SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934
Check the appropriate box:
[X] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[ ] Definitive Information Statement
SFX Broadcasting, Inc.
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(Name of Registrant As Specified in Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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PRELIMINARY COPY
SUBJECT TO COMPLETION, DATED DECEMBER 24, 1997
INFORMATION STATEMENT
FOR INFORMATION ONLY
SFX BROADCASTING, INC.
This Information Statement is being furnished to the holders of shares of
Class A Common Stock, par value $.01 per share (the "Class A Common Stock") of
SFX Broadcasting, Inc., a Delaware corporation (the "Company"), in connection
with certain amendments to the Certificate of Designations (the "Series E
Certificate") relating to the Company's 12-5/8% Series E Cumulative
Exchangeable Preferred Stock Due October 31, 2006 (the "Series E Preferred
Stock"). It is anticipated that the amendments will become operative in the
first quarter of 1998.
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IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE
MATTERS DESCRIBED UNDER THE CAPTION "CERTAIN CONSIDERATIONS."
NO APPROVAL BY THE HOLDERS OF SHARES OF CLASS A COMMON STOCK OF THE AMENDMENTS
TO THE SERIES E CERTIFICATE IS REQUIRED OR SOUGHT. WE ARE NOT ASKING YOU FOR A
PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
THE INFORMATION CONTAINED IN THIS INFORMATION STATEMENT (INCLUDING THE
INFORMATION CONTAINED IN ANNEX 1 ATTACHED HERETO) REGARDING THE PROPOSALS
(INCLUDING THE MERGER DESCRIBED HEREIN) TO BE VOTED UPON AT THE UPCOMING
SPECIAL MEETING OF STOCKHOLDERS OF THE COMPANY IS PROVIDED AS CONTEXT FOR THE
AMENDMENTS TO THE SERIES E CERTIFICATE AND IS INTENDED TO BE FOR INFORMATION
PURPOSES ONLY. UNDER ALL CIRCUMSTANCES ANY INFORMATION PROVIDED IN THIS
INFORMATION STATEMENT REGARDING THE PROPOSALS TO BE VOTED UPON AT THE SPECIAL
MEETING IS SUPERSEDED BY ANY INFORMATION CONTAINED IN THE DEFINITIVE PROXY
STATEMENT TO BE ISSUED TO HOLDERS OF SHARES OF CLASS A COMMON STOCK IN
CONNECTION WITH THAT MEETING. HOLDERS OF SHARES OF CLASS A COMMON STOCK ARE
ENTITLED TO VOTE ON, AND PROXIES WILL BE SOUGHT FOR, THE PROPOSALS TO BE VOTED
UPON AT THE SPECIAL MEETING.
The date of this Information Statement is ____________, 1998. It is first being
sent to holders of shares of Class A Common Stock on such date.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") , and in
accordance therewith files reports, information statements and other
information with the Securities and Exchange Commission (the "Commission"). The
reports, information statements and other information filed by SFX with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and at the following Regional Offices of the SEC:
Seven World Trade Center, 13th Floor, New York, New York 10048 and Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of the material also can be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Company is an electronic filer under the EDGAR (Electronic Data
Gathering, Analysis and Retrieval) system maintained by the Commission. The
Commission maintains a Web Site (http://www.sec.gov) on the Internet that
contains reports, proxy and information statements and other information
regarding companies that file electronically with the Commission. In addition,
material filed by the Company can be inspected at the offices of The Nasdaq
Stock Market, Inc., Reports Section, 1735 K Street, N.W., Washington, D.C.
20006.
SFX Entertainment, Inc., a Delaware corporation ("SFX Entertainment"),
has filed a Registration Statement on Form S-1 (the "Registration Statement")
with the Commission relating to the shares of Class A common stock of SFX
Entertainment offered in the Spin-Off. HOLDERS OF SHARES OF CLASS A COMMON
STOCK ARE URGED TO READ THE REGISTRATION STATEMENT AND ANY AMENDMENTS THERETO
IN THEIR ENTIRETY.
Statements made in this Information Statement concerning the
provisions of any contract, agreement or other document referred to herein
constitute accurate summaries of the provisions of such document which are
material to such statements, but such statements do not purport to be complete.
With respect to each such statement concerning a contract, agreement or other
document filed with the Commission, reference is made to such filing for a more
complete description of the matter involved, and each such statement is
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the
Commission under the Exchange Act are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996;
(b) The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997;
(c) The Company's Current Reports on Form 8-K dated January 17,
1997, January 21, 1997, January 22, 1997, January 27, 1997,
April 15, 1997, June 16, 1997, July 11, 1997, August 25,
1997, December 11, 1997 and ________ __, 1997 and the
Company's Current Report on Form 8-K/A dated June 16, 1997.
All documents filed by the Company or SFX Entertainment pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Information Statement and prior to the filing with the Delaware Secretary of
State of the amendments to the Series E Certificate relating to the Series E
Amendments (as defined below) will be deemed to be incorporated by reference
into this Information Statement and to be a part hereof from the date of filing
of the documents.
IN ADDITION, CERTAIN INFORMATION ABOUT THE COMPANY AND SFX
ENTERTAINMENT IS SET FORTH ON ANNEX 1 ATTACHED HERETO, WHICH IS INCORPORATED
HEREIN BY REFERENCE.
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Any statement contained in a document incorporated or deemed to be
incorporated by reference herein will be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes the previous statement. Any statement
so modified or superseded will not be deemed to constitute a part hereof except
as so modified or superseded.
THIS INFORMATION STATEMENT INCORPORATES DOCUMENTS BY REFERENCE THAT
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO THE DOCUMENTS UNLESS THE EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON ORAL OR WRITTEN REQUEST
BY ANY PERSON TO WHOM THIS INFORMATION STATEMENT HAS BEEN DELIVERED, FROM SFX
BROADCASTING, INC., 650 MADISON AVENUE, NEW YORK, NEW YORK 10022, ATTENTION:
TIMOTHY KLAHS, DIRECTOR OF INVESTOR RELATIONS, TELEPHONE NUMBER (212) 407-
9126. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE FILING
WITH THE DELAWARE SECRETARY OF STATE OF THE AMENDMENTS TO THE SERIES E
CERTIFICATE, ANY REQUEST SHOULD BE MADE PROMPTLY. THE COMPANY WILL DELIVER THE
REQUESTED DOCUMENTS BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN
ONE BUSINESS DAY OF RECEIPT OF THE REQUEST.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS INFORMATION STATEMENT. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS
INFORMATION STATEMENT. THIS INFORMATION STATEMENT IS DATED _________ __, 1998.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS INFORMATION
STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE.
FORWARD-LOOKING STATEMENTS
This Information Statement, including the documents incorporated
herein by reference, contains forward- looking statements. Future events and
actual results, financial or otherwise, may differ materially from the results
set forth in or implied in the forward-looking statements. Factors that might
cause such a difference include the risks and uncertainties involved in the
Company's business, including, but not limited to, the effect of economic and
market conditions, the level and volatility of interest rates, the impact of
current or pending legislation and regulation and the other risks and
uncertainties discussed in "Certain Considerations" in Annex 1 attached hereto
and in "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in the Company's Form 10-K for the fiscal year ended December
31, 1996, which is incorporated by reference into this Information Statement.
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SUMMARY
The following summary does not purport to be complete. It is qualified
in its entirety by, and should be read in conjunction with, the more detailed
information and financial statements, including the notes thereto, contained
elsewhere in this Information Statement and the other documents referred to and
incorporated by reference herein, including the information set forth on Annex
1 attached hereto. Stockholders are urged to read this Information Statement
and the documents referred to and incorporated by reference herein in their
entirety.
THE COMPANY
The Company was incorporated in Delaware in 1992 principally to
acquire and operate radio stations. At the time of the Company's initial public
offering in late 1993, the Company owned and operated or provided programming
to 10 radio stations operating in six markets. During the past four years, the
Company has significantly expanded its radio station operations. The Company is
currently one of the largest radio station groups in the country and owns or
operates, provides programming to or sells advertising on behalf of 82 radio
stations operating in 19 markets. The Company's radio stations are diverse in
terms of format and geographic markets and are organized into five contiguous
regional clusters designed to maximize market penetration. The Company has
recently agreed to acquire and dispose of certain additional radio stations,
and, upon consummation of the Company's pending acquisitions and dispositions,
the Company will own or operate, provide programming to or sell advertising on
behalf of 73 radio stations (55 FM and 18 AM stations) operating in 19 markets.
In addition to owning and operating radio stations, the Company, through its
wholly-owned subsidiary, SFX Entertainment ("SFX Entertainment"), a Delaware
corporation, has become a significant operator of venues for, and promoter of,
music concerts and other live entertainment events through a series of
completed acquisitions of venue operators and concert promoters. The executive
offices of the Company are located at 650 Madison Avenue, New York, New York
10022. For a further description of the business of the Company, see the
reports filed by the Company with the Commission that are incorporated herein
by reference.
BACKGROUND AND PURPOSES OF THE INFORMATION STATEMENT
In August 1997, the Company agreed to the merger (the "Merger
Agreement") of an affiliate of Hicks, Muse, Tate and Furst, Inc. (the "Merger")
into the Company. In the Merger, holders of Class A Common Stock will receive
$75.00 in cash. Prior to the Merger, the Company intends to effect the spin-off
of SFX Entertainment to the shareholders of the Company on a pro-rata basis
(the "Spin-Off"). As a result of the Merger, the Company, as the surviving
corporation in the Merger, will become a wholly-owned subsidiary of SBI
Holdings Corporation, a Delaware corporation ("Buyer"), and an affiliate of
Hicks, Muse, Tate & Furst, Inc. The Company is seeking consents to modify
certain terms of the Series E Certificate in order to permit the Spin-Off and
the issuance in a private placement by SFX Entertainment of debt securities in
the aggregate principal amount of approximately $275.0 million (the "New
Notes") and the establishment by SFX Entertainment of a senior credit facility
in the principal amount of approximately $350.0 million (the "New Credit
Agreement"), which the Company is currently negotiating. The issuance of the
New Notes and the entering into of the New Credit Agreement are collectively
referred to herein as the "Financing." The Company will not be the obligor
under the New Credit Agreement or the indenture pursuant to which the New Notes
will be issued nor will it be the guarantor of SFX Entertainment's obligations
under either such instrument.
Concurrent with the distribution of this Information Statement, the
Company intends to commence solicitations of (i) written consents of the
holders of the Company's Series E Preferred Stock (the "Series E Consent
Solicitation") with respect to certain amendments (the "Series E Amendments")
to the Series E Certificate, and (ii) written consents (the "Note Consent
Solicitation") of the holders of the Company's 10-3/4% Senior Subordinated
Notes Due 2006 (the "Notes") with respect to certain amendments (the "Note
Amendments") to the Indenture, as amended, relating to the Notes. The Series E
Amendments and the Note Amendments are required to permit the Spin-Off, the
Financing and certain other related transactions. The consummation of each of
the Consent Solicitations is conditioned on the consummation of the other.
This Information Statement is intended to apprise you of the proposed
amendments to the Series E Certificate.
THE SERIES E AMENDMENTS; THE SERIES E CONSENT SOLICITATION
The Company is soliciting the consents of holders of the Series E
Preferred Stock to the Series E Amendments. The Series E Amendments would amend
several restrictive covenants contained in the Series E Certificate and add a
provision to the Series E Certificate that would provide that, notwithstanding
any other provision of the Series E Certificate to the contrary, the Company
and its subsidiaries will be permitted to consummate the Spin-Off, the
Financing, and any or all of the related transactions described in the Series E
Consent Solicitation.
CERTAIN INFORMATION ABOUT THE COMPANY AND SFX ENTERTAINMENT IS SET
FORTH ON ANNEX 1 ATTACHED HERETO, WHICH IS INCORPORATED BY REFERENCE.
If the Company is unable to obtain the consents required from the
holders of the Series E Preferred Stock for the Series E Amendments, it will be
unable to consummate the Spin-Off and the Financing. In that event, the Company
would be obligated pursuant to the Merger Agreement to dispose of SFX
Entertainment in some other manner. If the Company does not consummate the
Spin-Off or dispose of SFX Entertainment in an "Alternate Transaction" (as
defined in the Merger Agreement), Buyer may refuse to consummate the Merger or
may elect to consummate the Merger, by increasing the aggregate consideration
to be paid in the Merger by $42.5 million.
Adoption of the Series E Amendments requires the consent (the
"Requisite Consents") of a majority of the outstanding shares of Series E
Preferred Stock not held by the Company or any of its affiliates as of the
record date which the Board of Directors of the Company will set for the Series
E Consent Solicitation (the "Record Date").
The affirmative vote of majorities of the voting power of the holders
of the Series E Preferred Stock (voting as a separate class) and the Class A
Common Stock and Class B Common Stock, par value $.01 per share (the "Class B
Common Stock" and, together with the Class A Common Stock, the "Common Stock"),
of the Company (voting together as a single class with each share of Class A
Common Stock entitled to one vote and each share of Class B Common Stock
entitled to ten votes) is required to amend the Series E Certificate.
Robert F.X. Sillerman, the Executive Chairman and a director of the
Company, owns as of the date of this Information Statement approximately ____%
of the outstanding shares of Class A Common Stock and 97.8% of the outstanding
shares of Class B Common Stock (excluding options and warrants to acquire
shares), which represent approximately ____% of the outstanding shares of
Common Stock and approximately ____% of the combined voting power of the
outstanding Common Stock. It is not anticipated that Mr. Sillerman's ownership
of shares of Common Stock or the percentage of the continued voting power which
he controls will change significantly between the date of this Information
Statement and the date of execution by Mr. Sillerman of his written consent to
the Series E Amendments. Accordingly, Mr. Sillerman is able to control the
outcome of the vote on all matters that require the approval of the majority of
the combined voting power of all outstanding shares of the Common Stock; as a
result, his written consent in lieu of a meeting will control the outcome of
the vote of the Common Stock with respect to the amendment to the Series E
Certificate required to permit the Spin-Off and the Financing. Mr. Sillerman
has indicated to the Company that he intends to vote in favor of the Series E
Amendments. ACCORDINGLY, NO APPROVAL BY THE HOLDERS OF SHARES OF CLASS A COMMON
STOCK OF THE SERIES E AMENDMENTS IS REQUIRED OR SOUGHT. THE COMPANY IS NOT
ASKING HOLDERS OF CLASS A COMMON STOCK TO EXECUTE A PROXY.
As of the time of the filing of the amendment to the Series E
Certificate, all then current holders of Series E Preferred Stock, including
nonconsenting holders, and all subsequent holders of Series E Preferred Stock,
will be bound by the Series E Amendments.
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SHARES OUTSTANDING
As of the date of this Information Statement, there were outstanding
10,002,550 shares of Class A Common Stock and 1,047,037 shares of Class B
Common Stock. The shares of Class A Common Stock are entitled to one vote per
share on all matters upon which shareholders are entitled to vote, and the
shares of Class B Common Stock are generally entitled to 10 votes per share.
CERTAIN CONSIDERATIONS
Stockholders should consider the matters set forth under "Certain
Considerations" contained in Annex 1 attached hereto.
THE INFORMATION CONTAINED IN THIS INFORMATION STATEMENT (INCLUDING THE
INFORMATION CONTAINED IN ANNEX 1 ATTACHED HERETO) REGARDING THE PROPOSALS
(INCLUDING THE MERGER DESCRIBED HEREIN) TO BE VOTED UPON AT THE UPCOMING
SPECIAL MEETING OF THE COMPANY IS PROVIDED AS CONTEXT FOR THE AMENDMENTS TO THE
SERIES E CERTIFICATE AND IS INTENDED TO BE FOR INFORMATION PURPOSES ONLY. UNDER
ALL CIRCUMSTANCES ANY INFORMATION PROVIDED IN THIS INFORMATION STATEMENT
REGARDING THE PROPOSALS TO BE VOTED UPON AT THE SPECIAL MEETING IS SUPERSEDED
BY ANY INFORMATION CONTAINED IN THE DEFINITIVE PROXY STATEMENT TO BE ISSUED IN
CONNECTION WITH THAT MEETING. HOLDERS OF SHARES OF CLASS A COMMON STOCK ARE
ENTITLED TO VOTE ON, AND PROXIES WILL BE SOUGHT FOR, THE PROPOSALS TO BE VOTED
UPON AT THE SPECIAL MEETING.
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PRINCIPAL STOCKHOLDERS
The following table gives information concerning the beneficial
ownership of the Company's capital stock as of December 11, 1997, by (a) each
director and executive officer of the Company, (b) all executive officers and
directors of the Company as a group and (c) each person known by the Company to
own beneficially more than 5% of any class of the Company's voting stock.
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------------------- ------------------------ PERCENT OF
NAME AND ADDRESS OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF TOTAL VOTING
BENEFICIAL OWNER(1) SHARES CLASS SHARES CLASS POWER
------------------- ------ ----- ------ ----- -----
Directors and Executive Officers:
Robert F.X. Sillerman(2)......... (3) _._% 1,024,168 97.8% _._%
Michael G. Ferrel................. 107,344(4) 1.1% 22,869 2.2% 1.6%
D. Geoffrey Armstrong............. 77,496(5) * -- -- *
Thomas P. Benson.................. 600(6) * -- -- *
Howard J. Tytel................... (7) _._% -- -- *
Richard A. Liese.................. 400(8) * -- -- *
James F. O'Grady, Jr. ............ 850(9) * -- -- *
Paul Kramer....................... 2,000(9) * -- -- *
Edward F. Dugan................... 2,000(9) * -- -- *
All directors and executive
officers as a group (9 persons)... 992,469 9.2% 1,047,037 100.0% 53.9%
5% Stockholders:
Nomura Holdings America Inc. ..... 1,320,729(10) 13.2% -- -- 6.5%
2 World Financial Center, Building B
New York, NY 10281
The Goldman Sachs Group, L.P. .... 689,574(11) 6.9% -- -- 3.4%
85 Broad Street
New York, NY 10004
College Retirement Equities Fund.. 460,500(1) 4.6% -- -- 2.2%
730 Third Avenue
New York, NY 10017
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* Less than 1%
(1) Unless otherwise set forth above, the address of each stockholder is
the address of the Company, which is 650 Madison Avenue, New York, New
York 10022. Pursuant to Rule 13d-3 of the Exchange Act, as used in
this table, (a) "beneficial ownership" means the sole or shared power
to vote, or to direct the disposition of, a security, and (b) a person
is deemed to have "beneficial ownership" of any security that the
person has the right to acquire within 60 days of December 11, 1997.
For purposes of this table, "beneficial ownership" does not include
shares of Class A Common Stock issuable upon exercise of options that
are not scheduled to vest within 60 days of December 11, 1997.
However, all of those options will be vested upon consummation of the
Merger. In addition, for purposes of this table, "beneficial
ownership" of Class A Common Stock does not include the number of
shares of Class A Common Stock issuable upon conversion of shares of
Class B Common Stock even though the shares of Class B Common Stock
are convertible at any time, at the option of the holder thereof
(subject to the approval of the Federal Communications Commission, if
applicable), into shares of Class A Common Stock. Unless noted
otherwise, (a) information as to beneficial ownership is based on
statements furnished to the Company by the beneficial owners, and (b)
stockholders possess sole voting and dispositive power with respect to
shares listed on this table. As of December 11, 1997, there were
issued and outstanding 10,002,550 shares of Class A Common Stock,
1,047,037 shares of Class B Common Stock and 2,990,000 shares of
Series D Preferred Stock.
(2) Concurrent with the execution of the Merger Agreement, Mr. Sillerman
entered into a Stockholder Agreement dated as of August 24, 1997, with
the Company, Buyer and SBI Radio Acquisition Corporation pursuant to
which Mr. Sillerman is required to vote all shares of Class A Common
Stock and Class B Common Stock which he owns in favor of the Merger
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Agreement and the Merger and the amendments to the Certificate of
Incorporation of the Company to be considered at the special meeting
of stockholders of the Company at which the Merger will be voted upon.
(3)
(4) Includes 95,212 shares that may be acquired pursuant to the exercise
of options which have vested or will vest within 60 days of December
11, 1997. If the 22,869 shares of Class B Common Stock held by Mr.
Ferrel were included in calculating his ownership of Class A Common
Stock, Mr. Ferrel would beneficially own 118,081 shares of Class A
Common Stock, representing approximately 1.2% of the class.
(5) Includes 68,000 shares that may be acquired pursuant to the exercise
of options which have vested or will vest within 60 days of December
11, 1997.
(6) Consists of 600 shares which may be acquired pursuant to the exercise
of options which have vested or will vest within 60 days of
December 11, 1997.
(7)
(8) Consists of 400 shares which may be acquired pursuant to the exercise
of options which have vested or will vest within 60 days of
December 11, 1997.
(9) Does not include shares underlying interests in the Company's Director
Deferred Stock Ownership Plan.
(10) Based on information contained in Amendment No. 2 to Schedule 13D
filed with the SEC on November 7, 1997. Of these shares, 1,071,429
shares are held of record by Bedrock Asset Trust I, a Delaware trust
established by Nomura Holdings America Inc. The remaining 249,300
shares are held directly by Nomura Holdings America Inc., which is
controlled by The Nomura Securities Co., Ltd., a corporation organized
under the laws of Japan.
(11) Based on information contained in Amendment No. 1 to Schedule 13D
filed with the SEC on September 24, 1997. As of September 19, 1997,
The Goldman Sachs Group, L.P., a holding partnership, beneficially
owned 689,574 shares, of which 649,574 shares were beneficially owned
by Goldman, Sachs & Co., including 293,952 shares issuable upon
conversion of shares of Series D Preferred Stock. The Goldman Sachs
Group, L.P. is a general partner of (and owns a 99% interest in)
Goldman, Sachs & Co., a broker dealer and an investment adviser under
the Investment Advisers Act of 1940.
(12) Based on information contained in Schedule 13G filed with the SEC on
February 10, 1997. College Retirement Equities Fund is an investment
company registered under the Investment Company Act of 1940.
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ANNEX 1
CERTAIN INFORMATION ABOUT THE COMPANY AND SFX ENTERTAINMENT
SUMMARY................................................................... 1
CERTAIN CONSIDERATIONS.................................................... 8
THE SPIN-OFF.............................................................. 10
INDEPENDENT AUDITORS...................................................... 17
INDEX TO FINANCIAL STATEMENTS............................................. F-1
SUMMARY
The following summary is qualified in its entirety by the detailed
information and Consolidated Financial Statements and notes thereto included
elsewhere in this Annex. Unless the context indicates otherwise, references in
this Annex to the "Company" refers to SFX Broadcasting, Inc. and its
consolidated subsidiaries.
THE FINANCING
SFX Entertainment intends to use the proceeds of the Financing to
finance the cash consideration to be paid for the Pending Acquisitions (as
defined below), to refinance liabilities assumed in connection with the Pending
Acquisitions, to pay certain related fees and expenses, to fund planned capital
expenditures during 1998 and for general corporate purposes. Although SFX
Entertainment currently intends to use the proceeds of the Financing in
connection with the Pending Acquisitions, there can be no assurance that any of
the Pending Acquisitions will ultimately be consummated on the terms described
herein or at all. If any of the Pending Acquisitions is not consummated, the
Company will be free to employ the allocable proceeds of the Financing for any
other purpose permitted by the terms of the New Credit Facility and the
indenture governing the New Notes.
