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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
Incorporation or Organization) Identification No.)
149 Fifth Avenue, New York, New York 10010
(Address of Principal Executive Offices) (Zip Code)
(212) 779-2740
(Registrant's telephone number, including area code)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities and Exchange Act of 1934 during the
preceding 12 months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject of such filing requirements for the
past 90 days.
Yes X No
--- ---
At February 14, 1996 there were 8,654,440 shares of Common Stock, $.01 par value
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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<PAGE>
Network Event Theater, Inc.
Form 10-QSB
Index
Page
PART I--FINANCIAL INFORMATION Number
Item 1 Financial Statements
Condensed consolidated balance
sheets - December 31, 1996(unaudited)
and June 30, 1996............................................. 1
Condensed consolidated statements
of operations - three and six months
ended December 31, 1996 and 1995 (unaudited).................. 2
Condensed consolidated statements
of cash flows - six months ended
December 31, 1996 and 1995(unaudited)......................... 3
Condensed consolidated statement
of stockholders' equity - six
months ended December 31, 1996 (unaudited).................... 4
Notes to condensed consolidated
financial statements.......................................... 5
Item 2 Plan of Operation................................................ 6
PART II--OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K................................. 10
Signatures............................................................... 11
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
Network Event Theater, Inc
Condensed Consolidated Balance Sheets
December 31, June 30,
1996 1996
------------ -------------
ASSETS: (Unaudited)
Current assets:
Cash and cash equivalents .............. $ 2,588,299 $ 266,806
Accounts receivable, net ............... 1,864,961 236
Investments ............................ 3,461,800 7,882,570
Prepaid expenses and other
current assets ...................... 674,742 26,169
------------ ------------
Total current assets ....................... 8,589,802 8,175,781
------------ ------------
Property and equipment, net
of accumulated depreciation ............. 3,143,196 3,081,620
Intangible assets, net
of accumulated amortization ............. 5,200,839 58,634
------------ ------------
Total assets ............................... $ 16,933,837 $ 11,316,035
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses .................... $ 3,540,875 $ 462,634
Current portion of
long-term debt ...................... 725,000 --
------------ ------------
Total current liabilities .................. 4,265,875 462,634
Long-term debt ............................. 3,431,250 --
Stockholders' equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized,
no shares issued and outstanding .... -- --
Common stock, $.01 par value,
17,000,000 shares authorized,
8,654,440 shares issued and
outstanding at December 31,1996
and June 30, 1996 ................... 86,544 86,544
Additional paid-in capital ............. 16,177,302 16,177,302
Accumulated deficit .................... (7,026,241) (5,380,355)
Unrealized depreciation on
marketable equity securities ........ (893) (30,090)
------------ ------------
Total stockholders' equity ................. 9,236,712 10,853,401
------------ ------------
Total liabilities and
stockholders' equity .................... $ 16,933,837 $ 11,316,035
============ ============
See notes to condensed consolidated financial statements.
1
<PAGE>
Network Event Theater, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
--------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues ................................................... $ 1,755,693 $ - $ 2,672,958 $ -
Operating expenses
Payroll and related taxes .................................. 846,596 191,603 1,278,827 323,195
Professional fees .......................................... 489,624 398,624 772,373 642,629
Other expenses ............................................. 1,216,101 165,085 1,762,879 204,067
Depreciation and amortization .............................. 384,681 81,514 482,059 163,027
----------- ----------- ----------- -----------
Total operating expenses ....................................... 2,937,002 836,826 4,296,138 1,332,918
----------- ----------- ----------- -----------
Operating loss ................................................. (1,181,309) (836,826) (1,623,180) (1,332,918)
Interest and other income (expense), net ....................... (63,343) 12,608 81,375 47,274
----------- ----------- ----------- -----------
Loss before provision for income taxes ......................... (1,244,652) (824,218) (1,541,805) (1,285,644)
Provision for income taxes ..................................... 77,956 -- 104,081 --
----------- ----------- ----------- -----------
Net loss ....................................................... $(1,322,608) $ (824,218) $(1,645,886) $(1,285,644)
