Document:

Exhibit 10.27

 

OPTION AGREEMENT

 

Dated as of March 20, 2013 (the “Effective Date”)

 

Proprietary and Confidential

 

Information provided in this binding option agreement (this “Option Agreement”) is considered “Confidential Information” as defined in the Mutual Confidentiality and Non-Circumvention Agreement, dated as of October 13, 2012 (the “Confidentiality Agreement”). By receiving this Option Agreement and any other information related to the Transactions, each of SFX Entertainment, Inc. (f/k/a SFX Holding Corporation) (“SFX”) and ID&T Holding B.V. (“ID&T” and, collectively with SFX, the “Parties”) shall not disclose or use the information in any manner without the prior written consent of the other Party; except that (A) each Party is permitted to disclose or use information to the extent permitted by the Confidentiality Agreement (as if “Proposed Transaction” defined thereunder were defined to include the Transactions) and/or to the extent permitted hereunder, and (B) the Parties agree that promptly after the Effective Date the Parties shall issue a joint press release regarding the terms hereof in the form attached as Exhibit A hereto.

 

	
THE   TRANSACTIONS:
    	
 
    	
By   signing this Option Agreement, the Sellers hereby grant to SFX and/or one or   more subsidiaries of SFX (as the case might be, the “Buyer”)   an option (the “Option”) to   acquire a 75% interest (the “Purchased Company   Interest”) in ID&T or in another entity owning the Business   (ID&T or such entity, as the case might be, the “Company”)(1),   in accordance with the terms hereof. Upon the Buyer transferring the   Consideration to the Sellers in accordance with the terms hereof (such   transfer, the “Exercise”), the Company shall   deliver the Purchased Company Interest to the Buyer.

 

On   the Effective Date, as an option fee SFX shall (i) pay to the Sellers an   amount equal to US$2,500,000 by wire transfer of immediately available funds   to an account designated by Sellers, and (ii) issue 2,000,000 shares of   SFX common stock, par value $0.001 per share (the “SFX Shares”)  (Clauses (i) and (ii) hereof are   collectively, the “Effective Date   Consideration”).

 

On   the Effective Date, SFX shall also (i) make an advance to the Sellers in   an amount equal to US$7,500,000 (the “Advance”) by   wire transfer of immediately available funds to an account designated by   Sellers, (ii) issue to the Sellers 2,000,000 shares of SFX common stock,   par value $0.001 per share (the “NAJV Stock Consideration”),   and (iii) issue to the Sellers the ID&T Warrants (as defined in that   certain Binding Term Sheet dated as of October 26, 2012 among the   Parties (the “NAJV Term Sheet”)).  Clauses (i), (ii) and (iii) hereof   are collectively, the “NAJV Consideration”   and are made pursuant to the requirements of the NAJV Term Sheet.  In addition, the parties acknowledge that   the Buyer has previously paid to the Seller US$12,500,000 (the “Initial  NAJV Consideration”)   in cash pursuant to the terms of the NAJV Term Sheet.

 

·                                          “Consideration” means the total consideration to be paid by   SFX in
    

 

(1)         Sellers contemplate that the Business will be owned by a New Dutch B.V. to be formed in connection with the transactions contemplated hereby, and such entity will be the “Company” hereunder.

 

 

	
 
    	
 
    	
order to exercise the Option, as adjusted pursuant to the bullet   points below, consisting of: (a) the Effective Date Consideration; (b) US$40,000,000   in cash (the “Exercise Price”), and (c) waiver   of repayment of the Advance, which at Exercise (should Exercise occur) shall   be deemed to constitute additional cash consideration payable by the Buyer   for the Purchased Company Interest.    Upon Exercise the NAJV Term Sheet shall be deemed amended to reflect   the revised treatment of the Advance.

 

·                  The   Consideration with respect to the Transactions will be adjusted based upon a   target consolidated indebtedness amount for the Company of US$0 as of   January 1, 2013.  To the   extent that, as of December 31, 2012, the amount of net current assets   of the Company (i) exceeded $0, the Company will distribute the excess   in cash to the Sellers or the amount of such excess shall increase the   Consideration payable to the Sellers, and (ii) was less than US$0, the   cash portion of the Consideration payable to the Sellers shall be reduced by   such amount.  Net current assets shall   be calculated based on the difference between current assets and current   liabilities, but including as current assets agreed upon amounts of retained   earnings and shareholders’ equity to account for certain differences between   Dutch and US GAAP.  Further, net   current assets will be reduced for any tax obligations of the Company   relating to the prior payment by Buyer of US$12,500,000 pursuant to the NAJV   Term Sheet, offset by the net present value of any tax benefits reasonably   expected to be realized by Buyer as a result of such payment.

 

·                  The   Consideration will be further increased in the amount of undistributed   dividends of unconsolidated subsidiaries specified by the Sellers (the “Anticipated Dividends”).    To the extent that the Company does not receive the amount of   Anticipated Dividends within nine months of the Effective Date, then (A) to   the extent the shortfall in Anticipated Dividends is less than US$1,000,000   such amount shall be treated as an advance by Buyer to the Sellers and repaid   from 100% of distributions from the Company, and (B) to the extent the   shortfall in Anticipated Dividends is US$1,000,000 or greater, the Buyer   shall have the option to either (i) treat such amount as an advance   consistent with clause (A), or (ii) at Sellers’ election, (x) cancel   shares of SFX stock issued to Sellers as Consideration with a value equal to   such shortfall (at a price per share of $10 per share) or (y) receive a   cash payment from Seller in an amount equal to such shortfall.

 

·                                          “Business” means all of ID&T’s assets, businesses, and   operations, subject to agreed treatment of the North American JV as described   under “Structure” below.  Business   includes (whether such interests are directly held by ID&T, or by   shareholders of ID&T and relating primarily to the Business):  all equity interests of any subsidiary or
    

 

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equity investments; all of ID&T’s intellectual property; 100% of   the interests in Q-Dance; a 50% interest in the ID&T Belgium BvBA   (Tomorrowland) joint venture (it being understood that as a result of the   transfer of the Business, SFX will receive 75% of the benefits and 75% of the   obligations associated with such joint venture currently owned by   ID&T(2)); a 50% interest in the b2s joint venture (it being understood   that as a result of the transfer of the Business, SFX will receive 75% of the   benefits and 75% of the obligations associated with the b2s joint venture   currently owned by ID&T(3));  all   equity interests of ID&T Merchandise BV; and any other asset used by   ID&T or any subsidiary in the conduct of its business or any contractual   right held by ID&T or any subsidiary.    The parties acknowledge and agree that satisfaction of any consent or   other requirements with respect to any change of control trigger relating to   the ID&T Belgium BvBA joint venture shall not be a condition to the   Transactions contemplated hereby; provided, that (i) the parties shall   cooperate and use their reasonable efforts to obtain any consent required or   satisfy any such other requirements in connection with any such change of   control trigger, and (ii) if the third party to the joint venture   exercises its rights under the joint venture agreement in connection with   such change of control trigger, SFX will receive its proportionate share of   any consideration paid by such third party to Sellers (or any of their   affiliates).  Further, the parties   agree to enter into a shareholders agreement containing customary governance   and transfer restrictions consistent with the terms contemplated herein with   respect to b2s.  The parties   acknowledge that ID&T is currently in discussions regarding certain   transactions as described in Exhibit B hereto, and that the   assets listed in Exhibit C hereto are not part of the Business.

 

·                                          “Sellers” means (i) ID&T, if the Company is not   ID&T but is instead another entity owning all of the Business, or   (ii) the shareholders of ID&T as of the Effective Date, if the   Company is ID&T.

 

The transactions   contemplated by this Option Agreement are herein referred to as, the “Transactions”.
    
	
 
    	
 
    	
 
    
	
M   DESIGN:
    	
 
    	
In   connection with the Transactions, on or prior to time of the Exercise, the   Sellers shall form an entity which is expected to be named “M Design” (“M Design”). M Design will be owned by existing   shareholders of ID&T (the “M Design Shareholders”).

 

Prior   to the Exercise, (i) M Design will not conduct any operations, and   (ii) the M Design Shareholders will be prohibited from transferring the   interests in M-Design.
    

 

(2)         As discussed with ID&T, SFX is negotiating with the Belgian co-owners of the Tomorrowland joint venture for worldwide rights with ID&T.

 

(3)         As discussed with ID&T, SFX is separately negotiating to purchase the 50% interest in the b2s joint venture not held by ID&T.  Consideration is being given to having ID&T acquire that 50% interest rather than SFX should the Option be exercised.

 

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Upon   the occurrence of the Exercise, the following provisions will apply:

 

·                                          Duncan   Stutterheim (“Stutterheim”), Wouter Tavecchio   (“Tavecchio”), and certain individuals   who were employed by ID&T immediately prior to the Effective Date will be   employed solely by M Design (Stutterheim, Tavecchio, and such individuals,   collectively with any other individuals who become employed by M Design, the   “M Design Employees”); provided that   Stutterheim is expected to provide services to SFX while an M Design Employee   as specified in his employment agreement;

 

·                                          Stutterheim’s   (subject to the first bullet point hereof) and Tavecchio’s employment with M   Design will be for an initial term of five (the “Initial   Term”) years after the date on which the Exercise occurs (the “Exercise Date”);

 

·                                          For so long   as Stutterheim or Tavecchio is an owner of M Design, M Design, in   consultation with the Co-CEO of the Company appointed by ID&T and the   Chief Creative Officer of the Company (which may be the same person), will   maintain exclusive creative control over festivals, events or concerts,   brands, merchandise and related intellectual property (“Events”)   that the Company promotes or produces, spending with respect to events   (subject to the Company’s budget), and the use of brands, merchandise,   intellectual property and content in connection with the promotion and   production of Events.

 

·                                          the M Design   Employees will provide such creative services, through M Design,  pursuant to a contract to be agreed by the   parties (the “M Design Contract”) and for a   cost equal to the operating cost of M Design, including aggregate salary and   employee benefits that would otherwise be payable to M Design Employees for   such services were they employed with the Company (and M Design will not   charge the Company any premium or service fees with respect to costs incurred   by M Design on behalf of the Company);

 

·                                          M Design   will, for so long as the M Design Contract is in effect, not provide services   to any person other than to the Company or the Company’s subsidiaries and   will not otherwise engage in any business, except with the consent of Buyer   and the Company for the duration of M Design’s existence;

 

·                                          certain key M   Design Employees (including Stutterheim and Tavecchio), including those   listed on Exhibit E, will be required, as a condition of   employment with M Design, to enter into a non-competition agreement and   non-solicitation agreement with M Design, the Company and SFX that, among   other things, prohibits such M Design Employee from competing with the   Company, SFX or any of SFX’s subsidiaries (the “M Design   Employee Agreements”), and such non-competition and   non-solicitation agreement will survive termination of employment for one   year (or six months in the event of termination without cause); provided,   that in the case of Stutterheim and Tavecchio such agreement will survive for   the greater of (A) the term of employment and (B) the
    

 

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Initial Term, plus in either case one year (or 6 months in the event   of termination without cause);

 

·                                          all   intellectual property, real property, goods or services developed by M Design   (whether in connection with performing services for the Company or otherwise)   are deemed to be works made for hire and will be owned solely by the Company   and will be registered with appropriate governmental or other entities in the   name of or at the direction of the Company, and all intellectual property,   real property, goods or services developed by an M Design employee during the   twelve month period post-employment termination which relate to EDM or the   type of business conducted by the Company will be presumed, subject to   rebuttal, to have been created as works made for hire and to be the property   of the Company;

 

·                                          M Design will   be operated with a financial plan to neither make a profit nor suffer a loss;

 

·                                          M Design and   the Company will agree to an annual budget; the Company, Buyer, and the M   Design Shareholders will enter into an agreement setting forth, among other   things, the provisions in this section “M Design”;

 

·                                          By action of   its Board, the Company may terminate the contract for breach or failure to   perform.  
    
