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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, 1998
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: 0-27556
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. $11,188,000
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 23, 1998: $23,982,252
State the number of shares outstanding of each of the issuer's classes of
common equity, as of September 23, 1998: 11,346,880 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
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Part I
1. Business............................................................ 1
2. Properties.......................................................... 9
3. Legal Proceedings................................................... 9
4. Submission of Matters to a Vote of Security Holders................. 9
Part II
5. Market For Common Equity and Related Stockholder Matters............ 10
6. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 10
7. Financial Statements................................................ 12
8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.............................. 12
Part III
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act................ 13
10. Executive Compensation.............................................. 13
11. Security Ownership of Certain Beneficial Owners and Management...... 13
12. Certain Relationships and Related Transactions...................... 13
13. Exhibits, List and Reports on Form 8-K.............................. 13
Index to Consolidated Financial Statements.................................. F-1
Signatures ................................................................. 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 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.
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
which, using both on-line and off-line capabilities, target the young adult and
college markets and 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 adults and
college audiences through a variety of media, both on-line and off-line, 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 advertisements and advertising banners on Internet websites,
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 and off campuses. For example, a motion picture studio which is
premiering a major motion picture through the Network could launch a
simultaneous and comprehensive marketing program including advertisements or
inserts in college newspapers, Campus Voice(R) wallboard advertisements,
on-campus postering and free postcard distribution both on and off campus, far
beyond the Company's installed Network of campus theaters. The Company believes
that its broad array of targeted media and marketing services both on-line and
off-line 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 years old. 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 are generally 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 (representing 34% of the young adult population) were full-time
undergraduate college students in the United States. This represents a target
market which the Company believes has significant personal 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.
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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 are
receptive to new ideas and products, are in a formative stage with respect to
building brand loyalties, are conversant and comfortable with computers and
networking, including Internet usage, and, as a whole, have significant
disposable income.
The Network
The Company has built and intends to expand its Network to 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 focusing its marketing efforts to expand the Network from
its present size of 39 schools by concentrating 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's marketing efforts relating to its Network are
currently made through its full-time campus operations department and the
Company's executive officers.
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 (except for maintenance charges for heavy
use) for educational and other non-commercial and non-competitive purposes. This
can be a cost-effective way to enhance the quality of campus life.
As of September 23, 1998, the Company had completed installations at 39
colleges and universities with a total enrollment of approximately 825,000. The
average Network theater has a seating capacity of approximately 475 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
Institute of Technology
Georgia Southern University
Iowa State University
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-Berkeley
University of California-Los Angeles
University of Central Florida
University of Cincinnati
University of Colorado-Boulder
University of Houston
University of Idaho
University of Kansas
University of Minnesota
University of Nevada, Reno
University of North Carolina-Charlotte
University of North Texas
University of Rhode Island
University of Rochester
University of Southern Mississippi
Washington State University
The geographic dispersion of the Network's equipment currently enables the
Company to offer Network events to most areas of the contiguous United States.
Additionally, the Company has a signed contract with Western Illinois University
and expects to have the equipment installed by November 1998.
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The typical Network installation package consists of an all digital
satellite dish and attendant satellite signal receiving equipment, a
high-resolution video projection system with commercial quality movie theater
sized screen and state-of-the-art audio system. The cost of the equipment for a
typical installation ranges from $65,000 to $95,000, depending on the size of
the theater, and is generally declining over time as a result of technological
advances. The Company typically installs and maintains this equipment at its own
expense. However, the Company is actively exploring giving certain colleges and
universities the option of purchasing the equipment at their own expense in
order to accelerate the time in which they will be able to receive Network
broadcasts. This may become a significant method of expanding the Network in the
future. The Company may also seek to lease all or a portion of its presently
installed and newly acquired equipment to reduce its up-front capital costs.
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 is also able to provide 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 1997, 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.
The schools listed above have granted the Company the exclusive right to
exhibit, promote and sell commercial programming and promotional merchandise
through the 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 provide for the Company to present a
schedule of programming dates 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
(except for maintenance charges for heavy use). 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 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 broadcast 14 events in the 1997-1998 academic year. It
anticipates that it will broadcast at least two to four events per month in the
1998-99 academic year. The Network can be used to broadcast both live and
pre-recorded events. In addition, the Network has audio/video interactive
capabilities which allow audiences to interact with performers and participants
before, during and after live performances. This capability was used by the
Company in three broadcasts during academic year 1997-98 when feature films were
premiered on the Network. In the case of the premiere presentations of the films
I Know What You Did Last Summer and Wild Things, members of the cast as well as
the director of the films were present at one of the Network theaters and
participated in a one-hour question and answer period during which students at
other Network theaters could call in questions. At the premiere of the film
U-Turn, the director of the film, Oliver Stone, participated in a similar
question and answer session. The Company believes that these interactive
presentations attract strong student interest and are attractive to Network
advertisers.
Since January 1996, the Company has entered into a number of licensing
agreements with content providers such as Miramax Films, Sony Pictures, Mandalay
Entertainment, Dreamworks SKG, HBO, Don King Productions, Mercury Records,
Warner Brothers and ABC for individual programs 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.
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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 filmmakers 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, as many televised sporting events are available only in particular
regions or in sports bars, which may not be accessible to college students. In
its efforts 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.
Marketing and Event Promotion of the Network
The Company has a field force of two full-time campus operations staff
members who work with local college personnel and students to facilitate the
promotion and the presentation of Network events on each campus. Students are
generally 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 sponsorship of Network events and fees paid by content providers.
The Company may also earn revenues from ticket sales to selected events,
although it did not charge admission to any events in the 1997-98 academic year.
If 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, Inc. ("Campus Voice"), Beyond
the Wall, Inc. ("Beyond the Wall") and Pik:Nik Media, Inc. ("Pik:Nik"). The
Company has integrated the operations and sales forces of these businesses. Such
integration has enabled each sales person 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 greater 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 distribution racks called
AdRaX(R) that contain college newspapers on campus), high school focused
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GymBoards(R) operations and various other advertiser and event sponsorship
related activities. APMC had been involved in the young adult marketing business
since 1976.
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,
American Express, AT&T, TIAA/CREF, The Wall Street Journal, 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. In the past, American Passage's revenues have been generated
principally from sales of advertisements to be 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 network of approximately 250 full-time and student
representatives, American Passage's postering service covers more than 1,250
college campuses with enrollment totaling over ten million students. Advertisers
pay American Passage a fee for these postering services. American Passage's
AdRaX(R) location media are college newspaper distribution racks with large
advertising display spaces above the newspaper bin. American Passage has placed
over 1,350 AdRaX(R) units at prime locations at over 200 college campuses.
Revenues are generated from monthly advertisements appearing on each unit.
GymBoards(R) 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(R) consists of a coach's message board and two advertising panels which
are protected by acrylic covers. GymBoards(R) are posted in almost 5,000 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 a total enrollment 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 event marketing and sampling services for
clients 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 can also supply
clients with newspaper inserts and can assist clients by providing creative
input. An example of this is the Nike SportsPage insert prepared by American
Passage 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 client's 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 and
Microsoft.
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 almost 3,400 giant wallboards located on 404
college campuses across the United States reaching approximately 4.0 million
college students. It is the oldest and largest 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, Discover, 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, Warner Lambert, Procter & Gamble, Sony Pictures
and Microsoft.
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 four 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 the walls of their rooms. The Company has
also entered into distribution agreements with on-campus poster vendors for
direct distribution of these catalog posters. In addition, Beyond the Wall
maintains a website at which students can download a screen saver with the same
images that are found on the 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, BMW, Calvin Klein, Procter & Gamble and
Volkswagen of America.
Pik:Nik Media, Inc.
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. As of May 1, 1998, the Company acquired another
company which distributes free postcards in the city of Chicago. At this time,
the Company believes Pik:Nik to be the largest free postcard distribution
network in the United States with access to over 1,850 free postcard
distribution racks.
Pik:Nik's postcards are marketed under the HotStamp(TM) brand and are
available for distribution through five separate programs. The first program is
called the Cities Program in which free postcards are distributed using more
than 1,400 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, Chicago, Seattle and Dallas, and through contract distributors in
Washington, D.C., Boston and Philadelphia. The Company is planning to expand
Pik:Nik's network of proprietary racks to other markets, including Miami and
Atlanta. Pik:Nik also distributes postcards in over 50 secondary cities in the
United States through a customized distribution operation utilizing disposable
postcard holders located at high traffic and point of sale locations.
Pik:Nik's second program is its College Program. As part of that program,
the Company installed racks at over 125 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 college bookstores managed by Barnes &
Noble (the largest private manager of campus bookstores in the United States)
and in student unions.
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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 for these racks and 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. The fifth and final program offered by Pik:Nik is
the Independent Music Store program whereby free postcard racks have been
installed at over 100 large independent music stores throughout the United
States. The coalition representing these music stores and the participating
stores earn a share of the revenues generated by the sale of postcards for these
racks, and music store employees periodically replenish the racks with
postcards.
The Company's On-Line Capabilities and the Internet
The Company believes that college students and young adults are computer
literate and utilize on-line resources such as E-mail and the Internet on a more
frequent basis than the general population. As a result, students can now
increasingly be reached by advertisers using a combination of both on-line and
off-line media capabilities. As described above, the Company has significant
off-line media capabilities aimed specifically at college students and young
adults. In addition, at this time, the Company's four websites described below
generate approximately six to eight million page views per academic year. The
Company intends to increase its on-line media capabilities and presence
significantly in the future, either through internal development of such
capabilities or by acquisitions, joint ventures or mergers with other companies
which have on-line media capabilities.
Presently, the Company's on-line resources consist of four websites. The
first is Beyondthewall.com, which is a retail oriented website where students
can order posters from the Beyond the Wall(R) catalog. In addition, students can
download a free screen saver and can play trivia games. The Company estimates
that this website receives approximately six million page views per academic
year. The Company also maintains a website called Pulsefinder.com. This website
is used as an on-line polling center for college students and is part of a
market research venture with Greenfield Online, Inc. The Company estimates that
this website receives approximately two million page views per academic year.
The Company believes that it may earn significant revenues from this website
through the sale of contract research by Greenfield Online, Inc.
The Company also maintains a site called Americanpassage.com which it uses
to deliver information to potential and current clients about American Passage's
media capabilities and the Company's other business activities. American Passage
clients can get certain information about college media resources which they can
use in developing media plans and advertising campaigns. The site can also be
used for the electronic transfer of advertising copy and images from clients to
American Passage and, in certain circumstances, from American Passage directly
to college newspapers. In addition, American Passage earns some revenues from
the sale of advertising banners on the websites maintained by over 110
participating college newspapers.
Finally, the Company maintains a website called NETcrawl.com, which it uses
exclusively for colleges which are part of the Network to report on attendance
and other information to the Company.
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.
7
<PAGE>
Corporate Reorganization
Effective as of July 1, 1997, the Company completed an internal
organizational restructuring which resulted in (i) the business and assets of
the Network being owned by a newly organized subsidiary of the Company, Network
Event Theater Development, Inc., (ii) the business and assets of Campus Voice
being owned by a newly organized subsidiary of the Company, Campus Voice, Inc.,
and (iii) the business and assets of American Passage, Beyond the Wall and
Pik:Nik being owned, respectively, by American Passage Media, Inc., Beyond The
Wall, Inc. and Pik:Nik Media, Inc., each of which is a subsidiary of a newly
organized subsidiary of the Company, National Campus Media, Inc. Additionally,
the Company organized a subsidiary which it intends to use for the purpose of
printing, or contracting for printing, and distribution of printed materials in
connection with the publishing activities of the Company's other subsidiaries.
The purpose of the restructuring was to achieve certain tax reporting
efficiencies for the Company.
Trademarks
The Company has registered with the United States Patent and Trademark
Office the names "Network Event Theater" and "NET", as well as the NET logo. The
Company has also registered the names American Passage, GymBoards, AdRaX, Campus
Voice, Pulsefinder, Beyond the Wall, HotStamp and Pik:Nik Free Postcards. 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 23, 1998, the Company had 81 full-time employees and 15
part-time employees. None of the Company's employees is represented by a
collective bargaining unit, and the Company believes that relations with its
employees are good.
8
<PAGE>
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, material legal proceeding, and
the Company is not aware of any contemplated proceeding which may be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 19, 1998, a special meeting of stockholders of the Company was held
for the purpose of voting upon an amendment to the Company's certificate of
incorporation to increase the number of shares of common stock, par value $.01
per share, that the Company is authorized to issue from 17 million shares to 32
million shares. In voting for the proposal, 9,377,646 shares of common stock
were cast in favor of the amendment and 65,159 shares of common stock were cast
in opposition thereto. Holders of 3,900 shares abstained.
9
<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 bid 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 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
Fiscal 1998
First Quarter............................ 7 1/8 4 5/8
Second Quarter........................... 6 1/2 3 7/8
Third Quarter............................ 5 3/8 4 1/4
Fourth Quarter........................... 4 11/16 3 5/8
As of September 23, 1998, there were approximately 36 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 any earnings for use in the
Company's business operations.
Recent Sales of Unregistered Securities
In January and February 1998, the Company, through Sunrise Securities Corp.
("Sunrise"), as private placement manager, sold a total of 1,055,600 shares of
its common stock to Warburg Pincus Emerging Growth Fund Inc. (888,889 shares),
Far West Capital Partners L.P. (111,111 shares) and Larry Miller (55,600 shares)
for an aggregate consideration of $4,750,200. Sunrise received 5,560 shares of
common stock and incidental expenses for its services. The Company relied on the
exemption provided by Section 4(2) of the Securities Act of 1933, as amended, in
making such sales.
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
acquisitions, the management of growth, changing consumer tastes and general
economic conditions. The Company undertakes no obligation to publicly release
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. The following financial
analysis compares the twelve months ended June 30, 1998 ("1998") to the twelve
months ended June 30, 1997 ("1997").
10
<PAGE>
Results of Operations
In 1998, net revenues were $11,188,000 as compared to $6,439,000 in 1997.
The increase of $4,749,000 is primarily due to the reporting in 1998 of a full
year's operating results of American Passage, Campus Voice, Beyond the Wall, and
Pik:Nik (which were all acquired during 1997), which, in the aggregate,
accounted for $4,510,000 of this increase. The remaining $239,000 was generated
by revenues received from screening events on the Network.
In 1998, selling, general and administrative expenses were $12,953,000 as
compared to $9,006,000 in 1997. The increase of $3,947,000 was primarily due to
the inclusion in 1998 of a full year of operations of American Passage, Campus
Voice, Beyond the Wall and Pik:Nik, which accounted for approximately $431,000,
$340,000, $1,377,000 and $2,070,000 of this increase, respectively. The offset
of $271,000 was due to decreased costs of the Network associated with the
termination of a programming services agreement with a director of the Company.
In 1998, corporate expenses were $3,088,000 as compared to $2,078,000 in
1997. The increase of $1,010,000 is due to increased corporate personnel and
related overhead expenses required to support the Company's growth.
In 1998, depreciation and amortization was $1,779,000 as compared to
$1,253,000 in 1997. The increase of $526,000 was primarily due to the inclusion
in 1998 of a full year of operations of the media and marketing services
businesses acquired during 1997, which accounted for $430,000 of the increase.
The remainder of $96,000 was the result of additional Network theater
installations.
In 1998, total operating expenses were $17,820,000 as compared to
$12,337,000 in 1997. The increase of $5,483,000 was primarily due to the
inclusion in 1998 of a full year of operations of American Passage, Campus
Voice, Beyond the Wall and Pik:Nik, which accounted for approximately $610,000,
$460,000, $1,396,000 and $2,182,000, respectively, of the increase. The
remainder of $835,000 was the result of the expansion of the Network and an
increase in the number of sales, management and support staff.
In 1998, interest income was $156,000 as compared to $274,000 in 1997. The
decrease of $118,000 was due to reduced interest income on lower average cash
balances.
In 1998, interest expense was $564,000 as compared to $390,000 in 1997. The
increase of $174,000 was due to increased average debt balances and additional
financings undertaken during 1998.
In 1998, provision for income taxes was $191,000 as compared to $166,000 in
1997. The increase of $25,000 was due to increased state taxes on revenues and
net assets.
In 1998, net loss was $7,231,000 as compared to $6,157,000 in 1997. The
increase of $1,074,000 was a result of increased operating expenses from the
inclusion of a full year of operations of the businesses acquired during 1997,
an increase in the number of management, sales and support staff resulting from
such acquisitions and the costs of further expansion of the Network.
Impact of Year 2000
The Company believes that its computer programs and systems are year 2000
compliant.
Liquidity and Capital Resources
The Company consummated the Initial Public Offering on April 9, 1996,
pursuant to which it 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 $1.6 million of
Network theater equipment and invested approximately $1.5 million 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 in a private placement. The net proceeds of that sale of $3.8
million were used to fund the Company's operations.
In January and February 1998, the Company sold an aggregate of 1,055,600
shares of its common stock in a private placement. The net proceeds of $4.6
million were used to fund the Company's operations.
11
<PAGE>
The Company used approximately $4.4 million in operating activities in 1998
as compared to $5.3 million in 1997. The decrease of approximately $0.9 million
represents the increase in short-term liabilities and the decrease in accounts
receivable, offset substantially by the increase in net loss and depreciation
and amortization. Cash used in investing activities in 1998 of approximately
$2.1 million is composed primarily of capital expenditures. Cash provided by
financing activities in 1998 of approximately $4.6 million is primarily
attributable to the sale of the Company's common stock.
The Company's primary capital requirements with respect to its operations
have been to fund corporate overhead, the operation of its Network and the
operations of Pik:Nik. 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 to make debt service payments out of
their own cash flows in the future prove to be inaccurate, or if the working
capital or capital expenditure requirements of American Passage, Campus Voice,
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 could have a material adverse effect on the Company,
including possibly requiring the Company to significantly curtail or cease its
operations.
As of June 30, 1998, the Company had approximately $2.3 million in cash and
cash equivalents. The Company believes that such amounts, plus an additional
$4.7 million of net proceeds which has been raised through a private debenture
offering in July 1998, will be sufficient to fund working capital, including
debt service and interest requirements, at least through the fiscal year ended
June 30, 1999. The Company's ability to improve its operations 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.
The Company may also 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 of 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 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.
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.
12
<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 1998.
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* Certificate of Amendment of Certificate of Incorporation, as filed May
27, 1998.
3.4 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).
13
<PAGE>
Exhibit No.
- -----------
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 Bill of Sale and Agreement dated January 31, 1997 among SCCGS, Inc.,
Sirrom Capital Corporation, Campus Voice, L.L.C. and the Company
(incorporated by reference to Exhibit 10.23 to the Company's Form 10-KSB
for the fiscal year ended June 30, 1997).
10.11 Asset Purchase Agreement dated April 11, 1997 among Posters Preferred,
Inc., Dennis Roche, Brian Gordon and the Company (incorporated by
reference to Exhibit 10.30 to the Company's Form 10-KSB for the fiscal
year ended June 30, 1997).
10.12 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 (incorporated by reference to Exhibit 10.31 to the Company's
Form 10-KSB for the fiscal year ended June 30, 1997.)