THE MERGER; AMENDMENT OF CERTIFICATE OF INCORPORATION
On August 24, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") among the Company, Buyer and SBI Radio
Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of
Buyer ("Buyer Sub"). Pursuant to the Merger Agreement, the Company will become
a wholly-owned subsidiary of Buyer, and, among other things, each issued and
outstanding share (except for shares held by persons who exercise dissenters'
appraisal rights) of the Company's (a) Class A Common Stock, par value $.01 per
share (the "Class A Common Stock"), will convert into the right to receive
$75.00, (b) Class B Common Stock, par value $.01 per share (the "Class B Common
Stock" and, together with the Class A Common Stock, the "Common Stock"), will
convert into the right to receive $97.50, (c) 6 1/2% Series D Cumulative
Convertible Exchangeable Preferred Stock (the "Series D Preferred Stock") will
convert into the right to receive an amount equal to the product of (i) $75.00
and (ii) the number of shares of Class A Common Stock into which each share of
Series D Preferred Stock would have been convertible immediately prior to the
Effective Time (as defined under the Merger Agreement) (herein, the "Merger
Effective Time"), and (d) Series C Redeemable Convertible Preferred Stock (the
"Series C Preferred Stock") will convert into the right to receive $1,000.00,
plus any accrued but unpaid dividends. All such amounts will be payable in
cash, without interest. The consideration to be received by holders of Class A
Common Stock, Class B Common Stock and Series D Preferred Stock is subject to
increase in certain circumstances. Each issued and outstanding share of Series
E Preferred Stock will continue to be outstanding after the Merger Effective
Time as 12 5/8% Series E Cumulative Exchangeable Preferred Stock of the
surviving corporation of the Merger.
The consummation of the Merger is subject to certain conditions and
the receipt of certain consents including, among other things, the approval of
the Common Stock voting together as a single class, and the approval of each of
the Class A Common Stock and Series D Preferred Stock, voting separately as a
class. In addition, the Merger is subject to certain regulatory approvals. The
approval and adoption of the Merger Agreement will be considered at a special
meeting of the stockholders of the Company (the "Special Meeting") that is
intended to be held on or about _________________, 1998.
The Company anticipates that the Merger will be consummated in the
second quarter of 1998 and that the Spin- Off will occur prior thereto.
Although management of the Company believes that all necessary consents and
approvals will be obtained in order to permit the Spin-Off and the Merger,
there can be no assurance to such effect.
The Board of Directors of the Company and its committee of independent
members ("Independent Committee") have unanimously approved the Merger
Agreement and the transactions contemplated thereby and have determined that
they are fair to and in the best interests of the holders of Class A Common
Stock. Concurrent with the execution of the Merger Agreement, Robert F.X.
Sillerman entered into a Stockholder Agreement with the Company,
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Buyer and Buyer Sub pursuant to which Mr. Sillerman is required to vote all
shares of Class A Common Stock and Class B Common Stock which he owns in favor
of the Merger.
At the Special Meeting, the Company's stockholders will also be asked
to approve two proposals relating to the approval and adoption of amendments to
the Certificate of Incorporation of the Company. The amendments contained in
the first proposal will allow the holders of shares of Class B Common Stock to
receive a higher consideration per share in the Merger and related transactions
than the holders of shares of Class A Common Stock, as set forth in the Merger
Agreement. The amendments contained in the second proposal will permit the
holders of shares of Class A Common Stock to receive shares of class A common
stock of SFX Entertainment in connection with the Spin-Off, and the holders of
shares of Class B Common Stock to receive shares of class B common stock of SFX
Entertainment (with 10-1 voting rights similar to the Class B Common Stock of
the Company) in connection with the Spin-Off (the "Spin-Off Shares Proposal").
The Company's stockholders will also be asked to transact any other business
that may properly come before the Special Meeting and any adjournments or
postponements thereof. The Company will disseminate to its stockholders a proxy
statement which describes in detail the proposals to be acted upon at the
Special Meeting.
The Company has been advised that Buyer intends to finance its
obligations under the Merger Agreement through one or more financing
transactions, which may include (but will not be limited to) the following:
borrowings under a senior bank facility, borrowings under one or more tranches
of senior subordinated debt, the issuance of one or more classes of preferred
stock, the issuance of one or more classes of equity securities and the
issuance of rights to purchase equity securities. Buyer's and Buyer Sub's
obligations under the Merger Agreement are not subject to any conditions
regarding their ability to obtain financing. Buyer and Buyer Sub have deposited
$100.0 million into escrow to secure certain of their obligations under the
Merger Agreement.
Section 7(a) of the Series E Certificate requires that upon the
occurrence of a "Change of Control," which is defined to include a merger which
results in a person becoming the beneficial owner of capital stock of the
Company having more than 35% of the combined voting power of all classes of
voting stock of the Company, each Holder has the right to require the Company
to make a "Change of Control Offer." A Change of Control Offer is an offer by
the Company to repurchase all or any part of such Holder's shares at an offer
price in cash equal to 101% of the aggregate Liquidation Preference (as defined
in the Series E Certificate) plus accrued and unpaid dividends, if any. The
Merger will be a Change of Control and will require the Surviving Corporation
(as defined in the Merger Agreement) to make a Change of Control Offer. As of
December ___, 1997, the shares of Series E Preferred Stock were trading at ___%
of their Liquidation Preference.
SFX ENTERTAINMENT; THE SPIN-OFF
SFX's Entertainment's core business is the promotion and production of
live entertainment events, most significantly for concert and other music
performances in venues owned and/or operated by SFX Entertainment and in
third-party venues. As promoter, SFX Entertainment typically markets events and
tours, sells tickets, rents or otherwise provides event venues and arranges for
local production services (such as stage, set, sound and lighting). As
producer, SFX Entertainment creates tours for music concert, theatrical,
specialized motor sports and other events, develops and manages touring
Broadway shows and develops specialized motor sports and other events.
SFX Entertainment was formed as a subsidiary of the Company in
December of 1997. The Company acquired Delsener/Slater Enterprises, Ltd.
("Delsener/Slater"), a New York-based concert promotion company, in January of
1997. Delsener/Slater has long-term leases or is the exclusive promoter for
several of the major concert venues in the New York City metropolitan area,
including the Jones Beach Amphitheater, an 11,200-seat complex located in
Wantagh, New York, and the PNC Bank Arts Center (formerly known as the Garden
State Arts Center), a 10,800-seat complex located in Holmdel, New Jersey. In
March of 1997, SFX Entertainment acquired a 37-year lease to operate the
Meadows Music Theatre, a 25,000-seat indoor/outdoor complex located in
Hartford, Connecticut. In June of 1997, SFX Entertainment acquired Sunshine
Promotions, a concert promoter in the Midwest, and certain other related
companies ("Sunshine Promotions" and, together with the acquisitions of
Delsener/Slater and the Meadows Music Theatre lease, the "Recent
Acquisitions"). As a result of the acquisition of Sunshine Promotions, SFX
Entertainment owns the Deer Creek Music Theater, a 21,000-seat complex
- 2 -
located in Indianapolis, Indiana, and the Polaris Amphitheater, a 20,000-seat
complex located in Columbus, Ohio, and has a long-term lease to operate the
Murat Centre, a 2,700-seat theater and 2,200-seat ballroom located in
Indianapolis, Indiana. On a pro forma basis, SFX Entertainment's revenues and
earnings before interest, taxes, depreciation and amortization for the nine
months ended September 30, 1997 were approximately $501.5 million and $56.5
million, respectively.
The following chart sets forth information with respect to venues
currently owned by SFX Entertainment.
SFX TOTAL AVG. NO.
MARKET TYPE OF ENTERTAINMENT'S SEATING ATTENDANCE EVENTS IN TOTAL SEATS
MARKET AND VENUE RANK(1) VENUE INTEREST CAPACITY IN 1996 1996 SOLD IN 1996
- ------------------------------------------------------------------------------------------------------------------------------------
New York-Northern New Jersey - 1
Long Island:
PNC Bank Arts Center amphitheater 33-1/3% interest 17,500(2) 6,512 48 312,595
(formerly Garden State Arts in 22-year lease
Center) (Holmdel, NJ).... (expires October
31, 2017)
Jones Beach Marine amphitheater 10-year license 14,000(2) 8,712 44 383,314
Amphitheater (Wantagh, agreement
NY)...................... (expires
December 31,
1999)
Roseland Theater............ theater ___-year 3,200 2,765 57 157,605
[exclusive]
booking agent
(expires ______)
Indianapolis: 28
Deer Creek Music Center..... amphitheater owned 21,000 10,187 38 387,119
Murat Centre................ theater and [50]-year lease 4,880 1,900 85 161,500*
ballroom (expires August
31, 2045)
Columbus: 30
Polaris Amphitheater........ amphitheater owned 20,000 6,751 38 256,553
Hartford: 36
Meadows Music Theater....... amphitheater facility owned; 25,000 6,914 38 262,741
land leased for 37
years
(expires ______)
Rochester: 39
Finger Lakes Amphitheater... amphitheater 3-year lease 12,700 4,203 15 63,044
(expires 1999)
- ----------------
(1) Based on population of metropolitan statistical areas as set forth in the
1996 Statistical Abstracts of the United States.
(2) Assumes completion of current expansion projects, which are anticipated to
be completed by summer 1998.
* For 1997. 1996 numbers unavailable.
- 3 -
In December of 1997, SFX Entertainment entered into agreements to acquire
the following live entertainment businesses (collectively, the "Pending
Acquisitions"):
PACE Entertainment Corporation ("PACE"), one of the largest diversified
producers and promoters of live entertainment in the United States, having
the largest distribution network in the United States in each of its music,
theater and specialized motor sports businesses together with the Pavilion
Acquisition defined below, (the "PACE Acquisition"), for a total
consideration of $155.0 million (including--issuance of capital stock of the
Company valued by the parties at $20 million and assumption of $25.5 million
of debt). In connection with the PACE Acquisition, the Company will obtain
100% of Pavilion Partners, (a partnership that owns interests in 10
amphitheatres, "Pavilion Partners") one third through the acquisition of
PACE and the remaining two-thirds through separate agreements between PACE
and Sony and Blockbuster for a combined consideration of $89.4 million
(including the assumption of $48.3 million of liabilities for such two-third
interest (acquisition of such two-thirds interest, the "Pavilion
Acquisition")). Neither the consummation of the Sony Acquisition nor the
Blockbuster Acquisition is a condition precedent to the closing of the Pace
Acquisition. Under certain circumstances, the Company may be required to
sell either its motor sports or theatrical lines of business;
The Contemporary Group ("Contemporary"), a fully-integrated live
entertainment and special event promoter and producer, venue owner and
operator and consumer marketer, for total consideration of $91.5 million
(including issuance of capital stock of SFX Entertainment valued at $18.7
million). Contemporary is the leading music concert promoter in the St.
Louis, Missouri, Kansas City, Kansas and surrounding areas, the nation's
leading tour promoter and producer of contemporary Christian artists, a
major promoter and producer of comedy tours, and one of the top special
event and sales marketing companies (whose clients include Coca-Cola, AT&T,
Nabisco, the National Basketball Association, CBS-TV, Radio Shack and
Reebok);
The Network Magazine Group, a leading publisher of radio trade magazines,
and SJS Entertainment, a leading provider of air-time research to the radio
broadcasting industry and independent producer and distributor of music-
related radio programs and services which it exchanges with radio
broadcasters for commercial air-time sold, in turn, to national network
advertisers for total consideration of $62 million (including issuance of
capital stock of SFX Entertainment valued at $10 million);
BG Presents, Inc. ("BGP"), one of the oldest promoters of, and
owner-operators of venues for, live entertainment in the United States, and
a leading promoter in the San Francisco Bay area (the "BGP Acquisition"),
for total consideration of $68.3 million (including issuance of capital
stock of SFX Entertainment valued by the parties at $7.5 million or, at SFX
Entertainment's option, an equivalent amount in cash;
Concert/Southern Promotions, the leading promoter of live music events in
the Atlanta, Georgia area, for total consideration of $16.6 million
(including payment at closing of the $1.6 million present value of a
deferred compensation liability).
SFX Entertainment expects to complete all of the Pending Acquisitions as
soon as practicable after the Financing and prior to the Merger. SFX
Entertainment anticipates that it will consummate all of the Pending
Acquisitions in the first quarter of 1998. However, the timing and completion
of the Pending Acquisitions are subject to a number of conditions, certain of
which are beyond the Company's control, and there can be no assurance that such
transactions will be completed during such periods, on the terms described
herein, or at all.
The Merger Agreement requires the Company to consummate the Spin-Off or an
Alternate Transaction (as defined in the Merger Agreement) prior to the Merger
Effective Time. If the Spin-Off Shares Proposal is approved at the Special
Meeting, SFX Entertainment will amend and restate its Certificate of
Incorporation to, among other things, increase its authorized capital stock and
will issue to the Company, in exchange for the issued and outstanding shares
- 4 -
of stock of SFX Entertainment then held by the Company, the number of shares of
SFX Entertainment's common stock necessary to consummate the Spin-Off. The
Company will then consummate the Spin-Off by distributing shares of SFX
Entertainment as a dividend to holders of Class A Common Stock, Class B Common
Stock, Series D Preferred Stock and certain warrants to purchase Common Stock.
The Spin-Off is subject to a number of terms and conditions, including
obtaining consents of certain creditors and preferred stockholders of the
Company and apportioning assets (including Working Capital, as defined in "The
Spin-Off") and liabilities between the Company and SFX Entertainment. As of
September 30, 1997, the Company estimates that Working Capital to be received
by SFX Entertainment, would have been approximately $2.1 million, and that
approximately $135.5 million of additional assets and $34.1 million of
liabilities would have been apportioned to SFX Entertainment.
If the Spin-Off is not permitted to occur due to certain legal or
contractual impediments, the Company may dispose of SFX Entertainment in
another manner. If the Company does not dispose of SFX Entertainment, whether
through the Spin-Off or an Alternate Transaction, the Buyer may elect whether
to consummate the Merger (in which case it will be required to increase the
consideration paid to holders of the Class A Common Stock and Class B Common
Stock by an aggregate of $42.5 million) or to terminate the Merger Agreement.
The Company's management believes that SFX Entertainment has a value
substantially in excess of $42.5 million and expects to consummate the Spin-Off
or otherwise dispose of SFX Entertainment prior to the Merger. In addition,
even if the Merger or the Financing do not occur for any reason, the Company
intends to consummate the Spin-Off. Although the approval of the Spin-Off
Shares Proposal is necessary in order to enable the Company to consummate the
Spin-Off as currently contemplated, stockholder approval of the Spin-Off is not
required, and will not be sought in connection with the Special Meeting.
- 5 -
SUMMARY CONSOLIDATED FINANCIAL DATA OF THE COMPANY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Summary Consolidated Financial Data of the Company includes the
historical financial statements of Capstar Communications, Inc., a
predecessor of the Company ("Capstar"), and the historical financial
statements of the Company since its formation on February 26, 1992. The
financial information presented below should be read in conjunction with the
information set forth in "Unaudited Pro Forma Condensed Combined Financial
Statements" and the notes thereto and the financial statements and the notes
of the Company incorporated by reference in this Information Statement. The
financial information has been derived from the audited and unaudited
financial statements of the Company and the entities acquired or to be
acquired by the Company since January 1, 1996. The pro forma summary data as
of September 30, 1997 and for the year ended December 31, 1996 and the nine
months ended September 30, 1997 are derived from the unaudited pro forma
condensed combined financial statements which, in the opinion of the
management, reflect all adjustments necessary for a fair presentation of the
transactions for which such pro forma financial information is given.
Operating results for the nine months ended September 30, 1997, are not
necessarily indicative of the results that may be achieved for the fiscal
year ending December 31, 1997. The historical consolidated financial results
for the Company are not comparable from year to year because of the
acquisition and disposition of various business operations during the periods
covered.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
PRO FORMA
FOR THE RECENT PRO FORMA
AND PENDING FOR THE
TRANSACTIONS(8) SPIN-OFF(9)
(UNAUDITED) (UNAUDITED)
1992 1993 1994 1995 1996 1996 1996
-------- --------- ------- -------- --------- -------------- ---------
STATEMENT OF OPERATIONS DATA:
Net broadcasting revenue........................ $15,003 $ 34,233 $55,556 $76,830 $143,061 $ 272,694 $272,694
Concert promotion revenue....................... -- -- -- -- -- 552,100 --
Station and other operating expenses............ 9,624 21,555 33,956 51,039 92,816 184,267 184,267
Concert promotion operating expenses............ -- -- -- -- -- 508,357 --
Depreciation, amortization, duopoly integration
costs and acquisition related costs(1) ........ 3,208 4,475 5,873 9,137 17,311 85,451 47,656
Corporate expenses.............................. 769 1,808 2,964 3,797 6,313 8,000 5,000
Non-recurring charges including adjustments to
broadcast rights agreement(2)(3)(4)(5) ........ -- 13,980 -- 5,000 28,994 25,662 25,662
-------- --------- ------- -------- --------- -------------- ---------
Operating income (loss)......................... 1,402 (7,585) 12,763 7,857 (2,373) 13,057 10,109
Investment and other (income) loss/net ......... -- (17) 121 (650) (2,117) (4,933) (2,756)
Equity (income) loss from investments ......... -- -- -- -- -- (3,744) --
Interest expense, including amortization of
deferred financing costs....................... 3,610 7,351 9,332 12,903 34,897 115,003 71,613
-------- --------- ------- -------- --------- -------------- ---------
Income (loss) before income taxes,
extraordinary item and cumulative effect of a
change in accounting principle................. (2,208) (14,919) 3,310 (4,396) (35,153) (93,269) (58,748)
Income tax expense (benefit).................... -- 1,015 1,474 -- 480 3,500 2,000
Extraordinary loss on debt retirement........... -- 1,665 -- -- 15,219 -- --
Cumulative effect of a change in accounting
principle...................................... -- 182 -- -- -- -- --
-------- --------- ------- -------- --------- -------------- ---------
Net income (loss)............................... (2,208) (17,781) 1,836 (4,396) (50,852) (96,769) (60,748)
Redeemable preferred stock dividends and
accretion(6)................................... 385 557 348 291 6,061 38,124 38,124
-------- --------- ------- -------- --------- -------------- ---------
Net income (loss) applicable to common stock ... $(2,593) $(18,338) $ 1,488 $(4,687) $(56,913) $(134,893) $(98,872)
======== ========= ======= ======== ========= ============== =========
Net income (loss) per share..................... $ (2.20) $ (7.08) $ 0.26 $ (0.71) $ (7.52) $ (8.52) $ (6.24)
======== ========= ======= ======== ========= ============== =========
Weighted average common shares outstanding ..... 1,179 2,589 5,792 6,596 7,564 15,840 15,840
OTHER OPERATING DATA: (7)
Broadcast Cash Flow............................. $ 5,379 $ 12,678 $21,600 $25,791 $ 50,245 $ 88,427 $ 88,427
Concert Cash Flow............................... -- -- -- -- -- 43,743 --
EBITDA.......................................... 4,610 10,870 18,636 21,994 43,932 124,170 83,427
(RESTUBBED TABLE CONTINUED FROM ABOVE)
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------
PRO FORMA
FOR THE RECENT PRO FORMA
AND PENDING FOR THE
ACTUAL ACTUAL TRANSACTIONS(8) SPIN-OFF(9)
(UNAUDITED)(UNAUDITED) (UNAUDITED) (UNAUDITED)
1996 1997 1997 1997
--------- --------- -------------- ------------
STATEMENT OF OPERATIONS DATA:
Net broadcasting revenue........................ $ 92,840 $188,984 $222,731 $222,731
Concert promotion revenue....................... -- 75,740 501,489 --
Station and other operating expenses............ 61,448 115,871 142,935 142,935
Concert promotion operating expenses............ -- 63,394 442,199 --
Depreciation, amortization, duopoly integration
costs and acquisition related costs(1) ........ 10,663 31,429 61,677 33,299
Corporate expenses.............................. 4,475 6,849 8,698 5,891
Non-recurring charges including adjustments to
broadcast rights agreement(2)(3)(4)(5) ........ 27,489 17,995 17,995 17,995
--------- --------- -------------- ---------
Operating income (loss)......................... (11,235) 29,186 50,717 22,612
Investment and other (income) loss/net ......... (3,320) (2,692) (2,716) (2,482)
Equity (income) loss from investments ......... -- -- (8,937) --
Interest expense, including amortization of
deferred financing costs....................... 22,169 46,438 86,054 53,555
--------- --------- -------------- ---------
Income (loss) before income taxes,
extraordinary item and cumulative effect of a
change in accounting principle................. (30,084) (14,560) (23,684) (28,461)
Income tax expense (benefit).................... -- 845 4,500 1,000
Extraordinary loss on debt retirement........... 15,219 -- -- --
Cumulative effect of a change in accounting
principle...................................... -- -- -- --
--------- --------- -------------- ---------
Net income (loss)............................... (45,303) (15,405) (28,184) (29,461)
Redeemable preferred stock dividends and
accretion(6)................................... 3,551 27,723 28,906 28,906
--------- --------- -------------- ---------
Net income (loss) applicable to common stock ... $(48,854) $(43,128) $(57,090) $(58,367)
========= ========= ============== =========
Net income (loss) per share..................... $ (6.61) $ (4.61) $ (3.60) $ (3.68)
========= ========= ============== =========
Weighted average common shares outstanding ..... 7,394 9,364 15,840 15,840
OTHER OPERATING DATA: (7)
Broadcast Cash Flow............................. $ 31,392 $ 73,113 $ 79,796 $ 79,796
Concert Cash Flow............................... -- 12,346 59,290 --
EBITDA.......................................... 26,917 78,610 130,389 73,906
- 6 -
DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Current assets ............. $ 4,515 $ 31,273 $ 28,367 $ 30,949 $ 88,689
Total assets................ 36,127 152,871 145,808 187,337 859,327
Long-term debt ............. 39,011 81,627 81,516 81,850 481,460
Redeemable Preferred Stock:
Series A Preferred Stock . 3,892 917 -- -- --
Series B Preferred Stock . -- 2,784 2,466 1,735 917
Series C Preferred Stock . -- -- -- 1,550 1,636
Series D Preferred Stock . -- -- -- -- 149,500
Series E Preferred Stock . -- -- -- -- --
Stockholders' equity
(deficiency) .............. (9,411) 48,598 48,856 83,061 94,517
(RESTUBBED TABLE CONTINUED FROM ABOVE)
SEPTEMBER 30, 1997
----------------------------------------
PRO FORMA FOR PRO FORMA
THE PENDING FOR THE
ACTUAL TRANSACTIONS(10) SPIN-OFF(11)
(UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ --------------- ------------
BALANCE SHEET DATA:
Current assets ............. $ 140,689 $ 245,826 $ 128,500
Total assets................ 1,392,887 2,003,064 1,243,018
Long-term debt ............. 784,255 1,216,522 731,501
Redeemable Preferred Stock:
Series A Preferred Stock . -- -- --
Series B Preferred Stock . 998 998 998
Series C Preferred Stock . 1,703 1,703 1,703
Series D Preferred Stock . 149,500 149,500 149,500
Series E Preferred Stock . 215,636 215,636 215,636
Stockholders' equity
(deficiency) .............. 69,554 134,215 (9,008)
- ------------
(1) Includes $1,380,000, $1,137,000 and $565,000 of duopoly integration
costs incurred during the years ended December 31, 1995 and 1996 and
the nine months ended September 30, 1997, respectively.
(2) In 1993, non-recurring charges related to the valuation of common stock
issued to the Company's founders at the Company's initial public
offering in September 1993 and certain pooling costs related to the
merger of Capstar with and into a subsidiary of the Company.
(3) In 1995, a $5.0 million charge was incurred with respect to the
diminished value of a contract to broadcast the Texas Rangers.
(4) In 1996, the non-recurring charges represent the repurchase of stock
from and the forgiveness of a loan to the Company's former president, a
reserve of a loan and the issuance of warrants to a related party, the
purchase of an officer's options and a charge related to the
termination of a broadcast rights agreement.
