......... 1,402 (7,585) 12,763 7,857 (2,373) 13,057 10,109
Investment and other (income)
loss/net........................ -- (17) 121 (650) (2,117) (4,933) (2,756)
Equity (income) loss from
investments..................... -- -- -- -- -- (3,744) --
Interest expense, including
amortization of deferred
financing costs................. 3,610 7,351 9,332 12,903 34,897 115,003 71,613
-------- --------- ------- -------- --------- -------------- ---------
Income (loss) before income
taxes, extraordinary item and
cumulative effect of a change
in accounting principle......... (2,208) (14,919) 3,310 (4,396) (35,153) (93,269) (58,748)
Income tax expense (benefit) .... -- 1,015 1,474 -- 480 3,500 2,000
Extraordinary loss on debt
retirement...................... -- 1,665 -- -- 15,219 -- --
Cumulative effect of a change in
accounting principle............ -- 182 -- -- -- -- --
-------- --------- ------- -------- --------- -------------- ---------
Net income (loss)................ (2,208) (17,781) 1,836 (4,396) (50,852) (96,769) (60,748)
Redeemable preferred stock
dividends and accretion(6) ..... 385 557 348 291 6,061 38,124 38,124
-------- --------- ------- -------- --------- -------------- ---------
Net income (loss) applicable to
common stock.................... $(2,593) $(18,338) $ 1,488 $(4,687) $(56,913) $(134,893) $(98,872)
======== ========= ======= ======== ========= ============== =========
Net income (loss) per share ..... $ (2.20)$ (7.08) $ 0.26 $ (0.71) $ (7.52) $ (8.52) $ (6.24)
======== ========= ======= ======== ========= ============== =========
Weighted average common shares
outstanding..................... 1,179 2,589 5,792 6,596 7,564 15,840 15,840
OTHER OPERATING DATA: (7)
Broadcast Cash Flow.............. $ 5,379 $ 12,678 $21,600 $25,791 $ 50,245 $ 88,427 $ 88,427
Concert Cash Flow................ -- -- -- -- -- 43,743 --
EBITDA........................... 4,610 10,870 18,636 21,994 43,932 127,914 83,427
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
PRO FORMA
FOR THE RECENT PRO FORMA
AND PENDING FOR THE
ACTUAL ACTUAL TRANSACTIONS(8) SPIN-OFF(9)
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
1996 1997 1997 1997
--------- --------- -------------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcasting revenue......... $ 92,840 $188,984 $222,731 $222,731
Concert promotion revenue........ -- 75,740 501,489 --
Station and other operating
expenses........................ 61,448 115,871 142,935 142,935
Concert promotion operating
expenses........................ -- 63,394 442,199 --
Depreciation, amortization,
duopoly integration costs and
acquisition related costs(1) ... 10,663 31,429 61,677 33,299
Corporate expenses............... 4,475 6,849 8,698 5,891
Non-recurring charges including
adjustments to broadcast rights
agreement(2)(3)(4)(5)........... 27,489 17,995 17,995 17,995
--------- --------- -------------- ---------
Operating income (loss).......... (11,235) 29,186 50,717 22,612
Investment and other (income)
loss/net........................ (3,320) (2,692) (2,716) (2,482)
Equity (income) loss from
investments..................... -- -- (8,937) --
Interest expense, including
amortization of deferred
financing costs................. 22,169 46,438 86,054 53,555
--------- --------- -------------- ---------
Income (loss) before income
taxes, extraordinary item and
cumulative effect of a change
in accounting principle......... (30,084) (14,560) (23,684) (28,461)
Income tax expense (benefit) .... -- 845 4,500 1,000
Extraordinary loss on debt
retirement...................... 15,219 -- -- --
Cumulative effect of a change in
accounting principle............ -- -- -- --
--------- --------- -------------- ---------
Net income (loss)................ (45,303) (15,405) (28,184) (29,461)
Redeemable preferred stock
dividends and accretion(6) ..... 3,551 27,723 28,906 28,906
--------- --------- -------------- ---------
Net income (loss) applicable to
common stock.................... $(48,854) $(43,128) $(57,090) $(58,367)
========= ========= ============== =========
Net income (loss) per share ..... $ (6.61) $ (4.61) $ (3.60) $ (3.68)
========= ========= ============== =========
Weighted average common shares
outstanding..................... 7,394 9,364 15,840 15,840
OTHER OPERATING DATA: (7)
Broadcast Cash Flow.............. $ 31,392 $ 73,113 $ 79,796 $ 79,796
Concert Cash Flow................ -- 12,346 59,290 --
EBITDA........................... 26,917 78,610 139,325 73,906
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30, 1997
---------------------------------------------------------------------------------------------
PRO FORMA FOR PRO FORMA
THE PENDING FOR THE
ACTUAL TRANSACTIONS(10) SPIN-OFF(11)
1992 1993 1994 1995 1996 (UNAUDITED) (UNAUDITED) (UNAUDITED)
--------- --------- --------- --------- --------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.............. $ 4,515 $ 31,273 $ 28,367 $ 30,949 $ 88,689 $ 140,689 $ 245,826 $ 128,500
Total assets................ 36,127 152,871 145,808 187,337 859,327 1,392,887 2,003,064 1,243,018
Long-term debt.............. 39,011 81,627 81,516 81,850 481,460 784,255 1,216,522 731,501
Redeemable Preferred Stock:
Series A Preferred Stock .. 3,892 917 -- -- -- -- -- --
Series B Preferred Stock .. -- 2,784 2,466 1,735 917 998 998 998
Series C Preferred Stock .. -- -- -- 1,550 1,636 1,703 1,703 1,703
Series D Preferred Stock .. -- -- -- -- 149,500 149,500 149,500 149,500
Series E Preferred Stock .. -- -- -- -- -- 215,636 215,636 215,636
Stockholders' equity
(deficiency)............... (9,411) 48,598 48,856 83,061 94,517 69,554 134,215 (9,008)
</TABLE>
- ------------
(1) Includes $1,380,000, $1,137,000 and $565,000 of duopoly integration
costs and related acquisition costs incurred during the years ended
December 31, 1995 and 1996 and the nine months ended September 30,
1997, respectively.
(2) In 1993, non-recurring charges related to the valuation of common
stock issued to the Company's founders at the Company's initial
public offering in September 1993 and certain pooling costs related
to the merger of Capstar with and into a subsidiary of the Company.
(3) In 1995, a $5.0 million charge was incurred with respect to the
diminished value of a contract to broadcast the Texas Rangers.
(4) In 1996, the non-recurring charges represent the repurchase of stock
from and the forgiveness of a loan to the Company's former president,
a reserve of a loan and the issuance of warrants to a related party,
the purchase of an officer's options and a charge related to the
termination of a broadcast rights agreement.
(5) In 1997, the non-recurring and unusual charges, consist of $11.6
million of executive bonuses, the establishment of a reserve for a
loan from the Company's Executive Chairman of $2.6 million and $3.8
million of legal and professional fees associated with the pending
Spin-Off and Merger.
(6) Includes dividends on preferred stock which the Company redeemed in
1993, accretion on outstanding redeemable preferred stock, dividends
on the Series D Preferred Stock and dividends on the Series E
Preferred Stock.
(7) "Broadcast Cash Flow" means net revenues less station operating
expenses. "Concert Cash Flow" means concert revenues less concert
costs. "EBITDA" means net income (loss) before (i) extraordinary
items, (ii) provisions for income taxes, (iii) interest (income)
expense, (iv) other (income) expense, (v) cumulative effects of
changes in accounting principles, (vi) depreciation, amortization,
duopoly integration costs and acquisition related costs and (vii)
non-recurring charges. The difference between Broadcast Cash Flow and
EBITDA is that EBITDA reflects the impact of corporate expenses.
Although Broadcast Cash Flow, Concert Cash Flow and EBITDA are not
measures of performance calculated in accordance with GAAP, the
Company believes that Broadcast Cash Flow, Concert Cash Flow and
EBITDA are accepted by the broadcasting and entertainment industries
as generally recognized measures of performance and are used by
analysts who report publicly on the performance of such companies.
Nevertheless, these measures should not be considered in isolation or
as a substitute for operating income, net income, net cash provided
by operating activities or any other measure for determining the
Company's operating performance or liquidity which is calculated in
accordance with GAAP.
(8) The unaudited pro forma Statement of Operations Data for the Recent
and Pending Transactions for the nine months ended September 30,
1997, and the year ended December 31, 1996, are presented as if the
Company had completed the Recent and Pending Transactions as of
January 1, 1996. The terms "Recent Transactions" and "Pending
Transactions" are defined in the Glossary included in the Unaudited
Pro Forma Condensed Combined Financial Statements attached hereto.
(9) The unaudited pro forma Statement of Operations for the Spin-Off for
the nine months ended September 30, 1997, and the year ended December
31, 1996 are presented as if the Company had completed the Merger.
(10) The unaudited pro forma Balance Sheet Data at September 30, 1997, is
presented as if the Company had completed the Pending Transactions as
of September 30, 1997. The term "Pending Transactions" is defined in
the Glossary included in the Unaudited Pro Forma Condensed Combined
Financial Statements attached hereto.
(11) The unaudited pro forma Balance Sheet Data at September 30, 1997, is
presented as if the Company had completed the Spin-Off as of
September 30, 1997.
13
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA FOR SFX ENTERTAINMENT, INC.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Summary Consolidated Financial Data of SFX Entertainment includes the
historical financial statements of Delsener/Slater Enterprises, Ltd. and
affiliated companies, the predecessor of SFX Entertainment
("Delsener/Slater") for each of the five years ended December 31, 1996 and
the nine months ended September 30, 1996, and the historical financial
statements of SFX Entertainment for the nine months ended September 30, 1997.
The financial information presented below should be read in conjunction with
the information set forth in "Unaudited Pro Forma Condensed Combined
Financial Statements" and the notes thereto and the historical financial
statements and the notes of SFX Entertainment, the Recent Acquisitions and
the Pending Acquisitions included herein. The financial information has been
derived from the audited and unaudited financial statements of SFX
Entertainment, the Recent Acquisitions and the Pending Acquisitions. The pro
forma summary data as of September 30, 1997 and for the year ended December
31, 1996 and the nine months ended September 30, 1997 are derived from the
unaudited pro forma condensed combined financial statements which, in the
opinion of management, reflect all adjustments necessary for a fair
presentation of the transactions for which such pro forma financial
information is given. Operating results for the nine months ended September
30, 1997 are not necessarily indicative of the results that may be achieved
for the fiscal year ending December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
PREDECESSOR (ACTUAL)
--------------------------------------------------------
1996 (1)
1992 1993 PRO FORMA
(UNAUDITED) (UNAUDITED) 1994 1995 1996 (UNAUDITED)
----------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue................... $38,017 $46,526 $92,785 $47,566 $50,362 $552,100
Operating expenses........ 36,631 45,635 90,598 47,178 50,687 508,357
Depreciation &
amortization............. 758 762 755 750 747 37,795
Corporate expenses (2) ... -- -- -- -- -- 3,000
----------- ----------- --------- --------- --------- -----------
Operating income (loss) .. 628 129 1,432 (362) (1,072) 2,948
Interest expense.......... (171) (148) (144) (144) (60) (43,390)
Other income.............. 74 85 138 178 198 2,177
Equity income (loss) from
investments.............. -- -- (9) 488 525 3,744
----------- ----------- --------- --------- --------- -----------
Income (loss) before
income taxes............. 531 66 1,417 160 (409) (34,521)
Income tax (provision)
benefit.................. (32) (57) (5) (13) (106) (1,500)
----------- ----------- --------- --------- --------- -----------
Net income (loss)......... $ 499 $ 9 $ 1,412 $ 147 $ (515) $(36,021)
=========== =========== ========= ========= ========= ===========
Net income (loss) per
common shares............ $ (1.80)
===========
Average common shares
outstanding.............. 20,056
===========
OTHER OPERATING DATA:
EBITDA (3)................ $ 2,187 $ 388 $ (325) $ 40,743
Adjusted EBITDA (4)....... $ 55,524
Cash flow from
operations............... $ 2,959 $ (453) $14,214
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
PREDECESSOR
-------------
1996 1997 1997 (1)
ACTUAL ACTUAL PRO FORMA
(UNAUDITED) (UNAUDITED) (UNAUDITED)
------------- ----------- -----------
<S> <C> <C> <C>
Revenue................... $41,609 $74,396 $501,489
Operating expenses........ 42,931 63,045 442,199
Depreciation &
amortization............. 744 4,041 28,378
Corporate expenses (2) ... -- 1,307 2,807
------------- ----------- -----------
Operating income (loss) .. (2,066) 6,003 28,105
Interest expense.......... (60) (956) (32,499)
Other income.............. 143 213 234
Equity income (loss) from
investments.............. 525 1,344 8,937
------------- ----------- -----------
Income (loss) before
income taxes............. (1,458) 6,604 4,777
Income tax (provision)
benefit.................. (79) (2,952) (3,500)
------------- ----------- -----------
Net income (loss)......... $(1,537) $ 3,652 $ 1,277
============= =========== ===========
Net income (loss) per
common shares............ $ 0.06
===========
Average common shares
outstanding.............. 20,056
===========
OTHER OPERATING DATA:
EBITDA (3)................ $(1,322) $10,044 $ 56,483
Adjusted EBITDA (4)....... $ 68,754
Cash flow from
operations............... $ 2,761 $ 789
</TABLE>
14
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF SFX ENTERTAINMENT, INC.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1997
------------------------------------------- -------------------------
PREDECESSOR (ACTUAL)
-------------------------------------------
1993 1994 ACTUAL PRO FORMA
UNAUDITED UNAUDITED 1995 1996 (UNAUDITED) (UNAUDITED)(5)
----------- ----------- -------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Current assets.............. $1,823 $4,453 $3,022 $6,191 $ 12,189 $117,326
Property and equipment,
net........................ 4,484 3,728 2,978 2,231 55,882 185,371
Intangible assets, net ..... -- -- -- -- 59,721 415,374
Total assets................ 6,420 8,222 6,037 8,879 135,470 760,046
Current liabilities......... 4,356 3,423 3,138 7,973 11,333 91,640
Long-term debt.............. -- 1,830 -- -- 16,453 485,021
Temporary Equity (6)........ -- -- -- -- -- 16,500
Stockholders' equity........ 6,420 2,969 2,900 907 101,378 143,223
</TABLE>
- ------------
(1) The Unaudited Pro Forma Statement of Operations Data for the year ended
December 31, 1996 and the nine months ended September 30, 1997, are
presented as if SFX Entertainment had completed the Pending
Acquisitions, the Recent Acquisitions and the Financing as of January
1, 1996.
(2) Corporate expenses are reduced by $3,000,000 and $1,693,000 of fees
from Triathlon Broadcasting Company ("Triathlon") for the year ended
December 31, 1996 (pro forma) and for the nine months ended September
30, 1997, respectively. These fees are to be assigned to SFX
Entertainment by the Company in connection with the Spin-Off.
(3) "EBITDA" is defined as earnings before interest, taxes, depreciation
and amortization. Although EBITDA is not a measure of performance
calculated in accordance with generally accepted accounting principals
("GAAP"), SFX Entertainment believes that EBITDA is accepted by the
entertainment industry as a generally recognized measure of performance
and is used by analysts who report publicly on the performance of
entertainment companies. Nevertheless, this measure should not be
considered in isolation or as a substitute for operating income, net
income, net cash provided by operating activities or any other measure
for determining SFX Entertainment's operating performance or liquidity
which is calculated in accordance with GAAP.
(4) Adjusted EBITDA represents EBITDA, as defined, adjusted for
nonrecurring charges including a litigation settlement recorded by PACE
and Pavilion Partners, expected cost savings associated with the
elimination of duplicative staffing and general and administrative
expenses and includes equity income (loss) from investments and
excludes minority interest in income.
While management believes that such cost savings and the elimination of
non-recurring expenses are achievable, SFX Entertainment's ability to
fully achieve such cost savings and to eliminate the non-recurring
expenses is subject to numerous factors certain of which may be beyond
SFX Entertainment's control.
(5) The Unaudited Pro Forma Balance Sheet Data at September 30, 1997 is
presented as if SFX Entertainment had completed the Pending
Acquisitions and the Financing as of September 30, 1997.
(6) The PACE Acquisition agreement provides that each PACE Seller shall
have an option (a "Fifth Year Put Option"), exercisable during a period
beginning on the fifth anniversary of the closing of the PACE
Acquisition and ending 90 days thereafter, to require SFX Entertainment
to purchase up to one-third of SFX Entertainment's Class A common stock
received by such PACE seller (500,000 shares) for a cash purchase price
of $33.00 per share. With certain limited exceptions, the Fifth Year
Put Option rights are not assignable by the PACE sellers. The maximum
amount payable under the Fifth Year Put Option ($16.5 million) has been
presented as temporary equity on the pro forma balance sheet.
15
<PAGE>
CERTAIN CONSIDERATIONS
Holders of Notes should carefully consider the factors set forth below as
well as the other information set forth in and incorporated by reference in
this Consent Solicitation Statement prior to marking and returning a Consent.
CONSEQUENCES OF NOT OBTAINING THE REQUISITE CONSENTS
Based on consultation with its advisors, and assuming the successful
completion of the Consent Solicitations, management of the Company believes
that SFX Entertainment will be able to consummate the Financing and the
Pending Acquisitions in compliance with the terms of the Indenture. SFX
Entertainment has made significant deposits and SFX Entertainment and the
Company have incurred significant contingent liabilities in connection with
the Pending Acquisitions. If the Financing is not consummated as a result of
the failure to obtain the Requisite Consents (or for any other reason) and
satisfactory alternative financing is unable to be arranged, SFX
Entertainment might not be able to consummate the Pending Acquisitions on the
terms currently contemplated and might be in default under the agreements
relating to the Pending Acquisitions. Such defaults might materially
adversely affect the financial position and prospects of the Company. None of
the Pending Acquisitions are subject to any condition regarding financing.
The Proposed Amendments will confirm the Company's interpretation of
"Consolidated Cash Flow" and will waive any Default or Event of Default and
any and all consequences under the Indenture that would have occurred, either
historically or prospectively, were the Specified Charges (as defined) not
appropriately added back in calculating Consolidated Cash Flow. Regardless of
whether the Company receives the Requisite Consents, the Company intends to
continue to interpret "Consolidated Cash Flow" in the same manner in the
future. For example, the Company expects to incur substantial additional
nonrecurring and unusual charges in connection with the Merger, Spin-Off and
Consent Solicitations, and the Company believes that it is appropriate to add
back these charges in calculating Consolidated Cash Flow going forward. If,
however, the Company's interpretation is incorrect and the Specified Charges
cannot be added back to Consolidated Cash Flow, then the Company's ability to
incur additional indebtedness will be reduced. The reduction in the Company's
ability to incur additional indebtedness and the existence of an Event of
Default under the Indenture would materially affect the financial condition
and prospects of the Company.
CERTAIN CONSIDERATIONS ASSOCIATED WITH THE MERGER
The Company has been advised that Buyer intends to finance its obligations
under the Merger Agreement through one or more financing transactions.
Buyer's and Buyer Sub's obligations under the Merger Agreement are not
subject to any conditions regarding their ability to obtain financing. In the
Merger Agreement, Buyer and Buyer Sub represented and warranted (assuming
compliance by the Company and its affiliates with the merger and the
documents relating to the Spin-Off) that the surviving corporation in the
Merger would have a Consolidated Net Worth immediately following the Merger
and a Debt to Cash Flow Ratio at the time of the Merger sufficient to comply
with the applicable provisions of the Indenture. There can be no assurance by
the Company that the surviving corporation in the merger will remain in
compliance with the provisions of the Indenture after the Merger.
The "Merger, Consolidation, or Sale of Assets" section of the Indenture
restricts the Company's ability to merge unless the Incurrence Test is
satisfied and no Default or Event of Default is then existing. Based upon the
Company's interpretation of Consolidated Cash Flow, the Company believes that
it will meet the Incurrence Test and that no Default or Event of Default will
exist at the time of the Merger; however, if the Company's interpretation of
"Consolidated Cash Flow" is incorrect and the Specified Charges cannot be
added back to Consolidated Cash Flow, then the Company's ability to
consummate the Merger would be restricted by the Indenture.
CERTAIN FINANCIAL CONSIDERATIONS
The Company has historically had access to the cash flow generated by, and
the assets held by, SFX Entertainment. Subsequent to the Spin-Off, the
Company will not have the benefit of either the cash flow
16
<PAGE>
generated by, or the assets of, SFX Entertainment. SFX Entertainment is
expected to have substantial value, and such value is likely to increase
pending consummation of the Spin-Off.
The Company has, and immediately after the Spin-Off, will continue to
have, significant interest expense and principal repayment obligations. In
addition, subject to the restrictions contained in the instruments governing
the Company's indebtedness and preferred stock, the Company may incur
additional indebtedness from time to time to finance acquisitions, for
capital expenditures or for other purposes.
The Company is, and after the Spin-Off will continue to be, highly
leveraged. Assuming the Spin-Off had been consummated as of September 30,
1997, on a pro forma basis the Company would have had total long-term debt of
approximately $731.5 million and a stockholders' deficit of $9.0 million
(exclusive of redeemable preferred stock of approximately $367.8 million),
compared with the Company's actual long-term debt of $784.3 million and total
stockholders' equity of approximately $69.6 million (exclusive of redeemable
preferred stock of approximately $367.8 million) as of September 30, 1997.
The Company's stockholders equity will be substantially reduced as a result
of the Spin-Off. The degree to which the Company is leveraged could have
material consequences to the Company and the holders of the Company's debt
and equity securities, including, but not limited to, the following: (i) the
Company's ability to obtain additional financing in the future for
acquisitions, working capital, capital expenditures, general corporate or
other purposes may be impaired; (ii) a substantial portion of the Company's
cash flow from operations will be dedicated to the payment of the principal
and interest on its debt and dividends on outstanding preferred stock and
will not be available for other purposes; (iii) the agreements governing the
Company's long-term debt contain restrictive financial and operating
covenants, and the failure by the Company to comply with such covenants could
result in an event of default under the applicable instruments, which could
permit acceleration of the debt under such instrument and in some cases
acceleration of debt under other instruments that contain cross-default or
cross-acceleration provisions and (iv) the Company's level of indebtedness
could make it more vulnerable to economic downturns, limit its ability to
withstand competitive pressures and limit its flexibility in reacting to
changes in its industry and general economic conditions. Certain of the
Company's competitors operate on a less leveraged basis and have
significantly greater operating and financial flexibility than the Company.
The Company's ability to make scheduled payments of principal of, to pay
interest on or to refinance, its debt, to make dividend, conversion or
redemption payments on its preferred stock depends on its future financial
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors beyond its
control. Although management of the Company has not assessed cash flow
requirements beyond the anticipated closing of the Merger, based on the
Company's current level of operations and anticipated improvements,
management believes that the Company will be able to satisfy requirements for
working capital, capital expenditures and scheduled interest, principal,
dividend, and redemption payments through the closing of the Merger. There
can be no assurance that the Company's business will generate sufficient cash
flow from operations, that anticipated improvements in operating results will
be achieved or that future working capital borrowings will be available in an
amount to enable the Company to service its debt, to make dividend,
conversion and redemption payments and to make necessary capital or other
expenditures. The Company may be required to refinance a portion of the
principal amount of its indebtedness, or the aggregate liquidation preference
of its preferred stock prior to their maturities. There can be no assurance
that the Company will be able to raise additional capital through the sale of
securities, the disposition of assets or otherwise for any such refinancing.
CERTAIN TAX CONSIDERATIONS
For a discussion of certain federal income tax considerations relating to
the Proposed Amendments and the receipt of the Consent Fee by Holders, see
"Certain Federal Income Tax Consequences."
ALTERATION OF COVENANT PROTECTION
The Proposed Amendments would amend the Indenture to waive any Default or
Event of Default and any and all consequences under the Indenture that would
have occurred, either historically or
17
<PAGE>
prospectively, were the Company's interpretation of the Indenture incorrect
and to permit the Spin-Off, the Financing, the release of the Entertainment
Guarantees and certain other transactions. In addition, SFX Entertainment and
its subsidiaries would be exempted from the restrictive covenants of the
Indenture. The Proposed Amendments would also exempt from restrictions on
affiliate transactions the distribution agreement (the "Distribution
Agreement") described in this Consent Solicitation Statement, the tax sharing
agreement (the "Tax Sharing Agreement") that is contemplated pursuant to the
Merger Agreement and certain contingent obligations of the Company under the
acquisition agreements relating to each of the Pending Acquisitions (the
"Acquisition Agreements") or under instruments contemplated by the
Acquisition Agreements. The Proposed Amendments would permit the Company to
disregard the Spin-Off when calculating the amount of restricted payments
available under the Indenture following the Spin-Off. As a result of the
Proposed Amendments, the holders of Notes will be deemed to have confirmed
the Company's interpretation of "Consolidated Cash Flow" and to have waived
any Default or Event of Default and any and all consequences under the
Indenture, that would have occurred, either historically or prospectively,
were the Company's interpretation of the Indenture incorrect.
POTENTIAL CONFLICTS
Subsequent to the Spin-Off, the interests of SFX Entertainment and the
Company may potentially conflict due to the ongoing relationships between the
companies. If the Spin-Off occurs prior to the closing date of the Merger,
the Company's senior management and certain other employees of the Company
will devote such time as they deem reasonably necessary to conduct the
operations of SFX Entertainment while continuing to serve in their present
capacities with the Company. Immediately prior to the effective time of the
Merger, SFX Entertainment will assume the Company's obligations under such
employees' existing employment agreements (except for certain obligations
relating to change of control options and certain existing rights of
indemnification). In addition, pursuant to the Merger Agreement, prior to the
Merger, the Company will transfer to SFX Entertainment any positive Working
Capital (as defined in the Merger Agreement) or, if Working Capital is
negative, SFX Entertainment will be required to pay the amount of the
shortfall to the Company. In certain circumstances, management may have
conflicts between their responsibilities to the Company and to SFX
Entertainment. In addition, if the Spin-Off occurs and the Merger is not
consummated, senior management of the Company may become employed by SFX
Entertainment, thereby requiring the Company to seek a new management team.
FRAUDULENT TRANSFER AND PREFERENCE CONSIDERATIONS; LEGAL DIVIDEND
REQUIREMENTS
The Company does not intend to consummate the Spin-Off unless it is
satisfied regarding the solvency of the Company and SFX Entertainment and the
permissibility of the Spin-Off under Section 170 of the Delaware General
Corporation Law ("DGCL"). There is no certainty, however, that a court would
find the evidence relied on by the Company to be binding on creditors of the
Company or SFX Entertainment or that a court would reach the same conclusions
suggested by such evidence in determining whether the Company or SFX
Entertainment was solvent or insolvent at the time of, or after giving effect
to, the Spin-Off.
If a court in a lawsuit filed by an unpaid creditor or representative of
unpaid creditors, such as a trustee in bankruptcy, were to find that at the
time the Spin-Off was consummated or the Consent Fee was paid, the Company or
the Concert Business, as the case may be, (i) was insolvent, (ii) was
rendered insolvent by reason of the Spin-Off or the Consent Fee, (iii) was
engaged in a business or transaction for which the remaining assets of the
Company, or SFX Entertainment, as the case may be, constituted unreasonably
small capital or (iv) intended to incur, or believed it would incur, debts
beyond its ability to pay as such debts matured, such court may be asked to
void the Spin-Off and/or the Consent Fee (in whole or in part) as a
fraudulent conveyance and require that the stockholders return the special
dividend (in whole or in part) to the Company or require that Holders who
receive the Consent Fee pursuant to the Consent Solicitation and in certain
cases their transferees to turn over to the Company's trustee in bankruptcy
or to the Company as a debtor in possession, for the benefit of the Company's
creditors, such Consent Fee or may subject the assets transferred to SFX
Entertainment to an obligation to fund certain liabilities of the Company for
the benefit of the Company's creditors. If the assets of SFX Entertainment
18
<PAGE>
were recovered as fraudulent transfers by a creditor or trustee of the
Company, the relative priority of payment of creditors of the Company and SFX
Entertainment would be unclear and SFX Entertainment could be rendered
insolvent. The measure of insolvency for purposes of the foregoing will vary
depending upon the jurisdiction whose law is being applied. Generally,
however, the Company or SFX Entertainment, as the case may be, would be
considered insolvent if the fair value of their respective assets were less
than the amount of their respective liabilities or if they incurred debts
beyond their ability to repay such debts as they mature. In addition, under
Section 170 of the DGCL (which is applicable to the Company in the Spin-Off)
a corporation generally may make the Spin-Off to its stockholders only out of
its surplus (net assets minus capital) and not out of capital.
The Company and management believe that in accordance with the evidence
examined in connection with the Spin-Off, (i) the Company and SFX
Entertainment will be solvent at the time of the Spin-Off (in accordance with
the foregoing definitions), will be able to repay their debts as they mature
following the Spin-Off and will have sufficient capital to carry on their
respective businesses and (ii) the Spin-Off will be made entirely out of
surplus, as provided under Section 170 of the DGCL.
Separate and apart from any fraudulent transfer risk, the Consent Fee may
also be subject to challenge as preference payments under the federal
bankruptcy laws if such payments (i) are made within 90 days (or one year, if
the relevant recipient is an insider of the Company) prior to a bankruptcy
filing by or against the Company, (ii) are made when the Company is insolvent
and (iii) permit the relevant recipient to receive more than it otherwise
might receive in a Chapter 7 liquidation under the bankruptcy laws. If such
payment were deemed to be a preference, such payment could be recovered by
the Company's trustee in bankruptcy or the Company as a debtor in possession,
and the recipient whose payments were recovered would have claims against the
Company. With respect to the potential fraudulent transfer and preference
claims described above, the Company believes that it is not insolvent and
that it would not be rendered insolvent by making the Consent Fee or the
Spin-Off under the conditions described herein.
CONSEQUENCES TO NON-CONSENTING HOLDERS
Holders who do not timely consent to the Proposed Amendments prior to the
Expiration Date will not be eligible to receive the Consent Fee even though
the Proposed Amendments will be binding upon them at the Operative Time.
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THE CONSENT SOLICITATION
GENERAL
The Company is soliciting Consents from the Holders, upon the terms and
subject to the conditions set forth in the Solicitation Documents, to the
Proposed Amendments. Consummation of the Consent Solicitation is conditioned
upon satisfaction of the other conditions described below. The purpose of the
Consent Solicitation and the Proposed Amendments is to confirm the Company's
interpretation of "Consolidated Cash Flow" under the Indenture, to waive any
Default or Event of Default and any and all consequences under the Indenture
that would have occurred, either historically or prospectively, were the
Company's interpretation of the Indenture incorrect, and to permit the
Spin-Off, the Financing, the release of the Entertainment Guarantees and
certain other transactions, each as more fully described under "Proposed
Amendments."
Promptly after the Effective Time, the Company will make the Partial
Payment to each Holder of Notes whose duly executed and valid Consent is
received prior to the Effective Time. At the Effective Time, Consents will
become irrevocable. Consents may only be revoked under the circumstances
described in this Consent Solicitation Statement and in the Letter of
Consent. Promptly after the Expiration Date, the Company will make the
Partial Payment to any Holders who delivered Consents after the Effective
Time and prior to the Expiration Date. At the Operative Time, the Proposed
Amendments will become operative. The Operative Time will occur immediately
prior to the consummation of the first of the Proposed Transactions (the
Spin-Off, the Financing, the Meadows Repurchase, the release of the
Entertainment Guarantees and the transactions between the Company and SFX
Entertainment pursuant to the Tax Sharing Agreement, the Distribution
Agreement and the Acquisition Agreements). In no event shall the Operative
Time occur after September 1, 1998. On the Final Consent Payment Date the
Company will pay the balance of the Consent Fee to those Holders who
previously received a Partial Payment. To receive any portion of the Consent
Fee, Holders must deliver their valid Consents before the Expiration Date.
The Consents are being solicited by the Company. All costs of the Consent
Solicitation (except for 50% of certain costs relating to the Consent
Solicitations, up to $1.0 million, which will be borne by the Company),
including the Consent Fee, will be borne by SFX Entertainment. In addition to
the use of the mail, Consents may be solicited by officers and other
employees of the Company without additional remuneration, in person, or by
telephone, telegraph or facsimile transmission. The Company has retained
Lehman Brothers as the Solicitation Agent and D.F. King & Co., Inc. as the
Information Agent to aid in the solicitation of Consents, including
soliciting Consents from brokerage firms, banks, nominees, custodians and
fiduciaries.
REQUISITE CONSENTS
Adoption of the Proposed Amendments requires the receipt of the Requisite
Consents, consisting of the Consent of the Holders of a majority in aggregate
principal amount of the Notes outstanding and not owned by the Company or any
of its affiliates. As of the date of this Consent Solicitation Statement,
$450.0 million in aggregate principal amount of Notes were outstanding, none
of which are held by the Company or any of its affiliates. The failure of a
Holder to deliver a Consent will have the same effect as if such Holder does
not consent to the Proposed Amendments.
RECORD DATE
Holders of Notes as of the close of business on the Record Date will be
entitled to notice of, and to consent to, the Proposed Amendments. A Consent
from a Holder is a continuing Consent but may be revoked by a subsequent
Holder, including a subsequent Holder who acquired such Notes after the
Record Date.
EXPIRATION DATE
The Expiration Date for the Consent Solicitation is 5:00 p.m., New York
City time, on the later of (i) January 21, 1998 and (ii) the date on which
the Supplemental Indenture is executed.
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EFFECTIVE TIME
Promptly after receipt of the Requisite Consents, the Company, the
Guarantors and the Trustee will execute the Supplemental Indenture (the time
of such execution being referred to in this Consent Solicitation Statement as
the "Effective Time") and the Consents will become irrevocable.
CONSEQUENCES TO NON-CONSENTING HOLDERS
As of the Effective Time, Consents will be irrevocable. As of the
Operative Time, all then current holders of Notes, including nonconsenting
holders, and all subsequent holders of Notes will be bound by the Proposed
Amendments.
CONSENT FEE
The amount of the Consent Fee will be $10.00 in cash for $1,000 principal
amount of Notes with respect to which a valid Consent is received prior to
the Expiration Date, provided, however, that in the event the Proposed
Amendments do not become operative for any reason, no Consent Fee (other than
a Partial Payment, if any) will be made. Subject to the conditions set forth
herein and in the Letter of Consent: (i) promptly after the Effective Time,
the Company will make the Partial Payment in respect of each Note with
respect to which valid Consent is received on or before the Effective Time;
(ii) promptly after the Expiration Date the Company will pay the Partial
Payment to each Holder whose duly executed and valid Consent is received
after the Effective Time and prior to the Expiration Date; and (iii) if the
Proposed Amendments become operative, then the Company will pay the balance
of the Consent Fee on the Final Consent Payment Date to Holders who
previously received a partial payment. No interest will be paid on the
Consent Fee.
Only Holders whose properly executed Consents have been received and not
revoked prior to the Expiration Date will be eligible to receive the Consent
Fee. Holders of Notes who do not timely consent to the Proposed Amendments
will not be eligible to receive the Consent Fee even though the Proposed
Amendments will be binding on them at the Operative Time.
The Company's obligation to make the Partial Payment is contingent on
receipt of the Requisite Consents, and the Company's obligation to pay the
balance of the Consent Fee is contingent on the Proposed Amendments becoming
operative.
FAILURE TO OBTAIN THE REQUISITE CONSENTS
In the event the Requisite Consents are not obtained before the Consent
Solicitation is terminated by the Company, the Supplemental Indenture will
not be executed, the Consent Fee, including the Partial Payment, will not be
paid and the Proposed Amendments will not be effected.
CONSENT PROCEDURES
Consents must be delivered to the Depository before the Expiration Date.
Only Holders (i.e., persons in whose name a Note was registered as of the
Record Date or their duly designated proxies) may execute and deliver a
Consent. The DTC is expected to grant an omnibus proxy authorizing DTC
Participants who held Notes as of the Record Date to deliver Consents.
Accordingly, for the purposes of this Consent Solicitation, the term "Holder"
shall be deemed to include DTC Participants who held Notes through the DTC as
of the Record Date. In order to cause a Consent to be given with respect to
the Notes, Holders or their duly authorized proxies must complete and sign
the Consent Letter and mail or deliver it to the Depository at its address or
facsimile set forth on the back cover page of this Consent Solicitation
Statement pursuant to the procedures set forth herein and therein. A
beneficial owner of an interest in the Notes held through a DTC Participant
must (i) instruct the DTC Participant through which it holds Notes to
complete and sign the Letter of Consent and deliver it to the Depository in
order to cause a Consent to be given with respect to such Notes or (ii)
obtain a properly executed proxy from such DTC Participant and deliver it,
together with the Consent, to the Depository.
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Giving a Consent will not affect a Holder's right to sell or transfer
Notes and any such sale or transfer will not affect the Holder's right to
receive the Consent Fee.
HOLDERS OF NOTES WHO WISH TO CONSENT TO THE PROPOSED AMENDMENTS SHOULD
COMPLETE, SIGN AND DATE, THE LETTER OF CONSENT INCLUDED HEREWITH AND MAIL,
HAND DELIVER, SEND BY OVERNIGHT COURIER OR FAX PRIOR TO THE EXPIRATION DATE
THEIR PROPERLY COMPLETED AND EXECUTED LETTER OF CONSENT TO THE DEPOSITORY AT
THE ADDRESS SET FORTH ON THE BACK COVER PAGE HEREOF AND ON THE LETTER OF
CONSENT IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH HEREIN AND THEREIN. THE
METHOD OF DELIVERY OF THE LETTER OF CONSENT TO THE DEPOSITORY IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL IT IS
RECOMMENDED THAT HOLDERS USE REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. CONSENTS SHOULD BE DELIVERED TO THE DEPOSITORY, NOT TO THE
COMPANY, THE INFORMATION AGENT OR THE SOLICITATION AGENT. HOWEVER, THE
COMPANY RESERVES THE RIGHT TO ACCEPT ANY CONSENT RECEIVED BY IT, THE
INFORMATION AGENT OR THE SOLICITATION AGENT.
IN NO EVENT SHOULD A HOLDER TENDER OR DELIVER ANY NOTES.
Consents or proxies by Holders must be executed in exactly the same manner
as such Holders' names are registered with the registrar or with the DTC. If
a Consent or proxy is signed by a trustee, partner, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting
in a fiduciary or representative capacity, such person must so indicate when
signing and must submit with the Consent form appropriate evidence of
authority to execute the Consent or proxy. In addition, if a Consent or proxy
relates to less than the aggregate principal amount of the Notes which such
Holder holds or holds through the DTC, the Holder must list the principal
amount of the Notes to which the Consent relates. IF NO AGGREGATE PRINCIPAL
AMOUNT OF THE NOTES AS TO WHICH A CONSENT IS DELIVERED IS SPECIFIED, OR IF
NEITHER THE "WAIVE & CONSENT" NOR THE "DO NOT WAIVE & CONSENT" BOX IS MARKED
WITH RESPECT TO SUCH NOTES, BUT THE LETTER OF CONSENT IS OTHERWISE PROPERLY
COMPLETED AND SIGNED, THE HOLDER WILL BE DEEMED TO HAVE CONSENTED TO THE
PROPOSED AMENDMENTS WITH RESPECT TO THE ENTIRE AGGREGATE PRINCIPAL AMOUNT OF
NOTES THAT SUCH HOLDER HOLDS (THROUGH THE DTC OR OTHERWISE).
All questions as to the validity, form, eligibility (including time of
receipt) for the Consent Fee and revocation of Consents with respect to Notes
will be determined by the Company in its sole discretion, which determination
will be conclusive and binding on all parties. The Company reserves the
absolute right to reject any or all Consents that are not in proper form or
the acceptance of which could, in the opinion of the Company or its counsel,
be unlawful. The Company also reserves the right to waive any defects or
irregularities in connection with deliveries of particular Consents. Unless
waived, any defects or irregularities in connection with deliveries of
Consents must be cured within such time as the Company determines. None of
the Company, any of its affiliates, the Solicitation Agent, the Information
Agent, the Depository, the Trustee or any other person shall be under any
duty to give any notification of any such defects, irregularities or waiver,
nor shall any of them incur any liability for failure to give such defects,
irregularities or waiver, nor shall any of them incur any liability for
failure to give such notification. The Company's interpretation of the terms
and conditions of this Consent Solicitation Statement shall be conclusive and
binding.
REVOCATION OF CONSENTS
Consents with respect to Notes may be revoked at any time by the Holder
prior to the Effective Time. All properly completed and executed Letters of
Consent received by the Depository will be counted, notwithstanding any
transfer of the Notes to which such Consents relate, unless the Depository
receives from the Holder thereof (or a duly designated proxy) a properly
completed and executed notice of revocation at any time prior to the
Effective Time.
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A Holder of Notes desiring to revoke a Consent must, prior to the
Effective Time, deliver to the Depository at the address set forth on the
back cover page of this Consent Solicitation Statement and on the front page
of the Letter of Consent a written revocation of such Consent containing the
name of such Holder, the serial numbers of the Notes to which such revocation
relates, the name of the Holder who delivered the Consent being revoked, the
principal amount of Notes to which such revocation relates and the signature
of the Holder revoking the Consent.
A revocation of a Consent may only be rescinded by the execution and
delivery of a new Consent prior to the Expiration Date. A Holder who has
delivered a revocation may thereafter deliver a new Consent by following one
of the procedures described herein at any time prior to the Expiration Date.
The Company reserves the right to contest the validity of any revocation
and all questions as to validity (including time of receipt) of any
revocation will be determined by the Company in its sole discretion, which
determination will be conclusive and binding on all parties. None of the
Company, any of its affiliates, the Solicitation Agent, the Information
Agent, the Depository, the Trustee or any other person will be under any duty
to give notification of any defects or irregularities with respect to any
revocation nor shall any of them incur any liability for failure to give such
notification.
CONDITIONS TO THE CONSENT SOLICITATION
Once commenced the continuation of the Consent Solicitation is conditioned
upon (subject to waiver by the Company) the successful completion of the
Series E Consent Solicitation and the absence of any (i) law or regulation
and (ii) injunction or action or other proceeding (pending or threatened)
that (in the case of any action or proceeding, if adversely determined)
would, make unlawful or invalid or enjoin the implementation of the Proposed
Amendments, the entering into of the Supplemental Indenture or the payment of
the Consent Fee, or that questions the legality or validity thereof or
otherwise adversely affects the Spin-Off or any of the transactions described
herein for which a Consent is sought.
The Company expressly reserves the right for any reason to terminate the
Consent Solicitation at any time prior to the Final Consent Payment Date by
giving written notice of such termination to the Depository. Any such
termination by the Company will be followed as promptly as practicable by
notice thereof by press release or other public announcements (or by written
notice to the Holders). If the Consent Solicitation is terminated by the
Company at any time prior to the Proposed Amendments becoming operative, for
any reason, all Consents will be void and no Consent Fee will be made, or, if
Partial Payments have been made, no additional payments will be made.
The Company expressly reserves the right to modify, at any time or from
time to time, the terms of the Consent Solicitation (including, without
limiting the generality of the foregoing, by accelerating the Operative Time
or by modifying the amount or form of consideration to be paid to holders
delivering Consents), the Proposed Amendments or any of the transactions
described herein. If the Company determines that such modifications are not,
individually or in the aggregate, materially adverse to holders of Notes,
then Consents given prior to such modifications will remain valid and
effective and will constitute Consents to the Proposed Amendments, as so
modified. If such modifications are amended in a manner determined by the
Company to constitute a material adverse change to the Holders, the Company
will promptly disclose such amendment in a public announcement and the
Company will extend the Consent Solicitation for a period deemed by the
Company to be adequate to permit the Holders to deliver or revoke their
Consents.
If the Company makes a material change in the terms of, or information
concerning, the Consent Solicitation, the Proposed Amendments or any of the
transactions described herein or waives any condition related thereto that
results in a material change to the circumstances of the Consent
Solicitation, then the Company will disseminate additional solicitation
materials to the extent necessary and will extend the Consent Solicitation to
the extent necessary in order to permit the Holder of the Notes adequate time
to consider such materials.
SOLICITATION AGENT, INFORMATION AGENT AND DEPOSITORY
The Company has retained Lehman Brothers as Solicitation Agent in
connection with the Consent Solicitation. The Solicitation Agent will solicit
Consents and will respond to inquiries of holders of Notes.
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The Solicitation Agent will receive a customary fee for its services in
connection with the Consent Solicitation and reimbursement for reasonable
out-of-pocket expenses, including counsel's fees. The Company has agreed to
indemnify the Solicitation Agent against certain liabilities and expenses,
including liabilities under the securities laws, in connection with the
Consent Solicitation. See "Solicitation Agent."
The Company has retained D.F. King & Co., Inc. as Information Agent in
connection with the Consent Solicitation. The Information Agent will
distribute Solicitation Documents and will answer questions regarding the
Consent Solicitation. The Information Agent will receive a customary fee for
such services and reimbursement for reasonable out-of-pocket expenses.
Requests for additional copies of this Consent Solicitation Statement or
the form of Consent may be directed to the Solicitation Agent or the
Information Agent at their respective addresses and/or telephone numbers set
forth on the back cover of this Consent Solicitation Statement.
The Company has retained The Chase Manhattan Bank as Depository in
connection with the Consent Solicitation. The Depository will receive,
collect and tabulate Consents. The Depository will receive a customary fee
for such services and reimbursement for reasonable out-of-pocket expenses.
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PROPOSED AMENDMENTS
PURPOSES AND EFFECTS
The Notes were issued under the Indenture between the Company and the
Trustee. The Company is seeking Consents to the Proposed Amendments in the
Consent Solicitation to confirm the Company's interpretation of "Consolidated
Cash Flow" under the Indenture, to waive any Default or Event of Default and
any and all consequences under the Indenture that would have occurred, either
historically or prospectively, were the Company's interpretation of the
Indenture incorrect, and to permit the Company to consummate the Spin-Off and
the Financing, to release the Entertainment Guarantees, and to permit the
Meadows Repurchase and the transactions between the Company and SFX
Entertainment pursuant to the Tax Sharing Agreement, the Distribution
Agreement and the Acquisition Agreements.
PROPOSED AMENDMENTS
Set forth below is a summary of the Proposed Amendments for which the
Consents are being solicited. The description is qualified by reference to
the full provisions of the existing Indenture and the provisions of the
Supplemental Indenture, which provisions are substantially in the form set
forth in Annex A attached hereto. The capitalized terms used in this section
and in Annex A and not otherwise defined shall have the meanings assigned to
them in the Indenture or the Supplemental Indenture, as the case may be.
Copies of the Indenture are available upon request from the Company.
DEFINITION OF CONSOLIDATED CASH FLOW
The definition of "Consolidated Cash Flow" in the Indenture is a component
of the Debt to Cash Flow Ratio. The "Incurrence of Indebtedness and Issuance
of Preferred Stock" section of the Indenture limits the Company's ability to
incur Indebtedness unless the Debt to Cash Flow Ratio test (the "Incurrence
Test") set forth therein is satisfied. The definition of "Consolidated Cash
Flow" in the Indenture provides that, in calculating Consolidated Cash Flow
for any period, the Company will add to its Consolidated Net Income "an
amount equal to any extraordinary loss . . . during such period (to the
extent such losses were deducted in computing such Consolidated Net Income)."
The Company has interpreted the phrase "extraordinary loss" in such
definition to include nonrecurring and unusual charges that management
believes in its professional judgment were not indicative of continuing
operating expenses, whether or not such items would be construed to be
"extraordinary" in accordance with GAAP. Specifically, the Company has
treated, and intends to continue to treat, the following items (the
"Specified Charges") as "extraordinary" for purposes of the definition of
Consolidated Cash Flow:
o In April 1996, the Company entered into an agreement with D.
Geoffrey Armstrong, then its Chief Financial Officer, pursuant to
which Mr. Armstrong agreed to become the Chief Operating Officer
of the Company and defer certain payments due to him under his
employment agreement. The Company also agreed to repurchase
certain securities owned by Mr. Armstrong. The Company paid
$4,575,000 for the repurchase of options and rights to receive
options held by Mr. Armstrong, and accrued an additional $800,000
related to charges in Mr. Armstrong's Employment Agreement, which
amounts were expensed as a nonrecurring charge.
o In June 1996, the Company entered into an agreement with R. Steven
Hicks, then its President, Chief Executive Officer, Chief
Operating Officer and a Director, pursuant to which Mr. Hicks
resigned from all positions held by him in the Company, sold to
the Company all of the Company's securities then owned by him or
which he had the right to obtain and agreed to refrain from owning
for a period of one year any direct or indirect interest in radio
stations in certain markets in the United States. In return, Mr.
Hicks received payments from the Company aggregating $18.6
million. The Company recorded nonrecurring and unusual charges of
$12,461,000 relating to payments in excess of the fair value of
stock repurchased and recorded additional charges of $2,330,000
relating to the forgiveness of a loan and accrued interest payable
by Mr. Hicks.
o In April 1996, the Company entered into an agreement with
Sillerman Communications Management Corporation, an entity that
provided advisory services to the Company and other entities,
which is controlled by Robert F. X. Sillerman and in which Howard
J. Tytel has an interest ("SCMC"). Pursuant to this agreement,
SCMC assigned to the Company its rights to receive certain fees
payable to SCMC by other entities in respect of consulting and
marketing services to be performed on behalf of those entities by
SCMC, and the Company and SCMC terminated the arrangement pursuant
to which SCMC performed financial consulting services
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for the Company. Pursuant to this agreement, the Company issued to
SCMC warrants to purchase up to 600,000 shares of Class A Common
Stock at an exercise price, subject to adjustment, of $33.75 (the
market price at the time the financial consulting arrangement was
terminated). The Company also forgave a $2.0 million loan made by
the Company to SCMC, plus accrued and unpaid interest thereon. The
Company recorded a nonrecurring and unusual charge of $5,586,000
related to the agreement.
o In July and August 1997, the Company paid a $1.0 million bonus to
Michael G. Ferrel and a $10.0 million bonus to Robert F.X.
Sillerman. In addition, the Company's board of directors approved
in principle the forgiveness of a $2.5 million loan (along with
accrued but unpaid interest thereon of approximately $100,000)
previously made by the Company to Mr. Sillerman. The Company
recorded nonrecurring and unusual charges consisting of $11.6
million of executive bonus payments and the establishment of a
reserve for Mr. Sillerman's loan of $2.6 million.
o In the third quarter of 1997, the Company recorded non-recurring
and unusual charges of $3.8 million of primarily legal and
professional fees associated with the Merger and Spin-Off. The
Company anticipates that additional nonrecurring and unusual
charges will be paid or accrued in 1997 or 1998 (including, but
not limited to, legal, accounting, investment banking and consent
fees) related to the Merger, the Spin-Off, the Consent
Solicitations and transactions related thereto, and that the
aggregate amount thereof could be substantial. Management believes
that it is appropriate to add these future nonrecurring and
unusual charges back in calculating Consolidated Cash Flow.
Had these expenses not been added back in calculating Consolidated Cash
Flow, many of the Company's borrowings in during 1996, 1997 and 1998 would
not have been in compliance with the Incurrence Test, which noncompliance
would have caused an Event of Default under the "Events of Default" section
of the Indenture.
The Proposed Amendments will confirm the Company's interpretation of
Consolidated Cash Flow and will waive any Default or Event of Default that
would have occurred were the Specified Charges not appropriately added back
in calculating Consolidated Cash Flow. By adding the Specified Charges back
to Consolidated Cash Flow, Consolidated Cash Flow is increased by the amount
of such charges and the Debt to Cash Flow Ratio is correspondingly decreased.
If the Company had not added the Specified Charges back to Consolidated Cash
Flow, Consolidated Cash Flow and the Company's ability to incur additional
indebtedness would have been and will continue to be reduced.
Also, the "Merger, Consolidation, or Sale of Assets" section of the
Indenture restricts the Company's ability to merge unless the Incurrence Test
is satisfied and no Default or Event of Default is then existing. At the time
of the Merger, the Company will be required to satisfy the requirements of
the "Merger, Consolidation or Sale of Assets" section of the Indenture.
By seeking Consents to the Proposed Amendments, the Company does not
acknowledge that its interpretation of the term "extraordinary" is
inappropriate. Regardless of whether the Company receives the Requisite
Consents, the Company intends to continue to interpret Consolidated Cash Flow
in the same manner in the future.
The Company in the past has been, and currently is, permitted to add back
the Specified Charges in calculating consolidated cash flow for purposes of
the similar debt-to-cash flow ratio set forth in the Company's existing
senior credit facility with The Bank of New York.
The Indenture will amend the definition of "Consolidated Cash Flow" to
expressly include in such definition (i) the Specified Charges and (ii)
unusual and nonrecurring charges paid or accrued in 1997 or 1998 relating to
the Merger Agreement, the Spin-Off and the transactions related thereto. See
Annex A--Amendment to Indenture.
DEFINITION OF SUBSIDIARY
The Proposed Amendments will amend the Indenture to exclude SFX
Entertainment and its subsidiaries from the definition of the Company's
"Subsidiaries," thereby generally exempting SFX Entertainment and its
subsidiaries from the restrictive covenants, and will add certain defined
terms relevant to the Proposed Amendments. The exclusion will permit SFX
Entertainment and its subsidiaries to enter into the Financing and certain
other transactions.
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RESTRICTED PAYMENTS
The "Restricted Payments" provision in the Indenture provides that neither
the Company nor its Subsidiaries may, with certain exceptions, directly or
indirectly: (i) declare or pay any dividend or make any other payment or
distribution on account of the Company's Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of the Company's
Equity Interests in their capacity as such (other than dividends or
distributions payable in Capital Stock (other than Disqualified Stock) of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company; (iii) make any payment on, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness
that is subordinated to the Notes, except at final maturity; or (iv) make any
Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment certain conditions shall have been met, including the condition that
such Restricted Payment, together with the aggregate amount of all other
Restricted Payments (except certain permitted Restricted Payments) declared
or made after the date of the Indenture do not exceed an amount calculated as
set forth in the Indenture based on the Company's Consolidated Cash Flow
(subject to subtractions and other adjustments).
The Supplemental Indenture would amend the "Restricted Payments" provision
in the Indenture to: (i) add the Spin-Off and the Meadows Repurchase to the
specifically exempted transactions and (ii) exclude the Spin-Off and the
Meadows Repurchase from the calculation of aggregate Restricted Payments (for
purposes of the exception for Restricted Payments not exceeding an amount
calculated as set forth in the Indenture based on the Company's Consolidated
Cash Flow).
TRANSACTIONS WITH AFFILIATES
The "Transactions with Affiliates" provision of the Indenture prohibits
the Company and its subsidiaries from entering into Affiliate Transactions,
with certain exceptions.
The Supplemental Indenture would amend "Transactions with Affiliates" to
permit the transactions and agreements specifically contemplated by the
Acquisition Agreements or the Merger Agreement and to permit any Spin-Off
Transaction.
ADDITIONAL SUBSIDIARY GUARANTEES
The "Additional Subsidiary Guarantees" provision in the Indenture requires
the Company and its Subsidiaries to cause any newly acquired Subsidiary to
guarantee the obligations under the Notes by execution of a supplemental
indenture.
The Supplemental Indenture would amend the "Additional Subsidiary
Guarantee" provision in the Indenture to release each Guarantor that is an
Entertainment Company from its Guarantee of the Company's obligations under
the Notes.
WAIVER RELATING TO SPIN-OFF TRANSACTIONS
Certain provisions of the Indenture may prohibit the consummation of the
Spin-Off Transactions.
The Supplemental Indenture would add a "Waiver Relating to Spin-Off
Transactions" provision to the Indenture. The "Waiver Relating to Spin-Off
Transactions" provision would provide that, (i) notwithstanding any other
provision of the Indenture to the contrary, the Company and the Subsidiaries
are permitted to consummate the Spin-Off Transactions at any time prior to
December 31, 1998 and (ii) the Holders of Notes waive the effect of any other
provision of the Indenture that might otherwise prohibit the Spin-Off
Transactions.
DEFINED TERMS
The Proposed Amendments would amend the Indenture to add and amend certain
defined terms relevant to the Proposed Amendments. See "Annex A--Amendments
to Indenture."
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THE SPIN-OFF
ANTICIPATED STRUCTURE OF THE SPIN-OFF
Pursuant to the Merger Agreement, the Company will contribute all of the
capital stock of SFX Concerts, Inc. (formerly known as Delsener/Slater
Enterprises, Ltd.) to SFX Entertainment, and must, prior to the Closing,
distribute pro rata to the holders of Common Stock, in the Spin-Off, all of
the capital stock owned by the Company in SFX Entertainment. The Spin-Off is
a condition precedent to Buyer's obligation to proceed with the Merger and is
being done to facilitate the Merger (which the Board of Directors has
determined is in the best interests of the Company's stockholders), by
excluding from the Merger the Company's Concert Business. Even if the Merger
does not occur for any reason, the Company intends to consummate the Spin-Off
(or, if necessary, an Alternate Transaction). Although management believes it
is unlikely the Spin-Off will not occur, the Spin-Off is subject to certain
conditions, some of which are outside of management's control, and there can
be no assurance that the Spin-Off will be consummated on the terms presently
contemplated or at all.