	
 
    	
 
    	
 
    
	
EMPLOYMENT   TERMS
    	
 
    	
At   the Exercise Stutterheim or his personal holding company shall enter into an   employment agreement or management agreement, as applicable, with M-Design,   providing for him to serve as an employee of M-Design and to provide services   to SFX as further agreed, on terms and conditions including:

 

1.              Term of no   less than five (5) years;

2.              Salary of no   less than five hundred thousand dollars ($500,000) per annum, subject to an   annual increase of 3% per annum.

3.              Severance in   the event of termination without cause for the longer of (x) the   remaining term of the agreement or (y) one year following such   termination (which amounts shall be reimbursed to M-Design by ID&T).

4.              Benefits on   the same basis provided to other senior executives of SFX.

5.              All other   terms and conditions shall be agreed upon between SFX and Mr. Stutterheim.

6.              The employee   will be subject to a non-compete that will survive the term of employment for   one year (or 6 months in the event of a termination without cause).

7.              Options   (transferrable with the consent of the SFX board) to acquire 200,000 SFX   shares (i) with an exercise price of $10 per share, (ii) with a   term of 5 years and (iii) which shall be fully vested at Exercise.

 

On   or prior to Exercise, Tavecchio or his personal holding company shall have   entered into an employment agreement or management agreement, as applicable,   with M-Design having the terms set forth on Exhibit E hereof,   which shall
    

 

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include,   without limitation, severance in the event of termination without cause for   the longer of (x) the remaining term of the agreement or (y) one   year following such termination (which amounts shall be reimbursed to   M-Design by ID&T).

 

On   or prior to the Exercise, the key employees of ID&T set forth on Exhibit E   shall enter into employment agreements with ID&T having the terms set   forth on Exhibit E, which shall include, without limitation,   severance in the event of termination without cause for the longer of (x) the   remaining term of the agreement or (y) one year following such   termination.
    
	
 
    	
 
    	
 
    
	
COMPANY   SHAREHOLDERS’ AGREEMENT:
    	
 
    	
Upon   the occurrence of the Exercise, the Buyer and the Sellers (collectively, the   “Company Shareholders”) shall enter   into a shareholders’ agreement (the “Company Shareholders’   Agreement”) consistent with the terms hereof, that addresses,   among other things, management of the Company, rights to distributions from   the Company, liquidity events with respect to the Company, and provisions   regarding the transferability of equity in the Company. Certain terms to be   included in the Company Shareholders’ Agreement are set forth in this Option   Agreement under the following sections: “Management and Operation of the   Company,” “Distributions to Company Shareholders,” and “Transfers of Company   Shares.”  The Buyer and the Sellers   expect the Company Shareholders’ Agreement will incorporate and supersede   similar terms of the NAJV Term Sheet.
    
	
 
    	
 
    	
 
    
	
MANAGEMENT   AND OPERATION OF THE COMPANY:
    	
 
    	
The   following provisions will apply only upon occurrence of the Exercise:

 

·                                          The Company’s   board (the “Board”) will be composed   initially of five individuals. The Buyer will be entitled to appoint one more   than a majority of the Board members and the Sellers will be entitled to   appoint one less than a majority of Board members.  SFX, on behalf of the Buyer, hereby   designates Robert FX Sillerman , Mitchell Slater and Shelly Finkel as the   Buyer’s initial designated Board members and the Sellers hereby designate   Duncan Stutterheim and Ritty van Straalen as the Sellers’ initial designated   Board members.

 

·                                          Majority   board approval shall be required for the following actions:

 

(i)  To the extent that the Board has unanimously determined   that third party debt financing of the Company is required, the Board, by   majority approval shall have the right to determine the nature and terms of   any such financing (whether provided by SFX or by an independent third   party), provided that any such financing is on terms that are reasonably   consistent with terms that would reasonably be expected to be available from   a third party financing source);

 

(ii)                                  The approval   of the gross budget (meaning the company’s overall annual spend); provided   that (a) unanimous approval of the Board shall be required for approval   of line items in Event budgets, and (b) the gross budget may not be   decreased from the prior year’s gross budget without the unanimous consent of   the Board, unless the Company’s EBITDA declined compared to the prior year,   in which case the gross budget may
    

 

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be reasonably adjusted to reduce expenses; and

 

(iii) The hiring and firing of personnel; provided that   unanimous approval of the Board shall be required for hiring and firing of   key employees set forth on Exhibit E, Stutterheim, Tavecchio and   the M Design Employees.

 

All other actions shall require unanimous board approval.

 

·                                          The following   persons shall initially be the senior management of the Company, and shall be   subject to the direction of the Board: Chris van Overbeeke, Marcel Elbertse,   Fatih Kahyaoglu, Jeroen Jansen and Bas Meijer.

 

·                                          The Company   will, in the course of seeking profitable operations, act to preserve and   expand the existing ID&T brands and develop new brands and opportunities.

 

·                                          SFX shall use   its reasonable efforts to avoid promoting Events which would reasonably be   expected to diminish or interfere with the use of the Company brands, in   particular, by virtue of the timing and location of performances.

 

·                                          Individuals   who are currently employed by or otherwise affiliated with ID&T will be   responsible for creative control of the Company, including creative control   over Events that the Company promotes or produces, spending with respect to   Events, and the use of brands in connection with the promotion and production   of Events.

 

·                                          SFX will have   primary responsibility and oversight of the non-Event, non-promotion aspects   of the Company’s operations, including financial planning, non-Event budget,   and general oversight of the Company’s operations. The Company will be   managed within overall budget guidelines that are established annually by the   Board as described above (the “Budget”).  If the Board is unable to agree on a Budget   and until such time as the Budget is agreed, the Company shall operate on the   basis of the prior year’s gross budget. Further, if the Board is unable to   agree on such an allocation of the gross Budget, the Company shall operate on   the basis of the prior year’s budget taking into account proportional changes   in each line item therein to account for the approved change in the gross   budget.

 

·                                          One Co-CEO   and the CFO of the Company will be appointed by SFX.  Shelly Finkel (“Finkel”)   will serve initially as the JV’s Co-CEO appointed by SFX.  If Finkel resigns from, is removed from, or   otherwise no longer serves in his position as a Co-CEO, then SFX will be   entitled to appoint a replacement Co-CEO, but only if such appointee is   reasonably acceptable to ID&T.  It   is agreed that ID&T may withhold such approval if the replacement Co-CEO   is a competitor of ID&T, ID&T has had prior dealings with such person   that were unsatisfactory to ID&T or if ID&T perceives that such   person may have a conflict of
    

 

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interest, including due to   such person’s work for another subsidiary of SFX.

 

·                                          One Co-CEO   and the Chief Creative Officer of the JV will be appointed by ID&T,   subject to SFX’s approval, which will not be withheld except where based on   clear evidence of: conflict, inability to competently perform the functions   of the office, criminal history or public opprobrium.

 

·                                          Other than   with respect to ID&T employees and members of ID&T management   providing services through M Design, as of the Effective Date, ID&T   employees (“Retained Employees”) will   continue to be employed by ID&T (or by the applicable ID&T   subsidiary, as applicable) on the same terms as they were previously employed   prior to the Effective Date; except that, to the extent permitted by   law, instead of receiving benefits and being eligible for ID&T equity   incentive plans, Retained Employees and M Design employees (as provided for   in the M Design Contract) will be eligible to participate in benefit plans   and equity incentive plans in which SFX’s employees are generally eligible to   participate, including SFX’s stock option plan.

 

·                                          To the extent   not financed by one or more third-party financing arrangements, SFX or one or   more of SFX’s subsidiaries (other than the Company and the Company’s   subsidiaries) (as the case might be, the “SFX   Funding Entity”) will provide debt financing to the Company on   terms approved by the Board (including reasonable market-based interest rates   for such loans). If the SFX Funding Entity incurs indebtedness in connection   with providing such financing, including pursuant to a credit facility to   which multiple SFX entities are loan parties, then (a) the Company will   enter into appropriate documentation that joins the Company as a loan party   under the loan documents governing such indebtedness, to the extent necessary   to guaranty as a primary obligor the portion of such indebtedness that is   incurred in order to provide such financing, (b) Buyer will be permitted   to pledge its interest in the Company, and (c) the Company will enter   into such documentation and take such actions as are necessary to provide   such guaranty.  In the event the SFX   Funding Entity elects not to provide such financing, the Company may enter   into third-party financing arrangements on terms approved by the Board (as   described above.  In either case, the   SFX Funding Entity (as applicable) and the Company shall use commercially   reasonable efforts to provide that any such financing arrangement allows for   yearly cash distributions of the annual profits of the Company to   shareholders of the Company.
    
	
 
    	
 
    	
 
    
	
SFX   BOARD OBSERVER
    	
 
    	
Commencing   one week following the Effective Date, Seller will have the right to appoint   and dismiss an observer to the SFX board who will have full rights to observe   and participate in meetings, subject to customary restrictions relating to   conflicts and privilege, including notice of meetings.  The parties agree that this right   supersedes and replaces Seller’s right to appoint a board observer pursuant   to the NAJV Term Sheet, and the NAJV Term Sheet shall be deemed amended 
    

 

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to   remove ID&T’s right to appoint a board observer.    
    
	
 
    	
 
    	
 
    
	
DISTRIBUTIONS   TO COMPANY SHAREHOLDERS:
    	
 
    	
Provisions   regarding distributions (including, if the Company is a pass-through entity   for tax purposes, tax distributions) will be reflected in the Company   Shareholders’ Agreement.  The parties   agree that after Exercise, annual profits as reported in the Company’s   consolidated financial statements for the year as approved by the Board will   be distributed in cash to the Company Shareholders, taking into account   appropriate reserves as determined by the Board, as well as the Budget and   the Company’s contractual obligations (including covenant compliance under   debt facilities).
    
	
 
    	
 
    	
 
    
	
TRANSFERS   OF COMPANY SHARES:
    	
 
    	
Upon   the occurrence of the Effective Date, the following provisions will apply:

 

·                                          Restrictions   on Transfers; Permitted Transfers. Each Company Shareholder   shall not directly or indirectly transfer any of such Company Shareholder’s   equity interests in the Company (“Company Shares”),   except:

 

·                                           each Company   Shareholder is permitted to transfer all or any portion of such Company   Shares to one or more of such Company Shareholder’s subsidiaries, affiliates   or family members, to other Company Shareholders, provided, that such   transferee agrees to be bound by the terms of the Company Shareholders’   Agreement;

 

·                                           each Company   Shareholder is permitted to pledge all or any portion of such Company Shares   in connection with a financing;

 

·                                           the Sellers   are permitted to transfer Company Shares to a third party, subject to a right   of first refusal in favor of SFX with respect to any such transfer, if such   transfer (or series of transfers) relates to at least 50% of the shares held   by the Sellers collectively;

 

·                                           Until the   third anniversary of the Effective Date, Sellers shall have a right of first   refusal with respect to any proposed transfer by SFX of more than fifty   percent (50%) of its interest in the Company; and

 

·                  The Buyer is   permitted to (directly or indirectly) transfer all (but not less than all) of   the Buyer’s Company Shares (i) as part of a corporate reorganization, or   (ii) in connection with the sale or merger of the Buyer’s entire group.