(5) In 1997, the non-recurring and unusual charges , represent amounts
related to the pending Spin-Off and Merger, consisting of $11.6 million
of executive bonuses, the establishment of a reserve for a loan from
the Company's Executive Chairman of $2.6 million and $3.8 million of
legal and professional fees associated with the pending transaction.
(6) Includes dividends on preferred stock which the Company redeemed in
1993, accretion on outstanding redeemable preferred stock, dividends on
the Series D Preferred Stock and dividends on the Series E Preferred
Stock.
(7) "Broadcast Cash Flow" means net revenues less station operating
expenses. "Concert Cash Flow" means concert revenues less concert
costs. "EBITDA" means net income (loss) before (i) extraordinary items,
(ii) provisions for income taxes, (iii) interest (income) expense, (iv)
other (income) expense, (v) cumulative effects of changes in accounting
principles, (vi) depreciation, amortization, duopoly integration costs
and acquisition related costs, and (vii) non-recurring charges. The
difference between Broadcast Cash Flow and EBITDA is that EBITDA
reflects the impact of corporate expenses. Although Broadcast Cash Flow
and EBITDA are not measures of performance calculated in accordance
with GAAP, the Company believes that Broadcast Cash Flow and EBITDA are
accepted by the broadcasting industry as generally recognized measures
of performance and are used by analysts who report publicly on the
performance of broadcasting companies. Nevertheless, these measures
should not be considered in isolation or as a substitute for operating
income, net income, net cash provided by operating activities or any
other measure for determining the Company's operating performance or
liquidity which is calculated in accordance with GAAP.
(8) The unaudited pro forma Statement of Operations Data for the Recent and
Pending Transactions for the nine months ended September 30, 1997, and
the year ended December 31, 1996, are presented as if the Company had
completed the Recent and Pending Transactions as of January 1, 1996.
The terms "Recent Transactions" and "Pending Transactions" are defined
in the Glossary included in the Unaudited Pro Forma Condensed Combined
Financial Statements attached hereto.
- 7 -
(9) The unaudited pro forma Statement of Operations for the Spin-Off for
the nine months ended September 30, 1997, and the year ended December
31, 1996 are presented as if the Company had completed the Merger.
(10) The unaudited pro forma Balance Sheet Data at September 30, 1997, is
presented as if the Company had completed the Pending Transactions as
of September 30, 1997. The term "Pending Transactions" is defined in
the Glossary included in the Unaudited Pro Forma Condensed Combined
Financial Statements attached hereto.
(11) The unaudited pro forma Balance Sheet Data at September 30, 1997, is
presented as if the Company had completed the Spin-Off as of September
30, 1997.
- 8 -
SUMMARY CONSOLIDATED FINANCIAL DATA OF SFX ENTERTAINMENT, INC.
(in thousands, except per share amounts)
The Summary Consolidated Financial Data of SFX Entertainment includes the
historical financial statements of Delsener/Slater Enterprises, Ltd. and
affiliated companies, the predecessor of SFX Entertainment ("Delsener/Slater")
for each of the five years ended December 31, 1996 and the nine months ended
September 30, 1996, and the historical financial statements of SFX
Entertainment for the nine months ended September 30, 1997. The financial
information presented below should be read in conjunction with the information
set forth in "Unaudited Pro Forma Condensed Combined Financial Statements" and
the notes thereto and the historical financial statements and the notes of SFX
Entertainment, the Recent Acquisitions and the Pending Acquisitions included
herein. The financial information has been derived from the audited and
unaudited financial statements of the Company, the Recent Acquisitions and the
Pending Acquisitions. The pro forma summary data as of September 30, 1997 and
for the year ended December 31, 1996 and the nine months ended September 30,
1997 are derived from the unaudited pro forma condensed combined financial
statements which, in the opinion of management, reflect all adjustments
necessary for a fair presentation of the transactions for which such pro forma
financial information is given. Operating results for the nine months ended
September 30, 1997 are not necessarily indicative of the results that may be
achieved for the fiscal year ending December 31, 1997.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
PREDECESSOR (ACTUAL)
-------------------------------------------------------
1996 (1)
1992 1993 PRO FORMA
(UNAUDITED) (UNAUDITED) 1994 1995 1996 (UNAUDITED)
----------- ----------- --------- --------- --------- ------------
STATEMENT OF OPERATIONS DATA:
Revenue................................ $38,017 $46,526 $92,785 $47,566 $50,362 $552,100
Operating expenses..................... 36,631 45,635 90,598 47,178 50,687 508,357
Depreciation & amortization............ 758 762 755 750 747 37,795
Corporate expenses (2)................. -- -- -- -- -- 3,000
----------- ----------- --------- --------- --------- -----------
Operating income (loss)................ 628 129 1,432 (362) (1,072) 2,948
Interest expense....................... (171) (148) (144) (144) (60) (43,390)
Other income........................... 74 85 138 178 198 2,177
Equity income (loss) from investments -- -- (9) 488 525 3,744
----------- ----------- --------- --------- --------- -----------
Income (loss) before income taxes ..... 531 66 1,417 160 (409) (34,521)
Income tax (provision) benefit......... (32) (57) (5) (13) (106) (1,500)
----------- ----------- --------- --------- --------- -----------
Net income (loss)...................... $ 499 $ 9 $ 1,412 $ 147 $ (515) $(36,021)
=========== =========== ========= ========= ========= ===========
Net income (loss) per common shares ... $ (1.80)
===========
Average common shares outstanding ..... 20,056
===========
OTHER OPERATING DATA:
EBITDA (3)............................. $ 2,187 $ 388 $ (325) $ 40,743
Adjusted EBITDA (4).................... $ 55,524
Cash flow from operations.............. $ 2,959 $ (453) $14,214
(RESTUBBED TABLE CONTINUED FROM ABOVE)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
PREDECESSOR
-------------
1996 1997 1997 (1)
ACTUAL ACTUAL PRO FORMA
(UNAUDITED) (UNAUDITED) (UNAUDITED)
------------- ----------- ------------
STATEMENT OF OPERATIONS DATA:
Revenue................................ $41,609 $74,396 $501,489
Operating expenses..................... 42,931 63,045 442,199
Depreciation & amortization............ 744 4,041 28,378
Corporate expenses (2)................. -- 1,307 2,807
------------- ----------- -----------
Operating income (loss)................ (2,066) 6,003 28,105
Interest expense....................... (60) (956) (32,499)
Other income........................... 143 213 234
Equity income (loss) from investments 525 1,344 8,937
------------- ----------- -----------
Income (loss) before income taxes ..... (1,458) 6,604 4,777
Income tax (provision) benefit......... (79) (2,952) (3,500)
------------- ----------- -----------
Net income (loss)...................... $(1,537) $ 3,652 $ 1,277
============= =========== ===========
Net income (loss) per common shares ... $ 0.06
===========
Average common shares outstanding ..... 20,056
===========
OTHER OPERATING DATA:
EBITDA (3)............................. $ 1,322 $10,044 $ 56,483
Adjusted EBITDA (4).................... $ 68,754
Cash flow from operations.............. $ 789
- 9 -
SUMMARY CONSOLIDATED FINANCIAL DATA OF SFX ENTERTAINMENT, INC.
(in thousands, except per share amounts)
BALANCE SHEET DATA:
DECEMBER 31, SEPTEMBER 30, 1997
------------------------------------------- --------------------------
PREDECESSOR (ACTUAL)
-------------------------------------------
1993 1994 ACTUAL PRO FORMA
UNAUDITED UNAUDITED 1995 1996 (UNAUDITED) (UNAUDITED)(5)
----------- ----------- -------- -------- ----------- --------------
Current assets.............. $1,823 $4,453 $3,022 $6,191 $ 12,189 $117,326
Property and equipment,
net........................ 4,484 3,728 2,978 2,231 55,882 185,371
Intangible assets, net ..... -- -- -- -- 59,721 415,374
Total assets................ 6,420 8,222 6,037 8,879 135,470 760,046
Current liabilities......... 4,356 3,423 3,138 7,973 11,333 91,640
Long-term debt.............. -- 1,830 -- -- 16,453 485,021
Temporary Equity (6)........ -- -- -- -- -- 16,500
Stockholders' equity........ 6,420 2,969 2,900 907 101,378 143,223
- 10 -
(1) The Unaudited Pro Forma Statement of Operations Data for the year ended
December 31, 1996 and the nine months ended September 30, 1997, are
presented as if SFX Entertainment had completed the Pending Acquisitions,
the Recent Acquisitions and the Financing as of January 1, 1996.
(2) Corporate expenses are reduced by $3,000,000 and $1,693,000 of fees
from Triathlon Broadcasting Company ("Triathlon") for the year ended
December 31, 1996 (pro forma) and for the nine months ended September
30, 1997, respectively. These fees are to be assigned to the Company by
Broadcasting in connection with the Spin-Off.
(3) "EBITDA" is defined as earnings before interest, taxes, depreciation
and amortization. Although EBITDA is not a measure of performance
calculated in accordance with generally accepted accounting principals
("GAAP"), SFX Entertainment believes that EBITDA is accepted by the
entertainment industry as a generally recognized measure of performance
and is used by analysts who report publicly on the performance of
entertainment companies. Nevertheless, this measure should not be
considered in isolation or as a substitute for operating income, net
income, net cash provided by operating activities or any other measure
for determining the Company's operating performance or liquidity which
is calculated in accordance with GAAP.
(4) Adjusted EBITDA represents EBITDA, as defined, adjusted for
nonrecurring charges including a litigation settlement recorded by PACE
and Pavilion Partners, expected cost savings associated with the
elimination of duplicative staffing and general and administrative
expenses and includes equity income (loss) from investments and
excludes minority interest in income.
While management believes that such cost savings and the elimination of
non-recurring expenses are achievable, the Company's ability to fully
achieve such cost savings and to eliminate the non-recurring expenses
is subject to numerous factors certain of which may be beyond the
Company's control.
(5) The Unaudited Pro Forma Balance Sheet Data at September 30, 1997 is
presented as if the Company had completed the Pending Acquisitions and
the Financing as of September 30, 1997.
(6) The PACE Acquisition agreement provides that each PACE Seller shall
have an option (a "Fifth Year Put Option"), exercisable during a period
beginning on the fifth anniversary of the closing of the PACE
Acquisition and ending 90 days thereafter, to require the Company to
purchase up to one-third of SFX Entertainment's Class A common stock
received by such PACE seller (500,000 shares) for a cash purchase price
of $33.00 per share. With certain limited exceptions, the Fifth Year
Put Option rights are not assignable by the PACE sellers. The maximum
amount payable under the Fifth Year Put Option ($16.5 million) has been
presented as temporary equity on the pro forma balance sheet.
- 11 -
CERTAIN CONSIDERATIONS
Holders of shares of capital stock of the Company should carefully
consider the factors set forth below as well as the other information set forth
in this Annex.
CERTAIN FINANCIAL CONSIDERATIONS
The Company has historically had access to the cash flow generated by,
and the assets held by, SFX Entertainment. Subsequent to the Spin-Off, the
Company will not have the benefit of either the cash flow generated by, or the
assets of, SFX Entertainment. SFX Entertainment is expected to have substantial
value, and such value is likely to increase pending consummation of the
Spin-Off.
After the Spin-Off, the Company will continue to be highly leveraged.
Assuming the Spin-Off had been consummated as of September 30, 1997, on a pro
forma basis the Company would have had total long-term debt of approximately
$731.5 million and a stockholders' deficit of approximately $9.0 million
(exclusive of redeemable preferred stock of approximately $367.8 million),
compared with the Company's actual long-term debt of approximately $784.3
million and total stockholders' equity of approximately $69.6 million
(exclusive of redeemable preferred stock of approximately $367.8 million) as of
September 30, 1997 . The Company's stockholders' equity will be substantially
reduced as a result of the Spin-Off.
The Company has, and immediately after the Spin-Off will continue to
have, significant interest expense and principal repayment obligations. In
addition, subject to the restrictions contained in the instruments governing
the Company's indebtedness and preferred stock, the Company may incur
additional indebtedness from time to time to finance acquisitions, for capital
expenditures or for other purposes. For the year ended December 31, 1996, and
the nine months ended September 30, 1997, (i) on a pro forma basis after giving
effect to the Spin-Off, the Merger and all pending acquisitions and
dispositions by the Company as if they had all occurred on January 1, 1996, the
Company's earnings would have been insufficient to cover its fixed charges by
$______ million and $______ million, respectively, and would have been
insufficient to cover its combined fixed charges and preferred stock dividends
by $_______ million and $_____ million, respectively, and (ii) on a pro forma
basis giving effect to the Spin-Off as if it had occurred on January 1, 1996,
the Debt to Cash Flow Ratio (as such term is defined in the Series
E Certificate) would have been __________ and ___________, respectively.
The Company is, and after the Spin-Off will continue to be, highly
leveraged. The degree to which the Company is leveraged could have material
consequences to the Company and the holders of the Company's debt and equity
securities, including, but not limited to, the following: (i) the Company's
ability to obtain additional financing in the future for acquisitions, working
capital, capital expenditures, general corporate or other purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from operations
will be dedicated to the payment of the principal and interest on its debt and
dividends on outstanding preferred stock and will not be available for other
purposes; (iii) the agreements governing the Company's long-term debt contain
restrictive financial and operating covenants, and the failure by the Company
to comply with such covenants could result in an event of default under the
applicable instruments, which could permit acceleration of the debt under such
instrument and in some cases
- 12 -
acceleration of debt under other instruments that contain cross-default or
cross-acceleration provisions and (iv) the Company's level of indebtedness
could make it more vulnerable to economic downturns, limit its ability to
withstand competitive pressures and limit its flexibility in reacting to
changes in its industry and general economic conditions. Certain of the
Company's competitors operate on a less leveraged basis and have significantly
greater operating and financial flexibility than the Company.
The Company's ability to make scheduled payments of principal of, to
pay interest on or to refinance, its debt, to make dividend, conversion or
redemption payments on its preferred stock depends on its future financial
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors beyond its
control. Although management of the Company has not assessed cash flow
requirements beyond the anticipated closing of the Merger, based on the
Company's current level of operations and anticipated improvements, management
believes that the Company will be able to satisfy requirements for working
capital, capital expenditures and scheduled interest, principal, dividend, and
redemption payments through the closing of the Merger. There can be no
assurance that the Company's business will generate sufficient cash flow from
operations, that anticipated improvements in operating results will be achieved
or that future working capital borrowings will be available in an amount to
enable the Company to service its debt, to make dividend, conversion and
redemption payments and to make necessary capital or other expenditures. The
Company may be required to refinance a portion of the principal amount of its
indebtedness, or the aggregate liquidation preference of its preferred stock
prior to their maturities. There can be no assurance that the Company will be
able to raise additional capital through the sale of securities, the
disposition of assets or otherwise for any such refinancing.
POTENTIAL CONFLICTS
Subsequent to the Spin-Off, the interests of SFX Entertainment and the
Company may potentially conflict due to the ongoing relationships between the
companies. If the Spin-Off occurs prior to the closing date of the Merger, the
Company's senior management and certain other employees of the Company will
devote such time as they deem reasonably necessary to conduct the operations of
SFX Entertainment while continuing to serve in their present capacities with
the Company. Immediately prior to the effective time of the Merger, SFX
Entertainment will assume the Company's obligations under such employees'
existing employment agreements (except for certain obligations relating to
change of control options and certain existing rights of indemnification). In
addition, pursuant to the Merger Agreement, prior to the Merger, the Company
will transfer to SFX Entertainment any positive Working Capital or, if Working
Capital is negative, SFX Entertainment will be required to pay the amount of
the shortfall to the Company. In certain circumstances, management may have
conflicts between their responsibilities to the Company and to SFX
Entertainment. In addition, if the Spin-Off occurs and the Merger is not
consummated, senior management of the Company may become employed by SFX
Entertainment and the Company would be required to seek a new management team.
FRAUDULENT TRANSFER AND PREFERENCE CONSIDERATIONS; LEGAL DIVIDEND REQUIREMENTS
The Company does not intend to consummate the Spin-Off unless it is
satisfied regarding the solvency of the Company and SFX Entertainment and the
permissibility of the Spin-Off under Section 170 of the Delaware General
Corporation Law ("DGCL"). There is no certainty, however, that a court would
find the evidence relied on by the Company to be binding on creditors of the
Company or SFX Entertainment or that a court would reach the same conclusions
suggested by such evidence in determining whether the Company or SFX
Entertainment was solvent or insolvent at the time of, or after giving effect
to, the Spin-Off.
If a court in a lawsuit filed by an unpaid creditor or representative
of unpaid creditors, such as a trustee in bankruptcy, were to find that at the
time the Spin-Off was consummated that the Company or the Concert Business, as
the case may be, (i) was insolvent, (ii) was rendered insolvent by reason of
the Spin-Off, (iii) was engaged in a business
- 13 -
or transaction for which the remaining assets of the Company, or SFX
Entertainment, as the case may be, constituted unreasonably small capital, or
(iv) intended to incur, or believed it would incur, debts beyond its ability to
pay as such debts matured, such court may be asked to void the Spin-Off as a
fraudulent conveyance and require that the stockholders return the special
dividend (in whole or in part) to the Company or may subject the assets
transferred to SFX Entertainment to an obligation to fund certain liabilities
of the Company for the benefit of the Company's creditors. If the assets of SFX
Entertainment were recovered as fraudulent transfers by a creditor or trustee
of the Company, the relative priority of payment of creditors of the Company
and SFX Entertainment would be unclear and SFX Entertainment could be rendered
insolvent. The measure of insolvency for purposes of the foregoing will vary
depending upon the jurisdiction whose law is being applied. Generally, however,
the Company or SFX Entertainment, as the case may be, would be considered
insolvent if the fair value of their respective assets were less than the
amount of their respective liabilities or if they incurred debts beyond their
ability to repay such debts as they mature. In addition, under Section 170 of
the DGCL (which is applicable to the Company in the Spin-Off) a corporation
generally may make the Spin-Off to its stockholders only out of its surplus
(net assets minus capital) and not out of capital.
The Company and management believe that in accordance with the
evidence examined in connection with the Spin-Off, (i) the Company and SFX
Entertainment will be solvent at the time of the Spin-Off (in accordance with
the foregoing definitions), will be able to repay their debts as they mature
following the Spin-Off and will have sufficient capital to carry on their
respective businesses, and (ii) the Spin-Off will be made entirely out of
surplus, as provided under Section 170 of the DGCL.
Separate and apart from any fraudulent transfer risk, the special
dividend may also be subject to challenge as preference payments under the
federal bankruptcy laws if such payments (i) are made within 90 days (or one
year, if the relevant recipient is an insider of the Company) prior to a
bankruptcy filing by or against the Company, (ii) are made when the Company is
insolvent and (iii) permit the relevant recipient to receive more than it
otherwise might receive in a Chapter 7 liquidation under the bankruptcy laws.
If such payment were deemed to be a preference, such payment could be recovered
by the Company's trustee in bankruptcy or the Company as a debtor in
possession, and the recipient whose payments were recovered would have claims
against the Company. With respect to the potential fraudulent transfer and
preference claims described above the Company believes that it is not insolvent
and that it would not be rendered insolvent by making the special dividend
pursuant to the Spin-Off under the conditions described herein.
THE SPIN-OFF
ANTICIPATED STRUCTURE OF THE SPIN-OFF
Pursuant to the Merger Agreement, the Company [has contributed] all of
the capital stock of SFX Concerts, Inc. (formerly known as Delsener/Slater
Enterprises, Ltd.) to SFX Entertainment, and must, prior to the Closing,
distribute pro rata to the holders of Common Stock, in the Spin-Off, all of the
capital stock owned by the Company in SFX Entertainment. The Spin-Off is a
condition precedent to Buyer's obligation to proceed with the Merger and is
being done to facilitate the Merger (which the Board of Directors has
determined is in the best interests of the Company's stockholders), by
excluding from the Merger the Company's Concert Business. Even if the Merger
does not occur for any reason, the Company intends to consummate the Spin-Off
(or, if necessary, an Alternate Transaction). Although management believes it
is unlikely the Spin-Off will not occur, the Spin-Off is subject to certain
conditions, some of which are outside of management's control, and there can be
no assurance that the Spin-Off will be consummated on the terms presently
contemplated or at all.
In the Spin-Off, assuming that the Spin-Off Shares Proposal is
approved by the stockholders of the Company, the holders of Class A Common
Stock and Series D Preferred Stock will receive SFX Entertainment Class A
common stock having features similar to the Class A Common Stock, and the
holders of Class B Common Stock will receive SFX Entertainment Class B common
stock having features similar to the Class B Common Stock. Prior to the
Spin-Off, SFX
- 14 -
Entertainment will amend and restate its certificate of incorporation to, among
other things, increase its authorized capital stock and will issue to the
Company, in exchange for the issued and outstanding shares of stock of SFX
Entertainment then held by the Company, the number of shares of SFX
Entertainment's common stock necessary to consummate the Spin-Off. The economic
rights of shares of Class A Common Stock and Class B Common Stock of the
Company are identical, but the voting rights differ in that each share of Class
A Common Stock is entitled to 1 vote per share and each share of Class B Common
Stock is generally entitled to 10 votes per share. The Spin-Off will be a
taxable dividend distribution to the holders of shares of Common Stock and
Series D Preferred Stock at the close of business on a date to be determined by
the Board of Directors and will be made as follows:
(a) holders of Class A Common Stock will receive 1 share of SFX
Entertainment Class A common stock per share of Class A
Common Stock held;
(b) holders of Class B Common Stock will receive 1 share of SFX
Entertainment Class B common stock per share of Class B
Common Stock held;
(c) holders of Series D Preferred Stock will receive the number
of shares of SFX Entertainment Class A common stock obtained
by multiplying the number of shares of Series D Preferred
Stock held by 1.0987 (rounded down to the next whole share);
and
(d) the Company will place in escrow an aggregate of
approximately ___________ shares of SFX Entertainment Class A
common stock for delivery to the holders of the SCMC Warrants
(as defined in the Merger Agreement) and the warrants (the
"IPO Warrants" and, together with the SCMC Warrants, the
"Warrants") granted by the Company to the underwriters of the
initial public offering of MMR (as defined in the Merger
Agreement) upon exercise of such Warrants.
Fractional shares of SFX Entertainment common stock will not be
delivered in the Spin-Off. If the Spin-Off Shares Proposal is approved and the
Spin-Off is consummated, Mr. Sillerman may be deemed to beneficially own
approximately [___]% of the shares of SFX Entertainment Class A common stock
and 97.8% of the shares of SFX Entertainment Class B common stock [(excluding
options and warrants to acquire shares and excluding shares to be granted upon
consummation of the Spin-Off)], which together will represent approximately
___% of the combined voting power of the SFX Entertainment common stock.
In connection with the Spin-Off, it is likely that the Merger
Agreement will require either SFX Entertainment to make a payment to the
Company, or the Company to make a payment to SFX Entertainment, in respect of
Working Capital (including repayment of funds provided by the Company to SFX
Entertainment). As of September 30, 1997, the Company estimates that Working
Capital to be received by SFX Entertainment, would have been approximately $2.1
million.
THE DISTRIBUTION AGREEMENT
The Company and SFX Entertainment intend to enter into the
Distribution Agreement, which will contain the terms and conditions pursuant to
which the Company and SFX Entertainment propose to separate their businesses.
The Company has agreed that, prior to the Merger Effective Time, it will (to
the extent required by Buyer) cause SFX Entertainment and is subsidiaries to
perform their obligations under the Distribution Agreement. The Distribution
Agreement will set forth the method of effecting the Spin-Off and the rights
and obligations of the parties in connection with the Spin-Off.