In the Spin-Off, assuming that the Spin-Off Shares Proposal is approved by
the stockholders of the Company, the holders of Class A Common Stock and
Series D Preferred Stock will receive SFX Entertainment Class A common stock
having features similar to the Class A Common Stock, and the holders of Class
B Common Stock will receive SFX Entertainment Class B common stock having
features similar to the Class B Common Stock. Prior to the Spin-Off, SFX
Entertainment will amend and restate its certificate of incorporation to,
among other things, increase its authorized capital stock and will issue to
the Company, in exchange for the issued and outstanding shares of stock of
SFX Entertainment then held by the Company, the number of shares of SFX
Entertainment's common stock necessary to consummate the Spin-Off. The
economic rights of shares of Class A Common Stock and Class B Common Stock of
the Company are identical, but the voting rights differ in that each share of
Class A Common Stock is entitled to 1 vote per share and each share of Class
B Common Stock is generally entitled to 10 votes per share. The Spin-Off will
be a taxable dividend distribution to the holders of shares of Common Stock
and Series D Preferred Stock at the close of business on a date to be
determined by the Board of Directors and will be made as follows:
(a) holders of Class A Common Stock will receive 1 share of SFX
Entertainment Class A common stock per share of Class A Common
Stock held;
(b) holders of Class B Common Stock will receive 1 share of SFX
Entertainment Class B common stock per share of Class B Common
Stock held;
(c) holders of Series D Preferred Stock will receive the number of
shares of SFX Entertainment Class A common stock obtained by
multiplying the number of shares of Series D Preferred Stock held
by 1.0987 (rounded down to the next whole share); and
(d) the Company will place in escrow shares of SFX Entertainment Class
A common stock for delivery to the holders of the SCMC Warrants
(as defined in the Merger Agreement) and the warrants (the "IPO
Warrants" and, together with the SCMC Warrants, the "Warrants")
granted by the Company to the underwriters of the initial public
offering of MMR (as defined in the Merger Agreement) upon exercise
of such Warrants.
In connection with the Spin-Off, it is likely that the Merger Agreement
will require either SFX Entertainment to make a payment to the Company, or
the Company to make a payment to SFX Entertainment, in respect of Working
Capital (including repayment of funds provided by the Company to SFX
Entertainment). As of September 30, 1997, the Company estimates that Working
Capital to be received by SFX Entertainment, would have been approximately
$2.1 million.
THE DISTRIBUTION AGREEMENT
The Company and SFX Entertainment intend to enter into the Distribution
Agreement which will contain the terms and conditions pursuant to which the
Company and SFX Entertainment propose to separate their business. The
Distribution Agreement and the other agreements to be executed in
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connection with the Spin-Off have not been finalized and remain subject to
change. The Company has agreed that, prior to the Merger Effective Time, it
will (to the extent required by the Buyer) cause SFX Entertainment and its
subsidiaries to perform their obligations under the Distribution Agreement.
The Distribution Agreement will set forth the method of effecting the
Spin-Off and the rights and obligations of the parties in connection with the
Spin-Off.
Transfer and Assumption of Assets and Obligations
At the time of the Spin-Off, SFX Entertainment will assume (i) certain of
SFX's leases and employment agreements, (ii) debt and liabilities incurred by
SFX Concerts, Inc. or SFX Entertainment or their respective subsidiaries
after the date of the Merger Agreement in connection with acquisitions and
capital expenditures and (iii) any other debt and liabilities that SFX
Entertainment deems appropriate. SFX will cause SFX Entertainment and its
subsidiaries to be released from all other debt and accrued liabilities.
SFX Entertainment and its subsidiaries (collectively, the "SFX
Entertainment Group") will be entitled to all of SFX's accounts receivable
relating to SFX's live entertainment business. SFX will transfer to SFX
Entertainment, prior to the Spin-Off, agreements relating to (i) an airplane
lease, (ii) fees payable by Triathlon Broadcasting Company for services
provided by The Sillerman Companies, Inc. (a consulting company of which Mr.
Sillerman is the Chairman of the Board of Directors and Chief Executive
Officer, and of which Mr. Tytel is the Executive Vice President, General
Counsel and a Director), (iii) two real estate leases and assets located on
the leased property, (iv) a note receivable relating to the sale of SFX's
radio stations operating in Myrtle Beach and (v) the employment of certain
employees of the Company (including related change-of-control payments). SFX
Entertainment will assume all of the Company's and its subsidiaries'
obligations accruing after the date of the Spin-Off under the above
agreements.
Acquisitions and Capital Improvements
The Company and SFX Entertainment have agreed that SFX Concerts, Inc., a
subsidiary of the Company currently holding the Concert Business, may, from
time to time, (i) acquire additional businesses engaged in the Concert
Business or (ii) make capital improvements on assets owned or leased by it or
its subsidiaries. In each case, the Company must loan SFX Concerts, Inc. the
funds with which to consummate acquisitions and capital improvements.
However, all amounts so borrowed by SFX Concerts, Inc. must be repaid on the
date of the Spin-Off. The Company may increase the borrowing availability
under its credit agreement for these purposes, and must use its best efforts
to obtain any required or desirable waivers, consents or modifications under
any financing or other agreement of the Company in connection with the
acquisitions or capital improvements.
If SFX Entertainment makes such additional acquisitions or capital
improvements, it will be required to obtain financing to repay the amounts
that it borrows from the Company, which financing may take the form of public
or private sales of debt or equity securities, bank credit or other
financing. However, there can be no assurance that SFX Entertainment will be
able to obtain such financing on advantageous terms, or at all. If SFX
Entertainment obtains a loan from the Company and is unable to obtain
financing to repay the Company as of the date of the Spin-Off, the Company
will be in breach of the Merger Agreement.
SFX Entertainment has entered into agreements relating to the Pending
Acquisitions. See "Summary--SFX Entertainment; The Spin-Off."
Working Capital
Pursuant to the Distribution Agreement (and as required by the Merger
Agreement), it is anticipated that SFX Entertainment and the Company will
allocate funds between them for Working Capital. If the Spin-Off occurs prior
to the consummation of the Merger, then, on the date of the Spin-Off, the
Company's management will allocate Working Capital between SFX Entertainment
and the Company, and the Company will pay to SFX Entertainment any positive
amount allocated to SFX Entertainment. In any event, at least five business
days before the consummation of the Merger, the Company must provide SFX
Entertainment with a good faith estimate of Working Capital as of the date of
consummation
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of the Merger (the "Estimated Working Capital"). If the Estimated Working
Capital is a positive number, then the Company must pay to SFX Entertainment
an amount equal to the Estimated Working Capital at the time of consummation
of the Merger. On the other hand, if the Estimated Working Capital is a
negative number, then SFX Entertainment must pay to the Company an amount
equal to the Estimated Working Capital at that time.
As soon as practicable (and in any event within ninety days) after the
Merger is consummated, the Company must deliver to SFX Entertainment an
audited statement of Working Capital as of the date of consummation of the
Merger. If SFX Entertainment does not object to the Company's Working Capital
statement within fifteen days following delivery thereof, then the Working
Capital reflected on the Company's Working Capital statement will be the
"Final Working Capital." If SFX Entertainment does so object, then the issues
in dispute will be submitted to a major national accounting firm for
resolution and to determine the "Final Working Capital."
On the third business day after the Final Working Capital is determined,
the Company or SFX Entertainment, as the case may be, must pay to the other
an amount equal to the Final Working Capital, less the Estimated Working
Capital previously paid, together with interest on the absolute value of the
difference at an annual rate of 10% beginning on the date of consummation of
the Merger and ending on the date of payment of the amount (the "Working
Capital Adjustment Amount"). However, if SFX Entertainment notifies the
Company prior to the payment date that it wishes to have all or any portion
of the Final Working Capital (the "Merger Consideration Adjustment") treated
as an adjustment to the consideration payable in connection with the Merger,
then the consideration payable in connection with the Merger will be
increased by an amount equal to the quotient of the Merger Consideration
Adjustment divided by the fully diluted number of shares of the Company's
Common Stock outstanding immediately prior to the consummation of the Merger,
and the Company must promptly distribute (i) the appropriate amount to the
appropriate holders, immediately prior to the consummation of the Merger, of
the Company's Common Stock and Series D Preferred Stock, (ii) upon exercise,
the appropriate amount to holders of options, warrants and unit purchase
options of the Company unexercised immediately prior to the consummation of
the Merger and (iii) the appropriate amount to holders of options, warrants
and unit purchase options of the Company who exercised their securities on
and after the consummation of the time of consummation of the Merger and
prior to the final payment date. If SFX Entertainment elects to treat any
portion of the Final Working Capital as a Merger Consideration Adjustment,
then SFX Entertainment must pay the Company the difference, if any, between
the Merger Consideration Adjustment and the Working Capital Adjustment Amount
so that the aggregate net amount to be paid or received (as the case may be)
by the Company is equal to the amount that would have been paid or received
if the Merger Consideration Adjustment had not been made.
"Working Capital" means the sum of all current assets of the Company and
its consolidated subsidiaries minus the sum of all current liabilities of the
Company and its consolidated subsidiaries, as of the point in time
immediately prior to the consummation of the Merger, adjusted (without
duplication) by:
(a) increasing Working Capital by 50% (up to $1.0 million) of all fees
and expenses incurred by the Company in connection with acquiring
Consents from Holders of the Notes and the consent of holders of
the Series E Preferred Stock in the Consent Solicitations;
(b) increasing (if a positive number) or decreasing (if a negative
number) Working Capital by the product of (A) $75.00 (or any other
amount payable to holders of Class A Common Stock) and (B) the
difference between 15,589,083 less the sum of the fully diluted
number of shares of Common Stock outstanding immediately prior to
the time of consummation of the Merger (excluding up to 250,838
shares of Common Stock subject to a right of repurchase granted by
the Company in connection with an acquisition);
(c) reducing Working Capital by the difference between $84,554,649
less the sum of (A) the aggregate exercise price of all options,
warrants and unit purchase options of the Company outstanding
immediately prior to the Merger consummation plus (B) the
aggregate exercise
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price of all warrants underlying unit purchase options of the
Company outstanding immediately prior to the Merger consummation
plus (C) the aggregate base price of all SARs of the Company
outstanding immediately prior to the Merger consummation;
(d) reducing Working Capital by the product of (A) $42 and (B) up to
250,838 shares of Common Stock subject to a right of repurchase by
the Company granted in connection with an acquisition;
(e) increasing Working Capital by all permitted radio-related capital
expenditures paid by the Company and its subsidiaries after June
30, 1997 and immediately prior to the Merger consummation;
(f) decreasing Working Capital by all accrued capital expenditures of
the Company as of immediately prior to the Merger consummation (to
the extent not reflected in current liabilities);
(g) increasing Working Capital by accrued but not yet payable
dividends;
(h) except as required by clause (i) below, excluding from Working
Capital any liabilities attributable to indebtedness of the
Company;
(i) excluding from Working Capital any liabilities included in clauses
(i) through (iv) of clause (k) below;
(j) reducing Working Capital by unpaid costs, fees and expenses of the
Company arising out of, based upon or that will arise from the
transactions contemplated by the Merger Agreement (other than as a
result of actions taken by Buyer Sub) (including amounts relating
to the termination of any employees, broker fees, legal fees,
accounting fees, advisory fees and fees incurred in connection
with third party consents, waivers and amendments of creditors or
holders of the Company's preferred stock); and
(k) reducing Working Capital by the amount of the Company's Excess
Debt (as defined below), if a positive number, or increasing
Working Capital by the amount of the Excess Debt, if a negative
number. "Excess Debt" means, as of immediately prior to the
consummation of the Merger, the difference between the sum of the
following and $899.7 million:
(i) the difference between (A) indebtedness of the Company and its
subsidiaries, less (B) the difference between $70.0 million
and any amounts (other than the reimbursement of expenses)
actually received by the Company and its consolidated
subsidiaries after August 24, 1997, under agreements relating
to the sale or local marketing arrangement (the local
marketing payments may not exceed $30,000 per month) of its
WVGO-FM and the sale or local marketing arrangement of its
Jackson/Biloxi radio stations, less (C) any indebtedness
incurred to finance acquisitions approved by Buyer of stock of
or substantially all of the assets of radio stations, less (D)
interest accrued as of immediately prior to the consummation
of the Merger that is not then due and payable,
(ii) the aggregate merger consideration payable to holders of the
Company's Series C Preferred Stock (which the Company
anticipates will be $2.0 million),
(iii) $225.0 million, representing the liquidation preference amount
of the Series E Preferred Stock, and
(iv) environmental costs or liabilities accrued and not paid after
June 30, 1997, to the extent they exceed $100,000 in the
aggregate.
Working Capital will not include any asset transferred to SFX
Entertainment or any of its subsidiaries, any liability assumed by SFX
Entertainment or any liability to which none of the Company or any of its
subsidiaries is a party immediately after the consummation of the Merger. Any
computation of Working Capital should assume that the Spin-Off has been
consummated. As of September 30, 1997, the Company estimated that Working
Capital to be received by SFX Entertainment would have been approximately
$2.1 million.
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Indemnification
It is anticipated that pursuant to the Distribution Agreement, SFX
Entertainment will indemnify, defend and hold the Company and its
subsidiaries (other than the SFX Entertainment Group) harmless from and
against any liabilities (other than income tax liabilities) to which the
Company or any of its subsidiaries (other than the SFX Entertainment Group)
may be or become subject that relate to the assets, business, operations,
debts or liabilities of the SFX Entertainment Group (including liabilities to
be assumed by any member of the SFX Entertainment Group as contemplated in
the Merger Agreement), whether arising prior to, concurrent with or after the
Spin-Off or as a result of the failure to obtain all necessary third party
consents to the Spin-Off.
In addition, the Company will agree to indemnify, defend and hold the SFX
Entertainment Group harmless from and against any liabilities (other than
income tax liabilities) to which the SFX Entertainment Group may be or become
subject that relate to the assets, business, operations, debts or liabilities
of the Company or its subsidiaries (other than the SFX Entertainment Group),
whether arising prior to, concurrent with or after the Spin-Off.
The indemnification obligations contained in the Distribution Agreement
will survive the Spin-Off for a period of 6 years (and thereafter as to any
claims for indemnification asserted prior to the expiration of that period).
Tax Matters
It is anticipated that the Distribution Agreement will provide that: (i)
any tax sharing agreement to which the Company and SFX Entertainment are
parties must be terminated as of the effective date of the Spin-Off; (ii) the
Company will include the income of the SFX Entertainment Group on certain of
the Company's tax returns, and will be reimbursed for certain tax liability
allocable to the SFX Entertainment Group; (iii) the Company will control
audits or contests relating to its taxes; (iv) the Company will pay to SFX
Entertainment certain tax refunds; (v) the Company will elect not to retain
any net operating loss carryovers or capital loss carryovers of the SFX
Entertainment Group; and (vi) SFX Entertainment will indemnify the Company
for certain taxes arising from any gain realized by the Company arising out
of, based upon or attributable to the Spin-Off.
Required Consents; No Representations or Warranties
The Company and SFX Entertainment have agreed to obtain all necessary
third party consents to the Spin-Off, with certain exceptions. The Company
and SFX Entertainment have also agreed to obtain certain waivers, releases or
amendments to certain agreements with respect to assets of the SFX
Entertainment Group. The Spin-Off is subject to obtaining any applicable
governmental consents, but the Company is not aware of any governmental
consents required.
SFX has not made any representations or warranties in the Distribution
Agreement relating to the business, operations, assets, debts or liabilities
of SFX Entertainment or its subsidiaries.
Conditions to the Distribution
Pursuant to the Distribution Agreement, the obligations of SFX
Entertainment and the Company to consummate the Spin-Off will be subject to
the fulfillment or waiver of each of the following conditions:
o the Registration Statement filed by SFX Entertainment must be
declared effective by the Commission, and no stop order may be
issued or pending with respect thereto;
o the SFX Entertainment Class A common stock must be accepted for
listing or trading, subject to official notice of issuance, on the
American Stock Exchange or The Nasdaq Stock Market;
o all necessary third party consents to the Spin-Off must be
obtained;
o the necessary stockholder approvals must have been obtained to
consummate the Spin-Off as presently contemplated;
o the Company's board of directors must be satisfied that the
Company's surplus would be sufficient to permit the Spin-Off under
Delaware law and must formally approve the Spin-Off;
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o there must be no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Spin-Off in effect;
o SFX Entertainment and the Company must have entered into a Tax
Sharing Agreement (as described below) and an employee benefits
agreement; and
o each of the covenants and provisions in the Distribution Agreement
required to be performed or complied with prior to the Spin-Off
must have been performed or complied with.
The Company's board of directors is entitled to waive any of the above
conditions prior to the Spin-Off Distribution Date.
TAX SHARING AGREEMENT
Prior to the Spin-Off, the Company and SFX Entertainment will enter into
the Tax Sharing Agreement. Under the Tax Sharing Agreement, SFX Entertainment
will agree to pay to the Company the amount of the tax liability of the
combined Company/SFX Entertainment group, to the extent properly attributable
to SFX Entertainment for the period up to and including the Spin-Off, and
will indemnify the Company for any tax adjustment made in subsequent years
that relates to taxes properly attributable to SFX Entertainment during the
period prior to and including the Spin-Off. The Company, in turn, will
indemnify SFX Entertainment for any tax adjustment made in years subsequent
to the Spin-Off that relates to taxes properly attributable to the Company
during the period prior to and including the Spin-Off. SFX Entertainment will
be responsible for any taxes of the Company resulting from the Spin-Off to
the extent such taxes result from gain on the distribution that exceeds the
net operating losses of the Company and SFX Entertainment available to offset
gain resulting from the Spin-Off.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain of the United States
federal income tax consequences of the Proposed Amendments and the Consent
Fees. This summary is based upon the relevant provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations
promulgated thereunder, Internal Revenue Service ("IRS") rulings, and
judicial decisions, all as in effect on the date hereof, and all of which are
subject to change, possibly with retroactive effect.
This summary does not address all of the federal income tax consequences
that may be relevant to a Holder of Notes in light of such Holder's
particular tax situation or to certain classes of Holders subject to special
treatment under the federal income tax laws (for example, dealers in
securities, banks, insurance companies, S corporations, nonresident aliens,
foreign corporations, and tax-exempt entities), nor does it address any
aspect of gift, estate, state, local, or foreign taxation. This discussion is
directed to Holders who hold their Notes as capital assets within the meaning
of the Code. Holders are urged to consult their own tax advisors regarding
the tax consequences of receiving Consent Fees, including the application and
effect of any gift, estate, applicable state, local, foreign income, or other
tax laws.
THE PROPOSED AMENDMENTS AND THE CONSENT FEES
Although the issue is not free from doubt, the adoption of the Proposed
Amendments should not cause Holders of Notes to recognize gain or loss for
federal income tax purposes, except that the Consent Fees should be taxable
as ordinary income to Holders who receive the Consent Fees. This is based on
the conclusion that, under present law, the adoption of the Proposed
Amendments should not be treated as a constructive exchange of the Notes for
new Notes ("Deemed New Notes") and that the Consent Fees should be treated as
a fee paid to Holders that grant their consents. It should be noted that
there is no authority directly on point with respect to the federal income
tax consequences of receiving the Consent Fees, and a possible alternative
characterization of the Consent Fees is as a nontaxable return of a portion
of the Holder's basis in the Notes, with such basis reduction causing such
Holder to recognize additional capital gain (or, under the market discount
rules, ordinary income) or reduced capital loss on a sale or other
disposition of the Notes.
It is possible, however, that the adoption of the Proposed Amendments will
be treated for federal income tax purposes as giving rise to a constructive
exchange of the Notes for Deemed New Notes and the Consent Fees. In the event
that the adoption of the Proposed Amendments gives rise to a constructive
exchange of Notes for Deemed New Notes and assuming that the Consent Fees are
treated as part of the constructive exchange rather than as a separate fee
and the Notes and Deemed New Notes constitute "securities" for federal income
tax purposes, the constructive exchange should qualify as a recapitalization
for federal income tax purposes, and gain (but not loss) realized by Holders
in such constructive exchange should be recognized to the extent of the
Consent Fees. If the adoption of the Proposed Amendments is treated as giving
rise to a constructive exchange of the Notes for Deemed New Notes and such
constructive exchange fails to qualify as a recapitalization for federal
income tax purposes (e.g., because the Notes or Deemed New Notes do not
constitute securities for federal income tax purposes), then Holders would
generally be required to recognize gain or loss as a consequence of such
constructive exchange.
Gain or loss recognized upon any constructive exchange of Notes for Deemed
New Notes generally should be capital gain or loss and will be long-term
capital gain or loss if the Holder's holding period with respect to the Notes
exceeds one year, subject to certain exceptions, including an exception for
Notes acquired by a Holder with "market discount" in certain circumstances.
Net capital gain recognized by an individual from the constructive exchange
of Notes that have been held for more than 18 months will generally be
subject to tax at a rate not to exceed 20%. Net capital gain recognized by an
individual from the constructive exchange of Notes that have been held for
more than 12 months but not more than 18 months will be subject to tax at a
rate not to exceed 28%. A Holder's realized gain or loss generally should be
determined based on the difference between the Holder's adjusted basis in the
Notes and the sum of the "issue price" of the Deemed New Notes and the
Consent Fees (if the Consent Fees are treated as part of the constructive
exchange rather than as a separate fee), other than amounts allocable to
unpaid interest. The "issue price" of any Deemed New Notes deemed issued in a
constructive exchange resulting
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from the adoption of the Proposed Amendments depends on whether the Notes are
"publicly traded" during the 60-day period ending 30 days after the adoption
of the Proposed Amendments. In the event the Notes are "publicly traded,"
then the issue price of the Deemed New Notes will be equal to the fair market
value of the Notes on the date of adoption of the Proposed Amendments. In
such case, if the issue price of the Deemed New Notes is less than their
stated principal amount by more than a de minimis amount, there will be
original issue discount ("OID") with respect to the Deemed New Notes issued
in the constructive exchange, and the Holders will be required for federal
income tax purposes to accrue such OID into income in advance of the receipt
of cash with respect thereto under the provisions of the Code and Treasury
Regulations relating to OID. If the Notes are not "publicly traded" during
the applicable period, then the issue price of the Deemed New Notes will be
the stated principal amount of the Notes and there should be no OID with
respect to the Notes. The Company intends to take the position that the
adoption of the Proposed Amendments does not give rise to a constructive
exchange of Notes for Deemed New Notes and that, accordingly, there should no
OID with respect to the Notes even if the Notes are treated as "publicly
traded."
In the event that the Consent Fees are treated as a separate fee and not
as "boot" received in a constructive exchange, then the Consent Fees should
give rise to ordinary income and should not be taken into account in
computing gain or loss realized in any constructive exchange of Notes for
Deemed New Notes.
No ruling on the constructive exchange issue or the "public trading" issue
has been or will be sought from the IRS.
BACKUP WITHHOLDING
Under Federal income tax law, in certain circumstances a Holder may be
subject to backup withholding at the rate of 31% with respect to the Consent
Fees, unless such Holder (i) is a corporation or is otherwise exempt and,
when required, demonstrates this fact or (ii) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with the applicable requirements of the
backup withholding rules.
HOLDERS WHO ARE NON-U.S. PERSONS
Although it is not entirely clear that United States federal withholding
tax is applicable to the payment of the Consent Fees to Holders who are not
United States persons (within the meaning of the Code) ("Non-U.S. Persons"),
such tax will be withheld from a Consent Fee to a Holder who is a Non-U.S.
person at a rate of 30% unless (i) such Non-U.S. Person is engaged in the
conduct of a trade or business in the United States to which the receipt of
the Consent Fee is effectively connected and provides a properly executed IRS
Form 4224 or (ii) a tax treaty between the United States and the country of
residence of the non-U.S. person eliminates or reduces the withholding on
other income and such Non-U.S. Person provides a properly executed IRS Form
1001. Non-U.S. persons should consult their own tax advisors regarding the
availability of a refund of any withholding tax.
THE PRECEDING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS
INTENDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE TAX ADVICE.
HOLDERS OF NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES TO THEM OF THE PROPOSED
AMENDMENTS AND THE CONSENT FEES.
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SOLICITATION AGENT
Lehman Brothers has performed investment banking and other services for
the Company and its affiliates and has received customary fees in connection
therewith. At any given time, the Solicitation Agent may trade the securities
of the Company, including the Notes, for its own account or for the account
of customers and, accordingly, may hold a long or short position in such
securities. In addition, Lehman Brothers is expected to act as Co-Arranger of
the New Credit Agreement and would receive customary fees in connection
therewith. Further, an affiliate of Lehman Brothers is a Co-Agent and a
lender under the Company's existing credit facility and has received
customary fees in connection therewith.
INDEPENDENT AUDITORS
The consolidated financial statements of SFX Broadcasting, Inc. and
Subsidiaries at December 31, 1996 and 1995, and for each of the three years
in the period ended December 31, 1996, incorporated by reference into this
Consent Solicitation, have been audited by Ernst & Young LLP, independent
auditors, as stated in their report appearing therein.
The consolidated financial statements of Delsener/Slater Enterprises, Ltd.
at December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996, incorporated by reference into this Consent
Solicitation, have been audited by Ernst & Young LLP, independent auditors,
as stated in their report appearing therein.
The combined financial statements of the Secret Stations: Indianapolis and
Pittsburgh as of June 30, 1996 and for the year then ended, incorporated by
reference this Consent Solicitation, have been audited by Arthur Andersen
LLP, independent auditors, as stated in their report appearing therein.
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS .............................. F-2
SFX Broadcasting, Inc.: Unaudited Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 ...................................................................... F-3
SFX Broadcasting, Inc.: Unaudited Pro Forma Condensed Combined Statement of Operations
for the Nine Months Ended September 30, 1997............................................. F-13
SFX Broadcasting, Inc.: Unaudited Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1996..................................................... F-14
Glossary to Unaudited Pro Forma Condensed Combined Financial Statements................... F-36
</TABLE>
F-1
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following financial statements and notes thereto contain
forward-looking statements that involve risks and uncertainties. The actual
results of SFX Broadcasting, Inc. ("SFX") may differ materially from those
discussed herein. SFX undertakes no obligation to publicly release the result
of any revisions to these forward-looking statements that may be made to
reflect any future events or circumstances.
In the opinion of management, all adjustments necessary to fairly present
this pro forma information have been made. The Unaudited Pro Forma Condensed
Combined Financial Statements are based upon, and should be read in
conjunction with, the historical financial statements and the respective
notes to such financial statements incorporated herein by reference. The pro
forma information is based upon tentative allocations of the purchase price
for acquisitions completed within the last year and acquisitions still
pending, and does not purport to be indicative of the results that would have
been reported had such events actually occurred on the dates specified, nor
is it indicative of SFX's future results. SFX cannot predict whether the
consummation of the Pending Acquisition and Disposition--Broadcasting or
Pending Acquisitions and the Financing--Entertainment will conform to the
assumptions used in the preparation of the Unaudited Pro Forma Condensed
Combined Financial Statements.
See Glossary at the end of these Unaudited Pro Forma Condensed Combined
Financial Statements for the definition of certain terms not otherwise
defined herein.
The Unaudited Pro Forma Condensed Combined Balance Sheet at September 30,
1997 is presented as if SFX had completed the Pending Acquisition and
Disposition--Broadcasting, the Pending Acquisitions and the
Financing--Entertainment and the Spin-Off of SFX Entertainment as of
September 30, 1997. No adjustment has been made to the Unaudited Pro Forma
Condensed Combined Balance Sheet for the Chancellor Exchange, other than the
receipt of cash, as it will be recorded at historical cost.
The Unaudited Pro Forma Condensed Combined Statements of Operations for
the year ended December 31, 1996 and the nine months ended September 30, 1997
are presented as if SFX had completed the Completed Transactions, the Pending
Acquisition and Disposition--Broadcasting, the Pending Acquisitions and the
Financing--Entertainment and the Spin-Off of SFX Entertainment as of January
1, 1996. The Albany Acquisition has not been reflected in the Unaudited Pro
Forma Condensed Combined Statement of Operations for the year ended December
31, 1996 as it would not have a material impact.
The Unaudited Pro Forma Condensed Combined Financial Statements have been
prepared assuming that the approximately 4.2 million shares of SFX
Entertainment Class A common stock being issued in connection with certain of
the Pending Acquisitions--Entertainment are valued at $13.33 per share, the
value negotiated with the sellers for purposes of the Pending
Acquisitions--Entertainment and is based upon certain financial projections
developed jointly by SFX Entertainment and the sellers. There is presently no
trading market for the SFX Entertainment Class A common stock. There can be
no assurance that the assumptions upon which the valuation is based will, in
fact, be correct or that the valuation will approximate the actual trading
prices of the SFX Entertainment Class A common stock.
F-2
<PAGE>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PENDING
PENDING ACQUISITIONS
SFX ACQUISITION AND AND THE
BROADCASTING, DISPOSITION-- FINANCING--
INC. AS BROADCASTING ENTERTAINMENT
REPORTED (A) (B)
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Current assets....................... $ 140,689 $ -- $105,137
Property and equipment, net.......... 132,707 (610) 129,489
Intangible assets, net............... 1,097,751 (8,345) 355,653
Other assets......................... 21,740 (5,444) 34,297
--------------- --------------- ---------------
Total assets......................... $1,392,887 $(14,399) $624,576
=============== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.................. $ 61,188 $ (914) $ 80,307
Deferred taxes....................... 105,497 -- 10,943
Long-term debt (including
current portion):
Privately placed debt............... -- -- 275,000
Credit Facility..................... 316,000 (35,921) 193,568
Senior Subordinated Notes........... 450,000 -- --
Other long-term debt................ 18,255 (380) --
Other liabilities.................... 4,556 -- 5,583
Minority Interest.................... -- -- 830
PACE put options..................... -- -- 16,500
Redeemable preferred stock
Series B Preferred Stock............ 998 -- --
Series C Preferred Stock............ 1,703 -- --
Series D Preferred Stock............ 149,500 -- --
Series E Preferred Stock............ 215,636 -- --
Stockholders' equity................. 69,554 22,816 41,845
--------------- --------------- ---------------
Total liabilities and stockholders'
equity.............................. $1,392,887 $(14,399) $624,576
=============== =============== ===============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SFX
ENTERTAINMENT PRO FORMA
PRO FORMA FOR THE
PRO FORMA FOR THE SPIN-OFF--
FOR THE PENDING SFX
PENDING ACQUISITIONS ENTERTAINMENT
TRANSACTIONS (C) (D)
-------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Current assets....................... $ 245,826 $117,326 $ 128,500
Property and equipment, net.......... 261,586 185,371 76,215
Intangible assets, net............... 1,445,059 415,374 1,029,685
Other assets......................... 50,593 41,975 8,618
-------------- --------------- ---------------
Total assets......................... $2,003,064 $760,046 $1,243,018
============== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.................. $ 140,581 $ 91,640 $ 48,941
Deferred taxes....................... 116,440 13,759 102,681
Long-term debt (including
current portion):
Privately placed debt............... 275,000 275,000 --
Credit Facility..................... 473,647 193,568 280,079
Senior Subordinated Notes........... 450,000 -- 450,000
Other long-term debt................ 17,875 16,453 1,422
Other liabilities.................... 10,139 9,073 1,066
Minority Interest.................... 830 830 --
PACE put options..................... 16,500 16,500 --
Redeemable preferred stock
Series B Preferred Stock............ 998 -- 998
Series C Preferred Stock............ 1,703 -- 1,703
Series D Preferred Stock............ 149,500 -- 149,500
Series E Preferred Stock............ 215,636 -- 215,636
Stockholders' equity................. 134,215 143,223 (9,008)
-------------- --------------- ---------------
Total liabilities and stockholders'
equity.............................. $2,003,064 $760,046 $1,243,018
============== =============== ===============
</TABLE>
F-3
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(A) PENDING ACQUISITION AND DISPOSITION--BROADCASTING
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------------------------------------
PRO FORMA
FOR THE
PENDING
ACQUISITION
CAPSTAR NASHVILLE PRO FORMA AND
DISPOSITION (1) ACQUISITION ADJUSTMENTS (2) DISPOSITION
--------------- ------------- --------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets............................... $ 59,921 $1,370 $ (33,000)(a) $ --
(1,370)(a)
(2,000)(b)
11,000 (c)
(35,921)(d)
Property and equipment, net.................. (4,828) 4,218 (610)
Intangible assets, net....................... (33,567) 3,303 27,479 (a) (8,345)
2,000 (b)
3,440 (b)
(11,000)(c)
Other assets................................. (4) 566 (566)(a) (5,444)
(2,000)(a)
(3,440)(b)
--------------- ------------- --------------- -------------
Total assets................................. $ 21,522 $9,457 $ (45,378) $(14,399)
=============== ============= =============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.......................... $ (914) $ 545 $ (545)(a) $ (914)
Long-term debt (including current portion):
Senior Credit Facility...................... (35,921)(d) (35,921)
Other long-term debt........................ (380) (380)
Stockholders' equity......................... 22,816 8,912 (8,912)(a) 22,816
--------------- ------------- --------------- -------------
Total liabilities and stockholders' equity $ 21,522 $9,457 $ (45,378) $(14,399)
=============== ============= =============== =============
</TABLE>
- ------------
(1) Capstar Disposition
To reflect the Capstar Disposition for $60,000,000 in cash to SFX. SFX
will record a gain of approximately $23,000,000 on the disposition.
<TABLE>
<CAPTION>
JACKSON
AND
BILOXI CAPSTAR
SALE PROCEEDS STATIONS DISPOSITION
--------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets.............................. $60,000 $ (79) $ 59,921
Property and equipment, net................. (4,828) (4,828)
Intangible assets, net...................... (33,567) (33,567)
Other assets................................ (4) (4)
--------------- ----------- -------------
Total assets............................... $60,000 $(38,478) $ 21,522
=============== =========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities......................... $ (914) $ (914)
Long-term debt.............................. (380) (380)
Stockholders' equity........................ $60,000 (37,184) 22,816
--------------- ----------- -------------
Total liabilities and stockholders'
equity..................................... $60,000 $(38,478) $ 21,522
=============== =========== =============
</TABLE>
F-4
<PAGE>
SFX expects to use the proceeds from the Capstar Disposition to complete
a similar acquisition so that the Capstar Disposition can be treated as a
like-kind exchange which would be substantially tax free. Should SFX be
unable to structure such a transaction, SFX would utilize its available net
operating loss carryforwards and pay approximately $6,000,000 in additional
income taxes. No adjustment has been made for the potential payment of any
additional income taxes.
(2) Pro Forma Adjustments
a. To reflect the Nashville Acquisition for $33,000,000 in cash (net of a
$2,000,000 deposit made in August 1997), the related excess of the
purchase price paid over net book value of $27,479,000, and the
adjustments to remove $1,370,000 of current assets, $566,000 of other
assets, $545,000 of current liabilities, and stockholders' equity of
$8,912,000.
b. To reflect additional acquisition costs of approximately $2,000,000
related to the Nashville Acquisition and Chancellor Exchange,
principally consisting of professional fees and to reclassify deposits,
professional fees and other payments of approximately $3,440,000
included in other assets as of September 30, 1997.
c. To reflect the $11,000,000 of cash to be received in the Chancellor
Exchange. No gain or loss will be recognized because the fair market
value of the stations received, as adjusted for cash received or paid,
equals the carrying value of the stations exchanged.
d. To use the net cash proceeds from the Capstar Disposition, Nashville
Acquisition and Chancellor Exchange to reduce debt under SFX's Credit
Agreement.
F-5
<PAGE>
(B) PENDING ACQUISITIONS AND THE FINANCING--ENTERTAINMENT
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 (IN THOUSANDS)
-------------------------------------------------------------------------
CONCERT/
PACE CONTEMPORARY NETWORK BGP SOUTHERN
ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITION
I II III IV V
------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets ...... $(149,129) $(72,800) $(44,510) $(54,222) $(16,615)
Property and
equipment, net ..... 82,489 25,000 1,000 20,000 1,000
Intangible assets,
net ................ 125,314 66,500 61,701 48,687 15,151
Other assets ........ 34,706 -- 391 346 464
------------- -------------- ------------- ------------- -------------
Total Assets ........ $ 93,380 $ 18,700 $ 18,582 $ 14,811 $ --
============= ============== ============= ============= =============
LIABILITIES &
STOCKHOLDER'S
EQUITY:
Current Liabilities $ 65,357 $ -- $ 8,468 $ 6,482 $ --
Deferred taxes ...... -- -- 114 829 --
Privately-placed
debt................ -- -- -- -- --
Credit Facility...... -- -- -- -- --
Other long-term
debt................ -- -- -- -- --
Other liabilities ... 5,583 -- -- -- --
Minority interest ... 2,440 -- -- -- --
PACE put agreement .. 16,500 -- -- -- --
Stockholders'
Equity.............. 3,500 18,700 10,000 7,500 --
------------- -------------- ------------- ------------- -------------
Total Liabilities &
Stockholders'
Equity ............. $ 93,380 $ 18,700 $ 18,582 $ 14,811 $ --
============= ============== ============= ============= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
PRO FORMA THE PENDING
PRO FORMA ADJUSTMENT FOR ACQUISITIONS AND
ADJUSTMENTS THE FINANCING THE FINANCING--
VI VII SFX ENTERTAINMENT
------------- -------------- -----------------
<S> <C> <C> <C>
ASSETS:
Current assets ...... $ 2,145 (a) $352,893 $105,137
(28,300)(b) 87,375
Property and
equipment, net ..... -- -- 129,489
Intangible assets,
net ................ 10,000 (d) 355,653
28,300 (b)
Other assets ........ (1,610)(c) -- 34,297
------------- -------------- -----------------
Total Assets ........ $ 10,535 $468,568 $624,576
============= ============== =================
LIABILITIES &
STOCKHOLDER'S
EQUITY:
Current Liabilities $ -- $ -- $ 80,307
Deferred taxes ...... 10,000 (d) -- 10,943
Privately-placed
debt................ -- 275,000 275,000
Credit Facility...... -- 193,568 193,568
Other long-term
debt................ -- --
Other liabilities ... -- -- 5,583
Minority interest ... (1,610)(c) -- 830
PACE put agreement .. -- -- 16,500
Stockholders'
Equity.............. 2,145 (a) -- 41,845
------------- -------------- -----------------
Total Liabilities &
Stockholders'
Equity ............. $ 10,535 $468,568 $624,576
============= ============== =================
</TABLE>
F-6
<PAGE>
I. PACE ACQUISITION
Reflects the PACE Acquisition and the separate acquisitions of the
remaining two partners' interests in Pavilion Partners. The PACE Acquisition
is not conditioned on the consummation of the Pavilion Acquisition.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 (000'S)
-------------------------------------------------------------
PACE PAVILION PRO FORMA PACE
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION (f)
------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Current assets ............................ $45,087 $ 30,178 $ (109,500)(a) $(149,129)
(25,523)(a)
(9,507)(b)
(4,171)(b)
(27,500)(c)
(48,193)(e)
Property and equipment, net................ -- 59,938 5,000 (a) 82,489
9,103 (b)
(19,052)(d)
27,500 (c)
Intangible assets, net..................... 17,894 -- 107,420 (a) 125,314
Other assets............................... 26,856 12,660 9,507 (b) 34,706
(4,810)(d)
(9,507)(d)
------------- ------------- --------------- ---------------
Total Assets............................... $89,837 $102,776 $ (99,233) $ 93,380
============= ============= =============== ===============
Current liabilities........................ $43,171 $ 17,254 $ 2,000 (b) $ 65,357
2,932 (b)
Deferred taxes............................. -- --
Long-term debt (including current
portion).................................. 25,523 57,700 (25,523)(a) --
(9,507)(d)
(48,193)(e)
Other Liabilities.......................... 4,063 1,520 5,583
Minority interest.......................... -- 2,440 -- 2,440
PACE put agreement......................... -- -- 16,500 (a) 16,500
Stockholders' Equity....................... 17,080 23,862 (17,080)(a) 3,500
20,000 (a)
(16,500)(a)
(23,862)(d)
------------- ------------- --------------- ---------------
Total Liabilities & Stockholders' Equity .. $89,837 $102,776 $ (99,233) $ 93,380
============= ============= =============== ===============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) To reflect the PACE Acquisition for $109,500,000 in cash, the issuance
of 1,500,000 shares of SFX Entertainment's Class A common stock valued
at $20,000,000, the assumption of debt of $25,523,000 which will be
repaid shortly after closing, the related increase in the fair value
allocated to fixed assets of $5,000,000; the related excess of the
purchase price paid over the fair value of net tangible assets of
$107,420,000, and the elimination of stockholder's equity of
$17,080,000. Pursuant to the terms of the PACE Acquisition Agreement,
additional cash consideration is required to be paid by SFX
Entertainment if the deemed value of SFX Entertainment's Class A common
stock is below $13.33 at the time of the Spin-Off as a result of
certain changes in the consummation of the acquisitions.
F-7
<PAGE>
The PACE Acquisition Agreement further provides that each PACE Seller
shall have an option (a "Fifth Year Put Option"), exercisable during a
period beginning on the fifth anniversary of the closing of the PACE
Acquisition and ending 90 days thereafter, to require SFX Entertainment
to purchase up to one-third of SFX Entertainment's Class A common stock
received by such PACE Seller for a cash purchase price of $33.00 per
share. With certain limited exceptions, the Fifth Year Put Option
rights are not assignable by the PACE Sellers.
(b) To reflect the acquisition of an additional 33.33% indirect interest in
Pavilion Partners from Blockbuster for $4,171,000 in cash, the
assumption of $2,932,000 in liabilities and the granting of naming
rights of three venues for a two-year period with an estimated value of
$2,000,000, which will be recognized as income over such two year
period, and the related increase in the fair value allocated to fixed
assets of $9,103,000. Also reflects the purchase of a note receivable
from Blockbuster, due from Pavilion Partners at its current outstanding
balance, including accrued interest of $9,507,000. This note will be
eliminated in consolidation upon the acquisition of Sony's interest in
Pavilion Partners, as described below.
(c) To reflect the acquisition of an additional 33.33% indirect interest in
Pavilion Partners from Sony for $27,500,000 in cash.
(d) To eliminate PACE's equity method investment in Pavilion Partners
following the acquisition of 100% of Pavilion Partners and to eliminate
Pavilion Partners' historical equity. Also reflects the elimination of
the $9,507,000 intercompany notes receivable acquired from Blockbuster.
(e) To reflect the repayment of Pavilion's third party debt at the closing
of the Pavilion Acquisition.
(f) SFX Entertainment has agreed to lend PACE up to $25 million for
potential acquisitions to be made by PACE whether or not the PACE
Acquisition is consummated. None of these acquisitions are considered
probable. As a result, none of such loans or acquisitions have been
reflected in the pro forma adjustment.
F-8
<PAGE>
II. CONTEMPORARY ACQUISITION
Reflects the Contemporary Acquisition and the separate acquisition of the
remaining 50% interest in Riverport Amphitheater Partners, a partnership that
owns an amphitheater in St. Louis, MO that is operated by Contemporary. The
Contemporary Acquisition is not conditioned upon the consummation of the
acquisition of such 50% interest.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 (000'S)
-------------------------------------------------------------
RIVERPORT
CONTEMPORARY AMPHITHEATER PRO FORMA CONTEMPORARY
AS REPORTED PARTNERS ADJUSTMENTS(A) ACQUISITION
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Current assets................................... $13,375 $ 2,603 $(72,800) $(72,800)
(15,978)
Property and equipment, net...................... 2,838 11,355 10,807 25,000
Intangible assets, net........................... -- -- 66,500 66,500
Other assets..................................... 7,430 8 (1,205) --
(6,233)
-------------- -------------- -------------- --------------
Total Assets..................................... $23,643 $13,966 $(18,909) $ 18,700
============== ============== ============== ==============
Current liabilities.............................. $ 7,786 $ 1,022 $ (8,808) $ --
Other long-term debt (including current
portion)........................................ 1,578 -- (1,578) --
Other liabilities................................ 5,390 478 (5,868) --
Stockholders' Equity............................. 8,889 12,466 18,700 18,700
(21,355)
-------------- -------------- -------------- --------------
Total Liabilities & Stockholders' Equity ........ $23,643 $13,966 $(18,909) $ 18,700
============== ============== ============== ==============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) To reflect the Contemporary Acquisition for $72,800,000 in cash,
including the additional acquisition of the remaining 50% interest in
the Riverport Amphitheater Partners, not already owned by Contemporary
and the issuance of 1,402,851 shares of SFX Entertainment Class A
common stock valued at $18,700,000, the related increase in the fair
value allocated to fixed assets of $10,807,000, the related excess of
the purchase price paid over the fair value of net tangible assets of
$66,500,000, and the adjustment to eliminate $15,978,000 of current
assets, $6,233,000 of other assets, $8,808,000 of current liabilities,
$1,578,000 of notes payable, $5,868,000 of other liabilities, and
stockholders' equity of $21,355,000, and to reflect the elimination of
Contemporary Group's equity investment in Riverport Amphitheather
Partners.
If Contemporary is unable to complete this acquisition of the remaining
50% interest in Riverport Amphitheater Partners, the cash consideration
paid by SFX Entertainment for Contemporary will be reduced by
$10,500,000.
The acquisition agreement provides that in the event the Contemporary
Acquisition is consummated prior to the consummation of the Spin-Off,
1,402,851 shares of preferred stock of SFX Entertainment will be issued to
the sellers. Such preferred stock is to be converted into an equal number of
shares of Class A common stock of SFX Entertainment upon consummation of the
Spin-Off or, if the Spin-Off shall not have occurred prior to July 1, 1998,
such preferred stock is to be redeemed at their fair market value, but in no
event less than $18,700,000.
F-9
<PAGE>
III. NETWORK ACQUISITION
The Network Acquisition consist of the separate acquisitions of Network
Magazine and SJS. These acquisitions are each conditioned on the concurrent
closing of the other.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 (000'S)
----------------------------------------------------------
NETWORK
MAGAZINE SJS PRO FORMA NETWORK
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Current assets............................. $ 3,127 $4,325 $ (52,000)(a) $(44,510)
1,516 (b)
(1,478)(c)
Property and equipment, net................ 304 334 362 (a) 1,000
Intangible assets, net..................... -- -- 63,217 (a) 61,701
(1,516)(b)
Other assets............................... 299 92 -- 391
------------- ------------- -------------- -------------
Total Assets............................... $ 3,730 $4,751 $ 10,101 $ 18,582
============= ============= ============== =============
Current liabilities........................ $ 3,659 $4,809 -- $ 8,468
Deferred taxes............................. 114 -- -- 114
Long-term debt (including current
portion).................................. 1,478 -- (1,478)(c) --
Stockholders' Equity....................... (1,521) (58) 1,579 (a) 10,000
10,000 (a)
------------- ------------- -------------- -------------
Total Liabilities & Stockholders' Equity .. $ 3,730 $4,751 $ 10,101 $ 18,582
============= ============= ============== =============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) To reflect the Network Acquisitions for $52,000,000 in cash and the
issuance of 750,188 shares of SFX Entertainment Class A common stock
valued at $10,000,000, the related increase in fair value allocated to
fixed assets of $362,000, and the related excess of the purchase price
paid over the fair value of net tangible assets of $63,217,000, and the
elimination of stockholder's deficiency of $1,579,000.
SFX Entertainment's purchase agreement for Network Magazine and SJS
provides that the purchase price will be increased by $4,000,000 if
total 1998 EBITDA for Network and SJS as defined equals or exceeds
$9,000,000; by an additional $4 for each $1 increase in such EBITDA
between $9,000,000 and $10,000,000 and by an additional $6 for each $1
increase in such EBITDA between $10,000,000 and $11,000,000 (up to a
maximum of $14,000,000 of additional consideration). The additional
consideration is payable in stock or in certain circumstances and
solely at the discretion of SFX Entertainment in cash. The pro forma
financial statement assume that no additional consideration is paid.
(b) To reflect a minimum of $500,000 net working capital adjustment as
required in the Network Acquisition agreement.
(c) To reflect the repayment of Network Magazine's long-term debt at
closing.
SFX Entertainment's purchase agreement for Network Magazine and SJS
provides that the purchase price will be increased by approximately
$2.4 million in the event that the current owners of Network Magazine
acquire an office building in Burbank, CA, which currently serves as
Network Magazine's headquarters, prior to closing. This potential
transaction has not been reflected on the pro forma balance sheet.
F-10
<PAGE>
IV. BGP ACQUISITION
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 (000'S)
--------------------------------------------
PRO FORMA BGP
AS REPORTED ADJUSTMENTS ACQUISITION
------------- -------------- -------------
<S> <C> <C> <C>
Current assets................................... $18,759 $ (60,800)(a) $(54,222)
(12,181)(b)
Property and equipment, net...................... 14,691 5,309 (a) 20,000
Intangible assets, net........................... -- 48,687 (a) 48,687
Other assets..................................... 346 -- 346
------------- -------------- -------------
Total Assets..................................... $33,796 $ (18,985) $ 14,811
============= ============== =============
Current liabilities.............................. $ 6,482 $ -- $ 6,482
Deferred taxes................................... 829 -- 829
Other long-term debt (including current
portion)........................................ 12,181 (12,181)(b) --
Stockholders' Equity............................. 14,304 (14,304)(a) 7,500
7,500 (a)
------------- -------------- -------------
Total Liabilities & Stockholders' Equity ........ $33,796 $ (18,985) $ 14,811
============= ============== =============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) To reflect the BGP Acquisition for $60,800,000 in cash and the issuance
of 563,000 shares of SFX Entertainment Class A common stock valued at
$7,500,000, the related increase in fair value allocated to fixed
assets of $5,309,000, and the related excess of the purchase price paid
over the fair value of net tangible assets of $48,687,000, and the
elimination of $14,304,000 of stockholder's equity.
(b) To reflect the repayment of BGP's long-term debt at closing.
V. CONCERT/SOUTHERN ACQUISITION
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 (000'S)
--------------------------------------------
CONCERT/
PRO FORMA SOUTHERN
AS REPORTED ADJUSTMENTS(a) ACQUISITION
------------- -------------- -------------
<S> <C> <C> <C>
Current assets........................... $1,921 $(16,615) $(16,615)
(1,921)
Property and equipment, net.............. 360 640 1,000
Intangible assets, net................... -- 15,151 15,151
Other assets............................. 919 (455) 464
------------- -------------- -------------
Total Assets............................. $3,200 $ (3,200) $ --
============= ============== =============
Current liabilities...................... $1,254 $ (1,254) $ --
Stockholders' Equity..................... 1,946 (1,946) --
------------- -------------- -------------
Total Liabilities & Stockholders'
Equity.................................. $3,200 $ (3,200) $ --
============= ============== =============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) To reflect the Concert/Southern Acquisition for $16,615,000 in cash;
the related increase in fair value allocated to fixed assets of
$640,000, the related excess of the purchase price paid over the fair
value of net tangible assets of $15,151,000; and the adjustments to
eliminate $1,921,000 of current assets, $1,254,000 of current
liabilities, stockholders' equity of $1,946,000 and a $455,000
investment in a non-entertainment affiliated entity not being acquired
by SFX Entertainment.
F-11
<PAGE>
VI. PRO FORMA ADJUSTMENTS FOR PENDING ACQUISITIONS--ENTERTAINMENT
(a) The Distribution Agreement provides that SFX will transfer any positive
Working Capital (as defined) in existence at the closing of the SFX
Merger to SFX Entertainment, and that if Working Capital is negative at
that time, SFX Entertainment will pay the amount of such shortfall to
SFX. As of September 30, 1997 the amount of positive Working Capital
would have been $2,145,000 and such amount is reflected in the cash to
be acquired by SFX Entertainment pursuant to the Distribution
Agreement. The actual amount of Working Capital as of the closing of
the Merger may differ substantially from the amount in existence on
September 30, 1997, and will be a function of, among other things, the
operating results of SFX through the date of the Merger and the actual
cost of consummating the Merger and the related transactions.
Additionally, SFX Entertainment will be responsible for any taxes
resulting from the Spin-Off to the extent such taxes result from any
gain on the distribution.
(b) To reflect estimated costs associated with the Pending Acquisitions and
the Financing and the related transactions.
(c) To reflect the consolidation of GSAC Partners (the entity which
operates the PNC Bank Arts Center) following the acquisition of the
remaining 50% ownership interest in GSAC currently owned by Pavilion
Partners.
(d) To reflect deferred taxes associated with differences between the book
and tax bases of assets and liabilities acquired.
VII. PRO FORMA ADJUSTMENTS FOR THE FINANCING
Represents assumed borrowings to finance the pending acquisitions
including $275,000,000 of New Notes and $193,568,000 of borrowings under the
New Credit Agreement. There can be no assurance that the Company will be able
to obtain this financing on acceptable terms, or at all.
(C) SFX ENTERTAINMENT PRO FORMA FOR THE PENDING ACQUISITIONS
Reflects SFX Entertainment after the Pending Acquisitions.
(D) PRO FORMA FOR THE SPIN-OFF--SFX ENTERTAINMENT
Reflects pro forma balance sheet of SFX after the Spin-Off of SFX
Entertainment.
F-12
<PAGE>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PENDING PENDING
ACQUISITION ACQUISITIONS
AND AND THE
SFX BROADCASTING, COMPLETED DISPOSITION-- FINANCING--
INC. AS TRANSACTIONS BROADCASTING SFX ENTERTAINMENT
REPORTED (A) (B) (C)
----------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Net broadcast revenues . .... $188,984 $38,685 $(4,938)
Concert promotion revenue ... 74,396 12,293 $414,800
Station and other operating
expenses.................... 115,871 28,289 (1,226)
Concert promotion operating
expense..................... 63,045 12,236 366,918
Depreciation, amortization,
duopoly integration costs
and acquisition related
costs....................... 31,429 7,090 (95) 23,253
Corporate expenses........... 7,198* 1,500
Non-recurring and unusual
charges .................... 17,995
----------------- -------------- -------------- -----------------
Operating income (loss) ..... 27,842 3,363 (3,617) 23,129
Interest expense............. 46,438 8,408 31,208
Other income ................ (2,692) -- (3) (21)
Equity (income) loss from
investments................. (1,344) -- -- (7,593)
----------------- -------------- -------------- -----------------
Income before income tax
expense..................... (14,560) (5,045) (3,614) (465)
Income tax expense
(benefit)................... 845 32 (3) 3,626
----------------- -------------- -------------- -----------------
Net income (loss)............ (15,405) (5,077) (3,611) (4,091)
Preferred stock dividend
requirement................. 27,723 1,183
----------------- -------------- -------------- -----------------
Net income (loss) applicable
to common shares............ $(43,128) $(6,260) $(3,611) $ (4,091)
================= ============== ============== =================
Net loss per common share ... $ (4.61)
Average common shares
outstanding................. 9,364
EBITDA (1)................... $ 77,266 $10,453 $(3,712) $ 46,382
Adjusted EBITDA (2)..........
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SFX
ENTERTAINMENT PRO FORMA
PRO FORMA FOR THE
PRO FORMA FOR FOR THE SPIN-OFF--
THE COMPLETED PENDING SFX
AND PENDING ACQUISITIONS BROADCASTING
TRANSACTIONS (D) (E)
--------------- --------------- --------------
<S> <C> <C> <C>
Net broadcast revenues . .... $222,731 $222,731
Concert promotion revenue ... 501,489 $501,489 --
Station and other operating
expenses.................... 142,935 142,935
Concert promotion operating
expense..................... 442,199 442,199 --
Depreciation, amortization,
duopoly integration costs
and acquisition related
costs....................... 61,677 28,378 33,299
Corporate expenses........... 8,698* 2,807 5,891
Non-recurring and unusual
charges .................... 17,995 17,995
--------------- --------------- --------------
Operating income (loss) ..... 50,717 28,105 22,612
Interest expense............. 86,054 32,499 53,555
Other income ................ (2,716) (234) (2,482)
Equity (income) loss from
investments................. (8,937) (8,937) --
--------------- --------------- --------------
Income before income tax
expense..................... (23,684) 4,777 (28,461)
Income tax expense
(benefit)................... 4,500 3,500 1,000
--------------- --------------- --------------
Net income (loss)............ (28,184) 1,277 (29,461)
Preferred stock dividend
requirement................. 28,906 0 28,906
--------------- --------------- --------------
Net income (loss) applicable
to common shares............ $(57,090) $ 1,277 $(58,367)
=============== =============== ==============
Net loss per common share ... $ 0.06 $ (3.68)
Average common shares
outstanding................. 20,056 15,840
EBITDA (1)................... $130,388 $ 56,483 $ 73,906
Adjusted EBITDA (2).......... $ 68,754 $ 77,161
</TABLE>
- ------------
* Net of $1,693,000 of fees from Triathlon.
(1) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, non-recurring and unusual items, other income and equity
(income) loss from investments. Although EBITDA is not a measure of
performance calculated in accordance with generally accepted accounting
principles ("GAAP"), SFX Entertainment believes that EBITDA is accepted
by broadcasting and entertainment companies as a generally recognized
measure of performance and is used by analysts who report publicly on
the performance of such companies. Nevertheless, this measure should
not be considered in isolation or as a substitute for operating income,
net income, net cash provided by operating activities or any other
measure for determining SFX Entertainment's operating performance or
liquidity which is calculated in accordance with GAAP.
(2) Represents EBITDA adjusted for certain one-time charges and cost
savings associated with the elimination of duplicative staffing and
general and administrative expenses and equity (income) loss from
investments.