10.13 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 (incorporated by
reference to Exhibit 10.32 to the Company's Form 10-KSB for the fiscal
year ended June 30, 1997).
10.14 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 (incorporated by
reference to Exhibit 10.33 to the Company's Form 10-KSB for the fiscal
year ended June 30, 1997).
10.15* Stock Purchase Agreement dated December 23, 1997 between the Company and
Sirrom Investments, Inc.
10.16* Placement Manager Agreement dated December 24, 1997 between the Company
and Sunrise Securities Corp.
10.17* Form of Stock Purchase Agreement.
10.18* Loan Agreement dated December 30, 1997 between First Union National Bank,
American Passage Media, Inc., Beyond the Wall, Inc. and Campus Voice,
Inc.
10.19* Unconditional Guaranty dated December 30, 1997 by the Company and
National Campus Media, Inc. in favor of First Union National Bank.
21* Subsidiaries of the Company.
23* Consent of Ernst & Young LLP.
27* Financial Data Schedule.
- ----------
* Filed herewith.
14
<PAGE>
NETWORK EVENT THEATER, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Index
Report of Independent Auditors ........................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheet at June 30, 1998 .............................. F-3
Consolidated Statements of Operations for the years ended June 30,
1998 and 1997 .......................................................... F-4
Consolidated Statements of Cash Flows for the years ended
June 30, 1998 and 1997 ................................................ F-5
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1998 and 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 balance sheet of Network Event
Theater, Inc. as of June 30, 1998, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the two
years in the period ended June 30, 1998. 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, 1998, and the consolidated results of their
operations and their cash flows for the each of the two years in the period
ended June 30, 1998, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
August 21, 1998
F-2
<PAGE>
NETWORK EVENT THEATER, INC.
CONSOLIDATED BALANCE SHEET
(In thousands)
June 30, 1998
ASSETS
Current Assets:
Cash and cash equivalents ......................................... $ 2,271
Accounts receivable, net of allowance for doubtful accounts
of $137 ......................................................... 1,539
Prepaid expenses .................................................. 348
Deposits and other current assets ................................. 181
--------
Total current assets ................................................. 4,339
Property and equipment, net .......................................... 4,861
Intangible assets, net of accumulated amortization of $867 ........... 6,476
--------
Total assets ......................................................... $ 15,676
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................................. $ 914
Accrued employee compensation ..................................... 520
Accrued professional fees ......................................... 225
Other accrued expenses ............................................ 537
Deferred revenues ................................................. 689
Current portion of long-term debt ................................. 789
--------
Total current liabilities ............................................ 3,674
Long-term debt ....................................................... 3,459
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value, 1,000 shares authorized, no shares
issued and outstanding .......................................... --
Common stock, $.01 par value, 32,000 shares authorized, 11,347
shares issued and outstanding .................................. 113
Additional paid-in capital ........................................ 27,198
Accumulated deficit ............................................... (18,768)
--------
Total stockholders' equity ........................................... 8,543
--------
Total liabilities and stockholders' equity ........................... $ 15,676
========
See notes to consolidated financial statements
F-3
<PAGE>
NETWORK EVENT THEATER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year ended June 30,
----------------------
1998 1997
-------- --------
Net Revenues ......................................... $ 11,188 $ 6,439
Operating Expenses:
Selling, general and administrative expense ....... 12,953 9,006
Corporate expenses ................................ 3,088 2,078
Depreciation and amortization ..................... 1,779 1,253
-------- --------
Total operating expenses ............................. 17,820 12,337
-------- --------
Loss from operations ................................. (6,632) (5,898)
Interest income ...................................... 156 274
Interest expense ..................................... (564) (390)
Other income ......................................... -- 23
-------- --------
Loss before provision for income taxes ............... (7,040) (5,991)
Provision for income taxes ........................... 191 166
-------- --------
Net loss ............................................. $ (7,231) $ (6,157)
======== ========
Net loss per basic and diluted common share .......... $ (0.69) $ (0.71)
======== ========
Weighted average basic and diluted common shares
tstanding .......................................... 10,508 8,715
======== ========
See notes to consolidated financial statements
F-4
<PAGE>
NETWORK EVENT THEATER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended June 30,
---------------------
1998 1997
---------- --------
Cash Flows From Operating Activities
Net loss .................................................. $(7,231) $(6,157)
Adjustments to reconcile net loss to
net cash used in operating activities:
Provision for bad debts ............................. 64 73
Depreciation and amortization ....................... 1,779 1,253
Loss on disposal of equipment ....................... 85 --
Issuance of options for consulting services ......... 53 --
Changes in assets and liabilities:
Increase in accounts receivable .................. (164) (1,512)
Increase (decrease) in prepaid expenses .......... 45 (341)
Increase in deposits and other current assets .... (61) (94)
Increase in accounts payable ..................... 372 128
Increase in accrued employee compensation ........ 199 321
(Decrease) increase in accrued professional
fees ........................................... (95) 320
Increase in deferred revenues .................... 388 301
Increase in other accrued expenses ............... 133 436
------- -------
Net cash used in operating activities ..................... (4,433) (5,272)
Cash Flows From Investing Activities
Capital expenditures ................................... (1,682) (1,194)
Proceeds from the sale of equipment .................... 64 --
Notes receivable ....................................... 33 (33)
Payment for business acquisitions ...................... (532) (4,842)
Sale of investments .................................... -- 7,913
------- -------
Net cash provided by investing activities ................. (2,117) 1,844
Cash Flows From Financing Activities
Net proceeds from sale of common stock and
exercise of warrants ................................ 4,581 3,783
Proceeds from long-term debt ........................... 5,125 3,860
Repayment of long-term debt ............................ (5,070) (297)
------- -------
Net cash provided by financing activities ................. 4,636 7,346
Net (decrease) increase in cash and cash equivalents ...... (1,914) 3,918
Cash and cash equivalents at beginning of period .......... 4,185 267
------- -------
Cash and cash equivalents at end of period ................ $ 2,271 $ 4,185
======= =======
Supplemental cash flow information:
Cash paid for interest ................................. $ 538 $ 279
======= =======
Cash paid for income taxes ............................. $ 143 $ 207
======= =======
Issuance of Common Stock in connection
with acquisitions .................................... $ -- $ 473
======= =======
Debt assumed in connection with acquisitions ........... $ -- $ 2,553
======= =======
Issuance of Common Stock in connection with
debt repayment ....................................... $ 2,144 $ --
======= =======
See notes to consolidated financial statements
F-5
<PAGE>
NETWORK EVENT THEATER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(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
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
Issuance of common
stock for debt ........... 413 4 2,140 -- -- 2,144
Issuance of common
stock .................... 1,016 10 4,511 -- -- 4,521
Issuance of common stock
upon exercise of warrants 12 -- 60 -- -- 60
Issuance of options for
consulting services ...... -- -- 105 -- -- 105
Ajustment to common stock
issued for acquisition
of Beyond the Wall ....... -- -- (39) -- -- (39)
Net loss ................... -- -- -- (7,231) -- (7,231)
------ ---- ------- -------- ---- --------
Balances at
June 30, 1998 ............ 11,347 $113 $ 27198 $(18,768) $-- $ 8,543
====== ==== ======= ======== ==== ========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
NETWORK EVENT THEATER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
1. Organization and Basis of Presentation
Network Event Theater, Inc. ("NET") and its subsidiaries (collectively
referred to as the "Company") owns and operates a proprietary national network
of theaters on college campuses (the "Network") located throughout the United
States. The Network delivers entertainment and educational events via satellite
for display through high resolution video projectors on movie theater sized
screens. Additionally, the Company owns and operates collegiate media and
marketing service businesses which complement and enhance the reach of its
Network.
In April 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.
In connection with the Initial Public Offering, the Company issued 460,000
warrants to the Underwriter. Each warrant entitles the holder to purchase one
share of the Company's common stock for $8.25 and expire in April 2002.
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.
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.
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 the 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 on the straight-line basis principally
over 15 years. The agreements pursuant to which the Company acquired certain
companies include provisions that would require the Company to issue additional
shares of common stock, if the acquired company meets certain goals. The value
of any such shares issued, as of the date issued, will be added to the goodwill
related to such acquisition and will be amortized over the remainder of such
goodwill's useful life.
F-7
<PAGE>
NETWORK EVENT THEATER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1998
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
nondiscounted 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, 1998 and 1997 were approximately $529,000 and $564,000,
respectively.
Income Taxes
The Company accounts 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.
Recapitalization
In May 1998, the Company increased its authorized common stock of $.01 par
value to 32,000,000 shares.
Earnings Per Share
The Company adopted the provisions of SFAS No. 128, "Earnings Per Share,"
effective July 1, 1997. In accordance with the requirements of SFAS No. 128,
earnings per share amounts for prior periods have been restated; such
restatement had no effect on the previously reported amounts.
Under SFAS No. 128, basic earnings per share excludes any dilution for
common stock equivalents and is computed on the basis of net income divided by
the weighted average number of common shares outstanding during the relevant
period. Diluted earnings per share reflects the potential dilution that could
occur if options or other securities or contracts entitling the holder to
acquire shares of common stock were exercised or converted, resulting in the
issuance of additional shares of common stock that would then share in earnings.
However, diluted earnings per share does not consider such dilution if its
affect would be to reduce the loss per share ("antidilutive").
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.
F-8
<PAGE>
NETWORK EVENT THEATER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1998
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.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosure About Segments of
an Enterprise and Related Information," which is effective for years beginning
after December 15, 1997. SFAS 131 establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS 131 is effective for financial statements for fiscal years
beginning after December 15, 1997 and, therefore, the Company will adopt the new
requirements retroactively in fiscal 1999. Management has not completed its
review of SFAS 131, but does not anticipate that the adoption of this statement
will have a significant effect on the Company.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
must first be applied in the first quarter of fiscal years that begin after June
15, 1999, and in general, requires that entities recognize all derivative
financial instruments as assets or liabilities, measured at fair value, and
include in earnings the changes in the fair value of such assets and
liabilities. SFAS 133 also provides that changes in the fair value of assets or
liabilities being hedged with recognized derivative instruments be recognized
and included in earnings. Management has not completed its review of SFAS No.
133 but does not anticipate that it will have a material affect on its
consolidated financial statements.
3. 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(R) 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, which
was fully repaid in December 1997, (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.
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 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, which were fully repaid in December 1997 (See Note 4).
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. In December 1997, the working capital advance of
$385,000 plus accrued interest was fully repaid. The final purchase price of
$1,728,000, which includes acquisition costs, exceeded the fair value of the net
assets acquired by approximately $684,000. As a result of the determination of
the final purchase price and an adjustment to the fair value of certain assets
F-9
<PAGE>
NETWORK EVENT THEATER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1998
acquired in connection with this acquisition, the equipment value was decreased,
and goodwill increased by approximately $111,000 during 1998.
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. Such conditions were met for 1998,
therefore the 6,666 additional shares are issuable but have not been issued as
of June 30, 1998. A liability was recorded to reflect such future issuance. In
addition, the Company 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, including the
additional consideration, of $427,000, including acquisition costs, exceeded the
fair value of the net assets acquired by approximately $433,000.
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
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. In January 1998, the purchase agreement was amended whereby the
Company is obligated to pay $155,000, and cancel a note receivable, in the
amount of $34,000, from the seller. In exchange, the Company was relieved of all
future contingent purchase payments of cash and stock. The aggregate purchase
price of $778,000, including acquisition costs, exceeded the fair value of the
net assets acquired by approximately $982,000. The increase in purchase price
resulting from the amendment has been recorded as additional goodwill.
On The House Acquisition
In May 1998, the Company, through its subsidiary, Pik:Nik Media, Inc.
(formerly, Pik:Nik Media, LLC), acquired substantially all of the assets of On
The House Postads, Inc., an entity that produces, markets and distributes free
postcards containing advertising images in the Chicago area. The Company paid
$142,500 in cash and agreed to pay an additional $71,250 in cash and issue
$71,250 worth of the Company's common stock in July 1999, subject to certain
conditions. The aggregate purchase price of $200,000, including acquisition
costs, was recorded as goodwill.
The aforementioned 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 dates 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.
F-10
<PAGE>
NETWORK EVENT THEATER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1998
The following unaudited pro forma information is presented as if the
Company had completed the acquisitions as of July 1, 1997 and 1996,
respectively:
Year ended June 30
----------------------------
1998 1997
-------- -------
Net revenue ..................................... $ 11,511,000 $ 9,457,000
Net loss applicable to common stock ............. (7,268,000) (6,780,000)
Net loss per basic and diluted common share ..... (.69) (.78)
Weighted average common shares
outstanding - basic and diluted ............... 10,508,000 8,715,000
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.
4. Long-Term Debt
Long-term debt as of June 30, 1998 consists of the following:
Note Payable to Bank (A) ................................... $ 3,072,000
Note Payable to Finance Company (B) ........................ 1,000,000
Other ...................................................... 176,000
-----------
4,248,000
Less current portion ....................................... (789,000)
-----------
$ 3,459,000
===========
(A) In December 1997, in conjunction with the refinancing of certain debt
owed by American Passage to a bank, Campus Voice, Beyond the Wall and American
Passage (the "Borrowers") entered into a loan agreement with another bank. Under
the terms of this loan agreement, the bank advanced to the Borrowers $4.0
million that was used to repay all existing long-term indebtedness of American
Passage in the amount of $3.8 million. The balance of the proceeds was used for
working capital. The loan is secured by all of the assets of the Borrowers and
is guaranteed by NET. The loan is payable in equal monthly installments,
commencing in February 1998, over a maximum of six years (as defined). Interest
is payable monthly at a rate of interest of 275 basis points above LIBOR for
U.S. dollar deposits of one month maturity.
The Borrowers also entered into an interest rate exchange agreement
converting $3.0 million of the aforementioned floating rate debt to a fixed
rate. The balance of the interest rate agreement at June 30, 1998 was
$2,722,000. Under the interest rate exchange agreement, the Borrowers are
required to pay interest at a fixed rate of 9.11% on the notional amount covered
by the interest rate exchange agreement. In return, the Company receives
interest payments on the same notional amount at the prevailing LIBOR rate plus
275 basis points. The interest rate exchange agreement terminates in June 2002.
The Company's estimated credit exposure related to the interest rate exchange
agreement as of June 30, 1998 is approximately $24,000. The notional amount of
the derivative does not represent the amount exchanged by the parties, and is
not a measure of the exposure of the Company through its use of derivatives. The
amounts exchanged are calculated on the basis of the notional amounts and the
other terms of the derivative, which relate to interest rates. The fair value of
the interest rate agreement at June 30, 1998 was approximately $2,746,000
determined on the basis of valuation pricing models which take into account
current market and contractual prices, giving effect to the time value and yield
curve underlying the position.
In conjunction with this loan, the bank has also made available to the
Borrowers a revolving line of credit with a maximum principal amount of $1.0
million. All amounts borrowed under this facility must be repaid in July 1999.
The revolving line of credit facility bears interest at the rate of the bank's
prime rate plus 25 basis points and interest is due monthly. Borrowings under
the revolving line of credit are secured by the Borrower's eligible accounts
receivable (as defined) and is also guaranteed by NET. As of June 30, 1998, the
Borrowers have not borrowed any amounts under this facility.
F-11
<PAGE>
NETWORK EVENT THEATER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1998
(B) In December 1997, Pik:Nik borrowed $1.0 million from a finance company
which is due in June 2000. Interest on the note is payable monthly at a rate of
12% per annum. The note is secured by all of the assets of Pik:Nik and is
guaranteed by NET. The proceeds may be used for working capital for Pik:Nik and
NET.
At June 30, 1998, the aggregate amounts of long-term debt due during the
next five years are as follows:
Year ending June 30:
1999 .................................................. $ 789,000
2000 .................................................. 1,720,000
2001 .................................................. 667,000
2002 .................................................. 667,000
2003 and thereafter ................................... 405,000
----------
$4,248,000
==========
The fair value of the long-term debt approximates net book value
5. Property and Equipment
Property and equipment consists of the following:
Network theater equipment .................................. $ 4,225,000
Location based media equipment ............................. 1,935,000
Furniture and office equipment ............................. 1,247,000
Leasehold improvements ..................................... 118,000
-----------
7,525,000
Less accumulated amortization and depreciation ............ (2,664,000)
-----------
$ 4,861,000
===========
6. Income Taxes
At June 30, 1998, the Company had a net operating loss carryforward for
income tax purposes of approximately $14,300,000 that expires through 2013. For
financial reporting purposes, a valuation allowance of $5,634,000 has been
recognized to offset the deferred tax asset principally related to this
carryforward. The net operating loss carryforward at June 30, 1996, of
approximately $1,104,000, is subject to annual limitations brought about by the
Company's change of its tax year end.
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, 1998 are as follows:
Deferred tax assets:
Net operating loss carryforwards ............... $5,711,000
Other ............................................. (77,000)
----------
Total deferred tax assets ......................... 5,634,000
Valuation allowance ............................... (5,634,000)
----------
Net deferred tax assets............................ $ --
==========
No federal tax provision has been provided for at June 30, 1998 and 1997
due to the significant losses incurred to date. State tax provision has been
provided for at June 30, 1998 and 1997 in the amount of $191,000 and $166,000,
respectively. These taxes are primarily based on net revenues and net assets.
F-12
<PAGE>
NETWORK EVENT THEATER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1998
7. 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. In May 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. This agreement expired in December 1997. F&H is
entitled to receive royalties of 10% of the pre-tax income of the Company until
December 1999.
F&H received an annual fee for its services. For the years ended June 30,
1998 and 1997, such fees totaled $275,000 and $500,000, respectively.
Additionally, F&H received 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, 1998 and 1997
of $138,000 and $269,000, respectively, was fully expensed. 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.
8. Stockholders' Equity
The Company issued 2,645,000 warrants at the time of its Initial Public
Offering (see Note 1). 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. In connection with this issuance, the Company issued
150,000 warrants to an investment bank. Such warrants have an exercise price of
$4.50 and expire in November 2000.
In December 1997, the Company issued 412,397 shares of common stock in
exchange for cancellation of certain of its long-term debt issued in connection
with the acquisition of Campus Voice, net of fees and accrued interest, in the
amount of $2,144,000.
In December 1997, the Company issued 12,000 shares of common stock upon
exercise of warrants at $5.00 per share. The Company realized $60,000 as a
result of this exercise of warrants.
In December 1997, the Company granted, to a public relations firm, 100,000
options to purchase shares of common stock at an exercise price of $5.00 per
share. The fair value of such options was determined to be approximately
$105,000, which is being amortized over the term of the public relations
agreement. The expense recognized for the year ended June 30, 1998 was $53,000.
In addition, the Company maybe obligated to issue 100,000 and 300,000 additional
options based on certain equity goals being reached by September 1998 and
December 1998, respectively. These options will have exercise prices of $7.50
and $5.00, respectively. All options vest over one year and expire after 4
years.
F-13
<PAGE>
NETWORK EVENT THEATER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1998
In January and February 1998, the Company sold 1,055,600 shares of its
common stock in a private placement transaction and realized net proceeds of
approximately $4,500,000. In addition, the Company issued 5,560 shares of common
stock, as a commission, in connection with the issuance of a portion of the
common stock issued in February 1998.
