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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED).
For the fiscal year ended June 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED).
For the transition period from ___________ to ___________
Commission file number: 33-80935
NETWORK EVENT THEATER, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3864111
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
529 Fifth Avenue
New York, New York 10017
(Address of Principal Executive Offices) (Zip Code)
(212) 622-7300
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
(Title of Class)
Warrants, each to purchase one share of Common Stock
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes _X_ No ___
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $6,439,000
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as of
September 25, 1997: $41,726,536
State the number of shares outstanding of each of the issuer's classes of
common equity, as of September 25, 1997: 9,861,323 shares of Common Stock,
2,645,000 Warrants
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement under Regulation
14A, which statement will be filed not later than 120 days after the end of the
fiscal year covered by this report, are incorporated by reference in Part III
hereof.
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NETWORK EVENT THEATER, INC.
ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS
Item No. Page
-------- ----
Part I
1. Business......................................................... 1
2. Properties....................................................... 7
3. Legal Proceedings................................................ 7
4. Submission of Matters to a Vote of Security Holders.............. 7
Part II
5. Market For Common Equity and Related Stockholder Matters......... 8
6. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 8
7. Financial Statements............................................. 10
8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure........................... 10
Part III
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act............. 11
10. Executive Compensation........................................... 11
11. Security Ownership of Certain Beneficial Owners and Management... 11
12. Certain Relationships and Related Transactions................... 11
13. Exhibits, List and Reports on Form 8-K........................... 11
Index to Consolidated Financial Statements.................................. F-1
Signatures ................................................................. 14
Exhibit Index .............................................................. 15
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PART I
ITEM 1. BUSINESS
Network Event Theater, Inc. (together with its subsidiaries, unless the
context otherwise requires, the "Company") was incorporated under the laws of
the State of Delaware in December 1995 to be the successor to the business of
Universal Access Network, LP (the "Partnership"), a Delaware limited partnership
organized in August 1993. In April 1996, the Partnership effected a
reorganization pursuant to which it assigned all of its assets to the Company in
exchange for 6,354,440 shares of the Company's common stock, and distributed
those shares to its partners. On April 9, 1996, the Company issued and sold 2.3
million shares of its common stock and 2,645,000 warrants to purchase shares of
its common stock in an initial public offering (the "Initial Public Offering")
in which the Company received approximately $9.7 million of net proceeds, of
which $500,000 was used to repay Company debt.
The Company was organized to develop, own and operate a proprietary
national network of theaters on college campuses (the "Network"). The Network
delivers entertainment and educational events via satellite for display through
high resolution video projectors on movie theater sized screens, reaching a
geographically dispersed audience of college students, faculty, administrators
and community residents in each college community. Additionally, the Company is
engaged in developing and acquiring media and marketing services businesses that
focus on the young adult and college markets to complement and enhance the reach
of its Network.
The Company provides a comprehensive marketing service to advertisers,
sponsors and entertainment companies by helping them target young adult and
college audiences through a variety of media, some of which are proprietary to
the Company, including the sponsorship of events presented on the Network, the
placement of advertisements in college newspapers, the placement of posters on
general and proprietary bulletin and wallboards on college campuses, and the
distribution of free postcards at selected venues, both on an off campuses. For
example, a motion picture studio which desires to premiere a major motion
picture through the Network could launch a simultaneous and comprehensive
marketing program, including advertisements or inserts in college newspapers,
wallboard advertisements, on-campus postering and free postcard distribution
both on and off campus, extending beyond the Company's installed Network of
campus theaters. The Company believes that its broad array of targeted media and
marketing services will enable it to build more lucrative long-term
relationships with sponsors, advertisers and entertainment companies in the
future.
The Young Adult Market
The Company defines the young adult market as 18-24 year-olds. This
demographic group is one of the fastest growing segments of the American
population. According to projections based on 1990 U.S. Census Bureau data,
there are approximately 25 million young adults in the United States today,
representing 9.2% of the total national population. According to the Resident
Population Projections (Middle Series) prepared by the U.S. Census Bureau, this
number will rise to over 30 million by the year 2010 and represent over 10.1% of
the population.
The Company believes that advertisers consider the most important segment
of the young adult market to be college students because they are still
developing brand loyalties and their future incomes generally are higher than
those of young adults who do not attend college. According to the 1995 Digest of
Education Statistics prepared by the United States Department of Education (the
latest available), the college market consists of more than 3,600 colleges and
universities in the United States with enrollments of approximately 14 million
students, including part-time and full-time undergraduate and graduate students.
The American Council on Education estimates that in 1997 over 8.4 million young
adults or 34% of the young adult population are full-time undergraduate college
students in the United States. This represents a target market which, the
Company believes, has significant group spending power. In addition, growth in
enrollment at colleges and universities is expected to continue into the next
century because (i) the children of baby boomers are reaching college age and
beginning to attend college, (ii) a higher percentage of young adults are
attending college after completing high school and (iii) more adults are
returning to college for advanced degrees.
The Company believes the young adult market, both on and off campus, is
particularly attractive to a significant segment of advertisers such as
entertainment companies, telecommunications companies, computer and software
companies, automobile manufacturers, drug companies, fashion and athletic
equipment companies and financial services companies because young adults
generally are receptive to new ideas and products, are in a formative stage with
respect to building brand loyalties and, as a whole, have significant disposable
income.
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Network Event Theater
The Company has built and intends to expand its Network into selected
colleges and universities throughout the United States and to create and develop
a steady stream of programming and events for the Network.
Network Installations and School Contracts
The Company is expanding the Network from its present size of 36 schools by
focusing its marketing efforts on schools located in key Designated Market Areas
(television market areas defined by A. C. Nielsen, Co.), which it believes will
enhance the Network's appeal to programmers, sponsors and advertisers. The
Company markets its Network principally by contacting and making presentations
to school administrators and student organizations responsible for promoting and
coordinating campus events and by attending key college conferences.
The Company believes that installing a Network theater on campus is
attractive to school administrators because, in addition to providing a vehicle
for entertainment, it provides the college with a state-of-the-art digital
satellite signal receiving system and a high resolution audio/video projection
system which it can use at no charge for educational and other non-commercial
and non-competitive purposes. This can be a cost-effective way to enhance the
quality of campus life. The Company's marketing efforts relating to its Network
are currently made through a full-time marketing coordinator and the Company's
executive officers. The Company intends to continue expanding its Network.
As of September 29, 1997, the Company had completed installations at 36
colleges and universities with a total enrollment of approximately 800,000. The
average Network theater has a seating capacity of approximately 550 persons.
Installations are as follows:
Arizona State University
California State University - Long Beach Central
Michigan University
Clemson University
College of William and Mary
Connecticut College
Eastern Michigan University
Emory University Georgia
Southern University
Georgia Institute of Technology
Kansas State University
Louisiana State University
Mankato State University
Michigan State University
New Mexico State University
New York University
Ohio State University
Oklahoma State University
Rutgers State University - Cook College
Southeast Missouri State University
SUNY College of Oneonta
University of Alabama-Birmingham
University of California-Los Angeles
University of Cincinnati
University of Colorado-Boulder
University of Houston
University of Idaho
University of Kansas
University of Minnesota
University of North Carolina-Charlotte
University of North Texas
University of Rhode Island
University of Rochester
University of Southern Mississippi
Washington State University
Western Kentucky University
The Company currently has signed contracts with Iowa State University,
University of California at Davis, University of Central Florida, Western
Illinois University and University of California at Berkeley. Installations at
these schools are scheduled to be completed before December 31, 1997. The
Company decided not to upgrade the installations at the State University of New
York at Albany and at Old Dominion University because of a cost benefit analysis
performed by the Company considering the cost of upgrading the Network equipment
and the Company's presence in the designated market area. As a result, these two
schools will no longer participate in Network broadcasts. Students at Old
Dominion, however, can attend Network performances at the College of William and
Mary, which is also located in Norfolk, Virginia.
The typical Network installation package consists of a satellite dish and
attendant satellite signal receiving equipment, a high resolution projection
system with commercial quality movie theater sized screen and state-of-the-art
digital audio system. The cost of the equipment, exclusive of installation
costs, for a typical installation is approximately $62,500, which is paid for by
the Company. This cost has declined over $30,000 in the past two years due to
technological advances. In addition, the Company installs and maintains this
equipment at its own expense. This equipment enables the Company to offer
Network events to most areas of the contiguous United States and Alaska.
Presently, the Company owns all of the equipment at its installations, but may
seek to lease all or a portion of its presently installed and newly acquired
equipment to reduce its up-front capital costs.
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The Company believes that satellite technology is the most cost-effective
technology for achieving rapid and complete market coverage in that a single
up-link signal can be broadcast simultaneously at a fixed cost to all
installations. Satellite transmission also provides the Company with the
flexibility to deliver programming to a single school or group of schools
depending upon the time, day or program offered. In September 1998, the Company
upgraded, at its own expense, all Network theater installations to receive
digital rather than analog satellite transmission signals, which has resulted in
improved performance at basically the same transmission cost. The total cost of
this upgrade of the entire Network did not exceed $50,000 because this upgrade
was anticipated in the original equipment design.
The schools listed above have granted the Company the exclusive right to
exhibit, promote and sell commercial programming and promotional merchandise
through its Network, as well as the exclusive use of school venues for a minimum
number of dates per month. Under the terms of such agreements, schools are
generally responsible for public access and security staffing and are required
to use their best efforts to provide the Company with reasonable access to
on-campus media and key campus locations for promotional purposes and to
otherwise assist in the promotion, coordination and staffing of Network events
(including printing and selling tickets, disseminating promotional materials and
providing technical support).
The Company's school contracts enable the Company to present a schedule of
events prior to each school semester or quarter to be agreed upon by the school.
Schools are required to use their best efforts to reserve campus theaters for
additional dates to accommodate special events or replays. Schools are permitted
to use the Company's high-resolution projection equipment for non-commercial,
educational and academic purposes at no cost. School contracts generally have
terms ranging from two to five years and provide for automatic renewals, unless
terminated by either party by notice prior to the end of the initial renewal
term. Most contracts provide exclusivity to the Network and further provide that
in the event of termination for any reason other than a material breach by the
Company, the school may not enter into an agreement with a competitor of the
Company for a period of two years after termination.
Programming
The Company commenced regular operations of the Network in the 1996-97
academic year and anticipates that it will broadcast at least four to six events
per month in the 1997-98 academic year. The Network can be used to broadcast
both live and pre-recorded events, and also offers the ability to perform market
testing and analytical services to companies seeking to target college
audiences. In addition, the Network has audio/video interactive capabilities
which allow audiences to interact with performers and participants before,
during and after live performances.
Since January 1996, the Company has entered into a number of agreements for
individual programs with content providers such as Miramax Films, Sony Pictures,
Mandalay Entertainment, Dreamworks SKG, HBO, Don King Productions, Mercury
Records, Warner Brothers and ABC and has broadcast both live and pre-recorded
events, including concerts, motion pictures and sneak previews of
yet-to-be-released motion pictures, comedy shows, documentaries, sporting
events, special pay-per-view events and educational seminars. Typically,
programmers pay a fee for access to the Network's audiences. For instance, in
August 1996, the Company entered into an agreement pursuant to which HBO is
paying the Company to preview one HBO program per month during the 1996-1997 and
1997-1998 academic years on its Network. During the next twelve months, the
Company intends to develop additional relationships with these and other content
providers to premiere a variety of special events.
The Company believes that there are significant opportunities for it to
preview movies for film studios on campuses and to show feature films of
independent and foreign film makers which appeal to college audiences. The
Company also believes that recording artists and record companies will be
attracted to the Network and may seek to use it to establish an initial
following among college students, who are generally receptive to many forms of
popular music, including rock, country and alternative. Furthermore, the Company
believes that promoters of a wide variety of sporting events, including
football, basketball, baseball and other sports, will find the Network
attractive. The Company believes that many televised sporting events are
available only in particular regions or in sports bars which may not be
accessible to college students. In its effort to make a variety of sporting
events available over its Network, the Company will seek to capitalize on the
popularity of sporting events among college students. However, there can be no
assurance that the Company will attract and retain a sufficient number of
schools and obtain the programming necessary to generate meaningful revenues or
achieve profitable operations from its Network.
In December 1995, the Company entered into a consulting agreement with an
entity owned by Freddie Fields and Jerome Hellman, prominent figures in the
entertainment industry, pursuant to which Messrs. Fields and Hellman
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served as Chairman and President, respectively, of the Company's Programming
Division. Messrs. Fields and Hellman used their contacts in the entertainment
industry to establish relationships with programmers and to identify and obtain
quality programming on behalf of the Company. On May 20, 1997, the Company
entered into a revised agreement which relieved Messrs. Fields and Hellman of
their obligation to devote a substantial portion of their business time to the
Company, but provided that each would continue to be available to perform
consulting services for the Company and that Mr. Fields, at his election, would
continue to serve as a director of the Company. The revised agreement further
provided that the Company will continue to pay Messrs. Fields and Hellman the
monthly consulting fees and expense reimbursements provided for in the original
agreement (totaling $413,000 for the period from July 1, 1997 through December
31, 1997), but that the Company may at any time elect to pay 50% of the
remaining balance in a single cash payment and 50% by issuing Messrs. Fields and
Hellman registered shares of the Company's common stock. However, as of
September 29, 1997, the Company has not elected to exercise this option.
Marketing and Event Promotion of the Network
The Company has a field force of permanent and part-time campus
coordinators who work with local college personnel and students to facilitate
the promotion and the presentation of Network events on each campus. It is
anticipated that students will generally be informed of Network events through
advertisements in school newspapers, and by posters, flyers and other
promotional activities.
The Company anticipates that the Network's principal sources of revenues
will be from fees paid by content providers and from sponsorship of Network
events. The Company may also earn revenues from ticket sales to selected events.
When students are charged for admission to events, ticket prices are set by the
Company and ticket receipts are collected by student organizations and remitted
to the Company after the deduction of small amounts to reimburse the costs of
collection.
Network Competition
The Company believes that the Network is the only one of its kind currently
installed on college campuses. The Company believes that its existing
installations are an important competitive factor in the marketing of its
Network to prospective colleges and universities and its value to sponsors and
content providers. The Network faces competition for its share of discretionary
student spending from numerous other media and businesses in the entertainment
industry. The Company also competes with various forms of entertainment which
provide similar value, both on and off campus, such as music groups and other
entertainers which tour colleges and universities, movie videos and audio
cassettes, broadcast television, cable programming, special pay-per-view events,
sporting events and other forms of entertainment which may be less expensive or
provide other advantages to college students. The Company also competes for
advertising dollars with traditional media. If the Network is successful, the
Company expects that other companies may seek to enter or capitalize on college
markets and compete directly with the Company. The Network is not dependent on
any single school, advertiser, sponsor or program provider.
Media and Marketing Services Companies
In addition to operating the Network, the Company purchased and operates
four media and marketing services companies which primarily or exclusively serve
the young adult market. In the order of acquisition they are American Passage
Media, Inc. ("American Passage"), Campus Voice, L.L.C. ("Campus Voice"), Beyond
the Wall and Pik:Nik Media, LLC ("Pik:Nik"). It is the Company's intention to
integrate the operations and sales forces of these businesses. Such integration
will enable each sales force to offer a full range of products and services to
the Company's clients. The Company believes that such ability will allow its
sales force to gain access to its clients' senior marketing personnel.
American Passage
On September 13, 1996, American Passage, a newly organized wholly owned
subsidiary of the Company, acquired from American Passage Media Corporation
("APMC") substantially all of APMC's assets relating to its college and high
school media and marketing services business. The acquired businesses included
APMC's college newspaper print advertisement placement operations, college
campus postering operations (including postering on newspaper distribution racks
called AdRaX(TM) that contain college newspapers on campus), high school focused
GymBoards(TM) operations and various other advertiser and event sponsorship
related activities. APMC has been involved in the young adult media and
marketing services business since 1976.
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American Passage represents on a non-exclusive basis virtually every
college newspaper in the country that accepts national advertising. The college
newspapers that American Passage represents have a combined circulation of over
six million and enrollment at these schools totals over ten million students.
American Passage's national advertising customers include, among others,
MasterCard, VISA, AT&T, TIAA/CREF, Toyota, Nike and Microsoft. American
Passage's resources include a proprietary database of every major college
newspaper and demographic and consumer data that enable it to create customized
targeted media programs for its advertising clients. In addition to providing
marketing and research assistance to advertisers, American Passage assists in
the development and distribution of advertising material to college newspapers.
At the time of acquisition, American Passage's revenues were generated
principally from sales of advertisements run in college newspapers.
American Passage's campus postering service places posters and other
advertising messages on bulletin boards on college campuses throughout the
country. Through a national network of postering representatives, American
Passage's postering service covers more than 1,250 college campuses with
enrollment totaling over ten million students. Advertisers, which include
American Express and The Wall Street Journal, pay American Passage a fee for
these postering services. American Passage's AdRaX(TM) location media are
college newspaper distribution racks with large advertising display spaces above
the newspaper bin. American Passage has placed over 1,250 AdRaX(TM) units at
prime locations at over 200 college campuses. Revenues are generated from
monthly advertisements appearing on each unit. GymBoards(TM) are gender specific
message and information centers that are installed in boys' and girls' high
school locker rooms at no cost to the school and are customized with each
school's colors and mascot or nickname. Each GymBoard(TM) consists of a coach's
message board, a panel of editorial content of interest to high school athletes
and a single advertising panel, which are protected by acrylic covers.
GymBoards(TM) are posted in more than 4,500 high schools nationwide with more
than four million students, representing about one-third of the total high
school market. Advertising is sold on a monthly basis from September through
May.
In connection with its acquisition of assets from APMC, American Passage
entered into an agreement to serve as the exclusive representative for the sale
of national advertising for APMC's Directory of Classes publication. Directory
of Classes is the official class guide and registration manual at approximately
eighty college campuses with total enrollments of over 1.3 million students.
This agreement, under which American Passage will receive specified sales
commissions for as long as it achieves certain minimum sales levels, has enabled
American Passage to retain the right to sell national advertising for the
Directory of Classes without assuming responsibility for publishing it. Other
American Passage activities include serving as a representative for consumer
advertising for the National Association of Colleges and Employers (NACE) Job
Choices publication and marketing and executing spring break programs and
promotions at the six resort properties operated by Paradise Found Resorts &
Hotels located in Panama City Beach, Florida.
As part of its print media services, American Passage also supplies clients
with newspaper inserts and assists clients by providing creative input. An
example of this is American Passage's custom publishing division, which creates
the Nike SportsPage insert prepared on a monthly basis for insertion in selected
college newspapers. It contains a monthly calendar of sports events at selected
campuses, a personal profile of an intramural athlete from each school and a
summary of intramural activities on campus. The insert is both an information
source for students and an opportunity for Nike to reinforce its presence on
campus. Inserts can be provided in color and in black and white and are often
used for clients' special offers to the campus community.
American Passage also provides event marketing and promotional assistance
on campus to clients who want to use the techniques of tabling and other
face-to-face contact with students. Typically, this service has been used for
food and beverage sampling, credit card solicitation and long distance telephone
service solicitation. Some examples of past sampling programs include programs
for companies such as Tropicana, Kraft General Foods, Barq's Root Beer,
Microsoft, Associates Financial and CapitalOne.
Campus Voice
On February 21, 1997, the Company, through its newly organized wholly owned
subsidiary, Campus Voice, acquired from a wholly owned subsidiary of Sirrom
Capital Corporation substantially all of the assets relating to a business of
operating a national network of proprietary, giant, metal-framed and plexi-glass
enclosed wallboards on college campuses. The network, which was started in 1981,
today consists of over 3,400 giant wallboards located on 391 college campuses
across the United States reaching approximately 3.8 million college students
and, according to pre-acquisition data, generating almost 3 million impressions
per day. It is the oldest and largest (in terms of number of wallboards)
national network of its kind in the United States.
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There are an average of nine wallboards on each of the campuses that Campus
Voice serves, located in high traffic areas such as student unions, libraries,
vending areas, bookstores, residence halls, laundry rooms, dining halls and
athletic facilities. Each month, posters containing editorial content of
interest to college students and paid advertisements are placed in the wallboard
units.
After its acquisition, Campus Voice's operating and publishing model was
completely revamped. Campus Voice's sales efforts, which had been provided on a
contract basis by a third party, were brought in-house. In addition, editorial
content, which was supplied by freelance writers under contract, was obtained
instead from popular magazines such as In Style, Road & Track, Yahoo! and
Interview. Finally, the Campus Voice network was divided into three parts,
permitting advertisers to purchase a portion of the network on a regional or
targeted basis. Such division has made this medium more attractive to
advertisers by reducing their out-of-pocket costs. Advertising clients that use
Campus Voice's services include, among others, Sprint, Procter & Gamble, Sony
Pictures and Dreamworks SKG.
Beyond the Wall
On April 11, 1997, the Company acquired the assets and certain liabilities
of Posters Preferred, Inc. relating to its business of publishing and
distributing a twice yearly catalog to college students entitled Beyond the
Wall(R). The business was originally started in 1993. Each year, Beyond the Wall
distributes over 4.0 million of its catalogs to over 600 college campuses,
making it, the Company believes, the largest and broadest publication
specifically targeting college students. The catalog contains advertising images
which are available in poster-size reproductions, which students can purchase by
mail order as posters to be hung on their walls. The catalog also contains a
listing of video cassettes of feature films which are likewise available for
purchase. In addition, Beyond the Wall maintains a web site at which students
can download a screen saver with the same images that are found on the posters,
and has distribution agreements with on-campus poster vendors for direct
distribution of catalog posters.
The Company believes the catalog is attractive to image and brand focused
advertisers who want to reach young adults. Beyond the Wall's clients include,
among others, VISA, J. Crew, Sara Lee, Casio, Calvin Klein, Procter & Gamble and
Volkswagen of America.
Pik:Nik Media
On April 30, 1997, Pik:Nik, a newly organized wholly owned subsidiary of
the Company, acquired from Pik:Nik, LLC the assets and certain liabilities
relating to its business of producing, marketing and distributing free postcards
containing advertising images.
Pik:Nik's postcards are available through four separate programs. The first
program is called the Cities Program in which free postcards are distributed
using 1,000 of Pik:Nik's proprietary racks installed in major markets throughout
the country at restaurants, bars, cafes and clubs. Pik:Nik currently distributes
free postcards through its proprietary racks located in New York, Los Angeles,
San Francisco, Seattle, Dallas, Austin, San Diego and Portland, Oregon and
through contract distributors in Chicago. The Company is planning to expand
Pik:Nik's network of proprietary racks to other markets, including Miami,
Washington, D.C., Atlanta and Boston.
Pik:Nik's second program is its College Program. As part of that program,
the Company installed racks at 100 bars (which have been designated as America's
Top 100 College Bars(TM) ) located near college campuses. These bars have
received national publicity with regard to this program, including an article in
Playboy magazine, and distribute tee shirts with their bar's name prominently
displayed. Through an exclusive arrangement, another 125 racks have been
installed on college campuses in Barnes & Noble college bookstores (the largest
private manager of campus bookstores in the United States) and in dining halls
and near Campus Voice(R) wallboards.
A third program, called the Cinema Program, is the result of an exclusive
arrangement with General Cinemas. Pursuant to that program, Pik:Nik installed
postcard racks at 100 of the largest General Cinema movie theaters across the
country. General Cinema receives a share of the revenues generated by the sale
of postcards from these racks and also has its employees periodically replenish
the racks with postcards.
The fourth program conducted by Pik:Nik is the Conventions Program. The
Company supplies fixed racks and manually distributes postcards at various
conventions held throughout the United States. The cards are generally topically
related to each convention.
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Competition
The Company's combination of the Network with its media and marketing
services businesses enables it to provide comprehensive marketing, media and
promotional services to advertisers, sponsors and entertainment companies
seeking to target the young adult and college markets. The Company's media and
marketing services businesses face competition for limited advertising revenues
from advertisers and sponsors, from other similar companies and from other media
such as radio, television, print media, direct mail marketing and the Internet.
The Company also competes with a wide variety of other advertising media, the
range and diversity of which has increased substantially over the past several
years to include advertising displays in shopping centers and malls, airports,
stadiums, movie theaters and supermarkets, and on taxis, trains, buses and
subways. Some of the Company's competitors, principally in other media such as
radio and television, are substantially larger, better capitalized and have
access to greater resources than the Company. There can be no assurance that the
Company will be able to compete successfully with such other companies and
media.
Trademarks
The Company has registered with the United States Patent and Trademark
Office the names NET, Network Event Theater and Design, NET and Beyond the Wall.
The Company has applied to register the names American Passage, GymBoards, AdRaX
and Pulse Finder. In addition, Campus Voice has five registered trademarks and
11 applications pending, and Pik:Nik has three applications pending. The
Company's rights in these marks may be a significant part of its business. The
Company is not aware of any claims of infringement or other challenges to its
rights to use these marks, although the Company is aware of numerous other
registrations of the mark NET. There can be no assurance the Company's marks do
not or will not infringe the proprietary rights of others, that the Company's
marks would be upheld if challenged or that the Company would not be prevented
from using its marks. The Company does not hold any patents or copyrights.
Employees
As of September 13, 1997, the Company and its subsidiaries had 78
employees, of whom three are part time. None of the Company's employees is
represented by a collective bargaining unit, and the Company believes that
relations with its employees is good.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in approximately
16,800 square feet of leased space in New York City pursuant to a lease expiring
on October 31, 2000. Annual rent payable under that lease is approximately
$392,000. The Company also rents office space in Seattle, Washington, Los
Angeles, California, Chicago, Illinois and Tempe, Arizona. The Company believes
it has adequate insurance to cover the value of its leased property and the
personal property therein.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding and is not aware
of any contemplated proceeding that may be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the quarter ended June 30, 1997.
7
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market and is
quoted on the Nasdaq SmallCap Market ("Nasdaq") under the symbol "NETS." The
following table sets forth the high and low closing sales prices for the common
stock as furnished by Nasdaq. The quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.
High Low
------ ------
Fiscal 1996:
Fourth Quarter............................ 5 5/8 3 1/4
Fiscal 1997:
First Quarter............................. 4 1/8 1 27/32
Second Quarter............................ 5 7/16 2 3/4
Third Quarter............................. 6 1/8 4 1/2
Fourth Quarter............................ 5 3/8 3 1/2
As of September 25, 1997, there were approximately 39 holders of record of
the Company's common stock.
To date, the Company has not declared or paid any dividends on its common
stock. The payment by the Company of dividends, if any, is within the discretion
of the Board of Directors and will depend on the Company's earnings, if any, its
capital requirements and financial condition, as well as other relevant factors.
The Board of Directors does not intend to declare any dividends in the
foreseeable future, but instead intends to retain earnings for use in the
Company's business operations.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto. The following discussion
contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, the ability to obtain financing, integration of
the recently completed acquisitions, the management of growth, changing consumer
tastes and general economic conditions. The Company undertakes no obligation to
release publicly the results of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
The Company's consolidated financial statements are not directly comparable
from period to period due to acquisition activity. Additionally, in August 1996,
the Company changed its year end from December 31 to June 30. The following
financial analysis compares the year ended June 30, 1997 ("1997") to the year
ended June 30, 1996 (unaudited) ("1996").
Results of Operations
In 1997, net revenues were $6,439,000 as compared to $4,000 in 1996. The
increase of $6,435,000 was primarily due to the acquisition of American Passage,
which accounted for $6,046,000 of the increase. Additionally, net revenues for
Campus Voice, Pik:Nik and Beyond the Wall accounted for approximately $145,000
of that increase. The remaining $244,000 of the increase was generated by
revenues received from screening events on the campus theater Network.
In 1997, selling, general and administrative expenses were $9,006,000 as
compared to $2,908,000 in 1996. The increase of $6,098,000 was primarily due to
the acquisitions of American Passage and Pik:Nik, which accounted for
approximately $5,100,000 and $400,000 of this increase, respectively. In
addition, $400,000 of that increase resulted from Network operations. In 1997,
corporate expenses were $2,078,000. These expenses were included in selling,
general and administrative expenses for 1996. Corporate expenses are primarily
comprised of salaries and professional fees of $845,000 and $770,000,
respectively.
8
<PAGE>
In 1997, depreciation and amortization was $1,253,000 as compared to
$483,000 in 1996. The increase of $770,000 was primarily due to acquisitions of
the media and marketing services businesses, which accounted for $425,000 of the
increase. The remainder of $345,000 was the result of additional Network theater
installations.
In 1997, operating expenses were $12,337,000 as compared to $3,391,000 in
1996. The increase of $8,946,000 was primarily due to the acquisitions of
American Passage, Campus Voice, Pik:Nik and Beyond the Wall. Operating expenses
for these subsidiaries were approximately $5,414,000, $238,000, $378,000 and
$80,000, respectively. The remaining increase of $2,836,000 was due to the
expansion of the theater Network and an increase in the number of sales,
management and support staff.
In 1997, interest income was $274,000 as compared to $179,000 in 1996. The
increase of $95,000 was due to interest earned on cash balances maintained by
the Company. The Company completed the Initial Public Offering in April 1996 and
earned interest income on the proceeds of such offering for only a three-month
period in 1996 as compared to a full year in 1997.
In 1997, interest expense was $390,000. The interest expense related
primarily to debt incurred in connection with the acquisitions of American
Passage, Campus Voice and Pik:Nik. Interest expense for these subsidiaries was
$310,000, $77,000, and $3,000, respectively.
In 1997, provision for income taxes was $166,000. The provision represents
state taxes imposed on revenues and net assets.
In 1997, net loss was $6,157,000 as compared to $3,208,000 in 1996. The
increase of $2,949,000 was a result of increased operating expenses from
acquisitions, an increase in the number of management, sales and support staff
resulting therefrom and the costs of further expansion of the theater Network.
Liquidity and Capital Resources
The Initial Public Offering raised net proceeds of approximately $9.7
million, of which $500,000 was used to repay previously existing Company
indebtedness. Since the Initial Public Offering, the Company has purchased
approximately $1.2 million of Network theater equipment and invested
approximately $1.3 million of the proceeds of the Initial Public Offering in the
acquisitions of American Passage, Campus Voice, Beyond the Wall and Pik:Nik (the
remainder of the cash portion of the purchase prices having been borrowed). The
balance of the proceeds have otherwise been used to fund the Company's
operations.
On June 24, 1997, the Company sold an aggregate of 1,015,873 shares of its
common stock. The net proceeds of that sale of $3.8 million are being used to
fund the Company's operations.
The Company used $5.3 million of cash in operating activities in 1997 as
compared to $2.4 million in 1996. The increase of $2.9 million represents the
increase in depreciation and amortization, net loss and increases in accounts
receivable offset substantially by increases in short-term liabilities. The
increase of $13.0 million in cash provided by investing activities in 1997 as
compared to 1996 represents the liquidation of investment securities to fund
acquisitions and capital expenditures. The decrease of $3.3 million in net cash
provided by financing activities in 1997 versus 1996 is primarily due to the
Company's spending the proceeds of its Initial Public Offering, selling
additional equity securities and borrowing funds from various sources.
The Company's primary capital requirement with respect to its operations
has been for acquisitions and for the purchase and installation of theater
equipment on college campuses for its Network of campus theaters. In the event
that the Company's plans and assumptions with respect to its Network change or
prove to be inaccurate, if its assumptions with respect to American Passage,
Campus Voice, Beyond the Wall and Pik:Nik being able to fund their operations
and make debt service payments out of their own cash flows prove to be
inaccurate, or if the working capital or capital expenditure requirements of
Beyond the Wall or Pik:Nik prove to be greater than anticipated, the Company
could be required to seek additional financing. The inability to obtain
additional financing will have a material adverse effect on the Company,
including possibly requiring the Company to significantly curtail or cease its
operations.
As of June 30, 1997, the Company had approximately $4.2 million in cash and
cash equivalents. The Company believes that such amounts will be sufficient to
fund working capital, including debt service and interest requirements, for the
year ending June 30, 1998. In order to fund future debt service and interest
expense from operations, the Company will have to improve its current operating
results. The Company's ability to make these improvements will be subject to
prevailing economic conditions and to legal, financial, business, regulatory,
industry and other factors, many of which are beyond the Company's control.
9
<PAGE>
The Company also may seek additional debt or equity financing to fund the
cost of additional expansion of its Network and the cost of developing or
acquiring additional media and marketing services businesses. To the extent that
the Company finances its requirements through the issuance of additional equity
securities, including the exercise of warrants issued in the Initial Public
Offering, any such issuance would result in dilution to the interests of the
Company's stockholders.
Additionally, to the extent that the Company incurs indebtedness or issues
debt securities in connection with financing activities, the Company will be
subject to all of the risks associated with incurring substantial indebtedness,
including the risks that interest rates may fluctuate and cash flows may be
insufficient to pay principal and interest on any such indebtedness. The Company
has no current arrangements with respect to, or sources of, additional
financing. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, if at all.
ITEM 7. FINANCIAL STATEMENTS
Information with respect to this item appears as a separate section
following Item 13 of this report. Such information is incorporated herein by
reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
10
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this Item is incorporated herein by reference
to the Company's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this report (the "Company's Proxy Statement").
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits. See below.
(b) The Company did not file any reports on Form 8-K during the fourth
quarter of fiscal 1997.
Item 13(a) Exhibits.
Exhibit No.
- -----------
3.1 Certificate of Incorporation (incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on Form SB-2,
Registration No. 33-80935, filed on March 6, 1996).
3.2 Certificate of Amendment of Certificate of Incorporation
(incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form SB-2, Registration No. 33-80935,
filed on March 6, 1996).
3.3 Bylaws (incorporated by reference to Exhibit 3.3 to the Company's
Registration Statement on Form SB-2, Registration No. 33-80935,
filed on March 6, 1996).
4.1 Warrant Agreement (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form SB-2, Registration No.
33-80935, filed on March 6, 1996).
4.2 Underwriter's Warrant (incorporated by reference to Exhibit 4.2 to
the Company's Registration Statement on Form SB-2, Registration No.
33-80935, filed on March 6, 1996).
10.1 Employment Stock Option Plan of the Company (incorporated by
reference to Exhibit 10.1 to the Company's Registration Statement on
Form SB-2, Registration No. 33-80935, filed on March 6, 1996).
10.2 Employment Agreement between the Company and Harlan D. Peltz
(incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form SB-2, Registration No. 33-80935,
filed on March 6, 1996).
10.3 Employment Agreement between the Company and Don Leeds (incorporated
by reference to Exhibit 1 to the Company's Form 10-QSB for the
quarterly period ended June 30, 1996).
10.4 Non-Incentive Stock Option Agreement dated June 17, 1996 between the
Company and Don Leeds (incorporated by reference to Exhibit 10.3 to
the Company's Form 10-QSB for the quarterly period ended June 30,
1996).
10.5 Employment Agreement between the Company and Bruce L. Resnik
(incorporated by reference to Exhibit 2 to the Company's Form 10-QSB
for the quarterly period ended September 30, 1996).
11
<PAGE>
Exhibit No.
- -----------
10.6 Agreement dated December 19, 1995 between the Company and The Fields
& Hellman Company (incorporated by reference to Exhibit 10.4 to the
Company's Registration Statement on Form SB-2, Registration No.
33-80935, filed on March 6, 1996).
10.7* Revised Agreement dated May 20, 1997 between the Company and The
Fields & Hellman Company.
10.8 NET Portfolio Investors Agreement dated December 21, 1995 between
the Company and NET Portfolio Investors, L.P. (incorporated by
reference to Exhibit 10.5 to the Company's Registration Statement on
Form SB-2, Registration No. 33-80935, filed on March 6, 1996).
10.9 Form of Shareholders Agreement between Harlan D. Peltz and NET
Portfolio Investors, L.P. (incorporated by reference to Exhibit 10.6
to the Company's Registration Statement on Form SB-2, Registration
No. 33-80935, filed on March 6, 1996).
10.10 Registration Rights Agreement dated December 21, 1995 between the
Company and NET Portfolio Investors, L.P. (incorporated by reference
to Exhibit 10.7 to the Company's Registration Statement on Form
SB-2, Registration No. 33-80935, filed on March 6, 1996).
10.11 Standard Form of School Contract (incorporated by reference to
Exhibit 10.8 to the Company's Registration Statement on Form SB-2,
Registration No. 33-80935, filed on March 6, 1996).
10.12 Asset Purchase Agreement dated September 13, 1996 among American
Passage Media Corporation, Gilbert Scherer, the Company and American
Passage Media, Inc. (incorporated by reference to Exhibit 2 to the
Company's Form 8-K filed on September 28, 1996).
10.13 $750,000 Subordinated Promissory Note from American Passage Media,
Inc. to American Passage Media Corporation (incorporated by
reference to Exhibit 32 to the Company's Form 8-K filed on September
28, 1996).
10.14 Guaranty by the Company in favor of American Passage Media
Corporation (incorporated by reference to Exhibit 4 to the Company's
Form 8-K filed on September 28, 1996).
10.15 Option Agreement between the Company and American Passage Media
Corporation (incorporated by reference to Exhibit 5 to the Company's
Form 8-K filed on September 28, 1996).
10.16 Directory of Classes Representation Agreement between American
Passage Media, Inc. and American Passage Media Corporation
(incorporated by reference to Exhibit 8 to the Company's Form 8-K
filed on September 28, 1996).
10.17 Business Loan Agreement between American Passage Media, Inc. and
Signet Bank (incorporated by reference to Exhibit 9 to the Company's
Form 8-K filed on September 28, 1996).
10.18* Letter agreement dated August 18, 1997 between American Passage
Media, Inc. and Signet Bank amending the Business Loan Agreement.
10.19 Promissory Note from American Passage Media, Inc. to Signet Bank
(incorporated by reference to Exhibit 10 to the Company's Form 8-K
filed on September 28, 1996).
10.20 Commercial Security Agreement between American Passage Media, Inc.
and Signet Bank (incorporated by reference to Exhibit 11 to the
Company's Form 8-K filed on September 28, 1996).
10.21 Commercial Guaranty from the Company in favor of Signet Bank
(incorporated by reference to Exhibit 12 to the Company's Form 8-K
filed on September 28, 1996).
10.22 Commercial Pledge and Security Agreement from the Company in favor
of Signet Bank (incorporated by reference to Exhibit 13 to the
Company's Form 8-K filed on September 28, 1996).
10.23* Bill of Sale and Agreement dated January 31, 1997 among SCCGS, Inc.,
Sirrom Capital Corporation, Campus Voice, L.L.C. and the Company.
10.24* Loan Agreement dated January 31, 1997 between Campus Voice, L.L.C.
and Sirrom Investments, Inc.
10.25* $660,000 Senior Secured Promissory Note from Campus Voice, L.L.C. to
Sirrom Investments, Inc.
10.26* $300,000 Junior Secured Promissory Note from Campus Voice, L.L.C. to
SCCGS, Inc.
12
<PAGE>
Exhibit No.
- -----------
10.27* $1,263,222.83 Second Junior Secured Promissory Note from Campus
Voice, L.L.C. to SCCGS, Inc.
10.28* Security Agreement dated January 31, 1997 between Campus Voice,
L.L.C. and Sirrom Investments, Inc.
10.29* Trademark and Patent Security Agreement dated January 31, 1997
between Campus Voice, L.L.C. and Sirrom Investments, Inc.
10.30* Asset Purchase Agreement dated April 11, 1997 among Posters
Preferred, Inc., Dennis Roche, Brian Gordon and the Company.
10.31* Asset Purchase Agreement dated April 30, 1997 among the Company,
Pik:Nik Media, LLC, Pik:Nik, LLC and Garth Holsinger, Annett
Schaefer-Sell and Sunny Smith.
10.32* Stock Purchase Agreement dated June 24, 1997 among Warburg, Pincus
Emerging Growth Fund, Inc., Small Company Growth Portfolio of
Warburg, Pincus Institutional Fund, Inc. and the Company.
10.33* Registration Rights Agreement dated June 24, 1997 among Warburg,
Pincus Emerging Growth Fund, Inc., Small Company Growth Portfolio of
Warburg, Pincus Institutional Fund, Inc. and the Company.
21* Subsidiaries of the Company.
23* Consent of Ernst & Young LLP.
27* Financial Data Schedule.
- ----------
* Filed herewith.
13
<PAGE>
NETWORK EVENT THEATER, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Index
Report of Independent Auditors............................................. F-2
Consolidated Balance Sheets at June 30, 1997 and 1996...................... F-3
Consolidated Statements of Operations for the years ended June 30, 1997
and 1996 (unaudited), the six months ended June 30, 1996 and the year
ended December 31, 1995.................................................. F-4
Consolidated Statements of Cash Flows for the years ended June 30, 1997
and 1996 (unaudited), the six months ended June 30, 1996 and the year
ended December 31, 1995.................................................. F-5
Consolidated Statement of Stockholders' Equity for the two years and six
months ended June 30, 1997............................................... F-6
Notes to Consolidated Financial Statements................................. F-7
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Network Event Theater, Inc.