F-13
<PAGE>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PENDING PENDING
ACQUISITION ACQUISITIONS
AND AND THE
SFX BROADCASTING, COMPLETED DISPOSITION-- FINANCING--
INC. AS TRANSACTIONS BROADCASTING SFX ENTERTAINMENT
REPORTED (A) (B) (C)
----------------- ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Net broadcast revenues....... $143,061 $131,014 $(1,381)
Concert promotion revenue ... 104,784 $447,316
Station and other operating
expenses.................... 92,816 90,243 1,208
Concert promotion operating
expense..................... 91,240 417,117
Depreciation, amortization,
duopoly integration costs
and acquisition related
costs....................... 17,311 36,528 650 30,962
Corporate expenses........... 6,313 (313) 2,000
Non-recurring and unusual
charges .................... 28,994 (3,332) --
----------------- ------------ ------------ -----------------
Operating income (loss) ..... (2,373) 21,432 (3,239) (2,763)
Interest expense............. 34,897 38,496 41,610
Other income ................ (2,117) (467) (538) (1,811)
Equity (income) loss from
investments................. (525) (3,219)
----------------- ------------ ------------ -----------------
Income before income tax
expense..................... (35,153) (16,072) (2,701) (39,343)
Income tax expense...........
(benefit).................... 480 1,315 1,705
----------------- ------------ ------------ -----------------
Net income (loss)............ (35,633) (17,387) (2,701) (41,048)
Preferred stock dividend
requirement ................ 6,061 32,063 --
----------------- ------------ ------------ -----------------
Net income (loss) applicable
to common shares............ $(41,694) $(49,450) $(2,701) $(41,048)
================= ============ ============ =================
Net loss per common share ... $ (4.57)
Average common shares
outstanding................. 9,128 71
EBITDA (1)................... $ 43,932 $ 54,268 $(2,589) $ 28,199
Adjusted EBITDA..............
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SFX
ENTERTAINMENT
PRO FORMA
PRO FORMA FOR FOR THE PRO FORMA
THE COMPLETED PENDING FOR THE SPIN-OFF
AND PENDING ACQUISITIONS OF SFX
TRANSACTIONS (D) BROADCASTING(E)
------------- ------------- ----------------
<S> <C> <C> <C>
Net broadcast revenues....... $ 272,694 $272,694
Concert promotion revenue ... 552,100 $552,100 --
Station and other operating
expenses.................... 184,267 184,267
Concert promotion operating
expense..................... 508,357 508,357 --
Depreciation, amortization,
duopoly integration costs
and acquisition related
costs....................... 85,451 37,795 47,656
Corporate expenses........... 8,000 3,000 5,000
Non-recurring and unusual
charges .................... 25,662 -- 25,662
------------- ------------- ----------------
Operating income (loss) ..... 13,057 2,948 10,109
Interest expense............. 115,003 43,391 71,613
Other income ................ (4,933) (2,177) (2,756)
Equity (income) loss from
investments................. (3,744) (3,744) --
------------- ------------- ----------------
Income before income tax
expense..................... (93,269) (34,521) (58,748)
Income tax expense ..........
(benefit).................... 3,500 1,500 2,000
------------- ------------- ----------------
Net income (loss)............ (96,769) (36,021) (60,748)
Preferred stock dividend
requirement ................ 38,124 38,124
------------- ------------- ----------------
Net income (loss) applicable
to common shares............ $(134,893) $(36,021) $(98,872)
============= ============= ================
Net loss per common share ... $ (1.80) $ (6.24)
Average common shares
outstanding................. 20,056 15,840
EBITDA (1)................... $ 124,176 $ 40,743 (2) $ 83,427
Adjusted EBITDA.............. $ 55,524 (3) $ 96,317
</TABLE>
- ------------
* Net of $3,000,000 of fees from Triathlon.
(1) EBITDA is defined as earnings before interest, taxes depreciation and
amortization, non-recurring and unusual items, other income and equity
(income) loss from investments. Although EBITDA is not a measure of
performance calculated in accordance with generally accepted accounting
principles ("GAAP"), SFX Entertainment believes that EBITDA is accepted
by broadcasting and entertainment companies as a generally recognized
measure of performance and is used by analysts who report publicly on
the performance of entertainment companies. Nevertheless, this measure
should not be considered in isolation or as a substitute for operating
income and income, net cash provided by operating activities or any
other measure for determining SFX Entertainment's operating performance
or liquidity which is calculated in accordance GAAP.
(2) Represents EBITDA adjusted for nonrecurring charges, including a
litigation settlement recorded by PACE and Pavilion Partners, and cost
savings associated with the elimination of duplicative staffing and
general and administrative expenses.
(3) Represents EBITDA adjusted for certain one-time charges and cost
savings associated with the elimination of duplicative staffing and
general and administrative expenses and equity (income) loss from
investments.
F-14
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
(A) COMPLETED TRANSACTIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
------------------------------------------------------------------------------------
CBS SECRET
TEXAS COAST HARTFORD MEADOWS EXCHANGE COMMUNICATIONS RICHMOND
ACQUISITION ACQUISITION ACQUISITION (6) ACQUISITION ACQUISITION
------------- ------------- ------------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net broadcast revenues.......... $652 $638 $ (60) $20,626 $5,105
Concert promotion revenue ...... $ 601
Station and other operating
expenses....................... 401 664 630 11,230 3,722
Concert promotion operating
expense........................ 631
Depreciation, amortization,
duopoly integration costs and
acquisition related costs ..... -- -- 221 -- 1,207 456
Corporate expenses.............. -- -- -- -- -- --
------------- ------------- ------------- ---------- -------------- -------------
Operating income (loss)......... 251 (26) (251) (690) 8,189 927
Interest expense................ -- -- 199 -- 1,459 481
Other expense (income).......... -- -- -- -- 79 --
------------- ------------- ------------- ---------- -------------- -------------
Income (loss) before income tax
expense........................ 251 (26) (450) (690) 6,651 446
Income tax expense (benefit) ... -- -- -- 32 -- --
------------- ------------- ------------- ---------- -------------- -------------
Net income (loss)............... 251 (26) (450) (722) 6,651 446
Preferred stock dividend
requirements................... -- -- -- -- -- --
------------- ------------- ------------- ---------- -------------- -------------
Net income (loss) applicable to
common shares.................. $251 $(26) $(450) $(722) $ 6,651 $ 446
============= ============= ============= ========== ============== =============
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
-----------------------------------------------------------------------
CHARLOTTE PRO FORMA
EXCHANGE SUNSHINE HEARST ADJUSTMENTS COMPLETED
(7) ACQUISITION ACQUISITION (8) TRANSACTIONS
----------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net broadcast revenues................. $1,564 $10,160 $38,685
Concert promotion revenue.............. $11,692 12,293
Station and other operating expenses .. 1,328 -- 10,314 28,289
Concert promotion operating expense ... 11,605 12,236
Depreciation, amortization, duopoly
integration costs and acquisition
related costs......................... 375 686 -- $ 125 (a) 7,090
2,512 (b)
393 (c)
884 (l)
231 (m)
Corporate expenses..................... -- -- -- -- --
----------- ------------- ------------- ------------- --------------
Operating income (loss)................ (139) (599) (154) (4,145) 3,363
Interest expense....................... (730) 1,106 -- (47,397)(a) 8,408
16,848 (a)
36,282 (a)
195 (h)
(35)(j)
Other expense (income)................. -- -- -- (79)(i) --
----------- ------------- ------------- ------------- --------------
Income (loss) before income tax
expense............................... 591 (1,705) (154) (9,959) (5,045)
Income tax expense (benefit)........... -- -- -- 32
----------- ------------- ------------- ------------- --------------
Net income (loss)...................... 591 (1,705) (154) (9,959) (5,077)
Preferred stock dividend requirements . -- -- -- 1,183 (n) 1,183
----------- ------------- ------------- ------------- --------------
Net income (loss) applicable to common
shares................................ $ 591 $(1,705) $ (154) $(11,142) $(6,260)
=========== ============= ============= ============= ==============
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
--------------------------------------------------------
LIBERTY PRISM
ACQUISITION ACQUISITION
INCLUDING INCLUDING OTHER
MMR WASHINGTON LOUISVILLE 1996
MERGER DISPOSITIONS DISPOSITIONS ACQUISITIONS
(1) (2) (3) (4)
--------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net broadcast revenues .. $20,038 $24,992 $13,511 $ 4,728
Concert promotion
revenue..................
Station and other
operating expenses....... 11,531 17,774 10,897 2,869
Concert promotion
operating expense........
Depreciation,
amortization, duopoly
integration costs and
acquisition related
costs.................... 6,081 5,150 1,241 1,492
Corporate expenses........ 1,253 1,478 808 111
Other..................... 577 -- -- --
--------- -------------- -------------- --------------
Operating income (loss) .. 596 590 565 256
Interest expense.......... -- 3,326 773 382
Other expense (income) ... -- 5,935 -- (11,948)
Equity (income) loss
from investments......... -- -- -- --
--------- -------------- -------------- --------------
Income (loss) before
income tax expense....... 596 (8,671) (208) 11,822
Income tax expense
(benefit)................ -- (3,378) -- 45
--------- -------------- -------------- --------------
Net income (loss)......... 596 (5,293) (208) 11,777
Preferred stock dividend
requirement.............. -- -- -- --
Net income (loss)
applicable to common
shares .................. $ 596 $(5,293) $ (208) $ 11,777
========= ============== ============== ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
HOUSTON
EXCHANGE
AND DALLAS DELSENER/ TEXAS
DISPOSITION SLATER COAST HARTFORD
(5) ACQUISITION ACQUISITION ACQUISITION
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net broadcast revenues .. $ (8,680) $4,281 $5,742
Concert promotion
revenue.................. $50,361
Station and other
operating expenses....... (10,307) 2,968 5,607
Concert promotion
operating expense........ 50,686
Depreciation,
amortization, duopoly
integration costs and
acquisition related
costs.................... (284) 747 36 27
Corporate expenses........ 110 -- -- --
Other..................... (3,500) -- (48) --
------------- ------------- ------------- -------------
Operating income (loss) .. 5,301 (1,072) 1,325 108
Interest expense.......... (1,667) 60 -- 19
Other expense (income) ... -- (198) (65) (8)
Equity (income) loss
from investments......... -- (525) -- --
------------- ------------- ------------- -------------
Income (loss) before
income tax expense....... 6,968 (409) 1,390 97
Income tax expense
(benefit)................ 938 106 22 32
------------- ------------- ------------- -------------
Net income (loss)......... 6,030 (515) 1,368 65
Preferred stock dividend
requirement.............. -- -- -- --
Net income (loss)
applicable to common
shares .................. $ 6,030 $ (515) $1,368 $ 65
============= ============= ============= =============
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
---------------------------------------------------------------------
CBS SECRET CHARLOTTE
MEADOWS EXCHANGE COMMUNICATIONS RICHMOND EXCHANGE
ACQUISITIONS (6) ACQUISITION ACQUISITION (7)
-------------- ---------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Net broadcast
revenues............. $ 10 $35,532 $ 9,007 $6,222
Concert promotion
revenue.............. $10,175
Station and other
operating expenses .. 1,288 20,844 7,757 3,885
Concert promotion
operating expense ... 9,306
Depreciation,
amortization,
duopoly integration
costs and
acquisition related
costs................ 1,550 -- 3,970 780 500
Corporate expenses ... -- -- -- 1,037 --
Other................. -- (363) 2 -- --
-------------- ---------- -------------- ------------- -----------
Operating income
(loss)............... (681) (915) 10,716 (567) 1,837
Interest expense...... 1,275 -- -- 1,210 --
Other expense
(income)............. (30) -- 1,175 -- --
Equity (income) loss
from investments..... -- -- -- -- --
-------------- ---------- -------------- ------------- -----------
Income (loss) before
income tax expense .. (1,926) (915) 9,541 (1,777) 1,837
Income tax expense
(benefit)............ 17 783 -- -- --
-------------- ---------- -------------- ------------- -----------
Net income (loss) .... (1,943) (1,698) 9,541 (1,777) 1,837
Preferred stock
dividend
requirement.......... -- -- -- -- --
Net income (loss)
applicable to common
shares............... $(1,943) $(1,698) $ 9,541 $(1,777) $1,837
============== ========== ============== ============= ===========
Average common shares
outstanding..........
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO
FORMA
SUNSHINE HEARST ADJUSTMENTS COMPLETED
ACQUISITION ACQUISITION (8) TRANSACTIONS
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net broadcast
revenues............. $15,631 $131,014
Concert promotion
revenue.............. $44,248 104,784
Station and other
operating expenses .. 15,130 90,243
Concert promotion
operating expense ... 37,326 (6,078)(o) 91,240
Depreciation,
amortization,
duopoly integration
costs and
acquisition related
costs................ 1,522 293 $ 1,491 (a) 36,528
8,052 (b)
559 (d)
3,014 (l)
308 (m)
Corporate expenses ... -- 169 (3,713)(e) (313)
1,434 (e)
(3,000)(f)
Other................. -- -- (3,332)
------------- ------------- ------------- --------------
Operating income
(loss)............... 5,400 39 (2,066) 21,432
Interest expense...... 3,019 -- (5,583)(a) 38,496
22,462 (a)
(35,635)(a)
48,375 (a)
547 (h)
(67)(j)
Other expense
(income)............. (138) -- (5,935)(g) (467)
11,920 (g)
(1,175)(i)
Equity (income) loss
from investments..... -- -- (525)
------------- ------------- ------------- --------------
Income (loss) before
income tax expense .. 2,519 39 (36,975) (16,072)
Income tax expense
(benefit)............ 1,138 -- 1,612 (g) 1,315
------------- ------------- ------------- --------------
Net income (loss) .... 1,381 39 (38,587) (17,387)
Preferred stock
dividend
requirement.......... -- -- 32,063 (n) 32,063
Net income (loss)
applicable to common
shares............... $ 1,381 $ 39 $(70,650) $ (49,450)
============= ============= ============= ==============
Average common shares
outstanding.......... 70,796 (k) 70,796
</TABLE>
F-18
<PAGE>
(1) MMR MERGER
Reflects the net effect of the historical operations of Multi-Market
Radio, Inc. ("MMR") as adjusted for acquisitions and dispositions. SFX has
not included in the pro forma statement of operations cost savings of
$792,000 it believes would have been achieved in connection with the MMR
Hartford Acquisition had the transactions been consummated as of January 1,
1996, consisting principally of the elimination of certain duplicative
technical sales and general and administrative functions due to the operation
of a cluster of stations in the Hartford market.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------
MMR
AS MMR HARTFORD PRO FORMA MMR
REPORTED DISPOSITIONS(a) ACQUISITION ADJUSTMENTS MERGER
---------- --------------- ------------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net broadcast revenues....... $18,832 $(1,623) $2,829 $20,038
Station operating expenses .. 11,422 (1,931) 2,040 11,531
Depreciation/amortization ... 7,611 (1,833) 277 $ 26 (b) 6,081
Corporate expenses........... 2,517 -- -- 1,253 (c) 1,253
(2,517)(c)
Other........................ 63 -- -- 514 (e) 577
---------- --------------- ------------- ------------- ---------
Operating income (loss) ..... (2,781) 2,141 512 724 596
Interest expense............. 5,265 -- 274 (5,539)(d) --
Other expense (income)....... -- (57) (12) 69 (d) --
Income tax expense
(benefit)................... -- 7 (7)(d) --
---------- --------------- ------------- ------------- ---------
Net income (loss)............ $(8,046) $ 2,198 $ 243 $ 6,201 $ 596
========== =============== ============= ============= =========
</TABLE>
- ------------
(a) Reflects the elimination of the operations of stations WRSF-FM, sold in
March 1996, WRXR-FM and WKBG-FM, sold in July 1996, WYAK-FM and
WMYB-FM, sold in March 1997, and KOLL-FM, sold in April 1997.
(b) Reflects $26,000 for the year ended December 31, 1996 in amortization
of intangible assets recorded in connection with the MMR Merger, Myrtle
Beach Acquisition, MMR Hartford Acquisition, related incremental
deferred taxes and change in amortization periods.
(c) To record incremental corporate overhead charges of $1,253,000
associated with the MMR Merger for the year ended December 31, 1996,
and to eliminate MMR's existing corporate overhead of $2,517,000 for
the year ended December 31, 1996.
(d) Elimination of nonrecurring income of $69,000 for the year ended
December 31, 1996, interest expense of $5,539,000 for the year ended
December 31, 1996, and income tax expense of $7,000 for the year ended
December 31, 1996.
(e) Reflects non-cash compensation charge for the issuance of shares of the
Series A and Series B Convertible Preferred Stock of MMR. The shares of
Series A and Series B stock were issued to certain officers and
advisors of MMR in July and November 1996, respectively, and converted
into Class A Common Stock of SFX upon consummation of the MMR Merger.
Certain of the shares issued pursuant to the Series A and Series B
conversions which were issued to individuals currently employed by SFX
are being held in escrow and are being released in five equal annual
installments ending in April 2001.
F-19
<PAGE>
(2) LIBERTY ACQUISITION
Reflects the net effect of the historical operations of the Liberty
Acquisition adjusted for the Washington Dispositions.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------
LIBERTY AS WASHINGTON LIBERTY
REPORTED DISPOSITIONS ACQUISITION
------------ -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net broadcast revenues ..... $25,966 $ (974) $24,992
Station operating expenses . 19,337 (1,563) 17,774
Depreciation/amortization .. 5,926 (776) 5,150
Corporate expenses ......... 1,566 (88) 1,478
------------ -------------- -------------
Operating income............ (863) 1,453 590
Interest expense ........... 3,467 (141) 3,326
Other expense (income) .... 5,935 -- 5,935
Income tax benefit.......... (3,378) -- (3,378)
------------ -------------- -------------
Net income (loss)........... $(6,887) $ 1,594 $(5,293)
============ ============== =============
</TABLE>
(3) PRISM ACQUISITION
Reflects the net effect of the historical operations of the Prism
Acquisition adjusted for the Louisville Dispositions.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------
PRISM AS LOUISVILLE PRISM
REPORTED DISPOSITIONS ACQUISITION
---------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net broadcast revenues ..... $16,859 $(3,348) $13,511
Station operating expenses . 13,373 (2,476) 10,897
Depreciation/amortization .. 1,599 (358) 1,241
Corporate expenses ......... 808 -- 808
---------- -------------- -------------
Operating income (loss) ... 1,079 (514) 565
Interest expense ........... 773 -- 773
---------- -------------- -------------
Net loss ................... $ 306 $ (514) $ (208)
========== ============== =============
</TABLE>
(4) OTHER 1996 ACQUISITIONS
Reflects the net effect of the combined historical operations of the
Greensboro Acquisition, the Raleigh-Greensboro Acquisitions, the Greenville
Acquisition and the Jackson Acquisitions.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------
RALEIGH-
GREENSBORO AND
GREENSBORO GREENVILLE JACKSON
ACQUISITIONS ACQUISITION ACQUISITIONS TOTAL
-------------- ------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net broadcast revenues .... $3,619 $ 639 $470 $ 4,728
Station operating expenses 2,264 271 334 2,869
Depreciation/amortization .. 1,168 244 80 1,492
Corporate expenses.......... 4 107 -- 111
-------------- ------------- -------------- ----------
Operating income (loss) .... 183 17 56 256
Interest expense ........... 59 323 -- 382
Other expense (income) ..... (51) (11,897) -- (11,948)
Income tax expense.......... 45 -- -- 45
-------------- ------------- -------------- ----------
Net income (loss)........... $ 130 $ 11,591 $ 56 $ 11,777
============== ============= ============== ==========
</TABLE>
F-20
<PAGE>
(5) HOUSTON EXCHANGE AND DALLAS DISPOSITION
To reflect the exchange of KRLD-AM and the Texas State Networks for
KKRW-FM in the Houston Exchange, and the sale of KTCK-AM in the Dallas
Disposition.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------------------
DISPOSITIONS ACQUISITION HOUSTON
EXCHANGE
------------------------------------------------ AND DALLAS
KRLD-AM TSN KTCK-AM KKRW-FM ADJUSTMENTS* DISPOSITION
----------- ---------- ---------- ------------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net broadcast revenues .... $(10,711) $(2,843) $(2,136) $7,010 $ -- $ (8,680)
Station operating
expenses.................. (9,316) (2,222) (2,490) 3,721 -- (10,307)
Depreciation/amortization . (1,157) (226) (284) 81 1,302 (284)
Corporate expenses......... -- -- -- 110 -- 110
Other...................... (1,600) -- (1,900) -- -- (3,500)
----------- ---------- ---------- ------------- -------------- -------------
Operating income (loss) ... 1,362 (395) 2,538 3,098 (1,302) 5,301
Interest expense........... (1,482) (373) 188 -- -- (1,667)
Other expense (income) .... -- -- -- 938 -- 938
----------- ---------- ---------- ------------- -------------- -------------
Net income (loss).......... $ 2,844 $ (22) $ 2,350 $2,160 $(1,302) $ 6,030
=========== ========== ========== ============= ============== =============
</TABLE>
- ------------
* To reflect historical depreciation and amortization of KRLD-AM and the
Texas State Networks and the disposition of KTCK-AM.
(6) CBS EXCHANGE
To reflect the net effect of the exchange of WHFS-FM for KTXQ-FM and
KRRW-FM in the CBS Exchange.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------------
KTXQ-FM WHFS-FM CBS
KRRW-FM DISPOSAL ADJUSTMENTS* EXCHANGE
--------- ---------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net broadcast revenues .... $1,628 $1,688 $ -- $ (60)
Station operating expenses . 1,655 1,025 -- 630
Depreciation/amortization .. 54 783 729 --
--------- ---------- -------------- ----------
Operating income (loss) .... (81) (120) (729) (690)
Income tax expense.......... 32 -- -- 32
--------- ---------- -------------- ----------
Net income (loss)........... $ (113) $ (120) $ (729) $(722)
========= ========== ============== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31, 1996
------------------------------------------------
KTXQ-FM WHFS-FM CBS
KRRW-FM DISPOSAL ADJUSTMENTS* EXCHANGE
--------- ---------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net broadcast revenues....... $9,572 $9,562 $ -- $ 10
Station operating expenses .. 7,116 5,828 -- 1,288
Depreciation/amortization ... 218 1,548 1,330 --
Other........................ -- 363 -- (363)
--------- ---------- -------------- ----------
Operating income............. 2,238 1,823 (1,330) (915)
Income tax expense
(benefit)................... 783 -- -- 783
--------- ---------- -------------- ----------
Net income (loss)............ $1,455 $1,823 $(1,330) $(1,698)
========= ========== ============== ==========
</TABLE>
- ------------
* To eliminate depreciation of KTXQ-FM and KRRW-FM and reflect
depreciation of WHFS-FM.
F-21
<PAGE>
(7) CHARLOTTE EXCHANGE
Reflects the transfer of WDSY-FM and $20,000,000 in exchange for WRFX-FM
in the Charlotte Exchange.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------------------------
WDSY-FM WHFS-FM CHARLOTTE
DISPOSITION ACQUISITION ADJUSTMENTS EXCHANGE
------------- ------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues....................................... $(4,367) $5,931 $1,564
Station operating expenses......................... (1,794) 3,122 1,328
Depreciation, amortization and acquisition related
costs............................................. (183) -- $ 558 375
------------- ------------- ------------- -----------
Operating income................................... (2,390) 2,809 (558) (139)
------------- ------------- ------------- -----------
Interest expense................................... (730) -- -- (730)
Net income (loss).................................. $(1,660) $2,809 $ (558) $ 591
============= ============= ============= ===========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------------------------
WDSY-FM WHFS-FM CHARLOTTE
DISPOSITION ACQUISITION ADJUSTMENTS EXCHANGE
------------- ------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues....................................... $(3,697) $9,919 $6,222
Station operating expenses......................... (1,593) 5,478 3,885
Depreciation, amortization and acquisition related
costs............................................. -- 2,907 $ (2,407) * 500
Operating income................................... (2,104) 1,534 2,407 1,837
------------- ------------- ------------- -----------
Net income (loss).................................. $(2,104) $1,534 $ 2,407 $1,837
============= ============= ============= ===========
</TABLE>
- ------------
* To reflect historical depreciation of WDSY-FM net of decrease in
amortization due to the exchange allocation.
(8) PRO FORMA ADJUSTMENTS
SFX has not included in the pro forma adjustments certain cost savings
totaling $11,559,000 it believes would have been realized for the year ended
December 31, 1996 following the Liberty Acquisition, the Prism Acquisition,
the Houston Exchange, the Jackson Acquisitions, the Hearst Acquisition, the
Charlotte Exchange, the Richmond Acquisition, the Texas Coast Acquisition and
Hartford Acquisition and $2,881,000 for the nine months ended September 30,
1997 following the Richmond Acquisition, the Hearst Acquisition, the
Charlotte Exchange, Hartford Acquisition, and Texas Coast Acquisition, had
these transactions been consummated as of January 1, 1996. The cost savings
consist principally of the elimination of certain duplicative technical,
sales and general and administrative functions due to the operation of a
cluster of stations in each of its principal markets, a reduction of employee
benefit costs and commission rates and the elimination of programming
personnel due to automation and simulcasting.
While management believes that such cost savings and the elimination of
non-recurring expenses are reasonably achievable, and many of which have been
achieved, SFX's ability to fully achieve such cost savings and to eliminate
the non-recurring expenses is subject to numerous factors, many of which are
beyond SFX's control. These factors may include difficulties in integrating
the acquired stations and the incurrence of unanticipated severance,
promotional or other costs and expenses. There can be no assurance that SFX
will realize all such cost savings.
a. To reflect interest expense of $36,282,000 and $48,375,000 for the nine
months ended September 30, 1997 and the year ended December 31, 1996,
respectively, related to the $450,000,000 of Senior Subordinated Notes at
10.75% issued in 1996, amortization of deferred financing costs of
$125,000 and
F-22
<PAGE>
$1,491,000 for the nine months ended September 30, 1997 and the year ended
December 31, 1996, respectively, interest expense of $16,848,000 and
$22,462,000 relating to the borrowings from the Credit Agreement at 8% for
the nine months ended September 30, 1997 and the year ended December 31,
1996, respectively, and elimination of existing interest expense (net of
interest on other debt) of $47,397,000 and $41,218,000 related to SFX and
the sellers for the nine months ended September 30, 1997 and the year
ended December 31, 1996, respectively.
b. Reflects increase (decrease) in amortization of intangible assets
resulting from the purchase price allocation, deferred taxes recorded and
change in amortization period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 NINE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------------------------------------------------------
INCREASE DUE DECREASE DUE INCREASE DUE DECREASE DUE
TO PURCHASE TO CHANGE IN TO PURCHASE TO CHANGE IN
PRICE AMORTIZATION NET INCREASE PRICE AMORTIZATION NET INCREASE
ALLOCATION PERIODS (DECREASE) ALLOCATION PERIODS (DECREASE)
-------------- -------------- -------------- -------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Liberty Acquisition....... $1,699 $(2,399) $ (700)
Prism Acquisition......... 1,010 (642) 368
Charlotte WTDR/WLYT
Acquisition.............. 490 490
Jackson Acquisitions . ... 108 108
Greenville and Greensboro
Acquisitions............. 597 (623) (26)
Albany Acquisition........ 23 23 $ 2 $ 2
Hartford Acquisition ..... 910 910 152 152
Texas Coast Acquisition .. 1,067 1,067 89 89
Richmond Acquisition . ... 1,053 (164) 889 527 (82) 445
Hearst Acquisition........ 733 733 428 428
Secret Communications
Acquisition.............. 6,207 (2,018) 4,189 2,069 (673) 1,396
-------------- -------------- -------------- -------------- -------------- --------------
Total Pro Forma
adjustments............. $8,052 $2,512
============== ==============
</TABLE>
c. To reflect depreciation expense for fixed assets associated with the
Texas Coast, Hartford and Richmond Acquisitions as per SFX's
depreciation policy.
d. To reflect $559,000 in amortization relating to the present value of
the Triathlon consulting fees assigned to SFX under the SCMC
Termination Agreement for the year ended December 31, 1996.
e. To record incremental corporate overhead charges of $1,434,000 for the
year ended December 31, 1996, relating to increases in personnel,
professional fees and administrative expenses associated with the
increased size of SFX due to the Completed Transactions and Pending
Acquisition and Disposition--Broadcasting and the elimination of
$3,713,000 for the year ended December 31, 1996, of the corporate
overhead of the sellers.
f. Reflects fees of $3,000,000 incurred by Triathlon and would have been
payable to SFX under the revised SCMC Agreement for the year ended
December 31, 1996. Future fees may be lesser or greater based upon
future acquisition and financing activity by Triathlon. Minimum annual
fees will be $1,000,000 per year.
g. Elimination of acquisition related costs of $5,935,000 recorded on the
income statement of Liberty for the year ended December 31, 1996, a
gain on the sale of assets of $11,920,000 recorded on the books of ABS
Greenville Partners, L.P. for the year ended December 31, 1996 and net
income tax benefit of $1,612,000 for the year ended December 31, 1996.
h. To record interest expense of $195,000 and $547,000 for the nine months
ended September 30, 1997 and the year ended December 31, 1996,
respectively, in connection with the long-term payments due for the
Delsener/Slater Acquisition, the Texas Coast Acquisition and the
Sunshine Acquisition.
i. Elimination of LMA fees paid by Secret Communications for WJJJ-FM and
WDSY-FM.
j. Elimination of interest expense on Jackson note payable to third party
acquired by Capstar.
k. Reflects the issuance of 70,796 shares of SFX Class A common stock in
connection with the Sunshine Acquisition for a total value of
$2,000,000.
F-23
<PAGE>
l. To reflect the depreciation and amortization expense adjustment of
$3,014,000 and $884,000 associated with the Delsener/Slater, Meadows,
and Sunshine concert acquisitions for the year ended December 31, 1996
and the nine months ended September 30, 1997, respectively.
m. To reflect the amortization of $231,000 and $308,000 associated with
the John Boy and Billy Network contract payments for the nine months
ended September 30, 1997 and the year ended December 31, 1996,
respectively.
n. To record the incremental Series D Preferred Stock and the Series E
Preferred Stock dividends issued to finance a portion of the Pending
Acquisition and Disposition--Broadcasting at a rate of 6.5% and
12 5/8%, respectively.
o. Reflects the elimination of non-recurring Delsener/Slater officer's
bonuses and wages not being paid under SFX's new employment contracts.
(B) PENDING ACQUISITION & DISPOSITION--BROADCASTING
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
-------------------------------------------------------------
PENDING
ACQUISITION AND
CAPSTAR NASHVILLE PRO FORMA DISPOSITION--
DISPOSITION ACQUISITION ADJUSTMENTS (1) BROADCASTING
------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net broadcast revenues.......... $(9,831) $4,893 $(4,938)
Station and other operating
expenses....................... (5,489) 4,263 (1,226)
Depreciation, amortization,
duopoly integration costs and
acquisition related costs ..... (1,201) 467 39 (c) (95)
207 (d)
393 (b)
------------- ------------- --------------- ---------------
Operating income (loss) ........ (3,141) 163 (639) (3,617)
Interest expense ............... (36) -- 36 (a)
Other expense (income) ......... -- (3) (3)
------------- ------------- --------------- ---------------
Income (loss) before income tax
expense ....................... (3,105) 166 (675) (3,614)
Income tax expense (benefit) .. -- (3) (3)
------------- ------------- --------------- ---------------
Net income (loss) .............. (3,105) 169 (675) (3,611)
------------- ------------- --------------- ---------------
Net income (loss) applicable to
common shares ................. $(3,105) $ 169 $(675) $(3,611)
============= ============= =============== ===============
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
-------------------------------------------------------------
PENDING
ACQUISITION AND
CAPSTAR NASHVILLE PRO FORMA DISPOSITION--
DISPOSITION ACQUISITION ADJUSTMENTS (1) BROADCASTING
------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net broadcast revenues.......... $(9,012) $8,081 $ (450) (d) $(1,381)
Station and other operating
expenses ...................... (5,265) 6,473 1,208
Depreciation, amortization,
duopoly integration costs and
acquisition related costs .... (852) 652 275 (d) 650
50 (c)
525 (b)
------------- ------------- ---------------
Operating income (loss) ........ (2,895) 956 (1,300) (3,239)
Interest expense ............... (2,108) -- 2,108 (a)
Other expense (income) ......... (538) -- (538)
------------- ------------- --------------- ---------------
Income (loss) before income tax
expense ....................... (249) 956 (3,408) (2,701)
Income tax expense (benefit) .. -- --
------------- ------------- --------------- ---------------
Net income (loss) .............. (249) 956 (3,408) (2,701)
------------- ------------- --------------- ---------------
Net income (loss) applicable to
common shares ................. $ (249) $ 956 $(3,408) $(2,701)
============= ============= =============== ===============
</TABLE>
(1) PRO FORMA ADJUSTMENTS
SFX has not included in the pro forma adjustments certain cost savings
totalling $539,000 it believes would have been realized for the year ended
December 31, 1996 following the Nashville Acquisition and the Chancellor
Exchange and $375,000 for the nine months ended September 30, 1997 following
the Nashville Acquisition and the Chancellor Exchange, had these transactions
been consummated as of January 1, 1996. The cost savings consist principally
of the elimination of certain duplicative technical, sales and general and
administrative functions due to the operation of a cluster of stations in
each of its principal markets, a reduction of employee benefit costs and
commission rates and the elimination of programming personnel due to
automation and simulcasting.
While management believes that such cost savings and the elimination of
nonrecurring expenses are reasonably achievable, SFX's ability to fully
achieve such cost savings and to eliminate the nonrecurring expenses is
subject to numerous factors, many of which are beyond SFX's control. These
factors may include difficulties in integrating the acquired stations and the
incurrence of unanticipated severance, promotional or other costs and
expenses. There can be no assurance that SFX will realize all such cost
savings.
a. To reflect the elimination of existing interest expense of $36,000 and
$2,108,000 related to the Capstar Disposition for the nine months ended
September 30, 1997 and the year ended December 31, 1996, respectively.
b. Reflects increase in amortization of intangible assets of $393,000 and
$525,000 for the nine months ended September 30, 1997 and the year
ended December 31, 1996, respectively, resulting from the purchase
price allocation and change in amortization period related to the
Nashville Acquisition.
c. Amortization of $39,000 and $50,000 for acquisition costs associated
with the Nashville Acquisition for the nine months ended September 30,
1997 and the year ended December 31, 1996, respectively.
d. To reflect the reduced amortization of goodwill and elimination of LMA
fees of the Chancellor Exchange.
F-25
<PAGE>
(C) PENDING ACQUISITIONS AND THE FINANCING--ENTERTAINMENT
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
----------------------------------------------------------
PACE CONTEMPORARY NETWORK BGP
ACQUISITION ACQUISITION ACQUISITION ACQUISITION
I II III IV
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue................... $229,480 $85,570 $20,563 $66,094
Operating expenses........ 205,015 77,284 14,775 59,312
Depreciation &
amortization............. 4,476 1,081 207 729
Corporate expenses........ -- -- -- --
------------- -------------- ------------- -------------
Operating income (loss) .. 19,989 7,205 5,581 6,053
Interest expense.......... 4,803 227 196 837
Other (income) expenses . (394) (170) (123) (221)
Equity (income) loss from
investments ............. (6,615) -- -- --
------------- -------------- ------------- -------------
Income/(loss) before
income tax expense ...... 22,195 7,148 5,508 5,437
Income tax expense
(benefit) ............... 3,751 -- 135 2,237
------------- -------------- ------------- -------------
Net income (loss)......... $ 18,444 $ 7,148 $ 5,373 $ 3,200
============= ============== ============= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA PENDING
CONCERTS/ ADJUSTMENTS ACQUISITIONS
SOUTHERN PRO FORMA FOR THE AND THE
ACQUISITION ADJUSTMENTS FINANCING FINANCING--
V VI VII SFX ENTERTAINMENT
------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Revenue................... $13,093 $ -- $ -- $414,800
Operating expenses........ 10,532 -- -- 366,918
Depreciation &
amortization............. 57 16,703 (a) -- 23,253
Corporate expenses........ -- 1,500 (b) -- 1,500
------------- ------------- ------------- -----------------
Operating income (loss) .. 2,504 (18,203) -- 23,129
Interest expense.......... -- -- (6,063)(a) 31,208
-- 31,208 (b)
Other (income) expenses . (57) 944 (c) -- (21)
Equity (income) loss from
investments ............. (34) (944)(c) -- (7,593)
------------- ------------- ------------- -----------------
Income/(loss) before
income tax expense ...... 2,595 (18,203) (25,145) (465)
Income tax expense
(benefit) ............... -- (2,497)(d) -- 3,626
------------- ------------- ------------- -----------------
Net income (loss)......... $ 2,595 $(15,706) (25,145) $ (4,091)
============= ============= ============= =================
</TABLE>
I. PACE ACQUISITION
Reflects the PACE Acquisition and the separate acquisitions of two
partners' interest in a partnership that owns certain amphitheaters operated
by PACE. The PACE Acquisition is not conditional on the consummation of the
Pavilion Acquisition.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 IN (000'S)
---------------------------------------------------------
PACE PAVILION PRO FORMA PACE
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue.................................. $137,616 $91,114 $ 750 (a) $229,480
Operating expenses ...................... 131,473 75,319 (1,777)(b) 205,015
Depreciation & amortization ............. 1,462 3,014 -- 4,476
Other expenses .......................... 447 -- (447)(c) --
------------- ------------- ------------- -------------
Operating income ........................ 4,234 12,781 2,974 19,989
Interest expense ........................ 1,517 3,286 -- 4,803
Other expenses .......................... 64 1,530 (1,988) (394)
Equity (income) loss from investments .. (6,949) (1,654) 1,988 (d) (6,615)
------------- ------------- ------------- -------------
Income/(loss) before income tax expense 9,602 9,619 2,974 22,195
Income tax expense ...................... 3,751 -- -- 3,751
------------- ------------- ------------- -------------
Net income (loss) ....................... $ 5,851 $ 9,619 $ 2,974 $ 18,444
============= ============= ============= =============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) To reflect non-cash revenue resulting from SFX Entertainment granting
Blockbuster naming rights to three venues for two years for no future
consideration as part of its agreement to acquire Blockbuster's
indirect 33 1/3% interest in Pavilion Partners.
(b) Reflects the elimination of $870,000 of certain officer's bonuses and
wages which will not be paid under SFX Entertainment's new employment
contracts and of $907,000 of non-recurring costs incurred in connection
with PACE's planned initial public offering.
F-26
<PAGE>
(c) Reflects the elimination of non-recurring restricted stock compensation
to PACE executives who will receive incentive stock options pursuant to
their new employment agreements with SFX Entertainment.
(d) To eliminate PACE's income from its 33 1/3% equity investment in
Pavilion Partners. PACE currently owns 33 1/3% in Pavilion Partners and
has agreed to acquire the remaining 66 2/3% interest in Pavilion
Partners pursuant to the Blockbuster Acquisition and Sony Acquisition.
II. CONTEMPORARY ACQUISITION
Reflects the Contemporary Acquisition and the separate acquisition of the
remaining 50% interest in Riverport Amphitheater Partners, a partnership that
owns an amphitheater in St. Louis, MO that is operated by Contemporary. The
Contemporary Acquisition is not conditioned upon the consummation of the
acquisition of such 50% interest.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 IN (000'S)
-----------------------------------------------------------
CONTEMPORARY RIVERPORT PRO FORMA CONTEMPORARY
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue ................................. $71,141 $14,429 $ -- $85,570
Operating expenses ...................... 66,764 11,223 (703)(a) 77,284
Depreciation & amortization ............. 498 583 -- 1,081
-------------- ------------- ------------- --------------
Operating income ........................ 3,879 2,623 703 7,205
Interest expense ........................ 153 74 -- 227
Other income ............................ (122) (48) -- (170)
Equity (income) from investments ....... (1,298) -- 1,298 (b) --
-------------- ------------- ------------- --------------
Income (loss) before income tax expense 5,146 2,597 (595) 7,148
Income tax expense ...................... -- -- -- --
-------------- ------------- ------------- --------------
Net income (loss) ....................... $ 5,146 $ 2,597 $ (595) $ 7,148
============== ============= ============= ==============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) Reflects the elimination of consulting expenses which will not be paid
under SFX Entertainment's new contracts.
(b) Reflects the elimination of Contemporary's equity income in Riverport
Amphitheater Partners. Contemporary had entered into an agreement to
acquire its partners' 50% interest in this venture. If Contemporary is
unable to complete this acquisition of the remaining 50% interest in
Riverport Amphitheater Partners, the cash consideration paid by SFX
Entertainment for Contemporary will be reduced by $10,500,000.
The acquisition agreement provides that in the event the Contemporary
Acquisition is consummated prior to the consummation of the Spin-Off,
1,402,851 shares of preferred stock of SFX Entertainment will be issued to
the Sellers. Such preferred stock is to be converted into an equal number of
shares of Class A Common Stock of SFX Entertainment upon consummation of the
Spin-Off or, if the Spin-Off shall not have occurred prior to July 1, 1998,
such preferred stock is to be redeemed at their fair market value, but in no
event less than $18,700,000.
III. NETWORK ACQUISITION
The Network Acquisition consists of the separate acquisitions of Network
Magazine and SJS. These acquisitions are each conditioned on the concurrent
closing of the other.
F-27
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 IN (000'S)
--------------------------------------------------------------
THE NETWORK
MAGAZINE SJS PRO FORMA NETWORK
AS REPORTED (a) AS REPORTED (a) ADJUSTMENTS ACQUISITIONS
--------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue ................................. $12,047 $10,737 $(2,221)(c) $20,563
Operating expenses ...................... 11,878 10,717 (5,599)(b) 14,775
Depreciation & amortization ............. 119 88 -- 207
--------------- --------------- ------------- --------------
Operating income (loss) ................. 50 (68) 5,599 5,581
Interest expense ........................ 163 33 -- 196
Other income ............................ (43) (80) -- (123)
--------------- --------------- ------------- --------------
(Loss) income before income tax expense (70) (21) 5,599 5,508
Income tax expense ...................... -- 135 -- 135
--------------- --------------- ------------- --------------
Net (loss) income ....................... $ (70) $ (156) $ 5,599 $ 5,373
=============== =============== ============= ==============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) SFX Entertainment's purchase agreement for Network Magazine and SJS
provides that the purchase price will be increased by $4,000,000 if
total 1998 EBITDA as defined equals $9,000,000; by an additional $4 for
each $1 increase in EBITDA between $9,000,000 and $10,000,000 and by an
additional $6 for each $1 increase in EBITDA between $10,000,000 and
$11,000,000 (maximum of $14,000,000 additional consideration). The
additional consideration is payable is stock or cash at SFX
Entertainment's option. The pro forma statement of operation assumes
that no additional consideration is paid.
(b) Reflects the elimination of certain officer's bonuses and wages which
will not be paid under SFX Entertainment's new employment contracts.
(c) Reflects the elimination of transactions between Network Magazine and
SJS.
IV. BGP ACQUISITION
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 IN
(000'S)
-------------------------------------------
PRO FORMA BGP
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- -------------
<S> <C> <C> <C>
Revenue ......................... $66,094 $-- $66,094
Operating expenses............... 59,312 -- 59,312
Depreciation & amortization .... 729 -- 729
------------- ------------- -------------
Operating income................. 6,053 -- 6,053
Interest expense................. 837 -- 837
Other income..................... (221) -- (221)
------------- ------------- -------------
Income before income tax
expense......................... 5,437 -- 5,437
Income tax expense............... 2,237 -- 2,237
------------- ------------- -------------
Net income....................... $ 3,200 $-- 3,200
============= ============= =============
</TABLE>
- ------------
(a) Reflects BGP's audited actual operating results for the nine months
ended October 31, 1997.
F-28
<PAGE>
V. CONCERT/SOUTHERN ACQUISITION
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 IN
(000'S)
-------------------------------------------
CONCERT/
PRO FORMA SOUTHERN
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- -------------
<S> <C> <C> <C>
Revenue.......................... $13,093 $ -- $13,093
Operating expenses............... 11,097 (565)(a) 10,532
Depreciation & amortization ..... 57 -- 57
------------- ------------- -------------
Operating income................. 1,939 565 2,504
Interest expense................. -- -- --
Other income..................... (57) -- (57)
Equity loss (income) from
investments..................... 11 (45)(b) (34)
------------- ------------- -------------
Income before income tax
expense......................... 1,985 610 2,595
Income tax expense............... -- -- --
------------- ------------- -------------
Net income....................... $ 1,985 $ 610 $ 2,595
============= ============= =============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) Reflects the elimination of certain officer's bonuses and wages which
will not be paid under SFX Entertainment's new employment contracts.
(b) Reflects the elimination of equity income of a non-entertainment
affiliated entity which is not being acquired by SFX Entertainment.
VI. PRO FORMA ADJUSTMENTS
(a) Reflects the increase in depreciation and amortization resulting from
the preliminary purchase accounting treatment of the Pending
Acquisitions. SFX Entertainment amortizes goodwill over 15 years.
(b) To record incremental corporate overhead charges associated with
incremental headquarters personnel and general and administrative
expenses that management estimates will be necessary following
completion of the Pending Acquisitions.
(c) To reclassify Delsener/Slater's equity income in the PNC Bank Arts
Center venue following the acquisition of Pavilion Partners which owns
the other 50% equity interest in the venue.
(d) Represents an adjustment to the provision for income taxes to reflect
the appropriate pro forma tax provision.
VII. PRO FORMA FOR THE FINANCING
(a) Represents the elimination of existing interest expense for the Pending
Acquisitions.
(b) Reflects interest expense associated with the issuance of $275,000,000
of New Notes, the New Credit Agreement, other debt and deferred
compensation costs for the Pending Acquisitions. There can be no
assurance that SFX Entertainment will be able to obtain such financing
on acceptable terms, or at all.
F-29
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
-------------------------------------------------------------------------
CONCERT/
PACE CONTEMPORARY NETWORK BGP SOUTHERN
ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITION
I II III IV V
------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue................... $246,595 $71,545 $24,556 $92,331 $12,601
Operating expenses........ 237,999 64,274 18,403 85,960 10,481
Depreciation &
amortization............. 5,336 1,334 268 1,474 69
Corporate expenses........ -- -- -- -- --
------------- -------------- ------------- ------------- -------------
Operating income (loss) .. 3,260 5,937 5,885 4,897 2,051
Interest expense.......... 5,456 383 294 1,258 --
Other (income) expenses .. (368) (770) (42) (584) (47)
-- -- (1,811)
Equity (income) loss from
investments.............. (2,945) -- -- -- 38
------------- -------------- ------------- ------------- -------------
Income (loss) before
income tax expense....... 1,117 6,324 5,633 4,223 2,060
Income tax expense
(benefit)................ (714) 35 303 1,272 --
------------- -------------- ------------- ------------- -------------
Net income (loss)......... $ 1,831 $ 6,289 $ 5,330 $ 2,951 $ 2,060
============= ============== ============= ============= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA PENDING
ADJUSTMENTS ACQUISITIONS
PRO FORMA FOR THE AND THE
ADJUSTMENTS FINANCING FINANCING--
VI VII SFX ENTERTAINMENT
------------- ------------- -----------------
<S> <C> <C> <C>
Revenue................... $ (312)(d) $ -- $447,316
Operating expenses........ -- -- 417,117
Depreciation &
amortization............. 22,481 (a) -- 30,962
Corporate expenses........ 2,000 (b) -- 2,000
------------- ------------- -----------------
Operating income (loss) .. (24,793) -- (2,763)
Interest expense.......... (7,391)(a)
Other (income) expenses .. -- 41,610 (b) 41,610
Equity (income) loss from
investments.............. (312)(d) -- (3,219)
------------- ------------- -----------------
Income (loss) before
income tax expense....... (24,481) (34,219) (39,343)
Income tax expense
(benefit)................ 809 (c) -- 1,705
------------- ------------- -----------------
Net income (loss)......... $(25,290) $(34,219) $(41,048)
============= ============= =================
</TABLE>
F-30
<PAGE>
I. PACE ACQUISITION
Reflects the PACE Acquisition and the separate acquisitions of two
partners' interest in a partnership that owns certain amphitheaters operated
by PACE. The PACE Acquisition is not conditioned on the consummation of the
Pavilion Acquisition.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 IN (000'S)
--------------------------------------------------------------------------------------
PACE PAVILION PAVILION PAVILION PRO FORMA PACE
AS REPORTED (a) 1 MONTH (b) 11 MONTHS (b) AS REPORTED ADJUSTMENTS ACQUISITION
--------------- ----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue..................... $156,325 $5,177 $84,093 $89,270 $ 1,000 (c) $246,595
Operating expenses.......... 155,533 5,199 77,267 82,466 -- 237,999
Depreciation &
amortization............... 1,737 253 3,346 3,599 -- 5,336
Other expenses.............. 3,675 -- -- -- (3,675)(d) --
--------------- ----------- ------------- ------------- ------------- -------------
Operating (loss) income .... (4,620) (275) 3,480 3,205 4,675 3,260
Interest expense............ 1,206 395 3,855 4,250 -- 5,456
Other income................ (59) (123) (83) (206) (103) (368)
Equity (income) loss from
investments................ (3,048) -- -- -- 103 (e) (2,945)
--------------- ----------- ------------- ------------- ------------- -------------
Income (loss) before income
tax expense................ (2,719) (547) (292) (839) 4,675 1,117
Income tax (benefit)........ (714) -- -- -- -- (714)
--------------- ----------- ------------- ------------- ------------- -------------
Net (loss) income........... $ (2,005) $ (547) $ (292) $ (839) $ 4,675 $ 1,831
=============== =========== ============= ============= ============= =============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) Reflects PACE's audited operating results for fiscal year ended
September 30, 1996.
(b) Reflects Pavilion Partners' unaudited operating results for the one
month ended October 31, 1995 and the audited operating results for
the eleven months ended September 30, 1996. During 1996, Pavilion
Partners changed its fiscal year-end from October 31 to September 30.
PACE currently owns 33 1/3% in Pavilion Partners and has agreed to
acquire the remaining 66 2/3% interest from the two partners
Blockbuster and Sony.
(c) To reflect non-cash revenue resulting from SFX Entertainment granting
Blockbuster naming rights to three venues for two years for no future
consideration as part of its agreement to acquire Blockbuster's
indirect 33 1/3% interest in Pavilion Partners.
(d) Reflects the elimination of non-recurring restricted stock
compensation to PACE executives who will receive incentive stock
options pursuant to their new employment agreements with SFX
Entertainment.
(e) To eliminate PACE's income from its 33 1/3% equity investment in
Pavilion Partners. PACE currently owns 33 1/3% in Pavilion Partners
and has agreed to acquire the remaining 66 2/3% interest in Pavilion
Partners pursuant to the Blockbuster Acquisition and Sony
Acquisition.
F-31
<PAGE>
II. CONTEMPORARY ACQUISITION
Reflects the Contemporary Acquisition and the separate acquisition of the
remaining 50% interest in Riverport Amphitheater Partners, a partnership that
owns an amphitheater in St. Louis, MO that is operated by Contemporary. The
Contemporary Acquisition is not conditioned upon the consummation of the
acquisition of such 50% interest.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 IN (000'S)
-----------------------------------------------------------
CONTEMPORARY RIVERPORT PRO FORMA CONTEMPORARY
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue................................. $59,852 $11,693 $ -- $71,545
Operating expenses...................... 58,189 9,722 (3,637)(a) 64,274
Depreciation & amortization............. 567 767 -- 1,334
-------------- ------------- ------------- --------------
Operating income........................ 1,096 1,204 3,637 5,937
Interest expense........................ 213 170 -- 383
Other income............................ (159) (611) -- (770)
Equity (income) loss from investments .. (822) -- 822 (b) --
-------------- ------------- ------------- --------------
Income (loss) before income tax
expense................................ 1,864 1,645 2,815 6,324
Income tax expense...................... 35 -- 35 --
-------------- ------------- ------------- --------------
Net income.............................. $ 1,829 $ 1,645 $ 2,815 $ 6,289
============== ============= ============= ==============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) Reflects the elimination of certain officer's bonuses and wages not
expected to be paid under SFX Entertainment new employment contracts.
(b) Reflects the elimination of Contemporary's equity income in Riverport
Amphitheater Partners. Contemporary had entered into an agreement to
acquire its partners' 50% interest in this venture. If Contemporary
is unable to complete this acquisition of the remaining 50% interest
in Riverport Amphitheater Partners, the cash consideration paid by
SFX Entertainment for Contemporary will be reduced by $10,500,000.
The acquisition agreement provides that in the event the Contemporary
Acquisition is consummated prior to the consummation of the Spin-Off,
1,402,851 shares of preferred stock of SFX Entertainment will be issued to
the Sellers. Such preferred stock is to be converted into an equal number of
shares of Class A Common Stock of SFX Entertainment upon consummation of the
Spin-Off or, if the Spin-Off shall not have occurred prior to July 1, 1998,
such preferred stock is to be redeemed at their fair market value, but in no
event less than $18,700,000.
F-32
<PAGE>
III. NETWORK ACQUISITIONS
The Network Acquisitions consist of the separate acquisitions of Network
Magazine and SJS. These acquisitions are each conditioned on the concurrent
closing of the other.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 IN (000'S)
------------------------------------------------------------
THE NETWORK
MAGAZINE SJS PRO FORMA NETWORK
AS REPORTED (a) AS REPORTED ADJUSTMENTS ACQUISITIONS
--------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue.......................... $14,767 $11,375 $(1,586)(c) $24,556
Operating expenses............... 14,275 11,259 (5,545)(b) 18,403
(1,586)(c)
Depreciation & amortization ..... 184 84 -- 268
--------------- ------------- ------------- --------------
Operating income................. 308 32 5,545 5,885
Interest expense................. 291 3 -- 294
Other income..................... (42) -- -- (42)
--------------- ------------- ------------- --------------
Income before income tax
expense......................... 59 29 5,545 5,633
Income tax expense............... 212 91 -- 303
--------------- ------------- ------------- --------------
Net (loss) income................ $ (153) $ (62) $ 5,545 $ 5,330
=============== ============= ============= ==============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) Reflects Network Magazine's audited operating results for fiscal year
ended September 30, 1996. SFX Entertainment's purchase agreement for
Network Magazine and SJS provides that the purchase price will be
increased by $4,000,000 if total 1998 EBITDA as defined equals
$9,000,000; by an additional $4 for each $1 increase in EBITDA
between $9,000,000 and $10,000,000 and by an additional $6 for each
$1 increase in EBITDA between $10,000,000 and $11,000,000 (maximum of
$14,000,000 additional consideration). The additional consideration
is payable is stock or cash at SFX Entertainment's option. The pro
forma statement of operations assumes that no additional
consideration is paid.
(b) Reflects the elimination of certain officer's bonuses and wages which
will not be paid under SFX Entertainment's new employment contracts.
(c) Reflects the elimination of transactions between Network Magazine and
SJS.
F-33
<PAGE>
IV. BGP ACQUISITION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 IN (000'S)
---------------------------------------------
PRO FORMA BGP
AS REPORTED (a) ADJUSTMENTS ACQUISITION
--------------- ------------- -------------
<S> <C> <C> <C>
Revenue.......................... $92,331 $ -- $92,331
Operating expenses............... 87,520 (1,560)(b) 85,960
Depreciation & amortization ..... 1,474 -- 1,474
--------------- ------------- -------------
Operating income................. 3,337 1,560 4,897
Interest expense................. 1,258 -- 1,258
Other Expense.................... (584) -- (584)
--------------- ------------- -------------
Income before income tax
expense......................... 2,663 1,560 4,223
Income tax expense............... 1,272 -- 1,272
--------------- ------------- -------------
Net income....................... $ 1,391 $ 1,560 $ 2,951
=============== ============= =============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) Reflects BGP's audited operating results for the fiscal year ended
January 31, 1997.
(b) Reflects the elimination of certain officer's bonuses, wages,
partnership life insurance, profit sharing and other eliminating
adjustments which will not be paid under SFX Entertainment's new
contracts.
V. CONCERT/SOUTHERN ACQUISITION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 IN (000'S)
-------------------------------------------
CONCERT/
PRO FORMA SOUTHERN
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- -------------
<S> <C> <C> <C>
Revenue.......................... $12,601 $ -- $12,601
Operating expenses............... 10,873 (392)(a) 10,481
Depreciation & amortization ..... 69 -- 69
------------- ------------- -------------
Operating income................. 1,659 392 2,051
Investment income................ (47) -- (47)
Equity loss from investments .... 27 11 (b) 38
------------- ------------- -------------
Income before income tax
expense......................... 1,679 381 2,060
Income tax expense............... -- -- --
------------- ------------- -------------
Net income....................... $ 1,679 $ 381 $ 2,060
============= ============= =============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) Reflects the elimination of certain officer's bonuses and wages which
will not be paid under the SFX Entertainment new employment
contracts.
(b) Reflects the elimination of equity loss of a non-entertainment
affiliated entity which is not being acquired by SFX Entertainment.
F-34
<PAGE>
VI. PRO FORMA ADJUSTMENTS:
(a) Reflects the increase in depreciation and amortization resulting from
the preliminary purchase accounting treatment of the Pending
Acquisitions. SFX Entertainment amortizes goodwill over 15 years.
(b) To record incremental corporate overhead charges associated with
incremental headquarters personnel that management estimates will be
necessary following completion of the Pending Acquisitions.
(c) Reflects estimated state and local income taxes. On a consolidated
pro forma basis, SFX Entertainment has a net operating loss for the
year ending December 31, 1996 of approximately $16 million for which
no federal tax benefit has been provided.
(d) To reclassify the Delsener/Slater's equity income in the PNC Bank
Arts Center venue following the acquisition of Pavilion Partners
which owns the other 50% equity interest in the venue.
VII. PRO FORMA FOR THE FINANCINGS:
(a) Represents the elimination of existing interest expense for the
Pending Acquisitions.
(b) Reflects interest expense associated with the $275,000,000 in
privately-placed debt, the senior credit facility, other debt and
deferred compensation costs for the Pending Acquisitions. There can
be no assurance that SFX Entertainment will be able to obtain such
financing on acceptable terms, or at all.
