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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, 1999
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 $.0l per share
(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. $13,266,000
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 16, 1999: $276,276,664
State the number of shares outstanding of each of the issuer's classes of
common equity, as of September 16, 1999: 16,987,421 shares of Common Stock.
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement under Regulation 14A,
which statement will be filed not later than 120 days after the end of the
fiscal year covered by this report, are incorporated by reference in Part III
hereof.
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NETWORK EVENT THEATER, INC.
ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS
Item No. Page
- -------- ----
Part I
1. Business.......................................................... 1
2. Properties........................................................ 11
3. Legal Proceedings................................................. 11
4. Submission of Matters to a Vote of Security Holders............... 11
Part II
5. Market For Common Equity and Related Stockholder Matters.......... 12
6. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 12
7. Financial Statements.............................................. 15
8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure............................. 15
Part III
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act............... 16
10. Executive Compensation............................................ 16
11. Security Ownership of Certain Beneficial Owners and Management.... 16
12. Certain Relationships and Related Transactions.................... 16
13. Exhibits, List and Reports on Form 8-K............................ 16
Index to Consolidated Financial Statements................................. F-1
Signatures................................................................. 19
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PART I
ITEM 1. BUSINESS
Network Event Theater, Inc. (together with its subsidiaries, unless the
context otherwise requires, the "Company"), which does business under the name
of YouthStream Media Networks, is an integrated media and marketing services
company, which targets the young adult market, with a specific focus on the
18-24 year-old college and university segment of that market.
The Company has developed and operates 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 and reaches a geographically dispersed
audience of college students, faculty, administrators and community residents in
each college community. In addition, 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, 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 Web sites, the placement of
posters on general and proprietary bulletin and wallboards on college campuses,
the production of sampling and promotions programs of all types on college
campuses and the distribution of free postcards at selected venues, both on and
off campuses. For example, a motion picture studio that is premiering a major
motion picture through the Network is able to 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.
Through the Company's minority owned subsidiary, Common Places, LLC
("Common Places"), the Company also is developing, and has recently begun to
operate, mybytes.com, one of the first full-service Internet hubs designed for
and targeting the college market. The mybytes.com Web site is intended to
provide a self-evolving, personalized community with academic tools,
campus-based content and integrated advertising, e-commerce and lifestyle
services. mybytes.com also is intended to provide services, including
application and scholarship information and alumni features, that appeal to
pre-college and post-college audiences. Common Places also owns Pulsefinder.com
(www.pulsefinder.com), an online real-time research and polling service that
tracks and measures the latest trends in the college market. The Company
currently owns approximately 48% of Common Places and has agreed to a merger
that will result in ownership of the Company and Common Places by a newly formed
holding company.
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 the July 1999 estimates of projections based on 1990
U.S. Census Bureau data, there are approximately 26.1 million young adults in
the United States today, representing 9.5% 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 approximately 30.0 million by the
year 2010 and represent approximately 10% of the total U.S. 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 1998 Digest of
Education Statistics prepared by the United States Department of Education (the
latest available), the college market as of the Fall of 1996 consisted of more
than 3,500 colleges and universities in the United States with enrollments of
approximately 15 million students, including part-time and full-time
undergraduate and graduate students. The 1998 Digest of Education Statistics
projects that in the year 2009, there will be over 9.8 million young adults
(representing 33% of the young adult population) who will be 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 continue to expand the Network to
selected colleges and universities throughout the United States and to continue
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 41 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 the 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 the 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 it can use at no charge (except for maintenance charges for heavy use)
for educational and other non-commercial and non-competitive purposes, which
can be a cost-effective way to enhance the quality of campus life.
As of September 9, 1999, the Company had completed theater installations
at 41 colleges and universities with a total enrollment of approximately one
million. The average Network theater has a seating capacity of approximately 450
persons. Installations are as follows:
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Arizona State University San Diego State University
California State University - Long Beach SUNY College of Oneonta
Central Michigan University Texas A&M University
Clemson University University of Alabama-Birmingham
College of William and Mary University of California-Berkeley
Eastern Michigan University University of California-Los Angeles
Emory University University of Central Florida
Florida International University University of Cincinnati
Georgia Institute of Technology University of Colorado-Boulder
Georgia Southern University University of Houston
Iowa State University University of Idaho
Kansas State University University of Kansas
Louisiana State University University of Minnesota
Michigan State University University of Nevada-Reno
Minnesota State University-Mankato University of North Carolina-Charlotte
New Mexico State University University of North Texas
New York University University of Rhode Island
Ohio State University University of Rochester
Oklahoma State University Washington State University
Penn State University Western Illinois University
Rutgers State University - Cook College
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The geographic dispersion of the Network's equipment currently enables the
Company to offer Network events in most areas of the contiguous United States.
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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 a state-of-the-art audio system. The cost of the equipment for
a typical installation ranges from $80,000 to $105,000, 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.
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 was less than $50,000. At this time, the
Company has commenced upgrading the Network's projectors to digital technology.
The upgrade is scheduled to be completed in the spring of 2000. The cost of this
upgrade will be approximately $2.1 million and will be borne by the Company.
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 to each
school for approval prior to each school semester or quarter a schedule of
programming dates. 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. During fiscal year 1999, fifteen of the Company's school contracts
came up for renewal and all were renewed for terms ranging from one to five
years. Three schools were dropped from the Network because of problems relating
to the suitability of the venue or similar problems.
Programming
The Company commenced regular operations of the Network in the 1996-97
academic year and broadcast 11 events in the 1998-1999 academic year. It
anticipates that it will broadcast at least 14 events in the 1999-2000 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 each of the academic years 1997-98 and 1998-99 when feature films were
premiered on the Network. In the case of the three interactive broadcasts during
academic year 1998-99, 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. The Company believes that these interactive presentations
attract strong student interest and are attractive to Network advertisers.
The Company has entered into a number of licensing and marketing services
agreements with content providers such as Miramax Films, Sony Pictures, Mandalay
Entertainment, Dreamworks SKG, HBO, Don King Productions, Mercury Records,
Warner Brothers, ABC, Polygram Films, and Universal Pictures 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, content providers pay a fee for access to the
Network's audiences.
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Marketing and Event Promotion of the Network
The Company has a field force of three 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 also may earn revenues from ticket sales to selected events,
although it did not charge admission to any events in the 1998-99 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.
Trademarks
The Company has registered with the United States Patent and Trademark
Office the names "YouthStream," "Network Event Theater" and "NET", as well as
the NET logo. 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 10, 1999, the Company had 56 full-time employees, 15
part-time employees and one intern in connection with the Network. None of these
employees is represented by a collective bargaining unit, and the Company
believes that relations with its employees are good.
Media and Marketing Services Companies
In addition to operating the Network, the Company operates five media and
marketing services companies, which primarily or exclusively serve the young
adult market: American Passage Media, Inc. ("American Passage"), Campus Voice,
Inc. ("Campus Voice"), Beyond the Wall, Inc. ("Beyond the Wall"), Pik:Nik Media,
Inc. ("Pik:Nik") and Trent Graphics, Inc. ("Trent Graphics"). The Company has
integrated the operations and sales forces of these businesses, which enables
each sales person to offer a full range of products and services to the
Company's clients. The Company believes the ability of each sales person to
offer this full range of products and services should improve the sales force's
access to the 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
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operations, college campus postering operations (including postering on
distribution racks called AdRaX(R) that contain college newspapers on campus),
high school focused 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. In
fiscal year 1998-1999, American Passage's national advertising customers
included, among others, Procter & Gamble, American Express, AT&T, TIAA/CREF, The
Wall Street Journal, Ernst & Young LLC and United States Marines. 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 2,300
college campuses with enrollment totaling over 12.5 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 2,000 AdRaX(R) units at prime locations at over 269 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 7,300 high
schools nationwide with more than 6.4 million students, representing about 58%
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 1.5 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, which is prepared by
American Passage on a monthly basis for insertion in selected college newspapers
and 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 Nike, Snapple, USA Network, Coca Cola, Buena Vista,
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 3,725 giant wallboards located on 480
college campuses across the United States
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reaching approximately 4.0 million college students and generates 100 million
student passers-by each month. It is the oldest and largest national network of
its kind in the United States.
There are an average of eight 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!, Interview and
ESPN. 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 have used Campus
Voice's services include, among others, Warner Lambert, Procter & Gamble, Sony
Pictures, Microsoft, AT&T, Smith Kline Beecham.
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 Web site 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,
Volkswagen of America, Ford, and DKNY.
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 a company
which distributes free postcards in the city of Chicago, and on June 11, 1999
the Company acquired another company which distributes postcards in Boston,
Washington D.C., Baltimore, Philadelphia and Atlanta. At this time, the Company
believes Pik:Nik to be the largest free postcard distribution network in the
United States with access to over 2,175 free postcard distribution racks. As of
June 30, 1999, Pik:Nik was merged into the Company.
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, Dallas, Washington, D.C., Boston, Philadelphia,
Baltimore 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. 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.
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
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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 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 sixth and final program is the Malls Program. The Company has
installed 185 racks in 100 shopping malls located in 90 cities in 39 states.
Over 100 million shoppers pass through these malls each year. The mall managers
receive a share of the revenues generated by the sale of postcards for these
racks and mall employees periodically replenish the racks with postcards.
Trent Graphics
On June 9, 1999, Trent Graphics, Inc. was acquired by the merger into
Trent Acquisition Co., Inc., a newly organized, wholly-owned subsidiary of the
Company, and Trent Acquisition Co., Inc.'s name was then changed to Trent
Graphics, Inc. Trent Graphics is engaged in the business of (a) selling posters
and other products (i) at sales events at junior and four-year college campuses,
high schools and other locations, (ii) at retail stores and (iii) over the
Internet and other media, and (b) selling and custom framing of wall posters (i)
at the wholesale level to other retailers and (ii) at the retail level.
Trent Graphics is the leading on-campus seller of wall posters to students
at colleges and universities throughout the country. There are 6 million
students enrolled at the schools with which Trent Graphics has contracts. The
annual traffic to Trent Graphics's poster sales exceeds 4 million students, and
Trent Graphics's poster sales generate over 500,000 transactions each year with
an average sale of $15.
Media and Marketing Services Competition
The Company's media and marketing services businesses face competition for
limited advertising revenues from advertisers and sponsors, from other similar
companies and from other media such as radio, television, print media, direct
mail marketing and the Internet. The Company also competes with a wide variety
of other advertising media, the range and diversity of which has increased
substantially over the past several years to include advertising displays in
shopping centers and malls, airports, stadiums, movie theaters and supermarkets,
and on taxis, trains, buses and subways. Some of the Company's competitors,
principally in other media such as radio and television, are substantially
larger, better capitalized and have access to greater resources than the
Company. There can be no assurance that the Company will be able to compete
successfully with such other companies and media.
Trademarks
The Company has registered the names American Passage, GymBoards, AdRaX,
Campus Voice, Pulsefinder, Beyond the Wall, HotStamp, Trent Graphics 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. 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 10, 1999, the Company had 94 full-time employees, 24
part-time employees, 161 seasonal employees and one intern in connection with
the media and marketing services companies. None of these employees is
represented by a collective bargaining unit, and the Company believes that
relations with its employees are good.
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The Company's On-Line Capabilities and the Internet
The Company believes that college students and young adults generally are
computer literate and utilize on-line resources, such as e-mail and the
Internet, more frequently 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, the Company, through Common Places, is developing, and has
begun to operate, mybytes.com, one of the first full-service Internet hubs
designed for and targeting the college market.
Common Places
Overview
Common Places is dedicated to serving the needs of college students,
administrators and faculty. Through promotion via its offline media channels,
the Company will seek to make mybytes.com the leading online brand of its kind.
Products And Services
Common Places is intended to provide college students valuable resources
through its Web site and other student-focused content and services offerings,
including:
o Academic Research Directories
o University Calendar
o Unified Personal Calendar
o Instant messaging
o Community-building tools
o Unified messaging
o School guide
o Financial aid and scholarship search
o Free e-mail for life
o Online course support capabilities
o Online study forums by major
o Online chats with leading professors
o E-commerce platform (including the sale of posters printed in the
Beyond the Wall catalogs and posters sold by Trent Graphics)
o Search engine
o Student publishing services
o Original and third-party content
Marketing
Common Places intends to use the Company's multiple off-line properties
with a view to driving users to the mybytes.com Web site. The Company also
intends to use traditional marketing methods and techniques, including a
membership point system, free contests, outbound e-mail communications and press
releases.
Technology
The software infrastructure for Common Places' mybytes.com Web site is
custom-built and designed for maximum reliability, flexibility and scalability.
The mybytes.com personalization system, chat tools, event calendar, audio and
video management subsystem, scholarship search technology, unified shopping
basket technology, internal search and dynamic content management and authoring
system are all completely controlled by Common Places.
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Third party vendors provide some key services for mybytes.com, including
Internet-based e-mail, unified messaging, chat tools and Web-based searches.
Mybytes.com's technological infrastructure is built and maintained for
reliability, security and flexibility, including a load-balanced scalable Web
server architecture. This infrastructure is hosted at an off-site facilitt which
is operated by a commercial web site hosting facility. This facility is equipped
with an uninterruptible power supply. Common Places' operations are dependent on
its ability and that of its hosting facilitiy to protect the hardware systems
against damage from fire, natural disasters, power loss, telecommunications
failure, break-ins, computer viruses and hacker attacks.
Online Competition
The market for Internet services and products targeted at college students
is relatively new, intensely competitive and rapidly changing, but is not
dominated by any single Web site. Because mybytes.com is intended to provide a
full-service Internet hub, Common Places' business will compete, directly or
indirectly, with a wide variety of Web site operators, companies that provide
Internet products and services to colleges and universities, companies that
provide software products to the higher education market, general interest
portals that may offer student-related content and services, and Web sites and
services operated by colleges and universities. These include the following:
o Student interest Web sites, which offer a broad range of content and
services for students, such as free e-mail, Web pages, chat groups,
contests, news, sports and campus issues. Some of these sites
specialize in a particular area, such as online auctions or discount
e-commerce. Many of these sites have online partners helping to
provide content and services. They include www.collegeclub.com,
sites operated by Student Advantage, www.collegestudent.com,
www.student.com, and others.
o Informational Web Services are Web sites that focus on providing a
particular service that is of special interest to students, such as
scholarship searches. Some of these sites are now in the process of
expanding from their original core expertise to offer a more
broad-based service similar to the range of services offered by
mybytes.com. These include: CollegeEdge, FastWeb, XAP and others.
o Software products geared towards the higher education market whose
functionality could be considered competitive to services provided
through mybytes.com. These include Blackboard, eCollege, and others.
o College and university Web sites which may provide services and
functionality similar to those offered by mybytes.com.
o General purpose consumer online services such as AOL and MSN, each
of which provide access to student-related content and services.
o Web search and retrieval services such as AltaVista, Excite,
Infoseek, Lycos, Yahoo!, and other high-traffic Web sites.
o Publishers and distributors of traditional offline media targeted to
college students, many of which have established or may establish
Web sites.
o Vendors of college student information, merchandise, products and
services distributed through other means, including retails stores,
mail and schools.
Because there are few barriers to entry in many of these areas, Common
Places expects competition will continue to intensify.
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Common Places believes that the principal competitive factors in
attracting and retaining members are:
o brand recognition,
o quality of the Web site's content and service,
o critical mass of members and sponsors,
o relationships with universities,
o comprehensive geographic coverage,
o breadth of offerings, and
o cost of service.
Common Places believes that the principal competitive factor in attracting
and retaining sponsors, merchandisers and content providers is the ability to
offer sufficient incremental revenue from online sales of products and services.
Common Places believes that the principal competitive factors in attracting
advertisers include the demographics of the user base, the number of users of
the mybytes.com Web site, cost of advertising and creative implementation of
advertisement placements across the products and services. There can be no
assurance that mybytes.com will be able to compete favorably with respect to
these factors.
The Company believes the brand recognition of mybytes.com, together with
the Company's ability to deliver a targeted, demographically-attractive audience
to advertisers and sponsors and the Company's relationships with colleges and
universities, are Common Places' principal competitive advantages. Providers of
Internet tools and services may be acquired by, receive investments from, or
enter into other commercial relationships with larger, well-established and
well-financed companies, such as Microsoft or America Online. Greater
competition resulting from such relationships could have a material adverse
effect on Common Places' business.
Intellectual Property Rights
The Company regards Common Places' copyrights, service marks, trademarks,
trade dress, trade secrets, proprietary technology and similar intellectual
property as critical to Common Places' success, and will rely on trademark and
copyright law, trade secret protection and confidentiality and/or license
agreements with its employees, customers, independent contractors, sponsors, and
others to protect its proprietary rights. Common Places strategically pursues
the registration of its trademarks and service marks. However, effective
trademark, service mark, copyright and trade secret protection may not be
available. There can be no assurance that the steps taken by it to protect its
proprietary rights will be adequate or that third parties will not infringe or
misappropriate its copyrights, trademarks, trade secrets, trade dress and
similar proprietary rights. In addition, there can be no assurance that other
parties will not independently develop substantially equivalent intellectual
property. A failure by Common Places to protect its intellectual property in a
meaningful manner could have a material adverse effect on its business,
financial condition and results of operations. In addition, litigation may be
necessary in the future to enforce its intellectual property rights, to protect
its trade secrets or to determine the validity and scope of the proprietary
rights of others. Such litigation could result in substantial costs and
diversion of financial and managerial resources, which could have a material
adverse effect on its business.
Common Places may be subject to claims and legal proceedings from time to
time in the ordinary course of its business, including claims of alleged
infringement of the trademarks and other intellectual property rights of third
parties. Such claims, even if not meritorious, could result in the expenditure
of significant financial and managerial resources. Further, if such claims are
successful, Common Places may be required to change its trademarks, alter its
content and pay financial damages. There can be no assurance that such changes
of trademarks, alteration of content or payment of financial damages will not
adversely affect its business.
Common Places may be required to obtain licenses from others to refine,
develop, market and deliver new products and services. There can be no assurance
that Common Places will be able to obtain any such license on commercially
reasonable terms or at all or that rights granted pursuant to any licenses will
be valid and enforceable.
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Employees
As of September 10, 1999, Common Places had 50 full-time employees, 15
interns and 10 temporary employees. Common Places also intends to hire
additional temporary employees and contract service providers as necessary. As
it continues to grow and introduce additional products and services, Common
Places expects to hire additional employees. None of Common Places' employees is
represented by a labor union or is the subject of a collective bargaining
agreement. Common Places believes that relations with its employees are
generally good. Competition for qualified personnel in Common Places' industry
is intense, particularly among sales, online product development and technical
staff. Common Places believes that success will depend in part on its continued
ability to attract, hire and retain qualified personnel.
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, Tempe, Arizona, Stroudsburg,
Pennsylvania, and Falls Church, Virginia. The Company also maintains short term
leases for retail stores which sell posters and related items and which range
from approximately 1,500 square feet to 3,000 in Chicago, IL, Berkley, CA,
Philadelphia, PA, Seattle, WA, Champaign, IL, Ithaca, NY, Pittsburgh, PA. The
Company believes it has adequate insurance to cover the value of its leased
property and the personal property therein.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding and is not
aware of any contemplated proceeding that may be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the quarter ended June 30, 1999.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National 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 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
Fiscal 1999
First Quarter............................. $ 4 3/4 $ 2 3/4
Second Quarter............................ 19 1/3 2 1/2
Third Quarter............................. 22 3/4 11 1/2
Fourth Quarter............................ 17 1/2 11 1/2
As of September 16, 1999, there were approximately 107 holders of record
of the Company's common stock.
To date, the Company has not declared or paid any dividends on its common
stock. The payment by the Company of dividends, if any, is within the discretion
of the board of directors and will depend on the Company's earnings, if any, its
capital requirements and financial condition, as well as other relevant factors.
The board of directors does not intend to declare any dividends in the
foreseeable future, but, instead intends to retain earnings for use in the
Company's business operations.
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.
In August 1999, the Company, through Allen & Company Incorporated
("Allen"), as private placement agent, sold a total of 1,219,512 shares of its
common stock to Seligman Communications and Information Fund, Inc. (731,708
shares), Seligman New Technologies Fund, Inc. (439,024 shares) and Seligman
Investment Opportunities (Master) Fund - NTV Portfolio (48,780 shares) for an
aggregate consideration of $25 million. From that amount, Allen was paid a cash
placement fee of $1.5 million and a warrant to purchase 36,585 shares of common
stock at a purchase price of $23.50 exercisable over a five year period from the
closing date. 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 OPERATION
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 recently completed 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.