Securities for issuance of common stock excluded from diluted earnings per
share due to their antidilutive effect are as follows:
1998 1997
-------- ---------
Stock options................................ 1,281,560 952,560
Common stock purchase warrants............... 3,243,000 3,105,000
9. Stock Option Plan
In 1996, the Company adopted a Stock Option Plan (the "1996 Plan") in order
to grant employees providing services to the Company incentive stock options.
The 1996 Plan allows for the granting of options to purchase up to 400,000
shares of the Company's stock. In December 1997, the Company adopted another
Stock Option Plan (the "1997 Plan") in order to grant employees providing
services to the Company incentive stock options. The 1997 Plan allows for the
granting of options to purchase up to 450,000 shares of the Company's common
stock. The exercise price of the options granted pursuant to the 1996 Plan and
the 1997 Plan, (collectively, the "Option Plans") were at the fair market value
on the date of grant.
The following table summarizes the Option Plans transactions for the years
ended June 30, 1998 and 1997:
Weighted
Average
Exercise
Shares Price
------ --------
Options outstanding at June 30, 1996 ................... 200,000 $3.88
Options granted ........................................ 140,000 3.19
Options canceled or expired ............................ (40,000) 2.63
Options exercised ...................................... -- --
------- -----
Options outstanding at June 30, 1997 ................... 300,000 3.73
Options granted ........................................ 260,000 4.85
Options canceled or expired ............................ (31,000) 5.00
Options exercised ...................................... -- --
------- -----
Options outstanding at June 30, 1998 ................... 529,000 $4.39
======= =====
Options exercisable at June 30, 1998 ................... 233,333
=======
Options exercisable at June 30, 1997 ................... 133,333
=======
Options available for future grant at June 30, 1998 .... 321,000
=======
The range of the exercise prices for options outstanding at June 30, 1998
was $2.63 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 Option Plans to date. Had compensation cost for the Company's
Plan been determined based upon the fair value at the grant date 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 $317,000, or $.03 per
share and $232,000, or $.03 per share for the years ended June 30, 1998 and
1997, respectively. The fair value of the options granted during the years ended
June 30, 1998 and 1997 is estimated using the Black-Scholes option-pricing model
with the following assumptions:
F-14
<PAGE>
NETWORK EVENT THEATER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1998
June 30
---------------
Assumption 1998 1997
---------- ---- ----
Risk-free interest rate ................................ 5.57% 5.91%
Dividend yield ......................................... 0% 0%
Volatility factor of the expected market price
of the Company's common stock ....................... .709 1.016
Average life ........................................... 3 years 3 years
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of it employee stock options.
The weighted average fair value of options granted during the years ended
June 30, 1998 and 1997 was $2.41 and $2.67, respectively. The weighted average
exercise price of the exercisable options at June 30, 1998 is $3.93. The
weighted average exercisable life of the options at June 30, 1998 is 8 years.
10. Commitments and Contingencies
Leases
The Company has various leases for office space. Rental expense for the
years ended June 30, 1998 and 1997 was approximately $771,000 and $278,000,
respectively.
The minimum annual rental commitments under noncancellable operating leases
are as follows:
Year ending June 30:
1999.................................................. $ 686,000
2000.................................................. 734,000
2001.................................................. 367,000
2002.................................................. 71,000
----------
$1,858,000
==========
Litigation
In the normal course of business, the Company is subject to certain claims
and litigation, including unasserted claims. The Company is of the opinion that,
based on information presently available, such legal matters will not have a
material adverse effect on the financial position or results of the operations
of the Company.
11. 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
1998 and 1997, the amount of this matching expense was approximately $30,000 and
$20,000, respectively.
12. Subsequent Event
In July 1998, the Company realized net proceeds of approximately $4.7
million from the sale of $5,000,000 of 11% Subordinated Notes (the "Notes") and
375,000 warrants. The Notes are due in July 2003. Each warrant entitles the
holder to purchase one share of the Company's common stock for $4.125 and expire
in July 2003.
In connection with the sale of the Notes and warrants, the Company issued
150,000 warrants to the placement agent. Each warrant entitles the holder to
purchase one share of the Company's common stock for $4.125 and expire in July
2003.
F-15
<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 28, 1998
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 28, 1998
- -------------------------- Chairman of the Board
Harlan D. Peltz (Principal Executive
Officer)
/s/ Don Leeds President and Director September 28, 1998
- --------------------------
Don Leeds
/s/ Bruce L. Resnik Executive Vice President, September 28, 1998
- -------------------------- Chief Financial Officer
Bruce L. Resnik and Secretary (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ Freddie Fields Director September 28, 1998
- --------------------------
Freddie Fields
/s/ Howard Klein Director September 28, 1998
- --------------------------
Howard Klein
/s/ Jan Miller Director September 28, 1998
- --------------------------
Jan Miller
/s/ Metin Negrin Director September 28, 1998
- --------------------------
Metin Negrin
/s/ George Lindemann Director September 28, 1998
- --------------------------
George Lindemann
15
<PAGE>
EXHIBIT INDEX
Exhibit No.
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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* Certificate of Amendment of Certificate of Incorporation, as filed May
27, 1998.
3.4 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).
<PAGE>
Exhibit No.
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10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 Bill of Sale and Agreement dated January 31, 1997 among SCCGS, Inc.,
Sirrom Capital Corporation, Campus Voice, L.L.C. and the Company
(incorporated by reference to Exhibit 10.23 to the Company's Form 10-KSB
for the fiscal year ended June 30, 1997).
10.11 Asset Purchase Agreement dated April 11, 1997 among Posters Preferred,
Inc., Dennis Roche, Brian Gordon and the Company (incorporated by
reference to Exhibit 10.30 to the Company's Form 10-KSB for the fiscal
year ended June 30, 1997).
10.12 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 (incorporated by reference to Exhibit 10.31 to the Company's
Form 10-KSB for the fiscal year ended June 30, 1997.)
10.13 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 (incorporated by
reference to Exhibit 10.32 to the Company's Form 10-KSB for the fiscal
year ended June 30, 1997).
10.14 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 (incorporated by
reference to Exhibit 10.33 to the Company's Form 10-KSB for the fiscal
year ended June 30, 1997).
10.15* Stock Purchase Agreement dated December 23, 1997 between the Company and
Sirrom Investments, Inc.
10.16* Placement Manager Agreement dated December 24, 1997 between the Company
and Sunrise Securities Corp.
10.17* Form of Stock Purchase Agreement.
10.18* Loan Agreement dated December 30, 1997 between First Union National Bank,
American Passage Media, Inc., Beyond the Wall, Inc. and Campus Voice,
Inc.
10.19* Unconditional Guaranty dated December 30, 1997 by the Company and
National Campus Media, Inc. in favor of First Union National Bank.
21* Subsidiaries of the Company.
23* Consent of Ernst & Young LLP.
27* Financial Data Schedule.
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* Filed herewith.
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NETWORK EVENT THEATER, INC.
It is hereby certified that:
1. The name of the corporation is Network Event Theater, Inc.
2. The Certificate of Incorporation of the corporation is hereby
amended by striking out Article 4 thereof and by substituting in lieu of said
Article the following new Article:
"4. The corporation shall have the authority to issue 33,000,000 shares,
consisting of 32,000,000 shares of Common Stock, par value $0.01 per share, and
1,000,000 shares of Preferred Stock, par value $0.01 per share."
3. The amendment of the Certificate of Incorporation herein certified
has been duly adopted and approved in accordance with the provisions of Section
242 of the General Corporation Law of the State of Delaware.
Dated: May 19, 1998
NETWORK EVENT THEATER, INC.
By:/s/ Bruce L. Resnik
Name: Bruce L. Resnik
Title: Executive Vice President
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
this 23rd day of December, 1997 by and between NETWORK EVENT THEATER, INC., a
Delaware corporation ("Seller") and SIRROM INVESTMENTS, INC., a Tennessee
corporation ("Purchaser").
WITNESSETH:
WHEREAS, Campus Voice, LLC, a Delaware limited liability company ("Campus
Voice"), is presently indebted to Purchaser in the aggregate amount (principal
and interest) of $2,154,772.50 (the "Loan") pursuant to certain agreements,
instruments and documents more particularly described on Exhibit A attached
hereto and incorporated herein by reference (the "Loan Documents"); and
WHEREAS, Sellers desires to purchase from Purchaser all of Purchaser's
right, title and interest in the Loan and the Loan Documents, and Seller desires
to pay for Purchaser's right, title and interest in the Loan and the Loan
Documents by conveying and issuing to Purchaser unregistered shares of Seller's
common stock, the number of which is to be determined in accordance with the
provisions of this Agreement (the "Shares"); and
WHEREAS, Purchase desires to purchase the Shares from Seller by assigning
and transferring to Seller all of Purchaser's right, title and interest in the
Loan and the Loan Documents;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Purchase and Sale. Purchaser agrees to purchase from Seller and Seller
agrees to sell and issue to Purchaser all of the Shares on the terms and
conditions set forth herein. The number of shares of Seller's common stock to be
purchased by Purchaser hereunder shall equal the amount of principal and
interest and other amounts due and owing on the Loan as of the Effective Date
(which the parties agree is $2,154,772.50) divided by the average closing price
per share of Seller's publicly traded common stock over the five (5) trading
days prior to the Effective Date (which the parties agree is $5.225).
Accordingly, the number of Shares to be purchased is 412,397. Purchaser
acknowledges that it is not relying on any representations of Seller with
respect to the value of the Shares.
2. Closing. The closing of the transactions contemplated hereby shall take
place and be effective on and as of December 23, 1997 (the "Effective Date").
The closing of the
<PAGE>
transactions contemplated hereby is conditioned on the execution and delivery by
each party of all documents and instrument required hereunder to be executed and
delivered by it.
3. Stock Certificates. Upon closing, Seller shall issue and deliver to
Purchaser a certificate representing the Shares (the "Certificate"), free and
clear of any and all liens, claims, encumbrances or other restrictions.
4. Consideration. As full payment for the Shares, purchaser shall assign
and transfer to Seller, WITHOUT RECOURSE OR WARRANTY (except as provided
herein), all of Purchaser's right, title and interest in the Loan and the Loan
Documents. Purchaser makes no representation or warranty to Seller concerning
the status of the Loan or the Loan Documents or the enforceability or priority
of Seller's security interests in any of Campus Voice's property or stock, and
Seller hereby accepts Purchaser's right, title and interest in the Loan and the
Loan Documents "AS IS", provided, however, that Purchaser represents and
warrants to Seller that Purchaser has good title to the Loan and the Loan
Documents, and may transfer the same, free and clear of any claim, lien or
encumbrance. Purchaser further represents and warrants to Seller that it has
made its own determination of the value of the Shares and Seller's business and
assets and that it is not relying on any representation or warranty of Seller as
to the value of the Shares or any other matter except as specifically set forth
in Section 6 of this Agreement or Section 2.2 of the Loan Agreement dated of
even date herewith between purchaser, Seller and Pik:Nik Media, Inc.
5. Other Agreements. The parties shall also execute and deliver such other
documents and instruments and take such other actions as may be required to give
full force and effect to the transactions contemplated hereby. Without limiting
the foregoing, Purchaser shall execute and deliver to Seller an Assignment of
Loan Documents in the form attached hereto as Exhibit B and UCC-3 statements of
assignment evidencing the transfer to Seller of Purchaser's security interests
in Campus Voice's personal property.
6. Representations, Warranties and Covenants of Seller. Seller represents,
warrants and covenants to Purchaser as follows:
(a) Corporate Existence. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware.
(b) Authorization. Seller has full legal right, power and authority
to enter into and perform its obligations hereunder, without the consent
or approval of any other person, firm, governmental agency or other legal
entity. The execution and delivery of this Agreement and the
2
<PAGE>
performance by Seller of its obligations hereunder are within the
corporate powers of Seller and have been duly authorized by all necessary
corporate action properly taken. Seller has received all necessary
governmental approvals, if any were required, to execute and deliver this
Agreement and to perform the transactions contemplated hereby and suggest
execution, delivery and performance do not and will no contravene or
conflict with any provision of law, any judgment, ordinance, regulation or
order of any court or governmental agency, the certificate of
incorporation or bylaws of Seller, or any agreement binding upon Seller or
its properties. The officer executing this Agreement is duly authorized
to act on behalf of Seller.
(c) Validity and Binding Effect. This Agreement is the legal, valid
and binding obligation of Seller, enforceable in accordance with its
terms, subject only to limitations imposed by bankruptcy, insolvency,
moratorium or other similar laws affecting the rights of creditors
generally or the application of general equitable principles.
(d) Status of Shares. Seller represents, warrants and covenants that
the Shares will, upon issuance, be legally and validly issued and
outstanding, fully paid and nonassessable, free from all taxes, liens,
charges and preemptive rights, if any, with respect thereto or to the
issuance thereof.
7. Representations of Purchaser. To induce Seller to sell the Shares and
to issue to Purchaser the Certificate, Purchaser hereby represents and warrants
to Seller as follows:
(a) Purchaser is aware that (i) no registration statement relating
to the Shares has been filed under the Securities Act of 1933, as amended
(the "Securities Act"), or the securities laws of any state, (ii) the
Shares may not be transferred or resold except as permitted under the
Securities Act and such state securities laws, pursuant to registration or
exemption therefrom, and (iii) Seller wi11 refuse to allow any transfer of
the Shares in violation of the Securities Act or such state securities
laws;
(b) Purchaser is acquiring the Shares for investment, for
Purchaser's own account and not with a view to the distribution thereof;
(c) Purchaser is a Tennessee corporation with its principal place of
business and chief operating office located in Nashville, Tennessee; and
(d) Purchaser understands that the foregoing representations,
warranties, acknowledgments and agreements
3
<PAGE>
will be relied upon by Seller as a basis for exemption of the issuance of
the Shares from the registration requirements of the Securities Act and
any applicable state securities laws.
8. Registration Rights. Seller hereby agrees to file a registration
statement covering the Shares with the United States Securities Exchange
Commission ("SEC") by February 15, 1998. Seller hereby agrees to use its best
efforts to cause such registration to be declared effective by the SEC within
six (6) months from the Effective Date.
9. Prohibition on Transfer of Shares. Purchaser hereby agrees not to sell
more than one-half (1/2) of the Share prior to the one (1) year anniversary of
the Effective Date. Otherwise, Purchaser may freely transfer any or all of the
Shares.
10. Specific Performance. Without limiting any of their other remedies
that may exist, whether at law or in equity, each party shall be entitled to a
court order or decree against any party violating or attempting to violate the
provisions this Agreement requiring specific performance of any of the
provisions contained herein. The parties agree that the right to obtain such a
remedy in the event of a violation or attempted violation of this Agreement is
essential to the parties.
11. Applicable Law. The internal laws of the State of Tennessee shall
govern and be controlling in the determination of the validity, interpretation
and construction of this Agreement and of all questions relating to the
performance and consummation hereof.
12. Binding on Successors, Assigns, Heirs, Etc. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors, permitted assigns, transferees, heirs, executors and administrators.
13. Waivers. No failure to enforce any term, condition or provision of
this Agreement shall operate as a waiver of such term, condition or provision,
or as a waiver of any other term, condition or provision hereof.
14. Headings. The Section headings herein, where they appear, are for
convenience only, and shall not affect the construction or interpretation of
this Agreement.
15. Severability. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if any such invalid or
unenforceable provision was omitted.
4
<PAGE>
16. Attorney's Fees. In the event of litigation between parties concerning
the subject matter of this Agreement, the prevailing party shall be entitled to
receive its attorneys' fees court costs and related expenses from the
nonprevailing party.
17. Survival of Representations Warranties and Covenants. All
representations, warranties and covenants contained herein survive the closing.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
SELLER:
NETWORK EVENT THEATER, INC., a
Delaware corporation
By: /s/ Harlan D. Peltz
----------------------------------
Typed Name: Harlan D. Peltz
Title: Chairman and CEO
PURCHASER:
SIRROM INVESTMENTS, INC., a
Tennessee corporation
By: /s/ Jeff Armstrong
----------------------------------
Typed Name: Jeff Armstrong
Title: VP
The undersigned hereby acknowledges and agrees to the transfer and
assignment of the Loan and the Loan Documents described herein.
CAMPUS VOICE, LLC, a Delaware
limited liability company
By: /s/ Bruce L. Resnik
----------------------------------
Typed Name: Bruce L. Resnik
Title: EVP/CFO
5
NETWORK EVENT THEATER, INC.
529 Fifth Avenue
7th Floor
New York, New York 10011
PLACEMENT MANAGER AGREEMENT
December 24, 1997
Sunrise Securities Corp.
135 East 57th Street, 11th Floor
New York, New York 10022
Gentlemen:
Network Event Theater Inc., a Delaware corporation (the "Company"), hereby
confirms its agreement with you (the "Placement Manager" and together with the
Company, the "Parties") as follows:
1. Description of Transaction. The Company will make an offer in the United
States (the "Offering") to sell up to 1,333,333 shares of the Company's
common stock, par value $.01 per share (the "Common Stock", and the shares
of Common Stock to be offered or sold pursuant to the Offering, the
"Shares") at a price of $4.50 per Share (the "Sales Price"). The number of
Shares referred to in this Section 1 includes Shares to be offered to
Warburg Pincus and its affiliates and Far West Capital.
2. Appointment of the Placement Manager. The Company hereby appoints the
Placement Manager as its exclusive agent to offer and sell the Shares on a
"best efforts" basis. The Placement Manager may allocate a portion of the
Shares to selected dealers. The Placement Manager, on the basis of the
representations, warranties, covenants and agreements of the Company
herein, and subject to the completion of the Placement Manager's due
diligence examination of the documents and records of the Company, and
further subject to the conditions herein, accepts such appointment and
agrees that it will endeavor to sell the Shares on a best efforts basis.
3. Purchase, Sale and Delivery of Shares. Subject to the terms and conditions
set forth herein, the Company and the Placement Manager agree as follows:
(a) Regulation D Offering. Neither the Offering nor the sale
thereunder of the Shares has been or will be registered with the United
States Securities and Exchange
<PAGE>
Commission (the "Commission") under the Securities Act of 1933, as amended
(the "Securities Act"). The Shares will be offered and sold in the United
States only, in reliance upon and in compliance with the exemptions from
registration provided by Sections 3(b), 4(2) and 4(6) of the Securities
Act and Rule 506 of Regulation D thereunder ("Reg D"), and will only be
sold to Qualified Institutional Buyers ("QIB's") or "accredited investors"
as such terms are defined in Rule 144A promulgated under the Securities
Act and Reg D, respectively. The Shares will be offered for sale only in
those states of the United States in which they will have full compliance
with applicable state Blue Sky laws. The Company will provide the
Placement Manager, for delivery to all offerees and purchasers and their
representatives, any information, documents and instruments which the
Placement Manager deems necessary to comply with the statutes, rules,
regulations and judicial and administrative interpretations applicable to
the Offering.
b) Subscription for Shares. Subscriptions for, and purchases of,
Shares shall occur by execution and delivery by a subscriber (the
"Subscriber") of two copies of a Stock Purchase Agreement in the form
provided by the Company (the "Purchase Agreement"), together with payment
for such Shares and such other documents and instruments as the Company or
the Placement Manager shall deem appropriate. The Company may reject any
subscription in its sole discretion.