(D) SFX ENTERTAINMENT PRO FORMA FOR THE PENDING ACQUISITIONS
o Reflects pro forma operating results of SFX Entertainment had all the
Pending Acquisitions--Entertainment and the Delsener/Slater, Meadows,
and Sunshine Acquisitions been consummated at January 1, 1996.
(E) PRO FORMA FOR THE SPIN-OFF--SFX ENTERTAINMENT
o Reflects pro forma operating results of SFX after the Spin-Off of SFX
Entertainment.
F-35
<PAGE>
GLOSSARY TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
"Albany Acquisition" means the acquisition by SFX, consummated in January
1997, of substantially all of the assets used in the operation of WYSR-FM,
operating in Albany, New York.
"BGP Acquisition" means the pending acquisition by SFX Entertainment of BG
Presents, Inc., a concert promotion company operating in San Francisco,
California.
"Capstar Disposition" means the pending sale by SFX of the Jackson
stations and the Biloxi station.
"CBS Exchange" means the exchange by SFX, consummated in March 1997 of
radio station WHFS-FM, operating in Washington, D.C./Baltimore, Maryland, for
KTXQ-FM and KRRW-FM, both operating in Dallas, Texas, and owned by CBS, Inc.
As such, historical operating results for WHFS-FM, KTXQ-FM and KRRW-FM have
been added to SFX, as reported amounts for the twelve months ending December
31, 1996 and from January 1, 1997 through March 31, 1997.
"Chancellor Exchange" means the pending exchange of SFX's radio stations
WBAB-FM, WHFM-FM, WBLI-FM and WGBB-AM, each operating on Long Island, New
York, for WFYV-FM and WAPE-FM, both operating in Jacksonville, Florida, and a
payment to SFX of $11.0 million in cash.
"Charlotte Acquisition" means the acquisition by SFX, consummated in
February 1996, of WTDR-FM and WLYT-FM, both operating in Charlotte, North
Carolina. As such, historical operating results for WTDR-FM and WLYT-FM have
been added to SFX, as reported amounts from January 1, 1996 through February
1, 1996.
"Charlotte Exchange" means the exchange by SFX, consummated in August 1997
of WDSY-FM in Pittsburgh, Pennsylvania and $20 million in cash for WRFX-FM in
Charlotte, North Carolina. As such, historical operating results for WRFX-FM
have been added to SFX, as reported amounts for the year ending December 31,
1996 and from January 1, 1997 through August 1, 1997.
"Completed Transactions" means, collectively, the MMR Merger, the
Greensboro Acquisition, the Liberty Acquisition, the Prism Acquisition, the
Jackson Acquisitions, the Greenville Acquisition, the CBS Exchange, the
Louisville Acquisition, the Raleigh-Greensboro Acquisitions, the Houston
Exchange, the Albany Acquisition, the Delsener/Slater Acquisition, the
Meadows Acquisition, the Secret Communications Acquisition, the Sunshine
Acquisition, the Richmond Acquisition, the Hearst Acquisition, the
acquisitions of WTDR-FM and WLYT-FM, both operating in Charlotte, North
Carolina, KTCK-FM, operating in Dallas, Texas, and KYXY-FM, operating in San
Diego, California, the Little Rock Disposition, the Washington Dispositions,
the Louisville Dispositions, the Dallas Disposition.
"Concert/Southern Acquisition" means the pending acquisition by SFX
Entertainment of Concerts/ Southern, a concert promotion company, operating
in Atlanta, Georgia.
"Contemporary Acquisition" means the pending acquisition by SFX
Entertainment of the Contemporary Group, a concert promotion company,
operating in St. Louis, Missouri, and certain affiliated entities.
"Credit Agreement" means the definitive credit agreement SFX entered into
on June 23, 1997, which increases amounts available under its senior credit
facility to $400 million.
"Dallas Disposition" means the sale by SFX, consummated in October 1996,
of radio station KTCK-AM, operating in Dallas, Texas. As such, historical
operating results for KTCK-AM have been added to SFX, as reported amounts
from January 1, 1996 through October 17, 1996.
"Delsener/Slater Acquisition" means the acquisition by SFX, consummated in
January 1997, of Delsener/Slater Enterprises, Ltd., a concert promotion
company, and certain affiliated entities (collectively, "Delsener/Slater").
As such, historical the operating results for Delsener/Slater have been added
to SFX, as reported amounts for the 12 months ending December 31, 1996.
"Greensboro Acquisition" means the acquisition by SFX, consummated in
December 1996, of substantially all of the assets of WHSL-FM, operating in
Greensboro, North Carolina. As such, historical the operating results for
WHSL-FM have been added to SFX, as reported amounts from January 1, 1996
through December 6, 1996.
F-36
<PAGE>
"Greenville Acquisition" means the acquisition by SFX, consummated in
June 1996, of substantially all of the assets of WROQ-FM, operating in
Greenville-Spartanburg, South Carolina. As such, historical the operating
results for WROQ-FM have been added to SFX, as reported amounts from January
1, 1996 through June 25, 1996.
"Hartford Acquisition" means the acquisition by SFX, consummated in
February 1997, of WWYZ-FM, which operates in Hartford, Connecticut. As such,
historical the operating results for WWYZ-FM have been added to SFX, as
reported amounts for the year ending December 31, 1996 and from January 1,
1997 through February 28, 1997.
"Hearst Acquisition" means the acquisition by SFX, consummated in August
1997, of two radio stations operating in Pittsburgh, Pennsylvania and two
stations in Milwaukee, Wisconsin for cash. As such, historical operating
results for the Pittsburgh and Milwaukee Stations have been added to SFX, as
reported amounts for the year ending December 31, 1996 and from January 1,
1997 through August 1, 1997.
"Houston Exchange" means the exchange by SFX, consummated in December
1996, of SFX's radio station KRLD-AM, operating in Dallas, Texas, and SFX's
Texas State Networks for radio station KKRW-FM, operating in Houston, Texas.
As such, historical the operating results for KRLD-FM and KKRW-FM have been
added to SFX, as reported amounts from January 1, 1996 through December 1,
1996.
"Jackson Acquisitions" means, collectively, the acquisitions by SFX,
consummated in the third quarter of 1996, of substantially all of the assets
of WJDX-FM, WSTZ-FM and WZRX-AM, each operating in Jackson, Mississippi. As
such, the historical operating results for WJDX-FM have been added to SFX, as
reported amounts from January 1, 1996 through July 19, 1996, while the
historical operating results for WSTZ-FM and WZRX-AM have been added to SFX,
as reported amounts from January 1, 1996 through August 29, 1996.
"Liberty Acquisition" means the acquisition by SFX, consummated in July
1996, of Liberty Broadcasting Incorporated, which owned and operated or
provided programming to or sold advertising on behalf of 14 FM and six AM
radio stations located in six markets: Washington, DC/Baltimore, Maryland;
Nassau-Suffolk, New York; Providence, Rhode Island; Hartford, Connecticut;
Albany, New York; and Richmond, Virginia. As such, historical the operating
results for the 14 FM and six AM stations have been added to SFX, as reported
amounts from January 1, 1996 through July 1, 1996.
"Louisville Acquisition" means the acquisition by SFX, consummated in
September 1996, from Prism of substantially all of the assets of WVEZ-FM,
WTFX-FM and WWKY-AM, each operating in Louisville, Kentucky. As such,
historical the operating results for the three stations have been added to
SFX, as reported amounts from January 1, 1996 through September 17, 1996.
"Louisville Dispositions" means the sale by SFX, consummated in October
1996, of the three stations acquired in the Louisville Acquisition. As such,
historical operating results for the three stations have been added to SFX,
as reported amounts from January 1, 1996 through October 1, 1996.
"Meadows Acquisition" means the acquisition by SFX, consummated in March
1997, of the Meadows Music Theater in Hartford, Connecticut. As such,
historical operating results for Meadows Music Theater have been added to
SFX, as reported amounts for the year ending December 31, 1996 and from
January 1, 1997 through March 19, 1997.
"MMR" means Multi-Market Radio, Inc.
"MMR Hartford Acquisition" means MMR's acquisition by SFX, consummated in
September 1996, of WKSS-FM, operating in Hartford, Connecticut. As such,
historical operating results for WKSS-FM have been added to SFX, as reported
amounts from January 1, 1996 through September 4, 1996.
"MMR Merger" means the merger, consummated in November 1996, of a
wholly-owned subsidiary of SFX with and into MMR, as a result of which MMR
became a wholly-owned subsidiary of SFX. As such, historical operating
results for MMR have been added to SFX, as reported amounts from January 1,
1996 through November 22, 1996.
F-37
<PAGE>
"Myrtle Beach Acquisition" means MMR's acquisition of WMYB-FM, operating
in Myrtle Beach, South Carolina.
"Nashville Acquisition" means the pending acquisition by SFX of WJZC-FM,
WLAC-FM and WLAC-AM, each operating in Nashville, Tennessee, from Sinclair
Broadcasting Group.
"Network Acquisition" means the pending acquisition by SFX Entertainment
of the Network Magazine Group and SJS Entertainment, a creator, producer and
distributor of live concert programming and network radio special events.
"PACE Acquisition" means the pending acquisition by SFX Entertainment of
PACE Entertainment Corporation (including the purchase of the Pavilion
Partners), a concert promotion company operating in Houston, Texas.
"Pending Acquisition and Disposition--Broadcasting" means, collectively,
the Capstar Disposition and the Nashville Acquisition.
"Pending Acquisitions--Entertainment" means, collectively, the BGP
Acquisition, the Concert/ Southern Acquisition, the Contemporary Acquisition,
the Network Acquisitions and the PACE Acquisition.
"Pending Transactions" means the Pending Acquisition and
Disposition--Broadcasting and the Pending Acquisitions--Entertainment.
"Prism Acquisition" means the acquisition by SFX, consummated in the third
quarter of 1996, of substantially all of the assets of Prism used in the
operation of ten FM and six AM radio stations located in five markets:
Louisville, Kentucky; Jacksonville, Florida; Raleigh, North Carolina; Tucson,
Arizona; and Wichita, Kansas. As such, historical operating results for the
Prism stations have been added to SFX, as reported amounts from January 1,
1996 through July 8, 1996.
"Raleigh-Greensboro Acquisitions" means the acquisition by SFX,
consummated in June 1996, of substantially all of the assets of WMFR-AM,
WMAG-FM and WTCK-AM, each operating in Greensboro, North Carolina, and
WTRG-FM and WRDU-FM, both operating in Raleigh, North Carolina. As such,
historical operating results for the Raleigh-Greensboro stations have been
added to SFX, as reported amounts from January 1, 1996 through June 28, 1996.
"Richmond Acquisition" means the acquisition by SFX, consummated in July
1997, of ABS Communications L.L.C., which owns or will acquire WVGO-FM,
WLEE-FM, WKHK-FM and WBZU-FM, each operating in Richmond, Virginia, net of
the pending disposition of WVGO for $4.5 million. As such, historical
operating results for the four stations have been added to SFX, as reported
amounts for the year ending December 31, 1996 and from January 1, 1997
through July 2, 1997.
"Secret Communications Acquisition" means the acquisition by SFX of
WFBQ-FM, WRZX-FM and WNDE-AM, each operating in Indianapolis, Indiana,
consummated in April 1997, and WDVE-FM, WXDX-FM, and WJJJ-FM, each operating
in Pittsburgh, Pennsylvania, consummated in June 1997. As such, historical
operating results for the Indianapolis stations have been added to SFX, as
reported amounts for the year ending December 31, 1996 and from January 1,
1997 through April 1, 1997, while the operating results for the Pittsburgh
stations have been added to SFX, as reported amounts are included for the
year ending December 31, 1996 and from January 1, 1997 through June 1, 1997.
"Sunshine Acquisition" means the acquisition by SFX, consummated in June
1997, of Sunshine Promotions, Inc. a concert promotion company, and certain
affiliated entities (collectively "Sunshine"). As such, historical operating
results for Sunshine Promotions have been added to SFX, as reported amounts
for the year ending December 31, 1996 and from January 1, 1997 through June
1, 1997.
"Texas Coast Acquisition" means the acquisition by SFX, consummated in
February 1997, of radio stations KQUE-FM and KNUZ-AM in Houston, Texas. As
such, historical operating results for KQUE-FM and KNUZ-AM have been added to
SFX, as reported amounts for the year ending December 31, 1996 and from
January 1, 1997 through February 28, 1997.
F-38
<PAGE>
"Washington Dispositions" means the sale by SFX, consummated in July
1996, of three of the stations acquired from Liberty Broadcasting, each
operating in the Washington, D.C./Baltimore, Maryland market. As such, the
historical operating results for the three stations have been added to SFX,
as reported amounts from January 1, 1996 through July 1, 1996.
F-39
<PAGE>
ANNEX A
AMENDMENTS TO INDENTURE
The following sets forth certain provisions of the Indenture substantially
as it would read if the Proposed Amendments were adopted and became
operative. Language which is double-underscored will be added to the
Indenture; deletions are indicated by a caret (caret). The Proposed Amendments,
if adopted, will be set forth in the Supplemental Indenture to be executed by
the Company, the Guarantors and the Trustee.
The following descriptions are qualified in their entirety by reference to
the Notes, the Indenture and the Supplemental Indenture. Copies of the form
of Supplemental Indenture setting forth the Proposed Amendments are available
upon request to the Information Agent. Capitalized terms used below without
definition have the same meanings as set forth in the Indenture.
Section 1.01 Definitions.
"Acquisition Agreements" means the acquisition agreements relating to the
Pending Acquisitions (as defined in the Consent Solicitation Statement of the
Company dated January 7, 1998) as they may be amended from time to time and
all transactions and agreements specifically contemplated thereby or by
instruments referred to therein.
"Class A Common Stock" means the Company's Class A Common Stock, par value
$.01 per share.
"Class B Common Stock" means the Company's Class B Common Stock, par value
$.01 per share.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale by such Person or any of its Subsidiaries during such period
(to the extent such losses were deducted in computing such Consolidated Net
Income), plus (ii) provision for taxes based on income or profits of such
Person and its Subsidiaries for such period, to the extent that such
provision for taxes was included in computing such Consolidated Net Income,
plus (iii) Consolidated Interest Expense of such Person for such period, to
the extent any such Consolidated Interest Expense was deducted in computing
such Consolidated Net Income, plus (iv) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
charges (excluding any such non-cash charge to the extent that it represents
an accrual of or reserve for cash charges in any future period) of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in
computing such Consolidated Net Income, plus (v) the Specified Charges (as
defined in the Corporation's Consent Solicitation Statement relating to the
Indenture dated January 7, 1998), plus (vi) unusual and nonrecurring charges
paid or accrued in 1997 or 1998 (including, but not limited to, legal,
accounting, investment banking, severance, termination, non-compete and
consent fees) relating to the Merger Agreement, the Spin-Off and transactions
related thereto less (vii) all non-cash items increasing Consolidated Net
Income for such period (excluding any such non-cash income to the extent it
represents an accrual of cash income in any future period), in each case, on
a consolidated basis and determined in accordance with GAAP. For elimination
of doubt, the term "extraordinary loss" as used in this definition shall be
deemed to include all nonrecurring and unusual charges that management, in
its professional judgment, believes are not indicative of continuing
operating expenses.
"Entertainment Companies" means SFX Entertainment and any and all of its
direct and indirect Subsidiaries.
"Meadows Repurchase" means the redemption by the Company of up to 250,838
shares of Class A Common Stock for $33.00 per share, pursuant to the
Agreement of Merger, dated February 12, 1997, by and among the Company, NOC
Acquisition Corp., CAPCO Acquisition Corp., QN Acquisition Corp., Nederlander
of Connecticut, Inc., Connecticut Amphitheater Development Corporation, QN
Corp., Connecticut Performing Arts, Inc. and Connecticut Performing Arts
Partners and the stockholders of Nederlander of Connecticut, Inc.,
Connecticut Ampitheater Development Corporation and QN Corp. listed on the
signature page thereto.
A-1
<PAGE>
"Merger Agreement" means the Agreement and Plan of Merger, dated as of
August 24, 1997, as it may be amended from time to time, among the Company,
SBI Holding Corporation and SBI Radio Acquisition Corporation and all
transactions and agreements specifically contemplated thereby or by
instruments referred to therein.
"SBI Merger" means a merger of SBI Radio Acquisition Corporation into the
Company pursuant to the Merger Agreement.
"SFX Entertainment" means SFX Entertainment, Inc., a subsidiary of the
Company, incorporated in Delaware, to which the Company will contribute cash
and all of the capital stock of SFX Concerts, Inc. (formerly known as
Delsener/Slater Enterprises, Inc.,) that the Company directly or indirectly
owns.
"Spin-Off" means the distribution of SFX Entertainment common stock pro
rata to the holders of Class A Common Stock and Class B Common Stock (and the
transfer to an escrow account for delivery to the holders of certain warrants
to receive Class A Common Stock) or other disposition pursuant to, or as
permitted by, the Merger Agreement of all of the capital stock and assets of
the Entertainment Companies.
"Spin-Off Transactions" means the Spin-Off, the Merger Agreement and
related transactions described or referred to under the "Proposed Amendments"
section of Consent Solicitation Statement of the Company dated January 7,
1998 sent to Holders of the Notes relating to this Indenture.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Voting Stock thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof) and (ii) any
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or of one or more Subsidiaries of such
Person (or any combination thereof); however, with respect to the Company,
"Subsidiary" does not include the Entertainment Companies.
SECTION 4.07 RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's Equity Interests
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company) or to the direct or indirect holders of
the Company's Equity Interests in their capacity as such (other than
dividends or distributions payable in Capital Stock (other than Disqualified
Stock) of the Company); (ii) purchase, redeem or otherwise acquire or retire
for value any Equity Interests of the Company or any direct or indirect
parent of the Company; (iii) make any principal payment on, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness
that is subordinated to the Notes, except at final maturity; or (iv) make any
Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at that time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness (other than Permitted
Debt) pursuant to the Debt to Cash Flow Ratio test set forth in the first
paragraph of Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made after the date hereof (other than
Restricted Payments permitted by clauses (2), (4), (6),(caret)(11), (12) or (13)
of the following paragraph) shall not exceed, at the date of determination,
the sum of (1) an amount equal to the Company's Consolidated Cash Flow from
the date hereof to the end of the Company's most recently ended full fiscal
quarter for which internal financial statements are available, taken as a
single accounting period, less the product of 1.4 times the Company's
Consolidated Interest
A-2
<PAGE>
Expense from the date hereof to the end of the Company's most recently ended
full fiscal quarter, for which internal financial statements are available,
taken as a single accounting period, plus (2) an amount equal to the net cash
proceeds received by the Company from the issue or sale of Equity Interests
(other than (i) in the Preferred Stock Offering, (ii) sales of Disqualified
Stock and (iii) Equity Interests sold to any of the Company's Subsidiaries)
or of debt securities or Disqualified Stock (other than the Series D
Preferred Stock) of the Company that have been converted into such Equity
Interests plus (3) to the extent that any Restricted Investment that was made
after the date hereof is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment.
If no Default or Event of Default shall have occurred and be continuing
immediately as a result thereof, the foregoing provisions shall not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied with
the provisions hereof; (2) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of other Equity Interests of the Company (other
than any Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (c)(2) of the preceding
paragraph; (3) cash payments made in respect of fractional shares of Capital
Stock not to exceed $100,000 in the aggregate in any fiscal year; (4) the
issuance of the Exchange Notes in exchange for the Series D Preferred Stock;
provided that such issuance is permitted by Section 4.09 hereof; (5) in the
event that the Company elects to issue the Exchange Notes in exchange for the
Series D Preferred Stock, cash payments made in lieu of the issuance of
Exchange Notes having a face amount less than $50 and any cash payments
representing accrued and unpaid liquidated damages and dividends in respect
thereof, not to exceed $100,000 in the aggregate in any fiscal year; (6) the
defeasance, redemption or repurchase of subordinated Indebtedness with the
net cash proceeds from an incurrence of Permitted Refinancing Debt or the
substantially concurrent sale (other than to a Subsidiary of the Company) of
Equity Interests of the Company (other than Disqualified Stock); provided
that the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(2) of the preceding paragraph; (7) the payment of dividends
on the Series D Preferred Stock in accordance with the terms thereof as in
effect on the date hereof; (8) the redemption by the Company of its Series B
Preferred Stock in accordance with the terms thereof as in effect on the date
hereof; provided that payments made by the Company to redeem the Series B
Preferred Stock shall not exceed $1.0 million in any fiscal year or $2.0
million in the aggregate since the date hereof; (9) the redemption by the
Company of its Series C Preferred Stock in accordance with the terms thereof
as in effect on the date hereof in connection with the Dallas Disposition;
(10) payments made by the Company to SCMC for facilities maintenance and
other services and reimbursements pursuant to the Shared Facilities Agreement
in accordance with the terms thereof as in effect on the date hereof;(caret)(11)
payments by the Company pursuant to the Management Termination Agreements in
accordance with the terms thereof as in effect on the date hereof; (12) the
Spin-Off and (13) the Meadows Repurchase.
The amount of all Restricted Payments (other than cash) shall be the Fair
Market Value (evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) or securities proposed to be transferred
by the Company or such Subsidiary, as the case may be, pursuant to the
Restricted Payment. Not later than the date of making any Restricted Payment,
the Company shall deliver to the Trustee an Officers' Certificate stating
that such Restricted Payment is permitted and setting forth the basis upon
which the calculations required by this covenant were computed, which
calculations may be based upon the Company's latest available financial
statements.
Section 4.11 Transactions with Affiliates.
The Company shall not, and shall not permit any of its Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or
enter into or make or amend any contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless (i) such
A-3
<PAGE>
Affiliate Transaction is on terms that are no less favorable to the Company
or the relevant Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $1.0 million, a resolution of the Board
of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the members of the Board of
Directors that are disinterested as to such Affiliate Transaction and (b)
with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5.0 million, an
opinion as to the fairness to the Holders of Notes of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal
or investment banking firm of national standing; provided that (1)
transactions between or among the Company and/or its Wholly Owned
Subsidiaries, (2) the MMR Merger and transactions and agreements specifically
contemplated by the Agreement and Plan of Merger among the Company, SFX
Merger Company and MMR as in effect on the date hereof that are disclosed in
the Offering Memorandum under the caption "Agreements Relating to the
Acquisitions and Dispositions," (3) the redemption or repurchase of the
Existing MMR Indebtedness, (4) transactions and agreements specifically
contemplated by the Termination and Assignment Agreement between the Company
and SCMC as in effect on the date hereof, (5) payments required by the terms
of the joint lease among the Company, SCMC and the landlord thereunder for
the Company's corporate headquarters located at 650 Madison Avenue, New York,
New York and any agreements directly related thereto, in each case, as the
same are in effect on the date hereof(caret), (6) Restricted Payments and
Permitted Investments that are permitted by Section 4.07 hereof, (7) the
transactions and agreements specifically contemplated by the Merger Agreement,
the Acquisition Agreements or by instruments referred to in any such agreements
and (8) any Spin-Off Transaction, in each case, shall not be deemed to be
Affiliate Transactions.
Section 4.15 Additional Subsidiary Guarantees.
If, after the date hereof, the Company or any Guarantor, except any
Entertainment Company, shall acquire another Person which becomes a
Subsidiary, then the Company will cause such Subsidiary to (A) execute and
deliver to the Trustee a supplemental indenture substantially in the form of
Exhibit D hereto pursuant to which such Subsidiary shall unconditionally
guarantee all of the Company's obligations under the Notes on the terms set
forth in such supplemental indenture and (B) deliver to the Trustee an
Opinion of Counsel reasonably satisfactory to the Trustee that such
supplemental indenture has been duly executed and delivered by such
Subsidiary. Immediately prior to any incurrence by SFX Entertainment of
Indebtedness pursuant to the Financing, each Guarantor that is SFX
Entertainment or is owned directly or indirectly by SFX Entertainment will be
forever released from its Guarantee of the Company's obligations under the
Notes.
Section 4.21 Waiver Relating to Spin-Off Transactions.
Notwithstanding any other provision of this Indenture to the contrary, the
Company and the Subsidiaries shall be permitted to consummate the Spin-Off
Transactions at any time prior to December 31, 1998. The Holders of Notes
hereby waive the effect of any other provision of this Indenture that might
otherwise prohibit the Spin-Off Transactions.
A-4
<PAGE>
The Depository for the Consent Solicitation is:
THE CHASE MANHATTAN BANK
<TABLE>
<CAPTION>
<S> <C> <C>
BY HAND: BY MAIL & OVERNIGHT COURIER: BY FACSIMILE TRANSMISSION:
THE CHASE MANHATTAN BANK THE CHASE MANHATTAN BANK (For Eligible Institutions Only)
55 WATER STREET C/O TEXAS COMMERCE BANK (214) 672-5678
NORTH BUILDING, ROOM 234 1201 MAIN STREET--180 MP Confirm by Telephone:
NEW YORK, NEW YORK 10041 DALLAS, TEXAS 75202 (214) 672-5746
ATTENTION: CARLOS ESTEVEZ ATTENTION: FRANK IVINS--BOND EVENTS
</TABLE>
TO AVOID BACKUP WITHHOLDING AND/OR UNNECESSARY DELAY, FOREIGN PERSONS MUST
DELIVER THE HOLDERS' LETTER OF CONSENT AND ANY OTHER REQUIRED DOCUMENTS TO
THE DEPOSITORY AS SET FORTH ABOVE.
Any questions or requests for assistance or for additional copies of this
Statement or related documents may be directed to the Information Agent at
one of its telephone numbers set forth below. A Holder may also contact such
Holders' broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Consent Solicitation.
The Information Agent for the Consent Solicitation is:
D.F. KING & CO., INC.
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Telephone:
(800) 848-3416
(212) 493-6925
Any questions regarding the terms of the Consent Solicitation may be
directed to the Solicitation Agent at its telephone number set forth below.
The Solicitation Agent for the Consent Solicitation is:
LEHMAN BROTHERS
Liability Management Group
3 World Financial Center
200 Vesey Street, 9th Floor
New York, New York 10285
Collect: (212) 528-7581
Toll Free: (800) 438-3242
Attn: David Parsons
<PAGE>
CONSENT SOLICITATION STATEMENT
SFX BROADCASTING, INC.
RELATING TO CERTAIN WAIVERS AND AMENDMENTS TO
THE CERTIFICATE OF DESIGNATIONS GOVERNING ITS
$225,000,000 12 5/8% SERIES E CUMULATIVE EXCHANGEABLE PREFERRED STOCK DUE
OCTOBER 31, 2006
CUSIP NUMBER: 784174 60 9
CONSENT FEE: $1.00 PER SHARE
RECORD DATE: 5:00 P.M., NEW YORK CITY TIME, ON JANUARY 6, 1998
THE CONSENT SOLICITATION WILL BE OPEN UNTIL THE EXPIRATION DATE, WHICH
WILL BE 5:00 P.M., NEW YORK CITY TIME, ON THE LATER OF (I) JANUARY 21, 1998
AND (II) THE FIRST BUSINESS DAY ON WHICH SFX BROADCASTING, INC. (THE
"COMPANY"), A DELAWARE CORPORATION, HAS RECEIVED DULY EXECUTED AND VALID
CONSENTS TO THE PROPOSED AMENDMENTS (AS DEFINED) FROM HOLDERS (AS DEFINED) OF
A MAJORITY OF THE SHARES OF 12 5/8% SERIES E CUMULATIVE EXCHANGEABLE
PREFERRED STOCK DUE OCTOBER 31, 2006 OF THE COMPANY (THE "SHARES")
OUTSTANDING (THE "REQUISITE CONSENTS"). PROMPTLY AFTER RECEIPT OF THE
REQUISITE CONSENTS, THE COMPANY WILL PAY TO EACH HOLDER OF SHARES WHO HAS
THERETOFORE DELIVERED VALID CONSENTS A PORTION OF THE CONSENT FEE (THE
"PARTIAL PAYMENT") EQUAL TO $.10 IN CASH FOR EACH SHARE IN RESPECT OF WHICH A
CONSENT WAS DELIVERED (THE TIME OF SUCH PARTIAL PAYMENT BEING HEREINAFTER
REFERRED TO AS THE "EFFECTIVE TIME"). AT THE EFFECTIVE TIME, CONSENTS WILL
BECOME IRREVOCABLE. CONSENTS MAY ONLY BE REVOKED UNDER THE CIRCUMSTANCES
DESCRIBED IN THIS CONSENT SOLICITATION STATEMENT AND IN THE LETTER OF CONSENT
(AS DEFINED). PROMPTLY AFTER THE EXPIRATION DATE, THE COMPANY WILL MAKE THE
PARTIAL PAYMENT TO ANY HOLDERS WHO DELIVERED CONSENTS AFTER THE EFFECTIVE
TIME AND PRIOR TO THE EXPIRATION DATE. IMMEDIATELY PRIOR TO THE CONSUMMATION
OF ANY OF THE PROPOSED TRANSACTIONS DESCRIBED HEREIN FOR WHICH CONSENTS ARE
BEING SOLICITED (THE "PROPOSED TRANSACTIONS"), THE COMPANY WILL FILE WITH THE
DELAWARE SECRETARY OF STATE A CERTIFICATE OF AMENDMENT (THE "CERTIFICATE OF
AMENDMENT") SETTING FORTH THE PROPOSED AMENDMENTS TO THE SERIES E CERTIFICATE
(AS DEFINED). UPON ACCEPTANCE FOR FILING BY THE DELAWARE SECRETARY OF STATE,
THE CERTIFICATE OF AMENDMENT WILL BECOME OPERATIVE (THE "OPERATIVE TIME").
PROMPTLY AFTER THE OPERATIVE TIME, THE COMPANY WILL PAY THE BALANCE OF THE
CONSENT FEE TO THOSE HOLDERS WHO PREVIOUSLY RECEIVED A PARTIAL PAYMENT. TO
RECEIVE ANY PORTION OF THE CONSENT FEE, HOLDERS MUST DELIVER THEIR VALID
CONSENTS BEFORE THE EXPIRATION DATE.
The Company hereby solicits (the "Consent Solicitation") from Holders of
its 12 5/8% Series E Cumulative Exchangeable Preferred Stock Due October 31,
2006 (the "Series E Preferred Stock" or the "Shares") consents (the
"Consents"), upon the terms and subject to the conditions set forth in this
Consent Solicitation Statement (as the same may be amended or supplemented
from time to time, the "Consent Solicitation Statement") and in the
accompanying Letter of Waiver & Consent (the "Letter of Consent" and,
together with this Consent Solicitation Statement, the "Solicitation
Documents"), to certain waivers in respect of, and amendments to (such
waivers and amendments being referred to herein as the "Proposed
Amendments"), the Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred Stock and
Qualifications, Limitations and Restrictions thereof of 12 5/8% Series E
Cumulative Exchangeable Preferred Stock Due October 31, 2006 of SFX
Broadcasting, Inc. (the "Series E Certificate"), pursuant to which the Shares
were issued.
As more fully described herein, the purpose of the Proposed Amendments is
to confirm the Company's interpretation of "Consolidated Cash Flow" under the
Series E Certificate, to waive any Default or Event of Default (each as
defined in the Series E Certificate) and any and all consequences under the
Series E Certificate that would have occurred, either historically or
prospectively, were the Company's interpretation of the Series E Certificate
incorrect and to permit (i) the distribution by the Company of the stock of
SFX Entertainment, Inc. ("SFX Entertainment"), a Delaware corporation and a
wholly-owned subsidiary of the Company, to the Company's stockholders in a
spin-off transaction (the "Spin-Off"), (ii) the Financing (as defined) by SFX
Entertainment and (iii) certain other transactions. Prior to the Spin-Off,
the Company intends to (i) transfer to SFX Entertainment the stock of all
subsidiaries principally engaged in the concert and entertainment business
(collectively, the "Concert Business") or which are parties to the
Acquisition Agreements (as defined) and consummate certain other transfers
intended to allocate assets and liabilities relating to the Concert Business
to SFX Entertainment while assets and liabilities relating to the Company's
radio broadcast business (the "Radio Business") will be retained by the
Company and (ii) acquire additional entities or assets in or related to the
Concert Business. The Working Capital (as defined) of the Company will be
allocated in the Spin-Off between the Company and SFX Entertainment in the
manner set forth herein. See "The Spin-Off." Consent to the Proposed
Amendments will constitute a waiver of any other provisions of the Indenture
that would otherwise prohibit any such transactions and will serve to remove
SFX Entertainment and its subsidiaries from the purview of restrictive
covenants in the Indenture and to exempt the proposed transactions described
herein from any restrictions or prohibitions in the Indenture. See "Proposed
Amendments."
(cover page continued on next page)
The Solicitation Agent for the Consent Solicitation is:
LEHMAN BROTHERS
The Date of this Consent Solicitation Statement is January 7, 1998
<PAGE>
At the Effective Time, Consents will become irrevocable. Consents may only
be revoked under the circumstances described in this Consent Solicitation
Statement and in the Letter of Consent. Promptly after the Effective Time,
the Company will make the Partial Payment to each Holder of Shares whose duly
executed and valid Consent is received prior to the Effective Time. Promptly
after the Expiration Date, the Company will make the Partial Payment to any
Holders who delivered Consents after the Effective Time and prior to the
Expiration Date. Promptly after the Operative Time, the Company will pay the
balance of the Consent Fee to those Holders who previously received Partial
Payments (the "Final Consent Payment Date").
Only (i) persons in whose name the Shares are registered in the books and
records of the Company as of the Record Date or (ii) persons who hold valid
proxies substantially in the form attached to the Letter of Consent which
authorize them (or any persons claiming title by or through them) to vote the
Shares with respect to the Consent Solicitation (collectively, the
"Holders"), will be eligible to consent to the Proposed Amendments. The
Company anticipates that the Depository Trust Company (the "DTC"), as nominee
holder of the Shares, will execute an omnibus proxy that will authorize its
participants (the "DTC Participants") to consent with respect to the Shares
owned by such DTC Participants and held in the name of Cede & Co. as
specified on the DTC position listing as of the Record Date.
Pursuant to the terms of the Series E Certificate, the Company is
obligated to make a dividend payment on the Shares on January 15, 1998, which
dividend may be paid in cash or in additional Shares (the "Dividend Shares").
On December 24, 1997, the Company announced that it would pay such dividend
in Dividend Shares. The Company will not seek to obtain Consents in respect
of such Dividend Shares, since the date of payment of the Dividend Shares is
after the Record Date, and no Consent Fee will be paid in respect of such
Dividend Shares.
IMPORTANT
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS CONSENT SOLICITATION
STATEMENT. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION CANNOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, LEHMAN BROTHERS INC.
(THE "SOLICITATION AGENT"), D.F. KING & CO., INC. (THE "INFORMATION AGENT")
OR THE BANK OF NEW YORK (THE "DEPOSITORY"). THE COMPANY IS NOT AWARE OF ANY
JURISDICTION IN WHICH THE MAKING OF THE CONSENT SOLICITATION IS NOT IN
COMPLIANCE WITH APPLICABLE LAW. IF THE COMPANY BECOMES AWARE OF ANY
JURISDICTION IN WHICH THE MAKING OF THE CONSENT SOLICITATION WOULD NOT BE IN
COMPLIANCE WITH APPLICABLE LAW, IT WILL MAKE A GOOD FAITH EFFORT TO COMPLY
WITH SUCH LAW. IF, AFTER SUCH GOOD FAITH EFFORT, IT CANNOT COMPLY WITH ANY
SUCH LAW, CONSENTS WILL NOT BE SOLICITED FROM HOLDERS RESIDING IN SUCH
JURISDICTIONS. IN ANY JURISDICTION WHERE THE SECURITIES, BLUE SKY OR OTHER
LAWS REQUIRE THE CONSENT SOLICITATION TO BE MADE BY A LICENSED BROKER OR
DEALER, THE CONSENT SOLICITATION WILL BE DEEMED TO BE MADE ON BEHALF OF THE
COMPANY BY THE SOLICITATION AGENT OR ONE OR MORE REGISTERED BROKERS OR
DEALERS LICENSED UNDER THE LAWS OF SUCH JURISDICTION.
The delivery of this Consent Solicitation Statement shall not under any
circumstances create any implication that the information contained herein is
correct as of any time subsequent to the date hereof or that there has been
no change in the information set forth herein or in the affairs of the
Company since the date hereof.
The Consent Solicitation is being made to all Holders. A BENEFICIAL OWNER
OF SHARES (OTHER THAN A DTC PARTICIPANT) REGISTERED IN THE NAME OF A NOMINEE
MUST EITHER (I) INSTRUCT THE RELEVANT HOLDER TO DELIVER A CONSENT ON ITS
BEHALF OR (II) OBTAIN A WRITTEN PROXY FROM SUCH HOLDER IF SUCH BENEFICIAL
OWNER DESIRES TO DELIVER A CONSENT IN RESPECT OF SUCH SHARES. Holders must
deliver (and not revoke) Requisite Consents to approve the Proposed
Amendments. For purposes of the foregoing calculation, any Shares held by the
Company or any of its affiliates will not be counted as outstanding. As of
the date of this Consent Solicitation Statement, the aggregate number of
Shares outstanding is 2,250,000, none of which are held by the Company or any
of its affiliates.
THE LETTER OF CONSENT SHOULD BE SENT TO THE DEPOSITORY, NOT TO THE COMPANY
OR THE SOLICITATION AGENT. IN NO EVENT SHOULD A HOLDER TENDER OR DELIVER
SHARES.
ii
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Company with the Commission may be inspected and
copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at Seven World Trade
Center, New York, New York 10048 and 500 West Madison Street, Chicago,
Illinois 60661-2511. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
Statements made in this Consent Solicitation Statement concerning the
provisions of any contract, agreement or other document referred to herein
constitute accurate summaries of the provisions of such document which are
material to such statements, but such statements do not purport to be
complete. With respect to each such statement concerning a contract,
agreement or other document filed with the Commission, reference is made to
such filing for a more complete description of the matter involved, and each
such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company and SFX
Entertainment with the Commission under the Exchange Act or the Securities
Act of 1933, as amended, are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
(b) The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997;
(c) The Company's Current Reports on Form 8-K dated January 17, 1997,
January 21, 1997, January 22, 1997, January 27, 1997, April 15,
1997, June 16, 1997, July 11, 1997, August 25, 1997, December 11,
1997 and December 24, 1997 and the Company's Current Reports on
Form 8-K/A dated June 16, 1997 and December 10, 1997; and
(d) SFX Entertainment's Registration Statement on Form S-1
(Registration No. 337-43287) filed with the Commission on December
24, 1997 (as amended, the "Registration Statement") relating to
the shares of Class A common stock and Class B common stock of SFX
Entertainment to be distributed in the Spin-Off.
All documents filed by the Company and SFX Entertainment pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Consent Solicitation Statement and prior to the Operative Time and all
amendments to the Registration Statement filed after the date of this Consent
Solicitation Statement and prior to the Operative Time will be deemed to be
incorporated by reference into this Consent Solicitation Statement and to be
a part hereof from the date of filing of the documents. The Company will not
supplement or amend this Consent Solicitation Statement to notify Holders of
any such additional filings. Any such additional filings will be publicly
available. See "Available Information."
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein will be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in
any other subsequently filed document that is or is deemed to be incorporated
by reference herein) modifies or supersedes the previous statement. Any
statement so modified or superseded will not be deemed to constitute a part
hereof except as so modified or superseded.
THIS CONSENT SOLICITATION STATEMENT INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER
THAN EXHIBITS TO THE DOCUMENTS UNLESS THE EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON ORAL OR
WRITTEN REQUEST BY ANY PERSON TO WHOM THIS CONSENT SOLICITATION STATEMENT HAS
BEEN DELIVERED, FROM SFX BROADCASTING, INC., 650 MADISON AVENUE, NEW YORK,
NEW YORK 10022, ATTENTION: TIMOTHY KLAHS,
iii
<PAGE>
DIRECTOR OF INVESTOR RELATIONS, TELEPHONE NUMBER (212) 407-9126. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE AS SOON
AS POSSIBLE. THE COMPANY WILL DELIVER THE REQUESTED DOCUMENTS BY FIRST CLASS
MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN ONE BUSINESS DAY OF RECEIPT OF THE
REQUEST.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS CONSENT SOLICITATION STATEMENT. WE HAVE NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS CONSENT SOLICITATION STATEMENT. THIS CONSENT SOLICITATION
STATEMENT IS DATED JANUARY 7, 1998. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS CONSENT SOLICITATION STATEMENT IS ACCURATE AS
OF ANY DATE OTHER THAN THE DATE HEREOF.
FORWARD-LOOKING STATEMENTS
This Consent Solicitation Statement, including the documents incorporated
herein by reference, contains forward-looking statements. Future events and
actual results, financial or otherwise, may differ materially from the
results set forth in or implied in the forward-looking statements. Factors
that might cause such a difference include the risks and uncertainties
involved in the Company's business, including, but not limited to, the effect
of economic and market conditions, the level and volatility of interest
rates, the impact of current or pending legislation and regulation and the
other risks and uncertainties discussed in "Certain Considerations" in this
Consent Solicitation Statement and in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the Company's Form 10-K
for the fiscal year ended December 31, 1996, which is incorporated by
reference into this Consent Solicitation Statement.
iv
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SUMMARY .......................................... 1
CERTAIN CONSIDERATIONS ........................... 16
THE CONSENT SOLICITATION ......................... 20
PROPOSED AMENDMENTS .............................. 25
THE SPIN-OFF ..................................... 28
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ......... 34
SOLICITATION AGENT ............................... 35
INDEPENDENT AUDITORS ............................. 35
INDEX TO FINANCIAL STATEMENTS .................... F-1
ANNEX A--AMENDMENTS TO SERIES E CERTIFICATE ..... A-1
</TABLE>
v
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the detailed
information and Consolidated Financial Statements and notes thereto included
elsewhere in this Consent Solicitation Statement and in the Annex hereto and
the documents incorporated herein by reference. Unless the context indicates
otherwise, references in this Consent Solicitation to the "Company" refers to
SFX Broadcasting, Inc., the issuer of the Shares, and its consolidated
subsidiaries.
THE COMPANY
The Company was incorporated in Delaware in 1992 principally to acquire
and operate radio stations. At the time of the Company's initial public
offering in late 1993, the Company owned and operated or provided programming
to ten radio stations operating in six markets. During the past four years,
the Company has significantly expanded its radio station operations. The
Company currently owns or operates, provides programming to or sells
advertising on behalf of 82 radio stations operating in 19 markets. The
Company's radio stations are diverse in terms of format and geographic
markets and are organized into regional clusters. The Company has recently
agreed to acquire and dispose of certain additional radio stations, and, upon
consummation of the Company's pending acquisitions and dispositions, the
Company will own or operate, provide programming to or sell advertising on
behalf of 73 radio stations (55 FM and 18 AM stations) operating in 19
markets. In addition to owning and operating radio stations, the Company,
through its wholly-owned subsidiary, SFX Entertainment, has become a
significant operator of venues for, and promoter of, music concerts and other
live entertainment events through a series of completed acquisitions of venue
operators and concert promoters. The executive offices of the Company are
located at 650 Madison Avenue, New York, New York 10022. For a further
description of the business of the Company, see the reports filed by the
Company with the Commission that are incorporated herein by reference. See
"Available Information."
BACKGROUND AND PURPOSE OF THE CONSENT SOLICITATION
In August 1997, the Company agreed to the merger of an affiliate of Hicks,
Muse, Tate and Furst, Inc. into the Company (the "Merger"). As a result of
the Merger, the Company, as the surviving corporation in the Merger, will
become a wholly-owned subsidiary of SBI Holdings Corporation ("Buyer"), a
Delaware corporation, and an affiliate of Hicks, Muse, Tate and Furst, Inc,
and will no longer have any outstanding publicly-held shares of Common Stock
(as defined). Following the consummation of the Merger, the shares of Series
E Preferred Stock will remain outstanding as shares of Series E Preferred
Stock of the surviving corporation in the Merger, having in respect of the
surviving corporation the same powers, preferences, rights and restrictions
as the Series E Preferred Stock had in respect of the Company immediately
prior to the Merger. Prior to the consummation of the Merger, the Company
intends to effect the Spin-Off. The Company is seeking consents to modify
certain terms of the Series E Certificate in order to confirm the Company's
interpretation of "Consolidated Cash Flow" under the Series E Certificate to
waive any Default or Event of Default and any and all consequences under the
Series E Certificate that would have occurred, either historically or
prospectively, were the Company's interpretation of the Series E Certificate
incorrect and to permit (i) the Spin-Off, (ii) the issuance in a private
placement by SFX Entertainment of debt securities in the approximate
aggregate principal amount of $275.0 million (the "New Notes") and the
establishment by SFX Entertainment of a senior credit facility in the
approximate principal amount of $350.0 million (the "New Credit Agreement"),
which the Company is currently negotiating and (iii) certain other
transactions. The issuance of the New Notes and the entering into of the New
Credit Agreement are collectively referred to herein as the "Financing."
There can be no assurance that the Financing, the Spin-Off or the Pending
Acquisitions (as defined) will ultimately be consummated on the terms
described herein or at all. The Company will not be the obligor under the New
Credit Agreement or the indenture pursuant to which the New Notes will be
issued, nor will it be the guarantor of SFX Entertainment's obligations under
either such instrument. See "--The Financing." However, the Company has
agreed to guarantee certain of SFX Entertainment's obligations under the
agreements relating to the Pending Acquisitions. See "--SFX Entertainment;
The Spin-Off."
1
<PAGE>
Concurrent with this Consent Solicitation, the Company intends to commence
solicitations of written consents (the "Note Consent Solicitation" and,
together with this Consent Solicitation Statement, the "Consent
Solicitations") of the holders of the Company's 10 3/4% Senior Subordinated
Notes Due 2006 (the "Notes") with respect to certain waivers in respect of,
and amendments to (together, the "Note Amendments"), the Indenture, as
amended, relating to the Notes (the "Note Indenture") to permit the Spin-Off,
the Financing and certain related transactions as presently contemplated. The
consummation of each of the Consent Solicitations is conditioned on the
consummation of the other. Neither the Indenture nor the Series E Certificate
prohibit the Merger and the Merger is not conditioned on obtaining the
Consents.
The affirmative vote of majorities of the voting power of the holders of
the shares of Series E Preferred Stock (voting as a separate class) and the
Class A Common Stock, par value $.01 per share (the "Class A Common Stock"),
and Class B Common Stock, par value $.01 per share (the "Class B Common
Stock" and, together with the Class A Common Stock, the "Common Stock"), of
the Company (voting together as a single class with each share of Class A
Common Stock entitled to one vote and each share of Class B Common Stock
entitled to ten votes) is required to amend the Series E Certificate (the
vote of the Class A Common Stock and the Class B Common Stock is referred to
as the "Common Stock Consent").
Robert F.X. Sillerman, the Executive Chairman and a Director of the
Company, owns as of January 5, 1998 approximately 1.6% of the outstanding
shares of Class A Common Stock (excluding options and warrants to acquire
shares) and 97.8% of the outstanding shares of Class B Common Stock
(excluding options and warrants to acquire shares), which represent
approximately 11.1% of the outstanding shares of Common Stock and
approximately 52.1% of the combined voting power of the outstanding Common
Stock. Accordingly, Mr. Sillerman is able to control the outcome of the vote
on all matters that require the approval of the majority of the combined
voting power of all outstanding shares of the Common Stock; as a result, his
written consent in lieu of a meeting will control the outcome of the vote of
the Common Stock with respect to the Proposed Amendments. Mr. Sillerman has
executed a written consent in favor of the Proposed Amendments. Accordingly,
no approval by the holders of shares of Class A Common Stock of the Proposed
Amendments is required or sought.
THE FINANCING
SFX Entertainment intends to use the proceeds of the Financing to finance
the cash consideration to be paid for the Pending Acquisitions, to refinance
liabilities assumed in connection with the Pending Acquisitions, to pay
certain related fees and expenses, to fund planned capital expenditures
during 1998 of SFX Entertainment and for general corporate purposes of SFX
Entertainment. Although SFX Entertainment currently intends to use a portion
of the proceeds of the Financing in connection with the Pending Acquisitions,
there can be no assurance that any of the Pending Acquisitions will
ultimately be consummated on the terms described herein or at all. If any
Pending Acquisition is not consummated, SFX Entertainment will be free to
employ the allocable proceeds of the Financing for any other purpose
permitted by the terms of the New Credit Agreement and the indenture
governing the New Notes.
SFX Entertainment reserves the right to increase or decrease the total
amount of the Financing and to structure the Financing in a manner different
from that described in this Consent Solicitation Statement. In the event that
the Consent Solicitations are not successful, SFX Entertainment will consider
alternative financing arrangements to enable it to complete the Pending
Acquisitions, which may include obtaining additional bank financing, the sale
of additional fixed rate or variable rate debt securities, the issuance of
additional capital stock of SFX Entertainment or a combination of the
foregoing. SFX Entertainment believes that such alternative financing
arrangements will be available on acceptable terms; however, there can be no
assurance that such financing will be obtained.
THE MERGER; AMENDMENT OF CERTIFICATE OF INCORPORATION
On August 24, 1997, the Company entered into an Agreement and Plan of
Merger (as amended, the "Merger Agreement") among the Company, Buyer and SBI
Radio Acquisition Corporation ("Buyer
2
<PAGE>
Sub"), a Delaware corporation and wholly-owned subsidiary of Buyer. Pursuant
to the Merger Agreement, the Company will become a wholly-owned subsidiary of
Buyer, and, among other things, each issued and outstanding share (except for
shares held by persons who exercise dissenters' appraisal rights) of the
Company's (i) Class A Common Stock will convert into the right to receive
$75.00, (ii) Class B Common Stock will convert into the right to receive
$97.50, (iii) 6-1/2% Series D Cumulative Convertible Exchangeable Preferred
Stock (the "Series D Preferred Stock") will convert into the right to receive
an amount equal to the product of (a) $75.00 and (b) the number of shares of
Class A Common Stock into which each share of Series D Preferred Stock would
have been convertible immediately prior to the effective time of the Merger
(the "Merger Effective Time") and (iv) Series C Redeemable Convertible
Preferred Stock (the "Series C Preferred Stock") will convert into the right
to receive $1,000.00, plus any accrued but unpaid dividends. All such amounts
will be payable in cash, without interest. The consideration to be received
by holders of Class A Common Stock, Class B Common Stock and Series D
Preferred Stock is subject to increase in certain circumstances. Each issued
and outstanding share of Series E Preferred Stock will continue to be
outstanding after the Merger Effective Time as Series E Preferred Stock of
the surviving corporation of the Merger. In addition, the Notes will continue
to be outstanding after the Merger Effective Time as Notes of the surviving
corporation in the Merger.
The consummation of the Merger is subject to certain conditions and the
receipt of certain consents including, among other things, the approval of
the Common Stock voting together as a single class, and the approval of each
of the Class A Common Stock and Series D Preferred Stock, voting separately
as a class. In addition, the Merger is subject to certain regulatory
approvals. The approval and adoption of the Merger Agreement will be
considered at a special meeting of the stockholders of the Company (the
"Special Meeting") that is anticipated to be held during the first quarter of
1998.
The Company anticipates that the Merger will be consummated in the second
quarter of 1998 and that the Spin-Off will occur prior thereto. Although
management of the Company believes that all necessary consents and approvals
will be obtained in order to permit the Spin-Off and the Merger, there can be
no assurance to such effect.
The Board of Directors of the Company and its committee of independent
members ("Independent Committee") have unanimously approved the Merger
Agreement and the transactions contemplated thereby and have determined that
they are fair to and in the best interests of the holders of Class A Common
Stock. Concurrent with the execution of the Merger Agreement, Robert F.X.
Sillerman entered into a Stockholder Agreement with the Company, Buyer and
Buyer Sub pursuant to which Mr. Sillerman is required to vote all shares of
Class A Common Stock and Class B Common Stock which he owns in favor of the
Merger.
At the Special Meeting, the Company's stockholders will also be asked to
approve two proposals relating to the approval and adoption of amendments to
the Certificate of Incorporation of the Company. The amendments contained in
the first proposal will allow the holders of shares of Class B Common Stock
to receive a higher consideration per share in the Merger than the holders of
shares of Class A Common Stock, as set forth in the Merger Agreement. The
amendments contained in the second proposal will permit the holders of shares
of Class A Common Stock to receive shares of Class A common stock of SFX
Entertainment in connection with the Spin-Off, and the holders of shares of
Class B Common Stock to receive shares of Class B common stock of SFX
Entertainment (with 10-1 voting rights similar to the Class B Common Stock of
the Company) in connection with the Spin-Off (the "Spin-Off Shares
Proposal"). The Company's stockholders will also be asked to transact any
other business that may properly come before the Special Meeting and any
adjournments or postponements thereof. The Company will disseminate to its
stockholders a proxy statement which describes in detail the proposals to be
acted upon at the Special Meeting.
The Company has been advised that Buyer intends to finance its obligations
under the Merger Agreement through one or more financing transactions, which
may include (but will not be limited to) the
3
<PAGE>
following: borrowings under a senior bank facility, borrowings under one or
more tranches of senior subordinated debt, the issuance of one or more
classes of preferred stock, the issuance of one or more classes of equity
securities and the issuance of rights to purchase equity securities. Buyer's
and Buyer Sub's obligations under the Merger Agreement are not subject to any
conditions regarding their ability to obtain financing. In the Merger
Agreement, Buyer and Buyer Sub represented and warranted (assuming compliance
by the Company and its affiliates with the Merger Agreement and the documents
relating to the Spin-Off) that the surviving corporation in the Merger would
have a Consolidated Net Worth (as defined in the Series E Certificate)
immediately following the Merger and a Debt to Cash Flow Ratio (as defined in
the Series E Certificate) at the time of the Merger sufficient to comply with
the applicable provisions of the Series E Certificate. There can be no
assurance by the Company that the surviving corporation in the merger will
remain in compliance with the provisions of the Indenture after the Merger.
Simultaneously with the execution of the Merger Agreement, Buyer placed into
escrow an irrevocable letter of credit for $100.0 million, which amount will
be released to the Company if the Merger is not consummated for certain
reasons specified in the Merger Agreement.
Section 7(a) of the Series E Certificate requires that upon the occurrence
of a "Change of Control," which is defined to include a merger which results
in a person becoming the beneficial owner of capital stock of the Company
having more than 35% of the combined voting power of all classes of voting
stock of the Company, each holder has the right to require the Company to
make a "Change of Control Offer." A Change of Control Offer is an offer by
the Company to repurchase all or any part of such holder's shares at an offer
price in cash equal to 101% of the aggregate Liquidation Preference (as
defined in the Series E Certificate) plus accrued and unpaid dividends, if
any. The Merger will be a Change of Control and will require the Surviving
Corporation (as defined in the Merger Agreement) to make a Change of Control
Offer.
SFX ENTERTAINMENT; THE SPIN-OFF
SFX Entertainment's core business is the promotion and production of live
entertainment events, most significantly for concert and other music
performances in venues owned and/or operated by SFX Entertainment and in
third-party venues. SFX Entertainment typically markets events and tours,
sells tickets, rents or otherwise provides event venues and arranges for
local production services (such as stage, set, sound and lighting).
SFX Entertainment was formed as a subsidiary of the Company in 1997. The
Company acquired Delsener/Slater Enterprises, Ltd. ("Delsener/Slater"), a New
York-based concert promotion company, in January 1997. Delsener/Slater will
be a wholly-owned subsidiary of SFX Entertainment. Delsener/Slater has
long-term leases or is the exclusive promoter for several of the major
concert venues in the New York City metropolitan area, including the Jones
Beach Amphitheater, an 11,200-seat complex located in Wantagh, New York, and
the PNC Bank Arts Center (formerly known as the Garden State Arts Center), a
10,800-seat complex located in Holmdel, New Jersey. In March 1997,
Delsener/Slater acquired a 37-year lease to operate the Meadows Music
Theater, a 25,000-seat indoor/outdoor complex located in Hartford,
Connecticut. In June 1997, Delsener/Slater acquired Sunshine Promotions,
Inc., a concert promoter in the Midwest, and certain other related companies
("Sunshine Promotions"). As a result of the acquisition of Sunshine
Promotions, SFX Entertainment owns the Deer Creek Music Theater, a
21,000-seat complex located in Indianapolis, Indiana, and the Polaris
Amphitheater, a 20,000-seat complex located in Columbus, Ohio, and has a
long-term lease to operate the Murat Centre, a 2,700-seat theater and
2,200-seat ballroom located in Indianapolis, Indiana. On a pro forma basis,
SFX Entertainment's revenues and earnings before interest, taxes,
depreciation and amortization for the nine months ended September 30, 1997
were approximately $501.5 million and $56.5 million, respectively.
4
<PAGE>
The following chart sets forth information with respect to venues
currently owned by SFX Entertainment. The Proposed Amendments would make the
restrictive covenants of the Series E Certificate generally inapplicable to
SFX Entertainment and its subsidiaries. Accordingly, the Holders of Notes
will lose the following venues as assets and the related cash flow associated
with such assets. See "Proposed Amendments."