We have audited the accompanying consolidated balances sheets of Network Event
Theater, Inc. as of June 30, 1997 and 1996, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year ended June 30, 1997, the six months ended June 30, 1996 and the year ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Network
Event Theater, Inc. at June 30, 1997 and 1996, and the consolidated results of
their operations and their cash flows for the year ended June 30, 1997, the six
months ended June 30, 1996 and the year ended December 31, 1995, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
September 10, 1997
F-2
<PAGE>
NETWORK EVENT THEATER, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30,
--------------------
1997 1996
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents ........................... $ 4,185 $ 267
Accounts receivable, net of allowance
for doubtful accounts of $73 at
June 30, 1997 .................................... 1,439 --
Investments ......................................... -- 7,883
Prepaid expenses .................................... 341 --
Deposits and other current assets ................... 120 26
-------- --------
Total current assets ................................... 6,085 8,176
Property and equipment, net ............................ 4,718 3,081
Intangible assets, net of accumulated
amortization of $367 and $59 at June 30, 1997
and 1996, respectively .............................. 6,339 59
Notes receivable ....................................... 33 --
-------- --------
Total assets ........................................... $ 17,175 $ 11,316
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................... $ 542 $ 414
Accrued employee compensation ....................... 321 --
Accrued professional fees ........................... 320 --
Other accrued expenses .............................. 484 48
Deferred revenues ................................... 301 --
Current portion of long--term debt .................. 949 --
-------- --------
Total current liabilities .............................. 2,917 462
Long-term debt ......................................... 5,275 --
Commitments
Stockholders' Equity:
Preferred stock, $.01 par value, 1,000 shares
authorized, no shares issued and outstanding ..... -- --
Common stock, $.01 par value, 17,000 shares
authorized, 9,861 and 8,654 shares issued
and outstanding at June 30,1997 and 1996,
respectively ..................................... 99 87
Additional paid--in capital ......................... 20,421 16,177
Accumulated deficit ................................. (11,537) (5,380)
Unrealized depreciation on marketable
equity securities -- (30)
-------- --------
Total stockholders' equity ............................. 8,983 10,854
-------- --------
Total liabilities and stockholders' equity ............. $ 17,175 $ 11,316
======== ========
See notes to consolidated financial statements
F-3
<PAGE>
NETWORK EVENT THEATER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended Six months ended Year ended
June 30, June 30, December 31,
--------------------------- ------------- --------------
1997 1996 1996 1995
-------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Net Revenues ......................... $ 6,439 $ 4 $ 4 $ --
Operating Expenses:
Selling, general and
administrative expenses ........ 9,006 2,908 1,738 1,927
Corporate expenses ................ 2,078 -- -- --
Depreciation and amortization ..... 1,253 483 320 336
-------- -------- -------- --------
Total operating expenses ............. 12,337 3,391 2,058 2,263
-------- -------- -------- --------
Loss from operations ................. (5,898) (3,387) (2,054) (2,263)
Interest income ...................... 274 179 132 126
Interest expense ..................... (390) -- --
Other income ......................... 23 -- -- --
-------- -------- -------- --------
Loss before provision for income taxes (5,991) (3,208) (1,922) (2,137)
Provision for income taxes ........... 166 -- -- --
-------- -------- -------- --------
Net loss ............................. $ (6,157) $ (3,208) $ (1,922) $ (2,137)
======== ======== ======== ========
Net loss per common share ............ $ (0.71) $ (0.47) $ (0.26) $ (0.34)
======== ======== ======== ========
Weighted average common shares
outstanding ....................... 8,715 6,769 7,504 6,354
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
NETWORK EVENT THEATER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended Six months ended Year ended
June 30, June 30, December 31,
--------------------------- ------------- --------------
1997 1996 1996 1995
-------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net loss ......................................... $ (6,157) $ (3,208) $ (1,922) $ (2,137)
Adjustments to reconcile net loss to
net cash used in operating activities:
Provision for bad debts ....................... 73 -- -- --
Depreciation and amortization ................. 1,253 483 320 336
Fair value of common stock issued
for services ................................ -- -- -- 60
Changes in assets and liabilities:
Increase in prepaid expenses .................. (341) -- -- --
(Increase) decrease in deposits and other
current assets ................................ (94) (15) (17) 2
Increase in accounts receivable ............... (1,512) -- -- --
Increase (decrease) in accounts payable ....... 128 350 (79) 507
Increase in accrued employee compensation ..... 321 -- -- --
Increase in accrued professional fees ......... 320 -- -- --
Increase in other accrued expenses ............ 436 -- -- --
Increase in deferred revenues ................. 301 -- -- --
Decrease (increase) in deferred offering costs -- -- 207 (207)
-------- -------- -------- --------
Net cash used in operating activities ............ (5,272) (2,390) (1,491) (1,439)
Cash Flows From Investing Activities
Capital expenditures .......................... (1,194) (3,308) (859) (2,545)
Notes receivable .............................. (33) -- -- --
Payment for business acquisitions ............. (4,842) -- -- --
Sale (purchase) of investments ................ 7,913 (7,913) (7,913) 987
-------- -------- -------- --------
Net cash provided by (used in)
investing activities ........................... 1,844 (11,221) (8,772) (1,558)
Cash Flows From Financing Activities
Net proceeds from sale of common stock ........ 3,783 10,416 9,509 2,865
Proceeds from sale of warrants ................ -- 230 230 --
Proceeds from long-term debt .................. 3,860 -- -- --
Repayment of long-term debt ................... (297) -- -- --
-------- -------- -------- --------
Net cash provided by financing activities ........ 7,346 10,646 9,739 2,865
-------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents ................................... 3,918 (2,965) (524) (132)
Cash and cash equivalents at beginning
of period ..................................... 267 3,232 791 923
-------- -------- -------- --------
Cash and cash equivalents at end of period ....... $ 4,185 $ 267 $ 267 $ 791
======== ======== ======== ========
Supplemental cash flow information;
Cash paid for interest ........................ $ 279 $ -- $ -- $ --
======== ======== ======== ========
Cash paid for income taxes .................... $ 207 $ -- $ -- $ --
======== ======== ======== ========
Issuance of Common Stock in connection
with acquisitions .......................... $ 473 $ -- $ -- $ --
======== ======== ======== ========
Debt assumed in conection with acquistions .... $ 2,553 $ -- $ -- $ --
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
NETWORK EVENT THEATER, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the period January 1, 1995 to June 30, 1997
(In thousands)
<TABLE>
<CAPTION>
Unrealized
Common Stock Additional Appreciation
--------------------- paid-in Accumulated On Marketable
Shares Amount Capital Deficit Equity Securities Total
----- -------- -------- -------- ------------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1994 ...... 4,732 $ 47 $ 3,553 $ (1,321) $ -- $ 2,279
Issuance of
common stock ........... 1,603 17 2,848 -- -- 2,865
Fair value of stock
issued as severance .... 19 -- 60 -- -- 60
Net loss ................. -- -- -- (2,137) -- (2,137)
----- -------- -------- -------- -------- --------
Balances at
December 31, 1995 ...... 6,354 64 6,461 (3,458) -- 3,067
Issuance of common
stock upon the Initial
Public Offering ........ 2,300 23 9,486 -- -- 9,509
Issuance of warrants
upon the Initial Public
Offering ............... -- -- 230 -- -- 230
Unrealized depreciation on
marketable securities .. -- -- -- -- (30) (30)
Net loss ................. -- -- -- (1,922) -- (1,922)
----- -------- -------- -------- -------- --------
Balances at
June 30, 1996 .......... 8,654 87 16,177 (5,380) (30) 10,854
Issuance of common
stock for acquisitions . 191 2 471 -- -- 473
Sale of common
stock .................. 1,016 10 3,773 -- -- 3,783
Unrealized appreciation on
marketable securities .. -- -- -- -- 30 30
Net loss ................. -- -- -- (6,157) -- (6,157)
----- -------- -------- -------- -------- --------
Balances at
June 30, 1997 .......... 9,861 $ 99 $ 20,421 $(11,537) $ -- $ 8,983
===== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
NETWORK EVENT THEATER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
1. Organization and Basis of Presentation
Network Event Theater, Inc. ("NET"), and its subsidiaries (collectively
referred to as the "Company") was incorporated under the laws of the State of
Delaware in December 1995 to be the successor to the business of Universal
Access Network, L.P. (the "Partnership"), a Delaware limited partnership
organized in August 1993. In April 1996, the Partnership effected a
reorganization pursuant to which it assigned all of its assets to the Company in
exchange for 6,354,440 shares of the Company's common stock, and distributed
those shares to its partners. The accompanying consolidated financial statements
of the Company retroactively reflect the reorganization with respect to the
capitalization of the Company. References to the Company include the activities
of its predecessor, the Partnership.
On April 9, 1996, the Company sold 2.3 million shares of its common stock
and 2,645,000 warrants to purchase shares of its common stock in a public
offering (the "Initial Public Offering") in which the Company received
approximately $9.7 million of net proceeds, of which $500,000 was used to repay
Company debt.
The Company was organized to develop, own and operate a proprietary
national network of theaters on college campuses (the "Network"). The Network
delivers entertainment and educational events via satellite for display through
high resolution video projectors on movie theater sized screens. Additionally,
as described further in Note 4, the Company intends to continue to develop and
acquire collegiate media and marketing service businesses to complement and
enhance the reach of its Network.
2. Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All material intercompany items and
transactions have been eliminated.
Fiscal Year End
On August 21, 1996, the Company's board of directors elected to change the
Company's fiscal year end to June 30th. Accordingly, the consolidated financial
statements include the results of operations and cash flows for the years ended
June 30, 1997 and 1996 (unaudited), the six months ended June 30, 1996 and the
year ended December 31, 1995. Comparative amounts for the year ended June 30,
1996 are unaudited. In the opinion of management, the information presented in
the financial statements for the unaudited year ended June 30, 1996 reflect all
adjustments necessary for a fair presentation of the Company's results of
operations and cash flows.
Cash Equivalents
Highly liquid investments with a maturity of three months or less when
purchased are generally considered to be cash equivalents.
Investments in Marketable Securities
The Company records its investment in marketable securities in accordance
with Financial Accounting Standards Board Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). SFAS No.
115 requires management to determine the appropriate classification of
investment in debt securities at the time of purchase and to reevaluate such
designation as of each balance sheet date.
The Company's securities are classified as available-for-sale and are
carried at fair value, with the unrealized gains and losses, net of tax,
reported as a separate component of stockholders' equity. Realized gains or
losses on sales of investments are reflected in the consolidated statements of
operations. The cost of securities sold is based on the specific identification
method.
F-7
<PAGE>
NETWORK EVENT THEATER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1997
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is provided for by the straight-line method over the estimated useful
lives of the assets. These lives are estimated to be five years for Network
theater equipment; six years for location based media equipment, and three to
five years for furniture and office equipment. Leasehold improvements are
amortized on a straight-line basis over the shorter of the term of the related
lease or the lives of the related improvements. Expenditures for maintenance and
repairs are charged to operations as incurred.
Intangible Assets
Intangible assets represent acquisition costs in excess of the fair value
of businesses acquired and are amortized using the straight-line method over 15
years. Organization costs are being amortized using the straight-line method
over five years, and were $35,000, net of accumulated amortization of $82,000 at
June 30, 1997.
It is the Company's policy to account for intangible assets at the lower of
amortized cost or estimated realizable value. As part of an ongoing review of
the valuation and amortization of intangible assets of the Company and its
subsidiaries, management assesses the carrying value of the intangible assets if
facts and circumstances suggest that there may be impairment. If this review
indicates that the intangible assets will not be recoverable as determined by a
non-discounted cash flow analysis of the operating results over the remaining
amortization period, the carrying value of the intangible assets would be
reduced to estimated realizable value.
Revenue Recognition
The Company's primary source of revenue is derived from the sale of
advertising space in media which are owned either by the Company or by third
parties and by the sale of marketing services. Revenue is generally recognized
in the month of media publication and in the case of marketing services, the
month such services are provided.
Advertising and Promotion Costs
The Company expenses advertising costs as incurred. Advertising expense for
the years ended June 30, 1997 and 1996 (unaudited), the six months ended June
30, 1996 and the year ended December 31, 1995 were approximately $564,000,
$70,000, $62,000 and $8,000, respectively.
Income Taxes
The Company, which operated as a partnership until its Initial Public
Offering (see Notes 1 and 3), has incurred losses since its inception. Those
losses were utilized by the individual partners in prior periods and were not
available to the Company. Commencing with the Initial Public Offering, the
Company began accounting for income taxes in accordance with Financial
Accounting Standards Board Statement No. 109, "Accounting for Income Taxes".
Under this method, deferred income taxes are provided for differences between
the carrying amounts of the Company's assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Earnings Per Share
The calculation of earnings per share assumes that all common stock issued
through the date of the Company's Initial Public Offering (See Notes 1 and 3)
was outstanding for all periods. Loss per common share is based on the net loss
for the period divided by the weighted average number of shares of common stock
outstanding for the period. Shares issuable upon the exercise of all common
stock equivalents and other potentially dilutive securities are not included in
the accompanying consolidated statements of operations since their effect is not
dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"). FAS
128 establishes standards for computing and presenting earnings per share
("EPS") and supersedes APB Opinion No. 15, "Earnings Per Share" ("Opinion 15").
FAS 128 replaces the
F-8
<PAGE>
NETWORK EVENT THEATER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1997
presentation of primary EPS with a presentation of basic EPS which excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding during the period. This
statement also requires dual presentation of basic EPS and diluted EPS on the
face of the income statement for all periods presented. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Opinion 15, with some modifications.
FAS 128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. Early adoption is not permitted
and the statement requires restatement of all prior period EPS data presented
after the effective date. The Company does not anticipate that the
implementation of FAS 128 will have a material impact on the Company's net loss
or net loss per share.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Risks and Uncertainties
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. The
Company's revenue is principally derived from the sale of advertising space, the
placement of advertising in various media and the provision of media services to
advertisers, sponsors and entertainment companies.
The Company routinely assesses the financial strength of its customers and
does not require collateral or other security to support customer receivables.
Credit losses are provided for in the consolidated financial statements in the
form of an allowance for doubtful accounts.
3. Initial Public Offering
In April 1996, the Company completed its Initial Public Offering of
2,300,000 shares of the Company's common stock for $5.00 per share, and sold
2,645,000 warrants at $.10 per warrant. The warrants entitle the holder to
purchase one share of the Company's common stock for $5.00 per share commencing
April 1997 and expiring five years after such date (See Note 10). The Company
realized net proceeds of approximately $9.7 million from the Initial Public
Offering of which $500,000 was used to repay previously existing Company
indebtedness.
4. Acquisitions
American Passage Acquisition
In September 1996, the Company, through its newly organized wholly owned
subsidiary, American Passage Media, Inc. ("American Passage"), acquired
substantially all of the assets relating to a college and high school media and
marketing services business. The businesses acquired included the seller's
college newspaper print advertisement placement operations, college campus
postering operations including postering on distribution racks that contain
college newspapers, high school focused GymBoards(TM) operations and various
other advertiser and event sponsorship related activities. As consideration for
the assets, the Company: (1) paid $4,423,000 in cash, including acquisition
costs, (2) issued a two-year subordinated promissory note for $750,000, (3)
issued a contingent option to purchase up to 100,000 shares of the Company's
common stock pursuant to an option agreement, (4) entered into a two-year
consulting agreement aggregating $273,600, which was terminated in June 1997,
and (5) assumed certain of the contractual obligations of the seller. The
aggregate purchase price of $5,173,000, which includes acquisition costs,
exceeded the fair value of the net assets acquired by approximately $4,839,000.
F-9
<PAGE>
NETWORK EVENT THEATER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1997
Campus Voice Acquisition
In February 1997, the Company, through its newly organized wholly owned
subsidiary, Campus Voice, LLC ("Campus Voice") acquired substantially all of the
assets relating to a business of operating a national network of proprietary
giant wallboards on college campuses. As consideration for the assets, Campus
Voice issued junior secured promissory notes in the aggregate amount of
approximately $1,563,000. The seller also agreed to advance up to $660,000 of
working capital to Campus Voice from the date of the acquisition until January
1, 1998 on a senior, secured basis, as defined. The seller had advanced $360,000
of that amount as of June 30, 1997. All of the Campus Voice debt is secured
solely by the assets and cash flow of Campus Voice and is not an obligation of
NET. The aggregate purchase price of $1,728,000, which includes acquisition
costs, exceeded the fair value of the net assets acquired by approximately
$573,000.
Beyond the Wall Acquisition
In April 1997, the Company acquired the assets and certain liabilities of
Posters Preferred, Inc., an entity that distributes twice yearly catalogs of
posters available for sale to college students. As consideration for this
purchase, the Company issued to the seller 70,000 shares of the Company's common
stock valued at $350,000; assumed certain trade accounts payable and other
obligations of the seller; is obligated to issue up to 6,666 of additional
shares of the Company's common stock in each of 1998, 1999 and 2000 subject to
the satisfaction of certain conditions; and agreed to pay to the seller cash
amounts to the extent that the market price of shares of the Company's common
stock would be less than $5.00 per share on the first anniversary of the date of
each issuance of shares pursuant to the purchase agreement. The aggregate
purchase price of $391,000, including acquisition costs, exceeded the fair value
of the net assets acquired by approximately $397,000.
Pik:Nik Acquisition
In April 1997, a newly organized wholly owned subsidiary of the Company,
Pik:Nik Media, LLC, acquired the assets and liabilities relating to a business
of producing, marketing and distributing free post cards containing advertising
images. As consideration for the purchase, Pik:Nik paid the seller an aggregate
amount of $69,000; paid to certain creditors $20,000 and agreed to pay those
creditors an additional $240,000, plus interest, in installments over 36 months.
The Company also issued to the principals of the seller and certain creditors an
aggregate of 29,118 shares of the Company's common stock valued at approximately
$124,000; and the Company agreed to pay additional amounts of cash and to issue
additional shares to the principals of the seller subject to the satisfaction of
certain conditions during each of the four successive fiscal years commencing
July 1, 1997. The aggregate purchase price of $576,000, including acquisition
costs, exceeded the fair value of the net assets acquired by approximately
$780,000.
These acquisitions have been accounted for using the purchase method of
accounting. Accordingly, the purchase price of each of the acquisitions has been
allocated to the assets acquired and the liabilities assumed based on their fair
values at the respective date of the acquisition. Included in intangible assets
is the excess of cost over the assets acquired and liabilities assumed. The
results of operations of the businesses acquired are included in the Company's
consolidated results of operations from the respective dates of acquisition.
The following unaudited pro forma information is presented as if the
Company had completed the acquisitions as of July 1, 1996 and 1995,
respectively:
Year ended Year ended
June 30, 1997 June 30, 1996
------------- -------------
Net revenue............................... $ 9,069,000 $ 8,548,000
Net loss applicable to common stock....... (6,736,000) (4,037,000)
Net loss per common share................. (.77) (.53)
Common shares outstanding................. 8,715,000 7,504,000
The pro forma information above is not necessarily indicative of the
results of operations that would have occurred had the transactions been made at
the beginning of the respective periods.
F-10
<PAGE>
NETWORK EVENT THEATER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1997
5. Long-Term Debt
A summary of long-term debt as of June 30, 1997 is as follows:
Note Payable to Bank (A)................................ $3,500,000
Subordinated Promissory Note (B)........................ 469,000
Junior Secured Promissory Notes ( C).................... 1,671,000
Senior Indebtedness - Working Capital Line (D).......... 360,000
Other (E)............................................... 224,000
----------
6,224,000
Less current portion.................................... (949,000)
----------
$5,275,000
==========
(A) In September 1996, in conjunction with the acquisition of certain
assets (see Note 4), American Passage entered into a five year $3.5 million bank
loan (the "Loan"). The Loan is secured by all of American Passage's assets and
is guaranteed by NET. The Loan is payable in quarterly installments with the
final installment due in September 2001. In August 1997, the bank agreed to
delay the principal payments aggregating $350,000 due in June 1997 and December
1997 to the final maturity of the Loan in September 2001. Interest is payable
monthly at a variable rate of interest set each ninety days based either on 400
basis points above LIBOR for U.S. Dollar deposits of ninety day maturity or 100
basis points above the prime rate of the Bank. At June 30, 1997, the current
rate of interest was 9.8% per annum.
(B) Additionally, in September 1996, American Passage issued a two-year,
unsecured subordinated promissory note to the seller in the principal amount of
$750,000 bearing interest thereon at the rate of 8% per year, guaranteed by NET.
The note is payable in eight equal quarterly installments of principal and
accrued interest commencing in December 1996.
(C ) In February 1997, in conjunction with the acquisition of certain
assets (see Note 4), Campus Voice issued two junior secured promissory notes in
the aggregate of $1,563,000 with a maturity date in December 2006. The debt
accrues interest at the rate of 12.0%, but no interest or principal payments are
due to be paid until June 1999. Subsequent to such date, interest is payable
monthly and principal payments are due annually until full repayment in December
2006. Accrued interest is included in the outstanding amount shown above.
(D) In connection with the Campus Voice acquisition, the seller agreed to
advance up to $660,000 of senior indebtedness which is to be used as a working
capital line for Campus Voice. This senior debt accrues interest at the rate of
8.0% per annum and requires that the interest be paid monthly and is due in
December 1999. Campus Voice is obligated to apply its Free Cash Flow, as
defined, to prepayment of the senior indebtedness. As of June 30, 1997, $360,000
of such senior indebtedness had been advanced to Campus Voice.
All of the Campus Voice debt is secured solely by the assets and cash flow
of Campus Voice and is not an obligation of NET.
(E) In April 1997, in conjunction with the acquisition of certain assets
(see Note 4), Pik:Nik assumed notes to certain of the seller's creditors,
aggregating $240,000. These notes bear interest at the rate of 8.0% per annum.
Principal and accrued interest are payable in monthly installments over 36
months. The final maturity of the notes is in May 2000.
At June 30, 1997, the aggregate amounts of long-term debt due during the
next five years are as follows:
Year Ending June 30,
1998............................................ $ 949,000
1999............................................ 700,000
2000............................................ 1,266,000
2001............................................ 876,000
2002 and thereafter............................. 2,433,000
-----------
$ 6,224,000
===========
F-11
<PAGE>
NETWORK EVENT THEATER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1997
The fair value of the long-term debt approximates net book value.
6. Property and Equipment
Property and equipment consists of the following at:
June 30, 1997 June 30, 1996
------------- -------------
Network theater equipment .............. $4,024,000 $3,686,000
Location based media equipment.......... 1,693,000 --
Furniture and office equipment.......... 521,000 50,000
Leasehold improvements.................. 17,000 --
---------- ----------
6,255,000 3,736,000
Less accumulated amortization
and depreciation...................... (1,537,000) (655,000)
---------- ----------
$4,718,000 $3,081,000
========== ==========
7. Income Taxes
At June 30, 1997, the Company had a net operating loss carryforward for
income tax purposes of approximately $7,029,000 that will begin to expire in the
year 2011. For financial reporting purposes, a valuation allowance of $2,832,000
has been recognized to offset the deferred tax asset related to this
carryforward. The net operating loss carryforward at June 30, 1996 is subject to
limitations brought about by the Company's change of tax year end. Accordingly,
only one-sixth of the approximately $1,104,000 net operating loss may be used
per year for the next six years to offset income.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets as of June 30, 1997 and June 30, 1996 are as
follows:
June 30, 1997 June 30, 1996
------------- -------------
Deferred tax assets:
Net operating loss carryforwards...... $2,390,000 $ 375,000
Other................................. 442,000 --
---------- ----------
Total deferred tax assets............... 2,832,000 375,000
Valuation allowance..................... (2,832,000) (375,000)
---------- ----------
Net deferred tax........................ $ -- $ --
========== ==========
No federal tax provision has been provided for at June 30, 1997 due to the
significant losses incurred to date. State tax provision has been provided for
at June 30, 1997 in the amount of $166,000. These taxes are primarily based on
net revenues and net assets.
8. Related Party Transactions
Programming Services Agreement
In 1995, the Company entered into a consulting agreement with an entity
owned by Freddie Fields and Jerome Hellman ("F&H") pursuant to which Messrs.
Fields and Hellman served as Chairman and President, respectively, of the
Company's programming division. This agreement was scheduled to expire on
December 31, 1997. On May 20, 1997, the Company entered into a revised agreement
which relieved Messrs. Fields and Hellman of their obligation to devote a
substantial portion of their business time to the Company, but provided that
each would continue to be available to perform consulting services for the
Company and that Mr. Fields, at his election, would continue to serve as a
director of the Company. F&H is entitled to receive royalties of 10% of the
pre-tax income of the Company until December 1999.
F-12
<PAGE>
NETWORK EVENT THEATER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1997
F&H is entitled to receive an annual fee for its services. For the years
ended June 30, 1997 and 1996 (unaudited), the six months ended June 30, 1996 and
the year ended December 31, 1995 such fees totaled $500,000, $375,000, $225,000
and $300,000, respectively, and were fully expensed. The annual fees for the
year ended June 30, 1998 will be $275,000. The Company may at any time elect to
pay 50% of the remaining balance in a single cash payment and 50% by issuing F&H
registered shares of the Company's common stock. However, as of September 30,
1997, the Company has not elected to take this option.
Additionally, F&H receives an annual fee for overhead (primarily relating
to the Company's office in Los Angeles, California) paid in equal monthly
installments. The annual overhead fee for the years ended June 30, 1997 and 1996
(unaudited), the six months ended June 30, 1996 and the year ended December 31,
1995 of $269,000, $256,000, $131,000 and $250,000, respectively, was fully
expensed. Such fees for the year ended June 30, 1998 will be $138,000. The
Company believes that these overhead fees are comparable to terms which could
have been obtained from an unrelated third party.
In December 1995 the Company also granted F&H an option to purchase 552,560
shares of common stock at an exercise price of $1.58 per share which expires in
December 2005 if not exercised prior to that date.
9. Commitments
Leases
The Company has various leases for office space. Rental expense for the
years ended June 30, 1997 and 1996 (unaudited), the six months ended June 30,
1996 and the year ended December 31, 1995 were approximately $278,000, $47,000,
$32,000 and $20,000, respectively.
The minimum annual rental commitments under non-cancellable operating
leases are as follows:
Year Ending June 30,
1998....................................... $ 562,000
1999....................................... 519,000
2000....................................... 567,000
2001....................................... 284,000
2002....................................... 170,000
----------
$2,102,000
==========
10. Stockholders' Equity
The Company issued 2,645,000 warrants at the time of its Initial Public
Offering (See Notes 1 and 3). The warrants entitle the registered holder to
purchase one share of the Company's common stock for $5.00, subject to
adjustment in certain circumstances, at any time until April 2, 2001. The
warrants are redeemable by the Company, upon consent of the underwriter, upon
notice of not less than 30 days, at a price of $.10 per warrant, provided that
the closing bid quotation of the common stock on all 20 trading days ending on
the third day prior to the day on which the Company gives notice has been at
least $7.50, as adjusted for certain dilutive events.
In June 1997, the Company sold an aggregate of 1,015,873 shares of its
common stock. The net proceeds of that sale of $3.8 million are being used for
general corporate purposes. The Company is obligated to register these shares as
soon as practicable.
11. Stock Option Plan
The Company has adopted a Stock Option Plan (the "Plan") in order to grant
employees providing services to the Company incentive stock options. The Plan
allows for the granting of options to purchase up to 400,000 shares of the
Company's stock. The exercise price of the options granted in 1997 were at the
fair market value on the date of grant.
F-13
<PAGE>
NETWORK EVENT THEATER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1997
The following table summarizes the Plan's transactions for the year ended
June 30, 1997 and for the six months ended June 30, 1996:
Options granted............................................. 200,000
Options canceled or expired................................. --
Options exercised........................................... --
--------
Options outstanding at June 30, 1996........................ 200,000
========
Options granted............................................. 140,000
Options canceled or expired................................. (40,000)
Options exercised........................................... --
--------
Options outstanding at June 30, 1997........................ 300,000
--------
Average price of options exercised.......................... $ --
Weighted average exercise price at June 30, 1997 ........... $ 3.42
Options exercisable at June 30, 1997........................ 133,333
Options available for future grant at June 30, 1997......... 100,000
Options available for future grant at June 30, 1996......... 200,000
The range of the exercise prices for options outstanding at June 30, 1997
was $3.00 to $5.00.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
the Plan. Accordingly, no compensation expense has been recognized for the Plan
to date. Had compensation cost for the Company's Plan been determined based upon
the fair value at the grant date for awards under the Plan consistent with the
methodology prescribed under Financial Accounting Standards Board Statement No.
123, "Accounting for Stock-Based Compensation," the Company's net loss and loss
per share would have been increased by approximately $232,000, or $.03 per share
and $34,000, or $.01 per share for the year ended June 30, 1997 and for the six
months ended June 30, 1996, respectively. The fair value of the options granted
during the year ended June 30, 1997 and the six months ended June 30, 1996 is
estimated at $232,000 and $606,000, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
Assumption June 30, 1997 June 30, 1996
----------- ------------- -------------
Risk-free interest rate.................... 5.91% 5.26%
Dividend yield............................. 0% 0%
Volatility factor of the expected market
price of the Company's common stock...... 1.016 1.368
Average life............................... 3 years 3 years
12. 401(k) Plan
During 1997, the Company established a 401(k) Plan (the "Plan") for the
benefit of all eligible employees. Eligible participants under this plan are
defined as all full-time employees with one year of service. All eligible
participants may elect to contribute a portion of their compensation to the Plan
subject to Internal Revenue Service limitations. The Company may make
discretionary matching contributions to the plan, subject to board approval. In
1997 the amount of this matching expense was approximately $20,000.
F-14
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
NETWORK EVENT THEATER, INC.
By: /s/ HARLAN D. PELTZ
-------------------------------
Harlan D. Peltz
Chief Executive Officer and
Chairman of the Board
Date: September 29, 1997
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
--------- ---- ----
/S/ HARLAN D. PELTZ Chief Executive Officer and September 29, 1997
- ----------------------------- Chairman of the Board
Harlan D. Peltz (Principal Executive
Officer)
/s/ DON LEEDS President and Director September 29, 1997
- -----------------------------
Don Leeds
/s/ BRUCE L. RESNIK Executive Vice President, September 29, 1997
- ----------------------------- Chief Financial Officer
BRUCE L. RESNIK and Secretary (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ FREDDIE FIELDS Director September 29, 1997
- -----------------------------
Freddie Fields
Director September __, 1997
- -----------------------------
Jeffrey Berg
/s/ JAN MILLER Director September 29, 1997
- -----------------------------
Jan Miller
/s/ METIN NEGRIN Director September 29, 1997
- -----------------------------
Metin Negrin
/s/ JOSEPH TAHL Director September 29, 1997
- -----------------------------
Joseph Tahl
/s/ GEORGE LINDEMANN Director September 29, 1997
- -----------------------------
George Lindemann
14
<PAGE>
EXHIBIT INDEX
Exhibit No.
- -----------
3.1 Certificate of Incorporation (incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on Form SB-2,
Registration No. 33-80935, filed on March 6, 1996).
3.2 Certificate of Amendment of Certificate of Incorporation
(incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form SB-2, Registration No. 33-80935,
filed on March 6, 1996).
3.3 Bylaws (incorporated by reference to Exhibit 3.3 to the Company's
Registration Statement on Form SB-2, Registration No. 33-80935,
filed on March 6, 1996).
4.1 Warrant Agreement (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form SB-2, Registration No.
33-80935, filed on March 6, 1996).
4.2 Underwriter's Warrant (incorporated by reference to Exhibit 4.2 to
the Company's Registration Statement on Form SB-2, Registration No.
33-80935, filed on March 6, 1996).
10.1 Employment Stock Option Plan of the Company (incorporated by
reference to Exhibit 10.1 to the Company's Registration Statement on
Form SB-2, Registration No. 33-80935, filed on March 6, 1996).
10.2 Employment Agreement between the Company and Harlan D. Peltz
(incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form SB-2, Registration No. 33-80935,
filed on March 6, 1996).
10.3 Employment Agreement between the Company and Don Leeds (incorporated
by reference to Exhibit 1 to the Company's Form 10-QSB for the
quarterly period ended June 30, 1996).
10.4 Non-Incentive Stock Option Agreement dated June 17, 1996 between the
Company and Don Leeds (incorporated by reference to Exhibit 10.3 to
the Company's Form 10-QSB for the quarterly period ended June 30,
1996).
10.5 Employment Agreement between the Company and Bruce L. Resnik
(incorporated by reference to Exhibit 2 to the Company's Form 10-QSB
for the quarterly period ended September 30, 1996).
10.6 Agreement dated December 19, 1995 between the Company and The Fields
& Hellman Company (incorporated by reference to Exhibit 10.4 to the
Company's Registration Statement on Form SB-2, Registration No.
33-80935, filed on March 6, 1996).
10.7* Revised Agreement dated May 20, 1997 between the Company and The
Fields & Hellman Company.
10.8 NET Portfolio Investors Agreement dated December 21, 1995 between
the Company and NET Portfolio Investors, L.P. (incorporated by
reference to Exhibit 10.5 to the Company's Registration Statement on
Form SB-2, Registration No. 33-80935, filed on March 6, 1996).
10.9 Form of Shareholders Agreement between Harlan D. Peltz and NET
Portfolio Investors, L.P. (incorporated by reference to Exhibit 10.6
to the Company's Registration Statement on Form SB-2, Registration
No. 33-80935, filed on March 6, 1996).
10.10 Registration Rights Agreement dated December 21, 1995 between the
Company and NET Portfolio Investors, L.P. (incorporated by reference
to Exhibit 10.7 to the Company's Registration Statement on Form
SB-2, Registration No. 33-80935, filed on March 6, 1996).
10.11 Standard Form of School Contract (incorporated by reference to
Exhibit 10.8 to the Company's Registration Statement on Form SB-2,
Registration No. 33-80935, filed on March 6, 1996).
10.12 Asset Purchase Agreement dated September 13, 1996 among American
Passage Media Corporation, Gilbert Scherer, the Company and American
Passage Media, Inc. (incorporated by reference to Exhibit 2 to the
Company's Form 8-K filed on September 28, 1996).
10.13 $750,000 Subordinated Promissory Note from American Passage Media,
Inc. to American Passage Media Corporation (incorporated by
reference to Exhibit 32 to the Company's Form 8-K filed on September
28, 1996).
15
<PAGE>
Exhibit No.
- -----------
10.14 Guaranty by the Company in favor of American Passage Media
Corporation (incorporated by reference to Exhibit 4 to the Company's
Form 8-K filed on September 28, 1996).
10.15 Option Agreement between the Company and American Passage Media
Corporation (incorporated by reference to Exhibit 5 to the Company's
Form 8-K filed on September 28, 1996).
10.16 Directory of Classes Representation Agreement between American
Passage Media, Inc. and American Passage Media Corporation
(incorporated by reference to Exhibit 8 to the Company's Form 8-K
filed on September 28, 1996).
10.17 Business Loan Agreement between American Passage Media, Inc. and
Signet Bank (incorporated by reference to Exhibit 9 to the Company's
Form 8-K filed on September 28, 1996).
10.18* Letter agreement dated August 18, 1997 between American Passage
Media, Inc. and Signet Bank amending the Business Loan Agreement.
10.19 Promissory Note from American Passage Media, Inc. to Signet Bank
(incorporated by reference to Exhibit 10 to the Company's Form 8-K
filed on September 28, 1996).
10.20 Commercial Security Agreement between American Passage Media, Inc.
and Signet Bank (incorporated by reference to Exhibit 11 to the
Company's Form 8-K filed on September 28, 1996).
10.21 Commercial Guaranty from the Company in favor of Signet Bank
(incorporated by reference to Exhibit 12 to the Company's Form 8-K
filed on September 28, 1996).
10.22 Commercial Pledge and Security Agreement from the Company in favor
of Signet Bank (incorporated by reference to Exhibit 13 to the
Company's Form 8-K filed on September 28, 1996).
10.23* Bill of Sale and Agreement dated January 31, 1997 among SCCGS, Inc.,
Sirrom Capital Corporation, Campus Voice, L.L.C. and the Company.
10.24* Loan Agreement dated January 31, 1997 between Campus Voice, L.L.C.
and Sirrom Investments, Inc.
10.25* $660,000 Senior Secured Promissory Note from Campus Voice, L.L.C. to
Sirrom Investments, Inc.
10.26* $300,000 Junior Secured Promissory Note from Campus Voice, L.L.C. to
SCCGS, Inc.
10.27* $1,263,222.83 Second Junior Secured Promissory Note from Campus
Voice, L.L.C. to SCCGS, Inc.
10.28* Security Agreement dated January 31, 1997 between Campus Voice,
L.L.C. and Sirrom Investments, Inc.
10.29* Trademark and Patent Security Agreement dated January 31, 1997
between Campus Voice, L.L.C. and Sirrom Investments, Inc.
10.30* Asset Purchase Agreement dated April 11, 1997 among Posters
Preferred, Inc., Dennis Roche, Brian Gordon and the Company.
10.31* Asset Purchase Agreement dated April 30, 1997 among the Company,
Pik:Nik Media, LLC, Pik:Nik, LLC and Garth Holsinger, Annett
Schaefer-Sell and Sunny Smith.
10.32* Stock Purchase Agreement dated June 24, 1997 among Warburg, Pincus
Emerging Growth Fund, Inc., Small Company Growth Portfolio of
Warburg, Pincus Institutional Fund, Inc. and the Company.
10.33* Registration Rights Agreement dated June 24, 1997 among Warburg,
Pincus Emerging Growth Fund, Inc., Small Company Growth Portfolio of
Warburg, Pincus Institutional Fund, Inc. and the Company.
21* Subsidiaries of the Company.
23* Consent of Ernst & Young LLP.
27* Financial Data Schedule.
- ----------
* Filed herewith.
16
EXHIBIT 10.7
Revised Agreement
Between
Universal Access Network, L.P., d/b/a Network Event Theater (NET)
and
The Fields + Hellman Company (F+H)
May 20, 1997
The agreement of December 19, 1995, revising the prior agreement as of July 5,
1995, is modified and revised as follows:
1. After the date of this agreement, neither Freddie Fields nor Jerome Hellman
shall be obligated to devote a substantial portion of his business time to
his services for NET, but each of them shall continue to be available for
consultation with NET's staff to the extent that he may be called upon for
that purpose.
2. Freddie Fields, at his election, will continue to serve as a member of the
Board of Directors of NET.
3. It is agreed that payments to be made by NET to F+H and Fields and Hellman
individually, have been made through the month of June, so that there will
be six (6) months of payment remaining under the contract. The total
obligation of NET for said six months of salary and overhead will total
$412,812 for the six months commencing July 1, 1997. NET agrees that it
will make full payment of said sum to F+H (and/or Fields and Hellman
individually) in the manner provided for below, despite the fact that there
shall be no further obligation on the part of F+H and Fields and Hellman to
devote a substantial portion of his business time to his services for NET.
4. The $412,812 above referred to is computed and consists of six (6) months
of salary based upon an annual salary of $550,000 plus six (6) months of
overhead computed at the rate of $275,625 per year.
5. NET shall continue to make the salary and overhead payments on a monthly
basis, but NET may at any time determine to pay the then unpaid balance of
the total salary and overhead obligation by making a lump sum cash payment
to F+H equal to 50% of that balance and by simultaneously issuing to Fields
and Hellman registered stock of NET for the remaining 50% of that balance,
the number of shares to be issued to be based upon the market value of the
stock at the end of the day preceding the day Fields + Hellman receives its
lump sum cash payment for the entire unpaid balance. Such stock shall be
divided equally among Fields and Hellman.
<PAGE>
6. F+H Fields and Hellman individually will have no further responsibility to
NET for any NET expenses, and NET will have no further responsibility to
F+H and Fields and Hellman individually for any of their expenses unless
such expenses are incurred at NET's specific request. As an exception to
foregoing, however, the parties agree that a portion of the premises under
lease to F+H, including the conference room and the central work station,
are in fact shared by F+H and NET, and NET agrees therefore to reimburse
F+H on a monthly basis for an aliquot share of F+H's rent, based upon an
equal sharing between NET and F+H of the rent applicable to the foregoing
areas, so long as they are being mutually used by both F+H and NET.
7. This document represents all of the terms and agreements of the amending
arrangement between NET and F+H.
The Fields + Hellman Company
By /s/ Freddie Fields
---------------------------
/s/ Jerome Hellman
-----------------------------
Jerome Hellman, individually
/s/ Freddie Fields
-----------------------------
Freddie Fields, individually
Network Event Theater, Inc.
By /s/ Harlan Peltz
---------------------------
Harlan Peltz, Chairman
2
EXHIBIT 10.18
[On Letterhead of SIGNET]
August 18, 1997
Mr. Bruce Resnik, CFO
American Passage Media, Inc.
529 Fifth Avenue, 7th Floor
New York, NY 10017 - 4608
Re: Waiver and Amendment Relating to Commitment Reductions
Dear Mr. Leeds:
Reference is hereby made to that certain Business Loan Agreement (as
amended prior to the date hereof, as amended hereby and as may be amended from
time to time hereafter, "Credit Agreement") dated as of September 13, 1996 by
American Passage Media, Inc. ("Borrower") and Signet Bank/Virginia (as
predecessor in interest to Signet Bank, "Signet Bank") and the Promissory Note
by the Borrower to the order of Signet Bank dated September 30, 1996 ("Note").
Under the Note section relating to the Borrower's Reducing Revolver
Commitment Amount, Borrower must reduce the revolving Commitment Amount to
$3,325,000 as of June 30, 1997 and to $3,150,000 as of December 31, 1997.
Through this letter, Signet Bank hereby waives any Default or Event of Default
under the Credit Agreement caused by Borrower's failure to make the payment of
principal due as a result of the reduction scheduled to have occurred on June
30, 1997. Signet Bank also waives the otherwise required reduction of the
revolving Commitment Amount scheduled to occur on December 31, 1997 and
permanently amends and restates the commitment reduction schedule as follows:
Amended Amended
Commitment Amount Annual Reduction By %
----------------- ---------------------
December 31, 1996 $3,500,000 0%
June 30, 1997 $3,500,000
December 31, 1997 $3,500,000 0%
June 30, 1998 $3,150,000
December 31, 1998 $2,800,000 20%
June 30, 1999 $2,450,000
December 31, 1999 $2,100,000 20%
June 30, 2000 $1,662,500
December 31, 2000 $1,225,000 25%
June 30, 2001 $ 787,000
September 31, 2001 $0 35%
Notwithstanding the foregoing, the reducing revolving credit facility will
reduce to zero ($0.0) as of September 31, 2001 (Maturity).
1
<PAGE>
Additionally, for the required reporting period ending September 31,
1997 and for each subsequent required reporting period that would effected, the
Borrower may add up to $153,900 (the actual amount of cash paid to Gilbert
Scherer for the early retirement of future contractual payments owed to him
under the CONSULTING AND NON-COMPETITION AGREEMENT, dated September 13,1996) to
its Operating Cash Flow but only to the extent that the income from continuing
operations serving as the basis for such Operating Cash Flow has been reduced by
at least that amount in accounting for these payments.