 

·                                          Joinder. As a   condition to becoming a holder of Company Shares, any transferee of Company   Shares must agree to be bound by the terms of the Company Shareholders’   Agreement to the same extent as the transferring Company Shareholder with   respect to the Company Shares so transferred.

 

·                                          Foreclosure   on Company Shares. A bona fide pledgee of Company
    

 

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                                                Shares that   acquires such Company Shares in connection with a foreclosure thereon will   succeed to such Company Shareholder’s economic interest, but not voting or   other control rights, under the Company Shareholders’ Agreement and such   foreclosure will not terminate existence of the Company.

 

·                                          Sellers’ Put   Right. Provided that the Exercise has occurred, during the period   beginning on the date that is the earlier of (i) the three-year   anniversary of the Effective Date and (ii) the date on which SFX   consummates a transfer of more than fifty percent (50%) of its interest in   the Company, the Sellers will be entitled to collectively put (by providing   notice to the Buyer during such period) all, but not less than all, of their   Company Shares and interests in M-Design to the Buyer for an aggregate purchase   price equal to the Company Shares Put Price as of the date when the Sellers   provide the Buyer notice of their election to exercise such put right.   SFX shall provide reasonable notice of any   sale triggering Sellers’ rights under this section, and Sellers shall provide   reasonable notice of any exercise of such rights.

 

·                                           “Company Shares Put Price” means, as of a given date of   determination, an amount equal to the greater of (a) 8 times Ratable LTM   EBITDA as of such date and (b) $31.25 million; except that if   (x) 12 times Ratable LTM EBITDA as of such date is less than $31.25   million and (y) SFX has not taken action prior to such date for the sole   purpose  of causing 12 times Ratable   LTM EBITDA to be less than $31.25 million, then “Company Shares Put Price”   means 12 times Ratable LTM EBITDA as of such date.

 

·                                           “Ratable LTM EBITDA” means, as of a given date of   determination, (a) 0.25 times (b) the Company’s consolidated   earnings before interest, taxes, depreciation, and amortization for the   12-month period ended as of the last day of the calendar month immediately   preceding the calendar month in which such date of determination is included.

 

The   Buyer will be obligated to pay the Company Shares Put Price as soon as   reasonably practicable, and in any event within one year of the date of the   notice of election.  If the Buyer fails   to pay the Company Shares Put Price within one year, then (i) the Buyer   shall provide the Sellers with the opportunity to elect to select one brand   (other than one brand specified by the Buyer) to be transferred to the   Sellers (the “Seller Brand”) and (ii) the   key employees set forth on Exhibit E, the M Design Employees, and   the former ID&T employees (including, but not limited to, Stutterheim and   Tavecchio) shall be released from their non-competition agreements with the   Company.  The Company shall cause the   Seller Brand (if Sellers elect to select a Brand) to be appraised and the   value of the Seller Brand shall be deducted from amounts owed by Buyer   pursuant to the Company Shares Put Price.    Sellers’ rights in the Seller Brand will be subject to the Company’s   ability to fulfill existing contractual obligations relating to such brand;   provided, that the  
    

 

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economic   benefits of such contractual obligations shall be for the benefit of Sellers.
    
	
 
    	
 
    	
 
    
	
STRUCTURE:
    	
 
    	
The   Parties shall seek to structure the Transactions and the management of the   Company so as to optimize tax treatment to the Parties.

 

The   Parties shall structure the Transactions such that the joint venture between   the Parties (the “North America JV”)   that was created by virtue of the NAJV Term Sheet, between the Parties will   be included as part of the acquisition of the Company; except that   should the Exercise occur (a) the Parties shall structure the   Transactions such that (i) the Buyer will have a 75% ultimate beneficial   economic interest in the North America JV and the Sellers will have, in the   aggregate, a 25% ultimate beneficial economic interest in the North America   JV, (ii) the North America JV shall be solely managed, directly or   indirectly, by the Company on terms consistent with the terms set forth in   this Option Agreement (and there will be no separate board of directors) and   (iii) any dividends and distributions by the North America JV to the   Buyer derived from US-based events will be first and primarily taxable to the   Buyer in the United States; (b) the obligation to repay the Advance   shall be removed (it being understood that the amount of such Advance paid on   the Effective Date shall be deemed to constitute part of the Buyers cash   consideration for the Purchased Company Interests); (c) the obligation   to pay license fees on the terms set forth in the NAJV Term Sheet shall   modified as agreed to by the parties (it being understood that such license   fees shall be payable to Newco or one or more of its subsidiaries);   (d) the obligation of SFX to issue the EBITDA Warrants (as defined in   the NAJV Term Sheet) shall remain in full force and effect; and (e) the   provisions of the NAJV Term Sheet regarding Transfer of SFX Common Stock   shall remain in full force and effect with respect to NAJV Stock   Consideration.

 

The   Parties acknowledge and agree that subject to the terms of this Option   Agreement, the Definitive Agreements will harmonize the terms of the NAJV   Term Sheet with the terms of this Option Agreement.  The Parties acknowledge and agree that if   the Option is not Exercised, the NAJV Term Sheet shall remain in effect, but   modified as specifically provided herein.

 

The   structure of the Transactions is subject to continuing review and analysis   and the Parties acknowledge that it may be necessary or appropriate to   restructure the form of all or a portion of the Transactions as a result of   tax, accounting, or other considerations.
    
	
 
    	
 
    	
 
    
	
US   GAAP AUDIT:
    	
 
    	
ID&T   shall prepare 2012 financial statements, which will include 2011 comparatives   on a US GAAP basis, with respect to ID&T and the Business consistent with   United States generally accepted accounting principles.  ID&T shall engage Ernst &   Young (“E&Y”) as independent accountants   to complete an audit of the US GAAP financial statements under United States   generally accepted auditing standards (the “US Audit”)   for such historical financial
    

 

11

 

	
 
    	
 
    	
periods   and pursuant to which E&Y will agree to complete and provide a report   with respect to the US Audit as soon as practicable.
    
	
 
    	
 
    	
 
    
	
SFX’S   RIGHT TO UNWIND
    	
 
    	
If   the financial statements that are the subject of the US Audit are not in a   form that is able to be filed with the SEC as a part of SFX’s registration   statement (it being understood that receipt of a qualified audit opinion   shall not, in and of itself, mean that the US Audit is not able to be so   filed), then, upon notice from SFX to the Sellers, the Parties shall take   such actions as are necessary unwind the Transactions and to put the Parties   in their same respective positions as of immediately prior to the Effective   Date as if the Transactions were void ab initio;  including that the Sellers shall be   obligated to refund the Effective Date Consideration.  For avoidance of doubt, notwithstanding the   refund of the Effective Date Consideration, the Sellers shall retain   (i) the $7,500,000 constituting the Advance, which shall continue to   constitute the ID&T Advance under and subject to the terms of the NAJV   Term Sheet; (ii) the NAJV Stock Consideration, (iii) the ID&T   Warrants, in each case, subject to the terms of the NAJV Term Sheet and   (iv) the Initial NAJV Consideration.

 

If   within 15 days following delivery by Sellers to Buyer of a US Audit that is   in a form that is able to be filed with the SEC as part of SFX’s registration   statement (a “Good Audit”), the Buyer notifies   the Sellers that it has determined not to Exercise the Option (a “Non-Exercise Notice”) as provided herein: (i) the   Option shall terminate, (ii) Sellers shall not be obligated to refund   the Effective Date Consideration and (iii) the $7,500,000 constituting   the Advance shall be deemed to constitute a break-up fee paid by the Buyer to   the Sellers (and Seller shall retain said amount) for failure to Exercise the   Option and shall no longer be deemed to be an advance under the NAJV Term   Sheet (which shall be deemed amended to reflect such characterization).  For avoidance of doubt, under such   circumstances, the Sellers shall retain (i) the NAJV Stock   Consideration, (ii) the ID&T Warrants, in each case, subject to the   terms of the NAJV Term Sheet and (iii) the Initial NAJV Consideration.  If the Buyer does not Exercise the Option, then   the provision “Transfers of SFX Shares—Sellers’ Put Option” shall   terminate and have no further force or effect.  Buyer may exercise or not exercise the   Option in its sole discretion.  On or   prior to the date that is 90 days after delivery of the Good Audit, SFX will   pay to the Sellers US$10,000,000 in cash (and, for avoidance of doubt, such   payment shall be payable regardless of whether Buyer has delivered a timely   Non-Exercise Notice or has elected to Exercise the Option).

 

If   the Buyer does not provide a Non-Exercise Notice within the 15 days following   delivery of the Good Audit, the Buyer shall exercise the Option and pay the   Exercise Price no later than 60 days following delivery of the Good Audit as   described in “Exercise”.

 

Except   as otherwise provided herein, the terms of the NAJV Term Sheet and the terms   of the following sections of this Option Agreement will continue in force   following the unwinding of the Transactions or upon Buyer’s determination not   to exercise the Option: the introductory paragraph to this Option Agreement;   “SFX’s Right to Unwind”; “Costs”; “Confidential Information”; “Governing   Law”; “Consent to Jurisdiction and Venue”; “Counterparts”; “Amendment;   Waiver; Signed Writings”; “Successors and Assigns; Parties in Interest”; and 
    

 

12

 

	
 
    	
 
    	
“Construction   and Interpretation.”
    
	
 
    	
 
    	
 
    
	
DUE   DILIGENCE:
    	
 
    	
SFX   and its representatives are entitled to conduct a business, financial, legal,   tax, and accounting due diligence investigation of ID&T and the Business,   as well as undertake other normal and customary due diligence   procedures.  ID&T shall, and shall   cause their respective representatives to, (a) make available to SFX and   its representatives all information relating to ID&T and the Business reasonably   requested by SFX or its representatives and (b) otherwise reasonably   cooperate with SFX and its representatives in connection with the   aforementioned due diligence investigation.     ID&T shall provide all necessary consents and instructions to   cause its auditors, professional advisory firms and consultants to provide   access to such information as SFX may request from time to time, including   through telephonic and in-person diligence sessions.  SFX shall use reasonable efforts to reduce   the diligence process through the use of materials previously provided by   ID&T.  SFX shall provide Seller   with a copy of SFX’s registration statement as currently on file with the SEC   and all amendments thereto (unless publicly available), and copies of   documents relating to SFX’s option plan.    Seller shall be given reasonable opportunity to review and comment on   any disclosure with respect to ID&T or the transactions contemplated   hereby in SFX’s registration statement, as amended.
    
	
 
    	
 
    	
 
    
	
CERTAIN   OBLIGATIONS:
    	
 
    	
The   Sellers shall notify SFX upon the occurrence of material events with respect   to the Company promptly upon becoming aware of such events.

 

The   Parties shall use their respective reasonable efforts to ensure that the   Transactions are approved under applicable anti-trust laws (or that such laws   have been determined to be inapplicable to the Transactions).

 

The   Parties shall cooperate to obtain all necessary consents to the Transactions   from governmental entities and third parties.
    
	
 
    	
 
    	
 
    
	
EXERCISE:
    	
 
    	
Unless   the Buyer has delivered a timely Non-Exercise Notice, on or before the date   that is 60 days after the date on which a Good Audit report is delivered to   SFX (or on the next succeeding business day if such date is not a business   day), the Buyer shall Exercise the Option by paying to the Sellers the unpaid   Consideration (i.e., $40 million in cash, subject to adjustment as described   under “The Transactions” above) to the Sellers.  Further, upon the Exercise, the $7,500,000   constituting the Advance shall be deemed to constitute additional cash   consideration payable by the Buyer for the Exercise of the Option and shall   no  longer be deemed to be an advance   under the NAJV Term Sheet (which shall be deemed amended to reflect such   characterization).  For avoidance of   doubt, upon the Exercise, Sellers shall be entitled to retain the Effective   Date Consideration, in which event the Effective Date Consideration will be   deemed to be part of the purchase price.    
    