=========== =========== =========== ===========
Net loss per common share ...................................... $ (0.15) $ (0.10) $ (0.19) $ (0.15)
=========== =========== =========== ===========
Weighted average common shares outstanding ..................... 8,654,440 8,654,440 8,654,440 8,654,440
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE>
Network Event Theater, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
December 31,
-------------------
1996 1995
---- ----
Net cash used in operating activities .......... $ (562,258) $ (898,840)
Cash flows from investing activities
Purchase of property and equipment .......... (437,138) (2,449,068)
Expenditures for acquisition of business .... (5,256,131) --
Sale of investments ......................... 4,420,770 --
----------- -----------
Net cash used in investing activities .......... (1,272,499) (2,449,068)
Cash flows from financing activities
Net proceeds from sale of common stock ...... -- 906,578
Net proceeds from issuance
of long-term debt ........................ 4,156,250 --
----------- -----------
Net cash provided by financing activities ...... 4,156,250 906,578
----------- -----------
Net increase (decrease) in cash
and cash equivalents ........................ 2,321,493 (2,441,330)
Cash and cash equivalents at
beginning of period ......................... 266,806 3,232,035
----------- -----------
Cash and cash equivalents
at end of period ............................ $ 2,588,299 $ 790,705
=========== ===========
Supplementary cash flow information:
Cash paid for interest ...................... $ 89,892 $ --
Cash paid for taxes ......................... $ 40,066 $ --
See notes to condensed consolidated financial statements
3
<PAGE>
Network Event Theater, Inc.
Condensed Consolidated Statement of Stockholders' Equity
Six Months ended December 31, 1996
(Unaudited)
Common Stock
----------------------
Shares Amount
------ ------
Balance at June 30, 1996 ..................... 8,654,440 $ 86,544
Net loss ..................................... -- --
Unrealized appreciation
on marketable equity securities ........... -- --
------------ ------------
Balance at December 31, 1996 ................. 8,654,440 $ 86,544
============ ============
Additional
paid-in Accumulated
Capital Deficit
------- -------
Balance at June 30, 1996 ..................... $ 16,177,302 $ (5,380,355)
Net Loss ..................................... -- (1,631,586)
Unrealized appreciation
on marketable securities .................. -- --
------------ ------------
Balance at December 31, 1996 ................. $ 16,177,302 $ (7,011,941)
============ ============
Unrealized
Appreciation
On Marketable
Equity Securities Total
----------------- -----
Balance at June 30, 1996 .................... $ (30,090) $ 10,853,401
Net loss .................................... -- (1,645,886)
Unrealized appreciation
on marketable equity securities .......... 29,197 29,197
------------ ------------
Balance at December 31, 1996 ................ $ (893) $ 9,236,712
============ ============
See notes to condensed consolidated financial statements
4
<PAGE>
Network Event Theater, Inc.
Notes to Condensed Consolidated Financial Statements
December 31, 1996
(Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended December 31,
1996 are not necessarily indicative of the results that may be expected for the
year ended June 30, 1997. For further information, refer to the financial
statements and footnotes thereto included in Network Event Theater, Inc.'s (the
"Company") Form 10-KSB for the transition period ended June 30, 1996 filed with
the Securities and Exchange Commission on November 20, 1996.
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary American Passage Media, Inc. ("American
Passage"). Because the Company has begun to earn significant revenues on a
consolidated basis, it is no longer considered to be in the development stage.
2. Acquisition
On September 13, 1996, the Company, through its newly created wholly owned
subsidiary, American Passage, acquired from American Passage Media Corporation
("APMC") substantially all of APMC's assets relating to its college and high
school media, marketing, and service businesses. The businesses acquired include
APMC's college newspaper placement operations, college campus postering
operations, high school focused GymBoardsTM operations and various other
advertiser and sponsorship activities. APMC has been involved in the young adult
marketing business since 1976.
As consideration for the assets (i) American Passage paid APMC
approximately $3.5 million in cash (representing a $4.0 million base price
adjusted in accordance with the terms of the purchase agreement), (ii) American
Passage issued to APMC a two-year subordinated promissory note for $750,000,
(iii) the Company issued to APMC a contingent option to purchase up to 100,000
shares of the Company's common stock pursuant to an option agreement, (iv)
American Passage entered into a two-year consulting agreement with APMC for
$273,600 and (v) American Passage assumed certain of APMC's contractual
liabilities.