In consideration of and as compensation to Signet Bank for the value
and benefit directly received by Borrower for this amendment, Borrower agrees to
pay Signet Bank an amendment fee of $15,000, due and payable in immediately
available funds upon execution of this waiver and amendment by Borrower.
Except as expressly amended hereby, all other terms of the Credit
Agreement and Related Documents remain in full force and effect and unchanged.
In addition, Signet Bank's agreement hereby to amend the Note will not obligate
Signet Bank to otherwise amend the Credit Agreement or any Related Document in
any manner at any time in the future or to waive compliance (temporarily or
otherwise) with any provision of any Related Document. Capitalized terms used
herein without separate definition have the meaning ascribed to such terms in
the Credit Agreement.
Please evidence Borrower's agreement to the terms of this Amendment and
to Borrower's payment of Lender's reasonable attorney's fees in connection with
the Credit Agreement amendment by signing a copy of this letter where indicated
below and returning it to me by overnight courier (with a copy to Sam
Rubenstein). This agreement by Lender to amend the Credit Agreement expires, if
not accepted by Borrower through execution of this letter, on Friday August 22,
1997.
Yours truly,
/s/ Jon A. Slabaugh
-----------------------------------
Jon A. Slabaugh, Vice President
Signet Bank
cc: Mr. Don Leeds, American Passage Media, Inc.
Mr. Bryan J. Mitchell, Signet Bank
_____________________________________________
Agreed and Accepted:
American Passage Media, Inc.
/s/ Bruce L. Resnik
- -------------------------------
By:
Title: EVP/CFO
Date: 8/28/97
2
EXHIBIT 10.23
BILL OF SALE AND AGREEMENT
Dated as of January 31, 1997
The parties to this agreement are SCCGS, Inc., a Tennessee corporation
("Seller"); Sirrom Capital Corporation, a Tennessee corporation and the owner of
all of the outstanding stock of Seller ("Sirrom"); Campus Voice, L.L.C., a
Delaware limited liability company ("Campus Voice"); and Network Event Theater,
Inc., a Delaware corporation and a member of Campus Voice ("NET").
On December 20, 1996 Seller acquired at a foreclosure sale
substantially all of the assets of Gates Communications, L.P., a Virginia
limited partnership ("Gates"), in satisfaction of certain debt of Gates to
Sirrom. Prior to the foreclosure, Gates derived its revenue from advertisers who
paid Gates to place on its wallboard network at colleges and universities large
or giant advertising boards that promote the advertisers' products and services,
and since the foreclosure, Seller has utilized the assets acquired from Gates to
engage in a similar business (the business previously engaged in by Gates and
the similar business conducted by Seller since the foreclosure being
collectively referred to as the "Business"). The parties have agreed upon the
sale by Seller to Campus Voice of all of the assets acquired by Seller from
Gates and all of the assets acquired by Seller in connection with its conduct of
the Business since December 20, 1996, on the terms set forth in this agreement.
Simultaneously with the execution of this agreement, Sirrom
Investments, Inc. and Campus Voice are entering into a loan agreement which
provides that Sirrom Investments, Inc. will lend to Campus Voice, from time to
time as requested by Campus Voice, working capital of up to $660,000 and Campus
Voice is issuing and delivering to Sirrom Investments, Inc. its secured
promissory note (the "Senior Secured Note") in that amount due December 31,
1999, bearing interest at the rate of 8% a year payable monthly, and subject to
prepayment as provided in this agreement and in the note.
It is agreed as follows:
1. Sale and Transfer of Assets.
1.1 Assets to be Sold. Seller hereby sells and assigns to Campus
Voice, and Campus Voice purchases and acquires from Seller, all of the assets
previously owned by Gates that were acquired by Seller at the foreclosure sale
held on December 20, 1996 and all of the assets acquired by Seller in connection
with the operation of the Business since December 20, 1996, including, to the
extent Gates had an interest therein as of December 20, 1996, all of Gates's
equipment of any kind and description, wherever located, together with all
parts, accessories and attachments, all of Gates's inventory and any agreements
for lease of same and rentals therefrom, and all of Gates's accounts, accounts
receivable, contract rights, chattel paper, software,
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<PAGE>
documents, instruments and general intangibles and the proceeds therefrom
wherever located, and whether held for sale or lease, or furnished or to be
furnished under contracts of service; and all of Gates's trademarks, patents and
copyrights and related interests, all to the full extent that they are within
the scope of Article 9 of the Uniform Commercial Code as adopted in Tennessee,
and, additionally, to the extent acquired by Seller or otherwise arising in the
operation of the Business by Seller after December 20, 1996, all of the
following assets (the assets being acquired from Seller being collectively
referred to below as the "Assets"):
(a) all tangible assets, wherever located, including poster
board frames, poster board kiosks, fixtures and related equipment; inventory and
work in process; photographs, art work, promotional materials and archives;
equipment (including office and computer equipment) and furniture; and office
supplies, stationery, forms, and labels;
(b) all computer software and all rights in the trademarks,
trade names and logos (including registrations and applications for registration
of any of them) used by Gates or Seller in connection with the Business,
including those listed on schedule 1.1(b), together with the good will of the
business associated with those trademarks, trade names and logos; all rights in
copyrights (including registrations and applications for registration of any
copyrights); and all other intangible property and proprietary rights relating
to the Business;
(c) all rights under agreements, commitments and orders
relating to the Business, to the extent that they remain unperformed or
unfulfilled on, or by their terms continue after, the date of this agreement,
including, but not limited to all agreements with schools, advertisers,
subcontractors and suppliers, and all agreements, commitments and orders
relating to the distribution of posters;
(d) all records, files, mailing lists, customer lists and
other information and data relating to the Business, including all records
relating to agreements and commitments relating to postering activities;
(e) all prepaid expenses relating to the Business;
(f) all claims against third parties arising out of the
operation of the Business, including claims under manufacturers and vendors
warranties; and
(g) all accounts receivable arising out of the operation of
the Business.
1.2 Excluded Assets. The following assets acquired by Seller upon
the foreclosure are being retained by Seller and are not being sold, assigned or
transferred to Campus Voice:
(a) all cash, all cash investments, all other notes
receivable, all certificates of deposit, deposits, commercial paper, treasury
bills and notes, money market accounts and other marketable securities and all
other investments; and
-2-
<PAGE>
(b) all rights under any agreement, commitment or order
referred to on exhibit 1.2 and under any agreement, commitment or order as to
which consent to assignment is required but has not been obtained.
2. Purchase Price.
2.1 Amount and Payment of Consideration. As full consideration
for the assets to be purchased by Campus Voice pursuant to this agreement:
(a) upon execution of this agreement Campus Voice is
delivering to Seller (i) its secured promissory note in the principal amount of
$300,000 due December 31, 2006 and bearing interest at the rate of 12% a year,
in the form of exhibit 2.1(a)(i) (the "Junior Secured Note"), and (ii) its
secured promissory note in the principal amount of $1,263,222.83 due December
31, 2006 and also bearing interest at the rate of 12% a year, in the form of
exhibit 2.1(a)(ii) (the "Second Junior Secured Note"); and
(b) Campus Voice hereby assumes, and agrees to pay, perform
and discharge, all obligations under the agreements, commitments and orders
referred to in schedule 2.1(b), to the extent that they remain unperformed or
unfulfilled on, or by their terms continue in effect after, the date of this
agreement.
The parties recognize that the Assets include the rights under
various agreements, commitments and orders to which Gates was a party as of
December 20, 1996 and that, except for agreements, commitments and orders
referred to in schedule 2.1(b), neither Seller nor Campus Voice has assumed
liability for the performance of any of those agreements, commitments and
orders.
2.2 Mandatory Prepayment of Notes; Payment of Expenses. Campus
Voice shall make prepayments upon the promissory notes issued to Seller and to
Sirrom as follows (any such payments to be applied first to accrued interest and
then to principal):
(a) Until payment in full of the Senior Secured Note, all of
Campus Voice's Free Cash Flow (as defined below) in each calendar quarter, less
the amount of any cash flow deficit (calculated in the same manner as Free Cash
Flow) projected by Campus Voice with respect to the immediately succeeding
calendar quarter, shall be allocated to prepayment of the principal of the
Senior Secured Note.
(b) After payment in full of the Senior Secured Note, Campus
Voice's Free Cash Flow in each calendar quarter (subject to adjustment on an
annual basis as provided below) shall be allocated, in sequence, as follows:
(i) 100% to repayment to NET of the expenses incurred
by NET in connection with the negotiation and consummation of the transactions
contemplated by this agreement, up to $80,000;
-3-
<PAGE>
(ii) 100% to repayment to Sirrom and Seller of the
expenses incurred by them in connection with the negotiation and consummation of
the transactions contemplated by this agreement (including the expenses of
foreclosing upon the assets of Gates), up to an aggregate of $40,000;
(iii) 60% to payment of interest on, and the principal
of, the Junior Secured Note (the remaining 40% to be allocable to NET); and
(iv) 60% to payment of interest on, and the principal
of, the Second Junior Secured Note (the remaining 40% to be allocable to NET).
As used in this agreement, the term "Free Cash Flow" means with
respect to any period earnings before interest (including interest payments on
capital leases), depreciation and amortization, less all taxes payable by Campus
Voice or NET with respect to the earnings of Campus Voice, interest on
indebtedness of Campus Voice, other than the indebtedness to Sirrom evidenced by
the Junior Secured Note and the Second Junior Secured Note, principal payments
on capital leases, capital expenditures not in excess (on a cumulative basis) of
the capital expenditures referred to in schedule 2.2, and increases in working
capital (working capital being defined for this purpose as the excess of current
assets, excluding cash and marketable securities, over current liabilities). The
quarterly calculation of Free Cash Flow shall be made by Campus Voice in the
same manner that projected Free Cash Flow was determined for the purpose of the
Campus Voice Business Model dated Jamuary 17, 1997 previously furnished to
Sirrom. Campus Voice shall furnish to Sirrom and Seller within 90 days after the
end of each fiscal year audited financial statements and other information
necessary to show the calculation of Free Cash Flow for the fiscal year
determined in accordance with generally accepted accounting principles as
applied in the preparation of Campus Voice's audited financial statements; if as
a result of the audit for any year it is determined that there has been any
overpayment or underpayment of the prepayments for that year, the next
succeeding payment or payments due after receipt of the audit report shall be
adjusted to reflect the amount of the overpayment or underpayment.
The annual determination of Free Cash Flow shall be subject to
review by Sirrom and Seller. If a dispute arises with respect to this
calculation, Sirrom and Seller may engage an independent auditor satisfactory to
Campus Voice to determine Free Cash Flow over the relevant period and, if Free
Cash Flow as determined by the independent auditor exceeds by 10% or more the
amount of Free Cash Flow as determined by Campus Voice, Campus Voice shall pay
the fees and expenses of the auditor; otherwise, Sirrom and Seller shall pay the
fees and expenses of the auditor.
2.3 Time of Prepayments. Any mandatory prepayment due under
section 2.2 shall be made within 45 days after the end of the calendar quarter
to which the payment relates.
2.4 Minimum Prepayments. Campus Voice shall make minimum
prepayments upon the Junior Secured Note and the Second Junior Secured Note at
the times and in the amounts specified in those notes.
-4-
<PAGE>
2.5 Additional Consideration. As additional consideration for the
Assets, within ninety days after payment in full of principal of and interest on
the Senior Secured Note, the Junior Secured Note and the Second Junior Secured
Note, Campus Voice shall pay to Seller an additional amount equal to 5% of the
amount by which the value of Campus Voice's assets and business as of the date
of the final payment exceeds the aggregate principal amount of those notes. For
this purpose, the value of Campus Voice's assets and business shall be deemed to
be an amount equal to four times Campus Voice's earnings before interest and
taxes for the twelve month period ended on the last day of the month in which
the final payment is made upon the notes, as determined by Campus Voice's
accountants and set forth in a statement furnished by them to Seller and to
Campus Voice. Campus Voice shall cause its accountants to prepare and deliver
the statement required by this provision. Any dispute as to the amount of
additional consideration shall be resolved in the same manner as a dispute
regarding the calculation of Free Cash Flow.
2.6 Limitation on Assumption of Liabilities. Except as
specifically provided in section 2.1(b), Campus Voice has not assumed and shall
have no responsibility for any liabilities or obligations of Gates, Seller or
Sirrom relating to the operations of the Business, or otherwise, through the
date of this agreement. Seller and Sirrom shall pay, perform and discharge all
liabilities and obligations of the Business that arose after December 20, 1996.
NET shall not have any liability or obligation with respect to the Business and
shall not have any liability or obligation to Seller or Sirrom except for breach
of any warranty or covenant of NET contained in this agreement.
2.7 Apportionment. Seller shall be entitled to all income earned
or accrued and shall be responsible for all liabilities and obligations incurred
or payable in connection with the operations of the Business through the close
of business on the day preceding the date of the closing and Campus Voice shall
be entitled to all income earned or accrued and shall be responsible for all
liabilities and obligations incurred or payable in connection with the
operations of the Business after the close of business on the day preceding the
date of the closing. All overlapping items of income or expense shall be
apportioned between Seller and Campus Voice, as of the close of business on the
day preceding the date of the closing, in accordance with generally accepted
accounting principles. Items to be apportioned include, but are not limited to,
the following:
(a) advance payments received from advertisers prior to the
date of the closing for services to be rendered in whole or in part after the
close of business on the day preceding the closing;
(b) prepaid expenses arising from payments made for services
prior to the date of the closing if all or part of the services have not been
received or used prior to the close of business on the day preceding the closing
(for example, rents paid in advance for a rental period extending beyond the
date of the closing); and
(c) liabilities, customarily accrued, arising from expenses
incurred but unpaid as of the close of business on the day preceding the
closing.
-5-
<PAGE>
Within 60 days after the closing, Campus Voice shall
determine all apportionments pursuant to this section 2.7 and shall deliver a
statement of its determinations to Seller (which statement shall set forth in
reasonable detail the basis for those determinations), and within 10 days
thereafter Campus Voice shall pay to Seller, or Sirrom shall cause Seller to pay
to Campus Voice, as the case may be, the net amount due as a result of the
apportionments (or, if there is any dispute, the undisputed amount). If Seller
disputes Campus Voice's determinations, the parties shall confer with regard to
the matter and an appropriate adjustment and payment shall be made as agreed
upon by the parties (or, if they are unable to resolve the matter, a firm of
independent certified public accountants, whose decision on the matter shall be
binding and whose fees and expenses shall be borne 50% by Campus Voice and 50%
by Seller, shall be designated by agreement between them; if they fail to agree,
the accountants shall be selected by the president of the American Arbitration
Association).
3. Closing.
The closing of the transactions provided for in section 1 are
taking place simultaneously with the execution of this agreement at the offices
of Proskauer Rose Goetz & Mendelsohn LLP, 1585 Broadway, New York, New York
10036. At the closing, the parties are executing and delivering the documents
referred to in section 7. The closing shall be accomplished by remote
circulation of documents to the extent possible.
4. Representations and Warranties by Seller and Sirrom.
Seller and Sirrom jointly and severally represent and warrant to
Campus Voice as follows:
4.1 Seller's and Sirrom's Organization and Authority. Each of
Seller and Sirrom is a corporation duly organized, validly existing and in good
standing under the law of the State of Tennessee and has the full corporate
power and authority to enter into and to perform this agreement and to carry on
its business as it is presently being conducted.
4.2 Authorization of Agreement. The execution, delivery and
performance of this agreement by Seller and Sirrom have been duly authorized by
all necessary corporate action of each of them. Each of Seller and Sirrom has
full right to enter into and perform its obligations under this agreement in
accordance with its terms. This agreement constitutes the valid and binding
obligation of each of Seller and Sirrom and is enforceable against each of them
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general and subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
4.3 Consents of Third Parties. The execution, delivery and
performance of this agreement by Seller and Sirrom will not (i) conflict with
the certificate of incorporation or by-laws of Seller or Sirrom and will not
conflict with, or result in the breach or termination of, or constitute a
default under, any lease, agreement, commitment or other instrument, or any
order, judgment or decree, to which Seller or Sirrom is a party or by which
Seller or Sirrom is bound
-6-
<PAGE>
or which Seller acquired from Gates upon foreclosure; (ii) constitute a
violation by Seller or Sirrom of any law or regulation applicable to either of
them; or (iii) result in the creation of any lien, charge or encumbrance upon
any of the Assets. No consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority is required on the part
of Seller or Sirrom in connection with the execution, delivery and performance
of this agreement, except for SBA requirements incidental to the closing of the
loan evidenced by the Senior Secured Note.
4.4 Title to Assets. Seller acquired valid title to all of the
Assets in existence on December 20, 1996 at public sale in accordance with the
Uniform Commercial Code (Tennessee), no security interest or other lien has been
placed on the assets since that date, and upon execution of this agreement,
Campus Voice is acquiring valid title to all of the Assets free of the lien of
Seller or Sirrom and any security interest or lien subordinate thereto and free
and clear of any liens or security interests placed against any of the Assets
after December 20, 1996.
4.5 Litigation. To the best of Seller's and Sirrom's knowledge,
there is no claim, litigation, proceeding or governmental investigation pending
or threatened, or any order, injunction or decree outstanding, against or
relating to Seller or the Business or any of the Assets.
4.6 No Misrepresentation.
No representation or warranty by Seller or Sirrom in this
agreement (including the schedules) contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
contained in this agreement (including the schedules) not misleading. Campus
Voice and NET acknowledge that Seller has operated the business for a short
period of time with a view to temporary operations only and that neither Seller
nor Sirrom has done extensive diligence as to the assets acquired upon
foreclosure or the operations of the Business.
5. Representations and Warranties by Campus Voice and NET. Campus
Voice and NET jointly and severally represent and warrant to Seller and Sirrom
as follows:
5.1 Campus Voice's Organization. Campus Voice is a limited
liability company duly organized, validly existing and in good standing under
the law of the State of Delaware and has the full power under the Delaware
Limited Liability Company Act to enter into and to perform its obligations under
this agreement. NET is a corporation duly organized, validly existing and in
good standing under the law of the State of Delaware and has the full corporate
power to enter into and to perform its obligations under this agreement.
5.2 Authorization of Agreement. The execution, delivery and
performance of this agreement by Campus Voice and NET have been duly authorized
by all requisite action of each of them. This agreement constitutes the valid
and binding obligation of each of Campus Voice and NET, enforceable against each
of them in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general and subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
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<PAGE>
5.3 Consents of Third Parties. The execution, delivery and
performance of this agreement by Campus Voice and NET will not (i) conflict with
the limited liability company agreement of Campus Voice or the certificate of
incorporation of NET and will not conflict with, result in the breach or
termination of, or constitute a default under, any lease, agreement, commitment
or other instrument, or any order, judgment or decree, to which Campus Voice or
NET is a party by which it is bound, or (ii) constitute a violation by Campus
Voice or NET of any law or regulation applicable to it. No consent, approval or
authorization of, or designation, declaration or filing with, any governmental
authority is required on the part of Campus Voice or NET in connection with the
execution, delivery and performance of this agreement.
5.4 No Misrepresentation. No representation or warranty by Campus
Voice or NET in this agreement contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements contained in
this agreement not misleading.
6. Further Agreements of the Parties.
6.1 Operation of Campus Voice. So long as the Senior Secured Note
is outstanding or any amount is payable to Seller under this agreement or the
notes referred to in section 2.1, Campus Voice shall be operated as a profit
generating enterprise and not for the purpose of enhancing other advertising
activities of NET and its subsidiaries (although (a) there may be activities in
which Campus Voice participates with other activities of NET, in which event
Campus Voice and NET generally shall seek to engage in those activities on terms
that would be comparable to the terms available from a third party on an arm's
length basis and (b) advertising space that remains unsold after diligent effort
may be used by NET for its own promotional purposes). To the extent consistent
with the objective of realizing profits in Campus Voice, Campus Voice's board of
managers may manage Campus Voice's business and affairs (including the
determination of the nature of the products and services to be sold by Campus
Voice and all marketing methods) without regard for the effect of any action
upon Seller or Sirrom and, in the absence of fraud or intentional wrongdoing, no
action or omission relating to Campus Voice's business or affairs shall give
Seller or Sirrom any claim against NET or Campus Voice or any of their
respective officers, directors or members, whether or not that action or
omission affects the amount or timing of the payments to be made by Campus Voice
to Sirrom or Seller.
6.2 Representative on Campus Voice Board. So long as the Senior
Secured Note is outstanding or any amount is payable to Seller under this
agreement or the notes referred to in section 2.1, Seller shall have the right
to designate a representative to attend all board meetings of Campus Voice.
6.3 Expenses. Except as provided in section 2.2, Campus Voice,
NET, Seller and Sirrom shall bear their own respective expenses incurred in
connection with the negotiation and preparation of this agreement and in
connection with the transactions contemplated by this agreement.
6.4 Sales Taxes. Seller shall pay any state or local sales taxes
payable in connection with the sale of assets pursuant to this agreement.
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<PAGE>
6.5 Assignment of Agreements. Nothing in this agreement shall be
construed as an attempt to assign any agreement or other instrument that by its
terms is nonassignable without the consent of the other party.
6.6 Covenants Against Disclosure.
(a) Neither Seller nor Sirrom shall at any time hereafter
disclose to anyone, or use in competition with the Business, any information
with respect to any confidential or secret aspect of the Business, except that
they may disclose such information to their professional advisors, regulators
and as otherwise required by law. Information to be treated as confidential
hereunder shall be identified as such by Campus Voice in writing. Information
that is publicly available or which Sirrom acquires from another source shall
not be regarded as confidential.
(b) Seller and Sirrom each acknowledge that the remedy at
law for breach of the provisions of this section 6.6 will be inadequate and
that, in addition to any other remedy Campus Voice may have, it shall be
entitled to an injunction restraining any breach or threatened breach, without
any bond or other security being required and without the necessity of showing
actual damages.
6.7 Bulk Sales. The parties waive compliance with the provisions
of any applicable bulk sales law. Seller and Sirrom jointly and severally shall
indemnify and hold Campus Voice harmless from any loss, liability, damage, cost
or expense (including reasonable attorney's fees and expenses) incurred by
Campus Voice as a result of any liability to which Campus Voice may become
subject because the sale by Seller to Campus Voice is being effected without
compliance with the bulk sales law or any similar statute in any jurisdiction.
6.8 Further Assurances. At any time and from time to time after
the date of this agreement each party shall, without further consideration,
execute and deliver to the other such other instruments of transfer and
assumption and shall take such other action as the other may reasonably request
to carry out the transfer of assets and assumption of liabilities contemplated
by this agreement.
7. Documents Being Delivered at Closing.
7.1 Documents Being Delivered by Seller and Sirrom. At the
closing, Seller and Sirrom are delivering to Campus Voice the following:
(a) such bills of sale, assignments or other instruments of
transfer and assignment as Campus Voice may have requested to confirm the
transfer of title to the Assets to Campus Voice; and
(b) a copy of resolutions of the board of directors and the
stockholders of Seller and of Sirrom authorizing the execution, delivery and
performance of this agreement by Seller and Sirrom, and a certificate of its
secretary or assistant secretary, dated this date, that such resolutions were
duly adopted and are in full force and effect.
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<PAGE>
7.2 Documents Being Delivered by Campus Voice. At the closing,
Campus Voice is delivering to Seller the following:
(a) the promissory notes referred to in section 2.1(a);
(b) such instruments as Seller may have requested to confirm
the assumption by Campus Voice of the obligations assumed by it under section
2.1(d);
(c) a copy of resolutions of the board of managers of Campus
Voice authorizing the execution, delivery and performance of this agreement by
Campus Voice, and a certificate of its secretary or assistant secretary, dated
this date, that such resolutions were duly adopted and are in full force and
effect.
(d) such other documents as Sirrom customarily requires in
lending transactions.
8. Survival of Representations and Warranties; Indemnification.
8.1 Survival.
(a) All representations, warranties and agreements by Seller
and Sirrom shall survive the closing notwithstanding any investigation at any
time by or on behalf of Campus Voice. All representations, warranties and
agreements by Campus Voice shall survive the closing notwithstanding any
investigation at any time by or on behalf of Seller or Sirrom.
8.2 Indemnification.
(a) Seller and Sirrom jointly and severally shall indemnify
and hold harmless Campus Voice against all loss, liability, damage or expense
(including reasonable fees and expenses of counsel, whether involving a third
party or between the parties to this agreement) Campus Voice may suffer, sustain
or become subject to as a result of (i) any breach of any warranty, covenant or
other agreement of Seller or Sirrom contained in this agreement, or any false
representation by Seller or Sirrom contained in this agreement, (ii) Seller's
failure to pay, perform or discharge when due any of Seller's obligations,
liabilities, agreements or commitments not expressly assumed by Campus Voice
pursuant to this agreement, or (iii) the failure to comply with any Bulk Sales
Law applicable to the sale of the Assets to be sold to Campus Voice pursuant to
this agreement.
(b) Campus Voice shall indemnify and hold harmless Seller
and Sirrom against all loss, liability, damage or expense (including reasonable
fees and expenses of counsel, whether involving a third party or between the
parties to this agreement) Seller or Sirrom may suffer, sustain or become
subject to as a result of (i) any breach of any warranty, covenant or other
agreement of Campus Voice contained in this agreement or any false
representation by Campus Voice contained in this agreement, (ii) Campus Voice's
failure to pay, perform and discharge when due any of Seller's agreements,
commitments or orders expressly assumed by Campus Voice pursuant to this
agreement, or (iii) any liability or obligation arising out of the operations of
the
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<PAGE>
Business after the date of this agreement. NET shall indemnify and hold harmless
Seller and Sirrom against all loss, liability, damage or expense (including
reasonable fees and expenses of counsel, whether involving a third party or
between the parties to this agreement) Seller or Sirrom may suffer, sustain or
become subject to as a result of any breach of any warranty, covenant or other
agreement of NET contained in this agreement or any false representation by NET
contained in this agreement
8.3 Notices of Claims. None of the parties to this agreement
shall be liable for misrepresentation or breach of warranty except to the extent
that notice of a claim is asserted by another party in writing and delivered
within two years after the date of this agreement.
8.4 Defense of Claims. If any third party claim is made against
Seller or Campus Voice that, if sustained, would give rise to a liability of the
other party, the party against whom the claim is made shall promptly cause
notice of the claim to be delivered to the other party and shall afford the
other party and its counsel, at the other party's sole expense, the opportunity
to join in defending or compromising the claim.
9. Miscellaneous.
9.1 Finders. The parties represent and warrant that they have not
employed or utilized the services of any broker or finder in connection with
this agreement or the transactions contemplated by it.
9.2 Entire Agreement. This agreement and the other agreements and
instruments being executed and delivered simultaneously with the execution of
this agreement contain, and are intended as, a complete statement of all of the
terms of the arrangements between the parties with respect to the matters
provided for, supersede any previous agreements and understandings between the
parties with respect to those matters, and cannot be changed or terminated
orally. Except as specifically set forth in this agreement or in the other
agreements and instruments being executed and delivered simultaneously with the
execution of this agreement, there are no representations or warranties by any
party in connection with the transactions contemplated by this agreement.
9.3 Governing Law. This agreement shall be governed by and
construed in accordance with the law of the State of New York applicable to
agreements made and to be performed in New York.
9.4 Headings. The section headings of this agreement are for
reference purposes only and are to be given no effect in the construction or
interpretation of this agreement.
9.5 Notices. All notices and other communications under this
agreement shall be in writing and shall be deemed given when delivered
personally or mailed by registered mail, return receipt requested, to the
parties at the following addresses (or to such other address as a party may have
specified by notice given to the other party pursuant to this provision):
(a) If to Seller or Sirrom, addressed to it at:
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<PAGE>
Sirrom Investments, Inc.
Suite 200
500 Church Street
Nashville, TN 37219
Attention: Jeff Armstrong
Telecopy No.: 615-726-1208
with a copy to:
Boult, Cummings, Conners & Berry PLC
Suite 1600
414 Union Street
Nashville, TN 37219
Attention: John E. Murdock III
Telecopy No.: 615-252-6359
(b) If to Campus Voice or NET, addressed to it at:
Network Event Theater, Inc.
149 Fifth Avenue
New York, N.Y. 10011
Attention: Don Leeds, President
Telecopy No.: 212:779-3241
with a copy to:
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Attention: Bertram A. Abrams
Telecopy No.: 212-969-2900
9.6 Waiver. Any party may waive compliance by another with any of
the provisions of this agreement. No waiver of any provision shall be construed
as a waiver of any other provision. Any waiver must be in writing and must be
signed by the party waiving any provision hereof.
9.7 Jurisdiction. The courts of the State of New York in New York
County and the United States District Court for the Southern District of New
York and the courts of Tennessee and the United States District Court for the
Middle District of Tennessee shall have jurisdiction over the parties with
respect to any dispute or controversy among them arising under or in connection
with this agreement and, by execution and delivery of this agreement,
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<PAGE>
each of the parties to this agreement submits to the jurisdiction of those
courts, including, but not limited to, the in personam and subject matter
jurisdiction of those courts, waives any objection to such jurisdiction on the
grounds of venue or forum non conveniens, the absence of in personam or subject
matter jurisdiction and any similar grounds, consents to service of process by
mail (in accordance with section 9.5) or any other manner permitted by law, and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this agreement. These consents to jurisdiction shall not be deemed to
confer rights on any person other than the parties to this agreement.
SCCGS, Inc.
By /s/ Jeff Armstrong
----------------------------
Name: Jeff Armstrong
Title: Vice President
Sirrom Capital Corporation
By /s/ Donald F. Barrickman
----------------------------
Name: Donald F. Barrickman
Title: Vice President
Campus Voice, L.L.C.
By /s/ Bruce L. Resnik
----------------------------
Secretary
Network Event Theater, Inc.
By /s/ Bruce L. Resnik
----------------------------
EVP/CFO
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EXHIBIT 10.24
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement"), dated as of the 31st day of January,
1997, is made and entered into on the terms and conditions hereinafter set
forth, by and between CAMPUS VOICE, L.L.C., a Delaware limited liability company
("Borrower"), and SIRROM INVESTMENTS, INC., a Tennessee corporation ("Lender").
RECITALS:
WHEREAS, Borrower has requested that Lender make available to Borrower
a loan in the original principal amount of Six Hundred Sixty Thousand and
No/100ths Dollars ($660,000.00) (the "Senior Loan"); and
WHEREAS, Borrower is indebted to SCCGS, Inc. ("SCCGS"), a Tennessee
corporation and corporate affiliate of Lender, for a purchase money loan in the
original principal amount of Three Hundred Thousand and No/100 Dollars
($300,000.00) (the "Junior Secured Loan") as evidenced by that Junior Secured
Promissory Note (the "Junior Secured Promissory Note") of this date made by
Borrower payable to the order of SCCGS in that original principal amount, and
for an additional purchase money loan in the original principal amount of One
Million Two Hundred Sixty-Three Thousand Two Hundred Twenty-Two and 83/100
($1,263,222.83) (the "Second Junior Secured Loan") as evidenced by that Second
Junior Secured Promissory Note (the "Second Junior Secured Promissory Note") of
this date made by Borrower payable to the order of SCCGS in that original
principal amount; and
WHEREAS, concurrently with the execution hereof, the Junior Secured
Promissory Note and the Second Junior Secured Promissory Note have been
negotiated to Lender (the Senior Loan, the Junior Secured Loan, and the Second
Junior Secured Loan are referred to herein collectively as the "Loans"); and
WHEREAS, in order to induce Lender to make the Loans to Borrower
through the extension of credit under the Senior Loan and the purchase of the
Junior Secured Promissory Note and the Second Junior Secured Promissory Note,
Borrower has made certain representations to Lender; and
WHEREAS, Lender, in reliance upon the representations and inducements
of Borrower, has agreed to make the Loans upon the terms and conditions
hereinafter set forth.
AGREEMENT:
NOW, THEREFORE, in consideration of the agreement of Lender to make the
Loans, the mutual covenants and agreements hereinafter set forth, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
<PAGE>
ARTICLE 1
THE LOANS
1.1 Evidence of Indebtedness and Repayment. The Loans shall be
evidenced by promissory notes in the original principal amounts of the
respective Loans, substantially in the form of Exhibit A attached hereto and
incorporated herein by this reference (the "Notes"), dated as of the date
hereof, executed by Borrower and now held by Lender. The Loans shall be payable
in accordance with the terms of the Notes and the Bill of Sale and Agreement
dated as of the date hereof among SCCGS, Borrower, Sirrom Capital Corporation
and Network Event Theater, Inc., a Delaware corporation ("NET") (the "Bill of
Sale and Agreement"). The Notes, this Agreement, the Bill of Sale and Agreement
and any other instruments and documents executed by Borrower now or hereafter
evidencing, securing or in any way related to the indebtedness evidenced by the
Notes are herein individually referred to as a "Loan Document" and collectively
referred to as the "Loan Documents."
1.2 Partial Prepayment. Borrower may prepay the indebtedness evidenced
by the Notes in whole or in part at any time and from time to time, without
premium or penalty.
1.3 Purpose. The purpose of the Senior Loan shall be to provide
additional working capital to Borrower and the purpose of the Junior Secured
Loan and of the Second Junior Secured Loan shall be to evidence the purchase
price of the "Assets," as defined in the Bill of Sale and Agreement.
1.4 Advances. Advances under the Senior Loan shall be made according to
the following schedule:
Advanced at closing $210,000.00
On or after 4/l/97 $150,000.00
On or after 7/l/97 $125,000.00
On or after 10/l/97 $100,000.00
On or after 1/l/98 $75,000.00
Lender shall not under any circumstances be obligated to advance more than the
scheduled amount. Borrower may request that less than a scheduled amount be
funded in any month, and the excess availability shall carry forward to future
months.
1.5 Conditions to Advances. Lender shall not be obligated to make any
advance under any of the Loans at a time that any Event of Default exists
hereunder or if any condition exists which, with the giving of notice, the
passing of time or both would cause an Event of Default. Borrower shall submit a
request for each advance in writing, and such request shall constitute
Borrower's certification that the conditions to funding are satisfied.
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<PAGE>
1.6 Processing Fee. Concurrently with the execution hereof, Borrower
shall pay to Lender a processing fee in the amount of $6,600.00.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Borrower's Representations. Borrower hereby represents and warrants
to Lender as follows:
(a) LLC Status. Borrower is a limited liability company duly
organized, validly existing and in good standing under the laws of the
State of Delaware; and has the power as a limited liability company to
own and operate its properties, to carry on its business as now
conducted and to enter into and to perform its obligations under this
Agreement and the other Loan Documents to which it is a party. Borrower
is duly qualified to do business and in good standing in each state in
which a failure to be so qualified would have a material adverse effect
on Borrower's financial condition or its ability to conduct its
business in the manner now conducted.
(b) Subsidiaries. Borrower neither owns nor has an interest
in, directly or indirectly, any other corporation, partnership, joint
venture or other business organization ("Subsidiaries").
(c) Authorization. Borrower has full legal right, power and
authority to conduct its business and affairs. Borrower has full legal
right, power and authority to enter into and perform its obligations
under the Loan Documents, without the consent or approval of any other
person, firm, governmental agency or other legal entity, except as has
been finally obtained. The execution and delivery of this Agreement,
the borrowing hereunder, the execution and delivery of each Loan
Document to which Borrower is a party, and the performance by Borrower
of its obligations thereunder are within the powers of Borrower and
have been duly authorized by all necessary action properly taken, have
received all necessary governmental approvals, if any were required,
and do not and will not contravene or conflict with any provision of
law, any applicable judgment, ordinance, regulation or order of any
court or governmental agency, the operating agreement of Borrower, or
any agreement binding upon Borrower or its properties. The officer(s)
executing this Agreement, the Notes and all of the other Loan Documents
to which Borrower is a party are duly authorized to act on behalf of
Borrower.
(d) Validity and Binding Effect. This Agreement and the other
Loan Documents are the legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms,
subject to limitations imposed by bankruptcy, insolvency, moratorium or
other similar laws affecting the rights of creditors generally or the
application of general equitable principles.
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<PAGE>
(e) Capitalization. As of the date hereof, the sole member of
Borrower is NET. As of the date hereof, Borrower shall not have
outstanding any or securities convertible or exchangeable for any
member interests, nor shall it have outstanding any rights or options
to subscribe for or to purchase its member interests. As of the date
hereof, Borrower shall not be subject to any obligation (contingent or
otherwise) to repurchase, redeem, retire or otherwise acquire any of
its member interests. Borrower has not violated any applicable federal
or state securities laws in connection with the offer, sale or issuance
of any of its member interests.
(f) Trademarks, Patents, Etc. To the best of Borrower's
knowledge, Schedule 2.1(f) is an accurate and complete list of all
patents, trademarks, tradenames, trademark registrations, service
names, service marks, copyrights, licenses, formulas and applications
therefor owned by Borrower or used or required by Borrower in the
operation of it's business, title to each of which is, except as set
forth in Schedule 2.1(f) hereto, held by Borrower free and clear of all
adverse claims, liens, security agreements, restrictions or other
encumbrances. There is no infringement action, lawsuit, claim or
complaint which asserts that Borrower's operations violate or infringe
the rights or the trade names, trademarks, trademark registration,
service name, service mark or copyright of others with respect to any
apparatus or method of Borrower or any adversely held trademark, trade
name, trademark registration, service name, service mark or copyright,
and Borrower is not in any way making use of any confidential
information or trade secrets of any person except with the consent of
such person. Notwithstanding the foregoing, Borrower makes no
representation or warranty under this Section as to any trademarks,
etc. acquired from SCCGS, Inc. under the Bill of Sale and Agreement.
(g) No Conflicts. Consummation of the transactions hereby
contemplated and the performance of the obligations of Borrower under
and by virtue of the Loan Documents will not result in any breach of,
or constitute a default under, any mortgage, security deed or
agreement, deed of trust, lease, bank loan or credit agreement,
operating agreement, operating agreement, license, franchise or any
other instrument or agreement to which Borrower is a party or by which
Borrower or its respective properties may be bound or affected or to
which Borrower has not obtained an effective waiver.
(h) Litigation. There are no actions, suits or proceedings
pending, or, to the knowledge of Borrower threatened, against or
affecting Borrower or involving the validity or enforceability of any
of the Loan Documents at law or in equity, or before any governmental
or administrative agency; and to Borrower's knowledge, Borrower is not
in default with respect to any order, writ, injunction, decree or
demand of any court or any governmental authority.
(i) Financial Statements. Borrower is a newly-formed entity
and has not yet prepared any financial statements.
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(j) Other Agreements; No Defaults. Borrower is not a party to
any indenture, loan or credit agreement, lease or other agreement or
instrument, or subject to any restriction, that could have a material
adverse effect on the business, properties, assets, operations or
conditions, financial or otherwise, of Borrower, or the ability of
Borrower to carry out its obligations under the Loan Documents to which
it is a party. Borrower is not in default in any respect in the
performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any agreement or instrument
material to its business to which it is a party, including but not
limited to this Agreement and the other Loan Documents, and no other
default or event has occurred and is continuing that with notice or the
passage of time or both would constitute a default or event of default
under any of same.
(k) Compliance With Law. Borrower has obtained all necessary
licenses, permits and approvals and authorizations necessary or
required in order to conduct its business and affairs as heretofore
conducted and as hereafter intended to be conducted. To Borrower's
knowledge, Borrower is in compliance with all laws, regulations,
decrees and orders applicable to it (including but not limited to laws,
regulations, decrees and orders relating to environmental, occupational
and health standards and controls, antitrust, monopoly, restraint of
trade or unfair competition), to the extent that noncompliance, in the
aggregate, could reasonably be expected to have a material adverse
effect on its respective business, operations, property or financial
condition or could materially adversely affect Borrower's ability to
perform its obligations under the Loan Documents.
(l) Debt. Borrower is a newly-formed entity and does not have
in effect any credit agreements, indentures, purchase agreements,
promissory notes or other evidences of indebtedness, guaranties,
capital leases or other instruments, agreements and arrangements
providing for or relating to extensions of credit (including agreements
and arrangements for the issuance of letters of credit or for
acceptance financing), other than the Loan Documents.
(m) Taxes. Borrower is a newly-formed entity and has not filed
or caused to be filed any tax returns.
(n) Small Business Concern. Borrower, together with its
"affiliates" (as that term is defined in Title 13, Code of Federal
Regulations, ss. 121.103), is a "small business concern" within the
meaning of the Small Business Investment Act of 1958, as amended, and
the regulations promulgated thereunder (in making this representation,
Borrower relies upon Lender's representation that the criteria set
forth in the SBA Form 480 are the only necessary criteria for this
determination). The information set forth in the Small Business
Administration Forms 480, 652 and Parts A and B of Form 1031 regarding
Borrower upon delivery, pursuant to Section 4.1 hereof, will be
accurate and complete. Borrower does not presently engage in, and it
will not hereafter engage in, any activities, and Borrower will not use
directly or indirectly, the proceeds from the Loans, for any purpose
for which a Small Business Investment Company is prohibited from
providing funds by the Small Business
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Investment Act and the regulations thereunder, including Title 13, Code
of Federal Regulations ss.107.720.
(o) Certain Transactions. As of the date of this Agreement,
Borrower is not indebted, directly or indirectly, to any of its
members, officers or directors or to their respective spouses or
children, in any amount whatsoever; none of said members, officers or
directors or any members of their immediate families, are indebted to
Borrower or have any direct or indirect ownership interest in any firm
or corporation other than NET which competes with Borrower, except that
shareholders, officers and/or directors of Borrower may own no more
than 4.9% of outstanding stock of publicly traded companies which may
compete with Borrower. No shareholder, officer or director or any
member of their immediate families, is, directly or indirectly (except
as an employee, shareholder, officer or director of NET) interested in
any material contract with Borrower. Borrower is not a guarantor or of
any indebtedness of any other person, firm or corporation.
(p) Statements Not False or Misleading. No representation or
warranty given as of the date hereof by Borrower contained in this
Agreement or any schedule attached hereto or any statement in any
document, certificate or other instrument furnished or to be furnished
by Borrower to Lender pursuant hereto, taken as a whole, contains or
will (as of the time so furnished) contain any untrue statement of a
material fact, or omits or will (as of the time so furnished) omit to
state any material fact which is necessary in order to make the
statements contained therein not misleading.