	
 
    	
 
    	
 
    
	
DEFINITIVE   DOCUMENTS:
    	
 
    	
SFX   and its legal counsel shall prepare the initial draft of the definitive   documents with respect to the Transactions (the “Definitive   Documents”), including a management services agreement between the   Company and M Design. It is expected that Definitive Documents will be   prepared no later than 30 days after the Effective Date. The Parties shall   use their respective reasonable efforts to enter into the Definitive   Documents on terms that are consistent with
    

 

13

 

	
 
    	
 
    	
the   terms hereof.

 

Prior   to entering into the Definitive Documents, (a) with respect to the terms   hereof that apply only upon the occurrence of the Exercise, the Parties shall   conduct the operations of the Company and M Design in accordance with this   Option Agreement from and after the occurrence of the Exercise and   (b) with respect to the other terms hereof, the Parties shall conduct   the operations of the Company and M Design in accordance with this Option   Agreement from and after the Effective Date.

 

The   following provisions shall apply with respect to indemnification claims   against the Sellers for breaches of representations and warranties under the   Definitive Documents:

 

·                  Cap on   liability equal to $15,375,000(4) for breaches of representations and   warranties (including with respect to taxes and intellectual property);   provided, that there shall be an additional $10,250,000(5) added to such   amount solely for breaches of representations and warranties with respect to   taxes and intellectual property.

 

·                  Deductible of   $200,000.

 

·                  Survival   period of 18 months, except that the fundamental representations shall   survive indefinitely.

 

The   cap and deductible shall not apply to breaches of fundamental representations   or in the case of fraud.

 

Indemnification   obligations of the Sellers shall be satisfied, first, by the return of SFX   shares issued to Sellers in connection with the transactions (including the   NAJV Stock Consideration), at a price per share of $10 per share.
    
	
 
    	
 
    	
 
    
	
REPRESENTATIONS,   WARRANTIES AND COVENANTS:
    	
 
    	
The   Sellers shall make customary representations and warranties under the   Definitive Documents as of the Effective Date and as of the Exercise Date,   including representations and warranties regarding organization, good   standing, financial statements, authority, authorization, enforceability,   title to assets, distributions of SFX stock, and representations and   warranties regarding the Business, generally consistent with Exhibit D.

 

The   Sellers shall, under the Definitive Documents, make further customary   representations and warranties related to the US Audit and Business as of the   Exercise Date, and shall be required to comply with customary post-Effective   Date covenants, each to be as agreed to by the parties.

 

The   Buyer shall make customary representations and warranties under the   Definitive Documents as of the Effective Date and as of the Exercise Date,   including with respect to the SFX shares to be issued in connection with the 
    

 

(4)  Draft note: Amount equal to 15% of the aggregate consideration value of $102,500,000.

 

(5)  Draft note:  Amount equal to 10% of the aggregate consideration value.

 

14

 

	
 
    	
 
    	
transactions.
    
	
 
    	
 
    	
 
    
	
NON-COMPETITION AND NON-SOLICITATION:
    	
 
    	
The   Definitive Documents will include non-competition and non-solicitation   obligations of the Sellers, to the extent such obligations are not otherwise   addressed in an employment agreement between such Seller and the Company. The   Definitive Documents will include non-competition and non-solicitation   obligations of the Buyer.  Existing key   employees of ID&T will be required to enter into non-solicitation   agreements with respect to the operations and employees of the Company and   the operations and employees of SFX. 
    
	
 
    	
 
    	
 
    
	
ARBITRATION   PROVISIONS IN DEFINITIVE DOCUMENTS:
    	
 
    	
The   Definitive Documents will provide that any disputes thereunder will be   resolved pursuant to Binding Arbitration. Disputes arising under this Option   Agreement will be resolved pursuant to Binding Arbitration. “Binding Arbitration” means binding arbitration in New   York, New York under the rules of the JAMS in which the prevailing party   in any such arbitration will be entitled to such party’s reasonable   attorney’s fees and costs.
    
	
 
    	
 
    	
 
    
	
TRANSFERS   OF SFX SHARES:
    	
 
    	
The   following provisions will apply to the SFX Shares issued as part of the   Effective Date Consideration to the Sellers, and shall not alter the Sellers’   rights with respect to SFX Shares issued as part of the NAJV Consideration:

 

·                                          Lock-up   Period. Each Seller will not transfer any SFX Shares   (except to affiliates and family members) prior to the date that is the   one-year anniversary of the earlier of (x) the date on which a Qualified   IPO is consummated and (y) the Effective Date (such one-year period, the   “Lock-up Period”). After the end of   the Lock-up Period, each Seller will be permitted to sell the SFX Shares, but   only if such Seller first provides SFX with notice thereof at least 5   business days prior to any such sale. “Qualified IPO”   means the sale of shares pursuant to a registration statement declared   effective by the United States Securities and Exchange Commission (the “SEC”) under circumstances in which the SFX common stock is   accepted for listing on the NASDAQ Global Market or the New York Stock   Exchange.

 

·                                          Registration. SFX shall   use commercially reasonable efforts to register the SFX Shares for resale   with the SEC and to pursue a Qualified IPO. The Sellers will enter into a   customary lock-up agreement as reasonably requested by SFX’s underwriters in   connection with a Qualified IPO, which shall be no more burdensome than   lock-up with respect to shares of SFX common stock held by Robert Sillerman   (“Sillerman”).

 

·                                          Sellers’ Put   Option. If the Option is Exercised and a Qualified IPO   is not consummated within 12 months following the Effective Date, then the   Sellers’ will collectively have the right to require SFX to acquire the SFX   Shares that the Sellers hold at such time for a per-SFX Share cash purchase   price of US$10 (the aggregate purchase price in connection with such sale,   the “SFX Shares  Put Price”).   SFX will be required to pay the SFX Shares Put Price as soon as SFX has the   resources to do so.  This Put Option is   separate from any put option under the NAJV Term Sheet relating to the NAJV   Stock Consideration.
    

 

15

 

	
 
    	
 
    	
·                                          Drag-along   Rights. Until a Qualified IPO occurs, if Sillerman sells   to a bona fide third party all the SFX common stock that he owns at a price   per share of SFX common stock that is equal to or greater than 120% of the   SFX Share Acquisition Price (as adjusted for any stock splits, corporate   reorganizations, or similar events), then, at Sillerman’s option, the Sellers   will be required to sell for cash or marketable securities (i.e., listed on   NASDAQ Global Exchange, NYSE or a comparable European exchange), on the same   terms and conditions as received by Sillerman, all the SFX Shares, to the   extent held by the Sellers at such time; provided, that such marketable   securities shall not exceed fifty percent (50%) of the consideration to be   received by the Sellers for the SFX shares in such sale. “SFX Share Acquisition Price” means the implied price per   share of the SFX Shares at the time that the Sellers acquire the SFX Shares   as set forth in the Definitive Documents or the definitive documents with   respect to the North American JV.

 

·                                          Tag-along   Rights. Until a Qualified IPO occurs, if the owner of   Sillerman’s SFX common stock proposes to sell to a third party more than 50%   of the SFX common stock that he (directly or indirectly) owns, then the   Sellers will have the right to cause that owner of Sillerman’s SFX common   stock to include in such sale all the SFX Shares, to the extent held by the   Sellers at such time, on the same terms and conditions as received by that   owner of Sillerman’s SFX common stock.
    
	
 
    	
 
    	
 
    
	
OTHER   TERMS OF DEFINITIVE DOCUMENTS:
    	
 
    	
The   Definitive Documents will contain customary representations and warranties,   obligations, indemnities, and other terms as are appropriate for transactions   of the nature of the Transactions.
    
	
 
    	
 
    	
 
    
	
NAME:
    	
 
    	
The   Company and its subsidiaries may bear the name “SFX” in conjunction with the   name “ID&T”, but all business will be conducted under an ID&T trade   name without reference to “SFX”.
    
	
 
    	
 
    	
 
    
	
COSTS:
    	
 
    	
Each   Party shall bear all of its own expenses (including expenses of legal counsel,   investment bankers, accountants, and other advisers) incurred at any time in   connection with this Option Agreement, or in pursuing or consummating the   Definitive Documents and the Transactions; except that SFX shall pay the cost   of preparing the US GAAP Audit and U.S. GAAP reconciliation of ID&T’s   historical periods to the extent required by SFX, and ID&T shall pay the   cost of preparing audited Dutch GAAP financial statements. 
    
	
 
    	
 
    	
 
    
	
CONFIDENTIAL   INFORMATION:
    	
 
    	
All   information conveyed by one Party to the other Party in connection with this   Option Agreement, including the terms of this Option Agreement, is and will   be deemed to be “Confidential Information”   under the Confidentiality Agreement. Notwithstanding the immediately   foregoing sentence or anything to the contrary herein, SFX is permitted:   (a) to disclose or use Confidential Information, this Option Agreement   and the terms hereof, the Definitive Documents and the terms thereof, and the   Transactions (any of the foregoing, “SEC-Disclosable   Information”) in and in connection with the preparation of any   registration statement relating to the registration of shares of SFX’s common   stock (a “Registration Statement”), to the   extent such disclosure or use is required by law, and in connection with any   subsequent reporting obligations relating to such 
    

 

16

 

	
 
    	
 
    	
filing,   to the extent such disclosure or use is required by law; (b) to disclose   SEC-Disclosable Information to, or to use SEC-Disclosable Information in   connection with corresponding with, the SEC, to the extent such disclosure or   use is required by law; and (c) to disclose SEC-Disclosable Information   to SFX’s representatives in connection with (i) the due diligence   relating to a Registration Statement or a bank financing with respect to SFX   or any of its subsidiaries, (ii) the preparation of a Registration   Statement, or (iii) the preparation of any documentation relating to any   such bank financing.  SFX and Buyer   recognize the confidential nature and value of the Company’s creative program   and development of intellectual property, and to the extent consistent with   SFX’s obligations as a public company will keep such matters confidential,   unless otherwise agreed by the Company’s Board.

 

The   confidentiality restrictions set forth in the immediately foregoing paragraph   are subject to the section of this Option Agreement entitled “Joint Press   Release.”
    
	
 
    	
 
    	
 
    
	
JOINT   PRESS RELEASE:
    	
 
    	
As   discussed above, promptly after Effective Date, the Parties shall cooperate   to issue a joint press release regarding the terms hereof in the form   attached as Exhibit A hereto.
    
	
 
    	
 
    	
 
    
	
GOVERNING   LAW:
    	
 
    	
This   Option Agreement is governed by and is to be construed in accordance with the   internal laws of the State of New York applicable to contracts entered into   and performed entirely within the State of New York, without giving effect to   principles of conflict of laws.
    
	
 
    	
 
    	
 
    
	
CONSENT   TO JURISDICTION AND VENUE:
    	
 
    	
Each   Party hereby irrevocably and unconditionally submits to the exclusive   jurisdiction of, and venue in, any state or federal court located in the City   of New York, State of New York for the purposes of any suit, action, or   proceeding arising out of this Option Agreement, and shall commence any such   suit, action, or proceeding only in such courts. Each Party hereby   irrevocably and unconditionally waives any objection to the laying of venue   of any suit, action, or proceeding arising out of this Option Agreement in   such courts, and hereby irrevocably and unconditionally waives and shall not   to plead or claim in any such court that any such suit, action or proceeding   brought in any such court has been brought in an inconvenient forum.
    