(c) Payment of Funds. Each Subscriber shall tender a check or money
order payable to "Network Event Theater, Inc.", or wire transfer funds, in
payment of the full purchase price of the Shares subscribed for to the
Company.
(d) Closing; Termination of Offering. The Offering will terminate on
January 15, 1998, unless it is extended by mutual agreement of the Company
and the Placement Manager. Any closing of the sale of Shares under the
Offering is hereinafter referred to as a "Closing". The Placement Manager
will use its best efforts to complete the initial Closing of the Offering
(the "Initial Closing") prior to December 31, 1997. After the Initial
Closing, the Offering may continua until the Placement Manager has
received and the Company has accepted Subscription Agreements for the
Maximum Offering or until January 15, 1998 or until the offering is
terminated by mutual consent of the parties hereto. The date on which the
Initial Closing occurs is hereinafter called the "Initial Closing Date",
the date on which a subsequent Closing occurs is hereinafter called an
"Additional Closing Date", and the date on which the last Closing occurs
shall be referred to herein as the "Final Closing Date." Each of the
Initial Closing Date and each Additional Closing Date is sometimes
hereinafter referred to generally as a "Closing Date". The Company shall
deliver to each Subscriber within two trading days of a Closing Date, the
certificates representing the Shares being purchased by such Subscribers.
If on or before January 15, 1998 the Company has not accepted any Purchase
Agreements pursuant to the Offering, the Offering shall be terminated. In
the event of such termination of the Offering, all terms of this Agreement
shall be automatically terminated
-2-
<PAGE>
and neither Party shall have any further obligation to the other Party
under this Agreement other than the Company's obligation to pay expenses
as set forth herein.
4. Compensation of Placement Manager. As compensation for its services
rendered as Placement Manager under this Agreement, the Placement Manager or its
designees shall receive the following:
(a) A sales commission (the "Sales Commission"), which will be
payable in shares of Common Stock valued at the Sales Price, equal to 10%
of the Gross Proceeds (as hereinafter defined) of the Offering, except
that the Placement Manager shall receive a Sales Commission on any sale of
Shares to Warburg Pincus and its affiliates or to Far West Capital only to
the extent that the gross proceeds of the sale of Shares to such persons
exceeds $2 million. "Gross Proceeds" is defined as the total price paid by
the Subscribers for the Shares. Shares of Common Stock payable as the
Placement Manager's commission (the "Commission Shares"), all be issued
within two trading days after each Closing. The Placement Manager
acknowledges that the Commission Shares will be "restricted securities"
within the meaning of Rule 144 under the Securities Act and agrees that
certificates evidencing such shares of Common Stock may bear an
appropriate restrictive legend until such shares of Common Stock are sold
pursuant to an effective registration statement under the Securities Act,
or until they may be resold without registration under Rule 144(k), or
until the Placement Manager or holder shall deliver to the Company an
opinion of counsel (which shall be reasonably acceptable to the Company
both as to form and counsel) that the appropriate Commission Shares may be
resold under the Securities Act in reliance upon a specified exemption
other than Rule 144(k).
(b) An accountable expense allowance not to exceed $10,000, payable
by deducting the accountable expense allowance from the Gross Proceeds.
Such accountable expense allowance may be paid, at the option of the
Placement Manager, in whole or in part, in Commission Shares in accordance
with the terms of Section 4(a).
(c) The Placement Manager and its designees shall have the same
rights of registration under the Securities Act, indemnification and
contribution, with respect to the Commission Shares, as a Purchaser of
Shares would have under the form of Registration Rights Agreement attached
as Exhibit B to this Agreement.
5. Representations and Warranties of the Company. The Company represents
and warrants to the Placement Manager as follows:
(a) Information Package. As of the date filed with the Securities &
Exchange Commission, the documents in the information package consisting
of the documents enumerated in paragraph (j)(i) herein (the "Information
Package"), did not contain any untrue statement of a material fact, or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in which
they were made, not misleading.
-3-
<PAGE>
(b) Organization and Existence. The Company is a corporation duly
organized and validly existing under the laws of Delaware, with full power
and authority, corporate and other, to own or lease and operate its
properties and to conduct its business as currently conducted and
described in the Information Package. The Company is duly qualified to do
business as a foreign corporation in each jurisdiction in which the nature
of the Company's business would require such qualification except where
the failure so to qualify would not have a material adverse effect on the
financial condition, results of operations, businesses, properties or
prospects of the Company.
(c) Governmental Authority. Except for such approvals as may be
required under applicable state securities laws in the United States
("Blue Sky laws"), no authorization, approval consent, order,
registration, license or permit of any court or governmental agency or
body is required for the valid authorization, issuance, sale and delivery
of the Shares or the Commission Shares (collectively, the "Securities"),
and the consummation by the Company of all the transactions contemplated
by this Agreement, the Purchase Agreements (the form of which is provided
in Exhibit A to this Agreement) and the Registration Rights Agreement (the
form of which is provided in Exhibit B to this Agreement) (collectively,
the "Agreements").
(d) Corporate Authorization. The Company has full power and
authority, corporate and other, to execute, deliver and perform the
Agreements and to consummate the transactions contemplated thereby. The
execution, delivery and performance of the Agreements by the Company, the
consummation by the Company of the transactions therein contemplated, and
the compliance by the Company with the terms of the Agreements have been
duly authorized by all necessary corporate action on the part of the
Company. The Agreements will be duly executed and delivered by the Company
and, assuming that they have been or will be duly authorized, executed and
delivered by the parties thereto other than the Company, the Agreements
will be valid and binding obligations of the Company enforceable against
it in accordance with their respective terms, except insofar as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the rights of
creditors generally and by the discretion of courts in granting equitable
remedies, and except that enforceability of the indemnification provisions
and the contribution provisions set forth herein may be limited by the
federal securities laws of the United States or state securities laws or
the public policy underlying such laws. The execution, delivery and
performance of the Agreements by the Company, the consummation by the
Company of the transactions therein contemplated, and the compliance by
the Company with the terms of the Agreements do not, and will not, with or
without the giving of notice or the lapse of time, or both, (i) result in
any violation of the Certificate of Incorporation and By-Laws of the
Company, (ii) result in a breach of or conflict with any of the terms or
provisions of, or constitute a default under, or result in the
modification or termination of, or result in the creation or imposition of
any material lien, security interest, charge or encumbrance upon any of
the properties or assets of the Company pursuant to, any indenture,
mortgage, note, contract, commitment or other agreement or instrument to
which the Company is a party or by which the Company or any of its
properties or assets are or may be bound or
-4-
<PAGE>
affected; (iii) violate any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any of its properties or
its business; or (iv) have any material adverse effect on any permit,
certification, registration, approval, consent, license or franchise
necessary for the Company to own or lease and operate any of its
properties and to conduct its business or the ability of t Company to make
use thereof.
(e) Capitalization. All the outstanding shares of Common Stock have
been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in the Information Package, there are
no outstanding securities convertible into Common Stock ("Convertible
Securities") or any options, warrants or other rights to purchase any
shares of Common Stock or Convertible Securities (collectively, the
"Options") except that the Company has reserved (a) 400,000 shares of
Common Stock for issuance upon exercise of outstanding options under the
Company's 1996 stock option plans at per share exercise prices ranging
from $3.00 to $5.00 and having a weighted average exercise price of $4.05
per share, (b) 450,000 shares of Common Stock for issuance upon exercise
of options available for future grant under the Company's 1997 stock
option plans (no options having yet been granted under that plan), (c)
552,560 shares of Common Stock 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 of Common Stock 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 of Common Stock
for issuance upon exercise of outstanding warrants at a per share exercise
price of $5.00, (1) 230,000 shares of Common Stock for issuance upon
exercise of outstanding Warrants issued to Whale Securities Co., L.P. at a
per share exercise price of $8.25, (g) 230,000 shares of Common Stock
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, and (h) 150,000 shares of Common Stock for issuance upon
exercise of outstanding warrants issued to Whale Securities Co., L.P., at
a per share exercise price of $4.50 and (i) 500,000 shares of Common Stock
(400,000 of which are contingent) for issuance upon exercise of
outstanding warrants issued to an affiliate of the Placement Manager. The
Company is currently negotiating a transaction that could result in the
issuance of additional Shares. All such outstanding Options constitute the
valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except insofar as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the rights of creditors
generally, and by the discretion of courts in granting equitable remedies.
None of the outstanding shares of Common Stock or Options have been issued
in violation of the preemptive rights of any securityholder of the
Company, and none of the holders of the outstanding shares of Common Stock
or Options is subject to personal liability solely by reason of being such
a holder. The offer and sales of the outstanding shares of Common Stock
and Options were at all relevant times either registered under the
Securities Act and the applicable Blue Sky laws or exempt from such
registration requirements, and were in full compliance with the laws of
Delaware.
-5-
<PAGE>
(f) Authorization of Securities. The issuance and sale of the Shares
and the Commission Shares have been duly authorized, and when they are
issued and paid for as contemplated by the Agreements, will be validly
issued, and all of the shares of Common Stock which are among the
Securities will be fully paid and nonassessable, and the holders thereof
will not be subject to personal liability solely by reason of being such
holders. The Securities will not be subject to preemptive rights of any
securityholder of the Company.
(g) No Anti-Dilution Adjustment. The issuance of the Shares and the
Commission Shares will not result in any adjustment in the number of
shares of Common Stock, or the exercise price or conversion ratio per
share, under any of the Company's outstanding Options.
(h) Violations and Defaults. The Company is not in violation of, or
in default under, any term or provision of (i) its Certificate of
Incorporation and By-Laws, (ii) any indenture, mortgage, contract,
commitment or other agreement or instrument to which it is a party or by
which it or any of its properties or business is or may be bound or
subject, except for such defaults, if any, that would not have a material
adverse effect on the condition (financial or otherwise), earnings,
business affairs or business prospects of the Company, or (iii) any
existing applicable law, rule, regulation, judgment, order or decree of
any governmental agency or court, having jurisdiction over the Company or
of any of its respective properties or businesses. The Company owns,
possesses or has obtained all governmental and other licenses, permits,
certifications, registrations, approvals or consents and other
authorizations necessary to own or lease, as the case may be, and to
operate its properties and to conduct its business as currently conducted
and described in the Information Package, and all such licenses, permits,
certifications, registrations, approvals, consents and other
authorizations are outstanding and in good standing. There are no
proceedings pending or, to the best of the Company's knowledge,
threatened, nor is there any basis therefor, seeking to cancel, terminate
or limit such licenses, permits, certifications, registrations, approvals
or consents or authorizations.
(i) Litigation. Except as set forth in the Information Package,
there are no claims, actions, suits, proceedings, arbitrations,
investigations or inquiries before any governmental agency, court or
tribunal, or before any private arbitration tribunal, pending or, to the
best of the Company's knowledge, threatened against the Company or
involving the properties or business of the Company which, if determined
adversely to the Company, would, individually or in the aggregate, result
in any material adverse change in the financial position, shareholders'
equity, results of operations, properties, business, management or
prospects of the Company, or which relate in any way to the validity of
the capital stock of the Company or the validity of the Agreements, or of
any action taken or to be taken by the Company pursuant to, or in
connection with, the Agreements nor, to the best of the Company's
knowledge, is there any basis for any such claim, action, suit,
proceeding, arbitration, investigation or inquiry. There are no
outstanding orders, judgments or decrees of any court, governmental agency
or other tribunal specifically naming the Company and enjoining the
Company from taking, or requiring the Company
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to take, any action, or to which the Company or its properties or business
is bound or subject.
(j) Additional Information. The Company his filed in a timely manner
all documents that the Company was required to file under the Securities
Exchange Act of 934 (the "Exchange Act") during the 12 months preceding
the date of this Agreement. The following documents complied in all
material respect with the requirements of the Exchange Act as of their
respective filing dates, and the information contained therein was true
and correct in all material respects as of the date of such documents, and
each of the following documents as of the date thereof did not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading:
(i) The Company's Annual Report on Form 10-KSB for the fiscal
year ended June 30, 1997, Form 10-QSB for the period ended September
30, 1997, its Proxy Statement dated October 23, 1997; and its
preliminary prospectus dated November 10, 1997; and
(ii) all other documents, if any, filed by the Company with
the Commission since the filing of the Quarterly Report on Form
10-QSB for the fiscal quarter ended September 30, 1997, pursuant to
the reporting requirements of the Exchange Act.
(k) Financial Statements. Ernst & Young LLP the accountants who
have rendered an audited report with respect to certain of the audited
financial statements included in the Information Package, are independent
public accountants within the meaning of the Securities Act and
regulations promulgated under the Securities Act (the "Regulations"). The
financial statements and notes thereto included in the Information Package
present fairly the financial position of the Company as of the dates
thereof and the results of operations and changes in financial position of
the Company for the periods indicated therein, all in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved.
(l) Liabilities. Except as and to the extent reflected or reserved
against in the financial statements of the Company included in the
Information Package, the Company as at September 30, 1997, had no material
liabilities, debts, obligations or claims asserted against it, whether
accrued, absolute, contingent or otherwise, and whether due or to become
due, including, but not limited to, liabilities on account of taxes, other
governmental charges or lawsuits brought subsequent to such date.
(m) Taxes. The Company has filed all tax returns required to be
filed with the appropriate taxing authorities, including all federal,
state, municipal and other local authorities (whether relating to income,
sales, franchise, withholding or real or personal property taxes, or other
types of taxes) or hag duly obtained extensions of time for the
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filing thereof, and has paid in full all taxes which have become due
pursuant to such returns or claimed to be due by any such taxing authority
or otherwise due and owing; and the provisions for income taxes payable,
if any, shown on the consolidated financial statements contained in the
Information Package are sufficient for all accrued and unpaid taxes,
whether or not disputed, and for all periods to and including the dates of
such consolidated financial statements. The Company believes that each of
the tax returns heretofore filed by the Company correctly and accurately
reflects the amount of its tax liability thereunder. The Company has
withheld, collected and paid all other levies, assessments, license fees
and taxes to the extent required and, with respect to payments, to the
extent that the same have become due and payable. Except as disclosed in
writing to the Placement Manager, the Company has not executed or filed
with any taxing authority, any agreement extending the period for
assessment or collection of any income taxes and is not a party to any
pending action or proceeding by any foreign or domestic governmental
agency for assessment or collection of taxes, and no claims for assessment
or collection of taxes have been asserted against the Company.
(n) Conduct of Business. Since the respective dates as of which
information is given in the Information Package, the Company has not (i)
canceled, without payment in full, any notes, or other obligations
receivable or other debts or claims held by it other than in the ordinary
course of business; (ii) sold, assigned, transferred, abandoned,
mortgaged, pledged or subjected to lien any of its properties, tangible or
intangible, or rights under any contract, permit, license, franchise or
other agreement other than sales or other dispositions of goods or
services in the ordinary course of business at customary terms and prices
(but financing transactions are presently being negotiated that will
require the pledge of assets of the Company and its subsidiaries); (iii)
increased the compensation payable to any of its officers, directors or
other employees (including salaries, fringe benefits, pensions, profit
participation and payments or benefits of any kind whatsoever); (iv)
entered into any line of business other than that conducted by it on due
date or entered into any transaction not in the ordinary course of its
business; (v) conducted any line of business in any manner except by
transactions customary in the operation of its business as conducted on
such date; or (vi) declared, made or paid or set aside for payment any
cash or non-cash distribution on any shares of its capital stock.
(o) Properties. The Company has good and marketable title in fee
simple to all real property, and good title to all personal property
(tangible and intangible), owned by it, free and clear of all security
interests, charges, mortgages, liens, encumbrances and defects, except
such as are described in the Information Package or such as do not
materially affect the value or transferability of such property and do not
interfere with the use of such property made or proposed to be made by the
Company, but as noted in paragraph (n), this will change as a result of
financing transactions currently being negotiated. The leases, licenses or
other contracts or instruments under which the Company leases, holds or is
entitled to use any property, real or personal, are valid, subsisting and
enforceable only with such exceptions as are not material and do not
interfere with the use of such property made or proposed to be made, by
the Company, and all rentals, royalties or other payments accruing
thereunder which became due prior to the
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date of this Agreement have been duly paid, and neither the Company nor,
to the best of the Company's knowledge, any other party is in default
thereunder and, to the best of the Company's knowledge, no event has
occurred which, with the passage of time or the giving of notice, or both,
would constitute a default thereunder. The Company has not received notice
of any violation of any applicable law, ordinance, regulation, order or
requirement relating to its owned or leased properties.
(p) Insurance. The Company has adequately insured its properties
against loss or damage by fire or other casualty and maintains, in
adequate amounts, such other insurance, including but not limited to,
liability insurance, as is usually maintained by companies engaged in the
businesses similar to the Company's businesses.
(q) Contracts. Except as described in the Information Package: (i)
each contract or other instrument (however characterized or described) to
which the Company is a party, or to which its properties or businesses are
or may be subject, has been duly and validly executed, is in full force
and effect in all material respects and is enforceable against the parties
thereto in accordance with its terms, and none of such contracts or
instruments has been assigned by the Company, except to subsidiaries of
the Company; (ii) to the best of the Company's knowledge, no party to any
such contract or instrument other than the Company is in default
thereunder; and (iii) to the best of the Company's knowledge, no event has
occurred which, with the lapse of time or the giving of notice, or both,
would constitute such a default thereunder. None of the material
provisions of such contracts or instruments violates any existing
applicable law, rule, regulation, judgment/order or decree of any
governmental agency or court having jurisdiction over the Company or any
of its assets or businesses.
(r) Benefit Plans. Except for the Company's 1996 Stock Option Plan
and 1997 Stock Plan, (the "Stock Plans") and the Company's 401(k) Plan
and various employee health, life and disability insurance plans as
disclosed in the Information Package, the Company has no employee benefit
plan (including, without limitation, profit sharing and welfare benefit
plans) or deferred compensation arrangements.
(s) Contributions. The Company has not, directly or indirectly, at
any time made any contributions to any candidate for political office In
the United States, or failed to disclose fully any such contribution in
violation of law. The Company's internal accounting controls and
procedures are sufficient to comply in all material respects with Section
l3(b)(2) of the United States Securities Exchange Act of 1934, as amended
(the "Exchange Act").
(t) Reg D Qualification. Subject to the warranties and covenants of
the Placement Manager in Sections 7(a) and (b) of this Agreement, the
offer and sale of the Shares by the Company on each Closing Date will have
satisfied all of the requirements of Rule 506 of Reg D, and the Company is
not disqualified from any exemption wider Reg D by virtue of Rule 507.
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<PAGE>
(u) Finder's Fee. The Company has not incurred any liability for,
and is unaware of any claim for, any finder's or broker's fees or similar
payments in connection with the Offering. This paragraph does not apply
with respect to Shares offered or sold to Warburg Pincus and its
affiliates and Far West Capital.