Transfer and Assumption of Assets and Obligations
- 15 -
At the time of the Spin-Off, SFX Entertainment will assume (a) certain
of SFX's leases and employment agreements, (b) debt and liabilities incurred by
SFX Concerts, Inc. or SFX Entertainment or their respective subsidiaries after
the date of the Merger Agreement in connection with acquisitions and capital
expenditures and (c) any other debt and liabilities that SFX Entertainment
deems appropriate. SFX will cause SFX Entertainment and its subsidiaries to be
released from all other debt and accrued liabilities.
SFX Entertainment and its subsidiaries (collectively, the "SFX
Entertainment Group") will be entitled to all of SFX's accounts receivable
relating to SFX's live entertainment business. SFX will transfer to SFX
Entertainment, prior to the Spin-Off, agreements relating to (a) an airplane
lease, (b) fees payable by Triathlon Broadcasting Company for services provided
by The Sillerman Companies, Inc. (a consulting company of which Mr. Sillerman
is the Chairman of the Board of Directors and Chief Executive Officer, and of
which Mr. Tytel is the Executive Vice President, General Counsel and a
Director), (c) two real estate leases and assets located on the leased
property, (d) a note receivable relating to the sale of SFX's radio stations
operating in Myrtle Beach and (e) the employment of certain employees of SFX
(including related change-of-control payments). SFX Entertainment will assume
all of SFX's and its subsidiaries' obligations accruing after the date of the
Spin-Off under the above agreements.
Acquisitions and Capital Improvements
The Company and SFX Entertainment have agreed that SFX Concerts, Inc.,
a subsidiary of the Company currently holding the Concert Business, may, from
time to time, (a) acquire additional businesses engaged in the Concert Business
or (b) make capital improvements on assets owned or leased by it or its
subsidiaries. In each case, the Company must loan SFX Concerts, Inc. the funds
with which to consummate acquisitions and capital improvements. However, all
amounts so borrowed by SFX Concerts, Inc. must be repaid on the date of the
Spin-Off. the Company may increase the borrowing availability under its credit
agreement for these purposes, and must use its best efforts to obtain any
required or desirable waivers, consents or modifications under any financing or
other agreement of the Company in connection with the acquisitions or capital
improvements.
If SFX Entertainment makes such additional acquisitions or capital
improvements, it will be required to obtain financing to repay the amounts that
it borrows from the Company, which financing may take the form of public or
private sales of debt or equity securities, bank credit or other financing.
However, there can be no assurance that SFX Entertainment will be able to
obtain such financing on advantageous terms, or at all. If SFX Entertainment
obtains a loan from the Company and is unable to obtain financing to repay the
Company as of the date of the Spin-Off, the Company will be in breach of the
Merger Agreement.
SFX Entertainment has agreed the Pending Acquisitions. See "Summary --
SFX Entertainment; The Spin-Off."
Working Capital
Pursuant to the Distribution Agreement (and as required by the Merger
Agreement), it is anticipated that SFX Entertainment and the Company will
allocate funds between them for Working Capital. If the Spin-Off occurs prior
to the consummation of the Merger, then, on the date of the Spin-Off, the
Company's management will allocate working capital between SFX Entertainment
and the Company, and the Company will pay to SFX Entertainment any positive
amount allocated to SFX Entertainment. In any event, at least five business
days before the consummation of the Merger, the Company must provide SFX
Entertainment with a good faith estimate of Working Capital (as defined below)
as of the date of consummation of the Merger (the "Estimated Working Capital").
If the Estimated Working Capital is a positive number, then the Company must
pay to SFX Entertainment an amount equal to the Estimated Working Capital at
the time of consummation of the Merger. On the other hand, if the Estimated
Working Capital is
- 16 -
a negative number, then SFX Entertainment must pay to the Company an amount
equal to the Estimated Working Capital at that time.
As soon as practicable (and in any event within ninety days) after the
Merger is consummated, the Company must deliver to SFX Entertainment an audited
statement of Working Capital as of the date of consummation of the Merger. If
SFX Entertainment does not object to the Company's Working Capital statement
within fifteen days following delivery thereof, then the Working Capital
reflected on the Company's Working Capital statement will be the "Final Working
Capital." If SFX Entertainment does so object, then the issues in dispute will
be submitted to a major national accounting firm for resolution and to
determine the "Final Working Capital."
On the third business day after the Final Working Capital is
determined, the Company or SFX Entertainment, as the case may be, must pay to
the other an amount equal to the Final Working Capital, less the Estimated
Working Capital previously paid, together with interest on the absolute value
of the difference at an annual rate of 10% beginning on the date of
consummation of the Merger and ending on the date of payment of the amount (the
"Working Capital Adjustment Amount"). However, if SFX Entertainment notifies
the Company prior to the payment date that it wishes to have all or any portion
of the Final Working Capital (the "Merger Consideration Adjustment") treated as
an adjustment to the consideration payable in connection with the Merger, then
the consideration payable in connection with the Merger will be increased by an
amount equal to the quotient of the Merger Consideration Adjustment divided by
the fully diluted number of shares of the Company's Common Stock outstanding
immediately prior to the consummation of the Merger, and the Company must
promptly distribute (a) the appropriate amount to the appropriate holders,
immediately prior to the consummation of the Merger, of the Company's Common
Stock and Series D Preferred Stock, (b) upon exercise, the appropriate amount
to holders of options, warrants and unit purchase options of the Company
unexercised immediately prior to the consummation of the Merger and (c) the
appropriate amount to holders of options, warrants and unit purchase options of
the Company who exercised their securities on and after the consummation of the
time of consummation of the Merger and prior to the final payment date. If SFX
Entertainment elects to treat any portion of the Final Working Capital as an
Merger Consideration Adjustment, then SFX Entertainment must pay the Company
the difference, if any, between the Merger Consideration Adjustment and the
Working Capital Adjustment Amount so that the aggregate net amount to be paid
or received (as the case may be) by the Company is equal to the amount that
would have been paid or received if the Merger Consideration Adjustment had not
been made.
"Working Capital" means the sum of all current assets of the Company
and its consolidated subsidiaries minus the sum of all current liabilities of
the Company and its consolidated subsidiaries, as of the point in time
immediately prior to the consummation of the Merger, adjusted (without
duplication) by:
(a) increasing Working Capital by 50% (up to $1.0 million) of all
fees and expenses incurred by the Company in connection with
acquiring consents from holders of the Series E Stock and the
Notes in the Consent Solicitations;
(b) increasing (if a positive number) or decreasing (if a
negative number) Working Capital by the product of (A) $75.00
(or any other amount payable to holders of Class A Common
Stock) and (B) the difference between 15,589,083 less the sum
of the fully diluted number of shares of Common Stock
outstanding immediately prior to the time of consummation of
the Merger (excluding up to 250,838 shares of Common Stock
subject to a right of repurchase granted by the Company in
connection with an acquisition);
(c) reducing Working Capital by the difference between
$84,554,649 less the sum of (A) the aggregate exercise price
of all options, warrants and unit purchase options of the
Company outstanding immediately prior to the Merger
consummation plus (B) the aggregate exercise price of all
warrants underlying unit purchase options of the Company
outstanding immediately prior to the Merger
- 17 -
consummation plus (C) the aggregate base price of all SARs of
the Company outstanding immediately prior to the Merger
consummation;
(d) reducing Working Capital by the product of (A) $42 and (B) up
to 250,838 shares of Common Stock subject to a right of
repurchase by the Company granted in connection with an
acquisition;
(e) increasing Working Capital by all permitted radio-related
capital expenditures paid by the Company and its subsidiaries
after June 30, 1997 and immediately prior to the Merger
consummation;
(f) decreasing Working Capital by all accrued capital
expenditures of the Company as of immediately prior to the
Merger consummation (to the extent not reflected in current
liabilities);
(g) increasing Working Capital by accrued but not yet payable
dividends;
(h) except as required by clause (i) below, excluding from
Working Capital any liabilities attributable to indebtedness
of the Company;
(i) excluding from Working Capital any liabilities included in
clauses (i) through (iv) of clause (k) below;
(j) reducing Working Capital by unpaid costs, fees and expenses
of the Company arising out of, based upon or that will arise
from the transactions contemplated by the Merger Agreement
(other than as a result of actions taken by Buyer Sub)
(including amounts relating to the termination of any
employees, broker fees, legal fees, accounting fees, advisory
fees and fees incurred in connection with third party
consents, waivers and amendments of creditors or holders of
the Company's preferred stock); and
(k) reducing Working Capital by the amount of the Company's
Excess Debt (as defined below), if a positive number, or
increasing Working Capital by the amount of the Excess Debt,
if a negative number. "Excess Debt" means, as of immediately
prior to the consummation of the Merger, the difference
between the sum of the following and $899.7 million:
(i) the difference between (A) indebtedness of the
Company and its subsidiaries, less (B) the
difference between $70.0 million and any amounts
(other than the reimbursement of expenses) actually
received by the Company and its consolidated
subsidiaries after August 24, 1997, under agreements
relating to the sale or local marketing arrangement
(the local marketing payments may not exceed $30,000
per month) of its WVGO-FM and the sale or local
marketing arrangement of its Jackson/Biloxi radio
stations, less (C) any indebtedness incurred to
finance acquisitions approved by Buyer of stock of
or substantially all of the assets of radio
stations, less (D) interest accrued as of
immediately prior to the consummation of the Merger
that is not then due and payable,
(ii) the aggregate merger consideration payable to
holders of the Company's Series C Preferred Stock
(which the Company anticipates will be $2.0
million),
(iii) $225.0 million, representing the liquidation
preference amount of the Series E Stock, and
- 18 -
(iv) environmental costs or liabilities accrued and not
paid after June 30, 1997, to the extent they exceed
$100,000 in the aggregate.
Working Capital will not include any asset transferred to SFX
Entertainment or any of its subsidiaries, any liability assumed by SFX
Entertainment or any liability to which none of the Company or any of its
subsidiaries is a party immediately after the consummation of the Merger. Any
computation of Working Capital should assume that the Spin-Off has been
consummated. As of September 30, 1997, the Company estimated that Working
Capital to be received by SFX Entertainment would have been approximately $2.1
million.
Indemnification
It is anticipated that pursuant to the Distribution Agreement, SFX
Entertainment will indemnify, defend and hold the Company and its subsidiaries
(other than the SFX Entertainment Group) harmless from and against any
liabilities (other than income tax liabilities) to which the Company or any of
its subsidiaries (other than the SFX Entertainment Group) may be or become
subject that relate to the assets, business, operations, debts or liabilities
of the SFX Entertainment Group (including liabilities to be assumed by any
member of the SFX Entertainment Group as contemplated in the Merger Agreement),
whether arising prior to, concurrent with or after the Spin-Off or as a result
of the failure to obtain all necessary third party consents to the Spin-Off.
In addition, the Company will agree to indemnify, defend and hold the
SFX Entertainment Group harmless from and against any liabilities (other than
income tax liabilities) to which the SFX Entertainment Group may be or become
subject that relate to the assets, business, operations, debts or liabilities
of the Company or its subsidiaries (other than the SFX Entertainment Group),
whether arising prior to, concurrent with or after the Spin-Off.
The indemnification obligations contained in the Distribution
Agreement will survive the Spin-Off for a period of 6 years (and thereafter as
to any claims for indemnification asserted prior to the expiration of that
period).
Tax Matters
It is anticipated that the Distribution Agreement will provide that:
(a) any tax sharing agreement to which the Company and SFX Entertainment are
parties must be terminated as of the effective date of the Spin-Off; (b) SFX
will include the income of the SFX Entertainment Group on certain of SFX's tax
returns, and will be reimbursed for certain tax liability allocable to the SFX
Entertainment Group; (c) SFX will control audits or contests relating to its
taxes; (d) SFX will pay to SFX Entertainment certain tax refunds; (e) SFX will
elect not to retain any net operating loss carryovers or capital loss
carryovers of the SFX Entertainment Group; and (f) SFX Entertainment will
indemnify SFX for certain taxes arising from any gain realized by SFX arising
out of, based upon or attributable to the Spin-Off.
Required Consents; No Representations or Warranties
SFX and SFX Entertainment have agreed to obtain all necessary third
party consents to the Spin-Off, with certain exceptions. SFX and SFX
Entertainment have also agreed to obtain certain waivers, releases or
amendments to certain agreements with respect to assets of the SFX
Entertainment Group. The Spin-Off is subject to obtaining any applicable
governmental consents[, but SFX is not aware of any governmental consents
required].
SFX has not made any representations or warranties in the Distribution
Agreement relating to the business, operations, assets, debts or liabilities of
SFX Entertainment or its subsidiaries.
- 19 -
Conditions to the Distribution.
Pursuant to the Distribution Agreement, the obligations of SFX
Entertainment and the Company to consummate the Spin-Off will be subject to the
fulfillment or waiver of each of the following conditions:
o the Registration Statement filed by SFX Entertainment must be declared
effective by the Commission, and no stop order may be issued or
pending with respect thereto;
o the SFX Entertainment Class A common stock must be accepted for
listing or trading, subject to official notice of issuance, on the
American Stock Exchange or Nasdaq Stock Market;
o all necessary third party consents to the Spin-Off must be obtained;
o the necessary stockholder approvals must have been obtained to
consummate the Spin-Off as presently contemplated;
o the Company's board of directors must be satisfied that the Company's
surplus would be sufficient to permit the Spin-Off under Delaware law
and must formally approve the Spin-Off;
o there must be no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the Spin-Off in effect;
o SFX Entertainment and the Company must have entered into a Tax Sharing
Agreement [and the Employee Benefits Agreement] (as described below);
and
o each of the covenants and provisions in the Distribution Agreement
required to be performed or complied with prior to the Spin-Off must
have been performed or complied with.
The Company's board of directors is entitled to waive any of the above
conditions prior to the consummation of the Spin-Off.
TAX SHARING AGREEMENT
Prior to the Spin-Off, the Company and SFX Entertainment will enter
into the Tax Sharing Agreement. Under the Tax Sharing Agreement, SFX
Entertainment will agree to pay to the Company the amount of the tax liability
of the combined Company/SFX Entertainment group, to the extent properly
attributable to SFX Entertainment for the period up to and including the
Spinoff, and will indemnify the Company for any tax adjustment made in
subsequent years that relates to taxes properly attributable to SFX
Entertainment during the period prior to and including the Spin-Off. The
Company, in turn, will indemnify SFX Entertainment for any tax adjustment made
in years subsequent to the Spin-Off that relates to taxes properly attributable
to the Company during the period prior to and including the Spin-Off. SFX
Entertainment will be responsible for any taxes of the Company resulting from
the Spin-Off to the extent such taxes result from gain on the distribution that
exceeds the net operating losses of the Company and SFX Entertainment available
to offset gain resulting from the Spin-Off.
- 20 -
INDEPENDENT AUDITORS
The consolidated financial statements of SFX Broadcasting, Inc. and
Subsidiaries at December 31, 1996 and 1995, and for each of the three years in
the period ended December 31, 1996, incorporated by reference into this Consent
Solicitation, have been audited by Ernst & Young LLP, independent auditors, as
stated in their report appearing therein.
The consolidated financial statements of Delsener/Slater Enterprises,
Ltd. at December 31, 1996 and 1995, and for each of the three years in the
period ended December 31, 1996, incorporated by reference into this Consent
Solicitation, have been audited by Ernst & Young LLP, independent auditors, as
stated in their report appearing therein.
The combined financial statements of the Secret Stations: Indianapolis
and Pittsburgh as of June 30, 1996 and for the year then ended, incorporated by
reference this Consent Solicitation, have been audited by Arthur Andersen LLP,
independent auditors, as stated in their report appearing therein.
- 21 -
INDEX TO FINANCIAL STATEMENTS
PAGE
----
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS: F-2
SFX Broadcasting, Inc.: Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 1997 F-3
SFX Broadcasting, Inc.: Unaudited Pro Forma Condensed Combined Statement of Operations for the Nine
Months Ended September 30, 1997 F-12
SFX Broadcasting, Inc.: Unaudited Pro Forma Condensed Combined Statement of Operations for the
Year Ended December 31, 1996 F-13
Glossary to Unaudited Pro Forma Condensed Combined Financial Statements F-36
F-1
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following financial statements and notes thereto contain
forward-looking statements that involve risks and uncertainties. The actual
results of SFX Broadcasting, Inc. ("SFX") may differ materially from those
discussed herein. SFX undertakes no obligation to publicly release the result
of any revisions to these forward-looking statements that may be made to
reflect any future events or circumstances.
In the opinion of management, all adjustments necessary to fairly present
this pro forma information have been made. The Unaudited Pro Forma Condensed
Combined Financial Statements are based upon, and should be read in
conjunction with, the historical financial statements and the respective
notes to such financial statements incorporated herein by reference. The pro
forma information is based upon tentative allocations of the purchase price
for acquisitions completed within the last year and acquisitions still
pending, and does not purport to be indicative of the results that would have
been reported had such events actually occurred on the dates specified, nor
is it indicative of SFX's future results. SFX cannot predict whether the
consummation of the Pending Acquisition and Disposition--Broadcasting or
Pending Acquisitions--Entertainment will conform to the assumptions used in
the preparation of the Unaudited Pro Forma Condensed Combined Financial
Statements.
See Glossary at the end of these Unaudited Pro Forma Condensed Combined
Financial Statements for the definition of certain terms not otherwise defined
herein.
The Unaudited Pro Forma Condensed Combined Balance Sheet at September 30,
1997 is presented as if SFX had completed the Sale of SFX Broadcasting, the
Pending Acquisition and Disposition--Broadcasting, the Pending
Acquisitions--Entertainment and the Spin-Off of SFX Entertainment as of
September 30, 1997. No adjustment has been made to the Unaudited Pro Forma
Condensed Combined Balance Sheet for the Chancellor Exchange, other than the
receipt of cash, as it will be recorded at historical cost.
The Unaudited Pro Forma Condensed Combined Statements of Operations for
the year ended December 31, 1996 and the nine months ended September 30, 1997
are presented as if SFX had completed the Completed Transactions, the Pending
Acquisition and Disposition--Broadcasting, the Pending
Acquisitions--Entertainment and the Spin-Off of SFX Entertainment as of
January 1, 1996. The Albany Acquisition has not been reflected in the
Unaudited Pro Forma Condensed Combined Statement of Operations for the year
ended December 31, 1996 as it would not have a material impact.
F-2
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
PENDING PRO FORMA
SFX ACQUISITION AND PENDING PRO FORMA PRO FORMA MERGER--SALE
BROADCASTING, DISPOSITION-- ACQUISITIONS-- FOR THE SPIN-OFF--SFX OF SFX
INC. AS BROADCASTING ENTERTAINMENT PENDING ENTERTAINMENT BROADCASTING
REPORTED (A) (B) TRANSACTIONS (C) (D)
--------------- --------------- --------------- -------------- --------------- --------------
ASSETS
Current assets .............. $ 140,689 $ -- $105,137 $ 245,826 $117,326 $ 128,500
Property and equipment, net 132,707 (610) 129,489 261,586 185,371 76,215
Intangible assets, net ..... 1,097,751 (8,345) 355,653 1,445,059 415,374 1,029,685
Other assets ................ 21,740 (5,444) 34,297 50,593 41,975 8,618
--------------- --------------- --------------- -------------- --------------- --------------
Total assets ................ $1,392,887 $(14,399) $624,576 $2,003,064 $760,046 $1,243,018
=============== =============== =============== ============== =============== ==============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities ......... $ 61,188 $ (914) $ 80,307 $ 140,581 $ 91,640 $ 48,941
Deferred taxes .............. 105,497 -- 10,943 116,440 13,759 102,681
Long-term debt (including
current portion):
Privately placed debt....... -- -- 275,000 275,000 275,000 --
Credit Facility ............ 316,000 (35,921) 193,568 473,647 193,568 280,079
Senior Subordinated Notes .. 450,000 -- -- 450,000 -- 450,000
Other long-term debt ....... 18,255 (380) -- 17,875 16,453 1,422
Other liabilities ........... 4,556 -- 5,583 10,139 9,073 1,066
Minority Interest ........... -- -- 830 830 830 --
PACE put options............. -- -- 16,500 16,500 16,500 --
Redeemable preferred stock
Series B Preferred Stock .. 998 -- -- 998 -- 998
Series C Preferred Stock .. 1,703 -- -- 1,703 -- 1,703
Series D Preferred Stock .. 149,500 -- -- 149,500 -- 149,500
Series E Preferred Stock .. 215,636 -- -- 215,636 -- 215,636
Stockholders' equity ........ 69,554 22,816 41,845 134,215 143,223 (9,008)
--------------- --------------- --------------- -------------- --------------- --------------
Total liabilities and
stockholders' equity ........ $1,392,887 $(14,399) $624,576 $2,003,064 $760,046 $1,243,018
=============== =============== =============== ============== =============== ==============
F-3
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(A) Pending Acquisition and Disposition--Broadcasting
SEPTEMBER 30, 1997
-------------------------------------------------------------
PENDING
ACQUISITION
CAPSTAR NASHVILLE PRO FORMA AND
DISPOSITION (1) ACQUISITION ADJUSTMENTS (2) DISPOSITION
--------------- ------------- --------------- -------------
(IN THOUSANDS)
ASSETS
Current assets .............................. $ 59,921 $1,370 $(33,000)(a) $ --
(1,370)(a)
(2,000)(b)
11,000 (c)
(35,921)(d)
Property and equipment, net ................. (4,828) 4,218 (610)
Intangible assets, net ...................... (33,567) 3,303 27,479 (a) (8,345)
2,000 (b)
3,440 (b)
(11,000)(c)
Other assets ................................ (4) 566 (566)(a) (5,444)
(2,000)(a)
(3,440)(b)
--------------- ------------- --------------- -------------
Total assets ............................... $ 21,522 $9,457 $(45,378) $(14,399)
=============== ============= =============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ......................... $ (914) $ 545 $ (545)(a) $ (914)
Long-term debt (including current portion):
Senior Credit Facility...................... (35,921)(d) (35,921)
Other long-term debt ....................... (380) (380)
Stockholders' equity ........................ 22,816 8,912 (8,912)(a) 22,816
--------------- ------------- --------------- -------------
Total liabilities and stockholders' equity $ 21,522 $9,457 $(45,378) $(14,399)
=============== ============= =============== =============
(1) Capstar Disposition
To reflect the Capstar Disposition for $60,000,000 in cash to SFX. SFX
will record a gain of approximately $23,000,000 on the disposition.
JACKSON
AND
BILOXI CAPSTAR
SALE PROCEEDS STATIONS DISPOSITION
--------------- ----------- -------------
(IN THOUSANDS)
ASSETS
Current assets .............................. $60,000 $ (79) $ 59,921
Property and equipment, net ................. (4,828) (4,828)
Intangible assets, net ...................... (33,567) (33,567)
Other assets ................................ (4) (4)
--------------- ----------- -------------
Total assets ............................... $60,000 $(38,478) $ 21,522
=============== =========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ......................... $ (914) $ (914)
Long-term debt .............................. (380) (380)
Stockholders' equity ........................ $60,000 (37,184) 22,816
--------------- ----------- -------------
Total liabilities and stockholders' equity $60,000 $(38,478) $ 21,522
=============== =========== =============
F-4
SFX expects to use the proceeds from the Capstar Disposition to complete a
similar acquisition so that the Capstar Disposition can be treated as a
like-kind exchange which would be substantially tax free. Should SFX be
unable to structure such a transaction, SFX would utilize its available net
operating loss carryforwards and pay approximately $6,000,000 in additional
income taxes. No adjustment has been made for the potential payment of any
additional income taxes.
