-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N6zEG5rSVwkPMGhVkVr8j0gCW0P2XklL9gb/KGRjAcvraHcVRuqoUSTpjl/mX5Qd vv3rSEDSg+M2us3uHAlU4g== 0000950136-00-000456.txt : 20000331 0000950136-00-000456.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950136-00-000456 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SFX ENTERTAINMENT INC CENTRAL INDEX KEY: 0001051253 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AMUSEMENT & RECREATION SERVICES [7900] IRS NUMBER: 133977880 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14993 FILM NUMBER: 589064 BUSINESS ADDRESS: STREET 1: 650 MADISON AVENUE STREET 2: 16TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2128383100 MAIL ADDRESS: STREET 1: 650 MADISON AVENUE STREET 2: 19TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT Of 1934 For the fiscal year ended December 31, 1999 Commission File Number: 000-24017 --------------------- SFX ENTERTAINMENT, INC. (Exact name of Registrant as Specified in its Charter) DELAWARE 13-3977880 (State or other Jurisdiction (I.R.S. Employer of Incorporation) Identification No.) 650 MADISON AVENUE, 16TH FLOOR 10022 NEW YORK, NEW YORK (Zip Code) (Address of Principal Executive Offices)
(212) 838-3100 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ----------------------------------------------------- ------------------------ Class A Common Stock, par value $.01 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE --------------------- Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value as of the close of business on March 28, 2000 of the registrant's Class A Common Stock held by non-affiliates of the registrant was approximately $2.3 billion. The closing price of the Class A Common Stock on March 28, 2000, as reported on the New York Stock Exchange was $39 7/8 per share. The number of shares of the registrant's Class A Common Stock, $.01 par value, and Class B Common Stock, $.01 par value, outstanding as of March 28, 2000 was 64,248,585 and 2,545,557, respectively. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement for its Annual Meeting of Stockholders, as described in the Cross Reference Sheet and Table of Contents included herewith, are incorporated herein by reference into Part III of this Report. If the Proxy Statement is not filed with the Securities and Exchange Commission in definitive form on or prior to April 29, 2000, SFX intends to amend this Report to include the information omitted from Part III hereof. - -------------------------------------------------------------------------------- CROSS REFERENCE SHEET AND TABLE OF CONTENTS
PAGE NUMBER PART I OR REFERENCE (1) Item 1. Business .................................................................. 3 Item 2. Properties ................................................................ 22 Item 3. Legal Proceedings ......................................................... 22 Item 4. Submission of Matters to a Vote of Security Holders ....................... 23 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ................................................................... 23 Item 6. Selected Consolidated Financial Data of SFX ............................... 24 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................................................... 25 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................ 45 Item 8. Financial Statements and Supplementary Data ............................... 45 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...................................................... 45 PART III Item 10. Directors and Executive Officers of the Registrant (2) .................... 45 Item 11. Executive Compensation (3) ................................................ 45 Item 12. Security Ownership of Certain Beneficial Owners and Management (4) 45 Item 13. Certain Relationships and Related Transactions (5) ........................ 45 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......... 46
- ---------- 1. Certain information is incorporated by reference, as indicated below, from the registrant's Proxy Statement for its Annual Meeting of Stockholders. 2. Proxy Statement section entitled "Election of Directors." 3. Proxy Statement sections entitled "Director Compensation" and "Executive Compensation." 4. Proxy Statement section entitled "Stock Ownership." 5. Proxy Statement section entitled "Certain Relationships and Related Transactions." 2 PART I In this Report, when we use the terms "SFX", "we","us", and "our", unless otherwise indicated or the content otherwise requires, we are referring to SFX Entertainment, Inc. and its consolidated subsidiaries. Substantially all of SFX's operations are conducted through its subsidiaries. Certain disclosures included in this Report constitute forward-looking statements that are subject to risk and uncertainty. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Safe Harbor for Forward-Looking Statements" and "-- Risk Factors." ITEM 1. BUSINESS GENERAL SFX is the world's largest diversified promoter, producer and venue operator for live entertainment events. In addition, SFX is a leading fully integrated sports marketing and management company specializing in the representation of sports athletes and broadcasters, integrated event management, television programming and production and marketing consulting services. SFX operates the largest network of venues used principally for music concerts and other live entertainment events in the United States, with 92 venues in 31 of the top 50 markets. These venues include 17 amphitheaters in the top 10 markets and 9 venues principally used for theatrical presentations. In addition, SFX owns or operates 28 international venues used primarily for theatrical presentations, principally in the United Kingdom. Through its large number of venues and strong presence in each of the markets it serves, SFX is able to provide integrated promotion, production and venue operation and event management services for a broad variety of live entertainment events. During 1999, SFX and the companies it acquired during 1999, promoted or produced over 23,000 events, including more than 7,700 music concerts, 13,500 theatrical shows, 1,500 family entertainment shows and 500 specialized sport events. Nearly 60 million people attended these events. SFX operates in four major business segments within the live entertainment industry: music, theater, sports and family entertainment & other. The following table presents each division's percentage of SFX's total revenues for the year ended December 31, 1999:
PERCENTAGE OF SEGMENTS REVENUES ------------------------------------- -------------- Music ................................ 58.0% Theater .............................. 17.2 Sports ............................... 8.4 Family Entertainment & Other ......... 16.4 ---- Total ................................ 100% ====
For financial information about SFX's business segments, see Note 12 to SFX's consolidated financial statements. SFX'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 and in third-party venues. As promoter, SFX typically: o books talent or tours in an individual market; o sells tickets and advertises the event to attract ticket buyers; o rents or otherwise provides event venues; o arranges for local production services, such as stage, set, sound and lighting; and o sells event sponsorships. 3 As producer, SFX typically: o develops event content; o hires artistic talent; o schedules performances in select venues; o promotes tours; and o sells sponsorships. SFX has benefited from significant growth in the live entertainment industry over the last several years. SFX believes that its ability to provide integrated production, promotion, venue operation and event management services will encourage wider use of its venues by performers. SFX further believes that this ability will allow SFX to capture a greater percentage of revenues generated by those events and may contribute to the overall growth of the live entertainment industry. When SFX promotes an event at a venue which it owns or manages, in addition to promotion revenue, it generally receives a percentage of revenues from concessions, merchandising, parking and premium box seats. PROPOSED MERGER WITH CLEAR CHANNEL COMMUNICATIONS, INC. On February 29, 2000, SFX announced that it had entered into a definitive merger agreement with Clear Channel Communications, Inc. Under the terms of the merger agreement, the Class A shareholders of SFX will receive 0.6 shares of Clear Channel Communications, Inc. common stock for each SFX share, and Class B shareholders of SFX will receive one share of Clear Channel Communications, Inc. common stock for each SFX share, on a fixed exchange basis. The proposed merger would require an amendment to SFX's certificate of incorporation to allow the unequal consideration being paid to holders of Class A and Class B Common Stock. The transaction is expected to be consummated early in the third quarter of 2000, subject to the approval of the Class A and Class B shareholders of SFX, customary regulatory approvals and other closing conditions. For more information regarding the terms of the merger, please refer to the Agreement and Plan of Merger, which has been incorporated by reference as an exhibit to this Report. The information included in this Report is being presented by SFX without input from Clear Channel and without consideration of Clear Channel's plans following the merger. No assurances can be given that the merger will be consummated, on the terms currently contemplated, or at all. Clear Channel is a public company and is therefore subject to the informational reporting requirements of the Securities Exchange Act of 1934. Accordingly, information regarding the business and operations of Clear Channel is filed with the Securities and Exchange Commission and is publicly available. FORMATION OF SFX SFX's predecessor, SFX Concerts, Inc., was formed in January 1997 by SFX's former parent, SFX Broadcasting, Inc. On April 27, 1998, SFX was spun-off from SFX Broadcasting and became a separate publicly traded company. Since its formation, SFX has grown rapidly through acquisitions. The following is a summary of the material businesses acquired by SFX in 1997, 1998, 1999 and the first quarter of 2000. The following summaries are not intended to be complete descriptions of the terms of the acquisition agreements and are qualified by reference to the acquisition agreements. Copies of certain of these acquisition agreements are filed as exhibits to this Report and are incorporated herein by reference. For additional information regarding the acquisitions, refer to Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." 1997 ACQUISITIONS DELSENER/SLATER In January 1997, SFX Concerts acquired Delsener/Slater, a leading concert promotion company. 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. 4 MEADOWS In March 1997, SFX Concerts acquired certain companies which own and operate the Meadows Music Theater, an amphitheater located in Hartford, Connecticut. SUNSHINE PROMOTIONS In June 1997, SFX Concerts acquired Sunshine Promotions, one of the largest concert promoters in the Midwest. Sunshine Promotions owns amphitheaters located in Indianapolis, Indiana and Columbus, Ohio, and has a long-term lease to operate a theater and ballroom located in Indianapolis, Indiana. 1998 ACQUISITIONS WESTBURY On January 8, 1998, SFX acquired a long-term lease for Westbury Music Fair, located in Westbury, New York. BGP On February 24, 1998, SFX acquired Bill Graham Presents, the principal promoter of live entertainment in the San Francisco Bay area. BGP owns and/or operates six venues in the San Francisco area and one in Denver, Colorado. PACE AND PAVILION PARTNERS On February 25, 1998, SFX acquired PACE Entertainment Corporation, one of the largest diversified promoters and producers of live entertainment in the U.S. PACE has what SFX believes to be the largest distribution network in each of its music, theater and motor sports events business segments. In connection with the acquisition of PACE, SFX obtained 100% of Pavilion, a partnership that owns interests in entertainment venues, by acquiring one-third of Pavilion through the acquisition of PACE and the remaining two-thirds of Pavilion from third parties. CONTEMPORARY On February 27, 1998, SFX acquired by merger and asset acquisition the music concert and related businesses of the Contemporary Group and the remaining 50% interest in the Riverport Amphitheater Joint Venture not then owned by Contemporary. Contemporary is a vertically integrated live entertainment and special event promoter and producer, venue operator and consumer marketer. Contemporary is also one of the top special event sales promotion and marketing companies in the country. NETWORK On February 27, 1998, SFX acquired Album Network, Inc., SJS Entertainment Corporation and the assets of The Network 40 (collectively, "Network") as well as an office building and related property. Network is engaged in music marketing, research and artist development activities and is a publisher of trade magazines for radio broadcasters, music retailers, performers and record industry executives. CONCERT/SOUTHERN On March 4, 1998, SFX acquired Concert/Southern Promotions, a promoter of live entertainment in the Atlanta metropolitan area. USA MOTOR SPORTS On March 25, 1998, PACE acquired the remaining 67% interest in certain assets and liabilities of USA Motor Sports. The other 33% of USA Motor Sports was held by Contemporary at the time of its acquisition by SFX. AVALON On May 14, 1998, SFX acquired Avalon, a leading promoter and producer of music concerts in the Los Angeles area. 5 OAKDALE On June 3, 1998, SFX acquired certain assets of Oakdale Concerts. Oakdale is a promoter and producer of music concerts in Connecticut and the owner of the Oakdale Theater, a 4,800-seat facility located in Wallingford, Connecticut. FAME On June 4, 1998, SFX acquired Falk Associates Management Enterprises, Inc. ("FAME"), a leading full-service marketing and management company that specializes in the representation of team sports athletes, primarily in professional basketball. DON LAW On July 2, 1998, SFX acquired certain assets of Don Law, a concert and theater promoter in New England. Don Law owns and/or operates three venues in New England. MAGICWORKS On September 11, 1998, SFX acquired Magicworks Entertainment, Inc., a publicly traded company. Magicworks specializes in the production and promotion of live entertainment events including theatrical shows, music concerts and ice-skating shows. Magicworks also provides representation and sports marketing services to professional athletes in such sports. OTHER 1998 ACQUISITIONS In 1998, SFX also completed the acquisition of seven additional companies in the theatrical and music segments. The seven acquisitions included two concert promotion companies, two theatrical presenters, a theatrical presenter and venue owner/operator, a concert merchandising company and an equity owner of an SFX amphitheater. 1999 ACQUISITIONS RZO On February 5, 1999, SFX acquired The RZO Companies, a group of companies involved in the promotion and production of international music concert tours and the music publishing business. THE ENTERTAINMENT GROUP On February 5, 1999, SFX acquired The Entertainment Group, a Chicago-based promoter. Concurrent with the acquisition, SFX entered into a ten-year agreement with the Village of Rosemont in suburban Chicago to provide booking, group sales and marketing services for the Rosemont Horizon, a 17,500-seat arena, and the Rosemont Theater, a 4,000-seat venue. CELLAR DOOR On February 19, 1999, SFX acquired the Cellar Door group of companies. Cellar Door is a leading promoter of live entertainment events in the Southeast and Midwest. Cellar Door owns and/or operates venues from Virginia to Florida, promoting concerts in most of the major markets in this region. Cellar Door also operates venues and promotes concerts in Michigan, Wisconsin and Ohio. ISI On January 26, 1999, SFX acquired the assets of Integrated Sports International, L.P. ISI is a full-service marketing company utilizing a completely integrated approach in the development of client programs. ISI provides: o corporate consulting and property marketing services; o athletic/celebrity marketing and representation; o team and venue services; o event planning and management; and 6 o licensing and merchandising services. NEDERLANDER On March 16, 1999, SFX acquired certain interests in seven venues and other assets from entities controlled by members of the Nederlander family and other persons. The interests in the venues acquired consist of: o long-term leases and booking and management agreements for The World Music Theatre in Chicago and the Alpine Valley Music Amphitheatre in East Troy, Wisconsin, serving the Milwaukee/North Chicago market; o a long-term lease for the Merriweather Post Pavilion in Columbia, Maryland, serving the Washington D.C. and Baltimore market; o an operating agreement for the Riverbend Amphitheater and a booking agreement with the Firstar Arena in Cincinnati, Ohio; and o a long-term lease for the Taft Theater, and a short-term lease for Bogart's Club, both located in Cincinnati, Ohio. In addition, SFX acquired entities that produce music festivals and hold rights to construct the Mesa del Sol Centre for the Performing Arts in Albuquerque, New Mexico. MARQUEE On March 16, 1999, a subsidiary of SFX was merged with and into The Marquee Group, Inc. and Marquee became a wholly owned subsidiary of SFX. Marquee provides: o integrated event management; o talent representation and consulting services in the sports and entertainment industries; o marketing services; and o television programming and production. AL HAYMON On June 20, 1999, SFX acquired 50% of A.H. Enterprises, an entity owned and operated by Al Haymon. Al Haymon is the preeminent pop urban music promoter in the U.S. In January 2000, SFX increased its ownership interest in A.H. Enterprises to 60%. HENDRICKS On June 28, 1999, SFX acquired Hendricks Management Company, Inc. Hendricks is a leading full-service marketing and management company that specializes in the representation of professional baseball athletes. CANDID On July 8, 1999, SFX acquired Candid Productions, Inc. from Dick Button. Candid promotes and produces figure skating events. LIVENT On August 27, 1999, SFX acquired certain assets of Livent Inc. and its affiliates. These assets include three theaters and the intellectual property rights to several current and future Broadway productions. The theaters, which Livent owned or held under long-term leases, are the Ford Center in New York, the Ford Oriental Theatre in Chicago and the Pantages Theatre in Toronto. 7 CFA On September 7, 1999, SFX acquired a 50% interest in Cardenas Fernandez & Associates, Inc, a leading concert promoter and producer of music concerts by Hispanic artists. APOLLO On September 17, 1999, SFX acquired Apollo Leisure Group plc, the largest live theater operator as well as one of the largest providers of entertainment and leisure management services in the United Kingdom. Apollo operates, among other things, three arenas, a network of 23 theaters and 16 multiplex cinema houses. Apollo owns Tickets Direct, a telephone operator-based ticketing system which handled approximately 2.7 million tickets sales in 1999. Apollo also holds a 62% interest in City Center Leisure (Holdings) Limited, which operates fitness facilities for local authorities and a 50% interest in Barry Clayman Corporation Limited, a leading promoter of concert and other live entertainment events in the U.K. In conjunction with its acquisition of Apollo, SFX acquired the remaining 50% interest of Barry Clayman Corporation Limited not then owned by Apollo. MCP On September 20, 1999, SFX acquired Midland Concert Promotions Group Limited, a concert promoter and motor sports venue operator in the United Kingdom. TELLEM On September 29, 1999, SFX acquired Tellem & Associates, which represents team sports athletes, primarily in professional baseball and basketball. EMA TELSTAR On October 4, 1999, SFX purchased EMA Telstar, a venue owner and a promoter and producer of live entertainment in Sweden. MOJO WORKS On October 21, 1999, SFX purchased an 80% interest in the Mojo Works group of companies, a leading promoter and producer of live entertainment events in the Netherlands. OTHER 1999 ACQUISITIONS In 1999, SFX completed several other acquisitions in the sports and music segments and made minority investments in certain Internet companies. See "Operating Strategy--Launch Internet Initiatives." 2000 ACQUISITIONS SPEAKERS OF SPORT On February 2, 2000, SFX acquired Speakers of Sport, one of the largest baseball talent representation agencies. ELECTRIC FACTORY CONCERTS On February 28, 2000, SFX acquired the Electric Factory Concerts group of companies. Electric Factory Concerts promotes national concert tours as well as owns and operates three live entertainment venues in and around Philadelphia, PA. BUSINESS SEGMENTS OF SFX SFX operates in four major business segments within the live entertainment industry: music, theater, sports and family entertainment & other. MUSIC SFX is the largest music venue owner and operator and concert promoter in North America. In addition, SFX's music division promoted and/or produced 25 national tours in 1999. 8 Within its music segment, SFX is engaged in: o promoting music events and tours; o producing music events and tours; o owning and operating concert venues; and o selling corporate sponsorships and advertising. Promotion SFX primarily promotes concerts performed by newer performers having widespread popularity, such as the Backstreet Boys, Britney Spears and `N SYNC, as well as more established performers having relatively long-standing and more stable bases of popularity, such as Billy Joel, Elton John, Bruce Springsteen and Jimmy Buffett. SFX believes that its large network of venues enables it to set an aggregate guarantee for a series of shows, mitigating the risk of loss associated with a single show. SFX also believes that its market research and audience demographics databases will permit highly-effective, targeted marketing, such as direct-mail and subscription series campaigns, which SFX believes will increase advance ticket sales and overall sales in a cost-efficient manner. Production As a producer, SFX generally receives revenues through guarantees from and profit sharing agreements with promoters, a percentage of the promoters' ticket sales, merchandising, sponsorships, licensing and the exploitation of intellectual property and other rights related to the production. SFX produces tours on both a national and regional basis. SFX plans to increase its production of national and international music tours. Artists for whom SFX has recently promoted and/or produced events include: 98 Degrees Dave Matthews Metallica Stone Temple Pilots Aerosmith Earth, Wind & Fire Michael Bolton* Seal Alabama Donna Summer `N SYNC* Shania Twain Alanis Morissette Doobie Brothers Ozzy Osbourne* Sheryl Crow Allman Brothers Duran Duran Moody Blues Steve Miller Band Backstreet Boys* Elton John Neil Young The Rolling Stones Barenaked Ladies Faith Hill Paul Simon* Tim Allen* Barry Manilow George Strait* Phish Tina Turner* Billy Joel Goo Goo Dolls* Poison Third Eye Blind Black Sabbath* Harry Connick Jr. R.E.M. Tim McGraw Bob Dylan* Jewel Reba McEntire TLC Bonnie Raitt Jimmy Buffett Ricky Martin Tom Petty* Brandy John Mellencamp Rod Stewart* Tori Amos Britney Spears* Journey Roger Waters* Vince Gill Bruce Springsteen Kenny G Santana* Widespread Panic Cher* Lauryn Hill* Sarah McLachlan Willie Nelson Chicago Lenny Kravitz Smashing Pumpkins Ziggy Marley Cranberries Marc Anthony* Spice Girls* U2*
- ---------- *SFX produced a national tour. 9 Venue Operations SFX derives revenues from its venue operations primarily from corporate sponsorships, advertising, concessions, merchandise and parking. For each event it hosts, a venue operator typically receives a fixed fee or percentage of ticket sales for use of the venue, as well as fees representing a percentage of total concession sales from the vendors and total merchandise sales from the performer or tour producer. As a venue owner, SFX typically receives 100% of sponsorship and advertising revenues and a rebate of a portion of ticketing surcharges. SFX believes that it controls the largest network of venues used principally for music concerts in the United States. SFX wholly or partially owns and/or operates 83 music venues in 31 of the top 50 domestic markets, including 16 amphitheaters in the top 10 markets. See "Venues." Because SFX operates a number of its venues under leases or booking agreements, its long-term success will depend on its ability to renew these agreements upon their expiration. There can be no assurance that SFX will be able to renew these agreements on acceptable terms or at all, or that it will be able to obtain attractive agreements with substitute venues. Sponsorships and Advertising SFX actively pursues the sale of corporate sponsorships, including the naming of venues such as the Tweeter Center for the Performing Arts, the FleetBoston Pavilion, the First American Music Center and the Mars Music Amphitheater. In addition, SFX designates providers of concessions and "official" event or tour sponsors such as, credit card companies, phone companies, film manufacturers and radio stations, among others. Sponsorship arrangements can provide significant additional revenues at negligible incremental cost, and many of SFX's venues currently have no sponsorship arrangements in many of the available categories, including naming rights. SFX believes that the national venue network it has assembled will likely attract a larger number of major corporate sponsors and enable SFX to sell national sponsorship rights at a premium over local or regional sponsorship rights. SFX also pursues the sale of corporate advertising at its venues, and believes that it has substantial unutilized billboard and other advertising space available at its venues. SFX also believes that its relationships with advertisers will enable it to better utilize available advertising space, and that the aggregation of its audiences nationwide will create the opportunity for advertisers to access a nationwide market. With the additions of Apollo, EMA Telstar and Mojo Works, SFX believes that it will have the ability to exploit international sponsorship and marketing opportunities as well. Competition and Seasonality In markets where it owns or operates a venue, SFX competes with other venues to serve artists likely to perform in that general region. In markets where SFX does not own or operate venues, SFX competes with other venues for dates for popular national tours. Consequently, touring artists have significant alternatives to SFX venues in scheduling tours. In addition, in the markets in which SFX promotes musical concerts, it faces competition from promoters, as well as from certain artists that promote their own concerts. SFX believes that barriers to entry into the promotion services business are low and that certain local promoters are increasingly expanding the geographic scope of their operations. SFX's outdoor venues are primarily used in the summer months and do not generate substantial revenue in the late fall, winter and early spring. THEATER The touring Broadway show production industry is highly fragmented. As a result, SFX believes it is the largest promoter and producer of touring Broadway shows in the United States. Within its theater segment, SFX is engaged in: o production of touring and original Broadway shows; o owning and operating theatrical venues; and o selling corporate sponsorships and advertising. 10 Production SFX produces touring and original Broadway shows. Touring Broadway shows consist primarily of revivals of previous commercial successes or new productions of theatrical shows currently playing on Broadway in New York City. SFX invests in original Broadway productions as a lead producer or as a limited partner in productions produced by others. Frequently, SFX obtains touring rights and favorable scheduling for the productions in order to distribute them across its presentation network. SFX had a producing interest or investment in the following shows, among others, for 1999:
SHOW TITLE TYPE SFX'S INVOLVEMENT - ------------------------------------------- -------------------------- ------------------ Amadeus ................................... Broadway Investment Art ....................................... Touring Investment Blue Man Group ............................ Long-Running Performance Production Cabaret ................................... Touring Production Chicago ................................... Broadway & Touring Investment Cirque Ingenieux .......................... Touring Investment The Civil War ............................. Broadway & Touring Production Death of a Salesman ....................... Broadway Investment Doctor Doolittle .......................... U.K. West End & Touring Production Evita ..................................... Touring Production Fame ...................................... Touring Production Fascinating Rhythm ........................ Broadway Investment Footloose ................................. Broadway & Touring Investment Fosse ..................................... Broadway & Touring Production The Gin Game .............................. Touring Production Jekyll & Hyde ............................. Broadway & Touring Production Phantom of the Opera ...................... Touring Production Putting It Together ....................... Broadway Investment Ragtime ................................... Broadway & Touring Production Rent ...................................... Broadway & Touring Investment Seussical ................................. Development Production The Sound of Music ........................ Broadway Production Sunset Blvd. .............................. Touring Production Swan Lake ................................. Broadway Investment Swing ..................................... Broadway Investment Tony and Tina's Wedding ................... Touring Production Victor, Victoria .......................... Touring Production You're a Good Man, Charlie Brown .......... Broadway Investment
Promotion SFX believes that there are approximately 50 domestic markets that can provide the potential audience and gross ticket revenues for a full scale touring Broadway show to be profitable, and an additional 50 markets where smaller scale productions with shorter runs can be presented profitably. SFX pre-sells tickets for its touring Broadway shows through the largest subscription series in the United States and Canada (with 260,000 subscribers in 1999). SFX promotes these subscription series in 44 of the largest touring markets in North America including Atlanta, GA; Dallas, TX; Fort Lauderdale, FL; Houston, TX; and Ottawa, Canada. Theater Operations SFX derives revenues from its theater operations primarily from rental income, corporate sponsorships and advertising, concessions, and merchandise. For each event it hosts, a theater operator typically receives a fixed fee or percentage of ticket sales for use of the venue, as well as fees representing a 11 percentage of total concession sales from the vendors and total merchandise sales from the performer or tour producer. As a theater owner, SFX typically receives 100% of sponsorship and advertising revenues and a rebate of a portion of ticketing surcharges. SFX wholly or partially owns and/or operates 9 theatrical venues in the United States and 29 international venues used primarily for theatrical presentations, principally in the United Kingdom. See "-- Venues." Sponsorships and Advertising SFX actively pursues the sale of corporate sponsorships, including the naming of venues such as the Ford Theater for the Performing Arts. In addition, SFX designates "official" event or tour sponsors such as credit card companies, telephone companies and auto manufacturers, among others. Sponsorship arrangements can provide significant additional revenues at negligible incremental cost, and many of SFX's venues currently have no sponsorship arrangements in many of the available categories, including naming rights. SFX believes that the national venue network it has assembled will likely attract a larger number of major corporate sponsors and enable SFX to sell national sponsorship rights at a premium over local or regional sponsorship rights. SFX also pursues the sale of corporate advertising at its venues, and believes that it has substantial unutilized advertising space available at its venues. SFX also believes that its relationships with advertisers will enable it to better utilize available advertising space, and that the aggregation of its audiences nationwide will create the opportunity for advertisers to access a nationwide market. With the additions of Apollo, EMA Telstar and Mojo Works, SFX believes that it will have the ability to exploit international sponsorship and marketing opportunities as well. Competition and Seasonality SFX competes with other presenters to obtain presentation arrangements with venues and performing arts organizations in various markets, including in markets that have more than one venue suitable for presenting a touring Broadway show. SFX's competitors, some of whom have also been partners of PACE and Magicworks in certain theater investments from time to time, include a number of New York-based production companies that also promote touring Broadway shows and a number of regional presenters. SFX competes with other New York and London based production companies for the rights to produce particular shows. As a producer of a London or Broadway show, SFX competes with producers of other theatrical shows for box office sales, talent and theater space. As the producer of a touring show, SFX competes with producers of other touring Broadway shows to book the production in desirable presentation markets. The theatrical presenting season generally runs from September through May. SPORTS The SFX Sports Group is one of the world's leading fully integrated sports marketing and management agencies, providing marketers, athletes, broadcasters, teams, leagues, universities, events and properties unrivaled access to each other. The Sports Group's collective expertise and resources are organized into five core functional areas: events, marketing, talent representation, television and motor sports. Within its sports segment, SFX is engaged in: o event development and management; o marketing; o talent representation; o television production and programming; and o promoting and producing specialized motor sports events. 12 Events The SFX Sports Group focuses on turnkey event development and management for a wide array of sports, including tennis, golf, thoroughbred racing and soccer events. Utilizing the SFX network of talent, venues, television production, sponsor sales and fulfillment, the SFX Sports Group creates and develops properties that leverage the unique energy of live entertainment. Events in 1999 included the Breeders' Cup Championship, American Century Celebrity Golf Championship and the ATP Tennis Events in Atlanta, Georgia; Washington, D.C.; and London, England. The SFX Sports Group also offers entertainment and client hospitality opportunities to corporate clients looking to utilize attendance at sporting events like the Super Bowl and The Masters as a means of increasing their customer base and developing business opportunities. Marketing The SFX Sports Group integrates all components of the modern marketing mix to develop a full-service strategic plan that meets specific client objectives. Revenue is generated from: o the sale of entitlement rights (or "naming rights") to third-party stadiums and arenas; o the sale of sponsorships and marketing rights to international and national sporting events, teams and properties; o providing sports and entertainment marketing consulting services to corporations; o integrated branding and graphic identity consulting services to professional sports leagues, teams and events; and o providing retail licensing and merchandising services to a wide array of consumer products and services companies. Talent Representation The SFX Sports Group represents several hundred professional athletes and broadcasters. Revenue is primarily generated through the negotiation of professional sports contracts and endorsement contracts for clients. Our clients have endorsed numerous products, both domestically and internationally, for many high profile companies. Examples of current athletes and broadcasters represented by the SFX Sports Group are as follows:
BASEBALL BASKETBALL FOOTBALL (U.S.) GOLF TENNIS - ------------------- -------------------- ------------------ ----------------- ------------------ Roger Clemens Kobe Bryant Jake Plummer John Daly Andre Agassi Nomar Garciaparra Michael Jordan Vinny Testaverde Scott Hoch Alex Corretja Juan Gonzalez Reggie Miller Peter Warrick Roger Maltbie Nicolas Kiefer Pedro Martinez Alonzo Mourning Ricky Williams Scott Verplank Petr Korda Larry Walker Dikembe Mutombo Steve Young Mark Wiebe Patrick Rafter BROADCASTERS HOCKEY OLYMPICS FOOTBALL (U.K.) RUGBY (AUSTRALIA) - ------------------- -------------------- ------------------ ----------------- ------------------ Chris Berman Nikolai Khabibulin Brandi Chastain David Beckham Bradley Clyde Boomer Esiason Brian Leetch Janet Evans Michael Owen Ryan Girdler Jim Lampley Adam Oates Eric Heiden Jamie Redknapp Darren Lockyer Howie Long Sergei Samsanov Dan Jansen Alan Shearer Gorden Tallis Forrest Sawyer Sergei Zubov Summer Sanders Dwight Yorke Geoff Toovey
The amount of endorsement and other revenues that SFX's clients generate is a function of, among other things, the clients' professional performances and public appeal. Factors beyond SFX's control, such as injuries to clients, declining skill or labor unrest, among others, could have an adverse affect on the SFX Sports Group's results of operations. Representation agreements with clients are generally for a term of one year with automatic renewal options. A significant number of SFX's representation agreements are terminable on 15 days' notice, although SFX would continue to be entitled to the revenue streams generated during the remaining term of any contracts that it negotiated. 13 Television The SFX Sports Group provides comprehensive sports television production and programming services, including concept development and network negotiations. In addition, our Tollin-Robbins and SFX/Alphabet City divisions produce a wide variety of nationally broadcast television series, feature films and sports-themed CDs. During 1999, the SFX Sports Group produced over 500 hours of programming for broadcast and cable networks. Motorsports SFX is the largest producer and promoter of specialized motorsports events in North America. SFX's motorsports activities consist principally of the promotion and production of specialized motorsports, which generate revenues primarily from ticket sales and sponsorships, as well as merchandising and video rights associated with producing motorsports events. These events include monster truck events, demolition derbies, motocross races, freestyle motocross events, motorcycle road racing and dirt track motorcycle racing. Other events included in this division are thrill acts and other motorsports concepts and events. The motorsports division of SFX produces and promotes over 500 specialized events annually, including PACE Supercross events and the U.S. Hot Rod Association (Registered Trademark) Monster Jam (Registered Trademark) Tour. In 1999, the motorsports division had in excess of 3.0 million spectators at its various events and properties. SFX currently owns Grave Digger (Trademark) , one of the most popular monster trucks on the monster truck circuit, which along with other such names allows SFX to capitalize on proprietary sponsorship, licensing and merchandising opportunities. In addition, SFX provided approximately 220 hours of televised programming related to motorsports in 1999. In addition, SFX is able to derive additional sponsorship revenue from the sale of "naming rights" to certain of its motorsports related properties. Competition and Seasonality The marketing and athlete representation industry is highly competitive. SFX's competitors include a few large companies that operate in several of the segments in which the SFX Sports Group operates, as well as many smaller entities which operate in only one or two of such core areas. In the specialized motorsports industry, SFX generally competes with various local and regional companies. The sports marketing and athlete representation businesses primarily earn revenue ratably over the year, whereas the motorsports business operates primarily in the winter and event management revenue is earned as the events occur. FAMILY ENTERTAINMENT & OTHER SFX's family entertainment & other segment produces and presents family-oriented entertainment such as children's theatrical shows, dance shows, ice-skating, gymnastics shows and artifact exhibits. In 1999, SFX's family entertainment segment produced and presented events such as The Magic of David Copperfield and Lord of the Dance both domestically and internationally. The family entertainment segment also produces ice skating television specials and tours, such as Ice Wars, promoted the U.S. Women's Soccer Team tour in 1999 and produces and promotes touring children's shows such as Arthur and Blues Clues. In 1999, SFX also produced and presented the Radio City Christmas Spectacular in Chicago and Mexico City. In addition, SFX provides a variety of marketing and consulting services derived from or complementary to its live entertainment operations, including local, regional and national live marketing programs and subscription or fee based radio and music industry data compilation and distribution. Live marketing programs are generally specialized advertising campaigns designed to promote a client's product or service by providing samples or demonstrations in a live format, typically at malls and college campuses. Additionally, SFX believes that it is one of the leading producers of national mall touring events, producing over 65 events every year in the country's shopping malls. These events, either in stores or mall congregation areas, are designed to promote brand awareness and drive follow-up sales. SFX believes that, along with mall events, it is one of the industry leaders in events produced on college campuses. 14 SFX also engages in music marketing, research and artist development activities, and is a publisher of trade magazines for radio broadcasters, music retailers, performers and record industry executives. Each of SFX's magazines focuses on research and insight common to specific contemporary radio formats. SFX also provides radio airplay and music retail research services to record labels, artist managers, retailers and radio broadcasters. SFX, through Network, also provides consulting and entertainment marketing services to corporate clients with music business interests. Sponsorships and Advertising SFX actively pursues the sale of corporate sponsorships, primarily as "official" event or tour sponsors. Sponsorship arrangements can provide significant additional revenues at negligible incremental cost. Competition and Seasonality The family entertainment business is highly competitive. SFX's competitors include several large companies which present and produce live entertainment events on a national scale and many smaller entities which present live family entertainment locally. The family entertainment & other segment generally earns revenue ratably over the year. VENUES The following chart sets forth certain information with respect to the venues that SFX wholly or partially owns and/or operates.
U.S. TOTAL MARKET TYPE OF SEATING MARKET AND VENUE RANK(1) VENUE SFX'S INTEREST CAPACITY - --------------------------------- --------- -------------- -------------------------------------------------- --------------- DOMESTIC VENUES: NEW YORK-NORTHERN 1 NEW JERSEY-LONG ISLAND: PNC Bank Arts Center Amphitheater 22-year lease that expires October 31, 2017 17,500 Jones Beach Theatre Amphitheater 20-year license agreement that expires 14,400 December 31, 2020 Roseland Ballroom Theater exclusive booking agent 3,600 Westbury Music Fair Theater 43-year lease that expires December 31, 2034 2,870 Irving Plaza Theater 10-year lease that expires July 30, 2007 1,121 Beacon Theatre Theater 49% partnership interest in 15-year lease that 2,849 expires December 31, 2006 Ford Center Theater 40-year ground lease that expires December 31, 1,812 2028 LOS ANGELES-RIVERSIDE- 2 ORANGE COUNTY: Glen Helen Blockbuster Pavilion Amphitheater 25-year lease that expires July 1, 2018 25,000(2) Irvine Meadows Amphitheater Amphitheater facility owned; 20-year land lease that expires 15,500 February 28, 2017 Thousand Oaks Civic Arts Plaza Theater 5-year exclusive booking agent that expires 1,800 May 2003 CHICAGO-GARY-KENOSHA: 3 Ford Oriental Theatre Theater owned 2,149 The New World Music Theater Amphitheater interest in 19-year lease that expires December, 28,000 2013; booking and management agreement that expires November 30, 2003 The Cadillac Palace Theater Theater 50% partnership interest in 49-year lease that expires May, 20482,350 Rosemont Horizon Arena 10-year consulting agreement that expires 17,500 January 1, 2009 (3) Rosemont Theater Theater 10-year consulting agreement that expires 4,402 January 1, 2009 (3) Fiesta Palace Club 50% interest in lease that expires December 31, 21,500 2002
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U.S. TOTAL MARKET TYPE OF SEATING MARKET AND VENUE RANK(1) VENUE SFX'S INTEREST CAPACITY - --------------------------------- --------- --------------- ---------------------------------------------------- -------------- Alamo Ballroom Club 50% interest in lease that expires December 31, 1,700 2002 Tropicana de Cache Club 50% interest in lease that expires December 31, 325 2002 Mario's ballroom Club 50% interest in lease that expires December 31, 545 2002 Noa Noa West Club 50% interest in lease that expires December 31, 2,000 2002 Palladium Club 50% interest in lease that expires December 31, 525 2002 Adromenas Club 50% interest in lease that expires December 31, N/A 2002 WASHINGTON-BALTIMORE: 4 Nissan Pavilion at Stone Ridge Amphitheater 20-year lease that expires June 9, 2014 25,000 Merriweather-Post Pavilion Amphitheater 10-year lease that expires December 31, 2007 18,000 SAN FRANCISCO-OAKLAND-SAN JOSE: 5 Shoreline Amphitheater Amphitheater facility owned; land leased for 35 years, expiring 22,000 November 30, 2021 Concord Pavilion Amphitheater Management agreement that expires 12,500 December 31, 2006 Greek Theater Theater 4-year promotion agreement that expires 8,500 October 31, 2002 Warfield Theatre Theater 10-year lease that expires May 31, 2008 2,250(4) Fillmore Auditorium Theater 10-year lease that expires August 31, 2007 1,249 Punch Line Comedy Club Club 5-year lease that expires September 15, 2001 175 PHILADELPHIA-WILMINGTON- 6 ATLANTIC CITY: E-Centre Amphitheater 31-year lease that expires September 29, 2025 25,000 Hershey Park Amphitheater/ Exclusive booking agreement 7,500 Stadium 25,000 Tower Theater Theater owned 3,052 Electric Factory Club majority interest 3,000 Theater of the Living Arts Club/theater owned 450/810 BOSTON-WORCESTER-LAWRENCE: 7 Tweeter Center for the Amphitheater owned 19,500 Performing Arts FleetBoston Pavilion Amphitheater 5-year license agreement that expires January 29, 5,000 2004 Orpheum Theatre Theater 4-year operating agreement that expires 2,700 December 31, 2000 Avalon Club 5-year exclusive booking agent that expires 1,350 June 30, 2003 Wilbur Theatre Theater 5-year lease that expires August 25, 2001 1,223 Colonial Theatre Theater 8-year lease that expires August 31, 2001 1,704 Charles Playhouse (main stage) Theater owned 525 Charles Playhouse (basement) Theater owned 200 DETROIT-ANN ARBOR-FLINT: 8 Pine Knob Music Theatre Amphitheater preferred booking 16,646 The Palace at Auburn Hills Arena preferred booking 15,000(5) Meadowbrook Amphitheater Amphitheater exclusive booking 7,619 Detroit State Theatre Theater exclusive booking 3,000 DALLAS-FORT WORTH: 9 Starplex Amphitheater Amphitheater 32.5% partnership interest in 31-year lease that 20,500 expires December 31, 2028 HOUSTON-GALVESTON-BRAZORIA: 10 Cynthia Woods Mitchell Pavilion Amphitheater 15-year management contract that expires 13,000 December 31, 2009
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U.S. TOTAL MARKET TYPE OF SEATING MARKET AND VENUE RANK(1) VENUE SFX'S INTEREST CAPACITY - --------------------------------- --------- -------------- ----------------------------------------------------- --------- Aerial Theater at Bayou Place Theater 50% partnership interest in 10-year lease that 2,800 expires December 31, 2007 ATLANTA: 11 Lakewood Amphitheater Amphitheater 32.5% partnership interest in 35-year lease that 19,000 expires January 1, 2019 Chastain Park Amphitheater Amphitheater 10-year lease that expires December 31, 2000 7,000 Roxy Theater Club 7-year lease that expires March 31, 2004 1,500 Tabernacle Theater Club 10-year lease that expires January 31, 2008 800 MIAMI-FORT LAUDERDALE: 12 Sunrise Musical Theatre Theater owned 3,968 Parker Playhouse Theater 4-year exclusive booking that expires October 17, 1,181 2000 SEATTLE-TACOMA-BREMERTON: 13 White River Amphitheatre (6) Amphitheater long-term management agreement 20,000 PHOENIX-MESA: 14 Desert Sky Blockbuster Pavilion Amphitheater 60-year lease that expires June 30, 2049 19,900 ST. LOUIS: 18 Riverport Amphitheater Amphitheater owned 21,000 American Theater Theater 10-year lease that expires July 31, 2004 2,000 Westport Playhouse Theater year-to-year lease, with renewal under negotiation 1,100 DENVER: 19 Denver Fillmore Auditorium Theater owned 3,000 PITTSBURGH: 20 Star Lake Amphitheater Amphitheater 45-year lease that expires December 31, 2034 22,500 I.C. Light Amphitheater Amphitheater lease agreement that expires December 31, 2004 4,235 CINCINNATI: 23 Riverbend Amphitheater Amphitheater 13-year management and booking agreement that 19,000 expires after 2011 season Firstar Arena Arena 5-year operating agreement that expires 16,200 February 12, 2002 Taft Theater Theater 10-year lease that expires July 31, 2005 2,458 Bogart's Club 5-year lease that expires August 31, 2002 1,450 KANSAS CITY: 24 Sandstone Amphitheater Amphitheater 10-year lease that expires December 31, 2002 18,000 Starlight Theater Theater concert presentation agreement that expires 9,000 September 30, 2000 Memorial Hall Theater 5-year management contract that expires 3,000 January 1, 2004 SACRAMENTO-YOLO: 25 Sacramento Valley Amphitheater owned 18,500 Amphitheatre (6) Punch Line Comedy Club Club 9-year lease that expires December 31, 2000 245 MILWAUKEE-RACINE: 26 Alpine Valley Music Amphitheater 26-year lease that expires August 31, 2019; 19-year 35,000 Amphitheater booking & management agreement that expires November, 2013 Marcus Amphitheater Amphitheater 50% partnership in lease that expires in 2000 22,828 Modjeska Theater Theater exclusive booking 1,800 NORFOLK-VIRGINIA BEACH-NEWPORT 27 NEWS: GTE Virginia Beach Amphitheater 30-year lease that expires in 2026 20,000 Amphitheater The Boathouse Concert Hall lease that expires in 2013 2,460 The Abyss Club exclusive booking 900 INDIANAPOLIS: 29 Deer Creek Music Center Amphitheater owned 21,000
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U.S. TOTAL MARKET TYPE OF SEATING MARKET AND VENUE RANK(1) VENUE SFX'S INTEREST CAPACITY - ----------------------------------- --------- -------------- -------------------------------------------------- --------- Murat Theatre Theater and 50-year lease that expires August 31, 2045 2,700 Ballroom COLUMBUS: 31 Polaris Amphitheater Amphitheater owned 20,000 CHARLOTTE-GASTONIA-ROCK HILL: 32 Charlotte Blockbuster Pavilion Amphitheater owned 18,000 NASHVILLE: 37 First American Music Center Amphitheater owned 17,000 HARTFORD: 39 Meadows Music Theater Amphitheater facility owned; land leased for 40 years until 25,000 September 13, 2034 Oakdale Theater Theater facility owned; 15-year land lease that expires 4,800 June 3, 2013 and SFX will purchase upon expiration ROCHESTER: 43 Finger Lakes Amphitheater Amphitheater year to year co-presentation agreement that 12,700 expires December 31, 1999 Harro East Theater Theater exclusive booking agent that expires November 4, 1,050 2005 RALEIGH-DURHAM-CHAPEL HILL: 44 Alltel Pavililion at Walnut Creek Amphitheater 40-year lease that expires October 31, 2030 20,000 Amphitheater WEST PALM BEACH-BOCA RATON: 48 Mars Music Amphitheater Amphitheater lease that expires December 31, 2005 20,000 Royal Poinciana Playhouse Theater 6-year lease that expires October 31, 2004 878 LOUISVILLE: 49 Palace Theatre Theatre 50% ownership 2,851 ALBANY 55 Saratoga Performing Arts Center Amphitheater exclusive management agreement and exclusive 25,000 booking rights for rock and contemporary ALBUQUERQUE 62 Mesa Del Sol Centre (6) Amphitheater sublease land, own improvements 15,000 SPRINGFIELD: 71 Tanglewood Amphitheater Exclusive booking agent 13,802 RENO: 124 Reno Hilton Amphitheater Amphitheater exclusive promotion agreement that expires 18,500 December 31, 2001 INTERNATIONAL VENUES: TORONTO, CANADA: Pantages Theatre Theater Owned 2,200 LONDON, ENGLAND: Apollo Victoria Theater Theater Owned 1,500 Lyceum Theater 130-Year Lease 2,000 Apollo Hammersmith Theater Theater 125-Year Lease 3,200 Dominion Theater 125-Year Lease 2,000 BRISTOL, ENGLAND: Hippodrome Theater Owned 2,000 BIRMINGHAM, ENGLAND: Alexandra Theater Lease expires 2012 1,300 OXFORD, ENGLAND: Apollo Theater Lease expires 2008 1,800 Old Fire Station Club Lease expires 2000 200 LIVERPOOL, ENGLAND: Empire Theater 125-Year Lease 2,300 MANCHESTER, ENGLAND: Manchester Opera House Theater Owned 2,000
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TOTAL TYPE OF SEATING MARKET AND VENUE VENUE SFX'S INTEREST CAPACITY - -------------------------------- --------------- ---------------------------------------------- --------- Manchester Palace Theater Theater Owned 2,000 Manchester Apollo Theater Theatre Owned 2,600 Tameside Hippodrome Theater Management agreement expires October 1, 2007 1,200 SHEFFIELD, ENGLAND: Sheffield Arena Theater Management Agreement 12,000 YORK, ENGLAND: Grand Opera House Theater Owned 1,000 FELIXTOWE, ENGLAND: Spa Pavilion Theater Management Agreement 900 FOLKSTONE ENGLAND: Leas Cliff Hall Theater Management agreement 800 HAYES, ENGLAND: Beck Theater Theater Management agreement expires April 4, 2007 600 LEICESTERSHIRE, ENGLAND: Donington Park Arena/Motor Lease expires 2022 72,500 racing circuit SCARBOROUGH, ENGLAND: Futurist Theater Management agreement 2,100 SOUTHPORT, ENGLAND: Southport Theater Theater Lease expires January 4, 2008 1,600 SWINDON, ENGLAND: Wyvern Theater Theater Management agreement expires March 25, 2004 600 TORBAY, ENGLAND: Princess Theater Theater Lease expires November 17, 2058 1,400 EDINBURGH, SCOTLAND: The Playhouse Theater Owned 3,300 DUBLIN, IRELAND: The Point Arena 50% interest in long-term lease 9,000 CARDIFF, WALES: International Arena Theater Management Agreement 6,700 STOCKHOLM, SWEDEN Cirkus Theater Theater owned/land leased 1,600
- ---------- (1) Based on the July 1998 population of metropolitan statistical areas as set forth in the Internet Press Release, dated December 1999, by the Population Estimates Program, Population Division, U.S. Bureau of the Census. Excludes venues where SFX sells subscriptions for touring Broadway shows. (2) Additional seating of approximately 40,000 is available for certain events. (3) Consulting agreement provides for booking, group sales and marketing consultation services. Venue is available for rental by all promoters. (4) Most shows have standing room which increases capacity. (5) Additional seating of approximately 5,000 is available for certain events. (6) Venue is currently under development. OPERATING STRATEGY SFX's principal objectives are to maximize revenue and cash flow growth through the following specific strategies: OWN AND OPERATE THE LEADING INTEGRATED LIVE ENTERTAINMENT NETWORK A key component of SFX's operating strategy is to take advantage of the benefits provided by owning and operating an international live entertainment network. SFX's integrated production, promotion, venue operation and event management services enable SFX to: 19 o attract leading performers and events; o provide "one-stop shopping" for performers and agents; o increase venue utilization; o enhance its ability to maximize ancillary revenue from concession sales, product merchandising, ticket rebates, and other ancillary sources; o capture a larger percentage of overall revenues from live entertainment events; and o improve operating efficiencies and take advantage of economies of scale. Examples of opportunities afforded to SFX as a result of its large-scale venue operations include: o increased percentage of concessions revenues at amphitheaters through its agreements with concessionaires; o increased ticket rebate revenues through its agreement with Ticketmaster; o increased national sales and sponsorship programs; and o the ability to institute best business practices including special revenue-enhancing programs such as VIP seating and tiered ticket pricing. MAXIMIZE SPONSORSHIP REVENUE OPPORTUNITIES To maximize revenues, SFX actively pursues the sale of local, regional and national corporate sponsorships, including naming rights and designating "official" event or tour sponsors and providers of concessions. Sponsorship arrangements can provide significant additional revenues at negligible incremental cost. Further, many of SFX's venues currently have no sponsorship arrangements in many of the available categories, including naming rights. By utilizing its leadership position in the live entertainment industry, including its access to a large audience, SFX intends to pursue the sale of local, regional and national sponsorships to major corporations. Examples of recent successes in pursuing this strategy include the sale of "naming rights" to certain of our venues, including the FleetBoston Pavilion, the Tweeter Center for the Performing Arts and the First American Music Center. SFX believes that it is able to deliver a unique promotional vehicle to corporate sponsors by offering the ability to target specific audiences by geography and demography. PURSUE INTERNATIONAL CONSOLIDATION OPPORTUNITIES The live entertainment industry outside of the U.S. is highly fragmented, with little, if any, integration of services. Event promotion, production, sponsorship and management are typically done at a local level by small operators. SFX believes that the consolidation opportunities that have fueled its domestic growth since its formation exist internationally as well. Accordingly, SFX intends to pursue its business model outside of North America and believes that such expansion will, among other things: o provide it with better access to successful foreign performers and events; o provide it with additional outlets for its domestic performers and events; and o increase the opportunities for performers and events to "cross-over" between the U.S. and foreign markets. CONTINUE TO PURSUE DOMESTIC CONSOLIDATION OPPORTUNITIES Notwithstanding our strong national presence, SFX believes that the U.S. live entertainment industry continues to be highly fragmented with attractive acquisition opportunities still available. The U.S. live entertainment business remains characterized by numerous participants, including booking agents, promoters, producers, venue owners and venue operators, many of which are entrepreneurial and capital-constrained local or regional businesses that do not achieve significant economies of scale from their operations. SFX believes that the fragmented nature of the industry continues to present attractive 20 acquisition opportunities, and that its larger size will provide it with improved access to the capital markets. This will give SFX a competitive advantage in implementing its acquisition strategy. Through consolidation, SFX believes that it is better able to coordinate negotiations with performers and talent agents, addressing what SFX believes is a growing desire among performers and talent agents to deal with fewer, more sophisticated promoters. SFX intends to selectively pursue additional strategic acquisitions that complement its existing businesses. LAUNCH INTERNET INITIATIVES SFX's Internet initiatives strategy is designed to take advantage of SFX's unique and extensive access to performers, athletes, live events, premium tickets and other merchandise. SFX.com, which has centralized the access to data on over 80 of our current websites, provides commerce-driven services such as schedules of events, tour information and deep links to applicable pages within ticketing agents' websites to facilitate ticket sales. SFX is currently in the process of expanding the capabilities of SFX.com to offer merchandise sales. SFX is also expanding its offerings of live event cybercasts, which are often syndicated to networks of third party websites and promoted and distributed on the SFX websites. During 2000, SFX also plans to launch FirstInLine.com which will provide access to premium tickets through an affinity club. In addition to our core Internet initiatives, we have made minority equity investments in several early stage companies possessing complementary content and technological capabilities. Management believes that the investments in these companies offer significant sponsorship opportunities. However, these companies have limited operating histories and SFX's investments therein may be subject to significant declines in value. SFX can provide no assurances that these investments, or its core Internet initiatives, will be commercially successful. INTEGRATE ACQUIRED BUSINESSES INTO CENTRALIZED BOOKING, MARKETING AND ACCOUNTING SYSTEMS SFX's management will continue to impose strict financial reporting and cost controls on all of its businesses and to rapidly integrate all of its future acquisitions into its centralized booking, marketing and accounting systems. SFX will seek to realize the benefits of systems integration, including economies of scale, through: o the implementation of a nationally coordinated booking system for contracting and scheduling acts; o the establishment of a centralized marketing team to exploit ancillary revenue streams on local, regional and national levels, including sponsorship, advertising and merchandising opportunities; and o the implementation of a centralized accounting system. REGULATORY MATTERS Because SFX relies on acquisitions of existing businesses and assets for much of its growth, restrictions imposed by local, state, federal and international regulatory, licensing, approval and permit requirements, including those relating to zoning, operation of public facilities, consumer protection and antitrust, will significantly affect its ability to acquire and operate its business and pursue its operating strategies. For example, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice have the authority to challenge SFX's acquisitions on antitrust grounds before or after the acquisitions are completed. Each state or other jurisdiction in which SFX operates may also challenge an acquisition under state, federal or foreign antitrust laws as applicable. SFX may be unable to obtain the licenses, approvals and permits it requires from time to time, including approvals under the Hart-Scott-Rodino Act, to acquire and operate live entertainment businesses in accordance with its expansion strategy. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors." ENVIRONMENTAL MATTERS SFX is subject to various laws, regulations and ordinances which govern the use, storage, disposal, emission and release of hazardous and non-hazardous substances, as well as zoning and noise level 21 restrictions which may effect, among other things, the hours of operations of its venues. Management believes that SFX is in substantial compliance which such governmental laws, regulations and ordinances. Management does not believe that SFX will incur compliance costs pursuant to such requirements that would have a material adverse effect on its consolidated financial position or future results of operations. EMPLOYEES As of December 31, 1999, SFX had approximately 2,700 full-time employees. SFX will also, from time to time, hire or contract for part-time or seasonal employees or independent contractors, although its staffing needs will vary. Management believes that its relations with its employees are good. A number of the employees of SFX are covered by collective bargaining agreements. ITEM 2. PROPERTIES SFX's executive offices are located at 650 Madison Avenue, 16th Floor, New York, New York 10022. SFX wholly or partially owns and/or operates 124 venues as more fully described under Item 1. "Business -- Business Segments of SFX -- Venues." In addition, SFX owns or leases office space throughout the United States and abroad in connection with its operations. On March 3, 2000, SFX entered into a 20-year lease agreement for the Candler Tower in Times Square, New York. The building, which has approximately 180,000 square feet of office space, is expected to be used as SFX's world headquarters. ITEM 3. LEGAL PROCEEDINGS Between approximately February 29 and March 10, 2000, 11 lawsuits were filed in the Court of Chancery in the State of Delaware, New Castle County, by various plaintiffs, all claiming to be shareholders of Class A common stock of SFX, against SFX, its directors and Clear Channel Communications, Inc. The complaints all seek essentially the same relief, i.e., certification as a class action, an injunction enjoining consummation of the proposed SFX/Clear Channel merger and/or damages in an amount to be determined. The complaints allege that the difference in consideration for the Class A and Class B common stockholders pursuant to the merger constitutes unfair consideration to the Class B common stockholders. The complaints allege that SFX's directors have breached their fiduciary duty in agreeing to such terms and conditions and further allege that Clear Channel aided and abetted the actions of the directors of SFX. To date, no answers have been filed by any of the defendants. A plaintiff in one of the lawsuits has filed a motion for summary judgement. The defendants are scheduled to reply to that motion in April 2000. SFX and the other defendants intend to defend the actions vigorously. Universal Concerts II, Inc., a California corporation formerly named MCA Concerts II, Inc., brought suit against PACE Amphitheaters, Inc., PACE Entertainment Group, Inc., SFX Entertainment, Inc., Brian Becker and Allen Becker. The complaint alleged, among other things, that SFX's acquisitions of PACE and Concert/Southern caused breaches of PACE's various agreements with Universal. The complaint alleged that PACE is in breach of a co-promotion agreement, that Brian Becker and Allen Becker are in breach of non-competition agreements and that SFX has intentionally interfered with contracts between the plaintiff and certain of the defendants. The defendants have removed the case from the State Court to the Federal Court for the Central Division of California and have answered the complaint denying liability. Although the lawsuit seeks damages in an unspecified amount, in SFX management's view, the realistic amount in controversy is not material to the business or prospects of SFX. The defendants intend to defend the case vigorously. On November 20, 1998, a group of plaintiffs filed a complaint against 11 talent agencies and 29 promoters, including SFX and several of its subsidiaries. According to the complaint, the plaintiffs are five individual African-Americans and five corporations owned by such individuals. The complaint alleges action by the defendants to exclude African-Americans from promoting concerts and seeks injunctive relief and damages for civil rights and antitrust violations. The focus of the action appears to be industry-wide, rather than specifically directed at SFX. On May 25, 1999, the complaint was dismissed without prejudice to plaintiffs' right to file an amended pleading. On August 9, 1999, the plaintiffs filed an amended complaint containing allegations that are substantially the same as the original complaint. On October 1, 1999, the defendants filed motions to dismiss the amended complaint. The motions to dismiss will be before the court on April 11, 2000. SFX intends to defend the action vigorously. 22 Although SFX is involved in several suits and claims in the ordinary course of business, it is not currently a party to any legal proceeding that it believes would have a material adverse effect on its business, financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the stockholders during the fourth quarter of 1999. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF CLASS A COMMON STOCK Since June 8, 1999, SFX's Class A Common Stock has been quoted on the New York Stock Exchange under the symbol "SFX." Between April 21, 1998 and June 7, 1999, the Class A Common Stock was quoted on Nasdaq National Market under the symbol "SFXE." Between February 18, 1998, and April 20, 1998, the Class A Common Stock traded on a when-issued basis on the over-the-counter market under the symbol "SFXAV." The Class B Common Stock is not publicly traded. The following table sets forth the high and the low closing bid information for the shares of Class A Common Stock as reported on the over-the-counter market through April 20, 1998, as reported by the Nasdaq National Market between April 21, 1998 and June 7, 1999 and by the New York Stock Exchange subsequent to June 7, 1999. Bid quotations reflect interdealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions. The information has been adjusted to reflect a 3-for-2 stock split of SFX's outstanding Common Stock effected on July 27, 1999.