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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, 1999 ("1999") to the twelve months
ended June 30, 1998 ("1998").
Results of Operations
In 1999, net revenues were $13,266,000 as compared to $11,188,000 in 1998. The
increase of $2,078,000 was primarily due to increased sales in postcard,
gymboard, postering, event marketing, campus wall boards, and theater operations
as well as the full year impact of the On The House acquisition which was
completed in May 1998.
In 1999, selling, general and administrative expenses were $14,005,000 as
compared to $12,953,000 in 1998. The increase of $1,052,000 was primarily due to
an increase of $1,465,000 in the cost of sales and administrative staff in 1999
to support the increase in net revenues offset by $413,000 resulting from a
termination of a consulting agreement during 1998.
In 1999, corporate expenses were $4,510,000 as compared to $3,088,000 in 1998.
The increase of $1,422,000 was primarily due to increased corporate personnel
and related overhead expenses required to support the Company's growth, which
accounted for $882,000 of the increase. The $540,000 remainder of the increase
related to bonuses granted to senior management.
In 1999, depreciation and amortization was $2,186,000 as compared to $1,779,000
in 1998. The increase of $407,000 was primarily due to the purchase of
additional property and equipment of $1,697,000 and an increase in intangible
assets.
In 1999, the impairment loss on equipment was $825,000. The loss was the result
of the determination by management that certain theater and location based media
equipment no longer had remaining economic useful life.
In 1999, total operating expenses were $21,526,000 as compared to $17,820,000 in
1998. The increase of $3,706,000 was primarily due to increased personnel costs
and depreciation expense relating to additional purchases of revenue-
generating assets during the period October 1997 through June 1999, bonuses
granted to senior management, and the determination by management that certain
assets had no remaining economic useful life, offset by a decrease in consulting
fees.
In 1999, equity loss in investment was $51,000 representing the Company's
minority interest share of the loss in Common Places, LLC. Recognition of such
loss was limited to the Company's investment in Common Places, LLC.
In 1999, interest income was $425,000 as compared to $156,000 in 1998. The
increase of $269,000 was due to interest income earned on increased cash
balances from the redemption and exercise of warrants.
In 1999, interest expense was $1,119,000 as compared to $564,000 in 1998. The
increase of $555,000 primarily related to the issuance of $5,000,000 of
subordinated notes in July 1998.
In 1999, the provision for income taxes was $185,000 as compared to $191,000 in
1998.
In 1999, net loss was $9,190,000 as compared to $7,231,000 in 1998. The increase
of $1,959,000 was a result of increased selling, general and administrative
expenses, corporate expenses, depreciation and amortization, and impairment loss
on equipment and interest expense, offset by increased revenues.
Liquidity and Capital Resources
In July 1998, the Company realized net proceeds of approximately $4.8 million
from the sale of $5,000,000 of 11% Subordinated Notes and 375,000 of warrants.
During the period December 1998 through February 1999, the Company realized net
proceeds of approximately $13.2 million from the exercise of publicly traded
warrants and $1,850,000 million from the exercise of underwriter's warrants.
The Company used approximately $7.6 million in operating activities in 1999 as
compared to $4.4 million in 1998. The increase of approximately $3.2 million
represents the decrease in short-term liabilities and the increase in accounts
receivable offset
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by depreciation and amortization and impairment loss on equipment. Cash used in
investing activities in 1999 of approximately $5.8 million is composed primarily
of payment for business acquisitions and capital expenditures. Cash provided by
financing activities in 1999 of approximately $18.2 million is primarily
attributable to proceeds from issuance of long-term debt and related warrants
and the proceeds from the exercise of the underwriter's warrants, stock options
and publicly traded warrants.
The Company's primary capital requirements with respect to its operations have
been to fund corporate overhead, the operation of its Network of campus theaters
and postcard distribution. 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, Pik:Nik and
Trent being able to fund their operations and to make debt service payments out
of their own cash flow in the future prove to be inaccurate, or if the working
capital or capital expenditure requirements of American Passage, Campus Voice,
Beyond the Wall, Pik:Nik or Trent prove to be greater than anticipated, the
Company could be required to seek additional financing. The inability to obtain
additional financing will have a material adverse effect on the Company,
including possibly requiring the Company to significantly curtail or cease its
operations.
As of June 30, 1999, the Company had approximately $7 million in cash and cash
equivalents. In August 1999, the Company raised $23.5 million in a private sale
of the Company's common stock. The Company believes that such amounts will be
sufficient to fund working capital, including debt service and interest
requirements, at least through the fiscal year ending June 30, 2000. 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, any such issuance would result in dilution to the interests of the
Company's shareholders.
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. If the proposed merger
involving Common Places is consummated, the Company will require additional
funds to finance development of the mybytes.com web site until expected revenues
from that site exceed the costs of development.
Impact of Year 2000
During fiscal year 1998, the Company conducted an extensive review of its
computer systems and operations to identify the areas that could be affected by
the Year 2000 issue. A plan was developed which focused on the Company's
information systems and third-party relationships.
With respect to its own information systems, the Company adopted a five-phase
Year 2000 program consisting of: Phase I - identification of the Company's
systems that may be vulnerable to Year 2000 problems; Phase II - assessment of
items identified in Phase I; Phase III - remediation or replacement of
non-compliant systems and components; Phase IV - testing of systems and
components following remediation; and Phase V - developing contingency plans to
address the most reasonably likely worst case Year 2000 scenarios. The Company
has completed all phases of this program.
With respect to its third-party relationships, the Company reviewed its list of
large suppliers, vendors and service suppliers and is contacting them to assess
their state of Year 2000 readiness. This process is near completion and the
Company has commenced contingency planning to address the most reasonably likely
worst case Year 2000 scenarios with respect to its third-party relationships,
including developing alternate third-party relationships, if necessary.
Potential sources of risk include the inability of printers to print posters,
catalogs and postcards for distribution by the Company and the inability of
college newspapers to accept print advertisements from the Company on behalf of
the Company's clients. In addition, there is the potential risk that the Company
will not be able to broadcast events to its network of theaters on college
campuses.
The results to date indicate that, based on the diversity of the Company's
suppliers and the availability of other suppliers, the Year 2000 issue should
not have a material adverse effect on the Company's financial condition, results
of operations or cash flows. The
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Company's costs incurred to date associated with the Year 2000 issue are not
material. The Company estimates that the costs to complete its five phase
program, excluding any costs that may be incurred by the Company as a result of
the failure of any third parties to become Year 2000 compliant, will also not be
material. The Company has or can obtain alternate suppliers in printing,
distribution and satellite broadcasting if, by chance, the Company's normal
supplier cannot provide goods and or services due to Year 2000 difficulties.
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.
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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) On June 24, 1999, the Company filed a report on Form 8-K in
connection with the acquisitions of Trent Graphics and HelloXpress.
Item 13(a) Exhibits
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 Amendement 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
(incorporated by reference to Exhibit 3.3 to the Company's Form
10-KSB for the fiscal year ended June 30, 1998, 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).
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10.3 Employment Agreement between the Company and Don Leeds (incorporated
by reference to Exhibit 1 to the Company's Form 10-QSB for the
quarterly period ended June 30, 1996).
10.4 Non-Incentive Stock Option Agreement dated June 17, 1996 between the
Company and Don Leeds (incorporated by reference to Exhibit 10.3 to
the Company's Form 10-QSB for the quarterly period ended June 30,
1996).
10.5 Employment Agreement between the Company and Bruce L. Resnik
(incorporated by reference to Exhibit 2 to the Company's Form 10-QSB
for the quarterly period ended September 30, 1996).
10.6 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 Institution 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 Dirrom Investments, Inc. (incorporated by reference to Exhibit
10.15 to the Company's Form 10-KSB for the fiscal year ended June
30, 1998).
10.16 Placement Manager Agreement (incorporated by reference to Exhibit
10.16 to the Company's Form 10-KSB for the fiscal year ended June
30, 1998).
10.17 Form of Stock Purchase Agreement (incorporated by reference to
Exhibit 10.17 to the Company's Form 10-KSB for the fiscal year ended
June 30, 1998).
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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. (incorporated by reference to Exhibit 10.18 to the
Company's Form 10-KSB for the fiscal year ended June 30, 1998).
10.19 Unconditional Guaranty dated December 30, 1997 by the Company and
National Campus Media, inc. in favor of First Union National Bank
(incorporated by reference to Exhibit 10.19 to the Company's Form
10-KSB for the fiscal year ended June 30, 1998).
10.20 Merger Agreement dated June 9, 1999 among the Company, Trent
Acquisition Co., Inc., Trent Graphics, Inc. and Charles Sirolly,
Thomas Sirolly, Daniel Sirolly and William Sirolly (incorporated by
reference to Exhibit 2 to the Company's Form 8-K filed June 24,
1999).
10.21 Asset Purchase Agreement dated June 10, 1999 among the Company,
Pik:Nik Media, Inc., HelloXpress USA, Inc., and Dalia Smith and Ron
Smith (incorporated by reference to Exhibit 2 to the Company's Form
8-K filed June 24, 1999).
10.22* Option Agreement dated August 3, 1999 among the Company, New CW,
Inc., CollegeWeb.com, Inc. and J. Alexander Chriss and Todd M.
Ragaza.
10.23* Agreement and Plan of Merger dated August 3 1999 among the Company,
New CW, Inc., CollegeWeb.com, Inc. and J. Alexander Chriss and Todd
M. Ragaza.
10.24 Operating Agreement of Common Places, LLC (incorporated by reference
to Exhibit 10.1 to the Company's quarterly report on Form 10-QSB for
the quarter ended December 31, 1998).
10.25* Agreement and Plan of Merger dated June 28, 1999 among the Company,
Common Places, LLC, YouthStream Media Networks, Inc., Nunet, Inc.,
Nucommon, Inc., Harlan Peltz, Benjamin Bassi, William Townsend and
Mark Palmer.
10.26* Restated Certificate of Incorporation of YouthStream Media Networks,
Inc.
10.27* Rights Agreement between YouthStream Media Networks, Inc. and the
Rights Agent (unsigned and undated).
10.28* YouthStream Media Networks, Inc. 1999 Stock Incentive Plan.
10.29* Voting Trust Agreement among YouthStream Media Networks, Inc.,
Benjamin Bassi, William Townsend, Mark Palmer, Harlan Peltz and the
Voting Trustee.
10.30* Stockholders Agreement among YouthStream Media Networks, Inc.,
Benjamin Bassi, William Townsend, Mark Palmer, Harlan Peltz
individually, Harlan Peltz as voting trustee.
10.31* Employment Agreement between YouthStream Media Networks, Inc. and
Benjamin Bassi.
10.32* Employment Agreement between YouthStream Media Networks, Inc. and
Harlan Peltz.
21* Subsidiaries of the Company.
23* Consent of Ernst & Young LLP.
27* Financial Data Schedule.
- ------------
*Filed herewith
18
<PAGE>
Network Event Theater, Inc.
Consolidated Financial Statements
Index
Report of Independent Auditors............................................. F-2
Consolidated Financial Statements:
Consolidated Balance Sheet at June 30, 1999................................ F-3
Consolidated Statements of Operations for the years ended
June 30, 1999 and 1998.................................................. F-4
Consolidated Statements of Cash Flows for the years ended
June 30, 1999 and 1998.................................................. F-5
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1999 and 1998.................................................. 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, 1999, 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, 1999. 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, 1999, and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
June 30, 1999, in conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
August 30, 1999
F-2
<PAGE>
Network Event Theater, Inc.
Consolidated Balance Sheet
(In thousands)
June 30, 1999
<TABLE>
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 7,046
Accounts receivable, net of allowance for doubtful accounts of $158 2,653
Inventories 852
Prepaid expenses 691
Deposits and other current assets 263
--------
Total current assets 11,505
Property and equipment, net 4,360
Deferred financing costs, net of accumulated amortization of $174 724
Intangible assets, net of accumulated amortization of $1,370 13,663
--------
Total assets $ 30,252
========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,442
Accrued employee compensation 561
Other accrued expenses 1,048
Deferred revenues 521
Current portion of long-term debt 857
--------
Total current liabilities 4,429
Long-term debt 6,589
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,
14,897 shares issued and outstanding 149
Additional paid-in capital 47,043
Accumulated deficit (27,958)
--------
Total stockholders' equity 19,234
========
Total liabilities and stockholders' equity $ 30,252
========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
Network Event Theater, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended June 30,
1999 1998
--------------------
<S> <C> <C>
Net revenues $ 13,266 $ 11,188
Operating expenses:
Selling, general and administrative expenses 14,005 12,953
Corporate expenses 4,510 3,088
Depreciation and amortization 2,186 1,779
Impairment loss on equipment 825 --
--------------------
Total operating expenses 21,526 17,820
--------------------
Loss from operations (8,260) (6,632)
Equity loss in investment (51) --
Interest income 425 156
Interest expense (1,119) (564)
--------------------
Loss before provision for income taxes (9,005) (7,040)
Provision for income taxes 185 191
--------------------
Net loss $ (9,190) $ (7,231)
====================
Net loss per basic and diluted common share $ (0.72) $ (0.69)
====================
Weighted average basic and diluted common shares outstanding 12,800 10,508
====================
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
Network Event Theater, Inc.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended June 30
1999 1998
--------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (9,190) $ (7,231)
Adjustments to reconcile net loss to net cash used
in operating activities:
Provision for bad debts 21 64
Depreciation and amortization 2,186 1,779
Impairment loss on equipment 825 85
Amortization of deferred financing costs 174 --
Amortization of original issue discount on Subordinated Notes 38 --
Issuance of options for consulting services -- 53
Changes in assets and liabilities:
Increase in accounts receivable (1,096) (164)
(Increase) decrease in prepaid expenses (298) 45
Increase in inventory (56) --
Increase in deposits and other current assets (33) (61)
(Decrease) increase in accounts payable (265) 372
Increase in accrued employee compensation 2 199
Increase in other accrued expenses 276 38
(Decrease) increase in deferred revenues (168) 388
--------------------
Net cash used in operating activities (7,584) (4,433)
Cash flows from investing activities
Capital expenditures (1,697) (1,682)
Proceeds from sale of equipment -- 64
Notes receivable -- 33
Payment for business acquisitions, net of cash acquired (3,782) (532)
Additions to deferred financing costs (314) --
--------------------
Net cash used in investing activities (5,793) (2,117)
Cash flows from financing activities
Net proceeds from sale of common stock and exercise of warrants and
options 15,358 4,581
Net proceeds from issuance of warrants in connection with long-term
debt 188 --
Proceeds from long-term debt, net of original issue discount of $188 4,812 5,125
Repayment of long-term debt (2,206) (5,070)
--------------------
Net cash provided by financing activities 18,152 4,636
Net increase (decrease) in cash and cash equivalents 4,775 (1,914)
Cash and cash equivalents at beginning of year 2,271 4,185
--------------------
Cash and cash equivalents at end of year $ 7,046 $ 2,271
====================
Supplemental cash flow information
Cash paid for interest $ 871 $ 538
====================
Cash paid for income taxes $ 148 $ 143
====================
Noncash Financing Activities:
Issuance of warrants in connection with long-term debt $ 552 $ --
====================
Issuance of common stock in connection with acquisition of
Beyond the Wall $ 33 $ --
====================
Issuance of common stock in connection with debt repayment $ -- $ 2,144
====================
Issuance of common stock in connection with acquisition of
Trent and HelloXpress $ 3,750 $ --
====================
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
Network Event Theater, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance 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 1,061 10 4,511 -- 4,521
Issuance of common stock upon exercise of warrants 12 -- 60 -- 60
Issuance of options for consulting services -- -- 105 -- 105
Adjustment 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 27,198 (18,768) 8,543
Issuance of warrants in connection with long-term debt -- -- 740 -- 740
Issuance of common stock upon exercise of warrants 3,063 31 14,988 -- 15,019
Issuance of common stock upon exercise of stock options 221 2 337 -- 339
Issuance of common stock in connection with acquisition
of Beyond the Wall 7 -- 33 -- 33
Issuance of common stock in connection with acquisition
of Trent 242 3 3,497 -- 3,500
Issuance of common stock in connection with acquisition
of HelloXpress 17 -- 250 -- 250
Net loss -- -- -- (9,190) (9,190)
-------------------------------------------------------------------
Balances at June 30, 1999 14,897 $ 149 $ 47,043 $(27,958) $ 19,234
===================================================================
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
1. Organization and Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Network Event Theater, Inc. ("NET"), which does business under the name of
YouthStream Media Networks, and its wholly-owned subsidiaries Network Event
Theater Development, Inc., American Passage Media, Inc. ("American Passage"),
Campus Voice, Inc. ("Campus Voice"), Beyond the Wall, Inc. ("Beyond the Wall"),
Pik:Nik Media, Inc. ("Pik:Nik") and Trent Graphics, Inc. ("Trent"),
(collectively, the "Company"). In June 1999, Network Event Theater Development,
Inc. and Pik:Nik were merged into NET.
The Company is an integrated media and marketing services company, which targets
the young adult market, with a specific focus on the 18 to 24 year-old college
and university segment of that market. The Company owns and operates a
proprietary national network of theaters on college campuses (the "Network")
that 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. The
Company operates in one industry segment, which provides media and marketing
services to advertisers who want to reach young adults.
2. Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned 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.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on a
first-in, first-out basis. Inventories consist primarily of posters and related
products.
Deferred Financing Costs
Deferred financing costs are being amortized over the term of the related debt.
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.
In accordance with FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of", the Company records impairment losses on
long-lived assets used in operations when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amount of those assets.
During 1999, events and circumstances indicated that certain Network theater
equipment and location-based media equipment were impaired. As such, the Company
wrote down the value of such assets by approximately $825,000 to their fair
value. Fair value was based on estimated future undiscounted cash flows to be
generated by the aforementioned assets.
F-7
<PAGE>
Intangible Assets
Intangible assets represent acquisition costs in excess of the fair value of
businesses acquired and a covenant not-to-compete which are amortized on the
straight-line basis principally over 5 to 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 amortized
over the remainder of such goodwill's useful life.
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, 1999 and 1998 was approximately $459,000 and $529,000,
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.
Net Loss Per Share
The Company calculates net loss per share as required by SFAS No. 128, "Earnings
per Share". Basic earnings per share excludes any dilution for common stock
equivalents and is computed on the basis of net loss 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 effect would
be antidilutive.
Stock-Based Compensation
The Company generally grants stock options for a fixed number of shares to
employees with an exercise price equal to or greater than the fair value of the
shares at the date of grant. The Company accounts for stock option grants in
accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and, accordingly, recognizes compensation
expense only if the fair value of the underlying common stock exceeds the
exercise price of the stock option on the date of grant. The Company believes
the alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") requires the use of
option valuation models that were not developed for use in valuing employee
stock options. As permitted by SFAS No. 123, the Company continues to account
for stock-
F-8
<PAGE>
based compensation in accordance with APB Opinion No. 25 and has elected the pro
forma disclosure alternative of SFAS No. 123 (see Note 9).
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 accounts receivable. The Company's revenue is
principally derived from the sale of advertising space, the placement of
advertising in various media and the provision of media services to advertisers,
sponsors and entertainment companies. The Company routinely assesses the
financial strength of its customers and does not require collateral or other
security to support customer receivables. Credit losses are provided for in the
consolidated financial statements in the form of an allowance for doubtful
accounts.
Recent Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", the effective date of which has been
deferred for all fiscal quarters of fiscal years beginning after June 15, 2000
by FASB No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of Effective Date of FASB Statement No. 133". SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts and for hedging
activities. This statement is not expected to have a significant impact on the
Company's financial position or results of operations.
3. Acquisitions
On The House
In May 1998, the Company, through its Pik:Nik subsidiary, 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, which conditions were subsequently not met.
The aggregate purchase price of $200,000, including acquisition costs, was
recorded as excess of cost over net assets acquired.
Trent
In June, 1999, the Company acquired Trent Graphics, Inc. ("Trent") pursuant to a
Merger Agreement (the "Merger Agreement"). Trent sells posters and other
products at sales events at junior and four-year colleges, high schools, at
retail stores and other locations and over the Internet. The purchase price
consisted of $3.5 million in cash and 242,003 shares of the Company's common
stock valued at $3.5 million, or $14.46 per share, the then current market
price. In addition, if Trent's EBITDA (as defined in the Merger Agreement) for
the two years ending June 30, 2001 exceeds certain targets, the Company will pay
to the former Trent stockholders up to an additional $600,000 in cash and
additional shares of the Company's common stock valued at $600,000. The
aggregate purchase price of $7,045,000, including acquisition costs, was
recorded as excess of cost over net assets acquired.