<TABLE>
<CAPTION>
SFX
MARKET TYPE OF ENTERTAINMENT'S
MARKET AND VENUE RANK(1) VENUE INTEREST
- -------------------------- -------- -------------- --------------------
<S> <C> <C> <C>
New York--Northern New
Jersey--Long Island: 1
PNC Bank Arts Center
(formerly The Garden
State Arts Center)
(Holmdel, NJ) .......... amphitheater 33 1/3% interest in
22-year lease
(expires October 31,
2017)
Jones Beach Marine
Amphitheater (Wantagh,
NY) ..................... amphitheater 10-year license
agreement (expires
December 31, 1999)
Roseland Theater ......... theater exclusive booking
agent
Indianapolis: 28
Deer Creek Music
Center .................. amphitheater owned
Murat Centre ............. theater and 50-year lease
ballroom (expires August 31,
2045)
Columbus: 30
Polaris Amphitheater ..... amphitheater owned
Hartford: 36
Meadows Music
Theater ................. amphitheater facility owned; land
leased for 37 years
(expires September
13, 2034)
Rochester: 39
Finger Lakes
Amphitheater ............ amphitheater 3-year lease
(expires 1999)
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TOTAL AVG. NO.
SEATING ATTENDANCE EVENTS IN TOTAL SEATS
MARKET AND VENUE CAPACITY IN 1996 1996 SOLD IN 1996
- -------------------------- ---------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
New York--Northern New
Jersey--Long Island:
PNC Bank Arts Center
(formerly The Garden
State Arts Center)
(Holmdel, NJ) .......... 17,500(2) 6,512 48 312,595
Jones Beach Marine
Amphitheater (Wantagh,
NY) ..................... 14,000(2) 8,712 44 383,314
Roseland Theater ......... 3,200 2,765 57 157,605
Indianapolis:
Deer Creek Music
Center .................. 21,000 10,187 38 387,119
Murat Centre ............. 4,880 1,900 85 161,500(3)
Columbus:
Polaris Amphitheater ..... 20,000 6,751 38 256,553
Hartford:
Meadows Music
Theater ................. 25,000 6,914 38 262,741
Rochester:
Finger Lakes
Amphitheater ............ 12,700 4,203 15 63,044
</TABLE>
(1) Based on population of metropolitan statistical areas as set forth in
the 1996 Statistical Abstracts of the United States.
(2) Assumes completion of current expansion projects, which are anticipated
to be completed by summer 1998.
(3) Data shown are for 1997. Data for 1996 are unavailable.
<PAGE>
In December 1997, SFX Entertainment entered into agreements to acquire,
for an aggregate purchase price of approximately $482.8 million, consisting
of $352.8 million in cash, the assumption and repayment of $73.8 million of
debt and the issuance of approximately 4.2 million shares of SFX
Entertainment Class A common stock, the following live entertainment
businesses (collectively, the "Pending Acquisitions"):
PACE Entertainment Corporation ("PACE"), one of the largest diversified
producers and promoters of live entertainment in the United States, having
a large distribution network in the United States in each of its music
concerts, theatrical shows and motorsports events businesses (the "PACE
Acquisition"), for a total purchase price of $155.0 million (including the
issuance of capital stock of SFX Entertainment valued by the parties at
$20 million and the assumption of $25.5 million
5
<PAGE>
of debt). In connection with the PACE Acquisition, SFX Entertainment will
obtain 100% of Pavilion Partners, (a partnership that owns interests in 10
venues, "Pavilion "), by acquiring one-third through the acquisition of
PACE and the remaining two-thirds through separate agreements with Viacom,
Inc. and certain of its subsidiaries ("Blockbuster") and YM Corp. ("Sony")
for a combined consideration of $89.4 million (including the assumption of
$48.3 million of liabilities for such two-third interest (the acquisition
of such two-thirds interest, the "Pavilion Acquisition")). In connection
with the PACE Acquisition, the Company has agreed to loan to PACE up to
$25.0 million to fund certain acquisitions by PACE. If the PACE
Acquisition agreement is terminated, under certain circumstances, the loan
may be prepaid without interest or converted into a five-year term loan.
Unless the Proposed Amendments are approved, such loan would violate the
Series E Certificate. Neither the consummation of the PACE Acquisition nor
the Pavilion Acquisition is a condition precedent to the closing of the
other. Under certain circumstances, SFX Entertainment may be required to
sell either its motor sports or theatrical lines of business at fair
market value to a principal of PACE.
The Contemporary Group ("Contemporary"), a fully-integrated live
entertainment and special event producer, venue operator and consumer
marketer, for a total purchase price of $91.5 million (including issuance
of capital stock of SFX Entertainment valued by the parties at $18.7
million) (the "Contemporary Acquisitions"). In addition to the venues that
it owns or controls and operates, Contemporary is a leading producer and
tour developer of Christian performers, and is a major promoter and
producer of comedy tours,
BG Presents, Inc. ("BGP"), one of the oldest producers and promoters of
live entertainment in the United States and the principal promoter of live
entertainment in the San Francisco Bay area, for a total purchase price of
$68.3 million (including issuance of capital stock of SFX Entertainment
valued by the parties at $7.5 million or, at SFX Entertainment's option,
an equivalent amount in cash);
The Network Magazine Group, a leading publisher of trade magazines for the
radio broadcasting industry, and SJS Entertainment, a leading independent
creator, producer and distributor of music related radio programming for a
total purchase price of $62 million (including the issuance of capital
stock of SFX Entertainment valued by the parties at approximately $10
million); and
Concert/Southern Promotions, the principal promoter of live entertainment
in the Atlanta metropolitan area, for a total purchase price of $16.6
million (including payment of the $1.6 million present value of a deferred
liability).
The Company has (i) guaranteed all of SFX Entertainment's obligations
under the PACE Acquisition until the payment of the cash portion of the
purchase price and the issuance and delivery of SFX Entertainment's capital
stock and (ii) in the acquisition of Network, guaranteed the payment of the
cash portion of the purchase price. The Company's guarantees of SFX
Entertainment's obligations under the agreement relating to the PACE
Acquisition will terminate upon the consummation of the Spin-Off. The
Company's guarantee of SFX Entertainment's obligations under the Network
Acquisition may survive the Spin-Off. In the event that the Company is
required to perform any of its guarantees, there can be no assurance that the
Company will be able to fund any such required payments.
In connection with the Contemporary Acquisition, under certain
circumstances, SFX Entertainment will be required to issue shares of its
preferred stock with a redemption value of $18.7 million and if the Spin-Off
does not occur before July 1, 1998, the preferred stock is required to be
redeemed for $18.7 million. The Company is required to guarantee the $18.7
million in the event that the Spin-Off does not occur prior to the closing of
the Contemporary Acquisition. This guarantee will terminate upon consummation
of the Spin-Off. Unless the Proposed Amendments are approved, issuance of the
preferred stock would violate the Series E Certificate and the failure to
issue the preferred stock would be a default of the Contemporary Acquisition
agreement. While management believes that an amendment to the Contemporary
Acquisition agreement can be obtained, there can be no assurance that such
amendment would be forthcoming or the terms under which such amendment can be
obtained.
6
<PAGE>
SFX Entertainment expects to complete all of the Pending Acquisitions as
soon as practicable after the Financing and prior to the Merger. SFX
Entertainment anticipates that it will consummate all of the Pending
Acquisitions in the first quarter of 1998. However, the timing and completion
of the Pending Acquisitions are subject to a number of conditions, certain of
which are beyond the Company's control, and there can be no assurance that
such transactions will be completed during such periods, on the terms
described herein, or at all.
Based on consultation with its advisors, and assuming the successful
completion of the Consent Solicitations, management of the Company believes
that SFX Entertainment will be able to consummate the Financing and the
Pending Acquisitions in compliance with the terms of the Series E
Certificate. SFX Entertainment has made significant deposits and SFX
Entertainment and the Company have incurred significant contingent
liabilities in connection with the Pending Acquisitions. If the Financing is
not consummated as a result of the failure to obtain the Requisite Consents
(or for any other reason) and satisfactory alternative financing is unable to
be arranged, SFX Entertainment might not be able to consummate the Pending
Acquisitions on the terms currently contemplated and might be in default
under the agreements relating to the Pending Acquisitions. Such defaults
might materially adversely affect the financial position and prospects of the
Company. None of the Pending Acquisitions are subject to any condition
regarding financing.
The Merger Agreement requires the Company to consummate the Spin-Off or an
Alternate Transaction (as defined in the Merger Agreement) prior to the
Merger Effective Time. If the Spin-Off Shares Proposal is approved at the
Special Meeting, SFX Entertainment will amend and restate its Certificate of
Incorporation to, among other things, increase its authorized capital stock
and will issue to the Company, in exchange for the issued and outstanding
shares of stock of SFX Entertainment then held by the Company, the number of
shares of SFX Entertainment's common stock necessary to consummate the
Spin-Off. The Company will then consummate the Spin-Off by distributing
shares of SFX Entertainment as a dividend to holders of Class A Common Stock,
Class B Common Stock, Series D Preferred Stock and certain warrants to
purchase Class A Common Stock. The Spin-Off is subject to a number of terms
and conditions, including obtaining consents of certain creditors and
preferred stockholders of the Company and apportioning assets (including
Working Capital, as defined in "The Spin-Off") and liabilities between the
Company and SFX Entertainment. As of September 30, 1997, the Company
estimates that Working Capital to be received by SFX Entertainment, would
have been approximately $2.1 million, and that approximately $135.5 million
of additional assets and $34.1 million of liabilities would have been
apportioned to SFX Entertainment.
If the Spin-Off is not permitted to occur due to certain legal or
contractual impediments (including the failure of the Company to obtain the
Requisite Consents), the Company may dispose of SFX Entertainment in an
Alternate Transaction. If the Company does not dispose of SFX Entertainment,
whether through the Spin-Off or an Alternate Transaction, the Buyer may elect
whether to consummate the Merger (in which case it will be required to
increase the consideration paid to holders of the Class A Common Stock and
Class B Common Stock by an aggregate of $42.5 million) or to terminate the
Merger Agreement. The Company's management believes that SFX Entertainment
has a value substantially in excess of $42.5 million and expects to
consummate the Spin-Off or otherwise dispose of SFX Entertainment prior to
the Merger. In addition, even if the Merger or the Financing do not occur for
any reason, the Company intends to consummate the Spin-Off. Although the
approval of the Spin-Off Shares Proposal is necessary in order to enable the
Company to consummate the Spin-Off as currently contemplated, stockholder
approval of the Spin-Off is not required, and will not be sought in
connection with the Special Meeting.
7
<PAGE>
THE CONSENT SOLICITATION
Purpose of the Proposed
Amendments ................... The purpose of the Proposed Amendments is to
confirm the Company's interpretation of
"Consolidated Cash Flow" under the Series E
Certificate, to waive any Default or Event
of Default that would have occurred, either
historically or prospectively, were the
Company's interpretation of the Series E
Certificate incorrect and to permit (i) the
Spin-Off, (ii) the Financing and (iii)
certain other transactions. See "The
Proposed Amendments."
Total Consent Fee ............. The Consent Fee will be $1.00 in cash for
each Share.
Promptly after the Effective Time, the
Company will make the Partial Payment of
$.10 in cash for each Share to each Holder
as of the Record Date whose duly executed
and valid Consent is received prior to the
Effective Time.
Promptly after the Expiration Date, the
Company will make the Partial Payment to any
Holders who delivered valid Consents after
the Effective Time and before the Expiration
Date.
On the Final Consent Payment Date, the
Company will pay the balance of the Consent
Fee to Holders who previously received a
Partial Payment.
HOLDERS OF SHARES WHO DO NOT CONSENT TO THE
PROPOSED AMENDMENTS PRIOR TO THE EXPIRATION
DATE WILL NOT BE ELIGIBLE TO RECEIVE THE
CONSENT FEE EVEN THOUGH THE PROPOSED
AMENDMENTS WILL BE BINDING ON THEM AT THE
OPERATIVE TIME.
Operative Time ................ The time when the Certificate of Amendment
is accepted for filing by the Delaware
Secretary of State, which is expected to
occur immediately prior to the consummation
of the first of any of the Proposed
Transactions.
In no event will the Operative Time occur
after September 1, 1998.
Proposed Transactions ......... The Spin-Off, the Financing, the Meadows
Repurchase (as defined) and the transactions
between the Company and SFX Entertainment
pursuant to the Tax Sharing Agreement (as
defined), the Distribution Agreement (as
defined) and the Acquisition Agreements. See
"--SFX Entertainment; The Spin-Off."
Final Consent Payment Date .... Promptly after the Operative Time, which is
expected to occur immediately prior to the
consummation of any of the Proposed
Transactions.
Requisite Consents ............ The consent of the Holders of a majority of
the Shares outstanding and not owned by the
Company or any of its affiliates as of the
Record Date. As of the date of this Consent
Solicitation Statement, 2,250,000 Shares are
outstanding, none of which are held by the
Company or any of its affiliates.
8
<PAGE>
Record Date ................... January 6, 1998. Holders of Shares as of the
close of business on the Record Date will be
entitled to notice of, and to consent to,
the Proposed Amendments.
Expiration Date ............... The term "Expiration Date" means 5:00 p.m.,
New York City time, on the later of (i)
January 21, 1998 and (ii) the first business
day on which the Company has received the
Requisite Consents. The Company reserves the
right to terminate the Consent Solicitation
at any time and from time to time, whether
or not the Requisite Consents have been
received, by giving oral or written notice
to the Depository. Any such termination will
be followed as promptly as practicable by
notice thereof by press release or other
public announcement (or by written notice to
the Holders).
Effective Time ................ The Effective Time occurs upon the payment
of the Partial Payment. After the Effective
Time, Consents will be irrevocable.
Revocation of Consents ........ Prior to the Effective Time, any Holder (or
a duly designated proxy) may revoke any
Consent given as to its Shares. Consents
will become irrevocable at the Effective
Time. See "The Consent
Solicitation--Revocation of Consents."
Consequences to Non-Consenting
Holders ...................... At the Effective Time, Consents will become
irrevocable. As of the Operative Time, all
then current holders of Shares, including
nonconsenting holders, and all subsequent
holders of Shares, will be bound by the
Proposed Amendments.
Consent Procedures ............ Consents must be delivered to the Depository
before the Expiration Date. Only Holders
(i.e., persons in whose name a Share was
registered as of the Record Date or their
duly designated proxies) may execute and
deliver a Letter of Consent. The DTC is
expected to grant an omnibus proxy
authorizing DTC Participants who held Shares
through the DTC as of the Record Date to
deliver Consents. Accordingly, for the
purposes of this Consent Solicitation
Statement, the term "Holder" will be deemed
to include DTC Participants who held Shares
through the DTC as of the Record Date. In
order to cause a Consent to be given,
Holders or their duly authorized proxies
must complete and sign the Consent Letter
and mail or deliver it to the Depository at
its address or facsimile set forth on the
back cover page of this Consent Solicitation
Statement pursuant to the procedures set
forth herein and therein. A beneficial owner
of Shares held through a DTC Participant
must (i) instruct the DTC Participant
through which it holds Shares to complete
and sign the Letter of Consent and deliver
the Letter of Consent to the Depository in
order to cause a Consent to be given with
respect to such Shares or (ii) obtain a
properly executed proxy from such DTC
Participant and deliver the Letter of
Consent, together with the Consent, to the
Depository. See "The Consent
Solicitation--Consent Procedures."
9
<PAGE>
HOLDERS OF SHARES WHO WANT TO CONSENT SHOULD
MAIL, HAND DELIVER, SEND BY OVERNIGHT
COURIER OR FAX PRIOR TO THE EXPIRATION DATE
THEIR PROPERLY COMPLETED AND EXECUTED
CONSENTS TO THE DEPOSITORY AT THE ADDRESS
SET FORTH ON THE BACK COVER PAGE HEREOF AND
ON THE LETTER OF CONSENT IN ACCORDANCE WITH
THE INSTRUCTIONS SET FORTH HEREIN AND
THEREIN. THE METHOD OF DELIVERY OF THE
CONSENTS TO THE DEPOSITORY IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL IT IS RECOMMENDED THAT
HOLDERS USE REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED
TO ASSURE TIMELY DELIVERY. CONSENTS SHOULD
BE DELIVERED TO THE DEPOSITORY, NOT TO THE
COMPANY, THE SOLICITATION AGENT OR THE
INFORMATION AGENT. HOWEVER, THE COMPANY
RESERVES THE RIGHT TO ACCEPT ANY CONSENT
RECEIVED BY THE COMPANY, THE SOLICITATION
AGENT OR THE INFORMATION AGENT. IN NO EVENT
SHOULD A HOLDER TENDER OR DELIVER ANY
SHARES.
Conditions to the Consent
Solicitation ................. The delivery of the Certificate of Amendment
to the Delaware Secretary of State for
filing is conditioned upon the successful
completion of the Note Consent Solicitation.
The Company anticipates that it will deliver
the Certificate of Amendment to the Delaware
Secretary of State prior to the consummation
of the first of the transactions described
herein for which a Consent is sought.
Once commenced, the continuation of the
Consent Solicitation and the delivery by the
Company of the Certificate of Amendment to
the Delaware Secretary of State for filing
are conditioned upon (subject to waiver by
the Company) the successful completion of
the Note Consent Solicitation and the
absence of any (i) law or regulation and
(ii) injunction or action or other
proceeding (pending or threatened) that (in
the case of any action or proceeding, if
adversely determined) would, make unlawful
or invalid or enjoin the implementation of
the Proposed Amendments, or the payment of
the Consent Fee, or that questions the
legality or validity thereof, or otherwise
adversely affects the Spin-Off or any of the
transactions described herein for which a
Consent is sought.
Solicitation Agent ............ The Company has retained Lehman Brothers
Inc. ("Lehman Brothers") to act as the
Solicitation Agent in connection with the
Consent Solicitation. The Solicitation Agent
will solicit Consents and will respond to
inquiries of Holders and will receive a
customary fee for such services.
10
<PAGE>
Information Agent ............. The Company has retained D.F. King & Co.,
Inc. as Information Agent in connection with
the Consent Solicitation. The Information
Agent will distribute Solicitation
Documents, respond to inquiries and receive
a customary fee for such services.
Requests for additional copies of this
Consent Solicitation Statement or the Letter
of Consent may be directed to the
Solicitation Agent or the Information Agent
at their respective addresses and/or
telephone numbers set forth on the back
cover of this Consent Solicitation
Statement.
Certain Federal Income Tax
Consequences ................. For a summary of the material United States
Federal income tax consequences to Holders
of the Proposed Amendments and the Consent
Fee, see "Certain Federal Income Tax
Consequences."
The Depository ................ The Company has retained the Bank of New
York as Depository in connection with the
Consent Solicitation. The Depository will
receive, collect and tabulate Consents. The
Depository will receive a customary fee for
such services and reimbursement for
reasonable out-of-pocket expenses.
11
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF THE COMPANY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Summary Consolidated Financial Data of the Company includes the
historical financial statements of Capstar Communications, Inc., a
predecessor of the Company ("Capstar"), and the historical financial
statements of the Company since its formation on February 26, 1992. The
financial information presented below should be read in conjunction with the
information set forth in "Unaudited Pro Forma Condensed Combined Financial
Statements" and the notes thereto and the financial statements and the notes
of the Company incorporated by reference in this Information Statement. The
financial information has been derived from the audited and unaudited
financial statements of the Company and the entities acquired or to be
acquired by the Company since January 1, 1996. The pro forma summary data as
of September 30, 1997 and for the year ended December 31, 1996 and the nine
months ended September 30, 1997 are derived from the unaudited pro forma
condensed combined financial statements which, in the opinion of the
management, reflect all adjustments necessary for a fair presentation of the
transactions for which such pro forma financial information is given.
Operating results for the nine months ended September 30, 1997, are not
necessarily indicative of the results that may be achieved for the fiscal
year ending December 31, 1997. The historical consolidated financial results
for the Company are not comparable from year to year because of the
acquisition and disposition of various business operations during the periods
covered.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
PRO FORMA
FOR THE RECENT PRO FORMA
AND PENDING FOR THE
TRANSACTIONS(8) SPIN-OFF(9)
(UNAUDITED) (UNAUDITED)
1992 1993 1994 1995 1996 1996 1996
-------- --------- ------- -------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcasting revenue......... $15,003 $ 34,233 $55,556 $76,830 $143,061 $ 272,694 $272,694
Concert promotion revenue........ -- -- -- -- -- 552,100 --
Station and other operating
expenses........................ 9,624 21,555 33,956 51,039 92,816 184,267 184,267
Concert promotion operating
expenses........................ -- -- -- -- -- 508,357 --
Depreciation, amortization,
duopoly integration costs and
acquisition related costs(1) ... 3,208 4,475 5,873 9,137 17,311 85,451 47,656
Corporate expenses............... 769 1,808 2,964 3,797 6,313 8,000 5,000
Non-recurring charges including
adjustments to broadcast rights
agreement(2)(3)(4)(5)........... -- 13,980 -- 5,000 28,994 25,662 25,662
-------- --------- ------- -------- --------- -------------- ---------
Operating income (loss).......... 1,402 (7,585) 12,763 7,857 (2,373) 13,057 10,109
Investment and other (income)
loss/net........................ -- (17) 121 (650) (2,117) (4,933) (2,756)
Equity (income) loss from
investments..................... -- -- -- -- -- (3,744) --
Interest expense, including
amortization of deferred
financing costs................. 3,610 7,351 9,332 12,903 34,897 115,003 71,613
-------- --------- ------- -------- --------- -------------- ---------
Income (loss) before income
taxes, extraordinary item and
cumulative effect of a change
in accounting principle......... (2,208) (14,919) 3,310 (4,396) (35,153) (93,269) (58,748)
Income tax expense (benefit) .... -- 1,015 1,474 -- 480 3,500 2,000
Extraordinary loss on debt
retirement...................... -- 1,665 -- -- 15,219 -- --
Cumulative effect of a change in
accounting principle............ -- 182 -- -- -- -- --
-------- --------- ------- -------- --------- -------------- ---------
Net income (loss)................ (2,208) (17,781) 1,836 (4,396) (50,852) (96,769) (60,748)
Redeemable preferred stock
dividends and accretion(6) ..... 385 557 348 291 6,061 38,124 38,124
-------- --------- ------- -------- --------- -------------- ---------
Net income (loss) applicable to
common stock.................... $(2,593) $(18,338) $ 1,488 $(4,687) $(56,913) $(134,893) $(98,872)
======== ========= ======= ======== ========= ============== =========
Net income (loss) per share ..... $ (2.20)$ (7.08) $ 0.26 $ (0.71) $ (7.52) $ (8.52) $ (6.24)
======== ========= ======= ======== ========= ============== =========
Weighted average common shares
outstanding..................... 1,179 2,589 5,792 6,596 7,564 15,840 15,840
OTHER OPERATING DATA: (7)
Broadcast Cash Flow.............. $ 5,379 $ 12,678 $21,600 $25,791 $ 50,245 $ 88,427 $ 88,427
Concert Cash Flow................ -- -- -- -- -- 43,743 --
EBITDA........................... 4,610 10,870 18,636 21,994 43,932 127,914 83,427
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
PRO FORMA
FOR THE RECENT PRO FORMA
AND PENDING FOR THE
ACTUAL ACTUAL TRANSACTIONS(8) SPIN-OFF(9)
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
1996 1997 1997 1997
--------- --------- -------------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcasting revenue......... $ 92,840 $188,984 $222,731 $222,731
Concert promotion revenue........ -- 75,740 501,489 --
Station and other operating
expenses........................ 61,448 115,871 142,935 142,935
Concert promotion operating
expenses........................ -- 63,394 442,199 --
Depreciation, amortization,
duopoly integration costs and
acquisition related costs(1) ... 10,663 31,429 61,677 33,299
Corporate expenses............... 4,475 6,849 8,698 5,891
Non-recurring charges including
adjustments to broadcast rights
agreement(2)(3)(4)(5)........... 27,489 17,995 17,995 17,995
--------- --------- -------------- ---------
Operating income (loss).......... (11,235) 29,186 50,717 22,612
Investment and other (income)
loss/net........................ (3,320) (2,692) (2,716) (2,482)
Equity (income) loss from
investments..................... -- -- (8,937) --
Interest expense, including
amortization of deferred
financing costs................. 22,169 46,438 86,054 53,555
Income (loss) before income
taxes, extraordinary item and
cumulative effect of a change
in accounting principle......... (30,084) (14,560) (23,684) (28,461)
Income tax expense (benefit) .... -- 845 4,500 1,000
Extraordinary loss on debt
retirement...................... 15,219 -- -- --
Cumulative effect of a change in
accounting principle............ -- -- -- --
--------- --------- -------------- ---------
Net income (loss)................ (45,303) (15,405) (28,184) (29,461)
Redeemable preferred stock
dividends and accretion(6) ..... 3,551 27,723 28,906 28,906
--------- --------- -------------- ---------
Net income (loss) applicable to
common stock.................... $(48,854) $(43,128) $(57,090) $(58,367)
========= ========= ============== =========
Net income (loss) per share ..... $ (6.61) $ (4.61) $ (3.60) $ (3.68)
========= ========= ============== =========
Weighted average common shares
outstanding..................... 7,394 9,364 15,840 15,840
OTHER OPERATING DATA: (7)
Broadcast Cash Flow.............. $ 31,392 $ 73,113 $ 79,796 $ 79,796
Concert Cash Flow................ -- 12,346 59,290 --
EBITDA........................... 26,917 78,610 139,325 73,906
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.............. $ 4,515 $ 31,273 $ 28,367 $ 30,949 $ 88,689
Total assets................ 36,127 152,871 145,808 187,337 859,327
Long-term debt.............. 39,011 81,627 81,516 81,850 481,460
Redeemable Preferred Stock:
Series A Preferred Stock .. 3,892 917 -- -- --
Series B Preferred Stock .. -- 2,784 2,466 1,735 917
Series C Preferred Stock .. -- -- -- 1,550 1,636
Series D Preferred Stock .. -- -- -- -- 149,500
Series E Preferred Stock .. -- -- -- -- --
Stockholders' equity
(deficiency)............... (9,411) 48,598 48,856 83,061 94,517
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------------
PRO FORMA FOR PRO FORMA
THE PENDING FOR THE
ACTUAL TRANSACTIONS(10) SPIN-OFF(11)
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- -------------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.............. $ 140,689 $ 245,826 $ 128,500
Total assets................ 1,392,887 2,003,064 1,243,018
Long-term debt.............. 784,255 1,216,522 731,501
Redeemable Preferred Stock:
Series A Preferred Stock .. -- -- --
Series B Preferred Stock .. 998 998 998
Series C Preferred Stock .. 1,703 1,703 1,703
Series D Preferred Stock .. 149,500 149,500 149,500
Series E Preferred Stock .. 215,636 215,636 215,636
Stockholders' equity
(deficiency)............... 69,554 134,215 (9,008)
</TABLE>
- ------------
(1) Includes $1,380,000, $1,137,000 and $565,000 of duopoly integration
costs and related acquisition costs incurred during the years ended
December 31, 1995 and 1996 and the nine months ended September 30,
1997, respectively.
(2) In 1993, non-recurring charges related to the valuation of common
stock issued to the Company's founders at the Company's initial
public offering in September 1993 and certain pooling costs related
to the merger of Capstar with and into a subsidiary of the Company.
(3) In 1995, a $5.0 million charge was incurred with respect to the
diminished value of a contract to broadcast the Texas Rangers.
(4) In 1996, the non-recurring charges represent the repurchase of stock
from and the forgiveness of a loan to the Company's former president,
a reserve of a loan and the issuance of warrants to a related party,
the purchase of an officer's options and a charge related to the
termination of a broadcast rights agreement.
(5) In 1997, the non-recurring and unusual charges consist of $11.6
million of executive bonuses, the establishment of a reserve for a
loan from the Company's Executive Chairman of $2.6 million and $3.8
million of legal and professional fees associated with the pending
Spin-Off and Merger.
(6) Includes dividends on preferred stock which the Company redeemed in
1993, accretion on outstanding redeemable preferred stock, dividends
on the Series D Preferred Stock and dividends on the Series E
Preferred Stock.
(7) "Broadcast Cash Flow" means net revenues less station operating
expenses. "Concert Cash Flow" means concert revenues less concert
costs. "EBITDA" means net income (loss) before (i) extraordinary
items, (ii) provisions for income taxes, (iii) interest (income)
expense, (iv) other (income) expense, (v) cumulative effects of
changes in accounting principles, (vi) depreciation, amortization,
duopoly integration costs and acquisition related costs and (vii)
non-recurring charges. The difference between Broadcast Cash Flow and
EBITDA is that EBITDA reflects the impact of corporate expenses.
Although Broadcast Cash Flow, Concert Cash Flow and EBITDA are not
measures of performance calculated in accordance with GAAP, the
Company believes that Broadcast Cash Flow, Concert Cash Flow and
EBITDA are accepted by the broadcasting and entertainment industries
as generally recognized measures of performance and are used by
analysts who report publicly on the performance of such companies.
Nevertheless, these measures should not be considered in isolation or
as a substitute for operating income, net income, net cash provided
by operating activities or any other measure for determining the
Company's operating performance or liquidity which is calculated in
accordance with GAAP.
(8) The unaudited pro forma Statement of Operations Data for the Recent
and Pending Transactions for the nine months ended September 30,
1997, and the year ended December 31, 1996, are presented as if the
Company had completed the Recent and Pending Transactions as of
January 1, 1996. The terms "Recent Transactions" and "Pending
Transactions" are defined in the Glossary included in the Unaudited
Pro Forma Condensed Combined Financial Statements attached hereto.
(9) The unaudited pro forma Statement of Operations for the Spin-Off for
the nine months ended September 30, 1997, and the year ended December
31, 1996 are presented as if the Company had completed the Merger.
(10) The unaudited pro forma Balance Sheet Data at September 30, 1997, is
presented as if the Company had completed the Pending Transactions as
of September 30, 1997. The term "Pending Transactions" is defined in
the Glossary included in the Unaudited Pro Forma Condensed Combined
Financial Statements attached hereto.
(11) The unaudited pro forma Balance Sheet Data at September 30, 1997 is
presented as if the Company had completed the Spin-Off as of
September 30, 1997.
13
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA FOR SFX ENTERTAINMENT, INC.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Summary Consolidated Financial Data of SFX Entertainment includes the
historical financial statements of Delsener/Slater Enterprises, Ltd. and
affiliated companies, the predecessor of SFX Entertainment
("Delsener/Slater") for each of the five years ended December 31, 1996 and
the nine months ended September 30, 1996, and the historical financial
statements of SFX Entertainment for the nine months ended September 30, 1997.
The financial information presented below should be read in conjunction with
the information set forth in "Unaudited Pro Forma Condensed Combined
Financial Statements" and the notes thereto and the historical financial
statements and the notes of SFX Entertainment, the Recent Acquisitions and
the Pending Acquisitions included herein. The financial information has been
derived from the audited and unaudited financial statements of the SFX
Entertainment, the Recent Acquisitions and the Pending Acquisitions. The pro
forma summary data as of September 30, 1997 and for the year ended December
31, 1996 and the nine months ended September 30, 1997 are derived from the
unaudited pro forma condensed combined financial statements which, in the
opinion of management, reflect all adjustments necessary for a fair
presentation of the transactions for which such pro forma financial
information is given. Operating results for the nine months ended September
30, 1997 are not necessarily indicative of the results that may be achieved
for the fiscal year ending December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
PREDECESSOR (ACTUAL)
--------------------------------------------------------
1996 (1)
1992 1993 PRO FORMA
(UNAUDITED) (UNAUDITED) 1994 1995 1996 (UNAUDITED)
----------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue................... $38,017 $46,526 $92,785 $47,566 $50,362 $552,100
Operating expenses........ 36,631 45,635 90,598 47,178 50,687 508,357
Depreciation &
amortization............. 758 762 755 750 747 37,795
Corporate expenses (2) ... -- -- -- -- -- 3,000
----------- ----------- --------- --------- --------- -----------
Operating income (loss) .. 628 129 1,432 (362) (1,072) 2,948
Interest expense.......... (171) (148) (144) (144) (60) (43,390)
Other income.............. 74 85 138 178 198 2,177
Equity income (loss) from
investments.............. -- -- (9) 488 525 3,744
----------- ----------- --------- --------- --------- -----------
Income (loss) before
income taxes............. 531 66 1,417 160 (409) (34,521)
Income tax (provision)
benefit.................. (32) (57) (5) (13) (106) (1,500)
----------- ----------- --------- --------- --------- -----------
Net income (loss)......... $ 499 $ 9 $ 1,412 $ 147 $ (515) $(36,021)
=========== =========== ========= ========= ========= ===========
Net income (loss) per
common shares............ $ (1.80)
===========
Average common shares
outstanding.............. 20,056
===========
OTHER OPERATING DATA:
EBITDA (3)................ $ 2,187 $ 388 $ (325) $ 40,743
Adjusted EBITDA (4)....... $ 55,524
Cash flow from
operations............... $ 2,959 $ (453) $14,214
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
PREDECESSOR
-------------
1996 1997 1997 (1)
ACTUAL ACTUAL PRO FORMA
(UNAUDITED) (UNAUDITED) (UNAUDITED)
------------- ----------- -----------
<S> <C> <C> <C>
Revenue................... $41,609 $74,396 $501,489
Operating expenses........ 42,931 63,045 442,199
Depreciation &
amortization............. 744 4,041 28,378
Corporate expenses (2) ... -- 1,307 2,807
------------- ----------- -----------
Operating income (loss) .. (2,066) 6,003 28,105
Interest expense.......... (60) (956) (32,499)
Other income.............. 143 213 234
Equity income (loss) from
investments.............. 525 1,344 8,937
------------- ----------- -----------
Income (loss) before
income taxes............. (1,458) 6,604 4,777
Income tax (provision)
benefit.................. (79) (2,952) (3,500)
------------- ----------- -----------
Net income (loss)......... $(1,537) $ 3,652 $ 1,277
============= =========== ===========
Net income (loss) per
common shares............ $ 0.06
===========
Average common shares
outstanding.............. 20,056
===========
OTHER OPERATING DATA:
EBITDA (3)................ $(1,322) $10,044 $ 56,483
Adjusted EBITDA (4)....... $ 68,754
Cash flow from
operations............... $ 2,761 $ 789
</TABLE>
14
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF SFX ENTERTAINMENT, INC.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
PREDECESSOR (ACTUAL)
-------------------------------------------
1993 1994
UNAUDITED UNAUDITED 1995 1996
----------- ----------- -------- --------
<S> <C> <C> <C> <C>
Current assets.............. $1,823 $4,453 $3,022 $6,191
Property and equipment,
net........................ 4,484 3,728 2,978 2,231
Intangible assets, net ..... -- -- -- --
Total assets................ 6,420 8,222 6,037 8,879
Current liabilities......... 4,356 3,423 3,138 7,973
Long-term debt.............. -- 1,830 -- --
Temporary Equity (6)........ -- -- -- --
Stockholders' equity........ 6,420 2,969 2,900 907
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------
ACTUAL PRO FORMA
(UNAUDITED) (UNAUDITED)(5)
----------- --------------
<S> <C> <C>
Current assets.............. $ 12,189 $117,326
Property and equipment,
net........................ 55,882 185,371
Intangible assets, net ..... 59,721 415,374
Total assets................ 135,470 760,046
Current liabilities......... 11,333 91,640
Long-term debt.............. 16,453 485,021
Temporary Equity (6)........ -- 16,500
Stockholders' equity........ 101,378 143,223
</TABLE>
- ------------
(1) The Unaudited Pro Forma Statement of Operations Data for the year ended
December 31, 1996 and the nine months ended September 30, 1997, are
presented as if SFX Entertainment had completed the Pending
Acquisitions, the Recent Acquisitions and the Financing as of January
1, 1996.
(2) Corporate expenses are reduced by $3,000,000 and $1,693,000 of fees
from Triathlon Broadcasting Company ("Triathlon") for the year ended
December 31, 1996 (pro forma) and for the nine months ended September
30, 1997, respectively. These fees are to be assigned to SFX
Entertainment by the Company in connection with the Spin-Off.
(3) "EBITDA" is defined as earnings before interest, taxes, depreciation
and amortization. Although EBITDA is not a measure of performance
calculated in accordance with generally accepted accounting principals
("GAAP"), SFX Entertainment believes that EBITDA is accepted by the
entertainment industry as a generally recognized measure of performance
and is used by analysts who report publicly on the performance of
entertainment companies. Nevertheless, this measure should not be
considered in isolation or as a substitute for operating income, net
income, net cash provided by operating activities or any other measure
for determining SFX Entertainment's operating performance or liquidity
which is calculated in accordance with GAAP.
(4) Adjusted EBITDA represents EBITDA, as defined, adjusted for
nonrecurring charges including a litigation settlement recorded by PACE
and Pavilion Partners, expected cost savings associated with the
elimination of duplicative staffing and general and administrative
expenses and includes equity income (loss) from investments and
excludes minority interest in income.
While management believes that such cost savings and the elimination of
non-recurring expenses are achievable, SFX Entertainment's ability to
fully achieve such cost savings and to eliminate the non-recurring
expenses is subject to numerous factors certain of which may be beyond
SFX Entertainment's control.
(5) The Unaudited Pro Forma Balance Sheet Data at September 30, 1997 is
presented as if SFX Entertainment had completed the Pending
Acquisitions and the Financing as of September 30, 1997.
(6) The PACE Acquisition agreement provides that each PACE Seller shall
have an option (a "Fifth Year Put Option"), exercisable during a period
beginning on the fifth anniversary of the closing of the PACE
Acquisition and ending 90 days thereafter, to require SFX Entertainment
to purchase up to one-third of SFX Entertainment's Class A common stock
received by such PACE seller (500,000 shares) for a cash purchase price
of $33.00 per share. With certain limited exceptions, the Fifth Year
Put Option rights are not assignable by the PACE sellers. The maximum
amount payable under the Fifth Year Put Option ($16.5 million) has been
presented as temporary equity on the pro forma balance sheet.
15
<PAGE>
CERTAIN CONSIDERATIONS
Holders of Shares should carefully consider the factors set forth below as
well as the other information set forth in and incorporated by reference in
this Consent Solicitation Statement prior to marking and returning a Consent.
CONSEQUENCES OF NOT OBTAINING THE REQUISITE CONSENTS
Based on consultation with its advisors, and assuming the successful
completion of the Consent Solicitations, management of the Company believes
that SFX Entertainment will be able to consummate the Financing and the
Pending Acquisitions in compliance with the terms of the Series E
Certificate. SFX Entertainment has made significant deposits and SFX
Entertainment and the Company have incurred significant contingent
liabilities in connection with the Pending Acquisitions. If the Financing is
not consummated as a result of the failure to obtain the Requisite Consents
(or for any other reason) and satisfactory alternative financing is unable to
be arranged, SFX Entertainment might not be able to consummate the Pending
Acquisitions on the terms currently contemplated and might be in default
under the agreements relating to the Pending Acquisitions. Such defaults
might materially adversely affect the financial position and prospects of the
Company. None of the Pending Acquisitions are subject to any condition
regarding financing.
The Proposed Amendments will confirm the Company's interpretation of
"Consolidated Cash Flow" and will waive any Default or Event of Default and
any and all consequences under the Series E Certificate that would have
occurred, either historically or prospectively, were the Specified Charges
(as defined) not appropriately added back in calculating Consolidated Cash
Flow. Regardless of whether the Company receives the Requisite Consents, the
Company intends to continue to interpret "Consolidated Cash Flow" in the same
manner in the future. For example, the Company expects to incur substantial
additional nonrecurring and unusual charges in connection with the Merger,
Spin-Off and Consent Solicitations, and the Company believes that it is
appropriate to add back these charges in calculating Consolidated Cash Flow
going forward. If, however, the Company's interpretation is incorrect and the
Specified Charges cannot be added back to Consolidated Cash Flow, then the
Company's ability to incur additional indebtedness will be reduced. The
reduction in the Company's ability to incur additional indebtedness and the
existence of an Event of Default under the Series E Certificate would
materially affect the financial condition and prospects of the Company.
CERTAIN CONSIDERATION ASSOCIATED WITH THE MERGER
The Company has been advised that Buyer intends to finance its obligations
under the Merger Agreement through one or more financing transactions.
Buyer's and Buyer Sub's obligations under the Merger Agreement are not
subject to any conditions regarding their ability to obtain financing. In the
Merger Agreement, Buyer and Buyer Sub represented and warranted (assuming
compliance by the Company and it affiliates with the merger and the document,
relating to the Spin-Off) that the surviving corporation in the Merger would
have a Consolidated Net Worth immediately following the Merger and a Debt to
Cash Flow Ratio at the time of the Merger sufficient to comply with the
applicable provisions of the Series E Certificate. There can be no assurance
by the Company that the surviving corporation in the Merger will remain in
compliance with the provisions of the Series E Certificate after the Merger.
The "Merger, Consolidation, or Sale of Assets" section of the Series E
Certificate restricts the Company's ability to merge unless the Incurrence
Test is satisfied and no Default or Event of Default is then existing. Based
upon the Company's interpretation of Consolidated Cash Flow, the Company
believes that it will meet the Incurrence Test and that no Default or Event
of Default will exist at the time of the Merger; however, if the Company's
interpretation of "Consolidated Cash Flow" is incorrect and the Specified
Charges cannot be added back to Consolidated Cash Flow, then the Company's
ability to consummate the Merger would be restricted by the Series E
Certificate.
CERTAIN FINANCIAL CONSIDERATIONS
The Company has historically had access to the cash flow generated by, and
the assets held by, SFX Entertainment. Subsequent to the Spin-Off, the
Company will not have the benefit of either the cash flow generated by, or
the assets of, SFX Entertainment. SFX Entertainment is expected to have
substantial value, and such value is likely to increase pending consummation
of the Spin-Off.
16
<PAGE>
The Company has, and immediately after the Spin-Off will continue to have,
significant interest expense and principal repayment obligations. In
addition, subject to the restrictions contained in the instruments governing
the Company's indebtedness and preferred stock, the Company may incur
additional indebtedness from time to time to finance acquisitions, for
capital expenditures or for other purposes.
The Company is, and after the Spin-Off will continue to be, highly
leveraged. Assuming the Spin-Off had been consummated as of September 30,
1997, on a pro forma basis the Company would have had total long-term debt of
approximately $731.5 million and a stockholders' deficit of approximately
$9.0 million (exclusive of redeemable preferred stock of approximately $367.8
million), compared with the Company's actual long-term debt of approximately
$784.3 million and total stockholders' equity of approximately $69.6 million
(exclusive of redeemable preferred stock of approximately $367.8 million) as
of September 30, 1997. The Company's stockholders equity will be
substantially reduced as a result of the Spin-Off. The degree to which the
Company is leveraged could have material consequences to the Company and the
holders of the Company's debt and equity securities, including, but not
limited to, the following: (i) the Company's ability to obtain additional
financing in the future for acquisitions, working capital, capital
expenditures, general corporate or other purposes may be impaired; (ii) a
substantial portion of the Company's cash flow from operations will be
dedicated to the payment of the principal and interest on its debt and
dividends on outstanding preferred stock and will not be available for other
purposes; (iii) the agreements governing the Company's long-term debt contain
restrictive financial and operating covenants, and the failure by the Company
to comply with such covenants could result in an event of default under the
applicable instruments, which could permit acceleration of the debt under
such instrument and in some cases acceleration of debt under other
instruments that contain cross-default or cross-acceleration provisions and
(iv) the Company's level of indebtedness could make it more vulnerable to
economic downturns, limit its ability to withstand competitive pressures and
limit its flexibility in reacting to changes in its industry and general
economic conditions. Certain of the Company's competitors operate on a less
leveraged basis and have significantly greater operating and financial
flexibility than the Company.
The Company's ability to make scheduled payments of principal of, to pay
interest on or to refinance, its debt, to make dividend, conversion or
redemption payments on its preferred stock depends on its future financial
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors beyond its
control. Although management of the Company has not assessed cash flow
requirements beyond the anticipated closing of the Merger, based on the
Company's current level of operations and anticipated improvements,
management believes that the Company will be able to satisfy requirements for
working capital, capital expenditures and scheduled interest, principal,
dividend, and redemption payments through the closing of the Merger. There
can be no assurance that the Company's business will generate sufficient cash
flow from operations, that anticipated improvements in operating results will
be achieved or that future working capital borrowings will be available in an
amount to enable the Company to service its debt, to make dividend,
conversion and redemption payments and to make necessary capital or other
expenditures. The Company may be required to refinance a portion of the
principal amount of its indebtedness, or the aggregate liquidation preference
of its preferred stock prior to their maturities. There can be no assurance
that the Company will be able to raise additional capital through the sale of
securities, the disposition of assets or otherwise for any such refinancing.
CERTAIN TAX CONSIDERATIONS
For a discussion of certain federal income tax considerations relating to
the Proposed Amendments and the receipt of the Consent Fee by Holders, see
"Certain Federal Income Tax Consequences."
ALTERATION OF COVENANT PROTECTION
The Proposed Amendments would amend the Series E Certificate to waive any
Default or Event of Default and any and all consequences under the Series E
Certificate that would have occurred, either historically or prospectively,
were the Company's interpretation of the Series E Certificate incorrect and
to permit the Spin-Off, the Financing and certain other transactions. In
addition, SFX Entertainment and its subsidiaries would be exempt from the
restrictive covenants of the Series E Certificate. The Proposed
17
<PAGE>
Amendments would also exempt from restrictions on affiliate transactions the
distribution agreement (the "Distribution Agreement"), and the tax sharing
agreement (the "Tax Sharing Agreement") that is contemplated pursuant to the
Merger Agreement and certain contingent obligations of the Company under the
acquisition agreements relating to each of the Pending Acquisitions (the
"Acquisition Agreements") or under instruments contemplated by the
Acquisition Agreements. The Proposed Amendments would permit the Company to
disregard the Spin-Off when calculating the amount of restricted payments
available under the Series E Certificate following the Spin-Off. As a result
of the Proposed Amendments, the holders of Shares will be deemed to have
confirmed the Company's interpretation of "Consolidated Cash Flow" and to
have waived any Default or Event of Default and any and all consequences
under the Series E Certificate that would have occurred, either historically
or prospectively, were the Company's interpretation of the Series E
Certificate incorrect.
POTENTIAL CONFLICTS
Subsequent to the Spin-Off, the interests of SFX Entertainment and the
Company may potentially conflict due to the ongoing relationships between the
companies. If the Spin-Off occurs prior to the closing date of the Merger,
the Company's senior management and certain other employees of the Company
will devote such time as they deem reasonably necessary to conduct the
operations of SFX Entertainment while continuing to serve in their present
capacities with the Company. Immediately prior to the effective time of the
Merger, SFX Entertainment will assume the Company's obligations under such
employees' existing employment agreements (except for certain obligations
relating to change of control options and certain existing rights of
indemnification). In addition, pursuant to the Merger Agreement, prior to the
Merger, the Company will transfer to SFX Entertainment any positive Working
Capital (as defined in the Merger Agreement) or, if Working Capital is
negative, SFX Entertainment will be required to pay the amount of the
shortfall to the Company. In certain circumstances, management may have
conflicts between their responsibilities to the Company and to SFX
Entertainment. In addition, if the Spin-Off occurs and the Merger is not
consummated, senior management of the Company may become employed by SFX
Entertainment, thereby requiring the Company to seek a new management team.
FRAUDULENT TRANSFER AND PREFERENCE CONSIDERATIONS; LEGAL DIVIDEND
REQUIREMENTS
The Company does not intend to consummate the Spin-Off unless it is
satisfied regarding the solvency of the Company and SFX Entertainment and the
permissibility of the Spin-Off under Section 170 of the Delaware General
Corporation Law ("DGCL"). There is no certainty, however, that a court would
find the evidence relied on by the Company to be binding on creditors of the
Company or SFX Entertainment or that a court would reach the same conclusions
suggested by such evidence in determining whether the Company or SFX
Entertainment was solvent or insolvent at the time of, or after giving effect
to, the Spin-Off.
If a court in a lawsuit filed by an unpaid creditor or representative of
unpaid creditors, such as a trustee in bankruptcy, were to find that at the
time the Spin-Off was consummated or the Consent Fee was paid, the Company or
the Concert Business, as the case may be, (i) was insolvent, (ii) was
rendered insolvent by reason of the Spin-Off or the Consent Fee, (iii) was
engaged in a business or transaction for which the remaining assets of the
Company, or SFX Entertainment, as the case may be, constituted unreasonably
small capital or (iv) intended to incur, or believed it would incur, debts
beyond its ability to pay as such debts matured, such court may be asked to
void the Spin-Off and/or the Consent Fee (in whole or in part) as a
fraudulent conveyance and require that the stockholders return the special
dividend (in whole or in part) to the Company or require that Holders who
receive the Consent Fee pursuant to the Consent Solicitation and in certain
cases their transferees to turn over to the Company's trustee in bankruptcy
or to the Company as a debtor in possession, for the benefit of the Company's
creditors, such Consent Fee or may subject the assets transferred to SFX
Entertainment to an obligation to fund certain liabilities of the Company for
the benefit of the Company's creditors. If the assets of SFX Entertainment
were recovered as fraudulent transfers by a creditor or trustee of the
Company, the relative priority of payment of creditors of the Company and SFX
Entertainment would be unclear and SFX Entertainment could be rendered
insolvent. The measure of insolvency for purposes of the foregoing will vary
depending upon the jurisdiction whose law is being applied. Generally,
however, the Company or SFX Entertain-
18
<PAGE>
ment, as the case may be, would be considered insolvent if the fair value of
their respective assets were less than the amount of their respective
liabilities or if they incurred debts beyond their ability to repay such
debts as they mature. In addition, under Section 170 of the DGCL (which is
applicable to the Company in the Spin-Off) a corporation generally may make
the Spin-Off to its stockholders only out of its surplus (net assets minus
capital) and not out of capital.
The Company and management believe that in accordance with the evidence
examined in connection with the Spin-Off, (i) the Company and SFX
Entertainment will be solvent at the time of the Spin-Off (in accordance with
the foregoing definitions), will be able to repay their debts as they mature
following the Spin-Off and will have sufficient capital to carry on their
respective businesses and (ii) the Spin-Off will be made entirely out of
surplus, as provided under Section 170 of the DGCL.
Separate and apart from any fraudulent transfer risk, the Consent Fee may
also be subject to challenge as preference payments under the federal
bankruptcy laws if such payments (i) are made within 90 days (or one year, if
the relevant recipient is an insider of the Company) prior to a bankruptcy
filing by or against the Company, (ii) are made when the Company is insolvent
and (iii) permit the relevant recipient to receive more than it otherwise
might receive in a Chapter 7 liquidation under the bankruptcy laws. If such
payment were deemed to be a preference, such payment could be recovered by
the Company's trustee in bankruptcy or the Company as a debtor in possession,
and the recipient whose payments were recovered would have claims against the
Company. With respect to the potential fraudulent transfer and preference
claims described above, the Company believes that it is not insolvent and
that it would not be rendered insolvent by making the Consent Fee or the
Spin-Off under the conditions described herein.
CONSEQUENCES TO NON-CONSENTING HOLDERS
Holders who do not timely consent to the Proposed Amendments prior to the
Expiration Date will not be eligible to receive the Consent Fee even though
the Proposed Amendments will be binding upon them at the Operative Time.
19
<PAGE>
THE CONSENT SOLICITATION
GENERAL
The Company is soliciting Consents from the Holders, upon the terms and
subject to the conditions set forth in the Solicitation Documents, to the
Proposed Amendments. Consummation of the Consent Solicitation is conditioned
upon satisfaction of the other conditions described below. The purpose of the
Consent Solicitation and the Proposed Amendments is to confirm the Company's
interpretation of "Consolidated Cash Flow" under the Series E Certificate, to
waive any Default or Event of Default and any and all consequences under the
Series E Certificate that would have occurred, either historically or
prospectively, were the Company's interpretation of the Series E Certificate
incorrect and to permit the Spin-Off, the Financing and certain other
transactions, each as more fully described under "The Proposed Amendments."
Promptly after the Effective Time, the Company will make the Partial
Payment to each Holder of Shares whose duly executed and valid Consent is
received prior to the Effective Time. At the Effective Time, Consents will
become irrevocable. Consents may only be revoked under the circumstances
described in this Consent Solicitation Statement and in the Letter of
Consent. Promptly after the Expiration Date, the Company will make the
Partial Payment to any Holders who delivered Consents after the Effective
Time and prior to the Expiration Date. At the Operative Time, the Proposed
Amendments will become operative. The Operative Time will occur immediately
prior to the consummation of the first of the Proposed Transactions (the
Spin-Off, the Financing, the Meadows Repurchase and the transactions between
the Company and SFX Entertainment pursuant to the Tax Sharing Agreement, the
Distribution Agreement and the Acquisition Agreements). In no event shall the
Operative Time occur after September 1, 1998. On the Final Consent Payment
Date, the Company will pay the balance of the Consent Fee to those Holders
who previously received a Partial Payment. To receive any portion of the
Consent Fee, Holders must deliver their valid Consents before the Expiration
Date.
The Consents are being solicited by the Company. All costs of the Consent
Solicitation (except for 50% of certain costs relating to the Consent
Solicitations, up to $1.0 million, which will be borne by the Company),
including the Consent Fee, will be borne by SFX Entertainment. In addition to
the use of the mail, Consents may be solicited by officers and other
employees of the Company without additional remuneration, in person, or by
telephone, telegraph or facsimile transmission. The Company has retained
Lehman Brothers as the Solicitation Agent and D.F. King & Co., Inc. as the
Information Agent to aid in the solicitation of Consents, including
soliciting Consents from brokerage firms, banks, nominees, custodians and
fiduciaries.
Pursuant to the terms of the Series E Certificate, the Company is
obligated to make a dividend payment on the Shares on January 15, 1998, which
dividend may be paid in cash or in additional Shares (the "Dividend Shares").
On December 24, 1997, the Company announced that it would pay such dividend
in Dividend Shares. The Company will not seek to obtain Consents in respect
of such Dividend Shares, since the date of payment of the Dividend Shares is
after the Record Date, and no Consent Fee will be paid in respect of such
Dividend Shares.
REQUISITE CONSENTS
Adoption of the Proposed Amendments requires the receipt of the Requisite
Consents, consisting of the consent of the Holders of a majority of the
Shares outstanding and not owned by the Company or any of its affiliates. As
of the date of this Consent Solicitation Statement, 2,250,000 Shares are
outstanding, none of which are held by the Company or any of its affiliates.
The failure of a Holder to deliver a Consent will have the same effect as if
such Holder does not Consent to the Proposed Amendments.
COMMON STOCK CONSENT
The affirmative vote of a majority of the voting power of the Common Stock
of the Company (voting together as a single class with each share of Class A
Common Stock entitled to one vote and each share
20
<PAGE>
of Class B Common Stock entitled to ten votes) is also required to amend the
Series E Certificate. Robert F.X. Sillerman, the Executive Chairman and a
Director of the Company, owns as of January 5, 1998 approximately 1.6% of the
outstanding shares of Class A Common Stock (excluding options and warrants to
acquire shares) and 97.8% of the outstanding shares of Class B Common Stock
(excluding options and warrants to acquire shares), which represent
approximately 11.1% of the outstanding shares of Common Stock and
approximately 52.1% of the combined voting power of the outstanding Common
Stock. Accordingly, Mr. Sillerman is able to control the outcome of the vote
on all matters that require the approval of the majority of the combined
voting power of the outstanding shares of Common Stock; as a result, his
written consent in lieu of a meeting will control the outcome of the vote of
the Common Stock with respect to the Proposed Amendments. Mr. Sillerman has
executed a written consent in favor of the Proposed Amendments. Accordingly,
no approval by the holders of shares of Class A Common Stock of the Proposed
Amendments is required or sought.
RECORD DATE
Holders of Shares as of the close of business on the Record Date will be
entitled to notice of, and to consent to, the Proposed Amendments.
EXPIRATION DATE
The Expiration Date for the Consent Solicitation is 5:00 p.m., New York
City time, on the later of (i) January 21, 1998 and (ii) the first business
day on which the Company has received the Requisite Consents.
EFFECTIVE TIME
Promptly after receipt of the Requisite Consents, the Company will pay to
each Holder of Shares as of the Record Date who has theretofore delivered
Consents the Partial Payment for each Share in respect of which a Consent was
delivered (the "Effective Time") and the Consents will become irrevocable.
CONSEQUENCES TO NON-CONSENTING HOLDERS
At the Effective Time, Consents will be irrevocable. At the Operative
Time, all then current holders of Shares, including nonconsenting holders,
and all subsequent holders of Shares will be bound by the Proposed
Amendments.
CONSENT FEE
The amount of the Consent Fee will be $1.00 in cash for each Share with
respect to which a valid Consent is received prior to the Expiration Date;
provided, however, that in the event the Certificate of Amendment is not
filed for any reason, no Consent Fee (other than a Partial Payment, if any)
will be made. Subject to the conditions set forth herein and in the Letter of
Consent, (i) promptly after the Effective Time, the Company will make the
Partial Payment in respect of each Share with respect to which a Consent is
received and not revoked on or before the Effective Time, (ii) promptly after
the Expiration Date, the Company will make the Partial Payment to each Holder
whose duly executed and valid Consent is received after the Effective Time
and prior to the Expiration Date and (iii) if the Proposed Amendments become
operative, then the Company will pay the balance of the Consent Fee on the
Final Consent Payment Date to Holders who previously received a Partial
Payment.
Only Holders whose properly executed Consents have been received and not
revoked prior to the Expiration Date will be eligible to receive the Consent
Fee. Holders of Shares who do not timely consent to the Proposed Amendments
will not be eligible to receive the Consent Fee even though the Proposed
Amendments will be binding on them at the Operative Time.
The Company's obligation to make the Partial Payment is contingent on
receipt of the Requisite Consents, and the Company's obligation to pay the
remainder of the Consent Fee is contingent the Proposed Amendments becoming
operative.