CLASS A COMMON STOCK ------------------------------- 1998 HIGH LOW - ---- ---------------- ------------ First Quarter, since February 18, 1998 ......... $ 16.83 $ 13.08 Second Quarter ................................. 30.58 16.67 Third Quarter .................................. 36.67 17.96 Fourth Quarter ................................. 36.58 15.08 1999 HIGH LOW - ---- -------- -------- First Quarter .................................. $ 43.04 $ 35.50 Second Quarter ................................. 46.58 35.54 Third Quarter .................................. 51.67 30.63 Fourth Quarter ................................. 36.56 26.38
On March 28, 2000, the last reported sales price of the Class A Common Stock on the New York Stock Exchange was $39 7/8 per share. As of March 28, 2000, SFX had 316 holders of record of the Class A Common Stock and 2 holders of record of the Class B Common Stock. DIVIDEND POLICY SFX has no present plans to declare any dividends on its Common Stock. SFX's note indentures significantly restrict its ability to pay dividends on Common Stock in the future, and the payment of cash dividends on SFX's Common Stock is currently prohibited under SFX's Senior Credit Facility. In, addition, the Agreement and Plan of Merger between SFX, Clear Channel Communications, Inc. and CCUII Merger Sub, Inc., prohibits SFX from paying cash dividends on its Common Stock. The decision to declare a dividend and the amount thereof, if any, will be in the sole discretion of the board of directors of SFX. 23 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA OF SFX The selected consolidated financial data of SFX has been derived from the historical financial statements of Delsener/Slater and affiliated companies, the predecessor of SFX, as of and for each of the two years in the period ended December 31, 1996 and the historical consolidated financial statements of SFX as of and for each of the three years in the period ended December 31, 1999.
Year Ended December 31, (in thousands, except share data) Predecessor 1995 1996 1997 1998 1999 ---------- ----------- ------------ -------------- ------------- STATEMENT OF OPERATIONS DATA: Revenue ......................................... $48,054 $ 50,886 $ 96,653 $ 888,916 $1,684,355 Operating expenses .............................. 47,178 50,686 83,417 790,504 1,478,813 Depreciation & amortization (1) ................. 750 747 5,431 62,197 142,583 Non-cash charges ................................ -- -- -- 34,051 7,250 Non-recurring charges ........................... -- -- -- 5,600 -- Corporate expenses .............................. -- -- 2,206 11,194 18,524 ------- -------- --------- ---------- ---------- Operating income (loss) ......................... 126 (547) 5,599 (14,630) 37,185 Interest expense ................................ (144) (60) (1,590) (50,759) (100,825) Other income, net ............................... 178 198 295 2,455 6,577 Gains on sales of assets, net ................... -- -- -- -- 760 ------- -------- --------- ---------- ---------- Income (loss) before income taxes ............... 160 (409) 4,304 (62,934) (56,303) Income tax provision ............................ (13) (106) (490) (3,000) (1,597) ------- -------- --------- ---------- ---------- Income (loss) before extraordinary loss ......... 147 (515) 3,814 (65,934) (57,900) Extraordinary loss, net of taxes ................ -- -- -- -- (2,490) ------- -------- --------- ---------- ---------- Net income (loss) ............................... $ 147 $ (515) $ 3,814 $ (65,934) $ (60,390) ======= ======== ========= ========== ========== Net income (loss) per basic and dilutive common share (2) ............................... $ 0.18 $ (1.83) $ (1.10) OTHER OPERATING DATA: EBITDA (3) ...................................... $ 871 $ 200 $ 11,030 $ 87,218 $ 187,018 Cash provided by (used in): Operating activities ............................ $ (453) $ 4,214 $ 1,005 $ 27,441 $ 34,879 Investing activities ............................ -- (435) (73,296) (891,920) (883,156) Financing activities ............................ (216) (1,431) 78,270 906,521 1,184,554 BALANCE SHEET DATA: Current assets .................................. $ 3,022 $ 6,191 $ 11,220 $ 148,733 $ 587,842 Property and equipment, net ..................... 2,978 2,231 59,685 292,626 686,246 Goodwill, net ................................... -- -- 60,306 874,783 1,503,981 Total assets .................................... 6,037 8,880 146,942 1,383,452 2,948,873 Current liabilities ............................. 3,138 7,973 22,437 163,414 361,678 Long-term debt .................................. -- -- 15,255 768,195 1,384,992 Temporary equity-stock subject to redemption (4) ................................. -- -- -- 16,500 18,876 Stockholders' equity ............................ 2,900 907 102,144 378,536 1,099,969
- ---------- (1) Includes $2,406 and $12,701 of integration and start-up costs for the years ended December 31, 1998 and 1999, respectively. (2) Reflects three-for-two stock split which occured in July 1999. (3) "EBITDA" is defined as earnings before interest, taxes, minority interest, gains on sales of assets, non-cash and non-recurring charges and depreciation and amortization, including integration and start-up costs. Although EBITDA is not a measure of performance calculated in accordance with generally accepted accounting principals ("GAAP"), SFX believes that EBITDA is accepted by the entertainment industry as a generally recognized measure of performance and is used by analysts who report publicly on the performance of entertainment companies. Nevertheless, this measure should not be considered in isolation or as a substitute for operating income, net income, net cash provided by operating activities or any other measure for determining SFX's operating performance or liquidity which is calculated in accordance with GAAP. SFX believes that the operating performance of entertainment companies, such as SFX, is measured, in part, by their ability to generate EBITDA. Further, SFX uses EBITDA as its primary indicator of operating performance and as a measure of liquidity. EBITDA, as SFX calculates it, may not be comparable to calculations of similarly titled measures presented by other companies. (4) As a result of the PACE and Marquee acquisitions, SFX may be obligated to repurchase 820,000 shares of Class A Common Stock issued in connection with these acquisitions. SFX has recorded the maximum liability under the related agreements. During 1999, certain of the PACE sellers gave up their put right to approximately 67,000 shares of Class A Common Stock. In January 2000, SFX was required to repurchase 36,000 shares of Class A Common Stock for $1,900. 24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of SFX should be read in conjunction with the consolidated financial statements and related notes thereto included in this Report. The following discussion contains certain forward-looking statements that involve risks and uncertainties. SFX's actual results could differ materially from those discussed herein. Factors that could cause or contribute to the differences are discussed in "-- Safe Harbor for Forward-Looking Statements", "-- Risk Factors" and elsewhere in this Report. SFX undertakes no obligation to revise these forward-looking statements to reflect any future events or circumstances. GENERAL SFX operates primarily in four major business segments within the live entertainment industry: o the music segment, which includes promoting and producing music events and tours and owning and operating concert venues; o the theater segment, which includes producing and promoting theatrical events and tours and owning and operating theatrical venues; o the sports segment, which includes talent representation and marketing of professional athletes and broadcasters, television programming and production, event management and promotion of motor sports events; and o the family entertainment & other segment, which includes producing and promoting family-oriented events, providing marketing and consulting services, publishing music related trade magazines and producing and distributing network radio special events and concert programming. SFX sells corporate sponsorships and advertising in each of its segments. Music SFX's primary source of concert promotion revenues is from ticket sales at events promoted by SFX. As a venue operator, SFX's primary sources of revenue are corporate sponsorships and advertising, concessions, parking, merchandising, ticket rebates and other ancillary services, derived principally from events promoted by SFX. Revenue from ticket sales is affected primarily by the number of events SFX promotes, the average ticket price and the number of tickets sold. The average ticket price depends on the popularity of the artist, the size and type of venue and the general economic conditions and consumer tastes in the market where the event is being held. Generally, the promoter or producer will agree to pay the artist the greater of a minimum guarantee or a profit sharing payment based on ticket revenue less certain show expenses. The promoter generally assumes the financial risk of ticket sales and is responsible for local production and advertising of the event. When the promoter assumes the financial risk, all revenue and expenses associated with the event are recorded. Revenue received before the event date is initially recorded on the balance sheet as deferred revenue; after the event occurs, it is recorded on the statement of operations as gross revenue. SFX's most significant operating expenses are talent fees, production costs and venue operating expenses, including rent, advertising costs and insurance expense. The booking of talent in the concert promotion business generally involves contracts for limited engagements, often involving a small number of performances. As a producer, SFX is generally responsible for the booking of talent for a larger number of events, often an artist's entire tour. Talent fees depend primarily on the popularity of the artist, the ticket price that the artist can command at a particular venue and the expected level of ticket sales. Production costs and venue operating expenses have substantial fixed cost components and variable costs primarily related to expected attendance. Expenses are deferred on the balance sheet as prepaid event expenses until the event occurs; after the event occurs, the expenses are included on the statement of operations as costs of revenues. 25 Theater SFX's theatrical operations are directed mainly towards the presentation of touring Broadway shows at owned and/or operated venues and the production and promotion of touring Broadway shows. Touring Broadway shows generate revenues primarily from ticket sales and sponsorships. The principal source of revenue at owned and/or operated venues is rental income from production companies, merchandise sales and concession sales. Revenue from ticket sales is primarily affected by the popularity of the production and the general economic conditions and consumer tastes in the particular market and venue where the production is presented. To reduce its dependency on the success of any single touring production, SFX sells advance annual subscriptions that provide the purchaser with tickets for all of the shows that SFX intends to tour in the particular market during the touring season. Historically, approximately 30% of ticket sales for touring Broadway shows presented by SFX were sold through advance annual subscriptions. Subscription related revenues received before the event date and other advanced ticket sales are initially recorded on the balance sheet as deferred revenue; after the event occurs, they are recorded on the statement of operations as gross revenue. Promotion expenses are capitalized during the year on the balance sheet as prepaid event expenses until the event occurs. Production expenses are capitalized on the balance sheet as prepaid event expenses until the tour begins, at which time all costs are amortized over the expected life of the tour, which is generally less than one year. Subscriptions for touring Broadway shows typically cover approximately two-thirds of SFX's break-even cost point for those shows. Principal operating expenses related to touring shows include talent, rent, advertising and royalties. Talent costs are generally fixed once a production is cast. Rent and advertising expense may be either fixed or variable based on the arrangement with the particular local promoter/venue operator. Royalties are generally paid as a percentage of gross ticket sales. The principal operating expenses related to owned or operated venues are building operation costs and payroll. SFX also makes equity investments in original Broadway productions, principally as a means to obtain the touring rights for such shows. These investments are generally accounted for using either the equity method or the cost method of accounting, based on the percentage of ownership. SFX monitors the recoverability of these investments on a regular basis, and SFX may be required to take write-offs if the original production closes or if SFX determines that the production will not recoup the investment. The timing of any write-off could materially adversely affect the operating results of the theatrical segment in a particular period. Sports SFX is a leading fully integrated sports marketing and management company specializing in the representation of sports athletes and broadcasters, integrated event management, television programming and production and marketing consulting services. SFX's talent representation and marketing activities consist principally of the representation of sports athletes and broadcasters in contract and endorsement negotiations. SFX's principal source of revenue is from talent representation. SFX typically receives a percentage of monies earned by its clients and a percentage of the endorsement deals negotiated by SFX. Revenue from these sources is recognized in the period the services are rendered and the fee is determinable. Principal operating expenses include salaries, wages and travel and entertainment expenses. SFX's motor sports activities consist principally of the production and promotion of specialized motor sports, which generate revenues primarily from ticket sales and sponsorships, as well as merchandising and video rights associated with producing motor sports events. Ticket prices for these events are generally lower than for theatrical or music concert events. Event-related revenues received before the event date are initially recorded on the balance sheet as deferred revenue. After the event occurs, they are recorded on the statement of operations as gross revenue. Operating expenses associated with motor sports activities include talent, rent, track preparation costs, security and advertising. These operating expenses are generally fixed costs that vary based on the type of event and venue where the event is held. Expenses are deferred on the balance sheet as prepaid event expenses until the event occurs; after the event occurs, the expenses are included on the statement of operations as costs of revenues. 26 Family Entertainment & Other The family entertainment segment produces and presents family-oriented entertainment such as children's theatrical shows, dance shows, ice-skating, gymnastic shows and artifact exhibits worldwide. SFX's other principal businesses include the production and distribution of radio industry trade magazines and the provision of radio airplay and music retail research services. The primary sources of revenues from these activities include the sale of advertising space in its publications and the sale of advertising time on radio stations that carry its syndicated shows, subscription fees for its trade publications and subscription fees for access to its database of radio play lists and audience data. Revenues generally vary based on the overall advertising environment and competition. SFX also provides marketing and consulting services pursuant to contracts with individual clients for specific projects. Revenues from and costs related to these services vary based on the type of service being provided. PROPOSED MERGER WITH CLEAR CHANNEL COMMUNICATIONS, INC. On February 29, 2000 SFX announced that it had entered into a definitive merger agreement with Clear Channel Communications, Inc. Under the terms of the merger agreement, the Class A shareholders of SFX will receive 0.6 shares of Clear Channel Communications, Inc. common stock for each SFX share, and Class B shareholders of SFX will receive one share of Clear Channel Communications, Inc. common stock for each SFX share, on a fixed exchange basis. The proposed merger would require an amendment to SFX's certificate of incorporation to allow the unequal consideration being paid to holders of Class A and Class B Common Stock. The transaction is expected to be consummated early in the third quarter of 2000, subject to the approval of the Class A and Class B Shareholders of SFX, customary regulatory approvals and other closing conditions. For more information regarding the terms of the merger, please refer to the Agreement and Plan of Merger, which has been incorporated by reference as an exhibit to this Report. The information included in this Report is being presented by SFX without input from Clear Channel and without consideration of Clear Channel's plans following the merger. No assurances can be given that the merger will be consummated, on the terms currently contemplated, or at all. Clear Channel is a public company and is therefore subject to the informational reporting requirements of the Securities Exchange Act of 1934. Accordingly, information regarding the business and operations of Clear Channel is filed with the Securities and Exchange Commission and is publicly available. STOCK SPLIT In July of 1999, SFX completed a 3-for-2 split of its Class A and Class B Common Stock. The financial and share information presented herein has been restated, to the extent applicable, to reflect the effect of the stock split. 1997 ACQUISITIONS During 1997, SFX completed the following acquisitions (in thousands):
CASH CONSIDERATION VALUE OF NUMBER DATE AND ASSUMED STOCK OF SHARES BUSINESS COMPANY ACQUIRED DEBT ISSUED ISSUED SEGMENT - ------------------------- ---------- --------------- ---------- ----------- --------- Delsener/Slater ......... 1/2/97 $ 26,815 $ -- -- Music Meadows ................. 3/1/97 16,354 7,500 371 Music Sunshine ................ 6/1/97 57,489 4,000 228 Music -------- ------- --- Total ................... $100,658 $11,500 599 ======== ======= ===
The cash portion of the purchase price for SFX's 1997 acquisitions was financed through capital contributions from SFX Broadcasting. 27 1998 ACQUISITIONS During 1998, SFX completed the following acquisitions (in thousands):
CASH CONSIDERATION VALUE OF NUMBER DATE AND ASSUMED STOCK OF SHARES BUSINESS COMPANY ACQUIRED DEBT (1) ISSUED ISSUED SEGMENT - -------------------------- ---------- --------------- ---------- ----------- ------------------------------- Bill Graham Presents ..... 2/24/98 $ 72,827 $ 7,500 845 Music and Family Entertainment & Other PACE and Pavilion ........ 2/25/98 220,683 20,000 2,250 Music, Theatrical and Sports Contemporary ............. 2/27/98 82,702 16,200 1,894 Music and Family Entertainment & Other Network .................. 2/27/98 59,145 16,239 1,284 Other FAME ..................... 6/4/98 85,491 35,960 1,500 Sports Don Law .................. 7/2/98 92,195 -- -- Music Magicworks ............... 9/11/98 115,740 -- -- Music, Theatrical and Family Entertainment & Other Other acquisitions ....... Various 194,822 11,000 563 Music, Theatrical, Sports, -------- -------- ----- Family Entertainment and Other Total .................... $923,605 $106,899 8,336 ======== ======== =====
- ---------- (1) Includes cash paid related to deferred contingent purchase price agreements. The funds required to finance the 1998 acquisitions were obtained from the February 1998 note offering, SFX's then-existing senior credit facility and the 1998 equity offering. 1999 ACQUISITIONS During 1999, SFX completed the following acquisitions (in thousands):
CASH CONSIDERATION VALUE OF NUMBER DATE AND ASSUMED STOCK OF SHARES BUSINESS COMPANY ACQUIRED DEBT (1) ISSUED ISSUED SEGMENT - ----------------------- ---------- --------------- ---------- ----------- ------------------------------- Cellar Door ........... 2/19/99 $ 76,788 $ 20,000 519 Music Nederlander ........... 3/16/99 126,423 -- -- Music Marquee ............... 3/16/99 54,073 81,728 2,103 Sports Livent ................ 8/27/99 100,809 -- -- Theatrical Apollo ................ 9/17/99 218,942 37,472 980 Theatrical, Family Entertainment & Other EMA Telstar ........... 10/4/99 27,857 -- -- Music Mojo Works ............ 10/21/99 40,654 -- -- Music Other Acquisitions .... Various 175,422 15,745 397 Music, Theatrical, Sports, --------- -------- ----- Family Entertainment and Other Total ................. $ 820,968 $154,945 3,999 ========= ======== =====
- ---------- (1) Includes cash paid related to deferred contingent purchase price agreements. Cellar Door On February 19, 1999, SFX purchased all of the issued and outstanding capital stock of the Cellar Door group of companies for a purchase price of $70.0 million in cash, 519,357 shares of Class A Common Stock with a value of $20.0 million, and $8.5 million (present value of $6.8 million) payable in five equal annual installments beginning on the first anniversary of the closing date. In addition, SFX agreed to issue 28 to the seller options to purchase 150,000 shares of Class A Common Stock in equal installments over the five-year period following the closing date at fair market value. SFX financed the acquisition with a portion of the net proceeds from its February 1999 equity offering. Nederlander On March 16, 1999, SFX acquired certain interests in seven venues and other assets of Nederlander for an aggregate purchase price of approximately $93.8 million in cash. The agreement relating to the Mesa del Sol Centre for the Performing Arts provides for additional payments based on the financial performance of this venue. In the third quarter of 1999, SFX renegotiated the agreement with respect to the Firstar Arena whereby SFX relinquished its financial interest in the venue in exchange for a revised long-term venue management agreement. SFX financed this acquisition with a portion of the net proceeds of its February 1999 equity offering and borrowings under SFX's then-existing senior credit facility. In addition, during the fourth quarter of 1999, SFX purchased the remaining 50% interest in a partnership that holds the long-term leases to two amphitheaters for $35.5 million. SFX financed the incremental acquisition with a portion of the net proceeds of the August 1999 equity offering and borrowings under SFX's senior credit facility. Marquee On March 16, 1999, a subsidiary of SFX was merged with and into The Marquee Group, Inc. and Marquee became a wholly owned subsidiary of SFX. In connection with the merger, SFX issued approximately 2.1 million shares of SFX Class A Common Stock with a value of approximately $81.7 million on the date of the merger and repaid $33.5 million of Marquee's debt. SFX financed the cash portion of the acquisition with borrowings under its then-existing senior credit facility. Through March 28, 2000, SFX also paid $49.4 million of additional purchase consideration which arose from acquisitions made by Marquee prior to SFX's acquisition of Marquee. Under certain circumstances, SFX may be required to make additional payments arising from Marquee's acquisition agreements. In the third quarter of 1999, SFX disposed of the operations of QBQ Entertainment, Inc, whose primary business is the representation of artists in the music industry as agent. No gain or loss was recognized on the transaction. SFX does not have a management or ownership interest in the newly formed company. In connection with the disposition, as of December 31, 1999, SFX had loaned the newly formed company $7.2 million, which has been recorded as an other asset on the consolidated balance sheet. SFX also rendered advisory services to QBQ for which revenue of $1.0 million was recognized in 1999. The newly formed company is in the process of obtaining independent financing. Livent On August 27, 1999, SFX purchased certain assets of Livent, Inc. and its affiliates, including three theaters and the intellectual property rights to several current and future Broadway productions, including Ragtime, Fosse, Phantom of the Opera and Seussical. The purchase price for this acquisition was approximately $100.8 million, consisting of $79.3 million in cash, $18.4 million of deferred purchase consideration and $3.1 million in assumption of debt, subject to post-closing adjustments. SFX financed the cash portion of the acquisition with a portion of the net proceeds from its August 1999 equity offering. Apollo On September 17, 1999, SFX acquired Apollo Leisure Group plc, the largest live theater operator as well as one of the largest providers of entertainment and leisure management services in the United Kingdom. The total purchase price for the acquisition was approximately $256.4 million, comprised of approximately $196.4 million in cash, 979,667 shares of Class A Common Stock with a value of approximately $37.5 million and the assumption of net liabilities of approximately $22.5 million, subject to post-closing adjustments. Apollo operates, among other venues, 3 arenas and a network of 23 theaters. In connection with the Apollo acquisition, SFX acquired 100% of Barry Clayman Concerts, which is a leading promoter of concert and other live entertainment events throughout the U.K. SFX financed the cash portion of the acquisition with borrowings under SFX's senior credit facility. 29 EMA Telstar On October 4, 1999, SFX purchased EMA Telstar, a venue owner and a promoter and producer of live entertainment events in Sweden, for approximately $27.9 million in cash. The purchase price was paid with a portion of the net proceeds from the August 1999 equity offering. Under certain conditions, SFX may have to make significant additional payments based upon EMA's achievement of certain earnings targets. Mojo Works On October 25, 1999, SFX purchased 80% of the Mojo Works group of companies, a promoter and producer of live entertainment in the Netherlands for approximately $40.6 million in cash, including working capital, subject to post-closing adjustments. Under certain circumstances, the sellers have the right to sell the remaining 20% interest to SFX and SFX has the right to purchase the remaining 20% interest from the sellers. The purchase price was paid with a portion of the net proceeds from the August 1999 equity offering. Other Acquisitions During the first quarter of 1999, SFX also completed the acquisitions of The Entertainment Group, Inc., a concert and theatrical producer, RZO, a concert promoter, producer of international music concert tours and music publishing business and the assets of Integrated Sports International, L.P., a full-service sports marketing company and a music venue. The total consideration for these acquisitions and the long-term marketing and consulting agreement consisted of $73.2 million in cash and 142,766 shares of Class A Common Stock valued at $5.2 million at the time of the acquisitions. In addition, SFX has accrued $4.0 million of contingent purchase price as of December 31, 1999. SFX financed these transactions with the proceeds from the February 1999 equity offering and borrowings under SFX's then-existing senior credit facility. In addition, SFX may be required to make additional payments of up to $13.0 million in cash and 75,000 shares of Class A Common Stock based on the financial performance of certain of these acquired companies. During the second quarter of 1999, SFX completed the acquisitions of Hendricks Management Company, Inc., which represents and provides financial consulting services to team sports athletes, primarily in professional baseball, and a 50% interest in A.H. Enterprises, a leading promoter of urban music. SFX increased its ownership interest in A.H. Enterprises to 60% in January 2000. The total consideration for these acquisitions was approximately $29.6 million in cash and $4.1 million in deferred purchase consideration. SFX financed these acquisitions with borrowings under SFX's then-existing senior credit facility and cash on hand. SFX may be required to make additional payments, in shares of SFX Class A Common Stock, based on the cumulative financial performance of Hendricks Management Company, Inc. through December 31, 2002. In addition, SFX invested approximately $11.2 million in certain entertainment and sports related Internet companies. During the third quarter of 1999, SFX completed the acquisitions of Candid Productions, Inc., a producer of professional figure skating events, a 50% interest in Cardenas Fernandez & Associates, Inc, a leading concert promoter and producer of music concerts by Hispanic artists, Tellem & Associates, which represents team sports athletes, primarily in professional baseball and basketball and Midland Concert Promotions Group Limited, a concert promoter and motorsports venue operator in the United Kingdom. The total consideration for these acquisitions was approximately $66.4 million consisting of $49.2 million in cash, and 253,666 shares of Class A Common Stock valued at $10.5 million and $6.7 million in deferred purchase consideration. SFX financed these acquisitions with a portion of the net proceeds of the August 1999 equity offering and borrowings under the senior credit facility. During the fourth quarter of 1999, SFX completed the acquisitions of SME Power Branding, a sports brand identity company, the rights to a 10-year lease of Tabernacle, a music venue in Atlanta, Georgia and the assets of a sport talent representation company in Australia. The total cash consideration for these acquisitions was approximately $12.6 million. SFX financed these acquisitions with a portion of the net proceeds of the August 1999 equity offering and borrowings under the senior credit facility. 30 2000 ACQUISITIONS In the first quarter of 2000, SFX completed the acquisitions of Speakers of Sport, which represents professional baseball athletes and The Electric Factory, the primary concert promoter in the Philadelphia, Pennsylvania area. The total cash consideration of approximately $65.4 million was financed with a portion of the net proceeds from the August 1999 equity offering. Although SFX is currently pursuing certain additional acquisitions, it has not entered into any definitive agreements with respect to such acquisitions, and there can be no assurance that it will do so. See "-- Risk Factors -- If we are unable to complete future acquisitions, our stock price may suffer." The foregoing descriptions do not purport to be complete descriptions of the terms of the acquisition agreements and are qualified by reference to the acquisition agreements. Copies of certain of these acquisition agreements have been filed as exhibits to this Report and are incorporated herein by reference. Pursuant to certain of the aforementioned acquisition agreements, SFX may be required make additional payments or repurchase shares of its Class A Common Stock. All of SFX's acquisitions were accounted for using the purchase method of accounting, and the intangible assets acquired will generally be amortized over periods of up to 15 years. As of December 31, 1999, SFX had recorded net goodwill of $1.58 billion. The amount of amortization charges will be substantial and will continue to affect SFX's operating results in the future. These charges, however, do not result in an outflow of cash or impact EBITDA, as defined herein. FINANCINGS Senior Subordinated Notes Offerings On February 11, 1998, SFX completed an offering of $350.0 million in principal amount of 9 1/8% Senior Subordinated Notes due February 1, 2008. Interest is payable on the notes on February 1 and August 1 of each year. SFX used the proceeds from the February 1998 note offering and the initial borrowings under SFX's then-existing credit facility to consummate certain of SFX's 1998 acquisitions. On July 15, 1998, SFX consummated the exchange of substantially identical publicly registered notes for all outstanding old notes issued in the February 1998 notes offering. All original notes were tendered for exchange and were canceled upon the issuance of the same principal amount of exchange notes. On November 25, 1998, SFX completed an offering of $200.0 million in principal amount of 9 1/8% Senior Subordinated Notes due December 1, 2008. Interest is payable on the notes on June 1 and December 1 of each year. SFX used the proceeds from the November 1998 note offering to repay substantially all outstanding borrowings under the revolving portion of the then-existing senior credit facility. In March 1999, SFX consummated the exchange of substantially identical publicly registered notes for outstanding notes issued in the November 1998 note offering. All original notes were tendered for exchange and were canceled upon the issuance of the same principal amount of exchange notes. Consent Solicitation In July 1999, SFX completed a consent solicitation with respect to its outstanding senior subordinated notes whereby it obtained approval from the holders of the notes to modifications of certain covenants in the indentures governing the notes. The modifications, among other things, provided SFX with more flexibility to make investments and acquisitions internationally and permitted SFX's foreign subsidiaries to incur indebtedness, subject to certain limitations. Fees associated with the transaction totaled $13.7 million and have been recorded as debt issuance costs on the balance sheet. 31 Senior Credit Facility On August 23, 1999, SFX entered into a new seven-year $1.1 billion senior credit facility which replaced SFX's then-existing $350.0 million senior credit facility. The new senior credit facility is comprised of a $250.0 million multi-draw, multi-currency term loan maturing on December 31, 2005 (the "Term A Loan"), a single-draw, $600.0 million U.S. dollar term loan maturing on June 30, 2006 (the "Term Loan B") and a $250.0 million reducing revolver having a letter of credit sub-limit of $75.0 million maturing on December 31, 2005. SFX recorded a $2.5 million extraordinary loss on the early extinguishment of debt, net of taxes, related to the replaced facility. SFX used a portion of the borrowings under the senior credit facility to finance certain of its 1999 and 2000 acquisitions and intends to use the remaining borrowing availability for general corporate purposes and potential future acquisitions. May 1998 Equity Offering On May 27, 1998, SFX consummated an offering of 12,075,000 shares of Class A Common Stock at an offering price of $28.83 per share and received net proceeds of approximately $329.0 million. SFX used the proceeds to consummate certain of its 1998 acquisitions, to fund $109.7 million of tax indemnity payments related to the sale of SFX Broadcasting and to pay fees and other expenses. February 1999 Equity Offering In February 1999, SFX consummated an offering of 7,423,000 shares of Class A Common Stock at an offering price of $37.00 per share and received net proceeds of approximately $260.7 million. SFX used the proceeds to finance certain of its 1999 acquisitions. August 1999 Equity Offering In August 1999, SFX consummated an offering of 8,625,000 shares of SFX's Class A Common Stock at an offering price of $41.00 per share and received net proceeds of approximately $338.7 million. SFX used a portion of the net proceeds to finance certain of its 1999 and 2000 acquisitions and intends to use the remaining portion of the net proceeds for general corporate purposes and potential future acquisitions. RESULTS OF OPERATIONS The operating performance of entertainment companies, such as SFX, is measured, in part, by their ability to generate EBITDA. Further, SFX uses EBITDA as the primary indicator of its operating performance and secondarily as a measure of liquidity. SFX defines "EBITDA" as earnings before interest, taxes, minority interest, gains on sales of assets, non-cash and non-recurring charges and depreciation and amortization, including integration and start-up costs. Although EBITDA is not a measure of performance calculated in accordance with generally accepted accounting principles ("GAAP"), SFX believes that the entertainment industry accepts EBITDA as a generally recognized measure of performance and analysts who report publicly on the performance of entertainment companies use EBITDA. Nevertheless, 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 operating performance or liquidity that is calculated in accordance with GAAP. SFX believes that the operating performance of entertainment companies, such as SFX, is measured in part by their ability to generate EBITDA. Further, SFX uses EBITDA as its primary indicator of operating performance and as a measure of liquidity. EBITDA, as SFX calculates it, may not be comparable to calculations of similarly titled measures presented by other companies. SFX's operations and revenues have been largely seasonal in nature, with generally higher revenues generated in the second and third quarters. For example, pro forma for the 1999 acquisitions, SFX generated approximately 59% of its revenues in the second and third calendar quarters during the year ended December 31, 1999. SFX's outdoor venues are primarily used in the summer months and do not generate substantial revenue in the late fall, winter and early spring. Similarly, the musical concerts that SFX promotes largely occur in the second and third quarters. SFX's entertainment marketing and consulting in connection with musical concerts also generate a large share of revenues in the second and third quarters. Therefore, the seasonality of SFX's business causes, and will continue to cause, a significant variation in SFX's quarterly operating results. 32 HISTORICAL RESULTS Year ended December 31, 1999 as compared to the year ended December 31, 1998 During 1998 and 1999, SFX made significant acquisitions in each of its business segments. The 1998 and 1999 acquisitions were the primary reason for the increases in revenue, EBITDA and operating income, before corporate charges, in each of the segments during this period. The following table summarizes each segment's operating performance for the years ended December 31, 1999 and 1998 (in thousands):
REVENUE EBITDA (1) OPERATING (LOSS) INCOME --------------------------- -------------------------- ---------------------------- 1999 1998 1999 1998 1999 1998 ------------ ------------ ----------- ------------ ----------- -------------- Segments (2): Music ...................... $ 976,203 $ 604,469 $ 118,693 $ 61,204 $ 41,024 $ 24,598 Theatrical ................. 289,671 150,970 31,924 15,576 17,556 4,419 Sports ..................... 141,706 24,899 33,281 2,466 8,968 (2,897) Family entertainment & other .................... 276,775 108,578 21,644 19,166 3,349 10,095 ---------- --------- --------- --------- --------- ---------- Segment performance ......... 1,684,355 888,916 205,542 98,412 70,897 36,215 Corporate ................... -- -- (18,524) (11,194) (33,712) (50,845) ---------- --------- --------- --------- --------- ---------- Total ....................... $1,684,355 $ 888,916 $ 187,018 $ 87,218 $ 37,185 $ (14,630) ========== ========= ========= ========= ========= ==========
- ---------- (1) As used in these tables, EBITDA excludes integration and start-up costs and non-cash and non-recurring charges. (2) Certain segment information in 1998 has been reclassified to conform to the 1999 presentation. Music Revenue increased by $371.7 million to $976.2 million for the year ended December 31, 1999, compared to $604.5 million for the year ended December 31, 1998. EBITDA increased by $57.5 million to $118.7 million from $61.2 million. Operating income increased by $16.4 million to $41.0 million from $24.6 million. Approximately $262.5 million of the increase in revenue was primarily the result of the inclusion of revenue from the operations of Cellar Door, Nederlander, EMA Telstar and Mojo and approximately $109.2 million of the increase was the result of increased touring activity, including radio festivals, and increased ticket sales, sponsorships and concessions from businesses owned during both periods. The increase in EBITDA reflected a $35.0 million improvement at businesses owned for both periods, primarily as a result of the increased touring activity mentioned above and $22.5 million related to the music segment acquisitions. The increase in operating income of $16.4 million resulted from the factors contributing to the increase in EBITDA, partially offset by increased depreciation and amortization expense related to the acquisitions and a non-recurring loss related to SFX's Latin American touring activities. Theatrical Revenue increased by $138.7 million to $289.7 million for the year ended December 31, 1999, compared to $151.0 million for the year ended December 31, 1998. EBITDA increased by $16.3 million to $31.9 million from $15.6 million. Operating income increased by $13.2 million to $17.6 million from $4.4 million. Approximately $116.0 million of the increase in revenue is the result of the inclusion of revenue from the operations of Apollo, Livent and certain acquisitions that were not owned for the full year in 1998 and approximately $22.7 million of the increase in revenue was the result of increased theatrical touring productions, during 1999, in which SFX had a majority interest and, therefore revenues were consolidated in SFX's financial statements. The increase in EBITDA reflected a $20.2 million contribution from operations of the theatrical segment acquisitions in 1999 offset by a $3.9 million decrease related to a stronger theatrical touring season in 1999. The increase in operating income of $13.2 million resulted from operations of the theatrical segment acquisitions and the increase in EBITDA, partially offset by increased depreciation and amortization expense related to the acquisitions. Sports Revenue increased by $116.8 million to $141.7 million for the year ended December 31, 1999, compared to $24.9 million for the year ended December 31, 1998. EBITDA increased by $30.8 million to $33.3 million from $2.5 million. Operating income increased by $11.9 million to 33 $9.0 million from an operating loss of $2.9 million. Approximately $36.3 million of the increased revenue resulted from the operations of the PACE motorsports business. This 1998 acquisition of PACE occurred after the peak months of motorsports activities during that year. In addition, approximately $64.8 million of the increase in revenue resulted from the inclusion of the operations of the entities acquired by the sports segment in 1999 and an increase of $15.7 million related to increased sports representation and motor sports activity. The increase in EBITDA reflected a $26.0 million increase related to the operations of the sports companies acquired during 1998 and 1999 and a $4.8 million improvement at companies owned for both periods, primarily increased sports representation activity. The increase in operating income of $11.9 million resulted from the increase in EBITDA, partially offset by increased depreciation and amortization expense related to the acquisitions. The resulting improvement in EBITDA and operating income margins are primarily attributable to ownership of the motor sports business for the entire year during 1999. Family Entertainment & Other Revenue increased by $168.2 million to $276.8 million for the year ended December 31, 1999, compared to $108.6 million for the year ended December 31, 1998. EBITDA increased by $2.4 million to $21.6 million from $19.2 million. Operating income decreased by $6.8 million to $3.3 million from $10.1 million. Approximately $65.3 million of the increase in revenue was primarily the result of increased national sponsorship and an increase in events presented, increased merchandising and increased marketing, while $102.9 million of the increase was the result of the inclusion of revenues from entities acquired by the family entertainment & other segment that were not owned for the year in 1998. The increase in EBITDA of $2.4 million primarily reflects the acquisition of Apollo in 1999. The decrease in operating income of $6.8 million resulted from increased depreciation and amortization expense related to the acquisitions, partially offset by the increase in EBITDA. Corporate Corporate related expenses, including non-cash charges and depreciation and amortization, were $33.7 million for the year ended December 31, 1999 compared to $50.8 million for the year ended December 31, 1998. This decrease was a result of a decrease in non-cash charges and depreciation and amortization, partially offset by increased integration and start-up costs and increased corporate expenses. Non-cash charges of $7.3 million in 1999 consisted of: o $3.3 million related to the issuance of stock options to certain executive officers pursuant to their employment agreements exercisable for an aggregate of 517,500 shares of Class A Common Stock; o $2.0 million related to the write off of a concert tour; o $1.6 million related to the issuance of stock options; and o $400,000 related to other non-cash charges. Non-cash compensation and other non-cash charges in 1998 totalled $34.1 million, consisting of: o $23.9 million of compensation related to the sale of 975,000 shares of Class B Common Stock and 285,000 shares of Class A Common Stock at a purchase price of $1.33 per share to certain executive officers pursuant to employment agreements; o $7.5 million associated with the issuance of 370,766 shares of Class A Common Stock to Mr. Sillerman in connection with the repurchase of shares of SFX Broadcasting issued to the sellers of Meadows; o $2.4 million related to the issuance of stock options to certain executive officers pursuant to employment agreements exercisable for an aggregate of 528,750 shares of Class A Common Stock; and o $300,000 related to a deferred compensation plan for each non-employee director, adopted in January 1998, whereby each director was credited with the right to receive 8,183 shares of Class A Common Stock based on a stock price of $3.67 per share. Of these options, 517,500 vest over three years and have an exercise price of $3.67 per share. SFX is recording non-cash compensation charges of approximately $3.3 million annually over the three-year exercise period. 34 Corporate expenses related to administrative overhead increased to $18.5 million from $11.2 million, largely as a result of the growth of SFX's operations. Depreciation and amortization expense increased to $7.9 million from $5.6 million primarily as a result of additional amortization related to computer systems and leasehold improvements. During 1999, SFX incurred $12.7 million of integration and start-up costs related primarily to the cost of implementing SFX's branding and ticket strategy, new Internet initiatives, the opening of a themed exhibit and the write-off of abandoned transaction costs. During 1998, SFX incurred $2.4 million of integration and start-up costs primarily relating to the cost of implementing SFX's national sponsorship program. In 1998, SFX recorded $5.6 million of non-recurring charges related to certain deposits paid to Livent (prior to its acquisition by SFX) for the Ragtime and Showboat touring productions and certain related deferred expenses which, as a result of the Livent bankruptcy, will not be recovered. There were no non-recurring charges in 1999. Interest expense, net of investment income, was $88.2 million for the year ended December 31,1999, compared to $46.3 million for year ended December 31, 1998, primarily as a result of the additional debt incurred to consummate the 1998 and 1999 acquisitions. Minority interest increased to $6.0 million for the year ended December 31, 1999, from $2.0 million for year ended December 31, 1998, primarily as a result of the acquisition in 1999 of a 50% interest in a partnership which operated two amphitheaters. SFX recorded income tax provisions of $1.6 million and $3.0 million for the years ended December 31, 1999 and 1998, respectively. The tax provision for 1999 relates to foreign, state and local income taxes, partially offset by a federal tax benefit. The provision differs from the statutory rate primarily as a result of non-deductible goodwill amortization. SFX does not expect to pay any taxes for 1999 other than federal alternative minimum tax ("AMT"), foreign taxes and state and local taxes, as a result of the utilization of significant Net Operating Loss ("NOL") carryforwards that were previously recognized for book purposes. The provision for income taxes in 1998 was primarily related to state and local taxes. No federal tax benefit was recorded in 1998 due to the uncertainty of realizing a tax benefit for SFX's losses. SFX recorded a $2.5 million extraordinary loss on the early extinguishment of debt, net of $1.8 million of tax benefit, in 1999 related to the write-off of unamortized costs incurred to complete the then-existing $350.0 million senior credit facility which was replaced with the $1.1 billion senior credit facility in August of 1999. SFX's net loss decreased to $60.4 million for the year ended December 31, 1999, as compared to net loss of $65.9 million for the year ended December 31, 1998, due to the factors discussed above. SFX's net loss applicable to common shares decreased to $63.9 million for the year ended December 31, 1999, as compared to $68.7 million for the year ended December 31, 1998 as a result of factors discussed above offset by the increased accretion on stock subject to redemption. 35 Year ended December 31, 1998 as compared to the year ended December 31, 1997 Prior to 1998, SFX did not operate in any business segment other than the music segment. Therefore, a discussion of the results of each segment's actual performance as compared to the prior period has not been presented.