F-9
<PAGE>
HelloXpress
In June 1999, the Company through its Pik:Nik subsidiary acquired certain
assets and liabilities of HelloXpress USA, Inc. ("HelloXpress"), an entity that
produces, markets and distributes free postcards containing advertising images
in the Washington DC, Philadelphia, Boston, Baltimore and Atlanta areas. The
purchase price consisted of $300,000 in cash, 17,242 shares of the Company's
common stock valued at $250,000, or $14.50 per share, the then current market
price, and the foregiveness of amounts due to the Company of $125,000. In
addition, former stockholders of HelloXpress may receive an additional $50,000
in cash and shares of the Company's common stock valued at $200,000 in September
2000, subject to certain conditions contained in the purchase agreement. The
aggregate purchase price of $691,000, including acquisition costs, was recorded
as excess of cost over net assets acquired and a portion was allocated to a
covenant not-to-compete.
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 date of each acquisition.
Included in intangible assets is the excess of cost over the assets acquired and
liabilities assumed. The results of operations of the businesses acquired are
included in the Company's consolidated results of operations from the respective
dates of acquisition.
The following unaudited pro forma information is presented as if the Company had
completed the acquisitions as of July 1, 1998 and 1997, respectively:
<TABLE>
<CAPTION>
Year ended June 30
1999 1998
----------------------------
<S> <C> <C>
Net revenue $ 20,739,000 $ 18,153,000
Net loss (9,429,000) (7,698,000)
Net loss per basic and diluted common share (.72) (.71)
Weighted average common shares outstanding - basic and
diluted 13,046,000 10,767,000
</TABLE>
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, 1999 consists of the following (in thousands):
<TABLE>
<S> <C>
Note Payable to Bank (A) $2,406
Subordinated Notes - Private Placement (B) 5,000
Other 190
------
7,596
Less unamortized original issue discount attributed to subordinated
Notes 150
------
7,446
Less current portion 857
======
$6,589
======
</TABLE>
(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 February 2, 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.
F-10
<PAGE>
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, 1999 was $2,056,000. 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 2000. The Company's
estimated credit exposure related to the interest rate agreement, as of June 30,
1999, is approximately $20,000. 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, 1999 was approximately $2,076,000, 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 by July 30, 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. Borrowing 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, 1999, the
Borrowers have not borrowed any amounts under this facility. The line of credit
expired in July 1999.
(B) In July 1998, the Company issued Subordinated Notes to accredited investors
in the aggregate amount of $5,000,000 less an original issue discount of
$188,000. These notes bear interest at 11% per annum and are due in July 2003.
In connection with the issuance of the Subordinated Notes, the Company issued
375,000 warrants to the accredited investors for $188,000 and 150,000 warrants
to the placement agent. Each warrant, which expires in July 2003, entitles the
holder to purchase one share of the Company's common stock for $4.125, the
market price of the Company's common stock at the date of issuance. Based on an
independent appraisal, the 525,000 warrants have been valued at $740,000. The
value of the warrants and closing costs of $314,000 have been recorded as
deferred financing costs and are being amortized over the term of the
Subordinated Notes. The original issue discount of $188,000 is also being
amortized over the term of the related debt.
At June 30, 1999, the aggregate amounts of long-term debt, net of amortized
original issue discount, due during the next five years are as follows (in
thousands):
Year ending June 30:
2000 $ 857
2001 667
2002 667
2003 405
2004 5,000
-------
$ 7,596
=======
5. Property and Equipment
Property and equipment consists of the following (in thousands):
Network theater equipment $ 3,524
Location-based media equipment 2,715
Furniture and office equipment 1,751
Leasehold improvements 130
-------
8,120
Less accumulated amortization and depreciation (3,760)
-------
$ 4,360
=======
F-11
<PAGE>
6. Income Taxes
At June 30, 1999, the Company had a net operating loss carry forward for income
tax purposes of approximately $23,400,000 that expires from 2013 through 2019.
For financial reporting purposes, a valuation allowance of $9,224,000 has been
recognized to offset the deferred tax asset principally related to this carry
forward. The net operating loss carry forward 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. The valuation allownace increased by approximately
$3,590,000 for the year ended June 30, 1999.
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, 1999 are as follows:
Deferred tax assets:
Net operating loss carryforwards $ 9,347,000
Other (123,000)
-----------
Total Deferred tax assets 9,224,000
Valuation allowance 9,224,000
-----------
Net deferred tax asset $ --
===========
No federal tax provision has been provided for the years ended June 30, 1999 and
1998 due to the significant losses incurred to date. A current state tax
provision has been provided for the years ended June 30, 1999 and 1998 in the
amount of $185,000 and $191,000 respectively. These taxes are primarily based on
net revenues and net assets.
7. Stockholders' Equity
The Company issued 2,645,000 warrants at the time of its initial public offering
in April 1996. The warrants entitled 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. In December 1997, the Company
issued 12,000 shares of common stock upon exercise of warrants at $5.00 per
share or $60,000. In January 1999, the remaining 2,633,000 warrants were
exercised resulting in net proceeds to the Company of approximately $13,200,000.
In connection with the initial public offering, the Company also issued 230,000
warrants to the underwriter. Each warrant entitled the holder to purchase one
share of the Company's common stock for $8.25 and an additional warrant for
$.165 each. Each additional warrant entitled the holder to purchase one share of
the Company's common stock for $8.25. All warrants expire in April 2002.
Beginning in January through June 30, 1999, 211,041 warrants and 184,339
additional warrants were exercised resulting in net proceeds to the Company of
approximately $1,850,000. Approximately 173,000 of these warrants were exercised
in cashless transactions.
In June 1997, the Company sold an aggregate of 1,015,873 shares of its common
stock and realized net proceeds of $3.8 million. 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 December 2000. In January and February
1999, the Company issued 112,562 shares of its common stock in exchange for
these warrants in cashless transactions.
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 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 $105,000, which is
being amortized over the term of the public relations agreement. Amortization
expense for the years ended June 30, 1999 and 1998 was $52,000 and $53,000,
respectively. In January 1999, the Company issued 74,193 shares of its common
stock in exchange for these options in a cashless transaction. As a result of
reaching certain milestones in the price of its common stock in December 1998,
the Company granted an
F-12
<PAGE>
additional 300,000 options to purchase shares of the Company's common stock at
an exercise price of $5.00 per share to the same public relations firm. All
options vest over one year from date of grant and expire four years from date of
grant.
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:
1999 1998
--------- ---------
Stock options 1,549,000 1,128,560
Common stock purchase warrants 590,000 3,243,000
8. Related Party Transactions
Programming Services Agreement
In 1995, the Company entered into a consulting agreement with an entity owned by
Freddie Fields and Jerome Hellman ("F&H") pursuant to which Messrs. Fields and
Hellman served as Chairman and President, respectively, of the Company's
programming division. 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. Under the terms of the agreement, no such royalties were due in
fiscal 1999 or 1998.
F&H received an annual fee for its services. For the year ended June 30, 1998
such fees totaled $275,000. There were no such fees for the year ended June 30,
1999.
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
during 1998. The annual overhead fee for the year ended June 30, 1998 of
$138,000 was fully expensed. There were no such fees for the year ended June 30,
1999. 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. During the year ended June
30, 1999, 92,000 options were exercised.
9. Stock Option Plans
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 fair market value on the date of
grant. Options generally vest over 3 years.
The following table summarizes the Option Plans' transactions for the years
ended June 30, 1999 and 1998:
F-13
<PAGE>
Weighted
Average
Exercise
Shares Price
-------------------
Options outstanding at June 30, 1997 300,000 $ 3.73
Options granted 260,000 4.85
Options canceled (31,000) 5.00
-------------------
Options outstanding at June 30, 1998 529,000 4.39
Options granted 370,200 11.44
Options canceled (55,833) 6.10
Options exercised (55,000) 3.53
-------------------
Options outstanding at June30, 1999 788,367 $ 7.64
===================
Options exercisable at June 30, 1999 349,665
========
Options exercisable at June 30, 1998 233,333
========
Options available for future grant at June 30, 1999 6,633
========
Information regarding the options outstanding under the Option Plans at June 30,
1999 is as follows:
<TABLE>
<CAPTION>
Number of
Options
Exercise Price Currently Weighted-Average Weighted-Average Number Weighted-Average
Range Outstanding Exercise Price Contractual Life Exercisable Exercise Price
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3.00-$4.38 302,000 $4.00 7.4 years 273,333 $4.06
$4.69-$5.00 175,667 $4.77 8.4 years 76,332 $4.81
$11.50-$13.06 310,700 $12.80 9.8 years -- $ --
---------- ---------
788,367 349,665
========== =========
</TABLE>
Pro forma information regarding net loss per share is required by SFAS 123, and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of SFAS 123. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for June 30, 1999 and
1998:
June 30
Assumption 1999 1998
- --------------------------------------------------------------------------------
Risk-free interest rate 5.08% 5.57%
Dividend yield 0% 0%
Volatility factor of the expected market price
of the Company's common stock 1.090 .709
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
F-14
<PAGE>
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.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of the options. Had compensation
cost for the Company's Plans been determined based upon the fair value at the
grant date for awards under the Plans 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 $321,000, or $.03 per share and $317,000, or
$.03 per share for the years ended June 30, 1999 and 1998, respectively.
The weighted average fair value of options granted during the years ended June
30, 1999 and 1998 was $8.06 and $2.41, respectively.
10. Commitments and Contingencies
Leases
The Company has various leases for office space. Rental expense for the years
ended June 30, 1999 and 1998 was approximately $669,000 and $771,000,
respectively.
The minimum annual rental commitments under noncancellable operating leases are
as follows (in thousands):
Year ending June 30:
2000 $ 664
2001 381
2002 254
2003 78
2004 46
-------
$ 1,423
=======
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, results of the operations or
cash flows 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 of Directors approval. In
1999 and 1998, the amount of this matching expense was approximately $41,000
and $30,000, respectively.
F-15
<PAGE>
12. Investment
In November 1998, the Company acquired 5,000,000 common units in Common Places,
LLC ("Common Places") in exchange for providing media and marketing services
having an aggregate value of $15,000,000 over a four year period commencing upon
the initial public launch campaign promoting Common Place's business, but not
later than August 31, 1999. Common Places was formed to develop and market an
Internet hub to college students. Twenty-five percent of the common units
initially acquired by the Company, or 1,250,000 common units, are not subject to
vesting and no additional performance of services by the Company is necessary
with respect to these units. The remaining seventy-five percent, or 3,750,000
common units, vests over a four year period based on the value of media and
marketing services the Company actually provides.
The Company did not assign a value to the initial 1,250,000 common units that
vested immediately because of the start-up nature of Common Place's Business and
the related uncertainty surrounding it. It is the Company's intention to record
an investment proportionate to the cost of media and marketing services provided
on an on-going basis related to its $15,000,000, four year commitment. This
investment in Common Places is accounted for using the equity method, under
which the Company's share of earnings or losses of Common Places is reflected in
income as earned and dividends are credited against the investment when
received.
For the year ended June 30, 1999, the Company provided $51,000 in media and
marketing services to Common Places. The Company's share of Common Place's
losses for the year ended June 30, 1999 was approximately $2,300,000. The
Company has limited the recognition of such losses in its statement of
operations to $51,000 because it is not required to fund Common Place's losses
or to make additional capital contributions.
On June 28, 1999, the Company entered into a definitive merger agreement,
subject to stockholder approval, to merge the Company and Common Places into a
newly formed holding company that will be called YouthStream Media Networks,
Inc. ("YouthStream"). Under the terms of that agreement, YouthStream will
exchange each of its shares for each of the Company's shares and 0.89 of its
shares for each common unit of Common Places. Common Places unitholders,
excluding the Company, will receive approximately 4.8 million shares of
YouthStream's common stock. Based on the June 28, 1999 price of the Company's
common stock, the excess of cost over fair value of net assets acquired is
estimated to be approximately $70 million.
13. Subsequent Events
In August 1999, the Company sold 1,219,521 shares of its common stock for $25.0
million in a private placement. The Company incurred approximately $1,500,000 of
fees and related expenses in this transaction.
In August 1999, the Company acquired CollegeWeb.com, Inc. ("CollegeWeb")
pursuant to a merger agreement among the Company, a wholly-owned subsidiary of
the Company and CollegeWeb. CollegeWeb owns and maintains a Web site aimed at
college students which, among other things, permits students to communicate with
other students using video cameras attached to their computers. The purchase
price consisted of 108,971 shares of the Company's common stock, valued at $2.5
million, or approximately $22.94 per share, the then current market price.
F-16
<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 27, 1999
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 27, 1999
- ----------------------------- Chairman of the Board
Harlan D. Peltz (Principal Executive
Officer)
/s/ DON LEEDS President and Director September 27, 1999
- -----------------------------
Don Leeds
/s/ BRUCE L. RESNIK Executive Vice President, September 27, 1999
- ----------------------------- Chief Financial Officer
Bruce L. Resnik and Secretary
(Principal Financial
Officer and Principal
Accounting Officer)
/s/ HOWARD KLEIN Director September 27, 1999
- -----------------------------
Howard Klein
/s/ METIN NEGRIN Director September 27, 1999
- -----------------------------
Metin Negrin
/s/ GEORGE LINDEMANN Director September 27, 1999
- -----------------------------
George Lindemann
19
<PAGE>
OPTION AGREEMENT
Dated August 3, 1999
The parties to this agreement are Network Event Theater, Inc., a Delaware
corporation ("NET"), New CW, Inc., a Delaware corporation and a wholly-owned
subsidiary of NET ("New CW"), CollegeWeb.com, Inc., a Delaware corporation
("CW"), and the stockholders of CW named at the end of this agreement
(collectively, the "Stockholders").
The parties agree as follows:
I. Option. NET shall have the option, but shall not be required, to
acquire CW pursuant to the agreement and plan of merger among the parties to
this agreement, a copy of which is attached to this agreement as exhibit A (the
"Merger Agreement"), by giving written notice to CW and the Stockholders at any
time before the close of business on September 15, 1999, or, if earlier, the
close of business on the tenth day following receipt by NET of the audited
financial statements referred to in section 4.7 of the Merger Agreement, with a
report thereon by Ernst & Young LLP, that it wishes to exercise this option. If
NET so exercises this option, CW and the Stockholders shall take all action
necessary to cause the merger contemplated by the Merger Agreement to be
consummated as promptly as practicable thereafter. The option provided for in
this section 1 shall be irrevocable and shall be considered an irrevocable offer
pursuant to Section 5-1109 of the New York General Obligations Law.
2. Advances. Simultaneously with the execution and delivery of this
agreement and the Merger Agreement, Common Places, LLC ("CP"), an affiliate of
NET, is loaning CW $100,000, and CW is executing and delivering to CP a
promissory note in respect of that loan in the form of exhibit B (the "First
Note"). In addition, NET hereby confirms that CP has agreed to loan CW an
additional $100,000 on each of two occasions upon notice given by CW to NET,
and, as a condition to making each such loan to CW, CW shall execute and deliver
to CP a promissory note in respect of each such loan in the form of the First
Note (but dated the date of the respective loan). Simultaneously with the
execution and delivery of the First Note, J. Alexander Chriss is executing and
delivering to CP a guaranty of CW's obligations under the First Note and any
subsequent note referred to above in the form of exhibit C, which is secured by
a pledge of all Mr. Chriss' stock in CW.
3. Representations. CW and each Stockholder severally represent and
warrant to NET, as to himself, herself or itself only, the following:
(a) This agreement has been duly and validly executed and delivered
by CW and each Stockholder, and constitutes a valid and binding agreement of
each of them, enforceable against each of them in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and subject to general
principles of equity (whether considered in a proceeding in equity or at law).
(b) Each Stockholder is an accredited investor within the meaning of
Regulation D under the Securities Act of 1933 (the "Act") and, by virtue of his
or her experience in evaluating
<PAGE>
and investing in private placement transactions of securities in companies
similar to NET, he or she is capable of evaluating the merits and risks of an
investment in NET and has the capacity to protect his or her own interests. Each
Stockholder has had access to NET's senior management and has had the
opportunity to conduct such due diligence review as he or she has deemed
appropriate.
(c) Each Stockholder will be acquiring the NET Common Stock (as
defined in the Merger Agreement) for investment for his or her own account, not
as a nominee or agent, and not with the view to, or for resale in connection
with, any distribution of any part thereof. Each Stockholder understands that
the NET Common Stock will not be registered under the Act or applicable state
and other securities laws by reason of a specific exemption from the
registration provisions of the Act and applicable state and other securities
laws, the availability of which depends upon, among other things, the bona fide
nature of the investment intent and the accuracy of each Stockholder's
representations in this section 3(c).
(d) Each Stockholder acknowledges and understands that he or she
must bear the economic risk of this investment for an indefinite period of time
because the NET Common Stock must be held indefinitely, unless subsequently
registered under the Act and applicable state and other securities laws or
unless an exemption from such registration is available. Each Stockholder
understands that any transfer agent of NET will be issued stop-transfer
instructions with respect to the NET Common Stock issued pursuant to the Merger
Agreement, unless any transfer thereof is subsequently registered under the Act
and applicable state and other securities laws or unless an exemption from such
registration is available.
4. Agreements
(a) During the term of this option agreement, each Stockholder
agrees that he, she or it shall not, directly or indirectly, engage in any
discussions with any other person or entity (other than NET and its affiliates)
relating to the transactions contemplated by this agreement or relating to any
other acquisition, merger, financing or similar transaction involving CW or its
business. If a third party seeks to engage in any such discussion with CW or any
Stockholder, CW or such Stockholder, as the case may be, shall immediately so
advise NET.
(b) Each Stockholder severally agrees that he, she or it shall
vote all the shares of NET Common Stock issued to him, her or it under the
Merger Agreement in favor of the Mergers (as defined in the Merger Agreement) at
the stockholders meeting referred to in section 4.8 of the Merger Agreement and
against any other transaction or proposal that might conflict with the
consummation of such Mergers.
5. Miscellaneous
5.1 Enforcement of Agreement. The parties agree that irreparable
damage would occur in the event any of the provisions of this agreement are not
performed in accordance with their specific terms or are otherwise breached.
Accordingly, the parties agree that they shall be entitled to an injunction to
prevent breaches of this agreement and to enforce specifically the terms and
provisions of this agreement in any federal or state court located in the
Borough of Manhattan in the City of New York (as to which the parties agree to
submit to jurisdiction for the purposes of
<PAGE>
such action), this being in addition to any other remedy to which they are
entitled at law or in equity.
5.2 Expenses. Each of the parties shall bear its own expenses in
connection with the transactions contemplated by this agreement, and no party
shall have any liability to the others with respect to those expenses.
5.3 Validity. The invalidity or unenforceability of any provision of
this agreement shall not affect the validity or enforceability of any other
provision of this agreement, which shall remain in full force and effect.
5.4 Waiver. Any term or provision of this agreement may be waived in
writing at any time by the party that is entitled to the benefits of that term
or provision.
5.5 Notices. All notices, requests, claims, demands and other
communications under this agreement shall be in writing and shall be deemed to
have been duly given when delivered in person, by facsimile transmission with
confirmation of receipt, or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties as follows:
if to NET or New CW, to it at:
Network Event Theater, Inc.
529 Fifth Avenue, 7th Floor
New York, New York 10017
Attention: Bruce L. Resnik, Executive Vice President and Chief
Financial Officer
Fax No.: (212) 622-7370
if to CW or a Stockholder, to it or him at:
CollegeWeb, Inc.
800 West Cummings Park
Suite 3100
Woburn, Massachusetts 01801
Attention: J. Alexander Chriss, President and Chief Executive
Officer
Fax No.: 781-935-9292
or to such other address as the person or entity to whom notice is given may
have previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt of notice of the change).
5.6 Governing Law. This agreement shall be governed by and construed
in accordance with the law of the state of New York, regardless of the law that
might otherwise govern under principles of conflicts of laws applicable to this
agreement.
5.7 Headings. The headings in this agreement are for convenience of
reference
<PAGE>
only and are not intended to be part of or to affect the meaning or
interpretation of this agreement.