	
 
    	
 
    	
 
    
	
COUNTERPARTS:
    	
 
    	
This   Option Agreement can be executed in one or more counterparts and can be   delivered via facsimile or similar instantaneous electronic transmission   device pursuant to which the signature of or on behalf of a Party can be seen   (including via a pdf attached to an email).
    
	
 
    	
 
    	
 
    
	
AMENDMENT;   WAIVER; SIGNED WRITINGS:
    	
 
    	
This   Option Agreement can be amended or waived only in a writing signed by the   Parties (or, in the case of a waiver, by the Party against which such waiver   is to be enforced).  Emails, including   emails that bear an electronic “signature block” identifying the sender, do   not constitute signed writings for purposes of this paragraph.
    
	
 
    	
 
    	
 
    
	
NOTICES:
    	
 
    	
All   notices, requests and other communications hereunder, to be valid, must be in   writing.  Any notice, request or other   communication hereunder will be deemed duly given (a) three business   days after it is sent by registered or
    

 

17

 

	
 
    	
 
    	
certified   mail, return receipt requested, postage prepaid, (b) one day after   receipt is electronically confirmed, if sent by fax (provided that a hard   copy shall be promptly sent by first class mail), or (c) one business   day following deposit with a recognized national overnight courier service   for next day delivery, charges prepaid, and, in each case, addressed to the   intended recipient as set forth below:

 

If   to SFX:

 

430   Park Avenue

6th   Floor

New   York, NY 10022

Attention:  Howard Tytel

Fax:

 

with   a copy (which shall not constitute effective notice) to:

 

Reed   Smith LLP

599   Lexington Avenue

22nd   Floor

New   York, NY 10022

Attention:  Aron Izower

Fax:  (212) 521-5450

 

If   to Sellers:

 

De   Entree 300

1101   EE  AMSTERDAM

Attention:   Chris van Overbeeke

Fax:   +31 (0)20 - 851 06 99

 

with   a copy (which shall not constitute effective notice) to:

 

DLA   Piper LLP (US)

1251   Avenue of the Americas

New   York, NY 10020

Attention:   Jonathan Klein, Esq.

Fax:  (212) 884-8502

 

Any   Party may change the address to which notices, requests and other   communications hereunder are to be delivered by giving the other Parties   notice in the manner herein set forth.
    
	
 
    	
 
    	
 
    
	
SUCCESSORS   AND ASSIGNS; PARTIES IN INTEREST:
    	
 
    	
Each   Party shall not assign or delegate (or enter into any contract (whether   written or oral) that would (whether with or without the passage of time, the   occurrence of any event, the existence of any circumstance, or otherwise)   otherwise effect the assignment or delegation of) any of such Party’s rights   or obligations hereunder without the prior written consent of the other   Party, and any such purported assignment without obtaining such written   consent will be void. No provision hereof is intended to confer upon any   person other than the Parties, their respective successors and their respective   permitted assigns any 
    

 

18

 

	
 
    	
 
    	
rights   or remedies hereunder.
    
	
 
    	
 
    	
 
    
	
CONSTRUCTION   AND INTERPRETATION:
    	
 
    	
For   the purposes of this Option Agreement, except as otherwise expressly provided   herein: (a) the terms “hereof,” “herein,” “hereunder,” “hereby,”   “hereto,” and “herewith” and words of similar import are to be construed to   refer to this Option Agreement as a whole and not to any particular provision   of this Option Agreement; and (b) the words “include,” “includes,” and   “including” when used in this Option Agreement are in all cases deemed to be   followed by the words “without limitation.”

 
    

 

[Signature page follows]

 

19

 

The Parties are signing this Option Agreement as of the Effective Date.

 

	
SFX   ENTERTAINMENT, INC.
    	
 
    
	
(f/k/a   SFX HOLDING CORPORATION)
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/   Shelly Finkel
    	
 
    
	
 
    	
Name:   Shelly Finkel
    	
 
    
	
 
    	
Title:   President
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
ID&T   HOLDING B.V.
    	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/   W. Tavecchio
    	
 
    
	
 
    	
Name:   W. Tavecchio
    	
 
    
	
 
    	
Title:   Director
    	
 
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/   W. Timmerman
    	
 
    
	
 
    	
Name:   W. Timmerman
    	
 
    
	
 
    	
Title:   Director
    	
 
    
				

 

Signature Page to March 20, 2013 Option Agreement

 

 

Exhibit A

 

Press Release

 

(See attached)

 

 

Exhibit B

 

Certain Transactions

 

(see attached)

 

 

Exhibit C

 

Certain Non-Business Assets

 

(see attached)

 

 

Exhibit D

 

Representations and Warranties

 

(see attached)

 

 

Exhibit E

 

Employment Terms / List of Key Employees

 

(see attached)Exhibit 10.28

 

SFX Entertainment, Inc.

430 Park Avenue, 6th Floor

New York, New York 10022

 

SUBSCRIPTION AGREEMENT

 

Insight Venture Partners V, L.P.

Insight Venture Partners V (Employee Co-Investors), L.P.

Insight Venture Partners (Cayman) V, L.P.

680 Fifth Avenue, 8th Floor

New York, NY 10019

 

Dear Sirs:

 

SFX Entertainment, Inc., a Delaware corporation (the “Company”), is hereby privately offering (this “Offering”) one million (1,000,000) shares (the “Shares”) of common stock, $0.001 par value per share, of the Company (the “Common Stock”) at a price per share of ten dollars ($10.00), for an aggregate purchase price of $10,000,000.00 (the “Purchase Price”), to the undersigned, in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), provided by Rule 506 of Regulation D under the Securities Act.

 

1.                                      Subscription. Subject to the terms and conditions of this subscription agreement (“Subscription Agreement”), at the closing of the transactions contemplated hereby (the “Closing”) the undersigned (“Purchasers”) shall purchase from the Company, and the Company shall sell and issue to each Purchaser free and clear of all Liens, the number of Shares set forth across from such Purchaser’s name on Annex I under the column labeled “Shares”.  At the Closing, (i) each Purchaser shall fulfill its subscription by paying its portion of the Purchase Price set forth across from such Purchaser’s name on Annex I under the column labeled “Purchase Price” by wire transfer in immediately available funds to an account designated by the Company as consideration for the issuance by the Company of the applicable portion of the Shares and (ii) the Company shall deliver to each Purchaser a stock certificate duly executed by the Company representing the number of Shares purchased by such Purchaser hereunder.  The Closing shall occur simultaneously with the execution of this Subscription Agreement by the parties hereto and may be effected by the email or facsimile exchange of signature pages and other closing deliverables (or at such other time or place, or in such other manner, as the parties shall agree).

 

2.                                      Representations and Warranties of Purchasers. Each Purchaser, severally and not jointly, hereby represents and warrants to, and agrees with, the Company as of the date such Purchaser executes this Subscription Agreement, as follows:

 

(a)                                 (i)                                     Such Purchaser has received and has read and fully understands this Subscription Agreement.

 

(ii)                                  Such Purchaser acknowledges and understands that an investment in the Company will involve substantial risks.  Such Purchaser or its advisor(s) has had a reasonable opportunity to ask questions of and receive answers from a Person or Persons acting on behalf of the Company concerning the Company and the Offering and all such questions have been answered to the full satisfaction of such Purchaser.

 

(iii)                               No oral or written representations have been made other than as stated in this Subscription Agreement.

 

(iv)                              Such Purchaser has such knowledge and experience in financial, tax and business matters so as to enable it to utilize the information made available to it in connection with the Offering, to evaluate the merits and risks of an investment in the Shares and to make an informed decision with respect thereto; such Purchaser acknowledges that there is a significant risk of loss of all or a portion of such Purchaser’s investment in the Shares.

 

 

(v)                                 Such Purchaser is not subscribing for the Shares pursuant to a general solicitation or general advertisement by the Company.

 

(vi)                              The Shares are “restricted securities” as defined in Rule 144 under the Securities Act and have not been registered under the Securities Act or any state securities laws.  The Shares are highly illiquid.  Until the Registration Statement (as hereinafter defined) is declared effective, the Shares will not be registered under the Securities Act or any state securities laws and, thus, will not be freely tradable or eligible for resale, unless an exemption from the registration requirements of the Securities Act, including Rule 144, is available.  No Purchaser will be able to rely on Rule 144 to sell the Shares unless the sale complies with the conditions of that rule, including satisfaction of such Purchaser’s holding period.  An active public market for the Company’s Common Stock may not develop or be sustained. In addition, the number of unrestricted shares of the Company in the public float may represent only a small percentage of the shares of Common Stock outstanding.

 

(b)                                 Such Purchaser is an “accredited investor” within the meaning of Rule 501(d), as promulgated under the Securities Act because (i) such Purchaser is an organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership not formed for the specific purpose of acquiring the Shares, with total assets in excess of $5,000,000, or (ii) because such Purchaser is an entity in which all of the equity owners are accredited investors.

 

(c)                                  Such Purchaser’s overall commitment to investments which are not readily marketable is not excessive in relation to its net worth.

 

(d)                                 (A)  Such Purchaser has all requisite power and authority to execute and deliver this Subscription Agreement, (B) the execution and delivery by such Purchaser of this Subscription Agreement and the performance by it of its obligations hereunder have been duly authorized by all necessary action of such Purchaser, (C) this Subscription Agreement has been duly and validly executed and delivered by such Purchaser and constitutes legal, valid and binding obligations of such Purchaser, and (D) this Subscription Agreement is enforceable against each Purchaser in accordance with its terms, subject as to enforcement of remedies to applicable bankruptcy, insolvency, reorganization or similar laws affecting generally the enforcement of creditors’ rights and the relief of debtors.

 

(e)                                  Such Purchaser acknowledges:

 

(i)                                     Such Purchaser consents to the placement of the following legend on any certificate or other document evidencing its portion of the Shares:

 

THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND HAVE BEEN SOLD IN RELIANCE UPON EXEMPTIONS THEREFROM. THESE SECURITIES MAY NOT BE PLEDGED, HYPOTHECATED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING THESE SECURITIES UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION THEREFROM.

 

(ii)                                  The representations, warranties, and agreements of such Purchaser contained herein shall survive the execution and delivery of this Subscription Agreement and the purchase of the Shares; and

 

(iii)                               Except as set forth in this paragraph, following the Closing, the Purchasers may transfer any portion of the Shares at any time and from time to time without restriction.  In connection with any transfer or attempted transfer of Shares pursuant to an exemption from the

 

2

 

registration requirements of the Act, the Company shall be permitted to require in its sole discretion an opinion of counsel reasonably satisfactory to the Company that such transfer is exempt from registration, provided, that any Purchaser may transfer all or any portion of its respective portion of the Shares to its affiliates without restriction.

 

3.                                      Representations and Warranties of the Company.  The Company hereby represents and warrants to, and agrees with, each Purchaser as of the date the Company executes this Subscription Agreement, as follows; provided that, except for the representations and warranties contained in Section 3(t), none of the following representations and warranties shall be deemed to apply to BEATPORT, LLC, its Subsidiaries (collectively, “Beatport”), or their respective businesses:

 

(a)                                 Organization.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to conduct its business as currently conducted and to use the properties owned and used by it.

 

(b)                                 Authority.  The Company has all requisite power and authority to execute, deliver and perform this Subscription Agreement and to carry out and consummate the transactions contemplated hereby. The execution, delivery and performance of this Subscription Agreement by the Company has been duly authorized by all requisite corporate action, and this Subscription Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject as to enforcement of remedies to applicable bankruptcy, insolvency, reorganization or similar laws affecting generally the enforcement of creditors’ rights and the relief of debtors.