REVENUE EBITDA (1) OPERATING (LOSS) INCOME -------------------------- ------------------------- --------------------------- 1998 1997 1998 1997 1998 1997 ------------ ----------- ------------ ---------- -------------- ---------- Segments: Music ...................... $ 604,469 $ 96,653 $ 61,204 $ 13,236 $ 24,598 $ 8,462 Theatrical ................. 150,970 -- 15,576 -- 4,419 -- Sports ..................... 24,899 -- 2,466 -- (2,897) -- Family entertainment & other .................... 108,578 -- 19,166 -- 10,095 -- --------- -------- --------- -------- ---------- -------- Segment performance ......... 888,916 96,653 98,412 13,236 36,215 8,462 Corporate ................... -- -- (11,194) (2,206) (50,845) (2,863) --------- -------- --------- -------- ---------- -------- Total ....................... $ 888,916 $ 96,653 $ 87,218 $ 11,030 $ (14,630) $ 5,599 ========= ======== ========= ======== ========== ========
- ---------- (1) As used in these tables, EBITDA excludes integration and start-up costs and non-cash and non-recurring charges. SFX's revenue increased by $792.2 million to $888.9 million for the year ended December 31, 1998, compared to $96.7 million for the year ended December 31, 1997, primarily as a result of $695.7 million attributable to SFX's 1998 acquisitions, $12.4 million attributable to the acquisitions of the Meadows in March 1997 and Sunshine Promotions in June 1997 and $80.1 million attributable to increased tour and concert activity at Delsener/Slater. The 1998 acquisitions significantly increased the concert promotion and venues operation business and expanded SFX's business to include theatrical promotion and production, motor sports promotion and production, sports marketing and management, family entertainment and radio magazine publishing, programming and research. Cost of revenue increased by $604.9 million to $678.8 million for the year ended December 31, 1998, compared to $73.9 million for the year ended December 31, 1997, primarily as a result of $521.1 million attributable to SFX's 1998 acquisitions and $7.1 million attributable to the acquisition of Sunshine Promotions. Selling, general and administrative expenses increased by $102.2 million to $111.7 million for the year ended December 31, 1998 as compared to $9.5 million for the year ended December 31, 1997, primarily as a result of $89.2 million attributable to the 1998 acquisitions and $5.3 million attributable to the acquisition of Sunshine Promotions. Depreciation and amortization expense increased to $62.2 million for the year ended December 31, 1998, compared to $5.4 million for the year ended December 31, 1997, due to the inclusion of $47.6 million of depreciation and amortization expense related to the 1998 acquisitions and $1.7 million related to the acquisition of Sunshine promotions and the Meadows. In addition, SFX recorded a $2.7 million write down of deferred expense relating to the Triathlon Broadcasting Company agreement as described below and recorded $2.4 million of integration costs for the year ended December 31, 1998. SFX recorded the fixed assets of its 1997 and 1998 acquisitions at fair value and recorded intangible assets equal to the excess of purchase price over the fair value of the net tangible assets, which are being amortized over a 15 year period. Corporate expenses were $11.2 million for the year ended December 31, 1998, net of $530,000 in fees earned from Triathlon, compared to $2.2 million for the year ended December 31, 1997, net of Triathlon fees of $1.8 million. The increase in corporate expense reflects the growth of SFX's operations and the formation of the national marketing division of SFX. The fees earned from Triathlon are based on consulting services provided by or on behalf of SCMC, a private investment company in which Messrs. Sillerman and Tytel have economic interests, that makes investments in and provides financial consulting 36 services to companies engaged in the media business. These fees fluctuate (above the minimum annual fee of $500,000) based on the level of acquisition and financing activities of Triathlon. SCMC previously assigned its rights to receive fees payable from Triathlon to SFX Broadcasting, and SFX Broadcasting assigned its rights to receive the fees to SFX, pursuant to the distribution agreement. Triathlon was acquired by a third party in April of 1998. When Triathlon was acquired, it ceased paying consulting fees. In 1998, SFX recorded $5.6 million of non-recurring charges related to certain deposits paid to Livent (prior to its acquisition by SFX) for the Ragtime and Showboat touring productions and certain related deferred expenses which, as a result of the Livent bankruptcy, will not be recovered. Non-cash compensation and other non-cash charges in 1998 were $34.1 million, consisting of: o $23.9 million of compensation related to the sale of 975,000 shares of Class B Common Stock and 285,000 shares of Class A Common Stock at a purchase price of $1.33 per share to certain executive officers pursuant to employment agreements; o $7.5 million associated with the issuance of 370,766 shares of Class A Common Stock to Mr. Sillerman in connection with the repurchase of shares of SFX Broadcasting issued to the sellers of Meadows; o $2.4 million related to the issuance of stock options to certain executive officers pursuant to employment agreements exercisable for an aggregate of 528,750 shares of Class A Common Stock; and o $300,000 related to a deferred compensation plan for each non-employee director, adopted in January 1998, whereby each director was credited with the right to receive 8,183 shares of Class A Common Stock based on a stock price of $3.67 per share. Of these options, 517,500 vest over three years and have an exercise price of $3.67 per share. SFX is recording non-cash compensation charges of approximately $3.3 million annually over the three-year exercise period. There were no non-cash charges in 1997. The operating loss was $14.6 million for the year ended December 31, 1998, compared to income of $5.6 million for the year ended December 31, 1997, due to the matters discussed above. Interest expense, net of investment income, was $46.3 million in the year ended December 31, 1998, compared to $1.3 million for the year ended December 31, 1997, primarily as a result of $746.5 million attributable to the incurrence of additional debt related to SFX's 1998 acquisitions and $16.2 million attributable to the debt assumed in connection with the Meadows and Sunshine Promotions acquisitions. Minority interest was $2.0 million for the year ended December 31, 1998, compared to no minority interest for the year ended December 31, 1997, relating to minority interests in two amphitheaters, certain theatrical productions and a merchandising company which were acquired in 1998. Income tax provision was $3.0 million and $0.1 million for the years ended December 31, 1998 and 1997, respectively. The provision is primarily for state and local taxes and reflects the impact of non-deductible goodwill amortization and other non-cash compensation and other non-cash charges. No federal tax benefit was recognized in either year due to the uncertainty of realizing a tax benefit for SFX's losses. SFX's net loss increased to $65.9 million for the year ended December 31, 1998, as compared to net income of $3.8 million for the year ended December 31, 1997, due to the factors discussed above. SFX's net loss applicable to common shares increased to $68.7 million for the year ended December 31, 1998, as a result of the accretion of the stock subject to redemption. EBITDA, excluding non-cash compensation and other non-cash charges of $34.1 million, non-recurring charges of $5.6 million and $2.4 million of integration and start-up costs was $87.2 million for the year ended December 31, 1998, compared to $11.0 million for the year ended December 31, 1997, primarily as a result of the 1998 acquisitions LIQUIDITY AND CAPITAL RESOURCES SFX's principal need for funds has been for acquisitions, cash interest expense, working capital needs, certain payments in connection with the SFX spin-off and capital expenditures. SFX's principal sources of 37 funds has been proceeds from two note offerings, proceeds from three equity offerings, borrowings under its senior credit facility and cash flows from operations. Historical Cash Flows Net cash provided by operations was $34.9 million for the year ended December 31, 1999, as compared to $27.4 million for the year ended December 31, 1998. The increase was primarily attributable to an increase in operating income, before depreciation, amortization and non-cash compensation and other non-cash charges, partially offset by other changes in working capital. Net cash used in investing activities for the year ended December 31, 1999 was $883.2 million as compared to $891.9 million for the year ended December 31, 1998. The decrease in the use of funds was primarily the result of the proceeds from the sales of assets of $12.0 million. Net cash provided by financing activities for the year ended December 31, 1999 was $1.18 billion as compared to $906.5 million for the year ended December 31, 1998. During 1999, SFX completed the February 1999 equity offering, resulting in net proceeds of $260.7 million, the August 1999 equity offering, resulting in net proceeds of $337.9 million and received net proceeds of $14.3 million related to the exercise of employee stock options. SFX also had net borrowings under its senior credit facilities of $611.7 million and repaid $4.7 million of other debt. The proceeds from the issuance of stock and borrowings under its senior credit facilities were used to complete the 1999 acquisitions and also resulted in increased cash on hand. In addition, SFX paid $34.9 million in debt issuance costs. In addition, SFX repurchased 112,528 shares of Class A Common Stock for $2.0 million in 1999. During 1998, SFX completed a note offering for $350.0 million, had borrowings of $346.0 million under its then-existing senior credit facility, completed an equity offering in May 1998 resulting in net proceeds of $330.7 million, and repaid other debt of $5.5 million. In addition, SFX made spin-off related payments of $113.9 million and incurred debt issuance costs of $17.5 million during 1998. Potential Future Acquisitions Consistent with its operating strategy, SFX is currently negotiating and expects to pursue additional acquisitions in the live entertainment business in the future. However, SFX has not entered into any definitive agreements with respect to such acquisitions and there can be no assurance that it will do so. In addition, the merger agreement recently entered into with Clear Channel Communication restricts SFX's ability to make acquisitions. SFX expects to use its cash on hand and amounts available under its senior credit facility to complete any future acquisitions. Future, acquisitions, if consummated, may also result in SFX incurring a substantial amount of additional debt. Indebtedness SFX has incurred and expects to continue to incur substantial amounts of indebtedness to finance acquisitions, for capital expenditures and for other corporate purposes. As a result, SFX is, and expects to remain in the foreseeable future, highly leveraged. On February 11, 1998, SFX completed the offering of $350.0 million aggregate principal amount of its 9 1/8% senior subordinated notes. Interest of approximately $16.0 million is payable on the notes on each of February 1 and August 1 of each year, and the notes mature on February 1, 2008. On November 25, 1998, SFX completed the offering of $200.0 million aggregate principal amount of its 9 1/8% senior subordinated notes. Interest of $9.1 million is payable on these notes on each of June 1 and December 1 of each year, and the notes mature on December 1, 2008. SFX's substantial leverage could adversely affect its business. In July 1999, SFX completed a consent solicitation which modified certain covenants to the indentures governing its outstanding senior subordinated notes to provide SFX greater flexibility to pursue its operating strategy, including foreign acquisitions. SFX paid fees related to the transaction of approximately $13.7 million which have been recorded as debt issuance costs on the consolidated balance sheet. Debt issuance costs are being amortized as non-cash interest expense over the term of the related debt. In August 1999, SFX entered into a new seven-year $1.1 billion senior credit facility which replaced SFX's then-existing $350.0 million senior credit facility and modified certain covenants. The new senior 38 credit facility is comprised of a $250.0 million multi-draw, multi-currency term loan maturing on December 31, 2005 (the "Term A Loan"), a single-draw, $600 million U.S. dollar term loan maturing on June 30, 2006 (the "Term Loan B") and a $250.0 million reducing revolver, maturing on December 31, 2005, having a letter of credit sub-limit of $75.0 million. Total fees and expenses paid were approximately $17.5 million which have been recorded as debt issuance costs on the consolidated balance sheet. Debt issuance costs are being amortized as non-cash interest expense over the term of the related debt. As of March 28, 2000, SFX had indebtedness of $846.7 million outstanding under the senior credit facility. Loans outstanding under the senior credit facility bear interest, at SFX's option, at 1.625 to 3.5 percentage points over LIBOR or the greater of the Federal Funds rate plus 0.5% or The Bank of New York's prime rate. The interest rate spreads on the term loan and revolving portion of the Senior Credit Facility will be adjusted based on SFX's Total Leverage Ratio, as defined in the senior credit facility. As of March 28, 2000 the average interest rate for borrowings under the senior credit facility was 9.2%. SFX pays a per annum commitment fee on unused availability under the revolver of 0.375% to 0.5% and a per annum letter of credit fee on any outstanding letters of credit equal to the Applicable LIBOR Margin, as defined in the senior credit facility. In the first quarter of 2000, SFX entered into interest rate cap transaction agreements which limit its LIBOR interest rate to 7.5% on $100.0 million notional amount for a period of two years. SFX's indebtedness under its senior credit facility is secured by a pledge of the stock of its subsidiaries and by liens on substantially all of its and its subsidiaries' tangible assets. Most of SFX's subsidiaries have also guaranteed the notes and borrowings under the senior credit facility. If SFX were unable to repay any borrowings when due, the lenders could attempt to seize SFX's and its subsidiaries' assets and the capital stock of SFX's subsidiaries. The senior credit facility contains certain covenants that, among other things, limits the ability of SFX and its subsidiaries to incur additional indebtedness, issue certain equity interests, pay dividends and sell certain assets. In addition, the senior credit facility requires SFX to maintain compliance with certain specified financial covenants. The senior credit facility also prohibits prepayment of any senior subordinated notes. In addition, as of March 28, 2000, SFX had approximately $35.1 million of other debt consisting primarily of debt and capital leases assumed in acquisitions and $45.9 million of deferred purchase consideration. SFX's senior subordinated notes and senior credit facility contain customary covenants and other provisions which restrict SFX's ability to, among other things: o sell or transfer assets; o incur additional debt; o repay other debt; o pay dividends; o make certain investments or acquisitions; o repurchase or redeem capital stock; o engage in mergers or consolidations; and o engage in certain transactions with subsidiaries and affiliates. Capital Expenditures Capital expenditures totaled $61.2 million for the year ended December 31, 1999. Based on its existing operations, SFX estimates capital expenditures for 2000 to be approximately $61.5 million, including $46.5 million for the construction of three amphitheaters, which is expected to be funded by cash flows from operations. The projected capital expenditures do not include amounts that may be required for the construction of major new venues, major renovations at existing venues or leasehold improvements that may be required at SFX's new worldwide headquarters at the Candler Building. 39 Future Charges On January 15, 2000, in connection with the renegotiation of employment agreements with members of SFX's senior management group, SFX issued fully-vested options to purchase an aggregate of 2,102,500 shares of SFX's Class A Common Stock at prices that were below the then-current market price, which will result in a non-cash compensation charge of $54.2 million in the first quarter of 2000. These options were issued as an inducement to cause each executive officer to enter into an amended long-term employment agreement. In addition, SFX forgave amounts due under the executive loan program of certain executives which will result in future charges in SFX's statement of operations. Further, SFX settled all future obligations to one of the executives arising from an acquisition agreement which will result in a charge to the extent the payment is compensation related. Future Contingent Payments Certain of the agreements relating to SFX's 1998 and 1999 acquisitions provide for purchase price adjustments and other future contingent payments based on the financial performance of the acquired companies. See "-- 1998 Acquisitions" and "-- 1999 Acquisitions." Through December 31, 1999, SFX had accrued $36.4 million related to such contingent cash payments. SFX will continue to accrue additional amounts related to such contingent payments if and when it becomes probable that the applicable financial performance targets will be met. The PACE acquisition agreement provides that each PACE seller will have an option, exercisable for 90 days after the fifth anniversary of the closing of the PACE acquisition, to require SFX to repurchase up to 683,376 shares of the Class A Common Stock received by that seller for $22.00 in cash per share, for an aggregate purchase price of up to $15.0 million. In connection with the SFX spin-off, SFX entered into a tax sharing agreement with SFX Broadcasting. As of December 31, 1999, SFX has made estimated payments of $109.7 million in federal and state taxes related to the spin-off. In addition, SFX remains liable for certain tax indemnities. Management's estimates of the amount of the indemnity payment are based on assumptions which management believes are reasonable. However, upon the completion of all tax returns, including any potential tax audits, such assumptions could be modified in a manner that would result in a significant variance in the actual amount of the tax indemnity. No assurance can be given that SFX will have sufficient cash or other available sources of capital to make any or all of the future or contingent payments described above. Sources of Liquidity On February 18, 1999, SFX received approximately $260.7 million in net proceeds from its February 1999 equity offering, which it used primarily to complete the Cellar Door, ISI, Nederlander and Marquee acquisitions and to repay a portion of the revolving portion of the then-existing senior credit facility. On August 23, 1999 SFX received approximately $337.9 million in net proceeds from its August 1999 equity offering, which it used primarily to complete the Livent, EMA Telstar and Mojo Works acquisitions and to increase cash on hand. On August 23, 1999, SFX also borrowed approximately $611.7 million under its new $1.1 billion senior credit facility, which represented the proceeds from Term Loan B, less fees and expenses. SFX used the proceeds to repay $319.0 million of borrowings under the then-existing senior credit facility and to increase cash on hand. As of March 28, 2000, SFX had approximately $210.0 million in borrowing availability under its senior credit facility. Borrowing availability under the senior credit facility is subject to customary conditions. Pursuant to the indentures governing the senior subordinated notes, SFX, subject to certain limited exceptions, is only permitted to incur indebtedness if it satisfies a specified Debt to Cash Flow ratio, as defined in the indentures. As of December 31, 1999, SFX's cash and cash equivalents totaled $382.6 million, and its working capital was $226.2 million. SFX believes that its cash on hand, cash flow from operations and remaining borrowing availability under the $1.1 billion senior credit facility will be sufficient to satisfy existing commitments and plans, including those described above. However, there can be no assurance that SFX will be able to make additional borrowings, that SFX's business will generate sufficient cash flow from operations, or that future borrowings will be available in an amount to enable SFX to service its debt and to make necessary capital or other expenditures. 40 YEAR 2000 COMPLIANCE In prior years, SFX discussed the nature and progress of its plans to become Year 2000 compliant. In late 1999, SFX completed its remediation and testing of systems. As a result of those planning and implementation efforts, SFX experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. SFX is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. SFX will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. RECENT ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is required to be adopted in years beginning after June 15, 2000 in accordance with Statement No. 37. Because of SFX's minimal use of derivatives, management does not anticipate that the adopting of the new statement will have a significant effect on earnings or the financial position of SFX. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS SFX believes that certain statements contained in this Report are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are considered prospective. These include statements contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business." The following statements are or may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995: o statements before, after or including the words "may," "will," "could," "should," "believe," "expect," "future," "potential," "anticipate," "intend," "plan," "estimate" or "continue" or the negative or other variations of these words; and o other statements about matters that are not historical facts. SFX may be unable to achieve future results covered by the forward-looking statements. The statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the future results that the statements express or imply. Please do not put undue reliance on these forward-looking statements, which speak only as of the date of this report. The following risk factors should be considering carefully in evaluating SFX and its business and the forward looking statements contained herein. SFX does not undertake to release publicly any revisions to forward looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. RISK FACTORS You should carefully consider the following important factors, in addition to those discussed in the documents that we have filed with the Securities and Exchange Commission which we have incorporated by reference in this Report. IF WE ARE UNABLE TO INTEGRATE THE OPERATIONS OF OUR VARIOUS BUSINESSES, OUR OVERALL BUSINESS MAY SUFFER. The acquisition and successful integration of additional live entertainment and related businesses are key elements of our operating strategy. As you evaluate our prospects, you should consider the many risks we will encounter during the process of integrating recently acquired businesses and those that may be acquired in the future, including: o the distraction of management's attention from other business concerns; 41 o our entry into markets and geographic areas where we have limited or no experience; o the potential loss of key employees or customers of the acquired businesses; and o the potential inability to integrate controls, standards, systems and personnel. Although our management has significant experience, we may be unable to effectively integrate our recently acquired businesses or those businesses we expect to acquire in the future without encountering the difficulties described above. Failure to effectively integrate such businesses could have a material adverse effect on our business, prospects, results of operations or financial condition. In addition, the combined companies may not benefit as expected from the integration. WE INTEND TO EXPAND OUR INTERNATIONAL OPERATIONS SIGNIFICANTLY, WHICH WILL EXPOSE US TO NEW RISKS. A key element of our business strategy is to expand our international operations, both through acquisitions and internal growth. This expansion will require us to understand local customs, practices and competitive conditions as well as develop a management infrastructure to support our international operations. International operations are also subject to certain risks inherent in doing business abroad, including: o exposure to local economic conditions; o currency exchange rate fluctuations and currency controls; o withholding and other taxes on remittances and other payments by subsidiaries; and o investment restrictions or requirements. We can provide no assurances that the risks and uncertainties outlined above, or other risks or uncertainties inherent in doing business abroad, will not have a material adverse effect on our business, prospects, result of operations or financial condition. WE HAVE A SUBSTANTIAL AMOUNT OF DEBT, WHICH MAY HARM US AND OUR STOCKHOLDERS. We have a substantial amount of debt, and the amount of our debt could substantially increase in the future. Our consolidated debt as of March 28, 2000 was approximately $1.4 billion. The amount of our debt could harm the holders of our Class A Common Stock by, among other things: o making us more vulnerable to general adverse economic and industry conditions; o limiting our ability to obtain money to pay for future acquisitions, working capital, capital expenditures and other general corporate requirements; o dedicating more of our cash flow to paying off our debt, which will reduce the amount of cash available to pay for working capital, capital expenditures or other general corporate needs; o limiting our flexibility in planning for, or reacting to, changes in our business and the industry; and o placing us at a competitive disadvantage to competitors that have less debt. Our ability to pay principal and interest on our debt on time, to refinance our debt, or to pay for planned expenditures will depend on various factors, some of which it will not be able to control. These factors include restrictions contained in our senior credit facility and the indentures relating to our notes, which may limit our ability to, among other things, borrow additional funds. We may be unable to generate enough money to pay our debts because of insufficient cash flow from operations or because we are not able to raise additional capital funds by selling securities. We may also be required to refinance a part of its debt before the debt matures. For more details about our financial resources, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 42 OUR INDENTURES AND CREDIT FACILITY RESTRICT OUR OPERATIONS. Our indentures and our senior credit facility restrict our and our subsidiaries' ability to, among other things: o sell or transfer assets; o incur additional debt; o repay other debt; o pay dividends; o make certain investments or acquisitions; o repurchase or redeem capital stock; o engage in mergers or consolidations; and o engage in certain transactions with subsidiaries and affiliates. The indentures, and our existing senior credit facility also require us to comply with certain financial ratios, as discussed in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." These restrictions may interfere with our ability to obtain financing or to engage in other necessary or desirable business activities. If we cannot comply with the requirements in our senior credit facility, then the lenders may require us to repay immediately all of our outstanding debt under the senior credit facility. If our debt payments were accelerated, our assets might not be sufficient to repay fully our debt. These lenders may also require us to use all of our available cash to repay our debt or may prevent us from making payments to other creditors on certain portions of its outstanding debt. We may not be able to obtain a waiver of these provisions or refinance our debt, if needed. In such a case, our business, prospects, results of operations and financial condition would suffer. IF WE ARE UNABLE TO COMPLETE FUTURE ACQUISITIONS, OUR STOCK PRICE MAY SUFFER. Our ability to take advantage of attractive acquisition opportunities in the future are important components in the implementation of our overall business strategy. However, we may be unable to identify, finance or complete additional acquisitions in the future. If the trading price of our Class A Common Stock reflects the market's expectation that we will complete future acquisitions, then the price of Class A Common Stock may drop if we are unable to complete these acquisitions. Even if we are able to complete future acquisitions, they could result in our: o issuing more stock, which may dilute the value of our existing Common Stock; o incurring a substantial amount of additional dept; and/or o amortizing expenses related to goodwill and other intangible assets. WE COULD BE REQUIRED TO MAKE LARGE PAYMENTS UPON A CHANGE OF CONTROL, WHICH MAY HARM OUR FINANCIAL CONDITION. Under the agreements relating to our senior credit facility and our 9 1/8% senior subordinated notes, we have obligations to make payments upon certain change of control events. If we make the payments, we may lose necessary operating funds. If we cannot make the payments, we may be sued or forced into bankruptcy. If anyone other than Mr. Sillerman becomes the beneficial owner of over 35% of the voting power of our outstanding Common Stock, then a "Change in Control" will occur under our senior credit facility and our indentures. This would constitute a default under our senior credit facility and would require us to offer to repurchase our outstanding notes at a premium. If we fail to purchase all of the notes tendered for purchase upon the occurrence of a Change of Control, such failure will constitute an event of default under the indentures. 43 BECAUSE A CHANGE OF CONTROL OF SFX WOULD BE DIFFICULT TO ACHIEVE, HOLDERS OF SFX STOCK MAY NOT HAVE THE OPPORTUNITY TO RECEIVE A PREMIUM FOR THEIR SHARES. Holders of Class A Common Stock could receive a premium for their shares upon a change of control of SFX. The holders of Class A Common Stock may be less likely to receive a premium for their shares, however, because a change of control would be difficult to achieve without the cooperation of SFX's principal stockholders and its board of directors. There are several factors that would make a change of control difficult, including: o SFX has issued, and may issue in the future, shares of Class B Common Stock, which has 10 votes per share in most matters. As of March 28, 2000, the two holders of Class B Common Stock controlled approximately 38% of SFX's total voting power based on their ownership of Class B Common Stock. Therefore, they probably will be able to block any potential change of control transaction that they oppose. o SFX's certificate of incorporation allows its board of directors to issue up to 25 million shares of preferred stock. If SFX issues shares of preferred stock with voting rights, this issuance could dilute the voting rights of holders of SFX's Common Stock and could delay or prevent a change in control. o Section 203 of the Delaware General Corporation Law prohibits SFX from engaging in a "business combination" with an "interested stockholder" for three years after the person became an interested stockholder, unless the business combination is approved in a particular manner. Therefore, Section 203 could delay or prevent a change in control of SFX. o SFX's board of directors has also adopted other programs, plans and agreements that may make a change of control more expensive, such as severance payments and immediate vesting of stock options upon a change of control. OUR BUSINESS IS HIGHLY SENSITIVE TO PUBLIC TASTES AND DEPENDENT ON OR ABILITY TO SECURE POPULAR ARTISTS, LIVE ENTERTAINMENT EVENTS AND VENUES. As a participant in the live entertainment industry, our ability to generate revenues is highly sensitive to rapidly changing public tastes and dependent on the availability of popular performers and events. Since we rely on unrelated parties to create and perform live entertainment content, any lack of availability of popular musical artists, touring Broadway shows, specialized motor sports talent and other performers could limit our ability to generate revenues. In addition, we require access to venues to generate revenues from live entertainment events. We operate a number of our live entertainment venues under leasing or booking agreements. Our long-term success will depend in part on our ability to renew these agreements when they expire or end. We may be unable to renew these agreements on acceptable terms or at all, and may be unable to obtain favorable agreements with new venues. WE ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION, AND OUR FAILURE TO COMPLY WITH REGULATIONS COULD ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION. We and our properties are subject to extensive environmental laws and regulations relating to the use, storage, disposal, emission and release of hazardous and non-hazardous substances, as well as zoning and noise level restrictions which may affect, among other things, the hours of operations of our venues. In addition, we are subject to other laws and regulations, including those relating to antitrust, consumer protection and the operation of public facilities that significantly affect the conduct of our business and the implementation of our operating strategy. For example, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice have the authority to challenge our domestic acquisitions on antitrust grounds before or after the acquisitions are completed. State agencies may also have standing to challenge these acquisitions under state or federal regulations, actions or legal proceedings against us, the imposition of fines, penalties or judgments against us or significant limitations on our activities. In addition, the regulatory environment in which we operate is subject to change. New or revised requirements imposed by governmental regulatory authorities could have adverse effects on us, including increased costs of compliance. We also may be adversely affected by changes in the interpretation or enforcement of existing laws and regulations by these governmental authorities. For more information regarding regulatory issues, see Item 1. "Business -- Regulatory Matters." 44 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK SFX has operations in the Europe, Canada, Australia and Mexico. In the normal course of business, theses operations are exposed to fluctuations in currency values. Management does not consider the impact of currency fluctuations to represent a significant risk. Market risks relating to SFX's operations result primarily from changes in interest rates. SFX's Senior Subordinated Notes bear interest at a fixed rate. However, the fair market value of the fixed rate debt is sensitive to changes in interest rates. SFX is subject to the risk that market interest rates will decline and the interest rates under the fixed rate debt will exceed the then prevailing market rates. SFX's senior credit facility of $846.7 million at March 28, 2000 bears interest at a variable rate. A 15% increase or decrease in the average cost of SFX's variable rate debt under the facility would result in a $11.7 million increase or decrease in interest expense based on this borrowing level. SFX does not generally enter into derivative instruments in the normal course of business to mitigate the impact of currency exchange rate risk or interest rate risk, nor are such instruments used for speculative purposes. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated herein by reference to the Consolidated Financial Statements filed with this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in SFX's independent accountants or disagreements with SFX's independent accountants on accounting matters or financial disclosures. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item will be contained under the caption "Election of Directors" in SFX's Proxy Statement to be distributed in connection with its 2000 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be contained under the captions "Director Compensation" and "Executive Compensation" in SFX's Proxy Statement to be distributed in connection with its 2000 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item will be contained under the caption "Stock Ownership" in SFX's Proxy Statement to be distributed in connection with its 2000 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item will be contained under the caption "Certain Relationships and Related Transactions" in SFX's Proxy Statement to be distributed in connection with its 2000 Annual Meeting of Stockholders and is incorporated herein by reference. 45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Exhibits (a-1 and a-2) Consolidated Financial Statements, See Index to Consolidated Financial Statements and Schedule which appears on F-1 herein.
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ---------- ------------------------------------------------------------------------------------------------ 2.1 Distribution Agreement between SFX Entertainment, SFX Broadcasting and SFX Buyer (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC on May 5, 1998) 2.2 Amended and Restated Tax Sharing Agreement between SFX Entertainment, SFX Broadcasting and SBI Holding Corporation (incorporated by reference to Amendment No. 1 to Exhibit 1.1 to Current Report on Current Report Form 8-K (File No. 000-24017) filed with the SEC on June 3, 1998) 2.3 Employee Benefits Agreement between SFX Entertainment and SFX Broadcasting (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC on May 5, 1998) 2.4 Amendment No. 1 to Distribution Agreement among SFX Entertainment, Inc., SFX Broadcasting, Inc. and SBI Holding Corporation (incorporated by reference to Exhibit 2.1 to Form 8-K (File No. 000-24017) filed with the SEC on June 3, 1998) 3.1 Amended and Restated Certificate of Incorporation of SFX Entertainment (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC on May 5, 1998) 3.2 Bylaws of the SFX Entertainment (incorporated by reference to Amendment No. 2 to Form S-1 (File No. 333-43287) filed with the SEC on February 2, 1998) 3.3 Amendment No. 1 to the Bylaws of SFX Entertainment (Incorporated by reference to Annual Report on Form 10-K (File No. 333-72221) filed with the SEC on April 1, 1999) 4.1 Indenture, dated February 11, 1998, by and among SFX Entertainment, certain of its subsidiaries and Chase Manhattan Bank (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K of SFX Broadcasting (File No. 000-22486) filed with the SEC on February 18, 1998) 4.2 Indenture, dated November 25, 1998, by and among SFX Entertainment, certain of its subsidiaries and Chase Manhattan Bank (incorporated by reference to Exhibit 4.2 to Registration Statement on Form S-4 (File No. 333-71195) filed with the SEC on January 26, 1999) 4.3 Registration Rights Agreement, dated as of November 25, 1998, relating to the 9 1/8% Senior Subordinated Notes due December 1, 2008 (incorporated by reference to Exhibit 4.3 to Registration Statement on Form S-4 (File No. 333-71195) filed with the SEC on January 26, 1999) 4.4 Supplemental Indenture No. 14 dated July 20, 1999, by and among SFX certain of its subsidiaries and The Chase Manhattan Bank (incorporated by reference on Form 10-Q for the fiscal quarter ended June 30, 1999) 4.5 Supplemental Indenture No. 3 dated July 20, 1999, by and among SFX of its subsidiaries and The Chase Manhattan Bank (incorporated by reference to 10-Q for the fiscal quarter ended June 30, 1999) (File No. 001-14993) filed with the SEC on August 3, 1999)
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EXHIBIT NO. DESCRIPTION OF EXHIBIT - ----------- ------------------------------------------------------------------------------------------------- 10.1 Agreement and Plan of Merger and Asset Purchase Agreement, dated as of December 10, 1997, by and among SFX Entertainment, Inc., Contemporary Investments Corporation, Contemporary Investments of Kansas, Inc., Continental Entertainment Associates, Inc., Capital Tickets, LP, Dialtix, Inc., Contemporary International Productions Corporation, Steven F. Schankman Living Trust, dated 10/22/82, Irving P. Zuckerman Living Trust, dated 11/24/81, Steven F. Schankman and Irving P. Zuckerman (incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC on December 24, 1997) 10.2 Stock Purchase Agreement, dated as of December 11, 1997, among each of the shareholders of BGP Presents, Inc. and BGP Acquisitions, LLC (incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC on December 24, 1997) 10.3 Stock and Asset Purchase Agreement, dated December 2, 1997, between and among SFX Network Group, L.L.C. and SFX Entertainment, Inc., and Elias N. Bird, individually and as Trustee under the Bird Family Trust u/d/o 11/18/92, Gary F. Bird, individually and as Trustee under the Gary F. Bird Corporation Trust u/d/o 2/4/94, Stephen R. Smith, individually and as Trustee under the Smith Family Trust u/d/o 7/17/89, June E. Brody, Steven A. Saslow and The Network 40, Inc. (incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC on December 24, 1997) 10.4 Purchase and Sale Agreement, dated as of December 15, 1997, by and among Alex Cooley, S. Stephen Selig, III, Peter Conlon, Southern Promotions, Inc., High Cotton, Inc., Cooley and Conlon Management, Inc., Buckhead Promotions, Inc., Northern Exposure, Inc., Pure Cotton, Inc., Interfest, Inc., Concert/Southern Chastain Promotions Joint Venture, Roxy Ventures Joint Venture and SFX Concerts, Inc. (incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC on December 24, 1997) 10.5 Stock Purchase Agreement, dated as of December 12, 1997 by and between Pace Entertainment Corporation and SFX Entertainment, Inc. (incorporated by reference to Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC on December 24, 1997) 10.6 Agreement and Plan of Merger, dated as of August 24, 1997, as amended on February 9, 1998, among SFX Buyer, SFX Buyer Sub and SFX Broadcasting, Inc. (composite version) (incorporated by reference to Annex A of SFX Broadcasting, Inc.'s Definitive Proxy Statement (File No. 000-22486) filed with the SEC on February 17, 1998) 10.7 Partnership Formation Agreement, dated as of January 22, 1988, by and among MCA Concerts II, Inc. and Pace Entertainment Group, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January 22, 1998) 10.8 Lease and Use Agreement, dated as of December 9, 1987, by and between City of Dallas and Pace Entertainment Group, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January 22, 1998) 10.9 Agreement, dated as of October 10, 1988, by and between the City of Atlanta and MCA Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January 22, 1998) 10.10 Amended Indenture of Lease, February 2, 1984, by and between the City of Atlanta and Filmworks U.S.A., Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January 22, 1998) 10.11 Amendment to Lease Agreement, dated as of October 10, 1988, between the City of Atlanta, Georgia and Filmworks U.S.A., Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January 22, 1998)
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EXHIBIT NO. DESCRIPTION OF EXHIBIT - ----------- ------------------------------------------------------------------------------------------------ 10.12 Agreement Regarding Sublease, dated as of January 20, 1988, by and between Filmworks U.S.A., Inc. and MCA Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January 22, 1998) 10.13 First Amendment to Sublease, dated as of January 21, 1988, between Filmworks U.S.A., Inc. and MCA Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January 22, 1998) 10.14 Second Amendment to Sublease, dated as of April 19, 1988, between Filmworks U.S.A., Inc. and MCA Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January 22, 1998) 10.15 Third Amendment to Sublease, dated as of September 15, 1988, between Filmworks U.S.A., Inc. and MCA Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January 22, 1998) 10.16 Memorandum of Agreement, dated as of October 10, 1988, by and between the City of Atlanta and MCA Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January 22, 1998) 10.17 Assignment of Sublease, dated as of June 15, 1989, by Filmworks U.S.A., Inc. and MCA Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January 22, 1998) 10.18 Assignment of Sublease, dated as of June 23, 1989, by Filmworks U.S.A., Inc. and MCA Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January 22, 1998) 10.19 Assignment of Agreement, dated as of June 15, 1989, by the City of Atlanta and MCA Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January 22, 1998) 10.20 Assignment of Agreement, dated as of June 23, 1989, by the City of Atlanta and MCA Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January 22, 1998) 10.21 1998 Stock Option and Restricted Stock Plan of the Company (incorporated by reference to Form S-8 (File No. 333-58737) filed with the SEC on July 9, 1998) 10.22 Credit and Guarantee Agreement, dated as of February 26, 1998, by and among SFX Entertainment, the Subsidiary Guarantors party thereto, the Lenders party thereto, Goldman Sachs Partners, L.P., as co-documentation agent, Lehman Commercial Paper, Inc., as co- documentation agent and The Bank of New York, as administrative agent (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K (File No. 333-43287) filed with the SEC on March 10, 1998) 10.23 Increase Supplement to the Credit and Guarantee Agreement, dated as of September 10, 1998, by and among SFX Entertainment, Inc., the Subsidiary Guarantors party thereto, the Lenders party thereto, Goldman Sachs Partners, L.P., as co-documentation agent, Lehman Commercial Paper, Inc., as co-documentation agent and The Bank of New York, as administrative agent (incorporated by reference to Exhibit 10.1 to Form 8-K (File No. 000-24017) filed with the SEC on September 22, 1998)
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EXHIBIT NO. DESCRIPTION OF EXHIBIT - ---------- -------------------------------------------------------------------------------------------------- 10.24 Amendment to the Credit and Guarantee Agreement, dated as of November 20, 1998, by and among SFX Entertainment, Inc., the Subsidiary Guarantors party thereto, the Lenders party thereto, Goldman Sachs Partners, L.P., as co-documentation agent, Lehman Commercial Paper, Inc., as co-documentation agent and The Bank of New York, as administrative agent (incorporated by reference to Exhibit 10.24 to Registration Statement on Form S-4 (File No. 333-71195) filed with the SEC January 26, 1999) 10.25 Purchase Agreement, dated November 25, 1998, relating to the 9 1/8% Senior Subordinated Notes due December 1, 2008 of SFX Entertainment, Inc., by and among SFX Entertainment, Inc., Morgan Stanley & Co. Incorporated, Lehman Brothers Inc., BancBoston Robertson Stephens Inc. and BNY Capital Markets, Inc. (incorporated by reference to Exhibit 10.25 to Registration Statement on Form S-4 (File No. 333-71195) filed with the SEC January 26, 1999) 10.26 Amendment No. 2 to Agreement and Plan of Merger among SBI Holdings Corporation, SBI Radio Acquisition Corporation and SFX Broadcasting, Inc., dated March 9, 1998 (incorporated by reference to Annual Report on Form 10-K (File No. 333-43287) filed with the SEC on March 18, 1998) 10.27 Stock Purchase Agreement, dated as of April 29, 1998, among SFX Sports Group, Inc., SFX Entertainment, Inc. and David Falk, Curtis Polk and G. Michael Higgins (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC on May 5, 1998) 10.28 Asset Purchase Agreement, dated April 29, 1998, by and among Blackstone Entertainment LLC, its members, DLC Acquisition Corp., and SFX Entertainment, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC on May 5, 1998) 10.29 Purchase and Sale Agreement, dated April 22, 1998, by and among Oakdale Concerts, LLC, Oakdale Development Limited Partnership and Oakdale Theater Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC on May 5, 1998) *10.30 Second Amended and Restated Employment Agreement, by and between SFX Entertainment, Inc. and Brian E. Becker, dated as of December 13, 1999. *10.31 Amended and Restated Employment Agreement between SFX Entertainment, Inc. and David Falk, dated as of January 1, 2000. *10.32 Amended and Restated Employment Agreement between SFX Entertainment, Inc. and Robert F.X. Sillerman, dated as of January 15, 2000. *10.33 Amended and Restated Employment Agreement between SFX Entertainment, Inc. and Michael G. Ferrel, dated as of January 15, 2000. *10.34 Amended and Restated Employment Agreement between SFX Entertainment, Inc. and Thomas P. Benson, dated as of January 15, 2000. *10.35 Amended and Restated Employment Agreement between SFX Entertainment, Inc. and Howard J. Tytel, dated as of January 15, 2000. 10.36 Agreement and Plan of Merger, dated as of August 6, 1998, among SFX Entertainment, Inc., MWE Acquisition Corp. and Magicworks Entertainment Incorporated (incorporated by reference to Exhibit 99(c)(1) to SFX's Schedule 14D-1 filed with the SEC on August 13, 1998)
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EXHIBIT NO. DESCRIPTION OF EXHIBIT - ----------- --------------------------------------------------------------------------------------------------- 10.37 Agreement and Plan of Merger, as amended, among SFX Entertainment, Inc., SFX Acquisition Corp. and The Marquee Group, Inc. (composite version) (incorporated by reference to Exhibit 10.37 to Registration Statement on Form S-4 (File No. 333-71195) filed with the SEC on January 26, 1999) 10.38 Director Deferred Stock Ownership Plan of SFX (incorporated by reference to Exhibit 10.38 to Registration Statement on Form S-4 (File No. 333-71195) filed with the SEC on January 26, 1999) 10.39 Stock Purchase Agreement, dated as of January 25, 1999, by and among SFX Entertainment, Inc. and the sellers party thereto (incorporated by reference to Exhibit 10.39 to Amendment No. 1 to Form S-4 (File No. 333-71195) filed with the SEC on February 5, 1999) 10.40 Purchase Agreement, dated as of February 1, 1999, by and among SFX Entertainment, Inc., Concert Acquisition Sub, Inc., Nederlander of New Mexico LLC, Nederlander Festivals, Inc. and the other sellers party thereto (incorporated by reference to Exhibit 10.40 to Amendment No. 1 to Form S-4 (File No. 333-71195) filed with the SEC on February 5, 1999) 10.41 Asset Purchase Agreement, dated as of February 1, 1999, by and among SFX Entertainment, Inc., Concert Acquisition Sub, Inc. and Nederlander of Ohio, Inc. (incorporated by reference to Exhibit 10.41 to Amendment No. 1 to Form S-4 (File No. 333-71195) filed with the SEC on February 5, 1999) 10.42 Membership Interest Purchase Agreement, dated February 1, 1999, by and among SFX Entertainment, Inc., Concert Acquisition Sub, Inc., Nederlander Arena Management LLC, Nederlander Cincinnati, LLC, Nederlander Club Management LLC and the sellers party thereto (incorporated by reference to Exhibit 10.42 to Amendment No. 1 to Form S-4 (File No. 333-71195) filed with the SEC on February 5, 1999) 10.43 Stock Purchase Agreement, dated February 1, 1999 by and among SFX Entertainment, Inc., Concert Acquisition Sub, Inc., Greater Detroit Theatres, Inc. and the sellers party thereto (incorporated by reference to Exhibit 10.43 to Amendment No. 1 to Form S-4 (File No. 333-71195) filed with the SEC on February 5, 1999. 10.44 Amended and Restated 1998 Stock Option and Restricted Stock Plan (incorporated by reference to Exhibit 10.1 to Form 10-Q for the Fiscal Quarter ended June 30, 1999 (File No. 001-14993) field with the SEC on August 3, 1999) 10.45 Amended and Restated 1999 Stock Option and Restricted Stock Plan (incorporated by reference to Exhibit 10.2 to Form 10-Q for Fiscal Quarter ended June 30, 1999 (File No. 001-14993) filed with the SEC on August 3, 1999) 10.46 Director Deferred Stock Ownership Plan as Amended and Restated Effective June 1, 1999 (incorporated by reference to Exhibit 10.3 to Form 10-Q for Fiscal Quarter ended June 30, 1999 (File No. 001-14993) filed with the SEC on August 3, 1999) 10.47 Asset Purchase Agreement, dated May 28, 1999, among SFX Entertainment, Inc., Livent Inc. (U.S.) Inc., Livent Realty (New York) Inc., Livent Realty (Chicago) Inc. and Livent International Inc. and Amendments No.1 and No. 2 thereto, dated June 14, 1999 and August 9, 1999, respectively (incorporated by reference to Amendment No. 2 to Form S-3 (File No. 333-84371) filed with the SEC on August 17, 1999) 10.48 Amendment No. 3 to Asset Purchase Agreement, dated as of August 17, 1999, among Livent Inc., Livent International Inc., Livent (U.S.) Inc., Livent Realty (New York) Inc., Livent Realty (Chicago) Inc. and SFX Entertainment, Inc. incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K (File No. 001-14993) filed with the SEC on September 9, 1999)
50
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ---------- ------------------------------------------------------------------------------------------------- 10.49 Amendment No. 4 to Asset Purchase Agreement, dated as of August 27, 1999, among Livent Inc., Livent International Inc., Livent (U.S.) Inc., Livent Realty (New York) Inc., Livent Realty (Chicago) Inc. and SFX Entertainment, Inc. (incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K (File No. 001-14993) filed with the SEC on September 9, 1999) 10.50 Share Purchase Agreement, dated August 2, 1999, among SFX Entertainment, Inc., Anita Gregg, Paul Gregg and certain other individuals set forth therein (incorporated by reference to Amendment No.2 to Form S-3 (File No. 333-84371) filed with the SEC on August 17, 1999) 10.51 Share Purchase Agreement, dated September 17, 1999, among SFX Entertainment, Inc., Anita Gregg, Paul Gregg and certain other individuals set forth therein (incorporate by reference to Exhibit No. 10.1 to the Current Report on Form 8-K (File No. 001-14993) filed with the SEC on September 20, 1999) 10.52 Amended and Restated Credit and Guarantee Agreement, dated as of February 26, 1998 and amended and restated as of August 23, 1999, among SFX Entertainment, Inc., SFX U.K. Holdings Limited, the Eligible Subsidiaries (as defined therein), the Lenders Party thereto, the LC Issuing Bank (as defined therein), the Apollo LC Issuer (as defined therein), Lehman Commercial Paper Inc., as Syndication Agent, Societe Generale, as Documentation Agent and The Bank of New York, as Administrative Agent (incorporated by reference to Exhibit No. 10.3 to the Current Report on Form 8-K (File No. 001-14993) filed with the SEC on August 25, 1999) *10.53 Employment Agreement between SFX Entertainment, Inc. and Richard A. Liese, dated as of January 1, 2000. 10.54 Agreement and Plan of Merger among Clear Channel Communications, Inc., CCU II Merger Sub, Inc. and SFX Entertainment, Inc. dated February 28, 2000 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K (File No. 001-14993) filed with the SEC on February 29, 2000) *21.1 Subsidiaries of the Company *23.1 Consent of Ernst & Young LLP *27.1 Financial Data Schedule
- ---------- * Filed herewith (B) CURRENT REPORTS ON FORM 8-K SFX filed a Current Report on Form 8-K on February 4, 1999 disclosing an agreement to acquire certain interests in seven venues and other assets from entities controlled by members of the Nederlander family and other persons. SFX filed a Current Report on Form 8-K on April 14, 1999 for the purpose of filing historical financial statements of certain acquired businesses and the unaudited pro forma condensed combined financial statements of SFX at and for the year ended December 31, 1998,giving effect to certain acquisitions and financial transactions completed since January 1, 1998. SFX filed a Current Report on Form 8-K on June 1, 1999 disclosing an agreement to acquire substantially all of the assets of Livent Inc. and its subsidiaries (collectively, "Livent"), including Livent's theaters in New York, Chicago and Toronto and the rights to current and future Livent productions. SFX filed a Current Report on Form 8-K on June 22, 1999 to report its development of a multi-faceted internet strategy. SFX filed a Current Report on Form 8-K on June 23, 1999 to disclose its solicitation of consents to amend the indentures under which it's outstanding 9 1/8% Senior Subordinated Notes were issued. 51 SFX filed a Current Report on Form 8-K on August 25, 1999 to disclose its entry into a new senior credit facility providing for up to $1.1 Billion of borrowing capacity and the completion of its public offering of 8,625,000 shares of Class A Common Stock. SFX filed a Current Report on Form 8-K on September 9, 1999 to disclose the consummation of its acquisition of substantially all of the assets of Livent. SFX filed a Current Report on Form 8-K on September 20, 1999 to disclose the consummation of its acquisition of Apollo Leisure Group Limited. SFX filed a Current Report on Form 8-K on September 30, 1999 to amend the Form 8-K filed on September 20, 1999, for the purpose of filing the unaudited pro forma condensed combined financial statements of SFX for the year ended December 31, 1998 and as of and for the six months ended June 30, 1999, which give effect to the Apollo acquisition and certain other transactions. SFX filed a Current Report on Form 8-K on February 29, 2000 to disclose its entering into a merger agreement with Clear Channel Communications. 52 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SFX ENTERTAINMENT, INC. By: /s/ Robert F.X. Sillerman --------------------- Name: Robert F.X. Sillerman Title: Executive Chairman and Member of the Office of the Chairman Date: March 30, 2000 Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ---------------------------- -------------------------------------------- --------------- /s/ Robert F.X. Sillerman Executive Chairman, Member of the March 30, 2000 --------------------- Office of the Chairman and Director Robert F.X. Sillerman (principal executive officer) /s/ Michael G. Ferrel President, Chief Executive Officer, March 30, 2000 --------------------- Member of the Office of the Chairman Michael G. Ferrel and Director /s/ Brian Becker Executive Vice President, Member of the March 30, 2000 --------------------- Office of the Chairman and Director Brian Becker /s/ David Falk Member of the Office of the Chairman, March 30, 2000 --------------------- Director David Falk /s/ Thomas P. Benson Chief Financial Officer, Senior Vice March 30, 2000 --------------------- President and Director (principal financial Thomas P. Benson and accounting officer) /s/ Howard J. Tytel Member of the Office of the Chairman, March 30, 2000 --------------------- Executive Vice President, General Howard J. Tytel Counsel, Secretary and Director /s/ Richard A. Liese Senior Vice President, Associate General March 30, 2000 --------------------- Counsel and Director Richard A. Liese /s/ D. Geoff Armstrong Director March 30, 2000 --------------------- D. Geoff Armstrong /s/ James F. O'Grady, Jr. Director March 30, 2000 --------------------- James F. O'Grady, Jr. /s/ Paul Kramer Director March 30, 2000 --------------------- Paul Kramer /s/ Edward F. Dugan Director March 30, 2000 --------------------- Edward F. Dugan /s/ John D. Miller Director March 30, 2000 --------------------- John D. Miller
53 SFX ENTERTAINMENT, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
PAGE ----- The following consolidated financial statements are included in Item 8: Report of Independent Auditors .................................................... F-2 Consolidated Balance Sheets as of December 31, 1999 and 1998 ...................... F-3 Consolidated Statements of Operations for each of the Three Years in the Period Ended December 31, 1999 ................................ F-4 Consolidated Statements of Cash Flows for each of the Three Years in the Period Ended December 31, 1999 ................................ F-5 Consolidated Statements of Shareholders' Equity for each of the Three Years in the Period Ended December 31, 1999 ................................ F-6 Notes to Consolidated Financial Statements ........................................ F-7 The following consolidated financial statement schedule is included in Item 14 (a): Schedule I -- Valuation and Qualifying Accounts ................................... S-1
All other schedules have been omitted because the information is not applicable or is not material or because the information required is included in the consolidated financial statements or the notes thereto. F-1 REPORT OF INDEPENDENT AUDITORS Board of Directors SFX Entertainment, Inc. We have audited the accompanying consolidated balance sheets of SFX Entertainment, Inc. as of December 31, 1999 and 1998, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of SFX Entertainment, Inc. at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP New York, New York February 28, 2000 F-2 SFX ENTERTAINMENT, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, ------------------------------ 1999 1998 -------------- ------------- ASSETS Current assets: Cash and cash equivalents .................................................. $ 382,640 $ 48,021 Accounts receivable, net ................................................... 113,074 53,162 Prepaid event expenses ..................................................... 41,154 23,043 Investments in and receivables from theatrical and other productions ....... 13,134 12,222 Other prepaid expenses ..................................................... 23,686 4,475 Notes receivables from related parties and employees ....................... 1,749 972 Other current assets ....................................................... 12,405 6,838 ---------- ---------- Total current assets ........................................................ 587,842 148,733 Property and equipment, net ................................................. 686,246 292,626 Goodwill, net ............................................................... 1,503,981 874,783 Investments in and receivables from investees ............................... 64,374 18,450 Notes receivable from related parties and employees, less current portion ... 29,225 12,464 Debt issuance costs, net .................................................... 49,888 23,650 Other assets ................................................................ 27,317 12,746 ---------- ---------- TOTAL ASSETS ................................................................ $2,948,873 $1,383,452 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ........................................................... $ 23,714 $ 17,712 Accrued expenses ........................................................... 109,163 50,887 Accrued interest payable ................................................... 23,972 17,241 Deferred revenue ........................................................... 139,393 60,142 Current portion of long-term debt .......................................... 7,826 5,581 Current portion of deferred purchase consideration ......................... 57,610 11,851 ---------- ---------- Total current liabilities ................................................... 361,678 163,414 Long-term debt, less current portion ........................................ 1,384,992 768,195 Deferred purchase consideration, less current portion ....................... 18,617 7,983 Deferred income taxes ....................................................... 45,403 38,826 Other liabilities ........................................................... 9,273 1,940 ---------- ---------- TOTAL LIABILITIES ........................................................... 1,819,963 980,358 Minority interest ........................................................... 10,065 8,058 Temporary equity -- stock subject to redemption ............................. 18,876 16,500 Shareholders' equity: equity: .................................................................... Preferred stock, $.01 par value, 25,000,000 shares authorized, none issued and outstanding as of December 31, 1999 and 1998 ........................... -- -- Class A Common Stock, $.01 par value, 100,000,000 shares authorized, 63,873,657 and 42,919,791 shares issued and outstanding as of .............. December 31, 1999 and 1998, respectively .................................... 639 430 Class B Common Stock, $.01 par value, 10,000,000 shares authorized, 2,545,557 shares issued and outstanding as of December 31, 1999 and 1998 ....................................................................... 25 25 Additional paid-in capital .................................................. 1,238,186 449,484 Deferred compensation ....................................................... (3,775) (6,533) Accumulated deficit ......................................................... (133,106) (64,870) Less: Cost of Class A Common Stock in treasury, 112,528 shares as of December 31, 1999 .......................................................... (2,000) -- ---------- ---------- TOTAL SHAREHOLDERS' EQUITY .................................................. 1,099,969 378,536 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................................. $2,948,873 $1,383,452 ========== ==========