(2) Pro Forma Adjustments
a. To reflect the Nashville Acquisition for $33,000,000 in cash (net
of a $2,000,000 deposit made in August 1997), the related excess of
the purchase price paid over net book value of $27,479,000, and the
adjustments to remove $1,370,000 of current assets, $566,000 of
other assets, $545,000 of current liabilities, and stockholders'
equity of $8,912,000.
b. To reflect additional acquisition costs of approximately $2,000,000
related to the Nashville Acquisition and Chancellor Exchange,
principally consisting of professional fees and to reclassify
deposits, professional fees and other payments of approximately
$3,440,000 included in other assets as of September 30, 1997.
c. To reflect the $11,000,000 of cash to be received in the Chancellor
Exchange. No gain or loss will be recognized because the fair
market value of the stations received, as adjusted for cash
received or paid, equals the carrying value of the stations
exchanged.
d. To use the net cash proceeds from the Capstar Disposition,
Nashville Acquisition and Chancellor Exchange to reduce debt under
SFX's Credit Agreement.
F-5
(B) Pending Acquisitions--Entertainment
SEPTEMBER 30, 1997 (IN THOUSANDS)
---------------------------------------------------------------
CONCERT/
PACE CONTEMPORARY NETWORK BGP SOUTHERN
ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITION
I II III IV V
----------- ------------ ----------- ----------- -----------
ASSETS:
Current assets.............. $(149,129) $(72,800) $(44,510) $(54,222) $(16,615)
Property and equipment,
net........................ 82,489 25,000 1,000 20,000 1,000
Intangible assets, net ..... 125,314 66,500 61,701 48,687 151,151
Other assets................ 34,706 -- 391 346 464
----------- ------------ ----------- ----------- -----------
TOTAL ASSETS................ $ 93,380 $ 18,700 $ 18,582 $ 14,811 $ --
=========== ============ =========== =========== ===========
LIABILITIES &
STOCKHOLDER'S EQUITY:
Current liabilities......... $ 65,357 $ -- $ 8,468 $ 6,482 $ --
Deferred taxes.............. -- -- 114 829 --
Privately-placed debt....... -- -- -- -- --
Credit Facility............. -- -- -- -- --
Other long-term debt........ -- -- -- -- --
Other liabilities........... 5,583 -- -- -- --
Minority interest........... 2,440 -- -- --
PACE put agreement.......... 16,500 -- -- -- --
Stockholders' Equity........ 3,500 18,700 10,000 7,500 --
----------- ------------ ----------- ----------- -----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY....... $ 93,380 $ 18,700 $ 18,582 $ 14,811 $ --
=========== ============ =========== =========== ===========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
SEPTEMBER 30, 1997 (IN THOUSANDS)
---------------------------------------------
PRO FORMA FOR
PRO FORMA THE PENDING
PRO FORMA ADJUSTMENT FOR ACQUISITIONS--
ADJUSTMENTS THE FINANCINGS ENTERTAINMENT AND
VI VII THE FINANCINGS
----------- -------------- -----------------
ASSETS:
Current assets.............. $ 2,145 (a) $352,893 $105,137
(28,300)(b) 87,375
28,300
Property and equipment,
net........................ -- -- 129,489
Intangible assets, net ..... 10,000 (d) 355,653
28,300 (b)
Other assets................ (1,610)(c) -- 34,297
----------- -------------- -----------------
TOTAL ASSETS................ $ 10,535 $468,568 $624,576
=========== ============== =================
LIABILITIES &
STOCKHOLDER'S EQUITY:
Current liabilities......... $ -- $ -- $ 80,307
Deferred taxes.............. 10,000 (d) -- 10,943
Privately-placed debt....... -- 275,000 275,000
Credit Facility............. -- 193,568 193,568
Other long-term debt........ -- --
Other liabilities........... -- -- 5,583
Minority interest........... (1,610)(c) -- 830
PACE put agreement.......... -- -- 16,500
Stockholders' Equity........ 2,145 (a) -- 41,845
----------- -------------- -----------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY....... $ 10,535 $468,568 $624,576
=========== ============== =================
F-6
I. PACE ACQUISITION
Reflects the PACE Acquisition and the separate acquisitions of the
remaining two partners' interests in Pavilion Partners. The PACE Acquisition
is not conditioned on the consummation of the Pavilion Acquisition.
AS OF SEPTEMBER 30, 1997 (000'S)
--------------------------------------------------------------
PACE PAVILION PRO FORMA PACE ACQUISITION
AS REPORTED AS REPORTED ADJUSTMENTS TOTAL (F)
------------- ------------- --------------- -----------------
Current assets........................... $45,087 $ 30,178 $(109,500)(a) $(149,129)
(25,523)(a)
(9,507)(b)
(4,171)(b)
(27,500)(c)
(48,193)(e)
Property and equipment, net.............. -- 59,938 5,000 (a) 82,489
9,103 (b)
(19,052)(d)
27,500 (c)
Intangible assets, net................... 17,894 -- 107,420 (a) 125,314
Other assets............................. 26,856 12,660 9,507 (b) 34,706
(4,810)(d)
(9,507)(d)
------------- ------------- --------------- ----------------
Total Assets............................. $89,837 $102,776 $ (99,233) $ 93,380
============= ============= =============== ================
Current liabilities...................... $43,171 $ 17,254 $ 2,000 (b) $ 65,357
2,932 (b)
Deferred taxes........................... -- -- --
Long-term debt (including current
portion)................................ 25,523 57,700 (25,523)(a) --
(9,507)(d)
(48,193)(e)
Other Liabilities........................ 4,063 1,520 5,583
Total Liabilities........................ 72,757 76,474 (78,291) 70,940
Minority interest........................ -- 2,440 -- 2,440
------------- ------------- --------------- ----------------
PACE put agreement ...................... -- -- 16,500 (a) 16,500
Stockholders' Equity..................... 17,080 23,862 (17,080)(a) 3,500
20,000 (a)
(16,500)
---------------
(23,862)(d)
------------- ------------- --------------- ----------------
Total Liabilities & Stockholders'
Equity.................................. $89,837 $102,776 $ (99,233) $ 93,380
============= ============= =============== ================
PRO FORMA ADJUSTMENTS:
(a) To reflect the PACE Acquisition for $109,500,000 in cash, the issuance
of 1,500,000 shares of SFX Entertainment's Class A common stock valued
at $20,000,000, the assumption of debt of $25,523,000 which will be
repaid shortly after closing, the related increase in the fair value
allocated to fixed assets of $5,000,000; the related excess of the
purchase price paid over the fair value of net tangible assets of
$107,420,000, and the elimination of stockholder's equity of
$17,080,000. Pursuant to the terms of the PACE Acquisition Agreement,
additional cash consideration is required to be paid by SFX
Entertainment if the deemed value of SFX Entertainment's Class A common
stock is below $13.33 at the time of the Spin-Off as a result of certain
changes in the consummation of the acquisitions.
The PACE Acquisition Agreement further provides that each PACE Seller
shall have an option (a "Fifth Year Put Option"), exercisable during a
period beginning on the fifth anniversary of the closing of the PACE
Acquisition and ending 90 days thereafter, to require SFX Entertainment
to purchase up to one-third of SFX Entertainment's Class A common stock
received by such PACE Seller for a cash purchase price of $33.00 per
share. With certain limited exceptions, the Fifth Year Put Option rights
are not assignable by the PACE Sellers.
F-7
(b) To reflect the acquisition of an additional 33.33% indirect interest in
Pavilion Partners from Blockbuster for $4,171,000 in cash, the
assumption of $2,932,000 in liabilities and the granting of naming
rights of three venues for a two-year period with an estimated value of
$2,000,000, which will be recognized as income over such two year
period, and the related increase in the fair value allocated to fixed
assets of $9,103,000. Also reflects the purchase of a note receivable
from Blockbuster, due from Pavilion Partners at its current outstanding
balance, including accrued interest of $9,507,000. This note will be
eliminated in consolidation upon the acquisition of Sony's interest in
Pavilion Partners, as described below.
(c) To reflect the acquisition of an additional 33.33% indirect interest in
Pavilion Partners from Sony for $27,500,000 in cash.
(d) To eliminate PACE's equity method investment in Pavilion Partners
following the acquisition of 100% of Pavilion Partners and to eliminate
Pavilion Partners' historical equity. Also reflects the elimination of
the $9,507,000 intercompany notes receivable acquired from Blockbuster.
(e) To reflect the repayment of Pavilion's third party debt at the closing
of the Pavilion Acquisition.
(f) SFX Entertainment has agreed to lend PACE up to $25 million for
potential acquisitions to be made by PACE whether or not the PACE
Acquisition is consummated. None of these acquisitions are considered
probable. As a result, none of such loans or acquisitions have been
reflected in the pro forma adjustment.
II. CONTEMPORARY ACQUISITION
Reflects the Contemporary Acquisition and the separate acquisition of the
remaining 50% interest in Riverport Amphitheater Partners, a partnership that
owns an amphitheater in St. Louis, MO that is operated by Contemporary. The
Contemporary Acquisition is not conditioned upon the consummation of the
acquisition of such 50% interest.
AS OF SEPTEMBER 30, 1997 (000'S)
-------------------------------------------------------------
RIVERPORT
CONTEMPORARY AMPHITHEATER PRO FORMA CONTEMPORARY
AS REPORTED PARTNERS ADJUSTMENTS(A) ACQUISITION
-------------- -------------- -------------- --------------
Current assets........................... $13,375 $ 2,603 $(72,800) $(72,800)
(15,978)
Property and equipment, net.............. 2,838 11,355 10,807 25,000
Intangible assets, net................... -- -- 66,500 66,500
Other assets............................. 7,430 8 (1,205) --
(6,233)
-------------- -------------- -------------- --------------
Total Assets............................. $23,643 $13,966 $(18,909) $ 18,700
============== ============== ============== ==============
Current liabilities...................... $ 7,786 $ 1,022 $ (8,808) $ --
Other long-term debt (including current
portion)................................ 1,578 -- (1,578) --
Other liabilities........................ 5,390 478 (5,868) --
-------------- -------------- -------------- --------------
Total Liabilities........................ 14,754 1,500 (16,254) --
Stockholders' Equity..................... 8,889 12,466 18,700 18,700
(21,355)
-------------- -------------- -------------- --------------
Total Liabilities & Stockholders'
Equity.................................. $23,643 $13,966 $(18,909) $ 18,700
============== ============== ============== ==============
PRO FORMA ADJUSTMENTS:
(a) To reflect the Contemporary Acquisition for $72,800,000 in cash,
including the additional acquisition of the remaining 50% interest in
the Riverport Amphitheater Partners, not already owned by Contemporary
and the issuance of 1,402,851 shares of SFX Entertainment Class A common
stock valued at $18,700,000, the related increase in the fair value
allocated to fixed assets of $10,807,000, the related excess of the
purchase price paid over the fair value of net tangible assets of
$66,500,000, and the adjustment to eliminate $15,978,000 of current
assets, $6,233,000 of other assets, $8,808,000 of current liabilities,
$1,578,000 of notes payable, $5,868,000 of other liabilities, and
stockholders' equity of $21,355,000, and to reflect the elimination of
Contemporary Group's equity investment in Riverport Amphitheather
Partners.
F-8
If Contemporary is unable to complete this acquisition of the remaining
50% interest in Riverport Amphitheater Partners, the cash consideration
paid by SFX Entertainment for Contemporary will be reduced by $10,500,000.
The acquisition agreement provides that in the event the Contemporary
Acquisition is consummated prior to the consummation of the Spin-Off,
1,402,851 shares of Preferred Stock will be issued to the sellers. Such
Preferred Stock is to be converted into an equal number of shares of Class A
common stock upon consummation of the Spin-Off or, if the Spin-Off shall not
have occurred prior to July 1, 1998, such Preferred Stock is to be redeemed
at their fair market value, but in no event less than $18,700,000.
III. NETWORK ACQUISITION
The Network Acquisition consist of the separate acquisitions of Network
Magazine and SJS. These acquisitions are each conditioned on the concurrent
closing of the other.
AS OF SEPTEMBER 30, 1997 (000'S)
----------------------------------------------------------
NETWORK
MAGAZINE SJS PRO FORMA NETWORK
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- -------------- -------------
Current assets........................... $ 3,127 $4,325 $(52,000)(a) $(44,510)
1,516 (b)
(1,478)(c)
Property and equipment, net.............. 304 334 362 (a) 1,000
Intangible assets, net................... -- -- 63,217 (a) 61,701
(1,516)(b)
Other assets............................. 299 92 -- 391
------------- ------------- -------------- -------------
Total Assets............................. $ 3,730 $4,751 $ 10,101 $ 18,582
============= ============= ============== =============
Current liabilities...................... $ 3,659 $4,809 -- $ 8,468
Deferred taxes........................... 114 -- -- 114
Long-term debt (including current
portion)................................ 1,478 -- (1,478)(c) --
------------- ------------- -------------- -------------
Total Liabilities........................ 5,251 4,809 (1,478) 8,582
Stockholders' Equity..................... (1,521) (58) 1,579 (a) 10,000
10,000 (a)
------------- ------------- -------------- -------------
Total Liabilities & Stockholders'
Equity.................................. $ 3,730 $4,751 $ 10,101 $ 18,582
============= ============= ============== =============
PRO FORMA ADJUSTMENTS:
(a) To reflect the Network Acquisitions for $52,000,000 in cash and the
issuance of 750,188 shares of SFX Entertainment Class A common stock
valued at $10,000,000, the related increase in fair value allocated to
fixed assets of $362,000, and the related excess of the purchase price
paid over the fair value of net tangible assets of $63,217,000, and the
elimination of stockholder's deficiency of $1,579,000.
SFX Entertainment's purchase agreement for Network Magazine and SJS
provides that the purchase price will be increased by $4,000,000 if
total 1998 EBITDA for Network and SJS as defined equals or exceeds
$9,000,000; by an additional $4 for each $1 increase in such EBITDA
between $9,000,000 and $10,000,000 and by an additional $6 for each $1
increase in such EBITDA between $10,000,000 and $11,000,000 (up to a
maximum of $14,000,000 of additional consideration). The additional
consideration is payable in stock or in certain circumstances and solely
at the discretion of SFX Entertainment in cash. The pro forma financial
statement assume that no additional consideration is paid.
(b) To reflect a minimum of $500,000 net working capital adjustment as
required in the Network Acquisition agreement.
(c) To reflect the repayment of Network Magazine's long-term debt at
closing.
SFX Entertainment's purchase agreement for Network Magazine and SJS
provides that the purchase price will be increased by approximately $2.4
million in the event that the current owners of Network Magazine acquire
an office building in Burbank, CA, which currently serves as Network
Magazine's headquarters, prior to closing. This potential transaction
has not been reflected on the pro forma balance sheet.
F-9
IV. BGP ACQUISITION
AS OF SEPTEMBER 30, 1997 (000'S)
--------------------------------------------
PRO FORMA BGP
AS REPORTED ADJUSTMENTS ACQUISITION
------------- -------------- -------------
Current assets........................... $18,759 $(60,800)(a) $(54,222)
(12,181)(b)
Property and equipment, net.............. 14,691 5,309 (a) 20,000
Intangible assets, net .................. -- 48,687 (a) 48,687
Other assets............................. 346 -- 346
------------- -------------- -------------
Total Assets............................. $33,796 $(18,985) $ 14,811
============= ============== =============
Current liabilities...................... $ 6,482 $ -- $ 6,482
Deferred taxes .......................... 829 -- 829
Other long-term debt (including current
portion)................................ 12,181 (12,181)(b) --
------------- -------------- -------------
Total Liabilities........................ 19,492 (12,181) 7,311
Stockholders' Equity..................... 14,304 (14,304)(a) 7,500
7,500 (a)
------------- -------------- -------------
Total Liabilities & Stockholders'
Equity.................................. $33,796 $(18,985) $ 14,811
============= ============== =============
PRO FORMA ADJUSTMENTS:
(a) To reflect the BGP Acquisition for $60,800,000 in cash and the issuance
of 563,000 shares of SFX Entertainment Class A common stock valued at
$7,500,000, the related increase in fair value allocated to fixed assets
of $5,309,000, and the related excess of the purchase price paid over
the fair value of net tangible assets of $48,687,000, and the
elimination of $14,304,000 of stockholder's equity.
(b) To reflect the repayment of BGP's long-term debt at closing.
V. CONCERT/SOUTHERN ACQUISITION
AS OF SEPTEMBER 30, 1997 (000'S)
--------------------------------------------
CONCERT/
PRO FORMA SOUTHERN
AS REPORTED ADJUSTMENTS(A) ACQUISITION
------------- -------------- -------------
Current assets........................... $1,921 $(16,615) $(16,615)
(1,921)
Property and equipment, net.............. 360 640 1,000
Intangible assets, net................... -- 15,151 15,151
Other assets............................. 919 (455) 464
------------- -------------- -------------
Total Assets............................. $3,200 $ (3,200) $ --
============= ============== =============
Current liabilities...................... $1,254 $ (1,254) $ --
------------- -------------- -------------
Total Liabilities........................ 1,254 (1,254) --
Stockholders' Equity..................... 1,946 (1,946) --
------------- -------------- -------------
Total Liabilities & Stockholders'
Equity.................................. $3,200 $ (3,200) $ --
============= ============== =============
F-10
PRO FORMA ADJUSTMENTS:
(a) To reflect the Concert/Southern Acquisition for $16,615,000 in cash;
the related increase in fair value allocated to fixed assets of
$640,000, the related excess of the purchase price paid over the fair
value of net tangible assets of $15,151,000; and the adjustments to
eliminate $1,921,000 of current assets, $1,254,000 of current
liabilities, stockholders' equity of $1,946,000 and a $455,000
investment in a non-entertainment affiliated entity not being acquired
by SFX Entertainment.
VI. PRO FORMA ADJUSTMENTS FOR PENDING ACQUISITIONS--ENTERTAINMENT
(a) The Distribution Agreement provides that SFX will transfer any positive
Working Capital (as defined) in existence at the closing of the SFX
Merger to SFX Entertainment, and that if Working Capital is negative at
that time, SFX Entertainment will pay the amount of such shortfall to
SFX. As of September 30, 1997 the amount of positive Working Capital
would have been $2,145,000 and such amount is reflected in the cash to
be acquired by SFX Entertainment pursuant to the Distribution Agreement.
The actual amount of Working Capital as of the closing of the Merger may
differ substantially from the amount in existence on September 30, 1997,
and will be a function of, among other things, the operating results of
SFX through the date of the Merger and the actual cost of consummating
the Merger and the related transactions. Additionally, SFX Entertainment
will be responsible for any taxes resulting from the Spin-Off to the
extent such taxes result from any gain on the distribution.
(b) To reflect estimated costs associated with the Pending Acquisitions and
the Financing and the related transactions.
(c) To reflect the consolidation of GSAC Partners (the entity which
operates the PNC Bank Arts Center) following the acquisition of the
remaining 50% ownership interest in GSAC currently owned by Pavilion
Partners.
(d) To reflect deferred taxes associated with differences between the book
and tax bases of assets and liabilities acquired.
VII. PRO FORMA ADJUSTMENTS FOR THE FINANCINGS
Represents assumed borrowings to finance the pending acquisitions including
$275,000,000 of senior subordinated debt in a privately-placed offering of debt
and $193,568,000 of borrowings under the senior credit facility. There can be
no assurance that the Company will be able to obtain this financing on
acceptable terms, or at all.
(C) Pro Forma Spin-Off--SFX Entertainment
Reflects the Spin-Off of SFX Entertainment.
(D) Pro Forma Merger--Sale of SFX Broadcasting
Represents the balance sheet of SFX after the Spin-Off of SFX
Entertainment.
F-11
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(In Thousands, Except Per Share Amounts)
PENDING
ACQUISITION
SFX AND PENDING
BROADCASTING, COMPLETED DISPOSITION-- ACQUISITIONS--
INC. AS TRANSACTIONS BROADCASTING ENTERTAINMENT
REPORTED (A) (B) (C)
--------------- -------------- -------------- ---------------
Net broadcast revenues . $188,984 $38,685 $(4,938)
Concert promotion
revenue ............... 74,396 12,293 $414,800
Station and other
operating expenses ... 115,871 28,289 (1,226)
Concert promotion
operating expense ..... 63,045 12,236 366,918
Depreciation,
amortization, duopoly
integration costs and
acquisition related
costs.................. 31,429 7,090 (95) 23,253
Corporate expenses...... 7,198* 1,500
Other .................. 17,995
--------------- -------------- -------------- ---------------
Operating income
(loss)................. 27,842 3,363 (3,617) 23,129
Interest expense ....... 46,438 8,408 31,208
Other expense (income) . (2,692) -- (3) (21)
Equity (income) loss
from investments....... (1,344) -- -- (7,593)
--------------- -------------- -------------- ---------------
Income before income
tax expense ........... (14,560) (5,045) (3,614) (465)
Income tax expense
(benefit).............. 845 32 (3) 3,626
--------------- -------------- -------------- ---------------
Net income (loss) ...... (15,405) (5,077) (3,611) (4,091)
Preferred stock
dividend requirement .. 27,723 1,183
--------------- -------------- -------------- ---------------
Net income (loss)
applicable to common
shares................. $(43,128) $(6,260) $(3,611) $ (4,091)
=============== ============== ============== ===============
Net loss per common
share.................. $ (4.61)
Average common shares
outstanding............ 9,364
EBITDA (1) .............
Adjusted EBITDA (2) ...
(RESTUBBED TABLE CONTINUED FROM ABOVE)
PRO FORMA
PRO FORMA FOR PRO FORMA MERGER--SALE
THE COMPLETED SPIN-OFF--SFX OF SFX
AND PENDING ENTERTAINMENT BROADCASTING
TRANSACTIONS (D) (E)
--------------- --------------- --------------
Net broadcast revenues . $222,731 $222,731
Concert promotion
revenue ............... 501,489 $501,489 --
Station and other
operating expenses ... 142,935 142,935
Concert promotion
operating expense ..... 442,199 442,199 --
Depreciation,
amortization, duopoly
integration costs and
acquisition related
costs.................. 61,677 28,378 33,299
Corporate expenses...... 8,698* 2,807 5,891
Other .................. 17,995 17,995
--------------- --------------- --------------
Operating income
(loss)................. 50,717 28,105 22,612
Interest expense ....... 86,054 32,499 53,555
Other expense (income) . (2,716) (234) (2,482)
Equity (income) loss
from investments....... (8,937) (8,937) --
--------------- --------------- --------------
Income before income
tax expense ........... (23,684) 4,777 (28,461)
Income tax expense
(benefit).............. 4,500 3,500 1,000
--------------- --------------- --------------
Net income (loss) ...... (28,184) 1,277 (29,461)
Preferred stock
dividend requirement .. 28,906 0 28,906
--------------- --------------- --------------
Net income (loss)
applicable to common
shares................. $(57,090) $ 1,277 $(58,367)
=============== =============== ==============
Net loss per common
share.................. $ 0.06 $ (3.68)
Average common shares
outstanding............ 20,056 15,840
EBITDA (1) ............. $ 56,483 $ 73,906
Adjusted EBITDA (2) ... $ 68,754 $ 77,161
- ------------
* Net of $1,693,000 of fees from Triathlon.
(1) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. Although EBITDA is not a measure of performance
calculated in accordance with generally accepted accounting principles
("GAAP"), SFX Entertainment believes that EBITDA is accepted by the
entertainment industry as a generally recognized measure of performance
and is used by analysts who report publicly on the performance of
entertainment companies. Nevertheless, this measure should not be
considered in isolation or as a substitute for operating income, net
income, net cash provided by operating activities or any other measure
for determining SFX Entertainment's operating performance or liquidity
which is calculated in accordance with GAAP.
(2) Represents EBITDA adjusted for nonrecurring charges and cost savings
associated with the elimination of duplicative staffing and general and
administrative expenses.