5.8 Parties in Interest. This agreement shall be binding upon and
inure solely to the benefit of each party to this agreement, and nothing in this
agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature under or by reason of this agreement.
5.9 Counterparts. This agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same agreement.
5.10 Entire Agreement. This agreement and the exhibits to this
agreement constitute the entire agreement among the parties with respect to
their subject matter and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to that subject matter.
NETWORK EVENT THEATER, INC.
By:___________________________________
NEW CW, INC.
By:___________________________________
COLLEGEWEB.COM, INC.
By:___________________________________
<PAGE>
STOCKHOLDERS:
______________________________________
J. Alexander Chriss, Individually
______________________________________
Todd M. Ragaza, Individually
______________________________________
Joan Bergstrom, Individually
______________________________________
Gary Bergstrom, Individually
______________________________________
Jeffrey Valenty, Individually
MERCURY TRUST (CRAIG BERGSTROM)
By:___________________________________
<PAGE>
AGREEMENT AND PLAN OF MERGER
AMONG
NETWORK EVENT THEATER, INC.,
NEW CW, INC.,
COLLEGEWEB.COM, INC.,
J. ALEXANDER CHRISS
AND
TODD M. RAGAZA
Dated August 3, 1999
<PAGE>
AGREEMENT AND PLAN OF MERGER
Dated August 3, 1999
The parties to this agreement and plan of merger are Network Event
Theater, Inc., a Delaware corporation ("NET"), New CW, Inc., a Delaware
corporation and a wholly-owned subsidiary of NET ("New CW"), CollegeWeb.com,
Inc., a Delaware corporation ("CW"), and the stockholders named at the end of
this agreement (collectively, the "Stockholders").
The parties agree as follows:
1. The Merger
1.1 The Merger. Upon the terms of this agreement and subject to the
provisions of the Delaware General Corporation Law (the "Law"), New CW shall be
merged with and into CW (the "Merger"). CW shall be the surviving corporation in
the Merger (the "Surviving Corporation").
1.2 Consummation of the Merger. If NET exercises the option (the "Option")
to acquire CW pursuant to the option agreement dated this date among the parties
to this agreement, then, subject to the provisions of this agreement, the
parties shall cause the Merger to be consummated by filing with the secretary of
state of the state of Delaware a duly executed and verified certificate of
merger promptly, and in any case not later than five business days after that
option is exercised and notice of such exercise is given to CW and the
Stockholders, and shall take all other action required by law to effect the
Merger. The Merger shall become effective upon the filing referred to in the
preceding sentence. At the time the Merger becomes effective (the "Effective
Time"), the separate corporate existence of New CW shall cease.
1.3 Organizational Documents. The certificate of incorporation and by-laws
of New CW, as in effect on the date of this agreement, shall be the certificate
of incorporation and by-laws, respectively, of the Surviving Corporation.
1.4 Directors and Officers and Managers. Persons to be named by NET before
the Effective Time shall be the directors and officers of the Surviving
Corporation, until their respective successors are duly elected and qualified.
1.5 Conversion
(a) At the Effective Time, (i) the shares of common stock, $.01 par
value, of CW ("CW Common Stock") issued and outstanding immediately prior to the
Effective Time (other than shares held in the treasury of CW, all of which shall
be cancelled) shall, by virtue of the Merger and without any action on the part
of any person or entity, be converted into the right to receive a number of
shares of common stock, $.01 par value, of NET ("NET Common Stock") determined
by dividing (A) the Basic Purchase Price (as defined in section 1.5(e)) by (B)
the Average Price (as defined in section 1.5(e)), and each holder of issued and
outstanding shares of CW Common Stock immediately prior to the Effective Time
(other than shares held in the treasury
<PAGE>
of CW) shall be entitled to receive his, her or its proportionate number of
whole shares of NET Common Stock (it being understood that CW shall advise NET,
in writing, prior to the Effective Time of the number of such shares that each
such holder is entitled to receive, which advice NET may rely on, and the
Stockholders shall jointly and severally indemnify and hold NET harmless from
and against any loss, liability, damage or expense (including reasonable
attorneys' fees) in respect thereof); and (ii) each share of common stock, $.01
par value, of New CW issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of any
person or entity, be converted into and become one share of CW Common Stock.
(b) All NET Common Stock issued in the Merger will be duly
authorized, validly issued and fully paid and non-assessable, and shall be free
and clear of all liens, claims, encumbrances or restrictions ("Liens") (other
than any Liens that may arise from any action of the stockholder to whom the
shares are issued).
(c) The holders of shares of CW Common Stock immediately prior to
the Effective Time shall cease to have any rights as stockholders of CW and
their sole right shall be the right to receive the number of whole shares of NET
Common Stock into which their shares of CW Common Stock have been converted
pursuant to section 1.5(a).
(d) CW and the Stockholders shall cause each option or other right
to acquire shares of CW Common Stock that is outstanding to be cancelled prior
to the Effective Time.
(e) (i) "Average Price" means the average closing price of a share
of NET Common Stock on the Nasdaq National Market on the 30 trading days
immediately preceding the third day preceding the date on which NET exercises
the Option.
(ii) "Basic Purchase Price" means an amount equal to (A)
$2,500,000, increased by (B) the net proceeds to the Company after the date of
this agreement and before the Effective Time from the exercise of any
outstanding options referred to in the first sentence of section 3.2, and
reduced by (C) the sum of all of CW's liabilities immediately prior to the
Effective Time in excess of $300,000, based on NET's independent accountants'
estimate thereof (it being understood and agreed that, if NET's independent
accountants' estimate is incorrect for any reason, the Basic Purchase Price
shall be adjusted from time to time upward or downward, as appropriate, and, if
the adjustment is upward, the number of shares of NET Common Stock issued to the
holders of CW Common Stock before the Effective Time shall be increased by the
nearest whole number of shares (determined by dividing the amount of such
adjustment by the Average Price), as and when such adjustment occurs or as soon
thereafter as practicable).
1.6 Exchange of Certificates Representing NET Common Stock. Immediately
after the Effective Time, (i) NET shall issue to each former holder of CW Common
Stock certificates representing at least 85.7% of the number of shares of NET
Common Stock issuable in exchange for outstanding shares of CW Common Stock
pursuant to section 1.5(a) (it being understood that, as a result of NET's
inspection and examination under section 4.6 and its review of the financial
statements referred to in section 4.7, NET may, but shall not be required to,
determine, in its sole
2
<PAGE>
and absolute discretion, that it will so issue to each Stockholder more than the
number of shares of NET Common Stock referred to in this clause (i)), and (ii)
NET shall issue to an escrow agent to be designated by NET, which shall be a
commercial bank of national reputation that shall have executed and delivered an
escrow agreement in substantially the form of exhibit A (the "Escrow
Agreement"), the balance of the shares of NET Common Stock NET estimates will be
issuable in exchange for outstanding shares of CW Common Stock pursuant to
section 1.5(a) (the "Escrow Shares").
2. Representations and Warranties of NET. NET represents and warrants to CW as
follows:
2.1 Organization and Qualification. Each of NET and New CW is a duly
incorporated and validly existing corporation in good standing under the law of
the state of Delaware, with the corporate power and authority to own its
properties and conduct its business as now being conducted
2.2 Authority for this Agreement. Each of NET and New CW has the requisite
corporate power and authority to execute and deliver this agreement and the
other agreements to be executed and delivered by it pursuant to this agreement
(collectively, the "Agreements") and to consummate the transactions contemplated
by the Agreements. Except for approval by NET's board of directors, which
approval has not yet been obtained, no other corporate proceedings on the part
of NET or New CW are necessary to authorize the Agreements or to consummate the
transactions so contemplated. If approval by NET's board of directors is
obtained, this agreement will have been duly and validly executed and delivered
by each of NET and New CW, and, when the other Agreements are executed and
delivered by the parties to them and assuming each Agreement constitutes the
valid and binding obligation of each of the parties to them (other than NET and
New CW), each Agreement will constitute a valid and binding agreement of each of
NET and New CW that is a party to it, enforceable against each of them in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and subject to general principles of equity (whether considered in a proceeding
in equity or at law).
2.3 Capitalization
(a) The authorized capital stock of NET consists of 32,000,000
shares of NET Common Stock and 1,000,000 shares of preferred stock, $.01 par
value (the "Preferred Stock"). As of the close of business on July 31, 1999,
14,965,756 shares of NET Common Stock were issued and outstanding; no shares of
Preferred Stock were issued or outstanding; no shares of NET Common Stock were
held in NET's treasury; and there were outstanding options and warrants to
purchase an aggregate of 2,275,307 shares of NET Common Stock. Since July 31,
1999, the Company has not (i) issued any shares of NET Common Stock, other than
upon the exercise of options or warrants then outstanding, (ii) granted any
options, warrants or other rights to purchase shares of NET Common Stock or
(iii) split, combined or reclassified any of its shares of capital stock. All
the outstanding shares of NET Common Stock have been duly authorized and validly
issued and are fully paid and nonassessable and are free of preemptive rights.
Except as set forth in this section 2.2, there are no outstanding (i) shares of
capital stock or other voting securities of
3
<PAGE>
NET, (ii) securities of NET convertible into or exchangeable for shares of
capital stock or voting securities of NET or (iii) except for securities
issuable in connection with the Mergers referred to in section 6.1(b) or in
connection with a proposed private placement of NET Common Stock that is
pending, options, warrants, rights or other agreements or commitments to acquire
from NET, or obligations of NET to issue, any capital stock, voting securities
or securities convertible into or exchangeable for capital stock or voting
securities of NET, or obligations of NET to grant, extend or enter into any
subscription, warrant, right, convertible or exchangeable security or other
similar agreement or commitment (the items in clauses (i), (ii) and (iii),
collectively, the "NET Securities"). There are no outstanding obligations of NET
or any subsidiary of NET to repurchase, redeem or otherwise acquire any NET
Securities. Except in connection with the Mergers referred to in section 6.1(b),
there are no voting trusts or other agreements or understandings to which NET or
any of its subsidiaries is a party with respect to the voting of capital stock
of NET or any of its subsidiaries. It is understood and agreed that, when
reference is made in this agreement to a subsidiary or subsidiaries, that term
does not include Common Places, LLC.
(b) Except for the pledge of shares of certain NET's subsidiaries to
First Union National Bank to secure certain loans, NET is, directly or
indirectly, the record and beneficial owner of all the outstanding shares of
capital stock of each of its subsidiaries, free and clear of any lien, mortgage,
pledge, restriction (voting, transfer or otherwise), charge, security interest
or encumbrance (a "Lien"), and there are no irrevocable proxies with respect to
any such shares. There are no outstanding (i) securities of NET or any of its
subsidiaries convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any subsidiary, or (ii)
options, warrants or other rights to acquire from NET or any of its
subsidiaries, or other obligations of NET or any of its subsidiaries to issue,
any capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable for any capital stock, voting
securities or ownership interests in, any of its subsidiaries, or other
obligations of NET or any of its subsidiaries to grant, extend or enter into any
subscription, warrant, right, convertible or exchangeable security or other
similar agreement or commitment (the items in clauses (i) and (ii),
collectively, the "Subsidiary Securities"). There are no outstanding obligations
of NET or any of its subsidiaries to repurchase, redeem or otherwise acquire any
outstanding Subsidiary Securities.
2.4 Absence of Certain Changes. Except as disclosed in the SEC Reports (as
defined in section 2.5), since March 31, 1999, NET and its subsidiaries taken as
a whole have not suffered any Material Adverse Effect.
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2.5 Reports
(a) NET has filed with the Securities and Exchange Commission (the
"SEC") all forms, reports and documents required to be filed by it pursuant to
applicable law, all of which have complied as of their respective filing dates
in all material respects with all applicable requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and the rules under the Exchange Act.
None of the filings by NET with the SEC (the "SEC Reports"), including, without
limitation, any financial statements or schedules included or incorporated by
reference in the SEC Reports, at the time filed, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. NET is in compliance in all material respects with all reporting and
filing requirements of the Exchange Act.
(b) The consolidated financial statements of NET included (or
incorporated by reference) in the SEC Reports have been prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis (except to the extent set forth in those financial statements,
including the notes, if any) and present fairly in all material respects the
consolidated financial position of NET as of their respective dates, and the
consolidated results of operations and changes in financial condition and cash
flows for the periods presented, subject, in the case of the unaudited interim
financial statements, to normal, recurring, year-end adjustments. The
consolidated balance sheet of NET as of March 31, 1999 and the notes thereto
included in the SEC Reports reflect all liabilities required by generally
accepted accounting principles applied on a consistent basis to be reflected
therein.
2.6 Consents and Approvals; No Violation. Neither the execution and
delivery of the Agreements by NET or New CW nor the consummation of the
transactions contemplated by the Agreements will (a) conflict with or result in
a breach of any provision of the certificate of incorporation or by-laws of NET
or any of its subsidiaries; (b) require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, except (i) pursuant to the Securities Exchange Act of 1934 or (ii)
the filing of a certificate of merger pursuant to the Delaware General
Corporation Law (the "Law"); (c) result in a material default (or give rise to
any right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any material note, license, agreement or other
instrument or obligation to which NET or any of its subsidiaries is a party or
by which any of them or any of their assets are bound; or (d) violate in any
material respect any material order, writ, injunction, decree, statute, rule or
regulation applicable to NET or any of its subsidiaries or by which any material
portion of their assets are bound.
2.7 Brokers. No broker, finder or other investment banker is entitled to
receive any brokerage, finder's or other fee or commission in connection with
this agreement or the transactions contemplated by this agreement based upon
agreements made by or on behalf of NET or any of its subsidiaries.
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3. Representations and Warranties of CW and the Stockholders. CW and the
Stockholders jointly and severally represent and warrant to NET as follows:
3.1 Organization and Qualification. CW is a duly incorporated and validly
existing corporation in good standing under the law of the state of Delaware,
with the corporate power and authority to own its properties and conduct its
business as now being conducted, and is duly qualified and in good standing as a
foreign corporation authorized to do business in each jurisdiction in which the
character of the properties owned or held under lease by it or the nature of the
business transacted by it makes such qualification necessary, except where the
failure to be so qualified and in good standing would not have a Material
Adverse Effect.
3.2 Capitalization. There are 3,529,412 shares of CW Common Stock issued
and outstanding, and there are outstanding options to purchase an aggregate of
176,471 shares of CW Common Stock. All the outstanding shares of CW Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable and are free of preemptive rights. Except as set forth in this
section 3.2 or in schedule 3.2, there are no outstanding (i) shares of capital
stock or voting securities of CW, (ii) securities of CW convertible into or
exchangeable for capital stock or voting securities of CW or (iii) options,
warrants, rights or other agreements or commitments to acquire from CW, or
obligations of CW to issue, any capital stock or voting securities or securities
convertible into or exchangeable for capital stock or voting securities of CW,
or obligations of CW to grant, extend or enter into any subscription, warrant,
right, convertible or exchangeable security or other similar agreement or
commitment (the items in clauses (i), (ii) and (iii), collectively, the "CW
Securities"). Except as set forth in schedule 3.2, there are no outstanding
obligations of CW to repurchase, redeem or otherwise acquire any CW Securities,
and there are no other outstanding equity related awards. Except as set forth in
schedule 3.2, there are no voting trusts or other agreements or understandings
to which CW is a party with respect to the voting of capital stock of CW. CW
does not own or have any liability or obligation to acquire any securities or
other interest in any other business or entity.
3.3 Authority for this Agreement. CW has the corporate power and authority
to execute and deliver this agreement and to consummate the transactions
contemplated by this agreement. The execution and delivery of this agreement by
CW and the consummation by CW of the transactions contemplated by this agreement
have been duly and validly authorized and no other proceedings on the part of CW
are necessary to authorize this agreement or to consummate the transactions so
contemplated. This agreement has been duly and validly executed and delivered by
CW and each Stockholder and, when the other Agreements are executed and
delivered by the parties to them (other than CW and the Stockholders), each
Agreement constitutes or will constitute a valid and binding agreement of each
of CW and the Stockholders that is a party to it, enforceable against each of
them in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject to general principles of equity (whether considered in a
proceeding in equity or at law).
3.4 Absence of Certain Changes. Except as set forth in schedule 3.4, since
June 30, 1999: (a) CW has not suffered any Material Adverse Effect, (b) CW has
conducted its business only in the ordinary course consistent with past practice
and (c) there has not been (i) any
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declaration, setting aside or payment of any dividend or other distribution in
respect of CW Common Stock or any repurchase, redemption or other acquisition by
CW of any outstanding CW Common Stock or other securities in, or other ownership
interests in, CW; (ii) any entry into any written employment agreement with, or
any increase in the rate or terms (including, without limitation, any
acceleration of the right to receive payment pursuant to arrangements set forth
in schedule 3.4) of compensation payable or to become payable by CW to, its
employees or officers; (iii) any increase in the rate or terms (including,
without limitation, any acceleration of the right to receive payment) of any
bonus, insurance, pension or other employee benefit plan, payment or arrangement
made to, for or with any such employees or officers, except increases occurring
in the ordinary course of business or as required by law or as necessary to
maintain tax-qualified status; or (iv) any action by CW that, if taken after the
date of this agreement, would constitute a breach of section 4.4 or 4.5.
3.5 Financial Statements and other Information. The unaudited financial
statements of CW listed in schedule 3.5, copies of which previously have been
furnished to NET, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except to the extent set
forth in those financial statements, including the notes, if any) and present
fairly in all material respects the financial position of CW as of their
respective dates, and the results of operations and changes in financial
condition and cash flows for the periods presented, subject to normal,
recurring, year-end adjustments.
3.6 Absence of Undisclosed Liabilities. As of the date of this agreement,
CW does not have any liability or obligation of any kind, whether accrued,
absolute, contingent or otherwise, other than (a) liabilities and obligations
under leases, commitments and other agreements entered into in the ordinary
course of business (which, to the extent required by this agreement, are set
forth in the schedules to this Agreement), (b) accounts payable and accrued
expenses incurred in the ordinary course of business and (c) the liabilities set
forth in schedule 3.6. CW does not know of any basis for the assertion against
it of any other liability as of the date of this agreement.
3.7 Consents and Approvals; No Violation. Neither the execution and
delivery of the Agreements by CW or any Stockholder nor the consummation of the
transactions contemplated by the Agreements will (a) conflict with or result in
a breach of any provision of the certificate of incorporation or by-laws of CW;
(b) require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except (i) pursuant
to the Securities Exchange Act of 1934 or (ii) the filing of a certificate of
merger pursuant to the Law; (c) result in a material default (or give rise to
any right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any material note, license, agreement or other
instrument or obligation to which CW or any Stockholder is a party or by which
CW or any Stockholder or any of its or their assets are bound; or (d) violate in
any material respect any material order, writ, injunction, decree, statute, rule
or regulation applicable to CW or any Stockholder or by which any material
portion of its or their assets are bound.
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3.8 Employee Benefit Matters
(a) For purposes of this agreement, the term "Plan" refers to the
following maintained on behalf of any employee of CW (whether current, former or
retired), or their beneficiaries, by CW, or any entity that would be deemed a
"single employer" with CW under section 414(b), (c), (m) or (o) of the Internal
Revenue Code (the "Code") or section 4001 of the Employee Retirement Income
Security Act of 1974 ("ERISA") (an "ERISA Affiliate"): any "employee benefit
plan" (within the meaning of section 3(3) of ERISA), or any other plan, program,
agreement or commitment, an employment, consulting or deferred compensation
agreement, or an executive compensation, incentive bonus or other bonus,
employee pension, profit-sharing, savings, retirement, stock option, stock
purchase, severance pay, life, health, disability or accident insurance plan.
Schedule 3.8(a) lists each Plan.
(b) Neither CW nor any of the ERISA Affiliates nor any of their
respective predecessors has ever contributed to or contributes to, or otherwise
participated in or participates in any "multiemployer plan" (within the meaning
of section 4001(a)(3) of ERISA or section 414(f) of the Code), any single
employer pension plan (within the meaning of section 4001(a)(15) of ERISA) that
is subject to sections 4063 and 4064 of ERISA or any plan that is subject to
Title IV of ERISA or section 412 of the Code.