See accompanying notes. F-3 SFX ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1999 1998 1997 -------------- -------------- -------------- Revenue................................................ $ 1,679,452 $ 884,286 $ 96,144 Income from equity investments ........................ 4,903 4,630 509 ----------- ----------- ----------- Total revenue ........................................ 1,684,355 888,916 96,653 Operating expenses: Cost of revenues ...................................... 1,253,647 678,756 73,881 Selling, general and administrative expenses .......... 225,166 111,748 9,536 Depreciation and amortization, including integration and start-up costs of $12,701 in 1999 and $2,406 in 1998............................................... 142,583 62,197 5,431 Corporate expenses .................................... 18,524 11,194 2,206 Non-recurring charges ................................. -- 5,600 -- Non-cash charges ...................................... 7,250 34,051 -- ----------- ----------- ----------- 1,647,170 903,546 91,054 ----------- ----------- ----------- Income (loss) from operations ......................... 37,185 (14,630) 5,599 Interest expense ...................................... (100,825) (50,759) (1,590) Investment income ..................................... 12,594 4,491 295 Minority interest ..................................... (6,017) (2,036) -- Gains on sales of assets, net ......................... 760 -- -- ----------- ----------- ----------- (Loss) income before income taxes and extraordinary item ................................................. (56,303) (62,934) 4,304 Provision for income taxes(1) ......................... (1,597) (3,000) (490) ----------- ----------- ----------- (Loss) income before extraordinary item ............... (57,900) (65,934) 3,814 Extraordinary item-loss on early extinguishment of debt, net of $1,800 of income taxes .................. (2,490) -- -- ----------- ----------- ----------- Net (loss) income ..................................... (60,390) (65,934) 3,814 Accretion on stock subject to redemption .............. (3,522) (2,750) -- ----------- ----------- ----------- Net (loss) income applicable to common shares ......... $ (63,912) $ (68,684) $ 3,814 =========== =========== =========== Net (loss) income per basic and dilutive common share before extraordinary item ...................... $ (1.06) $ (1.83) $ .18 Extraordinary loss on early extinguishment of debt, net of taxes per common share ........................ (0.04) -- -- ----------- ----------- ----------- Net (loss) income per basic and dilutive common share ................................................ $ (1.10) $ (1.83) $ .18 =========== =========== =========== Weighted average basic and dilutive common shares outstanding .......................................... 58,204,408 37,467,620 21,667,500 =========== =========== ===========
(1) The provision for income taxes for the year ended December 31, 1997 would have been $2,540 if such provision had been calculated on a stand--alone basis (see Note 13). See accompanying notes. F-4 SFX ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------------------------- 1999 1998 1997 ------------- ------------- ------------ Operating activities: Net (loss) income ........................................................ $ (60,390) $ (65,934) $ 3,814 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization ........................................... 129,882 59,791 5,431 Income (loss) from equity investments, net of amounts received .......... 3,614 2,809 (479) Non-cash charges ........................................................ 7,250 34,051 -- Minority interest ....................................................... 6,017 2,036 -- Gains on sales of assets, net ........................................... (760) -- -- Extraordinary item-loss on early extinguishment of debt, net of taxes ................................................................. 2,490 -- -- Changes in operating assets and liabilities, net of amounts acquired: Accounts receivable, net ................................................ (508) 8,463 (923) Prepaid event expenses, other prepaid expenses and other current assets ................................................................ (32,825) (23,496) 419 Other assets ............................................................ (874) 882 (275) Notes receivable from related parties and employees ..................... (17,538) (1,132) -- Accounts payable, accrued expenses and other liabilities ................ (14,318) (1,550) 165 Accrued interest payable ................................................ 8,103 17,204 -- Deferred revenue ........................................................ 4,736 (5,683) (7,147) ---------- ---------- --------- Net cash provided by operating activities ................................ 34,879 27,441 1,005 ---------- ---------- --------- Investing activities: Purchases of businesses, net of cash acquired ........................... (834,001) (827,147) (71,213) Proceeds from sales of assets ........................................... 12,038 -- -- Purchases of property and equipment ..................................... (61,193) (64,773) (2,083) ---------- ---------- --------- Net cash used in investing activities .................................... (883,156) (891,920) (73,296) ---------- ---------- --------- Financing activities: Capital contributed by SFX Broadcasting ................................. -- -- 79,093 Receipts from (payments made) to SFX Broadcasting pursuant to the Spin-Off .......................................................... 1,500 (135,679) -- Proceeds from issuance of senior subordinated notes and borrowings under the senior credit facilities ......................... 1,091,720 951,500 -- Proceeds from sale of common stock ...................................... 612,877 328,568 -- Payment for treasury stock .............................................. (2,000) -- -- Repayment of senior credit facilities and capital lease obligations ..... (484,685) (215,212) (823) Other, principally debt issuance costs .................................. (34,858) (22,656) -- ---------- ---------- --------- Net cash provided by financing activities ................................ 1,184,554 906,521 78,270 Effect of exchange rate changes in cash .................................. (1,658) -- -- Net increase in cash and cash equivalents ................................ 334,619 42,042 5,979 ---------- ---------- --------- Cash and cash equivalents at beginning of period ......................... 48,021 5,979 -- ---------- ---------- --------- Cash and cash equivalents at end of period ............................... $ 382,640 $ 48,021 $ 5,979 ========== ========== ========= Supplemental disclosure of cash flow information: Cash paid for interest ................................................... $ 89,156 $ 33,604 $ 1,504 ========== ========== ========= Cash paid for income taxes ............................................... $ 8,477 $ 501 $ -- ========== ========== =========
Supplemental disclosure of non-cash investing and financing activities: o Issuance of equity securities, including deferred equity security issuance and assumption of debt in connection with certain acquisitions (see Note 4). o Agreements to pay future cash consideration in connection with certain acquisitions (see Note 4). o The balance sheet includes certain assets and liabilities which were contributed by SFX Broadcasting in 1998 (Note 1). See accompanying notes. F-5 SFX ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
CLASS A CLASS B ADDITIONAL ACCUMULATED TOTAL COMMON COMMON PAID-IN DEFERRED EARNINGS TREASURY SHAREHOLDERS' STOCK STOCK CAPITAL COMPENSATION (DEFICIT) STOCK EQUITY --------- --------- -------------- -------------- ------------- ------------- -------------- Balances, January 1, 1997 ..... $ -- $ -- $ -- $ -- $ -- $ -- $ -- Capital contributed by SFX Broadcasting ................. 204 15 98,111 -- -- -- 98,330 Net income .................... -- -- -- -- 3,814 -- 3,814 ----- ---- ---------- --------- ---------- --------- ----------- Balances, December 31, 1997 204 15 98,111 -- 3,814 -- 102,144 Net liabilities assumed, principally income taxes and shares issued to employees in the Spin-Off .... 20 -- (109,762) -- -- -- (109,742) Sale of 12,075,000 shares of Class A Common Stock ......... 121 -- 328,447 -- -- -- 328,568 Issuance of 8,177,046 shares of Class A Common Stock for acquisitions ................. 82 -- 95,516 -- -- -- 95,598 Issuance of Class A and Class B Common Stock pursuant to employment agreements 3 10 34,422 (8,625) -- -- 25,810 Amortization of deferred compensation ................. -- -- -- 2,092 -- -- 2,092 Accretion on stock subject to redemption ................... -- -- 2,750 -- (2,750) -- -- Net loss ...................... -- -- -- -- (65,934) -- (65,934) ----- ---- ---------- --------- ---------- --------- ----------- Balances, December 31, 1998 430 25 449,484 (6,533) (64,870) -- 378,536 ----- ---- ---------- --------- ---------- --------- ----------- Adjustment to Working Capital in the Spin-Off .............. -- -- 1,500 -- -- -- 1,500 Sale of 16,048,000 shares of Class A Common Stock ......... 160 -- 598,400 -- -- -- 598,560 Issuance of 4,158,650 shares and options to purchase Class A Common Stock for acquisitions ................. 42 -- 169,504 (508) -- -- 169,038 Issuance of 727,800 shares of Class A Common Stock pursuant to the exercise of employee stock options ....... 7 -- 14,310 -- -- -- 14,317 Repurchase of 112,528 shares of Class A Common Stock ...... -- -- -- -- -- (2,000) (2,000) Amortization of deferred compensation ................. -- -- -- 3,266 -- -- 3,266 Accretion on stock subject to redemption ................... -- -- 3,522 -- (3,522) -- -- Reduction of stock subject to redemption ................... -- -- 1,466 -- -- -- 1,466 Net loss ...................... -- -- -- (60,390) -- (60,390) Foreign currency translation adjustment ................... -- -- -- -- (4,324) -- (4,324) ----- ---- ---------- --------- ---------- --------- ----------- Comprehensive loss ............ -- -- -- -- (64,714) -- (64,714) ----- ---- ---------- --------- ---------- --------- ----------- Balances, December 31, 1999 $ 639 $ 25 $1,238,186 $ (3,775) $ (133,106) $ (2,000) $ 1,099,969 ===== ==== ========== ========= ========== ========= ===========
See accompanying notes. F-6 SFX ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION SFX Entertainment, Inc. ("SFX" or the "Company") is the world's largest diversified promoter, producer and venue operator for live entertainment events. In addition, SFX is a leading fully integrated sports marketing and management company specializing in the representation of sports athletes and broadcasters, integrated event management, television programming and production and marketing consulting services. SFX owns, partially or entirely, and/or operates under lease or exclusive booking arrangements, the largest network of venues used principally for music concerts and other live entertainment events. SFX operates in four major business segments within the live entertainment industry: music, theater, sports and family entertainment and other. The Company was formed as a wholly-owned subsidiary of SFX Broadcasting, Inc. ("SFX Broadcasting") in December 1997 and as the parent company of SFX Concerts, Inc ("Concerts"). Concerts was formed in January 1997 to acquire and hold SFX Broadcasting's live entertainment operations. In August 1997, SFX Broadcasting agreed to the merger among SBI Holdings, Inc. (the "Buyer"), SBI Radio Acquisition Corporation, a wholly-owned subsidiary of the Buyer, and SFX Broadcasting (the "Broadcasting Merger") and to the spin-off of the Company to the shareholders of SFX Broadcasting (the "Spin-Off") (See Note 5). The Spin-Off was completed on April 27, 1998 and the Broadcasting Merger was completed on May 29, 1998. Prior to the Spin-Off, SFX Broadcasting provided various administrative services to the Company. SFX Broadcasting allocated these expenses on the basis of direct usage. In the opinion of management, this method of allocation was reasonable and allocated expenses approximated what the Company would have incurred on a stand-alone basis. The Company recorded the Spin-Off at the historical cost of the assets and liabilities contributed by SFX Broadcasting. Certain 1998 and 1997 amounts have been reclassified to conform to the 1999 presentation. 2. PROPOSED MERGER WITH CLEAR CHANNEL COMMUNICATIONS, INC. On February 29, 2000, SFX announced that it entered into a definitive merger agreement with Clear Channel Communications, Inc. Under the terms of the merger agreement, the Class A shareholders of SFX will receive 0.6 shares of Clear Channel Communications, Inc. common stock for each SFX share, and Class B shareholders of SFX will receive one share of Clear Channel Communications, Inc. common stock for each SFX share, on a fixed exchange basis. The proposed merger would require an amendment to SFX's certificate of incorporation to allow the unequal consideration being paid to the holders of Class A and Class B Common Stock. The transaction is expected to be consummated early in the third quarter of 2000, subject to the approval of the Class A and Class B shareholders of SFX, customary regulatory approvals and other closing conditions. 3. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of SFX and its majority-owned subsidiaries. Investments in other companies that SFX does not control, but has the ability to exercise significant influence over operating and financial policies, are accounted for by the equity method. Investments in other companies that the Company does not control or possess significant influence are accounted for by the cost method. All intercompany transactions and balances have been eliminated. CASH AND CASH EQUIVALENTS The Company considers all investments with an original maturity of three months or less when purchased to be cash equivalents. F-7 PREPAID EVENT EXPENSES Prepaid event expenses include show advances and deposits and other costs directly related to future events. Such costs are charged to operations upon completion of the related events. As of December 31, 1999 and 1998, prepaid event expenses included advertising costs of approximately $872,000 and $480,000, respectively. The Company recognized event advertising expense of approximately $83,002,000, $51,865,000, and $7,109,000 in 1999, 1998, and 1997, respectively. PROPERTY AND EQUIPMENT Land, buildings, improvements and furniture and equipment are stated at cost. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets as follows: Buildings and improvements ......... 4-40 years Furniture and equipment, including internal use software .............. 3-7 years
Leasehold improvements primarily represent the capitalized costs to renovate leased venues. These costs are being amortized over the shorter of the useful life of the improvement or the term of their respective leases. Maintenance and repairs which do not extend the useful lives of the respective assets are expensed as incurred. Depreciation of assets under capital leases is included in depreciation and amortization expense. GOODWILL Goodwill represents the excess of the purchase price, including deferred and contingent purchase consideration, over the fair market value of the assets acquired, and is amortized using the straight-line method over 10-15 years. It is the Company's policy to account for goodwill at the lower of amortized cost or estimated realizable value. As part of an ongoing review of the valuation and amortization of goodwill of the Company and its subsidiaries, management assesses the carrying value of goodwill if facts and circumstances suggest that there may be impairment. If this review indicates that goodwill will not be recoverable as determined by a non-discounted cash flow analysis of the operating results over the remaining amortization period, the carrying value of the goodwill would be reduced to estimated realizable value. Certain of the agreements entered into in connection with the Company's acquisitions require that the Company pay the sellers additional amounts based upon the achievement of a certain level of operating results as defined in the respective acquisition agreements. It is the Company's policy to record these additional amounts when, in management's opinion, it is probable that the results will be achieved. These amounts are recorded as additional purchase price or as compensation expense in accordance with EITF 95-8, "Accounting for Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase Business Combination." DEBT ISSUANCE COSTS Debt issuance costs are amortized over the term of the related debt and are included as non-cash interest expense in the consolidated statement of operations. Debt issuance costs of $49.9 million and $23.7 million, net of accumulated amortization of $5.2 million and $1.9 million, were recorded as of December 31, 1999 and 1998, respectively. REVENUE RECOGNITION Music, Theatrical and Family Entertainment Revenue from the presentation and production of an event is recognized on the date of the performance. Advance ticket sales are recorded as deferred revenue until the event occurs. Sponsorship and other revenues that are not related to any single event are classified as deferred revenue and are generally amortized on a straight-line basis over the operating season during the term of the contract. F-8 Sports Revenue from talent representation arises primarily from percentage fees or commissions received for the negotiation of professional sporting contracts and marketing endorsements. The Company recognizes such revenue in the period when the service is rendered and the fee is determinable. Revenue from the presentation and production of an event is recognized on the date of the performance. Advance ticket sales are recorded as deferred revenue until the event occurs. Sponsorship and other revenues that are not related to any single event are classified as deferred revenue and are amortized on a straight-line basis over the term of the agreement. Revenue from television programming and production services are recognized when the programs are available for broadcast. For syndicated shows, revenues are recognized when the programs are available for broadcast and the license period has begun. Other Revenue is recognized as services are performed or as goods are shipped. RISKS AND UNCERTAINTIES Accounts receivable are due principally from ticket companies and venue box offices. These amounts are typically collected within 20 days of a performance. Generally, management considers these accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. Certain other accounts receivable, arising from the normal course of business, are reviewed for collectibility and allowances for doubtful accounts are recorded as required. The Company has recorded an allowance for doubtful accounts of $2.4 million and $1.7 million as of December 31, 1999 and 1998, respectively, related to these accounts receivable. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. INCOME (LOSS) PER COMMON SHARE Basic income (loss) per common share is based upon the net income (loss) applicable to common shares after the accretion of stock subject to redemption and upon the weighted average of common shares outstanding during the period. Diluted income (loss) per common share adjusts for the effect of convertible securities and stock options only in the periods presented in which such effect would have been dilutive. As the Company incurred losses in 1999 and 1998, there were no dilutive securities during those periods. During 1997, there were no dilutive securities. For the periods prior to the Spin-Off, the calculation of income per common share reflects the recapitalization of the Company. In July 1999, SFX completed a 3-for-2 split of its Class A and Class B Common Stock. The financial information presented herein has been restated to reflect the effect of the stock split. INTEGRATION AND START-UP COSTS Integration and start-up costs represent costs associated with combining the acquired entities and introducing new products and services. During 1999, SFX recorded $12.7 million of integration and start-up costs relating primarily to the cost of implementing SFX's branding and ticketing strategy, new Internet initiatives, the opening of a themed exhibit and the write-off of abandoned transaction costs. During 1998, SFX incurred $2.4 million of integration and start-up costs primarily relating to the cost of implementing SFX's national sponsorship program. COMPREHENSIVE LOSS: FOREIGN CURRENCY TRANSLATION The financial position and operating results of all foreign subsidiaries are consolidated using the local currency as the functional currency. Local currency assets and liabilities are translated at the rate of exchange on the consolidated balance sheet date and local currency revenues and expenses are translated at average rates of exchange during the period, resulting in translation loss. As of December 31, 1999, the Company recorded a translation loss of approximately $4.3 million as a component of other comprehensive loss in accumulated earnings (deficit) in the statement of shareholders' equity. F-9 4. ACQUISITIONS 1997 ACQUISITIONS In January 1997, SFX Broadcasting acquired Delsener/Slater, a concert promotion company which has long-term leases or is the exclusive promoter for seven of the major concert venues in the New York City metropolitan area. Total aggregate consideration was approximately $26.8 million. In March 1997, the Company acquired certain companies which own and operate the Meadows Music Theater, an indoor/outdoor complex located in Hartford, Connecticut for $900,000 in cash, 370,757 shares of SFX Broadcasting Class A common stock with a value of approximately $7.5 million and the assumption of approximately $15.4 million in debt. In June 1997, the Company acquired the stock of Sunshine Promotions, Inc. and certain other related companies, an owner-operator of venues and a concert promoter in the Midwest for $57.5 million in cash and assumed debt, shares of SFX Broadcasting Class A common stock issued with a value of approximately $4.0 million. The 1997 Acquisitions were financed through capital contributions from SFX Broadcasting. 1998 ACQUISITIONS PACE and Pavilion Partners On February 25, 1998, the Company acquired PACE Entertainment Corporation, a diversified producer and promoter of live entertainment in the United States, for total consideration of approximately $150.1 million, including issuance upon the Spin-Off of 2,250,000 shares of the Company's Class A Common Stock valued by the parties at $20.0 million. In a related transaction, the Company acquired, for total consideration of approximately $90.6 million, the 66 2/3% ownership in the Pavilion Partners venue partnership not already owned by PACE. As a result, the Company owns 100% of Pavilion Partners. The PACE Acquisition agreement further provides that each seller of PACE shall have an option, exercisable during a period beginning on the fifth anniversary of the closing of the PACE Acquisition and ending 90 days thereafter, to require the Company to purchase up to one-third of the PACE consideration stock received by such PACE seller for a cash purchase price of $22.00 per share. With certain limited exceptions, these option rights are not assignable by the PACE sellers. The stock, which is subject to redemption, has been recorded as temporary equity on the accompanying consolidated balance sheet and is being accreted over a five-year period. In connection with the signing of new employee agreements during 1999, 66,624 shares of the PACE consideration stock was released from this requirement during 1999. In addition, on March 25, 1998, SFX paid $4.0 million to acquire a 67% interest in certain assets and liabilities of USA Motor Sports, a producer and promoter of motor sports events. The remaining 33% interest was already owned by SFX. Contemporary On February 27, 1998, SFX acquired Contemporary Group and the remaining 50% interest in the Riverport Amphitheatre Joint Venture not owned by Contemporary. The total consideration for the Contemporary acquisition was approximately $82.7 million, including $72.8 million in cash, a payment for working capital of $9.9 million, and the issuance of 1,894,275 shares of Class A common stock having a negotiated value of approximately $16.2 million. SFX financed the purchase price with borrowings under the then-existing senior credit facility and with a portion of the proceeds of the February 1998 Notes (as hereafter defined). BGP On February 24, 1998, SFX acquired BGP for a total consideration of $72.8 million in cash and assumed debt, including the issuance of 844,500 shares of Class A Common Stock having a negotiated value of approximately $7.5 million. SFX financed the purchase price with borrowings under the then-existing senior credit facility and with a portion of the proceeds of the February 1998 Notes. F-10 Network On February 27, 1998, SFX acquired all of the outstanding capital stock of each of The Album Network, Inc. and SJS Entertainment Corporation (collectively "Network") and purchased substantially all of the assets and properties and assumed substantially all of the liabilities and obligations of The Network 40, Inc. The total purchase price was approximately $75.4 million, including approximately $59.2 million in cash and assumed debt, and the issuance of approximately 1,284,000 shares of Class A Common Stock having a negotiated value of approximately $16.2 million. The purchase price was subject to an increase based on Network's operating results, as defined in the acquisition agreement. The Company paid $8.6 million related to this agreement in 1999. In October 1999, SFX sold a portion of the business acquired for $11.7 million and recognized a $3.4 million gain. SFX financed the initial purchase price with borrowings under the then-existing senior credit facility and with a portion of the proceeds of the February 1998 Notes. FAME On June 4, 1998, SFX acquired the Falk Associates Management Enterprises, Inc. ("FAME"). The aggregate purchase price for FAME was approximately $85.5 million in cash and 1.5 million shares of Class A Common Stock having a negotiated value of approximately $36.0 million. The sellers were entitled to a potential additional purchase price of $15.0 million if FAME met or exceeded defined earnings targets through 2003 of which $2.5 million was paid during 1999. Further, in December 1999 and February 2000, SFX paid approximately $10.0 million to the sellers in settlement of their potential rights to future payments under the contingent purchase price agreement. An earnings charge of $4.1 million will be recorded in the first quarter of 2000 relating to the payment made in such quarter as it is considered to be compensation expense. SFX financed the initial purchase price with a portion of the proceeds from the 1998 Equity Offering. Don Law On July 2, 1998, SFX acquired certain assets of Don Law, for an aggregate cash consideration of approximately $92.2 million, including the repayment of approximately $7.0 million in debt. SFX financed the purchase price with a portion of the proceeds of the 1998 Equity Offering. Magicworks On September 11, 1998, SFX purchased all of the outstanding shares of common stock of Magicworks, a publicly traded company, for a total consideration of approximately $115.7 million in cash. SFX consummated the acquisition by means of a tender offer. SFX financed the acquisition with available cash and borrowings under the then-existing senior credit facility. Other Acquisitions In 1998, SFX completed the acquisition of thirteen additional companies. The thirteen acquisitions included four concert promotion and venue owner/operators, two concert promotion companies, two theatrical presenters, a theatrical presenter and venue owner/operator, a motor sports promoter and presenter, a concert merchandising company and the equity owner of an SFX amphitheater. The aggregate purchase price for these acquisitions was $194.8 million in cash, $10.0 million (present value at $8.2 million) in deferred purchase consideration and 562,529 shares of Class A Common Stock having a negotiated value of approximately $11.0 million. On December 16, 1999, the Company repurchased 112,528 shares of Class A Common Stock for $2.0 million in connection with the one of these acquisitions. SFX may be required to make additional payments to the sellers of certain of the acquired companies based on the companies' operating results (as defined in the acquisition agreements) for the years 1998 through 2000. SFX has accrued an additional $5.9 million of contingent purchase price as of December 31, 1999. SFX paid $14.6 million related to these agreements in 1999. SFX financed the initial purchase prices with available cash and a portion of the proceeds of the 1998 Equity Offering. F-11 1999 ACQUISITIONS Cellar Door On February 19, 1999, SFX purchased all of the issued and outstanding capital stock of the Cellar Door group of companies for a purchase price of $70.0 million in cash, 519,357 shares of Class A Common Stock with a value of $20.0 million, and $8.5 million (present value of $6.8 million) payable in five equal annual installments beginning on the first anniversary of the closing date. In addition, SFX agreed to issue to the seller options to purchase 150,000 shares of Class A Common Stock in equal installments over the five-year period following the closing date at fair market value. SFX financed the acquisition with a portion of the net proceeds from its February 1999 equity offering. Nederlander On March 16, 1999, SFX acquired certain interests in seven venues and other assets of Nederlander for an aggregate purchase price of approximately $93.8 million in cash. The agreement relating to the Mesa del Sol Centre for the Performing Arts provides for additional payments based on the financial performance of this venue. In the third quarter of 1999, SFX renegotiated the agreement with respect to the Firstar Arena whereby SFX relinquished its financial interest in the venue in exchange for a revised long-term venue management agreement. SFX financed this acquisition with a portion of the net proceeds of its February 1999 equity offering and borrowings under SFX's then-existing senior credit facility. In addition, during the fourth quarter of 1999, SFX purchased the remaining 50% interest in a partnership which holds the long-term leases to two amphitheaters for $32.6 million. SFX financed the initial acquisition with a portion of the net proceeds of the February 1999 Equity Offering and borrowings under SFX's then-existing senior credit facility. Marquee On March 16, 1999, a subsidiary of SFX was merged with and into The Marquee Group, Inc. and Marquee became a wholly owned subsidiary of SFX. In connection with the merger, SFX issued approximately 2.1 million shares of SFX Class A common stock with a value of approximately $81.7 million on the date of the merger and repaid $33.5 million of Marquee's debt. SFX financed the cash portion of the acquisition with borrowings under its then-existing senior credit facility. In addition to the above, SFX paid $20.5 million of contingent purchase price which arose from purchases made by Marquee during 1999 and has accrued an additional $22.9 million of contingent purchase price as of December 31, 1999. These amounts were recorded as additional purchase price and were financed with a portion of the net proceeds from its August 1999 equity offering. Under certain circumstances, the Company may be required to make additional payments arising from Marquee's acquisition agreements. As a result of the Marquee acquisition, the Company may be obligated to repurchase 69,978 shares of Class A Common Stock issued in connection with the acquisition. In January 2000, the Company repurchased 36,080 of such shares for $1.9 million. In the third quarter of 1999, SFX disposed of the operations of QBQ Entertainment, Inc, whose primary business is the representation of artists in the music industry as agent. No gain or loss was recognized on the transaction. SFX does not have a management or ownership interest in the newly formed company. In connection with the disposition, as of December 31, 1999, SFX had loaned the newly formed company $7.2 million, which has been recorded as an other asset on the consolidated balance sheet. SFX also rendered advisory services to QBQ for which $1.0 million was recognized as revenue by the Company in the consolidated statement of operations. The newly formed company is in the process of obtaining independent financing. Livent On August 27, 1999, SFX purchased certain assets of Livent, Inc., and its affiliates, including three theaters and the intellectual property rights to several current and future Broadway productions, F-12 including Ragtime, Fosse, Phantom of the Opera and Seussical. The purchase price for this acquisition was approximately $100.8 million, consisting of $79.3 million in cash, $18.4 million of deferred purchase consideration and $3.1 million in assumption of debt, subject to post-closing adjustments. SFX financed the cash portion of the acquisition with a portion of the net proceeds from its August 1999 Equity Offering. Apollo On September 17, 1999, SFX acquired Apollo Leisure Group plc, the largest live theater operator as well as one of the largest providers of entertainment and leisure management services in the United Kingdom. The total purchase price for the acquisition was approximately $256.4 million, comprised of approximately $196.4 million in cash, 979,667 shares of Class A Common Stock with a value of approximately $37.5 million and the assumption of net liabilities of approximately $22.5 million, subject to post-closing adjustments. Apollo operates, among other venues, 3 arenas and a network of 23 theaters. In connection with the Apollo acquisition, SFX acquired 100% of Barry Clayman Concerts, which is a leading promoter of concert and other live entertainment events throughout the U.K. SFX financed the cash portion of the acquisition with borrowings under the Senior Credit Facility. EMA Telstar On October 4, 1999, SFX purchased EMA Telstar, a venue owner and a promoter and producer of live entertainment events in Sweden, for approximately $27.9 million in cash. The purchase price was paid with a portion of the net proceeds from the August 1999 Equity Offering. Under certain conditions, the Company may be required to make significant additional payments based upon EMA's achievement of certain earnings targets. Mojo Works On October 21, 1999, SFX purchased 80% of the Mojo Works group of companies, a promoter and producer of live entertainment in the Netherlands for approximately $40.6 million in cash, including working capital, subject to post-closing adjustments. The purchase price was paid with a portion of the net proceeds from the August 1999 equity offering. Under certain circumstances, the sellers have the right to sell the remaining 20% interest to SFX and SFX has the right to purchase the remaining 20% interest from the sellers. Other Acquisitions During the first quarter of 1999, SFX also completed the acquisitions of The Entertainment Group, Inc., a concert and theatrical producer, RZO, a concert promoter, producer of international music concert tours and music publishing business and the assets of Integrated Sports International, L.P., a full-service sports marketing company and a music venue. The total consideration for these acquisitions and the long-term marketing and consulting agreement consisted of $73.2 million in cash and 142,766 shares of Class A Common Stock valued at $5.2 million. In addition, SFX has accrued $4.0 million of contingent purchase price as of December 31, 1999. SFX financed these transactions with the proceeds from the February 1999 Equity Offering and borrowings under SFX's then-existing senior credit facility. In addition, SFX may be required to make additional payments of up to $13.0 million in cash and 75,000 shares of Class A Common Stock based on the financial performance of certain of these acquired companies. During the second quarter of 1999, SFX completed the acquisitions of Hendricks Management Company, Inc., which represents and provides financial consulting services to team sports athletes, primarily in professional baseball and a 50% interest in A.H. Enterprises, a leading promoter of urban music. SFX increased its ownership interest in A.H. Enterprises to 60% in January 2000. The total consideration for these acquisitions was approximately $29.6 million in cash and $4.1 million in deferred purchase consideration. SFX financed these acquisitions with borrowings under SFX's then-existing senior credit facility and cash on hand. In addition, SFX may be required to make additional payments, in shares of SFX Class A Common Stock, based on the cumulative financial performance of Hendricks Management Company, Inc. through December 31, 2002. In addition, SFX invested approximately $11.2 million in certain entertainment and sports related Internet companies. F-13 During the third quarter of 1999, SFX completed the acquisitions of Candid Productions, Inc., a producer of professional figure skating events, a 50% interest in Cardenas Fernandez & Associates, Inc, a leading concert promoter and producer of music concerts by Hispanic artists, Tellem & Associates, which represents team sports athletes, primarily in professional baseball and basketball and Midland Concert Promotions Group Limited, a concert promoter and motorsports venue operator in the United Kingdom. The total consideration for these acquisitions was approximately $66.4 million consisting of $49.2 million in cash, and 253,666 shares of Class A Common Stock valued at $10.5 million and $6.7 million in deferred purchase consideration. SFX financed these acquisitions with a portion of the net proceeds of the August 1999 Equity Offering and borrowings under the Senior Credit Facility. During the fourth quarter of 1999, SFX completed the acquisitions of SME Power Branding, a sports brand identity company, the rights to a 10-year lease of Tabernacle, a music venue in Atlanta, Georgia and the assets of a sport talent representation company in Australia. The total cash consideration for these acquisitions was approximately $12.6 million. SFX financed these acquisitions with a portion of the net proceeds of the August 1999 Equity Offering and borrowings under the Senior Credit Facility. The purchase price for all these acquisitions have been preliminarily allocated to the assets acquired and liabilities assumed and are subject to change. Operating results for these acquisitions are included herein from their respective acquisition dates. The following unaudited pro forma summary represents the consolidated results for the years ended December 31, 1999, 1998 and 1997 as if the acquisitions completed in 1999 had occurred as of January 1, 1998 and the acquisitions completed in 1998 had occurred as of January 1, 1997. These pro forma results have been included for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made as of such date or of results which may occur in the future (in thousands).
PROFORMA YEAR ENDED DECEMBER 31, ---------------------------------------------- 1999 1998 1997 -------------- -------------- ------------ (UNAUDITED) Total revenues ......................... $ 2,020,092 $ 1,651,693 $ 883,901 Loss before extraordinary item ......... (74,981) (60,084) (49,414) Net loss ............................... (77,471) (60,084) (49,414) Loss applicable to basic and dilutive common shares ......................... $ (1.23) $ (0.97) $ (1.17)
5. SPIN-OFF Pursuant to the terms of the Spin-Off, SFX Broadcasting contributed to the Company all of the assets relating to its live entertainment businesses and the Company assumed all of SFX Broadcasting's liabilities pertaining to the live entertainment businesses, as well as certain other liabilities including the obligation to make change of control payments to certain employees of SFX Broadcasting of approximately $5.0 million, as well as the obligation to indemnify one-half of certain of these employees' excise tax. SFX received $2.0 million of net Working Capital (as defined in the Broadcasting Merger Agreement). In connection with the Spin-Off, the Company entered into a tax sharing agreement with SFX Broadcasting. Pursuant to the tax sharing agreement, as amended, the Company was responsible for certain taxes incurred by SFX Broadcasting, including income taxes imposed with respect to income generated by the Company for periods prior to the Spin-Off and taxes resulting from gain recognized by SFX Broadcasting in the Spin-Off. The Company paid $109.7 million of estimated payments related to this agreement during 1998. In 1999, the Company received $1.5 million in cash from the Buyer as the settlement of the net Working Capital and certain tax indemnities. The Company remains liable for certain other tax indemnities (see Note 13). 6. PROPERTY AND EQUIPMENT The Company's property and equipment as of December 31, 1999 and 1998 consisted of the following (in thousands): F-14
1999 1998 ----------- ------------- Land and improvements ........................................ $ 43,550 $ 20,379 Building and improvements .................................... 475,821 145,438 Furniture and equipment, including internal use software ..... 70,339 38,416 Leasehold improvements ....................................... 145,468 98,483 Assets under capital lease ................................... 6,456 6,898 --------- --------- 741,634 309,614 Accumulated depreciation ..................................... (55,388) (16,988) --------- --------- $ 686,246 $ 292,626 ========= =========
7. GOODWILL The Company's goodwill as of the December 31, 1999 and 1998 consisted of the following (in thousands):
1999 1998 ------------- ------------ Goodwill ...................... $1,639,182 $ 919,618 Accumulated amortization ...... (135,201) (44,835) ---------- ------- $1,503,981 $ 874,783 ========== =========
8. FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents and short-term, long-term, and variable-rate debt approximate fair value as of December 31, 1999 and 1998. The Company estimates the fair value of its long-term, fixed-rate debt generally by obtaining the applicable market quotation. The estimated fair value of the Company's fixed rate notes ($350.0 million and $200.0 million Senior Subordinated Notes) was $522.1 million and $507.3 million at December 31, 1999 and 1998, respectively. 9. LONG-TERM DEBT As of December 31, 1999 and 1998, the Company's long-term debt consisted of the following (in thousands):
1999 1998 -------------- ------------ Senior credit facility ........................... $ 807,720 $ 196,000 Senior subordinated notes due February 2008 ...... 350,000 350,000 Senior subordinated notes due December 2008 ...... 200,000 200,000 Other debt ....................................... 18,215 14,996 Capital lease obligations (see Note 17) .......... 16,883 12,780 ---------- --------- 1,392,818 773,776 Less: current portion ............................ (7,826) (5,581) ---------- --------- $1,384,992 $ 768,195 ========== =========
Senior Credit Facility On August 23, 1999, SFX entered into a new seven-year $1.1 billion Senior Credit Facility which replaced SFX's then-existing $350.0 million senior credit facility, which was entered into on February 26, 1998. The new Senior Credit Facility is comprised of a $250.0 million multi-draw, multi-currency term loan maturing on December 31, 2005 (the "Term A Loan"), a single-draw, $600.0 million U.S. dollar term loan maturing on June 30, 2006 (the "Term Loan B") and a $250.0 million reducing revolver having a letter of credit sub-limit of $75.0 million maturing on December 31, 2005. The Company recorded a $2.5 million extraordinary loss on the early extinguishment of debt, net of taxes of $1.8 million, related to the replaced facility. F-15 Loans outstanding under the Senior Credit Facility bear interest, at SFX's option, at certain spreads over LIBOR or the greater of the Federal Funds rate plus 0.50% or the lender's prime rate. The interest rate spreads on the term loan and the revolver are adjusted based on SFX's total leverage ratio, as defined. SFX pays an annual commitment fee ranging from 0.50% to 0.75% on the unused availability under the revolver. SFX pays an annual commitment fee ranging from 0.8125% to 1.5625% on the unused availability under Team Loan A. SFX also pays an annual letter of credit fee equal to the applicable LIBOR margin, as defined, for the revolver then in effect. Loans outstanding under the Senior Credit Facility at December 31, 1999 accrued interest at 9.23%. Commitments to lend under the revolver are required to be reduced in equal quarterly installments commencing March 31, 2003 according to the following schedule: by 25.0% in 2003; by 25.0% in 2004; and by the remaining 50% upon final maturity. Term Loan A is required to be repaid in equal quarterly installments commencing March 31, 2001 according to the following schedule: 15.0% in 2001, 15.0% in 2002, 20.0% in 2003, 25.0% in 2004, and the remaining balance of 25.0% upon maturity. Term Loan B is required to be repaid in equal quarterly installments commencing September 30, 2001 totalling: 1.0% from September 30, 2001 to June 30, 2002, 1.0% from September 30, 2002 to June 30, 2003, 1.0% from September 30, 2003 to June 30, 2004, 1.0% from September 30, 2004 to June 30, 2005, and the remaining balance of 96.0% from September 30, 2005 to June 30, 2006. It is expected that amounts outstanding under the Senior Credit Facility will be subject to, among others, the following mandatory prepayments, which will also permanently reduce commitments; a) 100.0% of the net cash proceeds received from permitted Asset Sales (as defined in the Senior Credit Facility), subject to standard reinvestment provisions; b) 50.0% of Excess Cash Flow (as defined in the Senior Credit facility), calculated for each fiscal year beginning with the year ending December 31, 2001; and c) 100.0% of the proceeds of casualty insurance or condemnation not used to repair or replace the properties with respect to which the loss occurred within one year from the receipt of such proceeds. Borrowings under the new Senior Credit Facility are secured by substantially all of the assets of SFX, including a pledge of the outstanding stock of substantially all of its subsidaries, and are guaranteed by substantially all of SFX's subsidiaries. The Senior Credit Facility contains certain covenants that, among other things, limits the ability of SFX and its subsidiaries to incur additional indebtedness, issue certain equity interests, pay dividends and sell certain assets. In addition, the Senior Credit Facility requires SFX to maintain compliance with certain specified financial covenants. The new Senior Credit Facility also prohibits prepayment of any subordinated notes. Senior Subordinated Notes On February 11, 1998, SFX completed an offering of $350.0 million in principal amount of 9 1/8% Senior Subordinated Notes due February 1, 2008 (the "February 1998 Notes"). Interest is payable on the notes on February 1 and August 1 of each year. On November 25, 1998, SFX completed an offering of $200.0 million in principal amount of 9 1/8% Senior Subordinated Notes due December 1, 2008 (the "November 1998 Notes" and together with the February 1998 Notes, the "Senior Subordinated Notes"). Interest is payable on the notes on June 1 and December 1 of each year. The Senior Subordinated Notes are general unsecured obligations of SFX, subordinate in right to all senior debt, whether outstanding on the date of issuance of the Senior Subordinated Notes or thereafter incurred, of SFX and senior in right of payment to or with all other indebtedness of the Company. The February 1998 Notes are not redeemable at SFX's option before February 1, 2003, and the November 1998 Notes are not redeemable at SFX's option before December 1, 2003. Thereafter, each series of notes will be subject to redemption at any time at the option of SFX, in whole or in part, at specified redemption prices plus accrued and unpaid interest, and liquidated damages (as defined), if any. In addition, at any time prior to February 1, 2001 with respect to the February 1998 Notes and December 1, 2001 with respect to the November 1998 Notes, SFX may on any one or more occasions F-16 redeem up to 35.0% of the original aggregate principal amount of each series of notes at a redemption price of 109.125% of the principal amount thereof, plus accrued and unpaid interest and liquidated damages, if any, with the net proceeds of one or more offerings of common equity of SFX. The Senior Subordinated Note indentures contain certain covenants that, among other things, significantly limit the ability of SFX and its subsidiaries to incur additional indebtedness, issue certain equity interests, pay dividends and sell certain assets. In July 1999, SFX completed a consent solicitation with respect to its outstanding Senior Subordinated Notes whereby it obtained approval from the holders of the notes to modifications of certain covenants in the indentures governing the notes. The modifications, among other things, provided SFX with more flexibility to make investments and acquisitions internationally and permit SFX's foreign subsidiaries to incur indebtedness, subject to certain limitations. Fees associated with the transaction totaling approximately $13.7 million and have been recorded as debt issuance costs as of December 31, 1999. Upon a change of control under the indentures, SFX will be required to make an offer to repurchase the Senior Subordinated Notes at a price equal to 101% of their principal amount, together with accrued and unpaid interest, if any, to the date of purchase. Principal maturities of the long-term debt, excluding capital leases and deferred purchase consideration, over the next five years as of December 31, 1999 are as follows (in thousands):
LONG-TERM DEBT --------------- 2000 ....................... $ 6,094 2001 ....................... 41,320 2002 ....................... 44,833 2003 ....................... 56,449 2004 ....................... 69,103 2005 & Thereafter .......... 1,158,136 ----------- Total ...................... $ 1,375,935 ===========
The Company is a holding company that has no operating assets or operations of its own. Substantially all of the Company's subsidiaries are wholly owned and have jointly and severally guaranteed the Company's Senior Subordinated Notes (the "Guarantors"). A certain subsidiary which is not wholly owned (the "Non-Wholly Owned Guarantor Subsidiary") guarantees such indebtedness and certain subsidiaries (the "Non-Guarantor Subsidiaries") do not guarantee such indebtedness. Full financial statements of the Guarantors, Non-Guarantor Subsidiaries or the Non-Wholly Owned Guarantor Subsidiary have not been included because, pursuant to their respective guarantees, the Guarantors are jointly and severally liable with respect to the Senior Subordinated Notes and management believes that the Non-Guarantor Subsidiaries and Non-Wholly Owned Guarantor are not material to the Company on a consolidated basis. Accordingly, the Company does not believe that the information contained in separate full financial statements of the Guarantors, Non-Guarantor Subsidiaries or the Non-Wholly Owned Guarantor Subsidiary would be material to investors. F-17 The following are summarized unaudited statements setting forth certain financial information concerning the Guarantors, the Non-Guarantor Subsidiaries and the Non-Wholly Owned Guarantor Subsidiary as of and for the years ended December 31, 1999 and 1998 (in thousands):
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 --------------------------------------------------------------------------------------------------- SFX SFX NON-WHOLLY, ENTERTAINMENT, ENTERTAINMENT, NON-GUARANTOR OWNED GUARANTOR INC. INC. GUARANTORS SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED ---------------- -------------- --------------- ----------------- ----------------- --------------- Current assets ............. $ 290,164 $ 223,122 $ 74,380 $ 176 $ -- $ 587,842 Property and equipment, net ............ 17,293 464,513 204,347 93 -- 686,246 Goodwill, net .............. -- 1,284,059 210,346 9,576 -- 1,503,981 Investment in subsidiaries .............. 1,936,237 58,195 6,179 -- (1,936,237) 64,374 Other ...................... 74,948 17,123 10,148 4,211 -- 106,430 ----------- ----------- --------- -------- ------------- ---------- Total assets .............. $ 2,318,642 $ 2,047,012 $ 505,400 $ 14,056 $ (1,936,237) $2,948,873 =========== =========== ========= ======== ============= ========== Current liabilities ........ $ 68,183 $ 175,484 $ 118,185 $ 31 $ (205) $ 361,678 Long-term debt, less current ................... 1,119,442 264,604 9,101 -- (8,155) 1,384,992 Other ...................... 12,172 56,960 4,161 -- -- 73,293 Minority interest .......... -- 4,285 3,892 1,888 -- 10,065 Temporary equity ........... 18,876 -- -- -- -- 18,876 Shareholders' equity ....... 1,099,969 1,545,679 370,061 12,137 (1,927,877) 1,099,969 ----------- ----------- --------- -------- ------------- ---------- Total liabilities and shareholders' equity ...... $ 2,318,642 $ 2,047,012 $ 505,400 $ 14,056 $ (1,936,237) $2,948,873 =========== =========== ========= ======== ============= ========== Revenue .................... $ -- $ 1,512,881 $ 115,357 $ 56,117 $ -- $1,684,355 Operating expenses ......... 20,238 1,465,981 107,678 53,273 -- 1,647,170 Interest expense, net ...... 59,520 25,576 4,272 (58) (1,079) 88,231 Minority interest .......... -- 5,203 299 515 -- 6,017 Gain on sale, net .......... (3,387) 2,586 41 -- -- (760) Provision for income taxes ..................... (2,194) 1,993 1,798 -- -- 1,597 Extraordinary loss ......... 2,490 -- -- -- -- 2,490 ----------- ----------- --------- -------- ------------- ---------- Net (loss) income .......... $ (76,667) $ 11,542 $ 1,269 $ 2,387 $ 1,079 $ (60,390) =========== =========== ========= ======== ============= ========== Cash flow (used in) provided by operations ................ $ (91,596) $ 126,659 $ (367) $ 183 $ -- $ 34,879 Cash flow used in investing ................. (837,393) (42,741) (2,906) (116) -- (883,156) Cash flow provided by financing ................. 1,189,213 (4,659) -- -- -- 1,184,554 Effect of exchange rate..... -- -- (1,658) -- -- (1,658) Cash at the beginning of the period ............. 3,685 (9,298) 53,541 93 -- 48,021 Cash at the end of the period .................... $ 263,909 $ 69,961 $ 48,610 $ 160 $ -- $ 382,640
F-18
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998 ----------------------------------------------- SFX ENTERTAINMENT, NON-GUARANTOR INC. GUARANTORS SUBSIDIARIES ---------------- -------------- --------------- Current assets ................ $ 19,587 $ 122,118 $ 6,836 Property and equipment, net ............... 10,390 272,243 9,993 Goodwill, net ................. -- 844,722 19,853 Investment in subsidiaries ................. 1,161,103 18,450 -- Other assets .................. 28,911 17,377 2,572 ----------- ---------- -------- Total assets ................. $ 1,219,991 $1,274,910 $ 39,254 =========== ========== ======== Current liabilities ........... $ 41,071 $ 118,766 $ 7,541 Long-term debt, less current portion .............. 747,746 20,449 7,855 Other liabilities ............. 36,138 12,321 290 Minority interest ............. -- 5,505 428 Temporary equity .............. 16,500 -- -- Shareholders' equity .......... 378,536 1,117,869 23,140 ----------- ---------- -------- Total liabilities and shareholders' equity ..................... $ 1,219,991 $1,274,910 $ 39,254 =========== ========== ======== Revenue ....................... $ -- $ 837,236 $ 25,245 Operating expenses ............ 50,963 805,418 22,174 Interest expense, net ......... 44,626 895 1,649 Minority interest ............. -- 644 989 Provision for income taxes ........................ 1,350 1,650 -- ----------- ---------- -------- Net (loss) income ............. $ (96,939) $ 28,629 $ 433 =========== ========== ======== Cash flow (used in) provided by operations ................... $ (44,932) $ 73,877 $ (962) Cash flow used in investing activities ......... (861,341) (30,005) (574) Cash flow provided by (used in) financing activities ................... 909,958 (2,021) (1,416) Cash at the beginning of the period ................ -- 2,281 3,063 Cash at the end of the period ....................... 3,685 44,132 111 AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998 --------------------------------------------------- SFX NON-WHOLLY, ENTERTAINMENT, OWNED GUARANTOR INC. SUBSIDIARY ELIMINATIONS CONSOLIDATED ----------------- ----------------- --------------- Current assets ................ $ 192 $ -- $ 148,733 Property and equipment, net ............... -- -- 292,626 Goodwill, net ................. 10,208 -- 874,783 Investment in subsidiaries ................. -- (1,161,103) 18,450 Other assets .................. -- -- 48,860 -------- ------------- ----------- Total assets ................. $ 10,400 $ (1,161,103) $ 1,383,452 ======== ============= =========== Current liabilities ........... 76 $ (4,040) $ 163,414 Long-term debt, less current portion .............. -- (7,855) 768,195 Other liabilities ............. -- -- 48,749 Minority interest ............. 2,125 -- 8,058 Temporary equity .............. -- -- 16,500 Shareholders' equity .......... 8,199 (1,149,208) 378,536 -------- ------------- ----------- Total liabilities and shareholders' equity ..................... $ 10,400 $ (1,161,103) $ 1,383,452 ======== ============= =========== Revenue ....................... $ 26,435 $ -- $ 888,916 Operating expenses ............ 24,991 -- 903,546 Interest expense, net ......... (33) (869) 46,268 Minority interest ............. 403 -- 2,036 Provision for income taxes ........................ -- -- 3,000 -------- ------------- ----------- Net (loss) income ............. $ 1,074 $ 869 $ (65,934) ======== ============= =========== Cash flow (used in) provided by operations ................... $ (542) $ -- $ 27,441 Cash flow used in investing activities ......... -- -- (891,920) Cash flow provided by (used in) financing activities ................... -- -- 906,521 Cash at the beginning of the period ................ 635 -- 5,979 Cash at the end of the period ....................... 93 -- 48,021
10. CAPITAL STOCK The authorized capital stock of the Company consists of 110,000,000 shares of Common Stock (comprised of 100,000,000 shares of Class A Common Stock and 10,000,000 shares of Class B Common Stock), and 25,000,000 shares of preferred stock, par value $.01 per share. In the Spin-Off, (a) 20,368,536 shares of Class A Common Stock were distributed to holders on the Spin-Off record date of SFX Broadcasting's Class A common stock and Series D preferred stock, including 914,784 shares of Class A common stock issued upon the exercise of certain warrants of SFX. F-19 Broadcasting and (b) 1,570,556 shares of Class B Common Stock were distributed to holders on the Spin-Off record date of SFX Broadcasting Class B Common Stock. The financial statements have been retroactively adjusted to reflect this transaction. Holders of Class A Common Stock and Class B Common Stock vote as a single class on all matters submitted to a vote of the stockholders, with each share of Class A Common Stock entitled to one vote and each share of Class B Common Stock entitled to ten votes, except (a) for the election of directors, (b) with respect to any "going private" transaction between the Company and Mr. Sillerman or any of his affiliates and (c) as otherwise provided by law. The Board of Directors has the authority to issue preferred stock and will assign the designations and rights at the time of issuance. During January 1998, in connection with the expectation of certain executive officers entering into employment agreements with the Company, the Board of Directors, upon recommendation of the Compensation Committee, approved the sale of an aggregate of 975,000 shares of the Company's Class B Common Stock and 285,000 shares of the Company's Class A Common Stock to certain officers for a purchase price of $1.33 per share. Such shares were issued in April 1998. During 1998, the Board of Directors also approved the issuance of shares of the Company's Class A common stock to holders of stock options or stock appreciation rights ("SARs") of SFX Broadcasting as of the Spin-Off record date, whether or not vested. The issuance was approved to allow such holders of these options or SARs to participate in the Spin-Off in a similar manner to holders of SFX Broadcasting's Class A Common Stock. Additionally, many of the option holders were expected to become officers, directors and employees of the Company. On May 27, 1998, SFX consummated an offering of 12,075,000 shares of Class A common stock at an offering price of $28.83 per share and received net proceeds of approximately $329.0 million. SFX used the proceeds to consummate certain of its 1998 acquisitions, to fund $93.7 million of tax indemnity payments and to pay fees and other expenses. In February 1999, SFX consummated an offering of 7,423,500 shares of Class A Common Stock at an offering price of $37.00 per share and received net proceeds of approximately $260.7 million. SFX used the proceeds to finance certain of the 1999 Acquisitions. In July of 1999, the Company completed a three-for-two split of SFX's Class A and Class B Common Stock. The financial information presented herein has been restated to reflect the effect of the stock split. In August 1999, SFX consummated an offering of 8,625,000 shares of the Company's Class A Common Stock at an offering price of $41.00 per share and received net proceeds of approximately $337.9 million. SFX used a portion of the net proceeds to finance certain of the 1999 Acquisitions and intends to use the remaining portion of the net proceeds for general corporate purposes, including potential future acquisitions. On December 16, 1999, the Company repurchased 112,528 shares of Class A Common Stock for $2.0 million in connection with the Westbury Music Fair, Inc. acquisition. These shares were recorded as Class A Common Stock in treasury in the consolidated balance sheet as of December 31, 1999. 11. STOCK OPTIONS During January 1998, the Board of Directors and SFX Broadcasting, as sole stockholder, approved and adopted a stock option plan providing for the issuance of options to purchase shares of the Company's Class A Common Stock totaling up to approximately 3.0 million shares. Under the stock option plan, options to acquire Class A Common Stock have been granted to certain officers, key employees and other individuals who perform services for the Company. Options granted under these plans are generally granted at option prices equal to the fair market value of the Class A Common Stock on the date of the approval of the grant. Terms of the options, determined by the Company, provided that the maximum term of each option shall not exceed ten years and the options become fully exercisable within five years of continued employment with the exception of certain options which were fully vested at the date of grant. F-20 On November 4, 1998, the Board of Directors approved the grant of options covering 4,500,000 shares of Class A common stock under the 1999 Plan to employees, directors and consultants of SFX. Options granted under these plans are generally granted at option prices equal to the fair market value of the Class A common stock on the date of the approval of the grant. Terms of the options, determined by the Company, provided that the maximum term of each option shall not exceed ten years and the options become fully exercisable within five years of continued employment with the exception of certain options which were fully vested at the date of grant. As of December 31, 1999, 4,224,866 options had been granted under this Plan. In addition, the Company granted an additional 575,312 options pursuant to certain acquisition agreements. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its employee stock options, as opposed to the fair value accounting provided for under FAS Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"). Pro forma information regarding net loss and loss per basic and dilutive common share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1999: risk-free interest rate of 5.29%; no dividend yield; volatility factor of the expected market price of the Company's common stock of 76.4%; and a weighted-average expected life of the options of 5 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. Therefore, the impact on the pro forma results of operations in 1999 and 1998 may not be representative of the impact in future periods should additional options be granted. The Company's pro forma information follows (in thousands, except for loss per share information).