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FAILURE TO OBTAIN THE REQUISITE CONSENTS
In the event the Requisite Consents are not obtained before the Consent
Solicitation is terminated by the Company, the Consent Fee, including the
Partial Payment, will not be paid and the Proposed Amendments will not be
effected.
CONSENT PROCEDURES
Consents must be delivered to the Depository before the Expiration Date.
Only Holders (i.e., persons in whose name a Share was registered as of the
Record Date or their duly designated proxies) may execute and deliver a
Consent. The DTC is expected to grant an omnibus proxy authorizing DTC
Participants who held Shares as of the Record Date to deliver Consents.
Accordingly, for the purposes of this Consent Solicitation, the term "Holder"
shall be deemed to include DTC Participants who held Shares through the DTC
as of the Record Date. In order to cause a Consent to be given with respect
to the Shares Holders or their duly authorized proxies must complete and sign
the Consent Letter and mail or deliver it to the Depository at its address or
facsimile set forth on the back cover page of this Consent Solicitation
Statement pursuant to the procedures set forth herein and therein. A
beneficial owner of an interest in the Shares held through a DTC Participant
must (i) instruct the DTC Participant through which it holds Shares to
complete and sign the Letter of Consent and deliver it to the Depository in
order to cause a Consent to be given with respect to such Shares or (ii)
obtain a properly executed proxy from such DTC Participant and deliver it,
together with the Consent, to the Depository.
Giving a Consent will not affect a Holder's right to sell or transfer
Shares and any such sale or transfer will not affect the Holder's right to
receive the Consent Fee.
HOLDERS OF SHARES WHO WISH TO CONSENT TO THE PROPOSED AMENDMENTS SHOULD
COMPLETE, SIGN AND DATE, THE LETTER OF CONSENT INCLUDED HEREWITH AND MAIL,
HAND DELIVER, SEND BY OVERNIGHT COURIER OR FAX PRIOR TO THE EXPIRATION DATE
THEIR PROPERLY COMPLETED AND EXECUTED LETTER OF CONSENT TO THE DEPOSITORY AT
THE ADDRESS SET FORTH ON THE BACK COVER PAGE HEREOF AND ON THE LETTER OF
CONSENT IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH HEREIN AND THEREIN. THE
METHOD OF DELIVERY OF THE LETTER OF CONSENT TO THE DEPOSITORY IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL IT IS
RECOMMENDED THAT HOLDERS USE REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. CONSENTS SHOULD BE DELIVERED TO THE DEPOSITORY, NOT TO THE
COMPANY, THE INFORMATION AGENT OR THE SOLICITATION AGENT. HOWEVER, THE
COMPANY RESERVES THE RIGHT TO ACCEPT ANY CONSENT RECEIVED BY IT, THE
INFORMATION AGENT OR THE SOLICITATION AGENT.
IN NO EVENT SHOULD A HOLDER TENDER OR DELIVER ANY SHARES.
Consents or proxies by Holders must be executed in exactly the same manner
as such Holders' names appear on the records of the transfer agent or are
registered with the DTC. If a Consent or proxy is signed by a trustee,
partner, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person must so indicate when signing and must submit with the Consent
form appropriate evidence of authority to execute the Consent or proxy. In
addition, if a Consent or proxy relates to less than the total number of
Shares which such Holder holds or holds through the DTC, the Holder must list
the number of Shares to which the Consent relates. IF NO TOTAL NUMBER OF
SHARES AS TO WHICH A CONSENT IS DELIVERED IS SPECIFIED, OR IF NEITHER THE
"WAIVE & CONSENT" NOR THE "DO NOT WAIVE & CONSENT" BOX IS MARKED WITH RESPECT
TO SUCH SHARES, BUT THE LETTER OF CONSENT IS OTHERWISE PROPERLY COMPLETED AND
SIGNED, THE HOLDER WILL BE DEEMED TO HAVE CONSENTED TO THE PROPOSED
AMENDMENTS WITH RESPECT TO THE ENTIRE NUMBER OF SHARES THAT SUCH HOLDER HOLDS
(THROUGH THE DTC OR OTHERWISE).
All questions as to the validity, form, eligibility (including time of
receipt) for the Consent Fee and revocation of Consents with respect to
Shares will be determined by the Company in its sole discretion,
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which determination will be conclusive and binding on all parties. The
Company reserves the absolute right to reject any or all Consents that are
not in proper form or the acceptance of which could, in the opinion of the
Company or its counsel, be unlawful. The Company also reserves the right to
waive any defects or irregularities in connection with deliveries of
particular Consents. Unless waived, any defects or irregularities in
connection with deliveries of Consents must be cured within such time as the
Company determines. None of the Company, any of its affiliates, the
Solicitation Agent, the Information Agent, the Depository or any other person
shall be under any duty to give any notification of any such defects,
irregularities or waiver, nor shall any of them incur any liability for
failure to give such defects, irregularities or waiver, nor shall any of them
incur any liability for failure to give such notification. The Company's
interpretation of the terms and conditions of this Consent Solicitation
Statement shall be conclusive and binding.
REVOCATION OF CONSENTS
Consents with respect to Shares may be revoked at any time by the Holder
prior to the Effective Time. All properly completed and executed Letters of
Consent received by the Depository will be counted, notwithstanding any
transfer of the Shares to which such Consents relate, unless the Depository
receives from the Holder thereof (or a duly designated proxy) a properly
completed and executed notice of revocation at any time prior to the
Effective Time.
A Holder of Shares desiring to revoke a Consent must, prior to the
Effective Time, deliver to the Depository at the address set forth on the
back cover page of this Consent Solicitation Statement and on the front page
of the Letters of Consent a written revocation of such Consent containing the
name of such Holder, the certificate number of the Shares to which such
revocation relates, the total number of Shares to which such revocation
relates and the signature of the Holder revoking the Consent.
A revocation of a Consent may only be rescinded by the execution and
delivery of a new Consent prior to the Expiration Date. A Holder who has
delivered a revocation may thereafter deliver a new Consent by following one
of the procedures described herein at any time prior to the Expiration Date.
The Company reserves the right to contest the validity of any revocation
and all questions as to validity (including time of receipt) of any
revocation will be determined by the Company in its sole discretion, which
determination will be conclusive and binding on all parties. None of the
Company, any of its affiliates, the Solicitation Agent, the Information
Agent, the Depository or any other person will be under any duty to give
notification of any defects or irregularities with respect to any revocation
nor shall any of them incur any liability for failure to give such
notification.
CONDITIONS TO THE CONSENT SOLICITATION
The delivery of the Certificate of Amendment to the Delaware Secretary of
State for filing is conditioned upon the successful completion of the Note
Consent Solicitation. The Company anticipates that it will deliver the
Certificate of Amendment to the Delaware Secretary of State prior to the
consummation of the first of the transactions described herein for which a
Consent is sought.
Once commenced, the continuation of the Consent Solicitation is
conditioned upon (subject to waiver by the Company) the successful completion
of the Note Consent Solicitation and the absence of any (i) law or
regulation, and (ii) injunction or action or other proceeding (pending or
threatened) that (in the case of any action or proceeding, if adversely
determined) would make unlawful or invalid or enjoin the implementation of
the Proposed Amendments, or the payment of the Consent Fee, or that questions
the legality or validity thereof, or otherwise adversely affects the Spin-Off
or any of the transactions described herein for which a Consent is sought.
The Company expressly reserves the right for any reason to terminate the
Consent Solicitation at any time prior to the Final Consent Payment Date by
giving oral or written notice of such termination to the Depository. Any such
termination by the Company will be followed as promptly as practicable by
notice thereof by press release or other public announcements (or by written
notice to the Holders). If the Consent Solicitation is terminated by the
Company, for any reason, at any time prior to the acceptance
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by the Delaware Secretary of State of the Certificate of Amendment for filing
all Consents will be void and no Consent Fee will be paid, or, if Partial
Payments have been made, no additional payments will be made.
The Company expressly reserves the right to modify, at any time or from
time to time, the terms of the Consent Solicitation (including, without
limiting the generality of the foregoing, by accelerating the Operative Time
or by modifying the amount or form of consideration to be paid to holders
delivering Consents), the Proposed Amendments or any of the transactions
described herein. If the Company determines that such modifications are not,
individually or in the aggregate, materially adverse to holders of Shares,
then Consents given prior to such modifications will remain valid and
effective and will constitute Consents to the Proposed Amendments, as so
modified. If such modifications are amended in a manner determined by the
Company to constitute a material adverse change to the Holders, the Company
will promptly disclose such amendment in a public announcement and the
Company will extend the Consent Solicitation for a period deemed by the
Company to be adequate to permit the Holders to deliver or revoke their
Consents.
If the Company makes a material change in the terms of, or information
concerning, the Consent Solicitation, the Proposed Amendments or any of the
transactions described herein or waives any condition related thereto that
results in a material change to the circumstances of the Consent
Solicitation, then the Company will disseminate additional solicitation
materials to the extent necessary and will extend the Consent Solicitation to
the extent necessary in order to permit the Holder of the Shares adequate
time to consider such materials.
SOLICITATION AGENT, INFORMATION AGENT AND DEPOSITORY
The Company has retained Lehman Brothers as Solicitation Agent in
connection with the Consent Solicitation. The Solicitation Agent will solicit
Consents and will respond to inquiries of holders of Shares. The Solicitation
Agent will receive a customary fee for its services in connection with the
Consent Solicitation and reimbursement for reasonable out-of-pocket expenses,
including counsel's fees. The Company has agreed to indemnify the
Solicitation Agent against certain liabilities and expenses, including
liabilities under the securities laws, in connection with the Consent
Solicitation. See "Solicitation Agent."
The Company has retained D.F. King & Co., Inc. as Information Agent in
connection with the Consent Solicitation. The Information Agent will
distribute Solicitation Documents and will answer questions regarding the
Consent Solicitation. The Information Agent will receive a customary fee for
such services and reimbursement for reasonable out-of-pocket expenses.
Requests for additional copies of this Consent Solicitation Statement or
the form of Consent may be directed to the Solicitation Agent or the
Information Agent at their respective addresses and/or telephone numbers set
forth on the back cover of this Consent Solicitation Statement.
The Company has retained The Bank of New York as Depository in connection
with the Consent Solicitation. The Depository will receive, collect and
tabulate Consents. The Depository will receive a customary fee for such
services and reimbursement for reasonable out-of-pocket expenses.
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PROPOSED AMENDMENTS
PURPOSES AND EFFECTS
The Shares have the rights, preferences and privileges set forth in the
Series E Certificate. The Company is seeking Consents to the Proposed
Amendments in the Consent Solicitation to confirm the Company's
interpretation of "Consolidated Cash Flow" under the Series E Certificate, to
waive any Default or Event of Default and any and all consequences under the
Series E Certificate that would have occurred, either historically or
prospectively, were the Company's interpretation of the Series E Certificate
incorrect and to permit the Company to consummate the Spin-Off and the
Financing and to permit the Meadows Repurchase and the transactions between
the Company and SFX Entertainment pursuant to the Tax Sharing Agreement, the
Distribution Agreement and the Acquisition Agreements.
PROPOSED AMENDMENTS
Set forth below is a summary of the Proposed Amendments for which the
Consents are being solicited. The description is qualified by reference to
the full provisions of the existing Series E Certificate and the provisions
of the Certificate of Amendment, which provisions are substantially in the
form set forth in Annex A attached hereto. The capitalized terms used in this
section and in Annex A and not otherwise defined shall have the meanings
assigned to them in the Series E Certificate and the Certificate of
Amendment, as the case may be. Copies of the Series E Certificate are
available upon request from the Company.
DEFINITION OF CONSOLIDATED CASH FLOW
The definition of "Consolidated Cash Flow" in the Series E Certificate is
a component of the Debt to Cash Flow Ratio. The "Incurrence of Indebtedness
and Issuance of Preferred Stock" section of the Indenture limits the
Company's ability to incur Indebtedness unless the Debt to Cash Flow Ratio
test (the "Incurrence Test") set forth therein is satisfied. The definition
of "Consolidated Cash Flow" in the Series E Certificate provides that, in
calculating Consolidated Cash Flow for any period, the Company will add to
its Consolidated Net Income "an amount equal to any extraordinary loss . . .
during such period (to the extent such losses were deducted in computing such
Consolidated Net Income)." The Company has interpreted the phrase
"extraordinary loss" in such definition to include nonrecurring and unusual
charges that management believes in its professional judgment were not
indicative of continuing operating expenses, whether or not such items would
be construed to be "extraordinary" in accordance with GAAP. Specifically, the
Company has treated, and intends to continue to treat, the following items
(the "Specified Charges") as "extraordinary" for purposes of the definition
of Consolidated Cash Flow:
o In April 1996, the Company entered into an agreement with D.
Geoffrey Armstrong, then its Chief Financial Officer, pursuant to
which Mr. Armstrong agreed to become the Chief Operating Officer of
the Company and defer certain payments due to him under his
employment agreement. The Company also agreed to repurchase certain
securities owned by Mr. Armstrong. The Company paid $4,575,000 for
the repurchase of options and rights to receive options held by Mr.
Armstrong, and accrued an additional $800,000 related to charges in
Mr. Armstrong's employment agreement, which amounts were expensed
as a nonrecurring charge.
o In June 1996, the Company entered into an agreement with R. Steven
Hicks, then its President, Chief Executive Officer, Chief Operating
Officer and a Director, pursuant to which Mr. Hicks resigned from
all positions held by him in the Company, sold to the Company all
of the Company's securities then owned by him or which he had the
right to obtain and agreed to refrain from owning for a period of
one year any direct or indirect interest in radio stations in
certain markets in the United States. In return, Mr. Hicks received
payments from the Company aggregating $18.6 million. The Company
recorded nonrecurring and unusual charges of $12,461,000 relating
to payments in excess of the fair value of stock repurchased and
recorded additional charges of $2,330,000 relating to the
forgiveness of a loan and accrued interest payable by Mr. Hicks.
o In April 1996, the Company entered into an agreement with Sillerman
Communications Management Corporation, an entity that provided
advisory services to the Company and other entities, which is
controlled by Robert F. X. Sillerman and in which Howard J. Tytel
has an interest ("SCMC"). Pursuant to this agreement, SCMC assigned
to the Company its rights to
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receive certain fees payable to SCMC by other entities in respect
of consulting and marketing services to be performed on behalf of
those entities by SCMC, and the Company and SCMC terminated the
arrangement pursuant to which SCMC performed financial consulting
services for the Company. Pursuant to this agreement, the Company
issued to SCMC warrants to purchase up to 600,000 shares of Class A
Common Stock at an exercise price, subject to adjustment, of $33.75
(the market price at the time the financial consulting arrangement
was terminated). The Company also forgave a $2.0 million loan made
by the Company to SCMC, plus accrued and unpaid interest thereon.
The Company recorded a non-recurring and unusual charge of
$5,586,000 related to the agreement.
o In July and August 1997, the Company paid a $1.0 million bonus to
Michael G. Ferrel and a $10.0 million bonus to Robert F.X.
Sillerman. In addition, the Company's board of directors approved
in principle the forgiveness of a $2.5 million loan (along with
accrued but unpaid interest thereon of approximately $100,000)
previously made by the Company to Mr. Sillerman. The Company
recorded nonrecurring and unusual charges consisting of $11.6
million of executive bonus payments and the establishment of a
reserve for Mr. Sillerman's loan of $2.6 million.
o In the third quarter of 1997, the Company recorded non-recurring
and unusual charges of $3.8 million of primarily legal and
professional fees associated with the Merger and Spin-Off. The
Company anticipates that additional nonrecurring and unusual
charges will be paid or accrued in 1997 or 1998 (including, but not
limited to, legal, accounting, investment banking and consent fees)
related to the Merger, the Spin-Off, the Consent Solicitations and
transactions related thereto, and that the aggregate amount thereof
could be substantial. Management believes that it is appropriate to
add these future nonrecurring and unusual charges back in
calculating Consolidated Cash Flow.
Had these expenses not been added back in calculating Consolidated Cash
Flow, many of the Company's borrowings during 1996, 1997 and 1998 would not
have been in compliance with the Incurrence Test, which noncompliance would
have caused an Event of Default under the "Events of Default" section of the
Indenture.
The Proposed Amendments will confirm the Company's interpretation of
Consolidated Cash Flow and will waive any Default or Event of Default that
would have occurred were the Specified Charges not appropriately added back
in calculating Consolidated Cash Flow. By adding the Specified Charges back
to Consolidated Cash Flow, Consolidated Cash Flow is increased by the amount
of such charges and the Debt to Cash Flow Ratio is correspondingly decreased.
If the Company had not added Specified Charges back to Consolidated Cash
Flow, Consolidated Cash Flow and the Company's ability to incur additional
indebtedness would have been and will continue to be reduced.
Also, the "Merger, Consolidation or Sale of Assets" section of the Series
E Certificate restricts the Company's ability to merge unless the Incurrence
Test is satisfied and no Default or Event of Default is then existing. At the
time of the Merger, the Company will be required to satisfy the requirements
of the "Merger, Consolidation or Sale of Assets" section of the Indenture.
By seeking Consents to the Proposed Amendments, the Company does not
acknowledge that its interpretation of the term "extraordinary" is
inappropriate. Regardless of whether the Company receives the Requisite
Consents, the Company intends to continue to interpret Consolidated Cash Flow
in the same manner in the future.
The Company in the past has been, and currently is, permitted to add back
the Specified Charges in calculating consolidated cash flow for purposes of
the similar debt-to-cash flow ratio set forth in the Company's existing
senior credit facility with The Bank of New York.
The Certificate of Amendment will amend the definition of "Consolidated
Cash Flow" to expressly include in such definition (i) the Specified Charges
and (ii) unusual and nonrecurring charges paid or accrued in 1997 or 1998
relating to the Merger Agreement, the Spin-Off and the transactions related
thereto. See Annex A--Amendments to Series E Certificate.
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DEFINITION OF SUBSIDIARY
The Proposed Amendments will amend the Series E Certificate to exclude SFX
Entertainment and its subsidiaries from the definition of the Company's
"Subsidiaries," thereby generally exempting SFX Entertainment and its
subsidiaries from the restrictive covenants, and will add certain defined
terms relevant to the Proposed Amendments. The exclusion will permit SFX
Entertainment and its subsidiaries to enter into the Financing and certain
other transactions.
RESTRICTED PAYMENTS
The "Restricted Payments" provision in the Series E Certificate provides
that neither the Company nor its Subsidiaries may, with certain exceptions,
directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's Parity Securities or
Junior Securities (including, without limitation, any payment in connection
with any merger or consolidation involving the Company) or to the direct or
indirect holders of the Company's Parity Securities or Junior Securities in
their capacity as such (other than dividends or distributions payable in
Capital Stock (other than Disqualified Stock) of the Company); (ii) purchase,
redeem or otherwise acquire or retire for value any Parity Securities or
Junior Securities of the Company; (iii) make any payment on, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness
that is subordinated to the Shares, except at final maturity; or (iv) make
any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment certain conditions shall have been met, including the condition that
such Restricted Payment, together with the aggregate amount of all other
Restricted Payments (except certain permitted Restricted Payments) declared
or made after the date of the Series E Certificate do not exceed an amount
calculated as set forth in the Series E Certificate based on the Company's
Consolidated Cash Flow (subject to subtractions and other adjustments).
The Proposed Amendments will amend the "Restricted Payments" provision in
the Series E Certificate to: (i) add the Spin-Off and the Meadows Repurchase
to the specifically exempted transactions and (ii) exclude the Spin-Off and
the Meadows Repurchase from the calculation of aggregate Restricted Payments
(for purposes of the exception for Restricted Payments not exceeding an
amount calculated as set forth in the Series E Certificate based on the
Company's Consolidated Cash Flow).
TRANSACTIONS WITH AFFILIATES
The "Transactions with Affiliates" provision of the Series E Certificate
prohibits the Company and its subsidiaries from entering into Affiliate
Transactions, with certain exceptions.
The Certificate of Amendment will amend "Transactions with Affiliates" to
permit the transactions and agreements specifically contemplated by the
Acquisition Agreements or the Merger Agreement and to permit any Spin-Off
Transaction.
WAIVER RELATING TO SPIN-OFF TRANSACTIONS
Certain provisions of the Series E Certificate may prohibit the
consummation of the Spin-Off Transactions.
The Proposed Amendments would add a "Waiver Relating to Spin-Off
Transactions" provision to the Series E Certificate. The "Waiver Relating to
Spin-Off Transactions" provision would provide that, (i) notwithstanding any
other provision of the Series E Certificate to the contrary, the Company and
the Subsidiaries are permitted to consummate the Spin-Off Transactions at any
time prior to December 31, 1998 and (ii) the Holders of Shares waive the
effect of any other provision of the Series E Certificate that might
otherwise prohibit the Spin-Off Transactions.
DEFINED TERMS
The Proposed Amendments would amend the Series E Certificate to add and
amend certain defined terms relevant to the Proposed Amendments. See "Annex A
- -- Amendments to the Series E Certificate."
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THE SPIN-OFF
ANTICIPATED STRUCTURE OF THE SPIN-OFF
Pursuant to the Merger Agreement, the Company will contribute all of the
capital stock of SFX Concerts, Inc. (formerly known as Delsener/Slater
Enterprises, Ltd.) to SFX Entertainment, and must, prior to the Closing,
distribute pro rata to the holders of Common Stock, in the Spin-Off, all of
the capital stock owned by the Company in SFX Entertainment. The Spin-Off is
a condition precedent to Buyer's obligation to proceed with the Merger and is
being done to facilitate the Merger (which the Board of Directors has
determined is in the best interests of the Company's stockholders), by
excluding from the Merger the Company's Concert Business. Even if the Merger
does not occur for any reason, the Company intends to consummate the Spin-Off
(or, if necessary, an Alternate Transaction). Although management believes it
is unlikely the Spin-Off will not occur, the Spin-Off is subject to certain
conditions, some of which are outside of management's control, and there can
be no assurance that the Spin-Off will be consummated on the terms presently
contemplated or at all.
In the Spin-Off, assuming that the Spin-Off Shares Proposal is approved by
the stockholders of the Company, the holders of Class A Common Stock and
Series D Preferred Stock will receive SFX Entertainment Class A common stock
having features similar to the Class A Common Stock, and the holders of Class
B Common Stock will receive SFX Entertainment Class B common stock having
features similar to the Class B Common Stock. Prior to the Spin-Off, SFX
Entertainment will amend and restate its certificate of incorporation to,
among other things, increase its authorized capital stock and will issue to
the Company, in exchange for the issued and outstanding shares of stock of
SFX Entertainment then held by the Company, the number of shares of SFX
Entertainment's common stock necessary to consummate the Spin-Off. The
economic rights of shares of Class A Common Stock and Class B Common Stock of
the Company are identical, but the voting rights differ in that each share of
Class A Common Stock is entitled to 1 vote per share and each share of Class
B Common Stock is generally entitled to 10 votes per share. The Spin-Off will
be a taxable dividend distribution to the holders of shares of Common Stock
and Series D Preferred Stock at the close of business on a date to be
determined by the Board of Directors and will be made as follows:
(a) holders of Class A Common Stock will receive 1 share of SFX
Entertainment Class A common stock per share of Class A Common
Stock held;
(b) holders of Class B Common Stock will receive 1 share of SFX
Entertainment Class B common stock per share of Class B Common
Stock held;
(c) holders of Series D Preferred Stock will receive the number of
shares of SFX Entertainment Class A common stock obtained by
multiplying the number of shares of Series D Preferred Stock held
by 1.0987 (rounded down to the next whole share); and
(d) the Company will place in escrow shares of SFX Entertainment Class
A common stock for delivery to the holders of the SCMC Warrants (as
defined in the Merger Agreement) and the warrants (the "IPO
Warrants" and, together with the SCMC Warrants, the "Warrants")
granted by the Company to the underwriters of the initial public
offering of MMR (as defined in the Merger Agreement) upon exercise
of such Warrants.
In connection with the Spin-Off, it is likely that the Merger Agreement
will require either SFX Entertainment to make a payment to the Company, or
the Company to make a payment to SFX Entertainment, in respect of Working
Capital (including repayment of funds provided by the Company to SFX
Entertainment). As of September 30, 1997, the Company estimates that Working
Capital to be received by SFX Entertainment, would have been approximately
$2.1 million.
THE DISTRIBUTION AGREEMENT
The Company and SFX Entertainment intend to enter into the Distribution
Agreement, which will contain the terms and conditions pursuant to which the
Company and SFX Entertainment propose to separate their businesses. The
Distribution Agreement and the other agreements to be executed in
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connection with the Spin-Off have not been finalized and remain subject to
change. The Company has agreed that, prior to the Merger Effective Time, it
will (to the extent required by Buyer) cause SFX Entertainment and is
subsidiaries to perform their obligations under the Distribution Agreement.
The Distribution Agreement will set forth the method of effecting the
Spin-Off and the rights and obligations of the parties in connection with the
Spin-Off.
Transfer and Assumption of Assets and Obligations
At the time of the Spin-Off, SFX Entertainment will assume (i) certain of
SFX's leases and employment agreements, (ii) debt and liabilities incurred by
SFX Concerts, Inc. or SFX Entertainment or their respective subsidiaries
after the date of the Merger Agreement in connection with acquisitions and
capital expenditures and (iii) any other debt and liabilities that SFX
Entertainment deems appropriate. SFX will cause SFX Entertainment and its
subsidiaries to be released from all other debt and accrued liabilities.
SFX Entertainment and its subsidiaries (collectively, the "SFX
Entertainment Group") will be entitled to all of SFX's accounts receivable
relating to SFX's live entertainment business. SFX will transfer to SFX
Entertainment, prior to the Spin-Off, agreements relating to (i) an airplane
lease, (ii) fees payable by Triathlon Broadcasting Company for services
provided by The Sillerman Companies, Inc. (a consulting company of which Mr.
Sillerman is the Chairman of the Board of Directors and Chief Executive
Officer, and of which Mr. Tytel is the Executive Vice President, General
Counsel and a Director), (iii) two real estate leases and assets located on
the leased property, (iv) a note receivable relating to the sale of SFX's
radio stations operating in Myrtle Beach and (v) the employment of certain
employees of the Company (including related change-of-control payments). SFX
Entertainment will assume all of the Company's and its subsidiaries'
obligations accruing after the date of the Spin-Off under the above
agreements.
Acquisitions and Capital Improvements
The Company and SFX Entertainment have agreed that SFX Concerts, Inc., a
subsidiary of the Company currently holding the Concert Business, may, from
time to time, (i) acquire additional businesses engaged in the Concert
Business or (ii) make capital improvements on assets owned or leased by it or
its subsidiaries. In each case, the Company must loan SFX Concerts, Inc. the
funds with which to consummate acquisitions and capital improvements.
However, all amounts so borrowed by SFX Concerts, Inc. must be repaid on the
date of the Spin-Off. The Company may increase the borrowing availability
under its credit agreement for these purposes, and must use its best efforts
to obtain any required or desirable waivers, consents or modifications under
any financing or other agreement of the Company in connection with the
acquisitions or capital improvements.
If SFX Entertainment makes such additional acquisitions or capital
improvements, it will be required to obtain financing to repay the amounts
that it borrows from the Company, which financing may take the form of public
or private sales of debt or equity securities, bank credit or other
financing. However, there can be no assurance that SFX Entertainment will be
able to obtain such financing on advantageous terms, or at all. If SFX
Entertainment obtains a loan from the Company and is unable to obtain
financing to repay the Company as of the date of the Spin-Off, the Company
will be in breach of the Merger Agreement.
SFX Entertainment has entered into agreements relating to the Pending
Acquisitions. See "Summary -- SFX Entertainment; The Spin-Off."
Working Capital
Pursuant to the Distribution Agreement (and as required by the Merger
Agreement), it is anticipated that SFX Entertainment and the Company will
allocate funds between them for Working Capital. If the Spin-Off occurs prior
to the consummation of the Merger, then, on the date of the Spin-Off, the
Company's management will allocate working capital between SFX Entertainment
and the Company, and the Company will pay to SFX Entertainment any positive
amount allocated to SFX Entertainment. In any event, at least five business
days before the consummation of the Merger, the Company must provide SFX
29
<PAGE>
Entertainment with a good faith estimate of Working Capital as of the date of
consummation of the Merger (the "Estimated Working Capital"). If the
Estimated Working Capital is a positive number, then the Company must pay to
SFX Entertainment an amount equal to the Estimated Working Capital at the
time of consummation of the Merger. On the other hand, if the Estimated
Working Capital is a negative number, then SFX Entertainment must pay to the
Company an amount equal to the Estimated Working Capital at that time.
As soon as practicable (and in any event within ninety days) after the
Merger is consummated, the Company must deliver to SFX Entertainment an
audited statement of Working Capital as of the date of consummation of the
Merger. If SFX Entertainment does not object to the Company's Working Capital
statement within fifteen days following delivery thereof, then the Working
Capital reflected on the Company's Working Capital statement will be the
"Final Working Capital." If SFX Entertainment does so object, then the issues
in dispute will be submitted to a major national accounting firm for
resolution and to determine the "Final Working Capital."
On the third business day after the Final Working Capital is determined,
the Company or SFX Entertainment, as the case may be, must pay to the other
an amount equal to the Final Working Capital, less the Estimated Working
Capital previously paid, together with interest on the absolute value of the
difference at an annual rate of 10% beginning on the date of consummation of
the Merger and ending on the date of payment of the amount (the "Working
Capital Adjustment Amount"). However, if SFX Entertainment notifies the
Company prior to the payment date that it wishes to have all or any portion
of the Final Working Capital (the "Merger Consideration Adjustment") treated
as an adjustment to the consideration payable in connection with the Merger,
then the consideration payable in connection with the Merger will be
increased by an amount equal to the quotient of the Merger Consideration
Adjustment divided by the fully diluted number of shares of the Company's
Common Stock outstanding immediately prior to the consummation of the Merger,
and the Company must promptly distribute (i) the appropriate amount to the
appropriate holders, immediately prior to the consummation of the Merger, of
the Company's Common Stock and Series D Preferred Stock, (ii) upon exercise,
the appropriate amount to holders of options, warrants and unit purchase
options of the Company unexercised immediately prior to the consummation of
the Merger and (iii) the appropriate amount to holders of options, warrants
and unit purchase options of the Company who exercised their securities on
and after the consummation of the time of consummation of the Merger and
prior to the final payment date. If SFX Entertainment elects to treat any
portion of the Final Working Capital as a Merger Consideration Adjustment,
then SFX Entertainment must pay the Company the difference, if any, between
the Merger Consideration Adjustment and the Working Capital Adjustment Amount
so that the aggregate net amount to be paid or received (as the case may be)
by the Company is equal to the amount that would have been paid or received
if the Merger Consideration Adjustment had not been made.
"Working Capital" means the sum of all current assets of the Company and
its consolidated subsidiaries minus the sum of all current liabilities of the
Company and its consolidated subsidiaries, as of the point in time
immediately prior to the consummation of the Merger, adjusted (without
duplication) by:
(a) increasing Working Capital by 50% (up to $1.0 million) of all fees
and expenses incurred by the Company in connection with acquiring
Consents from Holders of the Series E Preferred Stock and the
consents of holders of the Notes in the Consent Solicitations;
(b) increasing (if a positive number) or decreasing (if a negative
number) Working Capital by the product of (A) $75.00 (or any other
amount payable to holders of Class A Common Stock) and (B) the
difference between 15,589,083 less the sum of the fully diluted
number of shares of Common Stock outstanding immediately prior to
the time of consummation of the Merger (excluding up to 250,838
shares of Common Stock subject to a right of repurchase granted by
the Company in connection with an acquisition);
(c) reducing Working Capital by the difference between $84,554,649 less
the sum of (A) the aggregate exercise price of all options,
warrants and unit purchase options of the Company outstanding
immediately prior to the Merger consummation plus (B) the aggregate
exercise
30
<PAGE>
price of all warrants underlying unit purchase options of the
Company outstanding immediately prior to the Merger consummation
plus (C) the aggregate base price of all SARs of the Company
outstanding immediately prior to the Merger consummation;
(d) reducing Working Capital by the product of (A) $42 and (B) up to
250,838 shares of Common Stock subject to a right of repurchase by
the Company granted in connection with an acquisition;
(e) increasing Working Capital by all permitted radio-related capital
expenditures paid by the Company and its subsidiaries after June
30, 1997 and immediately prior to the Merger consummation;
(f) decreasing Working Capital by all accrued capital expenditures of
the Company as of immediately prior to the Merger consummation (to
the extent not reflected in current liabilities);
(g) increasing Working Capital by accrued but not yet payable
dividends;
(h) except as required by clause (i) below, excluding from Working
Capital any liabilities attributable to indebtedness of the
Company;
(i) excluding from Working Capital any liabilities included in clauses
(i) through (iv) of clause (k) below;
(j) reducing Working Capital by unpaid costs, fees and expenses of the
Company arising out of, based upon or that will arise from the
transactions contemplated by the Merger Agreement (other than as a
result of actions taken by Buyer Sub) (including amounts relating
to the termination of any employees, broker fees, legal fees,
accounting fees, advisory fees and fees incurred in connection with
third party consents, waivers and amendments of creditors or
holders of the Company's preferred stock); and
(k) reducing Working Capital by the amount of the Company's Excess Debt
(as defined below), if a positive number, or increasing Working
Capital by the amount of the Excess Debt, if a negative number.
"Excess Debt" means, as of immediately prior to the consummation of
the Merger, the difference between the sum of the following and
$899.7 million:
(i) the difference between (A) indebtedness of the Company and its
subsidiaries, less (B) the difference between $70.0 million and
any amounts (other than the reimbursement of expenses) actually
received by the Company and its consolidated subsidiaries after
August 24, 1997, under agreements relating to the sale or local
marketing arrangement (the local marketing payments may not
exceed $30,000 per month) of its WVGO-FM and the sale or local
marketing arrangement of its Jackson/Biloxi radio stations,
less (C) any indebtedness incurred to finance acquisitions
approved by Buyer of stock of or substantially all of the
assets of radio stations, less (D) interest accrued as of
immediately prior to the consummation of the Merger that is not
then due and payable,
(ii) the aggregate merger consideration payable to holders of the
Company's Series C Preferred Stock (which the Company
anticipates will be $2.0 million),
(iii) $225.0 million, representing the liquidation preference amount
of the Series E Preferred Stock, and
(iv) environmental costs or liabilities accrued and not paid after
June 30, 1997, to the extent they exceed $100,000 in the
aggregate.
Working Capital will not include any asset transferred to SFX
Entertainment or any of its subsidiaries, any liability assumed by SFX
Entertainment or any liability to which none of the Company or any of its
subsidiaries is a party immediately after the consummation of the Merger. Any
computation of Working Capital should assume that the Spin-Off has been
consummated. As of September 30, 1997, the Company estimated that Working
Capital to be received by SFX Entertainment would have been approximately
$2.1 million.
31
<PAGE>
Indemnification
It is anticipated that pursuant to the Distribution Agreement, SFX
Entertainment will indemnify, defend and hold the Company and its
subsidiaries (other than the SFX Entertainment Group) harmless from and
against any liabilities (other than income tax liabilities) to which the
Company or any of its subsidiaries (other than the SFX Entertainment Group)
may be or become subject that relate to the assets, business, operations,
debts or liabilities of the SFX Entertainment Group (including liabilities to
be assumed by any member of the SFX Entertainment Group as contemplated in
the Merger Agreement), whether arising prior to, concurrent with or after the
Spin-Off or as a result of the failure to obtain all necessary third party
consents to the Spin-Off.
In addition, the Company will agree to indemnify, defend and hold the SFX
Entertainment Group harmless from and against any liabilities (other than
income tax liabilities) to which the SFX Entertainment Group may be or become
subject that relate to the assets, business, operations, debts or liabilities
of the Company or its subsidiaries (other than the SFX Entertainment Group),
whether arising prior to, concurrent with or after the Spin-Off.
The indemnification obligations contained in the Distribution Agreement
will survive the Spin-Off for a period of 6 years (and thereafter as to any
claims for indemnification asserted prior to the expiration of that period).
Tax Matters
It is anticipated that the Distribution Agreement will provide that: (i)
any tax sharing agreement to which the Company and SFX Entertainment are
parties must be terminated as of the effective date of the Spin-Off; (ii) the
Company will include the income of the SFX Entertainment Group on certain of
the Company's tax returns, and will be reimbursed for certain tax liability
allocable to the SFX Entertainment Group; (iii) the Company will control
audits or contests relating to its taxes; (iv) the Company will pay to SFX
Entertainment certain tax refunds; (v) the Company will elect not to retain
any net operating loss carryovers or capital loss carryovers of the SFX
Entertainment Group; and (vi) SFX Entertainment will indemnify the Company
for certain taxes arising from any gain realized by the Company arising out
of, based upon or attributable to the Spin-Off.
Required Consents; No Representations or Warranties
The Company and SFX Entertainment have agreed to obtain all necessary
third party consents to the Spin-Off, with certain exceptions. The Company
and SFX Entertainment have also agreed to obtain certain waivers, releases or
amendments to certain agreements with respect to assets of the SFX
Entertainment Group. The Spin-Off is subject to obtaining any applicable
governmental consents, but the Company is not aware of any governmental
consents required.
SFX has not made any representations or warranties in the Distribution
Agreement relating to the business, operations, assets, debts or liabilities
of SFX Entertainment or its subsidiaries.
Conditions to the Distribution
Pursuant to the Distribution Agreement, the obligations of SFX
Entertainment and the Company to consummate the Spin-Off will be subject to
the fulfillment or waiver of each of the following conditions:
o the Registration Statement filed by SFX Entertainment must be declared
effective by the Commission, and no stop order may be issued or pending
with respect thereto;
o the SFX Entertainment Class A common stock must be accepted for listing
or trading, subject to official notice of issuance, on the American Stock
Exchange or The Nasdaq Stock Market;
o all necessary third party consents to the Spin-Off must be obtained;
o the necessary stockholder approvals must have been obtained to consummate
the Spin-Off as presently contemplated;
32
<PAGE>
o the Company's board of directors must be satisfied that the Company's
surplus would be sufficient to permit the Spin-Off under Delaware law and
must formally approve the Spin-Off;
o there must be no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction
or other legal restraint or prohibition preventing the consummation of
the Spin-Off in effect;
o SFX Entertainment and the Company must have entered into a Tax Sharing
Agreement (as described below) and an employee benefits agreement; and
o each of the covenants and provisions in the Distribution Agreement
required to be performed or complied with prior to the Spin-Off must have
been performed or complied with.
The Company's board of directors is entitled to waive any of the above
conditions prior to the consummation of the Spin-Off.
TAX SHARING AGREEMENT
Prior to the Spin-Off, the Company and SFX Entertainment will enter into
the Tax Sharing Agreement. Under the Tax Sharing Agreement, SFX Entertainment
will agree to pay to the Company the amount of the tax liability of the
combined Company/SFX Entertainment group, to the extent properly attributable
to SFX Entertainment for the period up to and including the Spinoff, and will
indemnify the Company for any tax adjustment made in subsequent years that
relates to taxes properly attributable to SFX Entertainment during the period
prior to and including the Spin-Off. The Company, in turn, will indemnify SFX
Entertainment for any tax adjustment made in years subsequent to the Spin-Off
that relates to taxes properly attributable to the Company during the period
prior to and including the Spin-Off. SFX Entertainment will be responsible
for any taxes of the Company resulting from the Spin-Off to the extent such
taxes result from gain on the distribution that exceeds the net operating
losses of the Company and SFX Entertainment available to offset gain
resulting from the Spin-Off.
33
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain of the United States
federal income tax consequences of the Proposed Amendments and the Consent
Fees. This summary is based upon the relevant provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations
promulgated thereunder, Internal Revenue Service ("IRS") rulings, and
judicial decisions, all as in effect on the date hereof, and all of which are
subject to change, possibly with retroactive effect.
This summary does not address all of the federal income tax consequences
that may be relevant to a Holder of Shares in light of such Holder's
particular tax situation or to certain classes of Holders subject to special
treatment under the federal income tax laws (for example, dealers in
securities, banks, insurance companies, S corporations, nonresident aliens,
foreign corporations, and tax-exempt entities), nor does it address any
aspect of gift, estate, state, local, or foreign taxation. This discussion is
directed to Holders who hold their Shares as capital assets within the
meaning of the Code. Holders are urged to consult their own tax advisors
regarding the tax consequences of receiving Consent Fees, including the
application and effect of any gift, estate, applicable state, local, foreign
income, or other tax laws.
THE PROPOSED AMENDMENTS AND THE CONSENT FEES
Although the issue is not free from doubt, the adoption of the Proposed
Amendments should not cause Holders of Shares to recognize gain or loss for
federal income tax purposes, except that the Consent Fees should be taxable
as ordinary, non-dividend income to Holders who receive Consent Fees. This is
based on the conclusion that, under present law, the adoption of the Proposed
Amendments should not be treated as a constructive exchange of the Shares for
new Shares ("Deemed New Shares"), and that the Consent Fees should be treated
as a fee paid to Holders that grant their consents. It should be noted that
there is no authority directly on point with respect to the federal income
tax consequences of receiving the Consent Fees, and a possible alternative
characterization of the Consent Fees is as a distribution that would be
taxable as a dividend to the extent of the Company's current or accumulated
earnings and profits, then as a return of capital, with any excess being
considered capital gain. Under this characterization, any dividend income
would be potentially eligible for the dividends received deduction under
section 243 (subject to applicable limitations) and any payment considered to
be a return of capital would reduce a Holder's basis causing such Holder to
recognize additional capital gain or reduced capital loss on a sale or other
disposition of the Shares.
It is also possible that the adoption of the Proposed Amendments will be
treated for federal income tax purposes as giving rise to a constructive
exchange of the Shares for Deemed New Shares and, if applicable, the Consent
Fees. In such case, and assuming that the Consent Fees are treated as part of
the constructive exchange rather than as a separate fee, the constructive
exchange should qualify as either a section 1036 exchange or a
recapitalization for federal income tax purposes, and gain (but not loss)
realized by Holders in such constructive exchange should be recognized to the
extent of the Consent Fee a Holder receives.
If the transaction is treated as a section 1036 exchange or
recapitalization and the Consent Fees are treated as part of the section 1036
exchange or recapitalization, then any gain recognized upon the deemed
section 1036 exchange or recapitalization generally should be capital gain or
loss and will be long-term capital gain or loss if the Holder's holding
period with respect to the Shares exceeds one year. Net capital gain
recognized by an individual from the constructive exchange of Shares that has
been held for more than 18 months will generally be subject to tax at a rate
not to exceed 20%. Net capital gain recognized by an individual from the
constructive exchange of Shares that have been held for more than 12 months
but not more than 18 months will be subject to tax at a rate not to exceed
28%. A Holder's realized gain or loss generally should be determined based on
the difference between the Holder's adjusted basis in the Shares and the sum
of the fair market value of the New Deemed Shares and the Consent Fees (if
the Consent Fees are treated as part of the constructive exchange rather than
as a separate fee).
In the event that the Consent Fees are treated as a separate fee and not
as part of a section 1036 exchange or a recapitalization, then the Consent
Fees should give rise to ordinary income and should not be taken into account
in computing gain or loss realized in any constructive exchange of Shares for
Deemed New Shares.
34
<PAGE>
No ruling on the constructive exchange issue has been or will be sought
from the IRS.
BACKUP WITHHOLDING
Under Federal income tax law, in certain circumstances a Holder may be
subject to backup withholding at the rate of 31% with respect to the Consent
Fees, unless such Holder (i) is a corporation or is otherwise exempt and,
when required, demonstrates this fact or (ii) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with the applicable requirements of the
backup withholding rules.
HOLDERS WHO ARE NON-U.S. PERSONS
Although it is not entirely clear that United States federal withholding
tax is applicable to the payment of the Consent Fees to Holders who are not
United States persons (within the meaning of the Code) ("Non-U.S. Persons"),
such tax will be withheld from a Consent Fee to a Holder who is a Non-U.S.
person at a rate of 30% unless (i) such Non-U.S. Person is engaged in the
conduct of a trade or business in the United States to which the receipt of
the Consent Fee is effectively connected and provides a properly executed IRS
Form 4224 or (ii) a tax treaty between the United States and the country of
residence of the Non-U.S. person eliminates or reduces the withholding on
other income and such Non-U.S. Person provides a properly executed IRS Form
1001. Non-U.S. persons should consult their own tax advisors regarding the
availability of a refund of any withholding tax.
THE PRECEDING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS
INTENDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE TAX ADVICE.
HOLDERS OF SHARES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES TO THEM OF THE PROPOSED
AMENDMENTS AND THE CONSENT FEES.
SOLICITATION AGENT
Lehman Brothers has performed investment banking and other services for
the Company and its affiliates and has received customary fees in connection
therewith. At any given time, the Solicitation Agent may trade the securities
of the Company, including the Shares, for its own account or for the account
of customers and, accordingly, may hold a long or short position in such
securities. In addition, Lehman Brothers is expected to act as Co-Arranger of
the New Credit Agreement and would receive customary fees in connection
therewith. Further, an affiliate of Lehman Brothers is a Co-Agent and a
lender under the Company's existing credit facility and has received
customary fees in connection therewith.
INDEPENDENT AUDITORS
The consolidated financial statements of SFX Broadcasting, Inc. and
Subsidiaries at December 31, 1996 and 1995, and for each of the three years
in the period ended December 31, 1996, incorporated by reference into this
Consent Solicitation, have been audited by Ernst & Young LLP, independent
auditors, as stated in their report appearing therein.
The consolidated financial statements of Delsener/Slater Enterprises, Ltd.
at December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996, incorporated by reference into this Consent
Solicitation, have been audited by Ernst & Young LLP, independent auditors,
as stated in their report appearing therein.
The combined financial statements of the Secret Stations: Indianapolis and
Pittsburgh as of June 30, 1996 and for the year then ended, incorporated by
reference this Consent Solicitation, have been audited by Arthur Andersen
LLP, independent auditors, as stated in their report appearing therein.
35
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS .............................. F-2
SFX Broadcasting, Inc.: Unaudited Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 ...................................................................... F-3
SFX Broadcasting, Inc.: Unaudited Pro Forma Condensed Combined Statement of Operations
for the Nine Months Ended September 30, 1997............................................. F-13
SFX Broadcasting, Inc.: Unaudited Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1996..................................................... F-14
Glossary to Unaudited Pro Forma Condensed Combined Financial Statements................... F-36
</TABLE>
F-1
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following financial statements and notes thereto contain
forward-looking statements that involve risks and uncertainties. The actual
results of SFX Broadcasting, Inc. ("SFX") may differ materially from those
discussed herein. SFX undertakes no obligation to publicly release the result
of any revisions to these forward-looking statements that may be made to
reflect any future events or circumstances.
In the opinion of management, all adjustments necessary to fairly present
this pro forma information have been made. The Unaudited Pro Forma Condensed
Combined Financial Statements are based upon, and should be read in
conjunction with, the historical financial statements and the respective
notes to such financial statements incorporated herein by reference. The pro
forma information is based upon tentative allocations of the purchase price
for acquisitions completed within the last year and acquisitions still
pending, and does not purport to be indicative of the results that would have
been reported had such events actually occurred on the dates specified, nor
is it indicative of SFX's future results. SFX cannot predict whether the
consummation of the Pending Acquisition and Disposition--Broadcasting or
Pending Acquisitions and the Financing--Entertainment will conform to the
assumptions used in the preparation of the Unaudited Pro Forma Condensed
Combined Financial Statements.
See Glossary at the end of these Unaudited Pro Forma Condensed Combined
Financial Statements for the definition of certain terms not otherwise
defined herein.
The Unaudited Pro Forma Condensed Combined Balance Sheet at September 30,
1997 is presented as if SFX had completed the Pending Acquisition and
Disposition--Broadcasting, the Pending Acquisitions and the
Financing--Entertainment and the Spin-Off of SFX Entertainment as of
September 30, 1997. No adjustment has been made to the Unaudited Pro Forma
Condensed Combined Balance Sheet for the Chancellor Exchange, other than the
receipt of cash, as it will be recorded at historical cost.
The Unaudited Pro Forma Condensed Combined Statements of Operations for
the year ended December 31, 1996 and the nine months ended September 30, 1997
are presented as if SFX had completed the Completed Transactions, the Pending
Acquisition and Disposition--Broadcasting, the Pending Acquisitions and the
Financing--Entertainment and the Spin-Off of SFX Entertainment as of January
1, 1996. The Albany Acquisition has not been reflected in the Unaudited Pro
Forma Condensed Combined Statement of Operations for the year ended December
31, 1996 as it would not have a material impact.
The Unaudited Pro Forma Condensed Combined Financial Statements have been
prepared assuming that the approximately 4.2 million shares of SFX
Entertainment Class A common stock being issued in connection with certain of
the Pending Acquisitions--Entertainment are valued at $13.33 per share, the
value negotiated with the sellers for purposes of the Pending
Acquisitions--Entertainment and is based upon certain financial projections
developed jointly by SFX Entertainment and the sellers. There is presently no
trading market for the SFX Entertainment Class A common stock. There can be
no assurance that the assumptions upon which the valuation is based will, in
fact, be correct or that the valuation will approximate the actual trading
prices of the SFX Entertainment Class A common stock.
F-2
<PAGE>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SFX
ENTERTAINMENT PRO FORMA
PENDING PENDING PRO FORMA FOR THE
SFX ACQUISITION AND ACQUISITIONS AND PRO FORMA FOR THE SPIN-OFF--
BROADCASTING, DISPOSITION-- THE FINANCING-- FOR THE PENDING SFX
INC. AS BROADCASTING ENTERTAINMENT PENDING ACQUISITIONS ENTERTAINMENT
REPORTED (A) (B) TRANSACTIONS (C) (D)
--------------- --------------- ---------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets ............ $ 140,689 $ -- $105,137 $ 245,826 $117,326 $ 128,500
Property and equipment,
net ...................... 132,707 (610) 129,489 261,586 185,371 76,215
Intangible assets, net .... 1,097,751 (8,345) 355,653 1,445,059 415,374 1,029,685
Other assets .............. 21,740 (5,444) 34,297 50,593 41,975 8,618
--------------- --------------- ---------------- -------------- --------------- ---------------
Total assets .............. $1,392,887 $(14,399) $624,576 $2,003,064 $760,046 $1,243,018
=============== =============== ================ ============== =============== ===============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities ....... $ 61,188 $ (914) $ 80,307 $ 140,581 $ 91,640 $ 48,941
Deferred taxes ............ 105,497 -- 10,943 116,440 13,759 102,681
Long-term debt (including
current portion):
Privately placed debt .... -- -- 275,000 275,000 275,000 --
Credit Facility .......... 316,000 (35,921) 193,568 473,647 193,568 280,079
Senior Subordinated
Notes ................... 450,000 -- -- 450,000 -- 450,000
Other long-term debt ..... 18,255 (380) -- 17,875 16,453 1,422
Other liabilities ......... 4,556 -- 5,583 10,139 9,073 1,066
Minority Interest ......... -- -- 830 830 830 --
PACE put options .......... -- -- 16,500 16,500 16,500 --
Redeemable preferred stock
Series B Preferred Stock . 998 -- -- 998 -- 998
Series C Preferred Stock . 1,703 -- -- 1,703 -- 1,703
Series D Preferred Stock . 149,500 -- -- 149,500 -- 149,500
Series E Preferred Stock . 215,636 -- -- 215,636 -- 215,636
Stockholders' equity ...... 69,554 22,816 41,845 134,215 143,223 (9,008)
--------------- --------------- ---------------- -------------- --------------- ---------------
Total liabilities and
stockholders' equity ..... $1,392,887 $(14,399) $624,576 $2,003,064 $760,046 $1,243,018
=============== =============== ================ ============== =============== ===============
</TABLE>
F-3
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(A) PENDING ACQUISITION AND DISPOSITION--BROADCASTING
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------------------------------------
PENDING
ACQUISITION
CAPSTAR NASHVILLE PRO FORMA AND
DISPOSITION (1) ACQUISITION ADJUSTMENTS (2) DISPOSITION
--------------- ------------- --------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets............................... $ 59,921 $1,370 $ (33,000) (a) $ --
(1,370) (a)
(2,000) (b)
11,000 (c)
(35,921) (d)
Property and equipment, net.................. (4,828) 4,218 (610)
Intangible assets, net....................... (33,567) 3,303 27,479 (a) (8,345)
2,000 (b)
3,440 (b)
(11,000) (c)
Other assets................................. (4) 566 (566)(a) (5,444)
(2,000) (a)
(3,440) (b)
--------------- ------------- --------------- -------------
Total assets................................. $ 21,522 $9,457 $ (45,378) $(14,399)
=============== ============= =============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.......................... $ (914) $ 545 $ (545)(a) $ (914)
Long-term debt (including current portion):
Senior Credit Facility...................... (35,921) (d) (35,921)
Other long-term debt........................ (380) (380)
Stockholders' equity......................... 22,816 8,912 (8,912) (a) 22,816
--------------- ------------- --------------- -------------
Total liabilities and stockholders' equity $ 21,522 $9,457 $ (45,378) $(14,399)
=============== ============= =============== =============
</TABLE>
- ------------
(1) Capstar Disposition
To reflect the Capstar Disposition for $60,000,000 in cash to SFX. SFX
will record a gain of approximately $23,000,000 on the disposition.
<TABLE>
<CAPTION>
JACKSON
AND
BILOXI CAPSTAR
SALE PROCEEDS STATIONS DISPOSITION
--------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets.............................. $60,000 $ (79) $ 59,921
Property and equipment, net................. (4,828) (4,828)
Intangible assets, net...................... (33,567) (33,567)
Other assets................................ (4) (4)
--------------- ----------- -------------
Total assets............................... $60,000 $(38,478) $ 21,522
=============== =========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities......................... $ (914) $ (914)
Long-term debt.............................. (380) (380)
Stockholders' equity........................ $60,000 (37,184) 22,816
--------------- ----------- -------------
Total liabilities and stockholders'
equity..................................... $60,000 $(38,478) $ 21,522
=============== =========== =============
</TABLE>
F-4
<PAGE>
SFX expects to use the proceeds from the Capstar Disposition to complete a
similar acquisition so that the Capstar Disposition can be treated as a
like-kind exchange which would be substantially tax free. Should SFX be
unable to structure such a transaction, SFX would utilize its available net
operating loss carryforwards and pay approximately $6,000,000 in additional
income taxes. No adjustment has been made for the potential payment of any
additional income taxes.
(2) Pro Forma Adjustments
a. To reflect the Nashville Acquisition for $33,000,000 in cash (net of a
$2,000,000 deposit made in August 1997), the related excess of the
purchase price paid over net book value of $27,479,000, and the
adjustments to remove $1,370,000 of current assets, $566,000 of other
assets, $545,000 of current liabilities, and stockholders' equity of
$8,912,000.
b. To reflect additional acquisition costs of approximately $2,000,000
related to the Nashville Acquisition and Chancellor Exchange,
principally consisting of professional fees and to reclassify deposits,
professional fees and other payments of approximately $3,440,000
included in other assets as of September 30, 1997.
c. To reflect the $11,000,000 of cash to be received in the Chancellor
Exchange. No gain or loss will be recognized because the fair market
value of the stations received, as adjusted for cash received or paid,
equals the carrying value of the stations exchanged.
d. To use the net cash proceeds from the Capstar Disposition, Nashville
Acquisition and Chancellor Exchange to reduce debt under SFX's Credit
Agreement.