 

(c)                                  Non-Contravention.  The execution, delivery and performance of this Subscription Agreement by the Company does not and will not violate, conflict with, result in any breach of, result in the creation of any lien, security interest, charge or encumbrance (“Liens”)  upon any of the properties, assets or outstanding shares of the Company or constitute a default under, any provision of law, any rule or regulation of any governmental authority, any judgment, decree or order of any court binding on the Company, or any of the unwaived terms, conditions or provisions under its Certificate of Incorporation or Bylaws or any indenture, mortgage, lease, agreement or other instrument to which the Company is a party or by which it or any of its properties is bound or affected.

 

(d)                                 Issuance. The Shares, when so issued, sold and delivered against payment therefor in accordance with the provisions of this Subscription Agreement, will be duly and validly issued, fully paid and nonassessable and free and clear of all Liens except pursuant to federal and state security laws.  Neither the Company nor anyone acting on behalf of the Company has engaged in any general advertising or solicitation in contravention of the Securities Act for the offer and sale of the Shares.  Assuming the accuracy of Purchasers’ representations contained in this Subscription Agreement, the offer, sale, issuance and delivery of the Shares are exempt from registration under the Securities Act and all action required to be taken prior to the offer or sale of the Shares has been taken under applicable state securities laws.

 

(e)                                  Capitalization.  Schedule 3(e) sets forth: (a) all capital stock or other Equity Interests (as hereinafter defined) of the Company (both before and after giving effect to the transactions contemplated hereby); and (b) the ownership of all issued and outstanding capital stock or other Equity Interests of the Company (both before and after giving effect to the transactions contemplated hereby).  All such Equity Interests (i) have been duly authorized and validly issued, (ii) are fully paid and non-assessable and (iii) have not been issued in violation of any preemptive rights or similar rights of any holder of Equity Interests of the Company, except any such right that has been validly waived as of the date of this Subscription Agreement. No other Equity Interests of the Company are issued or outstanding as of the date of this Subscription Agreement.  Other than as set forth on Schedule 3(e), there are no outstanding obligations of the Company, actual or contingent, to issue, transfer, sell or deliver or to repurchase, redeem or otherwise acquire any Equity Interests.  All outstanding shares of Common Stock have the same rights under the By-Laws and Certificate of Incorporation of the Company.  The only class of Equity Interests outstanding is Common Stock.

 

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(f)                                   Compliance with Laws.

 

(i)                                     The Company and its Subsidiaries is in compliance, in all material respects, with all laws, ordinances, and rules and regulations of governmental authorities applicable to or affecting it, its properties or its business, and the Company has not received notice, or to the Company’s knowledge, any oral communications, of any claimed or actual violation or default with respect to any of the foregoing which would reasonably be expected to have a material adverse effect on the Company. No investigation or review is pending or, to the Company’s knowledge, threatened, by any governmental authority with respect to any material violation by the Company or any of its Subsidiaries of any law or material obligation on the part of the Company or any of its Subsidiaries to take remedial action in respect thereof.

 

(ii)                                  The operations of the Company and its Subsidiaries are, and have been conducted at all times, in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar applicable rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company  or any of its Subsidiaries or with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened. Neither the Company nor, to the knowledge of the Company, any of its current officers, has on behalf of the Company or in connection with its business: (a) made any direct or indirect unlawful payments to any governmental officials or employees from corporate funds; or (b) violated or is in violation of in any material respect any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended.

 

(g)                                  Subsidiaries. The Subsidiaries of the Company, their jurisdiction of formation or incorporation, and their ownership structure are set forth on Schedule 3(g). Each of the Company’s Subsidiaries is validly existing and in good standing under the laws of the jurisdiction of its formation or incorporation, has all requisite power and authority necessary to own its properties and to carry on its businesses as now conducted.  Except as set forth in Schedule 3(g), all of the equity interests of each of the Company’s Subsidiaries is owned by the Company free and clear of all Liens.

 

(h)                                 Taxes.  Except as set forth on Schedule 3(h):

 

(i)                                     Each of the Company and its Subsidiaries has timely filed all income Tax Returns and all other material Tax Returns required to be filed by or with respect to such entities and all such Tax Returns have been completed in material compliance with all applicable Laws.  All material Taxes owed by each of the Company and its Subsidiaries (whether or not shown on any Tax Return) have been timely paid in full.

 

(ii)                                  There are no Liens relating or attributable to Taxes encumbering (and no Taxing Authority has threatened in writing to encumber) the assets of any of the Company or its Subsidiaries, except for statutory Liens for current Taxes not yet due and payable, or Liens for Taxes being contested in good faith in appropriate proceedings.

 

(iii)                               There are no: (a) pending written claims by any governmental authority with respect to Taxes relating or attributable to any of the Company or its Subsidiaries; or (b) deficiencies for any Tax, claim for additional Taxes, or other dispute or claim relating or attributable to any Tax liability of any of the Company or its Subsidiaries claimed, issued or raised in writing by any Taxing Authority.

 

(iv)                              None of the Company or any of its Subsidiaries have waived any statute of limitations for the period of assessment or collection of Taxes, or agreed to or requested any

 

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extension of time for the period with respect to a Tax assessment or deficiency, which period (after giving effect to such extension or waiver) has not yet expired.

 

(v)                                 None of the Company or its Subsidiaries (i) is a party to, is bound by, or has any obligation under, any Tax Sharing Agreement, or (ii) has any potential liability or obligation (for Taxes or otherwise) to any Person as a result of, or pursuant to, any such Tax Sharing Agreement.

 

(vi)                              None of the Company or its Subsidiaries has any liability for the Taxes of any Person under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign Law), other than with respect to the Company or any of its Subsidiaries, as a transferee, successor or as a result of similar liability, operation of law, by contract (including any Tax Sharing Agreement) or otherwise.  None of the Company or its Subsidiaries has been included in any “consolidated”, “unitary”, “combined” or similar income Tax Return provided for under the United States or any non-U.S. jurisdiction or any state other than Tax Returns filed with respect to a group of which the Company is the common parent.

 

(vii)                           None of the Company or its Subsidiaries has entered into any transaction identified as a “listed transaction,” within the meaning of Treasury Regulations Sections 1.6011-4(b)(2).

 

(viii)                        No written claim has been made by a Taxing Authority in a jurisdiction where any of the Company or its Subsidiaries does not file Tax Returns and pay Taxes that the Company or such Subsidiary is or may be subject to any Tax Return filing requirements or taxation by that jurisdiction.

 

(i)                                     Company Registration Statement.  The Company has provided Purchasers a true and complete copy of the most recent registration statement on Form S-1 of the Company which will be submitted to the SEC, and the Company will provide Purchasers all other documents submitted to, filed or furnished to the SEC by the Company in connection with a potential IPO (collectively, the “Company Registration Statement”).  The Company Registration Statement has complied as to form in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the SEC thereunder applicable to the Company Registration Statement, and the financial statements of the Company included in the Company Registration Statement comply as to form in all material respects with the published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto, except in the case of pro forma statements) and fairly present the consolidated financial position of the Company and its consolidated Subsidiaries as of the respective dates thereof and the consolidated results of the Company’s operations and cash flows for the periods indicated (subject to, in the case of unaudited statements, normal and recurring year-end audit adjustments).  The Company Registration Statement, including any financial statements, schedules or exhibits included or incorporated by reference therein at the time they were submitted (or, if amended or superseded by a subsequent filing, as of the date of the last such amendment or superseding filing prior to the date hereof), did not contain any untrue statement of a material fact nor omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  As of the date hereof and as of the date of the Closing, the Company is not aware of any facts that would reasonably be expected to cause it to be ineligible to have the Company Registration Statement declared effective by the SEC.

 

(j)                                    Litigation.  Except as set forth on Schedule 3(j), there are no, and within the past three (3) years there have been no, material actions, proceedings or litigation pending or, to the Company’s knowledge, threatened, against the Company or its Subsidiaries, at law or in equity, or before or by any governmental authority, and neither the Company nor its Subsidiaries, is subject to, nor in the past three (3) years the Company or its Subsidiaries, been subject to, any material outstanding judgment, order or decree of any court or other governmental authority.

 

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(k)                                 Undisclosed Liabilities.  Except as set forth on Schedule 3(k), neither the Company nor its Subsidiaries have any material obligation or liability, which are of a nature  required to be disclosed in a balance sheet prepared in accordance with GAAP other than: (i) liabilities set forth on, or expressly reserved against, the most recently audited balance sheet of such Company or Subsidiary, as applicable; and (ii) liabilities and obligations which have arisen after the date of the most recently audited balance sheet of such Company or Subsidiary, as applicable, in the ordinary course of business consistent with past practice and which are not material in amount.

 

(l)                                     Brokers.  The Company is not obligated to pay and does not have any liability with respect to any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated hereby for which the Company would become liable or otherwise obligated.

 

(m)                             Absence of Certain Developments.  Since January 1, 2013, there has not been any material adverse effect with respect to the Company or any of its  Subsidiaries, and no event has occurred and no circumstances exist that would reasonably be expected to result in a material adverse effect with respect to the Company or any of its Subsidiaries.

 

(n)                                 Properties.  Neither the Company nor any of its Subsidiaries owns any real property.

 

(o)                                 Contracts and Commitments.  Each material contract of the Company and its Subsidiaries is a valid and binding obligation of the Company or its Subsidiaries (as applicable); neither the Company nor its Subsidiaries is in material default under any such contract; and to the Company’s knowledge, the other party to each such contract is not in material default thereunder.

 

(p)                                 Intellectual Property.

 

(i)                                     Except as set forth on Schedule 3(p)(i), to the Company’s knowledge, all applicable registrations for the Company’s and its Subsidiaries’ intellectual property are valid and enforceable.

 

(ii)                                  The Company or its Subsidiaries owns, or has the right to use pursuant to a valid and binding written agreement, all intellectual property and computer software used in or  necessary for the operation of its respective businesses as presently conducted (“Company Intellectual Property”), and all material Company Intellectual Property which the Company uses pursuant to a valid and binding written agreement that is assignable in connection with the transactions contemplated hereby will, immediately subsequent to the date of the Closing, continue to be used by the Company or its Subsidiaries on terms which are identical to those which the Company or its Subsidiaries, immediately prior to the date of the Closing, has the right to use such item.  The Company Intellectual Property is sufficient for the Company to carry on the business of the Company and its Subsidiaries as currently conducted.  The Company Intellectual Property includes all material intellectual property and computer software used or held for use in connection with the operation of the Company’s or its Subsidiaries’ respective businesses as currently conducted, and, to the Company’s knowledge, there are no other material items of intellectual property or computer software that are used in or necessary for the operation of such businesses as currently conducted or for the continued operation of such businesses as currently conducted.

 

(iii)                               To the Company’s knowledge, the Company and its Subsidiaries, the operation of their respective businesses, and the Company Intellectual Property do not infringe, misappropriate or otherwise violate any intellectual property of any third parties. Except as set forth on Schedule 3(p)(iii), (A) neither the Company nor its Subsidiaries is a party to any proceeding before any governmental authority alleging that the Company or its Subsidiaries the operation of their respective businesses, or the Company Intellectual Property is currently infringing, misappropriating or otherwise violating any intellectual property of any third party, (B) neither the Company nor its Subsidiaries has received written notice from any Person alleging that

 

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the Company or its Subsidiaries, their respective businesses or the Company Intellectual Property infringe, misappropriate or otherwise violate any intellectual property of any third party, (C) there is no claim against the Company or its Subsidiaries currently pending or, to the Company’s knowledge, threatened, with respect to the alleged infringement, misappropriation or other violation by the Company or its Subsidiaries of the intellectual property of any third party, (D) no proceeding before any governmental authority or claim by the Company or its Subsidiaries is currently pending against a third party with respect to the alleged infringement, misappropriation or other violation of any Company  Intellectual Property that is owned solely and exclusively by the Company and/or its Subsidiaries (“Company Owned Intellectual Property”) and (E) to the Company’s knowledge, no third party is currently infringing, misappropriating or otherwise violating any Company Owned Intellectual Property.