(v) Intangibles. The Company owns or possesses adequate rights to
use all patents, patent applications, trademarks, service marks,
copyrights, rights, trade secrets, confidential information, processes and
formulations used or proposed to be used in the conduct of its business as
currently conducted and described in the Information Package
(collectively, the "Intangibles"). To the best of the Company's knowledge,
the Company has not infringed upon, and is not infringed upon, the rights
of others with respect to the Intangibles, and the Company has not
received (i) any notice that it has or may have infringed or is infringing
upon the rights of others with respect to the Intangibles, or (ii) any
notice of conflict with the asserted rights of others with respect to the
Intangibles which could, singly or in the aggregate, materially and
adversely affect its business as presently conducted or its prospects,
financial condition or results of operations, and the Company does not
know of any basis therefor. To the best of the Company's knowledge, no
others have infringed upon the Intangibles.
(w) Labor Relations. No general labor problem exists with the
Company's employees or, to its knowledge, is imminent.
(x) No Adverse Change. Since September 30, 1997, except as otherwise
stated in the Information Package, the Company has not (i) incurred any
material liability or obligation, direct or contingent (other than a
subordination agreement with Signet Bank), or entered into any material
transaction, whether or not in the ordinary course of business, or
sustained any material loss or interference with its business from fire,
storm, explosion, flood or other casualty, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, and (ii) there have not been any changes in the capital
stock or any material increases in the long-term debt of the Company or
any material adverse change in or affecting the general affairs,
management, financial condition, shareholders' equity, results of
operations or prospects of the Company, otherwise than as set forth or
contemplated in the Information Package or in this Agreement.
(y) Listing. The Company shall use its best efforts to comply with
all requirements of the National Association of Securities Dealers, Inc.
(the "NASD") with respect to the issuance of the Shares and the issuance
of the Shares on the Nasdaq SmallCap Market.
(z) Registration Rights. The registration rights provided in Exhibit
B to this Agreement are not inconsistent with, and will in no way be
limited by, registration rights previously granted by the Company to its
securityholders.
In addition, any certificate signed by an officer of the Company and
delivered to the Placement Manager, or to counsel for the Placement Manager,
shall be deemed to be a
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representation and warranty by the Company to the Placement Manager as to the
matters covered thereby.
6. Covenants of the Company.
(a) Information Package. The Company will furnish the Placement
Manager, without charge, during he Offering with as many copies of the
Information Package as the Placement Manager may reasonably request. If
during the Offering period any event occurs as the result of which the
Information Package, as then amended or supplemented, would include an
untrue statement of a material fact, or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances in which they were made, not misleading, or if it shall be
necessary to amend or supplement the Information Package to comply with
applicable law, the Company will forthwith notify the Placement Manager
thereof and furnish to the Placement Manager, in such quantities as the
Placement Manager may reasonably request, an amendment or supplement to
the Information Package which corrects such statements or omissions or
causes the Information Package to comply with applicable law. Without the
prior written consent of the Placement Manager, no copies of the
Information Package or any other material prepared by the Company in
connection with the Offering will be given by the Company or its counsel,
or by any employee, director or agent of the Company, to any person not a
party to this Agreement, unless such person is a director, Employee or
principal shareholder of the Company.
(b) Additional Information. The Company has provided and shall
provide the Placement Manager with such other information, documents and
instruments as may be required for an offer made solely to accredited
investors or QIB's under Section 3(b), 4(2) or 4(6) of the Securities Act
and Rule 144A and Reg D thereunder.
(c) State Securities Qualification. The Company will provide its
counsel with all information which such counsel determines to be necessary
and otherwise cooperate with such counsel, to permit such counsel to take
all necessary or appropriate action under the Blue Sky laws of the states
of the United States in which the Placement Manager determines, in
consultation with Company management, that offers or sales will be made.
The Company will promptly advise the Placement Manager:
(i) Of any order, request or suggestion by a securities
regulator of any state for any filed materials, or for additional
information; and
(ii) Of any action by a securities regulator of any state
suspending the registration or qualification of the Securities for
offer or sale in such state or denying an exemption from such
registration or qualification, or of the initiation or threat of any
proceeding for such purpose, and the Company will use its best
efforts to prevent such action, or if such action shall be taken, to
obtain the withdrawal thereof at the earliest practicable date.
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The Company will provide the Placement Manager any additional information,
documents and instruments necessary to comply with the rules, regulations
and judicial and administrative interpretations in those states and
jurisdictions where the Shares are to be offered for sale or sold. The
Company will file all post-Offering forms, documents or materials and take
all other post-Offering actions required by the Blue Sky laws of the
states in which the Shares have been offered or sold.
(d) Use of Proceeds. The Company will use the net proceeds of the
Offering for corporate purposes, including working capital.
(e) Restriction on Issuance of Securities. During the period
commencing on the date hereof and terminating on the final Closing Date or
(if no Closing occurs) on the termination date of the Offering, the
Company will not, without the prior written consent of the Placement
Manager, issue shares of equity securities, other than Shares and
Commision Shares, or issue or grant Options other than shares of Common
Stock issuable pursuant to currently outstanding convertible securities,
or Stock Plans, and further, the Company shall not, for a period of nine
months following the Final Closing Date, or, if no Closing occurs, the
termination date of the Offering, without the consent of the Placement
Manager, sell shares of Common Stock (other than pursuant to options,
warrants or other rights, outstanding as of the date of this Agreement) at
a price per share less than the lesser of (i) the Sales Price, or (ii) the
30-day average closing price on the date proceeding such sale as quoted by
Nasdaq; provided, however, that the Company may enter into and consummate
an arrangement pursuant to which Sirrom Capital Corporation will convert a
note of the Company held by it into shares of Common Stock and extend a
loan in the principal amount of approximately $1 million to a subsidiary
of the Company (which may be guaranteed by the Company and secured by a
pledge of the equity of such subsidiary) (the "Sirrom Arrangement").
(f) Investment Banking Activity. Until January 15, 1998, the Company
will not seek, accept or consider any offer or proposal, other than from
the Placement Manager, relating to any corporate finance or investment
banking activity involving the sale of the Company's shares.
(g) Registration Rights. The Company will register the Shares and
the Commission Shares under the Securities Act for the public resale
thereof in the United States in accordance with and will be bound by the
provisions of, Exhibit B of this Agreement.
7. Representations, Warranties and Covenants of the Placement Manager. The
Placement Manager represents, warrants and covenants that (a) it is registered
broker/dealer under the Securities Exchange Act of 1934, (b) it will comply in
all respects with the terms and conditions of Rule 506 of Reg D and applicable
Blue Sky laws with respect to the offering and the sale of the shares only to
"accredited investors" or "QIB's", and not by any form of general solicitation
or general advertising, and (c) it will not make offers or sales of the Shares
in any
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other jurisdiction in which the Shares have not been qualified or registered for
offer and sale, or are not exempt from such qualification or registration.
8(a). Conditions to Placement Manager Obligations. The sale of Shares and
the other obligations of the Placement Manager hereunder on any Closing Date
will he subject to the performance by the Company of all its obligations
hereunder and to the following additional condition:
(i) Representations and Warranties Accurate. The representations and
warranties of the Company set forth in Section 5 of this Agreement shall
be in all material respects true and in full force and effect as of such
Closing Date, provided, however, that (A) if the Company prior to the
losing Date enters into a secured term loan facility with First Union Bank
in the principal amount of approximately $4 million (the "First Union
Facility") then the representations and warranties of the Company set
forth in Section 5 of this Agreement shall be deemed to include such
exceptions to subsections (n), (o) and (x) of Section 5 as shall be
appropriate to reflect the terms of such facility; and (B) if the Company
prior to the Closing Date enters into the Sirrom Arrangement, then the
representations and warranties of the Company set forth in Section 5 of
this Agreement shall be deemed to include such exceptions to subsections
(e), (o) and (x) of Section 5 as shall be appropriate to reflect the terms
of the Sirrom Arrangement. The Company shall not have any liability to
Sunrise or to any prospective purchaser of shares if any of the conditions
in Section 8(a) is not satisfied or as a result of the occurrence of any
event or circumstance after the date of this agreement that results in any
of the representations and warranties of the Company not being true as of
any date subsequent to the date of this agreement.
(ii) Absence of Government Action. No order suspending the offer or
sale of the Securities will have been issued by the Commission or any
other governmental authority, and no proceeding for that purpose will have
been initiated or threatened;
(iii) No Material Misstatements. The Placement Manager will not have
notified the Company that any Blue Sky law filing, the Information Package
or any amendment or supplement thereto contains an untrue statement of a
fact which in the Placement Manager's opinion is material, or omits to
state a fact which in its opinion is material and is required to be stated
therein or is necessary to make the statements therein not misleading;
(iv) President Certificate. The Company will have delivered to the
Placement Manager a certificate of the Company's CEO or President, dated
as of such Closing Date, to the effect that all the representations and
warranties of the Company set forth in Section 5 of this Agreement are
true and in all material respects as of such Closing Date; provided,
however, that (A) if the Company prior to the Closing Date enter into the
First Union Facility, then such certificate
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may include such exceptions to subsection (n), (o) and (x) of Section 5 as
shall be appropriate to reflect the terms of such facility; and (B) if the
Company prior to the Closing Date enters into the Sirrom Agreement, then
such certificate may include such exceptions to subsections (e), (n) and
(x) of Section 5 as shall be appropriate to reflect the terms of the
Sirrom Arrangement.
(v) Opinion of Counsel. The Placement Manager will have received
from Proskauer Rose LLP, counsel to the Company, a signed opinion, dated
as of such Closing Date, substantially in the form agreed to by the
parties hereto;
(vi) Compliance with Agreement. The Company will have complied with
all agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date;
(vii) Corporate Action. The Company will have taken all necessary
corporate action, including, without limitation obtaining the approval of
the Company's board of directors for the execution and delivery of this
Agreement, the performance by the Company of its obligations hereunder and
the commencement of the offering contemplated hereby;
(viii) Agreement of Harlan Peltz. The Placement Manager shall have
received an enforceable agreement executed by Harlan Peltz, stating that
without the written consent of the Placement Manager he will not sell any
securities of the Company for a period of eighteen months from the
Effective Date of the Registration Statement covering the resale of the
Shares and the Commission Shares.
(ix) Agreement of Nathan Low. The Company shall have received an
enforceable agreement executed by Nathan Low, stating that without the
written consent of the Company he will not sell any securities of the
Company acquired by him in connection with the proposed private placement
for a period of nine months from the Effective Date of the Registration
Statement covering the resale of the Shares and the Commission Shares.
(b) Conditions of the Company's Obligations. The obligations of the
Company hereunder on any Closing Date will be subject to the accuracy of the
representations and warranties of the Placement Manager contained herein as of
the date hereof and as of such Closing Date, to the performance by the Placement
Manager of its obligations hereunder and to the following additional conditions:
(i) Absence of Government Action. No order suspending the offer or
sale of the Shares and Commission Shares will have been issued by the
Commission or any other governmental authority, and no proceeding for that
purpose will have been initiated or threatened; and
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(ii) No Material Misstatements. The Company will not have notified
the Placement Manager that any Blue Sky law filing, the Information
Package or any supplement thereto contains an untrue statement of a fact
which in the Company's opinion is material, or omits to state a fact which
in its opinion is material and is required to be stated therein or is
necessary to make the statements therein not misleading, in each case only
with respect to information contained therein concerning the Placement
Manager.
9. Expenses of Sale. In addition to those items referred to in Sections 4
hereof, the Company will pay or cause to be paid all costs and expenses incident
to the Offering, whether or not it is consummated, including, without
limitation, all taxes, if any, payable as a result of the issuance of the Shares
and Commission Shares and the fees, disbursements and expenses of (a) the
Company's counsel and accountants, (b) the preparation, printing or other
reproduction and the mailing of the Information Package and other documents (all
in such quantities as the Placement Manager may require), and (c) all required
Blue Sky law filings as provided in Section 6(c), including, but not limited to,
the fees, expenses and disbursements, if any, of the Placement Manager's counsel
in connection with such filings.
10. Indemnification and Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless the Placement Manager and each person, if any, who
controls the Placement Manager within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several
(including any reasonable investigation, legal or other expenses incurred
in connection with, and any amount paid in settlement of, any action, suit
or proceeding or any claim asserted) to which the Placement Manager or any
such controlling person may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in
the Information Package and SEC Filings, or (B) in any Blue Sky law filing
to the extent such statement was based on information furnished by the
Company, or (ii) the omission or alleged omission to state in the
Information Package, the SEC Filings or in any Blue Sky law filing a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; and will reimburse the Placement Manager and
each such controlling person for any legal or other expenses reasonably
incurred by the Placement Manager or such controlling person in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided that the Company will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in the Information Package in reliance upon and
in conformity with written information furnished to the Company by the
Placement Manager specifically for use in the Information Package.
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(b) Indemnification by the Placement Manager. The Placement Manager
agrees to indemnify and hold harmless the Company and each person, if any,
who controls the Company within the meaning of the Securities Act against
any losses, claims, damages or liabilities, joint or several, to which the
Company or such controlling person may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of a material fact
contained (A) in the Information Package, or (B) in any Blue Sky filing to
the extent such statement relates solely to the Placement Manager, or (ii)
the omission or alleged omission to state a material fact required to be
stated in the Information Package or (to the extent such omission was of a
material fact relating solely to the Placement Manager) in any Blue Sky
law filing, or necessary in order to make the statement therein, in the
light of the circumstances under which they were made, not misleading;
provided that the Placement Manager will be liable in any such case based
on the Information Package only to the extent that such untrue statement
or alleged untrue statement or omission or alleged omission in the
Information Package was made in reliance upon and in conformity with
written information furnish to the Company by the Placement Manager
specifically for use in the Information Package.
(c) Procedure. Promptly after receipt by an indemnified party under
this Section 10 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 10, notify in writing
the indemnifying party of the commencement thereof; and the omission to
notify the indemnifying party will relieve it from any liability under
this Section 10 as to the particular item for which indemnification is
then being sought, but not from any other liability which it may have to
any indemnified party. In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may wish, jointly with any
other indemnifying party, similarly notified, to assume the defense
thereof, with counsel who shall be to the reasonable satisfaction of such
indemnifying party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 10 for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided that if, in the reasonable
judgment of the indemnified party, it is advisable for the indemnified
party to be represented by separate counsel, the indemnified party shall
have the to employ a single counsel in each jurisdiction to represent the
indemnified parties who may be subject to liability arising out of any
clause in respect of which indemnity may be sought by the indemnified
parties thereof against the indemnifying party, in which event the fees
and expenses of such separate counsel shall be borne by the indemnifying
party. Any such indemnifying party shall not be liable to any such
indemnified party on account of any settlement of any claim or action
effected without the consent of such indemnifying party, which consent
shall not be unreasonably withheld.
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<PAGE>
(d) Contribution. If the indemnification provided for in this
Section 10 is unavailable to any indemnified party in respect to any
losses, claims, damages, liabilities or expenses referred to therein, then
the indemnifying party, in lieu of indemnifying such indemnifying party,
will contribute to the amount paid or payable by such indemnified party,
as a result of such losses, claims, damages, liabilities or expenses (i)
in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand, and the Placement Manager on the
other hand, from the Offering, or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative result of the Company on the one
hand, and of the Placement Manager on the other hand, in connection with
the statements or omissions which resulted in such losses, claims,
damages, liabilities or expenses as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand, and the Placement Manager on the other hand, shall be deemed to be
in the same proportion as the total proceeds from the Offering (before
deducting expenses) received by the Company, bear to the initial value of
the Sales Commission and Commission Shares as established pursuant to
paragraphs 4(a) and 4(b) of this Agreement. The relative fault of the
Company on the one hand, and the Placement Manager on the other hand, will
be determined with reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company, and its
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount payable by a
party as a result of the losses, claims, damages, liabilities or expenses
referred to above will be deemed to include any reasonable legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The Company and the
Placement Manager agree that it would not be just and equitable if
contribution pursuant to this Section 10 were determined by pro rata
allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in this paragraph 10(d).
11. Representations and Covenants to Survive Delivery. All representation,
warranties and covenants of the Company and of the Placement Manager herein will
survive the delivery and execution hereof and shall remain operative and in full
force and effect until after the Final Closing, regardless of any investigation
made by or on behalf of the Placement Manager or any person who controls the
Placement Manager within the meaning of the Securities Act, or by the Company or
any person who controls the Company within the meaning of the Securities Act.
12. Termination by Placement Manager. The Placement Manager will have the
to terminate this Agreement by giving written notice as herein specified, at any
time:
(a) If the Company shall have failed, refused, or been unable to
perform any of its obligations hereunder;
(b) If any other condition of the Placement Manager's obligations
hereunder is not fulfilled, or
-17-
<PAGE>
(c) If there has occurred an event materially or adversely affecting
the value of the Shares.
If the Placement Manager elects to terminate this Agreement pursuant to
this Section 12, the Company will be notified promptly in accordance with
Section 13 hereof. If this Agreement is terminated prior to a Final Closing, as
provided in Section 4(b), the Company will reimburse the Placement Manager for
up to $10,000 of the out-of-pocket disbursements (including fees and
disbursements of the Placement Manager's counsel) actually incurred by the
Placement Manager in connection with the Offering. In the event of termination
pursuant to this Section 12, Section 6(e) shall be null and void.
Notwithstanding the foregoing, nothing contained in this Section 12 shall
imply that the Placement Manager has undertaken any commitment to sell the
Shares other than to use its best efforts.
13. Termination by the Company. The Company may, at any time during the
Offering, terminate this Agreement, provided, however, that if the Company
terminates the Offering prior to its termination by the Placement Manager in
accordance with the terms of Section 14 of this Agreement and prior to January
15, 1998, and, within six months after termination by the Company in accordance
with the terms of this Section 13, the Company sells, offers for sale or enters
into an agreement with a third party for the sale or offer for sale of any
equity securities of the Company (the "Actions"), the Company shall pay the
Placement Manager 10% of the Gross Proceeds of the sale resulting from the
Actions. Notwithstanding the foregoing, the restrictions of this Section 13
shall not apply to any issuances of equity securities of the Company in
conjunction with any joint venture, strategic corporate alliance or similar
arrangement that the Company may undertake, or to any issuances of equity
securities by the Company in connection with any Stock Plans or warrants
currently outstanding or contemplated.
14. Notices. Any notice hereunder shall be in writing and shall be
effective when delivered in person or by facsimile transmission, or seven
business days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, to the appropriate party or parties, at the
following addresses: if to the Placement Manager, to Sunrise Securities Corp.,
135 East 57th Street, 11th Floor, New York, New York 10022 (facsimile
212-421-5924), Attention: Mr. Nathan Low, President, with a copy to Carter,
Ledyard & Milburm, 2 Wall Street, New York, New York 10005, Attention: Steven J.
Glusband, Esq. (facsimile 212-732-3232); if to the Company, to Network Event
Theater, Inc., 529 Fifth Avenue, New York, New York 10017, Attention: Chairman
(facsimile 212-779-9190), with a copy to Proskauer Rose LLP, 1583 Broadway, New
York, New York 10036, (facsimile 212-969-2900) Attention: Bertram A. Abrams
(Facsimile 212-969-2900); or, in each case, to such other address as the parties
may hereinafter designate by like notice.