1999 1998 ------------- ------------- Pro forma net loss applicable to common shares ......... $ (77,741) $ (74,477) Pro forma loss per basic and dilutive common share: .... $ (1.34) $ (1.99)
F-21 A summary of the Company's stock options activity (adjusted for the stock split), and related information for the years ended December 31 follows:
1999 1998 --------------------------------- ---------------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE ------------ ------------------ -------------- ----------------- Outstanding: beginning of year ................... 2,990,574 $ 21.84 -- $ -- Granted .......................................... 4,800,178 21.64 2,990,574 21.84 Exercised ........................................ (778,951) 18.25 -- -- Cancelled ........................................ (51,009) 18.93 -- -- ---------- -------- --------- ------ Outstanding: end of year ......................... 6,960,792 $ 22.13 2,990,574 $ 21.84 ========== ======== ========= ======= Exercisable at end of year ....................... 1,717,309 $ 26.48 -- $ -- ========== ======== ========= ======= Weighted average fair value of options granted during the year: Stock price equal to exercise Price ............. $ 21.56 $ 25.60 Stock price in excess of exercise price ......... $ 31.68 $ 26.81 Stock price less than exercise price ............ $ 25.47 $ --
A summary of the Company's options as of December 31, 1999 follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------------ ----------------------------- WEIGHTED AVERAGE NUMBER OF REMAINING CONTRACTUAL WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE RANGE OF EXERCISE PRICE OPTIONS LIFE (YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE - ---------------------------- ----------- ----------------------- ------------------ ----------- ----------------- $3.67 to $8.89.............. 452,500 8.0 $ 3.76 107,500 $ 4.03 $16.08 to $19.42............ 3,943,225 8.7 16.67 694,391 16.47 $20.45 to $29.14............ 1,589,607 8.4 28.47 475,994 27.87 $30.13 to $42.67............ 788,027 9.2 38.25 258,650 36.57 $48.05 to $67.48............ 187,433 8.8 59.85 180,774 60.18 --------- --- -------- ------- -------- $3.67 to $67.48............. 6,960,792 8.6 $ 22.13 1,717,309 $ 26.48 ========= === ======== ========= ========
12. BUSINESS SEGMENTS SFX classifies its operations into four major business segments in the live entertainment industry: music, theatrical, sports, and family entertainment and other. The music segment primarily consists of the promotion and production of live entertainment events, most significantly for concert and other music performances in venues owned (partially or entirely) and/or operated by SFX and in third party venues. The theatrical segment develops and manages touring Broadway shows and other theatrical productions and owns and operates theatrical venues. The sports segment acts as a full-service marketing and management company specializing in the representation of athletes, as well as promoting specialized motor sports events. The family entertainment and other segment primarily consist of the promotion and marketing of family-oriented events, marketing and consulting of local, regional and national live marketing programs, the subscription or fee based radio and music industry data compilation and distribution, the creation and distribution of network radio special events and live concert programming and merchandising at live events. The Company evaluates performance based on several factors, of which the primary financial measure is EBITDA, since this measure approximates the cash flow generated by each segment. EBITDA is defined as earnings before interest, taxes, minority interest, gains on sales of assets, non-cash and non-recurring charges and depreciation and amortization, including start-up and integration costs. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The segment performance for 1997 is not presented as the Company did not have operations other than the music segment during 1997. F-22
YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS) ------------------------------------------------------------------------------------- FAMILY ENTERTAINMENT MUSIC THEATRICAL SPORTS AND OTHER CORPORATE TOTAL -------------- ------------ ------------ -------------- -------------- -------------- Revenues ....................... $ 976,203 $ 289,671 $ 141,706 $ 276,775 $ -- $ 1,684,355 =========== ========= ========= ========= ========== =========== EBITDA ......................... $ 118,693 $ 31,924 $ 33,281 $ 21,644 $ (18,524) $ 187,018 Depreciation and amortization, including integration and start-up costs of $12,701 ..... 77,669 14,368 24,313 18,295 7,938 142,583 Non-cash charges ............... -- -- -- -- 7,250 7,250 ----------- --------- --------- --------- ---------- ----------- Income (loss) from operations .. $ 41,024 $ 17,556 $ 8,968 $ 3,349 $ (33,712) $ 37,185 =========== ========= ========= ========= ========== =========== Total assets ................... $ 1,417,984 $ 568,705 $ 379,418 $ 188,998 $ 393,768 $ 2,948,873 =========== ========= ========= ========= ========== ===========
YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS) ------------------------------------------------------------------------------------ FAMILY ENTERTAINMENT MUSIC THEATRICAL SPORTS AND OTHER CORPORATE TOTAL ------------ ------------ ------------- -------------- -------------- -------------- Revenues ...................... $ 604,469 $ 150,970 $ 24,899 $ 108,578 $ -- $ 888,916 ========= ========= ========= ========= ========== =========== EBITDA ........................ $ 61,204 $ 15,576 $ 2,466 $ 19,166 $ (11,194) $ 87,218 Depreciation and amortization, including integration and start-up costs of $2,406 ..... 36,606 5,557 5,363 9,071 5,600 62,197 Non-cash and non-recurring charges ...................... -- 5,600 -- -- 34,051 39,651 --------- --------- --------- --------- ---------- ----------- Income (loss) from operations . $ 24,598 $ 4,419 $ (2,897) $ 10,095 $ (50,845) $ (14,630) ========= ========= ========= ========= ========== =========== Total assets .................. $ 841,139 $ 220,865 $ 134,810 $ 122,262 $ 64,376 $ 1,383,452 ========= ========= ========= ========= ========== ===========
The regional reporting for the year ended December 31, 1999 is summarized as follows (in thousands):
REGION REVENUES LONG-LIVED ASSETS - ------ ------------- ------------------ North America .............. $1,593,335 $1,972,805 Europe ..................... 91,020 386,167 Other ...................... -- 2,059 ---------- ---------- Total ...................... $1,684,355 $2,361,031 ========== ==========
The Company did not maintain operations outside of North America prior to the year ended December 31, 1999. F-23 13. INCOME TAXES The provisions for income taxes for the years ended December 31, 1999, 1998 and 1997 are summarized as follows (in thousands):
1999 1998 1997 -------------- -------------- ---------- Income from continuing operations before taxes and extraordinary item: Domestic .................................................. $ (55,846) $ (62,934) $ 4,304 Foreign ................................................... (457) -- -- ---------- ---------- ------- (Loss) income before taxes and extraordinary item ......... $ (56,303) $ (62,934) $ 4,304 ========== ========== ======= Provision (benefit) for income taxes: Current: Federal .................................................. $ 217 $ -- $ -- State and local .......................................... 1,693 3,000 420 Foreign .................................................. 1,880 -- -- ---------- ---------- ------- 3,790 3,000 420 ---------- ---------- ------- Deferred: Federal .................................................. (2,734) -- -- State and local .......................................... 541 -- 70 Foreign .................................................. -- -- -- ---------- ---------- ------- (2,193) -- 70 ---------- ---------- ------- Total provision for income taxes .......................... $ 1,597 $ 3,000 $ 490 ========== ========== =======
No federal benefit was recorded in 1998 as the Company was not assured it would realize a tax benefit from the loss. No federal income taxes were provided in 1997 as a result of the Company's inclusion in the consolidated federal income tax return with SFX Broadcasting. If the Company had filed on a stand-alone basis, its federal tax provision would have been approximately $2,050,000, consisting of $1,760,000 in current taxes and approximately $290,000 of deferred taxes. During the period January 1, 1998 through April 27, 1998 the Company was a member of the SFX Broadcasting consolidated federal income tax return. Subsequent to April 27,1998, the date of the Spin-Off, the Company filed separate tax returns. The Company has provided income taxes for all of 1999 and 1998 on a stand-alone basis. F-24 Deferred income taxes reflect the tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company's deferred tax asset and liabilities as of December 31, 1999 and 1998 are as follows (in thousands):
1999 1998 -------------- -------------- Deferred tax assets: Deferred compensation ....................................... $ 2,528 $ 783 Accounts receivable ......................................... 216 -- Depreciation and amortization ............................... 5,364 -- Deferred revenue ............................................ 5,345 6,274 Net operating loss carryforward ............................. 15,330 16,010 ---------- ---------- Total deferred tax asset ..................................... 28,783 23,067 Valuation allowance ......................................... (2,631) (2,789) ---------- ---------- Total deferred tax asset, net of valuation allowance ......... 26,152 20,278 Deferred tax liabilities: Assets acquired in business combinations .................... (71,437) (59,104) Other ....................................................... (118) -- ---------- ---------- Deferred tax liability ....................................... $ (45,403) $ (38,826) ========== ==========
At December 31, 1999, 1998, and 1997 the tax provision differs from tax provided at the statutory federal income tax rate as follows (in thousands):
1999 1998 1997 -------------- -------------- ---------- Statutory rate ............................... $ (19,706) $ (21,398) $ 1,463 State taxes, net of federal benefit .......... 1,452 3,000 490 Nondeductible stock compensation ............. -- 11,513 -- Minority interest ............................ 2,106 -- -- Goodwill amortization ........................ 17,658 3,869 800 Meals & entertainment ........................ 667 175 20 Effect of consolidated return loss ........... -- -- (2,283) Valuation allowance .......................... (1,270) 2,789 -- Tax loss prior to Spin-Off ................... -- 3,052 -- Other ........................................ 690 -- -- ---------- ---------- -------- $ 1,597 $ 3,000 $ 490 ========== ========== ========
The Company made numerous acquisitions during 1999 and 1998. As a result of the purchase accounting for these acquisitions, the Company has recorded deferred taxes of $15.3 million and $59.1 million, respectively, associated with the excess of financial statement basis over the tax basis in the acquired assets. In conjunction with the Spin-Off, the Company paid approximately $109.7 million in tax of which approximately $90.2 million was recorded through equity and the remaining $19.5 million was recorded as a deferred tax asset. The deferred tax asset relates to basis differences in the assets received in the Spin-Off. In addition, SFX remains liable for certain tax indemnities. Management's estimates of the amount of the indemnity payment are based on assumptions which management believes are reasonable. However, such assumptions could be modified, including any potential tax audit adjustments, in a manner that would result in a significant variance in the actual amount of the tax indemnity. As of December 31, 1999, the Company has approximately $42.7 million of net operating loss ("NOL") carryforwards. The Company's NOL carryforwards will expire in the year 2019. The Company is currently reviewing whether these losses can be carried back to an earlier year for a refund of federal income taxes previously paid. F-25 14. NON-CASH AND NON-RECURRING CHARGES In 1999, non-cash charges of $7.3 million consisted of (a) $3.3 million related to the issuance of stock options to certain executive officers pursuant to the employment agreements exercisable for an aggregate of 517,500 shares of Class A Common Stock; (b) $2.0 million related to the write off of a concert tour (c) $1.6 million related to the issuance of stock options, and (d) $400,000 related to other non-cash charges. In 1998, non-cash charges of $34.1 million consisted of (a) $23.9 million of compensation related to the sale of 975,000 shares of Class B Common Stock and 285,000 shares of Class A Common Stock at a purchase price of $1.33 per share to certain executive officers (Note 10), (b) $7.5 million associated with the issuance of 370,766 shares of Class A Common Stock to Mr. Robert F.X. Sillerman, Executive Chairman of the Company, in connection with the repurchase of shares of SFX Broadcasting issued to the sellers of the Meadows (Note 15); (c) $2.4 million related to the issuance of stock options to certain executive officers pursuant to employment agreements exercisable for an aggregate of 528,750 shares of Class A Common Stock; and (d) $300,000 related to the deferred compensation plan for each non-employee director, adopted in January 1998, whereby each director was credited with the right to receive 8,183 shares of Class A Common Stock based upon a $3.67 stock price per share. In 1998, the non-recurring charges of $5.6 million consisted of certain deposits paid for the Ragtime and Showboat touring productions and certain related deferred expenses which, as a result of the Livent bankruptcy, were not recovered. 15. RELATED PARTY TRANSACTIONS Relationship between Howard J. Tytel and Baker & McKenzie Howard J. Tytel, who is the Executive Vice President, General Counsel, Secretary, Member of the Office of the Chairman and a director of SFX, was "Of Counsel" to the law firm of Baker & McKenzie from the inception of the Company to May 31, 1998. Mr. Tytel was also an executive vice president, the general counsel and a director of SFX Broadcasting. Baker & McKenzie served as counsel to SFX Broadcasting and Marquee and currently serves as counsel to SFX and certain other affiliates of Mr. Sillerman. Baker & McKenzie formerly compensated Mr. Tytel based, in part, on the fees it received from providing legal services to SFX Broadcasting, SFX, Marquee, other affiliates of Mr. Sillerman and other clients introduced to the firm by Mr. Tytel. Baker & McKenzie has agreed to a severance arrangement with Mr. Tytel, which is not based on fees received by Baker & McKenzie. In 1997, the Company incurred fees of approximately $2.9 million for legal services. Such fees were funded by SFX Broadcasting on behalf of the Company. In February 1998, the Company reimbursed SFX Broadcasting for these fees. From April 27, 1998, the date of the Spin-Off, until May 31, 1998, SFX incurred and paid Baker & McKenzie approximately $1.5 million for legal services. Management believes that this arrangement was as fair to SFX as any that could have been obtained from an unrelated party on an arms-length basis. Triathlon Fees Under the terms of an agreement to provide marketing services to Triathlon Broadcasting, Inc., until June 1, 2005, for an annual fee of $500,000, together with a refundable advance of $500,000 per year against fees earned in respect to consulting and of transactional investment banking services, the Company recorded fees of $132,000, $530,000 and $1,794,000 for the year ended December 31, 1999, 1998 and 1997, respectively. In 1999, Triathlon was acquired by a third party and ceased paying consulting fees. Meadows Repurchase In connection with the acquisition of the Meadows, SFX Broadcasting obtained an option to repurchase 370,766 shares of its Class A common stock for $8.2 million. Pursuant to the terms of the Broadcasting Merger Agreement, if the Meadows Shares were outstanding at the effective time of the Broadcasting Merger, working capital paid to SFX would be decreased by approximately $10.3 million. However, SFX Broadcasting was restricted from exercising the Meadows Repurchase by certain loan covenants and other restrictions. F-26 In January 1998, Robert F.X. Sillerman, the Executive Chairman of SFX, financed the $8.2 million exercise price of the Meadows Repurchase to offset the $10.3 million reduction to working capital. In consideration, Mr. Sillerman received the Class A shares in the Spin-Off. 16. DEFINED CONTRIBUTION PLAN The Company sponsors a 401(k) defined contribution plan in which most full-time employees are eligible to participate. The plan presently provides for discretionary employer contributions. During 1999 and 1998, each subsidiary maintained its own pension/profit sharing plan. The amounts charged to operations under these separate plans in 1999 and 1998 was approximately $1,543,000 and $627,870, respectively. There were no contributions in 1997. 17. LEASES The Company's leases primarily relate to venues, office space and land. The lease terms range from 1 to 38 years for operating leases and 1 to 49 years for capital leases. A number of the leases provide for escalating rent over the lease term. Rental expense on operating leases is recognized on a straight-line basis over the life of such leases. The majority of the amphitheater leases provide for contingent rentals, generally based upon a percentage of gross revenues, as defined in the respective lease agreements. Rental expense associated with operating leases for 1999, 1998 and 1997 was approximately $26,137,000, $19,496,000 and $2,753,000, respectively. Contingent rental expense associated with operating leases for 1999 and 1998 was approximately $5,887,000 and $4,282,000, respectively. There was no contingent rental expense for 1997. Interest rates on capital leases range form 6.5% to 14%. Minimum rental commitments on long-term capital and operating leases at December 31, 1999 are as follows (in thousands):
OPERATING LEASES CAPITAL LEASES ------------------ --------------- 2000 ........................... $ 21,256 $ 3,546 2001 ........................... 19,935 3,440 2002 ........................... 18,005 3,033 2003 ........................... 17,506 1,257 2004 ........................... 15,426 1,257 2005 and thereafter ............ 179,136 23,878 --------- ------- $ 271,264 36,411 ========= Less: Interest ................. 19,528 ------- 16,883 Less: Current portion .......... 1,732 ------- $15,151 =======
On March 13, 2000, the Company entered into a lease agreement covering the Candler Tower, a 24 story building in New York. The bottom three floors will be subleased for retail uses. The balance of the building, consisting of approximately 180,000 square feet will be used as the Company's world headquarters. The lease is for a 20 year term with two consecutive 10 year options. The landlord has committed to contribute in excess of $7.0 million toward the tenant build-out work. In addition, the City and State of New York have committed to provide economic development benefits to the Company in connection with its initial and ongoing capital purchases. F-27 18. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS While the Company is involved in several lawsuits and claims arising in the ordinary course of business, the Company is not currently a party to any legal proceeding that management believes would have a material adverse effect on its business, financial position or results of operations. The Company has employment agreements and arrangements with its executive officers and certain management personnel. The agreements provide for various minimum annual base compensation packages with terms varying between 1-5 years, expiring on various dates, as well as insurance coverage and discretionary bonus clauses. The future minimum payments for all noncancelable employee agreements at December 31, 1999 are as follows (in thousands):
EMPLOYMENT AGREEMENTS ----------- 2000 ........................ $ 32,757 2001 ........................ 30,523 2002 ........................ 26,694 2003 ........................ 16,716 2004 ........................ 6,975 2005 and thereafter ......... -- --------- Total ....................... $113,665 =========
Certain employment contracts, primarily those of the executive officers, contain provisions for payments in the event of a change in control, as defined in the employment agreements. In July 1999, SFX adopted an executive loan program which is intended to incentivize certain executives to enter into new employment agreements with the Company upon the expiration of their existing agreements. During the third quarter of 1999, the Company loaned certain senior executives $14.1 million pursuant to this plan. The loans, which bear interest at a rate of 6.0% per annum, are included in notes receivable from related parties and employees on the consolidated balance sheet. Under the terms of the loans, if any of the participants in the loan program enter into new long-term employment agreements with SFX, effective upon termination of the existing employment agreement, the participant's loan would be forgiven ratably over the term of the new employment agreement. On January 15, 2000, in connection with the renegotiation of employment agreements with members of the Company's senior management group, the Company issued fully-vested options to purchase an aggregate of 2,102,500 shares of the Company's Class A Common Stock at prices that were below the then-current market price, which will result in a non-cash compensation charge of $54.2 million in the first quarter of 2000. These options were issued as an inducement to cause each executive officer to enter into an amended long-term employment agreement. In addition, the Company forgave amounts due under the executive loan program of certain executives which will result in future charges in the Company's statement of operations. Pursuant to a real estate purchase agreement with the sellers of Oakdale Theater, the Company has agreed to purchase the land, building and improvements of the Oakdale Theater at the end of the Company's fifteen-year lease of the premises in June 2013 for $15.4 million. In June 1998, the Company extended an $11.4 million note receivable to the sellers which is secured by the property which has been recorded in notes receivable from related parties and employees in the accompanying consolidated balance sheet. The Company has committed to construct three new amphitheaters in the Seattle, Washington, Sacramento, California and the Albuquerque, New Mexico markets. SFX expects to spend an additional $46.5 million on these projects in 2000. In addition, the Company has committed to other capital projects totaling approximately $15.0 million in 2000. The committed capital expenditures do not include amounts that may be required for construction of major new venues, major renovations at existing venues or leasehold improvements that may be required at SFX's new world headquarters at the Candler Building. F-28 As of December 31, 1999, 1998 and 1997, outstanding letters of credit for $39,727,000, $2,597,000 and $1,110,000, respectively, were issued by banks on behalf of the Company as security for loans and the rental of theaters. In 1994, the Connecticut Development Authority ("CDA") entered into a non-recourse assistance agreement with the Company whereby the CDA provided grant funds of $8,863,000 for the construction and development of the Meadows through the issuance of State of Connecticut General Fund Obligation Bonds ("GFO Bonds"). The annual tax revenues derived from the operation of the amphitheater are utilized to satisfy the annual service requirements of the GFO Bonds. If the annual tax revenues are less than the annual service requirements, the Company must deposit the lesser of the operating shortfall, as defined, or 10.0% of the annual service requirements under the GFO Bonds. An operating shortfall has not existed since the inception of the CDA. The GFO Bonds mature on October 15, 2024 and have an average coupon rate of 6.33%. The agreement governing the partnership through which PACE holds its interest in the Lakewood Amphitheater in Atlanta, Georgia contains a provision that purports to restrict PACE and its affiliates from directly or indirectly owning or operating another amphitheater in Atlanta. In management's view, this provision will not materially affect the business or prospects of the Company. However, the Company acquired an interest in the Chastain Park Amphitheater, also in Atlanta, in the Concert/Southern acquisition. The Company intends to seek a waiver. Pursuant to certain acquisition agreements certain sellers have the right to repurchase certain of the businesses sold to SFX. 20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the year ended December 31, 1999 (in thousands):
1999 QUARTER ----------------------------------------------------------- YEAR ENDED 1ST 2ND 3RD 4TH DECEMBER 31, 1999 ------------ ------------ -------------- ------------ ------------------ Total revenue ............................ $ 276,121 $ 407,685 $ 527,185 $ 473,364 $ 1,684,355 Gross profit ............................. 27,030 55,702 100,430 22,380 205,542 (Loss) income before extraordinary item .................................... (17,625) (10,052) 15,245 (45,468) (57,900) Net (loss) income ........................ (17,625) (10,052) 12,625 (45,338) (60,390) Net (loss) income per basic common share before extraordinary item ......... $ (0.55) $ (0.20) $ 0.23 $ (0.70) $ (1.06) Extraordinary loss on early extinguishment of debt per basic common share ............................ -- -- (0.04) -- (0.04) --------- --------- ---------- --------- ----------- Net (loss) income per basic common share ................................... $ (0.55) $ (0.20) $ 0.19 $ (0.70) $ (1.10) ========= ========= ========== ========= =========== Net (loss) income per dilutive common share before extraordinary item ...................... $ (0.55) $ (0.20) $ 0.22 $ (0.70) $ (1.06) Extraordinary loss on early extinguishment of debt per dilutive common share ............................ -- -- (0.04) -- (0.04) --------- --------- ---------- --------- ----------- Net (loss) income per dilutive common share ............................ $ (0.55) $ (0.20) $ 0.18 $ (0.70) $ (1.10) ========= ========= ========== ========= ===========
F-29 21. SUBSEQUENT EVENTS (UNAUDITED) 2000 ACQUISITIONS In the first quarter of 2000, SFX completed the acquisitions of Speakers of Sport, which represents team sports athletes, primarily in professional baseball and the Electric Factory Concerts group of companies, the primary concert promoter in the Philadelphia, Pennsylvania area. The total consideration for these acquisitions was approximately $65.4 million. These acquisitions were financed through a portion of the proceeds of the August 1999 Equity Offering. See Note 2 regarding proposed merger with Clear Channel Communications, Inc. F-30 SFX ENTERTAINMENT, INC. SCHEDULE I -- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
ADDITIONS ADDITIONS BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER END OF DESCRIPTION YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR - -------------------------------------- -------------- ------------ --------------- ----------------- ----------- Allowance for Doubtful Accounts: Year ended December 31, 1997 ......... $ -- -- -- -- $ -- Year ended December 31, 1998 ......... $ -- 216 1,646 (a) (126) (b) $ 1,736 Year ended December 31, 1999 ......... $ 1,736 686 -- -- $ 2,422
- ---------- (a) Represents amounts acquired in acquisitions. (b) Write-off of accounts receivable. S-1 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ------------- ----------------------------------------------------------------------------------- 10.30 Second Amended and Restated Employment Agreement, by and between SFX Entertainment, Inc. and Brian E. Becker, dated as of December 13, 1999. 10.31 Amended and Restated Employment Agreement between SFX Entertainment, Inc. and David Falk, dated as of January 1, 2000. 10.32 Amended and Restated Employment Agreement between SFX Entertainment, Inc. and Robert F.X. Sillerman, dated as of January 15, 2000. 10.33 Amended and Restated Employment Agreement between SFX Entertainment, Inc. and Michael G. Ferrel, dated as of January 15, 2000. 10.34 Amended and Restated Employment Agreement between SFX Entertainment, Inc. and Thomas P. Benson, dated as of January 15, 2000. 10.35 Amended and Restated Employment Agreement between SFX Entertainment, Inc. and Howard J. Tytel, dated as of January 15, 2000. 10.53 Employment Agreement between SFX Entertainment, Inc. and Richard A. Liese, dated as of January 1, 2000. 21.1 Subsidiaries of the Company 23.1 Consent of Ernst & Young LLP 27.1 Financial Data Schedule
EX-10.30 2 SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT --BRIAN E. BECKER SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Employment Agreement"), made as of December 13, 1999, between SFX ENTERTAINMENT, INC., a Delaware corporation (the "Employer"), and BRIAN E. BECKER (the "Executive"). WHEREAS, the Executive is currently employed by the Employer as evidenced by that certain Amended and Restated Employment Agreement dated as of December 12, 1997 ("1997 Employment Agreement"); WHEREAS, the Employer wishes to employ the Executive in a senior management position and be assured of his services on the terms and subject to the conditions hereinafter set forth; and WHEREAS, the Compensation Committee and the Board approved the terms and conditions of this Employment Agreement; NOW, THEREFORE, for good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the Employer and the Executive agree as follows: 1. Employment. Upon the terms and subject to the conditions of this Employment Agreement, the Employer hereby employs the Executive and the Executive hereby accepts employment by the Employer. The parties agree that the 1997 Employment Agreement shall terminate concurrently with the execution of this Employment Agreement and shall be of no further force and effect. 2. Term. 2.1. The term of the Executive's employment hereunder shall commence immediately upon the execution of this Employment Agreement and continue until the fifth anniversary thereof, unless terminated earlier in accordance with the provisions of this Employment Agreement; provided, however, that this Employment Agreement shall automatically be renewed for additional one-year periods thereafter unless and until terminated by the Employer or the Executive as of the end of such five-year initial period or at the end of any renewal period by written notice given at least 30 days prior to the scheduled termination or scheduled renewal of this Employment Agreement. The date of the commencement of employment pursuant to this Employment Agreement is hereinafter referred to as the "Effective Date," the term of employment pursuant to this Employment Agreement is hereinafter referred to as the "Term" and the last date of employment pursuant to this Employment Agreement is hereinafter referred to as the "Termination Date". -1- 3. Executive's Position, Duties, and Authority. 3.1. The Employer shall employ the Executive, and the Executive shall serve, as Executive Vice President of Employer, Director of Operations of Employer, and as a Member of the Office of the Chairman of the Employer and of any successor by merger, acquisition of substantially all of the assets of the Employer or otherwise. 3.2. The Employer shall employ the Executive, and the Executive shall serve, as the President of the worldwide Theatrical, Motorsports and Family Entertainment businesses of the Employer. "Theatrical" means (i) the presentation, production or booking of, or the provision of any logistical or technical services in connection with, any type of live stage shows (other than musical concerts), including Broadway-type shows, magic shows and variety shows, (ii) the ownership, operation or management of venues in which theatrical-type presentations are typically presented, and (iii) related businesses; "Motorsports" means the presentation, promotion, production, or other exploitation of any live event featuring motorized races or demonstrations, including motorcross and other motorized races, monster truck shows, air shows, thrill shows, demolition derbies, tractor pulls, truckfests, other events developed by Motorsports, and related businesses; and "Family Entertainment" means the presentation, production, exploitation, origination, or booking of, or the provision of any services in connection with, any type of family entertainment shows, programs, exhibitions, demonstrations, or events, and any related businesses which are not otherwise included in the definition of Theatrical or Motorsports. The Executive's duties in such capacity shall be to control, direct and supervise the day-to-day operations of the Employer's Theatrical, Motorsports and Family Entertainment businesses subject only to the oversight and direction of the Employer's Executive Chairman and Chief Executive Officer. The Employer and the Executive acknowledge that the Employer may acquire additional companies operating Theatrical, Motorsports and Family Entertainment businesses, and upon doing so, such acquired companies will be managed by the Executive, unless the revenues from the Theatrical, Motorsports and Family Entertainment businesses do not constitute a majority of the revenues of the acquired companies in which event the management of the Theatrical, Motorsports and Family Entertainment businesses of the acquired companies will report to the Executive. 3.3. The Executive agrees, and the Employer (subject to any required shareholder vote) shall cause the Executive, to serve as a Director of the Employer, if and so long as the Executive is indemnified for serving in such capacity in accordance with the provisions of Section 12 hereof. 3.4. The Executive shall have executive duties, functions, authority and responsibilities commensurate with the office or offices he from time to time holds with the Employer and shall report to the Executive Chairman and/or Chief Executive Officer of the Employer. -2- 3.5. The Executive shall serve without additional remuneration as (a) a member of any committee of the Board, as determined by the Board; and (b) a director and/or officer of one or more of the Employer's subsidiaries, if appointed to such position by the Employer. 4. Duties. 4.1. Full-time Services. The Executive shall devote substantially all of his business time to the business and affairs of the Employer and to the fulfillment of his duties hereunder in a diligent and competent fashion to the best of his abilities; provided, however, that the Executive may engage in other activities such as charitable, educational, religious and similar types of activities, to the extent that such activities do not prohibit or prevent the performance of the Executive' s duties under this Agreement, or inhibit or conflict in any material way with the business of the Employer. 4.2. Business Opportunities. The Executive covenants and agrees that for so long as he is actively employed by the Employer he shall inform the Employer of each business opportunity related to the business of the Employer of which he becomes aware, and that he will, not directly or indirectly, exploit any such opportunity for his own account, nor will he render any services to any other person or business or acquire any interest of any type in any other business, which is in competition with the Employer; provided, however, that the foregoing shall not be deemed to prohibit the Executive from acquiring, solely as an investment (a) up to 10% of any securities of a partnership, trust, corporation or other entity so long as he remains a passive investor in such entity and such entity is not, directly or indirectly, in competition with the Employer, or (b) up to 0.5% of any securities of any publicly traded partnership, trust, corporation or other entity provided he remains a passive investor in such entity. 5. Location of Employment. The Executive shall be based in Houston, Texas, and shall not be required to move or to relocate during the Term. The Executive shall perform his duties, functions and responsibilities where reasonably required from time to time during the Term. 6. Base Salary. During the Term, the Employer shall pay or cause to be paid to the Executive an initial base salary per annum (the "Base Salary") which shall initially be $375,000, payable in monthly installments. Upon each anniversary of the commencement of the Executive's employment hereunder, the Base Salary then in effect shall be increased by an amount equal to the greater of (a) five percent of the Base Salary then in effect or (b) the product of (i) the Base Salary then in effect and (ii) the percentage increase in the Consumer Price Index during the previous twelve months. In addition, the Board shall review the Executive's Base Salary at least annually and may by action of the Board, after and pursuant to the affirmative recommendation of the Compensation Committee, increase, but not decrease, such Base Salary, as such salary may have been increased, at any time and from time-to-time during the Term. -3- 7. Bonus. The Executive shall be entitled to receive an annual incentive bonus (the "Bonus"), in cash, stock, options or other compensation, during the continuance of the Executive's employment hereunder as determined by the Board, after and pursuant to the affirmative recommendation of the Compensation Committee, in such proportionate amount as is consistent with the Bonuses that are given to other Senior Executives. The term "Senior Executives" shall mean all members of the Office of the Chairman of the Employer, all executive officers of the Employer, and all chief executive officers of each division or subsidiary of the Employer. 8. Expenses. The Employer shall pay or reimburse the Executive for all reasonable expenses actually incurred or paid by the Executive during the Term in the performance of the Executive's services hereunder upon presentation of expense statements or vouchers or such other supporting information as the Employer may reasonably require of the Executive. 9. Benefits. During the Term, the Executive shall be eligible to participate in any pension, profit-sharing or other employee benefit plan or program of the Employer now existing or established hereafter, in accordance with and to the extent that he is eligible under the general provisions thereof. The Executive shall also be eligible to participate in any group life insurance, hospitalization, medical, health and accident, disability or similar plan or program of the Employer, now existing or established hereafter, in accordance with and to the extent that he is eligible under the general provisions thereof. 10. Additional Benefits. During the Term, the Employer shall provide the following additional benefits to the Executive: 10.1. Automobile. $1,500 per month as an allowance for the lease of an automobile or its equivalent. 10.2. Accommodations in New York. The living accommodations and expenses currently provided to the Executive in New York, New York, by the Employer or their equivalent. Upon the termination of this Employment Agreement for any reason whatsoever, the Executive may at his option require the Employer to transfer and assign to the Executive all rights of the Employer in and to said living accommodations without consideration. 10.3. Office in New York. Reasonable office facilities in New York, New York, at the principal executive offices of the Employer with secretarial and support services for the use of the Executive. 10.4. Airplane. Reimbursement to the Executive for private air transportation of the lesser of (i) fifty (50) hours per year at the rate of $1,500 per hour or (ii) $75,000 per year. 11. Life or Disability Insurance. The Employer shall obtain life insurance on the life of the Executive to the extent obtainable and in an amount consistent with life insurance which is -4- obtained by the Employer for other Senior Executives, and the Employer shall be the beneficiary of such policy. The Employer shall obtain disability insurance on the Executive to the extent obtainable and in an amount consistent with disability insurance which is obtained by the Employer for other Senior Executives. The Executive shall cooperate in assisting the Employer to obtain such insurance. The Employer shall continue to pay all premiums on such policies and shall maintain such policies, subject to the insurability of the Executive, if required to keep such policies in effect during the Term. Upon the termination of this Employment Agreement for any reason whatsoever, the Executive may at his option require the Employer to transfer and assign to the Executive all rights of the Employer in and to any life or disability insurance policies without consideration, and following any such transfer or assignment, the Executive shall be responsible for the payment of all premiums related thereto. 12. Indemnification. The Executive shall be entitled in connection with his employment hereunder to the benefit of the indemnification provisions contained on the date hereof in the bylaws and certificate of incorporation of the Employer, as the same may hereafter be amended (not including any amendments or additions that limit or narrow, but including any that add to or broaden, the protection afforded to the Executive), to the fullest extent permitted by applicable law. The Employer shall in addition cause the Executive to be indemnified in accordance with Section 145 of the Delaware General Corporation Law to the fullest extent permitted by such section, to the extent required to make the Executive whole in connection with any loss, costs or expense indemnifiable thereunder. 13. Confidential Information. The Executive acknowledges that his employment by the Employer has brought and will bring him into close contact with confidential proprietary information of the Employer, including information regarding costs, profits, markets, sales, products, key personnel, pricing policies, operational methods, technical processes, other business affairs and methods, plans for future developments, and other information not readily available to the public, the disclosure of which to third parties would in each case have a material adverse effect on the Employer's business operations (the "Confidential Information"). In recognition of the foregoing, the Executive covenants and agrees that: (a) he will keep secret all Confidential Information and will not intentionally disclose Confidential Information to anyone outside of the Employer and its representatives other than in the course of performance of his duties hereunder, either during or for a one year period after the Term except with the Employer's written consent, provided that (i) the Executive shall have no such obligation to the extent Confidential Information is or becomes publicly known other than as a result of the Executive's breach of his obligations hereunder and (ii) the Executive may, after giving prior notice to the Employer to the extent practicable under the circumstances, disclose such matters to the extent required by applicable laws or governmental regulations or judicial or regulatory process; and (b) he will, at the Executive's option, either (i) deliver promptly to the Employer on termination of his employment by the Employer or at any other time the Employer may so request, and at the Employer's request, all memoranda, notes, records, reports and other documents -5- (and all copies thereof) relating to the Employer's business, which he obtained while employed by, or otherwise serving or acting on behalf of, the Employer and which he may then possess or have under his control (the "Records"); or (ii) in lieu of subclause (i) above, the Executive shall destroy all of the Records and shall deliver to the Employer a certificate to that affect. 14. Termination. 14.1. For purposes of this Employment Agreement the following definitions shall apply: 14.1.1. "Cause" shall mean: (a) the Executive is convicted of a felony involving moral turpitude which would render the Executive unable to perform his duties set forth in this Employment Agreement; or (b) the Executive engages in conduct that constitutes willful gross neglect or willful gross misconduct in carrying out his duties under this Employment Agreement, resulting, in either case, in material economic harm to the Employer, unless the Executive believed in good faith that such act or nonact was in the best interests of the Employer. 14.1.2. A "Change in Control" shall mean the occurrence of any one of the following events: (a) any "person," as such term is used in Sections 3(a)(9) and 13(d) of the Securities Exchange Act of 1934, as amended (other than the Executive or members of management on the date hereof or otherwise appointed by the Board which is comprised of a majority of "incumbent directors" or entities controlled by them), becomes a "beneficial owner," as such term is used in Rule 13d-3 promulgated under that act, of 25% or more of the voting power of the Employer; (b) all or substantially all of the assets or business of the Employer is disposed of pursuant to a merger, consolidation or other transaction (unless the shareholders of the Employer immediately prior to such merger, consolidation or other transaction beneficially own, directly or indirectly, in substantially the same proportion as they owned the voting power of the Employer, all of the voting power or other ownership interests of the entity or entities, if any, that succeed to the business of the Employer); -6- (c) the Employer combines with another company and is the surviving corporation but, immediately after the combination, the shareholders of the Employer immediately prior to the combination hold, directly or indirectly, 50% or less of the voting power of the combined company; or (d) the majority of the Board consists of individuals other than "incumbent directors," which term means members of the Board as of the date of this Employment Agreement, except that any person who becomes a director subsequent to such date whose election or nomination was supported by two-thirds of the directors who then comprise the incumbent directors shall be considered an incumbent director. 14.1.3. "Constructive Termination Without Cause" shall mean a termination of the Executive's employment at his initiative as provided in this Section 14 following the occurrence, without the Executive's written consent, of one or more of the following events: (a) a reduction in the Executive's then current Base Salary or failure by the Employer to fulfill its obligations under Sections 6, 7, 8, or 9 above; (b) the failure to elect or reelect the Executive to any of the positions described in Section 3 hereof (other than the positions described in Section 3.5, including as a Director of the Employer, or the removal of him from any such position, including as a Director of the Employer; (c) a material diminution in the Executive's duties or the assignment to the Executive of duties which are materially inconsistent with his duties or which materially impair the Executive's ability to function as the President, Chief Executive Officer and Member of the Office of the Chairman of the Employer; or (d) the failure of the Employer to obtain the assumption in writing of its obligation to perform this Employment Agreement by any successor to all or substantially all of the assets of the Employer within 15 days after a merger, consolidation, sale or similar transaction. 14.2. Termination by the Employer for Cause. A termination for Cause shall not take effect unless all of the provisions of this Section 14.2 are complied -7- with. The Executive shall be given written notice by the Board of the intention to terminate him for Cause, such notice (a) to state in detail the particular act or acts or failure of failures to act that constitute the grounds on which the proposed termination for Cause is based and (b) to be given within three months of the Board learning of such act or acts or failure or failures to act. The Executive shall have 10 business days after the date that such written notice has been given to the Executive in which to cure such conduct, to the extent such cure is possible. If he fails to cure such conduct, the Executive shall then be entitled to a hearing before the Board. Such hearing shall be held within 15 business days of such notice to the Executive, provided he requests such hearing within 10 business days of the written notice from the Board of the intention to terminate him for Cause. If, within five business days following such hearing, the Executive is furnished written notice by the Board confirming that, in its judgment, grounds for Cause on the basis of the original notice exist, he shall thereupon be terminated for Cause. 14.2.1. In the event the Employer terminates the Executive' s employment for Cause, he shall be entitled to: (a) the Base Salary through the date of the termination of his employment for Cause; and (b) a Bonus for the year in which he was terminated equal to the Bonus for the year prior to such termination, prorated over the time elapsed during the year in which he was terminated. 14.2.2. In the event the Employer terminates the Executive's employment for Cause, the Executive shall have no further obligations or liability to the Employer (except his obligations under Sections 13 and 17, which shall survive). 14.3. Termination Without Cause or Constructive Termination Without Cause. In the event the Executive's employment is terminated without Cause, other than due to disability or death, or in the event there is a Constructive Termination Without Cause, the Executive shall be entitled to: (a) the Base Salary through the date of termination of the Executive's employment; (b) the Base Salary, at the annualized rate in effect on the date of termination of the Executive's employment (or in the event a reduction in Base Salary is the basis for a Constructive Termination Without Cause, then the Base Salary in effect immediately prior to such reduction), for a period of 36 months following such termination or until the end of the Term, whichever is longer; provided that, at the -8- Executive's option, the Employer shall pay him the present value of such salary continuation payments in a lump sum (using as the discount rate 75% of the prime rate (as published by The Wall Street Journal) for the first business day of the month in which such termination occurs); (c) (i) in the event that such termination occurs during the initial five-year term of this Employment Agreement, immediately vested options to purchase shares of Class A Stock in an amount equal to 166,667 shares less the product of (i) 33,333 shares and (ii) the number of full years elapsed under the Term of this Employment Agreement at an exercise price per share equal to the lowest exercise price of any stock option granted by the Employer in the twelve months prior to termination; (ii) in the event that such termination occurs after the initial five-year term of this Employment Agreement, immediately vested exercisable options to purchase 33,333 shares of Class A Stock at an exercise price per share equal to the lowest exercise price of any stock option granted by the Employer in the twelve months prior to termination; (d) a Bonus for the unexpired Term, based on the Bonus received for the year prior to termination (the "Base Bonus Amount") multiplied by the then unexpired Term; provided that, at the Executive's option, the Employer shall pay him the present value of such salary and bonuses in a lump sum (using as the discount rate 75% of the prime rate (as published by The Wall Street Journal) for the first business day of the month in which such termination occurs); and (e) all benefits provided in Section 9 hereof until the end of the Term. 14.4. Termination of Employment Following a Change in Control. If, following a Change in Control, the Executive's employment is terminated for any reason other than for Cause, whether voluntary or involuntary or there is a Constructive Termination Without Cause, the Executive shall be entitled to the payments and benefits provided in Section 14.3 above, provided that the payments shall be paid in a lump sum without any discount. In addition, the Executive shall receive immediately vested 10 year options to purchase 166,667 shares of Class A Stock which shall be exercisable at the lowest exercise price of any other options that the Executive shall own as of the date of the Change in Control. The Executive shall forfeit any rights granted pursuant to this Section 14.4 if the Executive accepts a written offer to remain with the surviving company in an executive position with equivalent duties, authority and responsibility as the Executive currently holds (other than as a non-employee director). -9- 14.4.1. Payment Following a Change in Control. In the event that the termination of the Executive's employment is as a result of a Change in Control and the aggregate of all payments or benefits made or provided to the Executive under the Employment Agreement and under all other plans and programs of the Employer (the "Aggregate Payment") is determined to constitute a Parachute Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), the Employer shall pay to the Executive, prior to the time any excise tax imposed by Section 4999 of the Internal Revenue Code ("Excise Tax") is payable with respect to such Aggregate Payment, an additional amount which, after the imposition of all income and excise taxes thereon, is equal to 100% of the Excise Tax on the Aggregate Payment. The determination of whether the Aggregate Payment constitutes a Parachute Payment and, if so, the amount to be paid to the Executive and the time of payment pursuant to this subsection shall be made by an independent auditor (the "Auditor") jointly selected by the Employer and the Executive and paid by the Employer. The Auditor shall be a nationally recognized United States public accounting firm which has not, during the two years preceding the date of its selection, acted in any way on behalf of the Employer or any affiliate thereof. If the Executive and the Employer cannot agree on the firm to serve as the Auditor, then the Executive and the Employer shall each select one accounting firm and those two firms shall jointly select the accounting firm to serve as the Auditor. 14.5. Voluntary Termination. In the event of a termination of employment by the Executive on his own initiative other than a termination due to death or disability or a Constructive Termination without Cause, the Executive shall have the same entitlements as provided in Section 14.2 above for a termination for Cause. A voluntary termination under this Section 14.5 shall be effective upon 30 days prior written notice to the Employer and shall not be deemed a breach of this Employment Agreement. 14.6. Stock Options. Notwithstanding anything to the contrary, upon termination for any reason whatsoever, the Executive shall have the immediate right to exercise any stock options in full, whether or not such option is fully exercisable on the date of termination, for the remainder of the original term of each such stock option. 14.7. No Mitigation; No Offset. In the event of any termination of employment under this Employment Agreement, the Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due -10- the Executive under this Employment Agreement on account of any remuneration attributable to any subsequent employment that he may obtain. 14.8. Option Adjustment. The number of options issuable pursuant to this Section 14 and the per share exercise price thereof shall be subject to appropriate adjustment to give effect to any increase or decrease in the number of issued shares resulting from a reorganization, recapitalization, stock split, spin-off or other similar action. 15. Disability. 15.1. If during his active employment hereunder the Executive shall become physically or mentally disabled, whether totally or partially, so that he is prevented from performing his usual duties for a period of six consecutive months, the Employer shall, nevertheless, pay the Executive his full Base Salary and Bonus in respect of the period ending on the last day of the sixth consecutive month of disability (such last day being referred to herein as the "Disability Date") and the following additional provisions shall apply: 15.2. If the Executive has not resumed his usual duties on or prior to the Disability Date, the Executive's employment shall terminate and the Employer shall pay, unless prior to the date the Executive became physically or mentally disabled a notice of termination was delivered to the Executive, 75% of his Base Salary from the Disability Date through the Termination Date and, except as provided in Section 15.4, the Employer shall have no obligation to pay Bonus to the Executive in respect of periods after the Disability Date. Any Base Salary payable pursuant to this Section 15.2 shall be reduced by the amount of any benefits payable to the Executive under any group or individual disability insurance plan or policy, the premiums for which are paid primarily by the Employer; 15.3. Unless the Employer exercises its option under Section 15.4 to restore the Executive to his full compensation, duties, functions, authority and responsibilities hereunder, the Executive shall have no obligations or liabilities hereunder from and after the Disability Date (except for his obligations under Sections 13 and 17, which shall survive); and 15.4. If during the Term and subsequent to a Disability Date, the Executive shall recover fully from a disability, the Employer, by action of the Board, shall have the right (exercisable within sixty days after notice from the Executive of such recovery), but not the obligation, to restore the Executive to employment and to full compensation and his full level of duties, functions, authority and responsibilities hereunder. -11- 16. Death of Executive. 16.1. Upon the Executive's death, whether prior to or subsequent to his Disability Date and prior to the delivery of a notice of termination, this Employment Agreement and all of the Employer's obligations to pay salary and Bonus hereunder shall terminate, except as provided in Sections 16.2 through 16.3. 16.2. The Executive's estate or designated beneficiary shall be entitled to receive (a) any unpaid portions of the Executive's Base Salary in respect of the period ending on the Executive's date of death, (b) unpaid Bonus in respect of years prior to the year of death. The Employer shall pay to such estate or beneficiary an amount equal to the present value of all the remaining Base Salary, calculated assuming annual compound interest at 75% of the prime rate (as published in The Wall Street Journal) for the first business day of the month in which the Executive's death occurs, and (c) immediately vested options to purchase 33,000 shares of Class A Stock at an exercise price equal to the exercise price of the last stock option granted by the Employer to the Executive prior to the Executive's death. 16.3. The Base Salary and Bonus payable pursuant to this Section 16 shall be reduced by the value of any benefits payable to the Executive's estate or designated beneficiary under any life insurance plan or policy the premiums for which are paid primarily by the Employer, other than such insurance identified in Section 11. 17. Non-Competition. 17.1. During the Term, the Executive will not, without the prior written approval of the Board, become employed by, or become an officer, director, or general partner of, any partnership, corporation or other entity which acts as a promoter, producer or venue operator in the live entertainment business or which acts as a marketing and management company specializing in the representation of team sports athletes (the "Prohibited Business"). 17.2. Subject to the following proviso, for a period of one year following the termination of the Executive's employment hereunder the Executive will not become employed by, or become an officer, director or general partner of, any partnership, corporation or other entity which is primarily engaged in the Prohibited Business; provided however, that during such one year period the Employer shall employ the Executive as a consultant with compensation at a rate equal to fifty percent of the Employer's Base Salary immediately prior to such termination. If the Employer elects not to employ the Executive as a consultant for such one year period as provided herein, the provisions of this Section 17.2 shall not apply and the Executive shall be free to engage in any activity referred to herein. -12- 18. Notices. All notices, requests, consents and other communications, required or permitted to be given hereunder, shall be in writing and shall be deemed to have been duly given if delivered personally or sent by prepaid telegram, or mailed first class, postage prepaid, by registered or certified mail, as follows (or to such other or additional address as either party shall designate by notice in writing to the other in accordance herewith): 18.1. If to the Employer: SFX Entertainment, Inc. 650 Madison Avenue, 16th Floor New York, New York 10022 Attention: Executive Chairman 18.2. If to the Executive: Mr. Brian E. Becker 1754 Rice Boulevard Houston, Texas 77005 19. General. 19.1. Governing Law. This Employment Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York. 19.2. Captions. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Employment Agreement. 19.3. Entire Agreement. This Employment Agreement including any Exhibits attached hereto sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties, except as specifically provided herein. 19.4. Successors and Assigns. This Employment Agreement, and the Executive's rights and obligations hereunder, may not be assigned by the Executive, except that the Executive may designate pursuant to Section 19.6 one or more beneficiaries to receive any amounts that would otherwise be payable hereunder to the Executive's estate. This Employment Agreement shall be binding on any successor to the Employer, whether by merger, acquisition of substantially all of the Employer's assets or otherwise, as fully as if such successor were a signatory hereto and the Employer shall cause such successor to, and such successor shall, expressly assume the Employer's obligations hereunder. Notwithstanding anything else herein -13- contained, the term "Employer" as used in this Employment Agreement, shall include all such successors. 19.5. Amendments; Waivers. This Employment Agreement cannot be changed, modified or amended, and no provision or requirement hereof may be waived, without an affirmative vote of the Board after the affirmative recommendation of the Compensation Committee of the Board, and the consent in writing of the Executive and the Employer. The failure of a party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by a party of the breach of any term or covenant contained in this Employment Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Employment Agreement. 19.6. Beneficiaries. Whenever this Employment Agreement provides for any payment to the Executive's estate, such payment may be made instead to such beneficiary or beneficiaries as the Executive may have designated in a writing filed with the Employer. The Executive shall have the right to revoke any such designation and to redesignate a beneficiary or beneficiaries by written notice to the Employer (and to any applicable insurance company) to such effect. IN WITNESS WHEREOF, the parties have duly executed this Employment Agreement as of the date first above written. SFX ENTERTAINMENT, INC. By: /s/ ----------------------------------- Name: --------------------------------- Title: -------------------------------- /s/ BRIAN E. BECKER ------------------------------------ BRIAN E. BECKER -14- EX-10.31 3 AMENDED AND RESTATED EMPLOYMENT AGREEMENT --DAVID FALK AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement") is being executed as of January 1, 2000 (the "Effective Date") between SFX ENTERTAINMENT, INC. ("Employer"), a Delaware corporation, and DAVID FALK ("Employee") (collectively the "Parties") to be effective as of the Effective Date. WHEREAS, the Employer and the Employee entered into a certain Employment Agreement effective as of April 29, 1998 (The "Employment Agreement"); and WHEREAS, the Employer and the Employee desire to amend and restate the Employment Agreement on the terms and conditions set forth herein; NOW, THEREFORE, the Parties do hereby agree as follows: 1. Employment. Employer hereby employs Employee, and Employee hereby accepts such employment, subject to the terms and conditions set forth below. 2. Duties. 2.1. Capacities 2.1.1 Employee shall be employed in the capacity of Chairman of SFX Sports Holdings, Inc., and SFX Sports Group, Inc. (together the "Sports Group"), and in such capacity, shall have the rights and responsibilities attendant to that of the chief executive officer of a subsidiary of a publicly traded company. Employee will, subject to consultation with, and approval of, the Executive Chairman and the President and Chief Executive Officer of the Employer, have decision making power over any decisions, with respect to changing the Sports Group's policies, personnel, culture, compensation structure, reporting systems or configuration and alignment of operating divisions. Employee's duties in such capacity shall be to control, direct and supervise the day-to-day operations of the Sports Group. All sports-related businesses of Employer (other than motorized 1 sports or any sports-related business that provides less than 25% of the revenues of any entity acquired by Employer, if a condition of the purchase agreement for such entity is for such business to be operated within the entity acquired) will be operated under the Sports Group and will report to Employee subject only to the oversight and direction of the Employer's Board of Directors (the "Board"). Employee shall also perform other duties which may be reasonably assigned to him from time to time by the Executive Chairman and the President and Chief Executive Officer of Employer, or by Employer's Board of Directors, and that are consistent with his position. 2.1.2 Employee shall be a member of the Office of the Chairman of Employer, which shall be the highest management body of Employer, reporting solely and directly to the Executive Chairman of Employer. The Office of the Chairman shall include (in addition to the Executive Chairman and the Employee) the President and Chief Executive Officer of Employer, the ("Chief Executive Officer") the Chief Financial Officer of Employer, and one or more Executive Vice Presidents of Employer 2.1.3 It is expressly understood that Employee may (1) devote a reasonable amount of time to charitable, civic and industry-related boards or organizations, (2) manage his personal, financial and legal affairs and (3) with the express prior written approval of the Board, which approval shall not be unreasonably withheld, serve as a director of any corporate entity; provided, that any such activity does not substantially interfere with the performance by Employee of his duties and responsibilities under this Agreement, including continuing to be associated with or serving on any associations, organizations and boards, with which Employee is associated with or is serving on as of the Effective Date. 2 2.2. Additional Positions. During the Term of Employment (as defined in Section 5.1 hereof), Employee agrees, and Employer shall appoint Employee, to serve as a director of Employer, the Sports Group and each subsidiary of the Sports Group; provided, Employer agrees that Employee shall be indemnified for serving in any and all such capacities on a basis no less favorable than is provided by the Employer's bylaws as may be amended from time-to-time or by any written agreement between the Employee and the Employer regarding indemnification, in a manner consistent with that provided to Senior Executives (as defined in Section 9.2 hereof) of the Employer, and, if ever not so indemnified, Employee may, without limiting any other remedies, cease serving in such director positions. In addition, Employee shall continue as Chairman of Financial Advisory Management Enterprises, Inc. 2.3. Place of Performance. In connection with his employment by the Employer, Employee shall be based in the Washington, D.C. metropolitan area at the current offices of the Sports Group. Employee shall be provided with office space and support staff equivalent to that provided to him by the Sports Group immediately before the Effective Date. 3. Compensation. 3.1. Salary and Withholding. 3.1.1 Salary. During the Term of Employment, as compensation for services rendered by Employee, Employer shall pay Employee a base salary ("Salary") in semi-monthly installments at an annual rate equal to $450,000. Employee's Salary shall be reviewed by the Executive Chairman of Employer in accordance with Employer's standard policies and practices, and may be increased, but not decreased, at Employer's discretion. In any event, Employee's Salary shall be increased effective as of each anniversary of the Effective Date by 5.0% over the then effective Salary. 3 3.1.2 Withholding for Taxes. Compensation (herein defined) shall be subject to any and all applicable payroll and withholding deductions required by the law of any jurisdiction, state or federal, taxing authority with respect to such Compensation. 3.1.3 Definition of Compensation. The Salary, and the other perquisites set forth in this Agreement including the Benefits, are herein collectively referred to as the "Compensation." 3.2. Expenses. Employer shall reimburse Employee, in accordance with Employer's standard expense reimbursement policy, for reasonable expenses incurred by Employee, upon presentation of documentation reasonably acceptable to Employer in accordance with the policies applicable to Senior Executives of the Employer. Expenses incurred by Employee that are consistent with the practices of the Sports Group prior to the Effective Date, including but not limited to hotel accommodations and first class air travel, shall be deemed reasonable under this Section 3.2. In connection with such reimbursement, Employer shall provide Employee with a credit card or cards to be used for paying such expenses. Such card or cards shall be the property of Employer and upon termination of the Term of Employment shall be returned to Employer by Employee. Employee shall be responsible for and shall reimburse Employer for any and all payments made by Employer for Employee's personal, non-reimbursable expenses charged on any such card or cards. To the extent appropriate, Employee shall be permitted to travel on charter flights or on the Employer's corporate jet. 3.3. Grant of Stock Options and Restricted Stock. 3.3.1 Grants. Employer shall grant Employee stock options (the " Stock Options") and stock to Employee during the Term of Employment in a manner and amount consistent 4 with grants made to Senior Executives of the Employer; provided, that Stock Options for at least 45,000 shares of Common Stock shall be granted in each of the calendar years comprising the Term of Employment). Each Stock Option shall have an exercise price equal to the closing price of the Common Stock on the date of the grant. Each Stock Option shall have a ten-year term and shall vest and become exercisable on a schedule to be determined by the Board or the Stock Option Committee, but in no event shall the vesting schedule exceed the Term of Employment, nor shall the terms and conditions of such options (including those terms and conditions described above) be any less favorable than the terms and conditions applicable to options granted to the other Senior Executives of Employer. The Employee shall be permitted to use shares of Common Stock to exercise the Stock Options and to pay any withholding obligation upon such exercise. The Stock Options shall be granted as incentive stock options under the Internal Revenue Code of 1986, as amended (the "Code"), to the extent permitted under the Code. 3.3.2 Termination of Employment. Notwithstanding the foregoing, in the event that Employee ceases to be employed by Employer for any reason whatsoever (including upon death or permanent and total disability of Employee) other than as a result of a voluntary termination (that is not a Constructive Termination Event) or termination for Cause, (x) all restricted stock which may be granted pursuant to this Section 3.3 shall vest immediately and all options granted pursuant to this Section 3.3 shall vest and become exercisable immediately, and (y) the balance of all remaining stock options to be granted during the Term of Employment pursuant to this Section 3.3 shall immediately be granted and shall vest and become exercisable immediately at an exercise price per share equal to the lower of (A) the closing price of the Common Stock on the date of the relevant event or occurrence and (B) the exercise price of the last option granted to Employee prior to such event or occurrence, and Employee shall retain the right to exercise each such options described in clauses (x) and (y) during the remaining original term of each such option. In the event of Employee's voluntary 5 termination (that is not a Constructive Termination Event) or termination for Cause, all unvested options and restricted stock shall be forfeited, all vested option shall remain exercisable until the first to occur of the end of the original term or one year following the termination of employment, and no Stock Options not thereto granted will be granted. 