(q) Margin Regulations. Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying
margin stock. No proceeds received pursuant to this Agreement will be
used to purchase or carry any equity security of a class which is
registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended.
(r) Significant Contracts. Borrower is a newly-formed entity
with no material contracts.
(s) Environment. Borrower is a newly-formed entity with no
previous operations with respect to which environmental laws would
apply.
(t) Fees/Commissions. Borrower has not agreed to pay any
finder's fee, commission, origination fee or other fee or charge to any
person or entity with respect to the Loans and investment transactions
contemplated hereunder, except fees for legal and accounting services
rendered in connection with this transaction.
(u) ERISA. Borrower is in compliance in all material respect
with all applicable provisions of ERISA as defined in Section 3.11
hereof). Neither a reportable event nor a prohibited transaction (as
defined in ERISA) has occurred and is continuing with respect to any
Plan (as defined in Section 3.11 hereof); no notice of intent to
terminate a Plan has been
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filed nor has any Plan been terminated; no circumstances exist which
constitute grounds entitling the Pension Benefit Guaranty Corporation
(together with any entity succeeding to or all of its functions, the
"PBGC") to institute proceedings to terminate, or appoint a trustee to
administer, a Plan, nor has the PBGC instituted any such proceedings;
neither Borrower nor any commonly controlled entity (as defined in
ERISA) has completely or partially withdrawn from a multiemployer plan
(as defined in ERISA); Borrower and each commonly controlled entity has
met its minimum funding requirements under ERISA with respect to all of
its Plans and the present fair market value of all Plan property
exceeds the present value of all vested benefits under each Plan, as
determined on the most recent valuation date of the Plan and in
accordance with the provisions of ERISA and the regulations thereunder
for calculating the potential liability of Borrower or any commonly
controlled entity to the PBGC or the Plan under Title IV or ERISA; and
neither Borrower nor any commonly controlled entity has incurred any
liability to the PBGC under ERISA.
(v) Title to Properties. To the best of Borrower's knowledge,
based on Lender's representations in the Bill of Sale and Agreement
(and subject to the qualifications set forth therein), Borrower has no
real properties and Borrower has good title to its other assets, free
and clear of all liens other than Permitted Liens (as defined in
Section 3.15 hereof).
(w) Limited Offering of Notes. Neither Borrower nor anyone
acting on its behalf has offered the Notes or any similar securities
for sale to, or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof, with, any person
other than Lender or its affiliates. Neither Borrower nor anyone acting
on its behalf has taken, or will take, any action which would subject
the issuance or sale of the Notes to Section 5 of the Securities Act of
1933, as amended, or the registration or qualification provisions of
the blue sky laws of any state.
(x) Registration Rights. Borrower is not under any obligation
to register under the Securities Act of 1933, as amended, or the Trust
Indenture Act of 1939, as amended, any of its presently outstanding
securities or any of its securities that may subsequently be issued.
(y) Employees. Borrower has no current labor problems or
disputes which have resulted or Borrower reasonably believes could be
expected to have a material adverse effect.
(z) Issuance Taxes. All taxes imposed on Borrower in
connection with the issuance, sale and delivery of the Notes have been
or will be fully paid, and all laws imposing such taxes have been or
will be fully satisfied by Borrower.
ARTICLE 3
COVENANTS AND AGREEMENTS
Borrower covenants and agrees that during the term of this Agreement:
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3.1 Payment of Obligations. Borrower shall pay the indebtedness
evidenced by the Notes according to the terms thereof as additionally provided
in the Bill of Sale and Agreement, and shall timely pay or perform, as the case
may be, all of the other obligations of Borrower to Lender, direct or
contingent, however evidenced or denominated, and however and whenever incurred,
including but not limited to indebtedness incurred pursuant to any present or
future commitment of Lender to Borrower, together with interest thereon, and any
extensions, modifications, consolidations and/or renewals thereof and any notes
given in payment thereof.
3.2 Financial Statements and Reports. Borrower shall furnish to Lender
(i) as soon as practicable and in any event within ninety (90) days after the
end of each fiscal year of Borrower, an audited balance sheet of Borrower as of
the close of such fiscal year, an audited statement of earnings and retained
earnings of Borrower as of the close of such fiscal year and an audited
statement of cash flows for Borrower for such fiscal year, prepared in
accordance with generally accepted accounting principles consistently applied
and accompanied by an unqualified audit report prepared by an independent
certified public accountant acceptable to Lender showing the financial condition
of Borrower at the close of such year and the results of its operations during
such year and accompanied by a certificate of the President of Borrower, stating
that to the best of the knowledge of such officer, Borrower has kept, observed,
performed and fulfilled each covenant, term and condition of this Agreement and
the other Loan Documents during the preceding fiscal year and that no Event of
Default has occurred and is continuing (or if an Event of Default has occurred
and is continuing, specifying the nature of same, the period of existence of
same and the action Borrower proposes to take in connection therewith), (ii)
within twenty (20) days of the end of each calendar month, a status report
indicating the financial performance of Borrower during such month and the
financial position of Borrower as of the end of such month, (iii) within
forty-five (45) days of the end of each quarter, a balance sheet of Borrower as
of the close of such quarter and a statement of earnings and retained earnings
of Borrower as of the close of such quarter, all in reasonable detail, and
prepared substantially in accordance with generally accepted accounting
principles consistently applied (except for the absence of footnotes and subject
to year-end adjustments), and (iv) with reasonable promptness, such other
financial data as Lender may reasonably request. Without Lender's prior written
consent, Borrower shall not modify or change any accounting policies or
procedures in effect on the date hereof.
3.3 Maintenance of Books and Records; Inspection. Borrower shall
maintain its books, accounts and records in accordance with generally accepted
accounting principles consistently applied, and after reasonable notice from
Lender, permit Lender, its officers and employees and any professionals
designated by Lender in writing, at Borrower's expense, to visit and inspect any
of its properties, books and financial records, and to discuss its accounts,
affairs and finances with Borrower or the principal officers of Borrower during
reasonable business hours, all at such times as Lender may reasonably request;
provided that no such inspection shall materially interfere with the conduct of
Borrower's business.
3.4 Insurance. Without limiting any of the requirements of any of the
other Loan Documents, Borrower shall maintain, in amounts customary for entities
engaged in comparable
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business activities, (i) to the extent required by applicable law, worker's
compensation insurance (or maintain a legally sufficient amount of self
insurance against worker's compensation liabilities, with adequate reserves,
under a plan approved by Lender, such approval not to be unreasonably withheld
or delayed), and (ii) fire and "all risk" casualty insurance on its properties
against such hazards and in at least such amounts as are customary in Borrower's
business. Borrower will make reasonable efforts to obtain and maintain public
liability insurance in an amount, and at a cost, deemed reasonable to the
Borrower's Board of Directors. At the request of Lender, Borrower will deliver
forthwith a certificate specifying the details of such insurance in effect.
3.5 Taxes and Assessments. Borrower shall (i) file all tax returns and
appropriate schedules thereto that are required to be filed under applicable
law, prior to the date of delinquency, (ii) pay and discharge all taxes,
assessments and governmental charges or levies imposed upon Borrower upon its
income and profits or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and (iii) pay all taxes, assessments and
governmental charges or levies that, if unpaid, might become a lien or charge
upon any of its properties; provided, however, that Borrower in good faith may
contest any such tax, assessment, governmental charge or levy described in the
foregoing clauses (ii) and (iii) so long as appropriate reserves are maintained
with respect thereto.
3.6 Existence. Borrower shall maintain its existence and good standing
as a limited liability company in the state of its organization, and its
qualification and good standing as a foreign limited liability company in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on Borrower.
3.7 Compliance with Law and Other Agreements. Except where the failure
to do so would not materially adversely affect Borrower's operations or its
ability to fulfill its obligations under the Loan Documents, Borrower shall
maintain its business operations and property owned or used in connection
therewith in compliance with (i) all applicable federal, state and local laws,
regulations and ordinances governing such business operations and the use and
ownership of such property, and (ii) all agreements, licenses, franchises,
indentures and mortgages to which Borrower is a party or by which Borrower or
any of its properties is bound. Without limiting the foregoing, Borrower shall
pay all of its indebtedness promptly in accordance with the terms thereof,
except to the extent that Borrower is contesting any such indebtedness in good
faith.
3.8 Notice of Default. Borrower shall give written notice to Lender of
the occurrence of any default, event of default or Event of Default under this
Agreement or any other Loan Document promptly upon the occurrence thereof.
3.9 Notice of Litigation. Borrower shall give notice, in writing, to
Lender of (i) any actions, suits or proceedings, instituted by any persons
whomsoever against Borrower or affecting any of the assets of Borrower wherein
the amount at issue is in excess of Twenty-Five Thousand and No/100ths Dollars
($25,000.00), and (ii) any dispute, not resolved within sixty (60) days of the
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commencement thereof, between Borrower on the one hand and any governmental
regulatory body on the other hand, which dispute might materially interfere with
the normal operations of Borrower.
3.10 Conduct of Business. Borrower will continue to engage in a
business of the same general type and manner as proposed to be conducted by it
on the date of this Agreement.
3.11 ERISA Plan. If Borrower has in effect, or hereafter institutes, a
pension plan that is subject to the requirements of Title IV of the Employee
Retirement Income Security Act of 1974, Pub. L. No. 93-406, September 2, 1974,
88 Stat. 829, 29 U.S.C.A. ss. 1001 et seq. (1975), as amended from time to time
("ERISA"), then the following warranty and covenants shall be applicable during
such period as any such plan (the "Plan") shall be in effect: (i) Borrower
hereby warrants that no fact that might constitute grounds for the involuntary
termination of the Plan, or for the appointment by the appropriate United States
District Court of a trustee to administer the Plan, exists at the time of
execution of this Agreement, (ii) Borrower hereby covenants that throughout the
existence of the Plan, Borrower's contributions under the Plan will meet the
minimum funding standards required by ERISA and Borrower will not institute a
distress termination of the Plan, and (iii) Borrower covenants that it will send
to Lender a copy of any notice of a reportable event (as defined in ERISA)
required by ERISA to be filed with the Labor Department or the Pension Benefit
Guaranty Corporation, at the time that such notice is so filed.
3.12 Dividends, Distributions, Stock Rights, etc. Except for payments
and distributions to NET of amounts allocable to NET under Section 2.2 of the
Bill of Sale and Agreement, Borrower shall not declare or pay any dividend of
any kind (other than stock dividends payable to all holders of any class of
capital stock), in cash or in property, on any class of the capital stock of
Borrower, or purchase, redeem, retire or otherwise acquire for value any shares
of such stock, nor make any distribution of any kind in cash or property in
respect thereof, nor make any return of capital of shareholders, nor make any
payments in cash or property in respect of any stock options, stock bonus or
similar plan (except as required or permitted hereunder), nor grant any
preemptive rights with respect to the capital stock of Borrower, without the
prior written consent of Lender.
3.13 Guaranties; Loans; Payment of Debt. Without Lender's prior express
written consent, Borrower shall not guarantee nor be liable in any manner,
whether directly or indirectly, or become contingently liable after the date of
this Agreement in connection with the obligations or indebtedness of any person
or entity whatsoever, except for the endorsement of negotiable instruments
payable to Borrower for deposit or collection in the ordinary course of
business. Without Lender's prior express written consent, which shall not be
unreasonably withheld, Borrower shall not (i) make any loan, advance or
extension of credit to any person other than in the normal course of its
business, or (ii) make any payment on any subordinated debt.
3.14 Debt. Without the express prior written consent of Lender,
Borrower shall not create, incur, assume or suffer to exist indebtedness of any
description whatsoever, excluding:
(a) the indebtedness evidenced by the Notes;
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(b) the endorsement of negotiable instruments payable to Borrower for
deposit or collection in the ordinary course of business; and
(c) trade debts incurred in the ordinary course of business.
Lender acknowledges that Borrower may in the future propose that Borrower become
liable for, or grant a security interest in its assets to secure, one or more
credit facilities extended to NET and its subsidiaries. Lender will discuss the
circumstances at the time such a proposal is made, but may consent or not
consent thereto, in its sole discretion.
3.15 No Liens. Borrower shall not create, incur, assume or suffer to
exist any lien, security interest, security title, mortgage, deed of trust or
other encumbrance upon or with respect to any of its properties, now owned or
hereafter acquired, except the following permitted liens (the "Permitted
Liens"):
(a) liens in favor of Lender;
(b) liens for taxes or assessments or other governmental charges or
levies if not yet due and payable; and
(c) liens in connection with the leasing of equipment in favor of the
Lessor of such equipment.
3.16 Mergers, Consolidations, Acquisitions and Sales. Without the prior
written consent of Lender, Borrower shall not (a) be a party to any merger,
consolidation or reorganization, nor (b) purchase or otherwise acquire all or
substantially all of the assets or stock of, or any partnership or joint venture
interest in, any other person, firm or entity, nor (c) sell, transfer, convey,
grant a security interest in or lease all or any substantial part of its assets,
nor (d) create any Subsidiaries nor convey any of its assets to any Subsidiary.
3.17 Transactions With Affiliates. Except as expressly permitted by the
Bill of Sale and Agreement, Borrower shall not enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service, with any affiliate, except in the ordinary course of
and pursuant to the reasonable requirements of Borrower's business and upon fair
and reasonable terms no less favorable to Borrower than Borrower would obtain in
a comparable arm's length transaction with a person not an affiliate. For the
purposes of this Section 3.17, "affiliate" shall mean a person, corporation,
partnership or other entity controlling, controlled by or under common control
with Borrower. Notwithstanding the foregoing, in order to permit Borrower normal
operations without the need of evaluating minor transactions on a case-by-case
basis for compliance with this Section 3.17, an Event of Default shall not arise
under this Agreement on account of transactions that, in the aggregate, include
charges that would be excessive under this Section 3.17 in the total amount of
less than $25,000 in any fiscal year (it being understood that the $25,000
figure is calculated as the excessive charge to Borrower only, and does not
include the total value of the relevant transaction(s)).
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3.18 Environment. Borrower shall be and remain in compliance with the
provisions of all federal, state and local environmental, health, and safety
laws, codes and ordinances, and all rules and regulations issued thereunder, the
violation of which could have a material adverse effect on Borrower; notify
Lender immediately of any notice of a hazardous discharge or environmental
complaint received from any governmental agency or any other party; notify
Lender immediately of any hazardous discharge from or affecting its premises;
immediately contain and remove the same, in compliance with all applicable laws;
promptly pay any fine or penalty assessed in connection therewith; permit Lender
to inspect the premises, to conduct tests thereon, and to inspect all books,
correspondence, and records pertaining thereto; and at Lender's request, and at
Borrower's expense, provide a report of a qualified environmental engineer,
satisfactory in scope, form, and content to Lender, and such other and further
assurances reasonably satisfactory to Lender that the condition has been
corrected.
ARTICLE 4
CONDITIONS TO CLOSING
4.1 Closing of the Loans. The obligation of Lender to fund the Loans on
the date hereof (the "Closing Date") is subject to the fulfillment, on or prior
to the Closing Date, of each of the following conditions:
(a) Borrower shall have performed and complied in all material
respects with all of the covenants, agreements, obligations and
conditions required by this Agreement.
(b) Lender shall have received an opinion of the Borrower's
counsel, Proskauer Rose Goetz & Mendelsohn LLP, dated the Closing
Date, in form and substance satisfactory to Lender's counsel, Boult,
Cummings Conners & Berry PLC and attached hereto as Exhibit B;
(c) Borrower shall have delivered to Lender the Notes executed by
Borrower, substantially in the form of Exhibit A attached hereto and
incorporated herein by this reference.
(d) Borrower shall have delivered to Lender the Bill of Sale and
Agreement, substantially in the form of Exhibit C attached hereto and
incorporated herein by this reference.
(e) Borrower shall have delivered to Lender a Security Agreement
executed by Borrower and a related UCC-1 Financing Statement executed
by Borrower, each of which is substantially in the form of Exhibit D
attached hereto and incorporated herein by this reference.
(f) Borrower shall have delivered to Lender the Small Business
Administration Forms 480, 652 and 1031 (Parts A and B) completed by
Borrower.
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(g) Borrower shall have delivered to Lender the Small Business
Administration Economic Impact Assessment completed by Borrower, a
form of which is attached hereto as Exhibit E and incorporated herein
by this reference.
(h) Borrower shall have delivered to Lender a Trademark and
Patent Security Agreement executed by Borrower and related UCC-1
Financing Statement(s) executed by the Borrower, in the form of
Exhibit F attached hereto and incorporated herein by this reference.
(i) Lender shall have received copies of the operating agreement
and publicly filed organizational documents of Borrower, certified by
the Secretary of State or other appropriate public official in the
jurisdiction in which Borrower is organized.
(j) Lender shall have received certified (as of the date of this
Agreement) copies of all actions taken by Borrower authorizing the
execution, delivery and performance of the Loan Documents.
(k) Lender shall have received a certificate as to the legal
existence and good standing of the Borrower, issued by the Secretary
of State or other appropriate public official in the jurisdiction in
which the Borrower is organized.
ARTICLE 5
DEFAULT AND REMEDIES
5.1 Events of Default. The occurrence of any of the following shall
constitute an Event of Default hereunder:
(a) Default in the payment of the principal of or interest on the
indebtedness evidenced by the Notes in accordance with the terms of
the Notes, which default is not cured within five (5) days;
(b) Any misrepresentation by Borrower or any member or affiliate
of Borrower as to any material matter hereunder or under any of the
other Loan Documents, or delivery by Borrower of any schedule,
statement, resolution, report, certificate, notice or writing to
Lender that is untrue in any material respect on the date as of which
the facts set forth therein are stated or certified;
(c) Failure of Borrower or any member or affiliate of Borrower to
perform any of its obligations, covenants or agreements under this
Agreement, the Notes or any of the other Loan Documents;
(d) Borrower (i) shall generally not pay or shall be unable to
pay its debts as such debts become due; or (ii) shall make an
assignment for the benefit of creditors or petition or
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apply to any tribunal for the appointment of a custodian, receiver or
trustee for it or a substantial part of its assets; or (iii) shall
commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, whether now or hereafter in effect; or
(iv) shall have had any such petition or application filed or any such
proceeding commenced against it in which an order for relief is
entered or an adjudication or appointment is made; or (v) shall
indicate, by any act or intentional and purposeful omission, its
consent to, approval of or acquiescence in any such petition,
application, proceeding or order for relief or the appointment of a
custodian, receiver or trustee for it or a substantial part of its
assets; or (vi) shall suffer any such custodianship, receivership or
trusteeship to continue undischarged for a period of sixty (60) days
or more;
(e) Borrower shall be liquidated, dissolved, partitioned or
terminated, or the charter thereof shall expire or be revoked;
(f) A default or event of default shall occur under any of the
other Loan Documents and, if subject to a cure right, such default or
event of default shall not be cured within the applicable cure period;
(g) Borrower shall default in the timely payment of any
obligation now or hereafter owed to Lender in connection with any
other indebtedness of Borrower now or hereafter owed to Lender; or
(h) Borrower shall have defaulted and continue to be in default
in the timely payment or performance of any other indebtedness or
obligation, which in the aggregate exceeds Twenty-Five Thousand and
No/100ths Dollars ($25,000.00) or materially adversely affects
Borrower's financial condition, except for indebtedness being
contested by Borrower in good faith.
With respect to any Event of Default described above that is capable of
being cured and that does not already provide its own cure procedure (a "Curable
Default"), the occurrence of such Curable Default shall not constitute an Event
of Default hereunder if such Curable Default is fully cured and/or corrected
within thirty (30) days (ten (10) days, if such Curable Default may be cured by
payment of a sum of money) after notice thereof to Borrower given in accordance
with the provisions hereof; provided, however, that this provision shall not
require notice to Borrower and an opportunity to cure any Curable Default of
which the President, Chief Executive Officer, Chairman or Chief Financial
Officer of Borrower has had an actual awareness (both of the facts and that the
facts constitute an Event of Default hereunder) for the requisite number of days
set forth.
5.2 Acceleration of Maturity; Remedies. Upon the occurrence of any
Event of Default described in subsection 5.1(d), the indebtedness evidenced by
the Notes as well as any and all other indebtedness of Borrower to Lender shall
be immediately due and payable in full; and upon the occurrence of any other
Event of Default described above, Lender at any time thereafter during the
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continuance of the Event of Default may at its option accelerate the maturity of
the indebtedness evidenced by the Notes as well as any and all other
indebtedness of Borrower to Lender; all without notice of any kind. Upon the
occurrence of any such Event of Default and the acceleration of the maturity of
the indebtedness evidenced by the Notes:
(a) Lender shall be immediately entitled to exercise any and all
rights and remedies possessed by Lender pursuant to the terms of the
Notes and all of the other Loan Documents; and
(b) Lender shall have any and all other rights and remedies that
Lender may now or hereafter possess at law, in equity or by statute.
5.3 Remedies Cumulative; No Waiver. No right, power or remedy conferred
upon or reserved to Lender by this Agreement or any of the other Loan Documents
is intended to be exclusive of any other right, power or remedy, but each and
every such right, power and remedy shall be cumulative and concurrent and shall
be in addition to any other right, power and remedy given hereunder, under any
of the other Loan Documents or now or hereafter existing at law, in equity or by
statute. No delay or omission by Lender to exercise any right, power or remedy
accruing upon the occurrence of any Event of Default shall exhaust or impair any
such right, power or remedy or shall be construed to be a waiver of any such
Event of Default or an acquiescence therein, and every right, power and remedy
given by this Agreement and the other Loan Documents to Lender may be exercised
from time to time and as often as may be deemed expedient by Lender.
5.4 Proceeds of Remedies. Any or all proceeds resulting from the
exercise of any or all of the foregoing remedies shall be applied as set forth
in the Loan Document(s) providing the remedy or remedies exercised; if none is
specified, or if the remedy is provided by this Agreement, then as follows:
First, to the costs and expenses, including without limitation
reasonable attorney's fees, incurred by Lender in connection with the
exercise of its remedies;
Second, to the expenses of curing the default that has occurred,
in the event that Lender elects, in its sole discretion, to cure the
default that has occurred;
Third, to the payment of the obligations of Borrower under the
Loan Documents (the "Obligations"), including but not limited to the
payment of the principal of and interest on the indebtedness evidenced
by the Notes, in such order of priority as Lender shall determine in
its sole discretion; and
Fourth, the remainder, if any, to Borrower or to any other person
lawfully thereunto entitled.
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ARTICLE 6
MISCELLANEOUS
6.1 Performance By Lender. If Borrower shall default in the payment,
performance or observance of any covenant, term or condition of this Agreement,
which default is not cured within the applicable cure period, then Lender may,
at its option, pay, perform or observe the same, and all payments made or costs
or expenses incurred by Lender in connection therewith (including but not
limited to reasonable attorney's fees), with interest thereon at the highest
default rate provided in the Notes (if none, then at the maximum rate from time
to time allowed by applicable law), shall be immediately repaid to Lender by
Borrower and shall constitute a part of the Obligations. Lender shall be the
sole judge of the necessity for any such actions and of the amounts to be paid.
6.2 Successors and Assigns Included in Parties. Whenever in this
Agreement one of the parties hereto is named or referred to, the heirs, legal
representatives, successors, successors-in-title and assigns of such parties
shall be included, and all covenants and agreements contained in this Agreement
by or on behalf of Borrower or by or on behalf of Lender shall bind and inure to
the benefit of their respective heirs, legal representatives,
successors-in-title and assigns, whether so expressed or not.
6.3 Costs and Expenses. Borrower agrees to pay at closing that amount
of all reasonable costs and expenses normally incurred by Lender in connection
with the making of new loans in the ordinary course of business, including but
not limited to filing fees, recording taxes and reasonable attorneys' fees up to
the aggregate of $10,000.00, promptly upon demand of Lender. Borrower agrees to
further pay for expenses of Lender in accordance with Section 2.2(b) of the Bill
of Sale and Agreement. Borrower further agrees to pay all premiums for insurance
required to be maintained by Borrower pursuant to the terms of the Loan
Documents and all of the out-of-pocket costs and expenses incurred by Lender in
connection with the collection of the Loans, amendment to the Loan Documents, or
prepayment of the Loans, including but not limited to reasonable attorneys'
fees, promptly upon demand of Lender.
6.4 Assignment. The Notes, this Agreement and the other Loan Documents
may be endorsed, assigned and/or transferred in whole or in part by Lender, and
any such holder and/or assignee of the same shall succeed to and be possessed of
the rights and powers of Lender under all of the same to the extent transferred
and assigned. Lender may grant participations in all or any portion of its
interest in the indebtedness evidenced by the Notes to any affiliate of Lender,
and in such event Borrower shall continue to make payments due under the Loan
Documents to Lender and Lender shall have the sole responsibility of allocating
and forwarding such payments in the appropriate manner and amounts. Borrower
shall not assign any of its rights nor delegate any of its duties hereunder or
under any of the other Loan Documents without the prior express written consent
of Lender.
6.5 Time of the Essence. Time is of the essence with respect to each
and every covenant, agreement and obligation of Borrower hereunder and under all
of the other Loan Documents.
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6.6 Severability. If any provision(s) of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
6.7 Interest and Loan Charges Not to Exceed Maximum Allowed by Law.
Anything in this Agreement, the Notes or any of the other Loan Documents to the
contrary notwithstanding, in no event whatsoever, whether by reason of
advancement of proceeds of the Loans, acceleration of the maturity of the unpaid
balance of the Loans or otherwise, shall the interest and loan charges agreed to
be paid to Lender for the use of the money advanced or to be advanced hereunder
exceed the maximum amounts collectible under applicable laws in effect from time
to time. It is understood and agreed by the parties that, if for any reason
whatsoever the interest or loan charges paid or contracted to be paid by
Borrower in respect of the indebtedness evidenced by the Notes shall exceed the
maximum amounts collectible under applicable laws in effect from time to time,
then ipso facto, the obligation to pay such interest and/or loan charges shall
be reduced to the maximum amounts collectible under applicable laws in effect
from time to time, and any amounts collected by Lender that exceed such maximum
amounts shall be applied to the reduction of the principal balance of the
indebtedness evidenced by the Notes and/or refunded to Borrower so that at no
time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced by the Notes exceed the maximum amounts permitted from
time to time by applicable law.
6.8 Article and Section Headings; Defined Terms. Numbered and titled
article and section headings and defined terms are for convenience only and
shall not be construed as amplifying or limiting any of the provisions of this
Agreement.
6.9 Notices. Any and all notices, elections or demands permitted or
required to be made under this Agreement shall be in writing, signed by the
party giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery, telecopy or telex or two (2) business days after the date of mailing
(or the next business day after delivery to such courier service), as the case
may be, shall be the date of such notice, election or demand. For the purposes
of this Agreement:
The Address of Lender is: Sirrom Investments, Inc.
Suite 200
500 Church Street
Nashville, TN 37219
Attention: Jeff Armstrong
Telecopy No.: 615/726-1208
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with a copy to: Boult, Cummings, Conners & Berry PLC
Suite 1600
414 Union Street
Nashville, TN 37219
Attention: John E. Murdock III
Telecopy No.: 615/252-6359
The Address of Borrower is: Campus Voice, L.L.C.
c/o Network Event Theater, Inc.
149 Fifth Avenue
New York, New York 10010
Attention: Don Leeds
Telecopy No. 212/779-3241
with a copy to: Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, NY 10036-8299
Attention: Bertram A. Abrams
Telecopy No.: 212/969-2900
6.10 Entire Agreement. This Agreement and the other written agreements
between Borrower and Lender represent the entire agreement between the parties
concerning the subject matter hereof, and all oral discussions and prior
agreements are merged herein; provided, if there is a conflict between this
Agreement and any other document executed contemporaneously herewith with
respect to the Obligations, the provision of this Agreement shall control. The
execution and delivery of this Agreement and the other Loan Documents by the
Borrower were not based upon any fact or material provided by Lender, nor was
the Borrower induced or influenced to enter into this Agreement or the other
Loan Documents by any representation, statement, analysis or promise by Lender.
6.11 Governing Law and Amendments. This Agreement and all of the Loan
Documents shall be construed and enforced under the laws of the State of
Tennessee applicable to contracts to be wholly performed in such State. No
amendment or modification hereof shall be effective except in a writing executed
by each of the parties hereto.
6.12 Survival of Representations and Warranties. All representations
and warranties contained herein or in any of the Loan Documents or made by or
furnished on behalf of the Borrower in connection herewith or in any Loan
Documents shall survive the execution and delivery of this Agreement and all
other Loan Documents.
6.13 No Reliance on Lender's Analysis. Borrower acknowledges and
represents that, in connection with the execution and delivery of the Bill of
Sale and Agreement, this Agreement and the other Loan Documents, Borrower has
not relied upon any financial projection, budget,
18
<PAGE>
assessment or other analysis by Lender or upon any representation by Lender as
to the risks, benefits or prospects of Borrower's business activities or present
or future capital needs incidental thereto, all such considerations having been
examined fully and independently by Borrower through its own diligence. Borrower
further acknowledges that Lender has made no agreement whatsoever regarding its
future conduct with respect to the Loans or Borrower's activities except as
expressly set forth in this Agreement and the other Loan Documents.
6.14 Jurisdiction and Venue. Borrower hereby consents to the
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Middle District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or any other Loan Documents or with
respect to the transactions contemplated hereby, and further agrees to the
exclusive venue of such Tennessee courts and expressly waives any and all
objections it may have as to venue in any of such courts.
6.15 Waiver of Trial by Jury. LENDER AND BORROWER HEREBY WAIVE TRIAL BY
JURY IN ANY ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT
OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS
AGREEMENT OR THE LOAN DOCUMENTS.
6.16 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
6.17 Construction and Interpretation. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that the
terms hereof shall be more strictly construed against one party by reason of the
rule of construction that a document is to be more strictly construed against
the party that itself or through its agent prepared the same, it being agreed
that the Borrower, Lender and their respective agents have participated in the
preparation hereof.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized officers, as
of the day and year first above written.
LENDER:
SIRROM INVESTMENTS, INC.,
a Tennessee corporation
By: /s/ Jeff Armstrong
-------------------------------
Title: VP
-------------------------------
BORROWER:
CAMPUS VOICE, L.L.C.,
a Delaware limited liability corporation
By: /s/ Bruce L. Resnik
-------------------------------
Title: Secretary
-------------------------------
20
<PAGE>
Index of Schedules and Attachments
Exhibit A - Form of Notes
Exhibit B - Form of Opinion of Borrower's Counsel
Exhibit C - Form of Bill of Sale and Agreement
Exhibit D - Form of Security Agreement and UCC-1
Exhibit E - Form of Economic Impact Assessment
Exhibit F - Form of Trademark and Patent Security Agreement
Schedule 2.1(f) - Trademarks and Patents
21
<PAGE>
Schedule 2. 1 (f)
Trademarks
Mark Style Class Basis Application No.
---- ----- ----- ----- ---------------
1. CAMPUS VOICE Block (16) USE (75/083197)
2. CAMPUS VOICE Design (16) USE (75/083134)
3. CAMPUS VOICE Design (41) USE (75/083196)
4. CAMPUS VOICE LIFESTYLE Block (16) ITU (75/083003)
5. CAMPUS VOICE LIFESTYLE Design (16) ITU (75/083002)
6. CAMPUS VOICE REC/SPORTS Block (16) ITU (75/083000)
7. CAMPUS VOICE REC/SPORTS Design (16) ITU (75/083001)
8. CAMPUS VOICE RADIO Block (38) ITU (75/082927)
9. CAMPUS VOICE RADIO Design (38) ITU (75/083004)
10. CAMPUS VOICE TELEVISION Block (38) ITU (75/082998)
11. CAMPUS VOICE TELEVISION Design (38) ITU (75/082928)
12. CAMPUS VOICE NEWS Block (41) ITU (75/082929)
13. CAMPUS VOICE NEWS Design (41) ITU (75/083142)
22
EXHIBIT 10.25
SENIOR SECURED PROMISSORY NOTE
$660,000.00 January 31, 1997
FOR VALUE RECEIVED, the undersigned, CAMPUS VOICE, L.L.C., a Delaware
limited liability company ("Maker"), promises to pay to the order of SIRROM
INVESTMENTS, INC., a Tennessee corporation ("Payee"; Payee and any subsequent
holder[s] hereof are hereinafter referred to collectively as "Holder"), at the
office of Payee in Nashville, Tennessee or at such other place as Holder may
designate to Maker in writing from time to time, the principal sum of SIX
HUNDRED SIXTY THOUSAND AND NO/ 100THS DOLLARS ($660,000.00), or such lesser
amount as may have been advanced pursuant to the loan agreement referred to
below, together with interest on the outstanding principal balance hereof from
the date loaned at the rate of eight percent (8.0%) per annum (computed on the
basis of a 360-day year).
Interest only on the outstanding principal balance hereof shall be due
and payable monthly, in arrears, with the first installment being payable on the
first (1st) day of April, 1997, and subsequent installments being payable on the
first (1st) day of each succeeding month thereafter until December 31, 1999 (the
"Maturity Date"), at which time the entire outstanding principal balance,
together with all accrued and unpaid interest, shall be immediately due and
payable in full.
The indebtedness evidenced hereby may be prepaid in whole or in part,
at any time and from time to time, without penalty. Any such prepayments shall
be credited first to any accrued and unpaid interest and then to the outstanding
principal balance hereof. Mandatory prepayments shall become due hereunder as
provided in that Bill of Sale and Agreement dated as of the date hereof among
Maker, Sirrom Capital Corporation, SCCGS, Inc. and Network Event Theater, Inc.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of principal or interest as
stipulated above, which default is not cured following the giving of any
applicable notice and within five (5) days, as provided in the Loan Agreement
referred to below; or in the event that any default or event of default shall
occur under that certain Loan Agreement of even date herewith, between Maker and
Payee (the "Loan Agreement"), which default or event of default is not cured
following the giving of any applicable notice and within any applicable cure
period set forth in said Loan Agreement; or should any default by Maker be made
in the performance or observance of any covenants or conditions contained in any
other instrument or document now or hereafter evidencing, securing or otherwise
relating to the indebtedness evidenced hereby (subject to any applicable notice
and cure period provisions that may be set forth therein); then, and in such
event, the entire outstanding principal balance of the indebtedness evidenced
hereby, together with any other sums advanced hereunder, under the Loan
Agreement and/or under any other instrument or document now or hereafter
evidencing, securing or in any way relating to the indebtedness evidenced
hereby, together with all unpaid interest accrued thereon, shall, at the option
of Holder and
1
<PAGE>
without notice to Maker, at once become due and payable and may be collected
forthwith, regardless of the stipulated date of maturity. Upon the occurrence of
any default in payment as set forth herein, at the option of Holder and without
notice to Maker, all accrued and unpaid interest, if any, shall be added to the
outstanding principal balance hereof, and the entire outstanding principal
balance, as so adjusted, shall bear interest thereafter until paid at an annual
rate (the "Default Rate") equal to the lesser of (i) the rate that is seven
percentage points (7.0%) in excess of the above-specified interest rate, or (ii)
the maximum rate of interest allowed to be charged under applicable law (the
"Maximum Rate"), regardless of whether or not there has been an acceleration of
the payment of principal as set forth herein. All such interest shall be paid at
the time of and as a condition precedent to the curing of any such default.
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Maker and any endorsers hereof agree to pay to
Holder an amount equal to all such costs, including without limitation all
actual reasonable attorney's fees and all court costs.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment are hereby waived by Maker and all other parties hereto. No
failure to accelerate the indebtedness evidenced hereby by reason of default
hereunder, acceptance of a past-due installment or other indulgences granted
from time to time, shall be construed as a novation of this Note or as a waiver
of such right of acceleration or of the right of Holder thereafter to insist
upon strict compliance with the terms of this Note or to prevent the exercise of
such right of acceleration or any other right granted hereunder or by applicable
laws. No extension of the time for payment of the indebtedness evidenced hereby
or any installment due hereunder, made by agreement with any person now or
hereafter liable for payment of the indebtedness evidenced hereby, shall operate
to release, discharge, modify, change or affect the original liability of Maker
hereunder or that of any other person now or hereafter liable for payment of the
indebtedness evidenced hereby, either in whole or in part, unless Holder agrees
otherwise in writing. This Note may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
The indebtedness and other obligations evidenced by this Note are
further evidenced by (i) the Loan Agreement and (ii) certain other instruments
and documents, as may be required to protect and preserve the rights of Maker
and Payee as more specifically described in the Loan Agreement. Reference is
made to the Loan Agreement for provisions relating to jurisdiction, venue and
waiver of right to jury trial that apply to the obligations evidenced by this
Note.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder exceed the Maximum Rate. If, from any circumstances whatsoever, the
fulfillment of any provision of this Note or any other agreement or instrument
now or hereafter evidencing, securing or in any way relating to the indebtedness
evidenced
2
<PAGE>
hereby shall involve the payment of interest in excess of the Maximum Rate,
then, ipso facto, the obligation to pay interest hereunder shall be reduced to
the Maximum Rate; and if from any circumstance whatsoever, Holder shall ever
receive interest, the amount of which would exceed the amount collectible at the
Maximum Rate, such amount as would be excessive interest shall be applied to the
reduction of the principal balance remaining unpaid hereunder and not to the
payment of interest. This provision shall control every other provision in any
and all other agreements and instruments existing or hereafter arising between
Maker and Holder with respect to the indebtedness evidenced hereby.
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to the
extent that federal law may be applicable to the determination of the Maximum
Rate.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law.
MAKER:
CAMPUS VOICE, L.L.C.,
a Delaware limited liability company
By: /s/ Bruce L. Resnik
-----------------------------
Title: Secretary
--------------------------
3
EXHIBIT 10.26
JUNIOR SECURED PROMISSORY NOTE
$300,000.00 January 31, 1997
FOR VALUE RECEIVED, the undersigned, CAMPUS VOICE, L.L.C., a Delaware
limited liability company ("Maker"), promises to pay to the order of SCCGS,
INC., a Tennessee corporation ("Payee"; Payee and any subsequent holder[s]
hereof are hereinafter referred to collectively as "Holder"), at the office of
Payee in Nashville, Tennessee or at such other place as Holder may designate to
Maker in writing from time to time, the principal sum of THREE HUNDRED THOUSAND
AND NO/100THS DOLLARS ($300,000.00), together with interest on the outstanding
principal balance hereof from the date hereof at the rate of twelve percent
(12.0%) per annum (computed on the basis of a 360-day year).
This Note is the "Junior Secured Note" as defined in that Bill of Sale
and Agreement dated as of the date hereof among Maker, Payee, Sirrom Capital
Corporation and Network Event Theater, Inc. (the "Bill of Sale and Agreement").
Payments shall become due hereunder no later than forty-five (45) days after the
end of each fiscal quarter in the manner and to the extent provided for in the
Bill of Sale and Agreement and, in any event, including prepayment made under
the Bill of Sale and Agreement, at least $50,000.00 in payments of principal
and/or interest shall have been made hereunder and/or under the "Second Junior
Secured Note" (as defined in the Bill of Sale and Agreement) on or before June
30, 1999; at least $300,000.00 in payments of principal and/or interest (in the
aggregate with previous payments) shall have been made on or before June 30,
2000; at least $600,000.00 in payments of principal and/or interest (in the
aggregate with previous payments) shall have been made on or before June 30,
2001; and the total amount of such required payments shall increase by the
amount of $350,000.00 (in the aggregate with previous payments) on June 30, 2002
and on each June 30 thereafter until the final maturity of this Note or its
earlier payment in full. All payments shall be applied first to accrued interest
and then to principal. On December 31, 2006 (the "Maturity Date"), the entire
outstanding principal balance, together with all accrued and unpaid interest,
shall be immediately due and payable in full.
The indebtedness evidenced hereby may be prepaid in whole or in part,
at any time and from time to time, without penalty. Any such prepayments shall
be credited first to any accrued and unpaid interest and then to the outstanding
principal balance hereof.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of principal or interest as
stipulated above, which default is not cured following the giving of any
applicable notice and within five (5) days, as provided in the Loan Agreement
referred to below; or in the event that any default or event of default shall
occur under that certain Loan Agreement of even date herewith, between Maker and
Payee (the "Loan Agreement"), which default or event of default is not cured
following the giving of any applicable notice and within any applicable cure
period set forth in said Loan Agreement; or
1
<PAGE>
should any default by Maker be made in the performance or observance of any
covenants or conditions contained in any other instrument or document now or
hereafter evidencing, securing or otherwise relating to the indebtedness
evidenced hereby (subject to any applicable notice and cure period provisions
that may be set forth therein); then, and in such event, the entire outstanding
principal balance of the indebtedness evidenced hereby, together with any other
sums advanced hereunder, under the Loan Agreement and/or under any other
instrument or document now or hereafter evidencing, securing or in any way
relating to the indebtedness evidenced hereby, together with all unpaid interest
accrued thereon, shall, at the option of Holder and without notice to Maker, at
once become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. Upon the occurrence of any default of payment as
set forth herein, at the option of Holder and without notice to Maker, all
accrued and unpaid interest, if any, shall be added to the outstanding principal
balance hereof, and the entire outstanding principal balance, as so adjusted,
shall bear interest thereafter until paid at an annual rate (the "Default Rate")
equal to the lesser of (i) the rate that is seven percentage points (7.0%) in
excess of the above-specified interest rate, or (ii) the maximum rate of
interest allowed to be charged under applicable law (the "Maximum Rate"),
regardless of whether or not there has been an acceleration of the payment of
principal as set forth herein. All such interest shall be paid at the time of
and as a condition precedent to the curing of any such default.