(c) CW, each ERISA Affiliate, each Plan and each "plan sponsor"
(within the meaning of section 3(16) of ERISA) of each "welfare benefit plan"
(within the meaning of section 3(1) of ERISA) has complied in all respects with
the requirements of section 4980B of the Code and Title I, Subtitle B, Part 6 of
ERISA, except for a failure or failures to comply that, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(d) With respect to each Plan:
(i) each Plan intended to qualify under section 401(a) of the
Code has been qualified since its inception and has received a determination
letter from the Internal Revenue Service (the "IRS") to the effect that the Plan
is qualified under section 401 of the Code and any trust maintained pursuant to
the Plan is exempt from federal income taxation under section 501 of the Code
and nothing has occurred that would cause the loss of such qualification or
exemption or the imposition of any material penalty or tax liability upon of the
remedial amendment period will apply, for a determination letter from the IRS
pursuant to Revenue Procedure 93-39, for each Plan intended to qualify under
section 401(a) of the Code;
(ii) no event has occurred in connection with which CP or any
ERISA Affiliate could be subject to any material liability under ERISA, the Code
or any other law, regulation or governmental order applicable to any Plan,
including, without limitation, section 406, 409, 502(i) or 502(l) of ERISA, or
section 4975 of the Code; and
(iii) each material Plan complies in all material respects
with the applicable requirements of ERISA and the Code.
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(e) CW has furnished NET with respect to each Plan:
(i) a copy of each annual report, if required by ERISA to be
prepared, with respect to the Plan, together with a copy of all financial
statements for each Plan, if required by ERISA to be prepared;
(ii) a copy of the most recent Summary Plan Description,
together with each Summary of Material Modifications, required under ERISA with
respect to the Plan, and, unless the Plan is embodied entirely in an insurance
policy to which CW is a party, a true and complete copy of the Plan; and
(iii) if the Plan is funded through a trust or any third party
funding vehicle (other than an insurance policy), a copy of the trust or other
funding agreement and the latest related financial statements, if any.
(f) Except as set forth in schedule 3.8(f), CW has not announced any
plan or commitment to create any additional Plans or, except in the ordinary
course of business in accordance with its customary practices or as required by
law or as necessary to maintain tax-qualified status, to amend or modify any
Plan.
(g) Except as set forth in schedule 3.8(g), CW is not a party to any
collective bargaining agreement.
(h) Except as set forth in schedule 3.8(h), the consummation of the
transactions contemplated by this agreement will not give rise to any liability
for severance pay, unemployment compensation, termination pay or withdrawal
liability, or accelerate the time of payment or vesting or increase the amount
of compensation or benefits due to any current, former, or retired employee or
their beneficiaries solely by reason of such transactions. No amounts payable
under any Plan will fail to be deductible for federal income tax purposes by
virtue of section 280G of the Code.
(i) Except as set forth in schedule 3.8(i), neither CW nor any ERISA
Affiliate maintains, contributes to or in any way provides for any benefits
(other than under section 4980B of the Code, the Federal Social Security Act or
a plan qualified under section 401(a) of the Code) to any current or future
retiree or terminated employee.
3.9 Litigation, Etc. Except as set forth in schedule 3.9, there is no
claim, action, proceeding or governmental investigation pending or, to the
knowledge of CW or the Stockholders, threatened against CW before any court or
governmental or regulatory authority that, individually or in the aggregate, (a)
could reasonably be expected to have a Material Adverse Effect or (b) has had or
could reasonably be expected to have a material adverse effect on the ability of
CW to consummate the transactions contemplated by this agreement or in any
manner challenges or seeks to prevent, enjoin or delay the Merger.
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3.10 Tax Matters
(a) Except as set forth in schedule 3.10(a):
(i) all returns and reports relating to Taxes required to be
filed with respect to CW or any of its income, properties or operations have
been duly filed in a timely manner (taking into account all extensions of due
dates), and, to the knowledge of CW and the Stockholders, all information in
such returns, declarations and reports is true, correct and complete in all
material respects;
(ii) all Taxes attributable to CW that were shown to be due
and payable on such returns and reports have been paid;
(iii) there is no claim or assessment pending or, to the
knowledge of CW and the Stockholders, threatened against CW for any alleged
material deficiency in Taxes attributable to CW;
(iv) CW has satisfied in all material respects for all periods
all applicable withholding Tax requirements (including, without limitation,
income, social security and employment tax withholding for all types of
compensation); and
(v) CW has furnished NET complete and accurate copies of all
Tax returns, and all related amendments, filed by or on behalf of CW.
(b) Except as set forth in schedule 3.10(b), there are no agreements
in effect to extend the period of limitations for the assessment or collection
of any income, franchise or other Tax for which CW may be liable.
3.11 Compliance with Law. Except as set forth in schedule 3.11, to the
knowledge of CW and the Stockholders, CW is not in conflict with, or in default
or violation of, any law, rule or regulation (including, but not limited to, any
applicable law, rule or regulation respecting employment and employment
practices, terms and conditions of employment and wages and hours), or any
order, judgment or decree applicable to CW or by which any property or asset of
CW is bound or affected, except where such conflicts, defaults or violations,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
3.12 Contracts. Schedule 3.12 contains an accurate and complete list of:
(a) all of CW's commitments and other agreements for the purchase of materials,
supplies, equipment, and software, other than commitments and other agreements
that were entered into in the ordinary course of business and involve an
expenditure by CW of less than $10,000 for any one commitment or two or more
related commitments; (b) all notes and agreements relating to any indebtedness
of CW; (c) all leases or other rental agreements under which CW is either lessor
or lessee; and (d) all of CW's other agreements, commitments and understandings
(written or oral) that require payment by CW of more than $10,000 individually.
True and complete copies of all written leases,
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commitments and other agreements referred to on in schedule 3.12 have been
delivered or made available to NET. There are no material breaches or defaults
by CW under any such agreements, and, to the knowledge of CW, there are no
material breaches or defaults by the other party under any such agreements, and
all such agreements are in full force and effect and are binding obligations of
the parties to such agreements.
3.13 Title to Assets. Except as set forth in schedule 3.13 and except for
the Lien, if any, of current taxes not yet due and payable, CW has valid title,
free and clear of any Lien, to all the assets, tangible and intangible, used in
or needed to conduct CW's business, and those assets will be sufficient to
enable it to continue after the Effective Time to operate all aspects of its
business in the manner in which it has been operated.
3.14 Related Party Transactions. Except as set forth in schedule 3.14, CW
does not owe any amount to, or have any contract with or commitment to, or use
any property (real or personal) in its business owned or leased by, any of its
stockholders, or any director, officer, employee, agent or representative of CW
or any of their respective affiliates.
3.15 Permits and Licenses. CW has all permits, licenses, franchises and
other authorizations ("Licenses") necessary for the conduct of its business, and
all such Licenses are valid and in full force and effect, except where the
failure to have such Licenses would not have a Material Adverse Effect. All
Licenses held by CW that are material to its business are set forth in schedule
3.15. Any License of CW to use any software is valid and does not infringe the
property rights of any third party. CW has not granted to any person or entity
any interest, as licensee or otherwise, in any of its owned software or
databases or in any of its lists.
3.16 Banks; Powers of Attorney. Schedule 3.16 sets forth (a) the names and
locations of all banks, trust companies, savings and loan associations and other
financial institutions at which CW maintains safe deposit boxes or accounts of
any nature and the names of all persons authorized to draw thereon, make
withdrawals therefrom or have access thereto, and (b) the names of all persons
to whom CW has granted a power of attorney, together with a description thereof.
CW has provided NET with true and complete copies of all bank statements
received by it prior to the date of this agreement.
3.17 Intangible Property. Schedule 3.17 sets forth a complete list of the
trademarks, trade names, copyrights and logos used by CW. CW owns, free and
clear of any Lien, each of those trademarks, trade names, copyrights and logos
(including registrations and applications for registration of any of them), and
they constitute all the trademarks, copyrights, trade names and logos necessary
for the continued operation of CW's business in a manner consistent with past
practice. To the knowledge of CW and the Stockholders, CW is not infringing upon
any trademark, trade name, copyright or other rights of any third party; no
proceedings are pending or overtly threatened alleging any such infringement;
and no claim has been received by CW alleging any such infringement. To the
knowledge of CW and the Stockholders, there is no violation by others of any
right of CW with respect to any trademark, trade name or copyright.
3.18 Insurance. Schedule 3.18 sets forth a complete list of all the
insurance policies held
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by CW, specifying with respect to each policy the policy limit, type of
coverage, location of the property covered, annual premium, premium payment date
and expiration date. True and complete copies of all those policies have been
made available to NET.
3.19 Website Information. The Website, www.collegeweb.com, had monthly
page-views for April, May and June 1999 in the amount of 15,561,500, 11,198,000
and 2,995,200, respectively, with an average visit of 23:38, 22:49 and 18:05
minutes, respectively.
3.20 Brokers. No broker, finder or other investment banker is entitled to
receive any brokerage, finder's or other fee or commission in connection with
this agreement or the transactions contemplated by this agreement based upon
agreements made by or on behalf of CW.
4. Covenants
4.1 Confidentiality. In the event of termination of this agreement, NET
shall return to CW, and CW and the Stockholders shall return to NET, all
non-public documents, work papers and other material (including, to the extent
practicable, all copies) obtained pursuant to this agreement or in connection
with the transactions contemplated by this agreement. The parties shall use all
reasonable efforts to keep confidential any information obtained pursuant to
this agreement or in connection with the transactions contemplated by this
agreement, unless such information is readily ascertainable from public or
published information or trade sources or is otherwise available to a particular
party as a creditor or stockholder of another party.
4.2 Public Announcements. NET shall not make, issue or release any other
public announcement concerning the terms, conditions or status of the
transactions contemplated by this agreement, without giving CW reasonable
advance notice and making a good faith attempt to obtain the prior approval of
CW with respect to the contents of such announcement, which approval shall not
be unreasonably withheld or delayed. CW shall not make, issue or release any
public announcement concerning the terms, conditions or status of the
transactions contemplated by this agreement, without the prior approval of NET.
4.3 Employment Agreements. Immediately prior to the Effective Time, J.
Alexander Chriss and Todd M. Ragaza shall, and NET shall cause Common Places,
LLC ("CP") to, execute and deliver employment agreements in the forms of
exhibits B and C, respectively.
4.4 Ordinary Course of Business. CW shall (a) conduct its business in the
ordinary course, consistent with past practice; (b) use its best efforts to
preserve all present relationships with persons having business dealings with
it; and (c) use its best efforts to maintain, preserve and protect its assets
and goodwill.
4.5 Restricted Activities and Transactions. CW shall not engage in any of
the following activities or transactions without the prior written approval NET:
(a) amend its certificate of incorporation or by-laws;
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(b) except for issuances of CW Common Stock pursuant to outstanding
options, issue, sell or deliver, or agree to issue, sell or deliver, any CW
Common Stock or any securities convertible into or exchangeable for CW Common
Stock, or grant or issue, or agree to grant or issue, any options, warrants,
incentive awards or other rights to acquire any such securities;
(c) borrow or agree to borrow any funds or incur, or assume or
become subject to, whether directly or by way of guarantee or otherwise, any
obligation or liability (absolute or contingent), other than indebtedness for
money borrowed from NET and any other liability incurred in the ordinary course
of business, or issue, sell or deliver, or agree to issue, sell or deliver, any
bonds, debentures, notes or other debt securities;
(d) declare or pay any dividend or make any distribution on or in
respect of CW Common Stock, whether in cash, stock or property or, directly or
indirectly, redeem, purchase or otherwise acquire any CW Common Stock or make
any other distribution of its assets to the holders of CW Common Stock;
(e) sell, transfer or acquire, or agree to sell, transfer or
acquire, any properties or assets, tangible or intangible, other than in the
ordinary course of business and for consideration at least equal to the fair
market value of the properties or assets transferred;
(f) except as specifically permitted by this agreement, enter into
any contract, agreement, lease or understanding, other than any contract,
agreement, lease or understanding entered into in the ordinary course of
business that is not material;
(g) grant any increase in compensation, hire any additional
employees or enter into any employment agreement;
(h) become liable for or make any material change in any
profit-sharing, bonus, deferred compensation, insurance, pension, retirement or
other employee or executive benefit plan, payment or arrangement, except as
required by law;
(i) except as contemplated by this agreement, merge or consolidate
with any other entity, or acquire stock or, except in the ordinary course of
business, any business, property or assets of any other person or entity;
(j) except as required by law or by subsequently promulgated
generally accepted accounting principles, alter the manner of keeping its books,
accounts or records, or alter the accounting practices reflected in such books,
accounts or records; or
(k) take any other action that would cause any of CW's
representations and warranties in this agreement not to be true and correct in
all material respects on and as of the Effective Time with the same force and
effect as if made on and as of the Effective Time.
4.6 Access to Records and Properties; Opportunity to Ask Questions. CW
shall make available for inspection
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by NET or its representatives, and NET shall make available for inspection by CW
or its representatives, during normal business hours, the premises, corporate
records, books of account, contracts and all other documents of reasonably
requested by NET and its authorized employees, counsel and auditors in order to
permit them to make a reasonable inspection and examination of the business and
affairs of CW or NET, as the case may be. Each of CW and NET shall cause its
managerial employees, counsel and independent accountants to be available upon
reasonable notice to answer questions of NET's or CW's representatives, as the
case may be, concerning its business and affairs, and shall cause them to make
available all relevant books and records in connection with such inspection and
examination, provided that these activities are conducted in a manner that does
not unreasonably interfere with the other's business.
4.7 Supplements to Written Disclosures and Financial Statements. CW shall
promptly deliver to NET any information concerning events subsequent to the date
of this agreement necessary to supplement the representations and warranties of
CW in this agreement in order that the information be kept current, complete and
accurate in all material respects, it being understood and agreed that the
delivery of such information shall not constitute a waiver by NET of any rights
as a result of a misrepresentation or breach of warranty in section 3. In
addition, not later than 30 days after the date of this agreement, CW shall
deliver to NET financial statements for CW for the year ended December 31, 1998,
which shall be audited and reported upon by Ernst & Young LLP at NET's expense,
and unaudited financial statements for CW for each of the three months ended
March 31, 1999 and June 30, 1999, at CW's expense, in each case prepared in
accordance with generally accepted accounting principles consistently applied.
4.8 Further Assurances. Each party shall (a) execute and deliver such
instruments and take such other action as the others may reasonably request to
carry out this agreement, and (b) use all reasonable efforts to obtain the
consents of all parties to all agreements and other documents necessary for the
consummation of the transactions contemplated by this agreement.
5. Indemnification and Related Matters
5.1 Indemnification
(a) Subject to the provisions of this section 5, the Stockholders
shall jointly and severally indemnify and hold NET harmless from and against all
losses, liabilities, damages and expenses (including reasonable attorneys' fees)
resulting from any breach of warranty, covenant or agreement, or any
misrepresentation, by CW or the Stockholders under this agreement.
(b) Subject to the provisions of this section 5, NET shall indemnify
and hold the Stockholders harmless from and against all losses, liabilities
damages and expenses (including reasonable attorneys' fees) resulting from any
breach of warranty covenant or agreement, or any misrepresentation, by NET under
this agreement.
5.2 Related Matters. Except as specifically set forth in this agreement,
no party has made or shall have liability for any representation or warranty,
express or implied, in connection with the transactions contemplated by this
agreement. The parties agree that the remedies provided in this section 5 are
the exclusive remedies for breach of warranty, covenant and agreement, and
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misrepresentation, under this agreement.
5.3 Time and Manner of Certain Claims. The representations, warranties,
covenants and agreements in this agreement shall survive the Effective Time. The
party seeking indemnification (the "Indemnified Party") shall give the party
from whom Indemnification (the "Indemnifying Party") is sought a written notice
("Notice of Claim") within 90 days of the discovery of any matter in respect of
which the right to indemnification contained in this section 5 may be claimed;
provided, that the failure to give such notice within such 90-day period shall
not result in a waiver or loss of any right to bring such claim hereunder after
such period. Notwithstanding the foregoing, failure to give such notice will
terminate any obligation of the Indemnifying Party with respect to such claim to
the extent such failure actually prejudiced the Indemnifying Party. In the event
a claim is pending or threatened or the Indemnified Party has a reasonable
belief as to the validity of the basis for such claim, the Indemnified Party may
give written notice (a "Notice of Possible Claim") of such claim to the
Indemnifying Party, regardless of whether any loss has yet arisen from such
claim. However, a party shall have no liability under this agreement for breach
of warranty, covenant or agreement, or misrepresentation, unless a Notice of
Claim or Notice of Possible Claim therefor is delivered by the party seeking to
be indemnified prior to [March 31, 2001]. Any Notice of Claim or Notice of
Possible Claim shall set forth the representations, warranties, covenants and
agreements with respect to which the claim is made, the facts giving rise to and
alleged basis for the claim and the amount of liability, if known, asserted by
reason of the claim.
5.4 Defense of Claims by Third Parties. If any claim is made against a
party that, if sustained, would give rise to a liability of the other party
under this agreement, the party against whom the claim is made shall promptly
cause notice of the claim to be delivered to the other party and shall afford
the other party and its counsel, at the other party's sole expense, the
opportunity to defend or settle the claim. The failure to provide the notice
referred to above shall not relieve the indemnifying party of liability under
this agreement, except to the extent the Indemnifying Party has actually been
prejudiced by such failure. If any claim is compromised or settled without the
consent of the indemnifying party, no liability shall be imposed on the
indemnifying Party by reason of the claim.
5.5 Method of Payment. Upon consummation of the Merger, NET shall be
entitled to satisfy claims for indemnification pursuant to this section 5 from
the Escrow Shares. To the extent that NET is entitled to indemnification under
this section 5, the Escrow Shares shall be valued in accordance with the
provisions of section 1.5(e)(i), mutatis mutandis. NET may not receive any
Escrow Shares from the Escrow Fund, unless and until Notices of Claims
identifying actual damages and aggregating at least $25,000 has been delivered
to the Escrow Agent as provided in the Escrow Agreement, and such amount is
determined pursuant to this section 5 and the Escrow Agreement to be payable, in
which case NET shall be entitled to receive Escrow Shares equal in value to the
full amount of the damages (including the first $25,000 of such damages.)
5.6 Maximum Liability and Remedies. The rights of NET to make claims upon
the Escrow Shares in accordance with this section 5 shall be the sole and
exclusive remedy of NET after the Effective Time with respect to any
representation, warranty, covenant or agreement made
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by CW or the Stockholders under this agreement (other than those set forth in
sections 3.1, 3.2, 3.3, 3.14, 3.16, 3.20, 4.8, 6.1(b), 6.1(c) and 8.2 (the
"Exception Provisions")) and no former stockholder, optionholder, warrantholder,
director, officer, employee or agent of CW shall have any personal liability to
NET under this agreement after the Effective Time (other than for a
misrepresentation or breach of warranty or agreement under the Exception
Provisions). To the extent NET is entitled to indemnification under this
agreement and the actual damages exceed the value of the Escrow Shares, the
Stockholders shall have no liability or obligation, except to the extent of any
actual damages resulting from a misrepresentation or breach of warranty or
agreement under the Exception Provisions.
6. Other Agreements
6.1 Agreements of Stockholders
(a) Neither CW nor any Stockholder shall, directly or indirectly,
engage in any discussions with any other person or entity (other than NET and
its affiliates) relating to the transactions contemplated by this agreement or
relating to any other acquisition, merger, financing or similar transaction
involving CW or its business. If a third party seeks to engage in any such
discussion with CW or any Stockholder, CW and the Stockholders shall as promptly
as practicable so advise NET.
(b) Each Stockholder shall vote all the shares of NET Common Stock
issued to him or her under this agreement in favor of the Mergers (as defined in
the agreement and plan of merger dated June 28, 1999 among NET, Common Places,
LLC, YouthStream Media Networks, Inc., Nunet, Inc., Nucommon, Inc., Harlan D.
Peltz, Benjamin Bassi, William Townsend and Mark Palmer at the stockholders
meeting referred to in section 4.8 of that agreement and against any other
transaction or proposal that might conflict with the consummation of such
Mergers.
(c) (i) No Stockholder may at any time after the Effective Time
disclose to anyone (except in connection with the performance of services for,
or otherwise on behalf of, NET or any of its subsidiaries) or use in competition
with NET or any of its subsidiaries any confidential information or trade
secrets with respect to the business of NET or any of its subsidiaries;
provided, however, any such individual may disclose confidential information or
trade secrets to the extent required by applicable law.
(ii) No Stockholder may, as long as he is an employee of NET
or any of its subsidiaries and for a period of 30 months thereafter, directly or
indirectly, solicit for employment or hire any person who, during the 12-month
period preceding the date of solicitation or hiring, was an employee of NET or
any of its subsidiaries.