The acquisition has been accounted for using the purchase method of
accounting. Accordingly, the purchase price of the acquisition has been
allocated to the assets based on their fair values at the date of acquisition.
Intangible assets representing the excess of cost over the assets acquired and
liabilities assumed of approximately $5.3 million is being amortized over a
period of fifteen years. The results of operations of the property acquired is
included in the Company's consolidated results of operations from its date of
acquisition.
The following unaudited supplemental pro forma information for the six
months ended December 31, 1996 and 1995 is presented as if the Company had
completed the acquisition of American Passage on July 1, 1995.
Six Months Six Months
Ended Ended
December 31, 1996 December 31, 1995
----------------- -----------------
Net revenue....................... $2,767,228 $2,677,259
Net loss.......................... (2,080,077) (1,126,790)
Net loss per common share......... (0.24) (0.13)
Common shares outstanding......... 8,654,440 8,654,440
The pro forma information is not necessarily indicative either of the
results of operations that would have occurred had this transaction been made at
the beginning of the period or of future results of operations.
5
<PAGE>
Network Event Theater, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
December 31, 1996
(Unaudited)
3. Debt
On September 13, 1996, in conjunction with the acquisition of certain
assets of APMC (see Note 2), American Passage entered into a five year $3.5
million loan with Signet Bank (the "Loan"). The Loan is secured by all of
American Passage's assets and is guaranteed by the Company. The Loan is payable
in installments with the final installment due on September 30, 2001. Interest
is payable monthly at a variable rate of interest set each ninety days based
either on 300 basis points above LIBOR for U.S. Dollar deposits of ninety day
maturity or 100 basis points above the prime rate of Signet Bank. The current
rate of interest is 8.5313% per annum.
Additionally, on September 13, 1996, American Passage delivered a two-year
subordinated promissory note to APMC in the principal amount of $750,000 which
provides for payment in eight equal quarterly installments of principal
commencing December 13, 1996 together with interest thereon at the rate of 8%
per year.
Item 2. Plan of Operation
Network Event Theater, Inc. (the "Company") was organized in December 1995
as the successor to the business of Universal Access Network, L.P. The Company
is engaged principally in the growth of its college campus theater network (the
"Network") and in building or acquiring complementary media or marketing
services businesses that focus on the college and young adult market. The
Company believes that the college market will grow significantly over time
because the children of baby boomers are reaching college age and beginning to
attend college, because a higher percentage of young adults are attending
college after completing high school and because more adults are returning to
college for advanced degrees. According to the 1995 Digest of Education
Statistics prepared by the United States Department of Education, there are
approximately 3,600 colleges and universities in the United States with
enrollments of approximately 14 million students. This represents a large, yet
fragmented and geographically dispersed target market representing significant
personal spending power.
The Company intends to continue to expand its college media and marketing
businesses either through internal growth or acquisitions. On September 13,
1996, American Passage Media, Inc. ("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 business. APMC has been involved in the
young adult marketing business since 1976. The acquired businesses included
APMC's college newspaper placement operations, college campus postering
operations, high school focused GymBoard(TM) operations and various other
advertiser and event sponsorship related activities.
The Company has also signed letters of intent to acquire three other
companies engaged in various aspects of the college media and marketing
business, and these transactions are subject to the completion of due diligence
and to the preparation and execution of definitive agreements. The Company is
also currently engaged in discussions with several other entities that may lead
to future acquisitions. There can be no assurance that the Company will
consummate these or any other transactions. The Company may pay for these or
other acquisitions with either cash, common stock of the Company or both. The
number of shares of the Company's common stock which might be issued in
connection with these or any future acquisitions could be substantial in
relation to the total number of shares that are presently outstanding. Any such
issuance would result in dilution to the interests of the Company's present
shareholders.
The Company believes that the acquisition of American Passage and other
college media and marketing businesses will allow it to provide an integrated
and comprehensive program of media and marketing opportunities for a broad array
of entertainment companies, sponsors and advertisers which are targeting the
young adult market. For example, a motion picture studio which is previewing a
major motion picture using the Network could launch a simultaneous and
comprehensive marketing program (including advertisements in college newspapers,
on-campus postering and other marketing vehicles and tools in the Company's
portfolio) at campuses nationwide, not just those at which a Network theater has
6
<PAGE>
Network Event Theater, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
December 31, 1996
(Unaudited)
been installed. The Company believes that this significant added reach will
enable it to build more lucrative long term relationships with its clients. In
the Fall of 1996, American Passage's full-time marketing force assisted the
Network in selling such integrated programs to sponsors and advertisers. In
addition, its staff placed advertisements in college newspapers relating to
Network programs, its extensive field force of independent representatives
placed posters on college campuses and otherwise augmented the Network's own
field force to publicize events being shown on the Network's screens.