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Maker and any indorsers hereof agree to pay to
Holder an amount equal to all such costs, including without limitation all
actual reasonable attorney's fees and all court costs.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment are hereby waived by Maker and all other parties hereto. No
failure to accelerate the indebtedness evidenced hereby by reason of default
hereunder, acceptance of a past-due installment or other indulgences granted
from time to time, shall be construed as a novation of this Note or as a waiver
of such right of acceleration or of the right of Holder thereafter to insist
upon strict compliance with the terms of this Note or to prevent the exercise of
such right of acceleration or any other right granted hereunder or by applicable
laws. No extension of the time for payment of the indebtedness evidenced hereby
or any installment due hereunder, made by agreement with any person now or
hereafter liable for payment of the indebtedness evidenced hereby, shall operate
to release, discharge, modify, change or affect the original liability of Maker
hereunder or that of any other person now or hereafter liable for payment of the
indebtedness evidenced hereby, either in whole or in part, unless Holder agrees
otherwise in writing. This Note may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
The indebtedness and other obligations evidenced by this Note are
further evidenced by (i) the Loan Agreement and (ii) certain other instruments
and documents, as may be required to protect and preserve the rights of Maker
and Payee as more specifically described in the Loan
2
<PAGE>
Agreement. Reference is made to the Loan Agreement for provisions relating to
jurisdiction, venue and waiver of right to jury trial that apply to the
obligations evidenced by this Note.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder exceed the Maximum Rate. If, from any circumstances whatsoever, the
fulfillment of any provision of this Note or any other agreement or instrument
now or hereafter evidencing, securing or in any way relating to the indebtedness
evidenced hereby shall involve the payment of interest in excess of the Maximum
Rate, then, ipso facto, the obligation to pay interest hereunder shall be
reduced to the Maximum Rate; and if from any circumstance whatsoever, Holder
shall ever receive interest, the amount of which would exceed the amount
collectible at the Maximum Rate, such amount as would be excessive interest
shall be applied to the reduction of the principal balance remaining unpaid
hereunder and not to the payment of interest. This provision shall control every
other provision in any and all other agreements and instruments existing or
hereafter arising between Maker and Holder with respect to the indebtedness
evidenced hereby.
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to the
extent that federal law may be applicable to the determination of the Maximum
Rate.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law.
MAKER:
CAMPUS VOICE, L.L.C.,
a Delaware limited liability company
By: /s/ Bruce L. Resnik
--------------------------------------
Title: Secretary
-----------------------------------
Pay to the Order of Sirrom Capital Corporation
SCCGS, INC.
By: /s/ Jeff Armstrong
--------------------------------------
Title: VP
-----------------------------------
3
<PAGE>
Pay to the Order of Sirrom Investments, Inc.
SIRROM CAPITAL CORPORATION
By: /s/ Donald F. Barrickman
--------------------------------------
Title: Vice President
-----------------------------------
4
EXHIBIT 10.27
SECOND JUNIOR SECURED PROMISSORY NOTE
$1,263,222.83 January 31, 1997
FOR VALUE RECEIVED, the undersigned, CAMPUS VOICE, L.L.C., a Delaware
limited liability company ("Maker"), promises to pay to the order of SCCGS,
INC., a Tennessee corporation ("Payee"; Payee and any subsequent holder[s]
hereof are hereinafter referred to collectively as "Holder"), at the office of
Payee in Nashville, Tennessee or at such other place as Holder may designate to
Maker in writing from time to time, the principal sum of ONE MILLION TWO HUNDRED
SIXTY-THREE THOUSAND TWO HUNDRED TWENTY-TWO AND 83/100 DOLLARS ($1,263,222.83),
together with interest on the outstanding principal balance hereof from the date
hereof at the rate of twelve percent (I 2.0%) per annum (computed on the basis
of a 360-day year).
This Note is the "Second Junior Secured Note" as defined in that Bill
of Sale and Agreement dated as of the date hereof among Maker, Payee, Sirrom
Capital Corporation and Network Event Theater, Inc. (the "Bill of Sale and
Agreement"). Payments shall become due hereunder no later than forty-five (45)
days after the end of each fiscal quarter in the manner and to the extent
provided for in the Bill of Sale and Agreement and, in any event, including
payments made under the Bill of Sale and Agreement, at least $50,000.00 in
payments of principal and/or interest shall have been made hereunder and/or
under the "Junior Secured Note" (as defined in the Bill of Sale and Agreement)
on or before June 30, 1999; at least $300,000.00 in payments of principal and/or
interest (in the aggregate with previous payments) shall have been made on or
before June 30, 2000; at least $600,000.00 in payments of principal and/or
interest (in the aggregate with previous payments) shall have been made on or
before June 30, 2001; and the total amount of such required payments shall
increase by the amount of $350,000.00 (in the aggregate with previous payments)
on June 30, 2002 and on each June 30 thereafter until the final maturity of this
Note or its earlier payment in full. All payments shall be applied first to
accrued interest and then to principal. On December 31, 2006 (the "Maturity
Date"), the entire outstanding principal balance, together with all accrued and
unpaid interest, shall be immediately due and payable in full.
The indebtedness evidenced hereby may be prepaid in whole or in part,
at any time and from time to time, without penalty. Any such prepayments shall
be credited first to any accrued and unpaid interest and then to the outstanding
principal balance hereof.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of principal or interest as
stipulated above, which default is not cured following the giving of any
applicable notice and within five (5) days, as provided in the Loan Agreement
referred to below; or in the event that any default or event of default shall
occur under that certain Loan Agreement of even date herewith, between Maker and
Payee (the "Loan Agreement"), which default or event of default is not cured
following the giving of any
<PAGE>
applicable notice and within any applicable cure period set forth in said Loan
Agreement; or should any default by Maker be made in the performance or
observance of any covenants or conditions contained in any other instrument or
document now or hereafter evidencing, securing or otherwise relating to the
indebtedness evidenced hereby (subject to any applicable notice and cure period
provisions that may be set forth therein); then, and in such event, the entire
outstanding principal balance of the indebtedness evidenced hereby, together
with any other sums advanced hereunder, under the Loan Agreement and/or under
any other instrument or document now or hereafter evidencing, securing or in any
way relating to the indebtedness evidenced hereby, together with all unpaid
interest accrued thereon, shall, at the option of Holder and without notice to
Maker, at once become due and payable and may be collected forthwith, regardless
of the stipulated date of maturity. Upon the occurrence of any default in
payment as set forth herein, at the option of Holder and without notice to
Maker, all accrued and unpaid interest, if any, shall be added to the
outstanding principal balance hereof, and the entire outstanding principal
balance, as so adjusted, shall bear interest thereafter until paid at an annual
rate (the "Default Rate") equal to the lesser of
(i) the rate that is seven percentage points (7.0%) in excess of
the above- specified interest rate, or
(ii) the maximum rate of interest allowed to be charged under
applicable law (the "Maximum Rate"), regardless of whether or not there has been
an acceleration of the payment of principal as set forth herein. All such
interest shall be paid at the time of and as a condition precedent to the curing
of any such default.
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Maker and any endorsers hereof agree to pay to
Holder an amount equal to all such costs, including without limitation all
actual reasonable attorney's fees and all court costs.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment are hereby waived by Maker and all other parties hereto. No
failure to accelerate the indebtedness evidenced hereby by reason of default
hereunder, acceptance of a past-due installment or other indulgences granted
from time to time, shall be construed as a novation of this Note or as a waiver
of such right of acceleration or of the right of Holder thereafter to insist
upon strict compliance with the terms of this Note or to prevent the exercise of
such right of acceleration or any other right granted hereunder or by applicable
laws. No extension of the time for payment of the indebtedness evidenced hereby
or any installment due hereunder, made by agreement with any person now or
hereafter liable for payment of the indebtedness evidenced hereby, shall operate
to release, discharge, modify, change or affect the original liability of Maker
hereunder or that of any other person now or hereafter liable for payment of the
indebtedness evidenced hereby, either in whole or in part, unless Holder agrees
otherwise in writing. This Note may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
2
<PAGE>
The indebtedness and other obligations evidenced by this Note are
further evidenced by (i) the Loan Agreement and (ii) certain other instruments
and documents, as may be required to protect and preserve the rights of Maker
and Payee as more specifically described in the Loan Agreement. Reference is
made to the Loan Agreement for provisions relating to jurisdiction, venue and
waiver of right to jury trial that apply to the obligations evidenced by this
Note.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder exceed the Maximum Rate. If, from any circumstances whatsoever, the
fulfillment of any provision of this Note or any other agreement or instrument
now or hereafter evidencing, securing or in any way relating to the indebtedness
evidenced hereby shall involve the payment of interest in excess of the Maximum
Rate, then, ipso facto, the obligation to pay interest hereunder shall be
reduced to the Maximum Rate; and if from any circumstance whatsoever, Holder
shall ever receive interest, the amount of which would exceed the amount
collectible at the Maximum Rate, such amount as would be excessive interest
shall be applied to the reduction of the principal balance remaining unpaid
hereunder and not to the payment of interest. This provision shall control every
other provision in any and all other agreements and instruments existing or
hereafter arising between Maker and Holder with respect to the indebtedness
evidenced hereby.
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to the
extent that federal law may be applicable to the determination of the Maximum
Rate.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law.
MAKER:
CAMPUS VOICE, L.L.C.,
a Delaware limited liability company
By: /s/ Bruce L. Resnik
---------------------------------------
Title: Secretary
-----------------------------------
3
<PAGE>
Pay to the Order of Sirrom Capital Corporation
SCCGS, INC.
By: /s/ Jeff Armstrong
---------------------------------------
Title: VP
-----------------------------------
Pay to the Order of Sirrom Investments, Inc.
SIRROM CAPITAL CORPORATION
By: /s/ Donald F. Barrickman
---------------------------------------
Title: Vice President
-----------------------------------
4
EXHIBIT 10.28
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is dated as of the 31st day of
January, 1997, by and between CAMPUS VOICE, L.L.C., a Delaware limited liability
company ("Borrower"), and SIRROM INVESTMENTS, INC., a Tennessee corporation
("Lender").
WITNESSETH:
WHEREAS, Lender is making certain loans evidenced by that Senior
Secured Promissory Note of this date made by Borrower payable to the order of
Lender in the original principal amount of $660,000, by that Junior Secured
Promissory Note of this date made by Borrower payable to the order of SCCGS,
Inc., now held by Lender in the original principal amount of $300,000, and by
that Second Junior Secured Promissory Note of this date made by Borrower payable
to the order of SCCGS, Inc., now held by Lender in the original principal amount
of $1,263,222.83 (collectively the "Loan"), pursuant to that certain Loan
Agreement of even date herewith by and between Borrower and Lender (the "Loan
Agreement"); and
WHEREAS, in order to secure the Loan, Lender desires to obtain from
Borrower and Borrower desires to grant to Lender a security interest in certain
collateral more particularly described below.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Grant of Security Interest. Borrower hereby grants to Lender a
security interest in the following described property and any and all proceeds
and products thereof and accessions thereto (collectively the "Collateral"):
(a) Equipment. All equipment of Borrower of any kind and
description, whether now owned or hereafter acquired and wherever
located, together with all parts, accessories and attachments and all
replacements thereof and additions thereto;
(b) Inventory, Accounts, Contract Rights, Chattel Paper and
General Intangibles. All of Borrower's inventory and any agreements
for lease of same and rentals therefrom, and all of Borrower's
accounts, accounts receivable, contract rights, chattel paper and
general intangibles and the proceeds therefrom, whether now in
existence or owned or hereafter arising or acquired, entered into or
created, and wherever located; and whether held for lease or sale, or
furnished or to be furnished under contracts of service;
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(c) Trademarks, Etc. All trademarks and service marks now held or
hereafter acquired by Borrower, both those that are registered with
the United States Patent and Trademark Office and any unregistered
marks used by Borrower in the United States, and trade dress,
including logos and designs, in connection with which any such marks
are used, together with all registrations regarding such marks and the
rights to renewals thereof, and the goodwill of the business of
Borrower symbolized by such marks;
(d) Copyrights. All copyrights now held or hereafter acquired by
Borrower and any applications for U.S. copyrights hereafter made by
Borrower; and
(e) Proprietary Information, Computer Data, Etc. All proprietary
information and trade secrets of Borrower with respect to Borrower's
business and all of Borrower's computer programs and the information
contained therein and all intellectual property rights with respect
thereto.
2. Secured Indebtedness. The obligations secured hereby shall include
(a) the Loan to be made concurrently or in connection with this Agreement or the
Loan Agreement as evidenced by the promissory notes described above payable to
the order of Lender that shall be due and payable as set forth in such
promissory notes, and any renewals or extensions thereof, (b) the full and
prompt payment and performance of any and all other indebtednesses and other
obligations of Borrower to Lender, direct or contingent (including but not
limited to obligations incurred as indorser, guarantor or surety), however
evidenced or denominated, and however and whenever incurred, including but not
limited to indebtednesses incurred pursuant to any present or future commitment
of Lender to Borrower and (c) all future advances made by Lender for taxes,
levies, insurance and preservation of the Collateral and all attorney's fees,
court costs and expenses of whatever kind incident to the collection of any of
said indebtedness or other obligations and the enforcement and protection of the
security interest created hereby.
3. Representations, Warranties and Agreements of Borrower. Borrower
represents, warrants and agrees as follows:
(a) Borrower will promptly notify Lender, in writing, of any new
place or places of business if the Collateral is used in business, or
of any change in Borrower's residence if the Collateral is not used in
business, and regardless of use, of any change in the location of the
Collateral or any records pertaining thereto. Borrower's inadvertent
failure to notify Lender shall not be considered a default under this
Agreement unless, in Lender's reasonable judgment, the failure results
in Lender's not being perfected in a material portion of the
Collateral.
(b) Except as set forth on Schedule 3(b) hereto and as permitted
in the Loan Agreement (the "Permitted Liens") (this warranty being
made to the best of Borrower's knowledge based on Lender's
representations to Borrower in a Bill of Sale and Agreement dated this
date), Borrower is the owner of the Collateral free and clear of any
liens and
2
<PAGE>
security interests. Borrower will defend the Collateral against the
claims and demands of all persons other than Permitted Liens (as
defined in the Loan Agreement).
(c) Borrower will at all times keep the Collateral insured
against all insurable hazards in amounts equal to the full cash value
of the Collateral or such lesser amount as may be customary in
Borrower's industry. Such insurance shall be in such companies as may
be acceptable to Lender, with provisions satisfactory to Lender for
payment of all losses thereunder to Lender as its interests may
appear. If required by Lender, Borrower shall deposit the policies
with Lender. If any Event of Default under the Loan Agreement exists,
any money received by Lender under said policies may be applied to the
payment of any indebtedness secured hereby, whether or not due and
payable, or at Lender's option may be delivered by Lender to Borrower
for the purpose of repairing or restoring the Collateral. Subject to
the existence of an Event of Default under the Loan Agreement,
Borrower assigns to Lender all right to receive proceeds of insurance
on the Collateral not exceeding the amounts secured hereby, directs
any insurer to pay all proceeds directly to Lender, and appoints
Lender Borrower's attorney in fact to endorse any draft or check made
payable to Borrower in order to collect the benefits of such
insurance. If Borrower fails to keep the Collateral insured as
required by Lender, Lender shall have the right to obtain such
insurance at Borrower's expense and add the cost thereof to the other
amounts secured hereby.
(d) Borrower will pay all costs of filing of financing,
continuation and termination statements with respect to the security
interests created hereby, and Lender is authorized to do all things
that it deems necessary to perfect and continue perfection of the
security interests created hereby and to protect the Collateral.
(e) The address set forth after Borrower's signature on this
Agreement is Borrower's chief executive office and it, together with
the following addresses are the locations where Collateral and the
place where the records concerning all intangible Collateral may be
kept and/or maintained in addition to colleges, universities and other
locations at which advertising boards may be located from time to
time:
___________________________________
____________, Virginia
___________________________________
_____________, Oregon
___________________________________
_____________, New York
___________________________________
_____________, California
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<PAGE>
4. Default. Borrower shall be in default hereunder upon the occurrence
and continuation of an Event of Default under the Loan Agreement.
5. Remedies Upon Default. Upon default hereunder as provided in Section
4 above, all sums secured hereby shall immediately become due and payable at
Lender's option without notice to Borrower, and Lender may proceed to enforce
payment of same and to exercise any and all rights and remedies provided by the
Uniform Commercial Code (Tennessee) or other applicable law, as well as all
other rights and remedies possessed by Lender, all of which shall be cumulative.
Whenever Borrower is in default hereunder, and upon demand by Lender, Borrower
shall assemble the Collateral and make it available to Lender at a place
reasonably convenient to Lender and Borrower. Any notice of sale, lease or other
intended disposition of the Collateral by Lender sent to Borrower at the address
hereinafter set forth, or at such other address of Borrower as may be shown on
Lender's records, at least five (5) days prior to such action, shall constitute
reasonable notice to Borrower.
Lender may waive any default before or after the same has been declared
without impairing its right to declare a subsequent default hereunder, this
right being a continuing one.
6. Severability. If any provision of this Agreement is held invalid,
such invalidity shall not affect the validity or enforceability of the remaining
provisions of this Agreement.
7. Binding Effect. This Agreement shall inure to the benefit of
Lender's successors and assigns and shall bind Borrower's heirs,
representatives, successors and assigns. If Borrower is composed of more than
one person, firm and/or entity, their obligations hereunder shall be joint and
several.
8. Financial Reporting. Lender shall have the right, at any time, by
its own auditors, accountants or other agents, to examine or audit any of the
books and records of Borrower, or the Collateral, all of which will be made
available upon request. Such accountants or other representatives of Lender will
be permitted to make any verification of the existence of the Collateral or
accuracy of the records that Lender deems necessary or proper. Any reasonable
expenses incurred by Lender in making such examination, inspection, verification
or audit shall be paid by Borrower promptly on demand and shall be secured by
the security interest granted hereby.
9. Termination Statement. Borrower agrees that, notwithstanding the
payment in full of all indebtedness secured hereby and whether or not there is
any outstanding obligation of Lender to make future advances, Lender shall not
be required to send Borrower a termination statement with respect to any
financing statement filed to perfect Lender's security interest(s) in any of the
Collateral, unless and until Borrower shall have made written demand therefor.
Upon receipt of proper written demand, Lender may at its option, in lieu of
sending a termination statement to Borrower, cause said termination statement to
be filed with the appropriate filing officer(s).
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<PAGE>
10. Protection of Collateral. Borrower will not permit any liens or
security interests other than those created by this Agreement and the Permitted
Liens (as defined in the Loan Agreement) to attach to any of the Collateral, nor
permit any of the Collateral to be levied upon under any legal process, nor
permit anything to be done that may impair the security intended to be afforded
by this Agreement, nor permit any tangible Collateral to become attached to or
commingled with other goods without the prior written consent of Lender.
11. Special Agreements With Respect to Certain Tangible Collateral.
Borrower additionally agrees and warrants as follows:
(a) Borrower will not permit any of the Collateral to be removed
from the locations specified herein, except for temporary periods in
the ordinary course of business, without the prior written consent of
Lender, and will permit Lender to inspect the Collateral at any time;
provided, however, that if Borrower wishes to store Collateral at an
additional location for purposes that are not merely temporary, it may
do so by giving written notice to Lender and executing such documents
as Lender may require to assure the continuation of the perfection of
Lender's security interest in the relocated collateral;
(b) Borrower represents that the Collateral consisting of
advertising boards will be placed in various jurisdictions in the
ordinary course of business and agrees to provide Lender with a list
of the locations thereof from time to time upon Lender's request.
(c) Borrower will not sell, exchange, lease or otherwise dispose
of any of the Collateral or any interest therein without the prior
written consent of Lender, except for dispositions of immaterial
amounts of Collateral in the ordinary course of business.
(d) Borrower will keep the material items of the Collateral in
good condition and repair and will pay and discharge all taxes, levies
and other impositions levied thereon as well as the cost of repairs to
or maintenance of same, and will not permit anything to be done that
may impair the value of any of the Collateral. If Borrower fails to
pay such sums, Lender may do so for Borrower's account and add the
amount thereof to the other amounts secured hereby.
(e) Borrower will not allow the Collateral to be attached to real
estate in such manner as to become a fixture or a part of any real
estate.
12. Special Agreements With Respect to Intangible and Certain Tangible
Collateral. Borrower additionally warrants and agrees as follows:
(a) So long as Borrower is not in default hereunder, Borrower
shall have the right to process and sell Borrower's inventory in the
regular course of business. Lender's security interest hereunder shall
attach to all proceeds of all sales or other dispositions of the
Collateral. If at any time any such proceeds shall be represented by
any instruments, chattel
5
<PAGE>
paper or documents of title, then such instruments, chattel paper or
documents of title shall be promptly delivered to Lender and subject
to the security interest granted hereby. If at any time any of
Borrower's inventory is represented by any document of title, such
document of title will be delivered promptly to Lender and subject to
the security interest granted hereby.
(b) By the execution of this Agreement, Lender shall not be
obligated to do or perform any of the acts or things provided in any
contracts covered hereby that are to be done or performed by Borrower,
but if there is a default by Borrower in the payment of any amount due
in respect of any indebtedness secured hereby, then Lender may, at its
election, perform some or all of the obligations provided in said
contracts to be performed by Borrower, and if Lender incurs any
liability or expenses by reason thereof, the same shall be payable by
Borrower upon demand and shall also be secured by this Agreement.
(c) At any time after Borrower is in default hereunder as
provided in Section 4 hereof, Lender shall have the right to notify
the account debtors obligated on any or all of Borrower's accounts
receivable to make payment thereof directly to Lender, and to take
control of all proceeds of any such accounts receivable. Until such
time as Lender elects to exercise such right by mailing to Borrower
written notice thereof, Borrower is authorized, as agent of the
Lender, to collect and enforce said accounts receivable.
13. Power of Attorney. Borrower hereby constitutes the Lender or its
designee, as Borrower's attorney-in-fact with power, upon the occurrence and
during the continuance of an Event of Default, to endorse Borrower name upon any
notes, acceptances, checks, drafts, money orders, or other evidences of payment
or Collateral that may come into either its or the Lender's possession; to sign
the name of Borrower on any invoice or bill of lading relating to any of the
accounts receivable, drafts against customers, assignments and verifications of
accounts receivable and notices to customers; to send verifications of accounts
receivable; to notify the Post Office authorities to change the address for
delivery of mail addressed to Borrower to such address as the Lender may
designate; to execute any of the documents referred to in Section 3(e) hereof in
order to perfect and/or maintain the security interests and liens granted herein
by Borrower to the Lender; to do all other acts and things necessary to carry
out this Security Agreement. All acts of said attorney or designee are hereby
ratified and approved, and said attorney or designee shall not be liable for any
acts of commission or omission (other than acts of gross negligence or willful
misconduct), nor for any error of judgment or mistake of fact or law; this power
being coupled with an interest is irrevocable until all of the obligations
secured hereby are paid in full and any and all promissory notes executed in
connection therewith are terminated and satisfied.
14. Governing Law and Amendments. This Agreement and all of the Loan
Documents shall be construed and enforced under the laws of the State of
Tennessee applicable to contracts to be wholly performed in such State. No
amendment or modification hereof shall be effective except in a writing executed
by each of the parties hereto.
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<PAGE>
15. Survival of Representations and Warranties. All representations and
warranties contained herein or made by or furnished on behalf of the Borrowers
in connection herewith shall survive the execution and delivery of this
Agreement.
16. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
17. Construction and Interpretation. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that the
terms hereof shall be more strictly construed against one party by reason of the
rule of construction that a document is to be more strictly construed against
the party that itself or through its agent prepared the same, it being agreed
that the Borrower, Lender and their respective agents have participated in the
preparation hereof.
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement,
or have caused this Agreement to be executed as of the date first above written.
BORROWER:
CAMPUS VOICE, L.L.C.
By: /s/ Bruce L. Resnik
---------------------------------------
Title: Secretary
-------------------------------------
Address: 149 Fifth Avenue, 11th Floor
---------------------------------
New York, NY 10010
---------------------------------
---------------------------------
LENDER:
SIRROM INVESTMENTS, INC.
By: /s/ Jeff Armstrong
---------------------------------------
Title: VP
-------------------------------------
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<PAGE>
SCHEDULE 3(b)
(Liens)
NONE
8
EXHIBIT 10.29
TRADEMARK AND PATENT
SECURITY AGREEMENT
THIS TRADEMARK AND PATENT SECURITY AGREEMENT, dated as of January 31,
1997, is made by CAMPUS VOICE, L.L.C., a Delaware limited liability company (the
"Grantor"), in favor of SIRROM INVESTMENTS, INC., a Tennessee corporation (the
"Lender").
WITNESSETH:
WHEREAS, pursuant to that certain Loan Agreement of even date herewith
between Grantor and Lender, (as amended, extended, modified, restructured or
renewed from time to time, the "Loan Agreement") by and among Grantor and
Lender, Lender is making certain loans evidenced by that Senior Secured
Promissory Note of this date made by Grantor payable to the order of Lender in
the original principal amount of $660,000, by that Junior Secured Promissory
Note of this date made by Grantor payable to the order of SCCGS, Inc. and now
held by Lender in the original principal amount of $300,000, and by that Second
Junior Secured Promissory Note of this date made by Grantor payable to the order
of SCCGS, Inc. and now held by Lender in the original principal amount of
$1,263,222.83 (such notes are collectively the "Note," and the loans evidenced
thereby are collectively the "Loan");
WHEREAS, the Grantor owns certain Trademarks and Patents listed on
Schedule A hereto;
WHEREAS, the Grantor desires to mortgage, pledge and grant to Lender,
for the benefit of Lender, a security interest in all of its right, title and
interest in, to and under the Collateral, including the property listed on the
attached Schedule A, together with any renewal or extension thereof, and all
Proceeds thereof, to secure the payment of the Obligations;
WHEREAS, it is a condition precedent to the obligation of the Lender to
make the Loan to the Grantor under the Loan Agreement, that Grantor execute this
Agreement;
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and to induce Lender
to enter into the Loan Agreement and to induce Lender to make the loan to the
Grantor under the Loan Agreement, the Grantor hereby agrees with Lender, as
follows:
1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Loan Agreement and used herein are so used as so defined, and the
following terms shall have the following meanings:
"Collateral" has the meaning assigned to it in Section 3 of this
Security Agreement.
<PAGE>
"Obligations" means obligations secured hereby shall include (a)
loans to be made concurrently or in connection with this Agreement or the Loan
Agreement as evidenced by one or more promissory notes payable to the order of
Lender that shall be due and payable as set forth in such promissory notes, and
any renewals or extensions thereof, (b) the full and prompt payment and
performance of any and all other indebtednesses and other obligations of Grantor
to Lender, direct or contingent (including but not limited to obligations
incurred as indorser, guarantor or surety), however evidenced or denominated,
and however and whenever incurred, including but not limited to indebtednesses
incurred pursuant to any present or future commitment of Lender to Grantor and
(c) all future advances made by Lender for taxes, levies, insurance and
preservation of the Collateral and all attorney's fees, court costs and expenses
of whatever kind incident to the collection of any of said indebtedness or other
obligations and the enforcement and protection of the security interest created
hereby.
"Patents" means all types of exclusionary or protective rights
granted (or applications therefor) for inventions in any country of the world
(including, without limitation, letters patent, plant patents, utility models,
breeders' right certificates, inventor's certificates and the like), and all
reissues and extensions thereof and all divisions, continuations and
continuations-in-part thereof, including, without limitation, all such rights
referred to in Schedule A hereto.
"Patent License" means all agreements material to the operation
of Grantor's businesses, whether written or oral, providing for the grant by or
to the Grantor of any right to manufacture, use or sell any invention covered by
a Patent, including, without limitation, any thereof referred to in Schedule A
hereto.
"Proceeds" means "proceeds," as such term is defined in Section
9-306(l) of the UCC and, to the extent not included in such definition, shall
include, without limitation, (a) any and all proceeds of any insurance,
indemnity, warranty, guaranty or letter of credit payable to the Grantor, from
time to time with respect to any of the Collateral, (b) all payments (in any
form whatsoever) paid or payable to the Grantor from time to time in connection
with any taking of all or any part of the Collateral by any governmental
authority or any Person acting under color of governmental authority), (c) all
judgments in favor of the Grantor in respect of the Collateral and (d) all other
amounts from time to time paid or payable or received or receivable under or in
connection with any of the Collateral.
"Security Agreement" means this Trademark and Patent Security
Agreement, as amended, supplemented or otherwise modified from time to time.
"Trademarks" means (a) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade styles,
service marks, logos and other source of business identifiers used in any
country in the world, whether registered or unregistered, and the goodwill
associated therewith, now existing and material to the businesses of the Grantor
or hereafter acquired, and (b) all registrations, recordings and renewals
thereof, and all applications in connection
2
<PAGE>
therewith, issued by or filed in a national, state or local governmental
authority of any country, including, without limitation, all such rights
referred to in Schedule A hereto.
"Trademark License" means any agreement, material to the
businesses of the Grantor, written or oral, providing for the grant by or to the
Grantor of any right to use any Trademark, including, without limitation, any
thereof referred to in Schedule A hereto.
"UCC" means the Uniform Commercial Code as from time to time in
effect in the State of Tennessee.
2. Assets Acquired from SCCGS, Inc. Notwithstanding any other provision
of this Agreement, Grantor's warranties and representations made in this
Agreement regarding the title and condition or other matters relating to any
assets acquired by Grantor from SCCGS, Inc. as part of the "Assets," as defined
in that Bill of Sale and Agreement dated as of the date hereof among Sirrom
Capital Corporation, Grantor, SCCGS, Inc. and Network Event Theater, Inc., are
made to the best of Grantor's knowledge based only upon its diligence to date
and the representations and warranties of SCCGS, Inc. in the Bill of Sale and
Agreement.
3. Grant of Security Interest. As collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of the Obligations, Grantor hereby assigns and
grants to Lender for the benefit of Lender a security interest in all of
Grantor's right, title and interest in and to the following property now owned
or at any time hereafter acquired by Grantor or in which Grantor now have or at
any time in the future may acquire any right, title or interest (collectively,
the "Collateral"):
(i) all Trademarks;
(ii) all Trademark Licenses;
(iii) all Patents;
(iv) all Patent Licenses; and
(v) to the extent not otherwise included, all Proceeds and
products of any and all of the foregoing;
that are material to the business of Grantor, and whether or not included in
Schedule A.
4. Representations and Warranties Concerning Trademarks. Subject to
Section 2 above, Grantor represents and warrants that to the best of its
knowledge Schedule A hereto includes all of Grantor's registered Trademarks and
Trademark Licenses and all of the Patents and Patent Licenses owned by Grantor
in its own name or as to which Grantor has any colorable claim of ownership that
are material to the businesses of Grantor as of the date hereof; to the best of
Grantor's knowledge,
3
<PAGE>
each Trademark and Patent is valid, subsisting, unexpired, enforceable and has
not been abandoned; except as set forth in Schedule A, none of the Trademarks or
Patents is the subject of any licensing or franchise agreement; all licenses of
the Trademarks and Patents are in force and, to the best knowledge of the
Grantor, not in default; no holding, decision or judgment has been rendered by
any governmental authority which would limit, cancel or question the validity of
any material Trademark or Patent; and no action or proceeding is pending (i)
seeking to limit, cancel or question the validity of any Trademark or Patent or
the Grantor's ownership thereof or (ii) which, if adversely determined, would
reasonably be likely to have a material adverse effect on the value of any
Trademark or Patent.
5. Covenants. Grantor covenants and agrees with Lender that, from and
after the date of this Security Agreement until the Obligations are paid in
full:
(a) Further Documentation. From time to time, upon the written
request of Lender, and at the sole expense of Grantor, the Grantor will
promptly and duly execute and deliver such further instruments and
documents and take such further action as Lender may reasonably request
for the purpose of obtaining or preserving the full benefits of this
Security Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or
continuation statements under the UCC in effect in any jurisdiction
with respect to the liens created hereby. Grantor also hereby
authorizes Lender to file any such financing or continuation statement
without the signature of Grantor to the extent permitted by applicable
law. A carbon, photographic or other reproduction of this Security
Agreement shall be sufficient as a financing statement for filing in
any jurisdiction.
(b) Limitation on Lien on Collateral. Grantor will not create,
incur or permit to exist, will take all commercially reasonable actions
to defend the Collateral against, and will take such other commercially
reasonable action as is necessary to remove, any lien or claim on or to
the Collateral, other than the liens created hereby, and other than as
permitted pursuant to the Loan Agreement, and will take all
commercially reasonable actions to defend the right, title and interest
of Lender in and to any of the Collateral against the claims and
demands of all persons whomsoever.
(c) Limitations on Dispositions of Collateral. Grantor will
not sell, transfer or otherwise dispose of any of the Collateral, or
attempt, offer or contract to do so except as permitted in the Loan
Agreement.
(d) Notices. Grantor will advise Lender promptly, in
reasonable detail, at its address set forth in the Loan Agreement, (i)
of any lien (other than liens created hereby or permitted under the
Loan Agreement) on, or claim asserted against, Trademarks or Patents
and (ii) of the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of
the Collateral or on the liens created hereunder.
4
<PAGE>
(e) Patents and Trademarks..
(i) Grantor (either itself or through licensees)
will, except with respect to any Trademark that the Grantor
shall reasonably determine is of immaterial economic value to
it or otherwise reasonably determines not to do so, (A)
continue to use each Trademark on each and every trademark
class of goods applicable to its current line as reflected in
its current catalogs, brochures and price lists in order to
maintain such Trademark in full force free from any claim of
abandonment for non-use, (B) maintain as in the past the
quality of products and services offered under such Trademark,
(C) use reasonable efforts to employ such Trademark with the
appropriate notice of registration, (D) not adopt or use any
mark which is confusingly similar or a colorable imitation of
such Trademark unless within 30 days after such use or
adoption Lender, for its benefit, shall obtain a perfected
security interest in such mark pursuant to this Security
Agreement, and (E) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any
act whereby any Trademark may become invalidated.
(ii) Grantor will not, except with respect to any
Patent that Grantor shall reasonably determine is of
immaterial economic value to it or otherwise reasonably
determine so to do, do any act, or omit to do any act, whereby
any Patent may become abandoned or dedicated.
(iii) Grantor will promptly notify Lender if it
knows, or has reason to know, that any application relating to
any Patent or any Trademark may become abandoned or dedicated,
or of any adverse determination or material development
(including, without limitation, the institution of, or any
such determination or development in, any proceeding in the
United States Patent and Trademark office or any court or
tribunal in any country) regarding the Grantor's ownership of
any Patent or Trademark or its right to register the same or
to keep and maintain the same.
(iv) Whenever a Grantor, either by itself or through
any agent, employee, licensee or designee, shall file an
application for any Patent or for the registration of any
Trademark with the United States Patent and Trademark Office
or any similar office or agency in any other country or any
political subdivision thereof, the Grantor shall report such
filing to Lender within five business days after the last day
of the fiscal quarter in which such filing occurs. Upon
request of Lender, the Grantor shall execute and deliver any
and all reasonably necessary agreements, instruments,
documents, and papers as Lender may request to evidence
Lender's security interest in any newly filed Patent or
Trademark and the goodwill and general intangibles of the
Grantor relating thereto or represented thereby, and each
Grantor hereby constitutes Lender its attorney-in-fact to
execute and file all such writings for the foregoing purposes,
all acts of such attorney being hereby ratified and confirmed;
such power being coupled with an interest is irrevocable until
the Obligations are
5
<PAGE>
paid in full. Grantor's inadvertent failure to report any
filing to Lender shall not be considered a default under this
Agreement unless such failure causes Lender to be unprotected
in any Patent or Trademark.
(v) Grantor, except with respect to any Patent or
Trademark the Grantor shall reasonably determine is of
immaterial economic value to it or it otherwise reasonably
determines not to so do, will take all reasonable and
necessary steps, including, without limitation, in any
proceedings before any tribunal, office or agency in any other
country or any political subdivision thereof, to maintain and
pursue each application (and to obtain the relevant
registration or Patent) and to maintain each Patent and each
registration of Trademarks, including, without limitation,
filing of applications for renewal, affidavits of use and
affidavits of incontestability when appropriate.
(vi) In the event Grantor knows or has reason to know
that any Patent or Trademark included in the Collateral is
infringed, misappropriated or diluted by a third party, the
Grantor shall promptly notify Lender after it learns thereof
and shall, unless the Grantor shall reasonably determine that
such Patent or Trademark is of immaterial economic value to
the Grantor or that it is otherwise not worth the cost of
enforcing under the circumstances, which determination the
Grantor shall promptly report to Lender (provided that the
failure of the Grantor to give this notice shall not
constitute an Event of Default unless Lender determines, in
its reasonable discretion, that the affected trademark was of
material value and should have been defended or enforced),
promptly sue for infringement, misappropriation or dilution,
or take such other actions as the Grantor shall reasonably
deem appropriate under the circumstances to protect such
Patent or Trademark.
6. Lender's Appointment as Attorney-in-Fact.
(a) Powers. Grantor hereby irrevocably constitutes and
appoints Lender and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Grantor and in the name of the
Grantor or in its own name, from time to time after the occurrence, and during
the continuation of, an Event of Default, in Lender's discretion, for the
purpose of carrying out the terms of this Security Agreement, to take any and
all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this Security
Agreement, and, without limiting the generality of the foregoing, the Grantor
hereby gives Lender the power and right, on behalf of the Grantor without notice
to or assent by the Grantor, to do the following at any time when any Event of
Default shall have occurred and is continuing:
(i) Lender may, in the name of the Grantor or its own
name, or otherwise, to take possession of and endorse and
collect any checks, drafts, notes, acceptances or other
instruments for the payment of moneys due under, or with
respect to, any
6
<PAGE>
Collateral and to file any claim or to take any other action
or proceeding in any court of law or equity or otherwise
deemed appropriate by Lender for the purpose of collecting any
and all such moneys due with respect to such Collateral
whenever payable;
(ii) to pay or discharge taxes and liens levied or
placed on or threatened against the Collateral, to effect any
repairs or any insurance called for by the terms of this
Security Agreement and to pay all or part of the premiums
therefor and the costs thereof; and
(iii) (a) to direct any party liable for any payment
under any of the Collateral to make payment of any and all
monies due or to become due thereunder directly to Lender or
as Under shall direct, (b) to ask or demand for, collect,
receive payment of and receipt for, any and all moneys, claims
and other amounts due or to become due at any time in respect
of or arising out of any Collateral, (c) to sign and endorse
any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in
connection with any of the Collateral, (d) to commence and
prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other
right in respect of any Collateral, (e) to defend any suit,
action or proceeding brought against the Grantor with respect
to any Collateral, (f) to settle, compromise or adjust any
suit, action or proceeding described in the preceding clause
and, in connection therewith, to give such discharges or
releases as Lender may deem appropriate, (g) to assign any
Trademark (along with goodwill of the business to which such
Trademark pertains), throughout the world for such term or
terms, on such conditions, and in such manner, as Lender shall
in its sole discretion determine, and (h) generally, to sell,
transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral as fully and
completely as though Lender were the absolute owner thereof
for all purposes, and to do, at Lender's option and the
Grantor's expense, at any time, or from time to time, all acts
and things which Lender deems necessary to protect, preserve
or realize upon the Collateral and the liens of Lender thereon
and to effect the intent of this Security Agreement, all as
fully and effectively as the Grantor might do.
Grantor hereby ratifies all that said attorneys shall lawfully
do or cause to be done by virtue hereof. This power of
attorney is a power coupled with an interest and shall be
irrevocable.
(b) Other Powers. Grantor also authorizes Lender, at any time
and from time to time, to execute, in connection with the sale provided for in
Section 6 hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.
7
<PAGE>
(c) No Duty on the Part of Lender. The powers conferred on
Lender hereunder are solely to protect the interests of Lender in the Collateral
and shall not impose any duty upon Lender to exercise any such powers. Lender
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers, and neither it nor any of its partners, officers,
directors, employees or agents shall be responsible to the Grantor for any act
or failure to act hereunder, except for their own gross negligence or willful
misconduct or failure to comply with mandatory provisions of applicable law.
7. Performance by Lender of Grantor's Obligations. If Grantor fails to
perform or comply with any of its agreements contained herein and Lender, as
provided for by the terms of this Security Agreement, shall itself perform or
comply, or otherwise cause performance or compliance, with such agreement, the
expenses of Lender incurred in connection with such performance or compliance,
together with interest thereon at the highest default rate provided in the Note,
shall be payable by the Grantor to Lender on demand and shall constitute
Obligations secured hereby.
8. Proceeds. It is agreed that if an Event of Default shall occur and
be continuing (a) all Proceeds received by Grantor consisting of cash, checks
and other cash equivalents shall be held by the Grantor in trust for Lender,
segregated from other funds of the Grantor, and shall, forthwith upon receipt by
the Grantor, be turned over to Lender in the exact form received by Grantor
(duly endorsed by Grantor to Lender, if required), and (b) any and all such
Proceeds received by Lender (whether from Grantor or otherwise) shall promptly
be applied by Lender against, the Obligations (whether matured or unmatured),
such application to be in such order as Lender shall elect. Any balance of such
Proceeds remaining after the Obligations shall have been paid in full shall be
paid over to Grantor or to whomsoever may be lawfully entitled to receive the
same.
9. Remedies. If an Event of Default shall occur and be continuing,
Lender, may exercise, in addition to all other rights and remedies granted to it
in this Security Agreement and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a secured
party under the UCC. Without limiting the generality of the foregoing, Lender
without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon Grantor or any other person (all and each of which demands,
defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or, contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any office of Lender or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or on future delivery without
assumption of any credit risk. Lender shall have the right upon any such public
sale or sales, and, to the extent permitted by law, to purchase the whole or any
part of the Collateral so sold, free of any right or equity of redemption in the
Grantor, which right or equity is hereby waived or released. Grantor further
agrees, at Lender's request, to assemble the Collateral and make it available to
Lender at places which Lender shall reasonably select, whether at the Grantor's
premises or elsewhere. Lender shall apply the net
8
<PAGE>
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred therein or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of Lender
hereunder, including, without limitation, reasonable attorneys' fees and
disbursements, to the payment in whole or in part of the Obligations, in such
order as Lender may elect, and only after such application and after the payment
by Lender of any other amount required by any provision of law, including,
without limitations Section 9-504(l)(c) of the UCC, need Lender account for the
surplus, if any, to the Grantor. To the extent permitted by applicable law,
Grantor waives all claims, damages and demands it may acquire against Lender
arising out of the exercise by them of any rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least 10 days before
such sale or other disposition. Grantor shall remain liable for any deficiency
if the proceeds of any sale or other disposition of the Collateral are
insufficient to pay the Obligations and the fees and disbursements of any
attorneys employed by Lender to collect such deficiency.