F-5
<PAGE>
(B) PENDING ACQUISITIONS AND THE FINANCING--ENTERTAINMENT
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 (IN THOUSANDS)
-------------------------------------------------------------------------
CONCERT/
PACE CONTEMPORARY NETWORK BGP SOUTHERN
ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITION
I II III IV V
------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets ...... $(149,129) $(72,800) $(44,510) $(54,222) $(16,615)
Property and
equipment, net ..... 82,489 25,000 1,000 20,000 1,000
Intangible assets,
net ................ 125,314 66,500 61,701 48,687 15,151
Other assets ........ 34,706 -- 391 346 464
------------- -------------- ------------- ------------- -------------
Total Assets ........ $ 93,380 $ 18,700 $ 18,582 $ 14,811 $ --
============= ============== ============= ============= =============
LIABILITIES &
STOCKHOLDER'S
EQUITY:
Current Liabilities $ 65,357 $ -- $ 8,468 $ 6,482 $ --
Deferred taxes ...... -- -- 114 829 --
Privately-placed
debt................ -- -- -- -- --
Credit Facility...... -- -- -- -- --
Other long-term
debt................ -- -- -- -- --
Other liabilities ... 5,583 -- -- -- --
Minority interest ... 2,440 -- -- -- --
PACE put agreement .. 16,500 -- -- -- --
Stockholders'
Equity.............. 3,500 18,700 10,000 7,500 --
------------- -------------- ------------- ------------- -------------
Total Liabilities &
Stockholders'
Equity ............. $ 93,380 $ 18,700 $ 18,582 $ 14,811 $ --
============= ============== ============= ============= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 (IN THOUSANDS)
-------------------------------------------------
PRO FORMA FOR
THE PENDING
PRO FORMA ACQUISITIONS
PRO FORMA ADJUSTMENT FOR AND THE
ADJUSTMENTS THE FINANCING FINANCING--
VI VII SFX ENTERTAINMENT
------------- -------------- ------------------
<S> <C> <C> <C>
ASSETS:
Current assets ...... $ 2,145 (a) $352,893 $105,137
(28,300) (b) 87,375
Property and
equipment, net ..... -- -- 129,489
Intangible assets,
net ................ 10,000 (d) 355,653
28,300 (b)
Other assets ........ (1,610) (c) -- 34,297
------------- -------------- ------------------
Total Assets ........ $ 10,535 $468,568 $624,576
============= ============== ==================
LIABILITIES &
STOCKHOLDER'S
EQUITY:
Current Liabilities $ -- $ -- $ 80,307
Deferred taxes ...... 10,000 (d) -- 10,943
Privately-placed
debt................ -- 275,000 275,000
Credit Facility...... -- 193,568 193,568
Other long-term
debt................ -- --
Other liabilities ... -- -- 5,583
Minority interest ... (1,610) (c) -- 830
PACE put agreement .. -- -- 16,500
Stockholders'
Equity.............. 2,145 (a) -- 41,845
------------- -------------- ------------------
Total Liabilities &
Stockholders'
Equity ............. $ 10,535 $468,568 $624,576
============= ============== ==================
</TABLE>
F-6
<PAGE>
I. PACE ACQUISITION
Reflects the PACE Acquisition and the separate acquisitions of the
remaining two partners' interests in Pavilion Partners. The PACE Acquisition
is not conditioned on the consummation of the Pavilion Acquisition.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 (000'S)
-------------------------------------------------------------
PACE PAVILION PRO FORMA PACE
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION (f)
------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Current assets ............................ $45,087 $ 30,178 $ (109,500) (a) $(149,129)
(25,523) (a)
(9,507) (b)
(4,171) (b)
(27,500) (c)
(48,193) (e)
Property and equipment, net................ -- 59,938 5,000 (a) 82,489
9,103 (b)
(19,052) (d)
27,500 (c)
Intangible assets, net..................... 17,894 -- 107,420 (a) 125,314
Other assets............................... 26,856 12,660 9,507 (b) 34,706
(4,810) (d)
(9,507) (d)
------------- ------------- --------------- ---------------
Total Assets............................... $89,837 $102,776 $ (99,233) $ 93,380
============= ============= =============== ===============
Current liabilities........................ $43,171 $ 17,254 $ 2,000 (b) $ 65,357
2,932 (b)
Deferred taxes............................. -- --
Long-term debt (including current
portion).................................. 25,523 57,700 (25,523) (a) --
(9,507) (d)
(48,193) (e)
Other Liabilities.......................... 4,063 1,520 5,583
Minority interest.......................... -- 2,440 -- 2,440
PACE put agreement......................... -- -- 16,500 (a) 16,500
Stockholders' Equity....................... 17,080 23,862 (17,080) (a) 3,500
20,000 (a)
(16,500) (a)
(23,862) (d)
------------- ------------- --------------- ---------------
Total Liabilities & Stockholders' Equity .. $89,837 $102,776 $ (99,233) $ 93,380
============= ============= =============== ===============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) To reflect the PACE Acquisition for $109,500,000 in cash, the issuance
of 1,500,000 shares of SFX Entertainment's Class A common stock valued
at $20,000,000, the assumption of debt of $25,523,000 which will be
repaid shortly after closing, the related increase in the fair value
allocated to fixed assets of $5,000,000; the related excess of the
purchase price paid over the fair value of net tangible assets of
$107,420,000, and the elimination of stockholder's equity of
$17,080,000. Pursuant to the terms of the PACE Acquisition Agreement,
additional cash consideration is required to be paid by SFX
Entertainment if the deemed value of SFX Entertainment's Class A common
stock is below $13.33 at the time of the Spin-Off as a result of
certain changes in the consummation of the acquisitions.
F-7
<PAGE>
The PACE Acquisition Agreement further provides that each PACE Seller
shall have an option (a "Fifth Year Put Option"), exercisable during a
period beginning on the fifth anniversary of the closing of the PACE
Acquisition and ending 90 days thereafter, to require SFX Entertainment
to purchase up to one-third of SFX Entertainment's Class A common stock
received by such PACE Seller for a cash purchase price of $33.00 per
share. With certain limited exceptions, the Fifth Year Put Option
rights are not assignable by the PACE Sellers.
(b) To reflect the acquisition of an additional 33.33% indirect interest in
Pavilion Partners from Blockbuster for $4,171,000 in cash, the
assumption of $2,932,000 in liabilities and the granting of naming
rights of three venues for a two-year period with an estimated value of
$2,000,000, which will be recognized as income over such two year
period, and the related increase in the fair value allocated to fixed
assets of $9,103,000. Also reflects the purchase of a note receivable
from Blockbuster, due from Pavilion Partners at its current outstanding
balance, including accrued interest of $9,507,000. This note will be
eliminated in consolidation upon the acquisition of Sony's interest in
Pavilion Partners, as described below.
(c) To reflect the acquisition of an additional 33.33% indirect interest in
Pavilion Partners from Sony for $27,500,000 in cash.
(d) To eliminate PACE's equity method investment in Pavilion Partners
following the acquisition of 100% of Pavilion Partners and to eliminate
Pavilion Partners' historical equity. Also reflects the elimination of
the $9,507,000 intercompany notes receivable acquired from Blockbuster.
(e) To reflect the repayment of Pavilion's third party debt at the closing
of the Pavilion Acquisition.
(f) SFX Entertainment has agreed to lend PACE up to $25 million for
potential acquisitions to be made by PACE whether or not the PACE
Acquisition is consummated. None of these acquisitions are considered
probable. As a result, none of such loans or acquisitions have been
reflected in the pro forma adjustment.
F-8
<PAGE>
II. CONTEMPORARY ACQUISITION
Reflects the Contemporary Acquisition and the separate acquisition of the
remaining 50% interest in Riverport Amphitheater Partners, a partnership that
owns an amphitheater in St. Louis, MO that is operated by Contemporary. The
Contemporary Acquisition is not conditioned upon the consummation of the
acquisition of such 50% interest.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 (000'S)
-------------------------------------------------------------
RIVERPORT
CONTEMPORARY AMPHITHEATER PRO FORMA CONTEMPORARY
AS REPORTED PARTNERS ADJUSTMENTS(a) ACQUISITION
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Current assets................................... $13,375 $ 2,603 $(72,800) $(72,800)
(15,978)
Property and equipment, net...................... 2,838 11,355 10,807 25,000
Intangible assets, net........................... -- -- 66,500 66,500
Other assets..................................... 7,430 8 (1,205) --
(6,233)
-------------- -------------- -------------- --------------
Total Assets..................................... $23,643 $13,966 $(18,909) $ 18,700
============== ============== ============== ==============
Current liabilities.............................. $ 7,786 $ 1,022 $ (8,808) $ --
Other long-term debt (including current
portion)........................................ 1,578 -- (1,578) --
Other liabilities................................ 5,390 478 (5,868) --
Stockholders' Equity............................. 8,889 12,466 18,700 18,700
(21,355)
-------------- -------------- -------------- --------------
Total Liabilities & Stockholders' Equity ........ $23,643 $13,966 $(18,909) $ 18,700
============== ============== ============== ==============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) To reflect the Contemporary Acquisition for $72,800,000 in cash,
including the additional acquisition of the remaining 50% interest in
the Riverport Amphitheater Partners, not already owned by Contemporary
and the issuance of 1,402,851 shares of SFX Entertainment Class A
common stock valued at $18,700,000, the related increase in the fair
value allocated to fixed assets of $10,807,000, the related excess of
the purchase price paid over the fair value of net tangible assets of
$66,500,000, and the adjustment to eliminate $15,978,000 of current
assets, $6,233,000 of other assets, $8,808,000 of current liabilities,
$1,578,000 of notes payable, $5,868,000 of other liabilities, and
stockholders' equity of $21,355,000, and to reflect the elimination of
Contemporary Group's equity investment in Riverport Amphitheather
Partners.
If Contemporary is unable to complete this acquisition of the remaining
50% interest in Riverport Amphitheater Partners, the cash consideration
paid by SFX Entertainment for Contemporary will be reduced by
$10,500,000.
The acquisition agreement provides that in the event the Contemporary
Acquisition is consummated prior to the consummation of the Spin-Off,
1,402,851 shares of preferred stock of SFX Entertainment will be issued to
the sellers. Such preferred stock is to be converted into an equal number of
shares of Class A common stock of SFX Entertainment upon consummation of the
Spin-Off or, if the Spin-Off shall not have occurred prior to July 1, 1998,
such preferred stock is to be redeemed at their fair market value, but in no
event less than $18,700,000.
F-9
<PAGE>
III. NETWORK ACQUISITION
The Network Acquisition consist of the separate acquisitions of Network
Magazine and SJS. These acquisitions are each conditioned on the concurrent
closing of the other.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 (000'S)
----------------------------------------------------------
NETWORK
MAGAZINE SJS PRO FORMA NETWORK
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Current assets............................. $ 3,127 $4,325 $ (52,000) (a) $(44,510)
1,516 (b)
(1,478) (c)
Property and equipment, net................ 304 334 362 (a) 1,000
Intangible assets, net..................... -- -- 63,217 (a) 61,701
(1,516) (b)
Other assets............................... 299 92 -- 391
------------- ------------- -------------- -------------
Total Assets............................... $ 3,730 $4,751 $ 10,101 $ 18,582
============= ============= ============== =============
Current liabilities........................ $ 3,659 $4,809 -- $ 8,468
Deferred taxes............................. 114 -- -- 114
Long-term debt (including current
portion).................................. 1,478 -- (1,478) (c) --
Stockholders' Equity....................... (1,521) (58) 1,579 (a) 10,000
10,000 (a)
------------- ------------- -------------- -------------
Total Liabilities & Stockholders' Equity .. $ 3,730 $4,751 $ 10,101 $ 18,582
============= ============= ============== =============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) To reflect the Network Acquisitions for $52,000,000 in cash and the
issuance of 750,188 shares of SFX Entertainment Class A common stock
valued at $10,000,000, the related increase in fair value allocated to
fixed assets of $362,000, and the related excess of the purchase price
paid over the fair value of net tangible assets of $63,217,000, and the
elimination of stockholder's deficiency of $1,579,000.
SFX Entertainment's purchase agreement for Network Magazine and SJS
provides that the purchase price will be increased by $4,000,000 if
total 1998 EBITDA for Network and SJS as defined equals or exceeds
$9,000,000; by an additional $4 for each $1 increase in such EBITDA
between $9,000,000 and $10,000,000 and by an additional $6 for each $1
increase in such EBITDA between $10,000,000 and $11,000,000 (up to a
maximum of $14,000,000 of additional consideration). The additional
consideration is payable in stock or in certain circumstances and
solely at the discretion of SFX Entertainment in cash. The pro forma
financial statement assume that no additional consideration is paid.
(b) To reflect a minimum of $500,000 net working capital adjustment as
required in the Network Acquisition agreement.
(c) To reflect the repayment of Network Magazine's long-term debt at
closing.
SFX Entertainment's purchase agreement for Network Magazine and SJS
provides that the purchase price will be increased by approximately
$2.4 million in the event that the current owners of Network Magazine
acquire an office building in Burbank, CA, which currently serves as
Network Magazine's headquarters, prior to closing. This potential
transaction has not been reflected on the pro forma balance sheet.
F-10
<PAGE>
IV. BGP ACQUISITION
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 (000'S)
--------------------------------------------
PRO FORMA BGP
AS REPORTED ADJUSTMENTS ACQUISITION
------------- -------------- -------------
<S> <C> <C> <C>
Current assets................................... $18,759 $ (60,800) (a) $(54,222)
(12,181) (b)
Property and equipment, net...................... 14,691 5,309 (a) 20,000
Intangible assets, net........................... -- 48,687 (a) 48,687
Other assets..................................... 346 -- 346
------------- -------------- -------------
Total Assets..................................... $33,796 $ (18,985) $ 14,811
============= ============== =============
Current liabilities.............................. $ 6,482 $ -- $ 6,482
Deferred taxes................................... 829 -- 829
Other long-term debt (including current
portion)........................................ 12,181 (12,181) (b) --
Stockholders' Equity............................. 14,304 (14,304) (a) 7,500
7,500 (a)
------------- -------------- -------------
Total Liabilities & Stockholders' Equity ........ $33,796 $ (18,985) $ 14,811
============= ============== =============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) To reflect the BGP Acquisition for $60,800,000 in cash and the issuance
of 563,000 shares of SFX Entertainment Class A common stock valued at
$7,500,000, the related increase in fair value allocated to fixed
assets of $5,309,000, and the related excess of the purchase price paid
over the fair value of net tangible assets of $48,687,000, and the
elimination of $14,304,000 of stockholder's equity.
(b) To reflect the repayment of BGP's long-term debt at closing.
V. CONCERT/SOUTHERN ACQUISITION
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 (000'S)
--------------------------------------------
CONCERT/
PRO FORMA SOUTHERN
AS REPORTED ADJUSTMENTS(a) ACQUISITION
------------- -------------- -------------
<S> <C> <C> <C>
Current assets........................... $1,921 $(16,615) $(16,615)
(1,921)
Property and equipment, net.............. 360 640 1,000
Intangible assets, net................... -- 15,151 15,151
Other assets............................. 919 (455) 464
------------- -------------- -------------
Total Assets............................. $3,200 $ (3,200) $ --
============= ============== =============
Current liabilities...................... $1,254 $ (1,254) $ --
Stockholders' Equity..................... 1,946 (1,946) --
------------- -------------- -------------
Total Liabilities & Stockholders'
Equity.................................. $3,200 $ (3,200) $ --
============= ============== =============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) To reflect the Concert/Southern Acquisition for $16,615,000 in cash;
the related increase in fair value allocated to fixed assets of
$640,000, the related excess of the purchase price paid over the fair
value of net tangible assets of $15,151,000; and the adjustments to
eliminate $1,921,000 of current assets, $1,254,000 of current
liabilities, stockholders' equity of $1,946,000 and a $455,000
investment in a non-entertainment affiliated entity not being acquired
by SFX Entertainment.
F-11
<PAGE>
VI. PRO FORMA ADJUSTMENTS FOR PENDING ACQUISITIONS--ENTERTAINMENT
(a) The Distribution Agreement provides that SFX will transfer any positive
Working Capital (as defined) in existence at the closing of the SFX
Merger to SFX Entertainment, and that if Working Capital is negative at
that time, SFX Entertainment will pay the amount of such shortfall to
SFX. As of September 30, 1997 the amount of positive Working Capital
would have been $2,145,000 and such amount is reflected in the cash to
be acquired by SFX Entertainment pursuant to the Distribution
Agreement. The actual amount of Working Capital as of the closing of
the Merger may differ substantially from the amount in existence on
September 30, 1997, and will be a function of, among other things, the
operating results of SFX through the date of the Merger and the actual
cost of consummating the Merger and the related transactions.
Additionally, SFX Entertainment will be responsible for any taxes
resulting from the Spin-Off to the extent such taxes result from any
gain on the distribution.
(b) To reflect estimated costs associated with the Pending Acquisitions and
the Financing and the related transactions.
(c) To reflect the consolidation of GSAC Partners (the entity which
operates the PNC Bank Arts Center) following the acquisition of the
remaining 50% ownership interest in GSAC currently owned by Pavilion
Partners.
(d) To reflect deferred taxes associated with differences between the book
and tax bases of assets and liabilities acquired.
VII. PRO FORMA ADJUSTMENTS FOR THE FINANCING
Represents assumed borrowings to finance the pending acquisitions
including $275,000,000 of New Notes and $193,568,000 of borrowings under the
New Credit Agreement. There can be no assurance that the Company will be able
to obtain this financing on acceptable terms, or at all.
(C) SFX ENTERTAINMENT PRO FORMA FOR THE PENDING ACQUISITIONS
Reflects SFX Entertainment after the Pending Acquisitions.
(D) PRO FORMA FOR THE SPIN-OFF--SFX ENTERTAINMENT
Reflects pro forma balance sheet of SFX after the Spin-Off of SFX
Entertainment.
F-12
<PAGE>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PENDING
ACQUISITION PENDING
AND ACQUISITIONS AND
SFX BROADCASTING, COMPLETED DISPOSITION-- THE FINANCING--
INC. AS TRANSACTIONS BROADCASTING SFX ENTERTAINMENT
REPORTED (A) (B) (C)
----------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Net broadcast revenues . .... $188,984 $38,685 $(4,938)
Concert promotion revenue ... 74,396 12,293 $414,800
Station and other operating
expenses.................... 115,871 28,289 (1,226)
Concert promotion operating
expense..................... 63,045 12,236 366,918
Depreciation, amortization,
duopoly integration costs
and acquisition related
costs....................... 31,429 7,090 (95) 23,253
Corporate expenses........... 7,198* 1,500
Non-recurring and unusual
charges..................... 17,995
----------------- -------------- -------------- -----------------
Operating income (loss) ..... 27,842 3,363 (3,617) 23,129
Interest expense............. 46,438 8,408 31,208
Other income ................ (2,692) -- (3) (21)
Equity (income) loss from
investments................. (1,344) -- -- (7,593)
----------------- -------------- -------------- -----------------
Income before income tax
expense..................... (14,560) (5,045) (3,614) (465)
Income tax expense
(benefit)................... 845 32 (3) 3,626
----------------- -------------- -------------- -----------------
Net income (loss)............ (15,405) (5,077) (3,611) (4,091)
Preferred stock dividend
requirement................. 27,723 1,183
----------------- -------------- -------------- -----------------
Net income (loss) applicable
to common shares............ $(43,128) $(6,260) $(3,611) $ (4,091)
================= ============== ============== =================
Net loss per common share ... $ (4.61)
Average common shares
outstanding................. 9,364
EBITDA (1)................... $ 77,266 $10,453 $(3,712) $ 46,382
Adjusted EBITDA (2)..........
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SFX
ENTERTAINMENT PRO FORMA
PRO FORMA FOR THE
PRO FORMA FOR FOR THE SPIN-OFF--
THE COMPLETED PENDING SFX
AND PENDING ACQUISITIONS BROADCASTING
TRANSACTIONS (D) (E)
--------------- --------------- --------------
<S> <C> <C> <C>
Net broadcast revenues . .... $222,731 $222,731
Concert promotion revenue ... 501,489 $501,489 --
Station and other operating
expenses.................... 142,935 142,935
Concert promotion operating
expense..................... 442,199 442,199 --
Depreciation, amortization,
duopoly integration costs
and acquisition related
costs....................... 61,677 28,378 33,299
Corporate expenses........... 8,698* 2,807 5,891
Non-recurring and unusual
charges..................... 17,995 17,995
--------------- --------------- --------------
Operating income (loss) ..... 50,717 28,105 22,612
Interest expense............. 86,054 32,499 53,555
Other income ................ (2,716) (234) (2,482)
Equity (income) loss from
investments................. (8,937) (8,937) --
--------------- --------------- --------------
Income before income tax
expense..................... (23,684) 4,777 (28,461)
Income tax expense
(benefit)................... 4,500 3,500 1,000
--------------- --------------- --------------
Net income (loss)............ (28,184) 1,277 (29,461)
Preferred stock dividend
requirement................. 28,906 0 28,906
--------------- --------------- --------------
Net income (loss) applicable
to common shares............ $(57,090) $ 1,277 $(58,367)
=============== =============== ==============
Net loss per common share ... $ 0.06 $ (3.68)
Average common shares
outstanding................. 20,056 15,840
EBITDA (1)................... $130,388 $ 56,483 $ 73,906
Adjusted EBITDA (2).......... $ 68,754 $ 77,161
</TABLE>
- ------------
* Net of $1,693,000 of fees from Triathlon.
(1) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, non-recurring and unusual items, other income and equity
(income) loss from investments. Although EBITDA is not a measure of
performance calculated in accordance with generally accepted accounting
principles ("GAAP"), SFX Entertainment believes that EBITDA is accepted
by the broadcasting and entertainment companies as a generally
recognized measure of performance and is used by analysts who report
publicly on the performance of such companies. Nevertheless, this
measure should not be considered in isolation or as a substitute for
operating income, net income, net cash provided by operating activities
or any other measure for determining SFX Entertainment's operating
performance or liquidity which is calculated in accordance with GAAP.
(2) Represents EBITDA adjusted for certain one-time charges and cost
savings associated with the elimination of duplicative staffing and
general and administrative expenses and equity (income) loss from
investments.
F-13
<PAGE>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PENDING
ACQUISITION PENDING
AND ACQUISITIONS AND
SFX BROADCASTING, COMPLETED DISPOSITION-- THE FINANCING--
INC. AS TRANSACTIONS BROADCASTING SFX ENTERTAINMENT
REPORTED (A) (B) (C)
----------------- ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Net broadcast revenues....... $143,061 $131,014 $(1,381)
Concert promotion revenue ... 104,784 $447,316
Station and other operating
expenses.................... 92,816 90,243 1,208
Concert promotion operating
expense..................... 91,240 417,117
Depreciation, amortization,
duopoly integration costs
and acquisition related
costs....................... 17,311 36,528 650 30,962
Corporate expenses........... 6,313 (313) 2,000
Non-recurring and unusual
charges..................... 28,994 (3,332) --
----------------- ------------ ------------ -----------------
Operating income (loss) ..... (2,373) 21,432 (3,239) (2,763)
Interest expense............. 34,897 38,496 41,610
Other income................. (2,117) (467) (538) (1,811)
Equity (income) loss from
investments................. (525) (3,219)
----------------- ------------ ------------ -----------------
Income before income tax
expense..................... (35,153) (16,072) (2,701) (39,343)
Income tax expense...........
(benefit).................... 480 1,315 1,705
----------------- ------------ ------------ -----------------
Net income (loss)............ (35,633) (17,387) (2,701) (41,048)
Preferred stock dividend
requirement ................ 6,061 32,063 --
----------------- ------------ ------------ -----------------
Net income (loss) applicable
to common shares............ $(41,694) $(49,450) $(2,701) $(41,048)
================= ============ ============ =================
Net loss per common share ... $ (4.57)
Average common shares
outstanding................. 9,128 71
EBITDA (1)................... $ 43,932 $ 54,268 $(2,589) $ 28,199
Adjusted EBITDA..............
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SFX
ENTERTAINMENT PRO FORMA
PRO FORMA FOR PRO FORMA FOR THE SPIN-OFF
THE COMPLETED FOR THE PENDING OF SFX
AND PENDING ACQUISITIONS BROADCASTING
TRANSACTIONS (D) (E)
------------- --------------- ----------------
<S> <C> <C> <C>
Net broadcast revenues....... $ 272,694 $272,694
Concert promotion revenue ... 552,100 $552,100 --
Station and other operating
expenses.................... 184,267 184,267
Concert promotion operating
expense..................... 508,357 508,357 --
Depreciation, amortization,
duopoly integration costs
and acquisition related
costs....................... 85,451 37,795 47,656
Corporate expenses........... 8,000 3,000 5,000
Non-recurring and unusual
charges..................... 25,662 -- 25,662
------------- --------------- ----------------
Operating income (loss) ..... 13,057 2,948 10,109
Interest expense............. 115,003 43,391 71,613
Other income................. (4,933) (2,177) (2,756)
Equity (income) loss from
investments................. (3,744) (3,744) --
------------- --------------- ----------------
Income before income tax
expense..................... (93,269) (34,521) (58,748)
Income tax expense ..........
(benefit).................... 3,500 1,500 2,000
------------- --------------- ----------------
Net income (loss)............ (96,769) (36,021) (60,748)
Preferred stock dividend
requirement ................ 38,124 38,124
------------- --------------- ----------------
Net income (loss) applicable
to common shares............ $(134,893) $(36,021) $(98,872)
============= =============== ================
Net loss per common share ... $ (1.80) $ (6.24)
Average common shares
outstanding................. 20,056 15,840
EBITDA (1)................... $ 124,170 $ 40,743 (2) $ 83,427
Adjusted EBITDA.............. $ 55,524 (3) $ 96,317
</TABLE>
- ------------
* Net of $3,000,000 of fees from Triathlon.
(1) EBITDA is defined as earnings before interest, taxes depreciation and
amortization, non-recurring and unusual items, other income and equity
(income) loss from investments. Although EBITDA is not a measure of
performance calculated in accordance with generally accepted accounting
principles ("GAAP"), SFX Entertainment believes that EBITDA is accepted
by broadcasting and entertainment companies as a generally recognized
measure of performance and is used by analysts who report publicly on
the performance of entertainment companies. Nevertheless, this measure
should not be considered in isolation or as a substitute for operating
income and income, net cash provided by operating activities or any
other measure for determining SFX Entertainment's operating performance
or liquidity which is calculated in accordance GAAP.
(2) Represents EBITDA adjusted for nonrecurring charges, including a
litigation settlement recorded by PACE and Pavilion Partners, and cost
savings associated with the elimination of duplicative staffing and
general and administrative expenses.
(3) Represents EBITDA adjusted for certain one-time charges and cost
savings associated with the elimination of duplicative staffing and
general and administrative expenses and equity (income) loss from
investments.
F-14
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
(A) COMPLETED TRANSACTIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
------------------------------------------------------------------------------------
CBS SECRET
TEXAS COAST HARTFORD MEADOWS EXCHANGE COMMUNICATIONS RICHMOND
ACQUISITION ACQUISITION ACQUISITION (6) ACQUISITION ACQUISITION
------------- ------------- ------------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net broadcast revenues.......... $652 $638 $ (60) $20,626 $5,105
Concert promotion revenue ...... $ 601
Station and other operating
expenses....................... 401 664 630 11,230 3,722
Concert promotion operating
expense........................ 631
Depreciation, amortization,
duopoly integration costs and
acquisition related costs ..... -- -- 221 -- 1,207 456
Corporate expenses.............. -- -- -- -- -- --
------------- ------------- ------------- ---------- -------------- -------------
Operating income (loss)......... 251 (26) (251) (690) 8,189 927
Interest expense................ -- -- 199 -- 1,459 481
Other expense (income).......... -- -- -- -- 79 --
------------- ------------- ------------- ---------- -------------- -------------
Income (loss) before income tax
expense........................ 251 (26) (450) (690) 6,651 446
Income tax expense (benefit) ... -- -- -- 32 -- --
------------- ------------- ------------- ---------- -------------- -------------
Net income (loss)............... 251 (26) (450) (722) 6,651 446
Preferred stock dividend
requirements................... -- -- -- -- -- --
------------- ------------- ------------- ---------- -------------- -------------
Net income (loss) applicable to
common shares.................. $251 $(26) $(450) $(722) $ 6,651 $ 446
============= ============= ============= ========== ============== =============
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
-----------------------------------------------------------------------
CHARLOTTE PRO FORMA
EXCHANGE SUNSHINE HEARST ADJUSTMENTS COMPLETED
(7) ACQUISITION ACQUISITION (8) TRANSACTIONS
----------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net broadcast revenues................. $1,564 $10,160 $38,685
Concert promotion revenue.............. $11,692 12,293
Station and other operating expenses .. 1,328 -- 10,314 28,289
Concert promotion operating expense ... 11,605 12,236
Depreciation, amortization, duopoly
integration costs and acquisition
related costs......................... 375 686 -- $ 125 (a) 7,090
2,512 (b)
393 (c)
884 (l)
231 (m)
Corporate expenses..................... -- -- -- -- --
----------- ------------- ------------- ------------- --------------
Operating income (loss)................ (139) (599) (154) (4,145) 3,363
Interest expense....................... (730) 1,106 -- (47,397)(a) 8,408
16,848 (a)
36,282 (a)
195 (h)
(35)(j)
Other expense (income)................. -- -- -- (79)(i) --
----------- ------------- ------------- ------------- --------------
Income (loss) before income tax
expense............................... 591 (1,705) (154) (9,959) (5,045)
Income tax expense (benefit)........... -- -- -- 32
----------- ------------- ------------- ------------- --------------
Net income (loss)...................... 591 (1,705) (154) (9,959) (5,077)
Preferred stock dividend requirements . -- -- -- 1,183 (n) 1,183
----------- ------------- ------------- ------------- --------------
Net income (loss) applicable to common
shares................................ $ 591 $(1,705) $ (154) $(11,142) $(6,260)
=========== ============= ============= ============= ==============
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
--------------------------------------------------------
LIBERTY PRISM
ACQUISITION ACQUISITION
INCLUDING INCLUDING OTHER
MMR WASHINGTON LOUISVILLE 1996
MERGER DISPOSITIONS DISPOSITIONS ACQUISITIONS
(1) (2) (3) (4)
--------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net broadcast revenues .. $20,038 $24,992 $13,511 $ 4,728
Concert promotion
revenue..................
Station and other
operating expenses....... 11,531 17,774 10,897 2,869
Concert promotion
operating expense........
Depreciation,
amortization, duopoly
integration costs and
acquisition related
costs.................... 6,081 5,150 1,241 1,492
Corporate expenses........ 1,253 1,478 808 111
Other..................... 577 -- -- --
--------- -------------- -------------- --------------
Operating income (loss) .. 596 590 565 256
Interest expense.......... -- 3,326 773 382
Other expense (income) ... -- 5,935 -- (11,948)
Equity (income) loss
from investments......... -- -- -- --
--------- -------------- -------------- --------------
Income (loss) before
income tax expense....... 596 (8,671) (208) 11,822
Income tax expense
(benefit)................ -- (3,378) -- 45
--------- -------------- -------------- --------------
Net income (loss)......... 596 (5,293) (208) 11,777
Preferred stock dividend
requirement.............. -- -- -- --
Net income (loss)
applicable to common
shares .................. $ 596 $(5,293) $ (208) $ 11,777
========= ============== ============== ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
--------------------------------------------------------
HOUSTON
EXCHANGE
AND DALLAS DELSENER/ TEXAS
DISPOSITION SLATER COAST HARTFORD
(5) ACQUISITION ACQUISITION ACQUISITION
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net broadcast revenues .. $ (8,680) $4,281 $5,742
Concert promotion
revenue.................. $50,361
Station and other
operating expenses....... (10,307) 2,968 5,607
Concert promotion
operating expense........ 50,686
Depreciation,
amortization, duopoly
integration costs and
acquisition related
costs.................... (284) 747 36 27
Corporate expenses........ 110 -- -- --
Other..................... (3,500) -- (48) --
------------- ------------- ------------- -------------
Operating income (loss) .. 5,301 (1,072) 1,325 108
Interest expense.......... (1,667) 60 -- 19
Other expense (income) ... -- (198) (65) (8)
Equity (income) loss
from investments......... -- (525) -- --
------------- ------------- ------------- -------------
Income (loss) before
income tax expense....... 6,968 (409) 1,390 97
Income tax expense
(benefit)................ 938 106 22 32
------------- ------------- ------------- -------------
Net income (loss)......... 6,030 (515) 1,368 65
Preferred stock dividend
requirement.............. -- -- -- --
Net income (loss)
applicable to common
shares .................. $ 6,030 $ (515) $1,368 $ 65
============= ============= ============= =============
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
---------------------------------------------------------------------
CBS SECRET CHARLOTTE
MEADOWS EXCHANGE COMMUNICATIONS RICHMOND EXCHANGE
ACQUISITIONS (6) ACQUISITION ACQUISITION (7)
-------------- ---------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Net broadcast
revenues............. $ 10 $35,532 $ 9,007 $6,222
Concert promotion
revenue.............. $10,175
Station and other
operating expenses .. 1,288 20,844 7,757 3,885
Concert promotion
operating expense ... 9,306
Depreciation,
amortization,
duopoly integration
costs and
acquisition related
costs................ 1,550 -- 3,970 780 500
Corporate expenses ... -- -- -- 1,037 --
Other................. -- (363) 2 -- --
-------------- ---------- -------------- ------------- -----------
Operating income
(loss)............... (681) (915) 10,716 (567) 1,837
Interest expense...... 1,275 -- -- 1,210 --
Other expense
(income)............. (30) -- 1,175 -- --
Equity (income) loss
from investments..... -- -- -- -- --
-------------- ---------- -------------- ------------- -----------
Income (loss) before
income tax expense .. (1,926) (915) 9,541 (1,777) 1,837
Income tax expense
(benefit)............ 17 783 -- -- --
-------------- ---------- -------------- ------------- -----------
Net income (loss) .... (1,943) (1,698) 9,541 (1,777) 1,837
Preferred stock
dividend
requirement.......... -- -- -- -- --
Net income (loss)
applicable to common
shares............... $(1,943) $(1,698) $ 9,541 $(1,777) $1,837
============== ========== ============== ============= ===========
Average common shares
outstanding..........
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
--------------------------------------------------------
PRO
FORMA
SUNSHINE HEARST ADJUSTMENTS COMPLETED
ACQUISITION ACQUISITION (8) TRANSACTIONS
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net broadcast
revenues............. $15,631 $131,014
Concert promotion
revenue.............. $44,248 104,784
Station and other
operating expenses .. 15,130 90,243
Concert promotion
operating expense ... 37,326 (6,078)(o) 91,240
Depreciation,
amortization,
duopoly integration
costs and
acquisition related
costs................ 1,522 293 $ 1,491 (a) 36,528
8,052 (b)
559 (d)
3,014 (l)
308 (m)
Corporate expenses ... -- 169 (3,713)(e) (313)
1,434 (e)
(3,000)(f)
Other................. -- -- (3,332)
------------- ------------- ------------- --------------
Operating income
(loss)............... 5,400 39 (2,066) 21,432
Interest expense...... 3,019 -- (5,583)(a) 38,496
22,462 (a)
(35,635)(a)
48,375 (a)
547 (h)
(67)(j)
Other expense
(income)............. (138) -- (5,935)(g) (467)
11,920 (g)
(1,175)(i)
Equity (income) loss
from investments..... -- -- (525)
------------- ------------- ------------- --------------
Income (loss) before
income tax expense .. 2,519 39 (36,975) (16,072)
Income tax expense
(benefit)............ 1,138 -- 1,612 (g) 1,315
------------- ------------- ------------- --------------
Net income (loss) .... 1,381 39 (38,587) (17,387)
Preferred stock
dividend
requirement.......... -- -- 32,063 (n) 32,063
Net income (loss)
applicable to common
shares............... $ 1,381 $ 39 $ (70,650) $(49,450)
============= ============= ============= ==============
Average common shares
outstanding.......... 70,796 (k) 70,796
</TABLE>
F-18
<PAGE>
(1) MMR MERGER
Reflects the net effect of the historical operations of Multi-Market
Radio, Inc. ("MMR") as adjusted for acquisitions and dispositions. SFX has
not included in the pro forma statement of operations cost savings of
$792,000 it believes would have been achieved in connection with the MMR
Hartford Acquisition had the transactions been consummated as of January 1,
1996, consisting principally of the elimination of certain duplicative
technical sales and general and administrative functions due to the operation
of a cluster of stations in the Hartford market.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------
MMR
AS MMR HARTFORD PRO FORMA MMR
REPORTED DISPOSITIONS(a) ACQUISITION ADJUSTMENTS MERGER
---------- --------------- ------------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net broadcast revenues....... $18,832 $(1,623) $2,829 $20,038
Station operating expenses .. 11,422 (1,931) 2,040 11,531
Depreciation/amortization ... 7,611 (1,833) 277 $ 26 (b) 6,081
Corporate expenses........... 2,517 -- -- 1,253 (c) 1,253
(2,517) (c)
Other........................ 63 -- -- 514 (e) 577
---------- --------------- ------------- ------------- ---------
Operating income (loss) ..... (2,781) 2,141 512 724 596
Interest expense............. 5,265 -- 274 (5,539) (d) --
Other expense (income)....... -- (57) (12) 69 (d) --
Income tax expense
(benefit)................... -- 7 (7) (d) --
---------- --------------- ------------- ------------- ---------
Net income (loss)............ $(8,046) $ 2,198 $ 243 $ 6,201 $ 596
========== =============== ============= ============= =========
</TABLE>
- ------------
(a) Reflects the elimination of the operations of stations WRSF-FM, sold in
March 1996, WRXR-FM and WKBG-FM, sold in July 1996, WYAK-FM and
WMYB-FM, sold in March 1997, and KOLL-FM, sold in April 1997.
(b) Reflects $26,000 for the year ended December 31, 1996 in amortization
of intangible assets recorded in connection with the MMR Merger, Myrtle
Beach Acquisition, MMR Hartford Acquisition, related incremental
deferred taxes and change in amortization periods.
(c) To record incremental corporate overhead charges of $1,253,000
associated with the MMR Merger for the year ended December 31, 1996,
and to eliminate MMR's existing corporate overhead of $2,517,000 for
the year ended December 31, 1996.
(d) Elimination of nonrecurring income of $69,000 for the year ended
December 31, 1996, interest expense of $5,539,000 for the year ended
December 31, 1996, and income tax expense of $7,000 for the year ended
December 31, 1996.
(e) Reflects non-cash compensation charge for the issuance of shares of the
Series A and Series B Convertible Preferred Stock of MMR. The shares of
Series A and Series B stock were issued to certain officers and
advisors of MMR in July and November 1996, respectively, and converted
into Class A Common Stock of SFX upon consummation of the MMR Merger.
Certain of the shares issued pursuant to the Series A and Series B
conversions which were issued to individuals currently employed by SFX
are being held in escrow and are being released in five equal annual
installments ending in April 2001.
F-19
<PAGE>
(2) LIBERTY ACQUISITION
Reflects the net effect of the historical operations of the Liberty
Acquisition adjusted for the Washington Dispositions.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------
LIBERTY AS WASHINGTON LIBERTY
REPORTED DISPOSITIONS ACQUISITION
------------ -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net broadcast revenues ..... $25,966 $ (974) $24,992
Station operating expenses . 19,337 (1,563) 17,774
Depreciation/amortization
........................... 5,926 (776) 5,150
Corporate expenses ......... 1,566 (88) 1,478
------------ -------------- -------------
Operating income............ (863) 1,453 590
Interest expense ........... 3,467 (141) 3,326
Other expense (income) .... 5,935 -- 5,935
Income tax benefit.......... (3,378) -- (3,378)
------------ -------------- -------------
Net income (loss)........... $(6,887) $ 1,594 $(5,293)
============ ============== =============
</TABLE>
(3) PRISM ACQUISITION
Reflects the net effect of the historical operations of the Prism
Acquisition adjusted for the Louisville Dispositions.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------
PRISM AS LOUISVILLE PRISM
REPORTED DISPOSITIONS ACQUISITION
---------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net broadcast revenues ..... $16,859 $(3,348) $13,511
Station operating expenses . 13,373 (2,476) 10,897
Depreciation/amortization
........................... 1,599 (358) 1,241
Corporate expenses ......... 808 -- 808
---------- -------------- -------------
Operating income (loss) ... 1,079 (514) 565
Interest expense ........... 773 -- 773
---------- -------------- -------------
Net loss ................... $ 306 $ (514) $ (208)
========== ============== =============
</TABLE>
(4) OTHER 1996 ACQUISITIONS
Reflects the net effect of the combined historical operations of the
Greensboro Acquisition, the Raleigh-Greensboro Acquisitions, the Greenville
Acquisition and the Jackson Acquisitions.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------
RALEIGH-
GREENSBORO AND
GREENSBORO GREENVILLE JACKSON
ACQUISITIONS ACQUISITION ACQUISITIONS TOTAL
-------------- ------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net broadcast revenues .... $3,619 $ 639 $470 $ 4,728
Station operating expenses 2,264 271 334 2,869
Depreciation/amortization .. 1,168 244 80 1,492
Corporate expenses.......... 4 107 -- 111
-------------- ------------- -------------- ----------
Operating income (loss) .... 183 17 56 256
Interest expense ........... 59 323 -- 382
Other expense (income) ..... (51) (11,897) -- (11,948)
Income tax expense.......... 45 -- -- 45
-------------- ------------- -------------- ----------
Net income (loss)........... $ 130 $ 11,591 $ 56 $ 11,777
============== ============= ============== ==========
</TABLE>
F-20
<PAGE>
(5) HOUSTON EXCHANGE AND DALLAS DISPOSITION
To reflect the exchange of KRLD-AM and the Texas State Networks for
KKRW-FM in the Houston Exchange, and the sale of KTCK-AM in the Dallas
Disposition.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------------------
HOUSTON
DISPOSITIONS ACQUISITION
EXCHANGE
------------------------------------------------ AND DALLAS
KRLD-AM TSN KTCK-AM KKRW-FM ADJUSTMENTS* DISPOSITION
----------- ---------- ---------- ------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net broadcast revenues .... $(10,711) $(2,843) $(2,136) $7,010 $ -- $ (8,680)
Station operating
expenses.................. (9,316) (2,222) (2,490) 3,721 -- (10,307)
Depreciation/amortization . (1,157) (226) (284) 81 1,302 (284)
Corporate expenses......... -- -- -- 110 -- 110
Other...................... (1,600) -- (1,900) -- -- (3,500)
----------- ---------- ---------- ------------- -------------- -------------
Operating income (loss) ... 1,362 (395) 2,538 3,098 (1,302) 5,301
Interest expense........... (1,482) (373) 188 -- -- (1,667)
Other expense (income) .... -- -- -- 938 -- 938
----------- ---------- ---------- ------------- -------------- -------------
Net income (loss).......... $ 2,844 $ (22) $ 2,350 $2,160 $(1,302) $ 6,030
=========== ========== ========== ============= ============== =============
</TABLE>
- ------------
* To reflect historical depreciation and amortization of KRLD-AM and the
Texas State Networks and the disposition of KTCK-AM.
(6) CBS EXCHANGE
To reflect the net effect of the exchange of WHFS-FM for KTXQ-FM and
KRRW-FM in the CBS Exchange.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------------
KTXQ-FM WHFS-FM CBS
KRRW-FM DISPOSAL ADJUSTMENTS* EXCHANGE
--------- ---------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net broadcast revenues .... $1,628 $1,688 $ -- $ (60)
Station operating expenses . 1,655 1,025 -- 630
Depreciation/amortization
........................... 54 783 729 --
--------- ---------- -------------- ----------
Operating income (loss) .... (81) (120) (729) (690)
Income tax expense.......... 32 -- -- 32
--------- ---------- -------------- ----------
Net income (loss)........... $ (113) $ (120) $(729) $(722)
========= ========== ============== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31, 1996
------------------------------------------------
KTXQ-FM WHFS-FM CBS
KRRW-FM DISPOSAL ADJUSTMENTS* EXCHANGE
--------- ---------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net broadcast revenues....... $9,572 $9,562 $ -- $ 10
Station operating expenses .. 7,116 5,828 -- 1,288
Depreciation/amortization ... 218 1,548 1,330 --
Other........................ -- 363 -- (363)
--------- ---------- -------------- ----------
Operating income............. 2,238 1,823 (1,330) (915)
Income tax expense
(benefit)................... 783 -- -- 783
--------- ---------- -------------- ----------
Net income (loss)............ $1,455 $1,823 $(1,330) $(1,698)
========= ========== ============== ==========
</TABLE>
- ------------
* To eliminate depreciation of KTXQ-FM and KRRW-FM and reflect
depreciation of WHFS-FM.
F-21
<PAGE>
(7) CHARLOTTE EXCHANGE
Reflects the transfer of WDSY-FM and $20,000,000 in exchange for WRFX-FM
in the Charlotte Exchange.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------------------------
WDSY-FM WHFS-FM CHARLOTTE
DISPOSITION ACQUISITION ADJUSTMENTS EXCHANGE
------------- ------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues....................................... $(4,367) $5,931 $1,564
Station operating expenses......................... (1,794) 3,122 1,328
Depreciation, amortization and acquisition related
costs............................................. (183) -- $ 558 375
------------- ------------- ------------- -----------
Operating income................................... (2,390) 2,809 (558) (139)
------------- ------------- ------------- -----------
Interest expense................................... (730) -- -- (730)
Net income (loss).................................. $(1,660) $2,809 $ (558) $ 591
============= ============= ============= ===========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------------------------
WDSY-FM WHFS-FM CHARLOTTE
DISPOSITION ACQUISITION ADJUSTMENTS EXCHANGE
------------- ------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues....................................... $(3,697) $9,919 $6,222
Station operating expenses......................... (1,593) 5,478 3,885
Depreciation, amortization and acquisition related
costs............................................. -- 2,907 $ (2,407) * 500
Operating income................................... (2,104) 1,534 2,407 1,837
------------- ------------- ------------- -----------
Net income (loss).................................. $(2,104) $1,534 $ 2,407 $1,837
============= ============= ============= ===========
</TABLE>
- ------------
* To reflect historical depreciation of WDSY-FM net of decrease in
amortization due to the exchange allocation.
(8) PRO FORMA ADJUSTMENTS
SFX has not included in the pro forma adjustments certain cost savings
totaling $11,559,000 it believes would have been realized for the year ended
December 31, 1996 following the Liberty Acquisition, the Prism Acquisition,
the Houston Exchange, the Jackson Acquisitions, the Hearst Acquisition, the
Charlotte Exchange, the Richmond Acquisition, the Texas Coast Acquisition and
Hartford Acquisition and $2,881,000 for the nine months ended September 30,
1997 following the Richmond Acquisition, the Hearst Acquisition, the
Charlotte Exchange, Hartford Acquisition, and Texas Coast Acquisition, had
these transactions been consummated as of January 1, 1996. The cost savings
consist principally of the elimination of certain duplicative technical,
sales and general and administrative functions due to the operation of a
cluster of stations in each of its principal markets, a reduction of employee
benefit costs and commission rates and the elimination of programming
personnel due to automation and simulcasting.
While management believes that such cost savings and the elimination of
non-recurring expenses are reasonably achievable, and many of which have been
achieved, SFX's ability to fully achieve such cost savings and to eliminate
the non-recurring expenses is subject to numerous factors, many of which are
beyond SFX's control. These factors may include difficulties in integrating
the acquired stations and the incurrence of unanticipated severance,
promotional or other costs and expenses. There can be no assurance that SFX
will realize all such cost savings.
a. To reflect interest expense of $36,282,000 and $48,375,000 for the nine
months ended September 30, 1997 and the year ended December 31, 1996,
respectively, related to the $450,000,000 of Senior Subordinated Notes at
10.75% issued in 1996, amortization of deferred financing costs of
$125,000 and
F-22
<PAGE>
$1,491,000 for the nine months ended September 30, 1997 and the year
ended December 31, 1996, respectively, interest expense of $16,848,000 and
$22,462,000 relating to the borrowings from the Credit Agreement at 8% for
the nine months ended September 30, 1997 and the year ended December 31,
1996, respectively, and elimination of existing interest expense (net of
interest on other debt) of $47,397,000 and $41,218,000 related to SFX and
the sellers for the nine months ended September 30, 1997 and the year
ended December 31, 1996, respectively.
b. Reflects increase (decrease) in amortization of intangible assets
resulting from the purchase price allocation, deferred taxes recorded and
change in amortization period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------
INCREASE DUE DECREASE DUE
TO PURCHASE TO CHANGE IN
PRICE AMORTIZATION NET INCREASE
ALLOCATION PERIODS (DECREASE)
-------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Liberty Acquisition....... $1,699 $(2,399) $ (700)
Prism Acquisition......... 1,010 (642) 368
Charlotte WTDR/WLYT
Acquisition.............. 490 490
Jackson Acquisitions . ... 108 108
Greenville and Greensboro
Acquisitions............. 597 (623) (26)
Albany Acquisition........ 23 23
Hartford Acquisition ..... 910 910
Texas Coast Acquisition .. 1,067 1,067
Richmond Acquisition . ... 1,053 (164) 889
Hearst Acquisition........ 733 733
Secret Communications
Acquisition.............. 6,207 (2,018) 4,189
-------------- -------------- --------------
Total Pro Forma
adjustments............. $8,052
==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
----------------------------------------------
INCREASE DUE DECREASE DUE
TO PURCHASE TO CHANGE IN
PRICE AMORTIZATION NET INCREASE
ALLOCATION PERIODS (DECREASE)
-------------- -------------- --------------
<S> <C> <C> <C>
Liberty Acquisition .....
Prism Acquisition ........
Charlotte WTDR/WLYT
Acquisition .............
Jackson Acquisitions . ..
Greenville and Greensboro
Acquisitions ............
Albany Acquisition........ $ 2 $ 2
Hartford Acquisition ..... 152 152
Texas Coast Acquisition .. 89 89
Richmond Acquisition . ... 527 (82) 445
Hearst Acquisition........ 428 428
Secret Communications
Acquisition.............. 2,069 (673) 1,396
-------------- -------------- --------------
Total Pro Forma
adjustments............. $2,512
==============
</TABLE>
c. To reflect depreciation expense for fixed assets associated with the
Texas Coast, Hartford and Richmond Acquisitions as per SFX's
depreciation policy.
d. To reflect $559,000 in amortization relating to the present value of
the Triathlon consulting fees assigned to SFX under the SCMC
Termination Agreement for the year ended December 31, 1996.
e. To record incremental corporate overhead charges of $1,434,000 for the
year ended December 31, 1996, relating to increases in personnel,
professional fees and administrative expenses associated with the
increased size of SFX due to the Completed Transactions and Pending
Acquisition and Disposition--Broadcasting and the elimination of
$3,713,000 for the year ended December 31, 1996, of the corporate
overhead of the sellers.
f. Reflects fees of $3,000,000 incurred by Triathlon and would have been
payable to SFX under the revised SCMC Agreement for the year ended
December 31, 1996. Future fees may be lesser or greater based upon
future acquisition and financing activity by Triathlon. Minimum annual
fees will be $1,000,000 per year.
g. Elimination of acquisition related costs of $5,935,000 recorded on the
income statement of Liberty for the year ended December 31, 1996, a
gain on the sale of assets of $11,920,000 recorded on the books of ABS
Greenville Partners, L.P. for the year ended December 31, 1996 and net
income tax benefit of $1,612,000 for the year ended December 31, 1996.
h. To record interest expense of $195,000 and $547,000 for the nine months
ended September 30, 1997 and the year ended December 31, 1996,
respectively, in connection with the long-term payments due for the
Delsener/Slater Acquisition, the Texas Coast Acquisition and the
Sunshine Acquisition.
i. Elimination of LMA fees paid by Secret Communications for WJJJ-FM and
WDSY-FM.
j. Elimination of interest expense on Jackson note payable to third party
acquired by Capstar.
k. Reflects the issuance of 70,796 shares of SFX Class A common stock in
connection with the Sunshine Acquisition for a total value of
$2,000,000.
F-23
<PAGE>
l. To reflect the depreciation and amortization expense adjustment of
$3,014,000 and $884,000 associated with the Delsener/Slater, Meadows,
and Sunshine concert acquisitions for the year ended December 31, 1996
and the nine months ended September 30, 1997, respectively.
m. To reflect the amortization of $231,000 and $308,000 associated with
the John Boy and Billy Network contract payments for the nine months
ended September 30, 1997 and the year ended December 31, 1996,
respectively.
n. To record the incremental Series D Preferred Stock and the Series E
Preferred Stock dividends issued to finance a portion of the Pending
Acquisition and Disposition--Broadcasting at a rate of 6.5% and 12
5/8%, respectively.
o. Reflects the elimination of non-recurring Delsener/Slater officer's
bonuses and wages not being paid under SFX's new employment contracts.
(B) PENDING ACQUISITION & DISPOSITION--BROADCASTING
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
-------------------------------------------------------------
PENDING
ACQUISITION AND
CAPSTAR NASHVILLE PRO FORMA DISPOSITION--
DISPOSITION ACQUISITION ADJUSTMENTS (1) BROADCASTING
------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net broadcast revenues.......... $(9,831) $4,893 $(4,938)
Station and other operating
expenses....................... (5,489) 4,263 (1,226)
Depreciation, amortization,
duopoly integration costs and
acquisition related costs ..... (1,201) 467 39 (c) (95)
207 (d)
393 (b)
------------- ------------- --------------- ---------------
Operating income (loss) ........ (3,141) 163 (639) (3,617)
Interest expense ............... (36) -- 36 (a)
Other expense (income) ......... -- (3) (3)
------------- ------------- --------------- ---------------
Income (loss) before income tax
expense ....................... (3,105) 166 (675) (3,614)
Income tax expense (benefit) .. -- (3) (3)
------------- ------------- --------------- ---------------
Net income (loss) .............. (3,105) 169 (675) (3,611)
------------- ------------- --------------- ---------------
Net income (loss) applicable to
common shares ................. $(3,105) $ 169 $(675) $(3,611)
============= ============= =============== ===============
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
-------------------------------------------------------------
PENDING
ACQUISITION AND
CAPSTAR NASHVILLE PRO FORMA DISPOSITION--
DISPOSITION ACQUISITION ADJUSTMENTS (1) BROADCASTING
------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net broadcast revenues.......... $(9,012) $8,081 $ (450) (d) $(1,381)
Station and other operating
expenses ...................... (5,265) 6,473 1,208
Depreciation, amortization,
duopoly integration costs and
acquisition related costs .... (852) 652 275 (d) 650
50 (c)
525 (b)
------------- ------------- ---------------
Operating income (loss) ........ (2,895) 956 (1,300) (3,239)
Interest expense ............... (2,108) -- 2,108 (a)
Other expense (income) ......... (538) -- (538)
------------- ------------- --------------- ---------------
Income (loss) before income tax
expense ....................... (249) 956 (3,408) (2,701)
Income tax expense (benefit) .. -- --
------------- ------------- --------------- ---------------
Net income (loss) .............. (249) 956 (3,408) (2,701)
------------- ------------- --------------- ---------------
Net income (loss) applicable to
common shares ................. $ (249) $ 956 $(3,408) $(2,701)
============= ============= =============== ===============
</TABLE>
F-24
<PAGE>
(1) PRO FORMA ADJUSTMENTS
SFX has not included in the pro forma adjustments certain cost savings
totalling $539,000 it believes would have been realized for the year ended
December 31, 1996 following the Nashville Acquisition and the Chancellor
Exchange and $375,000 for the nine months ended September 30, 1997 following
the Nashville Acquisition and the Chancellor Exchange, had these transactions
been consummated as of January 1, 1996. The cost savings consist principally
of the elimination of certain duplicative technical, sales and general and
administrative functions due to the operation of a cluster of stations in
each of its principal markets, a reduction of employee benefit costs and
commission rates and the elimination of programming personnel due to
automation and simulcasting.
While management believes that such cost savings and the elimination of
non-recurring expenses are reasonably achievable, SFX's ability to fully
achieve such cost savings and to eliminate the non-recurring expenses is
subject to numerous factors, many of which are beyond SFX's control. These
factors may include difficulties in integrating the acquired stations and the
incurrence of unanticipated severance, promotional or other costs and
expenses. There can be no assurance that SFX will realize all such cost
savings.
a. To reflect the elimination of existing interest expense of $36,000 and
$2,108,000 related to the Capstar Disposition for the nine months ended
September 30, 1997 and the year ended December 31, 1996, respectively.
b. Reflects increase in amortization of intangible assets of $393,000 and
$525,000 for the nine months ended September 30, 1997 and the year
ended December 31, 1996, respectively, resulting from the purchase
price allocation and change in amortization period related to the
Nashville Acquisition.
c. Amortization of $39,000 and $50,000 for acquisition costs associated
with the Nashville Acquisition for the nine months ended September 30,
1997 and the year ended December 31, 1996, respectively.
d. To reflect the reduced amortization of goodwill and elimination of LMA
fees of the Chancellor Exchange.
F-25
<PAGE>
(C) PENDING ACQUISITIONS AND THE FINANCING--ENTERTAINMENT
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
-------------------------------------------------------------------------
CONCERTS/
PACE CONTEMPORARY NETWORK BGP SOUTHERN
ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITION
I II III IV V
------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue................... $229,480 $85,570 $20,563 $66,094 $13,093
Operating expenses........ 205,015 77,284 14,775 59,312 10,532
Depreciation &
amortization............. 4,476 1,081 207 729 57
Corporate expenses........ -- -- -- -- --
------------- -------------- ------------- ------------- -------------
Operating income (loss) .. 19,989 7,205 5,581 6,053 2,504
Interest expense.......... 4,803 227 196 837 --
Other (income) expenses . (394) (170) (123) (221) (57)
Equity (income) loss from
investments ............. (6,615) -- -- -- (34)
------------- -------------- ------------- ------------- -------------
Income/(loss) before
income tax expense ...... 22,195 7,148 5,508 5,437 2,595
Income tax expense
(benefit) ............... 3,751 -- 135 2,237 --
------------- -------------- ------------- ------------- -------------
Net income (loss)......... $ 18,444 $ 7,148 $ 5,373 $ 3,200 $ 2,595
============= ============== ============= ============= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
-----------------------------------------------
PRO FORMA
PRO FORMA FOR THE PENDING
ADJUSTMENTS ACQUISITIONS
PRO FORMA FOR THE AND THE
ADJUSTMENTS FINANCING FINANCING--
VI VII SFX ENTERTAINMENT
------------- ------------- -----------------
<S> <C> <C> <C>
Revenue................... $ -- $ -- $414,800
Operating expenses........ -- -- 366,918
Depreciation &
amortization............. 16,703 (a) -- 23,253
Corporate expenses........ 1,500 (b) -- 1,500
------------- ------------- -----------------
Operating income (loss) .. (18,203) -- 23,129
Interest expense.......... -- (6,063)(a) 31,208
-- 31,208 (b)
Other (income) expenses . 944 (c) -- (21)
Equity (income) loss from
investments ............. (944)(c) -- (7,593)
------------- ------------- -----------------
Income/(loss) before
income tax expense ...... (18,203) (25,145) (465)
Income tax expense
(benefit) ............... (2,497)(d) -- 3,626
------------- ------------- -----------------
Net income (loss)......... $(15,706) (25,145) $ (4,091)
============= ============= =================
</TABLE>
<PAGE>
I. PACE ACQUISITION
Reflects the PACE Acquisition and the separate acquisitions of two
partners' interest in a partnership that owns certain amphitheaters operated
by PACE. The PACE Acquisition is not conditional on the consummation of the
Pavilion Acquisition.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 IN (000'S)
---------------------------------------------------------
PACE PAVILION PRO FORMA PACE
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue.................................. $137,616 $91,114 $ 750 (a) $229,480
Operating expenses ...................... 131,473 75,319 (1,777)(b) 205,015
Depreciation & amortization ............. 1,462 3,014 -- 4,476
Other expenses .......................... 447 -- (447)(c) --
------------- ------------- ------------- -------------
Operating income ........................ 4,234 12,781 2,974 19,989
Interest expense ........................ 1,517 3,286 -- 4,803
Other expenses .......................... 64 1,530 (1,988) (394)
Equity (income) loss from investments .. (6,949) (1,654) 1,988 (d) (6,615)
------------- ------------- ------------- -------------
Income/(loss) before income tax expense 9,602 9,619 2,974 22,195
Income tax expense ...................... 3,751 -- -- 3,751
------------- ------------- ------------- -------------
Net income (loss) ....................... $ 5,851 $ 9,619 $ 2,974 $ 18,444
============= ============= ============= =============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) To reflect non-cash revenue resulting from SFX Entertainment granting
Blockbuster naming rights to three venues for two years for no future
consideration as part of its agreement to acquire Blockbuster's
indirect 33 1/3% interest in Pavilion Partners.