15. Parties. This Agreement will inure to the benefit of and be binding
upon the Placement Manager, the Company and their respective successors and
assigns. This Agreement (including, but not limited to, the representations and
warranties) is intended to be, and is for the sole and exclusive benefit of the
Parties hereto and the other indemnified parties described in
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<PAGE>
subsections 10(a) and 10(b) hereof, and their respective successors and assigns,
and for the benefit of no other person, and no other person will have any legal
or equitable, remedy or claim under, or in respect of this Agreement. No
purchaser of any of the Shares will be construed as successor or assign merely
by reason of such purchase.
16. Amendment and/or Modification. Neither this Agreement, nor any term or
provision hereof, may be changed, waived, discharged, amended, modified or
terminated or in any manner other than by an instrument in writing signed by
each of the Parties hereto.
17. Further Assurances. Each Party to this Agreement will perform any and
all acts and execute any and all documents as may be necessary and proper under
the circumstances in order to accomplish the intent and purposes of this
Agreement and to carry out its provisions.
18. Validity. In case any term of this Agreement will be held invalid,
illegal or unenforceable, in whole or in part, the validity of any of the other
term of this Agreement will not in any way be affected thereby.
19. Waiver of Breach. The failure of any Party hereto to insist upon
strict performance of any of the covenants and agreements herein contained, or
to exercise any option or herein conferred in any one or more instances, will
not be construed to be a waiver or relinquishment of any such option or, or of
any other covenants or agreements, and the same will be and remain in full force
and effect.
20. Entire Agreement. This Agreement contains the entire agreement and
understanding of the Parties with respect to the entire subject matter hereof,
and there are no representations, inducements, promises or agreements, oral or
otherwise, not embodied herein. Any and all prior discussions, negotiations,
commitments and understanding relating thereto, including without limitation,
that certain letter of intent dated May 14, 1997, between the Company and the
Placement Manager, are superseded hereby. There are no conditions precedent to
the effectiveness of this Agreement other than as stated herein, and there are
no related collateral agreements existing between the Parties that are not
referred to herein.
21. Counterparts. This Agreement may be executed in counterparts and each
of such counterparts will for all purposes be deemed to be an original, and such
counterparts will together constitute one and the same instrument.
22. Law. This Agreement will be deemed to have been made and delivered in
New York City and will be governed as to validity, interpretation, construction,
effect and in all other respects by the internal laws of the State of New York.
The Company (a) agrees that any legal suit, action or proceeding arising out of
or relating to this letter will be instituted exclusively in the Supreme Court
of the State of New York, County of New York, or in the United States District
Court for the Southern District of New York, (b) waives any objection which the
Company may have now or hereafter to the venue of any such suit, action or
proceeding, and (c) irrevocably consents to the jurisdiction of the Supreme
Court of the State of New York, County of New York, and the United States
District Court for the Southern District of New York in any
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<PAGE>
such suit, action or proceeding.
If the foregoing correctly sets forth our understanding, please so
indicate in the space provided below for that purpose, whereupon this letter
will constitute a binding agreement between us.
NETWORK EVENT THEATER, INC.
By: /s/ HARLAN D. PELTZ
----------------------------------
Name: HARLAN D. PELTZ
Title: Chairman and CEO
CONFIRMED AND ACCEPTED:
SUNRISE SECURITIES CORP.
By: /s/ NATHAN LOW
--------------------------------
Name: NATHAN LOW
Title: President
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EXHIBIT 10.17
NETWORK EVENT THEATER, INC.
STOCK PURCHASE AGREEMENT
January ____, 1998
<PAGE>
Network Event Theater, Inc.
STOCK PURCHASE AGREEMENT
January , 1998
The parties to this agreement are ________________________ ("Purchaser"),
and Network Event Theater, Inc., a Delaware corporation (the "Company").
The Company desires to sell to Purchaser shares of the Company's Common
Stock, par value $.01 per share ("Shares"), and Purchaser desires 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 Purchaser, and Purchaser shall
purchase, an aggregate of ________ Shares, at a price of $4.50 per Share (the
"Purchase Price").
1.2 Closing. The closing shall take place on January __, 1998 at the
offices of the Company, 529 Fifth Avenue, New York, N.Y. 10017 or at such other
time and such place as the Company and Purchaser mutually agree. The date of the
closing is referred to in this agreement as the "Closing Date". At the closing,
Purchaser shall deliver to the Company, by check or by wire transfer of
immediately available funds, the Purchase Price of the Shares purchased by
Purchaser and the Company shall deliver to Purchaser certificates for those
Shares duly registered in Purchaser's name.
2. Representations and Warranties of the Company.
The Company represents and warrants to 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 10,285,720 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) 400,000 Shares for issuance upon
exercise of outstanding options under the Company's 1996 stock option plan at
per share exercise prices ranging from $3 to $5 and having a weighted average
exercise price of $4.05
<PAGE>
per share, (b) 450,000 Shares for issuance upon exercise of options available
for future grant under the Company's 1997 stock option plan (no options having
yet been granted under that 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) 2,633,000 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, (g) 230,000 Shares 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, (h) 150,000 Shares for issuance upon
exercise of outstanding warrants issued to Whale Securities Co., L.P. and its
designee at a per share exercise price of $4.50, and (i) 500,000 Shares (400,000
of which are contingent) for issuance upon exercise of outstanding warrants
issued to Sunrise Securities Corp. The Company is currently negotiating
transactions that could result in the issuance of additional Shares. 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. 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 a registration rights
agreement dated June 24, 1997, the registration rights agreement referred to in
section 4.5 (the "Registration Rights Agreement"), the NET Portfolio Investors
Agreement dated December 21, 1995, and registration rights agreements covering
shares which have previously 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,
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
<PAGE>
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 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 Purchaser with a copy of
its Quarterly Report on Form 10-QSB for the fiscal quarter ended September 30,
1997, its Annual Report on Form 10-KSB for the fiscal year ended June 30, 1997,
and its proxy statement dated October 23, 1997 (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 Company has
filed all reports, registrations statements and other documents required to be
filed by it under applicable federal and state securities laws.
2.7 Changes in Condition. Since September 30, 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. The Company is presently negotiating financing
transactions that are expected to result in a secured borrowing by a subsidiary
guaranteed by the Company and a separate secured borrowing by the Company; it is
contemplated that those transactions will be concluded prior to January 15,
1998.
2.8 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.
2.9 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.
2.10 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
3
<PAGE>
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 Purchaser. Purchaser represents
and warrants to the Company that:
3.1 Authorization. All action on the part of 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 Purchaser enforceable against it in accordance with
their terms.
3.2 Absence of Defaults. The execution and delivery of this
agreement by Purchaser and the performance of all obligations of 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) if Purchaser is not a natural person, any provision of Purchaser's
charter documents; (ii) any material contract, obligation or commitment to which
Purchaser is a party or by which it is bound; or (iii) any statute, rule or
governmental regulation or order applicable to Purchaser.
4. Securities Act Matters.
4.1 Purchase for Investment. This agreement is made with each
Purchaser in reliance upon Purchaser's representation to the Company, which by
Purchaser's execution of this agreement Purchaser hereby confirms, that the
Shares to be purchased by Purchaser will be acquired for investment for
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, 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. Purchaser acknowledges that it understands that the
offering and sale of the Shares to Purchaser pursuant to this agreement will not
be registered under the Securities Act on the ground 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
Purchaser's representations set forth in this agreement. The Company represents
that it has not engaged in any "general solicitation" (as that term is used in
Regulation D under the Securities Act) in connection with the sale of the Shares
to Purchaser.
4.3 Additional Securities Act Representations. 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
4
<PAGE>
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. Accordingly, Purchaser
represents that (a) it is a natural person who had individual income in excess
of $200,000 in each of the last two years or joint income with his or her spouse
in excess of $300,000 in each of the last two years and reasonably expects to
reach that same income level for the current year; (b) is a natural person whose
individual net worth, or joint net worth with his or her spouse, is in excess of
$1,000,000; (c) is a corporation or partnership, not formed for the specific
purpose of acquiring the Shares, that has total assets in excess of $5,000,000;
(d) is a trust, with total assets in excess of $5,000,000, that was not formed
for the specific purpose of acquiring the Shares and whose purchase is directed
by a person who has such knowledge and experience in financial and business
matters that such person is capable of evaluating the merits and risks of the
prospective investment; or (e) is an entity in which all of the equity owners
meet the requirements of at least one of the above subparagraphs (A) and (B).
For this purpose, (x) "individual income" means adjusted gross income, as
reported for federal income tax purposes, less any income attributable to a
spouse or to property owned by a spouse, increased by the individual's share
(and not a spouse's share) of: (1) the amount of any tax exempt interest income
received, (2) the amount of losses claimed as a limited partner in a
partnership, (3) amounts contributed to an IRA or Keough retirement plan, (4)
alimony paid, and (5) the excluded portion of any long-term capital gains, and
(y) "net worth" means the excess of total assets at fair market value, including
home and personal property, over total liabilities, provided that for the
purpose of determining net worth, the principal residence owned by an individual
shall be valued either at cost, including the cost of improvements, net of
current encumbrances upon the property, or on the basis of a written appraisal
used by an institutional lender making a loan secured by the property.
4.4 Legends. The certificates for the Shares sold to Purchaser 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 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 Purchaser
shall execute and deliver the Registration Rights Agreement in the form attached
as exhibit 4.5 to this agreement, which provides for registration under the
Securities Act of the Shares to be issued to Purchaser pursuant to this
agreement.
5. Conditions to Purchaser' Obligations. The obligations of Purchaser
to purchase Shares under Section 1 of this agreement is subject to the
fulfillment at or before the closing of each of the following conditions (any of
which may be waived in writing by Purchaser):
5
<PAGE>
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 shall have executed
and delivered the Registration Rights Agreement.
5.4 Opinion of Counsel. There shall have been delivered to Purchaser
an opinion of counsel to the Company in substantially the form of Exhibit 5.4.
5.5 Due Diligence. Each of Purchaser and its 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 Purchaser.
6. Conditions to Company's Obligations. The obligations of the Company
to issue and sell Shares to Purchaser 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 Purchaser contained in section 3 and 4 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.
6.2 Performance of Obligations. Purchaser 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 Purchaser.
7. Additional Agreements of the Company. The Company further agrees as
follows:
7.1 Information Provided to Stockholders. The Company shall provide
Purchaser, for so long as 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.
6
<PAGE>
7.3 Publicity. The Company shall not use or make reference to the
name of Purchaser or any of its affiliates in any press release or other
document without Purchaser's prior approval unless the use or reference to
Purchaser is required by law, in which event the Company will consult with
Purchaser prior to such publication; provided, however, that no approval of or
consultation with Purchaser 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.
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 Purchaser, 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 the Company of the Company's representations, warranties, or covenants made
to Purchaser in this agreement.
8.3 Indemnification By Purchaser. Subject to section 8.4, after the
closing 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 Purchaser of the representations, warranties, or covenants made by
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
7
<PAGE>
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 Sunrise Securities Corp. and shall be solely
responsible for its fees.
9.2 Expenses. The Company and Purchaser 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 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) addressed to the
Company at 529 Fifth Avenue, New York, N.Y. 10017, 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) addressed to
Purchaser at its address set forth below.
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 Rights
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.
8
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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
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.
Purchaser:
Network Event Theater, Inc. ______________________________
By:__________________________ By:___________________________
Harlan Peltz Name:
Chairman of the Board and Title:
Chief Executive Officer
Address of Purchaser:_________________
_________________
9
LOAN AGREEMENT
First Union National Bank
50 Main Street
White Plains, NY 10606
(Hereinafter referred to as the "Bank")
American Passage Media, Inc.,
Beyond The Wall, Inc. and
Campus Voice, Inc.
c/o Network Event Theater, Inc.
529 Fifth Avenue, 7th Floor
New York, NY 10017-4608
(Individually and collectively "Borrower")
This Loan Agreement ("Agreement") is entered into the 30th day of December,
1997, by and between Bank and Borrower, each a corporation organized and
existing under the laws of the State of Delaware.
Borrower has applied to Bank for a loan or loans (individually and collectively,
the "Loan") evidenced by one or more promissory notes (whether one or more, the
"Note") as follows:
Term Loan - in the principal amount of $4,000,000 which is evidenced by a
promissory note dated December 30, 1997 (the "Term Promissory Note"). The Loan
proceeds are to be used solely for the purpose of first paying in full existing
indebtedness of American Passage Media, Inc. in the principal sum of $3,875,000
at September 30, 1997, and then to provide working capital to the Borrower.
Line of Credit - in the maximum principal amount of $1,000,000 which is
evidenced by a promissory note dated December 30, 1997 (the "Line of Credit
Note"), under which Borrower may borrow, repay and reborrow, from time to time,
so long as the total indebtedness at any one time does not exceed the lesser of
(i) $1,000,000 or (ii) the Maximum Principal Amount (as hereinafter defined).
The Loan proceeds are to be used by the Borrower solely for working capital
purposes. Bank's obligation to advance or readvance under the Line of Credit
Note shall terminate if Borrower is in Default under the Line of Credit Note or
the Term Promissory Note, a default in the payment of the Obligations occurs or
the Borrower is in Default (as defined in the Loan Documents) under any Loan
Document, or in any event, on June 30, 1999, unless renewed or extended by Bank
in writing upon such terms then satisfactory to the Bank.
This Agreement applies to the Loan and all Loan Documents. The terms "Loan
Documents" and "Obligations," as used in this Agreement, are defined in the
Note. The term "Borrower" shall include its Subsidiaries. As used in this
Agreement as to Borrower, "Subsidiary" shall mean any corporation of which more
than 50% of the issued and outstanding voting stock is owned directly or
indirectly by Borrower. As to Borrower, "Affiliate" shall have the meaning as
defined in 11 U.S.C. ss. 101, except that the term "debtor" therein shall be
substituted by the term "Borrower" herein. "NET" means Network Event Theater,
Inc. and "Guarantor" means NET and National Campus Media, Inc.
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Relying upon the covenants, agreements, representations and warranties contained
in this Agreement, Bank is willing to extend credit to Borrower upon the terms
and subject to the conditions set forth herein, and Bank and Borrower agree as
follows:
REPRESENTATIONS. Borrower and Guarantor represent or covenant that from the date
of this Agreement and until final payment in full of the Obligations: Accurate
Information. All information now and hereafter furnished to Bank, with respect
to the Borrower and the Guarantor is and will be true, correct and complete in
all material respects. Any such information relating to Borrower's and
Guarantor's financial condition will fairly present Borrower's and Guarantor's
financial condition as of the date(s) thereof, (including all present material
contingent liabilities of every type), and Borrower and Guarantor each further
represent that its financial condition has not changed materially or adversely
since the date(s) of such documents to the date hereof and, as to the loan
evidenced by the Line of Credit Note, the date of each borrowing hereunder.
Authorization; Non-Contravention. The execution, delivery and performance by
Borrower and any guarantor, as applicable, of this Agreement and other Loan
Documents to which it is a party are within its power, have been duly authorized
by all necessary action taken by the duly authorized officers of Borrower and
any guarantors and, if necessary, by making appropriate filings with any
governmental agency or unit and are the legal, binding, valid and enforceable
obligations of Borrower and any guarantors; and do not (i) contravene, or
constitute (with or without the giving of notice or lapse of time or both) a
violation of any provision of applicable law, a violation of the organizational
documents of Borrower or any guarantor, or a default under any agreement,
judgment, injunction, order, decree or other instrument binding upon or
effecting Borrower or any guarantor1 (ii) result in the creation or imposition
of any lien (other then the lien(s) created by the Loan Documents) on any of
Borrower's or guarantor's assets, or (iii) give cause for the acceleration of
any obligations of Borrower or any guarantor to any other creditor. Asset
Ownership. Borrower and Guarantor each has good and marketable title to all of
the properties and assets reflected on the balance sheets and financial
statements supplied Bank by Borrower, and all such properties and assets are
free and clear of mortgages, security deeds, pledges, liens, charges, and all
other encumbrances, except as otherwise disclosed to Bank by Borrower in writing
("Permitted Liens"). To Borrower's knowledge, no default has occurred under any
Permitted Liens and no claims or interests adverse to Borrower's present rights
in its properties and assets have arisen. Discharge of Liens and Taxes. Borrower
has duly filed, paid and/or discharged all taxes or other claims which may
become a lien on any of its property or assets, except to the extent that such
items are being appropriately contested in good faith and an adequate reserve
for the payment thereof is being maintained. Sufficiency of Capital. Borrower is
not, and after consummation of this Agreement and after giving effect to all
indebtedness incurred and liens created by Borrower in connection with the Loan,
will not be, insolvent within the meaning of 11 U.S.C. ss. 101(32). Compliance
with Laws. Borrower is in compliance in all material respects with all federal,
state and local laws, rules and regulations applicable to its properties,
operations, business, and finances, including, without limitation, any federal
or state laws relating to liquor (including 18 U.S.C. ss. 3617, et seq.) or
narcotics (including 21 U.S.C. ss. 801, et seq.) and/or any commercial crimes;
all applicable federal, state and local laws and regulations intended to protect
the environment; and the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), if applicable, Organization and Authority. Each corporate or
limited liability company Borrower and any guarantor, as applicable, is duly
created, validly existing and in good standing under the laws of the state of
its organization, and has all powers, governmental licenses, authorizations,
consents and approvals required to operate its business as now conducted. Each
corporate or limited liability company Borrower and any guarantor, if any, is
duly qualified, licensed and in good standing in each jurisdiction where
qualification or licensing is required by the nature of its business or the
character and location of its property, business or customers, and in which the
failure to so qualify or be licensed, as the case may be, in the aggregate,
could have a material adverse eftect on the business, financial position,
results of operations, properties or prospects of Borrower or any such
guarantor. No
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Litigation. There are no pending or threatened suits, claims or demands against
Borrower or any guarantor that have not been disclosed to Bank by Borrower in
writing.
AFFIRMATIVE COVENANTS. Borrower and Guarantor agree that from the date of this
Agreement and until final payment in full of the Obligations, unless Bank shall
otherwise consent in writing, Borrower and Guarantor will: Business Continuity.
Conduct its business in substantially the same manner as such business is now
and has previously been conducted. Maintain Properties. Maintain, preserve and
keep its property in good repair, working order and condition, making all needed
replacements, additions and improvements thereto, to the extent allowed by this
Agreement. Access to Books & Records. Allow Bank, or its agents, during normal
business hours, upon reasonable notice, access to the books, records and such
other documents of Borrower and Guarantor as Bank shall reasonably require, and
allow Bank to make copies thereof at Bank's expense. Insurance. Maintain
adequate insurance coverage with respect to its properties and business against
loss or damage of the kinds and in the amounts customarily insured against by
companies of established reputation engaged in the same or similar businesses
including, without limitation, commercial general liability insurance, workers
compensation insurance, and business interruption insurance; all acquired in
such amounts and from such companies as Bank may reasonably require. Notice of
Default and Other Notices. (a) Notice of Default. Furnish to Bank immediately
upon becoming aware of the existence of any condition or event which constitutes
a Default (as defined in the Loan Documents) or any event which, upon the giving
of notice or lapse of time or both, may become a Default, written notice
specifying the nature and period of existence thereof and the action which
Borrower and/or Guarantor is taking or proposes to take with respect thereto.