10. Limitation on Duties Regarding Preservation of Collateral. Lender's
sole duty with respect to the custody, safekeeping and physical preservation of
the Collateral in its possession, under Section 9-207 of the UCC or otherwise,
shall be to deal with it in the same manner as Lender would deal with similar
property for its own account. Neither Lender nor any of its partners, directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon all or any part of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of the Grantor or otherwise.
11. Powers Coupled with an Interest. All authorizations and agencies
herein Contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
12. Severability. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. Paragraph Headings. The paragraph headings used in this Security
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
14. No Waiver, Cumulative Remedies. Lender shall not by any act (except
by a written instrument pursuant to Section 14 hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any default or Event of Default or in any breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of Lender, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. A waiver by
9
<PAGE>
Lender of any right or remedy hereunder on any occasion shall not be construed
as a bar to any right or remedy which Lender would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or remedies
provided by law.
15. Waivers and Amendments, Successors and Assigns. None of the terms
or provisions of this Security Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Grantor and
Lender, provided that any provision of this Security Agreement may be waived by
Lender in a written letter or agreement executed by Lender or by telex or
facsimile transmission from Lender. This Security Agreement shall be binding
upon the successors and assigns of the Grantor and shall inure to the benefit of
Lender and its successors and assigns.
16. Notices. All notices, requests and demands to or upon the Grantor
or Lender to be effective shall be in writing or by telecopy or telex and unless
otherwise expressly provided herein, shall be deemed to have been duly given or
made when delivered by hand, or, in the case of mail, three days after deposit
in the postal system, first class postage prepaid, or, in the case of telecopy
notice, confirmation of receipt received, or, in the case of telex notice, when
sent, answerback received, addressed to a party at the address provided for such
party in the Loan Agreement.
17. Governing Law. This Security Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of Tennessee
applicable to contracts to be wholly performed in such State.
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed and delivered as of the date first above written.
GRANTOR:
CAMPUS VOICE, L.L.C.,
a Delaware limited liability company
By: /s/ Bruce L. Resnik
--------------------------------------
Title: Secretary
--------------------------------
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LENDER:
SIRROM INVESTMENTS, INC.
a Tennessee corporation
By: /s/ Jeff Armstrong
--------------------------------------
Title: VP
--------------------------------
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SCHEDULE A
Trademarks
- --------------------------------------------------------------------------------
Mark Style Class Basis Application No.
- --------------------------------------------------------------------------------
1. CAMPUS VOICE Block (16) USE (75/083197)
- --------------------------------------------------------------------------------
2. CAMPUS VOICE Design (16) USE (75/083134)
- --------------------------------------------------------------------------------
3. CAMPUS VOICE Design (41) USE (75/083196)
- --------------------------------------------------------------------------------
4. CAMPUS VOICE LIFESTYLE Block (16) ITU (75/083003)
- --------------------------------------------------------------------------------
5. CAMPUS VOICE LIFESTYLE Design (16) ITU (75/083002)
- --------------------------------------------------------------------------------
6. CAMPUS VOICE Block (16) ITU (75/083000)
REC/SPORTS
- --------------------------------------------------------------------------------
7. CAMPUS VOICE Design (16) ITU (75/083001)
REC/SPORTS
- --------------------------------------------------------------------------------
8. CAMPUS VOICE RADIO Block (38) ITU (75/082927)
- --------------------------------------------------------------------------------
9. CAMPUS VOICE RADIO Design (38) ITU (75/083004)
- --------------------------------------------------------------------------------
10. CAMPUS VOICE Block (38) ITU (75/082998)
TELEVISION
- --------------------------------------------------------------------------------
11. CAMPUS VOICE Design (38) ITU (75/082928)
TELEVISION
- --------------------------------------------------------------------------------
12. CAMPUS VOICE NEWS Block (41) ITU (75/082929)
- --------------------------------------------------------------------------------
13. CAMPUS VOICE NEWS Design (41) ITU (75/083142)
- --------------------------------------------------------------------------------
12
EXHIBIT 10.30
ASSET PURCHASE AGREEMENT
April 11, 1997
The parties to this agreement are Posters Preferred, Inc., a
Connecticut corporation d/b/a Beyond the Wall ("Seller"); Dennis Roche and Brian
Gordon, the owners of all of the outstanding stock of Seller ("Seller's
Shareholders"); and Network Event Theater, Inc., a Delaware corporation
("Buyer").
Seller is engaged in the business of publishing a magazine/catalog
of advertising material, distributing that publication to college students on a
controlled circulation basis, filling orders for large wall posters of the
advertising material contained in the publication, presenting advertising
material on a WebSite, and other advertising and promotional programs (the
"Business"). The parties have agreed upon the sale by Seller to Buyer of
substantially all of the assets and business of Seller, on the terms set forth
in this agreement.
It is agreed as follows:
1. Sale and Transfer of Assets.
1.1 Assets Being Sold. Seller hereby sells, assigns and transfers
to Buyer, and Buyer purchases and acquires from Seller, all of the assets and
business of Seller (but excluding the assets referred to in section 1.2),
including, but not limited to, the following:
(a) all rights under agreements, commitments and orders, to
the extent that they remain unperformed or unfulfilled on, or by their terms
continue after, the date of this agreement, including, but not limited to, all
agreements, commitments and orders with advertisers, customers, printers,
photographers, distributors, subcontractors, lessors, employees and suppliers;
(b) all tangible assets, wherever located, including
fixtures and related equipment; inventory and work in process; photographs,
film, advertisements, art work, promotional materials, back issues and archives;
equipment (including office and computer equipment) and furniture; and office
supplies, stationery, forms and labels;
(c) all computer software and all rights in the trademarks,
trade names and logos (including registrations and applications for registration
of any of them), together with the good will of the business associated with
those trademarks, trade names and logos; all rights in copyrights (including
registrations and applications for registration of any copyrights); and all
other intangible property and proprietary rights, including, but not limited to,
the rights to use the names of any magazines and catalogs at any time published
by Seller and the rights to prepare, reproduce and distribute copies,
compilations and derivative works;
(d) all records, files, mailing lists, advertiser lists,
customer lists, accounting information and other information and data relating
to the Business;
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(e) all claims against third parties, including claims under
manufacturers and vendors warranties;
(f) all rights to the post office boxes, telephone numbers
and facsimile numbers used in the Business; and
(g) all cash, investments, accounts receivable, notes
receivable, certificates of deposit, deposits, commercial paper, treasury bills
and notes, money market accounts and other marketable securities, prepaid
expenses and other current assets.
The assets being sold to Buyer pursuant to this agreement are
collectively referred to below as the "Assets."
1.2 Excluded Assets. The following assets are being retained by
Seller and are not being sold, assigned or transferred to Buyer:
(a) all rights under any agreement, commitment or order
listed on schedule 4.8(b) or as to which consent to assignment is required but
has not been obtained;
(b) Seller's corporate minute books and stock book; and
(c) cash in the amount of $8,000.
2. Purchase Price.
2.1 Amount and Payment of Consideration. As full consideration
for the Assets:
(a) upon execution of this agreement, Buyer is issuing and
delivering to Seller 70,000 shares of its common stock;
(b) not later than October 15 in each of the years 1998,
1999 and 2000, Buyer shall issue and deliver to Seller 6,666 shares of its
common stock, except that Seller shall not be entitled to receive any shares in
any year unless (i) the gross profit (as defined below) of the Business for the
fiscal year immediately preceding the year in which the shares are to be issued
was at least $481,000 for the fiscal years ended June 30, 1998 and 1999 and
$749,000 for the fiscal year ended June 30, 2000, and (ii) both of Seller's
Shareholders were employed by Buyer during the entire fiscal year immediately
preceding the year in which the shares are to be issued (unless such employment
was terminated by death or by Buyer other than pursuant to section 6 or 7 of
such Seller's Shareholder's employment agreement); and
(c) Buyer hereby assumes, and agrees to pay, perform and
discharge (i) all of Seller's trade accounts payable and accrued expenses listed
on schedule 2.1 and (ii) all of Seller's obligations under the agreements,
commitments and orders listed on schedule 4.8(a), to
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<PAGE>
the extent that they remain unperformed or unfulfilled on, or by their terms
continue in effect after, the date of this agreement.
2.2 Provisions Regarding Buyer Shares. If there is any stock
dividend, stock split or combination of shares of Buyer's common stock, the
number of shares to be issued under section 2.1(b) shall be proportionately and
appropriately adjusted. If there is any other change in Buyer's common stock,
including recapitalization, reorganization, exchange of shares, offering of
subscription rights, or a merger or consolidation in which Buyer is the
surviving corporation, such adjustment, if any, shall be made in the shares to
be issued under section 2.1(b) as Buyer's board of directors may consider
equitable, provided that those shares shall be treated similarly to Buyer's
outstanding shares of common stock. The board's failure to provide for an
adjustment prior to the effective date of the action shall be conclusive
evidence that no adjustment is required. If Buyer is merged into or consolidated
with any other entity, or if it transfers all or substantially all of its assets
to any other entity, at Buyer's election either (i) Buyer shall cause provision
to be made for the continuance of Seller's right to receive Buyer shares after
that event, or for the substitution of that right of a right (subject to the
same conditions) covering the number and class of securities Seller would have
been entitled to receive in the merger or consolidation or upon the sale if
Seller had been the holder of record of a number of shares of Buyer's common
stock equal to the number of shares Seller would then be eligible to receive
under section 2.1(b), or (ii) Buyer shall issue to Seller prior to the effective
date of the merger, consolidation or sale the total number of shares of Buyer's
common stock Seller would then be eligible to receive under section 2.1(b).
Buyer may engage a firm of independent certified public accountants of
recognized standing, which may be Buyer's regular auditors, to make any
computation required under this section 2.2 and a certificate of that firm
showing the required adjustment shall be conclusive and binding on the parties.
2.3 Limitation on Assumption of Liabilities. Except as
specifically provided in section 2.1(c), Buyer has not assumed and shall have no
responsibility for any liabilities or obligations of Seller or Seller's
Shareholders relating to the operations of the Business, or otherwise, through
the date of this agreement, and Seller shall pay, perform and discharge all such
liabilities and obligations.
2.4 Definitions. As used in this agreement, (a) the term
"gross profit" means net revenues less all manufacturing and distribution costs,
including, but not limited to, printing of catalogs, inserts and posters;
catalog design costs such as layout, copy-writing, and photography; World Wide
Web home page and screen saver design and maintenance costs; advertising
insertion costs; other distribution costs such as the purchase of "good stuff"
packages; packing and shipping costs; poster fulfillment costs such as payment
for fulfillment services; credit card transaction fees; promotion expenses; and
research costs; and (b) the term "net revenue" means gross revenue less agency
commissions, discounts, allowances and accounts receivable that are deemed
uncollectible.
2.5 Determination of Gross Profit. Buyer shall cause its
chief financial officer to prepare and deliver to Seller not later than
September 30 in each of the years 1998, 1999 and 2000 a determination setting
forth in reasonable detail the gross profit of the Business for the immediately
preceding fiscal year. Seller shall have the right to dispute that determination
by
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<PAGE>
notice given to Buyer within 15 days after the determination is given to Seller.
Buyer shall provide Seller with reasonable access to its books and records
relating to the Business to assess Buyer's determination. If Seller disputes
Buyer's determination, the parties shall confer with regard to the matter and an
appropriate adjustment shall be made as agreed upon by the parties (or, if they
are unable to resolve the matter within 15 days after delivery of Seller's
dispute notice, a firm of independent certified public accountants, whose
decision on the matter shall be binding and whose fees and expenses shall be
borne 50% by Buyer and 50% by Seller, shall be designated by agreement between
them; if they fail to agree on the firm to decide the matter within an
additional 10 days, the accountants shall be selected by the president of the
American Institute of Certified Public Accountants).
2.6 Additional Consideration. If on each of the first
anniversary of the date of this agreement and the first anniversary of each date
on which shares are issued to Seller under section 2.1(b) the closing price of
Buyer's common stock on the trading day immediately preceding that anniversary
date is less than $5.00 per share, Buyer shall pay to Seller within 30 days
after that anniversary date a cash amount equal to the product of (a) the number
of shares issued on the date one year prior to that anniversary date and (b) the
difference between the closing price on the trading day immediately preceding
that anniversary date and $5.00. If Buyer defaults in making any payments under
this section 2.6, and that default is not cured within 30 days after notice of
the default is given to Buyer by Seller, Seller shall have the right,
exercisable by notice given to Buyer within 30 days after the expiration of that
cure period, to purchase from Buyer all of the assets relating to the Business,
subject to all of the liabilities of the Business, for a purchase price equal to
(x) any shares of Buyer common stock issued to Seller and Seller's Shareholders
under section 2.1 and then held by them, plus (y) the total amount of any
proceeds received by Seller and Seller's Shareholders from the sale of shares
issued to them under section 2.1, plus (z) the total amount of any payments made
to Seller under this section 2.6. The closing of a purchase by Seller under this
section 2.6 shall be held on a date and at a place designated by Buyer, but in
no event later than 90 days after the date Seller's notice of exercise is given.
At the closing, Seller shall pay to Buyer the full purchase price by wire
transfer of federal funds, Seller and Seller's Shareholders shall return to
Buyer any shares of Buyer common stock issued to them under section 2.1 and then
held by them, Buyer shall assign and transfer to Seller all of the assets of the
Business, and Seller shall assume all of the liabilities of the Business.
2.7 Liquidation of Seller. Upon receipt of notice from
Seller's Shareholders that Seller has been dissolved and liquidated, Buyer shall
reissue any shares previously issued to Seller, and shall issue any shares which
Seller thereafter becomes entitled to receive, to Seller's Shareholders in the
following proportions: 40% to Dennis Roche and 60% to Brian Gordon.
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<PAGE>
3. Closing.
The closing of the sale and purchase of the Assets is taking
place simultaneously with the execution of this agreement at the offices of
Proskauer Rose Goetz & Mendelsohn LLP, 1585 Broadway, New York, New York 10036.
At the closing, the parties are executing and delivering the documents referred
to in section 7.
4. Representations and Warranties by Seller and Seller's
Shareholders.
Seller and Seller's Shareholders jointly and severally represent
and warrant to Buyer as follows:
4.1 Seller's Organization and Authority. Seller is a corporation
duly organized, validly existing and in good standing under the law of the State
of Connecticut and has the full corporate power and authority to enter into and
to perform this agreement and to carry on its business as it is presently being
conducted. Seller is duly qualified and in good standing as a foreign
corporation in all jurisdictions in which the property owned or leased by it or
the nature of the activities conducted by it requires qualification. Schedule
4.1 contains a complete list of the stockholders of Seller and the number of
shares owned by each of them. Seller does not own an interest in any other
entity.
4.2 Authorization of Agreement. The execution, delivery and
performance of this agreement by Seller have been duly authorized by all
necessary corporate action of Seller. Each of Seller's Shareholders has the full
right to enter into and perform his obligations under this agreement in
accordance with its terms. This agreement constitutes the valid and binding
obligation of Seller and each of Seller's Shareholders and is enforceable
against each of them in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights in general and subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
4.3 Consents of Third Parties. The execution, delivery and
performance of this agreement by Seller and Seller's Shareholders do not and
will not (i) conflict with the certificate of incorporation or by-laws of Seller
or conflict with, or result in the breach or termination of, or constitute a
default under, or increase or accelerate any obligation under, any lease,
agreement, commitment, order or other instrument, or any order, judgment or
decree, to which Seller or either of Seller's Shareholders is a party or by
which Seller or either of Seller's Shareholders is bound; (ii) constitute a
violation by Seller or either of Seller's Shareholders of any law or regulation
applicable to any of them; or (iii) result in the creation of any lien, claim,
charge or encumbrance ("Liens") upon any of the Assets. No consent, approval or
authorization of, or designation, declaration or filing with, any governmental
authority is required on the part of Seller or either of Seller's Shareholders
in connection with the execution, delivery and performance of this agreement.
4.4 Title to Assets. Seller has, and upon execution and delivery
of this agreement Buyer is acquiring, valid title to all of the Assets, free and
clear of any Lien, except
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<PAGE>
for the lien, if any, of current taxes not yet due and payable. The Assets
include all of the assets reflected on the April 8, 1997 balance sheet referred
to in section 4.6, except assets sold in the ordinary course of business. The
Assets constitute all of the assets, tangible and intangible, necessary for or
used in the Business and will be sufficient to enable Buyer to continue to
operate all aspects of the Business in the manner in which it has been operated
by Seller. The Business is not using any assets, tangible or intangible, of any
of Seller's Shareholders.
4.5 Tangible Assets; Real Property.
(a) Schedule 4.5(a) contains a complete list of all equipment
(including computers and office equipment), furniture vehicles, inventory,
work-in-process, and other tangible assets owned by Seller that had a cost for
any individual item of more than $1,000. All of the tangible assets of Seller
are in good operating condition and in good condition of maintenance and repair,
subject to normal wear and tear, are suitable for continued operation of the
Business, and conform to all applicable laws, ordinances, rules and regulations.
(b) The only real property lease to which Seller is a party is
with respect to its office space at 303 Linwood Avenue, Fairfield, Connecticut.
Seller has the right to terminate that lease on thirty days notice without any
further obligation or liability to the lessor. Seller does not own any real
property.
4.6 Financial Statements. Schedule 4.6 contains the balance sheets
of Seller as of December 31, 1996 and April 8, 1997, together with profit and
loss statements for the year and quarter then ended. Except as set forth in
Schedule 4.6, all of the financial statements contained in schedule 4.6 have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial position and
results of operations of Seller as of and for the year ended December 31, 1996.
All such financial statements have been prepared in accordance with Seller's
books and records and show all income and expenses attributable to the Business
during the period covered. All of Seller's books of account relating to the
Business have been exhibited or made available to Buyer, and those books of
account accurately record all transactions of Seller during the respective
periods covered by them. Except to the extent reflected or reserved for in the
balance sheet of Seller as of April 8, 1997 or in the notes to that balance
sheet, as of the date of that balance sheet Seller did not have any liability or
obligation of any kind, whether accrued, absolute, contingent or otherwise,
other than liabilities and obligations under orders, commitments, agreements and
leases entered into in the ordinary course of business (which, to the extent
required by section 4.8, are listed on schedule 4.8). The accounts payable and
accrued expenses set forth on schedule 2.1 were incurred in the ordinary course
of the Business. All of the accounts receivable reflected in the balance sheet
as of April 8, 1997 arose from bona fide transactions in the ordinary course of
business and none of them is or will be subject to any defense, counterclaim or
setoff.
4.7 Absence of Certain Changes. Since January 1, 1996, Seller has
operated the Business in the ordinary course and consistent with past practices,
and, except as set forth on schedule 4.7:
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(a) Seller has not entered into any transaction or incurred any
liability or obligation that was unusual in nature or amount, or was entered
into or incurred other than in the ordinary course of business;
(b) there has not been any material adverse change in Seller's
condition (financial or otherwise), business, operations, prospects or assets;
(c) Seller has not sold or transferred any assets other than in
the ordinary course of business;
(d) Seller has not granted or agreed to grant any general
increase in any rate or rates of salaries or compensation to its employees or
agents or any specific increase in the salary or compensation to any employee or
agent whose total salary or compensation after such increase would be at an
annual rate in excess of $20,000; and
(e) Seller has not paid any dividends or made any other
distributions on, or acquired, any shares of its capital stock, or directly or
indirectly made any other payments of any kind to any of its stockholders or
affiliates.
4.8 Lists of Agreements, etc. Schedule 4.8 contains a true and
complete list of all orders, commitments and agreements (written or oral) to
which Seller is a party, including, but not limited to, orders, commitments and
agreements with advertisers and customers, agreements for the purchase of
materials, supplies, equipment or services, leases (as lessee or lessor),
license agreements (as licensee or licensor), and employment, consulting and
independent contractor agreements. True and complete copies of the agreements,
commitments and leases referred to on schedule 4.8 have been delivered to Buyer.
4.9 Status of Agreements. All of Seller's agreements, commitments
and orders were entered into in the ordinary course of business. Each of the
agreements, commitments and orders referred to in section 4.8 is presently in
full force and effect in accordance with its terms and Seller is not in default,
and, to the best of the knowledge of Seller and Seller's Shareholders, no other
party is in default under any of the provisions of any of those agreements and
no condition exists that, with notice or lapse of time or both, would constitute
a default by Seller or, to the best of the knowledge of Seller and Seller's
Shareholders, any other party to any of those agreements. Each of the
agreements, commitments or orders referred to in section 4.8 is valid and
binding upon and enforceable against each of the parties thereto in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
in general. No party to any of the agreements, commitments or orders referred to
in section 4.8 has made, asserted or has any defense, setoff or counterclaim
under any of those agreements, commitments or orders or has exercised any option
granted to it to cancel or terminate its agreement, to shorten the term of its
agreement, or to renew or extend the term of its agreement and Seller has not
received any notice to that effect.
4.10 Employees. No employee of Seller is represented by any union
or other collective bargaining agent and there are no collective bargaining or
other labor agreements with respect to those employees. Schedule 4.10 contains a
true and complete list of the names,
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positions, hire dates and annual or hourly compensation of all employees of
Seller and a description of vacation policies, sick leave policies, bonus,
incentive compensation and group insurance plans for the benefit of those
employees. Except as set forth on schedule 4.10, Seller does not have any
severance policy and no employee of Seller is entitled to any severance payment,
either by law or by agreement, upon the termination of his or her employment.
The sale of the Assets pursuant to this agreement will not (a) give rise to any
liability of Seller or Buyer for severance pay or termination pay to any
employee of Seller who is employed after this date by Buyer or (b) trigger any
extraordinary payments of any kind to any employee of Seller.
4.11 Litigation; Compliance with Laws. Except as set forth on
schedule 4.11, there is no claim, litigation, proceeding or governmental
investigation pending or, to the best of the knowledge of Seller and Seller's
Shareholders, threatened, or any order, injunction or decree outstanding,
against or relating to Seller, the Business or any of the Assets. Neither Seller
nor any of Seller's Shareholders knows of any reasonable basis for future
claims, litigations, proceedings or investigations against Seller, the Business
or any of the Assets. Seller is not in material violation of any law,
regulation, ordinance or any other requirement of any governmental body or
court, and no notice has been received by Seller or any of its officers or
directors alleging any such violation. Seller is not engaged in any dispute with
any of its advertisers, customers, suppliers or printers and has good
relationships with all of them.
4.12 Intangible Property. Schedule 4.12 contains a complete list
of the trademarks, trade names, copyrights and logos used by Seller. Seller
owns, free and clear of any Lien, each of the trademarks, trade names,
copyrights and logos (including registrations and applications for registration
of any of them) listed on schedule 4.12, and they constitute all of the
trademarks, copyrights, trade names and logos necessary for the continued
operation of the Business in a manner consistent with past practices. To the
best of the knowledge of Seller and Seller's Shareholders, Seller is not
infringing upon any trademark, trade name, copyright or other rights of any
third party; no proceedings are pending or threatened; and no claim has been
received by Seller alleging any such violation. To the best of the knowledge of
Seller and Seller's Shareholders, there is no violation by others of any right
of Seller with respect to any trademark, trade name or copyright.
4.13 Software and Databases. Seller owns or possesses adequate
licenses or other rights to use all computer software used by it. Schedule 4.13
contains a list of all such software. Any license of Seller to use any software
is valid and does not infringe on the property rights of any third party. Seller
has not granted to any person or entity any interest, as licensee or otherwise,
in any of its owned software or databases or in any of its mailing lists,
advertiser lists or customer lists. Seller has the right to transfer all
computer software, databases and lists used by it to Buyer without violating any
agreement to which Seller is a party or any rights of any third party.
4.14 Insurance. Schedule 4.14 contains a complete list of all of
Seller's insurance policies, specifying with respect to each policy the policy
limit, type of coverage, location of the property covered, annual premium,
premium payment date and expiration date. True and complete copies of all of the
policies have been delivered to Buyer.
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4.15 Labor Matters. Except as set forth on schedule 4.15, (a)
Seller is in compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, and wages and hours,
and is not engaged in any unfair labor practice; (b) there is no unfair labor
practice charge or complaint against Seller pending before the National Labor
Relations Board, any state labor relations board or any court or tribunal and,
to the best of the knowledge of Seller and Seller's Shareholders, none is or has
been threatened; (c) there is no labor strike, dispute, request for
representation, slowdown or stoppage actually pending against or affecting
Seller and, to the best of the knowledge of Seller and Seller's Shareholders,
none is or has been threatened; and (d) no grievance which might have an adverse
effect on the conduct of the Business or any arbitration proceeding arising out
of or under any collective bargaining agreement is pending and, to the best of
the knowledge of Seller and Seller's Shareholders, none is or has been
threatened.
4.16 Environmental Matters.
(a) Seller and all of the property leased by Seller are in
compliance with all federal, state and local laws relating to pollution, the
protection of human health or the environment, including, but not limited to,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and
petroleum products (collectively, "Materials of Environmental Concern"), or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Materials of Environmental Concern.
(b) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including, but not limited to,
the release, emission, discharge or disposal of any Material of Environmental
Concern, that could form the basis of any claim against, or violation by, Seller
(or, after the closing, Buyer).
4.17 ERISA. Except as set forth on schedule 4.17, Seller is not a
party to or bound by or liable with respect to any "employee benefit plan",
within the meaning of section 3(3) of the Employee Retirement Income Security
Act of 1974.
4.18 Taxes. Seller has filed all federal, state and other tax
returns required by law to be filed by it and has paid, or made provision in its
financial statements referred to in section 4.6 for payment of, all taxes
accrued through the date of the financial statements referred to in section 4.6.
There are no claims pending or threatened against Seller for past due taxes.
There are no outstanding waivers or agreements by Seller for the extension of
the time for the assessment of any tax. The federal income tax returns of Seller
have not been audited by the Internal Revenue Service or any other tax
administration agency. Seller does not have any tax liability of any kind that
could result in any Lien on any of the Assets.
4.19 Transactions with Affiliates. Except as set forth on
schedule 4.19, (a) Seller is not, and since January 1, 1996 has not been,
engaged in any transaction with any officer, director or shareholder of Seller
or any entity in which any of them has an interest, and (b) no officer, director
or shareholder of Seller (or any entity in which any of them has an interest)
holds any assets used in or relating to the Business.
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4.20 Business Relationships. Except as set forth in the schedules
to this agreement, since January 1, 1996 Seller has enjoyed good relationships
with all of suppliers of goods or services to the Business, each of the schools
with which it has business relationships, and all of its advertisers, and
neither Seller nor either of Seller's Shareholders knows of any intention on the
part of any such vendor, school or advertiser to substantially change its
relationship with Seller and none of them has any reason to believe that those
relationships will not continue after consummation of Buyer's purchase of the
Business.
4.21 No Misrepresentation. No representation or warranty by
Seller or Seller's Shareholders in this agreement (including the schedules and
exhibits to this agreement) contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained in
this agreement (including the schedules and exhibits to this agreement) not
misleading.
4.22 Representation by Counsel. Seller and Seller's Shareholders
have been represented by counsel in connection with this agreement, their
employment agreements and the transactions contemplated by this agreement and
their employment agreements.
5. Representations and Warranties by Buyer. Buyer represents and
warrants to Seller and Seller's Shareholders as follows:
5.1 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the law of the State of Delaware and has the
full corporate power to enter into and to perform this agreement.
5.2 Authorization of Agreement. The execution, delivery and
performance of this agreement by Buyer have been duly authorized by all
requisite action of Buyer. This agreement constitutes the valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights in general and
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
5.3 Consents of Third Parties. The execution, delivery and
performance of this agreement by Buyer will not (i) conflict with its
certificate of incorporation or by-laws and will not conflict with, result in
the breach or termination of, or constitute a default under, any lease,
agreement, commitment or other instrument, or any order, judgment or decree to
which it is a party by which it is bound, or (ii) constitute a violation by it
of any law or regulation applicable to it. No consent, approval or authorization
of, or designation, declaration or filing with, any governmental authority is
required on the part of Buyer in connection with the execution, delivery and
performance of this agreement.
5.4 Validity of Issuance. The shares of Buyer common stock,
when issued to Seller under sections 2.1(a) and (b), will be duly authorized,
validly issued, fully paid and non-assessable.
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5.5 No Misrepresentation. No representation or warranty by Buyer
in this agreement (including the schedules and exhibits to this agreement)
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained in this agreement (including the
schedules and exhibits to this agreement) not misleading.
6. Further Agreements of the Parties.
6.1 Employment Agreements. Contemporaneously with the execution
of this agreement, Seller's Shareholders are entering into employment agreements
with Buyer in the forms of exhibit 6.1(a) and (b), respectively.
6.2 Change in Name. Within ten days after the date of this
agreement, Seller shall change its name to a name that does not include the
words "Posters", "Beyond" or "Wall".
6.3 Assignment of Agreements. Nothing in this agreement shall be
construed as an attempt to assign any agreement or other instrument that by its
terms is nonassignable without the consent of the other party.
6.4 Covenants Against Competition, Solicitation and Disclosure.
(a) To accord to Buyer the full value of its purchase, for a
period of five years after the date of this agreement neither Seller nor either
of Seller's Shareholders shall, directly or indirectly, engage or be interested
in (as owner, shareholder, partner, member, manager, lender, agent or otherwise)
any business or entity that engages, anywhere in the world, in any business
directly competitive with the Business.
(b) For a period of five years after the date of this
agreement, neither Seller nor either of Seller's Shareholders shall, directly or
indirectly, employ or solicit for employment or consulting, on its own behalf or
on behalf of any other person or entity, or otherwise encourage the resignation
of, any employee of the Business.
(c) Neither Seller nor either of Seller's Shareholder
shall at any time hereafter disclose to anyone, or use in competition with the
Business, any information with respect to any confidential or secret aspect of
the Business.
(d) Seller and each of Seller's Shareholders
acknowledges that the remedy at law for breach of the provisions of this section
6.4 will be inadequate and that, in addition to any other remedy Buyer may have,
it shall be entitled to an injunction restraining any breach or threatened
breach, without any bond or other security being required and without the
necessity of showing actual damages. If any court construes the covenant in this
section 6.4, or any part thereof, to be unenforceable in any respect, the court
may reduce the duration or area to the extent necessary so that the provision is
enforceable, and the provision, as reduced, shall then be enforceable.
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(e) To the extent any provision of this section 6.4 is
inconsistent with any provision of the employment agreements referred to in
section 6.1, the provision of the employment agreement shall control.
6.5 Expenses. Except as expressly provided in this agreement,
each party shall bear its own expenses incurred in connection with the
negotiation and preparation of this agreement and in connection with the
transactions contemplated by this agreement.
6.6 Sales Taxes. Seller shall pay any state or local sales taxes
payable in connection with the sale of Assets.
6.7 Bulk Sales. The parties waive compliance with the provisions
of any applicable bulk sales law. Seller and Seller's Shareholders jointly and
severally shall indemnify and hold Buyer harmless from any loss, liability,
damage, cost or expense (including reasonable attorney's fees and expenses)
incurred by Buyer as a result of any liability to which Buyer may become subject
because the transactions contemplated by this agreement are being effected
without compliance with the bulk sales law or any similar statute in any
jurisdiction.
6.8 Securities Act Matters.
(a) Seller and Seller's Shareholders recognize that each
issuance of shares of Buyer common stock under sections 2.1(a) and (b) (the
"Shares") is intended to be exempt from registration under the Securities Act of
1933, as amended (the "Securities Act"), by virtue of section 4(2) of the
Securities Act and, in that connection, jointly and severally represent and
warrant to Buyer that (i) each of them is acquiring the Shares for its or his
own account, for investment purposes only and not with a view to the resale or
distribution of the Shares, in whole or in part, and (ii) each of them
understands that sales or transfers of the Shares are restricted by the
Securities Act and by certain state securities laws and recognizes that a legend
referencing that restriction will be placed on the certificates representing the
Shares.
(b) Neither Seller nor either of Seller's Shareholders shall
sell or otherwise transfer the Shares without registration under the Securities
Act and applicable state securities laws or an exemption therefrom. Seller and
Seller's Shareholders confirm that they understand that Buyer is under no
obligation to register the Shares on their behalf or to assist them in complying
with any exemption from registration.
6.9 Post-Closing Payments; Further Assurances.
(a) Seller and Seller's Shareholders shall, as promptly as
practical, forward to Buyer any amount received by any of them to which Buyer is
entitled under this agreement and shall refer to Buyer any telephone calls,
letters and other communications that they may receive relating to the Business.
(b) At any time and from time to time after the date of this
agreement each party shall, without further consideration, execute and deliver
to the other such other instruments of transfer and assumption and shall take
such other action as the other may
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reasonably request to carry out the transfer of assets and assumption of
liabilities contemplated by this agreement.
7. Documents Being Delivered at Closing.
7.1 Documents Being Delivered by Seller and Seller's
Shareholders. At the closing, Seller and Seller's Shareholders are delivering to
Buyer the following:
(a) such bills of sale, assignments or other instruments of
transfer and assignment as Buyer may have requested to confirm the transfer of
title to the Assets to Buyer; and
(b) a copy of resolutions of the board of directors and the
shareholders of Seller authorizing the execution, delivery and performance of
this agreement by Seller, and a certificate of its secretary or assistant
secretary, dated this date, that such resolutions were duly adopted and are in
full force and effect.
7.2 Documents Being Delivered by Buyer. At the closing, Buyer is
delivering to Seller the following:
(a) certificates representing the shares of Buyer common
stock referred to in section 2.1(a);
(b) such instruments as Seller may have requested to confirm
the assumption by Buyer of the obligations assumed by it under section 2.1(c);
and
(c) a copy of resolutions of the board of directors of Buyer
authorizing the execution, delivery and performance of this agreement by it, and
a certificate of its secretary or assistant secretary, dated this date, that
such resolutions were duly adopted and are in full force and effect.
8. Survival of Representations and Warranties; Indemnification.
8.1 Survival. All representations, warranties and agreements by
Seller and Seller's Shareholders shall survive the closing notwithstanding any
investigation at any time by or on behalf of Buyer, and shall not be considered
waived by Buyer's consummation of the transactions contemplated by this
agreement with knowledge of any breach of misrepresentation by Seller or
Seller's Shareholders. All representations, warranties and agreements by Buyer
shall survive the closing notwithstanding any investigation at any time by or on
behalf of Seller, and shall not be considered waived by Seller's consummation of
the transactions contemplated by this agreement with knowledge of any breach by
Buyer.
8.2 Indemnification.
(a) Seller and Seller's Shareholders jointly and severally
shall indemnify and hold harmless Buyer against all loss, liability, damage or
expense (including reasonable fees and expenses of counsel, whether involving a
third party or between the parties to this agreement)
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Buyer may suffer, sustain or become subject to as a result of (i) any breach of
any warranty, covenant or other agreement of Seller or Seller's Shareholders
contained in this agreement, or any misrepresentation by Seller or Seller's
Shareholders, or any claim by a third party which, without regard to the merits
of the claim, would constitute such a breach or misrepresentation, (ii) Seller's
failure to pay, perform or discharge when due any of Seller's obligations,
liabilities, agreements or commitments not expressly assumed by Buyer pursuant
to this agreement, (iii) any other liability or obligation arising out of the
operations of the Business on or prior to the date of this agreement and not
expressly assumed by Buyer pursuant to this agreement, or (iv) the failure to
comply with any bulk sales law applicable to the sale of the Assets.
(b) In addition to any other rights and remedies they may
have, Buyer may reduce the number of shares of common stock to be issued to
Seller under section 2.1(b) (at a valuation of $5.00 per share) to the extent of
any amount payable to Buyer pursuant to section 8.2(a), but no such set-off
shall constitute an accord and satisfaction or otherwise modify the rights or
obligations of Seller and Seller's Shareholders under this agreement or
constitute a breach by Buyer of its obligations under this agreement. Without
limiting the generality of the preceding sentence, Seller and Seller's
Shareholders acknowledge and agree that Buyer's exercise of its rights pursuant
to the preceding sentence shall not limit Buyer's rights to recover any amounts
owed to them that exceed the amount obtained by exercise of those rights and
such exercise shall not be in substitution of or in any way limit Buyer's
exercise of its other rights and remedies under this agreement, any other
agreement or applicable law.
(c) Buyer shall indemnify and hold harmless Seller against
all loss, liability, damage or expense (including reasonable fees and expenses
of counsel, whether involving a third party or between the parties to this
agreement) Seller may suffer, sustain or become subject to as a result of (i)
any breach of any warranty, covenant or other agreement of Buyer contained in
this agreement, or any misrepresentation by Buyer, or any claim by a third party
which, without regard to the merits of the claim, would constitute such a breach
or misrepresentation, (ii) Buyer's failure to pay, perform or discharge when due
any of Seller's agreements, commitments or orders expressly assumed by Buyer
pursuant to this agreement, or (iii) any liability or obligation arising out of
the operations of the Business after the date of this agreement.
8.3 Notices of Claims. None of the parties to this agreement
shall be liable for misrepresentation or breach of warranty except to the extent
that notice of a claim is asserted by another party in writing and delivered
within two years after the date of this agreement, except for a
misrepresentation or breach of warranty in section 4.4, 4.16 or 4.18, for which
there shall be no time limitation.
8.4 Defense of Claims. The obligations and liabilities of the
parties under this agreement with respect to, as a result of, or relating to
claims of third parties ("Third Party Claims") shall be subject to the following
terms and conditions:
(a) The party or parties entitled to be indemnified
hereunder (the "Indemnified Party") shall give the party or parties obligated to
provide the indemnity (the "Indemnifying Party") prompt notice of any Third
Party Claim; the failure to give such notice shall not affect the liability of
the Indemnifying Party under this agreement unless the failure materially and
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adversely affects the ability of the Indemnifying Party to defend the Third
Party Claim. If the Indemnifying Party promptly acknowledges in writing its
obligation to indemnify in accordance with the terms of this agreement, the
Indemnifying Party shall have a reasonable time to assume the defense of that
claim at its expense and with counsel of its choosing, which counsel shall be
reasonably satisfactory to the Indemnified Party. Any such notice of a Third
Party Claim shall identify, to the extent known to the Indemnified Party, the
basis for the Third Party Claim, the facts giving rise to the Third Party Claim,
and the amount of the Third Party Claim. The Indemnified Party shall make
available to the Indemnifying Party copies of all relevant documents and records
in its possession.
(b) If the Indemnifying Party, within a reasonable time
after notice of such Third Party Claim, fails to assume the defense in
accordance with section 8.4(a), the Indemnified Party shall (upon further notice
to the Indemnifying Party) have the right to undertake the defense, compromise
or settlement of the Third Party Claim, at the expense and for the account of
the Indemnifying Party.
(c) Anything in this section 8.4 to the contrary
notwithstanding, (i) the Indemnifying Party shall not, without the written
consent of the Indemnified Party, settle or compromise any Third Party Claim or
consent to the entry of judgment which does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to the Indemnified Party of
an unconditional release from all liability in respect of the Third Party Claim;
(ii) if there is a reasonable probability that a claim may materially and
adversely affect the Indemnified Party other than as a result of money damages
or other money payments, the Indemnified Party shall have the right, at its own
cost and expense, to join in defending or compromising the Third Party Claim;
and (iii) if the Indemnifying Party is Seller and/or Seller's Shareholders and
if Buyer determines in its sole discretion that the Indemnifying Party may not
have adequate resources to properly defend the claim or indemnify Buyer with
respect to the claim. Buyer only need afford the Indemnifying Party and its
counsel, at the Indemnifying Party's sole expense, the opportunity to join in
defending or compromising the claim.
9. Miscellaneous.
9.1 Finders. The parties represent and warrant that they have not
employed or utilized the services of any broker or finder in connection with
this agreement or the transactions contemplated by it.
9.2 Entire Agreement. This agreement (together with the
employment agreements referred to in section 6.1) contains, and is intended as,
a complete statement of all of the terms of the arrangements among the parties
with respect to the matters provided for, supersedes any previous agreements and
understandings among the parties with respect to those matters, and cannot be
changed or terminated orally.
9.3 Governing Law. This agreement shall be governed by and
construed in accordance with the law of the State of New York applicable to
agreements made and to be performed entirely in New York.
9.4 Headings. The section headings of this agreement are for
reference purposes only and are to be given no effect in the construction or
interpretation of this agreement.
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9.5 Notices. All notices and other communications under this
agreement shall be in writing and shall be deemed given when delivered
personally, one day after being sent by recognized overnight courier or four
days after being mailed by registered mail, return receipt requested, to the
parties at the following addresses (or to such other address as a party may
specify by notice given to the other pursuant to this provision):
(a) If to Seller or Seller's Shareholders, addressed to any
or all of them at:
c/o Dennis Roche
Beyond The Wall
303 Linwood Avenue
Fairfield, Connecticut 06430
(b) If to Buyer, addressed to it at:
Network Event Theater, Inc.
149 Fifth Avenue
New York, N.Y. 10010
Attention: Don Leeds, President
with a copy to:
Bertram A. Abrams, Esq.
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
9.6 Waiver. Any party may waive compliance by another with any of
the provisions of this agreement. No waiver of any provision shall be construed
as a waiver of any other provision. Any waiver must be in writing and must be
signed by the party waiving the provision.
9.7 Separability. If any provision of this agreement is invalid
or unenforceable, the balance of this agreement shall remain in effect.
9.8 Assignment. No party may assign any of its or his rights or
delegate any of its or his duties under this agreement without the consent of
the other parties, except that Buyer may assign its rights to any entity that
assumes its obligations under this agreement and, upon its dissolution and
liquidation, Seller may assign its rights to Seller's Shareholders provided that
they assume all of Seller's obligations under this agreement, in each case
without obtaining the consent of any other party.