(iii) No Stockholder may, as long as he is an employee of NET
or any of its subsidiaries and for a period of 30 months thereafter, except
through NET or any of its subsidiaries, directly or indirectly, engage or be
interested in (A) the business of developing and operating an Internet portal or
hub targeted primarily to individuals between the ages of 16 and 25, (B) any
business directly competitive with any business NET or any of its subsidiaries
is engaged
16
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in at the time of his termination of employment or (C) any business directly
competitive with a business developed from a project in which he was involved
during his employment (any such business, a "Restricted Business"); provided,
however, that nothing in this paragraph shall limit the right of any such
individual to be employed by a media or Internet company whose businesses
include a Restricted Business, as long as he does not provide any services to
that Restricted Business. For this purpose, a person shall be deemed to be
directly or indirectly engaged or interested in a business or entity, if he is
engaged or interested in that business or entity as a stockholder, member,
partner, individual proprietor, director, officer, employee, agent, lender,
consultant or otherwise, but not if his interest is limited solely to the
ownership of 5% or less of any class of the equity or debt securities of a
corporation as to which he has only a passive role.
(iv) Each Stockholder acknowledges that the remedy at law for
breach of the provisions of this section 6.1(c) will be inadequate and that, in
addition to any other remedy NET or any of its subsidiaries may have, it will be
entitled to an injunction restraining any such breach or threatened breach,
without any bond or other security being required and without the necessity of
showing actual damages or economic loss.
6.2 Pigggyback Registration. If the transactions contemplated by the
agreement and plan of merger referred to in section 6.1(b) are not consummated
by November 30, 1999 and NET at any time thereafter proposes for any reason to
register shares of NET Common Stock under the Act (other than on Form S-4 or S-8
promulgated under the Act or any successor forms), and at such time any
Stockholder is not permitted to sell all the shares of NET Common Stock issued
to him or her under section 1 pursuant to Rule 144(k) under the Act, then NET
shall promptly give written notice to the Stockholders of its intention so to
register such shares and, upon the written request, delivered to NET within 10
days after delivery of any such notice by NET, of the Stockholders to include in
such registration shares of NET Common Stock issued pursuant to section 1 (which
request shall specify the number of shares proposed to be included in such
registration), NET shall use its best efforts to cause all such shares to be
included in such registration on the same terms and conditions as the securities
otherwise being sold in such registration; provided, however, that, if the
managing underwriter advises NET that the inclusion of all shares requested to
be included in such registration would interfere with the successful marketing
(including pricing) of any other shares proposed to be registered by NET, then
the number of shares proposed to be included in such registration shall be
included in the following order of priority:
(i) first, the shares to be issued by NET;
(ii) second, the other shares requested to be included in
such registration (or, if necessary, pro rata among the
holders thereof, based upon the number of shares
requested to be registered by each such holder).
The Stockholders may include shares of NET Common Stock in a registration
pursuant to this section 6.2 on one occasion only; provided, however, that, if
the Stockholders wish to include shares of NET Common Stock in a registration
pursuant to this section 6.2 and the number of shares sought to be included
pursuant to this section 6.2 is reduced as set forth above, the Stockholders may
include the shares sought to be, but that were not, included in one or more
17
<PAGE>
additional registrations in accordance with this section 6.2, until all such
shares shall have been so included. In connection with any such registration,
the parties shall cooperate with each other and execute and deliver such
documents and agreements as are customary in the circumstances.
6.3 Employment Agreements. Immediately before the Effective Time, the
Stockholders shall execute and deliver the respective employment agreements in
substantially the forms attached as exhibits 6.3(a) and 6.3(b), and NET shall
cause Common Places, LLC to execute and deliver such agreements.
7. Termination, Amendment and Waiver
7.1 Termination. This agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the stockholders of NET:
(a) by mutual consent of the boards of directors of NET and CW;
(b) by CW, if the option granted pursuant to the agreement dated
August __, 1999 among NET, CW and the Stockholders (as defined therein)
terminates without having been exercised; or
(c) by NET, at any time or for any reason.
In the event of termination or abandonment of the Merger pursuant to
this section 7.1, written notice of termination shall promptly be given to each
other party to this agreement.
7.2 Effect of Termination. The termination of this agreement under section
7.1 shall not relieve any party of any liability for breach of warranty of this
agreement or misrepresentation prior to the date of termination.
7.3 Amendment. This agreement may not be amended, except by an instrument
in writing signed on behalf of each of the parties.
7.4 Waiver. Any term or provision of this agreement may be waived in
writing at any time by the party that is entitled to the benefits of that term
or provision.
8. Miscellaneous
8.1 Enforcement of the Agreement. The parties agree that irreparable
damage would occur in the event any of the provisions of this agreement were not
performed in accordance with their specific terms or were otherwise breached.
Accordingly, the parties agree that they shall be entitled to an injunction to
prevent breaches of this agreement and to enforce specifically the terms and
provisions of this agreement in any federal or state court located in the
Borough of Manhattan in the city of New York (as to which the parties agree to
submit to jurisdiction for the purposes of such action), this being in addition
to any other remedy to which they are entitled at law or in equity.
18
<PAGE>
8.2 Expenses. Each of the parties shall bear its own expenses in
connection with the transactions contemplated by this agreement, and no party
shall have any liability to the others with respect to those expenses.
8.3 Validity. The invalidity or unenforceability of any provision of this
agreement shall not affect the validity or enforceability of any other provision
of this agreement, which shall remain in full force and effect, unless the
invalidity or unenforceability of such provision would (a) result in such a
material change to this agreement as to be unreasonable, or (b) materially or
adversely frustrate the obligations of the parties in this agreement as
originally written.
8.4 Notices. All notices, requests, claims, demands and other
communications under this agreement shall be in writing and shall be deemed to
have been duly given when delivered in person, by facsimile transmission with
confirmation of receipt, or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties as follows:
if to NET or New CW,
to it at:
c/o Network Event Theater, Inc.
529 Fifth Avenue, 7th Floor
New York, New York 10017
Attention: Bruce L. Resnik, Executive Vice President and Chief
Financial Officer
Fax No.: (212) 622-7370
if to CW or a Stockholder, to it or him at:
800 West Cummings Park
Suite 3100
Woburn, Massachusetts 01801
Attention: J. Alexander Chriss,
President and Chief Executive Officer
Fax No.: 781-935-9292
or to such other address as the person or entity to whom notice is given may
have previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt of notice of the change).
8.5 Governing Law. This agreement shall be governed by and construed in
accordance with the law of the state of New York, regardless of the law that
might otherwise govern under principles of conflicts of laws applicable to this
agreement, except that the provisions of this agreement subject to the Law shall
be governed by and construed in accordance with the Law.
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<PAGE>
8.6 Headings. The headings in this agreement are for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this agreement.
8.7 Parties in Interest. This agreement shall be binding upon and inure
solely to the benefit of each party to this agreement, and nothing in this
agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature under or by reason of this agreement.
8.8 Counterparts. This agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same agreement.
8.9 Certain Definitions
(a) "Material Adverse Effect" means any adverse change in the
business or financial condition of a company or its subsidiaries that is
material to that company and its subsidiaries taken as a whole.
(b) A "subsidiary" of any entity is another entity a majority of the
outstanding voting securities of which are beneficially owned by the first
entity.
(c) "Tax" means all taxes or similar governmental charges, duties,
imposts or levies (including, without limitation, income taxes, franchise taxes,
gross receipt taxes, occupation taxes, real and personal property taxes,
transfer taxes or fees, stamp taxes, sales taxes, use taxes, excise taxes, ad
valorem taxes, withholding taxes, employee withholding taxes, worker's
compensation, payroll taxes, unemployment insurance, social security, minimum
taxes, customs duties or windfall profits taxes), together with any related
liabilities, penalties, fines, additions to tax or interest, imposed by any
country, any state, county, provincial or local government or any subdivision or
agency of any of the foregoing.
20
<PAGE>
8.10 Entire Agreement. This agreement and the schedule and exhibits to
this agreement constitute the entire agreement among the parties with respect to
their subject matter and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to that subject matter.
NETWORK EVENT THEATER, INC.
By:________________________________
NEW CW, INC.
By:________________________________
COLLEGEWEB.COM, INC.
By:________________________________
___________________________________
J. Alexander Chriss, Individually
___________________________________
Todd M. Ragaza, Individually
21
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. The Merger..................................................................1
1.1 The Merger.........................................................1
1.2 Consummation of the Merger.........................................1
1.3 Organizational Documents...........................................1
1.4 Directors and Officers and Managers................................1
1.5 Conversion.........................................................1
1.6 Exchange of Certificates Representing NET Common Stock.............2
2. Representations and Warranties of NET.......................................3
2.1 Organization and Qualification.....................................3
2.2 Authority for this Agreement.......................................3
2.3 Capitalization.....................................................3
2.4 Absence of Certain Changes.........................................4
2.5 Reports............................................................5
2.6 Consents and Approvals; No Violation...............................5
2.7 Brokers............................................................5
3. Representations and Warranties of CW and the Stockholders...................6
3.1 Organization and Qualification.....................................6
3.2 Capitalization.....................................................6
3.3 Authority for this Agreement.......................................6
3.4 Absence of Certain Changes.........................................6
3.5 Financial Statements and other Information.........................7
3.6 Absence of Undisclosed Liabilities.................................7
3.7 Consents and Approvals; No Violation...............................7
3.8 Employee Benefit Matters...........................................8
3.9 Litigation, Etc....................................................9
3.10 Tax Matters.......................................................10
3.11 Compliance with Law...............................................10
3.12 Contracts.........................................................10
3.13 Title to Assets...................................................11
3.14 Related Party Transactions........................................11
3.15 Permits and Licenses..............................................11
3.16 Banks; Powers of Attorney.........................................11
3.17 Intangible Property...............................................11
3.18 Insurance.........................................................12
3.19 Website Information...............................................12
3.20 Brokers...........................................................12
4. Covenants..................................................................12
4.1 Confidentiality...................................................12
4.2 Public Announcements..............................................12
4.3 Employment Agreements.............................................12
4.4 Ordinary Course of Business.......................................12
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4.5 Restricted Activities and Transactions............................12
4.6 Access to Records and Properties; Opportunity to Ask Questions....14
4.7 Supplements to Written Disclosures and Financial Statements.......14
4.8 Further Assurances................................................14
5. Indemnification and Related Matters........................................14
5.1 Indemnification...................................................14
5.2 Related Matters...................................................15
5.3 Time and Manner of Certain Claims.................................15
5.4 Defense of Claims by Third Parties................................15
6. Other Agreements...........................................................16
6.1 Agreements of Stockholders........................................16
6.2 Pigggyback Registration...........................................17
6.3 Employment Agreements.............................................18
7. Termination, Amendment and Waiver..........................................18
7.1 Termination.......................................................18
7.2 Effect of Termination.............................................18
7.3 Amendment.........................................................18
7.4 Waiver............................................................18
8. Miscellaneous..............................................................18
8.1 Enforcement of the Agreement......................................18
8.2 Expenses..........................................................19
8.3 Validity..........................................................19
8.4 Notices...........................................................19
8.5 Governing Law.....................................................20
8.6 Headings..........................................................20
8.7 Parties in Interest...............................................20
8.8 Counterparts......................................................20
8.9 Certain Definitions...............................................20
8.10 Entire Agreement..................................................21
ii
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AGREEMENT AND PLAN OF MERGER
AMONG
NETWORK EVENT THEATER, INC.,
COMMON PLACES, LLC,
YOUTHSTREAM MEDIA NETWORKS, INC.,
NUNET, INC.,
NUCOMMON, INC.,
HARLAN D. PELTZ ,
BENJAMIN BASSI,
WILLIAM TOWNSEND
AND
MARK PALMER
Dated June 28, 1999
<PAGE>
AGREEMENT AND PLAN OF MERGER
Dated June 28, 1999
The parties to this agreement and plan of merger are Network Event
Theater, Inc., a Delaware corporation ("Net"), Common Places, LLC, a Delaware
limited liability company ("CP"), YouthStream Media Networks, Inc., a Delaware
corporation ("New Parent"), Nunet, Inc., a Delaware corporation and a
wholly-owned subsidiary of New Parent ("Transitory Net Sub"), Nucommon, Inc., a
Delaware corporation and a wholly-owned subsidiary of New Parent ("Transitory CP
Sub"), Harlan D. Peltz, Benjamin Bassi ("Bassi"), William Townsend and Mark
Palmer.
The parties agree as follows:
1. The Mergers
1.1 The Mergers. Upon the terms of this agreement and subject to the
provisions of the Delaware General Corporation Law (the "DGCL"), Transitory Net
Sub shall be merged with and into Net (the "Net Merger") and Transitory CP Sub
shall be merged with and into CP (the "CP Merger") as soon as practicable
following the satisfaction or waiver, if permissible, of the conditions set
forth in sections 6 and 7. Net shall be the surviving corporation in the Net
Merger (the "Surviving Net Corporation"), and CP shall be the surviving limited
liability company in the CP Merger (the "Surviving CP LLC").
1.2 Consummation of the Mergers. Subject to the provisions of this
agreement, the parties shall cause the Mergers to be consummated by filing with
the secretary of state of the state of Delaware duly executed and verified
certificates of merger, and shall take all other action required by law to
effect the Mergers. The Net Merger and the CP Merger (collectively, the
"Mergers") shall become effective simultaneously upon the later to occur of the
two filings referred to in the preceding sentence. At the time the two Mergers
become effective (the "Effective Time"), the separate corporate existence of
each of Transitory Net Sub and Transitory CP Sub shall cease.
1.3 Closing. Subject to earlier termination as provided in section 9, at
10:00 a.m., New York time, on the third business day following the satisfaction
of the conditions set forth in sections 6.5 and 7.5 (or such other time as Net
and CP may agree) and immediately prior to the filings referred to in section
1.2, a closing (the "Closing") shall be held at the offices of Proskauer Rose
LLP, 1585 Broadway, New York, New York (or such other place as Net and CP may
agree).
1.4 Organizational Documents. The certificate of incorporation and by-laws
of Net, as in effect on the date of this agreement, shall be the certificate of
incorporation and by-laws, respectively, of the Surviving Net Corporation; the
certificate of formation of CP, as in effect on the date of this agreement, and
the amended and restated limited liability company agreement in the form of
exhibit 1.4(a) to this agreement shall be the certificate of formation and
limited liability company agreement, respectively, of the Surviving CP LLC; and
the certificate of incorporation and by-laws of New Parent in effect as of the
Effective Time shall be substantially in the form of
<PAGE>
exhibit 1.4(b) and (c), respectively. At the Effective Time, New Parent shall
have entered into a rights agreement substantially in the form of exhibit
1.4(d).
1.5 Directors, Officers and Managers. The persons to be named upon mutual
agreement of Peltz and Bassi shall be the directors, officers and managers of
the Surviving Net Corporation and the Surviving CP LLC until their respective
successors are duly elected and qualified. The persons to be named upon mutual
agreement of Peltz and Bassi shall be the directors and officers of New Parent
as of the Effective Time.
1.6 Conversions
(a) At the Effective time, the shares of Net, the membership
interests in CP, and the shares of Transitory Net Sub and of Transitory CP,
shall be converted as follows:
(i) each share of common stock, $.01 par value, of Net ("Net
Common Stock") issued and outstanding immediately prior to the Effective Time
(other than shares held in the treasury of Net, all of which shall be cancelled)
shall, by virtue of the Net Merger and without any action on the part of New
Parent, Net, Transitory Net Sub or the holder, be converted into the right to
receive one share of common stock, $.01 par value, of New Parent ("New Parent
Common Stock");
(ii) each common unit of CP ("CP Common Unit") issued and
outstanding immediately prior to the Effective Time (other than CP Common Units
owned by Net, which shall remain unchanged by virtue of the CP Merger) shall, by
virtue of the CP Merger and without any action on the part of New Parent, CP,
Transitory CP Sub or the holder, be converted into the right to receive 0.89
shares of New Parent Common Stock; and
(iii) each share of common stock, $.01 par value, of each of
Transitory Net Sub and Transitory CP Sub issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Mergers and without any
action on the part of any person or entity, be converted into and become one
share of Net Common Stock and one CP Common Unit, respectively.
(b) All New Parent Common Stock issued in the Mergers will be duly
authorized, validly issued, and fully paid and non-assessable, and shall be free
and clear of all liens (other than any liens that may arise from any action of
the shareholder to whom the shares are issued).
(c) By virtue of the CP Merger and automatically without any further
action, all CP Common Units held by Bassi that are unvested pursuant to section
3.3 of the Amended and Restated Limited Liability Company Agreement of CP dated
March 10, 1999 (the "LLC Agreement") shall become fully vested and shall
thereupon be converted into fully vested shares of New Parent Common Stock. By
virtue of the CP Merger and automatically without any further action, certain of
the CP Common Units held by Mark Palmer and William Townsend that are unvested
pursuant to section 3.3 of the LLC Agreement shall become fully vested and shall
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<PAGE>
thereupon be convert into fully vested shares of New Parent Common Stock and the
balance of the CP Common Units held by Mark Palmer and William Townsend shall be
converted into shares of New Parent Common Stock that are subject to vesting as
set forth in Vesting Letters referred to in section 6.10.
(d) The holders of shares of Net Common Stock and CP Common Units
(other than CP Common Units owned by Net) immediately prior to the Effective
Time shall cease to have any rights as stockholders of Net or members of CP,
respectively, and their sole right shall be the right to receive the number of
whole shares of New Parent Common Stock into which their shares of Net Common
Stock or CP Common Units have been converted pursuant to section 1.6(a) and the
right to receive the cash value of any fraction of a share of New Parent Common
Stock pursuant to section 1.7(f).
(e) The following provisions shall apply to outstanding options and
warrants of Net and CP:
(i) At the Effective Time, each outstanding option or warrant
to purchase shares of Net Common Stock (a "Net Stock Option") issued pursuant to
Net's 1996 Stock Option Plan and 1997 Stock Option Plan (collectively, the "Net
Stock Option Plan") or otherwise and each outstanding option to purchase CP
Common Units (a "CP Membership Unit Option") issued pursuant to CP's 1999 Unit
Plan (the "CP Plan"), as set forth in the Disclosure Letter, shall be assumed by
New Parent and shall be deemed to constitute an option or warrant, as the case
may be (an "option"), to acquire, on the same terms and conditions that were
applicable to the Net Stock Option or CP Common Unit Option, as the case may be,
the same number of shares of New Parent Common Stock as the holder of the Net
Stock Option or CP Common Unit Option, as the case may be, would have been
entitled to receive pursuant to section 1.6(a), had the holder exercised the
option or warrant in full immediately prior to the Effective Time, at a price
per share equal to the aggregate exercise price under the Net Stock Option or CP
Common Unit Option, as the case may be, divided by the number of full shares of
New Parent Common Stock deemed to be purchasable pursuant to the option;
provided, however, that (i) the number of shares of New Parent Common Stock that
may be purchased under the option shall not include any fractional share, but
shall be rounded to the next lower number of whole shares, and (ii) in the case
of the Net Stock Options issued pursuant to the Net Stock Option Plan that are
incentive stock options, the determination of the option price, the number of
shares purchasable pursuant to the option and the terms and conditions of
exercise of the option shall in all respects comply with section 424(a) of the
Internal Revenue Code (the "Code").
(ii) As soon as practicable after the Effective Time, New
Parent shall issue to the holders of Net Stock Options and CP Common Unit
Options appropriate option agreements representing the right to acquire shares
of New Parent Common Stock on the same terms and conditions as in the
outstanding Net Stock Options and CP Common Unit Options, respectively, upon the
surrender of the outstanding Net Stock Options and CP Common Unit Options,
respectively.
(iii) New Parent shall take all necessary action to ensure
that the New
3
<PAGE>
Parent stock options that replace the Net Stock Options that qualified as
"incentive stock options" pursuant to section 422 of the Code ("Incentive
Options") continue to qualify as Incentive Options following the Mergers.
(iv) New Parent shall take all necessary action to reserve
sufficient shares of New Parent Common Stock issuable upon exercise of the
options referred to above.
(v) New Parent shall, as soon as practicable after the
Effective Time, file a registration statement on Form S-8 with respect to the
New Parent Common Stock issuable upon exercise of the options referred to above
(to the extent Form S-8 may be utilized with respect thereto), and shall use all
reasonable efforts to maintain the effectiveness of the registration statement
(and maintain the current status of the prospectus included in the registration
statement), as long as the options remain outstanding.