3.3.3 Adjustments. The number of shares subject to the Stock Options to be granted under this Section 3.3, and the kind of shares subject to such options shall be equitably adjusted to reflect any change in the Common Stock including, without limitation, a recapitalization, spin-off, stock split, consolidation, reorganization or merger. To the extent applicable, this Section 3.3 shall automatically be deemed to be modified to ensure that Employee's rights with respect to acceleration of option grants, acceleration of option vesting and other rights are at least as favorable as the rights that from time to time are generally applicable to other Senior Executives of Employer. 3.4. Other Benefits. During the Term of Employment, Employer shall provide the following additional benefits to Employee: 3.4.1 Health Insurance. Medical, dental and hospitalization insurance for Employee and his family with the same scope and coverage and on the same terms as is provided by Employer to the Chief Executive Officer and other Senior Executives of Employer, as may be amended from time to time; provided, that such insurance shall have no gap in coverage with Employee's current insurance; and provided, further, that such insurance will have no exclusions for pre-existing conditions. 3.4.2 Term Life Insurance. Term life insurance upon the life of Employee in an amount and on the same terms consistent with insurance made available to the Chief Executive 6 Officer and other Senior Executives of Employer, as may be amended from time to time, including, if applicable, split-dollar insurance policies, provided, that such insurance shall have no gap in coverage with Employee's current insurance; and provided, further, that such insurance will have no exclusions for pre-existing conditions. 3.4.3 Disability Insurance. Disability insurance in an amount and on the same terms consistent with insurance made available to the Chief Executive Officer and other Senior Executives of Employer, as may be amended from time-to-time, provided, that such insurance shall have no gap in coverage with Employee's current insurance; and provided, further, that such insurance will have no exclusions for pre-existing conditions. 3.4.4 Other Benefit Programs. Employee shall be entitled to participate in all other employee benefit programs of Employer which the Board may, in its sole discretion, regularly make available to the other Senior Executives of Employer (such as a stock bonus plan, retirement plans and fringe benefits), on terms no less favorable than those provided to such other Senior Executives. 3.4.5 Office in New York. Employer shall provide reasonable office facilities in New York, New York at its principal executive offices, with secretarial and support services, for the use of Employee. 3.4.6 Gross-Up. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by Employer (or any of its affiliated entities) to or for 7 the benefit of Employee (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code, or any corresponding provisions of state or local tax laws, or any interest or penalties are incurred by Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") from Employer in an amount such that after payment by Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to 100% of the Excise Tax imposed upon the Payments. The payment of a Gross-Up Payment shall not be conditioned upon the occurrence of a termination of employment. (b) Subject to the provisions of Section 3.4.6(a), all determinations required to be made under this Section 3.4.6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Employer's independent accounting firm as of immediately prior to the Change in Control (the "Accounting Firm"), which shall provide detailed supporting calculations both to Employer and Employee within fifteen (15) business days of the receipt of notice from Employee that there has been a Payment, or such earlier time as is requested by Employer. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, Employer shall appoint another nationally recognized accounting firm reasonably acceptable to Employee to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be bome solely by Employer. Any Gross-Up Payment, as determined pursuant to this Section 3.4.6, shall be paid by Employer to Employee within five (5) days following receipt of the Accounting Firm's determination. Any determination by the Accounting Firm 8 shall be binding upon Employer and Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by Employer should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that Employee thereafter is required to make a payment of any Excise Tax (or any additional Excise Tax), the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by Employer to or for the benefit of Employee. In the event of any claim by the Internal Revenue Service for any Excise Tax or additional Excise Tax, Employer shall have the right to control the defense of such claim and Employee shall cooperate and assist Employer in connection therewith as reasonably requested by Employer; provided that all expenses of such claim (including any additional interest or penalties) shall be paid by Employer, and Employer shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including any interests and penalties) imposed as a result of such representation and payment of costs and expenses. In addition, Employee will cooperate as reasonably requested by Employer with Employer in making any refund claim for any Excise Tax already paid, and any refunds of any such tax (or any Gross-Up Payments or other payments made by Employer in respect thereof) obtained by the Employee shall be promptly returned to Employer. If Employer directs the Employee to pay such claim and sue for a refund, Employer shall advance the amount of such payment to the Employee, on an interest-free basis and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. 9 Furthermore, Employer's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. The reimbursement of expenses provided for in Section 3.2, the stock and option awards provided for in Section 3.3. the benefits provided for in this Section 3.4 and any other benefits hereafter granted to Employee by the Board are hereinafter referred to as the "Benefits." 4. Intentionally Deleted. 5. Term of Employment. 5.1. Definition of Term of Employment. The "Term of Employment", as used in this Agreement, shall mean the period commencing on the Effective Date and terminating with the first to occur of the following: 5.1.1 April 29, 2003 (the "Term Date"); 5.1.2 termination of the Term of Employment by Employer without Cause; 5.1.3 termination of the Term of Employment by Employee by notice to Employer at any time following a Constructive Termination Event (as such term is defined in Section 9.1 hereof); and 10 5.1.4 termination of the Term of Employment as permitted by, and in accordance with, the provisions of Section 6. 5.2. Effect of Termination of Term of Employment. Upon termination of the Term of Employment, the following provisions shall apply: 5.2.1 Employee shall no longer be employed by Employer; 5.2.2 Employee shall no longer be obligated to provide any employment, consulting or similar services to Employer; 5.2.3 If the Term of Employment is terminated pursuant to Sections 5.1.2 or 5.1.3 hereof, then the provisions of Section 7.1 hereof shall become effective and the Employer shall be irrevocably and unconditionally obligated to fulfill and discharge all of the obligations imposed upon it pursuant to the provisions thereof, 5.2.4 In the event Employer issues a press release concerning the termination of Employee's employment with Employer, Employee will be offered an opportunity that is reasonable under the circumstances to comment on such release; and 5.2.5 Employee (or his guardian or estate, as applicable) shall in all events be paid (within thirty (30) days following the date of termination of the Term of Employment), (A) all accrued but unpaid Salary through the date of termination, (B) all accrued vacation through the date of termination, and (C) all unreimbursed business expenses through the date of termination. In addition, Employee shall retain all rights with respect to vested equity awards (and the applicable 11 provisions of Section 3.3), and shall be entitled to all other Benefits which are provided in accordance with and subject to the terms of Employer's generally applicable employee benefit plans, practices and policies. The payments and Benefits described in this Section 5.2.5 shall be referred to herein as the "Accrued Obligations." 6. Termination of Employment. 6.1. Employer's Right to Terminate the Term of Employment. During the Term of Employment, Employer may terminate the Term of Employment with or without Cause (as herein defined) by providing written notice thereof to Employee. 6.1.1 Effect of a For Cause Termination. If Employer terminates the Term of Employment for Cause, such termination shall take effect immediately upon written notice thereof being provided to Employee subsequent to the completion of the procedure set forth in Section 6.1.2. In such event, Employer shall provide Employee with the Accrued Obligations. Upon Employer's full, complete and timely fulfillment and discharge of the aforesaid obligations, all obligations of Employer to Employee hereunder shall be totally and completely satisfied, and Employer shall have no further obligations of any type to Employee pursuant to this Agreement (except as may be provided under Sections 3.3, 3.4.6, 18 or 19). 6.1.2 Definition of "Cause". Cause for termination of the Term of Employment shall exist only if, during the Term of Employment: (a) Employee is convicted of a felony involving moral turpitude which would render Employee unable to perform his duties set forth in this Agreement; or (b) Employee engages in conduct that constitutes willful gross neglect 12 or willful gross misconduct in carrying out his duties under this Agreement resulting, in either case, in a material adverse economic effect upon the business of Employer. For purposes of this Section 6. 1, no act, or failure to act, by Employee shall be considered "willful" unless committed in bad faith, and without a reasonable belief that the act or omission was in the best interests of Employer or any of its subsidiaries. Cause shall not exist under this Section 6.1 unless and until Employer has delivered to Employee a copy of a resolution duly adopted by a majority of the Board at a meeting of the Board called and held for such purpose (after reasonable, but in no event less than ten (10) days notice, to Employee and an opportunity for Employee, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Employee was guilty of the conduct set forth in this Section 6.1 and specifying the particulars thereof in detail. This Section 6.1 shall not prevent Employee from challenging in an arbitration proceeding the Board's determination that Cause exists or that Employee has failed to cure any act (or failure to act) that purportedly formed the basis for the Board's determination. Employer must provide notice to Employee that it is intending to terminate his employment for Cause within sixty (60) days after Employer has knowledge of the occurrence of the event it believes constitutes Cause. 6.2. Termination of the Term of Employment upon Employee's Death or Permanent and Total Disability. The Term of Employment shall be deemed terminated in the event of death or upon the termination of Employee's employment following the permanent and total disability of Employee during the Term of Employment. 6.2.1 Effect. In the event of a termination of the Term of Employment for death or permanent and total disability, Employer shall provide Employee with the Accrued Obligations. Upon Employer's full, complete and timely fulfillment and discharge of the aforesaid 13 obligations, all obligations of Employer to Employee hereunder shall be totally and completely satisfied, and Employer shall have no further obligations of any type to Employee pursuant to this Agreement (except as may be provided under Sections 3.3, 3.4.6, 18 or 19). 6.2.2 Definition and Effective Date. Employee shall be considered "permanently and totally disabled" for purposes of this Section 6.2 if he is unable to perform with reasonable continuity his material duties hereunder by reason of any medically determinable physical or mental impairment, which inability to perform has lasted for a continuous period of not less than six (6) months. A termination for permanent and total disability shall take effect upon thirty (30) days written notice from Employer to Employee, provided Employee does not return to perform his material duties with reasonable continuity during such 30-day period. 6.3. Employee's Right to Terminate. Employee may terminate the Term of Employment at any time, for any reason, by providing thirty (30) days written notice thereof to Employer, and such termination shall not be deemed a breach of this Agreement. 6.3.1 Effective Date. If Employee so terminates the Term of Employment (other than under Section 5.1.3) such termination shall take effect upon the date designated in the notice provided to Employer which shall, in no event, be earlier than thirty (30) days following the delivery of such notice; provided, that Employer shall have the right in the event of such notice by Employee to accelerate the Employee's effective date of termination to any such date that the Employer deems appropriate in its sole discretion. 6.3.2 Effect. If Employee so terminates the Term of Employment (other than under Section 5.1.3), Employer shall provide Employee with the Accrued Obligations. Upon 14 Employer's full, complete and timely fulfillment and discharge of the aforesaid obligations, all obligations of Employer to Employee hereunder shall be totally and completely satisfied and Employer shall have no further obligations of any type to Employee pursuant to this Agreement (except as may be provided under Sections 3.3., 3.4.6, 18 or 19 hereof). 6.4. Termination of Agreement upon Fulfillment of Post Termination of Employment Obligations. If the Term of Employment is terminated pursuant to Sections 5.1.2 or 5.1.3 hereof, then this Agreement shall thereafter be deemed to be terminated upon Employer's full, complete and timely fulfillment and discharge of all obligations imposed upon Employer pursuant to the provisions of Sections 3.3, 3.4.6, 7.1, 18 or 19 hereof. 7. Post-Termination of Employment Obligations. 7.1. Employer's Obligations after Termination of Term of Employment. If the Term of Employment is terminated pursuant to Sections 5.1.2 or 5.1.3 hereof, then the following provisions shall apply: 7.1.1 If the Term of Employment is so terminated, Employer shall provide Employee with the Accrued Obligations. In addition, Employer shall be obligated to pay to the Employee, for a period of time commencing on the date of termination of the Term of Employment and continuing until the Term Date (herein called the "Surviving Obligation Period"), Employee's Salary for the remaining period pursuant to this Agreement. 7.1.2 Employee shall continue to be entitled to participate during the Surviving Obligation Period in any and all of the profit-sharing and retirement income, stock purchase, savings, executive compensation plans at the same level, in the same amount and to the 15 same degree the Employee was entitled to participate at the time of such termination, to the extent permitted by the terms of such plans, and applicable law. If Employee's participation in any such plan is barred, Employer shall arrange to provide Employee during the Surviving Obligation Period with benefits substantially similar to those which he was entitled to receive under such plans prior to the time of such termination. 7.1.3 Employer shall maintain in full force and effect for Employee for the longer of (a) one year after termination of the Term of Employment and (b) the Surviving Obligation Period all life, accident, medical and health care plans and disability benefit programs and programs or arrangements in which Employee was entitled to participate immediately prior to the time of such termination provided that Employee's continued participation is possible under the general terms and provisions of such plans and programs, and under applicable law. If Employee's participation in any such plan or program is barred, Employer shall arrange to provide Employee with benefits substantially similar to those which he was entitled to receive under such plans and programs of Employer prior to the time of such termination; provided, however, that the cost to Employer to provide such benefits shall be no greater than the contribution made by Employer for such benefits for other senior executives of Employer. In such event, appropriate adjustment shall be made so that the after tax value thereof to Employee is similar to the after tax value to him of the benefit plans in which Employee is not eligible to participate. At the end of such period, Employee shall have the option to have assigned to him at no cost and with no apportionment of pre-paid premiums, any assignable insurance policy owned by Employer and relating specifically to Employee. 7.1.4 Employer shall be obligated to provide to Employee, for a one year period commencing on the date of termination of the Term of Employment, use of a similar office and secretarial support. 16 7.2 No Mitigation. Under no circumstances shall the Employee be required, whether by seeking other employment or otherwise, to mitigate the amount of any payment or benefit under this Agreement, and there shall be no offset against amounts due the Employee under this Agreement or any other agreement on account of any subsequent employment he may obtain or for any amount allegedly due Employer by Employee. 8. Employee's Rights on Change in Control. 8.1 Change in Control Payments. In the event of a Change in Control, the Term of Employment shall not terminate, but Employer shall be obligated to pay to Employee an amount equal to Employee's Salary for the period from the date of the Change in Control until the Term Date. Such payment shall be paid to Employee in a lump sum within thirty (30) days of a Change in Control. 8.2 Stock and Option Acceleration. In addition to the payment required under Section 8.1, in the event of a Change in Control (i) all restricted stock which may be granted pursuant to Section 3.3 hereof shall vest immediately and all Stock Options granted pursuant to Section 3.3 shall vest and become exercisable immediately, and (ii) the balance of all remaining Stock Options to be granted during the Term of Employment pursuant to Section 3.3 shall immediately be granted and shall vest and become exercisable immediately. The exercise price of all Stock Options accelerated on a Change in Control shall be the lower of (a) the closing price of the Common Stock on the date of the Change in Control, and (b) the lowest price of any options granted to Employee prior to the Change in Control. Employee shall retain the right to exercise all Stock Options granted prior to, or which are accelerated upon, a Change in Control during the remaining original term of each such option. Upon the acceleration of all Stock Options, Employer shall have no obligation to grant any additional Stock Options to Employee. 17 9. Certain Definitions. As used herein, the following terms shall have the meanings indicated below: 9.1. Constructive Termination Event. A "Constructive Termination Event" shall be deemed to be the occurrence of any one or more of the following events during the Term of Employment: 9.1.1 the assignment by Employer to the Employee of duties that are inconsistent with the Employee's office with Employer at the time of such assignment, or the removal by Employer from the Employee of those duties described in Section 2.1 above, including without limitation failure to nominate or re-nominate Employee for election to the Board of Directors of Employer and failure of Robert F.X. Sillerman (and his affiliates) to vote his (and their) shares in favor of such nomination; or 9.1.2 any removal of the Employee from, or any failure to elect or reelect the Employee to, the Designated Office (as defined in Section 9.3 hereof), except in connection with the Employee's promotion, with his prior written consent, to a higher office (if any) with Employer; or 9.1.3 a reduction by Employer in the amount of the Employee's Salary as then in effect, or the failure of Employer to pay such Salary to the Employee at the time and in the manner specified in Section 3 of this Agreement; or 9.1.4 the discontinuation or material reduction by Employer of the Employee's participation in any stock option, bonus or other employee benefit plan or arrangement 18 (including, without limitation, any profit-sharing, life insurance, medical, dental, hospitalization, incentive compensation or retirement plan or arrangement) in which the Employee is a participant or the failure to grant the Stock Options; or 9.1.5 the failure of Employer to obtain the assumption by any successor to Employer of the obligations imposed upon Employer under this Agreement, as required by Section 17 of this Agreement; or 9.1.6 the failure by Employer to reimburse the Employee for the reasonable business expenses incurred by the Employee in the performance of his duties to Employer, including, without limitation, reasonable expenditures for business entertainment and for travel in connection with Employer's business; or 9.1.7 the failure of Employer to observe, fulfill or perform any obligation, requirement or restriction imposed upon it pursuant to this Agreement which is not referenced in the foregoing subsections of this Section 9.1, and such failure continues uncorrected for thirty (30) days after notice thereof to Employer; or 9.1.8 Intentionally Deleted. 9.1.9 Intentionally Deleted. 9.1.10 the failure by Employer to put any sports related business of Employer (other than motorized sports or any sports related business that provides less than 25% of the revenues of any entity acquired by Employer, if a condition of the purchase agreement for such entity 19 is for such business to be operated under the entity acquired) into the Sports Group, in which case the sports related business may be held by Employer outside of the Sports Group. Employee's right to terminate the Term of Employment for a Constructive Termination Event shall not be affected by his mental or physical incapacity, and his continued employment prior to terminating employment for a Constructive Termination Event shall not constitute consent to or a waiver of rights with respect to, any act or failure to act constituting a Constructive Termination Event. 9.2. Senior Executives. The "Senior Executives" shall mean all members of Employer's Office of the Chairman (howsoever called), and all senior executive officers of Employer. 9.3. Designated Office. The "Designated Office" shall mean Chairman of the Sports Group and member of the Office of the Chairman of Employer. 9.4. Change in Control. A "Change in Control" shall mean the occurrence of any one of the following events: (i) any "person," as such term is used in Sections 3(a)(9) and 13(d) of the Securities Exchange Act of 1934 (other than Employee or entities controlled by Employee), becomes a beneficial owner of 50% or more of the voting power of Employer or of the Common Stock beneficially owned by Robert F.X. Sillerman as of the date hereof; (ii) all or substantially all of the assets or business of Employer are disposed of pursuant to a merger, consolidation, sale or other transaction (unless the shareholders of Employer, immediately prior to such merger, consolidation or other transaction beneficially own, directly or 20 indirectly, in substantially the same proportion as they owned the voting power of Employer, all of the voting power or other ownership interests of the entity or entities, if any, that succeed to the business of Employer); (iii) Employer combines with another company and, immediately after such combination, (A) the shareholders of Employer immediately prior to the combination do not hold, directly or indirectly, more than 50% of the voting power of the combined company or (B) the members of the Board immediately prior to the Board's approval of the merger transaction do not constitute a majority of the combined company's board of directors; (iv) the majority of the Board consists of individuals other than incumbent directors (which term shall mean members of Board as of the Effective Date), except that any person who becomes a director subsequent to such date whose election or nomination was supported by two-thirds of the directors who then comprise the incumbent directors shall be considered an incumbent director; (v) (A) a direct or indirect (including by sale or transfer of any intermediate holding company) sale or transfer of the voting securities of the Sports Group (including by way of merger, consolidation or similar transaction) following which one or more persons other than Employer beneficially owns 50% or more of the voting power of the Sports Group or (B) a sale or transfer of all or substantially all the assets of the Sports Group and its subsidiaries as a whole; or the liquidation or dissolution of Employer or of the Sports Group. 10. Non-Compete Covenant. 10.l. During Period of Employment. During the Term of Employment, Employee will not, without the prior written approval of the Board, become employed in any capacity by, or become an officer, director or general partner of, any partnership, corporation or other entity that directly competes with any business of Employer, or any subsidiary of Employer whether now or hereafter conducted. 21 10.2. After Termination of Employment. For the period of one (1) year following the termination of the Term of Employment by Employer for Cause or by Employee on his own initiative (other than due to a Constructive Termination Event), Employee will not become employed in any capacity by, or become an officer, director, shareholder or general partner of, any partnership, corporation or other entity that competed with any material business of Falk Associates Management Enterprises, Inc. ("FAME") conducted as of April 29, 1998; provided, that this Section 10.2 shall not prevent Employee from owning no more than 5% of any class of securities of any publicly traded entity. The material businesses of FAME conducted as of April 29, 1998 shall be limited to the representation, as a sports agent in contract and marketing negotiations, of male basketball and football athletes in professional sports, and shall exclude, without limitation, such representation of (a) athletes in sports other than basketball and football and (b) female professional athletes, as well as the management, marketing and/or operation of professional sports teams, sports leagues, sports organizational committees or other sports businesses (or related consulting or other services), and the organization or the sponsorship of sports leagues. 10.3. No Solicitation of Other Employees. Employee additionally agrees that, throughout the Term of Employment and for a period of one (1) year after the termination of the Term of Employment by Employer for Cause or by Employee on his own initiative (other than due to a Constructive Termination Event), Employee shall not directly or indirectly, solicit, or attempt to solicit, any employee of Employer's Affiliated Group to leave Employer's Affiliated Group for any reason whatsoever. 10.4. Definition of Affiliated Group. As used above, the term "Employer's Affiliated 22 Group" shall mean Employer and all corporations, partnerships or other organizations which, directly or indirectly, are controlled by Employer. 10.5. Extraordinary Remedies. In the event of a breach of Employee's covenants in this Section 10, it is understood and agreed that Employer shall be entitled to injunctive relief as well as other applicable remedies at law or in equity available to Employer against Employee or others. 10.6. Survival. The provisions of this Section 10 shall survive the termination of the Term of Employment and the termination of this Agreement to the extent applicable; it being understood that in the event of a termination of the Term of Employment pursuant to Sections 5.1.1, 5.1.2 or 5.1.3 hereof, the provisions of this Section 10 shall be of no force or effect. 11. Disclosure of Confidential Information. Except to the extent (a) authorized by the express prior consent of the Board, (b) required by law or any legal process or (c) desirable in performing his duties under this Agreement, Employee will not, directly or indirectly, at any time during the Term of Employment, or at any time subsequent to the termination of the Term of Employment, disseminate, disclose, or divulge to any person, firm, corporation, association or other business entity, Confidential Information (herein defined) of Employer. As used herein, the term "Confidential Information" means any and all information about or relating to the trade secrets of Employer or any of its subsidiaries disclosed to Employee or known by Employee as a consequence of or through his employment by Employer, if such information is not generally known in any industry in which Employer or any of its subsidiaries is or may become engaged during the Term of Employment. In the event of a breach or threatened breach by Employee of this Section 10, Employer shall be entitled to injunctive relief as well as other applicable remedies at law or in equity available to Employer against Employee or others. 23 12. Notice. Any notice, request, reply, instruction, or other communication provided or permitted in this Agreement must be given in writing and may be served by depositing same in the United States mail in certified or registered form, postage prepaid, addressed to the Party or Parties to be notified with return receipt requested, or by delivering the notice in person to such Party or Parties. Unless actual receipt is required by any provision of this Agreement, notice deposited in the United States mail in the manner herein prescribed shall be effective on dispatch. For purposes of notice, the address of Employee, his spouse, any purported donee or transferee or any administrator, executor or legal representative of Employee or his estate, as the case may be, shall be as follows: The address of Employee shall be: c/o SFX Sports Group, Inc. 5335 Wisconsin Avenue, N.W. Washington, D.C. 20015 with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Mitchell Presser The address of Employer shall be: SFX Entertainment, Inc. 650 Madison Avenue New York, New York 10022 Attention: Howard J. Tytel 24 with a copy to: Winston & Strawn 200 Park Avenue New York, New York 10166 Attention: Jonathan Goldstein Employer shall have the right from time-to-time and at any time to change its address and shall have the right to specify as its address any other address by giving at least ten (10) days written notice to Employee. Employee shall have the right from time-to-time and at any time to change his address and shall have the right to specify as his address any other address by giving at least ten (10) days written notice to Employer. 13. Vacation. Employee shall be entitled to a minimum of four (4) weeks of paid vacation during each calendar year, but in no event less than the vacation provided to other Senior Executives of Employer. 14. Controlling Law. The execution, validity, interpretation and performance of this Agreement shall be determined and governed by the laws of the State of Maryland. 15. Entire Agreement. This Agreement contains the entire agreement of the Parties with respect to the employment of Employee, and any prior employment agreement between Employer and Employee shall be terminated effective as of the Effective Date. 16. Severability. If any provision of the Agreement is rendered or declared illegal or unenforceable by reason of any existing or subsequently enacted legislation or by decree of a court of last resort, the Parties shall promptly meet and negotiate substitute provisions for those rendered or declared illegal or unenforceable, but all remaining provisions of this Agreement shall remain in full force and effect. 25 17. Effect of Agreement, Assignment, Required Assumption. This Agreement shall be binding upon Employee and his heirs, executors, administrators, legal representatives, successors and assigns and the Employer and its successors and assigns. Employee may not assign any rights or obligations hereunder without the prior written consent of Employer and, except with respect to a successor entity (as described below), Employer may not assign any rights or obligations hereunder without the prior written consent of Employee. Employer shall require any person who is the successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or a substantial portion of the business or assets of Employer to expressly assume the obligations of Employer hereunder. The term "Employer" as used in this Agreement shall expressly include any such successors. 18. Indemnification. Employer shall indemnify Employee and his legal representatives to the fullest extent permitted by the laws of the State of Delaware, and Employee shall be entitled to the protection of such insurance policies which Employer maintains for the benefit of its directors and officers, against all costs, charges or expenses whatsoever incurred or sustained by him or his legal representatives in connection with any action, suit or proceeding to which he or his legal representatives may be made a party by reason of his being or having been a director of officer of Employer, or because of actions taken purportedly on behalf of Employer after the Effective Date. Employer shall, upon request by Employee, promptly advance or pay any amount for costs, charge or expenses (including, without limitation, legal fees and expenses incurred by counsel retained by Employee) in respect of his right to indemnification hereunder, subject to a later determination as to Employee's ultimate right to receive such payment. Employee's identification and the insurance policies maintained for his benefit shall be at least to the same extent, of the same type and in the same amount as that maintained by Employer for the Chief Executive Officer of Employer, as may be amended from time-to-time. 26 19. Legal Fees and Expenses. Employee shall be entitled to receive from Employer the amount of his legal fees (and expenses) reasonably incurred in connection with claims or disputes under this Agreement, if Employee is the prevailing party on any issue in any such dispute. The reimbursement shall be made as soon as practicable following the resolution of such claim or dispute to the extent Employer receives reasonable written evidence of such fees and expenses. 20. Amendments; Waivers. This Agreement cannot be changed, modified or amended, and no provision or requirement hereof may be waived, without an affirmative vote of the Board, and the consent in writing of Employee and Employer. The failure of a party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by a party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 21. Beneficiaries. Whenever this Agreement provides for any payment to Employee's estate, such payment may be made instead to such beneficiary or beneficiaries as Employee may have designated in a writing filed with Employer. Employee shall have the right to revoke any such designation and to redesignate a beneficiary or beneficiaries by written notice to Employer (and any applicable insurance company) to such effect. 22. Resolution of Disputes. Any dispute or controversy between the parties relating to or arising out of this Agreement or any amendment or modification hereof shall be determined by arbitration in New York, New York by and pursuant to the rules then prevailing of the American Arbitration Association, other than claims for injunctive relief under Sections 10 or 11. All claims 27 for legal remedies under this Agreement shall be limited to the actual damages of Employer or Employee, respectively, but shall not limit any payments or damages provided to Employee under the terms of this Agreement. The arbitration award shall be final and binding upon the parties and judgment may be entered there on by any court of competent jurisdiction. The service of any notice, process, motion or other document in connection with any arbitration under this Agreement or the enforcement of any arbitration award hereunder may be effectuated either by personal service upon a party or by certified mail duly addressed to him or to his executors, administrators, personal representatives, next of kin, successors or assigns, at the last known address or addresses of such party or parties. 23. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original. It shall not be necessary when making proof of this Agreement to account for more than one counterpart. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. SFX ENTERTAINMENT, INC. /s/ By: /s/ David Falk - ---------------------------- ---------------------------- Title: David Falk Name: 28 EX-10.32 4 AMENDED AND RESTATED EMPLOYMENT AGREEMENT --ROBERT F.X. SILLERMAN AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Employment Agreement"), made as of January 15, 2000, between SFX ENTERTAINMENT, INC., a Delaware corporation (the "Employer"), and ROBERT F. X. SILLERMAN (the "Executive"). WHEREAS, the Executive is currently employed by the Employer, pursuant to an Employment Agreement, dated as of May 28, 1998, between the Executive and the Employer (the "Original Employment Agreement"); and WHEREAS, the Board of Directors of the Employer (the "Board") has determined that it is in the best interests of the Employer to enter into a new employment agreement with the Executive which shall amend and restate in its entirety the Original Employment Agreement, in order to be assured of the Executive's continued services as a member of senior management of the Employer upon the terms and provisions and subject to the conditions hereinafter set forth; and WHEREAS, in order to retain the services of the Executive, the Employer has agreed to issue to the Executive options to purchase shares of stock of the Employer and, pursuant to such agreement, on the review and recommendation of the Compensation Committee (the "Compensation Committee") of the Board, the Employer has granted to the Executive options to purchase a total of 1,200,000 shares of Class A Common Stock, par value $.0l per share, of the Employer (the "Class A Stock"), having a term of five (5) years, of which 750,000 options are exercisable at an exercise price of $3.67 per share, and 450,000 options are exercisable at an exercise price of $16.08 per share (collectively, the "January 2000 Options"), which options fully vest on the date of this Employment Agreement, and to simultaneously forgive and renounce all Company rights connected with any loans made to the Executive prior to the effective date of this agreement; and WHEREAS, the Compensation Committee and the Board approved the terms and conditions of this Employment Agreement; NOW, THEREFORE, for good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the Employer and the Executive agree as follows: 1. Employment. Upon the terms and subject to the conditions of this Employment Agreement, the Employer hereby employs the Executive and the Executive hereby accepts employment by the Employer. 2. Term. 2.1 The term of the Executive's employment hereunder shall commence as of the date hereof and continue until the fifth anniversary thereof, unless terminated earlier in accordance with the provisions of this Employment Agreement; provided, however, that this Employment Agreement shall automatically be renewed for additional one-year periods thereafter unless and until terminated by the Employer or the Executive as of the end of such five-year initial period or at the end of any renewal period by written notice given at least 30 days prior to the scheduled termination or scheduled renewal of this Employment Agreement. The date of the commencement of employment pursuant to this Employment Agreement is hereinafter referred to as the "Effective Date," the term of employment pursuant to this Employment Agreement is hereinafter referred to as the "Term" and the last date of employment pursuant to this Employment Agreement is hereinafter referred to as the "Termination Date." 3. Executive's Position, Duties, and Authority. 3.1 The Employer shall employ the Executive, and the Executive shall serve, as Executive Chairman and as a Member of the Office of the Chairman of the Employer and of any successor by merger, acquisition of substantially all of the assets of the Employer or otherwise. 3.2 The Executive shall have executive duties, functions, authority and responsibilities commensurate with the office or offices he from time to time holds with the Employer. 3.3 The Executive shall serve without additional remuneration as (a) a member of any committee of the Board, as determined by the Board; and (b) a director and/or officer of one or more of the Employer's subsidiaries, if appointed to such position by the Employer. 4. Full-time Services. The Executive shall devote substantially all of his business time to the business and affairs of the Employer and to the fulfillment of his duties hereunder in a diligent and competent fashion to the best of his abilities. Notwithstanding the foregoing, (a) the Executive shall have the right to continue to fulfill his obligations as a director and officer of companies in which he currently serves in such capacity, including without limitation, Sillerman Communications Management Corporation, The Sillerman Companies, Inc., Sillerman Management Company, Inc. and The Marquee Group, Inc., and (b) shall have the right to devote a portion of his business time to personal investments and commitments not related to the Prohibited Business (as such term is defined in Section 16.1 hereof). In addition, except as provided in Section 16, the Executive may serve on the boards of directors of other organizations and companies; provided that the service on such other boards of directors does not interfere with the performance of the Executive's services hereunder. 5. Location of Employment. Unless the Executive consents otherwise in writing, the headquarters for performance of his services hereunder shall be the principal offices of the Employer in New York, New York, or at such other location within 25 miles of the residence of the Executive as the Executive shall approve of. 6. Base Salary. During the Term, the Employer shall pay or cause to be paid to the Executive an initial base salary per annum (the "Base Salary") which shall initially be $625,000, payable in monthly installments. Upon each anniversary of the commencement of the Executive's employment hereunder, the Base Salary then in effect shall be increased by an amount equal to the greater of (a) five percent of the Base Salary then in effect or (b) the product of (i) the Base Salary then in effect and (ii) the percentage increase in the Consumer Price Index during the previous twelve full calendar months. In addition, the Board shall review the Executive's Base Salary at least annually and may by action of the Board, after and pursuant to 2 the affirmative recommendation of the Compensation Committee, increase, but not decrease, such Base Salary, as such salary may have been increased, at any time and from time to time during the Term. 7. Bonus; Option Grant. 7.1 The Executive shall be entitled to receive an annual incentive bonus (the "Bonus") consisting of (a) a guaranteed cash bonus of $600,000 per annum (the "Cash Bonus) payable on each anniversary of this Employment Agreement plus (b) an additional discretionary bonus payable in cash, stock, options or other compensation, during the continuance of the Executive's employment hereunder as determined by the Board, after and pursuant to the affirmative recommendation of the Compensation Committee. The Bonus shall be payable within a reasonable period of time not to exceed ninety (90) days following the end of each fiscal year of the Employer. To the extent that the Executive is granted options to acquire shares of the Class A Stock of the Employer, such options shall have an exercise price equal to the average closing ask and bid price of the Class A Stock on the date of the grant and shall be exercisable for 10 years and shall vest on a schedule to be determined by the Board but in no event shall the vesting schedule be more than five years. Notwithstanding the foregoing, in the event that the Executive ceases to be employed by the Employer for any reason whatsoever, all options issued pursuant to this Section 7 shall vest immediately and Executive shall retain the right to exercise each such option during the remaining term of each such grant. 7.2 The Employer hereby confirms the grant to the Executive of the January 2000 Options, to be evidenced by option documentation to be entered into by the Employer and the Executive. 8. Expenses. The Employer shall pay or reimburse the Executive for all reasonable expenses actually incurred or paid by the Executive during the Term of employment in the performance of the Executive's services hereunder upon presentation of expense statements or vouchers or such other supporting information as the Employer may reasonably require of the Executive. The Employer shall make an automobile available for Executive's exclusive use while employed under this Employment Agreement. 9. Benefits. During the Term, the Executive shall be eligible to participate in any pension or profit-sharing plan or program of the Employer now existing or established hereafter, in accordance with and to the extent that he is eligible under the general provisions thereof. The Executive shall also be eligible to participate in any group life insurance, hospitalization, medical, health and accident, disability or similar plan or program of the Employer, now existing or established hereafter, in accordance with and to the extent that he is eligible under the general provisions thereof. 10. Existing Life Insurance. The Employer shall have the right to obtain up to $5,000,000 of life insurance on the life of Executive and to be the beneficiary of such policy. The Executive shall cooperate in assisting the Employer to obtain such insurance. The Employer shall continue to pay all premiums on such policies and shall maintain such policies, subject to the insurability of the Executive, if required to keep such policies in effect during the Term. 3 11. Indemnification. The Executive shall be entitled in connection with his employment hereunder and in connection with his services as a director of the Employer to the benefit of the indemnification provisions contained on the date hereof in the bylaws and certificate of incorporation of the Employer, as the same may hereafter be amended (not including any amendments or additions that limit or narrow, but including any that add to or broaden, the protection afforded to the Executive), to the fullest extent permitted by applicable law. The Employer shall in addition cause the Executive to be indemnified in accordance with Section 145 of the Delaware General Corporation Law to the fullest extent permitted by said Section, in the Executive's capacity as an officer and a director, to the extent required to make the Executive whole in connection with any loss, costs or expense indemnifiable thereunder. The indemnification obligations of the Employer hereunder shall survive from the date hereof until three (3) months after the expiration of the applicable statute of limitations with respect to any claim made against the Executive for which the Executive seeks indemnification (the "Survival Period") and shall survive thereafter with respect to any indemnification claim as to which the Employer has received notice on or prior to the end of the Survival Period. The Employer shall prepay in full, and maintain in full force and effect during the Survival Period for the benefit of the Executive, on an "occurrence" basis, the Employer's current directors and officers errors and omissions insurance policy, or a similar insurance policy providing equivalent coverage from a financially reputable carrier, in form and substance reasonably acceptable to the Executive. In addition to the foregoing, the Employer hereby indemnifies the Executive to the extent the Executive waived, released or agreed to limit in any way any way rights to indemnification from SFX Broadcasting, Inc. ("SFX Broadcasting"), the SBI Holding Corporation ("Buyer") and SBI Radio Acquisition Corporation ("Buyer Sub") pursuant to the terms of that certain letter agreement, dated August 24, 1997, among the Executive SFX Broadcasting, Buyer and Buyer Sub. 12. Confidential Information. The Executive acknowledges that his employment by the Employer has brought and will bring him into close contact with confidential proprietary information of the Employer, including information regarding costs, profits, markets, sales, products, key personnel, pricing policies, operational methods, technical processes, other business affairs and methods, plans for future developments, and other information not readily available to the public, the disclosure of which to third parties would in each case have a material adverse effect on the Employer's business operations (the "Confidential Information"). In recognition of the foregoing, the Executive covenants and agrees that: (a) he will keep secret all Confidential Information and will not intentionally disclose Confidential Information to anyone outside of the Employer and its representatives other than in the course of performance of his duties hereunder, either during or for a one year period after the Term except with the Employer's written consent, provided that (i) the Executive shall have no such obligation to the extent Confidential Information is or becomes publicly known other than as a result of the Executive's breach of his obligations hereunder and (ii) the Executive may, after giving prior notice to the Employer to the extent practicable under the circumstances, disclose such matters to the extent required by applicable laws or governmental regulations or judicial or regulatory process; and 4 (b) he will, at the Executive's option, either (i) deliver promptly to the Employer on termination of his employment by the Employer or at any other time the Employer may so request, and at the Employer's request, all memoranda, notes, records, reports and other documents (and all copies thereof) relating to the Employer's business, which he obtained while employed by, or otherwise serving or acting on behalf of, the Employer and which he may then possess or have under his control (the "Records"); or (ii) in lieu of subclause (i) above, the Executive shall destroy all of the Records and shall deliver to the Employer a certificate to that effect. 13. Termination. 13.1 For purposes of this Employment Agreement the following definitions shall apply: 13.1.1 "Cause" shall mean: (a) the Executive is convicted of a felony involving moral turpitude which would render the Executive unable to perform his duties set forth in this Employment Agreement; or (b) the Executive engages in conduct that constitutes willful gross neglect or willful gross misconduct in carrying out his duties under this Employment Agreement, resulting, in either case, in material economic harm to the Employer, unless the Executive believed in good faith that such act or nonact was in the best interests of the Employer. 13.1.2 A "Change in Control" shall mean the occurrence of any one of the following events: (a) any "person," as such term is used in Sections 3(a)(9) and 13(d) of the Securities Exchange Act of 1934, as amended (other than the Executive or entities controlled by the Executive), becomes a "beneficial owner," as such term is used in Rule 13d-3 promulgated under that Act, of 25% or more of the voting power of the Employer; (b) all or substantially all of the assets or business of the Employer is disposed of pursuant to a merger, consolidation or other transaction (unless the shareholders of the Employer immediately prior to such merger, consolidation or other transaction beneficially own, directly or indirectly, in substantially the same proportion as they owned the voting power of the Employer, all of the voting power or other ownership interests of the entity or entities, if any, that succeed to the business of the Employer); (c) the Employer combines with another company and is the surviving corporation but, immediately after the combination, the shareholders of the Employer immediately prior to the combination hold, directly or indirectly, 50% or less of the voting power of the combined company; or (d) the majority of the Board consists of individuals other than "incumbent directors," which term means members of the Board as of the date of this Employment Agreement, except that any person who becomes a director subsequent to such date whose election or nomination 5 was supported by two-thirds of the directors who then comprise the incumbent directors shall be considered an incumbent director. 13.1.3 "Constructive Termination Without Cause" shall mean a termination of the Executive's employment at his initiative as provided in this Section 13 following the occurrence, without the Executive's written consent, of one or more of the following events: (a) a reduction in the Executive's then current Base Salary or failure by the Employer to fulfill its obligations under Sections 6, 7, 8 or 9 above; (b) the failure to elect or reelect the Executive to any of the positions described in Section 3 hereof or the removal of him from any such position; (c) a material diminution in the Executive's duties or the assignment to the Executive of duties which are materially inconsistent with his duties or which materially impair the Executive's ability to function as the Executive Chairman and Member of the Office of the Chairman of the Employer; or (d) the failure of the Employer to obtain the assumption in writing of its obligation to perform this Employment Agreement by any successor to all or substantially all of the assets of the Employer within 15 days after a merger, consolidation, sale or similar transaction. 13.2 Termination by the Employer for Cause. A termination for Cause shall not take effect unless all of the provisions of this Section 13.2 are complied with. The Executive shall be given written notice by the Board of the intention to terminate him for Cause, such notice (a) to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based and (b) to be given within three months of the Board learning of such act or acts or failure or failures to act. The Executive shall have 10 business days after the date that such written notice has been given to the Executive in which to cure such conduct, to the extent such cure is possible. If he fails to cure such conduct, the Executive shall then be entitled to a hearing before the Board. Such hearing shall be held within 15 business days of such notice to the Executive, provided he requests such hearing within 10 business days of the written notice from the Board of the intention to terminate him for Cause. If, within five business days following such hearing, the Executive is furnished written notice by the Board confirming that, in its judgment, grounds for Cause on the basis of the original notice exist, he shall thereupon be terminated for Cause. 13.2.1 In the event the Employer terminates the Executive's employment for Cause, he shall be entitled to: (a) the Base Salary through the date the of termination of his employment for Cause; and (b) a Bonus for the year in which he was terminated equal to the Bonus for the year prior to such termination, prorated over the time elapsed during the year in which he was terminated. 6 13.2.2 In the event the Employer terminates the Executive's employment for Cause, the Executive shall have no further obligations or liability to the Employer (except his obligations under Sections 12 and 16, which shall survive). 13.3 Termination Without Cause or Constructive Termination Without Cause. In the event the Executive's employment is terminated without Cause, other than due to disability or death, or in the event there is a Constructive Termination Without Cause, the Executive shall be entitled to: (a) the Base Salary through the date of termination of the Executive's employment; (b) the Base Salary, at the annualized rate in effect on the date of termination of the Executive's employment (or in the event a reduction in Base Salary is the basis for a Constructive Termination Without Cause, then the Base Salary in effect immediately prior to such reduction), for a period of 36 months following such termination or until the end of the Term, whichever is longer; provided that, at the Executive's option, the Employer shall pay him the present value of such salary continuation payments in a lump sum within thirty (30) days of the effective date of such termination (using as the discount rate 75% of the prime rate (as published by The Wall Street Journal) for the first business day of the month in which such termination occurs); (c) a Bonus for the unexpired Term not less than the $600,000.00 guaranteed cash bonus provided in Section 7.1(a) multiplied by all of the year(s) and month(s) remaining in the then unexpired Term; provided that, at the Executive's option, the Employer shall pay him the present value of such salary and bonuses in a lump sum within thirty (30) days of the effective date of such termination (using as the discount rate 75% of the prime rate (as published by The Wall Street Journal) for the first business day of the month in which such termination occurs). Notwithstanding the foregoing, in no event shall the Base Bonus Amount be less than $1,250,000; and (d) all benefits provided in Section 9 hereof until the end of the Term, with no additional cost or charge payable by the Executive. 13.4 Rights Following a Change in Control. In the event of a Change in Control, the Executive shall be entitled to act with respect to this Employment Agreement as provided in section 13.5, and to all payments and benefits provided in section 13.3, provided that such payments, together with the additional consideration described in this section, shall be paid in a lump sum and without any discount or reduction, or in the case of non-monetary consideration, delivered to the Executive before or contemporaneously with the consummation of the Change in Control. In addition, all previously granted but unvested options to purchase Company stock granted to the Executive immediately shall vest fully in the Executive and remain exercisable for the full period of the initial option grant or ten years, whichever is greater. In addition: (a) any application of Section 13.1.3(d) of this Employment Agreement by the Employer or the Company shall be suspended from the Employer's or the Company's entry into any agreement contemplating a Change in Control, and deemed stricken from this Employment Agreement and rescinded upon the consummation of any Change in Control; and (b) Section 16 of this Employment Agreement immediately, and without additional action, shall be deemed and rendered null, void, and without any effect as against the Executive upon the consummation of 7 the Change in Control. The Executive shall forfeit any rights granted pursuant to this Section 13.4 if the Executive, in his sole and absolute discretion and without any obligation whatsoever to do so, accepts a written offer to remain with the surviving company in an executive position with equivalent duties, authority and responsibility as the Executive currently holds (other than as a non-employee director). 13.4.1 Payment Following a Change in Control. In the event that the termination of the Executive's employment is as a result of a Change in Control and the aggregate of all payments or benefits made or provided to the Executive under this Employment Agreement and under all other plans and programs of the Employer (the "Aggregate Payment") is determined to constitute a Parachute Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), the Employer shall pay to the Executive, prior to the time any excise tax imposed by Section 4999 of the Internal Revenue Code ("Excise Tax") is payable with respect to such Aggregate Payment, an additional amount which, after the imposition of all income and excise taxes thereon, is equal to 120% of the Excise Tax on the Aggregate Payment The determination of whether the Aggregate Payment constitutes a Parachute Payment and, if so, the amount to be paid to the Executive and the time of payment pursuant to this subsection shall be made by an independent auditor (the "Auditor") jointly selected by the Employer and the Executive and paid by the Employer. The Auditor shall be a nationally recognized United States public accounting firm which has not, during the two years preceding the date of its selection, acted in any way on behalf of the Employer or any affiliate thereof. If the Executive and the Employer cannot agree on the firm to serve as the Auditor, then the Executive and the Employer shall each select one accounting firm and those two firms shall jointly select the accounting firm to serve as the Auditor. 13.5 Voluntary Termination. In the event of a termination of employment by the Executive on his own initiative other than (i) a termination due to death or disability; (ii) a Constructive Termination without Cause; or (iii) a Change in Control (which event may be represented to third parties, at the Executive's sole option as a voluntary separation mutually agreed to between and among the Employer, the Company, and the Executive), the Executive shall have the same entitlements as provided in Section 13.2 above for a termination for Cause. A voluntary termination under this Section 13.5 (i), (ii), or (iii) shall be effective upon reasonable prior written notice to the Employer, need not be provided in the event of termination due to death or the consummation of a Change in Control, and in no event shall the occurrence of any event contemplated by Section 13.5 (i), (ii), or (iii) be deemed as the Executive's breach of this Employment Agreement. 13.6 Stock Options. Notwithstanding anything to the contrary, upon termination for any reason whatsoever, the Executive shall have the immediate right to exercise any stock options in full, whether or not such option is fully exercisable on the date of termination, for the remainder of the original term of each such stock option. 13.7 No Mitigation; No Offset. In the event of any termination of employment under this Employment Agreement, the Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due the Executive under this Employment Agreement on account of any remuneration attributable to any subsequent employment that he may obtain. 8 13.8 Assumption of Certain Obligations of SFX Broadcasting. The Employer hereby assumes the obligations of SFX Broadcasting set forth in Section 13.4.1 of the Amended and Restated Employment Agreement, dated as of January 1, 1997, between the Executive and SFX Broadcasting. 13.9 Option Adjustment. The number of options issuable pursuant to this Section 13 and the per share exercise price thereof shall be subject to appropriate adjustment to give effect to any increase or decrease in the number of issued shares resulting from a reorganization, recapitalization, stock split, spin-off or other similar action. 14. Disability. 14.1 If during his active employment hereunder the Executive shall become physically or mentally disabled, whether totally or partially, so that he is prevented from performing his usual duties for a period of six consecutive months, the Employer shall, nevertheless, pay the Executive his full Base Salary and Bonus in respect of the period ending on the last day of the sixth consecutive month of disability (such last day being referred to herein as the "Disability Date") and the following additional provisions shall apply: 14.2 If the Executive has not resumed his usual duties on or prior to the Disability Date, the Executive's employment shall terminate and the Employer shall pay, unless prior to the date the Executive became physically or mentally disabled a notice of termination was delivered to the Executive, 75% of his Base Salary from the Disability Date through the end of the Term (without giving effect to any early termination provisions contained in this Employment Agreement) and, except as provided in Section 14.4, the Employer shall have no obligation to pay Bonus to the Executive in respect of periods after the Disability Date. Any Base Salary payable pursuant to this Section 14.2 shall be reduced by the amount of any benefits payable to the Executive under any group or individual disability insurance plan or policy, the premiums for which are paid primarily by the Employer; 14.3 Unless the Employer exercises its option under Section 14.4 to restore the Executive to his full compensation, duties, functions, authority and responsibilities hereunder, the Executive shall have no obligations or liabilities hereunder from and after the Disability Date (except for his obligations under Sections 12 and 16, which shall survive); and 14.4 If during the Term and subsequent to a Disability Date, the Executive shall recover fully from a disability, the Employer, by action of the Board, shall have the right (exercisable within sixty days after notice from the Executive of such recovery), but not the obligation, to restore the Executive to employment and to full compensation and his full level of duties, functions, authority and responsibilities hereunder. 15. Death of Executive. 15.1 Upon the Executive's death, whether prior to or subsequent to his Disability Date and prior to the delivery of a notice of termination, this Employment Agreement and all of the Employer's obligations to pay salary and Bonus hereunder shall terminate except as provided in Sections 15.2 through 15.4. 9 15.2 The Executive's estate or designated beneficiary shall be entitled to receive (a) any unpaid portions of the Executive's Base Salary in respect of the period ending on the Executive's date of death, (b) unpaid Bonus in respect of years prior to the year of death, and (c) immediately vested options to purchase 150,000 shares of Class A Stock at an exercise price equal to the exercise price of the last stock option granted by the Employer to the Executive prior to the Executive's death. In addition, the Employer shall pay to such estate or beneficiary an amount equal to the present value of all the remaining Base Salary, calculated assuming annual compound interest at 75% of the prime rate (as published in The Wall Street Journal) for the first business day of the month in which the Executive's death occurs. 15.3 The Base Salary and Bonus payable pursuant to this Section 15 shall be reduced by the value of any benefits payable to the Executive's estate or designated beneficiary under any life insurance plan or policy the premiums for which are paid primarily by the Employer, other than such insurance identified in Section 10. 16. Non-competition. 16.1 During the Term, the Executive will not, without the prior written approval of the Board, become employed by, or become an officer, director, or general partner of, any partnership, corporation or other entity which acts as a promoter, producer or venue operator in the live entertainment business or which acts as a marketing and management company specializing in the representation of team sports athletes (the "Prohibited Business"); provided that nothing herein shall prohibit the Executive from continuing to fulfill his obligations as an officer, director or partner of companies or entities in which he currently serves in any such capacities. 16.2 Subject to the following proviso, for a period of one year following the termination of the Executive's employment hereunder, the Executive will not become employed by, or become an officer, director or general partner of, any partnership, corporation or other entity which is primarily engaged in the Prohibited Business; provided however, that during such one year period the Employer shall employ the Executive as a consultant with compensation at a rate equal to fifty percent of the Employer's Base Salary immediately prior to such termination. If the Employer elects not to employ the Executive as a consultant for such one year period as provided herein, the provisions of this Section 16.2 shall not apply and the Executive shall be free to engage in any activity referred to herein 17. Notices. All notices, requests, consents and other communications, required or permitted to be given hereunder, shall be in writing and shall be deemed to have been duly given if delivered personally or sent by prepaid telegram, or mailed first class, postage prepaid, by registered or certified mail, as follows (or to such other or additional address as either party shall designate by notice in writing to the other in accordance herewith): 17.1 If to the Employer: SFX Entertainment, Inc. 650 Madison Avenue, 16th Floor New York, New York 10022 10 Attention: Board of Directors 17.2 If to the Executive: Robert F. X. Sillerman 157 East 70th Street New York, New York 10021 17.3 Copies of all communications given hereunder shall also be delivered or sent, in like fashion, to Winston & Strawn (attention: Jonathan Goldstein, Esq.) at 200 Park Avenue, New York, New York 10166. 18. General. 18.1 Governing Law. This Employment Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York. 18.2 Captions. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Employment Agreement 18.3 Entire Agreement. This Employment Agreement, including any Exhibits attached hereto, sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior and/or contemporaneous agreements, arrangements and understandings, written or oral, between the parties with respect to such subject matter (including, without limitation, the Original Employment Agreement), except as specifically provided herein. 18.4 Successors and Assigns. This Employment Agreement, and the Executive's rights and obligations hereunder, may not be assigned by the Executive, except that the Executive may designate pursuant to Section 18.6 one or more beneficiaries to receive any amounts that would otherwise be payable hereunder to the Executive's estate. This Employment Agreement shall be binding on any successor to the Employer, whether by merger, acquisition of substantially all of the Employer's assets or otherwise, as fully as if such successor were a signatory hereto and the Employer shall cause such successor to, and such successor shall, expressly assume the Employer's obligations hereunder. Notwithstanding anything else herein contained, the term "Employer", as used in this Employment Agreement, shall include all such successors. 18.5 Amendments; Waivers. This Employment Agreement cannot be changed, modified or amended, and no provision or requirement hereof may be waived, without an affirmative vote of the Board after the affirmative recommendation of the Compensation Committee of the Board, and the consent in writing of the Executive and the Employer. The failure of a party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by a party of the breach of any term or covenant contained in this Employment Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Employment Agreement. 11 18.6 Beneficiaries. Whenever this Employment Agreement provides for any payment to the Executive's estate, such payment may be made instead to such beneficiary or beneficiaries as the Executive may have designated in a writing filed with the Employer. The Executive shall have the right to revoke any such designation and to redesignate a beneficiary or beneficiaries by written notice to the Employer (and to any applicable insurance company) to such effect. [The remainder of this page has intentionally been left blank] 12 IN WITNESS WHEREOF, the parties have duly executed this Employment Agreement as of the date first above written. SFX ENTERTAINMENT, INC. By: /s/ Michael G. Ferrel --------------------------------------- Name: Title: /s/ Robert F.X. Sillerman ------------------------------------------ ROBERT F. X. SILLERMAN 13 EX-10.33 5 AMENDED AND RESTATED EMPLOYMENT AGREEMENT --MICHAEL G. FERREL AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Employment Agreement"), made as of January 15, 2000, between SFX ENTERTAINMENT, INC., a Delaware corporation (the "Employer"), and MICHAEL G. FERREL (the "Executive"). WHEREAS, the Executive is currently employed by the Employer, pursuant to an Employment Agreement, dated as of May 28, 1998, between the Executive and the Employer (the "Original Employment Agreement"); and WHEREAS, the Board of Directors of the Employer (the "Board") has determined that it is in the best interests of the Employer to enter into a new employment agreement with the Executive which shall amend and restate in its entirety the Original Employment Agreement, in order to be assured of the Executive's continued services as a member of senior management of the Employer upon the terms and provisions and subject to the conditions hereinafter set forth; and WHEREAS, in order to retain the services of the Executive, the Employer has agreed to issue to the Executive options to purchase shares of stock of the Employer and, pursuant to such agreement, on the review and recommendation of the Compensation Committee (the "Compensation Committee") of the Board, the Employer has granted to the Executive options to purchase a total of 400,000 shares of Class A Common Stock, par value $.0l per share, of the Employer (the "Class A Stock"), having a term of five (5) years, of which 250,000 options are exercisable at an exercise price of $3.67 per share and 150,000 options are exercisable at an exercise price of $16.08 per share (collectively, the "January 2000 Options"), which options fully vest on the date of this Employment Agreement, and to simultaneously forgive and renounce all Company rights connected with any loans made to the Executive prior to the effective date of this agreement; and WHEREAS, the Compensation Committee and the Board approved the terms and conditions of this Employment Agreement; NOW, THEREFORE, for good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the Employer and the Executive agree as follows: 1. Employment. Upon the terms and subject to the conditions of this Employment Agreement, the Employer hereby employs the Executive and the Executive hereby accepts employment by the Employer. 