The Company is now generating significant operating revenues on a
consolidated basis and is no longer in the development stage. These revenues
result from payments from program providers using the Network's screens and from
the operations of American Passage. Because of expenses required to install
Network theater equipment at colleges and to obtain programming for these
theaters, the Company is still generating operating losses on a consolidated
basis. These losses may continue and may remain significant until the Network
begins to generate greater revenues from sponsorship, advertising and ticket
sales.
The Company's proposed plan of operations for its Network will be largely
dependent upon the Company's ability to attract revenues from sponsors,
advertisers and entertainment companies and to enter into agreements with a
significant number of colleges and universities for the installation of
theaters. The Company is focusing its initial marketing efforts on installing
its equipment at 100 of the nation's largest colleges and universities. As of
December 31, 1996, the Company had installed Network theater equipment at 31
campus theaters and had entered into contracts with four other schools. The
Company intends to enter into agreements with approximately 25 additional
colleges and universities during the next twelve months. The number of
installations will be dependent upon the number of school contracts the Company
is able to enter into. The Company currently has three full-time employees
engaged in marketing the Company's Network to colleges and universities across
the United States.
Since January 1996, the Company has entered into a number of licensing
agreements with content providers such as Miramax, Don King Productions, Mercury
Records, Warner Brothers and ABC for individual productions. In August 1996, the
Company entered into an agreement with HBO to show one program a month during
the 1996-1997 academic year on its Network. In the Fall of 1996, among other
events, the Company presented three HBO programs and premiered two movies for
Miramax, including Swingers and Scream. The Network also premiered the R.E.M.
Road Movie for Warner Brothers and presented a live concert featuring Rusted
Root for Polygram. During the next twelve months, the Company intends to develop
further relationships with these and other content providers to acquire rights
to special events. 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.
Over the next twelve months the Company will continue to make significant
capital investments as it continues to install equipment in theaters on college
campuses. The Company has no current plans to increase staff significantly with
regard to either the Network or any of American Passage's operations other than
incremental increases in sales and administrative staff to generate and
accommodate increased business.
Results of Operations
During the three and six months ended December 31, 1996, the Company
generated $1,756,000 and $2,673,000, respectively, in net revenues, principally
from its subsidiary, American Passage. For the comparable periods in the prior
year, the Company had not acquired American Passage and was still in the
development stage, and did not earn any revenues. The acquisition of American
Passage occurred on September 13, 1996 and only two weeks of revenues and
expenses relating to its operations were included in the Company's results for
the quarter ended September 30, 1996. However, this included a significant
percentage of American Passage's overall revenues for that quarter because its
revenues are generated primarily from newspaper ads run in college newspapers.
The associated income is recorded in the period that the advertisement runs,
namely the academic year.
7
<PAGE>
Network Event Theater, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
December 31, 1996
(Unaudited)
Operating expenses for the three months ended December 31, 1996 are
proportionately greater than those for the six month period ended December 31,
1996 due to the first quarter's results for American Passage reflecting expenses
only from the date of its acquisition. Amounts for interest and other income
(expense) for the three and six month periods primarily reflect interest charges
related to the acquisition of American Passage. For the comparable periods of
the prior year interest and other income (expense) reflect the interest income
earned on the proceeds of the Company's initial public offering (see below).
Liquidity and Capital Resources
The Company consummated an initial public offering of its common stock and
warrants on April 9, 1996 (the "Offering"), pursuant to which it raised net
proceeds of approximately $10.275 million, of which $0.5 million was used to
prepay previously existing Company indebtedness. As of December 31, 1996, the
Company had cash (and cash equivalents) and investments in the amount of
approximately $2.6 million and $3.5 million, respectively, on a consolidated
basis. Since the Offering, the Company has purchased approximately $1.1 million
of Network theater equipment and invested approximately $0.5 million in the
acquisition of American Passage. The balance of the proceeds have otherwise been
used to fund the Company's operations.