(b) Other Notices. Notices. Promptly notify Bank in writing of (i) any material
adverse change in its financial condition or its business; (ii) any material
default under any material agreement, contract or other instrument to which it
is a party or by which any of its properties are bound, or any acceleration of
the maturity of any indebtedness owing by Borrower; (iii) any material adverse
claim against or affecting Borrower or any part of its properties; (iv) the
commencement of, and any material determination in, any litigation with any
third party or any proceeding before any governmental agency or unit affecting
Borrower; and (v) at least 30 days prior thereto, any change in Borrower's or
Guarantor's name or address as shown above, and/or any change in Borrower's
structure. Compliance with Other Agreements. Comply with all terms and
conditions contained in this Agreement, and any other Loan Documents, and swap
agreements, if applicable, as defined in the Note. Payrment of Debts. Pay and
discharge when due, and before subject to penalty or further charge, and
otherwise satisfy before maturity or delinquency, all obligations, debts, taxes,
and liabilities of whatever nature or amount, except those which Borrower in
good faith disputes. Reports and Proxies. Deliver to Bank, promptly, a copy of
all financial statements, reports, notices, and proxy statements, sent by
Borrower or Guarantor to stockholders, and all regular or periodic reports
required to be filed by Borrower or Guarantor with any governmental agency or
authority. Other Financial Information. Deliver promptly such other information
regarding the operation, business affairs, and financial condition of Borrower
or Guarantor which Bank may reasonably request. Non-Default Certificate From
Borrower. Deliver to Bank, with the Financial Statements required herein, a
certificate signed by Borrower or Guarantor, if Borrower or Guarantor is an
individual, or by a principal financial officer of Borrower or Guarantor
warranting that no "Default" as specified in the Loan Documents nor any event
which, upon the giving of notice or lapse of time or both would constitute such
a Default, has occurred. Estoppel Certificate. Furnish, within 15 days after
request by Bank, a written statement duly acknowledged of the amount due under
the Loan and whether offsets or defenses exist against the Obligations. Maintaln
Account: At Bank. Maintain their primary depository account and cash management
account at Bank, but may maintain their Payroll account at Chase Manhattan Bank.
NEGATIVE COVENANTS. Borrower and Guarantor agree that from the date of this
Agreement and until final payment in full of the Obligations, unless Bank shall
otherwise consent in writing, Borrower and Guarantor will not: Nonpayment;
Nonperformance. Fail to pay or perform the Obligations or Default
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(as defined in Loan Documents under any of the Loan Documents. Cross Default.
Default in payment of performance of any material obligation under any other
loans, or any other material contracts or agreements of Borrower or Guarantor,
any Subsidiary or Affiliate of Borrower or Guarantor ("Affiliate" shall have the
meaning as defined in 11 U.S.C. ss. 1101, except that the term debtor therein
shall be substituted by the term "Borrower or Guarantor" herein; "Subsidiary"
shell mean any corporation of which more then 50% of the issued and outstanding
voting stock is owned directly or indirectly by Borrower or Guarantor), any
general partner of or the holder(s) of the majority ownership interests of
Borrower or Guarantor with Bank or its affiliates; Material Capital Structure or
Business Alteration. Materially alter the type or kind of Borrower's or
Guarantor's business or that of its Subsidiaries, provided, however Guarantor
may make acquisitions of other businesses or assets; or suffer or permit the
acquisition of substantially all of Borrower's or Guarantor's business or
assets, or a material portion (10% or more) of such business or assets if such a
sale is outside Borrower's ordinary course of business, or more than 50% of its
outstanding stock or voting power in a single transaction or a series of
transactions; or enter into any merger or consolidation in which Borrower,
Guarantor or a Subsidiary is not the survivor or which would cause or result in
a Default hereunder, without prior written consent of Bank. Default on Other
Contracts or Obligations. Default on any material contract with or obligation
when due to a third party or default in the performance of any obligation to a
third party incurred for money borrowed. Judgment Entered. Permit the entry of
any monetary judgment or the assessment against, the filing of any tax lien
against, or the issuance of any writ of garnishment or attachment against any
property of or debts due Borrower or Guarantor and that is not discharged or
execution is not stayed within Thirty (30) days of entry. Government
Intervention. Permit the assertion or making of any seizure, vesting or
intervention by or under authority of any government by which the management of
Borrower or any guarantor is displaced of its authority in the conduct of its
respective business or such business is curtailed or materially impaired.
Prepayment of Other Debt. Retire any long-term debt entered into prior to the
date of this Agreement at a date in advance of its legal obligation to do so.
Retire or Repurchase Capital Stock. Retire or otherwise acquire any of its
capital stock. Create Additional Indebtedness. Directly or indirectly, create,
incur, assume or become liable for any additional indebtedness for borrowed
money, for the deferred purchase price of property or services, in respect of
any capitalized loan obligation or in respect of any other financing or credit
transaction, whether contingent or direct, excluding trade debt incurred in the
ordinary course of business and excluding the $1,000,000 term credit facility
provided to Pik:Nik Media, Inc. by Sirrom. Loans and Advances. Make loans or
advances, except in the ordinary course of business for travel and expenses
advances, to any person or entity. Change of Control. Except in the case of NET,
make a material change of ownership that effectively changes control of
Borrower. Change in Fiscal Year. Change their fiscal year without the prior
written consent of Bank. Investments. In the case of Borrower only, purchase any
stock, securities, or evidence of indebtedness of any person or entity except
investments in direct obligations of the United States Government and
certificates of deposit of United States commercial bunks having a tier 1
capital ratio of not less then 6%, and, then in an amount not exceeding 10% of
the issuing bank's unimpaired capital and surplus. Guarantees. Guarantee or
otherwise become responsible for obligations of any other person or entity,
other then the existing guarantee of Guarantor of Pik:Nik, Inc.'s $1,000,000
obligation to Sirrom. Encumbrances. Create, assume or permit to exist any
mortgage, security deed, deed of trust, pledge, lien, charge or other
encumbrance on any of their assets, whether now owned or hereafter acquired
other then the following liens ("Permitted Liens"): (i) security interests
permitted by the Loan Documents; (ii) liens for taxes contested in good faith;
(iii) liens accruing by law for employee benefits and (iv) the lien granted by
NET to Sirrom in the amount of $1,000,000. Distributions to Guarantor. Make any
excess cash distributions by Borrower to NET if any Default shall exist or would
occur from making such distribution and only after first paying to Bank the
additional principal payment required under the Term Promissory Note from Excess
Cash Flow.
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FINANCIAL COVENANTS OF BORROWER. Borrower, on a combined basis, agrees to the
following provisions from the date of this Agreement and until final payment in
full of the Obligations, unless Bank shall otherwise consent in writing: Current
Ratio. Borrower shall maintain a Current Ratio of not less than 1.25 to 1.00, to
be tested on a semi-annual basis commencing on June 30, 1998. "Current Ratio"
shall mean the ratio of current assets to current liabilities. "Current Assets"
shall mean the sum of cash and cash equivalents, short-term investments, trade
accounts receivable (net of any allowance for bad debt), inventory and prepaid
expenses (including prepaid advertising costs), deposits and other current
assets. Effective Tangible Net Worth. Borrower shall, at fiscal year end June
30. 1998, maintain an Effective Tangible Net Worth of at least $100,000, to be
tested on a semi-annual basis commencing on June 30, 1998. At the end of each
fiscal year thereafter, Effective Tangible Net Worth shall increase by not less
than 25% of the net income earned in that corresponding fiscal year. At the end
of the first six months in each fiscal year, Effective Tangible Net Worth shall
be no less than it was at the preceding fiscal year end. "Effective Tangible Net
Worth" shall mean total assets minus total liabilities. For purposes of this
computation, the aggregate amount of any intangible assets of Borrower,
including, without limitation, goodwill, franchise, licenses, patents,
trademarks, trade names, copyrights, service marks and brand names shall be
subtracted from total assets, and total liabilities shall exclude debt
subordinated to Bank. Debt Service Coverage Ratio. Borrower shall maintain a
Debt Service Coverage Ratio of at least 2.00 to 1.00, calculated semi-annually
on a rolling four-quarter basis, commencing June 30, 1998. "Debt Service
Coverage Ratio" shall mean earnings before interest, taxes, depreciation and
amortization divided by the sum of interest expense and current maturities of
long term debt. Senior Funded Debt To Cash Row Ratio. Borrower shall maintain a
ratio of Senior Debt to Cash Row of not more than 1.50 to 1.00. "Senior Funded
Debt To Cash Row" shall mean the sum of all Senior Funded Debt divided by the
sum of earnings before interest, taxes, depreciation and amortization,
calculated semi-annually on a rolling four-quarter basis. "Senior Funded Debt"
shall mean, as applied to any person or entity, the sum of all indebtedness for
borrowed money including, without limitation, capital lease obligations and
unreimbursed drawings under letters of credit, as evidenced by a note, bond,
indenture or similar instrument of that person or entity, excluding any debt
subordinated to Bank.
FINANCIAL COVENANTS OF GUARANTOR. NET agrees to the following provisions from
the date of this Agreement and until final payment in full of the Obligations,
unless Bank shall otherwise consent in writing: Current Ratio. NET and its
Subsidiaries shall, at all times, maintain on a consolidated basis a Current
Ratio of not less then 1.25 to 1.00. "Current Ratio" shall mean the ratio of
current assets to current liabilities. "Current Assets" shall mean the sum of
cash and cash equivalents, short-term investments, trade accounts receivable
(net of any allowance for bad debt), inventory and prepaid expenses (including
prepaid advertising costs) deposits and other current assets. Tangible Net
Worth. NET and its Subsidiaries shall, at fiscal year end June 30, 1998,
maintain on a consolidated basis a Tangible Net Worth of at least $1,000,000. At
the end of each fiscal year thereafter, Tangible Net Worth shall increase by not
less then 25% of the net income earned in that corresponding fiscal year. At the
end of the first six months in each fiscal year, Tangible Net Worth shall be no
less than it was at the preceding fiscal year end. "Tangible Net Worth" shall
mean total assets minus total liabilities. For purposes of this computation, the
aggregate amount of any intangible assets of Guarantor or its Subsidiaries,
including. without limitation, goodwill, franchise, licenses, patents,
trademarks, trade names, copyrights, service marks and brand names, shall be
subtracted from total assets, and total liabilities shall exclude debt fully
subordinated to Bank.
ANNUAL FINANCIAL STATEMENTS. NET shall deliver to Bank, within 120 days after
the close of each fiscal year, audited financial statements of NET and its
subsidiaries reflecting its consolidated operations during such fiscal year,
including, without limitation, a balance sheet, profit and loss statement and
statement of cash flows, with supporting schedules; all on a consolidated and
consolidating (which may be unaudited) basis with the exception of the cash flow
statement which may be prepared on a
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consolidated basis only. Such statements shall be in reasonable detail and
prepared in conformity with generally accepted accounting principles, applied on
a basis consistent with that of the preceding year. All such statements, shall
be examined by an independent certified public accountant acceptable to Bank. In
addition to these statements, Guarantor shall also provide to Bank, management
prepared statements combining the operations of the three Borrowers. These
statements shall include a balance sheet, profit and loss statement and
statement of cash flow, and shall be delivered simultaneously with the above
annual statements,
PERIODIC FINANCIAL STATEMENTS. NET shall deliver to Bank unaudited
management-prepared quarterly financial statements of NET and its Subsidiaries,
including, without limitation, a balance sheet, profit and loss statement and
statement of cash flows, with supporting schedules, as soon as available and in
any event within 45 days after the close of each such period; all in reasonable
detail and prepared in conformity with generally accepted accounting principles,
applied on a basis consistent with that of the preceding year. Such statements
shall be Prepared on a consolidated and consolidating basis, with the exception
of the statement of cash flow which shall be prepared on a consolidated basis
only. Such statement. shall be certified as to their correctness by a principal
financial officer of Guarantor and in each case, if audited statements are
required, subject to audit and year-end adjustment. In addition to these,
Guarantor shall also provide to Bank, management prepared statements combining
the operations of the three Borrowers. These statement shall include a balance
sheet and profit and loss statement, and shall be delivered simultaneously with
the above quarterly statements.
TAX RETURNS. Borrower and Guarantor shall deliver to Bank, within 30 days of
filing, complete copies of federal tax returns and New York, California and
Washington state tax returns, as applicable, together with all schedules
thereto, each of which shall be signed and certified by the applicable Borrower
or Guarantor to be true, correct and complete copies of such returns. In the
event an extension is filed, Borrower and/or Guarantor shall also deliver a copy
of such extension to Bank within 30 days of filing.
ANNUAL PROJECTIONS. NET shall deliver to Bank, within 120 days after the close
of each fiscal year, management prepared projections reflecting its projected
operations for each of its fiscal year remaining under the Term Promissory Note,
including, without limitation, a profit and loss statement and forecast of cash
flows, with supporting assumptions, all on a consolidated and consolidating
basis.
REPORTS AND PROXIES. Borrower and Guarantor shall promptly deliver to Bank, a
copy of all financial statements, reports, notices and Proxy statements sent by
Guarantor to stockholders, and all regular or periodic reports required to be
filed with any governmental agency or authority.
NON-DEFAULT CERTIFICATE NET shall deliver to Bank, with the financial statements
required by this Agreement, a certificate signed by a principal financial
officer of Borrower and NET warranting that no Default, as defined in the Loan
Documents, nor any event which, upon giving of notice or lapse of time or both,
would constitute such a Default, has occurred.
CERTIFICATE OF FULL COMPLIANCE FROM ACCOUNTANT. NET shall deliver to Bank, with
the annual financial statements required herein, a certification by NET's
independent certified public accountant, in reviewing the audited financial
statements of NET they did not become aware of any Default under the Loan
Documents or event which with the giving of notice and/or the lapse of time
would become a Default.
FINANCIAL AND OTHER INFORMATION. Borrower and Guarantor shall deliver to Bank
such information as Bank may reasonably request from time to time, including
without limitation, financial state-
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ments and information pertaining to Borrower's and Guarantor's financial
condition. Such information, to the extent factual in nature, shall be true,
complete, and accurate in all material respects.
BORROWING BASE. As to the Line of Credit Note in the principal amount of
$1,000,000, the following provisions shall apply:
Borrowing Limitation. The maximum principal amount that Borrower may borrow
shall be the lesser of (i) the principal amount stated in the Line of Credit
Note or (ii) the Maximum Principal Amount, as defined below.
The Maximum Principal Amount shall mean an amount equal to 75% of Eligible
Accounts, excluding pre-billed receivables, less the amount of any Reserve
required by Bank.
"Eligible Account" refers to an account receivable not more than 90 days from
the date of the original invoice that arises in the ordinary course of
Borrower's business and meets the following eligibility requirements: (a) the
sale of goods or services reflected in such account is final and such goods and
services have been delivered or provided and accepted by the account debtor and
payment for such is owing; (b) the invoices comprising an account are not
subject to any claims, returns or disputes of any kind; (c) the account debtor
is not insolvent; (d) the account debtor has its principal place of business in
the United States; (e) the account debtor is not an affiliate of Borrower and is
not a supplier to Borrower and the account is not otherwise exposed to risk of
set-off; (f) not more then thirty percent of the original invoices owing
Borrower by the account debtor are more than ninety days from the date of the
original invoice.
"Reserves" may be required at any time and from time to time by Bank without
prior notice to Borrower in amounts deemed by Bank to be adequate to reserve
against outstanding letter of credit, outstanding bankers acceptances,
Borrower's obligations to Bank or its affiliates or any guaranties or other
contingent debt of Borrower.
Required Reports. Borrower shall certify to Bank, by the fifteenth day of each
month, as of the first day of each month, and (at the request of the Bank) with
each borrowing request as of a reasonably recent date, on forms required by Bank
certifying that the Borrower is in compliance with the borrowing base formula,
together with all detail and supporting documents requested by Bank. Bank may at
any time and from time to time, during Bank's normal business hours on
reasonable notice to Borrower, enter upon any business premises of Borrower and
audit Borrower's books and records. Bank's determination of the amount of
eligible Accounts shall at all times be indisputable and deemed correct. The
Borrower, at all times, shall cooperate with Bank without limitation by
providing Bank information and access to Borrower's premises and business
records and shall be courteous to Bank's agents.
Continuing Representations. Borrower warrants and represents as a continuing
warranty, that so long as principal is outstanding under the Line of Credit
Note, the outstanding principal balance shall not exceed the lesser of the
Maximum Principal Amount or the principal amount stated in the Line of Credit
Note (the "Borrowing Limit"). Borrower agrees to pay any advances in excess of
the Borrowing Limit immediately upon receipt by Borrower of written notice that
the Borrowing Unit has been exceeded.
AVAILABILITY FEE. Borrower shall pay to Bank, quarterly, in arrears on the last
day of each calendar quarter, an availability fee equal to 1/8% per annum on the
average daily unused available principal under the Line of Credit Note for the
preceding calendar quarter or portion thereof.
ERISA. Each employee pension benefit plan, as defined in ERISA, maintained by
Borrower and Guarantor meets, as of the date hereof, the minimum funding
standards of ERISA and all applicable
Page 7
<PAGE>
regulations thereto and requirements thereof, and of the Internal Revenue Code
of 1954, as amended. No "Prohibited Transaction" or "Reportable Event" (as both
terms are defined by ERISA) has occurred with respect to any such plan.
CONTROLLING LAW. This Agreement, the Note and the other Loan Documents executed
and delivered in connection herewith shall be governed by and construed in
accordance with the laws of the State of New York.
CONDITIONS PRECEDENT. The obligations of Bank to make the Loan and any advances
pursuant to this Agreement are subject to the following conditions precedent:
Additional Documents. Receipt by Bank of such additional supporting documents as
Bank or its counsel may reasonably request. Opinion of Counsel. On or prior to
the date of the initial borrowing hereunder, Bank shall have received a written
opinion of the counsel of Borrower acceptable to Bank that includes; subject to
customary limitations and exclusions, confirmation of the following: (a) The
accuracy of the representations set forth in this Agreement in the
Representations Subparagraphs entitled "Authorization; Non-Contravention"; and
"Organization and Authority". (b) This Agreement and other Loan Documents have
been duly executed and delivered by Borrower and constitute the legal, valid and
binding obligations of Borrower, enforceable in accordance with their terms. (c)
No registration with, consent of, approval of, or other action by, any federal,
state or other governmental authority or regulatory body to the execution and
delivery of this Agreement, the borrowing under this Agreement or other Loan
Documents, is required by law, or, if so required, such registration has been
made, and consent or approval given or such other appropriate action taken. (d)
The Loan is not usurious. (e) The Loan Documents create the security interest in
the Collateral (as defined in the Loan Documents) that is contemplated by the
Loan Documents.
IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written above,
have caused this Agreement to be executed under seal.