2. Term. 2.1 The term of the Executive's employment hereunder shall commence as of the date hereof and continue until the fifth anniversary thereof, unless terminated earlier in accordance with the provisions of this Employment Agreement; provided, however, that this Employment Agreement shall automatically be renewed for additional one-year periods thereafter unless and until terminated by the Employer or the Executive as of the end of such five-year initial period or at the end of any renewal period by written notice given at least 30 days prior to the scheduled termination or scheduled renewal of this Employment Agreement. The date of the commencement of employment pursuant to this Employment Agreement is hereinafter referred to as the "Effective Date," the term of employment pursuant to this Employment Agreement is hereinafter referred to as the "Term" and the last date of employment pursuant to this Employment Agreement is hereinafter referred to as the "Termination Date." 3. Executive's Position, Duties, and Authority. 3.1 The Employer shall employ the Executive, and the Executive shall serve, as President, Chief Executive Officer and as a Member of the Office of the Chairman of the Employer and of any successor by merger, acquisition of substantially all of the assets of the Employer or otherwise. 3.2 The Executive shall have executive duties, functions, authority and responsibilities commensurate with the office or offices he from time to time holds with the Employer. 3.3 The Executive shall serve without additional remuneration as (a) a member of any committee of the Board, as determined by the Board; and (b) a director and/or officer of one or more of the Employer's subsidiaries, if appointed to such position by the Employer. 4. Duties. 4.1 Full-time Services. The Executive shall devote substantially all of his business time to the business and affairs of the Employer and to the fulfillment of his duties hereunder in a diligent and competent fashion to the best of his abilities; provided, however, that the Executive may engage in other activities such as charitable, educational, religious and similar types of activities, to the extent that such activities do not prohibit or prevent the performance of the Executive's duties under this Employment Agreement, or inhibit or conflict in any material way with the business of the Employer. 4.2 Business Opportunities. The Executive covenants and agrees that for so long as he is actively employed by the Employer he shall inform the Employer of each business opportunity related to the business of the Employer of which he becomes aware, and that he will not, directly or indirectly, exploit any such opportunity for his own account nor will he render any services to any other person or business or acquire any interest of any type in any other business, which is in competition with the Employer; provided, however, that the foregoing shall not be deemed to prohibit the Executive from acquiring, solely as an investment (a) up to 10% of any securities of a partnership, trust, corporation or other entity so long as he remains a passive invest or in such entity and such entity is not, directly or indirectly, in competition with the Employer, or (b) up to 0.5% of any securities of any publicly traded partnership, trust, corporation or other entity provided he remains a passive investor in such entity. 2 5. Location of Employment. Unless the Executive consents otherwise in writing, the headquarters for performance of his services hereunder shall be the principal offices of the Employer in New York, New York, or at such other location within 25 miles of the residence of the Executive as the Executive shall approve of. 6. Base Salary. During the Term, the Employer shall pay or cause to be paid to the Executive an initial base salary per annum (the "Base Salary") which shall initially be $525,000, payable in monthly installments. Upon each anniversary of the commencement of the Executive's employment hereunder, the Base Salary then in effect shall be increased by an amount equal to the greater of (a) five percent of the Base Salary then in effect or (b) the product of (i) the Base Salary then in effect and (ii) the percentage increase in the Consumer Price Index during the previous twelve full calendar months. In addition, the Board shall review the Executive's Base Salary at least annually and may by action of the Board, after and pursuant to the affirmative recommendation of the Compensation Committee, increase, but not decrease, such Base Salary, as such salary may have been increased, at any time and from time to time during the Term. 7. Bonus; Option Grant. 7.1 The Executive shall be entitled to receive an annual incentive bonus (the "Bonus") consisting of (a) a guaranteed cash bonus of $300,000 per annum (the "Cash Bonus), payable on each anniversary of this Employment Agreement, plus (b) an additional discretionary bonus payable in cash, stock, options or other compensation, during the continuance of the Executive's employment hereunder as determined by the Board, after and pursuant to the affirmative recommendation of the Compensation Committee. 7.2 The Employer hereby confirms the grant to the Executive of the January 2000 Options, to be evidenced by option grant documentation to be entered into by the Employer and the Executive. 8. Expenses. The Employer shall pay or reimburse the Executive for all reasonable expenses actually incurred or paid by the Executive during the Term of employment in the performance of the Executive's services hereunder upon presentation of expense statements or vouchers or such other supporting information as the Employer may reasonably require of the Executive. 9. Benefits. During the Term, the Executive shall be eligible to participate in any pension or profit-sharing plan or program of the Employer now existing or established hereafter, in accordance with and to the extent that he is eligible under the general provisions thereof. The Executive shall also be eligible to participate in any group life insurance, hospitalization, medical, health and accident, disability or similar plan or program of the Employer, now existing or established hereafter, in accordance with and to the extent that he is eligible under the general provisions thereof. 10. Existing Life Insurance. The Employer shall have the right to obtain life insurance on the life of Executive and to be the beneficiary of such policy. The Executive shall cooperate in assisting the Employer to obtain such insurance. The Employer shall continue to pay 3 all premiums on such policies and shall maintain such policies, subject to the insurability of the Executive, if required to keep such policies in effect during the Term. 11. Indemnification. The Executive shall be entitled in connection with his employment hereunder and in connection with his services as a director of the Employer to the benefit of the indemnification provisions contained on the date hereof in the bylaws and certificate of incorporation of the Employer, as the same may hereafter be amended (not including any amendments or additions that limit or narrow, but including any that add to or broaden, the protection afforded to the Executive), to the fullest extent permitted by applicable law. The Employer shall in addition cause the Executive to be indemnified in accordance with Section 145 of the Delaware General Corporation Law to the fullest extent permitted by said Section, in Executive's capacity as an officer and a director, to the extent required to make the Executive whole in connection with any loss, costs or expense indemnifiable thereunder. The indemnification obligations of the Employer hereunder shall survive from the date hereof until three (3) months after the expiration of the applicable statute of limitations with respect to any claim made against the Executive for which the Executive seeks indemnification (the "Survival Period") and shall survive thereafter with respect to any indemnification claim as to which the Employer has received notice on or prior to the end of the Survival Period. The Employer shall prepay in full, and maintain in full force and effect during the Survival Period for the benefit of the Executive, on an "occurrence" basis, the Employer's current directors and officers errors and omissions insurance policy, or a similar insurance policy providing equivalent coverage from a financially reputable carrier, in form and substance reasonably acceptable to the Executive. 12. Confidential Information. The Executive acknowledges that his employment by the Employer has brought and will bring him into close contact with confidential proprietary information of the Employer, including information regarding costs, profits, markets, sales, products, key personnel, pricing policies, operational methods, technical processes, other business affairs and methods, plans for future developments, and other information not readily available to the public, the disclosure of which to third parties would in each case have a material adverse effect on the Employer's business operations (the "Confidential Information"). In recognition of the foregoing, the Executive covenants and agrees that: (a) he will keep secret all Confidential Information and will not intentionally disclose Confidential Information to anyone outside of the Employer and its representatives other than in the course of performance of his duties hereunder, either during or for a one year period after the Term except with the Employer's written consent, provided that (i) the Executive shall have no such obligation to the extent Confidential Information is or becomes publicly known other than as a result of the Executive's breach of his obligations hereunder and (ii) the Executive may, after giving prior notice to the Employer to the extent practicable under the circumstances, disclose such matters to the extent required by applicable laws or governmental regulations or judicial or regulatory process; and (b) he will, at the Executive's option, either (i) deliver promptly to the Employer on termination of his employment by the Employer or at any other time the Employer may so request, and at the Employer's request, all memoranda, notes, records, reports and other 4 documents (and all copies thereof) relating to the Employer's business, which he obtained while employed by, or otherwise serving or acting on behalf of, the Employer and which he may then possess or have under his control (the "Records"); or (ii) in lieu of subclause (i) above, the Executive shall destroy all of the Records and shall deliver to the Employer a certificate to that effect. 13. Termination. 13.1 For purposes of this Employment Agreement the following definitions shall apply: 13.1.1 "Cause" shall mean: (a) the Executive is convicted of a felony involving moral turpitude which would render the Executive unable to perform his duties set forth in this Employment Agreement; or (b) the Executive engages in conduct that constitutes willful gross neglect or willful gross misconduct in carrying out his duties under this Employment Agreement, resulting, in either case, in material economic harm to the Employer, unless the Executive believed in good faith that such act or nonact was in the best interests of the Employer. 13.1.2 A "Change in Control" shall mean the occurrence of any one of the following events: (a) any "person," as such term is used in Sections 3(a)(9) and 13(d) of the Securities Exchange Act of 1934, as amended (other than the Executive or members of management on the date hereof or otherwise appointed by the Board which is comprised of a majority of "incumbent directors" or entities controlled by them), becomes a "beneficial owner," as such term is used in Rule 13d-3 promulgated under that Act, of 25% or more of the voting power of the Employer; (b) all or substantially all of the assets or business of the Employer is disposed of pursuant to a merger, consolidation or other transaction (unless the shareholders of the Employer immediately prior to such merger, consolidation or other transaction beneficially own, directly or indirectly, in substantially the same proportion as they owned the voting power of the Employer, all of the voting power or other ownership interests of the entity or entities, if any, that succeed to the business of the Employer); (c) the Employer combines with another company and is the surviving corporation but, immediately after the combination, the shareholders of the Employer immediately prior to the combination hold, directly or indirectly, 50% or less of the voting power of the combined company; or (d) the majority of the Board consists of individuals other than "incumbent directors," which term means members of the Board as of the date of this Employment Agreement, except that any person who becomes a director subsequent to such date whose election or nomination was supported by two-thirds of the directors who then comprise the incumbent directors shall be considered an incumbent director. 5 13.1.3 "Constructive Termination Without Cause" shall mean a termination of the Executive's employment at his initiative as provided in this Section 13 following the occurrence, without the Executive's written consent, of one or more of the following events: (a) a reduction in the Executive's then current Base Salary or failure by the Employer to fulfill its obligations under Sections 6, 7, 8 or 9 above; (b) the failure to elect or reelect the Executive to any of the positions described in Section 3 hereof or the removal of him from any such position; (c) a material diminution in the Executive's duties or the assignment to the Executive of duties which are materially inconsistent with his duties or which materially impair the Executive's ability to function as the President, Chief Executive Officer and Member of the Office of the Chairman of the Employer; or (d) the failure of the Employer to obtain the assumption in writing of its obligation to perform this Employment Agreement by any successor to all or substantially all of the assets of the Employer within 15 days after a merger, consolidation, sale or similar transaction. 13.2 Termination by the Employer for Cause. A termination for Cause shall not take effect unless all of the provisions of this Section 13.2 are complied with. The Executive shall be given written notice by the Board of the intention to terminate him for Cause, such notice (a) to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based and (b) to be given within three months of the Board learning of such act or acts or failure or failures to act. The Executive shall have 10 business days after the date that such written notice has been given to the Executive in which to cure such conduct, to the extent such cure is possible. If he fails to cure such conduct, the Executive shall then be entitled to a hearing before the Board. Such hearing shall be held within 15 business days of such notice to the Executive, provided he requests such hearing within 10 business days of the written notice from the Board of the intention to terminate him for Cause. If, within five business days following such hearing, the Executive is furnished written notice by the Board confirming that, in its judgment, grounds for Cause on the basis of the original notice exist, he shall thereupon be terminated for Cause. 13.2.1 In the event the Employer terminates the Executive's employment for Cause, he shall be entitled to: (a) the Base Salary through the date the of termination of his employment for Cause; and (b) a Bonus for the year in which he was terminated equal to the Bonus for the year prior to such termination, prorated over the time elapsed during the year in which he was terminated. 6 13.2.2 In the event the Employer terminates the Executive's employment for Cause, the Executive shall have no further obligations or liability to the Employer (except his obligations under Sections 12 and 16, which shall survive). 13.3 Termination Without Cause or Constructive Termination Without Cause. In the event the Executive's employment is terminated without Cause, other than due to disability or death, or in the event there is a Constructive Termination Without Cause, the Executive shall be entitled to: (a) the Base Salary through the date of termination of the Executive's employment; (b) the Base Salary, at the annualized rate in effect on the date of termination of the Executive's employment (or in the event a reduction in Base Salary is the basis for a Constructive Termination Without Cause, then the Base Salary in effect immediately prior to such reduction), for a period of 36 months following such termination or until the end of the Term, whichever is longer; provided that, at the Executive's option, the Employer shall pay him the present value of such salary continuation payments in a lump sum within thirty (30) days of the effective date of such termination (using as the discount rate 75% of the prime rate (as published by The Wall Street Journal) for the first business day of the month in which such termination occurs); (c) a Bonus for the unexpired Term not less than the $300,000.00 guaranteed cash bonus provided in Section 7.1(a) multiplied by all of the year(s) and month(s) remaining in the then unexpired Term; provided that, at the Executive's option, the Employer shall pay him the present value of such salary and bonuses in a lump sum within thirty (30) days of the effective date of such termination (using as the discount rate 75% of the prime rate (as published by The Wall Street Journal) for the first business day of the month in which such termination occurs); and (d) all benefits provided in Section 9 hereof until the end of the Term, with no additional cost or charge payable by the Executive. 13.4 Additional Rights Following a Change in Control. In the event of a Change in Control, the Executive shall be entitled to act with respect to this Employment Agreement as provided in section 13.5, and to all payments and benefits provided in section 13.3, provided that such payments, together with the additional consideration described in this section, shall be paid in a lump sum and without any discount or reduction, or in the case of non-monetary consideration, delivered to the Executive before or contemporaneously with the consummation of the Change in Control. In addition, all previously granted but unvested options to purchase Company stock immediately shall vest fully in the Executive and remain exercisable for the full period of the initial option grant or ten years, whichever is greater. In addition: (a) any application of Section 13.1.3(d) of this Employment Agreement by the Employer or the Company shall be suspended from the Employer's or the Company's entry into any agreement contemplating a Change in Control, and deemed stricken from this Employment Agreement and rescinded upon the consummation of any Change in Control; and (b) Section 16 of this Employment Agreement immediately, and without additional action, shall be deemed and rendered null, void, and without any effect as against the Executive upon the consummation of the Change in Control. The Executive shall forfeit any rights granted pursuant to this Section 7 13.4 if the Executive, in his sole and absolute discretion and without any obligation whatsoever to do so, determines that he will accept a written offer to remain with the surviving company in an executive position with equivalent duties, authority and responsibility as the Executive currently holds (other than as a non-employee director). 13.4.1 Payment Following a Change in Control. In the event that the termination of the Executive's employment is as a result of a Change in Control and the aggregate of all payments or benefits made or provided to the Executive under this Employment Agreement and under all other plans and programs of the Employer (the "Aggregate Payment") is determined to constitute a Parachute Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), the Employer shall pay to the Executive, prior to the time any excise tax imposed by Section 4999 of the Internal Revenue Code ("Excise Tax") is payable with respect to such Aggregate Payment, an additional amount which, after the imposition of all income and excise taxes thereon, is equal to 120% of the Excise Tax on the Aggregate Payment The determination of whether the Aggregate Payment constitutes a Parachute Payment and, if so, the amount to be paid to the Executive and the time of payment pursuant to this subsection shall be made by an independent auditor (the "Auditor") jointly selected by the Employer and the Executive and paid by the Employer. The Auditor shall be a nationally recognized United States public accounting firm which has not, during the two years preceding the date of its selection, acted in any way on behalf of the Employer or any affiliate thereof. If the Executive and the Employer cannot agree on the firm to serve as the Auditor, then the Executive and the Employer shall each select one accounting firm and those two firms shall jointly select the accounting firm to serve as the Auditor. 13.5 Voluntary Termination. In the event of a termination of employment by the Executive on his own initiative other than (i) a termination due to death or disability; (ii) a Constructive Termination without Cause; or (iii) a Change in Control (which event may be represented to third parties, at the Executive's sole option as a voluntary separation mutually agreed to between and among the Employer, the Company, and the Executive), the Executive shall have the same entitlements as provided in Section 13.2 above for a termination for Cause. A voluntary termination under this Section 13.5 (i), (ii), or (iii) shall be effective upon reasonable prior written notice to the Employer, need not be provided in the event of termination due to death or the consummation of a Change in Control, and in no event shall the occurrence of any event contemplated by Section 13.5 (i), (ii), or (iii) be deemed as the Executive's breach of this Employment Agreement. 13.6 Stock Options. Notwithstanding anything to the contrary, upon termination for any reason whatsoever, the Executive shall have the immediate right to exercise any stock options in full, whether or not such option is fully exercisable on the date of termination, for the remainder of the original term of each such stock option. 13.7 No Mitigation; No Offset. In the event of any termination of employment under this Employment Agreement, the Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due the Executive under this Employment Agreement on account of any remuneration attributable to any subsequent employment that he may obtain. 8 13.8 Option Adjustment. The number of options issuable pursuant to this Section 13 and the per share exercise price thereof shall be subject to appropriate adjustment to give effect to any increase or decrease in the number of issued shares resulting from a reorganization, recapitalization, stock split, spin-off or other similar action. 14. Disability. 14.1 If during his active employment hereunder the Executive shall become physically or mentally disabled, whether totally or partially, so that he is prevented from performing his usual duties for a period of six consecutive months, the Employer shall, nevertheless, pay the Executive his full Base Salary and Bonus in respect of the period ending on the last day of the sixth consecutive month of disability (such last day being referred to herein as the "Disability Date") and the following additional provisions shall apply: 14.2 If the Executive has not resumed his usual duties on or prior to the Disability Date, the Executive's employment shall terminate and the Employer shall pay, unless prior to the date the Executive became physically or mentally disabled a notice of termination was delivered to the Executive, 75% of his Base Salary from the Disability Date through the end of the Term (without giving effect to any early termination provisions contained in this Employment Agreement) and, except as provided in Section 14.4, the Employer shall have no obligation to pay Bonus to the Executive in respect of periods after the Disability Date. Any Base Salary payable pursuant to this Section 14.2 shall be reduced by the amount of any benefits payable to the Executive under any group or individual disability insurance plan or policy, the premiums for which are paid primarily by the Employer; 14.3 Unless the Employer exercises its option under Section 14.4 to restore the Executive to his full compensation, duties, functions, authority and responsibilities hereunder, the Executive shall have no obligations or liabilities hereunder from and after the Disability Date (except for his obligations under Sections 12 and 16, which shall survive); and 14.4 If during the Term and subsequent to a Disability Date, the Executive shall recover fully from a disability, the Employer, by action of the Board, shall have the right (exercisable within sixty days after notice from the Executive of such recovery), but not the obligation, to restore the Executive to employment and to full compensation and his full level of duties, functions, authority and responsibilities hereunder. 15. Death of Executive. 15.1 Upon the Executive's death, whether prior to or subsequent to his Disability Date and prior to the delivery of a notice of termination, this Employment Agreement and all of the Employer's obligations to pay salary and Bonus hereunder shall terminate except as provided in Sections 15.2 through 15.4. 15.2 The Executive's estate or designated beneficiary shall be entitled to receive (a) any unpaid portions of the Executive's Base Salary in respect of the period ending on the Executive's date of death, (b) unpaid Bonus in respect of years prior to the year of death, and (c) immediately vested options to purchase 50,000 shares of Class A Stock at an exercise price equal to the exercise price of the last stock option granted by the Employer to the Executive prior to the 9 Executive's death. In addition, the Employer shall pay to such estate or beneficiary an amount equal to the present value of all the remaining Base Salary, calculated assuming annual compound interest at 75% of the prime rate (as published in The Wall Street Journal) for the first business day of the month in which the Executive's death occurs. 15.3 The Base Salary and Bonus payable pursuant to this Section 15 shall be reduced by the value of any benefits payable to the Executive's estate or designated beneficiary under any life insurance plan or policy the premiums for which are paid primarily by the Employer, other than such insurance identified in Section 10. 16. Non-competition. 16.1 During the Term, the Executive will not, without the prior written approval of the Board, become employed by, or become an officer, director, or general partner of, any partnership, corporation or other entity which acts as a producer or venue operator in the live entertainment business or which acts as a marketing and management company specializing in the representation of team sports athletes (the "Prohibited Business"). 16.2 Subject to the following proviso, for a period of one year following the termination of the Executive's employment hereunder, the Executive will not become employed by, or become an officer, director or general partner of, any partnership, corporation or other entity which is primarily engaged in the Prohibited Business; provided however, that during such one year period the Employer shall employ the Executive as a consultant with compensation at a rate equal to fifty percent of the Employer's Base Salary immediately prior to such termination. If the Employer elects not to employ the Executive as a consultant for such one year period as provided herein, the provisions of this Section 16.2 shall not apply and the Executive shall be free to engage in any activity referred to herein 17. Notices. All notices, requests, consents and other communications, required or permitted to be given hereunder, shall be in writing and shall be deemed to have been duly given if delivered personally or sent by prepaid telegram, or mailed first class, postage prepaid, by registered or certified mail, as follows (or to such other or additional address as either party shall designate by notice in writing to the other in accordance herewith): 17.1 If to the Employer: SFX Entertainment, Inc. 650 Madison Avenue, 16th Floor New York, New York 10022 Attention: Board of Directors 17.2 If to the Executive: Michael G. Ferrel 525 East 72nd Street, Apt. 19A New York, New York 10021 10 17.3 Copies of all communications given hereunder shall also be delivered or sent, in like fashion, to Winston & Strawn (attention: Jonathan Goldstein, Esq.) at 200 Park Avenue, New York, New York 10166. 18. General. 18.1 Governing Law. This Employment Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York. 18.2 Captions. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Employment Agreement 18.3 Entire Agreement. This Employment Agreement including any Exhibits attached hereto, sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior and/or contemporaneous agreements, arrangements and understandings, written or oral, between the parties with respect to such subject matter (including, without limitation, the Original Employment Agreement), except as specifically provided herein. 18.4 Successors and Assigns. This Employment Agreement, and the Executive's rights and obligations hereunder, may not be assigned by the Executive, except that the Executive may designate pursuant to Section 18.6 one or more beneficiaries to receive any amounts that would otherwise be payable hereunder to the Executive's estate. This Employment Agreement shall be binding on any successor to the Employer, whether by merger, acquisition of substantially all of the Employer's assets or otherwise, as fully as if such successor were a signatory hereto and the Employer shall cause such successor to, and such successor shall, expressly assume the Employer's obligations hereunder. Notwithstanding anything else herein contained, the term "Employer", as used in this Employment Agreement, shall include all such successors. 18.5 Amendments; Waivers. This Employment Agreement cannot be changed, modified or amended, and no provision or requirement hereof may be waived, without an affirmative vote of the Board after the affirmative recommendation of the Compensation Committee of the Board, and the consent in writing of the Executive and the Employer. The failure of a party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by a party of the breach of any term or covenant contained in this Employment Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Employment Agreement. 18.6 Beneficiaries. Whenever this Employment Agreement provides for any payment to the Executive's estate, such payment may be made instead to such beneficiary or beneficiaries as the Executive may have designated in a writing filed with the Employer. The Executive shall have the right to revoke any such designation and to redesignate a beneficiary or beneficiaries by written notice to the Employer (and to any applicable insurance company) to such effect. 11 IN WITNESS WHEREOF, the parties have duly executed this Employment Agreement as of the date first above written. SFX ENTERTAINMENT, INC. By: /s/ Robert F.X. Sillerman -------------------------------------- Name: Title: /s/ Michael G. Ferrel ----------------------------------------- MICHAEL G. FERREL 12 EX-10.34 6 AMENDED AND RESTATED EMPLOYMENT AGREEMENT --THOMAS P. BENSON AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Employment Agreement"), made as of January 15, 2000, between SFX ENTERTAINMENT, INC., a Delaware corporation (the "Employer"), and THOMAS P. BENSON (the "Executive"). WHEREAS, the Executive is currently employed by the Employer, pursuant to an Employment Agreement, dated as of May 28, 1998, between the Executive and the Employer (the "Original Employment Agreement"); and WHEREAS, the Board of Directors of the Employer (the "Board") has determined that it is in the best interests of the Employer to enter into a new employment agreement with the Executive which shall amend and restate in its entirety the Original Employment Agreement, in order to be assured of the Executive's continued services as a member of senior management of the Employer upon the terms and provisions and subject to the conditions hereinafter set forth; and WHEREAS, in order to retain the services of the Executive, the Employer has agreed to issue to the Executive options to purchase shares of stock of the Employer and, pursuant to such agreement, on the review and recommendation of the Compensation Committee (the "Compensation Committee") of the Board, the Employer has granted to the Executive options to purchase a total of 112,500 shares of Class A Common Stock, par value $.0l per share, of the Employer (the "Class A Stock"), having a term of five (5) years, of which 37,500 options are exercisable at an exercise price of $3.67 per share and 75,000 options are exercisable at an exercise price of $16.08 per share (collectively, the "January 2000 Options"), which options fully vest on the date of this Employment Agreement, and to simultaneously forgive and renounce all Company rights connected with any loans made to the Executive prior to the effective date of this agreement; and WHEREAS, the Compensation Committee and the Board approved the terms and conditions of this Employment Agreement; NOW, THEREFORE, for good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the Employer and the Executive agree as follows: 1. Employment. Upon the terms and subject to the conditions of this Employment Agreement, the Employer hereby employs the Executive and the Executive hereby accepts employment by the Employer. 2. Term. 2.1 The term of the Executive's employment hereunder shall commence as of the date hereof and continue until the fifth anniversary thereof, unless terminated earlier in accordance with the provisions of this Employment Agreement; provided, however, that this Employment Agreement shall automatically be renewed for additional one-year periods thereafter unless and until terminated by the Employer or the Executive as of the end of such five-year initial period or at the end of any renewal period by written notice given at least 30 days prior to the scheduled termination or scheduled renewal of this Employment Agreement. The date of the commencement of employment pursuant to this Employment Agreement is hereinafter referred to as the "Effective Date," the term of employment pursuant to this Employment Agreement is hereinafter referred to as the "Term" and the last date of employment pursuant to this Employment Agreement is hereinafter referred to as the "Termination Date." 3. Executive's Position, Duties, and Authority. 3.1 The Employer shall employ the Executive, and the Executive shall serve, as a Vice President and the Chief Financial Officer of the Employer and of any successor by merger, acquisition of substantially all of the assets of the Employer or otherwise. 3.2 The Executive shall have executive duties, functions, authority and responsibilities commensurate with the office or offices he from time to time holds with the Employer. 3.3 The Executive shall serve without additional remuneration as (a) a member of any committee of the Board, as determined by the Board; and (b) a director and/or officer of one or more of the Employer's subsidiaries, if appointed to such position by the Employer. 4. Full-time Services. The Executive shall devote substantially all of his business time to the business and affairs of the Employer and to the fulfillment of his duties hereunder in a diligent and competent fashion to the best of his abilities. 5. Business Opportunities. The Executive covenants and agrees that for so long as he is actively employed by the Employer he shall inform the Employer of each business opportunity related to the business of the Employer of which he becomes aware, and that he will not, directly or indirectly, exploit any such opportunity for his own account nor will he render any services to any other person or business or acquire any interest of any type in any other business, which is in competition with the Employer; provided, however, that the foregoing shall not be deemed to prohibit the Executive from acquiring, solely as an investment (a) up to 10% of any securities of a partnership, trust, corporation or other entity so long as he remains a passive invest or in such entity and such entity is not, directly or indirectly, in competition with the Employer, or (b) up to 0.5% of any securities of any publicly traded partnership, trust, corporation or other entity, provided he remains a passive investor in such entity. 6. Base Salary. During the Term, the Employer shall pay or cause to be paid to the Executive an initial base salary per annum (the "Base Salary") which shall initially be $325,000, payable in monthly installments. Upon each anniversary of the commencement of the Executive's employment hereunder, the Base Salary then in effect shall be increased by an amount equal to the greater of (a) five percent of the Base Salary then in effect or (b) the product of (i) the Base Salary then in effect and (ii) the percentage increase in the Consumer Price Index during the previous twelve full calendar months. In addition, the Board shall review the Executive's Base Salary at least annually and may by action of the Board, after and pursuant to the affirmative recommendation of the Compensation Committee, increase, but not decrease, 2 such Base Salary, as such salary may have been increased, at any time and from time to time during the Term. 7. Bonus; Option Grant. 7.1 The Executive shall be entitled to receive an annual incentive bonus (the "Bonus") consisting of (a) a guaranteed cash bonus of $150,000 per annum (the "Cash Bonus), payable on each anniversary of this Employment Agreement, plus (b) an additional discretionary bonus payable in cash, stock, options or other compensation, during the continuance of the Executive's employment hereunder as determined by the Board, after and pursuant to the affirmative recommendation of the Compensation Committee. 7.2 The Employer hereby confirms the grant to the Executive of the January 2000 Options to be evidenced by option grant documentation to be entered into by the Employer and the Executive. 8. Expenses. The Employer shall pay or reimburse the Executive for all reasonable expenses actually incurred or paid by the Executive during the Term of employment in the performance of the Executive's services hereunder upon presentation of expense statements or vouchers or such other supporting information as the Employer may reasonably require of the Executive. 9. Benefits. During the Term, the Executive shall be eligible to participate in any pension or profit-sharing plan or program of the Employer now existing or established hereafter, in accordance with and to the extent that he is eligible under the general provisions thereof. The Executive shall also be eligible to participate in any group life insurance, hospitalization, medical, health and accident, disability or similar plan or program of the Employer, now existing or established hereafter, in accordance with and to the extent that he is eligible under the general provisions thereof. 10. [Intentionally left blank] 11. Indemnification. The Executive shall be entitled in connection with his employment hereunder and in connection with his services as a director of the Employer to the benefit of the indemnification provisions contained on the date hereof in the bylaws and certificate of incorporation of the Employer, as the same may hereafter be amended (not including any amendments or additions that limit or narrow, but including any that add to or broaden, the protection afforded to the Executive), to the fullest extent permitted by applicable law. The Employer shall in addition cause the Executive to be indemnified in accordance with Section 145 of the Delaware General Corporation Law to the fullest extent permitted by said Section, in the Executive's capacity as an officer and a director, to the extent required to make the Executive whole in connection with any loss, costs or expense indemnifiable thereunder. The indemnification obligations of the Employer hereunder shall survive from the date hereof until three (3) months after the expiration of the applicable statute of limitations with respect to any claim made against the Executive for which the Executive seeks indemnification (the "Survival Period") and shall survive thereafter with respect to any indemnification claim as to which the Employer has received notice on or prior to the end of the Survival Period. The Employer shall 3 prepay in full, and maintain in full force and effect during the Survival Period for the benefit of the Executive, on an "occurrence" basis, the Employer's current directors and officers errors and omissions insurance policy, or a similar insurance policy providing equivalent coverage from a financially reputable carrier, in form and substance reasonably acceptable to the Executive. 12. Confidential Information. The Executive acknowledges that his employment by the Employer has brought and will bring him into close contact with confidential proprietary information of the Employer, including information regarding costs, profits, markets, sales, products, key personnel, pricing policies, operational methods, technical processes, other business affairs and methods, plans for future developments, and other information not readily available to the public, the disclosure of which to third parties would in each case have a material adverse effect on the Employer's business operations (the "Confidential Information"). In recognition of the foregoing, the Executive covenants and agrees that: (a) he will keep secret all Confidential Information and will not intentionally disclose Confidential Information to anyone outside of the Employer and its representatives other than in the course of performance of his duties hereunder, either during or for a one year period after the Term except with the Employer's written consent, provided that (i) the Executive shall have no such obligation to the extent Confidential Information is or becomes publicly known other than as a result of the Executive's breach of his obligations hereunder and (ii) the Executive may, after giving prior notice to the Employer to the extent practicable under the circumstances, disclose such matters to the extent required by applicable laws or governmental regulations or judicial or regulatory process; and (b) he will, at the Executive's option, either (i) deliver promptly to the Employer on termination of his employment by the Employer or at any other time the Employer may so request, and at the Employer's request, all memoranda, notes, records, reports and other documents (and all copies thereof) relating to the Employer's business, which he obtained while employed by, or otherwise serving or acting on behalf of, the Employer and which he may then possess or have under his control (the "Records"); or (ii) in lieu of subclause (i) above, the Executive shall destroy all of the Records and shall deliver to the Employer a certificate to that effect. 13. Termination. 13.1 For purposes of this Employment Agreement the following definitions shall apply: 13.1.1 "Cause" shall mean: (a) the Executive is convicted of a felony involving moral turpitude which would render the Executive unable to perform his duties set forth in this Employment Agreement; or (b) the Executive engages in conduct that constitutes willful gross neglect or willful gross misconduct in carrying out his duties under this Employment Agreement, resulting, in 4 either case, in material economic harm to the Employer, unless the Executive believed in good faith that such act or nonact was in the best interests of the Employer. 13.1.2 A "Change in Control" shall mean the occurrence of any one of the following events: (a) any "person," as such term is used in Sections 3(a)(9) and 13(d) of the Securities Exchange Act of 1934, as amended (other than the Executive or members of management on the date hereof or otherwise appointed by the Board which is comprised of a majority of "incumbent directors" or entities controlled by them), becomes a "beneficial owner," as such term is used in Rule 13d-3 promulgated under that Act, of 25% or more of the voting power of the Employer; (b) all or substantially all of the assets or business of the Employer is disposed of pursuant to a merger, consolidation or other transaction (unless the shareholders of the Employer immediately prior to such merger, consolidation or other transaction beneficially own, directly or indirectly, in substantially the same proportion as they owned the voting power of the Employer, all of the voting power or other ownership interests of the entity or entities, if any, that succeed to the business of the Employer); (c) the Employer combines with another company and is the surviving corporation but, immediately after the combination, the shareholders of the Employer immediately prior to the combination hold, directly or indirectly, 50% or less of the voting power of the combined company; or (d) the majority of the Board consists of individuals other than "incumbent directors," which term means members of the Board as of the date of this Employment Agreement, except that any person who becomes a director subsequent to such date whose election or nomination was supported by two-thirds of the directors who then comprise the incumbent directors shall be considered an incumbent director. 13.1.3 "Constructive Termination Without Cause" shall mean a termination of the Executive's employment at his initiative as provided in this Section 13 following the occurrence, without the Executive's written consent, of one or more of the following events: (a) a reduction in the Executive's then current Base Salary or failure by the Employer to fulfill its obligations under Sections 6, 7, 8 or 9 above; (b) the failure to elect or reelect the Executive to any of the positions described in Section 3 hereof or the removal of him from any such position; (c) a material diminution in the Executive's duties or the assignment to the Executive of duties which are materially inconsistent with his duties or which materially impair the Executive's ability to function as a Vice President and the Chief Financial Officer of the Employer; or (d) the failure of the Employer to obtain the assumption in writing of its obligation to perform this Employment Agreement by any successor to all or substantially all of the assets of the Employer within 15 days after a merger, consolidation, sale or similar transaction. 5 13.2 Termination by the Employer for Cause. A termination for Cause shall not take effect unless all of the provisions of this Section 13.2 are complied with. The Executive shall be given written notice by the Board of the intention to terminate him for Cause, such notice (a) to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based and (b) to be given within three months of the Board learning of such act or acts or failure or failures to act. The Executive shall have 10 business days after the date that such written notice has been given to the Executive in which to cure such conduct, to the extent such cure is possible. If he fails to cure such conduct, the Executive shall then be entitled to a hearing before the Board. Such hearing shall be held within 15 business days of such notice to the Executive, provided he requests such hearing within 10 business days of the written notice from the Board of the intention to terminate him for Cause. If, within five business days following such hearing, the Executive is furnished written notice by the Board confirming that, in its judgment, grounds for Cause on the basis of the original notice exist, he shall thereupon be terminated for Cause. 13.2.1 In the event the Employer terminates the Executive's employment for Cause, he shall be entitled to: (a) the Base Salary through the date the of termination of his employment for Cause; and (b) a Bonus for the year in which he was terminated equal to the Bonus for the year prior to such termination, prorated over the time elapsed during the year in which he was terminated. 13.2.2 In the event the Employer terminates the Executive's employment for Cause, the Executive shall have no further obligations or liability to the Employer (except his obligations under Sections 12 and 16, which shall survive). 13.3 Termination Without Cause or Constructive Termination Without Cause. In the event the Executive's employment is terminated without Cause, other than due to disability or death, or in the event there is a Constructive Termination Without Cause, the Executive shall be entitled to: (a) the Base Salary through the date of termination of the Executive's employment; (b) the Base Salary, at the annualized rate in effect on the date of termination of the Executive's employment (or in the event a reduction in Base Salary is the basis for a Constructive Termination Without Cause, then the Base Salary in effect immediately prior to such reduction), for a period of 36 months following such termination or until the end of the Term, whichever is longer; provided that, at the Executive's option, the Employer shall pay him the present value of such salary continuation payments in a lump sum within thirty (30) days of the effective date of such termination (using as the discount rate 75% of the prime rate (as published by The Wall Street Journal) for the first business day of the month in which such termination occurs); 6 (c) a Bonus for the unexpired Term not less than the $150,000.00 guaranteed cash bonus provided in Section 7.1(a) multiplied by all of the year(s) and month(s) remaining in the then unexpired Term; provided that, at the Executive's option, the Employer shall pay him the present value of such salary and bonuses in a lump sum within thirty (30) days of the effective date of such termination (using as the discount rate 75% of the prime rate (as published by The Wall Street Journal) for the first business day of the month in which such termination occurs); and (d) all benefits provided in Section 9 hereof until the end of the Term, with no additional charge or cost payable by the Executive. 13.4 Rights Following a Change in Control. In the event of a Change in Control, the Executive shall be entitled to act with respect to this Employment Agreement as provided in section 13.5, and to all payments and benefits provided in section 13.3, provided that such payments, together with the additional consideration described in this section, shall be paid in a lump sum and without any discount or reduction, or in the case of non-monetary consideration, delivered to the Executive before or contemporaneously with the consummation of the Change in Control. In addition, all previously granted but unvested options to purchase Company stock immediately shall vest fully in the Executive and remain exercisable for the full period of the initial option grant or ten years, whichever is greater. In addition: (a) any application of Section 13.1.3(d) of this Employment Agreement by the Employer or the Company shall be suspended from the Employer's or the Company's entry into any agreement contemplating a Change in Control, and deemed stricken from this Employment Agreement and rescinded upon the consummation of any Change in Control; and (b) Section 16 of this Employment Agreement immediately, and without additional action, shall be deemed and rendered null, void, and without any effect as against the Executive upon the consummation of the Change in Control. The Executive shall forfeit any rights granted pursuant to this Section 13.4 if the Executive, in his sole and absolute discretion and without any obligation whatsoever to do so, determines that he will accept a written offer to remain with the surviving company in an executive position with equivalent duties, authority and responsibility as the Executive currently holds (other than as a non-employee director). 13.4.1 Payment Following a Change in Control. In the event that the termination of the Executive's employment is as a result of a Change in Control and the aggregate of all payments or benefits made or provided to the Executive under this Employment Agreement and under all other plans and programs of the Employer (the "Aggregate Payment") is determined to constitute a Parachute Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), the Employer shall pay to the Executive, prior to the time any excise tax imposed by Section 4999 of the Internal Revenue Code ("Excise Tax") is payable with respect to such Aggregate Payment, an additional amount which, after the imposition of all income and excise taxes thereon, is equal to 120% of the Excise Tax on the Aggregate Payment The determination of whether the Aggregate Payment constitutes a Parachute Payment and, if so, the amount to be paid to the Executive and the time of payment pursuant to this subsection shall be made by an independent auditor (the "Auditor") jointly selected by the Employer and the Executive and paid by the Employer. The Auditor shall be a nationally recognized United States public accounting firm which has not, during the two years preceding the date of its selection, acted in any way on behalf of the Employer or any affiliate 7 thereof. If the Executive and the Employer cannot agree on the firm to serve as the Auditor, then the Executive and the Employer shall each select one accounting firm and those two firms shall jointly select the accounting firm to serve as the Auditor. 13.5 Voluntary Termination. In the event of a termination of employment by the Executive on his own initiative other than (i) a termination due to death or disability; (ii) a Constructive Termination without Cause; or (iii) a Change in Control (which event may be represented to third parties, at the Executive's sole option as a voluntary separation mutually agreed to between and among the Employer, the Company, and the Executive), the Executive shall have the same entitlements as provided in Section 13.2 above for a termination for Cause. A voluntary termination under this Section 13.5 (i), (ii), or (iii) shall be effective upon reasonable prior written notice to the Employer, need not be provided in the event of termination due to death or the consummation of a Change in Control, and in no event shall the occurrence of any event contemplated by Section 13.5 (i), (ii), or (iii) be deemed as the Executive's breach of this Employment Agreement. 13.6 Stock Options. Notwithstanding anything to the contrary, upon termination for any reason whatsoever, the Executive shall have the immediate right to exercise any stock options in full, whether or not such option is fully exercisable on the date of termination, for the remainder of the original term of each such stock option. 13.7 No Mitigation; No Offset. In the event of any termination of employment under this Employment Agreement, the Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due the Executive under this Employment Agreement on account of any remuneration attributable to any subsequent employment that he may obtain. 13.8 Option Adjustment. The number of options issuable pursuant to this Section 13 and the per share exercise price thereof shall be subject to appropriate adjustment to give effect to any increase or decrease in the number of issued shares resulting from a reorganization, recapitalization, stock split, spin-off or other similar action. 14. Disability. 14.1 If during his active employment hereunder the Executive shall become physically or mentally disabled, whether totally or partially, so that he is prevented from performing his usual duties for a period of six consecutive months, the Employer shall, nevertheless, pay the Executive his full Base Salary and Bonus in respect of the period ending on the last day of the sixth consecutive month of disability (such last day being referred to herein as the "Disability Date") and the following additional provisions shall apply: 14.2 If the Executive has not resumed his usual duties on or prior to the Disability Date, the Executive's employment shall terminate and the Employer shall pay, unless prior to the date the Executive became physically or mentally disabled a notice of termination was delivered to the Executive, 75% of his Base Salary from the Disability Date through the end of the Term (without giving effect to any early termination provisions contained in this Employment Agreement) and, except as provided in Section 14.4, the Employer shall have no obligation to 8 pay Bonus to the Executive in respect of periods after the Disability Date. Any Base Salary payable pursuant to this Section 14.2 shall be reduced by the amount of any benefits payable to the Executive under any group or individual disability insurance plan or policy, the premiums for which are paid primarily by the Employer; 14.3 Unless the Employer exercises its option under Section 14.4 to restore the Executive to his full compensation, duties, functions, authority and responsibilities hereunder, the Executive shall have no obligations or liabilities hereunder from and after the Disability Date (except for his obligations under Sections 12 and 16, which shall survive); and 14.4 If during the Term and subsequent to a Disability Date, the Executive shall recover fully from a disability, the Employer, by action of the Board, shall have the right (exercisable within sixty days after notice from the Executive of such recovery), but not the obligation, to restore the Executive to employment and to full compensation and his full level of duties, functions, authority and responsibilities hereunder. 15. Death of Executive. 15.1 Upon the Executive's death, whether prior to or subsequent to his Disability Date and prior to the delivery of a notice of termination, this Employment Agreement and all of the Employer's obligations to pay salary and Bonus hereunder shall terminate except as provided in Sections 15.2 through 15.4. 15.2 The Executive's estate or designated beneficiary shall be entitled to receive (a) any unpaid portions of the Executive's Base Salary in respect of the period ending on the Executive's date of death, and (b) unpaid Bonus in respect of years prior to the year of death. In addition, the Employer shall pay to such estate or beneficiary an amount equal to the present value of all the remaining Base Salary, calculated assuming annual compound interest at 75% of the prime rate (as published in The Wall Street Journal) for the first business day of the month in which the Executive's death occurs. 15.3 The Base Salary and Bonus payable pursuant to this Section 15 shall be reduced by the value of any benefits payable to the Executive's estate or designated beneficiary under any life insurance plan or policy the premiums for which are paid primarily by the Employer. 16. Non-competition. 16.1 For a period of one year following the termination of the Executive's employment hereunder, the Executive will not become employed by, or become an officer, director or general partner of, any partnership, corporation or other entity which acts as a producer or venue operator in the live entertainment business or which acts as a marketing and management company specializing in the representation of team sports athletes; provided, however, the Executive shall not be prohibited from engaging in any otherwise restricted conduct if the competition of such competing entity with the Employer is insubstantial, indirect, or otherwise agreed to in respect of the entire business of such entity. 9 16.2 The Executive hereby acknowledges that: (a) the respective times and area provided in Section 16.1, above, are reasonable in scope and necessary for the protection of the business and good will of the Employer and that a significant portion of the Base Salary payable hereunder has been allocated to the provisions of Section 16.1: (b) since it is the understanding and desire of the parties hereto that the covenants contained in Section 16.1, above, be enforced to the fullest extent possible under the laws and public policies applied in each jurisdiction in which enforcement may be sought, should any particular provision of such covenant be deemed invalid or unenforceable, such provision shall be deemed amended to delete therefrom the invalid portion, and the deletion shall apply only with respect to the operation of such provisions; (c) to the extent a provision is deemed unenforceable by virtue of its scope, but may be made enforceable by limitation thereof, such provision shall be enforceable only to the extent permissible under the laws and public policies applied in the jurisdiction to which enforcement is sought; and (d) the Executive's obligation and undertaking provided for in this Section 16 shall, to the extent applicable, continue beyond the termination of the Executive's relationship with the Employer hereunder to the extent provided herein. 17. Notices. All notices, requests, consents and other communications, required or permitted to be given hereunder, shall be in writing and shall be deemed to have been duly given if delivered personally or sent by prepaid telegram, or mailed first class, postage prepaid, by registered or certified mail, as follows (or to such other or additional address as either party shall designate by notice in writing to the other in accordance herewith): 17.1 If to the Employer: SFX Entertainment, Inc. 650 Madison Avenue, 16th Floor New York, New York 10022 Attention: Board of Directors 17.2 If to the Executive: Thomas P. Benson 27 Radcliffe Drive Huntington, New York 11743 17.3 Copies of all communications given hereunder shall also be delivered or sent, in like fashion, to Winston & Strawn (attention: Jonathan Goldstein, Esq.) at 200 Park Avenue, New York, New York 10166. 18. General. 10 18.1 Governing Law. This Employment Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York. 18.2 Captions. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Employment Agreement 18.3 Entire Agreement. This Employment Agreement, including any Exhibits attached hereto, sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior and/or contemporaneous agreements, arrangements and understandings, written or oral, between the parties with respect to such subject matter (including, without limitation, the Original Employment Agreement), except as specifically provided herein. 18.4 Successors and Assigns. This Employment Agreement, and the Executive's rights and obligations hereunder, may not be assigned by the Executive, except that the Executive may designate pursuant to Section 18.6 one or more beneficiaries to receive any amounts that would otherwise be payable hereunder to the Executive's estate. This Employment Agreement shall be binding on any successor to the Employer, whether by merger, acquisition of substantially all of the Employer's assets or otherwise, as fully as if such successor were a signatory hereto and the Employer shall cause such successor to, and such successor shall, expressly assume the Employer's obligations hereunder. Notwithstanding anything else herein contained, the term "Employer", as used in this Employment Agreement, shall include all such successors. 18.5 Amendments; Waivers. This Employment Agreement cannot be changed, modified or amended, and no provision or requirement hereof may be waived, without an affirmative vote of the Board after the affirmative recommendation of the Compensation Committee of the Board, and the consent in writing of the Executive and the Employer. The failure of a party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by a party of the breach of any term or covenant contained in this Employment Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Employment Agreement. 18.6 Beneficiaries. Whenever this Employment Agreement provides for any payment to the Executive's estate, such payment may be made instead to such beneficiary or beneficiaries as the Executive may have designated in a writing filed with the Employer. The Executive shall have the right to revoke any such designation and to redesignate a beneficiary or beneficiaries by written notice to the Employer (and to any applicable insurance company) to such effect. 18.7 Vacation. The Executive shall be entitled to paid vacation time at the rate of not less than four weeks per year. [The remainder of this page has intentionally been left blank] 11 IN WITNESS WHEREOF, the parties have duly executed this Employment Agreement as of the date first above written. SFX ENTERTAINMENT, INC. By: /s/ Robert F.X. Sillerman -------------------------------------- Name: Title: /s/ Thomas P. Benson ----------------------------------------- THOMAS P. BENSON 12 EX-10.35 7 AMENDED AND RESTATED EMPLOYMENT AGREEMENT --HOWARD J. TYTEL AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Employment Agreement"), made as of January 15, 2000, between SFX ENTERTAINMENT, INC., a Delaware corporation (the "Employer"), and HOWARD J. TYTEL (the "Executive"). WHEREAS, the Executive is currently employed by the Employer, pursuant to an Employment Agreement, dated as of May 28, 1998, between the Executive and the Employer (the "Original Employment Agreement"); and WHEREAS, the Board of Directors of the Employer (the "Board") has determined that it is in the best interests of the Employer to enter into a new employment agreement with the Executive which shall amend and restate in its entirety the Original Employment Agreement, in order to be assured of the Executive's continued services as a member of senior management of the Employer, upon the terms and provisions and subject to the conditions hereinafter set forth; WHEREAS, in order to retain the services of the Executive, the Employer has agreed to issue to the Executive options to purchase shares of stock of the Employer and, pursuant to such agreement, on the review and recommendation of the Compensation Committee (the "Compensation Committee") of the Board, the Employer has granted to the Executive options to purchase a total of 390,000 shares of Class A Common Stock, par value $.0l per share, of the Employer (the "Class A Stock"), having a term of five (5) years, of which 250,000 options are exercisable at an exercise price of $3.67 per share and 140,000 options are exercisable at an exercise price of $16.08 per share (collectively, the "January 2000 Options"), which options fully vest on the date of this Employment Agreement, and to simultaneously forgive and renounce all Company rights connected with any loans made to the Executive prior to the effective date of this agreement; and WHEREAS, the Compensation Committee and the Board approved the terms and conditions of this Employment Agreement; NOW, THEREFORE, for good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the Employer and the Executive agree as follows: 1. Employment. Upon the terms and subject to the conditions of this Employment Agreement, the Employer hereby employs the Executive and the Executive hereby accepts employment by the Employer. 2. Term. 2.1 The term of the Executive's employment hereunder shall commence as of the date hereof and continue until the fifth anniversary thereof, unless terminated earlier in accordance with the provisions of this Employment Agreement; provided, however, that this Employment Agreement shall automatically be renewed for additional one-year periods thereafter unless and until terminated by the Employer or the Executive as of the end of such five-year initial period or at the end of any renewal period by written notice given at least 30 days prior to the scheduled termination or scheduled renewal of this Employment Agreement. The date of the commencement of employment pursuant to this Employment Agreement is hereinafter referred to as the "Effective Date," the term of employment pursuant to this Employment Agreement is hereinafter referred to as the "Term" and the last date of employment pursuant to this Employment Agreement is hereinafter referred to as the "Termination Date." 3. Executive's Position, Duties, and Authority. 3.1 The Employer shall employ the Executive, and the Executive shall serve, as Executive Vice President, General Counsel and Secretary of the Employer and of any successor by merger, acquisition of substantially all of the assets of the Employer or otherwise. 3.2 The Executive shall have executive duties, functions, authority and responsibilities commensurate with the office or offices he from time to time holds with the Employer. 3.3 The Executive shall serve without additional remuneration as (a) a member of any committee of the Board, as determined by the Board; and (b) a director and/or officer of one or more of the Employer's subsidiaries, if appointed to such position by the Employer. 4. Full-time Services. The Executive shall devote substantially all of his business time to the business and affairs of the Employer and to the fulfillment of his duties hereunder in a diligent and competent fashion to the best of his abilities. Notwithstanding the foregoing, (a) the Executive shall have the right to continue to fulfill his obligations as a director and officer of companies in which he currently serves in such capacity, including without limitation, Sillerman Communications Management Corporation, The Sillerman Companies, Inc., Sillerman Management Company, Inc., and The Marquee Group, and (b) shall have the right to devote a portion of his business time to personal investments and commitments not related to the Prohibited Business (as such term is defined in Section 16.1 hereof). In addition, except as provided in Section 16, the Executive may serve on the boards of directors of other organizations and companies; provided that the service on such other boards of directors does not interfere with the performance of the Executive's services hereunder. 5. Location of Employment. Unless the Executive consents otherwise in writing, the headquarters for performance of his services hereunder shall be the principal offices of the Employer in New York, New York, or at such other location within 25 miles of the residence of the Executive as the Executive shall approve of. 6. Base Salary. During the Term, the Employer shall pay or cause to be paid to the Executive an initial base salary per annum (the "Base Salary") which shall initially be $400,000, payable in monthly installments. Upon each anniversary of the commencement of the Executive's employment hereunder, the Base Salary then in effect shall be increased by an amount equal to the greater of (a) five percent of the Base Salary then in effect or (b) the product of (i) the Base Salary then in effect and (ii) the percentage increase in the Consumer Price Index during the previous twelve full calendar months. In addition, the Board shall review the Executive's Base Salary at least annually and may by action of the Board, after and pursuant to the affirmative recommendation of the Compensation Committee, increase, but not decrease, 2 such Base Salary, as such salary may have been increased, at any time and from time to time during the Term. 7. Bonus; Option Grant. 7.1 The Executive shall be entitled to receive an annual incentive bonus (the "Bonus") consisting of (a) a guaranteed cash bonus of $250,000 per annum (the "Cash Bonus), payable on each anniversary of this Employment Agreement, plus (b) an additional discretionary bonus payable in cash, stock, options or other compensation, during the continuance of the Executive's employment hereunder as determined by the Board, after and pursuant to the affirmative recommendation of the Compensation Committee. 7.2 The Employer hereby confirms the grant to the Executive of the January 2000 Options, to be evidenced by option grant documentation to be entered into by the Employer and the Executive. 8. Expenses. The Employer shall pay or reimburse the Executive for all reasonable expenses actually incurred or paid by the Executive during the Term of employment in the performance of the Executive's services hereunder upon presentation of expense statements or vouchers or such other supporting information as the Employer may reasonably require of the Executive. 9. Benefits. During the Term, the Executive shall be eligible to participate in any pension or profit-sharing plan or program of the Employer now existing or established hereafter, in accordance with and to the extent that he is eligible under the general provisions thereof. The Executive shall also be eligible to participate in any group life insurance, hospitalization, medical, health and accident, disability or similar plan or program of the Employer, now existing or established hereafter, in accordance with and to the extent that he is eligible under the general provisions thereof. In addition, during the Term, the Employer shall (i) provide the Executive with a chauffeur-driven limousine for use in connection with his employment by the Company, and shall pay $25,000 toward the annual salary of the driver of such limousine, and (ii) make available a leased vehicle for the Executive's use, and pay all lease payments and expenses associated with the use of said vehicle. 10. [Intentionally left blank] 11. Indemnification. The Executive shall be entitled in connection with his employment hereunder and in connection with his services as a director of the Employer to the benefit of the indemnification provisions contained on the date hereof in the bylaws and certificate of incorporation of the Employer, as the same may hereafter be amended (not including any amendments or additions that limit or narrow, but including any that add to or broaden, the protection afforded to the Executive), to the fullest extent permitted by applicable law. The Employer shall in addition cause the Executive to be indemnified in accordance with Section 145 of the Delaware General Corporation Law to the fullest extent permitted by said Section, in the Executive's capacity as an officer and a director, to the extent required to make the Executive whole in connection with any loss, costs or expense indemnifiable thereunder. The indemnification obligations of the Employer hereunder shall survive from the date hereof until 3 three (3) months after the expiration of the applicable statute of limitations with respect to any claim made against the Executive for which the Executive seeks indemnification (the "Survival Period") and shall survive thereafter with respect to any indemnification claim as to which the Employer has received notice on or prior to the end of the Survival Period. The Employer shall prepay in full, and maintain in full force and effect during the Survival Period for the benefit of the Executive, on an "occurrence" basis, the Employer's current directors and officers errors and omissions insurance policy, or a similar insurance policy providing equivalent coverage from a financially reputable carrier, in form and substance reasonably acceptable to the Executive. 