The Company's primary capital requirement with respect to its Network has
been to fund the purchase and installation of theater equipment on college
campuses. Based on current plans, the Company anticipates that it has sufficient
resources to enable it to install theater equipment in 25 additional campus
theaters (at an estimated cost of $90,000 per theater) and to otherwise satisfy
its contemplated cash requirements for the next twelve months. In order to
reduce the Company's up-front capital requirements associated with the expansion
of its Network, the Company may seek to lease rather than purchase a portion of
its Network theater equipment. There can be no assurance that the Company will
be able to obtain satisfactory equipment leasing arrangements.
In connection with its acquisition of certain assets of APMC's young adult
marketing business, (i) American Passage paid APMC approximately $3.5 million in
cash (representing a $4.0 million base price adjusted in accordance with the
terms of the purchase agreement), (ii) American Passage issued to APMC a
two-year subordinated promissory note for $750,000, (iii) the Company issued to
APMC a contingent option to purchase up to 100,000 shares of the Company's
common stock pursuant to an option agreement, (iv) American Passage entered into
a two-year consulting agreement with APMC for $273,600 and (v) American Passage
assumed certain of APMC's contractual liabilities. The cash portion of the
purchase price and related transaction costs were funded by a $500,000 equity
contribution from the Company to American Passage and a five year $3,500,000
loan to American Passage from Signet Bank. The loan is secured by all of
American Passage's assets and is guaranteed by the Company. American Passage is
anticipated to be able to fund its cash and debt service requirements out of its
own operations.
Any implementation of the Company's business plan beyond the next twelve
months may require financial resources substantially greater than the proceeds
of the Offering or otherwise currently available to the Company. In the event
that the Company's plans and assumptions with respect to Network change or prove
to be inaccurate or if the proceeds of the Offering otherwise prove to be
insufficient to implement its business plan with respect to the Network (due to
unanticipated expenses or technical or other problems), or if its assumptions
with respect to American Passage being able to fund its operations and make
required debt service payments prove to be inaccurate, then 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. The
Company may also determine, depending upon the opportunities available to it, to
seek additional debt or equity financing to fund the cost of additional
expansion of its Network and the cost to develop or acquire additional college
marketing business complementary to the Network. To the extent that the Company
finances its requirements through the issuance of additional equity securities,
any such issuance would result in dilution to the interests of the Company's
stockholders.
8
<PAGE>
Network Event Theater, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
December 31, 1996
(Unaudited)
(Unaudited)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 risk that interest rates may fluctuate and cash flow
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.
9
<PAGE>
PART II
OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 1--Employment Agreement with Shelia Kloefkorn.
(b) Reports on Form 8-K.
On September 28, 1996 the registrant filed a report on Form 8-K reporting
its acquisition of certain assets of American Passage Media Corporation and
including audited financial statements of the acquired businesses for the years
ended June 30, 1996 and 1995. Amendment No. 1 to that Form 8-K contained certain
required proforma financial information and was filed on November 26, 1996.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
February 14, 1997
By: /s/ Harlan D. Peltz
------------------------------------
Harlan D. Peltz
Chairman of the Board
and Chief Executive Officer
By: /s/ Bruce Resnik
------------------------------------
Bruce Resnik
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
11
EMPLOYMENT AGREEMENT
January 1, 1997
The parties to this agreement are Sheila Kloefkorn, residing at 2363 East
Dragoon Avenue, Mesa, Arizona 85204 (the "Executive"), and Network Event
Theater, Inc., a Delaware corporation with its principal office at 149 Fifth
Avenue, New York, N.Y. 10010 (the "Company").
The parties have agreed upon the employment of the Executive by the Company
on the terms set forth below.
It is agreed as follows:
1. Employment.
During the term of the Executive's employment under this agreement,
the Company shall employ the Executive, and the Executive shall serve the
Company, as the Company's Vice President - Campus Operations. The Executive
shall report to the Company's chief executive officer and president and
shall have such duties, responsibilities and powers as either of them shall
from time to time determine. The Executive shall devote her full business
time to the performance of her duties under this agreement.