(b) Reflects the elimination of $870,000 of certain officer's bonuses and
wages which will not be paid under SFX Entertainment's new employment
contracts and of $907,000 of non-recurring costs incurred in connection
with PACE's planned initial public offering.
F-26
<PAGE>
(c) Reflects the elimination of non-recurring restricted stock compensation
to PACE executives who will receive incentive stock options pursuant to
their new employment agreements with SFX Entertainment.
(d) To eliminate PACE's income from its 33 1/3% equity investment in
Pavilion Partners. PACE currently owns 33 1/3% in Pavilion Partners and
has agreed to acquire the remaining 66 2/3% interest in Pavilion
Partners pursuant to the Blockbuster Acquisition and Sony Acquisition.
II. CONTEMPORARY ACQUISITION
Reflects the Contemporary Acquisition and the separate acquisition of the
remaining 50% interest in Riverport Amphitheater Partners, a partnership that
owns an amphitheater in St. Louis, MO that is operated by Contemporary. The
Contemporary Acquisition is not conditioned upon the consummation of the
acquisition of such 50% interest.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 IN (000'S)
-----------------------------------------------------------
CONTEMPORARY RIVERPORT PRO FORMA CONTEMPORARY
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue ................................. $71,141 $14,429 $ -- $85,570
Operating expenses ...................... 66,764 11,223 (703)(a) 77,284
Depreciation & amortization ............. 498 583 -- 1,081
-------------- ------------- ------------- --------------
Operating income ........................ 3,879 2,623 703 7,205
Interest expense ........................ 153 74 -- 227
Other income ............................ (122) (48) -- (170)
Equity (income) from investments ....... (1,298) -- 1,298 (b) --
-------------- ------------- ------------- --------------
Income (loss) before income tax expense 5,146 2,597 (595) 7,148
Income tax expense ...................... -- -- -- --
-------------- ------------- ------------- --------------
Net income (loss) ....................... $ 5,146 $ 2,597 $ (595) $ 7,148
============== ============= ============= ==============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) Reflects the elimination of consulting expenses which will not be paid
under SFX Entertainment's new contracts.
(b) Reflects the elimination of Contemporary's equity income in Riverport
Amphitheater Partners. Contemporary had entered into an agreement to
acquire its partners' 50% interest in this venture. If Contemporary is
unable to complete this acquisition of the remaining 50% interest in
Riverport Amphitheater Partners, the cash consideration paid by SFX
Entertainment for Contemporary will be reduced by $10,500,000.
The acquisition agreement provides that in the event the Contemporary
Acquisition is consummated prior to the consummation of the Spin-Off,
1,402,851 shares of preferred stock of SFX Entertainment will be issued to
the Sellers. Such preferred stock is to be converted into an equal number of
shares of Class A Common Stock of SFX Entertainment upon consummation of the
Spin-Off or, if the Spin-Off shall not have occurred prior to July 1, 1998,
such preferred stock is to be redeemed at their fair market value, but in no
event less than $18,700,000.
III. NETWORK ACQUISITION
The Network Acquisition consists of the separate acquisitions of Network
Magazine and SJS. These acquisitions are each conditioned on the concurrent
closing of the other.
F-27
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 IN (000'S)
--------------------------------------------------------------
THE NETWORK
MAGAZINE SJS PRO FORMA NETWORK
AS REPORTED (a) AS REPORTED (a) ADJUSTMENTS ACQUISITIONS
--------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue ................................. $12,047 $10,737 $(2,221)(c) $20,563
Operating expenses ...................... 11,878 10,717 (5,599)(b) 14,775
Depreciation & amortization ............. 119 88 -- 207
--------------- --------------- ------------- --------------
Operating income (loss) ................. 50 (68) 5,599 5,581
Interest expense ........................ 163 33 -- 196
Other income ............................ (43) (80) -- (123)
--------------- --------------- ------------- --------------
(Loss) income before income tax expense (70) (21) 5,599 5,508
Income tax expense ...................... -- 135 -- 135
--------------- --------------- ------------- --------------
Net (loss) income ....................... $ (70) $ (156) $ 5,599 $ 5,373
=============== =============== ============= ==============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) SFX Entertainment's purchase agreement for Network Magazine and SJS
provides that the purchase price will be increased by $4,000,000 if
total 1998 EBITDA as defined equals $9,000,000; by an additional $4 for
each $1 increase in EBITDA between $9,000,000 and $10,000,000 and by an
additional $6 for each $1 increase in EBITDA between $10,000,000 and
$11,000,000 (maximum of $14,000,000 additional consideration). The
additional consideration is payable is stock or cash at SFX
Entertainment's option. The pro forma statement of operation assumes
that no additional consideration is paid.
(b) Reflects the elimination of certain officer's bonuses and wages which
will not be paid under SFX Entertainment's new employment contracts.
(c) Reflects the elimination of transactions between Network Magazine and
SJS.
IV. BGP ACQUISITION
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 IN
(000'S)
-------------------------------------------
PRO FORMA BGP
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- -------------
<S> <C> <C> <C>
Revenue ......................... $66,094 $-- $66,094
Operating expenses............... 59,312 -- 59,312
Depreciation & amortization .... 729 -- 729
------------- ------------- -------------
Operating income................. 6,053 -- 6,053
Interest expense................. 837 -- 837
Other income..................... (221) -- (221)
------------- ------------- -------------
Income before income tax
expense......................... 5,437 -- 5,437
Income tax expense............... 2,237 -- 2,237
------------- ------------- -------------
Net income....................... $ 3,200 $-- 3,200
============= ============= =============
</TABLE>
- ------------
(a) Reflects BGP's audited actual operating results for the nine months
ended October 31, 1997.
F-28
<PAGE>
V. CONCERT/SOUTHERN ACQUISITION
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 IN
(000'S)
-------------------------------------------
CONCERT/
PRO FORMA SOUTHERN
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- -------------
<S> <C> <C> <C>
Revenue.......................... $13,093 $ -- $13,093
Operating expenses............... 11,097 (565)(a) 10,532
Depreciation & amortization ..... 57 -- 57
------------- ------------- -------------
Operating income................. 1,939 565 2,504
Interest expense................. -- -- --
Other income..................... (57) -- (57)
Equity loss (income) from
investments..................... 11 (45)(b) (34)
------------- ------------- -------------
Income before income tax
expense......................... 1,985 610 2,595
Income tax expense............... -- -- --
------------- ------------- -------------
Net income....................... $ 1,985 $ 610 $ 2,595
============= ============= =============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) Reflects the elimination of certain officer's bonuses and wages which
will not be paid under SFX Entertainment's new employment contracts.
(b) Reflects the elimination of equity income of a non-entertainment
affiliated entity which is not being acquired by SFX Entertainment.
VI. PRO FORMA ADJUSTMENTS
(a) Reflects the increase in depreciation and amortization resulting from
the preliminary purchase accounting treatment of the Pending
Acquisitions. SFX Entertainment amortizes goodwill over 15 years.
(b) To record incremental corporate overhead charges associated with
incremental headquarters personnel and general and administrative
expenses that management estimates will be necessary following
completion of the Pending Acquisitions.
(c) To reclassify Delsener/Slater's equity income in the PNC Bank Arts
Center venue following the acquisition of Pavilion Partners which owns
the other 50% equity interest in the venue.
(d) Represents an adjustment to the provision for income taxes to reflect
the appropriate pro forma tax provision.
VII. PRO FORMA FOR THE FINANCING
(a) Represents the elimination of existing interest expense for the Pending
Acquisitions.
(b) Reflects interest expense associated with the issuance of $275,000,000
of New Notes, the New Credit Agreement, other debt and deferred
compensation costs for the Pending Acquisitions. There can be no
assurance that SFX Entertainment will be able to obtain such financing
on acceptable terms, or at all.
F-29
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
-------------------------------------------------------------------------
CONCERT/
PACE CONTEMPORARY NETWORK BGP SOUTHERN
ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITION
I II III IV V
------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue................... $246,595 $71,545 $24,556 $92,331 $12,601
Operating expenses........ 237,999 64,274 18,403 85,960 10,481
Depreciation &
amortization............. 5,336 1,334 268 1,474 69
Corporate expenses........ -- -- -- -- --
------------- -------------- ------------- ------------- -------------
Operating income (loss) .. 3,260 5,937 5,885 4,897 2,051
Interest expense.......... 5,456 383 294 1,258 --
Other (income) expenses .. (368) (770) (42) (584) (47)
-- -- (1,811)
Equity (income) loss from
investments.............. (2,945) -- -- -- 38
------------- -------------- ------------- ------------- -------------
Income (loss) before
income tax expense....... 1,117 6,324 5,633 4,223 2,060
Income tax expense
(benefit)................ (714) 35 303 1,272 --
------------- -------------- ------------- ------------- -------------
Net income (loss)......... $ 1,831 $ 6,289 $ 5,330 $ 2,951 $ 2,060
============= ============== ============= ============= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
-----------------------------------------------
PRO FORMA
PRO FORMA FOR THE PENDING
ADJUSTMENTS ACQUISITIONS
PRO FORMA FOR THE AND THE
ADJUSTMENTS FINANCING FINANCING--
VI VII SFX ENTERTAINMENT
------------- ------------- -----------------
<S> <C> <C> <C>
Revenue................... $ (312)(d) $ -- $447,316
Operating expenses........ -- -- 417,117
Depreciation &
amortization............. 22,481 (a) -- 30,962
Corporate expenses........ 2,000 (b) -- 2,000
------------- ------------- -----------------
Operating income (loss) .. (24,793) -- (2,763)
Interest expense.......... (7,391)(a)
Other (income) expenses .. -- 41,610 (b) 41,610
Equity (income) loss from
investments.............. (312)(d) -- (3,219)
------------- ------------- -----------------
Income (loss) before
income tax expense....... (24,481) (34,219) (39,343)
Income tax expense
(benefit)................ 809 (c) -- 1,705
------------- ------------- -----------------
Net income (loss)......... $(25,290) $(34,219) $(41,048)
============= ============= =================
</TABLE>
F-30
<PAGE>
I. PACE ACQUISITION
Reflects the PACE Acquisition and the separate acquisitions of two
partners' interest in a partnership that owns certain amphitheaters operated
by PACE. The PACE Acquisition is not conditioned on the consummation of the
Pavilion Acquisition.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 IN (000'S)
--------------------------------------------------------------------------------------
PACE PAVILION PAVILION PAVILION PRO FORMA PACE
AS REPORTED (a) 1 MONTH (b) 11 MONTHS (b) AS REPORTED ADJUSTMENTS ACQUISITION
--------------- ----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue..................... $156,325 $5,177 $84,093 $89,270 $ 1,000 (c) $246,595
Operating expenses.......... 155,533 5,199 77,267 82,466 -- 237,999
Depreciation &
amortization............... 1,737 253 3,346 3,599 -- 5,336
Other expenses.............. 3,675 -- -- -- (3,675)(d) --
--------------- ----------- ------------- ------------- ------------- -------------
Operating (loss) income .... (4,620) (275) 3,480 3,205 4,675 3,260
Interest expense............ 1,206 395 3,855 4,250 -- 5,456
Other income................ (59) (123) (83) (206) (103) (368)
Equity (income) loss from
investments................ (3,048) -- -- -- 103 (e) (2,945)
--------------- ----------- ------------- ------------- ------------- -------------
Income (loss) before income
tax expense................ (2,719) (547) (292) (839) 4,675 1,117
Income tax (benefit)........ (714) -- -- -- -- (714)
--------------- ----------- ------------- ------------- ------------- -------------
Net (loss) income........... $ (2,005) $ (547) $ (292) $ (839) $ 4,675 $ 1,831
=============== =========== ============= ============= ============= =============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) Reflects PACE's audited operating results for fiscal year ended
September 30, 1996.
(b) Reflects Pavilion Partners' unaudited operating results for the one
month ended October 31, 1995 and the audited operating results for
the eleven months ended September 30, 1996. During 1996, Pavilion
Partners changed its fiscal year-end from October 31 to September 30.
PACE currently owns 33 1/3% in Pavilion Partners and has agreed to
acquire the remaining 66 2/3% interest from the two partners
Blockbuster and Sony.
(c) To reflect non-cash revenue resulting from SFX Entertainment granting
Blockbuster naming rights to three venues for two years for no future
consideration as part of its agreement to acquire Blockbuster's
indirect 33 1/3% interest in Pavilion Partners.
(d) Reflects the elimination of non-recurring restricted stock
compensation to PACE executives who will receive incentive stock
options pursuant to their new employment agreements with SFX
Entertainment.
(e) To eliminate PACE's income from its 33 1/3% equity investment in
Pavilion Partners. PACE currently owns 33 1/3% in Pavilion Partners
and has agreed to acquire the remaining 66 2/3% interest in Pavilion
Partners pursuant to the Blockbuster Acquisition and Sony
Acquisition.
F-31
<PAGE>
II. CONTEMPORARY ACQUISITION
Reflects the Contemporary Acquisition and the separate acquisition of the
remaining 50% interest in Riverport Amphitheater Partners, a partnership that
owns an amphitheater in St. Louis, MO that is operated by Contemporary. The
Contemporary Acquisition is not conditioned upon the consummation of the
acquisition of such 50% interest.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 IN (000'S)
-----------------------------------------------------------
CONTEMPORARY RIVERPORT PRO FORMA CONTEMPORARY
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue................................. $59,852 $11,693 $ -- $71,545
Operating expenses...................... 58,189 9,722 (3,637)(a) 64,274
Depreciation & amortization............. 567 767 -- 1,334
-------------- ------------- ------------- --------------
Operating income........................ 1,096 1,204 3,637 5,937
Interest expense........................ 213 170 -- 383
Other income............................ (159) (611) -- (770)
Equity (income) loss from investments .. (822) -- 822 (b) --
-------------- ------------- ------------- --------------
Income (loss) before income tax
expense................................ 1,864 1,645 2,815 6,324
Income tax expense...................... 35 -- 35
-------------- ------------- -------------
Net income.............................. $ 1,829 $ 1,645 $ 2,815 $ 6,289
============== ============= ============= ==============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) Reflects the elimination of certain officer's bonuses and wages not
expected to be paid under SFX Entertainment new employment contracts.
(b) Reflects the elimination of Contemporary's equity income in Riverport
Amphitheater Partners. Contemporary had entered into an agreement to
acquire its partners' 50% interest in this venture. If Contemporary
is unable to complete this acquisition of the remaining 50% interest
in Riverport Amphitheater Partners, the cash consideration paid by
SFX Entertainment for Contemporary will be reduced by $10,500,000.
The acquisition agreement provides that in the event the Contemporary
Acquisition is consummated prior to the consummation of the Spin-Off,
1,402,851 shares of preferred stock of SFX Entertainment will be issued to
the Sellers. Such preferred stock is to be converted into an equal number of
shares of Class A Common Stock of SFX Entertainment upon consummation of the
Spin-Off or, if the Spin-Off shall not have occurred prior to July 1, 1998,
such preferred stock is to be redeemed at their fair market value, but in no
event less than $18,700,000.
F-32
<PAGE>
III. NETWORK ACQUISITIONS
The Network Acquisitions consist of the separate acquisitions of Network
Magazine and SJS. These acquisitions are each conditioned on the concurrent
closing of the other.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 IN (000'S)
------------------------------------------------------------
THE NETWORK
MAGAZINE SJS PRO FORMA NETWORK
AS REPORTED (a) AS REPORTED ADJUSTMENTS ACQUISITIONS
--------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue.......................... $14,767 $11,375 $(1,586)(c) $24,556
Operating expenses............... 14,275 11,259 (5,545)(b) 18,403
(1,586)(c)
Depreciation & amortization ..... 184 84 -- 268
--------------- ------------- ------------- --------------
Operating income................. 308 32 5,545 5,885
Interest expense................. 291 3 -- 294
Other income..................... (42) -- -- (42)
--------------- ------------- ------------- --------------
Income before income tax
expense......................... 59 29 5,545 5,633
Income tax expense............... 212 91 -- 303
--------------- ------------- ------------- --------------
Net (loss) income................ $ (153) $ (62) $ 5,545 $ 5,330
=============== ============= ============= ==============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) Reflects Network Magazine's audited operating results for fiscal year
ended September 30, 1996. SFX Entertainment's purchase agreement for
Network Magazine and SJS provides that the purchase price will be
increased by $4,000,000 if total 1998 EBITDA as defined equals
$9,000,000; by an additional $4 for each $1 increase in EBITDA
between $9,000,000 and $10,000,000 and by an additional $6 for each
$1 increase in EBITDA between $10,000,000 and $11,000,000 (maximum of
$14,000,000 additional consideration). The additional consideration
is payable is stock or cash at SFX Entertainment's option. The pro
forma statement of operations assumes that no additional
consideration is paid.
(b) Reflects the elimination of certain officer's bonuses and wages which
will not be paid under SFX Entertainment's new employment contracts.
(c) Reflects the elimination of transactions between Network Magazine and
SJS.
F-33
<PAGE>
IV. BGP ACQUISITION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 IN (000'S)
---------------------------------------------
PRO FORMA BGP
AS REPORTED (a) ADJUSTMENTS ACQUISITION
--------------- ------------- -------------
<S> <C> <C> <C>
Revenue.......................... $92,331 $ -- $92,331
Operating expenses............... 87,520 (1,560)(b) 85,960
Depreciation & amortization ..... 1,474 -- 1,474
--------------- ------------- -------------
Operating income................. 3,337 1,560 4,897
Interest expense................. 1,258 -- 1,258
Other Expense.................... (584) -- (584)
--------------- ------------- -------------
Income before income tax
expense......................... 2,663 1,560 4,223
Income tax expense............... 1,272 -- 1,272
--------------- ------------- -------------
Net income....................... $ 1,391 $ 1,560 $ 2,951
=============== ============= =============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) Reflects BGP's audited operating results for the fiscal year ended
January 31, 1997.
(b) Reflects the elimination of certain officer's bonuses, wages,
partnership life insurance, profit sharing and other eliminating
adjustments which will not be paid under SFX Entertainment's new
contracts.
V. CONCERT/SOUTHERN ACQUISITION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 IN (000'S)
-------------------------------------------
CONCERT/
PRO FORMA SOUTHERN
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- -------------
<S> <C> <C> <C>
Revenue.......................... $12,601 $ -- $12,601
Operating expenses............... 10,873 (392)(a) 10,481
Depreciation & amortization ..... 69 -- 69
------------- ------------- -------------
Operating income................. 1,659 392 2,051
Investment income................ (47) -- (47)
Equity loss from investments .... 27 11 (b) 38
------------- ------------- -------------
Income before income tax
expense......................... 1,679 381 2,060
Income tax expense............... -- -- --
------------- ------------- -------------
Net income....................... $ 1,679 $ 381 $ 2,060
============= ============= =============
</TABLE>
- ------------
Pro Forma Adjustments:
(a) Reflects the elimination of certain officer's bonuses and wages which
will not be paid under the SFX Entertainment new employment
contracts.
(b) Reflects the elimination of equity loss of a non-entertainment
affiliated entity which is not being acquired by SFX Entertainment.
F-34
<PAGE>
VI. PRO FORMA ADJUSTMENTS:
(a) Reflects the increase in depreciation and amortization resulting from
the preliminary purchase accounting treatment of the Pending
Acquisitions. SFX Entertainment amortizes goodwill over 15 years.
(b) To record incremental corporate overhead charges associated with
incremental headquarters personnel that management estimates will be
necessary following completion of the Pending Acquisitions.
(c) Reflects estimated state and local income taxes. On a consolidated
pro forma basis, SFX Entertainment has a net operating loss for the
year ending December 31, 1996 of approximately $16 million for which
no federal tax benefit has been provided.
(d) To reclassify the Delsener/Slater's equity income in the PNC Bank
Arts Center venue following the acquisition of Pavilion Partners
which owns the other 50% equity interest in the venue.
VII. PRO FORMA FOR THE FINANCINGS:
(a) Represents the elimination of existing interest expense for the
Pending Acquisitions.
(b) Reflects interest expense associated with the $275,000,000 in
privately-placed debt, the senior credit facility, other debt and
deferred compensation costs for the Pending Acquisitions. There can
be no assurance that SFX Entertainment will be able to obtain such
financing on acceptable terms, or at all.
(D) SFX ENTERTAINMENT PRO FORMA FOR THE PENDING ACQUISITIONS
o Reflects pro forma operating results of SFX Entertainment had all the
Pending Acquisitions--Entertainment and the Delsener/Slater, Meadows,
and Sunshine Acquisitions been consummated at January 1, 1996.
(E) PRO FORMA FOR THE SPIN-OFF--SFX ENTERTAINMENT
o Reflects pro forma operating results of SFX after the Spin-Off of SFX
Entertainment.
F-35
<PAGE>
GLOSSARY TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
"Albany Acquisition" means the acquisition by SFX, consummated in January
1997, of substantially all of the assets used in the operation of WYSR-FM,
operating in Albany, New York.
"BGP Acquisition" means the pending acquisition by SFX Entertainment of BG
Presents, Inc., a concert promotion company operating in San Francisco,
California.
"Capstar Disposition" means the pending sale by SFX of the Jackson
stations and the Biloxi station.
"CBS Exchange" means the exchange by SFX, consummated in March 1997 of
radio station WHFS-FM, operating in Washington, D.C./Baltimore, Maryland, for
KTXQ-FM and KRRW-FM, both operating in Dallas, Texas, and owned by CBS, Inc.
As such, historical operating results for WHFS-FM, KTXQ-FM and KRRW-FM have
been added to SFX, as reported amounts for the twelve months ending December
31, 1996 and from January 1, 1997 through March 31, 1997.
"Chancellor Exchange" means the pending exchange of SFX's radio stations
WBAB-FM, WHFM-FM, WBLI-FM and WGBB-AM, each operating on Long Island, New
York, for WFYV-FM and WAPE-FM, both operating in Jacksonville, Florida, and a
payment to SFX of $11.0 million in cash.
"Charlotte Acquisition" means the acquisition by SFX, consummated in
February 1996, of WTDR-FM and WLYT-FM, both operating in Charlotte, North
Carolina. As such, historical operating results for WTDR-FM and WLYT-FM have
been added to SFX, as reported amounts from January 1, 1996 through February
1, 1996.
"Charlotte Exchange" means the exchange by SFX, consummated in August 1997
of WDSY-FM in Pittsburgh, Pennsylvania and $20 million in cash for WRFX-FM in
Charlotte, North Carolina. As such, historical operating results for WRFX-FM
have been added to SFX, as reported amounts for the year ending December 31,
1996 and from January 1, 1997 through August 1, 1997.
"Completed Transactions" means, collectively, the MMR Merger, the
Greensboro Acquisition, the Liberty Acquisition, the Prism Acquisition, the
Jackson Acquisitions, the Greenville Acquisition, the CBS Exchange, the
Louisville Acquisition, the Raleigh-Greensboro Acquisitions, the Houston
Exchange, the Albany Acquisition, the Delsener/Slater Acquisition, the
Meadows Acquisition, the Secret Communications Acquisition, the Sunshine
Acquisition, the Richmond Acquisition, the Hearst Acquisition, the
acquisitions of WTDR-FM and WLYT-FM, both operating in Charlotte, North
Carolina, KTCK-FM, operating in Dallas, Texas, and KYXY-FM, operating in San
Diego, California, the Little Rock Disposition, the Washington Dispositions,
the Louisville Dispositions, the Dallas Disposition.
"Concert/Southern Acquisition" means the pending acquisition by SFX
Entertainment of Concerts/ Southern, a concert promotion company, operating
in Atlanta, Georgia.
"Contemporary Acquisition" means the pending acquisition by SFX
Entertainment of the Contemporary Group, a concert promotion company,
operating in St. Louis, Missouri, and certain affiliated entities.
"Credit Agreement" means the definitive credit agreement SFX entered into
on June 23, 1997, which increases amounts available under its senior credit
facility to $400 million.
"Dallas Disposition" means the sale by SFX, consummated in October 1996,
of radio station KTCK-AM, operating in Dallas, Texas. As such, historical
operating results for KTCK-AM have been added to SFX, as reported amounts
from January 1, 1996 through October 17, 1996.
"Delsener/Slater Acquisition" means the acquisition by SFX, consummated in
January 1997, of Delsener/Slater Enterprises, Ltd., a concert promotion
company, and certain affiliated entities (collectively, "Delsener/Slater").
As such, historical the operating results for Delsener/Slater have been added
to SFX, as reported amounts for the 12 months ending December 31, 1996.
"Greensboro Acquisition" means the acquisition by SFX, consummated in
December 1996, of substantially all of the assets of WHSL-FM, operating in
Greensboro, North Carolina. As such, historical the operating results for
WHSL-FM have been added to SFX, as reported amounts from January 1, 1996
through December 6, 1996.
F-36
<PAGE>
"Greenville Acquisition" means the acquisition by SFX, consummated in
June 1996, of substantially all of the assets of WROQ-FM, operating in
Greenville-Spartanburg, South Carolina. As such, historical the operating
results for WROQ-FM have been added to SFX, as reported amounts from January
1, 1996 through June 25, 1996.
"Hartford Acquisition" means the acquisition by SFX, consummated in
February 1997, of WWYZ-FM, which operates in Hartford, Connecticut. As such,
historical the operating results for WWYZ-FM have been added to SFX, as
reported amounts for the year ending December 31, 1996 and from January 1,
1997 through February 28, 1997.
"Hearst Acquisition" means the acquisition by SFX, consummated in August
1997, of two radio stations operating in Pittsburgh, Pennsylvania and two
stations in Milwaukee, Wisconsin for cash. As such, historical operating
results for the Pittsburgh and Milwaukee Stations have been added to SFX, as
reported amounts for the year ending December 31, 1996 and from January 1,
1997 through August 1, 1997.
"Houston Exchange" means the exchange by SFX, consummated in December
1996, of SFX's radio station KRLD-AM, operating in Dallas, Texas, and SFX's
Texas State Networks for radio station KKRW-FM, operating in Houston, Texas.
As such, historical the operating results for KRLD-FM and KKRW-FM have been
added to SFX, as reported amounts from January 1, 1996 through December 1,
1996.
"Jackson Acquisitions" means, collectively, the acquisitions by SFX,
consummated in the third quarter of 1996, of substantially all of the assets
of WJDX-FM, WSTZ-FM and WZRX-AM, each operating in Jackson, Mississippi. As
such, historical the operating results for WJDX-FM have been added to SFX, as
reported amounts from January 1, 1996 through July 19, 1996, while the
historical operating results for WSTZ-FM and WZRX-AM have been added to SFX,
as reported amounts from January 1, 1996 through August 29, 1996.
"Liberty Acquisition" means the acquisition by SFX, consummated in July
1996, of Liberty Broadcasting Incorporated, which owned and operated or
provided programming to or sold advertising on behalf of 14 FM and six AM
radio stations located in six markets: Washington, DC/Baltimore, Maryland;
Nassau-Suffolk, New York; Providence, Rhode Island; Hartford, Connecticut;
Albany, New York; and Richmond, Virginia. As such, historical the operating
results for the 14 FM and six AM stations have been added to SFX, as reported
amounts from January 1, 1996 through July 1, 1996.
"Louisville Acquisition" means the acquisition by SFX, consummated in
September 1996, from Prism of substantially all of the assets of WVEZ-FM,
WTFX-FM and WWKY-AM, each operating in Louisville, Kentucky. As such,
historical the operating results for the three stations have been added to
SFX, as reported amounts from January 1, 1996 through September 17, 1996.
"Louisville Dispositions" means the sale by SFX, consummated in October
1996, of the three stations acquired in the Louisville Acquisition. As such,
historical operating results for the three stations have been added to SFX,
as reported amounts from January 1, 1996 through October 1, 1996.
"Meadows Acquisition" means the acquisition by SFX, consummated in March
1997, of the Meadows Music Theater in Hartford, Connecticut. As such,
historical operating results for Meadows Music Theater have been added to
SFX, as reported amounts for the year ending December 31, 1996 and from
January 1, 1997 through March 19, 1997.
"MMR" means Multi-Market Radio, Inc.
"MMR Hartford Acquisition" means MMR's acquisition by SFX, consummated in
September 1996, of WKSS-FM, operating in Hartford, Connecticut. As such,
historical operating results for WKSS-FM have been added to SFX, as reported
amounts from January 1, 1996 through September 4, 1996.
"MMR Merger" means the merger, consummated in November 1996, of a
wholly-owned subsidiary of SFX with and into MMR, as a result of which MMR
became a wholly-owned subsidiary of SFX. As such, historical operating
results for MMR have been added to SFX, as reported amounts from January 1,
1996 through November 22, 1996.
F-37
<PAGE>
"Myrtle Beach Acquisition" means MMR's acquisition of WMYB-FM, operating
in Myrtle Beach, South Carolina.
"Nashville Acquisition" means the pending acquisition by SFX of WJZC-FM,
WLAC-FM and WLAC-AM, each operating in Nashville, Tennessee, from Sinclair
Broadcasting Group.
"Network Acquisition" means the pending acquisition by SFX Entertainment
of the Network Magazine Group and SJS Entertainment, a creator, producer and
distributor of live concert programming and network radio special events.
"PACE Acquisition" means the pending acquisition by SFX Entertainment of
PACE Entertainment Corporation (including the purchase of the Pavilion
Partners), a concert promotion company operating in Houston, Texas.
"Pending Acquisition and Disposition--Broadcasting" means, collectively,
the Capstar Disposition and the Nashville Acquisition.
"Pending Acquisitions--Entertainment" means, collectively, the BGP
Acquisition, the Concert/ Southern Acquisition, the Contemporary Acquisition,
the Network Acquisitions and the PACE Acquisition.
"Pending Transactions" means the Pending Acquisition and
Disposition--Broadcasting and the Pending Acquisitions--Entertainment.
"Prism Acquisition" means the acquisition by SFX, consummated in the third
quarter of 1996, of substantially all of the assets of Prism used in the
operation of ten FM and six AM radio stations located in five markets:
Louisville, Kentucky; Jacksonville, Florida; Raleigh, North Carolina; Tucson,
Arizona; and Wichita, Kansas. As such, historical operating results for the
Prism stations have been added to SFX, as reported amounts from January 1,
1996 through July 8, 1996.
"Raleigh-Greensboro Acquisitions" means the acquisition by SFX,
consummated in June 1996, of substantially all of the assets of WMFR-AM,
WMAG-FM and WTCK-AM, each operating in Greensboro, North Carolina, and
WTRG-FM and WRDU-FM, both operating in Raleigh, North Carolina. As such,
historical operating results for the Raleigh-Greensboro stations have been
added to SFX, as reported amounts from January 1, 1996 through June 28, 1996.
"Richmond Acquisition" means the acquisition by SFX, consummated in July
1997, of ABS Communications L.L.C., which owns or will acquire WVGO-FM,
WLEE-FM, WKHK-FM and WBZU-FM, each operating in Richmond, Virginia, net of
the pending disposition of WVGO for $4.5 million. As such, historical
operating results for the four stations have been added to SFX, as reported
amounts for the year ending December 31, 1996 and from January 1, 1997
through July 2, 1997.
"Secret Communications Acquisition" means the acquisition by SFX of
WFBQ-FM, WRZX-FM and WNDE-AM, each operating in Indianapolis, Indiana,
consummated in April 1997, and WDVE-FM, WXDX-FM, and WJJJ-FM, each operating
in Pittsburgh, Pennsylvania, consummated in June 1997. As such, historical
operating results for the Indianapolis stations have been added to SFX, as
reported amounts for the year ending December 31, 1996 and from January 1,
1997 through April 1, 1997, while the operating results for the Pittsburgh
stations have been added to SFX, as reported amounts are included for the
year ending December 31, 1996 and from January 1, 1997 through June 1, 1997.
"Sunshine Acquisition" means the acquisition by SFX, consummated in June
1997, of Sunshine Promotions, Inc. a concert promotion company, and certain
affiliated entities (collectively "Sunshine"). As such, historical operating
results for Sunshine Promotions have been added to SFX, as reported amounts
for the year ending December 31, 1996 and from January 1, 1997 through June
1, 1997.
"Texas Coast Acquisition" means the acquisition by SFX, consummated in
February 1997, of radio stations KQUE-FM and KNUZ-AM in Houston, Texas. As
such, historical operating results for KQUE-FM and KNUZ-AM have been added to
SFX, as reported amounts for the year ending December 31, 1996 and from
January 1, 1997 through February 28, 1997.
F-38
<PAGE>
"Washington Dispositions" means the sale by SFX, consummated in July
1996, of three of the stations acquired from Liberty Broadcasting, each
operating in the Washington, D.C./Baltimore, Maryland market. As such,
historical the operating results for the three stations have been added to
SFX, as reported amounts from January 1, 1996 through July 1, 1996.
F-39
<PAGE>
ANNEX A
AMENDMENTS TO SERIES E CERTIFICATE
The following sets forth certain provisions of the Series E Certificate
substantially as it would read if the Proposed Amendments were adopted and
became operative. Language which is double-underscored will be added to the
Series E Certificate; deletions are indicated by a caret (caret). The following
descriptions are qualified in their entirety by reference to the Series E
Certificate and this Consent Solicitation Statement. Capitalized terms used
below without definition have the same meanings as set forth in the Series E
Certificate.
1. Certain Definitions
Acquisition Agreements. The term "Acquisition Agreements" shall mean the
acquisition agreements relating to the Pending Acquisitions (as defined in
the Consent Solicitation of the Corporation dated January 7, 1998) as they
may be amended from time to time and all transactions and agreements
specifically contemplated thereby or by instruments referred to therein.
Class A Common Stock. The term "Class A Common Stock" shall mean the
Corporation's Class A Common Stock, par value $.01 per share.
Class B Common Stock. The term "Class B Common Stock" shall mean the
Corporation's Class B Common Stock, par value $.01 per share.
Consolidated Cash Flow. The term "Consolidated Cash Flow" shall mean, with
respect to any Person for any period, the Consolidated Net Income of such
Person for such period plus (i) an amount equal to any extraordinary loss
plus any net loss realized in connection with an Asset Sale by such Person or
any of its Subsidiaries during such period (to the extent such losses were
deducted in computing such Consolidated Net Income), plus (ii) provision for
taxes based on income or profits of such Person and its Subsidiaries for such
period, to the extent that such provision for taxes was included in computing
such Consolidated Net Income, plus (iii) Consolidated Interest Expense of
such Person for such period, to the extent any such Consolidated Interest
Expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were
paid in a prior period) and other non-cash charges (excluding any such
non-cash charge to the extent that it represents an accrual of or reserve for
cash charges in any future period) of such Person and its Subsidiaries for
such period to the extent that such depreciation, amortization and other
non-cash charges were deducted in computing such Consolidated Net Income,
plus (v) the Specified Charges (as defined in the Corporation's Consent
Solicitation Statement relating to the Series E Preferred Stock dated January
7, 1998), plus (vi) unusual and nonrecurring charges paid or accrued in 1997
or 1998 (including, but not limited to, legal, accounting, investment
banking, severance, termination, non-compete and consent fees) relating to
the Merger Agreement, the Spin-Off and transactions related thereto less
(vii) all non-cash items increasing Consolidated Net Income for such period
(excluding any such non-cash income to the extent it represents an accrual of
cash income in any future period), in each case, on a consolidated basis and
determined in accordance with GAAP. For elimination of doubt, the term
"extraordinary loss" as used in this definition shall be deemed to include
all nonrecurring and unusual charges that management, in its professional
judgment, believes are not indicative of continuing operating expenses. Any
Default, Event of Default or Voting Rights Triggering Event that may have
occurred under this Certificate of Designations is hereby waived if it arose
by reason of the term "extraordinary loss" failing to expressly include
Specified Charges.
Entertainment Companies. The term "Entertainment Companies" shall mean SFX
Entertainment and any and all of its direct and indirect Subsidiaries.
Meadows Repurchase. The term "Meadows Repurchase" shall mean the
redemption by the Corporation of up to 250,838 shares of Class A Common Stock
for $33.00 per share, pursuant to the Agreement of Merger, dated February 12,
1997, by and among the Corporation, NOC-Acquisition Corp., CAPCO Acquisition
Corp., QN Acquisition Corp., Nederlander of Connecticut, Inc., Connecticut
Ampitheater Development Corporation, QN Corp., Connecticut Performing Arts,
Inc. and Connecticut Performing Arts Partners and the Stockholders of
Nederlander of Connecticut, Inc., Connecticut Ampitheater Development
Corporation and QN Corp. listed on the signature page thereto.
A-1
<PAGE>
Merger Agreement. The term "Merger Agreement" shall mean the Agreement
and Plan of Merger, dated as of August 24, 1997, as it may be amended from
time to time, among the Corporation, SBI Holding Corporation and SBI Radio
Acquisition Corporation and all transactions and agreements specifically
contemplated thereby or by instruments referred to therein.
SBI Merger. The term "SBI Merger" shall mean a merger of SBI Radio
Acquisition Corporation into the Corporation pursuant to the Merger
Agreement.
SFX Entertainment. The term "SFX Entertainment" shall mean SFX
Entertainment, Inc., a subsidiary of the Corporation, newly formed in
Delaware, to which the Corporation will contribute cash and all of the
capital stock of SFX Concerts, Inc. (formerly known as Delsener/Slater
Enterprises, Inc.,) that the Corporation directly or indirectly owns.
Spin-Off. The term "Spin-Off" shall mean the distribution of SFX
Entertainment common stock pro rata to the holders of Class A Common Stock
and the Class B Common Stock (and the transfer to an escrow account for
delivery to the holders of certain warrants to receive Class A Common Stock)
or other disposition pursuant to, or as permitted by, the Merger Agreement of
all of the capital stock and assets of the Entertainment Companies.
Spin-Off Transactions. The term "Spin-Off Transactions" shall mean the
Spin-Off and related transactions described or referred to in the Consent
Solicitation Statement of the Corporation dated January 7, 1998 relating to
this Certificate of Designations.
Subsidiary. The term "Subsidiary" shall mean, with respect to any person,
(i) any corporation, association or other business entity of which more than
50% of the total voting power of shares of Voting Stock thereof is at the
time owned or controlled, directly or indirectly, by such person or one or
more of the other Subsidiaries of that person (or a combination thereof) and
(ii) any partnership (a) the sole general partner or the managing general
partner of which is such person or a Subsidiary of such person or (b) the
only general partners of which are such person or of one or more Subsidiaries
of such person (or any combination thereof); however, with respect to the
Corporation, "Subsidiary" does not include the Entertainment Companies.
8. Certain Covenants
(a) Restricted Payments. The Corporation shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the
Corporation's Parity Securities or Junior Securities (including, without
limitation, any payment in connection with any merger or consolidation
involving the Corporation) or to the direct or indirect holders of the
Corporation's Parity Securities or Junior Securities in their capacity as
such (other than dividends or distributions payable in Capital Stock (other
than Disqualified Stock) of the Corporation); (ii) purchase, redeem or
otherwise acquire or retire for value any Parity Securities or Junior
Securities of the Corporation; (iii) make any payment on, or purchase,
redeem, defease or otherwise acquire or retire for value any Junior
Securities, except payments of the Liquidation Preference thereof at final
maturity; or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after
giving effect to such Restricted Payment:
(a) no Voting Rights Triggering Event shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Corporation would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $l.00 of additional Indebtedness (other
than Permitted Debt) pursuant to the Debt to Cash Flow Ratio test set
forth below under Section 8(b) hereof; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made after the Initial Issue Date
(other than Restricted Payments permitted by clauses (2), (5), (6) (caret),
(10), (13) or (14) of the following paragraph) shall not exceed, at the
date
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of determination, the sum of (1) an amount equal to the Corporation's
Consolidated Cash Flow from the Initial Issue Date to the end of the
Corporation's most recently ended full fiscal quarter for which internal
financial statements are available, taken as a single accounting period,
less the product of 1.4 times the Corporation's Consolidated Interest
Expense from the Initial Issue Date to the end of the Corporation's most
recently ended full fiscal quarter for which internal financial statements
are available, taken as a single accounting period, plus (2) an amount
equal to the net cash proceeds received by the Corporation from the issue
or sale after the Initial Issue Date of Equity Interests of the
Corporation (other than (i) sales of Disqualified Stock and (ii) Equity
Interests sold to any of the Corporation's Subsidiaries) or of debt
securities or Disqualified Stock (other than the Series D Preferred Stock)
of the Corporation issued after the Initial Issue Date that have been
converted into such Equity Interests plus (3) to the extent that any
Restricted Investment that was made after the Initial Issue Date is sold
for cash or otherwise liquidated or repaid for cash, the lesser of (A) the
cash return of capital with respect to such Restricted Investment (less
the cost of disposition, if any) and (B) the initial amount of such
Restricted Investment.
If no Voting Rights Triggering Event shall have occurred and be continuing
as a result thereof, the foregoing provisions will not prohibit: (1) the
payment of any dividend within 60 days after the date of declaration thereof,
if at said date of declaration such payment would have complied with the
provisions of this Certificate of Designations; (2) the redemption,
repurchase, retirement or other acquisition of any Equity interests of the
Corporation in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Corporation) of other
Equity Interests of the Corporation (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for
any such redemption, repurchase, retirement or other acquisition shall be
excluded from clause (c)(2) of the preceding paragraph; (3) cash payments
made in respect of fractional shares of Capital Stock not to exceed $100,000
in the aggregate in any fiscal year; (4) the payment of dividends on the
shares of Series D Preferred Stock in accordance with the terms thereof as in
effect on the Initial Issue Date; (5) the issuance of Series D Exchange Notes
in exchange for the Series D Preferred Stock; provided that such issuance is
permitted by Section 8(b) hereof; (6) the issuance of Exchange Debentures in
exchange for the Series E Preferred Stock; provided that such issuance is
permitted by Section 8(b) hereof; (7) in the event that the Corporation
elects to issue the Series D Exchange Notes in exchange for the Series D
Preferred Stock, cash payments made in lieu of the issuance of Series D
Exchange Notes having a face amount less than $50 and any cash payments
representing accrued and unpaid dividends in respect thereof, not to exceed
$100,000 in the aggregate in any fiscal year; (8) in the event that the
Corporation elects to issue Exchange Debentures in exchange for Series E
Preferred Stock, cash payments made in lieu of the issuance of Exchange
Debentures having a face amount less than $l,000 and any cash payments
representing accrued and unpaid dividends in respect thereof, not to exceed
$100,000 in the aggregate in any fiscal year; (9) payments made by the
Corporation to SCMC for facilities maintenance and other services and
reimbursements pursuant to the Shared Facilities Agreement, as amended from
time to time, to the extent that such payments do not exceed the amount of
payments which would have been due if calculated in accordance with the terms
of the Shared Facilities Agreement as in effect on the Initial Issue Date;
(10) payments by the Corporation pursuant to the Management Termination
Agreements in accordance with the terms thereof as in effect on the Initial
Issue Date; (11) the redemption by the Corporation of its Series C Preferred
Stock in accordance with the terms thereof as in effect on the Initial Issue
Date; (caret) (12) the redemption by the Corporation of its Series B Preferred
Stock in accordance with the terms thereof as in effect on the Initial Issue
Date; provided that payments made by the Corporation to redeem the Series B
Preferred Stock shall not exceed $1.0 million in any fiscal year or $2.0
million in the aggregate since the Initial Issue Date; (13) the Spin-Off; and
(14) the Meadows Repurchase.
The amount of all Restricted Payments (other than cash) shall be the Fair
Market Value (evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Board of Directors) on the date
of the Restricted Payment of the asset(s) or securities proposed to be
transferred by the Corporation or such Subsidiary, as the case may be,
pursuant to the Restricted Payment. Not later than the date of making any
Restricted Payment, the Corporation shall deliver to the Board of Directors
an Officers' Certificate stating that such Restricted Payment is permitted
and setting forth the basis upon which the calculations required by this
covenant were computed, which calculations may be based upon the
Corporation's latest available financial statements.
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(b) Incurrence of Indebtedness and Issuance of Preferred Stock. The
Corporation shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect
to (collectively, "incur") any Indebtedness (including Acquired Debt) and
that the Corporation will not issue any Disqualified Stock and will not
permit any of its Subsidiaries to issue any shares of Preferred Stock;
provided, however, that (i) the Corporation may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock and (ii) (A) the
Subsidiaries may guarantee Senior Debt and (B) the Subsidiaries may issue
Preferred Stock other than Disqualified Stock if, in either case, the
Corporation's Debt to Cash Flow Ratio at the time of incurrence of such
Indebtedness or the issuance of such Disqualified Stock or the Guarantee of
such Senior Debt or the issuance of such Preferred Stock, as the case may be,
after giving pro forma effect to such incurrence or issuance or Guarantee as
of such date and to the use of proceeds therefrom as if the same had occurred
at the beginning of the most recently ended four full fiscal quarter period
of the Corporation for which internal financial statements are available,
would have been no greater than 7.0 to 1.
The foregoing provisions will not apply to the incurrence of any of the
following Indebtedness (collectively, "Permitted Debt"):
(i) the incurrence by the Corporation and its Subsidiaries of
Indebtedness pursuant to one or more Bank Facilities, so long as the
aggregate principal amount of all Indebtedness outstanding under all Bank
Facilities does not, at the time of incurrence, exceed an amount equal to
$225.0 million;
(ii) the incurrence by the Corporation and its Subsidiaries of the
Existing Indebtedness;
(iii) Indebtedness under the Exchange Debentures;
(iv) the issuance of Disqualified Stock by the Corporation that by its
items would not require or permit any payment of dividends or other
distributions that would violate the covenant Section 8(a) above;
(v) the incurrence by the Corporation or any of its Subsidiaries of
Indebtedness in connection with the acquisition of assets or a new
Subsidiary; provided that such Indebtedness was incurred by the prior
owner of such assets or such Subsidiary prior to such acquisition by the
Corporation or one of its Subsidiaries and was not incurred in connection
with, or in contemplation of, such acquisition by the Corporation or one
of its Subsidiaries; and provided further that, after giving pro forma
effect to such incurrence of Indebtedness as of such date and to the use
of proceeds therefrom as if the same had occurred at the beginning of the
most recently ended four full fiscal quarter period for which internal
financial statements are available, the Corporation's Debt to Cash Flow
Ratio would have been no greater than 7.0 to 1.
(vi) the incurrence by the Corporation or any of its Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by this Certificate of Designations to be
incurred;
(vii) the incurrence by the Corporation or any of its Subsidiaries of
intercompany Indebtedness between or among the Corporation and any of its
Subsidiaries; provided, however, that (i) if the Corporation is the
obligor on such Indebtedness, such Indebtedness is expressly subordinate
to the payment in full of all Obligations with respect to the Exchange
Debentures and (ii)(A) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person
other than the Corporation or a Subsidiary and (B) any sale or other
transfer of any such Indebtedness to a Person that is not either the
Corporation or a Subsidiary shall be deemed, in each case, to constitute
an incurrence of such Indebtedness by the Corporation or such Subsidiary,
as the case may be;
(viii) the incurrence by the Corporation or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of this Certificate of Designations to be
outstanding; and
A-4
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(ix) the incurrence by the Corporation and any of its Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding not to exceed $10.0 million.
(c) Merger, Consolidation or Sale of Assets. The Corporation shall not
consolidate or merge with or into (whether or not the Corporation is the
surviving corporation), or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its properties or assets in one or
more related transactions, to another corporation, Person or entity unless
(i) the Corporation is the surviving corporation or the entity or the Person
formed by or surviving any such consolidation or merger (if other than the
Corporation) or to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made is a corporation organized or
existing under the laws of the United States, any states, any state thereof
or the District of Columbia; (ii) the Series E Preferred Stock shall be
converted into or exchanged for and shall become shares of such successor,
transferee or resulting Person, having in respect of such successor,
transferee or resulting Person the same powers, preferences and relative
participating, optional or other special rights and the qualifications,
limitations or restrictions thereon, that the Series E Preferred Stock had
immediately prior to such transaction; (iii) immediately after such
transaction no Voting Rights Triggering Event exists; (iv) such transaction
will not result in the loss or suspension or material impairment of any
Material Broadcast License; and (v) except in the case of a merger of the
Corporation with or into a Wholly Owned Subsidiary of the Corporation, the
Corporation or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Corporation), or to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the
Corporation immediately preceding the transaction and (B) will, at the time
of such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt to Cash Flow Ratio test set forth in Section 8(b)
hereof.
(d) Transactions with Affiliates. The Corporation shall not, and shall not
permit any of its Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Corporation or the relevant Subsidiary than those that
would have been obtained in a comparable transaction by the Corporation or
such Subsidiary with an unrelated Person and (ii) the Corporation delivers to
the Holders (a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies
with clause (i) above and that such Affiliate Transaction has been approved
by a majority of the members of the Board of Directors that are disinterested
as to such Affiliate Transaction and (b) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $5.0 million, an opinion as to the fairness to the
Holders of such Affiliate Transaction from a financial point of view issued
by an accounting, appraisal or investment banking firm of national standing;
provided that (1) transactions between or among the Corporation and/or its
Wholly-Owned Subsidiaries, (2) the redemption or repurchase of the Existing
MMR Indebtedness, (3) transactions and agreements specifically contemplated
by the Termination and Assignment Agreement between the Corporation and SCMC
as in effect on the Initial Issue Date, (4) payments required by the terms of
the joint lease among the Corporation, SCMC and the landlord thereunder for
the Corporation's corporate headquarters located at 650 Madison Avenue, New
York, New York and any agreements directly related thereto, in each case, as
the same are in effect on the Initial Issue Date, (5) payments made by the
Corporation to SCMC for the facilities maintenance and other services and
reimbursements pursuant to the Shared Facilities Agreement, (6) payments and
other transactions by the Corporation pursuant to the Management Termination
Agreements, (caret)(7) any Restricted Payments that are permitted by Section
8(a) hereof and any Permitted Investments, (8) the transactions and agreements
specifically contemplated by the Merger Agreement, the Acquisition Agreements
or by instruments referred to in any such agreements and (9) any Spin-Off
Transaction, in each case, shall not be deemed to be Affiliate Transactions.
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(e) Payments for Consent. Neither the Corporation nor any of its
Subsidiaries shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of dividend or other distribution, fee or
otherwise, to any Holder of any Series E Preferred Stock for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of this Certificate of Designations or the Series E Preferred
Stock unless such consideration is offered to be paid and is paid to all
Holders of the Series E Preferred Stock that consent, waive or agree to amend
in the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.
(f) Reports.
(i) Whether or not required by the rules and regulations of the
Securities and Exchange Commission (the "Commission"), so long as any
shares of Series E Preferred Stock are outstanding, the Corporation shall
furnish to the Holders of Series E Preferred Stock (i) all quarterly and
annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Corporation were
required to file such Forms, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with
respect to the annual information only, a report thereon by the
Corporation's certified independent accountants and (ii) all current
reports that would be required to be filed with the Commission on Form 8-K
if the Corporation were required to file such reports. In addition,
whether or not required by the rules and regulations of the Commission,
the Corporation shall file a copy of all such information and reports with
the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities
analysts and prospective investors upon request.
(ii) The Corporation shall deliver to the Holders, within 90 days after
the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Corporation and its Subsidiaries during
the preceding fiscal year has been made under the supervision of the
signing officers with a view to determining whether the Corporations has
kept, observed, performed and fulfilled its obligations under this
Certificate of Designations and further stating, as to each such officer
signing such certificate, that to the best of his or her knowledge the
Corporation has kept, observed, performed and fulfilled each and every
covenant contained in this Certificate of Designations and is not in
default in the performance or observance of any of the terms, provisions
and conditions of this Certificate of Designations (or, if any such
default shall have occurred, describing all such defaults of which he or
she may have knowledge and what action the Corporation is taking or
proposes to take with respect thereto) and that to the best of his or her
knowledge no event has occurred and remains in existence by reason of
which payments on account of the Liquidation Preference of or dividends,
if any, on the Series E Preferred Stock is prohibited or if such event has
occurred, a description of the event and what action the Corporation is
taking or proposes to take with respect thereto.
(iii) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 8(f)(i) above shall be
accompanied by a written statement of the Corporation's independent public
accountants (who shall be a firm of established national reputation) that
in making the examination necessary for certification of such financial
statements, nothing has come to their attention that would lead them to
believe that the Corporation has violated any provisions of this
Certificate of Designations or, if any such violation has occurred,
specifying the nature and period of existence thereof, it being understood
that such accountants shall not be liable directly or indirectly to any
Person for any failure to obtain knowledge of any such violation.
(iv) The Corporation shall, so long as any of the shares of Series E
Preferred Stock are outstanding, deliver to the Holders, forthwith upon
any Executive Officer of the Corporation becoming aware of any default
under this Certificate of Designations, an Officers' Certificate
specifying such default and what action the Corporation is taking or
proposes to take with respect thereto.
(g) Conflicts with By-laws. If any provisions of the Corporation's By-laws
conflict in any way with this Certificate of Designations, the Corporation
shall, so long as any of the shares of Series E Preferred Stock are
outstanding, take all necessary actions to amend such By-laws and thereby
resolve the conflict.
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(h) Waiver Relating to Certain Transactions. Notwithstanding any other
provision of this Certificate of Designations to the contrary, the
Corporation and the Subsidiaries shall be permitted to consummate the
Spin-Off Transactions at any time prior to December 31, 1998. The Holders of
Series E Preferred Stock hereby waive the effect of any other provision of
this Certificate of Designations that might otherwise prohibit the Spin-Off
Transactions.
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The Depository for the Consent Solicitation is:
THE BANK OF NEW YORK
<TABLE>
<CAPTION>
<S> <C> <C>
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT COURIER
P. O. Box 11248 (For Eligible Institutions Only) 101 Barclay Street
New York, New York 10286-1248 (212) 815-6213 Receive & Deliver Window
For Information by Telephone: New York, New York 10286
(800) 507-9357
</TABLE>
TO AVOID BACKUP WITHHOLDING AND/OR UNNECESSARY DELAY, FOREIGN PERSONS MUST
DELIVER THE HOLDERS' LETTER OF CONSENT AND ANY OTHER REQUIRED DOCUMENTS TO
THE DEPOSITORY AS SET FORTH ABOVE.
Any questions or requests for assistance or for additional copies of this
Statement or related documents may be directed to the Information Agent at
one of its telephone numbers set forth below. A Holder may also contact such
Holders' broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Consent Solicitation.
The Information Agent for the Consent Solicitation is:
D.F. KING & CO., INC.
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Telephone:
(800) 848-3416
(212) 493-6925
Any questions regarding the terms of the Consent Solicitation may be
directed to the Solicitation Agent at its telephone number set forth below.
The Solicitation Agent for the Consent Solicitation is:
LEHMAN BROTHERS
Liability Management Group
3 World Financial Center
200 Vesey Street, 9th Floor
New York, New York 10285
Collect: (212) 528-7581
Toll Free: (800) 438-3242
Attn: David Parsons
<PAGE>
For further information:
Timothy J. Klahs
Director, Investor Relations
SFX Broadcasting, Inc.
(212) 407-9126
FOR IMMEDIATE RELEASE
SFX SOLICITS CONSENTS
NEW YORK, January 7, 1998 - SFX Broadcasting, Inc. (NASDAQ: SFXBA) announced
today the solicitation of consents from the holders of its $450,000,000 10 3/4%
Senior Subordinated Notes due 2006 and $225,000,000 12 5/8% Series E Cumulative
Exchangeable Preferred Stock due October 31, 2006. The record date has been set
as 5:00 P.M. New York City time on January 6, 1998.
SFX Broadcasting, Inc. had previously announced that it had entered into a
merger agreement with an affiliate of Hicks, Muse, Tate & Furst pursuant to
which the radio business of the company would be merged into an affiliate of
Hicks, Muse, Tate & Furst, with each SFX shareholder receiving cash
consideration of $75.00 per share subject to adjustment in certain instances.
Additionally, the merger agreement contemplates that SFX will spin-off all of
its assets related to the live entertainment business into a new public
company, SFX Entertainment, which will be owned by the present shareholders of
SFX. The company has announced a series of acquisitions by SFX Entertainment of
companies engaged in the live entertainment business. The purpose of the
consent solicitations is to facilitate the spin-off of SFX Entertainment and
the financing by SFX Entertainment of the pending acquisitions prior to the
spin-off.
Lehman Brothers Inc. is acting as Solicitation Agent: Contact David
Parsons at (212) 528- 7581 or (800) 438-7666 Toll Free.
D.F. King & Co. Inc. is acting as Information Agent: Contact John L.
Bibas at (212) 493- 6925 or (800) 765-7666 Toll Free.