(vi) Nothing in this agreement shall prohibit the holder of
any Net Stock Option or CP Membership Unit Option from exercising that option
(to the extent the option is vested) prior to the Effective Time.
1.7 Exchange of Certificates Representing New Parent Common Stock
(a) As soon as practicable after the Effective Time, New Parent
shall make available for exchange and conversion in accordance with this
agreement, by making available to the Exchange Agent (as defined in section
1.7(b)) for the benefit of the stockholders of Net and the members of CP (other
than Net), certificates representing the number of shares of New Parent Common
Stock issuable in exchange for outstanding shares of Net Common Stock or CP
Common Units, as the case may be, pursuant to section 1.6 (net of the aggregate
number of fractional shares of New Parent Common Stock, in lieu of which cash
shall be paid pursuant to section 1.7(f)). In addition, New Parent shall from
time to time, upon the request of the Exchange Agent, make available to the
Exchange Agent such cash as may be necessary to make the cash payments in
respect of fractional shares of New Parent Common Stock, as provided in section
1.7(f).
(b) As soon as practicable after the Effective Time, a bank or trust
company selected by New Parent, acting as exchange agent to effect the issuance
of certificates representing New Parent Common Stock pursuant to the Mergers
(the "Exchange Agent"), shall mail to each holder of record (other than Net) of
outstanding shares of Net Common Stock and outstanding CP Common Units (i) a
form of letter of transmittal and (ii) instructions for use in obtaining
certificates representing New Parent Common Stock in exchange for certificates
representing shares of Net Common Stock and CP Common Units (the "Old
Certificates"). Upon surrender to the Exchange Agent of the Old Certificates for
cancellation, together with the letter of transmittal, duly executed, (i) each
holder of the Old Certificates shall be entitled to receive in exchange therefor
certificates representing that number of whole shares of New Parent Common Stock
into which the shares of Net Common Stock or CP Common Units, as the case may
be, shall have been converted pursuant to section 1.6(a) and a check for the
amount payable in lieu of any fractional shares pursuant to section 1.7(f), and
(ii) the Old Certificates so surrendered shall be cancelled.
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(c) No dividends or other distributions declared with respect to New
Parent Common Stock and payable to the holders of New Parent Common Stock after
the Effective Time shall be paid to the holders of Net Common Stock or CP Common
Units (other than Net), until the holders shall have executed and delivered the
letters of transmittal referred to above and shall have surrendered the Old
Certificates. Subject to the effect, if any, of applicable escheat laws, after
the subsequent execution and delivery of the letters of transmittal and
surrender and exchange of Old Certificates, the holders of shares of New Parent
Common Stock into which the shares of Net Common Stock or CP Common Units shall
have been converted shall be entitled to receive any such dividends or other
distributions, without any interest, that theretofore became payable with
respect to those shares of New Parent Common Stock. Any certificates
representing shares of New Parent Common Stock delivered to the Exchange Agent
and not issued and delivered pursuant to this section 1.8 within six months
after the Effective Time shall be returned by the Exchange Agent to New Parent,
which shall thereafter act as Exchange Agent, subject to the rights under this
agreement of former holders of shares of Net Common Stock and CP Common Units.
(d) If any certificate representing shares of New Parent Common
Stock is to be issued in a name other than that in which a surrendered Old
Certificate is registered, it shall be a condition of the issuance that the Old
Certificate so surrendered shall be properly endorsed and the signature on the
Old Certificate properly guaranteed and otherwise in proper form for transfer,
and that the person requesting the exchange shall pay the Exchange Agent any
transfer or other taxes required by reason of the issuance of a certificate
representing shares of New Parent Common Stock in any name other than that of
the registered holder of the surrendered Old Certificate, or otherwise required,
or shall establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not payable.
(e) After the Effective Time, there shall be no further registration
of transfers of the shares of Net Common Stock or CP Common Units (other than CP
Common Units owned by Net) that were outstanding immediately prior to the
Effective Time.
(f) No certificates or scrip representing fractional shares of New
Parent Common Stock shall be issued under this agreement, no dividend or other
distribution by New Parent shall relate to any fractional share and such
fractional share interests shall not entitle the owner to vote or to any rights
of a stockholder of New Parent. In lieu of any fractional share a former holder
of Net Common Stock or CP Common Units otherwise would be entitled to receive
under this agreement, the Exchange Agent shall, upon execution and delivery of a
letter of transmittal and surrender of an Old Certificate, pay the former holder
an amount of cash (without interest) equal to that fraction multiplied by the
closing price of a share of Net Common Stock on the NASDAQ National Market
("NASDAQ") or any comparable system, or, if the closing price of Net Common
Stock is not available from NASDAQ or a comparable system, the average of the
highest reported bid and lowest reported asked prices of Net Common Stock, as
furnished by NASDAQ or a comparable system, in each case on the day prior to the
day of conversion (or, if that day is not a trading day on NASDAQ, on the next
preceding day on which NASDAQ was open for business). If more than one Old
Certificate is surrendered for exchange at any one time by the same holder, the
number of shares of New Parent Common Stock shall be computed on the basis of
the aggregate number of such shares so surrendered.
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1.8 Adjustments. If, between the date of this agreement and the Effective
Time, the outstanding shares of Net Common Stock or CP Common Units shall have
been changed into a different number or class by reason of any reclassification,
recapitalization, split-up, combination, exchange or readjustment, or a dividend
or distribution having a comparable effect shall be declared with a record date
within that period, the number of shares of New Parent Common Stock to be issued
and delivered in exchange for each outstanding CP Common Unit as provided in
this agreement shall be correspondingly adjusted.
1.9 New Parent Stock Option Plan. Prior to the Effective Time, New Parent
shall adopt an employee stock option plan in the form of exhibit 1.9 covering a
maximum of 1,000,000 shares of New Parent (in addition to shares, if any,
issuable upon exercise of options referred to in section 1.6(e)). The plan shall
provide that options may be granted by a committee of the board of directors
that meets the requirements of Rule 16b-3(d)(1) under the Securities Exchange
Act of 1934.
2. Representations and Warranties of Net. Net represents and warrants to CP as
follows:
2.1 Organization and Qualification. Each of Net and its subsidiaries
(other than CP) (collectively, the "Net Companies") and each of New Parent,
Transitory Net Sub and Transitory CP Sub (collectively, the "New Parent
Companies") is a validly existing corporation in good standing under the law of
the state of Delaware, with the corporate power and authority to own its
properties and conduct its business as now being conducted, and is duly
qualified and in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the character of the properties owned or
held under lease by it or the nature of the business transacted by it makes such
qualification necessary, except where the failure to be so qualified and in good
standing would not have a Material Adverse Effect (as defined in section 10.11).
A list of Net's subsidiaries and their respective jurisdictions of incorporation
is set forth in the disclosure letter dated this date, which sets forth certain
matters referred to in this agreement and has been delivered by the parties to
this agreement to each other prior to the execution of this agreement (the
"Disclosure Letter").
2.2 Capitalization
(a) The authorized capital stock of Net consists of 32,000,000
shares of Net Common Stock and 1,000,000 shares of preferred stock, $.01 par
value (the "Preferred Stock"). As of the close of business on June 23, 1999,
14,896,749 shares of Net Common were issued and outstanding; no shares of
Preferred Stock were issued or outstanding; no shares of Net Common Stock were
held in Net's treasury; and there were outstanding Net Stock Options to purchase
an aggregate of 839,767 shares of Net Common Stock under the Net Stock Option
Plan and other options and warrants to purchase an aggregate of 1,451,180 shares
of Net Common Stock under option and warrant agreements referred to in section
2.2(a) of the Disclosure Letter. Since June 23, 1999, the Company has not (i)
issued any shares of Net Common Stock, other than upon the exercise of Net Stock
Options or warrants then outstanding, (ii) granted any options, warrants or
other rights to purchase shares of Net Common Stock (under the Net Stock Option
Plan or otherwise) or (iii) split, combined or reclassified any of its shares of
capital stock. All the
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outstanding shares of Net Common Stock have been duly authorized and validly
issued and are fully paid and nonassessable and are free of preemptive rights.
Except as set forth in this section 2.2 or in section 2.2(a) of the Disclosure
Letter, there are no outstanding (i) shares of capital stock or other voting
securities of Net, (ii) securities of Net convertible into or exchangeable for
shares of capital stock or voting securities of Net or (iii) options, warrants,
rights or other agreements or commitments to acquire from Net, or obligations of
Net to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of Net, or
obligations of Net to grant, extend or enter into any subscription, warrant,
right, convertible or exchangeable security or other similar agreement or
commitment (the items in clauses (i), (ii) and (iii), collectively, the "Net
Securities"). Except as set forth in section 2.2(a) of the Disclosure Letter,
there are no outstanding obligations of Net or any subsidiary of Net to
repurchase, redeem or otherwise acquire any Net Securities, and there are no
other outstanding stock related awards. Except as set forth in section 2.2(a) of
the Disclosure Letter, there are no voting trusts or other agreements or
understandings to which Net or any of its subsidiaries is a party with respect
to the voting of capital stock of Net or any of its subsidiaries. It is
understood and agreed that, when reference is made in this agreement to a
subsidiary or subsidiaries of Net, the term does not include CP.
(b) Except as set forth in section 2.2(b) of the Disclosure Letter,
Net is, directly or indirectly, the record and beneficial owner of all the
outstanding shares of capital stock of each of its subsidiaries, free and clear
of any lien, mortgage, pledge, restriction (voting, transfer or otherwise),
charge, security interest or encumbrance (a "Lien"), and there are no
irrevocable proxies with respect to any such shares. Except as set forth in
section 2.2(b) of the Disclosure Letter, there are no outstanding (i) securities
of Net or any subsidiary convertible into or exchangeable for shares of capital
stock or other voting securities or ownership interests in any subsidiary, or
(ii) options, warrants or other rights to acquire from Net or any of its
subsidiaries, or other obligations of Net or any of its subsidiaries to issue,
any capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable for any capital stock, voting
securities or ownership interests in, any of its subsidiaries, or other
obligations of Net or any of its subsidiaries to grant, extend or enter into any
subscription, warrant, right, convertible or exchangeable security or other
similar agreement or commitment (the items in clauses (i) and (ii),
collectively, the "Subsidiary Securities"). Except as set forth in section
2.2(b) of the Disclosure Letter, there are no outstanding obligations of Net or
any of its subsidiaries to repurchase, redeem or otherwise acquire any
outstanding Subsidiary Securities.
(c) The authorized capital stock of each of the New Parent Companies
is as set forth in section 2.2(c) of the Disclosure Letter. As of the date of
this agreement, the issued and outstanding shares of capital stock of each of
the New Parent Companies, and the record owners of such shares, are as set forth
in section 2.2(c) of the Disclosure Letter. There are no outstanding (i) shares
of capital stock or other voting securities of any of the New Parent Companies,
(ii) securities of any of the New Parent Companies convertible into or
exchangeable for shares of capital stock or voting securities of any of the New
Parent Companies or (iii) options, warrants, rights or other agreements or
commitments to acquire from any of the New Parent Companies, or obligations of
any of the New Parent Companies to issue, and capital stock, voting securities
or securities convertible into or exchangeable for capital stock or voting
securities of any of the New Parent
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Companies, or obligations of any of the New Parent Companies to grant, extend or
enter into any subscription, warrant, right, convertible or exchangeable
security or other similar agreement or commitment (the items in clauses (i),
(ii) and (iii), collectively, the "New Parent Securities"). Except as
contemplated by this agreement or the Stockholders Agreement and Voting Trust
Agreement (as defined in section 6.10), (i) there are no outstanding obligations
of any of the New Parent Companies to repurchase, redeem or otherwise acquire
any New Parent Company Securities and there are no other outstanding stock
related awards, and (ii) there are no voting trusts or other agreements or
understandings to which any of the New Parent Companies is a party with respect
to the voting of capital stock of any of the New Parent Companies. Except for a
nominal amount of assets and except for liabilities and obligations contemplated
by this agreement, none of the New Parent Companies has any assets, liabilities
or obligations of any kind. Each of the New Parent Companies was formed solely
for the purpose of engaging in the transactions contemplated by this agreement,
and has not engaged in any business activities or conducted any operations,
other than in connection with the transactions contemplated by this agreement.
2.3 Authority for this Agreement. Each of Net and the New Parent Companies
has the requisite corporate power and authority to execute and deliver this
agreement and the other agreements to be executed and delivered by it pursuant
to this agreement (collectively, the "Agreements") and to consummate the
transactions contemplated by the Agreements. No other corporate proceedings on
the part of Net or any of the New Parent Companies are necessary to authorize
the Agreements or to consummate the transactions so contemplated (other than the
approval and adoption of the agreement merger (within the meaning of section 251
of the DGCL) in this agreement by the board of directors and the holders of a
majority of the shares of Net Common Stock prior to the consummation of the Net
Merger). This agreement has been duly and validly executed and delivered by each
of Net and the New Parent Companies and, when the other Agreements are executed
and delivered by the parties to them and assuming each Agreement constitutes the
valid and binding obligation of each of the parties to them (other than Net and
the New Parent Companies), subject to approval by Net's board of directors and
stockholders of this agreement and the transactions contemplated by it, each
Agreement constitutes or will constitute a valid and binding agreement of each
of Net and the New Parent Companies that is a party to it, enforceable against
each of them in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and subject to general principles of equity (whether
considered in a proceeding in equity or at law).
2.4 Absence of Certain Changes. Except as disclosed in the SEC Reports (as
defined in section 2.5) or in section 2.4 of the Disclosure Letter, since March
31, 1999: (a) Net and its subsidiaries have not suffered any Material Adverse
Effect, (b) Net and its subsidiaries have conducted their respective businesses
only in the ordinary course consistent with past practice and (c) there has not
been (i) any declaration, setting aside or payment of any dividend or other
distribution in respect of the shares of Net Common Stock or any repurchase,
redemption or other acquisition by Net or any of its subsidiaries of any
outstanding shares of capital stock or other securities in, or other ownership
interests in, Net or any of its subsidiaries; (ii) any entry into any written
employment agreement (other than the agreements that are to be entered into at
the Closing with the 6.10 Individuals (as defined in section 6.10)) with, or any
increase in the rate or terms (including, without limitation, any acceleration
of the right to receive payment pursuant to
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arrangements set forth in section 2.4 of the Disclosure Letter) of compensation
payable or to become payable by Net or any of its subsidiaries to, their
respective directors or officers; (iii) any increase in the rate or terms
(including, without limitation, any acceleration of the right to receive
payment) of any bonus, insurance, pension or other employee benefit plan,
payment or arrangement made to, for or with any such directors, officers or key
employees, except increases occurring in the ordinary course of business or as
required by law or as necessary to maintain tax-qualified status; or (iv) any
action by Net that, if taken after the date of this agreement, would constitute
a breach of section 4.1.
2.5 Reports
(a) Net has filed with the Securities and Exchange Commission (the
"SEC") all forms, reports and documents required to be filed by it pursuant to
applicable law, all of which have complied as of their respective filing dates
in all material respects with all applicable requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and the rules under the Exchange Act.
None of the filings by Net with the SEC (the "SEC Reports"), including, without
limitation, any financial statements or schedules included or incorporated by
reference in the SEC Reports, at the time filed, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Net is in compliance in all material respects with all reporting and
filing requirements of the Exchange Act.
(b) The consolidated financial statements of Net included (or
incorporated by reference) in the SEC Reports have been prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis (except to the extent set forth in those financial statements,
including the notes, if any) and present fairly in all material respects the
consolidated financial position of Net as of their respective dates, and the
consolidated results of operations and changes in financial condition and cash
flows for the periods presented, subject, in the case of the unaudited interim
financial statements, to normal, recurring, year-end adjustments. The
consolidated balance sheet of Net as of March 31, 1999 and the notes thereto
included in the SEC Reports reflect all liabilities required by generally
accepted accounting principles applied on a consistent basis to be reflected
therein.
2.6 Consents and Approvals; No Violation. Neither the execution and
delivery of the Agreements by Net or any of the New Parent Companies nor the
consummation of the transactions contemplated by the Agreements will, except as
disclosed in section 2.6 of the Disclosure Letter, (a) conflict with or result
in a breach of any provision of the certificate of incorporation or by-laws (or
other similar governing documents) of Net, any of its subsidiaries or any of the
New Parent Companies; (b) require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental or regulatory authority,
except (i) pursuant to the Exchange Act or the Securities Act of 1933 (the
"Securities Act"), (ii) the filing of certificates of merger pursuant to the
DGCL or (iii) any applicable filings under state securities, or "Blue Sky",
laws; (c) result in a material default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions or
provisions of any material note, license, agreement or other instrument or
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obligation to which Net, any of its subsidiaries or any of the New Parent
Companies is a party or by which any of them or any of their assets may be
bound; or (d) violate in any material respect any material order, writ,
injunction, decree, statute, rule or regulation applicable to Net, any of its
subsidiaries or any of the New Parent Companies or by which any material portion
of their assets are bound.
2.7 Litigation, etc. Except as set forth in section 2.7 of the Disclosure
Letter or as disclosed in the SEC Reports, there is no claim, action, proceeding
or governmental investigation pending or, to the knowledge of Net, threatened
against Net or any of its subsidiaries before any court or governmental or
regulatory authority that, individually or in the aggregate, (a) could
reasonably be expected to have a Material Adverse Effect or (b) has had or could
reasonably be expected to have a material adverse effect on the ability of Net
or any of the New Parent Companies to consummate the transactions contemplated
by this agreement or in any manner challenges or seeks to prevent, enjoin or
delay the Mergers.
2.8 Compliance with Law. Except as set forth in section 2.8 of the
Disclosure Letter or in the SEC Reports, to the knowledge of Net, neither Net,
nor any of its subsidiaries nor any of the New Parent Companies is in conflict
with, or in default or violation of, any law, rule, or regulation (including,
but not limited to, any applicable law, rule or regulation respecting employment
and employment practices, terms and conditions of employment and wages and
hours), or any order, judgment or decree applicable to it or by which any of its
property or assets is bound or affected, except where such conflicts, defaults
or violations, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
2.9 Required Vote of Net Stockholders. The only vote of the stockholders
of Net required to approve and adopt the agreement of merger in this agreement
and approve the Net Merger is the affirmative vote of the holders of not less
than a majority of the outstanding shares of Net Common Stock. No other vote of
the stockholders of Net is required by law, the certificate of incorporation or
the by-laws of Net or otherwise to adopt the agreement of merger in this
agreement and approve the Net Merger.
2.10 Absence of Defaults. There are no material breaches or defaults under
any material agreements to which Net is a party or by which Net is bound.
2.11 Permits and Licenses. Net has all permits, licenses, franchises and
other authorizations ("Licenses") necessary for the conduct of its business, and
all such Licenses are valid and in full force and effect, except where the
failure to have such would not have a Material Adverse Effect. All Licenses held
by Net that are material to its business are set forth in section 2.11 of the
Disclosure Letter.
2.12 Tax Matters. Except as set forth in section 2.12 of the Disclosure
Letter:
(i) all returns and reports relating to Taxes required to be filed
with respect to Net or any of its income, properties or operations have been
duly filed in a timely manner (taking into account all extensions of due dates),
and, to the knowledge of Net, all information in such
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returns, declarations and reports is true, correct and complete in all material
respects;
(ii) all Taxes attributable to Net that were shown to be due and
payable on such returns and reports have been paid;
(iii) there is no claim or assessment pending or, to the knowledge
of Net, threatened against Net for any alleged material deficiency in Taxes
attributable to Net; and
(iv) Net has satisfied in all material respects for all periods all
applicable withholding Tax requirements (including, without limitation, income,
social security and employment tax withholding for all types of compensation).
2.13 Certain Plans. Except as set forth in section 2.13 of the Disclosure
Letter or pursuant to written agreements or plans in effect as of the date of
this agreement that are disclosed elsewhere in the Disclosure Letter or have
otherwise previously been disclosed to Bassi and CP, Net has no plans as of the
date of this agreement to incur a material amount of additional indebtedness for
borrowed money or to issue any equity securities.
2.14 Representations and Warranties of CP. To the knowledge of Net, as of
the date of this agreement none of the representations or warranties in section
3 is untrue or incorrect.
2.15 Brokers. No broker, finder or other investment banker (other than
Allen & Company Incorporated) is entitled to receive any brokerage, finder's or
other fee or commission in connection with this agreement or the transactions
contemplated by this agreement based upon agreements made by or on behalf of
Net, any of its subsidiaries or any of the New Parent Companies.