 

(iv)                              Except as set forth on Schedule 3(p)(iv), neither (i) the Company Owned Intellectual Property, nor (ii) to the Company’s knowledge, any other material Company Intellectual Property, is subject to any Liens.

 

(v)                                 The Company or its Subsidiaries, as applicable, has taken all commercially reasonable actions to maintain the confidentiality of its trade secrets, confidential information and other proprietary rights.

 

(q)                                 Employee Benefit Plans.  None of the Company, its Subsidiaries, nor any ERISA Affiliate has or would be reasonably expected to have any liability with respect to any employee benefit plan, whether direct or indirect, absolute or contingent, which (i) is a “multiemployer plan” within the meaning of Section 3(37) of ERISA, or (ii) is subject to the funding requirements of Section 412 of the Code or Section 302 or Title IV of ERISA.  No material liability under Title IV of ERISA has been incurred by Company or any ERISA Affiliate that has not been satisfied in full, and no condition exists that presents a material risk to Company or any ERISA Affiliate of incurring or being subject (whether primarily, jointly or secondarily) to a material liability thereunder, and none of the assets of Company or any ERISA Affiliate is, or may reasonably be expected to become, the subject of any lien arising under ERISA or pursuant to Section 430(k) of the Code or a violation of Section 436 of the Code.  “ERISA Affiliate” shall mean any entity (whether or not incorporated) other than the Company that, together with the Company or any Subsidiary, is considered under common control and treated as a single employer under Section 414(b), (c), (m) or (o) of the Code.  No plan provides or other contract requires the Company or any Subsidiary to provide (or would require the Company or any Subsidiary to provide) for post-retirement medical, life insurance or other welfare-type benefits (other than as required by Part 6 of Subtitle B of Title I of ERISA or Section 4980B of the Code or under a similar applicable state law).

 

(r)                                    Affiliated Transactions.  Except as set forth on Schedule 3(r), no affiliate of the Company or any officer, director, member or manager, as applicable, of the Company or its Subsidiaries or any individual in such officer’s, director’s, member’s, or manager’s immediate family is a party to any material contract with the Company or its Subsidiaries or has any material interest in any material property used by the Company or its Subsidiaries.

 

(s)                                   Privacy and Security.  The Company and its Subsidiaries currently maintains policies, procedures and systems related to the privacy and security of all business, proprietary, individually identifiable, personal and any other private information, in compliance with U.S. federal and state laws, except  where the failure to comply would not have a material adverse effect.  Purchaser is complying with all current United States federal and state and foreign data privacy laws, except  where the failure to comply would not have a material adverse effect on the Company.

 

(t)                                    Beatport LLC.   Since March 15, 2013, (i) other than for changes related to preparations to reduce duplicative overhead costs and increasing marketing efforts, the Company has operated Beatport in the ordinary course of business consistent with the manner in which Beatport was operated prior to March 15, 2013 and (ii) Beatport has not (A) incurred any material obligations or liabilities, (B) breached

 

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or violated, or defaulted under, any material agreement or obligation to which it is a party or otherwise bound or (C) transferred any material portion of its assets to any third party.

 

(u)                                 Survival.  The representations, warranties, and agreements of the Company contained herein shall survive the execution and delivery of this Subscription Agreement and the sale of the Shares.

 

4.                                      Affirmative Covenants of the Company.

 

(a)                                 The Company covenants and agrees, beginning upon the date the Company executes this Subscription Agreement and ceasing immediately prior to the time the Securities and Exchange Commission (“SEC”)  declares effective a registration statement on Form S-1 (the “Registration Statement”)  in connection with a firm written public offering which registers the resale of the Company’s Common Stock or the sale by the Company of its Common Stock, in each case, including without limitation, the Shares (in either event, an “IPO”), as follows:

 

(i)                                     the Company shall use its commercial best efforts to qualify as an “emerging growth company”; and

 

(ii)                                  until the effective date of the IPO, the Company shall deliver to Purchasers, when available to management of the Company, (i) consolidated balance sheets and related statements of operations, shareholders’ equity and cash flows, as at the end of and for the applicable fiscal quarter; (ii) monthly consolidated statements of profits and losses; and (iii) copies of all Registration Statements and amendments thereto filed with the SEC, concurrent with such filings.

 

(b)                                 From and after March 15, 2014 (the “Redemption Date”), the Purchasers shall have the right to require the Company to pay to the Purchasers, in respect of any or all of the Shares (except those shares of Shares that have been registered in an IPO, registered in a Resale Registration (as defined below) following such IPO, or are eligible for resale under Rule 144 as of such date following such IPO) as specified by the Purchasers in a written notice (a “Sale Notice”) delivered to the Company (the number of Shares so specified in the Sale Notice, the “Redemption Shares”), an amount equal to Ten Dollars ($10.00) (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to shares of Common Stock) multiplied by the number of Redemption Shares (the “Redemption Price”).  Upon delivery of the Sale Notice, (i) the  Purchasers shall deliver the Redemption Shares to the Company, and (ii) the Company shall promptly pay to (or as directed by) the Purchasers, by wire transfer of immediately available funds to the account or accounts specified by the Purchasers in the Sale Notice, the Redemption Price.  If the Redemption Price is not paid in accordance with the terms hereof within ten (10) Business Days following the Company’s receipt of the Sale Notice, then the Redemption Price shall be increased at a rate of 10% per annum (compounded quarterly) until the consummation of such transaction.

 

(c)                                  For the avoidance of doubt, the rights contemplated by Section 4(b) shall survive with respect to any portion of the Shares not registered for resale in, or concurrently with, the IPO, until the earlier to occur of (i) the date upon which such shares are registered in a Resale Registration, or (ii) such shares are eligible for resale under Rule 144.   Upon the exercise of the rights set forth in Section 4(b), the Company shall apply all of its assets to make the payments contemplated thereby and to no other corporate purpose, except to the extent prohibited by the DGCL.

 

(d)                                 The Company hereby covenants and agrees to (i) use commercially reasonable efforts to include the Shares in the IPO or concurrent Resale Registration, (ii) include the Shares in the IPO (or concurrent Resale Registration) on a pro rata basis with shares of Common Stock that have been transferred as consideration for other acquisitions by the Company, (iii) following the applicable Lock-Up (as defined below) period required by the managing underwriter of the IPO, use commercially reasonable efforts to file a registration statement with the SEC for the resale registration (“Resale Registration”) of any unregistered shares of Shares except those eligible for resale under Rule 144, (iv) use commercially reasonable efforts to

 

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cause the registration statement filed with respect to the proposed IPO (or Resale Registration, as applicable) to become effective promptly and to remain effective until the earlier of two years or until all shares of Shares registered thereunder have been disposed of by the Purchasers, (iv) furnish, as far in advance as possible but in no event less than five (5) Business Days before filing a registration statement in connection with the IPO (or Resale Registration, as applicable), a copy of the registration statement and prospectus relating thereto or any amendments or supplements relating to such registration statement or prospectus, to the Purchasers, and shall use its commercially reasonable efforts to reflect in each such document, when so filed with the SEC, such comments as the Purchasers may reasonably propose, and the Company shall not file any such document to which any Purchaser objects in writing, unless in the reasonable judgment of the Company’s counsel such filing is necessary to comply with applicable law, (iv) promptly notify in writing the Purchasers of the receipt by the Company of any comments by or notifications from the SEC with respect to such registration statement or prospectus or any amendment or supplement thereto, or any request by the SEC for the amending or supplementing thereof or for additional information with respect thereto, (v) furnish to each Purchaser such information as such Purchaser may reasonably request from time to time regarding the Company or the IPO, (vi) notify the Purchasers on a timely basis at any time when a prospectus relating to the Shares or any document related thereto includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing and, at the request of each Purchaser prepare and furnish to such Purchaser a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the offerees of such Shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; and (vii) furnish to each Purchaser such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as such Purchaser may reasonably request in order to facilitate the public sale or other disposition of such Purchaser’s portion of the Shares, as applicable.  All expenses incurred in connection with the IPO or Resale Registration (including expenses incurred by any Purchaser in connection with the transactions contemplated by this Section 4) shall be borne and paid by the Company.  On the date on which the registration statement with respect to the IPO or Resale Registration is declared effective by the SEC, the Company shall promptly deliver a written notice to the Purchasers notifying the Purchasers that the registration statement with respect to the IPO or Resale Registration has been declared effective.  The Company hereby represents, warrants and covenants that the Purchasers shall have registration rights at least as favorable as the registration rights granted to any other holder of Secondary Shares.

 

(e)                                  If, in connection with the IPO, the Shares are required by the managing underwriter to be subject to a restriction on transfer for a specified period of time following the pricing of the IPO (a “Lock-Up”) then, the Company shall promptly deliver written notice to the Purchasers with respect to the terms of the Lock-Up (including a copy of any agreement to be entered into in connection with the Lock-Up); provided, however, that the Company shall not agree to any Lock-Up with respect to the Shares (and no Purchaser shall be required to enter into any Lock-Up with respect to any of the Shares), unless all other holders of Secondary Shares and senior management of the Company shall be subject to a Lock-Up of at least the same duration, and shall participate in the Lock-Up on the same terms, as the Purchasers.

 

(f)                                   Following an IPO, the Company shall use commercially reasonable efforts to comply with the “current public information” requirement of subsection (c) of Rule 144.  The Company shall cooperate with the Purchasers in providing information necessary to complete and file any information reporting forms presently or hereafter required by the SEC as a condition to the availability of Rule 144.  For the purposes of this Section 4, the availability of Rule 144 for shares of Shares shall be as determined by the advice of counsel to the Purchasers.

 

(g)                                  The Company shall not, and shall cause its affiliates not to, (i) prior to the Closing, issue or make any public release or announcement with respect to the transactions contemplated hereby, or otherwise disclose any information relating to such transactions or include a description of such transactions or any of the terms of this Subscription Agreement in any public filing, in each case, without

 

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the prior written consent of the Purchasers, or (ii) enter into any agreement, including any credit agreement, or take any action that would, or would reasonably be expected to, impair the Company’s ability to comply with its obligations hereunder.

 

(h)                                 Notwithstanding anything contained herein to the contrary, if, prior to the date upon which all of the Shares are registered for resale in or concurrently with an IPO, registered in a Resale Registration following such IPO, or eligible for resale under Rule 144 following such IPO, the Company enters into an agreement for the acquisition by any third-party purchaser (or group of purchasers), directly or indirectly, of beneficial ownership of more than 50% of the voting power of the voting stock of the Company (including by merger or consolidation) or the sale of substantially all of the assets of the Company to a third-party in one or a series of related transactions, then the exercise of the rights set forth in Section 4(b) shall automatically accelerate and become exercisable by the Purchasers.

 

5.                                      Purchase Price Adjustment.  If the public offering price of the Common Stock in the IPO is less than $10.00 per share, then the Purchase Price shall be adjusted to account for such shortfall by way of an additional issuance of Common Stock in accordance with the terms of this Section 5.  In connection with any such adjustment to the Purchase Price, the Company shall issue additional shares to each Purchaser in an amount equal to (a) the quotient of the Purchase Price divided by the IPO price per share minus (b) the number of Shares issued pursuant to this Subscription Agreement.  Any fractional shares to be issued to a Purchaser pursuant this Section 5 shall be rounded up to the nearest full share.