F-12
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PENDING
ACQUISITION
SFX AND PENDING
BROADCASTING, COMPLETED DISPOSITION-- ACQUISITIONS--
INC. AS TRANSACTIONS BROADCASTING ENTERTAINMENT
REPORTED (A) (B) (C)
--------------- -------------- -------------- ---------------
Net broadcast
revenues.............. $143,061 $131,014 $(1,381)
Concert promotion
revenue .............. 104,784 $447,316
Station and other
operating expenses ... 92,816 90,243 1,208
Concert promotion
operating expense ... 91,240 417,117
Depreciation,
amortization, duopoly
integration costs and
acquisition related
costs................. 17,311 36,528 650 30,962
Corporate expenses .... 6,313 (313) 2,000
Other.................. 28,994 (3,332) --
--------------- -------------- -------------- ---------------
Operating income
(loss)................ (2,373) 21,432 (3,239) (2,763)
Interest expense ...... 34,897 38,496 41,610
Other expense
(income).............. (2,117) (467) (538) (1,811)
Equity (income) loss
from investments ..... (525) (3,219)
--------------- -------------- -------------- ---------------
Income before income
tax expense........... (35,153) (16,072) (2,701) (39,343)
Income tax expense
(benefit)............. 480 1,315 1,705
--------------- -------------- -------------- ---------------
Net income (loss)...... (35,633) (17,387) (2,701) (41,048)
Preferred stock
dividend requirement . 6,061 32,063 --
--------------- -------------- -------------- ---------------
Net income (loss)
applicable to common
shares................ $(41,694) $(49,450) $(2,701) $(41,048)
=============== ============== ============== ===============
Net loss per common
share ................ $ (4.57)
Average common shares
outstanding........... 9,128 71
EBITDA (1) ............
Adjusted EBITDA .......
(RESTUBBED TABLE CONTINUED FROM ABOVE)
PRO FORMA
PRO FORMA FOR PRO FORMA MERGER--SALE
THE COMPLETED SPIN-OFF--SFX OF SFX
AND PENDING ENTERTAINMENT BROADCASTING
TRANSACTIONS (D) (E)
--------------- --------------- --------------
Net broadcast
revenues.............. $ 272,694 $272,694
Concert promotion
revenue .............. 552,100 $552,100 --
Station and other
operating expenses ... 184,267 184,267
Concert promotion
operating expense ... 508,357 508,357 --
Depreciation,
amortization, duopoly
integration costs and
acquisition related
costs................. 85,451 37,795 47,656
Corporate expenses .... 8,000 3,000 5,000
Other.................. 25,662 -- 25,662
--------------- --------------- --------------
Operating income
(loss)................ 13,057 2,948 10,109
Interest expense ...... 115,003 43,391 71,613
Other expense
(income).............. (4,933) (2,177) (2,756)
Equity (income) loss
from investments ..... (3,744) (3,744) --
--------------- --------------- --------------
Income before income
tax expense........... (93,269) (34,521) (58,748)
Income tax expense
(benefit)............. 3,500 1,500 2,000
--------------- --------------- --------------
Net income (loss)...... (96,769) (36,021) (60,748)
Preferred stock
dividend requirement . 38,124 38,124
--------------- --------------- --------------
Net income (loss)
applicable to common
shares................ $(134,893) $(36,021) $(98,872)
=============== =============== ==============
Net loss per common
share ................ $ (1.80) $ (6.24)
Average common shares
outstanding........... 20,056 15,840
EBITDA (1) ............ $ 40,743 (2) $ 83,427
Adjusted EBITDA ....... $ 55,524 (3) $ 96,317
- ------------
* Net of $3,000,000 of fees from Triathlon.
(1) EBITDA is defined as earnings before interest, taxes depreciation and
amortization. Although EBITDA is not a measure of performance calculated
in accordance with generally accepted accounting principles ("GAAP"),
SFX Entertainment believes that EBITDA is accepted by the entertainment
industry as a generally recognized measure of performance and is used by
analysts who report publicly on the performance of entertainment
companies. Nevertheless, this measure should not be considered in
isolation or as a substitute for operating income and income, net cash
provided by operating activities or any other measure for determining
SFX Entertainment's operating performance or liquidity which is
calculated in accordance GAAP.
(2) Represents EBITDA adjusted for nonrecurring charges, including a
litigation settlement recorded by PACE and Pavilion Partners, and cost
savings associated with the elimination of duplicative staffing and
general and administrative expenses.
(3) Represents EBITDA adjusted for nonrecurring charges and cost savings
associated with the elimination of duplicative staffing and general and
administrative expenses.
F-13
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
(A) Completed Transactions
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
----------------------------------------------------------------------------
CBS SECRET
TEXAS COAST HARTFORD MEADOWS EXCHANGE COMMUNICATIONS RICHMOND
ACQUISITION ACQUISITION ACQUISITION (6) ACQUISITION ACQUISITION
----------- ----------- ----------- ---------- -------------- -----------
Net broadcast revenues $652 $638 $ (60) $20,626 $5,105
Concert promotion revenue $ 601
Station and other
operating expenses 401 664 630 11,230 3,722
Concert promotion
operating expense 631
Depreciation,
amortization, duopoly
integration costs and
acquisition related
costs -- -- 221 -- 1,207 456
Corporate expenses -- -- -- -- -- --
----------- ----------- ----------- ---------- -------------- -----------
Operating income (loss) 251 (26) (251) (690) 8,189 927
Interest expense -- -- 199 -- 1,459 481
Other expense (income) -- -- -- -- 79 --
----------- ----------- ----------- ---------- -------------- -----------
Income (loss) before
income tax expense 251 (26) (450) (690) 6,651 446
Income tax expense
(benefit) -- -- -- 32 -- --
----------- ----------- ----------- ---------- -------------- -----------
Net income (loss) 251 (26) (450) (722) 6,651 446
Preferred stock dividend
requirements -- -- -- -- -- --
----------- ----------- ----------- ---------- -------------- -----------
Net income (loss)
applicable to common
shares $251 $(26) $(450) $(722) $ 6,651 $ 446
=========== =========== =========== ========== ============== ===========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
----------------------------------------------------------------
CHARLOTTE PRO FORMA
EXCHANGE SUNSHINE HEARST ADJUSTMENTS COMPLETED
(7) ACQUISITION ACQUISITION (8) TRANSACTIONS
---------- ----------- ----------- ----------- ------------
Net broadcast revenues $1,564 $10,160 $38,685
Concert promotion revenue $11,692 12,293
Station and other
operating expenses 1,328 -- 10,314 28,289
Concert promotion
operating expense 11,605 12,236
Depreciation,
amortization, duopoly
integration costs and
acquisition related
costs 375 686 -- $ 125 (a) 7,090
2,512 (b)
393 (c)
884 (l)
231 (m)
Corporate expenses -- -- -- -- --
---------- ----------- ----------- ----------- ------------
Operating income (loss) (139) (599) (154) (4,145) 3,363
Interest expense (730) 1,106 -- (47,397)(a) 8,408
16,848 (a)
36,282 (a)
195 (h)
(35)(j)
Other expense (income) -- -- -- (79)(i) --
---------- ----------- ----------- ----------- ------------
Income (loss) before
income tax expense 591 (1,705) (154) (9,959) (5,045)
Income tax expense
(benefit) -- -- -- 32
---------- ----------- ----------- ----------- ------------
Net income (loss) 591 (1,705) (154) (9,959) (5,077)
Preferred stock dividend
requirements -- -- -- 1,183 (n) 1,183
---------- ----------- ----------- ----------- ------------
Net income (loss)
applicable to common
shares $ 591 $(1,705) $ (154) $(11,142) $(6,260)
========== =========== =========== =========== ============
F-14
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
--------------------------------------------------------------------------------------------------
LIBERTY PRISM
ACQUISITION ACQUISITION HOUSTON
INCLUDING INCLUDING OTHER EXCHANGE
MMR WASHINGTON LOUISVILLE 1996 AND DALLAS DELSENER/ TEXAS
MERGER DISPOSITIONS DISPOSITIONS ACQUISITIONS DISPOSITION SLATER COAST HARTFORD
(1) (2) (3) (4) (5) ACQUISITION ACQUISITION ACQUISITION
------- ------------ ------------ ------------ ----------- ----------- ----------- -----------
Net broadcast
revenues............. $20,038 $24,992 $13,511 $ 4,728 $ (8,680) $4,281 $5,742
Concert promotion
revenue.............. $50,361
Station and other
operating expenses .. 11,531 17,774 10,897 2,869 (10,307) 2,968 5,607
Concert promotion
operating expense ... 50,686
Depreciation,
amortization,
duopoly integration
costs and
acquisition related
costs................ 6,081 5,150 1,241 1,492 (284) 747 36 27
Corporate expenses ... 1,253 1,478 808 111 110 -- -- --
Other................. 577 -- -- -- (3,500) -- (48) --
------- ------------ ------------ ------------ ----------- ----------- ----------- -----------
Operating income
(loss)............... 596 590 565 256 5,301 (1,072) 1,325 108
Interest expense...... -- 3,326 773 382 (1,667) 60 -- 19
Other expense
(income) ............ -- 5,935 -- (11,948) -- (198) (65) (8)
Equity (income) loss
from investments ... -- -- -- -- -- (525) -- --
------- ------------ ------------ ------------ ----------- ----------- ----------- -----------
Income (loss) before
income tax expense .. 596 (8,671) (208) 11,822 6,968 (409) 1,390 97
Income tax expense
(benefit)............ -- (3,378) -- 45 938 106 22 32
------- ------------ ------------ ------------ ----------- ----------- ----------- -----------
Net income (loss) .... 596 (5,293) (208) 11,777 6,030 (515) 1,368 65
Preferred stock
dividend
requirement.......... -- -- -- -- -- -- -- --
Net income (loss)
applicable to common
shares............... $ 596 $(5,293) $ (208) $ 11,777 $ 6,030 $ (515) $1,368 $ 65
======= ============ ============ ============ =========== =========== =========== ===========
Average common shares
outstanding .........
(RESTUBBED TABLE CONTINUED FROM ABOVE)
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
-----------------------------------------------------------------------------------------------------------
PRO
CBS SECRET CHARLOTTE FORMA
MEADOWS EXCHANGE COMMUNICATIONS RICHMOND EXCHANGE SUNSHINE HEARST ADJUSTMENTS COMPLETED
ACQUISITIONS (6) ACQUISITION ACQUISITION (7) ACQUISITION ACQUISITION (8) TRANSACTIONS
------------ -------- -------------- ----------- --------- ----------- ----------- ----------- ------------
Net broadcast
revenues ........ $ 10 $35,532 $ 9,007 $6,222 $15,631 $131,014
Concert promotion
revenue ......... $10,175 $44,248 104,784
Station and other
operating
expenses ........ 1,288 20,844 7,757 3,885 15,130 90,243
Concert promotion
operating
expense ......... 9,306 37,326 (6,078)(o) 91,240
Depreciation,
amortization,
duopoly
integration
costs and
acquisition
related costs ... 1,550 -- 3,970 780 500 1,522 293 $ 1,491 (a) 36,528
8,052 (b)
559 (d)
3,014 (l)
308 (m)
Corporate
expenses ........ -- -- -- 1,037 -- -- 169 (3,713)(e) (313)
1,434 (e)
(3,000)(f)
Other ............ -- (363) 2 -- -- -- -- (3,332)
------------ -------- -------------- ----------- --------- ----------- ----------- ----------- ------------
Operating income
(loss) .......... (681) (915) 10,716 (567) 1,837 5,400 39 (2,066) 21,432
Interest expense . 1,275 -- -- 1,210 -- 3,019 -- (5,583)(a) 38,496
22,462 (a)
(35,635)(a)
48,375 (a)
547 (h)
(67)(j)
Other expense
(income) ....... (30) -- 1,175 -- -- (138) -- (5,935)(g) (467)
11,920 (g)
(1,175)(i)
Equity (income)
loss from
investments .... -- -- -- -- -- -- -- (525)
------------ -------- -------------- ----------- --------- ----------- ----------- ----------- ------------
Income (loss)
before income
tax expense ..... (1,926) (915) 9,541 (1,777) 1,837 2,519 39 (36,975) (16,072)
Income tax
expense
(benefit) ....... 17 783 -- -- -- 1,138 -- 1,612 (g) 1,315
------------ -------- -------------- ----------- --------- ----------- ----------- ----------- ------------
Net income
(loss) .......... (1,943) (1,698) 9,541 (1,777) 1,837 1,381 39 (38,587) (17,387)
Preferred stock
dividend
requirement ..... -- -- -- -- -- -- -- 32,063 (n) 32,063
Net income (loss)
applicable to
common shares.... $(1,943) $(1,698) $ 9,541 $(1,777) $ 1,837 $ 1,381 $ 39 $ (70,650) $(49,450)
======= ======= ======= ======= ======= ======= ====== ========= ========
Average common
shares outstanding 70,796 (k) 70,796
F-15
(1) MMR Merger
Reflects the net effect of the historical operations of Multi-Market
Radio, Inc. ("MMR") as adjusted for acquisitions and dispositions. SFX has not
included in the pro forma statement of operations cost savings of $792,000 it
believes would have been achieved in connection with the MMR Hartford
Acquisition had the transaction been consummated as of January 1, 1996,
consisting principally of the elimination of certain duplicative technical
sales and general and administrative functions due to the operation of a
cluster of stations in the Hartford market.
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------
MMR
AS MMR HARTFORD PRO FORMA MMR
REPORTED DISPOSITIONS(A) ACQUISITION ADJUSTMENTS MERGER
---------- --------------- ------------- ------------- ---------
(IN THOUSANDS)
Net broadcast revenues....... $18,832 $(1,623) $2,829 $20,038
Station operating expenses .. 11,422 (1,931) 2,040 11,531
Depreciation/amortization ... 7,611 (1,833) 277 $ 26 (b) 6,081
Corporate expenses........... 2,517 -- -- 1,253 (c) 1,253
(2,517)(c)
Other........................ 63 -- -- 514 (e) 577
---------- --------------- ------------- ------------- ---------
Operating income (loss) ..... (2,781) 2,141 512 724 596
Interest expense............. 5,265 -- 274 (5,539)(d) --
Other expense (income)....... -- (57) (12) 69 (d) --
Income tax expense
(benefit)................... -- 7 (7)(d) --
---------- --------------- ------------- ------------- ---------
Net income (loss)............ $(8,046) $ 2,198 $ 243 $ 6,201 $ 596
========== =============== ============= ============= =========
(a) Reflects the elimination of the operations of stations WRSF-FM,
sold in March 1996, WRXR-FM and WKBG-FM, sold in July 1996,
WYAK-FM and WMYB-FM, sold in March 1997, and KOLL-FM, sold in
April 1997.
(b) Reflects $26,000 for the year ended December 31, 1996 in
amortization of intangible assets recorded in connection with the
MMR Merger, Myrtle Beach Acquisition, MMR Hartford Acquisition,
related incremental deferred taxes and change in amortization
periods.
(c) To record incremental corporate overhead charges of $1,253,000
associated with the MMR Merger for the year ended December 31,
1996, and to eliminate MMR's existing corporate overhead of
$2,517,000 for the year ended December 31, 1996.
(d) Elimination of nonrecurring income of $69,000 for the year ended
December 31, 1996, interest expense of $5,539,000 for the year
ended December 31, 1996, and income tax expense of $7,000 for the
year ended December 31, 1996.
(e) Reflects non-cash compensation charge for the issuance of shares
of the Series A and Series B Convertible Preferred Stock of MMR.
The shares of Series A and Series B stock were issued to certain
officers and advisors of MMR in July and November 1996,
respectively, and converted into Class A Common Stock of SFX upon
consummation of the MMR Merger. Certain of the shares issued
pursuant to the Series A and Series B conversions which were
issued to individuals currently employed by SFX are being held in
escrow and are being released in five equal annual installments
ending in April 2001.
F-16
(2) Liberty Acquisition
Reflects the net effect of the historical operations of the Liberty
Acquisition adjusted for the Washington Dispositions.
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------
LIBERTY AS WASHINGTON LIBERTY
REPORTED DISPOSITIONS ACQUISITION
------------ -------------- -------------
(IN THOUSANDS)
Net broadcast revenues .... $25,966 $ (974) $24,992
Station operating
expenses.................. 19,337 (1,563) 17,774
Depreciation/amortization . 5,926 (776) 5,150
Corporate expenses......... 1,566 (88) 1,478
------------ -------------- -------------
Operating income........... (863) 1,453 590
Interest expense........... 3,467 (141) 3,326
Other expense (income) ... 5,935 -- 5,935
Income tax benefit......... (3,378) -- (3,378)
------------ -------------- -------------
Net income (loss).......... $(6,887) $ 1,594 $(5,293)
============ ============== =============
(3) Prism Acquisition
Reflects the net effect of the historical operations of the Prism
Acquisition adjusted for the Louisville Dispositions.
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------
PRISM AS LOUISVILLE PRISM
REPORTED DISPOSITIONS ACQUISITION
---------- -------------- -------------
(IN THOUSANDS)
Net broadcast revenues .... $16,859 $(3,348) $13,511
Station operating
expenses.................. 13,373 (2,476) 10,897
Depreciation/amortization . 1,599 (358) 1,241
Corporate expenses......... 808 -- 808
---------- -------------- -------------
Operating income (loss) ... 1,079 (514) 565
Interest expense........... 773 -- 773
---------- -------------- -------------
Net loss................... $ 306 $ (514) $ (208)
========== ============== =============
F-17
(4) Other 1996 Acquisitions
Reflects the net effect of the combined historical operations of the
Greensboro Acquisition, the Raleigh-Greensboro Acquisitions, the Greenville
Acquisition and the Jackson Acquisitions.
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------
RALEIGH-
GREENSBORO AND
GREENSBORO GREENVILLE JACKSON
ACQUISITIONS ACQUISITION ACQUISITIONS TOTAL
-------------- ------------- -------------- ----------
(IN THOUSANDS)
Net broadcast revenues .... $3,619 $ 639 $470 $ 4,728
Station operating expenses 2,264 271 334 2,869
Depreciation/amortization . 1,168 244 80 1,492
Corporate expenses ......... 4 107 -- 111
-------------- ------------- -------------- ----------
Operating income (loss) .... 183 17 56 256
Interest expense............ 59 323 -- 382
Other expense (income) ..... (51) (11,897) -- (11,948)
Income tax expense.......... 45 -- -- 45
-------------- ------------- -------------- ----------
Net income (loss)........... $ 130 $ 11,591 $ 56 $ 11,777
============== ============= ============== ==========
(5) Houston Exchange and Dallas Disposition
To reflect the exchange of KRLD-AM and the Texas State Networks for
KKRW-FM in the Houston Exchange, and the sale of KTCK-AM in the Dallas
Disposition.
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------------------------------
HOUSTON EXCHANGE
DISPOSITIONS ACQUISITION ADJUSTMENTS* AND DALLAS DISPOSITION
------------------------------------------------ -------------- ----------------------
KRLD-AM TSN KTCK-AM KKRW-FM
----------- ---------- ---------- -------------
(IN THOUSANDS)
Net broadcast revenues .... $(10,711) $(2,843) $(2,136) $7,010 $ -- $ (8,680)
Station operating expenses (9,316) (2,222) (2,490) 3,721 -- (10,307)
Depreciation/amortization . (1,157) (226) (284) 81 1,302 (284)
Corporate expenses ......... -- -- -- 110 -- 110
Other....................... (1,600) -- (1,900) -- -- (3,500)
----------- ---------- ---------- ------------- -------------- ----------------------
Operating income (loss) ... 1,362 (395) 2,538 3,098 (1,302) 5,301
Interest expense ........... (1,482) (373) 188 -- -- (1,667)
Other expense (income) .... -- -- -- 938 -- 938
----------- ---------- ---------- ------------- -------------- ----------------------
Net income (loss) .......... $ 2,844 $ (22) $ 2,350 $2,160 $(1,302) $ 6,030
=========== ========== ========== ============= ============== ======================
- ---------
(*) To reflect historical depreciation and amortization of KRLD-AM
and the Texas State Networks and the disposition of KTCK-AM.
F-18
(6) CBS Exchange
To reflect the net effect of the exchange of WHFS-FM for KTXQ-FM and
KRRW-FM in the CBS Exchange.
NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------------
KTXQ-FM WHFS-FM CBS
KRRW-FM DISPOSAL ADJUSTMENTS* EXCHANGE
--------- ---------- -------------- ----------
(IN THOUSANDS)
Net broadcast revenues .... $1,628 $1,688 $ -- $ (60)
Station operating
expenses.................. 1,655 1,025 -- 630
Depreciation/amortization . 54 783 729 --
--------- ---------- -------------- ----------
Operating income (loss) ... (81) (120) (729) (690)
Income tax expense......... 32 -- -- 32
--------- ---------- -------------- ----------
Net income (loss).......... $ (113) $ (120) $(729) $(722)
========= ========== ============== ==========
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------
KTXQ-FM WHFS-FM CBS
KRRW-FM DISPOSAL ADJUSTMENTS* EXCHANGE
--------- ---------- -------------- ----------
(IN THOUSANDS)
Net broadcast revenues........ $9,572 $9,562 $ -- $ 10
Station operating expenses ... 7,116 5,828 -- 1,288
Depreciation/amortization .... 218 1,548 1,330 --
Other ........................ -- 363 -- (363)
--------- ---------- -------------- ----------
Operating income.............. 2,238 1,823 (1,330) (915)
Income tax expense (benefit) 783 -- -- 783
--------- ---------- -------------- ----------
Net income (loss)............. $1,455 $1,823 $(1,330) $(1,698)
========= ========== ============== ==========
- ---------
* To eliminate depreciation of KTXQ-FM and KRRW-FM and reflect depreciation
of WHFS-FM.
(7) Charlotte Exchange
Reflects the transfer of WDSY-FM and $20,000,000 in exchange for WRFX-FM
in the Charlotte Exchange.
NINE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------------------------
WDSY-FM WRFX-FM CHARLOTTE
DISPOSITION ACQUISITION ADJUSTMENTS EXCHANGE
------------- ------------- ------------- -----------
(IN THOUSANDS)
Net revenues................... $(4,367) $5,931 $1,564
Station operating expenses .... (1,794) 3,122 1,328
Depreciation, amortization and
acquisition related costs .... (183) -- $ 558 375
------------- ------------- ------------- -----------
Operating income............... (2,390) 2,809 (558) (139)
------------- ------------- ------------- -----------
Interest expense............... (730) -- -- (730)
Net income (loss).............. $(1,660) $2,809 $(558) $ 591
============= ============= ============= ===========
F-19
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------
WDSY-FM WRFX-FM CHARLOTTE
DISPOSITION ACQUISITION ADJUSTMENTS EXCHANGE
------------- ------------- ------------- -----------
(IN THOUSANDS)
Net revenues................... $(3,697) $9,919 $6,222
Station operating expenses .... (1,593) 5,478 3,885
Depreciation, amortization and
acquisition related costs .... -- 2,907 $(2,407)* 500
------------- ------------- ------------- -----------
Operating income............... (2,104) 1,534 2,407 1,837
------------- ------------- ------------- -----------
Net income (loss).............. $(2,104) $1,534 $ 2,407 $1,837
============= ============= ============= ===========
- ---------
* To reflect historical depreciation of WDSY-FM net of decrease in
amortization due to the exchange allocation.