FIRST UNION NATIONAL BANK,
a national banking association
By PAUL T. SAVINO
-----------------------------------------
PAUL T. SAVINO, Senior Vice President
AMERICAN PASSAGE MEDIA, INC., a Delaware
corporation, Borrower
By BRUCE L. RESNIK
-----------------------------------------
BRUCE L. RESNIK,Executive Vice President
& Chief Financial Officer
TAXPAYER ID#
BEYOND THE WALL, INC., a Delaware
corporation, Borrower
By BRUCE L.RESNIK
-----------------------------------------
BRUCE L. RESNIK, Executive Vice President
& Chief Financial Officer
TAXPAYER ID#
Page 8
<PAGE>
CAMPUS VOICE, INC., a Delaware corporation,
Borrower
By BRUCE L. RESNIK
-----------------------------------------
BRUCE L. RESNIK,Executive Vice President
& Chief Financial Officer
TAXPAYER ID#
BY EXECUTING THIS AGREEMENT BELOW,
NETWORK EVENT THEATER, INC. AND
NATIONAL CAMPUS MEDIA, INC. (COLLECTIVELY
"GUARANTOR"), HAVE AGREED TO BE
BOUND BY THOSE PROVISIONS THEREIN
APPLICABLE TO GUARANTOR
NETWORK EVENT THEATER, INC.,
a Delaware corporation
By BRUCE L. RESNIK
----------------------------------------
BRUCE L. RESNIK,Executive Vice President
& Chief Financial Officer
NATIONAL CAMPUS MEDIA, INC.,
a Delaware corporation
By BRUCE L. RESNIK
- -------------------------------------------
BRUCE L. RESNIK,Executive Vice President
& Chief Financial Officer
Page 9
UNCONDITIONAL GUARANTY
December 30, 1997
American Passage Media, Inc.,
Beyond The Wall, Inc. and
Campus Voice, Inc.
c/o Network Event Theater, Inc.
529 Fifth Avenue, 7th Floor
New York, NY 10017-4608
(Individually and collectively "Borrower")
Network Event Theater, Inc. and
National Campus Media, Inc.
529 Fifth Avenue, 7th Floor
New York, NY 10017-4608
(Individually and collectively "Guarantor")
First Union National Bank
50 Main Street
White Plains, NY 10606
(Hereinafter referred to as "Bank")
To induce Bank to make, extend or renew loans, advances, credit, or other
financial accommodations to or for the benefit of Borrower, and in consideration
of loans, advances, credit, or other financial accommodations made, extended or
renewed to or for the benefit of Borrower, Guarantor hereby absolutely,
irrevocably and unconditionally guarantees to Bank and its successors, assigns
and affiliates the timely payment and performance of all liabilities and
obligations of Borrower to Bank and all renewals thereof, including without
limitation all principal, interest, charges, and costs and expenses incurred
thereunder (including reasonable attorneys' fees and other costs of collection
incurred, regardless of whether suit is commenced) (collectively, the
"Guaranteed Obligations").
Guarantor further covenants and agrees:
GUARANTOR'S LIABILITY. This Guaranty is a continuing and unconditional guaranty
of payment and performance and not of collection. The parties to this Guaranty
are jointly and severally obligated hereunder. This Guaranty does not impose any
obligation on Bank to extend or continue to extend credit or otherwise deal with
Borrower at any subsequent time. This Guaranty shall continue to be effective or
be reinstated, as the case may be, if at any time any payment of the Guaranteed
Obligations is rescinded, avoided or for any other reason must be returned by
Bank, and the returned payment shall remain payable as part of the Guaranteed
Obligations; all as though such payment had not been made. Except to the extent
the provisions of this Guaranty give the Bank additional rights, this Guaranty
shall not be deemed to supersede or replace any other guaranties given to Bank
by Guarantor; and the obligations guaranteed hereby shall be in addition to any
other obligations guaranteed by Guarantor pursuant to any other agreement of
guaranty given to Bank and other guaranties of the Guaranteed Obligations.
SECURITY. To secure this Guaranty the Guarantor has granted Bank a security
interest in certain collateral described in the Loan Documents, including, but
not limited to, personal property collateral described in that certain Security
Agreement and Pledge and Assignment Agreement, both of even date herewith.
Page 1
<PAGE>
TERMINATION OF GUARANTY. Guarantor may terminate this Guaranty by written
notice, delivered personally to or received by certified or registered United
States Mail by an authorized officer of the Bank at the address for notices
provided herein. Such termination shall be effective with respect to Guaranteed
Obligations arising more than 15 days after the date such written notice is
received by said Bank officer. Guarantor may not terminate this Guaranty as to
Guaranteed Obligations (including any subsequent extensions, modifications or
compromises of the Guaranteed Obligations) then existing, or to Guaranteed
Obligations arising subsequent to receipt by Bank of said notice if such
Guaranteed Obligations are a result of Bank's obligation to make advances
pursuant to a commitment entered into prior to expiration of the 15 day notice
period, or are a result of advances which are necessary for Bank to protect its
collateral or otherwise preserve its interests. Termination of this Guaranty by
any single Guarantor will not affect the existing and continuing obligations of
any other guarantor hereunder.
APPLICATION OF PAYMENTS, BANK LIEN AND SET-OFF. Monies received from any source
by Bank for application toward payment of the Guaranteed Obligations may be
applied to such Guaranteed Obligations in any manner or order deemed appropriate
by Bank. Except as prohibited by law, Guarantor grants Bank a security interest
in all of Guarantor's accounts maintained with Bank and any of its affiliates
(collectively, the "Accounts"). If a Default occurs, Bank is authorized to
exercise its right of set-off or to foreclose its lien against any obligation of
Bank to Guarantor including, without limitation, all Accounts or any other debt
of any maturity, without notice.
CONSENT TO MODIFICATIONS. Guarantor consents and agrees that Bank may from time
to time, in its sole discretion, without affecting, impairing, lessening or
releasing the obligations of the Guarantor hereunder: (a) extend or modify the
time, manner, place or terms of payment or performance and/or otherwise change
or modify the credit terms of the Guaranteed Obligations; (b) increase, renew,
or enter into a novation of the Guaranteed Obligations; (c) waive or consent to
the departure from terms of the Guaranteed Obligations; (d) permit any change in
the business or other dealings and relations of Borrower or any other guarantor
with Bank; (e) proceed against, exchange, release, realize upon, or otherwise
deal with in any manner any collateral that is or may be held by Bank in
connection with the Guaranteed Obligations or any liabilities or obligations of
Guarantor; and (f) proceed against, settle, release, or compromise with
Borrower, any insurance carrier, or any other person or entity liable as to any
part of the Guaranteed Obligations, and/or subordinate the payment of any part
of the Guaranteed Obligations to the payment of any other obligations, which may
at any time be due or owing to Bank; all in such manner and upon such terms as
Bank may deem appropriate, and without notice to or further consent from
Guarantor. No invalidity, irregularity, discharge or unenforceability of, or
action or omission by Bank relating to any part of, the Guaranteed Obligations
or any security therefor shall affect or impair this Guaranty.
WAIVERS AND ACKNOWLEDGMENTS. Guarantor waives and releases the following rights,
demands, and defenses Guarantor may have with respect to Bank and collection of
the Guaranteed Obligations: (a) promptness and diligence in collection of any of
the Guaranteed Obligations from Borrower or any other person liable thereon, and
in foreclosure of any security interest and sale of any property serving as
collateral for the Guaranteed Obligations; (b) any law or statute that requires
that Bank make demand upon, assert claims against, or Collect from Borrower or
other persons or entities, foreclose any security interest, sell collateral,
exhaust any remedies, or take any other action against Borrower or other persons
or entities prior to making demand upon, collecting from or taking action
against Guarantor with respect to the Guaranteed Obligations, including any such
rights Guarantor might otherwise have had under Va. Code ss. 49-25 and 49-26, et
seq. N.C.G.S. ss. 26-7, et seq. Tenn. Code Ann. ss. 47-12-101, O.C.G.A. ss.
10-7-24 (and any successor statute) and any other applicable law; (c) any law or
statute that requires that Borrower or any other person be joined in, notified
of or made part of any action against Guarantor; (d) that Bank preserve, insure
or perfect any security interest in collateral or sell or dispose of collateral
in a particular manner or at a particular time; (e) notice of extensions,
modifications, renewals, or novations of the Guaranteed Obligations, of any new
transactions or other relationships between Bank, Borrower and/or any guarantor,
and of changes in the
Page 2
<PAGE>
financial condition of, ownership of, or business structure of Borrower or any
other guarantor; (f) presentment, protest, notice of dishonor, notice of
default, demand for payment, notice of intention to accelerate maturity, notice
of acceleration of maturity, notice of sale, and all other notices of any kind
whatsoever; (g) the right to assert against Bank any defense (legal or
equitable), set-off, counterclaim, or claim that Guarantor may have at any time
against Borrower or any other party liable to Bank; (h) all defenses relating to
invalidity, insufficiency, unenforceability, enforcement, release or impairment
of Bank's lien on any collateral, of the Loan Documents, or of any other
guaranties held by Bank; (i) any claim or defense that acceleration of maturity
of the Guaranteed Obligations is stayed against Guarantor because of the stay of
assertion or of acceleration of claims against any other person or entity for
any reason including the bankruptcy or insolvency of that person or entity; and
(j) the benefit of any exemption claimed by Guarantor. Guarantor acknowledges
and represents that it has relied upon its own due diligence in making its own
independent appraisal of Borrower, Borrower's business affairs and financial
condition, and any collateral; Guarantor will continue to be responsible for
making its own independent appraisal of such matters; and Guarantor has not
relied upon and will not hereafter rely upon Bank for information regarding
Borrower or any collateral.
FINANCIAL CONDITION. Guarantor warrants, represents and covenants to Bank that
on and after the date hereof: (a) the fair saleable value of Guarantor's assets
exceeds its liabilities, Guarantor is meeting its current liabilities as they
mature, and Guarantor is and shall remain solvent; (b) all financial statements
of Guarantor furnished to Bank are correct in all material respects and fairly
present the financial condition of Guarantor as of the respective dates thereof;
(c) since the date of such financial statements, there has not occurred a
material adverse change in the financial condition of Guarantor; (d) there are
not now pending any court or administrative proceedings or undischarged
judgments against Guarantor, no federal or state tax liens have been filed or
threatened against Guarantor, and Guarantor is not in default or claimed default
in any material respect under any agreement; and (e) at such reasonable times as
Bank requests, Guarantor will furnish Bank with such other financial information
as Bank may reasonably request.
INTEREST. Regardless of any other provision of this Guaranty or other Loan
Documents, if for any reason the effective interest on any of the Guaranteed
Obligations should exceed the maximum lawful interest, the effective interest
shall be deemed reduced to and shall be such maximum lawful interest, and any
sums of interest which have been collected in excess of such maximum lawful
interest shall be applied as a credit against the unpaid principal balance of
the Guaranteed Obligations.
DEFAULT. If any of the following events occur, a default ("Default") under this
Guaranty shall exist: (a) Failure of timely payment or performance of the
Guaranteed Obligations or a Default under any Loan Document; (b) A breach of any
agreement or representation contained or referred to in the Guaranty, or any of
the Loan Documents, or contained in any other contract or agreement of Guarantor
with Bank or its affiliates, whether now existing or hereafter arising; (c) The
dissolution of, termination of existence of, loss of good standing status by,
appointment of a receiver for, assignment for the benefit of creditors of, or
the commencement of any insolvency or bankruptcy proceeding by or against,
Guarantor or any general partner of or the holder(s) of the majority ownership
interests of Guarantor; and/or (d) The entry of any monetary judgment or the
assessment against, the filing of any tax lien against, or the issuance of any
writ of garnishment or attachment against any property of or debts due Guarantor
in an amount which may have a materially adverse impact on the financial
condition of Guarantor and that is not discharged or execution is not stayed
within 30 days of entry.
If a Default occurs, not cured within 15 days of the Bank mailing written notice
to Guarantor or Borrower of such default, the Guaranteed Obligations shall be
due immediately and payable without notice. Guarantor shall pay interest on the
Guaranteed Obligations from such Default at the highest rate of interest charged
on any of the Guaranteed Obligations.
Page 3
<PAGE>
ATTORNEY'S FEES AND OTHER COSTS OF COLLECTION. Guarantor shall pay all of Bank's
reasonable expenses incurred to enforce or collect any of the Guaranteed
Obligations, including, without limitation, reasonable arbitration, paralegals',
attorneys' and experts' fees and expenses, whether incurred without the
commencement of a suit, in any suit, arbitration, or administrative proceeding,
or in any appellate or bankruptcy proceeding.
SUBORDINATION OF OTHER DEBTS. Guarantor agrees: (a) to subordinate the
obligations now or hereafter owed by Borrower to Guarantor ("Subordinated Debt")
to any and all obligations of Borrower to Bank now or hereafter existing while
this Guaranty is in effect, provided however that Guarantor may receive
regularly scheduled principal and interest payments on the Subordinated Debt so
long as (i) all sums due and payable by Borrower to Bank have been paid in full
on or prior to such date, and (ii) no event or condition which constitutes or
which with notice or the lapse or time would constitute an event of default with
respect to the Guaranteed Obligations, shall be continuing on or as of the
payment date; (b) Guarantor will place a legend indicating such subordination on
every note, ledger page or other document evidencing any part of the
Subordinated Debt; and (c) except as permitted by this paragraph, Guarantor will
not request or accept payment of or any security for any part of the
Subordinated Debt, and any proceeds of the Subordinated Debt paid to Guarantor,
through error or otherwise, shall immediately be forwarded to Bank by Guarantor,
properly endorsed to the order of Bank, to apply to the Guaranteed Obligations.
MISCELLANEOUS. (a) Assignment. This Guaranty and other Loan Documents shall
inure to the benefit of and be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Bank's interests in and
rights under this Guaranty and other Loan Documents are freely assignable, in
whole or in part, by Bank to an Affiliate of the Bank or any Federal Reserve
Bank or during the continuance of Default to any other person not a competitor
of Guarantor with the consent of Guarantor, not to be unreasonably withheld or
delayed. Any assignment shall not release Guarantor from the Guaranteed
Obligations. (b) Applicable Law; Conflict Between Documents. This Guaranty and
other Loan Documents shall be governed by and construed under the laws of the
state of New York without regard to that state's conflict of laws principles. If
the terms of this Guaranty should conflict with the terms of any commitment
letter that survives closing, the terms of this Guaranty shall control. (c)
Jurisdiction. Guarantor irrevocably agrees to non-exclusive personal
jurisdiction in the state named in Bank's address shown above. (d) Severability.
If any provision of this Guaranty or of the other Loan Documents shall be
prohibited or invalid under applicable law, such provision shall be ineffective
but only to the extent of such prohibition or invalidity, without invalidating
the remainder of such provision or the remaining provisions of this Guaranty or
other document. (e) Notices. Any notices to Guarantor shall be sufficiently
given, if in writing and mailed or delivered to the Guarantor's address shown
above or such other address as provided hereunder, and to Bank, if in writing
and mailed or delivered to Bank's office address shown above or such other
address as Bank may specify in writing from time to time. In the event that
Guarantor changes Guarantor's address at any time prior to the date the
Guaranteed Obligations are paid in full, Guarantor agrees to promptly give
written notice of said change of address by registered or certified mail, return
receipt requested, all charges prepaid. (f) Plural; Captions. All references in
the Loan Documents to borrower, guarantor, person, document or other nouns of
reference mean both the singular and plural form, as the case may be, and the
term "person" shall mean any individual, person or entity. The captions
contained in the Loan Documents are inserted for convenience only and shall not
affect the meaning or interpretation of the Loan Documents. (g) Binding
Contract. Guarantor by execution of and Bank by acceptance of this Guaranty
agree that each Party is bound to all terms and provisions of this Guaranty. (h)
Amendments, Waivers and Remedies. No Waivers, amendments or modifications of
this Guaranty and other Loan Documents shall be valid unless in writing and
signed by an officer of Bank. No waiver by Bank of any Default shall operate as
a waiver of any other Default or the same Default on a future occasion. Neither
the failure nor any delay on the part of Bank in exercising any right, power, or
privilege granted pursuant to this Guaranty and other Loan Documents shall
operate as a waiver thereof, nor shall a single or partial exercise thereof
preclude any other or further exercise or the exercise of any other right, power
or privilege. All
Page 4
<PAGE>
remedies available to Bank with respect to this Guaranty and other Loan
Documents and remedies available at law or in equity shall be cumulative and may
be pursued concurrently or successively. (i) partnerships. If Guarantor is a
partnership, the obligations, liabilities and agreements on the part of
Guarantor shall remain in full force and effect and fully applicable
notwithstanding any changes in the individuals comprising the partnership. The
term "Guarantor" includes any altered or successive partnerships, and
predecessor partnership(s) and the partners shall not be released from any
obligations or liabilities hereunder. (j) Loan Documents. The term "Loan
Documents" refers to all documents executed in connection with the Guaranteed
Obligations and may include, without limitation, commitment letters that survive
closing, loan agreements, other guaranty agreements, security agreements,
instruments, financing statements, mortgages, deeds of trust, deeds to secure
debt, letters of credit and any amendments or supplements (excluding swap
agreements as defined in 11 U.S. Code ss. 101).
FINANCIAL AND OTHER INFORMATION. Guarantor shall deliver to Bank such
information as Bank may reasonably request from time to time, including without
limitation, financial statements and information pertaining to Guarantor's
financial condition. Such information shall be true, complete, and accurate in
all material respects.
IN WITNESS WHEREOF, Guarantor, on the day and year first written above, has
caused this Unconditional Guaranty to be executed under seal.
NETWORK EVENT THEATER, INC., a
Delaware corporation
By Bruce L. Resnik
---------------------------------------
BRUCE L. RESNIK, Executive Vice President
& Chief Financial Officer
NATIONAL CAMPUS MEDIA, INC., a
Delaware corporation
By Bruce L. Resnik
---------------------------------------
BRUCE L. RESNIK, Executive Vice President
& Chief Financial Officer
Page 5
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Network Event Theater Development, Inc.
National Campus Media, Inc.
American Passage Media, Inc.
Campus Voice, Inc.
Beyond the Wall, Inc.
Pik:Nik Media, Inc.
Media Publications Company, Inc.
National Campus Postcards, Inc.
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 August 21, 1998, 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, 1998.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, New York
September 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,271,000
<SECURITIES> 0
<RECEIVABLES> 1,676,000
<ALLOWANCES> 137,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,339,000
<PP&E> 7,525,000
<DEPRECIATION> 2,664,000
<TOTAL-ASSETS> 15,676,000
<CURRENT-LIABILITIES> 3,674,000
<BONDS> 0
0
0
<COMMON> 113,000
<OTHER-SE> 8,430,000
<TOTAL-LIABILITY-AND-EQUITY> 15,676,000
<SALES> 0
<TOTAL-REVENUES> 11,188,000
<CGS> 0
<TOTAL-COSTS> 17,820,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 564,000
<INCOME-PRETAX> (7,040,000)
<INCOME-TAX> 191,000
<INCOME-CONTINUING> (7,231,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,231,000)
<EPS-PRIMARY> (0.69)
<EPS-DILUTED> (0.69)
</TABLE>