2. Term of Employment.
The term of the Executive's employment under this agreement shall
commence on or before January 1, 1997 (the date her employment commences
being referred to as the "Commencement Date") and, subject to earlier
termination upon the Executive's death or disability (as provided in
section 5.1) or pursuant to section 6 or 7, shall continue thereafter for
three years. 3. Compensation and Stock Options.
3.1 Basic Compensation. As basic compensation for her services under
this agreement, the Executive shall be entitled to a salary (subject to
applicable withholding of income taxes, social security taxes, etc.) at the
annual rate of $65,000, payable in equal installments in accordance with
the Company's customary payroll practices for its executives.
3.2 Increases in Basic Compensation and Bonuses. Following the end of
each fiscal year during the term of this agreement, the Company's board of
directors may, in its sole discretion, grant the Executive a bonus based on
the Executive's performance during that year or increase the Executive's
basic compensation for the following year.
3.3 Stock Options. Upon the Commencement Date, the Company shall grant
to the Executive, pursuant to the Company's 1996 Employee Stock Option
Plan, the option (which shall not be an incentive stock option) to purchase
up to 10,000 shares of the Company's Common Stock at an exercise price
equal to the fair market value of the Company's Common Stock on the
Commencement Date. The terms of the option shall be set forth in an
agreement,
4. Reimbursement of Expenses; Fringe Benefits.
4.1 Reimbursement of Expenses. The Company shall reimburse the
Executive for all reasonable expenses incurred by the Executive in
connection with the performance of her duties, upon presentation of
appropriate vouchers covering the expenses.
4.2 Fringe Benefits. The Executive and her immediate family shall be
entitled to participate in all medical, dental, disability, life insurance,
deferred compensation, savings and 401(k) plans, retirement plans, profit
sharing plans, stock purchase plans, and other fringe benefits and
executive perquisites generally provided to senior executives of the
Company and their immediate families. The Executive shall be entitled to
three weeks paid vacation during each twelve-month period during the term
of this agreement.
5. Termination of Employment Due to Disability or Death.
1
<PAGE>
5.1 Termination of Employment. If, as the result of any physical or
mental disability, the Executive shall fail or be unable to perform her
duties for a total of 120 days in any 12-month period, the Company may, by
notice to the Executive, terminate her employment under this agreement as
of the date of the notice. The Executive's employment under this agreement
shall be terminated upon her death.
5.2 Payments on Death or Disability. If the Executive's employment is
terminated pursuant to section 5.1, the Executive (or her estate) shall be
entitled to receive, in full discharge of all of the Company's obligations
to the Executive, (a) the Executive's full salary (at the rate in effect on
the date of termination) payable under section 3.1 for six months following
the date of termination (or, if a shorter period, for the remainder of the
three-year term), less the amount of any disability payments received by
her under any disability insurance coverage provided to her by the Company,
(b) any accrued and unpaid bonus previously awarded to the Executive by the
Company's board of directors, and (c) the amount of all expense
reimbursements due to the executive under section 4.1 for periods prior to
the date of termination.
6. Termination of Employment for Cause.
6.1 Definition. The Company may terminate the Executive's employment
under this agreement for cause. For purposes of this agreement, the term
"cause" shall mean: (a) the Executive's conviction of a felony, (b) the
Executive's conviction of a crime involving any financial impropriety or
which would materially interfere with the Executive's ability to perform
her services required under this agreement or otherwise be materially
injurious to the Company, (c) a material breach by the Executive of the
duty of loyalty, good faith and fair dealing owed by the Executive to the
Company as an employee, or (d) the Executive's willful failure to perform
in a material respect her obligations under this agreement.
6.2 Payments upon Termination for Cause. If the Executive's employment
under this agreement is terminated for cause pursuant to section 6.1, the
Company shall pay to the Executive, in full discharge of all of the
Company's obligations to the Executive, the accrued amount of salary due to
her through the date of termination and the amount of all expense
reimbursements due to her under section 4.1 for periods prior to the date
of termination.
7. Termination of Employment for Other Reasons.
At any time after the first anniversary of the Commencement Date the
Company may terminate the Executive's employment under this agreement for
any reason upon thirty days notice to the Executive. If the Executive's
employment under this agreement is terminated by the Company pursuant to
this provision (i.e., other than for cause or by reason of the Executive's
death or disability), the Company shall pay to the Executive, in full
discharge of all of the Company's obligations to the Executive, (a) the
Executive's full salary under section 3.1 (at the rate in effect on the
date of notice of termination) until the effective date of termination and
for a period of two months thereafter, (b) any accrued and unpaid bonus
previously awarded to the Executive by the Company's board of directors,
and (c) the amount of all expense reimbursements due to the executive under
section 4.1 for periods prior to the date of termination.