(8) Pro Forma Adjustments
SFX has not included in the pro forma adjustments certain cost savings
totaling $11,559,000 it believes would have been realized for the year
ended December 31, 1996 following the Liberty Acquisition, the Prism
Acquisition, the Houston Exchange, the Jackson Acquisitions, the Hearst
Acquisition, the Charlotte Exchange, the Richmond Acquisition, the Texas
Coast Acquisition and Hartford Acquisition and $2,881,000 for the nine
months ended September 30, 1997 following the Richmond Acquisition, the
Hearst Acquisition, the Charlotte Exchange, Hartford Acquisition, and
Texas Coast Acquisition, had these transactions been consummated as of
January 1, 1996. The cost savings consist principally of the elimination
of certain duplicative technical, sales and general and administrative
functions due to the operation of a cluster of stations in each of its
principal markets, a reduction of employee benefit costs and commission
rates and the elimination of programming personnel due to automation and
simulcasting.
While management believes that such cost savings and the elimination of
non-recurring expenses are reasonably achievable, and many of which have
been achieved, SFX's ability to fully achieve such cost savings and to
eliminate the non-recurring expenses is subject to numerous factors, many
of which are beyond SFX's control. These factors may include difficulties
in integrating the acquired stations and the incurrence of unanticipated
severance, promotional or other costs and expenses. There can be no
assurance that SFX will realize all such cost savings.
a. To reflect interest expense of $36,282,000 and $48,375,000 for the
nine months ended September 30, 1997 and the year ended December 31,
1996, respectively, related to the $450,000,000 of Senior
Subordinated Notes at 10.75% issued in 1996, amortization of deferred
financing costs of $125,000 and $1,491,000 for the nine months ended
September 30, 1997 and the year ended December 31, 1996,
respectively, interest expense of $16,848,000 and $22,462,000
relating to the borrowings from the Credit Agreement at 8% for the
nine months ended September 30, 1997 and the year ended December 31,
1996, respectively, and elimination of existing interest expense (net
of interest on other debt) of $47,397,000 and $41,218,000 related to
SFX and the sellers for the nine months ended September 30, 1997 and
the year ended December 31, 1996, respectively.
F-20
b. Reflects increase (decrease) in amortization of intangible assets
resulting from the purchase price allocation, deferred taxes recorded
and change in amortization period:
YEAR ENDED DECEMBER 31, 1996 NINE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------- ---------------------------------------------
INCREASE DUE DECREASE DUE INCREASE DUE DECREASE DUE
TO PURCHASE TO CHANGE IN TO PURCHASE TO CHANGE IN
PRICE AMORTIZATION NET INCREASE PRICE AMORTIZATION NET INCREASE
ALLOCATION PERIODS (DECREASE) ALLOCATION PERIODS (DECREASE)
-------------- -------------- -------------- ------------- -------------- ---------------
(IN THOUSANDS)
Liberty Acquisition .. $1,699 $(2,399) $ (700)
Prism Acquisition .... 1,010 (642) 368
Charlotte WTDR/WLYT
Acquisition ......... 490 490
Jackson Acquisitions . 108 108
Greenville and
Greensboro
Acquisitions......... 597 (623) (26)
Albany Acquisition .. 23 23 $ 2 $ 2
Hartford Acquisition 910 910 152 152
Texas Coast
Acquisition.......... 1,067 1,067 89 89
Richmond Acquisition . 1,053 (164) 889 527 (82) 445
Hearst Acquisition ... 733 733 428 428
Secret Communications
Acquisition ......... 6,207 (2,018) 4,189 2,069 (673) 1,396
-------------- --------------
Total Pro Forma
adjustments........ $8,052 $2,512
============== ==============
c. To reflect depreciation expense for fixed assets associated with the
Texas Coast, Hartford and Richmond Acquisitions as per SFX's
depreciation policy.
d. To reflect $559,000 in amortization relating to the present value of
the Triathlon consulting fees assigned to SFX under the SCMC
Termination Agreement for the year ended December 31, 1996.
e. To record incremental corporate overhead charges of $1,434,000 for
the year ended December 31, 1996, relating to increases in personnel,
professional fees and administrative expenses associated with the
increased size of SFX due to the Completed Transactions and Pending
Acquisition and Disposition--Broadcasting and the elimination of
$3,713,000 for the year ended December 31, 1996, of the corporate
overhead of the sellers.
f. Reflects fees of $3,000,000 incurred by Triathlon and would have been
payable to SFX under the revised SCMC Agreement for the year ended
December 31, 1996. Future fees may be lesser or greater based upon
future acquisition and financing activity by Triathlon. Minimum
annual fees will be $1,000,000 per year.
g. Elimination of acquisition related costs of $5,935,000 recorded on
the income statement of Liberty for the year ended December 31, 1996,
a gain on the sale of assets of $11,920,000 recorded on the books of
ABS Greenville Partners, L.P. for the year ended December 31, 1996
and net income tax benefit of $1,612,000 for the year ended December
31, 1996.
h. To record interest expense of $195,000 and $547,000 for the nine
months ended September 30, 1997 and the year ended December 31, 1996,
respectively, in connection with the long-term payments due for the
Delsener/Slater Acquisition, the Texas Coast Acquisition and the
Sunshine Acquisition.
i. Elimination of LMA fees paid by Secret Communications for WJJJ-FM
and WDSY-FM.
j. Elimination of interest expense on Jackson note payable to third
party acquired by Capstar.
k. Reflects the issuance of 70,796 shares of SFX Class A common stock in
connection with the Sunshine Acquisition for a total value of
$2,000,000.
l. To reflect the depreciation and amortization expense adjustment of
$3,014,000 and $884,000 associated with the Delsener/Slater, Meadows,
and Sunshine concert acquisitions for the year ended December 31,
1996 and the nine months ended September 30, 1997, respectively.
m. To reflect the amortization of $231,000 and $308,000 associated with
the John Boy and Billy Network contract payments for the nine months
ended September 30, 1997 and the year ended December 31, 1996,
respectively.
F-21
n. To record the incremental Series D Preferred Stock and the Series E
Preferred Stock dividends issued to finance a portion of the Pending
Acquisition and Disposition--Broadcasting at a rate of 6.5% and 12
5/8%, respectively.
o. Reflects the elimination of non-recurring Delsener/Slater officer's
bonuses and wages not being paid under SFX's new employment
contracts.
(B) Pending Acquisition & Disposition--Broadcasting
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
----------------------------------------------------------------------
PENDING
CAPSTAR NASHVILLE PRO FORMA ACQUISITION AND
DISPOSITION ACQUISITION ADJUSTMENTS (1) DISPOSITION--BROADCASTING
------------- ------------- --------------- -------------------------
Net broadcast revenues ................ $(9,831) $4,893 $(4,938)
Station and other operating expenses . (5,489) 4,263 (1,226)
Depreciation, amortization, duopoly
integration costs and acquisition
related costs ........................ (1,201) 467 39 (c) (95)
207 (d)
393 (b)
------------- ------------- --------------- ------------------------
Operating income (loss) ............... (3,141) 163 (639) (3,617)
Interest expense ...................... (36) -- 36 (a)
Other expense (income) ................ -- (3) (3)
------------- ------------- --------------- ------------------------
Income (loss) before income tax
expense .............................. (3,105) 166 (675) (3,614)
Income tax expense (benefit) .......... -- (3) (3)
------------- ------------- --------------- ------------------------
Net income (loss) ..................... (3,105) 169 (675) (3,611)
------------- ------------- --------------- ------------------------
Net income (loss) applicable to common
shares ............................... $(3,105) $ 169 $ (675) $(3,611)
============= ============= =============== ========================
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
----------------------------------------------------------------------
PENDING
CAPSTAR NASHVILLE PRO FORMA ACQUISITION AND
DISPOSITION ACQUISITION ADJUSTMENTS (1) DISPOSITION--BROADCASTING
------------- ------------- --------------- ------------------------
Net broadcast revenues................. $(9,012) $8,081 $ (450)(d) $(1,381)
Station and other operating expenses .. (5,265) 6,473 1,208
Depreciation, amortization, duopoly
integration costs and acquisition
related costs ........................ (852) 652 275 (d) 650
50 (c)
525 (b)
------------- ------------- --------------- ------------------------
Operating income (loss)................ (2,895) 956 (1,300) (3,239)
Interest expense....................... (2,108) -- 2,108 (a)
Other expense (income)................. (538) -- (538)
------------- ------------- --------------- ------------------------
Income (loss) before income tax
expense............................... (249) 956 (3,408) (2,701)
Income tax expense (benefit)........... -- --
------------- ------------- --------------- ------------------------
Net income (loss)...................... (249) 956 (3,408) (2,701)
------------- ------------- --------------- ------------------------
Net income (loss) applicable to common
shares................................ $ (249) $ 956 $(3,408) $(2,701)
============= ============= =============== ========================
F-22
(1) Pro Forma Adjustments
SFX has not included in the pro forma adjustments certain cost savings
totalling $539,000 it believes would have been realized for the year ended
December 31, 1996 following the Nashville Acquisition and the Chancellor
Exchange and $375,000 for the nine months ended September 30, 1997 following
the Nashville Acquisition and the Chancellor Exchange, had these transactions
been consummated as of January 1, 1996. The cost savings consist principally
of the elimination of certain duplicative technical, sales and general and
administrative functions due to the operation of a cluster of stations in
each of its principal markets, a reduction of employee benefit costs and
commission rates and the elimination of programming personnel due to
automation and simulcasting.
While management believes that such cost savings and the elimination of
non-recurring expenses are reasonably achievable, SFX's ability to fully
achieve such cost savings and to eliminate the non-recurring expenses is
subject to numerous factors, many of which are beyond SFX's control. These
factors may include difficulties in integrating the acquired stations and the
incurrence of unanticipated severance, promotional or other costs and
expenses. There can be no assurance that SFX will realize all such cost
savings.
a. To reflect the elimination of existing interest expense of $36,000
and $2,108,000 related to the Capstar Disposition for the nine months
ended September 30, 1997 and the year ended December 31, 1996,
respectively.
b. Reflects increase in amortization of intangible assets of $393,000
and $525,000 for the nine months ended September 30, 1997 and the
year ended December 31, 1996, respectively, resulting from the
purchase price allocation and change in amortization period related
to the Nashville Acquisition.
c. Amortization of $39,000 and $50,000 for acquisition costs associated
with the Nashville Acquisition for the nine months ended September
30, 1997 and the year ended December 31, 1996, respectively.
d. To reflect the reduced amortization of goodwill and elimination of
LMA fees of the Chancellor Exchange.
F-23
(C) Pending Acquisitions--Entertainment
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
----------------------------------------------------------
PACE CONTEMPORARY NETWORK BGP
ACQUISITION ACQUISITION ACQUISITION ACQUISITION
I II III IV
------------- -------------- ------------- -------------
Revenue.............. $229,480 $85,570 $20,563 $66,094
Operating expenses .. 205,015 77,284 14,775 59,312
Depreciation &
amortization........ 4,476 1,081 207 729
Corporate expenses .. -- -- -- --
------------- -------------- ------------- -------------
Operating income
(loss).............. 19,989 7,205 5,581 6,053
Interest expense .... 4,803 227 196 837
Other (income)
expenses............ (394) (170) (123) (221)
Equity (income) loss
from investments ... (6,615) -- -- --
------------- -------------- ------------- -------------
Income/(loss) before
income tax expense . 22,195 7,148 5,508 5,437
Income tax expense
(benefit)........... 3,751 -- 135 2,237
------------- -------------- ------------- -------------
Net income (loss) ... $ 18,444 $ 7,148 $ 5,373 $ 3,200
============= ============== ============= =============
(RESTUBBED TABLE CONTINUED FROM ABOVE)
CONCERTS/ PRO FORMA
SOUTHERN PRO FORMA PRO FORMA PENDING
ACQUISITION ADJUSTMENTS FOR FINANCING ACQUISITIONS--
V VI VII ENTERTAINMENT
------------- ------------- --------------- ---------------
Revenue.............. $13,093 $ -- $ -- $414,800
Operating expenses .. 10,532 -- -- 366,918
Depreciation &
amortization........ 57 16,703 (a) -- 23,253
Corporate expenses .. -- 1,500 (b) -- 1,500
------------- ------------- --------------- ---------------
Operating income
(loss).............. 2,504 (18,203) -- 23,129
Interest expense .... -- -- (6,063)(a) 31,208
-- 31,208 (b)
Other (income)
expenses............ (57) 944 (c) -- (21)
Equity (income) loss
from investments ... (34) (944)(c) -- (7,593)
------------- ------------- --------------- ---------------
Income/(loss) before
income tax expense . 2,595 (18,203) (25,145) (465)
Income tax expense
(benefit)........... -- (2,497)(d) -- 3,626
------------- ------------- --------------- ---------------
Net income (loss) ... $ 2,595 $(15,706) (25,145) $ (4,091)
============= ============= =============== ===============
F-24
I. PACE ACQUISITION
Reflects the PACE Acquisition and the separate acquisitions of two
partners' interest in a partnership that owns certain amphitheaters operated
by PACE. The PACE Acquisition is not conditional on the consummation of the
Pavilion Acquisition.
NINE MONTHS ENDED SEPTEMBER 30, 1997 IN (000'S)
---------------------------------------------------------
PACE PAVILION PRO FORMA PACE
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- ------------- --------------
Revenue ................................ $137,616 $91,114 $ 750 (a) $229,480
Operating expenses...................... 131,473 75,319 (1,777)(b) 205,015
Depreciation & amortization............. 1,462 3,014 -- 4,476
Other expenses.......................... 447 -- (447)(c) --
------------- ------------- ------------- -------------
Operating income........................ 4,234 12,781 2,974 19,989
Interest expense........................ 1,517 3,286 -- 4,803
Other expenses.......................... 64 1,530 (1,988) (394)
Equity (income) loss from investments .. (6,949) (1,654) 1,988 (d) (6,615)
------------- ------------- ------------- -------------
Income/(loss) before income tax
expense................................ 9,602 9,619 2,974 22,195
Income tax expense...................... 3,751 -- -- 3,751
------------- ------------- ------------- -------------
Net income (loss)....................... $ 5,851 $ 9,619 $ 2,974 $ 18,444
============= ============= ============= =============
PRO FORMA ADJUSTMENTS:
(a) To reflect non-cash revenue resulting from SFX Entertainment granting
Blockbuster naming rights to three venues for two years for no future
consideration as part of its agreement to acquire Blockbuster's
indirect 33 1/3% interest in Pavilion Partners.
(b) Reflects the elimination of $870,000 of certain officer's bonuses and
wages which will not be paid under SFX Entertainment's new employment
contracts and of $907,000 of non-recurring costs incurred in connection
with PACE's planned initial public offering.
(c) Reflects the elimination of non-recurring restricted stock compensation
to PACE executives who will receive incentive stock options pursuant to
their new employment agreements with SFX.
(d) To eliminate PACE's income from its 33 1/3% equity investment in
Pavilion Partners. PACE currently owns 33 1/3% in Pavilion Partners and
has agreed to acquire the remaining 66 2/3% interest in Pavilion
Partners pursuant to the Blockbuster Acquisition and Sony Acquisition.
II. CONTEMPORARY ACQUISITION
Reflects the Contemporary Acquisition and the separate acquisition of the
remaining 50% interest in Riverport Amphitheater Partners, a partnership that
owns an amphitheater in St. Louis, MO that is operated by Contemporary. The
Contemporary Acquisition is not conditioned upon the consummation of the
acquisition of such 50% interest.
F-25
NINE MONTHS ENDED SEPTEMBER 30, 1997 IN (000'S)
-----------------------------------------------------------
CONTEMPORARY RIVERPORT PRO FORMA CONTEMPORARY
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
-------------- ------------- ------------- --------------
Revenue ................................ $71,141 $14,429 $ -- $85,570
Operating expenses...................... 66,764 11,223 (703)(a) 77,284
Depreciation & amortization............. 498 583 -- 1,081
-------------- ------------- ------------- --------------
Operating income........................ 3,879 2,623 703 7,205
Interest expense........................ 153 74 -- 227
Other income............................ (122) (48) -- (170)
Equity (income) from investments ....... (1,298) -- 1,298 (b) --
-------------- ------------- ------------- --------------
Income (loss) before income tax
expense................................ 5,146 2,597 (595) 7,148
Income tax expense...................... -- -- -- --
-------------- ------------- ------------- --------------
Net income (loss)....................... $ 5,146 $ 2,597 $ (595) $ 7,148
============== ============= ============= ==============
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of consulting expenses which will not be paid
under SFX Entertainment's new contracts.
(b) Reflects the elimination of Contemporary's equity income in Riverport
Amphitheater Partners. Contemporary had entered into an agreement to
acquire its partners' 50% interest in this venture. If Contemporary is
unable to complete this acquisition of the remaining 50% interest in
Riverport Amphitheater Partners, the cash consideration paid by SFX
Entertainment for Contemporary will be reduced by $10,500,000.
The acquisition agreement provides that in the event the Contemporary
Acquisition is consummated prior to the consummation of the Spin-Off,
1,402,851 shares of Preferred Stock will be issued to the Sellers. Such
Preferred Stock is to be converted into an equal number of shares of Class A
Common Stock upon consummation of the Spin-Off or, if the Spin-Off shall not
have occurred prior to July 1, 1998, such Preferred Stock is to be redeemed
at their fair market value, but in no event less than $18,700,000.
F-26
III. NETWORK ACQUISITION
The Network Acquisition consists of the separate acquisitions of Network
Magazine and SJS. These acquisitions are each conditioned on the concurrent
closing of the other.
NINE MONTHS ENDED SEPTEMBER 30, 1997 IN (000'S)
--------------------------------------------------------------
THE NETWORK
MAGAZINE SJS PRO FORMA NETWORK
AS REPORTED (A) AS REPORTED (A) ADJUSTMENTS ACQUISITIONS
--------------- --------------- ------------- --------------
Revenue ................................ $12,047 $10,737 $(2,221)(c) $20,563
Operating expenses...................... 11,878 10,717 (5,599)(b) 14,775
(2,221)(c)
Depreciation & amortization............. 119 88 -- 207
--------------- --------------- ------------- --------------
Operating income (loss)................. 50 (68) 5,599 5,581
Interest expense........................ 163 33 -- 196
Other income............................ (43) (80) -- (123)
--------------- --------------- ------------- --------------
(Loss) income before income tax
expense................................ (70) (21) 5,599 5,508
Income tax expense ..................... -- 135 -- 135
--------------- --------------- ------------- --------------
Net (loss) income ...................... $ (70) $ (156) $ 5,599 $ 5,373
=============== =============== ============= ==============
PRO FORMA ADJUSTMENTS:
(a) SFX Entertainment's purchase agreement for Network Magazine and SJS
provides that the purchase price will be increased by $4,000,000 if
total 1998 EBITDA as defined equals $9,000,000; by an additional $4 for
each $1 increase in EBITDA between $9,000,000 and $10,000,000 and by an
additional $6 for each $1 increase in EBITDA between $10,000,000 and
$11,000,000 (maximum of $14,000,000 additional consideration). The
additional consideration is payable is stock or cash at SFX
Entertainment's option. The pro forma statement of operation assumes
that no additional consideration is paid.
(b) Reflects the elimination of certain officer's bonuses and wages which
will not be paid under SFX Entertainment's new employment contracts.
(c) Reflects the elimination of transactions between Network Magazine and
SJS.
F-27
IV. BGP ACQUISITION
NINE MONTHS ENDED SEPTEMBER 30, 1997 IN
(000'S)
--------------------------------------------
PRO FORMA BGP
AS REPORTED (A) ADJUSTMENTS ACQUISITION
--------------- ------------- -------------
Revenue ......................... $66,094 $ -- $66,094
Operating expenses............... 59,312 -- 59,312
Depreciation & amortization ..... 729 -- 729
--------------- ------------- -------------
Operating income ................ 6,053 -- 6,053
Interest expense................. 837 -- 837
Other income..................... (221) -- (221)
--------------- ------------- -------------
Income before income tax
expense......................... 5,437 -- 5,437
Income tax expense............... 2,237 -- 2,237
--------------- ------------- -------------
Net income....................... $ 3,200 $ -- 3,200
=============== ============= =============
(a) Reflects BGP's audited actual operating results for the nine months
ended October 31, 1997.
V. CONCERT/SOUTHERN ACQUISITION
NINE MONTHS ENDED SEPTEMBER 30, 1997 IN
(000'S)
-------------------------------------------
CONCERT/
PRO FORMA SOUTHERN
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- -------------
Revenue .............................. $13,093 $ -- $13,093
Operating expenses.................... 11,097 (565)(a) 10,532
Depreciation & amortization........... 57 -- 57
------------- ------------- -------------
Operating income...................... 1,939 565 2,504
Interest expense...................... -- -- --
Other income.......................... (57) -- (57)
Equity loss (income) from
investments.......................... 11 (45)(b) (34)
------------- ------------- -------------
Income before income tax expense ..... 1,985 610 2,595
Income tax expense.................... -- -- --
------------- ------------- -------------
Net income............................ $ 1,985 $ 610 $ 2,595
============= ============= =============
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of certain officer's bonuses and wages which
will not be paid under SFX Entertainment's new employment contracts.
(b) Reflects the elimination of equity income of a non-entertainment
affiliated entity which is not being acquired by SFX Entertainment.
VI. PRO FORMA ADJUSTMENTS:
(a) Reflects the increase in depreciation and amortization resulting from
the preliminary purchase accounting treatment of the Pending
Acquisitions. SFX Entertainment amortizes goodwill over 15 years.
(b) To record incremental corporate overhead charges associated with
incremental headquarters personnel and general and administrative
expenses that management estimates will be necessary following
completion of the Pending Acquisitions.
(c) To reclassify Delsener/Slater's equity income in the PNC Bank Arts
Center venue following the acquisition of Pavilion Partners which owns
the other 50% equity interest in the venue.
(d) Represents an adjustment to the provision for income taxes to reflect
the appropriate pro forma tax provision.
F-28
VII. PRO FORMA FOR THE FINANCINGS:
(a) Represents the elimination of existing interest expense for the Pending
Acquisitions.
(b) Reflects interest expense associated with the $275,000,000
privately-placed debt, the senior credit facility, other debt and
deferred compensation costs for the Pending Acquisitions. There can be
no assurance that SFX Entertainment will be able to obtain such
financing on acceptable terms, or at all.
F-29
YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
---------------------------------------------------------------
CONCERT/
PACE CONTEMPORARY NETWORK BGP SOUTHERN
ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITION
I II III IV V
----------- ------------ ----------- ----------- ------------
Revenue......................... $246,595 $71,545 $24,556 $92,331 $12,601
Operating expenses.............. 237,999 64,274 18,403 85,960 10,481
Depreciation & amortization .... 5,336 1,334 268 1,474 69
Corporate expenses.............. -- -- -- -- --
----------- ------------ ----------- ----------- -----------
Operating income (loss)......... 3,260 5,937 5,885 4,897 2,051
Interest expense................ 5,456 383 294 1,258 --
Other (income) expenses......... (368) (770) (42) (584) (47)
Equity (income) loss from
investments.................... (2,945) -- -- -- 38
----------- ------------ ----------- ----------- -----------
Income (loss) before income tax
expense ....................... 1,117 6,324 5,633 4,223 2,060
Income tax expense (benefit) .. (714) 35 303 1,272 --
----------- ------------ ----------- ----------- -----------
Net income (loss) .............. $ 1,831 $ 6,289 $ 5,330 $ 2,951 $ 2,060
=========== ============ =========== =========== ===========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
PRO FORMA
PRO FORMA PRO FORMA PENDING
ADJUSTMENTS FOR FINANCING ACQUISITIONS-
VI VII ENTERTAINMENT
----------- ------------- -------------
Revenue......................... $ (312)(d) $ -- $447,316
Operating expenses.............. -- -- 417,117
Depreciation & amortization .... 22,481 (a) -- 30,962
Corporate expenses.............. 2,000 (b) -- 2,000
----------- ------------- -------------
Operating income (loss)......... (24,793) -- (2,763)
(7,391)(a)
Interest expense................ -- 41,610 (b) 41,610
Other (income) expenses......... -- -- (1,811)
Equity (income) loss from
investments.................... (312)(d) -- (3,219)
----------- ------------- -------------
Income (loss) before income tax
expense ....................... (24,481) (34,219) (39,343)
Income tax expense (benefit) .. 809 (c) -- 1,705
----------- ------------- -------------
Net income (loss) .............. $(25,290) $(34,219) $(41,048)
=========== ============= =============
F-30
I. PACE ACQUISITION
Reflects the PACE Acquisition and the separate acquisitions of two
partners' interest in a partnership that owns certain amphitheaters operated
by PACE. The PACE Acquisition is not conditioned on the consummation of the
Pavilion Acquisition.