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9.9 Publicity. No party shall issue any press release or other
public statement regarding the transactions contemplated by this agreement,
except that Buyer may release such information as they determine necessary or
appropriate. 9.10 Specific Performance. Seller and Seller's Shareholders
acknowledge that the Business is of a special, unique and extraordinary
character, and that any breach of this agreement by Seller or any of Seller's
Shareholders could not be compensated for by damages. Accordingly, if Seller or
any of Seller's Shareholders breaches its or his obligations under this
agreement Buyer shall be entitled, in addition to any other remedies that it may
have, to enforcement of this agreement by a decree of specific performance
requiring Seller and Seller's Shareholders to fulfill their obligations under
this agreement, and no bond or other security shall be required.
9.11 Definition. As used in this agreement, the term "affiliate"
means any person or entity directly or indirectly controlled by, controlling, or
under common control with, any other person or entity.
9.12 No Third Party Beneficiaries. This agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this agreement.
9.13 Counterparts. This agreement may be executed in one or more
counterparts.
POSTERS PREFERRED, INC.
By:/s/Brian J. Gordon
--------------------------
Name: Brian J. Gordon
Title President
/s/Dennis Roche
--------------------------
Dennis Roche
/s/Brian J. Gordon
--------------------------
Brian Gordon
NETWORK EVENT THEATER, INC.
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By:/s/Bruce L. Resnik
---------------------------
Bruce L. Resnik
Executive Vice President
Chief Financial Officer
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EXHIBIT 10.31
ASSET PURCHASE AGREEMENT
April 30, 1997
The parties to this agreement are Network Event Theater, Inc., a
Delaware corporation ("NET"); Pik:Nik Media, LLC, a Delaware limited liability
company and a wholly-owned subsidiary of NET ("Newco"); Pik:Nik, LLC, a
California limited liability company (the "Company"); and Garth Holsinger,
Annett Schaefer-Sell and Sunny Smith (together, the "Members"), who own all of
the membership interests in the Company.
The Company is engaged in the business of producing, marketing
and distributing postcards containing advertisements (the "Business"). The
parties have agreed upon the sale by the Company to Newco of substantially all
of the assets and business of the Company, on the terms set forth in this
agreement.
It is agreed as follows:
1. Sale and Transfer of Assets.
1.1 Assets Being Sold. The Company hereby sells, assigns and
transfers to Newco, and Newco purchases and acquires from the Company, all of
the assets and business of the Company (but excluding the assets referred to in
section 1.2), including, but not limited to, the following:
(a) all rights under agreements, commitments and orders, to
the extent that they remain unperformed or unfulfilled on, or by their terms
continue after, the date of this agreement, including, but not limited to, all
agreements, commitments and orders with advertisers, customers, printers,
photographers, manufacturers, distributors, subcontractors, lessors, employees,
sales representatives and suppliers;
(b) all tangible assets, wherever located, including
fixtures and related equipment; distribution racks; inventory and work in
process; photographs, film, advertisements, art work, promotional materials and
archives; equipment (including office and computer equipment) and furniture; and
office supplies, stationery, forms and labels;
(c) all computer software and all rights in the trademarks,
trade names and logos (including registrations and applications for registration
of any of them), together with the good will of the business associated with
those trademarks, trade names and logos; all rights in copyrights (including
registrations and applications for registration of any copyrights); and all
other intangible property and proprietary rights, including, but not limited to,
the Company's rights to use the advertisements on its postcards and the rights
to prepare, reproduce and distribute copies, compilations and derivative works;
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(d) all records, files, mailing lists, advertiser lists,
customer lists, accounting information and other information and data relating
to the Business;
(e) all claims against third parties, including claims under
manufacturers and vendors warranties;
(f) all rights to the post office boxes, telephone numbers
and facsimile numbers used in the Business; and
(g) all cash, investments, accounts receivable, notes
receivable, certificates of deposit, deposits, commercial paper, treasury bills
and notes, money market accounts and other marketable securities, prepaid
expenses and other current assets.
The assets being sold to Newco pursuant to this agreement are
collectively referred to below as the "Assets."
1.2 Excluded Assets. The following assets are being retained
by the Company and are not being sold, assigned or transferred to Newco:
(a) all rights under any agreement, commitment or order
as to which consent to assignment is required but has not been obtained; and (b)
the assets listed on schedule 1.2.
2. Amount and Payment of Purchase Price.
2.1 Purchase Price. As full consideration for the Assets,
the Company shall have the right to receive the amount of cash and number of
shares of NET common stock provided for in section 2.2 (the "Base Amount") plus
an additional amount, if any, determined and payable as provided in section 2.3,
and Newco shall assume the liabilities provided for in sections 2.4 and 2.5. The
Company directs Newco and NET to make any payments or stock issuances the
Company is entitled to receive directly to the Members in accordance with
section 2.8(c).
2.2 Payment of Base Amount. The Base Amount shall be paid as
follows:
(a) Upon the execution of this agreement (i) Newco
shall pay to David S. Travers ("Travers"), on behalf of the Company, cash in the
aggregate amount of $20,000, (ii) NET shall issue to Jan-Peter Flack, Inc.
("JPF"), on behalf of the Company, 7,059 shares of its common stock, (iii) Newco
shall pay to the Members, by wire transfer of federal reserve funds, cash in the
aggregate amount of $68,750 (i.e., 93,750 less 50% of the $50,000 in cash and
stock paid to Travers and JPF), and (iv) NET shall issue to the Members an
aggregate of 22,059 shares of its common stock.
(b) Promptly after determination pursuant to section
2.6 of Newco's EBIT (as defined in section 2.8) for the fiscal year ended June
30, 1998 (the "1998 EBIT"),
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Newco shall make cash payments to the Members and NET shall issue to the Members
shares of its common stock (subject to reduction as provided in section 2.4), as
follows:
(i) If the 1998 EBIT, as adjusted in accordance with
schedule 2.2(b) (the "Adjusted 1998 EBIT"), is equal to or greater than
$200,000, or if the 1998 EBIT is equal to or greater than 50% of $2,448,407 (the
"Projected 1998 EBIT"), Newco shall pay to the Members cash in the aggregate
amount of $93,750 and NET shall issue to the Members an aggregate number of
shares of its common stock equal to the number determined by dividing $93,750 by
the Market Price (as defined in section 2.8) as of the date of delivery of the
auditors' report pursuant to section 2.6; or
(ii) if the Adjusted 1998 EBIT is less than $200,000
and the 1998 EBIT is less than 50% of the Projected 1998 EBIT: Newco shall pay
to the Members cash in the aggregate amount of (A) a portion of $46,875 based on
the ratio of the Adjusted 1998 EBIT to $200,000, plus (B) a portion of $46,875
based on the ratio of the 1998 EBIT to the Projected 1998 EBIT; and NET shall
issue to the Members an aggregate number of shares of its common stock equal to
the (y) number determined by dividing the amount of cash payable under clause
(A) by the Market Price as of the date of delivery of the auditors' report
pursuant to section 2.6, plus (z) the number determined by dividing the amount
of cash payable under clause (B) by the Market Price as of the date of delivery
of the auditors' report pursuant to section 2.6.
If at any time during the fiscal year ended June 30, 1998 Newco's
chief financial officer determines that the targets set forth in section
2.2(b)(i) have been met and will likely be met as of the end of that fiscal
year, promptly after that determination Newco and NET shall make the full
payments and stock issuances (based on the Market Price as of the date of the
chief financial officer's determination) provided for in section 2.2(b)(i),
subject, however, to the provisions of section 2.4; if after any payment and
issuance of shares the report of Newco's independent auditors under section 2.6
for the fiscal year ended June 30, 1998 indicates that the targets specified in
section 2.2(b)(i) have not been met, the Members shall promptly return to Newco
and NET any payments or shares they received in excess of the amounts they would
have been entitled to receive under section 2.2(b)(ii) (unless the parties shall
then agree that, instead of returning the payments and shares, the excess shall
be applied to reduce subsequent payments or issuances of shares).
2.3 Additional Consideration. Promptly after determination
pursuant to section 2.6 of Newco's EBIT for each of the fiscal years ended June
30, 1999, 2000 and 2001, but subject to section 2.4, (i) Newco shall pay to the
Members an aggregate amount of cash equal to one-twelfth of an amount equal to
four times EBIT for that year and (ii) NET shall issue to the Members an
aggregate number of shares of its common stock equal to the number determined by
dividing the amount of cash payable under clause (i) by the Market Price as of
the date of delivery of the auditors' report pursuant to section 2.6. If,
however, the Members elect, by notice given to Newco no later than June 30,
1998, to receive the cash and stock provided for in the preceding sentence with
respect to each of the four fiscal years ended June 30, 1998, 1999, 2000 and
2001 (instead of the three fiscal years ended June 30, 1999, 2000 and 2001), the
fraction specified in clause (i) for calculating the amount of each of those
payments and issuances shall be one-sixteenth (instead of
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one-twelfth) and the payments shall be made and the shares shall be issued
promptly after determination of EBIT for each of the fiscal years ended June 30,
1998, 1999, 2000 and 2001. Notwithstanding anything to the contrary in this
provision, the Members shall not be entitled to receive any cash or stock with
respect to any fiscal year unless Garth Holsinger was employed by Newco during
that entire fiscal year, except that if his employment was terminated pursuant
to his employment agreement due to his disability or was terminated as a result
of his death, the Members shall be entitled to receive cash and stock based on
Newco's EBIT through the date of termination, and the cash payment shall be
made, and the stock delivered, as soon as practicable after termination based on
a determination of EBIT by Newco's chief financial officer (which shall be final
and binding on the parties).
2.4 Assumption of Obligations to Travers and Flack. Upon
execution of this agreement Newco is assuming the Company's obligations under
its agreements with Travers and JPF, dated April 3, 1997, to pay Travers the
amount of $70,000 in 18 equal monthly installments commencing June 1, 1997 and
to pay JPF the amount of $170,000 in 36 equal monthly installments commencing
June 1, 1997, in each case with interest at the rate of 8% a year from the date
of this agreement. It is intended, however, that the Members bear the Company's
obligations to Travers and JPF and that Newco shall be reimbursed for payments
to Travers and JPF out of the consideration otherwise payable to them under this
agreement, and, accordingly, until Newco has been reimbursed in full for those
payments, the cash amounts otherwise payable to the Members on any date under
sections 2.2(b) and 2.3 shall be reduced by the aggregate unreimbursed amounts
paid by Newco to Travers and JPF prior to that date (including all interest and
the unreimbursed amount of $25,000 paid at the closing) and, if those amounts
are insufficient to reimburse Newco in full, the number of shares otherwise
issuable to the Members on that date shall be reduced (based on the Market Value
as of the date the shares otherwise would have been issued) to the extent of the
deficiency.
2.5 Assumption of Liabilities. Newco hereby assumes, and agrees
to pay, perform and discharge when due (i) all of the Company's trade accounts
payable and accrued expenses listed on schedule 3.6, (ii) all of the Company's
obligations under the agreements, commitments and orders listed on schedule
3.13, to the extent that they remain unperformed or unfulfilled on, or by their
terms continue in effect after, the date of this agreement, (iii) the Company's
obligations to Travers and JPF referred to in section 2.4, and (iv) the
Company's outstanding promissory notes to NET in the aggregate principal amount
of $116,000. Except as specifically provided in the preceding sentence, Newco
has not assumed and shall have no responsibility for any liabilities or
obligations of the Company or the Members relating to the operations of the
Business, or otherwise, through the date of this agreement, and the Members
shall cause the Company to pay, perform and discharge all such liabilities and
obligations (except to the extent that any liability or obligation is being
contested in good faith). NET shall not have any liability or obligation with
respect to the Business and shall not have any liability or obligation to the
Company or the Members except for breach of any warranty or covenant of NET
contained in this agreement.
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2.6 Determination of EBIT. Newco shall cause its independent
auditors to determine its EBIT (and for the fiscal year ended June 30, 1998,
Adjusted 1998 EBIT) for each fiscal year through the year ended June 30, 2001
based on its audited financial statements for that year, and to deliver to the
Members not later than September 30 of each of those years a report setting
forth in reasonable detail the calculation of EBIT for that year (and any
reduction of EBIT pursuant to section 2.8(c)) and the calculation of any amounts
payable or shares issuable to the Members under sections 2.2(b) or 2.3 with
respect to that year. The number of shares issuable shall be calculated on the
basis of the Market Price as of the date of delivery of the report. The
determinations of Newco's independent auditors under this section shall be final
and binding on the parties.
2.7 Loans by NET. Until payment in full of the obligations to
Travers and JPF referred to in section 2.4, upon each issuance to the Members of
shares of NET common stock pursuant to this agreement, NET shall lend to the
Members cash in the aggregate amount of 35% of the value of those shares (based
on the Market Price used for determining the number of shares issued). All loans
made to the Members under this section shall be evidenced by a promissory note
in the form of exhibit 2.7(a) and shall be secured pursuant to a pledge and
security agreement in the form of exhibit 2.7(b). Upon any sale by any of the
Members of shares of NET common stock acquired under this agreement, the Member
shall prepay his or her loan to the extent of the proceeds of the shares sold
(net of any brokerage commissions or capital gains taxes payable with respect to
the sale of those shares).
2.8 Definitions and General Provisions.
(a) As used in this agreement, the term "Market Price"
means, as of any date, the average closing price (computed and rounded to the
third decimal point) of NET's common shares on Nasdaq as of 4:00 p.m. (EST)
during the 15 trading days ending on the day preceding that date.
(b) As used in this agreement, the term "EBIT" with respect
to any period means an amount equal to Newco's net revenues for that period,
less all direct expenses (including direct full-time and part-time employee
expenses), depreciation, amortization, and overhead allocations calculated in
the same manner as those items are calculated for NET's other divisions and
subsidiaries (including overhead allocations for NET's employees that perform
services for the Business, but excluding overhead allocations for NET's
chairman, chief executive officer, president or chief financial officer) for
that period, determined in accordance with generally accepted accounting
principles consistently applied.
(c) If at any time prior to June 30, 2001 NET's loans and
capital contributions to fund Newco's operations shall exceed $300,000, for the
purpose of calculating the cash payable and stock issuable under section 2.3
EBIT for the year in which the excess loans or contributions are made (the
"First Excess Year) and for each subsequent year through June 30, 2001 shall be
reduced by a portion of the excess (without regard to any repayments) determined
by dividing the amount of the excess as of the last day of the First Excess Year
by the number of
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full or partial fiscal years from the First Excess Year through June 30, 2001
(excluding the fiscal year ending June 30, 1998 unless the Members make the
election provided for in the second sentence of section 2.3); if the excess is
increased in any year after the First Excess Year, EBIT for the year in which
the increase occurs and each subsequent year through June 30, 2001 shall be
reduced by a portion of the additional excess determined in the same manner.
(d) All cash payments, stock issuances and loans to the
Members under this agreement shall be made 47.5% to Garth Holsinger, 47.5% to
Annett Schaefer-Sell, and 5% to Sunny Smith.
(e) Any calculation of shares that equates to a fractional
number of shares shall be rounded to the nearest whole number.
(f) Garth Holsinger and Annett-Schaefer -Sell shall be
responsible for the day-to-day operations of Newco's business pursuant to the
employment agreements referred to in section 5.1, but nothing in this agreement
or either of those agreements shall limit the right of the boards of directors
and officers of NET and Newco to manage the business and affairs of NET and
Newco or give the Members any claim against either NET or Newco with respect to
any decision relating to the conduct of their businesses, whether or not that
decision affects the amount of any consideration payable under this section 2.
3. Representations and Warranties by the Company and the Members.
The Company and the Members (other than Sunny Smith) jointly and severally
represent and warrant to NET and Newco as follows:
3.1 Organization and Authority of the Company. The Company is a
limited liability company duly organized, validly existing and in good standing
under the law of the State of California and has the full limited liability
company power and authority to own, lease and operate its properties as it now
does and to carry on its business as it is presently being conducted. The
Company is duly qualified and in good standing as a foreign limited liability
company in all jurisdictions in which the property owned or leased by it or the
nature of the activities conducted by it requires qualification.
3.2 Authorization of Agreement. The execution, delivery and
performance of this agreement by the Company have been duly authorized by all
necessary action of the Company. Each of the Members has the full right to enter
into and perform his or her obligations under this agreement in accordance with
its terms. This agreement constitutes a valid and binding obligation of the
Company and each of the Members enforceable against each of them in accordance
with its terms, except as may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights in general and
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3.3 Consents of Third Parties. The execution, delivery and
performance of this agreement by the Company and the Members do not and will not
(i) conflict with the
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certificate of formation or operating agreement of the Company or conflict with,
or result in the breach or termination of, or constitute a default under, or
increase or accelerate any obligation under, any lease, agreement, commitment or
other instrument, or any order, judgment or decree, to which the Company or any
of the Members is a party or by which the Company, the Business, any of the
Assets or any of the Members is bound; (ii) constitute a violation by the
Company or any of the Members of any law, regulation, order, writ, judgment,
injunction or decree applicable to any of them; (iii) result in the creation of
any claim, lien, security interest, charge or encumbrance ("Liens") upon any of
the Assets; or (iv) adversely affect the operation of the Business in any
material respect. No consent, approval or authorization of, or designation,
declaration or filing with, any court or governmental authority or any other
person or entity is required on the part of the Company or any of the Members in
connection with the execution, delivery and performance of this agreement.
3.4 Ownership of the Company. Garth Holsinger is the record and
beneficial owner of a 47.5% membership interest in the Company, Annette
Schaefer-Sell is the record and beneficial owner of a 47.5% membership interest
in the Company, and Sunny Smith is the record and beneficial owner of a 5%
membership interest in the Company; those interests represent all of the
outstanding equity interests in the Company and are owned free and clear of any
Liens. There are no outstanding options, warrants or rights of any kind to
acquire any interests, and there are no outstanding securities convertible into
any interests, in the Company, nor are there any obligations to issue any such
options, rights or securities. The Company does not own any capital stock or
other interest in any corporation or business entity, nor is the Company subject
to any obligation or requirement to make any investment in any corporation or
business entity.
3.5 Financial Statements. All of the books of account of the
Company have been exhibited or made available to NET, and those books of account
have been maintained in accordance with good business practice on a consistent
basis and accurately record all transactions of the Company during the periods
covered by them. All of the Company's accounts receivable outstanding as of the
date of this agreement arose from bona fide transactions in the ordinary course
of the business and none of them is subject to any defense, counterclaim or
setoff, and the Members have no reason to believe that any of them will not be
collected in full when due.
3.6 Absence of Undisclosed Liabilities. As of the date of this
agreement the Company does not have any liability or obligation of any kind,
whether accrued, absolute, contingent or otherwise, other than (a) liabilities
and obligations under leases, commitments and other agreements entered into in
the ordinary course of business (which, to the extent required by section 3.13,
are listed on schedule 3.13), (b) the trade accounts payable and accrued
expenses listed on schedule 3.6, each of which has been incurred in the ordinary
course of business, and (c) the obligations to Travers and JPF referred to in
section 2.4. The Members do not know of any basis for the assertion against the
Company or the Business of any liability as of the date of this agreement that
is not listed on schedule 3.6.
3.7 Absence of Certain Changes. Since January 1, 1996, the
Company has operated its business in the ordinary course and consistent with
past practice, and, except as set forth on schedule 3.7:
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(a) the Company has not entered into any transaction or
incurred any liability or obligation other than in the ordinary course of
business;
(b) there has been no material adverse change in the
condition (financial or otherwise), business, operations, assets or prospects of
the Company;
(c) the Company has not sold or transferred any assets other
than in the ordinary course of business and other than assets that have been
replaced with other assets of equal or greater value;
(d) the Company has not incurred any liability that was
unusual in nature or amount or any indebtedness other than indebtedness to trade
creditors incurred in the ordinary course of business;
(e) the Company has not made any distribution on or acquired
any of its membership interests or, directly or indirectly, made any other
payment of any kind or any loan to any of the Members or their respective
affiliates;
(f) the Company has not granted or agreed to grant any
general increase in any rate or rates of salaries or compensation or in benefits
of any kind to its employees or any specific increase in the salary of or
compensation to any employee whose total salary and compensation after such
increase would be at an annual rate in excess of $25,000;
(g) the Company has not made any change in its accounting
methods or principles (or the application of those methods or principles) or
introduced any material new method of management, operations or accounting;
(h) the Company has not established any new employee benefit
plan (as defined in section 3.24), amended or modified any existing employee
benefit plan, or incurred any obligation or liability under any employee benefit
plan materially different in nature or amount from obligations or liabilities
incurred during similar periods in prior years; and
(i) the Company has not entered into any employment, bonus
or deferred compensation agreement with any of its directors, officers or other
employees.
3.8 Taxes. The Company has timely filed all foreign, federal,
state, local and other tax returns, reports and information returns (including
any related or supporting information) required by law to be filed by it; each
of those tax returns is correct and complete in all material respects. The
Company has paid all taxes required to be paid by it to date. None of the
Company's tax returns has been audited by any tax authority. There exist no
pending or, to the best of the knowledge of the Company and the Members,
proposed tax assessments, suits, actions, claims, audits, investigations or
inquiries by any tax authority with respect to the business or assets of the
Company or against the Company. There are no tax liens on any of the Company's
assets. The Company (including any person acting on behalf of the Company) has
not given nor been
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requested to give waivers or extensions of any statute of limitations relating
to payment of taxes of the Company or for which the Company may be liable and no
other party has given or been requested to give such waivers or extensions with
respect to taxes for which the Company may be liable. All taxes that are or were
required by law to be withheld or collected by the Company have been duly
withheld or collected and paid to the proper tax authority. To the best of the
knowledge of the Company and the Members, the Company is properly treated as a
partnership, and not an association taxable as a corporation, for federal income
tax purposes. The Company does not have any tax liability of any kind that could
result in a Lien on any of the Assets.
3.9 Title to Assets. Except as set forth on schedule 3.9 and
except for the lien, if any, of current taxes not yet due and payable, the
Company has, and upon execution and delivery of this agreement Newco is
acquiring, valid title, free and clear of any Liens, to all the Assets. Except
for the assets referred to in section 1.2, the Assets constitute all of the
assets, tangible and intangible, used in or needed to conduct the Business and
will be sufficient to enable Newco to continue to operate all aspects of the
Business in the manner in which it has been operated by the Company and JPF. The
Company does not owe any amount to, or have any contract with or commitment to,
or use any property (real or personal) in its business owned or leased by, any
of the Members or any director, officer, employee, agent or representative of
the Company, or any of their respective affiliates. Neither JPF nor Travers, nor
any of their respective affiliates, owns any assets used or necessary for use in
the Business; all of those assets have been validly assigned to the Company,
free and clear of any Liens.
3.10 Personal Property. Schedule 3.10 lists all of the equipment,
machinery, computers, furniture, leasehold improvements, vehicles and other
personal property having an individual value greater than $500 owned or leased
by the Company and all interests therein. All equipment and other tangible
assets owned or used by the Company are in good operating condition and in good
condition of maintenance and repair, ordinary wear and tear excepted, are
suitable for their present uses and purposes, and conform with all applicable
ordinances, rules and regulations and all building, zoning and other laws.
3.11 Real Property. The Company does not own any real property.
Schedule 3.11 contains a list and brief description of all real properties used
by the Company and all structures located on those real properties. To the best
of the knowledge of the Company and the Members, all improvements on the real
properties used by the Company are in accordance with all applicable laws,
ordinances, regulations and orders, including, but not limited to, those
applicable to zoning, environment and the establishment and maintenance of
working conditions for labor, and all of the buildings and structures on those
properties are in good condition of maintenance and repair and are adequate,
sufficient and suitable for their present uses and purposes. The transactions
contemplated by this agreement will not adversely affect Newco's right to use
those properties for the same purpose and to the same extent as they were being
used by the Company or JPF prior to the date of this agreement. The Company has
the right to terminate its tenancy of the property listed on schedule 3.11 on
thirty days notice. The Company is not a party to any real property leases.
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3.12 Litigation; Compliance with Laws. Except as set forth on
schedule 3.12, there is no claim, litigation, proceeding or governmental
investigation pending or, to the best of the knowledge of the Company and the
Members, threatened, or any order, injunction or decree outstanding, against the
Business, the Company or any of its properties or assets. Neither the Company
nor any of the Members knows of any basis for future claims, litigations,
proceedings or investigations against the Business, the Company or any of its
properties or assets. Neither the Company nor the Business is in violation of
any law, regulation or ordinance, or any other requirement of any governmental
body or court, and no notice has been received by the Company or any of its
officers or directors alleging any such violation. The Company is not engaged in
any dispute with any of its advertisers, customers, suppliers or printers and
has good relationships with all of them.
3.13 Lists of Agreements, etc. Schedule 3.13 contains a true and
complete list of all orders, commitments and agreements (written or oral) to
which the Company is a party, including, but not limited to, orders, commitments
and agreements with advertisers and customers, agreements for the purchase of
materials, supplies, equipment or services, leases (as lessee or lessor),
license agreements (as licensee or licensor), distribution agreements, and
employment, consulting, sales representative and independent contractor
agreements. True and complete copies of the agreements, commitments and leases
referred to on schedule 3.13 have been delivered to NET. Except for the
agreement referred to in section 2.4, JPF is not a party to any agreement
relating to the Business.
3.14 Status of Agreements. All of the Company's agreements,
commitments and orders were entered into in the ordinary course of business.
Each of the agreements, commitments and orders referred to in section 3.13 is
presently in full force and effect in accordance with its terms and the Company
is not in default, and, to the best of the knowledge of the Company and the
Members, no other party is in default under any of the provision of any of those
agreements and no condition exists that, with notice or lapse of time or both,
would constitute a default by the Company or, to the best of the knowledge of
the Company and the Members, any other party to any of those agreements. Each of
the agreements, commitments or orders referred to in section 3.13 is valid and
binding upon and enforceable against each of the parties thereto in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
in general. No party to any of the agreements, commitments or orders referred to
in section 3.13 has made, asserted or has any defense, setoff or counterclaim
under any of those agreements, commitments or orders or has exercised any option
granted to it to cancel or terminate its agreement, to shorten the term of its
agreement, or to renew or extend the term of its agreement and neither the
Company nor any of its officers or directors has received any notice to that
effect.
3.15 Employees. No employee of the Company is represented by any
union or other collective bargaining agent and there are no collective
bargaining or other labor agreements with respect to those employees. Schedule
3.15 contains a true and complete list of the names, positions, hire dates and
annual or hourly compensation of all employees of the Company and a description
of vacation policies, sick leave policies, bonus, incentive compensation and
group
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insurance plans for the benefit of those employees. No employee of the Company
is owed any wages, benefits or other compensation for past services, other than
wages and benefits accrued in the ordinary course of business during the current
pay period and accrued vacation. Except as set forth on schedule 3.15, the
Company does not have any severance policy and no employee of the Company is
entitled to any severance payment, either by law or by agreement, upon the
termination of his or her employment. To the best of the knowledge of the
Company and the Members, the transactions provided for in this agreement will
not give rise to any liability of the Company or Newco for severance pay or
termination pay to any employee of the Company who is employed after this date
by Newco or trigger any payments of any kind to any employee of the Company or
JPF.
3.16 Labor Disagreements. Except as set forth on schedule 3.16,
(a) to the best of the knowledge of the Company and the Members, the Company and
the Business are in compliance with all applicable laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and is not engaged in any unfair labor practice;
(b) there is no (and has never been any) unfair labor practice charge or
complaint against the Company or the Business pending before the National Labor
Relations Board, any state labor relations board or any court or tribunal and,
to the best of the knowledge of the Company and the Members, none is or has been
threatened; (c) there is no labor strike, dispute, request for representation,
slowdown or stoppage actually pending against or affecting the Company or the
Business and, to the best of the knowledge of the Company and the Members, none
is or has been threatened; and (d) no grievance which might have an adverse
effect on the conduct of the operations of the Business or any arbitration
proceeding arising out of or under any collective bargaining agreement is
pending and, to the best of the knowledge of the Company and the Members, none
is or has been threatened.
3.17 Restrictive Documents, etc. Neither the Company nor the
Business is subject to, or a party to, any lease, license, permit, agreement or
other commitment, instrument, law, rule, ordinance, regulation, order, judgment
or decree, or any other restriction of any kind, that materially and adversely
affects its business practices or operations or any of the Assets or that would
prevent its compliance with the terms, conditions and provisions of this
agreement or the continued operation of the Business by Newco after the date of
this agreement on substantially the same basis as it has been operated since
January 1, 1996.
3.18 Environmental Matters. To the best of the knowledge of the
Company and the Members:
(a) the Company and all of the property used by the Company
is in compliance with all federal, state and local laws, regulations, rules,
orders, decrees, ordinances and common law relating to pollution, the protection
of human health or the environment, including, but not limited to, laws relating
to emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, wastes, toxic substances, petroleum and petroleum
products, and radiation ("Materials of Environmental Concern"), or otherwise
relating to the manufacture, processing,
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distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern;
(b) there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, but not limited to,
the release, emission, discharge or disposal of any Material of Environmental
Concern, that could form the basis of any claim against or violation by the
Company (or, after the closing, Newco), or against any person or entity whose
liability for any claim or violation the Company has (or may have) retained or
assumed either contractually or by operation of law; and
(c) there are no on-site or off-site locations where the
Company has stored, disposed or arranged for the disposal of Materials of
Environmental Concern; there are no underground storage tanks located on
property used by the Company; there is no asbestos contained in or forming part
of any building, building component, structure or office space used by the
Company; and no polychlorinated biphenyls (PCBs) are used or stored at any
property used by the Company.
3.19 Permits and Licenses. The Company has all permits, licenses,
franchises and other authorizations ("Licenses") necessary for the conduct of
its business and all such Licenses are valid and in full force and effect. All
Licenses held by the Company that are material to the Company or its business
are listed on schedule 3.19.
3.20 Banks; Powers of Attorney. Schedule 3.20 sets forth (a) the
names and locations of all banks, trust companies, savings and loan associations
and other financial institutions at which the Company maintains safe deposit
boxes or accounts of any nature and the names of all persons authorized to draw
thereon, make withdrawals therefrom or have access thereto and (b) the names of
all persons to whom the Company has granted a power of attorney, together with a
description thereof.
3.21 Intangible Property. Schedule 3.21 contains a complete list
of the trademarks, trade names, copyrights and logos used by the Company. The
Company owns, free and clear of any Liens, each of the trademarks, trade names,
copyrights and logos (including registrations and applications for registration
of any of them) listed on schedule 3.21, and they constitute all of the
trademarks, copyrights, trade names and logos necessary for the continued
operation of the Business in a manner consistent with past practices. The
Company is not infringing upon any trademark, trade name, copyright or other
rights of any third party; no proceedings are pending or threatened; and no
claim has been received by the Company alleging any such violation. To the best
of the knowledge of the Company and the Members, there is no violation by others
of any right of the Company with respect to any trademark, trade name or
copyright. The representations and warranties in this section do not apply to
the trademark "GoCard."
3.22 Software and Databases. The Company owns or possesses
adequate licenses or other rights to use all computer software used by it.
Schedule 3.22 contains a list of all such software. Any license of the Company
to use any software is valid and does not infringe on the property rights of any
third party. The Company has not granted to any person or entity any
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<PAGE>
interest, as licensee or otherwise, in any of its owned software or databases or
in any of its mailing lists, advertiser lists or customer lists. The Company has
the right to transfer all computer software, databases and lists used by it to
Newco without violating any agreement to which the Company is a part or any
rights of any third party.
3.23 Insurance. Schedule 3.23 contains a complete list of all of
the Company's insurance policies, specifying with respect to each policy the
policy limit, type of coverage, location of the property covered, annual
premium, premium payment date and expiration date. True and complete copies of
all of those policies have been delivered to NET.
3.24 ERISA. Except as set forth on schedule 3.24, the Company is
not a party to or bound by or liable with respect to any "employee benefit
plan", within the meaning of section 3(3) of the Employee Retirement Income
Security Act of 1974.
3.25 Expenses Related to this Agreement. The Company has not paid
any expenses related to the negotiation or preparation of this agreement or any
broker's, finder's or similar fee relating to the transactions contemplated by
this agreement.
3.26 Transactions with Affiliates. Except as set forth on
schedule 3.26, during the twelve months preceding the date of this agreement the
Company has not engaged in any transaction with any of the Members of JPF or
Travers, or any of their respective affiliates.
3.27 Distribution Racks. Schedule 3.27 contains a complete list
of the locations and installation dates of all of the Company's distribution
racks.
3.28 Projections. Schedule 3.28 contains projections with respect
to the Company's business that were prepared jointly by the Members and Newco.
The Members have reviewed those projections and believe that they are based on
assumptions that are valid and reasonable and are realistic and attainable by
the Company. The projections are based in part on the assumption that NET will
make the capital advances to Newco provided for in section 5.7.
3.29 Business Relationships. Except as set forth in the schedules
to this agreement, since January 1, 1996 the Company has enjoyed good
relationships with all suppliers of goods or services to the Business, the
operators of all of the venues in which its postcard advertising display racks
are located, and all of its advertisers, and neither the Company nor any of the
Members knows of any intention on the part of any such vendor, venue operator or
advertiser to substantially change its relationship with the Company and none of
them has any reason to believe that the relationship with any such vendor, venue
operator or advertiser will change after consummation of Newco's purchase of the
Business. Immediately prior to the execution of this agreement the Company
canvassed the operators of all of the venues in which its postcard display racks
are located and on the basis of that canvass the Company and the Members have
determined that Newco will retain after the closing under this agreement at
least 80% of the exisiting venues. Since January 1, 1997 the Company has not
lost more than five display rack venues to the Company's competitors.
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<PAGE>
3.30 No Misrepresentation. No representation or warranty by the
Company or the Members in this agreement (including the schedules and exhibits
to this agreement) contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained in this
agreement (including the schedules and exhibits to this agreement) not
misleading.
4. Representations and Warranties by Newco and NET. Newco and NET
jointly and severally represent and warrant to the Company and the Members as
follows:
4.1 Organization. NET is a corporation duly organized, validly
existing and in good standing under the law of the State of Delaware and has the
full corporate power to enter into and to perform this agreement. Newco is a
limited liability company duly organized, validly existing and in good standing
under the law of Delaware and has the full power under the Delaware Limited
Liability Company Act to execute and perform this agreement.
4.2 Authorization of Agreement. The execution, delivery and
performance of this agreement by Newco and NET have been duly authorized by all
requisite action of each of them. This agreement constitutes the valid and
binding obligation of Newco and NET, enforceable against each of them in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general and subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
4.3 Consents of Third Parties. The execution, delivery and
performance of this agreement by each of Newco and NET will not (a) conflict
with Newco's certificate of formation or limited liability company agreement or
NET's certificate of incorporation or by-laws and will not conflict with, result
in the breach or termination of, or constitute a default under, any lease,
agreement, commitment or other instrument, or any order, judgment or decree to
which it is a party by which it is bound, or (b) constitute a violation by it of
any law or regulation applicable to it. No consent, approval or authorization
of, or designation, declaration or filing with, any governmental authority is
required on the part of Newco or NET in connection with the execution, delivery
and performance of this agreement.
4.4 Validity of Issuance. The shares of NET common stock, when
issued to the Members under section 2, will be duly authorized, validly issued,
fully paid and non-assessable.
4.5 Financial Ability. NET and Newco have the financial ability
to satisfy their respective obligations to the Company and the Members under
this agreement.
4.6 No Misrepresentation. No representation or warranty by Newco
or NET in this agreement (including the schedules and exhibits to this
agreement) contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained in this agreement
(including the schedules and exhibits to this agreement) not misleading.
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<PAGE>
5. Further Agreements of the Parties.
5.1 Employment Agreements. Contemporaneously with the execution
of this agreement, Garth Holsinger and Annett Schaefer-Sell are entering into
employment agreements with Newco in the forms of exhibit 5.1(a) and (b),
respectively.
5.2 Covenants Against Competition, Solicitation and Disclosure.
(a) To accord to Newco and NET the full value of their
purchase, for a period of five years after the date of this agreement neither
the Company nor any of the Members shall, directly or indirectly, engage or be
interested in (as owner, shareholder, partner, member, manager, lender, agent or
otherwise) any business or entity that engages, anywhere in the world, in (i)
any business in which the Company has engaged at any time during the two years
preceding the date of this agreement, including, but not limited to, the
production, reproduction, sale, distribution or other commercial exploitation of
postcards containing advertisements, or (ii) sales and marketing activities
targeting primarily college students, including, but not limited to, any
business or entity that derives substantial revenue either from advertisers
targeting the college student market or from student purchases.
(b) For a period of five years after the date of this
agreement, neither the Company nor any of the Members shall, directly or
indirectly, employ or solicit for employment or consulting, on its own behalf or
on behalf of any other person or entity, or otherwise encourage the resignation
of, any employee of Newco, NET or any of NET's other affiliates.
(c) Neither the Company nor any of the Members shall at any
time hereafter disclose to anyone, or use in competition with Newco, NET or any
of NET's other affiliates, any information with respect to any confidential or
secret aspect of the business or affairs of Newco, NET or any of NET's other
affiliates.
(d) The Company and Members acknowledge that the remedy at
law for breach of the provisions of this section 5.2 will be inadequate and
that, in addition to any other remedy NET and Newco may have, they shall be
entitled to an injunction restraining any breach or threatened breach, without
the necessity of showing actual damages. In any action brought by NET or Newco
for injunctive relief, if the Company and the Members fail to waive any
requirement that a bond or other security be posted, the Company and the Members
shall reimburse NET and Newco for any bond premium or security charge if the
injunctive relief is granted. If any court construes the covenant in this
section 5.2, or any part thereof, to be unenforceable in any respect, the court
may reduce the duration or area to the extent necessary so that the provision is
enforceable, and the provision, as reduced, shall then be enforceable.
(e) To the extent any provision of this section 5.2 is
inconsistent with any provision of the employment agreements referred to in
section 5.1, the provision of the employment agreement shall control.
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<PAGE>
5.3 Expenses. Except as expressly provided in this agreement, the
parties shall bear their own expenses incurred in connection with the
negotiation and preparation of this agreement and in connection with the
transactions contemplated by this agreement.
5.4 Securities Act Matters.
(a) The Company and the Members recognize that each issuance
of shares of NET common stock under section 2 (the "Shares") is intended to be
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), by virtue of section 4(2) of the Securities Act and, in that
connection, jointly and severally represent and warrant to NET that (i) each of
them is acquiring his or her Shares for his or her own account, for investment
purposes only and not with a view to the resale or distribution of those Shares,
in whole or in part, and (ii) each of them understands that sales or transfers
of the Shares are restricted by the Securities Act and by certain state
securities laws and recognizes that a legend referencing that restriction will
be placed on the certificates representing the Shares.
(b) The Members shall not sell or otherwise transfer
the Shares without registration under the Securities Act and applicable state
securities laws or an exemption therefrom. The Members confirm that they
understand that NET is under no obligation to register the Shares on their
behalf or to assist them in complying with any exemption from registration.
5.5 Legal Opinions. Contemporaneously with the execution of this
agreement, (a) the Company and the Members are delivering to NET an opinion of
Rosoff, Schiffres & Barta, counsel to the Company and the Members, in the form
of exhibit 5.5(a), and (b) Newco is delivering to the Members an opinion of
Proskauer Rose Goetz & Mendelsohn LLP, counsel to Newco and NET, in the form of
exhibit 5.5(b).
5.6 Assignment of Agreements. Nothing in this agreement shall be
construed as an attempt to assign any agreement or other instrument that by its
terms is nonassignable without the consent of the other party.
5.7 Advances by NET. NET shall provide loans or capital
contributions to Newco to fund Newco's operations in an aggregate amount of up
to $300,000, in accordance with the projections contained in schedule 3.28, but
only to the extent funds are needed to fund Newco's operations. Newco shall not
repay any loan or make any distribution to NET prior to June 30, 2001 unless
Newco will have sufficient working capital after the repayment or distribution
to operate its business in accordance with the projections contained in schedule
3.28. The principal amount and accrued interest on the outstanding promissory
notes of the Company in favor of NET in the aggregate principal amount of
$116,000 that are being assumed by Newco upon the execution of this agreement
shall be credited to NET's $300,000 commitment under this provision and the
Company's obligations under those notes shall be considered extinguished.
5.8 Default by Newco or NET. If Newco or NET defaults in making
any payment or stock issuance required under section 2, and that default is not
cured within 30 days after
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notice of the default is given to Newco or NET by the Members, the Members shall
have the right, exercisable by notice given to NET within 30 days after the
expiration of that cure period, to purchase from Newco all of the assets
relating to the Business, subject to all of the liabilities of the Business
(other than liabilities owed to NET and its affiliates), for a purchase price
equal to (a) the total amount of cash paid to the Members by Newco, the value of
the stock issued to the Members by NET (based on the valuation used at the time
of each issuance) under section 2 and the total amount of unpaid principal and
accrued interest on the notes referred to in section 2.7, plus (b) the total
amount of unpaid advances, whether equity or debt and including any accrued
interest, made to Newco by NET. The closing of a purchase by the Members (who
may assign their rights to any entity in which they have at least a 25% equity
interest) shall be held on a date and at a place designated by NET, but in no
event later than 90 days after the date the Members' notice of exercise is
given. At the closing, the purchaser shall pay to Newco 20% of the purchase
price by wire transfer of federal funds and shall deliver to Newco a promissory
note for the balance of the purchase price payable in three equal quarterly
installments over a one year period, Newco shall assign and transfer to the
purchaser all of the assets of the Business, and the purchaser shall assume all
of the liabilities of the Business (other than liabilities owed to NET and its
affiliates). Any obligations of any entity under this provision shall be
personally guaranteed by the Members.
5.9 Further Assurances. At any time and from time to time after
the date of this agreement, each party shall, without further consideration,
execute and deliver to the other parties such other instruments and take such
other action as the others may reasonably request to carry out the transactions
contemplated by this agreement.
5.10 Change in Name. Within 30 days after the date of this
agreement, the Company shall change its name to a name that does not include any
of the terms or words "Pik", "Nik", "Pick", "Nick", "Free", "Postcard", "Card",
"Wild", or "Go". 5.11 Sales Taxes. The Company shall pay any state or local
sales taxes payable in connection with the sale of Assets.