 

6.                                      Confidentiality.  Each party, agrees that they will not disclose, or cause to be disclosed, the fact of the existence or contents of this Subscription Agreement, to any third Person other than (a) their attorneys, accountants, employees, affiliates and representatives, (b) as required by law, rule or regulation (including the Registration Statement), (c) as necessary to enforce this Subscription Agreement, or (d) in connection with capital raising efforts of the Company, provided, however, that nothing contained herein shall prohibit any Purchaser from disclosing such information (i) to representatives of such Purchaser who need to know such information to assist such Purchaser or its affiliates, (ii) in connection with financial or operating reports made available to the direct or indirect limited partners, investors, managers, members, representatives and advisors of such Purchaser or its affiliates, (iii) in compliance with the terms of the limited partnership or other organizational documents of such Purchaser or its affiliates, (iv) in connection with the marketing of investment funds managed or advised, directly or indirectly, by such Purchaser or its affiliates, so long as any Person to whom such information is disclosed pursuant to this clause agrees to maintain the confidentiality of such information, or (v) to any governmental authority or self-regulatory organization that has jurisdiction over such Purchaser or its affiliates or in any filings or applications made by such Purchaser or its affiliates to such governmental authority or self-regulatory organization.

 

7.                                      Notices. All notices hereunder shall be sufficient upon receipt for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax, or other electronic transmission service to the appropriate address or number (a) if to the Company, at the address set forth above, or (b) if to Purchasers, at the address set forth on the signature page hereof (or, in either case, to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 8).

 

8.                                      Counterparts.  This Subscription Agreement may be executed through the use of separate signature pages or in any number of counterparts and each of such counterparts shall, for all purposes, constitute one agreement binding on all of the parties, notwithstanding that all parties are not signatories to the same counterpart.  Execution and/or delivery by facsimile or electronic means shall constitute an original signature for all purposes.

 

9.                                      Applicable Law. The internal laws of the State of New York (without giving effect to any choice or conflict of law provision or rule (whether of the State of York or any other jurisdiction) that would cause the application of laws of any other jurisdiction) shall govern all matters arising out of or relating to this Subscription Agreement, including its validity, interpretation, construction, performance and enforcement.  Any action or proceeding arising out of or relating to this Subscription Agreement must be brought in the courts of the State of New York, New York County, or, if it has or can acquire jurisdiction, in the United States District Court for the Southern District of New York.  Each of the parties knowingly, voluntarily and irrevocably submits to the exclusive

 

10

 

jurisdiction of each such court in any such action or proceeding and waives any objection it may now or hereafter have to venue or to convenience of forum. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS SUBSCRIPTION AGREEMENT, OR ANY TRANSACTIONS CONTEMPLATED HEREBY.  EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST IT IN ACCORDANCE WITH THIS SECTION AND FURTHER WAIVES ANY CLAIM BASED ON FORUM NON CONVENIENS.

 

10.                               Definitions.  When used in this Subscription Agreement, each of the terms and words set forth in this Section 10 shall have the meanings given below.

 

“Business Day” shall mean any day that is not a Saturday, a Sunday or other day on which banks in the State of New York are required and authorized by law to be closed.

 

“Code” shall mean the Internal Revenue Code of 1986, as amended.

 

“DGCL” shall mean the Delaware General Corporations Law, as amended.

 

“GAAP” shall mean United States generally accepted accounting principles as in effect from time to time.

 

“Equity Interests” shall mean any capital stock or other equity interests issued by the Company, including any options, warrants or other securities or rights issued by the Company that are directly or indirectly convertible into, or exercisable or exchangeable for, capital stock or other equity interests of the Company.

 

“Non-management Holders” shall mean all holders of Equity Interests of the Company other than Robert F.X. Sillerman, his affiliates and employees of the Company and its direct or indirect affiliates.

 

“Person” shall mean any individual, trust, corporation, partnership, limited partnership, limited liability company or other business association or entity, or governmental authority.

 

“Rule 144” shall mean Rule 144 promulgated under the Securities Act or any successor rule.

 

“Secondary Shares” shall mean the Shares and any other shares of Common Stock that have been transferred as consideration in connection with acquisitions by the Company.

 

“Subsidiary” shall mean with respect to any Person, any corporation, partnership, association, limited liability company or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof; or (ii) if a partnership, association, limited liability company or other business entity, a majority of the partnership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof.  For purposes of this definition, a Person or Persons shall be deemed to have a majority ownership interest in a partnership, association or other business entity if such Person or Persons shall be allocated a majority of partnership, association or other business entity gains or losses or shall be or control the managing director, managing member, general partner or other managing Person of such partnership, association or other business entity.  For the purposes of this definition, a Person or Persons shall also include all successors in interest.

 

“Tax” or “Taxes” shall mean all (a) taxes, charges, withholdings, fees, levies, imposts, duties and governmental fees or other like assessments or charges of any kind whatsoever in the nature of taxes imposed by any United States federal, state, local or foreign or other Taxing Authority (including those related to income, net income, gross income, receipts, capital, windfall profit, severance, property (real and personal), production, sales, 

 

11

 

goods and services, use, business and occupation, license, excise, registration, franchise, employment, payroll (including social security contributions), deductions at source, withholding, alternative or add-on minimum, intangibles, ad valorem, transfer, gains, stamp, customs, duties, estimated, transaction, title, capital, paid-up capital, profits, premium, value added, recording, inventory and merchandise, business privilege, federal highway use, commercial rent tax, and any liability under unclaimed property, escheat, or similar laws), (b) interest, penalties, fines, additions to tax or additional amounts imposed by any Taxing Authority in connection with (i) any item described in clause (a) or (ii) the failure to comply with any requirement imposed with respect to any Tax Return, and (c) liability in respect of any items described in clause (a) and/or (b) payable by reason of contract (including any Tax Sharing Agreement), assumption, transferee, successor or similar liability, operation of law or otherwise.

 

“Tax Return” shall mean any return, declaration, form, report, claim, informational return (including all Forms 1099) or statement required to be filed with any governmental authority with respect to Taxes, including any schedule or attachment thereto or amendment thereof.

 

“Tax Sharing Agreement” shall mean any Tax indemnity agreement, Tax sharing agreement, Tax allocation agreement or similar contract or arrangement, whether written or unwritten other than customary Tax indemnification or other arrangements contained in any credit or other commercial agreement the primary purpose of which does not relate to Taxes.

 

“Taxing Authority” shall mean, with respect to any Tax or Tax Return, the governmental authority that imposes such Tax or requires a person to file such Tax Return and the agency (if any) charged with the collection of such Tax or the administration of such Tax Return, in each case, for such governmental authority.

 

11.                               Disclosure Notices.

 

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. PURCHASERS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

 

THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS SUBSCRIPTION AGREEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

 

12.                               Assignment.  Any assignment by either party of its rights and obligations under this Subscription Agreement shall require the prior written consent of the other party hereto; provided, however, that Purchasers may assign this Subscription Agreement to (x) any of their affiliates upon prior notice to the Company and  (y) any third party transferee of Shares so long as such transferee executes a counterpart to this Subscription Agreement agreeing to be bound by the terms hereof.

 

13.                               Group Status.  Nothing contained in this Subscription Agreement shall in any way be construed as Purchasers acting in concert or as a group with any other Person with respect to the purchase, disposition or voting of securities or otherwise.

 

14.                               Amendment.   This Subscription Agreement may only be amended pursuant to an instrument signed by the parties hereto.

 

15.                               Entire Agreement.  This Subscription Agreement contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings among the parties 

 

12

 

with respect to such subject matter.  The parties hereto acknowledge and agree that this Subscription Agreement shall operate as a stand-alone agreement, and that neither party shall have the right (and if any such party has any such right, such party hereby waives such right) to assert any claims or seek any recourse (including by way of set-off) under this Subscription Agreement with respect to any claims arising out of or relating to any other agreement to which such parties are a party or are otherwise bound.

 

[Subscription Page Follows]

 

13

 

SUBSCRIPTION PAGE

 

IN WITNESS WHEREOF, the undersigned has executed this Subscription Agreement this 1st day of April, 2013.

 

	
Shares being purchased:
    	
 
    	
1,000,000 shares
    	
 
    
	
Purchase Price:
    	
 
    	
$
    	
10,000,000.00
    	
 
    
					

 

	
 
    	
TYPE OF OWNERSHIP (INITIAL ONE)
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
x
    	
PARTNERSHIP   (Please include a copy of the statement of partnership agreement authorizing   signature).
    	
 
    	
o
    	
TRUST   (Please include name of trust, name of trustee, date trust was formed and   copy of the trust agreement or other authorization)
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
o
    	
CORPORATION
    	
 
    	
o
    	
LIMITED   LIABILITY COMPANY
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
o
    	
INDIVIDUAL
    	
 
    	
o
    	
OTHER   (Please include type of entity below)
    

 

 

	
INSIGHT   VENTURE PARTNERS V, L.P.
    	
 
    
	
 
    	
 
    
	
By:
    	
Insight   Venture Associates V, L.L.C., its General Partner
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/   Blair Flicker
    	
 
    
	
Name:
    	
Blair   Flicker
    	
 
    
	
Title:
    	
Attorney   in Fact
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
INSIGHT VENTURE PARTNERS V   (EMPLOYEE CO-INVESTORS), L.P.
    
	
 
    	
 
    	
 
    
	
By:
    	
Insight   Venture Associates V, L.L.C., its General Partner
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:   
    	
/s/   Blair Flicker
    	
 
    
	
Name:
    	
Blair   Flicker
    	
 
    
	
Title:
    	
Attorney   in Fact
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
INSIGHT VENTURE PARTNERS   (CAYMAN) V, L.P.
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
Insight   Venture Associates V, L.L.C., its General Partner
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/   Blair Flicker
    	
 
    
	
Name:
    	
Blair   Flicker
    	
 
    
	
Title:
    	
Attorney   in Fact
    	
 
    

 

[Signature Page to Subscription Agreement]

 

 

Address:

 

680 Fifth Avenue, 8th Floor

New York, NY 10019

Attention:  Lawrence Handen

Fax:  (212) 230-9272

 

With a copy to:

 

Goodwin Procter LLP

620 Eighth Avenue

New York, NY 10018

Attention:  Ilan S. Nissan and Paul N. Cicero

Fax:  (212) 355-3333

 

[Signature Page to Subscription Agreement]

 

 

COMPANY’S ACCEPTANCE

 

This Subscription Agreement is only accepted as so acknowledged in writing by the Company.

 

	
ACCEPTED   as to 1,000,000 Shares:
    	
 
    
	
 
    	
 
    
	
SFX   Entertainment, Inc.:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:   
    	
/s/   Shelly Finkel
    	
 
    
	
Name:
    	
Shelly   Finkel
    	
 
    
	
Title:
    	
President
    	
 
    
	
 
    	
 
    	
 
    
	
Date:
    	
April   1, 2013
    	
 
    

 

[Signature Page to Subscription Agreement]

 

 

Annex I

 

	
Purchaser
    	
 
    	
Shares
    	
 
    	
Purchase Price
    	
 
    
	
Insight Venture Partners   V, L.P. 
    	
 
    	
734,437
    	
 
    	
$
    	
7,344,370.00
    	
 
    
	
Insight Venture Partners V   (Employee Co-Investors), L.P.
    	
 
    	
43,187
    	
 
    	
$
    	
431,870.00
    	
 
    
	
Insight Venture Partners   (Cayman) V, L.P. 
    	
 
    	
222,376
    	
 
    	
$
    	
2,223,760.00
    	
 
    

 

17

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