8. Confidential Information.
The Executive shall not, directly or indirectly, either during her
employment by the Company or at any time thereafter, disclose to anyone or
use (except as authorized in the regular course of the Company's business)
any information acquired by her during her employment with respect to any
of the Company's trade secrets or other confidential information. For this
purpose, information generally known to the public shall not be considered
a trade secret or confidential information.
9. Non-Solicitation of Employees; Non-Competition.
9.1 Non-Solicitation. The Executive shall not, for a period of three
years after termination of her employment (regardless of the reason for
termination), directly or indirectly employ or retain, solicit the
employment or retention of, or be associated with any entity that employs
or retains or solicits the employment or retention of, any person who was
an employee of the Company at any time during the twelve months preceding
the termination of the Executive's employment.
9.2 Non-Competition. For a period of one year after the termination of
the Executive's employment under this agreement, the Executive shall not
directly or indirectly engage or be interested in any business or entity
that engages, anywhere in the world, in any business competitive with any
2
<PAGE>
business in which the Company is engaged at the time of termination of the
Executive's employment or with any business activity that the Company then
has under active consideration. For the purpose of this section 9.2, the
Executive shall be deemed to be directly or indirectly interested in a
business or entity if she is engaged or interested in that business or
entity as a stockholder, director, officer, employee, salesperson, sales
representative, agent, broker, partner, individual proprietor, lender,
consultant or otherwise, but not if her interest is limited solely to the
ownership of 5% or less of any class of the equity or debt securities of a
corporation whose shares are publicly traded.
9.3 Injunctive Relief. Since a breach by the Executive of the
provisions of section 8 or of section 9.1 or 9.2 would injure the Company
in a way that could not be adequately compensated for by damages, in
addition to any other remedies available to the Company it may obtain an
injunction restraining any such breach, without the necessity of showing
actual damage and without any bond or other security being required.
10. Merger or Sale of Assets.
If the Company shall merge or consolidate with another corporation or
shall transfer all or substantially all of its assets this agreement shall
be assigned to the successor in the merger or consolidation or the
transferee of the assets, the Company shall cause the successor or
transferee to assume all of the Company's obligations under this agreement,
and the Executive shall thereafter be employed by the successor or
transferee in accordance with the terms of this agreement.
11. Miscellaneous.
11.1 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.
11.2 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 their respective addresses set forth above (or to such other
address as a party may have specified by notice given to the other party
pursuant to this provision). Any notice to the Company shall be directed to
the attention of its chief executive officer.
11.3 Separability. The invalidity or unenforceability of any provision
of this agreement shall not affect the validity or enforceability of any
other provision of this agreement, which shall remain in full force and
effect.
11.4 Waiver. Either party may waive compliance by the other party with
any provision of this agreement. The failure of a party to insist on strict
adherence to any term of this agreement on any occasion shall not be
considered a waiver or deprive that party of the right thereafter to insist
upon strict adherence to that term or any other term of this agreement. No
waiver of any provision shall be construed as a waiver of any other
provision. Any waiver must be in writing.
11.5 Assignment. Neither party may assign any of its rights or
delegate any of its duties under this agreement (other than as contemplated
by section 10 of this agreement) without the prior consent of the other and
any assignment or delegation in violation of this prohibition shall be
void.
11.6 Governing Law. This agreement shall be governed by and in
accordance with the substantive law of the state of New York applicable to
agreements made and to be performed in New York.
11.7 Entire Agreement. This agreement contains, and is intended as, a
complete statement of all the terms of the arrangements between the parties
with respect to the matters provided for, supersedes any previous
agreements and understandings between the parties with respect to those
matters, and cannot be changed or terminated orally.
NETWORK EVENT THEATER, INC.
By: /s/ Bruce Resnik
----------------------------
Bruce Resnik
Executive Vice President-
Chief Financial Officer
By: /s/ Sheila Kloefkorn
------------------------------
Sheila Kloefkorn
3
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