12. Confidential Information. The Executive acknowledges that his employment by the Employer has brought and will bring him into close contact with confidential proprietary information of the Employer, including information regarding costs, profits, markets, sales, products, key personnel, pricing policies, operational methods, technical processes, other business affairs and methods, plans for future developments, and other information not readily available to the public, the disclosure of which to third parties would in each case have a material adverse effect on the Employer's business operations (the "Confidential Information"). In recognition of the foregoing, the Executive covenants and agrees that: (a) he will keep secret all Confidential Information and will not intentionally disclose Confidential Information to anyone outside of the Employer and its representatives other than in the course of performance of his duties hereunder, either during or for a one year period after the Term except with the Employer's written consent, provided that (i) the Executive shall have no such obligation to the extent Confidential Information is or becomes publicly known other than as a result of the Executive's breach of his obligations hereunder and (ii) the Executive may, after giving prior notice to the Employer to the extent practicable under the circumstances, disclose such matters to the extent required by applicable laws or governmental regulations or judicial or regulatory process; and (b) he will, at the Executive's option, either (i) deliver promptly to the Employer on termination of his employment by the Employer or at any other time the Employer may so request, and at the Employer's request, all memoranda, notes, records, reports and other documents (and all copies thereof) relating to the Employer's business, which he obtained while employed by, or otherwise serving or acting on behalf of, the Employer and which he may then possess or have under his control (the "Records"); or (ii) in lieu of subclause (i) above, the Executive shall destroy all of the Records and shall deliver to the Employer a certificate to that effect. 13. Termination. 13.1 For purposes of this Employment Agreement the following definitions shall apply: 13.1.1 "Cause" shall mean: (a) the Executive is convicted of a felony involving moral turpitude which would render the Executive unable to perform his duties set forth in this Employment Agreement; or 4 (b) the Executive engages in conduct that constitutes willful gross neglect or willful gross misconduct in carrying out his duties under this Employment Agreement, resulting, in either case, in material economic harm to the Employer, unless the Executive believed in good faith that such act or nonact was in the best interests of the Employer. 13.1.2 A "Change in Control" shall mean the occurrence of any one of the following events: (a) any "person," as such term is used in Sections 3(a)(9) and 13(d) of the Securities Exchange Act of 1934, as amended (other than the Executive or members of management on the date hereof or otherwise appointed by the Board which is comprised of a majority of "incumbent directors" or entities controlled by them), becomes a "beneficial owner," as such term is used in Rule 13d-3 promulgated under that Act, of 25% or more of the voting power of the Employer; (b) all or substantially all of the assets or business of the Employer is disposed of pursuant to a merger, consolidation or other transaction (unless the shareholders of the Employer immediately prior to such merger, consolidation or other transaction beneficially own, directly or indirectly, in substantially the same proportion as they owned the voting power of the Employer, all of the voting power or other ownership interests of the entity or entities, if any, that succeed to the business of the Employer); (c) the Employer combines with another company and is the surviving corporation but, immediately after the combination, the shareholders of the Employer immediately prior to the combination hold, directly or indirectly, 50% or less of the voting power of the combined company; or (d) the majority of the Board consists of individuals other than "incumbent directors," which term means members of the Board as of the date of this Employment Agreement, except that any person who becomes a director subsequent to such date whose election or nomination was supported by two-thirds of the directors who then comprise the incumbent directors shall be considered an incumbent director. 13.1.3 "Constructive Termination Without Cause" shall mean a termination of the Executive's employment at his initiative as provided in this Section 13 following the occurrence, without the Executive's written consent, of one or more of the following events: (a) a reduction in the Executive's then current Base Salary or failure by the Employer to fulfill its obligations under Sections 6, 7, 8 or 9 above; (b) the failure to elect or reelect the Executive to any of the positions described in Section 3 hereof or the removal of him from any such position; (c) a material diminution in the Executive's duties or the assignment to the Executive of duties which are materially inconsistent with his duties or which materially impair the Executive's ability to function as the President, Chief Executive Officer and Member of the Office of the Chairman of the Employer; or 5 (d) the failure of the Employer to obtain the assumption in writing of its obligation to perform this Employment Agreement by any successor to all or substantially all of the assets of the Employer within 15 days after a merger, consolidation, sale or similar transaction. 13.2 Termination by the Employer for Cause. A termination for Cause shall not take effect unless all of the provisions of this Section 13.2 are complied with. The Executive shall be given written notice by the Board of the intention to terminate him for Cause, such notice (a) to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based and (b) to be given within three months of the Board learning of such act or acts or failure or failures to act. The Executive shall have 10 business days after the date that such written notice has been given to the Executive in which to cure such conduct, to the extent such cure is possible. If he fails to cure such conduct, the Executive shall then be entitled to a hearing before the Board. Such hearing shall be held within 15 business days of such notice to the Executive, provided he requests such hearing within 10 business days of the written notice from the Board of the intention to terminate him for Cause. If, within five business days following such hearing, the Executive is furnished written notice by the Board confirming that, in its judgment, grounds for Cause on the basis of the original notice exist, he shall thereupon be terminated for Cause. 13.2.1 In the event the Employer terminates the Executive's employment for Cause, he shall be entitled to: (a) the Base Salary through the date the of termination of his employment for Cause; and (b) a Bonus for the year in which he was terminated equal to the Bonus for the year prior to such termination, prorated over the time elapsed during the year in which he was terminated. 13.2.2 In the event the Employer terminates the Executive's employment for Cause, the Executive shall have no further obligations or liability to the Employer (except his obligations under Sections 12 and 16, which shall survive). 13.3 Termination Without Cause or Constructive Termination Without Cause. In the event the Executive's employment is terminated without Cause, other than due to disability or death, or in the event there is a Constructive Termination Without Cause, the Executive shall be entitled to: (a) the Base Salary through the date of termination of the Executive's employment; (b) the Base Salary, at the annualized rate in effect on the date of termination of the Executive's employment (or in the event a reduction in Base Salary is the basis for a Constructive Termination Without Cause, the Base Salary in effect immediately prior to such a reduction) for a period of 36 months following such termination or until the end of the Term, whichever is longer; provided that, at the Executive's option, the Employer shall pay him the present value of such salary continuation payments in a lump sum within thirty (30) days of the effective date of 6 such termination (using as the discount rate 75% of the prime rate (as published by The Wall Street Journal) for the first business day of the month in which such termination occurs); (c) a Bonus for the unexpired Term not less than the $250,000.00 guaranteed cash bonus provided in Section 7.1(a) multiplied by all year(s) and month(s) remaining in the then unexpired Term; provided that, at the Executive's option, the Employer shall pay him the present value of such salary and bonuses in a lump sum within thirty (30) days of the effective date of such termination (using as the discount rate 75% of the prime rate (as published by The Wall Street Journal) for the first business day of the month in which such termination occurs); and (d) all benefits provided in Section 9 hereof until the end of the Term, with no additional cost or charge payable by the Executive. 13.4 Rights Following a Change in Control. In the event of a Change in Control, the Executive shall be entitled to act with respect to this Employment Agreement as provided in section 13.5, and to all payments and benefits provided in Section 13.3, provided that such payments, together with the additional consideration described in this section, shall be paid in a lump sum and without any discount or reduction, or in the case of non-monetary consideration, delivered to the Executive before or contemporaneously with the consummation of the Change in Control. In addition, the Employer shall (i) promptly upon a Change in Control, assign to the Executive clean title to the chauffeur-driven limousine then being furnished by the Employer to the Executive in connection with his employment by the Company, (ii) contribute as salary and expenses the first $25,000 of the costs associated with the driver of such limousine, in accordance with past practice, for the first year following the date of the Change in Control, and (iii) promptly upon a Change in Control, make all lease payments remaining due on the 2000 Mercedes 500 S currently being leased, or on such other vehicle as is then being leased, by the Employer for the Executive's use, in a lump sum, together with any required vehicle acquisition fee, and assign all right, title and interest in the purchase option to such vehicle to the Executive. In addition: (a) any application of Section 13.1.3(d) of this Employment Agreement by the Employer or the Company shall be suspended from the Employer's or the Company's entry into any agreement contemplating a Change in Control, and deemed stricken from this Employment Agreement and rescinded upon the consummation of any Change in Control; and (b) Section 16 of this Employment Agreement immediately, and without additional action, shall be deemed and rendered null, void, and without any effect as against the Executive upon the consummation of the Change in Control. The Executive shall forfeit any rights granted pursuant to this Section 13.4 if the Executive, in his sole and absolute discretion and without any obligation whatsoever to do so, determines that he will accept a written offer to remain with the surviving company in an executive position with equivalent duties, authority and responsibility as the Executive currently holds (other than as a non-employee director). 13.4.1 Payment Following a Change in Control. In the event that the termination of the Executive's employment is as a result of a Change in Control and the aggregate of all payments or benefits made or provided to the Executive under this Employment Agreement and under all other plans and programs of the Employer (the "Aggregate Payment") is determined to constitute a Parachute Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), the Employer shall pay to the Executive, prior to the time any excise tax imposed by Section 4999 of the Internal Revenue 7 Code ("Excise Tax") is payable with respect to such Aggregate Payment, an additional amount which, after the imposition of all income and excise taxes thereon, is equal to 120% of the Excise Tax on the Aggregate Payment The determination of whether the Aggregate Payment constitutes a Parachute Payment and, if so, the amount to be paid to the Executive and the time of payment pursuant to this subsection shall be made by an independent auditor (the "Auditor") jointly selected by the Employer and the Executive and paid by the Employer. The Auditor shall be a nationally recognized United States public accounting firm which has not, during the two years preceding the date of its selection, acted in any way on behalf of the Employer or any affiliate thereof. If the Executive and the Employer cannot agree on the firm to serve as the Auditor, then the Executive and the Employer shall each select one accounting firm and those two firms shall jointly select the accounting firm to serve as the Auditor. 13.5 Voluntary Termination. In the event of a termination of employment by the Executive on his own initiative other than (i) a termination due to death or disability; (ii) a Constructive Termination without Cause; or (iii) a Change in Control (which event may be represented to third parties at the Executive's sole option as a voluntary separation mutually agreed to between and among the Employer, the Company, and the Executive), the Executive shall have the same entitlements as provided in Section 13.2 above for a termination for Cause. A voluntary termination under Section 13.5(i), (ii) or (iii) shall be effective upon reasonable prior written notice to the Employer, need not be provided in the event of termination due to death or the consummation of a Change in Control, and in no event shall the occurrence of any event contemplated by Section 13.5 (i), (ii), or (iii) be deemed as the Executive's breach of this Employment Agreement. 13.6 Stock Options. Notwithstanding anything to the contrary, upon termination for any reason whatsoever, the Executive shall have the immediate right to exercise any stock options in full, whether or not such option is fully exercisable on the date of termination, for the remainder of the original term of each such stock option. 13.7 No Mitigation; No Offset. In the event of any termination of employment under this Employment Agreement, the Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due the Executive under this Employment Agreement on account of any remuneration attributable to any subsequent employment that he may obtain. 13.8. Option Adjustment. The number of options issuable pursuant to this Section 13 and the per share exercise price thereof shall be subject to appropriate adjustment to give effect to any increase or decrease in the number of issued shares resulting from a reorganization, recapitalization, stock split, spin-off or other similar action. 14. Disability. 14.1 If during his active employment hereunder the Executive shall become physically or mentally disabled, whether totally or partially, so that he is prevented from performing his usual duties for a period of six consecutive months, the Employer shall, nevertheless, pay the Executive his full Base Salary and Bonus in respect of the period ending on the last day of the 8 sixth consecutive month of disability (such last day being referred to herein as the "Disability Date") and the following additional provisions shall apply: 14.2 If the Executive has not resumed his usual duties on or prior to the Disability Date, the Executive's employment shall terminate and the Employer shall pay, unless prior to the date the Executive became physically or mentally disabled a notice of termination was delivered to the Executive, 75% of his Base Salary from the Disability Date through the end of the Term (without giving effect to any early termination provisions contained in this Employment Agreement) and, except as provided in Section 14.4, the Employer shall have no obligation to pay Bonus to the Executive in respect of periods after the Disability Date. Any Base Salary payable pursuant to this Section 14.2 shall be reduced by the amount of any benefits payable to the Executive under any group or individual disability insurance plan or policy, the premiums for which are paid primarily by the Employer; 14.3 Unless the Employer exercises its option under Section 14.4 to restore the Executive to his full compensation, duties, functions, authority and responsibilities hereunder, the Executive shall have no obligations or liabilities hereunder from and after the Disability Date (except for his obligations under Sections 12 and 16, which shall survive); and 14.4 If during the Term and subsequent to a Disability Date, the Executive shall recover fully from a disability, the Employer, by action of the Board, shall have the right (exercisable within sixty days after notice from the Executive of such recovery), but not the obligation, to restore the Executive to employment and to full compensation and his full level of duties, functions, authority and responsibilities hereunder. 15. Death of Executive. 15.1 Upon the Executive's death, whether prior to or subsequent to his Disability Date and prior to the delivery of a notice of termination, this Employment Agreement and all of the Employer's obligations to pay salary and Bonus hereunder shall terminate except as provided in Sections 15.2 through 15.4. 15.2 The Executive's estate or designated beneficiary shall be entitled to receive (a) any unpaid portions of the Executive's Base Salary in respect of the period ending on the Executive's date of death, (b) unpaid Bonus in respect of years prior to the year of death, and (c) immediately vested options to purchase 30,000 shares of Class A Stock at an exercise price equal to the exercise price of the last stock option granted by the Employer to the Executive prior to the Executive's death. In addition, the Employer shall pay to such estate or beneficiary an amount equal to the present value of all the remaining Base Salary, calculated assuming annual compound interest at 75% of the prime rate (as published in The Wall Street Journal) for the first business day of the month in which the Executive's death occurs. 15.3 The Base Salary and Bonus payable pursuant to this Section 15 shall be reduced by the value of any benefits payable to the Executive's estate or designated beneficiary under any life insurance plan or policy the premiums for which are paid primarily by the Employer. 16. Non-competition. 9 16.1 During the Term, the Executive will not, without the prior written approval of the Board, become employed by, or become an officer, director, or general partner of, any partnership, corporation or other entity which acts as a producer or venue operator in the live entertainment business or which acts as a marketing and management company specializing in the representation of team sports athletes (the "Prohibited Business"); provided that nothing herein shall prohibit the Executive from continuing to fulfill his obligations as an officer, director or partner of companies or entities in which he currently serves in any such capacities. 16.2 Subject to the following proviso, for a period of one year following the termination of the Executive's employment hereunder, the Executive will not become employed by, or become an officer, director or general partner of, any partnership, corporation or other entity which is primarily engaged in the Prohibited Business; provided however, that during such one year period the Employer shall employ the Executive as a consultant with compensation at a rate equal to fifty percent of the Employer's Base Salary immediately prior to such termination. If the Employer elects not to employ the Executive as a consultant for such one year period as provided herein, the provisions of this Section 16.2 shall not apply and the Executive shall be free to engage in any activity referred to herein 17. Notices. All notices, requests, consents and other communications, required or permitted to be given hereunder, shall be in writing and shall be deemed to have been duly given if delivered personally or sent by prepaid telegram, or mailed first class, postage prepaid, by registered or certified mail, as follows (or to such other or additional address as either party shall designate by notice in writing to the other in accordance herewith): 17.1 If to the Employer: SFX Entertainment, Inc. 650 Madison Avenue, 16th Floor New York, New York 10022 Attention: Board of Directors 17.2 If to the Executive: Howard J. Tytel 100 Oyster Bay Road Mill Neck, New York 11765 17.3 Copies of all communications given hereunder shall also be delivered or sent, in like fashion, to Winston & Strawn (attention: Jonathan Goldstein, Esq.) at 200 Park Avenue, New York, New York 10166. 18. General. 18.1 Governing Law. This Employment Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York. 10 18.2 Captions. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Employment Agreement 18.3 Entire Agreement. This Employment Agreement, including any Exhibits attached hereto, sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior and/or contemporaneous agreements, arrangements and understandings, written or oral, between the parties with respect to such subject matter (including, without limitation, the Original Employment Agreement), except as specifically provided herein. 18.4 Successors and Assigns. This Employment Agreement, and the Executive's rights and obligations hereunder, may not be assigned by the Executive, except that the Executive may designate pursuant to Section 18.6 one or more beneficiaries to receive any amounts that would otherwise be payable hereunder to the Executive's estate. This Employment Agreement shall be binding on any successor to the Employer, whether by merger, acquisition of substantially all of the Employer's assets or otherwise, as fully as if such successor were a signatory hereto and the Employer shall cause such successor to, and such successor shall, expressly assume the Employer's obligations hereunder. Notwithstanding anything else herein contained, the term "Employer", as used in this Employment Agreement, shall include all such successors. 18.5 Amendments; Waivers. This Employment Agreement cannot be changed, modified or amended, and no provision or requirement hereof may be waived, without an affirmative vote of the Board after the affirmative recommendation of the Compensation Committee of the Board, and the consent in writing of the Executive and the Employer. The failure of a party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by a party of the breach of any term or covenant contained in this Employment Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Employment Agreement. 18.6 Beneficiaries. Whenever this Employment Agreement provides for any payment to the Executive's estate, such payment may be made instead to such beneficiary or beneficiaries as the Executive may have designated in a writing filed with the Employer. The Executive shall have the right to revoke any such designation and to redesignate a beneficiary or beneficiaries by written notice to the Employer (and to any applicable insurance company) to such effect. [The remainder of this page has intentionally been left blank] 11 IN WITNESS WHEREOF, the parties have duly executed this Employment Agreement as of the date first above written. SFX ENTERTAINMENT, INC. By: /s/ Robert F.X. Sillerman -------------------------------------- Name: Title: /s/ Howard J. Tytel ----------------------------------------- HOWARD J. TYTEL 12 EX-10.53 8 EMPLOYMENT AGREEMENT -- RICHARD A. LIESE EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is being executed as of January 1, 2000 (the "Effective Date"), between SFX ENTERTAINMENT, INC. (the "Employer"), a Delaware corporation, and RICHARD A. LIESE (the "Employee"; and together with the Employer, the "Parties"), to be effective as of the Effective Date. WHEREAS, the Employee has been employed since the Employer's inception as a senior executive officer of the Employer; and WHEREAS, the Employer and the Employee desire to enter into this Agreement to memorialize the terms and conditions of the Employee's employment by the Employer; NOW, THEREFORE, the Parties do hereby agree as follows: 1. Employment. The Employer hereby employs the Employee, and the Employee hereby accepts such employment, subject to the terms and conditions set forth below. 2. Duties. 2.1. Capacities 2.1.1 Employee shall be employed as a Senior Vice President, Associate General Counsel and Assistant Secretary of the Employer, and shall have the rights and responsibilities attendant to that of an executive officer of similar position of a publicly traded company of comparable size. The Employee shall report to the Executive Vice President and General Counsel of the Employer, and, subject to the oversight and direction of such officer shall control, direct and supervise the day-to-day operations of the Employer's in-house law department and the overall legal affairs of the Employer. The Employee shall also perform other duties which may be reasonably assigned to him from time to time by the Executive Chairman and the President 1 and Chief Executive Officer of the Employer, or by the Employer's Board of Directors (the "Board"), and that are consistent with his position. 2.1.2 The Employee shall also serve as a Senior Vice President and Assistant Secretary of each subsidiary of the Employer. 2.1.3 It is expressly understood that the Employee may (1) devote a reasonable amount of time to charitable, civic and industry-related boards or organizations, (2) acquire up to 10% of any securities of a partnership, trust, corporation or other entity so long as he remains a passive investor in such entity and such entity is not, directly or indirectly, in competition with the Employer, (3) acquire up to 0.5% of any securities of any publicly traded partnership, trust, corporation or other entity provided he remains a passive investor in such entity, and (4) with the express prior approval of the Executive Chairman of the Employer, which approval shall not be unreasonably withheld, serve as a director of any corporate entity; provided, that any such activity does not substantially interfere with the performance by the Employee of his duties and responsibilities under this Agreement and does not conflict with the business of the Employer.. 2.2. Additional Positions. During the Term of Employment (as defined in Section 4.1 hereof), the Employee agrees, and the Employer shall appoint the Employee, to serve as a director of the Employer and, when deemed necessary and appropriate by the Employer, of one or more subsidiaries of the Employer; provided, that the Employee shall be indemnified for serving in any and all such capacities on a basis no less favorable than is provided by the Employer's bylaws, as may be amended from time-to-time, or by any written agreement between the Employee and the Employer regarding indemnification, in a manner consistent with that provided to Senior Executives (as defined in Section 8.2 hereof) of the Employer, and, if ever not so indemnified, the Employee may, without limiting any other remedies, cease serving in such director positions. 2.3. Place of Performance. In connection with his employment by the Employer, the Employee shall be based in New York City at the current corporate offices of the Employer. The 2 Employee shall be provided with office space and support staff equivalent to that provided to him by the Employer immediately prior to the Effective Date. 3. Compensation. 3.1. Salary and Withholding. 3.1.1 Salary. From the Effective Date through May 31, 2000, as compensationfor services rendered by the Employee, the Employer shall pay to the Employee a base salary ("Salary") in semi-monthly installments at an annual rate equal to One Hundred Forty-Five Thousand Dollars ($145,000). Commencing June 1, 2000, the Employee's Salary shall increase to an annual rate equal to Two Hundred Twenty-Five Thousand Dollars ($225,000). The Employee's Salary shall be reviewed by the Executive Chairman of the Employer in accordance with the Employer's standard policies and practices, and may be increased, but not decreased, at the Employer's discretion. In any event, the Employee's Salary shall be increased effective as of each anniversary of the Effective Date by 5.0% over the then effective Salary. 3.1.2 Withholding for Taxes. Compensation (herein defined) shall be subject to any and all applicable payroll and withholding deductions required by the law of any jurisdiction, state or federal, taxing authority with respect to such Compensation. 3.1.3 Definition of Compensation. The Salary, and the other perquisites set forth in this Agreement including the Benefits, are herein collectively referred to as the "Compensation." 3.2. Expenses. The Employer shall reimburse the Employee, in accordance with the Employer's standard expense reimbursement policy, for reasonable expenses incurred by the Employee, upon presentation of documentation reasonably acceptable to the Employer in accordance with the policies applicable to Senior Executives of the Employer. In connection with such 3 reimbursement, the Employer shall provide the Employee with a credit card or cards to be used for paying such expenses. Such card or cards shall be the property of the Employer and upon termination of the Term of Employment shall be returned to the Employer by the Employee. The Employee shall be responsible for and shall reimburse the Employer for any and all payments made by the Employer for the Employee's personal, non-reimbursable expenses charged on any such card or cards. 3.3. Grant of Stock Options. 3.3.1 Grants. The Employer shall grant to the Employee stock options (the "Stock Options") during the Term of Employment in a manner and an amount as shall be determined by the Stock Option Committee of the Employer, but in no event shall the grants be less than the largest grant made to the Employee prior to the Effective Date. Each Stock Option shall have an exercise price equal to the closing price of the Class A Common Stock of the Employer (the "Common Stock") on the date of the grant. Each Stock Option shall have a term and shall vest and become exercisable on a schedule to be determined by the Board or the Stock Option Committee, but in no event shall the vesting schedule exceed the Term of Employment, nor shall the terms and conditions of such options (including those terms and conditions described above) be any less favorable than the terms and conditions applicable to options granted to the other Senior Executives of Employer. The Employee shall be permitted to use shares of Common Stock to exercise the Stock Options and to pay any withholding obligation upon such exercise. The Stock Options shall be granted as incentive stock options under the Internal Revenue Code of 1986, as amended (the "Code"), to the extent permitted under the Code. 3.3.2 Termination of Employment. Notwithstanding the foregoing, in the event that Employee ceases to be employed by the Employer for any reason whatsoever (including upon death or permanent and total disability of Employee) other than as a result of a voluntary termination (that is not a Constructive Termination Event or a termination on a Change in Control) or termination for Cause, all Stock Options granted pursuant to this Section 3.3 shall vest and become exercisable immediately, and the Employee shall retain the right to exercise such Stock 4 Options during the remaining original term of each such option. In the event of the Employee's voluntary termination (that is not a Constructive Termination Event or a termination on a Change in Control) or termination for Cause, all unvested options shall be forfeited, all vested Stock Options shall remain exercisable until the first to occur of the end of the original term or one year following the termination of employment, and no Stock Options not as yet granted will be granted. 3.3.3 Adjustments. The number of shares subject to the Stock Options to be granted under this Section 3.3, and the kind of shares subject to such options, shall be equitably adjusted to reflect any change in the Common Stock including, without limitation, a recapitalization, spin-off, stock split, consolidation, reorganization or merger. To the extent applicable, this Section 3.3 shall automatically be deemed to be modified to ensure that the Employee's rights with respect to acceleration of option grants, acceleration of option vesting and other rights are at least as favorable as the rights that from time to time are generally applicable to other Senior Executives of the Employer. 3.4. Other Benefits. During the Term of Employment, the Employer shall provide the following additional benefits to the Employee: 3.4.1 Health Insurance. Medical, dental and hospitalization insurance for the Employee and his family with the same scope and coverage and on the same terms as is provided by the Employer to other Senior Executives of the Employer, as may be amended from time to time; provided, that such insurance will have no exclusions for pre-existing conditions. 3.4.2 Disability Insurance. Disability insurance in an amount and on the same terms consistent with insurance made available to other Senior Executives of the Employer, as may be amended from time-to-time, provided, that such insurance will have no exclusions for pre-existing conditions. 3.4.3 Automobile Allowance. An automobile allowance in the amount of Five Hundred Dollars ($500) per month, payable to the Employee on the first day of each month of the Term of Employment. 5 3.4.4 Other Benefit Programs. The Employee shall be entitled to participate in all other employee benefit programs of the Employer which the Board may, in its sole discretion, regularly make available to the other executives of the Employer (such as a stock bonus plan, retirement plans and fringe benefits), on terms no less favorable than those provided to other executives of the Employer in similar positions. The reimbursement of expenses provided for in Section 3.2, the Stock Option awards provided for in Section 3.3, the benefits provided for in this Section 3.4 and any other benefits hereafter granted to the Employee by the Board are hereinafter referred to as the "Benefits." 4. Term of Employment. 4.1. Definition of Term of Employment. The "Term of Employment", as used in this Agreement, shall mean the period commencing on the Effective Date and terminating with the first to occur of the following: 4.1.1 May 28, 2003 (the "Term Date"); 4.1.2 Termination of the Term of Employment by the Employer without Cause; 4.1.3 Termination of the Term of Employment by the Employee by written notice to the Employer at any time following a Constructive Termination Event (as such term is defined in Section 8.1 hereof); and 4.1.4 Termination of the Term of Employment as permitted by, and in accordance with, the provisions of Sections 5 and 7 hereof. 6 4.2. Effect of Termination of Term of Employment. Upon termination of the Term of Employment, the following provisions shall apply: 4.2.1 The Employee shall no longer be employed by the Employer; 4.2.2 The Employee shall no longer be obligated to provide any employment, consulting or similar services to the Employer; 4.2.3 If the Term of Employment is terminated pursuant to Sections 4.1.2 or 4.1.3 hereof, then the provisions of Section 6.1 hereof shall become effective and the Employer shall be irrevocably and unconditionally obligated to fulfill and discharge all of the obligations imposed upon it pursuant to the provisions thereof; and 4.2.4 The Employee (or his guardian or estate, as applicable) shall in all events be paid within thirty (30) days following the date of termination of the Term of Employment, (A) all accrued but unpaid Salary through the date of termination, (B) all accrued vacation through the date of termination, and (C) all unreimbursed business expenses through the date of termination. In addition, the Employee shall retain all rights with respect to vested equity awards (and the applicable provisions of Section 3.3), and shall be entitled to all other Benefits which are provided in accordance with and subject to the terms of the Employer's generally applicable employee benefit plans, practices and policies. The payments and Benefits described in this Section 4.2.4 shall be referred to herein as the "Accrued Obligations." 5. Termination of Employment. 5.1. Employer's Right to Terminate the Term of Employment. During the Term of Employment, the Employer may terminate the Term of Employment with or without Cause (as herein defined) by providing written notice thereof to the Employee. 7 5.1.1 Effect of a For Cause Termination. If the Employer terminates the Term of Employment for Cause, such termination shall take effect immediately upon written notice thereof to the Employee. In such event, the Employer shall provide the Employee with the Accrued Obligations. Upon the Employer's full, complete and timely fulfillment and discharge of the aforesaid obligations, all obligations of the Employer to the Employee hereunder shall be totally and completely satisfied, and the Employer shall have no further obligations of any type to the Employee pursuant to this Agreement (except as may be provided under Sections 3.3, 16 or 17 hereof). 5.1.2 Definition of "Cause". Cause for termination of the Term of Employment shall exist only if, during the Term of Employment: (a) The Employee is convicted of a felony involving moral turpitude which would render the Employee unable to perform his duties set forth in this Agreement; or (b) the Employee engages in conduct that constitutes willful gross neglect or willful gross misconduct in carrying out his duties under this Agreement resulting, in either case, in a material adverse economic effect upon the business of the Employer. For purposes of this Section 5.1, no act, or failure to act, by the Employee shall be considered "willful" unless committed in bad faith, and without a reasonable belief that the act or omission was in the best interests of the Employer or any of its subsidiaries. 5.2. Termination of the Term of Employment upon Employee's Death or Permanent and Total Disability. The Term of Employment shall be deemed terminated in the event of the Employee's death or upon the termination of the Employee's employment following the permanent and total disability of the Employee during the Term of Employment. 5.2.1 Effect. In the event of a termination of the Term of Employment for the death or permanent and total disability of the Employee, the Employer shall provide the Employee (or his guardian or estate, as applicable) with the Accrued Obligations. Upon the Employer's full, complete and timely fulfillment and discharge of the aforesaid obligations, all obligations of the Employer to the Employee hereunder shall be totally and completely satisfied, and 8 the Employer shall have no further obligations of any type to the Employee pursuant to this Agreement (except as may be provided under Sections 3.3, 16 or 17 hereof). 5.2.2 Definition and Effective Date. The Employee shall be considered "permanently and totally disabled" for purposes of this Section 5.2 if he is unable to perform with reasonable continuity his material duties hereunder by reason of any medically determinable physical or mental impairment, which inability to perform has lasted for a continuous period of not less than six (6) months. A termination for permanent and total disability shall take effect upon thirty (30) days written notice from the Employer to the Employee, provided the Employee does not return to perform his material duties with reasonable continuity during such 30-day period. 5.3. Employee's Right to Terminate. The Employee may terminate the Term of Employment at any time, for any reason, by providing thirty (30) days written notice thereof to the Employer, and such termination shall not be deemed a breach of this Agreement. 5.3.1 Effective Date. If the Employee so terminates the Term of Employment (other than under Section 4.1.3), such termination shall take effect upon the date designated in the notice provided to the Employer which shall, in no event, be earlier than thirty (30) days following the delivery of such notice; provided, that the Employer shall have the right in the event of such notice by the Employee to accelerate the Employee's effective date of termination to any such date that the Employer deems appropriate in its sole discretion. 5.3.2 Effect. If the Employee so terminates the Term of Employment (other than under Section 4.1.3), the Employer shall provide the Employee with the Accrued Obligations. Upon the Employer's full, complete and timely fulfillment and discharge of the aforesaid obligations, all obligations of the Employer to the Employee hereunder shall be totally and completely satisfied and the Employer shall have no further obligations of any type to the Employee pursuant to this Agreement (except as may be provided under Sections 3.3., 7, 16 or 17 hereof). 9 5.4. Termination of Agreement upon Fulfillment of Post-Termination of Employment Obligations. If the Term of Employment is terminated pursuant to Sections 4.1.2 or 4.1.3 hereof, then this Agreement shall thereafter be deemed to be terminated upon the Employer's full, complete and timely fulfillment and discharge of all obligations imposed upon the Employer pursuant to the provisions of Sections 3.3, 6.1, 16 or 17 hereof. 6. Post-Termination of Employment Obligations. 6.1. Employer's Obligations after Termination of Term of Employment. If the Term of Employment is terminated pursuant to Sections 4.1.2 or 4.1.3 hereof, then the following provisions shall apply: 6.1.1 If the Term of Employment is so terminated, the Employer shall provide the Employee with the Accrued Obligations. In addition, the Employer shall be obligated to pay to the Employee, for a period of time commencing on the date of termination of the Term of Employment and continuing until the Term Date (herein called the "Surviving Obligation Period"), the Employee's Salary for the remaining period pursuant to this Agreement. 6.1.2 The Employee shall continue to be entitled to participate during the Surviving Obligation Period in any and all of the profit-sharing and retirement income, stock purchase, savings, executive compensation plans at the same level, in the same amount and to the same degree the Employee was entitled to participate at the time of such termination, to the extent permitted by the terms of such plans, and applicable law. If the Employee's participation in any such plan is barred, the Employer shall arrange to provide the Employee during the Surviving Obligation Period with benefits substantially similar to those which he was entitled to receive under such plans prior to the time of such termination. 6.1.3 The Employer shall maintain in full force and effect for the Employee for the longer of (a) one year after termination of the Term of Employment and (b) the Surviving Obligation Period, all life, accident, medical and health care plans and disability benefit programs and programs or arrangements in which the Employee was entitled to participate immediately prior 10 to the time of such termination, provided that the Employee's continued participation is possible under the general terms and provisions of such plans and programs, and under applicable law. If the Employee's participation in any such plan or program is barred, the Employer shall arrange to provide the Employee with benefits substantially similar to those which he was entitled to receive under such plans and programs of the Employer prior to the time of such termination; provided, however, that the cost to the Employer to provide such benefits shall be no greater than the contribution made by the Employer for such benefits for other Senior Executives of the Employer. In such event, appropriate adjustment shall be made so that the after tax value thereof to the Employee is similar to the after tax value to him of the benefit plans in which the Employee is not eligible to participate. 6.2 No Mitigation. Under no circumstances shall the Employee be required, whether by seeking other employment or otherwise, to mitigate the amount of any payment or benefit under this Agreement, and there shall be no offset against amounts due the Employee under this Agreement on account of any subsequent employment he may obtain or for any amount allegedly due to the Employer by the Employee. 7. Employee's Rights on Change in Control. 7.1 Employee's Right to Terminate Term of Employment. In the event of a Change in Control, the Employee may terminate the Term of Employment by providing written notice thereof (the "Termination Notice") to the Employer within one hundred eighty (180) days following a Change in Control (the "Termination Period"). If the Term of Employment is so terminated by the Employee, the Employer shall be obligated to pay to the Employee an amount equal to the greater of (i) two (2) years of the Employee's annual Salary in effect at the time of the Change in Control, or (ii) Four Hundred Fifty Thousand Dollars ($450,000), to be paid in a lump sum within thirty (30) days following the date of the Employee's termination of employment. In the event that the Employee (a) does not terminate the Term of Employment within the Termination Period, or (b) provides written notice to the Employer within the Termination Period that he will not exercise his right to terminate the Term of Employment under Section 7 of this Agreement, the 11 Employer shall be obligated to pay to the Employee an amount equal to the greater of (x) fifteen (15) months of the Employee's annual Salary in effect at the time of the Change in Control, or (y) Two Hundred Eighty-One Thousand Two Hundred Fifty Dollars ($281,250), to be paid in a lump sum within thirty (30) days following the first to occur of (1) the expiration of the Termination Period without the Employee delivering a Termination Notice, or (2) the receipt by the Employer of the written notice delivered pursuant to Section 7(b) hereof. 7.2 Additional Stock Option Grant. In the event of a Change in Control, the Employee shall receive fully vested stock options (the "Additional Stock Options") to purchase 10,000 shares of Common Stock over a ten-year term at an exercise price per share equal to an amount which is twenty percent (20%) greater than the exercise price per share of the last Stock Options granted to the Employee prior to the Change in Control. 7.3 No Mitigation. Under no circumstances shall the Employee be required, whether by seeking other employment or otherwise, to mitigate the amount of any payment or benefit under this Section 7, and there shall be no offset against amounts due the Employee under this Section 7 on account of any subsequent employment he may obtain or for any amount allegedly due to the Employer by the Employee. 8. Certain Definitions. As used herein, the following terms shall have the meanings indicated below: 8.1. Constructive Termination Event. A "Constructive Termination Event" shall be deemed to be the occurrence of any one or more of the following events during the Term of Employment: 8.1.1 the assignment by Employer to the Employee of duties that are inconsistent with the Employee's office with the Employer at the time of such assignment, or the removal by the Employer from the Employee of those duties described in Section 2.1 above, including without limitation failure to nominate or re-nominate the Employee for election to the 12 Board and failure of Robert F.X. Sillerman (and his affiliates) to vote his (and their) shares in favor of such nomination; or 8.1.2 any removal of the Employee from, or any failure to elect or reelect the Employee to, the Designated Office (as defined in Section 8.3 hereof), except in connection with the Employee's promotion, with his prior written consent, to a higher office (if any) with the Employer; or 8.1.3 a reduction by the Employer in the amount of the Employee's Salary as then in effect, or the failure of the Employer to pay such Salary to the Employee at the time and in the manner specified in Section 3 of this Agreement; or 8.1.4 the discontinuation or material reduction by the Employer of the Employee's participation in any stock option or other employee benefit plan or arrangement (including, without limitation, any profit-sharing, life insurance, medical, dental, hospitalization, incentive compensation or retirement plan or arrangement) in which the Employee is a participant or the failure to grant the Stock Options; or 8.1.5 the failure of the Employer to obtain the assumption by any successor to the Employer of the obligations imposed upon the Employer under this Agreement, as required by Section 15 of this Agreement; or 8.1.6 the failure by the Employer to reimburse the Employee for the reasonable business expenses incurred by the Employee in the performance of his duties to the Employer, including, without limitation, reasonable expenditures for business entertainment and for travel in connection with the Employer's business; or 8.1.7 the failure of the Employer to observe, fulfill or perform any obligation, requirement or restriction imposed upon it pursuant to this Agreement which is not referenced in the foregoing subsections of this Section 8.1, and such failure continues uncorrected 13 for thirty (30) days after written notice thereof from the Employee to the Employer. The Employee's right to terminate the Term of Employment for a Constructive Termination Event shall not be affected by his mental or physical incapacity, and his continued employment prior to terminating employment for a Constructive Termination Event shall not constitute consent to or a waiver of rights with respect to, any act or failure to act constituting a Constructive Termination Event. 8.2. Senior Executives. The "Senior Executives" shall mean all senior executive officers of the Employer. 8.3. Designated Office. The "Designated Office" shall mean Senior Vice President, Associate General Counsel and Assistant Secretary of the Employer. 8.4. Change in Control. A "Change in Control" shall mean the occurrence of any one of the following events: (i) any "person," as such term is used in Sections 3(a)(9) and 13(d) of the Securities Exchange Act of 1934 (other than the Employee or entities controlled by the Employee), becomes a beneficial owner of 50% or more of the voting power of the Employer or of the Common Stock beneficially owned by Robert F.X. Sillerman as of the date hereof; (ii) all or substantially all of the assets or business of the Employer are disposed of pursuant to a merger, consolidation, sale or other transaction (unless the shareholders of the Employer, immediately prior to such merger, consolidation or other transaction beneficially own, directly or indirectly, in substantially the same proportion as they owned the voting power of the Employer, all of the voting power or other ownership interests of the entity or entities, if any, that succeed to the business of the Employer); (iii) The Employer combines with another company and, immediately after such combination, (A) the shareholders of the Employer immediately prior to the combination do not hold, directly or indirectly, more than 50% of the voting power of the combined company or (B) the 14 members of the Board immediately prior to the Board's approval of the merger transaction do not constitute a majority of the combined company's board of directors; (iv) the majority of the Board consists of individuals other than incumbent directors (which term shall mean members of Board as of the Effective Date), except that any person who becomes a director subsequent to such date whose election or nomination was supported by two-thirds of the directors who then comprise the incumbent directors shall be considered an incumbent director. 9. Disclosure of Confidential Information. Except to the extent (a) authorized by the express prior consent of the Board, (b) required by law or any legal process or (c) desirable in performing his duties under this Agreement, the Employee will not, directly or indirectly, at any time during the Term of Employment, or at any time subsequent to the termination of the Term of Employment, disseminate, disclose, or divulge to any person, firm, corporation, association or other business entity, Confidential Information (herein defined) of the Employer. As used herein, the term "Confidential Information" means any and all information about or relating to the trade secrets of the Employer or any of its subsidiaries disclosed to the Employee or known by the Employee as a consequence of or through his employment by the Employer, if such information is not generally known in any industry in which the Employer or any of its subsidiaries is or may become engaged during the Term of Employment. In the event of a breach or threatened breach by the Employee of this Section 9, the Employer shall be entitled to injunctive relief as well as other applicable remedies at law or in equity available to the Employer against the Employee or others. 10. Notice. Any notice, request, reply, instruction, or other communication provided or permitted in this Agreement must be given in writing and may be served by depositing same in the United States mail in certified or registered form, postage prepaid, addressed to the party or parties to be notified with return receipt requested, or by delivering the notice in person to such party or parties. Unless actual receipt is required by any provision of this Agreement, notice deposited in the United States mail in the manner herein prescribed shall be effective on dispatch. For purposes of notice, the address of the Employee, his spouse, any purported donee or transferee or any administrator, executor or legal representative of the Employee or his estate, as the case may be, shall be as follows: 15 The address of the Employee shall be: c/o SFX Entertainment, Inc. 650 Madison Avenue 16th Floor New York, New York 10022 The address of Employer shall be: SFX Entertainment, Inc. 650 Madison Avenue New York, New York 10022 Attention: Howard J. Tytel The Employer shall have the right from time-to-time and at any time to change its address and shall have the right to specify as its address any other address by giving at least ten (10) days written notice to the Employee. The Employee shall have the right from time-to-time and at any time to change his address and shall have the right to specify as his address any other address by giving at least ten (10) days written notice to the Employer. 11. Vacation. The Employee shall be entitled to a minimum of four (4) weeks of paid vacation during each calendar year, but in no event less than the vacation provided to other Senior Executives of the Employer. 12. Controlling Law. The execution, validity, interpretation and performance of this Agreement shall be determined and governed by the laws of the State of New York. 13. Entire Agreement. This Agreement contains the entire agreement of the Parties with respect to the employment of the Employee, and any prior employment agreement between the Employer and the Employee shall be terminated effective as of the Effective Date. 16 14. Severability. If any provision of the Agreement is rendered or declared illegal or unenforceable by reason of any existing or subsequently enacted legislation or by decree of a court of last resort, the Parties shall promptly meet and negotiate substitute provisions for those rendered or declared illegal or unenforceable, but all remaining provisions of this Agreement shall remain in full force and effect. 15. Effect of Agreement, Assignment, Required Assumption. This Agreement shall be binding upon the Employee and his heirs, executors, administrators, legal representatives, successors and assigns and the Employer and its successors and assigns. The Employee may not assign any rights or obligations hereunder without the prior written consent of the Employer and, except with respect to a successor entity (as described below), the Employer may not assign any rights or obligations hereunder without the prior written consent of the Employee. The Employer shall require any person who is the successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or a substantial portion of the business or assets of the Employer to expressly assume the obligations of the Employer hereunder. The term "Employer" as used in this Agreement shall expressly include any such successors. 16. Indemnification. The Employer shall indemnify the Employee and his legal representatives to the fullest extent permitted by the laws of the State of Delaware, and the Employee shall be entitled to the protection of such insurance policies which the Employer maintains for the benefit of its directors and officers, against all costs, charges or expenses whatsoever incurred or sustained by him or his legal representatives in connection with any action, suit or proceeding to which he or his legal representatives may be made a party by reason of his being or having been a director of officer of the Employer, or because of actions taken purportedly on behalf of the Employer after the Effective Date. The Employer shall, upon request by the Employee, promptly advance or pay any amount for costs, charge or expenses (including, without limitation, legal fees and expenses incurred by counsel retained by the Employee) in respect of his right to indemnification hereunder, subject to a later determination as to the Employee's ultimate right to receive such payment. The Employee's identification and the insurance policies maintained for his benefit shall be at least to the same extent, of the same type and in the same amount as that maintained by the Employer for the other Senior Executives of the Employer, as may be amended from time-to-time. 17 17. Legal Fees and Expenses. The Employee shall be entitled to receive from the Employer the amount of his legal fees (and expenses) reasonably incurred in connection with claims or disputes under this Agreement, if the Employee is the prevailing party on any issue in any such dispute. The reimbursement shall be made as soon as practicable following the resolution of such claim or dispute to the extent the Employer receives reasonable written evidence of such fees and expenses. 18. Amendments; Waivers. This Agreement cannot be changed, modified or amended, and no provision or requirement hereof may be waived, without the consent in writing of the Employee and the Employer. The failure of a party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by a party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 19. Beneficiaries. Whenever this Agreement provides for any payment to the Employee's estate, such payment may be made instead to such beneficiary or beneficiaries as the Employee may have designated in a writing filed with the Employer. The Employee shall have the right to revoke any such designation and to redesignate a beneficiary or beneficiaries by written notice to the Employer (and any applicable insurance company) to such effect. 20. Resolution of Disputes. Any dispute or controversy between the parties relating to or arising out of this Agreement or any amendment or modification hereof shall be determined by arbitration in New York, New York by and pursuant to the rules then prevailing of the American Arbitration Association, other than claims for injunctive relief under Section 9 hereof. All claims for legal remedies under this Agreement shall be limited to the actual damages of the Employer or the Employee, respectively, but shall not limit any payments or damages provided to the Employee 18 under the terms of this Agreement. The arbitration award shall be final and binding upon the parties and judgment may be entered there on by any court of competent jurisdiction. The service of any notice, process, motion or other document in connection with any arbitration under this Agreement or the enforcement of any arbitration award hereunder may be effectuated either by personal service upon a party or by certified mail duly addressed to him or to his executors, administrators, personal representatives, next of kin, successors or assigns, at the last known address or addresses of such party or parties. 21. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original. It shall not be necessary when making proof of this Agreement to account for more than one counterpart. IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the date first above written. SFX ENTERTAINMENT, INC. /s/ - -------------------------- Title: Name: /s/ Richard A. Liese - --------------------------- Richard A. Liese EX-21.1 9 SUBSIDIARIES OF THE COMPANY
=========================================================================================================== List of Subsidiaries =========================================================================================================== COMPANY NAME =========================================================================================================== A.H. Enterprises, Inc. Air Show Partners AKG, Inc. Aktiebolaget Konsertbolaget Nordlund, Olsson, Rutenborg & Wide Alingsas Nojeskonsult Atkiebolag Almost Cut My Hair b.v. American Artists Limited, Inc. American Broadway, Inc. Amphitheater Entertainment Partnership Anti-Concerts b.v. Anti-Concerts Holding b.v. Anti-Concerts Investments n.v. Apollo Cambridge Theatre Limited Apollo Dominion Investments Limited Apollo Leisure (U.K.) Limited Apollo Leisure Group Limited Apollo Lyceum London Limited Apollo Theatre (Victoria) Limited Apollo Theatre Productions Limited Ardee Festivals N.J., Inc. Arthur Live Touring, LLC Atlanta Concerts, Inc. Attraction Traction Limited Audrey & Jane, Inc. Avalon Acquisition Corp. Barry Clayman Concerts (London) Limited Barry Clayman Concerts Limited Barry Clayman Corporation Limited Barry Clayman Productions Limited Bayou Place Performance Hall General Partnership Beach Concerts, Inc. Bescot Enterprises Limited BG Presents. Inc. BGE Yuba LLC BGP Acquisition, LLC BGP Denver, Inc. BlljettDirekt Sverige Aktiebolag Bill Graham Enterprises, Inc. Bill Graham Presents, Inc. Blues Clues Touring, LLC Boston Playhouse Realty, Inc. Boylston Street Theatre Corp. Broadway Concerts, Inc. Broadway Series Associates, Inc.
=========================================================================================================== COMPANY NAME =========================================================================================================== Broadway Series Management Group, Inc. Camarillo Amphitheater Managing Partners, Inc. Cardenas/Fernandez & Associates, Inc. Cardiff International Arena Limited Cardiff World Trade Centre Limited CCL Leisure Limited CDC Amphitheater/l. Inc. CDC of North Carolina, Inc. CDC/SMT, Inc. CDP, Inc. Cellar Door Amphitheater, Inc. Cellar Door Amphitheatres/II, Inc. Cellar Door Concerts of Florida, Inc. Cellar Door Concerts of the Carolinas, Inc. Cellar Door Consulting, Inc. Cellar Door Holding Company Cellar Door North Central, Inc. Cellar Door Productions of Michigan, Inc. Cellar Door Productions of Virginia, Inc. Cellar Door South East, Inc. Cellar Door Venues, Inc. Chastain Ventures JV Chicago Theater Company Cirkus Arena och Restaurang pa Djurgarden Aktiebolag City Centre Leisure (London) Limited City Centre Leisure (Meridian) Limited City Centre Leisure (Severn) Limited City Centre Leisure (Weald) Limited Col Arts Associates, Inc. Concert Productions (UK) Ltd. Concert Productions International B.V. Concert Southern Chastain Promotions Concerts Advertising, Inc. Concerts, Inc. Conn Ticketing Company Connecticut Amphitheater Development Corporation Connecticut Concerts Incorporated Connecticut Performing Arts Partners Connecticut Performing Arts, Inc. Contemporary Group Acquisition Corp. Contemporary Group, Inc.
=========================================================================================================== COMPANY NAME =========================================================================================================== Contemporary Productions Incorporated Contemporary Sports Incorporated Cooley and Conlon Management Co. De Nationale Theaterkassa b.v. Deer Creek Amphitheater Concerts, Inc. Deer Creek Amphitheater Concerts, L.P. Delsener/Slater Enterprises, Ltd. Delsener/Slater Presents, Inc. Diart Production Handelsbolag DLC Corp. DLC Funding Corp. Donington Park Leisure Limited Dragon Advertising Limited Dumb Deal, Inc. Eagle Eye Entertainment USA Inc. Eagle Eye Entertainment, Inc. EFC Services, Inc. Electric Factory Concerts, Inc. EMA Holding AB EMA Telstar Aktiebolag EMA Telstar Gruppen AB EMA Telstar Management Aktiebolag EMA Telstar Produktion Aktiebolag EMA Telstar Restaurangmusik Aktiebolag EMI Acquisition Sub, Inc. Entertainment Performing Arts, Inc. eSuperstars.com, Inc. ETEK Corp. Event Merchandising Inc. Exit 116 Revisited, Inc. Field Consulting LLC: Fillmore Corporation Fillmore Fingers, Inc. Fillmore Theatrical Services Financial Advisory Management Enterprises, Inc. Fitzers Limited Food At Work b.v. Forvaltningsbolaget Cirkus pa Kungilga Djurgarden Handelsbolag Fosse NY LLC Fosse Touring LLC Frontline Rigging Consults b.v. Gold Diggers Limited Graham/Gund Partners Greater Detroit Theatres, Inc.
=========================================================================================================== COMPANY NAME =========================================================================================================== GSAC Partners Halcyon Days Productions, Inc. Haymon Holdings, Inc. Hedwig Productions LLC Henry Cardenas & Associates, Inc. High Cotton, Inc. Hutchinson Cinemas (North Wales) Limited Hutchinson Cinemas (Properties) Limited Hutchinson Leisure Group of Companies Limited Hutchinson Leisure Limited In House Tickets, Inc. Intemco Event Management b.v. International Music Ltd. International Music Tour I Ltd. International Music Tour II Ltd. Irvine Meadows Amphitheater Irving Plaza Concerts, Inc. J&H Touring Company Limited Partnership JJB & DHW, Inc. JJJ Amphitheater Limited Partnership Jujamcyn Productions Company, LLC LOC 7000 b.v. Lugerinc. AB Magicworks Concerts, Inc. Magicworks Theatricals, Inc. Magicworks West, Inc. Manchester Theatres Limited Marco Entertainment, Inc. MCP Promotions Limited Midland Concert Promotions Group Limited Mojo Concerts b.v. Mojo Talent b.v. Mojo Theater c.v. Mojo Works b.v. Moondog Entertainment AB Motor SE Aktiebolag Murat Center Concerts, Inc. Murat Center Concerts, L.P. Musical Rights, Inc. N.V. Antwerps Sportpaleis N.V. De Schone Schijn Ned Prop Joint Venture NEJA Group, L.L.C. Networks Presentations, LLC New Avalon, Inc.
=========================================================================================================== COMPANY NAME =========================================================================================================== New Urban Entertainment, LLC New York Theater Company NEXT Ticketing, LLC NOC, Inc. Nojen i Norr Aktiebolag Nojen i Norr Production Aktiebolag North Sea Jazz b.v. Northcane Limited Northeast Ticketing Company NTC Holdings, Inc. Oakdale Theater Concerts, Inc. Ohio Arena Partners, LLC PACE (UK) PACE AEP Acquisition, Inc. PACE Amphitheatres, Inc. PACE Concerts GP, Inc. PACE Concerts, Ltd. PACE Entertainment Charitable Foundation PACE Entertainment Corporation PACE Entertainment GP Corp. PACE Entertainment Group, Ltd. PACE Milton Keynes, Inc. PACE Motor Sports, Inc. PACE Music Group, Inc. PACE Productions, Inc. PACE Season Tickets, Inc. PACE Signatures Group, J.V. PACE Theatrical Group, Inc. PACE U.K. Holding Corporation PACE/Contemporary Motor Sports, Ltd. Palace Theatre Operating Group, LLC Patent 7000 b.v. Pavillion Partners PCMT, Inc PEC, Inc. Pennies From Heaven b.v. Performing Arts Management of North Miami, Inc. Phantom Touring Ltd Plaza Mexico, Inc. Point Exhibition Company Limited Point Presentations Limited Point Promotions Limited Polaris Amphitheater Concerts, Inc. Portland Pavilion LLC Production Design Beheer b.v. Production Design Europe b.v.
=========================================================================================================== COMPANY NAME =========================================================================================================== Promotie Voor Speciale Evenementen- Holland b.v. Proserv, LLC ProTix Connecticut General Partnership PTG-Florida, Inc. PTG-Florida, Inc./BSMG Joint Venture Publicitywise Limited QBQ Entertainment, Inc. QN Corp. Radio City Christmas Spectacular Touring, LLC Ragtime NY LLC Rainbow Concert Productions, Inc. Rhyme Time LLC Rider House Limited Robbins Entertainment Group, Inc. Rosemont Consulting, Inc. Rugrats American Tour, Ltd. Rugrats Touring, LLC RZO Live, Inc. RZO Music Inc. RZO Music Limited RZO Productions, Inc. RZO Tours, Inc. Scottish Play, LLC Selma Amphitheater, LLC SFX Arena Management, LLC SFX Broadway, Inc. SFX Chicago, Inc. SFX Cincinnati, LLC SFX Club Management, LLC SFX Concerts of the Midwest, Inc. SFX Concerts, Inc. SFX Delaware, Inc. SFX Electric Factory, Inc. SFX Entertainment, Inc. SFX Family Entertainment Asia Limited SFX Family Entertainment International, Inc. SFX Family Entertainment Operations, Inc. SFX Family Entertainment, Inc. SFX Family Entertainment, S.A. DE C.V. SFX Family Holdings, Inc. SFX Festivals, Inc. SFX Interactive, Inc. SFX Las Vegas, Inc.
=========================================================================================================== COMPANY NAME =========================================================================================================== SFX Marketing, Inc. SFX Media Group, LLC: SFX Media Marketing. Inc. SFX Netherlands B.V. SFX Netherlands Holdings B.V. SFX Network Group, L.L.C. SFX of New Mexico, LLC SFX Productions and Publishing, Inc. SFX Radio Network, Inc. SFX Realty Company of Illinois, Inc. SFX Record Investments, Inc. SFX Rights, Inc. SFX Saratoga Concerts. LLC SFX Shared Services, Inc. SFX Sports Group (Australia) PTY Ltd SFX Sports Group (Europe) Limited SFX Sports Group, Inc. SFX Sports Holdings, Inc. SFX Theatrical Group, Inc. SFX Theatrical Merchandising, Inc. SFX Tollin/Robbins, Inc. SFX Touring, Inc. SFX Transportation, Inc. SFX U.K. Holdings Limited SFX Ventures, Inc, SFX-FE Touring Artists Group, Inc. SFX-FEI (Germany), Inc. SFX.com Incorporated SFX/NEDCO, Inc. SFX/SJS Publishing, Inc. Shelli Meadows, Inc. Shoreline Amphitheater, Ltd. Shoreline Amphitheatre Partners Sight Line Productions b.v. SJS Research Corporation SM/PACE, Inc. Southeast Ticketing Company Southern Promotions, Inc. Speakers of Sport, Inc. Sports & Entertainment Media Services, Inc. Step Entertainment Services Inc. Stichting Administratiekantoor LOC 7000 Straight Intemational Security b.v. Street Promotions (Europe) Limited Sunshine Concerts, L.L.C Sunshine Designs, Inc. Sunshine Designs, L.P. Suntex Acquisition, Inc.
=========================================================================================================== COMPANY NAME =========================================================================================================== Suntex Acquisition, L.P. Taking Care of Music b.v. Tatton Cinemas (Gatley) Limited TBA Media, Inc. TCN Theater Group, Inc. Texas Tarps The Album Network, Inc. The Boathouse Food Service Co. The Booking Group L.L.C. The Duke of York Theatre (Holdings) Limited The Entertainment Group S.A. de C.V. The Entertainment Group, Inc. The Event Support Company b.v. The Jekyll Company Limited Partnership The Rascoff/Zysblat Organization, Inc. The Security Company Utrecht Holland Holding b.v. The Wedding Tour Company The Wigan Entertainments Company Limited Tickets London Limited Tickets North Limited TNA (USA) Inc. TNA International Ltd. TNA Tour I (USA) Inc. TNA Tour II (USA) Inc. Tollin Robbins Productions Tollin/Robbins Management, LLC Toronto Theater Ltd. Total Transport Services b.v. Tower Theatre, Inc. Tremont Street Theatre Corporation II, Inc. Two Four Sports Limited Unit Four Cinemas (Accrington) Limited Unit Four Cinemas (Walkden) Limited Unit Four Cinemas (Wigan) Limited Unit Four Cinemas Limited Universal/ PACE Amphitheatres Group, L.P. V.O.F. Agents Afterall V.O.F. Excelsior Recordings Venue and Event Management Limited West Coast Amphitheater Corp. Westbury Music Fair, L.L.C. Willoughby (154) Limited World Trade Centre Wales Limited
EX-23.1 10 CONSENT OF ERNST & YOUNG LLP CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference of our report dated February 28, 2000, with respect to the consolidated financial statements and schedule of SFX Entertainment, Inc. included in this Annual Report on Form 10-K for the year ended December 31, 1999, in each of the following: 1. Registration Statement No. 333-88741 on Form S-8 pertaining to the 1999 Stock Option and Restricted Stock Plan; 2. Registration Statement No. 333-88473 on Form S-8 pertaining to the Director Deferred Stock Ownership Plan; 3. Registration Statement No. 333-76123 on Form S-3 pertaining to 118,000 shares of Class A Common Stock; and 4. Registration Statement No. 333-57511 on Form S-1 pertaining to 2,618,448 shares of Class A Common Stock. Ernst & Young LLP New York, New York March 30, 2000 EX-27.1 11 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1999 DEC-31-1999 382,640,000 0 115,496,000 2,422,000 0 587,842,000 741,634,000 55,388,000 2,948,873,000 361,678,000 1,384,992,000 0 0 639,000 1,099,330,000 2,948,873,000 0 1,684,355,000 1,253,647,000 1,647,170,000 0 0 (100,825,000) (56,303,000) (1,597,000) (57,900,000) 0 (2,490,000) 0 (60,390,000) (1.10) (1.10)
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