5.12 Bulk Sales. The parties waive compliance with the provisions
of any applicable bulk sales law. The Company and the Members jointly and
severally shall indemnify and hold Newco and NET harmless from any loss,
liability, damage, cost or expense (including reasonable attorney's fees and
expenses) incurred by Newco or NET as a result of any liability to which Newco
or NET may become subject because the transactions contemplated by this
agreement are being effected without compliance with the bulk sales law or any
similar statute in any jurisdiction.
5.13 Post-Closing Payments. The Company and the Members shall, as
promptly as practical, forward to Newco any amount received by any of them to
which Newco is entitled under this agreement and shall refer to Buyer any
telephone calls, letters and other communications that they may receive relating
to the Business.
6. Survival of Representations and Warranties; Indemnification.
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6.1 Survival. All representations, warranties and agreements by
the Company and the Members shall survive the closing under this agreement
notwithstanding any investigation at any time by or on behalf of Newco or NET,
and shall not be considered waived by Newco's or NET's consummation of the
transactions contemplated by this agreement with knowledge of any breach of
misrepresentation by the Company or the Members. All representations, warranties
and agreements by Newco and NET shall survive the closing under this agreement
notwithstanding any investigation at any time by or on behalf of the Company or
the Members, and shall not be considered waived by the Company's consummation of
the transactions contemplated by this agreement with knowledge of any breach by
Newco or NET.
6.2 Indemnification.
(a) The Company and the Members (other than Sunny Smith)
jointly and severally shall indemnify and hold harmless Newco and NET against
all loss, liability, damage or expense (including reasonable fees and expenses
of counsel, whether involving a third party or between the parties to this
agreement) Newco or NET may suffer, sustain or become subject to as a result of
(i) any breach of any warranty, covenant or other agreement of the Company or
the Members contained in this agreement, or any misrepresentation by the Company
or Members, or any claim by a third party which, without regard to the merits of
the claim, would constitute such a breach or misrepresentation, (ii) the
Company's failure to pay, perform or discharge when due any of the Company's
obligations, liabilities, agreements or commitments not expressly assumed by
Newco pursuant to this agreement, (iii) any other liability or obligation
arising out of the operations of the Business on or prior to the date of this
agreement and not expressly assumed by Newco pursuant to this agreement, (iv)
the failure to comply with any bulk sales law applicable to the sale of the
Assets, or (v) any liability for severance or otherwise to any employee of the
Company resulting from the transactions provided for in this agreement.
(b) In addition to any other rights and remedies they may
have, Newco and NET may reduce (i) the amounts to be paid or the number of
shares to be issued to the Members under section 2 (at a valuation, in the case
of the shares, at their then current closing price on Nasdaq), and (ii) then, up
to 20% in any year of the amounts payable to the Members under their employment
agreements referred to in section 5.1 (without affecting the obligations of the
Members under those agreements), to the extent of any amount payable to Newco or
NET pursuant to section 6.2(a), but no such set-off shall constitute an accord
and satisfaction or otherwise modify the rights or obligations of the Company
and the Members under this agreement or constitute a breach by Newco or NET of
its obligations under this agreement. Without limiting the generality of the
preceding sentence, the Company and the Members acknowledge and agree that
Newco's and NET's exercise of its rights pursuant to the preceding sentence
shall not limit Newco's and NET's rights to recover any amounts owed to them
that exceed the amount obtained by exercise of those rights and such exercise
shall not be in substitution of or in any way limit Newco's or NET's exercise of
its other rights and remedies under this agreement, any other agreement or
applicable law.
(c) Newco shall indemnify and hold harmless the Company and
the Members against all loss, liability, damage or expense (including reasonable
fees and expenses
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of counsel, whether involving a third party or between the parties to this
agreement) the Company or the Members may suffer, sustain or become subject to
as a result of any breach of any warranty, covenant or other agreement of Newco
or NET contained in this agreement, or any misrepresentation by Newco or NET, or
any claim by a third party which, without regard to the merits of the claim,
would constitute such a breach or misrepresentation.
6.3 Defense of Claims. If any third-party claim is made against
any party that, if sustained, would give rise to a liability of the other party,
the party against whom the claim is made shall promptly cause notice of the
claim to be delivered to the other party and shall afford the other party and
its counsel, at the other party's sole expense, the opportunity to join in
defending or compromising the claim.
7. Miscellaneous.
7.1 Finders. The parties represent and warrant that they have not
employed or utilized the services of any broker or finder in connection with
this agreement or the transactions contemplated by it. The Members have utilized
the services of Herschel Sarbin and shall be solely responsible for any
compensation payable to him.
7.2 Entire Agreement. This agreement (together with the
employment agreements referred to in section 5.1) contains, and is intended as,
a complete statement of all of the terms of the arrangements among the parties
with respect to the matters provided for, supersedes any previous agreements and
understandings among the parties with respect to those matters, and cannot be
changed or terminated orally.
7.3 Governing Law. This agreement shall be governed by and
construed in accordance with the law of the State of New York applicable to
agreements made and to be performed entirely in New York.
7.4 Headings. The section headings of this agreement are for
reference purposes only and are to be given no effect in the construction or
interpretation of this agreement.
7.5 Notices. All notices and other communications under this
agreement shall be in writing and shall be deemed given when delivered
personally, one day after being sent by recognized overnight courier or four
days after being mailed by registered mail, return receipt requested, to the
parties at the following addresses (or to such other address as a party may
specify by notice given to the other pursuant to this provision):
(a) If to the Company or the Members, addressed to any of them
at:
c/o Pik:Nik LLC
137 North Larchmont Boulevard
Suite 806
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Los Angeles, CA 90004
with a copy to:
Howard Rosoff, Esq.
Rosoff, Schiffres & Barta
11755 Wilshire Boulevard
Suite 1450
Los Angeles, CA 90025
(b) If to Newco or NET, addressed to either or both of them at:
Network Event Theater, Inc.
149 Fifth Avenue
New York, N.Y. 10010
Attention: Don Leeds, President
with a copy to:
Bertram A. Abrams, Esq.
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
7.6 Waiver. Any party may waive compliance by another with any of
the provisions of this agreement. No waiver of any provision shall be construed
as a waiver of any other provision. Any waiver must be in writing and must be
signed by the party waiving the provision.
7.7 Separability. If any provision of this agreement is invalid
or unenforceable, the balance of this agreement shall remain in effect unless
such invalidity or unenforceability shall materially impair the purpose or
objectives of this agreement.
7.8 Assignment. No party may assign any of its or his rights or
delegate any of its or his duties under this agreement without the consent of
the other parties.
7.9 Publicity. No party shall issue any press release or other
public statement regarding the transactions contemplated by this agreement,
except that Newco and NET may release such information as they determine
necessary or appropriate.
7.10 Definition. As used in this agreement, the term "affiliate"
means any person or entity directly or indirectly controlled by, controlling, or
under common control with, any other person or entity, and when used with
respect to a Member shall include his or her family members.
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7.11 No Third Party Beneficiaries. This agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this agreement.
7.12 Specific Performance. The Company and the Members
acknowledge that the Business is of a special, unique and extraordinary
character, and that any breach of this agreement by the Company or any of the
Members could not be compensated for by damages. Accordingly, if the Company or
any of the Members breaches its, his or her obligations under this agreement
Newco shall be entitled, in addition to any other remedies that it may have, to
enforcement of this agreement by a decree of specific performance requiring the
Company and the Members to fulfill their obligations under this agreement, and
no bond or other security shall be required.
7.13 Counterparts. This agreement may be executed in one or more
counterparts.
PIK:NIK LLC
By:/s/Annett Schaefer-Sell
---------------------------
Name:
Title:
/s/ Garth Holsinger
---------------------------
Garth Holsinger
/s/Annett Schaefer-Sell
---------------------------
Annett Schaefer-Sell
/s/Sunny Smith
---------------------------
Sunny Smith
PIK:NIK MEDIA, LLC
By:/s/Don Leeds
---------------------------
Don Leeds
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President
NETWORK EVENT THEATER, INC.
/s/ Don Leeds
---------------------------
Don Leeds
President
22
EXHIBIT 10.32
NETWORK EVENT THEATER, INC.
STOCK PURCHASE AGREEMENT
June 24, 1997
<PAGE>
Network Event Theater, Inc.
STOCK PURCHASE AGREEMENT
June 24, 1997
The parties to this agreement are Warburg, Pincus Emerging Growth
Fund, Inc., a Maryland corporation, and Small Company Growth Portfolio of
Warburg, Pincus Institutional Fund, Inc., a Maryland corporation (collectively,
"Purchasers"), and Network Event Theater, Inc., a Delaware corporation (the
"Company").
The Company desires to sell to Purchasers shares of the Company's
Common Stock, par value $.01 per share ("Shares"), and Purchasers desire to
purchase those Shares from the Company, on the terms and subject to the
conditions set forth in this agreement.
Accordingly, the parties agree as follows:
1. Purchase and Sale of Shares.
1.1 Issuance and Sale of Shares. At the closing provided for in
section 1.2 , the Company shall issue and sell to the Purchasers an aggregate of
1,015,873 Shares, and each Purchaser shall purchase from the Company the number
of Shares set forth opposite that Purchaser's name on Schedule 1.1, at a price
of $3.9375 per Share (the "Purchase Price").
1.2 Closing. The closing shall take place on June 24, 1997 at the
offices of Proskauer Rose LLP, 1585 Broadway, New York, N.Y. 10036 or at such
other time and such place as the Company and the Purchasers mutually agree. The
date of the closing is referred to in this agreement as the "Closing Date". At
the closing, each Purchaser shall deliver to the Company, by check or by wire
transfer of immediately available funds, the Purchase Price of the Shares
purchased by that Purchaser and the Company shall deliver to the respective
Purchasers certificates for those Shares duly registered in their respective
names.
2. Representations and Warranties of the Company.
The Company represents and warrants to each Purchaser as follows:
2.1 Corporate Organization and Authority. The Company is a
corporation duly organized, validly existing, and in good standing under the law
of Delaware; has the full power and authority to own and operate its properties,
to carry on its business as now conducted and as proposed to be conducted, to
execute and deliver this agreement and to perform its obligations hereunder and
consummate the transactions contemplated hereby; and is qualified as a foreign
corporation in all jurisdictions in which qualification is required and in which
the failure to qualify would have a material adverse effect on the Company's
business, properties, or financial condition.
2.2 Capitalization. The Company is authorized to issue 17,000,000
Shares, of which 8,845,450 are duly and validly issued, fully-paid,
non-assessable and outstanding as of the date of this agreement, and 1,000,000
shares of preferred stock, par value $.01 per share, none of which is
outstanding. The Company has reserved (a) 340,000 Shares for issuance
<PAGE>
upon exercise of outstanding options under the Company's stock option plan at
per share exercise prices ranging from $2.63 to $5.00 and having a weighted
average exercise price of $3.60 per share, (b) 40,000 Shares for issuance upon
exercise of options available for future grant under the Company's stock option
plan, (c) 552,560 Shares for issuance upon exercise of options granted to The
Fields & Hellman Company at a per share exercise price of $1.58, (d) up to
100,000 Shares for issuance upon exercise of contingent options granted to
American Passage Media Corporation at a per share exercise price of $2.627, (e)
2,645,000 Shares for issuance upon exercise of outstanding warrants at a per
share exercise price of $5.00, (f) 230,000 Shares for issuance upon exercise of
outstanding warrants issued to Whale Securities Co., L.P. at a per share
exercise price of $8.25, and (g) 230,000 Shares reserved for issuance upon
exercise of warrants underlying outstanding warrants issued to Whale Securities
Co., L.P. at a per share exercise price of $8.25. Except as set forth in this
section 2.2 and as contemplated by this agreement, there are no outstanding
options, warrants, conversion privileges, preemptive rights, or other rights or
agreements to purchase or otherwise acquire or issue any equity securities of
the Company. The Company has no obligation to repurchase or redeem any
outstanding securities. The issuance of the Shares contemplated by this
agreement will not result in any adjustment to the exercise prices of any of the
Company's outstanding options or warrants. The Company has delivered to the
Purchasers true and complete copies of the Company's Certificate of
Incorporation and By-Laws as in effect as of the date hereof. Except as provided
in the Underwriting Agreement dated April 2, 1996 between the Company and Whale
Securities Co., L.P. and the NET Portfolio Investors Agreement dated December
21, 1995 (and the Shareholders Agreement contemplated by that agreement), there
exist no agreements or understandings among the stockholders of the Company with
respect to their voting of securities of the Company or agreements pursuant to
which the Company is obligated to nominate persons for election or appointment
to the Company's board of directors. Except as provided by the Registration
Rights Agreement, the NET Portfolio Investors Agreement dated December 21, 1995
and registration rights agreements covering shares which have already been
registered by the Company, the Company is not under any obligation to register
any of its securities under the Securities Act of 1933, as amended (the
"Securities Act").
2.3 Authorization. All corporate action on the part of the
Company, its officers, directors and stockholders, necessary for the
authorization, execution and delivery of this agreement and the Registration
Rights Agreement referred to in section 4.5, the performance of all obligations
of the Company under this agreement and the Registration Rights Agreement, and
the authorization, sale, issuance and delivery of the Shares, has been taken,
and assuming due execution and delivery by each Purchaser, this agreement and
the Registration Rights Agreement constitute valid and binding obligations of
the Company enforceable against the Company in accordance with their respective
terms.
2.4 Validity of Shares. Upon receipt by the Company of the
Purchase Price and issuance and delivery of the Shares, the Shares will be duly
and validly issued (including, without limitation, issued in compliance with
applicable federal and state securities laws), fully-paid and non-assessable.
2.5 No Conflict with Other Instruments. The execution and
delivery of this agreement and the Registration Rights Agreement and the
performance of all obligations of the Company under this agreement and the
Registration Rights Agreement will not result in any
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violation of, be in conflict with, or constitute a default under, with or
without the passage of time or the giving of notice: (a) any provision of the
Company's certificate of incorporation or by-laws; (b) any material contract,
obligation or commitment to which the Company is a party or by which it is
bound; or (c) any statute, rule or governmental regulation or order applicable
to the Company.
2.6 SEC Reports. The Company has provided Purchasers with a copy
of its Transaction Report on Form 10-KSB for the transition period ended June
30, 1996, its Quarterly Reports on Form 10-QSB for the fiscal quarters ended
March 31, 1996, September 30, 1996, December 31, 1996 and March 31, 1997, and
its Current Report on Form 8-K dated August 21, 1996 (the "SEC Reports"), as
filed with the Securities and Exchange Commission. On the date of its filing,
none of the SEC Reports contained any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they, were made, not misleading. The
SEC Reports are the only reports that have been filed by the Company with the
SEC under the Securities Exchange Act of 1934. The Company has filed all
reports, registrations statements and other documents required to be filed by it
under applicable federal and state securities laws.
2.6 Changes in Condition. Since March 31, 1997 there has not been
(a) any change in the business, assets, properties, financial condition or
operating results of the Company from that reflected in the Form 10-QSB for the
fiscal quarter ended that date, except changes in the ordinary course of
business which individually, or in the aggregate, have not had a material
adverse effect on the Company, or (b) any other event or condition, of which the
Company has knowledge, of any character which might have a material adverse
effect on the business, assets, properties, financial condition or operating
results of the Company.
2.7 Financial Statements. The financial statements contained in
the SEC Reports fairly present the financial position and results of operations
of the Company as of their respective dates and for the respective periods then
ended, in accordance with generally accepted accounting principles consistently
applied.
2.8 Consents. No consent, approval, order or authorization of any
federal, state or local governmental authority or other person or entity with
respect to the Company is required in connection with the sale and purchase of
Shares as contemplated by this agreement.
2.9 Litigation. There is no action, proceeding or investigation
pending or threatened against the Company that, either individually or in the
aggregate, would have a material adverse effect on the business, assets,
properties, financial condition or operating results of the Company or that
seeks to prohibit or restrain the transactions contemplated hereby. There is no
judgment, decree or order of any court in effect against the Company and the
Company is not in default with respect to any order of any governmental
authority to which the Company is a party or by which it is bound. There is
currently pending no action, suit, proceeding or investigation initiated by the
Company.
3. Representations and Warranties of Purchasers; Securities Laws.
3.1 Representations and Warranties of Purchasers. Each Purchaser
severally and not jointly represents and warrants to the Company that:
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<PAGE>
(a) All action on the part of that Purchaser, and its officers,
directors and stockholders, necessary for the authorization, execution and
delivery of this agreement and the Registration Rights Agreement and the
performance of all of its obligations under this agreement and the Registration
Rights Agreement has been taken, and assuming due execution and delivery by the
Company, this agreement and the Registration Rights Agreement constitute valid
and binding obligations of that Purchaser enforceable against it in accordance
with their terms.
(b) The execution and delivery of this agreement by that
Purchaser and the performance of all obligations of that Purchaser under this
agreement will not result in any violation of, be in conflict with, or
constitute a default under, with or without the passage of time or the giving of
notice: (i) any provision of that Purchaser's charter documents; (ii) any
material contract, obligation or commitment to which that Purchaser is a party
or by which it is bound; or (iii) any statute, rule or governmental regulation
or order applicable to that Purchaser.
4. Securities Act Matters.
4.1 Purchase for Investment. This agreement is made with each
Purchaser in reliance upon that Purchaser's representation to the Company, which
by that Purchaser's execution of this agreement that Purchaser hereby confirms,
that the Shares to be purchased by that Purchaser will be acquired for
investment for that Purchaser's own account, not as a nominee or agent, and,
other than as contemplated by the Registration Rights Agreement or otherwise in
accordance with applicable securities laws, not with a view to the sale or
distribution of any part thereof, and without present intention of selling,
granting any participation in, or otherwise distributing any of the Shares. By
executing this agreement, each Purchaser further represents that it has no
contract, undertaking, agreement or arrangement with any person to sell or
transfer any of the Shares.
4.2 Exemption. Each Purchaser acknowledges that it understands
that the offering and sale of the Shares to Purchasers pursuant to this
agreement will not be registered under the Securities Act on the grounds that
the offering and sale are exempt from registration pursuant to Section 4(2) of
the Securities Act, and that the Company's reliance upon such exemption is
predicated, in part, upon that Purchaser's representations set forth in this
agreement.
4.3 Additional Securities Act Representations. Each Purchaser
represents that: (a) it has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of its
prospective investment in the Shares; (b) it has received all the information it
has requested from the Company and considers necessary or appropriate for
deciding whether to purchase the Shares; (c) it has the ability to bear the
economic risks of its investment; (d) it is able, without materially impairing
its financial condition, to hold the Shares for an indefinite period of time and
to suffer complete loss on its investment; and (e) it is an "accredited
investor" within the meaning of Rule 501 under the Securities Act.
4.4 Legends. The certificates for the Shares sold to Purchasers
shall bear the following legend:
"The Shares represented by this certificate have not been
registered under the Securities Act of 1933 ("Act") and may not
be transferred unless a Registration Statement under the Act is
in effect as to that transfer or, in the opinion of counsel
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<PAGE>
reasonably satisfactory to the Company, registration under the
Act is unnecessary for that transfer to comply with the Act."
4.5 Registration Rights. At the closing, the Company and each
Purchaser shall execute and deliver an agreement substantially in the form of
the registration rights agreement ("Registration Rights Agreement") attached as
exhibit 4.5 to this agreement, which provides for registration under the
Securities Act of the Shares to be issued to Purchasers pursuant to this
agreement. Notwithstanding anything to the contrary in the Registration Rights
Agreement, until the expiration of the ninety day period commencing on the
Closing Date, none of the Purchasers shall sell any of the Shares that it
acquires pursuant to this agreement.
5. Conditions to Purchasers' Obligations. The obligations of each
Purchaser to purchase Shares under Section 1 of this agreement are subject to
the fulfillment at or before the closing of each of the following conditions
(any of which may be waived in writing by that Purchaser):
5.1 Representations and Warranties. The representations and
warranties of the Company contained in section 2 shall be true in all material
respects on and as of the Closing Date with the same effect as though those
representations and warranties had been made on and as of the Closing Date.
5.2 Performance of Obligations. The Company shall have performed
in all material respects all agreements and obligations that are required to be
performed by it under this agreement on or before the Closing Date.
5.3 Registration Rights Agreement. The Company and each of the
Purchasers shall have executed and delivered the Registration Rights Agreement.
5.4 Opinion of Counsel. There shall have been delivered to
Purchasers an opinion of counsel to the Company in substantially the form of
Exhibit 5.4.
5.5 Due Diligence. Each of the Purchasers and their respective
counsel shall have had an opportunity to review all information regarding the
Company and all material agreements to which the Company or its stockholders are
a party which they have reasonably requested.
5.6 Proceedings Satisfactory. All corporate and legal proceedings
taken by the Company in connection with the transactions contemplated by this
agreement shall be reasonably satisfactory to each Purchaser.
6. Conditions to Company's Obligations. The obligations of the
Company to issue and sell Shares to the respective Purchasers are subject to the
fulfillment at or before the Closing of each of the following conditions (any of
which may be waived in writing by the Company):
6.1 Representations and Warranties. The representations and
warranties of Purchasers contained in section 3 and 4 shall be true in all
material respects on and as of he Closing Date with the same effect as though
those representations and warranties had been made on and as of the Closing
Date.
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<PAGE>
6.2 Performance of Obligations. Each of the Purchasers shall have
performed in all material respects all agreements and obligations that are
required to be performed by it under this agreement on or before the Closing
Date.
6.3 Registration Rights Agreement. The Registration Rights
Agreement shall have been executed and delivered by the Purchasers.
7. Additional Agreements of the Company. The Company further agrees
as follows:
7.1 Information Provided to Stockholders. The Company shall
provide each Purchaser, for so long as that Purchaser holds Shares, with copies
of all reports, proxy statements and other financial information the Company
provides to its stockholders, including, without limitation, any information
provided to any stockholder or group of stockholders by agreement.
7.2 Stockholders' Meetings. The Company shall hold annual
meetings of its stockholders.
7.3 Publicity. The Company shall not use or make reference to the
name of any Purchaser or any of its affiliates in any press release or other
document without that Purchaser's prior approval unless the use or reference to
that Purchaser is required by law, in which event the Company will consult with
that Purchaser prior to such publication; provided, however, that no approval of
or consultation with Purchasers shall be required to file this agreement and the
Registration Rights Agreement as an exhibit to any report required to be filed
by the Company with the SEC pursuant to the Securities Exchange Act of 1934.
7.4 Use of Proceeds. The Company shall use the net proceeds from
the sale of the Shares contemplated hereby for working capital and general
corporate purposes, the growth of its existing businesses, and the possible
acquisition of other businesses related to its existing businesses.
7.5 Board Representation. If for any reason Harlan Peltz ceases
to be an officer and director of the Company, upon Purchasers' request at any
time thereafter (so long as Purchaser owns Shares acquired pursuant to this
agreement) the Company shall use its best efforts to cause the election to the
Company's board of directors of a person nominated by Purchasers.
8. Survival of Representations and Warranties; Indemnification.
8.1 Survival. The representations and warranties of the parties
contained in this agreement (other than the representations and warranties of
the Company set forth in sections 2.2, 2.3, 2.4 and 2.5, which shall survive
without limitation as to time) shall survive the execution and delivery of this
agreement and the closing for a period of two years; provided, however, that no
claim may be made with respect to any representation or warranty that is
accurate as of the date of such execution and delivery and as of the Closing
Date.
8.2 Indemnification By the Company. Subject to section 8.4, after
the closing the Company shall indemnify and hold harmless each Purchaser and
each of its officers, directors, employees, agents and legal counsel and each
person controlling that Purchaser, from
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<PAGE>
all losses, damages, expenses, liabilities, claims, assessments and judgments
(including reasonable costs and attorneys' fees and other expenses arising out
of any claim, or the defense or investigation thereof, made with respect to any
of the foregoing) incurred or suffered by any of them arising out of, based upon
or resulting from any breach by the Company of the Company's representations,
warranties, or covenants made to that Purchaser in this agreement.
8.3 Indemnification By Purchasers. Subject to section 8.4, after
the closing each Purchaser, severally and not jointly, shall indemnify and hold
harmless the Company and each of its officers, directors, employees, agents and
legal counsel and each person controlling the Company, from all losses, damages,
expenses, liabilities, claims, assessments and judgments (including reasonable
costs and attorneys' fees and other expenses arising out of any claim, or the
defense or investigation thereof, made with respect to any of the foregoing)
incurred or suffered by any of them arising out of, based upon or resulting from
any breach by that Purchaser of the representations, warranties, or covenants
made by that Purchaser in this agreement.
8.4 Notice of Claims; Participation in Suits. Any claim pursuant
to this section 8 with respect to a breach of a representation or warranty
(other than a representation or warranty of the Company set forth in Section
2.2, 2.3, 2.4 and 2.5, which shall survive without limitation as to time) must
be made within two years after the Closing Date. If a party ("Indemnified
Party") makes any claim against the other party ("Indemnifying Party") for
indemnification, the claim shall be in writing and shall state in general terms
the facts upon which the claim is based. If any claim or demand is asserted
against an Indemnified Party by a third party, the Indemnified Party shall give
the Indemnifying Party written notice of the claim or demand within 30 days
after receipt, and the Indemnifying Party shall have the right to assume the
defense of the claim with counsel selected by the Indemnifying Party and
reasonably satisfactory to the Indemnified Party, but the Indemnifying Party
shall not settle the claim without the consent of the Indemnified Party, which
consent shall not be unreasonably withheld. Notwithstanding the foregoing, a
failure to so notify an Indemnifying Party shall not relieve such Indemnifying
Party from its indemnification obligations unless such Indemnifying Party is
materially prejudiced by such failure. The Indemnified Party shall have the
right to select separate counsel for the defense of the claim, at the expense of
the Indemnifying Party, if the Indemnifying Party and the Indemnified Party have
conflicting interests with respect to the claim.
9. Miscellaneous.
9.1 Finders. The parties represent and warrant that they have not
employed or utilized the services of any broker or finder in connection with
this agreement or the transactions contemplated by it, except that the Company
has used the services of Whale Securities Co., L.P. and shall be solely
responsible for its fees.
9.2 Expenses. The Company and the Purchasers will each bear their
respective legal and other fees and expenses in connection with the negotiation,
documentation and consummation of the transactions contemplated in this
agreement.
9.3 Headings. The section headings of this agreement are for
reference purposes only and are to be given no effect in the construction or
interpretation of this agreement.
9.4 Notices. Any notice required or permitted under this
agreement shall be given in writing and shall be conclusively deemed effectively
given upon personal
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<PAGE>
delivery, 24 hours after facsimile transmission (receipt acknowledged), one day
after deposit with a nationally recognized overnight courier, or five days after
deposit in the United States mail, by registered or certified mail, postage
prepaid, addressed to the parties at the following addresses (or to such other
address as a party may have specified by notice given to the other party
pursuant to this provision) (a) if to the Company, to Network Event Theater,
Inc.,149 Fifth Avenue, New York, N.Y. 10011, Attention: Chairman (fax:
212-779-9190); with a copy to Bertram A. Abrams, Esq., Proskauer Rose LLP, 1585
Broadway, New York, New York 10036 (fax: 212-969-2900); and (b) if to any
Purchaser, to it at 466 Lexington Avenue, New York, New York 10017, Attention:
Eugene P. Grace, c/o Warburg, Pincus Counsellors, Inc. (fax: 212-878-9351); with
a copy to Daniel D. Rubino, Esq., Willkie Farr & Gallagher, 153 East 53rd
Street, New York, New York 10022 (fax: 212-821-8111).
9.5 Waiver. Any party may waive compliance by another with any of
the provisions of this agreement. No waiver of any provision shall be construed
as a waiver of any other provision. Any waiver must be in writing and must be
signed by the party waiving any provision hereof.
9.6 Entire Agreement. This agreement and the Registration
Agreement contain a complete statement of all of the terms of the arrangements
among the parties with respect to their subject matter, supersede any previous
agreements and understandings between the parties with respect to those matters,
and cannot be changed or terminated orally. Except as specifically set forth in
this agreement, there are no representations or warranties by any party in
connection with the transactions contemplated by this agreement.
9.7 Governing Law. Except to the extent that the General
Corporation Law of Delaware applies to matters related to the internal
governance of the Company, this agreement shall be governed by and construed in
accordance with the law of the State of New York applicable to agreements made
and to be performed in New York.
9.8 Jurisdiction. The courts of the State of New York in New York
County and the United States District Court for the Southern District of New
York shall have jurisdiction over the parties with respect to any dispute or
controversy among them arising under or in connection with this agreement and,
by execution and delivery of this agreement, each of the parties to this
agreement submits to the jurisdiction of those courts, including, but not
limited to, the in personam and subject matter jurisdiction of those courts,
waives any objection to such jurisdiction on the grounds of venue or forum non
conveniens, the absence of in personam or subject matter jurisdiction and any
similar grounds, consents to service of process by mail (in accordance with
section 9.4) or any other manner permitted by law, and irrevocably agrees to be
8
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bound by any judgment rendered thereby in connection with this agreement. These
consents to jurisdiction shall not be deemed to confer rights on any person
other than the parties to this agreement.
Network Event Theater, Inc.
By:/s/Harlan D. Peltz
---------------------------
Chairman of the Board and
Chief Executive Officer
WARBURG, PINCUS EMERGING GROWTH
FUND, INC.
By:/s/Eugene P. Grace
---------------------------
Name:Eugene P. Grace
Title:Vice President and Secretary
WARBURG, PINCUS INSTITUTIONAL FUND, INC.,
on behalf of Small Company Growth Portfolio
By:/s/Eugene P. Grace
Name:Eugene P. Grace
Title:Vice President and Secretary
9
EXHIBIT 10.33
NETWORK EVENT THEATER, INC.
REGISTRATION RIGHTS AGREEMENT
June 24, 1997
<PAGE>
NETWORK EVENT THEATER, INC.
REGISTRATION RIGHTS AGREEMENT
June 24, 1997
The parties to this agreement are Warburg, Pincus Emerging Growth
Fund, Inc., a Maryland corporation, and Small Company Growth Portfolio of
Warburg, Pincus Institutional Fund, Inc., a Maryland corporation ( collectively,
"Purchasers"), and Network Event Theater, Inc., a Delaware corporation (the
"Company").
Simultaneously with the execution of this agreement, the Company
is issuing and selling to Purchasers an aggregate of 1,015,873 shares of the
Company's Common Stock, par value $.01 per share ("Shares"), pursuant to a stock
purchase agreement dated June 24, 1997 (the "Stock Purchase Agreement"). As a
condition to purchasing the Shares, the Purchasers have required that the
Company grant them registration rights as set forth in this agreement.
Accordingly, the parties agree as follows:
1. Registration.
1.1 As promptly as practicable after the date of this
agreement the Company shall file with the Securities and Exchange Commission
(the "Commission") a registration statement on the appropriate form (the
"Registration Statement") covering all of the Shares issued to Purchasers
pursuant to the Stock Purchase Agreement and the Company shall use its best
efforts to cause the Registration Statement to become effective as soon as
practicable thereafter and to cause the Shares to be registered and qualified
under the securities laws of such jurisdictions as Purchasers may reasonably
request. The Company shall keep Purchasers advised in a prompt manner with
respect to the status of the registration and qualification of Purchasers'
Shares.
1.2 The Company shall take all actions necessary to keep the
registration and qualification pursuant to section 1.1 effective until the
earlier of (a) the date Purchasers have sold all of the Shares purchased by them
pursuant to the Stock Purchase Agreement and (b) the date Purchasers receive an
opinion of counsel to the Company that all of the Shares purchased by them
pursuant to the Stock Purchase Agreement may be sold in a single transaction
without registration under the Securities Act of 1933, as amended (the
"Securities Act"). In that connection, the Company shall prepare and file with
the Commission any amendments and prospectus supplements, including
post-effective amendments, to the Registration Statement that are necessary or
the Company determines may be appropriate, and the Company shall use its best
efforts to have such post-effective amendments declared effective as promptly as
practicable. The Company shall notify Purchasers promptly when a prospectus, any
prospectus supplement or post-effective amendment must be filed or has been
filed and, with respect to any post-effective amendment, when it has
<PAGE>
become effective; until such amendment becomes effective, the Purchasers shall
refrain from making sales of any of the Shares.
1.3 The Company shall furnish such number of prospectuses in
conformity with the requirements of the Securities Act and such other documents
as Purchasers from time to time may reasonably request in connection with the
sale of their Shares. The Company shall cause all Purchasers' Shares to be
listed upon each securities exchange upon which Shares are then listed and to
obtain all necessary approvals from The Nasdaq Stock Market for trading thereon.
1.4 All registration expenses incurred in connection with
registration of Purchasers' Shares pursuant to this agreement shall be borne by
the Company. All selling expenses shall be borne by Purchasers (pro rata on the
basis of the number of Shares sold or in such other manner as they may agree
upon between themselves). For this purpose (a) the term "registration expenses"
means all expenses incurred by the Company in connection with registration of
the Shares under the Securities Act, including, without limitation, all federal
and state registration, qualification and filing fees; printing expenses; fees
and disbursements of counsel for the Company; and blue sky fees and expenses,
and (b) the term "selling expenses" means all fees and disbursements of counsel
for the Purchasers, any transfer taxes, and all underwriting discounts and
selling commissions applicable to the sale of Purchasers' Shares.
1.5 Each Purchaser shall furnish to the Company such
information regarding that Purchaser and the distribution proposed by that
Purchaser as the Company may reasonably request in connection with the
registration of the Shares under the Securities Act.
2. Indemnification.
2.1 The Company's Indemnification of Purchasers. The Company
shall indemnify each Purchaser, and each of that Purchaser's officers and
directors, and each person who controls that Purchaser within the meaning of the
Securities Act, against all claims, losses, damages or liabilities (or actions
in respect thereof) to the extent such claims, losses, damages or liabilities
(or actions in respect of) arise out of or are based upon any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus or
other document (including any related Registration Statement) incident to any
registration of that Purchaser's Shares under the Securities Act or any related
qualification or compliance, or are based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation (or alleged
violation) by the Company of any rule or regulation promulgated under the
Securities Act, the Securities Exchange Act of 1934 (the "Exchange Act") or
state securities laws applicable to the Company; and the Company shall pay as
incurred any legal and any other expenses reasonably incurred by any indemnified
party in connection with investigating or defending any such claim, loss,
damage, liability or action; provided, however, that the indemnity contained in
this section 2.1 shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability or action if settlement is effected without the
consent of the Company (which consent shall not unreasonably be withheld); and
provided, further,
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<PAGE>
that the Company shall not be liable in any such case to the extent that any
such claim, loss, damage, liability or expense arises out of or is based upon
any untrue statement or omission which occurs in reliance upon and in conformity
with written information furnished to the Company by that Purchaser or
controlling person and stated to be for use in such prospectus or other
document.
2.2 Purchasers' Indemnification of the Company. Each
Purchaser shall indemnify the Company, each of its directors and officers, and
each person who controls the Company within the meaning of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based upon any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus or other document
(including any related such Registration Statement), or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation (or
alleged violation) by that Purchaser of any rule or regulation promulgated under
the Securities Act, the Exchange Act, or state securities laws applicable to
that Purchaser, and that Purchaser shall pay as incurred any legal and any other
expenses reasonably incurred by any such indemnified party in connection with
investigating or defending any such claim, loss, damage, liability or action, in
each case to the extent, but with respect to an untrue statement or omission,
only to the extent that the untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such prospectus or other document in
reliance upon and in conformity with written information furnished to the
Company by that Purchaser and stated to be specifically for use in such
prospectus or other document, provided, however, that each Purchaser's liability
under this Section 2.2 shall not exceed that Purchaser's net proceeds from the
offering of Shares made in connection with the registration of that Purchaser's
Shares; and provided, further, that the indemnity contained in this Section 2.2
shall not apply to amounts paid in settlement of any such claim, loss, damage,
liability or action if settlement is effected without that Purchaser's consent
(which consent shall not be unreasonably withheld).
2.3 Indemnification Procedures. Promptly after receipt by a
party entitled to indemnification under this section 2 (an "Indemnified Party")
of notice of the commencement of any action, such Indemnified Party shall, if a
claim in respect thereof is to be made against a party providing indemnification
under this section 2 (the "Indemnifying Party"), notify the Indemnifying Party
in writing of the commencement of the action and generally summarize the nature
of the action. If any claim or demand is asserted against an Indemnified Party
by a third party, the Indemnified Party shall give the Indemnifying Party
written notice of the claim or demand as promptly as reasonably practicable
after receipt and the Indemnifying Party shall have the right to assume the
defense of the claim with counsel selected by the Indemnifying Party and
reasonably satisfactory to the Indemnified Party, but the Indemnifying Party
shall not settle the claim without the consent of the Indemnified Party, which
consent shall not be unreasonably withheld. Notwithstanding the foregoing, a
failure to so notify an Indemnifying Party shall not relieve such Indemnifying
Party from its indemnification obligations unless such Indemnifying Party is
materially prejudiced by such failure. The Indemnified Party shall have the
right to select separate counsel for the defense of the claim, at the expense of
the Indemnifying Party, if the Indemnifying Party and the Indemnified Party have
conflicting interests with respect to the claim.
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<PAGE>
2.4 Contribution. If for any reason the indemnification
provided for in this section 2 is held by a court of competent jurisdiction to
be unavailable to an Indemnified Party with respect to any loss, claim, damage,
liability or expense referred to herein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative benefits received by the Indemnified Party and the Indemnifying Party
and the relative fault of the Indemnifying Party and Indemnified Party in
connection with the statements or omissions that result in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations; provided, however, that each Purchaser's liability under this
section 2 shall not exceed that Purchaser's net proceeds from the offering of
Shares made in connection with the registration. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by such Indemnifying Party or Indemnified Party and the
parties' relative intent, knowledge, access to information supplied the
Indemnifying Party or Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action, suit,
proceeding or claim.
3. Miscellaneous.
3.1 Entire Agreement. This agreement and the Stock Purchase
Agreement contain a complete statement of all of the terms of the arrangements
among the parties with respect to their subject matter, supersede any previous
agreements and understandings between the parties with respect to those matters,
and cannot be changed or terminated orally. Except as specifically set forth in
this agreement, there are no representations or warranties by any party in
connection with the transactions contemplated by this agreement.
3.2 Governing Law. Except to the extent that the General
Corporation Law of Delaware applies to matters related to the internal
governance of the Company, this agreement shall be governed by and construed in
accordance with the law of the State of New York applicable to agreements made
and to be performed in New York.
3.3 Expenses. The Company and the Purchasers will each bear
their respective legal and other fees and expenses in connection with the
negotiation and documentation of this agreement.
3.4 Headings. The section headings of this agreement are for
reference purposes only and are to be given no effect in the construction or
interpretation of this agreement.
3.5 Notices. Any notice required or permitted under this
agreement shall be given in writing and shall be conclusively deemed effectively
given upon personal delivery, 24
4
<PAGE>
hours after facsimile transmission (receipt acknowledged by Purchaser or the
Company, as the case may be), one day after deposit with a nationally recognized
overnight courier, or five days after deposit in the United States mail, by
registered or certified mail, postage prepaid, addressed to the parties at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision) (a) if to the
Company, to Network Event Theater, Inc.,149 Fifth Avenue, New York, N.Y. 10011,
Attention: Chairman (fax: 212-779-9190); with a copy to Bertram A. Abrams, Esq.,
Proskauer Rose LLP, 1585 Broadway, New York, New York 10036; and (b) if to any
Purchaser, to it at 466 Lexington Avenue, New York, New York, 10017, Attention:
Eugene P. Grace, c/o Warburg, Pincus Counsellors, Inc. (fax: 212-878-9351); with
copy to Daniel D. Rubino, Esq., Willkie Farr & Gallagher, 153 East 53rd Street,
New York, New York 10022 (fax: 212-821-8111).
3.6 Jurisdiction. The courts of the State of New York in New
York County and the United States District Court for the Southern District of
New York shall have jurisdiction over the parties with respect to any dispute or
controversy among them arising under or in connection with this agreement and,
by execution and delivery of this agreement, each of the parties to this
agreement submits to the jurisdiction of those courts, including, but not
limited to, the in personam and subject matter jurisdiction of those courts,
waives any objection to such jurisdiction on the grounds of venue or forum non
conveniens, the absence of in personam or subject matter jurisdiction and any
similar grounds, consents to service of process by mail (in accordance with
section 3.5) or any other manner permitted by law, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this agreement. These
consents to jurisdiction shall not be deemed to confer rights on any person
other than the parties to this agreement.
Network Event Theater, Inc.
By:/S/ Harlan D. Peltz
-----------------------------
Chairman of the Board and
Chief Executive Officer
WARBURG, PINCUS EMERGING GROWTH FUND, INC.
By:/s/ Eugene P. Grace
-----------------------------
Name: Eugene P. Grace
Title: Vice President and Secretary
5
<PAGE>
WARBURG, PINCUS INSTITUTIONAL FUND, INC.,
on behalf of Small Company Growth Portfolio
By:/s/ Eugene P. Grace
-----------------------------
Name: Eugene P. Grace
Title: Vice President and Secretary
6
EXHIBIT 21
Subsidiaries of Network Event Theater, Inc.
(as of June 30, 1997)
American Passage Media, Inc. (a wholly owned subsidiary of the Company)
Campus Voice, L.L.C. (a wholly owned subsidiary of the Company)
Pik:Nik Media, LLC (a wholly owned subsidiary of the Company)
Beyond the Wall (a division of the Company)
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-80935) of Network Event Theater, Inc. and in the related Prospectus
of our report dated September 10, 1997, with respect to the consolidated
financial statements of Network Event Theater, Inc. included in this Annual
Report (Form 10KSB) for the year ended June 30, 1997.
/S/ ERNST & YOUNG LLP
------------------------
Ernst & Young LLP
New York, New York
September 29, 1997
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<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 4,185,000
<SECURITIES> 0
<RECEIVABLES> 1,512,000
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<CURRENT-ASSETS> 6,085,000
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<COMMON> 99,000
<OTHER-SE> 8,884,000
<TOTAL-LIABILITY-AND-EQUITY> 17,175,000
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<INCOME-PRETAX> (5,991,000)
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