YEAR ENDED DECEMBER 31, 1996 IN (000'S)
--------------------------------------------------------------------------------------
PACE PAVILION PAVILION PAVILION PRO FORMA PACE
AS REPORTED (A) 1 MONTH (B) 11 MONTHS (B) AS REPORTED ADJUSTMENTS ACQUISITION
--------------- ----------- ------------- ------------- ------------- -------------
Revenue......................... $156,325 $5,177 $84,093 $89,270 $ 1,000(c) $246,595
Operating expenses.............. 155,533 5,199 77,267 82,466 -- 237,999
Depreciation & amortization .... 1,737 253 3,346 3,599 -- 5,336
Other expenses.................. 3,675 -- -- -- (3,675)(d) --
--------------- ----------- ------------- ------------- ------------- -------------
Operating (loss) income ........ (4,620) (275) 3,480 3,205 4,675 3,260
Interest expense................ 1,206 395 3,855 4,250 -- 5,456
Other income.................... (59) (123) (83) (206) (103) (368)
Equity (income) loss from
investments.................... (3,048) -- -- -- 103(e) (2,945)
--------------- ----------- ------------- ------------- ------------- -------------
Income (loss) before income tax
expense........................ (2,719) (547) (292) (839) 4,675 1,117
Income tax (benefit)............ (714) -- -- -- -- (714)
--------------- ----------- ------------- ------------- ------------- -------------
Net (loss) income .............. $ (2,005) $ (547) $ (292) $ (839) $ 4,675 $ 1,831
=============== =========== ============= ============= ============= =============
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects PACE's audited operating results for fiscal year ended
September 30, 1996.
(b) Reflects Pavilion Partners' unaudited operating results for the one
month ended October 31, 1995 and the audited operating results for the
eleven months ended September 30, 1996. During 1996, Pavilion Partners
changed its fiscal year-end from October 31 to September 30.
PACE currently owns 33 1/3% in Pavilion Partners and has agreed to
acquire the remaining 66 2/3% interest from the two partners
Blockbuster and Sony.
(c) To reflect non-cash revenue resulting from SFX Entertainment granting
Blockbuster naming rights to three venues for two years for no future
consideration as part of its agreement to acquire Blockbuster's
indirect 33 1/3% interest in Pavilion Partners.
(d) Reflects the elimination of non-recurring restricted stock compensation
to PACE executives who will receive incentive stock options pursuant to
their new employment agreements with SFX Entertainment.
(e) To eliminate PACE's income from its 33 1/3% equity investment in
Pavilion Partners. PACE currently owns 33 1/3% in Pavilion Partners and
has agreed to acquire the remaining 66 2/3% interest in Pavilion
Partners pursuant to the Blockbuster Acquisition and Sony Acquisition.
F-31
II. CONTEMPORARY ACQUISITION
Reflects the Contemporary Acquisition and the separate acquisition of the
remaining 50% interest in Riverport Amphitheater Partners, a partnership that
owns an amphitheater in St. Louis, MO that is operated by Contemporary. The
Contemporary Acquisition is not conditioned upon the consummation of the
acquisition of such 50% interest.
YEAR ENDED DECEMBER 31, 1996 IN (000'S)
-----------------------------------------------------------
CONTEMPORARY RIVERPORT PRO FORMA CONTEMPORARY
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
-------------- ------------- ------------- --------------
Revenue................................. $59,852 $11,693 $ -- $71,545
Operating expenses...................... 58,189 9,722 (3,637)(a) 64,274
Depreciation & amortization............. 567 767 -- 1,334
-------------- ------------- ------------- --------------
Operating income ....................... 1,096 1,204 3,637 5,937
Interest expense........................ 213 170 -- 383
Other income............................ (159) (611) -- (770)
Equity (income) loss from investments .. (822) -- 822 (b) --
-------------- ------------- ------------- --------------
Income (loss) before income tax
expense................................ 1,864 1,645 2,815 6,324
Income tax expense ..................... 35 -- 35
-------------- ------------- ------------- --------------
Net income.............................. $ 1,829 $ 1,645 $ 2,815 $ 6,289
============== ============= ============= ==============
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of certain officer's bonuses and wages not
expected to be paid under SFX Entertainment new employment contracts.
(b) Reflects the elimination of Contemporary's equity income in Riverport
Amphitheater Partners. Contemporary had entered into an agreement to
acquire its partners' 50% interest in this venture. If Contemporary is
unable to complete this acquisition of the remaining 50% interest in
Riverport Amphitheater Partners, the cash consideration paid by SFX
Entertainment for Contemporary will be reduced by $10,500,000.
The acquisition agreement provides that in the event the Contemporary
Acquisition is consummated prior to the consummation of the Spin-Off,
1,402,851 shares of preferred stock will be issued to the Sellers. Such
preferred stock is to be converted into an equal number of shares of Class A
Common Stock upon consummation of the Spin-Off or, if the Spin-Off shall not
have occurred prior to July 1, 1998, such preferred stock is to be redeemed
at their fair market value, but in no event less than $18,700,000.
F-32
III. NETWORK ACQUISITIONS
The Network Acquisitions consist of the separate acquisitions of Network
Magazine and SJS. These acquisitions are each conditioned on the concurrent
closing of the other.
YEAR ENDED DECEMBER 31, 1996 IN (000'S)
------------------------------------------------------------
THE NETWORK
MAGAZINE SJS PRO FORMA NETWORK
AS REPORTED (A) AS REPORTED ADJUSTMENTS ACQUISITIONS
--------------- ------------- ------------- --------------
Revenue.......................... $14,767 $11,375 $(1,586)(c) $24,556
Operating expenses............... 14,275 11,259 (5,545)(b) 18,403
(1,586)(c)
Depreciation & amortization ..... 184 84 -- 268
--------------- ------------- ------------- --------------
Operating income ................ 308 32 5,545 5,885
Interest expense................. 291 3 -- 294
Other income..................... (42) -- -- (42)
--------------- ------------- ------------- --------------
Income before income tax
expense......................... 59 29 5,545 5,633
Income tax expense .............. 212 91 -- 303
--------------- ------------- ------------- --------------
Net (loss) income ............... $ (153) $ (62) $ 5,545 $ 5,330
=============== ============= ============= ==============
PRO FORMA ADJUSTMENTS:
(a) Reflects Network Magazine's audited operating results for fiscal year
ended September 30, 1996. SFX Entertainment's purchase agreement for
Network Magazine and SJS provides that the purchase price will be
increased by $4,000,000 if total 1998 EBITDA as defined equals
$9,000,000; by an additional $4 for each $1 increase in EBITDA between
$9,000,000 and $10,000,000 and by an additional $6 for each $1 increase
in EBITDA between $10,000,000 and $11,000,000 (maximum of $14,000,000
additional consideration). The additional consideration is payable is
stock or cash at SFX Entertainment's option. The pro forma statement of
operations assumes that no additional consideration is paid.
(b) Reflects the elimination of certain officer's bonuses and wages which
will not be paid under SFX Entertainment's new employment contracts.
(c) Reflects the elimination of transactions between Network Magazine and
SJS.
F-33
IV. BGP ACQUISITION
YEAR ENDED DECEMBER 31, 1996 IN (000'S)
---------------------------------------------
PRO FORMA BGP
AS REPORTED (A) ADJUSTMENTS ACQUISITION
--------------- ------------- -------------
Revenue.......................... $92,331 $ -- $92,331
Operating expenses............... 87,520 (1,560)(b) 85,960
Depreciation & amortization ..... 1,474 -- 1,474
--------------- ------------- -------------
Operating income ................ 3,337 1,560 4,897
Interest expense................. 1,258 -- 1,258
Other Expense.................... (584) -- (584)
--------------- ------------- -------------
Income before income tax
expense......................... 2,663 1,560 4,223
Income tax expense .............. 1,272 -- 1,272
--------------- ------------- -------------
Net income ...................... $ 1,391 $ 1,560 $ 2,951
=============== ============= =============
- ------------
PRO FORMA ADJUSTMENTS:
(a) Reflects BGP's audited operating results for the fiscal year ended
January 31, 1997.
(b) Reflects the elimination of certain officer's bonuses, wages,
partnership life insurance, profit sharing and other eliminating
adjustments which will not be paid under SFX Entertainment's new
contracts.
F-34
V. CONCERT/SOUTHERN ACQUISITION
YEAR ENDED DECEMBER 31, 1996 IN (000'S)
-------------------------------------------
CONCERT/
PRO FORMA SOUTHERN
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- -------------
Revenue.......................... $12,601 $ -- $12,601
Operating expenses............... 10,873 (392)(a) 10,481
Depreciation & amortization ..... 69 -- 69
------------- ------------- -------------
Operating income ................ 1,659 392 2,051
Investment income................ (47) -- (47)
Equity loss from investments .... 27 11 (b) 38
------------- ------------- -------------
Income before income tax
expense......................... 1,679 381 2,060
Income tax expense .............. -- -- --
------------- ------------- -------------
Net income ...................... $ 1,679 $ 381 $ 2,060
============= ============= =============
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of certain officer's bonuses and wages which
will not be paid under the SFX Entertainment new employment contracts.
(b) Reflects the elimination of equity loss of a non-entertainment
affiliated entity which is not being acquired by SFX Entertainment.
VI. PRO FORMA ADJUSTMENTS:
(a) Reflects the increase in depreciation and amortization resulting from
the preliminary purchase accounting treatment of the Pending
Acquisitions. SFX Entertainment amortizes goodwill over 15 years.
(b) To record incremental corporate overhead charges associated with
incremental headquarters personnel that management estimates will be
necessary following completion of the Pending Acquisitions.
(c) Reflects estimated state and local income taxes. On a consolidated pro
forma basis, SFX Entertainment has a net operating loss for the year
ending December 31, 1996 of approximately $16 million for which no
federal tax benefit has been provided.
(d) To reclassify the Delsener/Slater's equity income in the PNC Bank Arts
Center venue following the acquisition of Pavilion Partners which owns
the other 50% equity interest in the venue.
VII. PRO FORMA FOR THE FINANCINGS:
(a) Represents the elimination of existing interest expense for the Pending
Acquisitions.
(b) Reflects interest expense associated with the $275,000,000 in
privately-placed debt, the senior credit facility, other debt and
deferred compensation costs for the Pending Acquisitions. There can be
no assurance that SFX Entertainment will be able to obtain such
financing on acceptable terms, or at all.
(D) Pro Forma Spin-Off--SFX Entertainment
o Reflects pro forma operating results of SFX Entertainment had all the
Pending Acquisitions--Entertainment and the Delsener/Slater, Meadows,
and Sunshine Acquisitions been consummated at January 1, 1996.
(E) Pro Forma Merger--Sale of SFX Broadcasting
o Reflects elimination of operating results of SFX related to the sale of
all the radio broadcasting assets to SBI Radio Acquisition Corporation.
F-35
GLOSSARY TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
"Albany Acquisition" means the acquisition by SFX, consummated in January
1997, of substantially all of the assets used in the operation of WYSR-FM,
operating in Albany, New York.
"BGP Acquisition" means the pending acquisition by SFX Entertainment of BG
Presents, Inc., a concert promotion company operating in San Francisco,
California.
"Capstar Disposition" means the pending sale by SFX of the Jackson
stations and the Biloxi station.
"CBS Exchange" means the exchange by SFX, consummated in March 1997 of
radio station WHFS-FM, operating in Washington, D.C./Baltimore, Maryland, for
KTXQ-FM and KRRW-FM, both operating in Dallas, Texas, and owned by CBS, Inc.
As such, historical operating results for WHFS-FM, KTXQ-FM and KRRW-FM have
been added to SFX, as reported amounts for the twelve months ending December
31, 1996 and from January 1, 1997 through March 31, 1997.
"Chancellor Exchange" means the pending exchange of SFX's radio stations
WBAB-FM, WHFM-FM, WBLI-FM and WGBB-AM, each operating on Long Island, New
York, for WFYV-FM and WAPE-FM, both operating in Jacksonville, Florida, and a
payment to SFX of $11.0 million in cash.
"Charlotte Acquisition" means the acquisition by SFX, consummated in
February 1996, of WTDR-FM and WLYT-FM, both operating in Charlotte, North
Carolina. As such, historical operating results for WTDR-FM and WLYT-FM have
been added to SFX, as reported amounts from January 1, 1996 through February
1, 1996.
"Charlotte Exchange" means the exchange by SFX, consummated in August 1997
of WDSY-FM in Pittsburgh, Pennsylvania and $20 million in cash for WRFX-FM in
Charlotte, North Carolina. As such, historical operating results for WRFX-FM
have been added to SFX, as reported amounts for the year ending December 31,
1996 and from January 1, 1997 through August 1, 1997.
"Completed Transactions" means, collectively, the MMR Merger, the
Greensboro Acquisition, the Liberty Acquisition, the Prism Acquisition, the
Jackson Acquisitions, the Greenville Acquisition, the CBS Exchange, the
Louisville Acquisition, the Raleigh-Greensboro Acquisitions, the Houston
Exchange, the Albany Acquisition, the Delsener/Slater Acquisition, the
Meadows Acquisition, the Secret Communications Acquisition, the Sunshine
Acquisition, the Richmond Acquisition, the Hearst Acquisition, the
acquisitions of WTDR-FM and WLYT-FM, both operating in Charlotte, North
Carolina, KTCK-FM, operating in Dallas, Texas, and KYXY-FM, operating in San
Diego, California, the Little Rock Disposition, the Washington Dispositions,
the Louisville Dispositions, the Dallas Disposition.
"Concert/Southern Acquisition" means the pending acquisition by SFX
Entertainment of Concerts/ Southern, a concert promotion company, operating
in Atlanta, Georgia.
"Contemporary Acquisition" means the pending acquisition by SFX
Entertainment of the Contemporary Group, a concert promotion company,
operating in St. Louis, Missouri, and certain affiliated entities.
"Credit Agreement" means the definitive credit agreement SFX entered into
on June 23, 1997, which increases amounts available under its senior credit
facility to $400 million.
"Dallas Disposition" means the sale by SFX, consummated in October 1996,
of radio station KTCK-AM, operating in Dallas, Texas. As such, historical
operating results for KTCK-AM have been added to SFX, as reported amounts
from January 1, 1996 through October 17, 1996.
"Delsener/Slater Acquisition" means the acquisition by SFX, consummated in
January 1997, of Delsener/Slater Enterprises, Ltd., a concert promotion
company, and certain affiliated entities (collectively, "Delsener/Slater").
As such, historical the operating results for Delsener/Slater have been added
to SFX, as reported amounts for the 12 months ending December 31, 1996.
"Greensboro Acquisition" means the acquisition by SFX, consummated in
December 1996, of substantially all of the assets of WHSL-FM, operating in
Greensboro, North Carolina. As such, historical the operating results for
WHSL-FM have been added to SFX, as reported amounts from January 1, 1996
through December 6, 1996.
F-36
"Greenville Acquisition" means the acquisition by SFX, consummated in June
1996, of substantially all of the assets of WROQ-FM, operating in
Greenville-Spartanburg, South Carolina. As such, historical the operating
results for WROQ-FM have been added to SFX, as reported amounts from January
1, 1996 through June 25, 1996.
"Hartford Acquisition" means the acquisition by SFX, consummated in
February 1997, of WWYZ-FM, which operates in Hartford, Connecticut. As such,
historical the operating results for WWYZ-FM have been added to SFX, as
reported amounts for the year ending December 31, 1996 and from January 1,
1997 through February 28, 1997.
"Hearst Acquisition" means the acquisition by SFX, consummated in August
1997, of two radio stations operating in Pittsburgh, Pennsylvania and two
stations in Milwaukee, Wisconsin for cash. As such, historical operating
results for the Pittsburgh and Milwaukee Stations have been added to SFX, as
reported amounts for the year ending December 31, 1996 and from January 1,
1997 through August 1, 1997.
"Houston Exchange" means the exchange by SFX, consummated in December
1996, of SFX's radio station KRLD-AM, operating in Dallas, Texas, and SFX's
Texas State Networks for radio station KKRW-FM, operating in Houston, Texas.
As such, historical the operating results for KRLD-FM and KKRW-FM have been
added to SFX, as reported amounts from January 1, 1996 through December 1,
1996.
"Jackson Acquisitions" means, collectively, the acquisitions by SFX,
consummated in the third quarter of 1996, of substantially all of the assets
of WJDX-FM, WSTZ-FM and WZRX-AM, each operating in Jackson, Mississippi. As
such, historical the operating results for WJDX-FM have been added to SFX, as
reported amounts from January 1, 1996 through July 19, 1996, while the
historical operating results for WSTZ-FM and WZRX-AM have been added to SFX,
as reported amounts from January 1, 1996 through August 29, 1996.
"Liberty Acquisition" means the acquisition by SFX, consummated in July
1996, of Liberty Broadcasting Incorporated, which owned and operated or
provided programming to or sold advertising on behalf of 14 FM and six AM
radio stations located in six markets: Washington, DC/Baltimore, Maryland;
Nassau-Suffolk, New York; Providence, Rhode Island; Hartford, Connecticut;
Albany, New York; and Richmond, Virginia. As such, historical the operating
results for the 14 FM and six AM stations have been added to SFX, as reported
amounts from January 1, 1996 through July 1, 1996.
"Louisville Acquisition" means the acquisition by SFX, consummated in
September 1996, from Prism of substantially all of the assets of WVEZ-FM,
WTFX-FM and WWKY-AM, each operating in Louisville, Kentucky. As such,
historical the operating results for the three stations have been added to
SFX, as reported amounts from January 1, 1996 through September 17, 1996.
"Louisville Dispositions" means the sale by SFX, consummated in October
1996, of the three stations acquired in the Louisville Acquisition. As such,
historical operating results for the three stations have been added to SFX,
as reported amounts from January 1, 1996 through October 1, 1996.
"Meadows Acquisition" means the acquisition by SFX, consummated in March
1997, of the Meadows Music Theater in Hartford, Connecticut. As such,
historical operating results for Meadows Music Theater have been added to
SFX, as reported amounts for the year ending December 31, 1996 and from
January 1, 1997 through March 19, 1997.
"MMR" means Multi-Market Radio, Inc.
"MMR Hartford Acquisition" means MMR's acquisition by SFX, consummated in
September 1996, of WKSS-FM, operating in Hartford, Connecticut. As such,
historical operating results for WKSS-FM have been added to SFX, as reported
amounts from January 1, 1996 through September 4, 1996.
"MMR Merger" means the merger, consummated in November 1996, of a
wholly-owned subsidiary of SFX with and into MMR, as a result of which MMR
became a wholly-owned subsidiary of SFX. As such, historical operating
results for MMR have been added to SFX, as reported amounts from January 1,
1996 through November 22, 1996.
"Myrtle Beach Acquisition" means MMR's acquisition of WMYB-FM, operating
in Myrtle Beach, South Carolina.
F-37
"Nashville Acquisition" means the pending acquisition by SFX of WJZC-FM,
WLAC-FM and WLAC-AM, each operating in Nashville, Tennessee, from Sinclair
Broadcasting Group.
"Network Acquisition" means the pending acquisition by SFX Entertainment
of the Network Magazine Group and SJS Entertainment, a creator, producer and
distributor of live concert programming and network radio special events.
"PACE Acquisition" means the pending acquisition by SFX Entertainment of
PACE Entertainment Corporation (including the purchase of the Pavilion
Partners), a concert promotion company operating in Houston, Texas.
"Pending Acquisition and Disposition--Broadcasting" means, collectively,
the Capstar Disposition and the Nashville Acquisition.
"Pending Acquisitions--Entertainment" means, collectively, the BGP
Acquisition, the Concerts/ Southern Acquisition, the Contemporary
Acquisition, the Network Acquisitions, and the PACE Acquisition.
"Pending Transactions" means the Pending Acquisition and
Disposition--Broadcasting and the Pending Acquisitions--Entertainment.
"Prism Acquisition" means the acquisition by SFX, consummated in the third
quarter of 1996, of substantially all of the assets of Prism used in the
operation of ten FM and six AM radio stations located in five markets:
Louisville, Kentucky; Jacksonville, Florida; Raleigh, North Carolina; Tucson,
Arizona; and Wichita, Kansas. As such, historical operating results for the
Prism stations have been added to SFX, as reported amounts from January 1,
1996 through July 8, 1996.
"Raleigh-Greensboro Acquisitions" means the acquisition by SFX,
consummated in June 1996, of substantially all of the assets of WMFR-AM,
WMAG-FM and WTCK-AM, each operating in Greensboro, North Carolina, and
WTRG-FM and WRDU-FM, both operating in Raleigh, North Carolina. As such,
historical operating results for the Raleigh-Greensboro stations have been
added to SFX, as reported amounts from January 1, 1996 through June 28, 1996.
"Richmond Acquisition" means the acquisition by SFX, consummated in July
1997, of ABS Communications L.L.C., which owns or will acquire WVGO-FM,
WLEE-FM, WKHK-FM and WBZU-FM, each operating in Richmond, Virginia, net of
the pending disposition of WVGO for $4.5 million. As such, historical
operating results for the four stations have been added to SFX, as reported
amounts for the year ending December 31, 1996 and from January 1, 1997
through July 2, 1997.
"Sale of SFX Broadcasting" means the pending sale of substantially all the
radio assets of SFX Broadcasting for approximately $2 billion in cash and
acquired debt.
"Secret Communications Acquisition" means the acquisition by SFX of
WFBQ-FM, WRZX-FM and WNDE-AM, each operating in Indianapolis, Indiana,
consummated in April 1997, and WDVE-FM, WXDX-FM, and WJJJ-FM, each operating
in Pittsburgh, Pennsylvania, consummated in June 1997. As such, historical
operating results for the Indianapolis stations have been added to SFX, as
reported amounts for the year ending December 31, 1996 and from January 1,
1997 through April 1, 1997, while the operating results for the Pittsburgh
stations have been added to SFX, as reported amounts are included for the
year ending December 31, 1996 and from January 1, 1997 through June 1, 1997.
"Sunshine Acquisition" means the acquisition by SFX, consummated in June
1997, of Sunshine Promotions, Inc. a concert promotion company, and certain
affiliated entities (collectively "Sunshine"). As such, historical operating
results for Sunshine Promotions have been added to SFX, as reported amounts
for the year ending December 31, 1996 and from January 1, 1997 through June
1, 1997.
"Texas Coast Acquisition" means the acquisition by SFX, consummated in
February 1997, of radio stations KQUE-FM and KNUZ-AM in Houston, Texas. As
such, historical operating results for KQUE-FM and KNUZ-AM have been added to
SFX, as reported amounts for the year ending December 31, 1996 and from
January 1, 1997 through February 28, 1997.
"Washington Dispositions" means the sale by SFX, consummated in July 1996,
of three of the stations acquired from Liberty Broadcasting, each operating
in the Washington, D.C./Baltimore, Maryland market. As such, historical the
operating results for the three stations have been added to SFX, as reported
amounts from January 1, 1996 through July 1, 1996.
F-38