3. Representations and Warranties of CP. CP represents and warrants to Net as
follows:
3.1 Organization and Qualification. CP is a validly existing limited
liability company in good standing under the law of the state of Delaware, with
all requisite limited liability company power and authority to own its
properties and conduct its business as now being conducted, and is duly
qualified and in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the character of the properties owned or
held under lease by it or the nature of the business transacted by it makes such
qualification necessary, except where the failure to be so qualified and in good
standing would not have a Material Adverse Effect.
3.2 Capitalization. As of the close of business on June 23, 1999,
10,376,755 CP Common Units were issued and outstanding; and there were
outstanding options to purchase an aggregate of 642,750 CP Common Units. Since
June 23, 1999, CP has not (i) issued any CP Common Units, other than upon the
exercise of CP Stock Options then outstanding, (ii) granted any options or
rights to purchase CP Common Units (under CP's Stock Option Plan or otherwise)
or (iii) split, combined or reclassified any CP Common Units. All the
outstanding CP Common Units have been duly authorized and validly issued and are
fully paid and nonassessable and are free of
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preemptive rights. Except as set forth in this section 3.2 or in section 3.2 of
the Disclosure Letter, there are no outstanding (i) membership interests or
voting securities of CP, (ii) securities of CP convertible into or exchangeable
for membership interests or voting securities of CP or (iii) options, warrants,
rights or other agreements or commitments to acquire from CP, or obligations of
CP to issue, any membership interests, voting securities or securities
convertible into or exchangeable for membership interests or voting securities
of CP, or obligations of CP to grant, extend or enter into any subscription,
warrant, right, convertible or exchangeable security or other similar agreement
or commitment (the items in clauses (i), (ii) and (iii), collectively, the "CP
Securities"). Except as set forth in section 3.2 of the Disclosure Letter, there
are no outstanding obligations of CP to repurchase, redeem or otherwise acquire
any CP Securities and there are no other outstanding equity related awards.
Except as set forth in section 3.2 of the Disclosure Letter, there are no voting
trusts or other agreements or understandings to which CP is a party with respect
to the voting of capital stock of CP. CP does not own or have any liability or
obligation to acquire any securities or other interest in any other business or
entity.
3.3 Authority for this Agreement. CP has the requisite limited liability
company power and authority to execute and deliver this agreement and to
consummate the transactions contemplated by this agreement. The execution and
delivery of this agreement by CP and the consummation by CP of the transactions
contemplated by this agreement have been duly and validly authorized and no
other proceedings on the part of CP are necessary to authorize this agreement or
to consummate the transactions so contemplated. This agreement has been duly and
validly executed and delivered by CP and, assuming the representation and
warranty in the last sentence of section 2.3 is true and correct and that this
agreement constitutes the valid and binding obligation of Harlan D. Peltz,
constitutes a valid and binding agreement of CP, enforceable against CP in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and subject to general principles of equity (whether considered in a proceeding
in equity or at law).
3.4 Absence of Certain Changes. Except as disclosed in section 3.4 of the
Disclosure letter, since March 31, 1999: (a) CP has not suffered any Material
Adverse Effect, (b) CP has conducted its business only in the ordinary course
consistent with past practice and (c) there has not been (i) any declaration,
setting aside or payment of any dividend or other distribution in respect of CP
Common Units or any repurchase, redemption or other acquisition by CP of any
outstanding CP Common Units or other securities in, or other ownership interests
in, CP; (ii) any entry into any written employment agreement with, or any
increase in the rate or terms (including, without limitation, any acceleration
of the right to receive payment pursuant to arrangements set forth in section
3.4 of the Disclosure Letter) of compensation payable or to become payable by CP
to, its managers or officers; (iii) any increase in the rate or terms
(including, without limitation, any acceleration of the right to receive
payment) of any bonus, insurance, pension or other employee benefit plan,
payment or arrangement made to, for or with any such managers, officers or key
employees, except increases occurring in the ordinary course of business or as
required by law or as necessary to maintain tax-qualified status; or (iv) any
action by CP that, if taken after the date of this agreement, would constitute a
breach of section 5.1.
3.5 Financial Statements and other Information. The financial statements
of CP listed in
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the Disclosure Letter, copies of which previously have been furnished to Net,
have been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis (except to the extent set
forth in those financial statements, including the notes, if any) and present
fairly in all material respects the financial position of CP as of their
respective dates, and the results of operations and changes in financial
condition and cash flows for the periods presented, subject, in the case of the
unaudited interim financial statements, to normal, recurring, year-end
adjustments. Such financial statements, and other information included in this
section 3 and in the Disclosure Letter regarding CP [(including, without
limitation, the private placement memorandum referred to in section 3.5 of the
Disclosure Letter)], do not, taken as a whole, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
3.6 Absence of Undisclosed Liabilities. As of the date of this agreement,
CP does not have any liability or obligation of any kind, whether accrued,
absolute, contingent or otherwise, other than (a) liabilities and obligations
under leases, commitments and other agreements entered into in the ordinary
course of business (which, to the extent required by this agreement, are set
forth in the Disclosure Letter), (b) accounts payable and accrued expenses
incurred in the ordinary course of business and (c) the liabilities set forth in
section 3.6 of the Disclosure Letter. CP does not know of any basis for the
assertion against it of any other liability as of the date of this agreement.
3.7 Consents and Approvals; No Violation. Neither the execution and
delivery of this agreement by CP nor the consummation of the transactions
contemplated by this agreement will, except as disclosed in section 3.7 of the
Disclosure Letter, (a) conflict with or result in a breach of any provision of
the certificate of formation or amended and restated limited liability company
agreement of CP; (b) require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory authority,
except (i) pursuant to the Exchange Act or the Securities Act, (ii) the filing
of a certificate of merger pursuant to the DGCL or (iii) any applicable filings
under state securities, or "Blue Sky", laws; (c) result in a material default
(or give rise to any right of termination, cancellation or acceleration) under
any of the terms, conditions or provisions of any material note, license,
agreement or other instrument or obligation to which CP is a party or by which
CP or any of its assets may be bound; or (d) violate in any material respect any
material order, writ, injunction, decree, statute, rule or regulation applicable
to CP or by which any material portion of its assets are bound.
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3.8 Employee Benefit Matters
(a) For purposes of this agreement, the term "Plan" refers to the
following maintained on behalf of any employee of CP (whether current, former or
retired), or their beneficiaries, by CP, or any entity that would be deemed a
"single employer" with CP under section 414(b), (c), (m) or (o) of the Code or
section 4001 of the Employee Retirement Income Security Act of 1974 ("ERISA")
(an "ERISA Affiliate"): any "employee benefit plan" (within the meaning of
section 3(3) of ERISA), or any other plan, program, agreement or commitment, an
employment, consulting or deferred compensation agreement, or an executive
compensation, incentive bonus or other bonus, employee pension, profit-sharing,
savings, retirement, stock option, stock purchase, severance pay, life, health,
disability or accident insurance plan (other than a Net Plan). Section 3.8(a) of
the Disclosure Letter lists each CP Plan.
(b) Neither CP nor any of the ERISA Affiliates nor any of their
respective predecessors has ever contributed to or contributes to, or otherwise
participated in or participates in any "multiemployer plan" (within the meaning
of section 4001(a)(3) of ERISA or section 414(f) of the Code), any single
employer pension plan (within the meaning of section 4001(a)(15) of ERISA) that
is subject to sections 4063 and 4064 of ERISA or any plan that is subject to
Title IV of ERISA or section 412 of the Code.
(c) CP, each ERISA Affiliate, each Plan and each "plan sponsor"
(within the meaning of section 3(16) of ERISA) of each "welfare benefit plan"
(within the meaning of section 3(1) of ERISA) has complied in all respects with
the requirements of section 4980B of the Code and Title I, Subtitle B, Part 6 of
ERISA, except for a failure or failures to comply that, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(d) With respect to each Plan:
(i) each Plan intended to qualify under section 401(a) of the
Code has been qualified since its inception and has received a determination
letter from the Internal Revenue Service (the "IRS") to the effect that the Plan
is qualified under section 401 of the Code and any trust maintained pursuant to
the Plan is exempt from federal income taxation under section 501 of the Code
and nothing has occurred that would cause the loss of such qualification or
exemption or the imposition of any material penalty or tax liability upon CP; CP
or an ERISA Affiliate, as the case may be, has applied, or prior to the end of
the remedial amendment period will apply, for a determination letter from the
IRS pursuant to Revenue Procedure 93-39, for each Plan intended to qualify under
section 401(a) of the Code;
(ii) no event has occurred in connection with which CP or any
ERISA Affiliate could be subject to any material liability under ERISA, the Code
or any other law, regulation or governmental order applicable to any Plan,
including, without limitation, section 406, 409, 502(i) or 502(l) of ERISA, or
section 4975 of the Code; and
(iii) each material Plan complies in all material respects
with the applicable
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requirements of ERISA and the Code.
(e) CP has furnished Net with respect to each Plan:
(i) a copy of each annual report, if required by ERISA to be
prepared, with respect to the Plan, together with a copy of all financial
statements for each Plan, if required by ERISA to be prepared;
(ii) a copy of the most recent Summary Plan Description,
together with each Summary of Material Modifications, required under ERISA with
respect to the Plan, and, unless the Plan is embodied entirely in an insurance
policy to which CP is a party, a true and complete copy of the Plan; and
(iii) if the Plan is funded through a trust or any third party
funding vehicle (other than an insurance policy), a copy of the trust or other
funding agreement and the latest related financial statements, if any.
(f) Except as set forth in section 3.8(f) of the Disclosure Letter,
CP has not announced any plan or commitment to create any additional Plans or,
except in the ordinary course of business in accordance with its customary
practices or as required by law or as necessary to maintain tax-qualified
status, to amend or modify any Plan.
(g) Except as set forth in section 3.8(g) of the Disclosure Letter,
CP is not a party to any collective bargaining agreement.
(h) Except as in section 3.8(h) of the Disclosure Letter, the
consummation of the transactions contemplated by this agreement will not give
rise to any liability for severance pay, unemployment compensation, termination
pay or withdrawal liability, or accelerate the time of payment or vesting or
increase the amount of compensation or benefits due to any current, former, or
retired employee or their beneficiaries solely by reason of such transactions.
No amounts payable under any Plan will fail to be deductible for federal income
tax purposes by virtue of section 280G of the Code.
(i) Except as in section 3.8(i) of the Disclosure Letter, neither CP
nor any ERISA Affiliate maintains, contributes to or in any way provides for any
benefits (other than under section 4980B of the Code, the Federal Social
Security Act or a plan qualified under section 401(a) of the Code) to any
current or future retiree or terminated employee.
3.9 Litigation, etc. Except as set forth in section 3.9 of the Disclosure
Letter, there is no claim, action, proceeding or governmental investigation
pending or, to the knowledge of CP, threatened against CP before any court or
governmental or regulatory authority that, individually or in the aggregate, (a)
could reasonably be expected to have a Material Adverse Effect or (b) has had or
could reasonably be expected to have a material adverse effect on the ability of
CP to consummate the transactions contemplated by this agreement or in any
manner challenges or seeks to prevent, enjoin or delay the Mergers.
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3.10 Tax Matters
(a) CP is not an association taxable as a corporation for purposes
of the Code.
(b) Except as set forth in section 3.10(b) of the Disclosure Letter:
(i) all returns and reports relating to Taxes required to be
filed with respect to CP or any of its income, properties or operations have
been duly filed in a timely manner (taking into account all extensions of due
dates), and, to the knowledge of CP, all information in such returns,
declarations and reports is true, correct and complete in all material respects;
(ii) all Taxes attributable to CP that were shown to be due
and payable on such returns and reports have been paid;
(iii) there is no claim or assessment pending or, to the
knowledge of CP, threatened against CP for any alleged material deficiency in
Taxes attributable to CP;
(iv) CP has satisfied in all material respects for all periods
all applicable withholding Tax requirements (including, without limitation,
income, social security and employment tax withholding for all types of
compensation); and
(v) CP has furnished Net complete and accurate copies of all
Tax returns, and all related amendments, filed by or on behalf of CP.
(c) Except as set forth in section 3.10(c) of the Disclosure Letter,
there are no agreements in effect to extend the period of limitations for the
assessment or collection of any income, franchise or material other Tax for
which CP may be liable.
3.11 Compliance with Law. Except as set forth in section 3.11 of the
Disclosure Letter, to the knowledge of CP, CP is not in conflict with, or in
default or violation of, any law, rule or regulation (including, but not limited
to, any applicable law, rule or regulation respecting employment and employment
practices, terms and conditions of employment and wages and hours), or any
order, judgment or decree applicable to CP or by which any property or asset of
CP is bound or affected, except where such conflicts, defaults or violations,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
3.12 Contracts. Section 3.12 of the Disclosure Letter contains an accurate
and complete list of: (a) all of CP's commitments and other agreements for the
purchase of materials, supplies, equipment, and software, other than commitments
and other agreements that were entered into in the ordinary course of business
and involve an expenditure by CP of less than $25,000 for any one commitment or
two or more related commitments; (b) all notes and agreements relating to any
indebtedness of CP; (c) all leases or other rental agreements under which CP is
either lessor or lessee; and (d) all of CP's other agreements, commitments and
understandings (written or oral) that require payment by CP of more than $25,000
individually. True and complete copies of all written
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leases, commitments and other agreements referred to on in section 3.12 of the
Disclosure Letter have been delivered or made available to NET. There are no
material breaches or defaults by CP under any such agreements, and, to the
knowledge of CP, there are no material breaches or defaults by the other party
under any such agreements and all such agreements are in full force and effect
and are binding obligations of the parties to such agreements.
3.13 Title to Assets. Except as set forth in section 3.13 of the
Disclosure Letter and except for the lien, if any, of current taxes not yet due
and payable, CP has valid title, free and clear of any Lien, to all the assets,
tangible and intangible, used in or needed to conduct CP's business, and those
assets will be sufficient to enable it to continue after the Effective Time to
operate all aspects of its business in the manner in which it has been operated.
3.14 Related Party Transactions. Except as set forth in the LLC Agreement,
CP does not owe any amount to, or have any contract with or commitment to, or
use any property (real or personal) in its business owned or leased by, any of
its members, or any manager, officer, employee, agent or representative of CP or
any of their respective affiliates.
3.15 Permits and Licenses. CP has all permits, licenses, franchises and
other authorizations ("Licenses") necessary for the conduct of its business, and
all such Licenses are valid and in full force and effect, except where the
failure to have such would not have a Material Adverse Effect. All Licenses held
by CP that are material to its business are set forth in section 3.15 of the
Disclosure Letter.
3.16 Banks; Powers of Attorney. Section 3.16 of the Disclosure Letter sets
forth (a) the names and locations of all banks, trust companies, savings and
loan associations and other financial institutions at which CP maintains safe
deposit boxes or accounts of any nature and the names of all persons authorized
to draw thereon, make withdrawals therefrom or have access thereto, and (b) the
names of all persons to whom CP has granted a power of attorney, together with a
description thereof. CP has provided Net with true and complete copies of all
bank statements received by it prior to the date of this agreement.
3.17 Intangible Property. Section 3.17 of the Disclosure Letter sets forth
a complete list of the trademarks, trade names, copyrights and logos used by CP.
CP owns, free and clear of any Lien, each of those trademarks, trade names,
copyrights and logos (including registrations and applications for registration
of any of them), and they constitute all the trademarks, copyrights, trade names
and logos necessary for the continued operation of CP's business in a manner
consistent with past practice. CP is not infringing upon any trademark, trade
name, copyright or other rights of any third party; no proceedings are pending
or overtly threatened alleging any such infringement; and no claim has been
received by CP alleging any such infringement. To the knowledge of CP, there is
no violation by others of any right of CP with respect to any trademark, trade
name or copyright.
3.18 Software and Databases. CP owns or possesses adequate licenses or
other rights to use all computer software used by it, except where the failure
to have such would not be materially adverse. Any license of CP to use any
software is valid and does not infringe the property rights of
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any third party. CP has not granted to any person or entity any interest, as
licensee or otherwise, in any of its owned software or databases or in any of
its lists.
3.19 Insurance. Section 3.19 of the Disclosure Letter sets forth a
complete list of all the insurance policies held by CP, specifying with respect
to each policy the policy limit, type of coverage, location of the property
covered, annual premium, premium payment date and expiration date. True and
complete copies of all those policies have been made available to Net.
3.20 Brokers. No broker, finder or other investment banker is entitled to
receive any brokerage, finder's or other fee or commission in connection with
this agreement or the transactions contemplated by this agreement based upon
agreements made by or on behalf of CP.
4. Covenants of Net
4.1 Regular Course of Business. Net shall, and shall cause each of its
subsidiaries to, (a) conduct its business in the ordinary course, consistent
with past practice; (b) use its best efforts to preserve all present
relationships with persons having business dealings with it; and (c) use its
best efforts to maintain, preserve and protect its assets and goodwill.
4.2 Restricted Activities and Transactions. Net shall not, and shall not
permit any of its subsidiaries or any of the New Parent Companies to, engage in
any of the following activities or transactions without the consent of CP:
(a) amend its certificate of incorporation or by-laws (true and
correct copies of which have been furnished to CP);
(b) except for issuances of stock pursuant to outstanding options or
warrants that are listed in the Disclosure Letter or, in the case of Net, at a
price (or having a conversion or exercise price) equal to or greater than the
closing price per share of Net Common Stock on NASDAQ on the date of issuance,
issue, sell or deliver, or agree to issue, sell or deliver, any shares of its
capital stock or any securities convertible into or exchangeable for shares of
its capital stock, or grant or issue, or agree to grant or issue, any options,
warrants, incentive awards or other rights to acquire any such securities;
(c) sell or transfer, or agree to sell or transfer, a material
amount of its assets, tangible or intangible, other than in the ordinary course
of business;
(d) except as contemplated by this agreement, merge or consolidate
with any other entity, or acquire any stock, or, except in the ordinary course
of business, any business, property or assets of any other person or entity,
except, in the case of Net and its subsidiaries, where the consideration paid or
received is not material to Net and its subsidiaries taken as a whole; or
(e) take any other action that would cause any of Net's
representations and warranties in this agreement not to be true and correct in
all material respects on and as of the date of the Closing with the same force
and effect as if made on and as of the date of the Closing.
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4.3 Dividends and Distributions. Net shall not declare or pay any dividend
or make any distribution on or in respect of Net Common Stock, whether in cash,
stock or property, or, directly or indirectly, redeem purchase or otherwise
acquire any of its own stock or make any other distribution of its assets to the
holders of Net Common Stock.
4.4 Supplements to Schedules and Financial Statements. Net shall promptly
deliver to CP any information concerning events subsequent to the date of this
agreement necessary to supplement the representations and warranties of Net in
this agreement in order that the information be kept current, complete and
accurate in all material respects, it being understood and agreed that the
delivery of such information shall not constitute a waiver by CP of any rights
as a result of a misrepresentation or breach of warranty in section 2. Except as
set forth in section 2.13 of the Disclosure Letter or pursuant to written
agreements or plans in effect on the date of this agreement that are disclosed
elsewhere in the Disclosure Letter or have otherwise previously been disclosed
to Bassi and CP, prior to the Effective Time, Net shall not, without prior
consultation with Bassi, incur a material amount of additional indebtedness for
borrowed money or issue any equity securities.
4.5 Confidentiality. In the event of termination of this agreement, Net
shall return to CP all non-public documents, work papers and other material
(including, to the extent practicable, all copies) obtained pursuant to this
agreement or in connection with the transactions contemplated by this agreement.
Net shall use all reasonable efforts to keep confidential any information
obtained pursuant to this agreement or in connection with the transactions
contemplated by this agreement, unless such information is readily ascertainable
from public or published information or trade sources or is otherwise available
to Net as a member of CP.
4.6 Public Announcements. If the board of directors of Net approves this
agreement and the transactions contemplated by it, Net shall promptly thereafter
issue a press release in substantially the form of exhibit 4.6. Net shall not
make, issue or release any other public announcement concerning the terms,
conditions or status of the transactions contemplated by this agreement, without
giving CP reasonable advance notice and making a good faith attempt to obtain
the prior approval of CP with respect to the contents of such announcement,
which approval shall not be unreasonably withheld or delayed.
4.7 SEC Matters. Net shall use all reasonable efforts to cause the New
Parent to prepare and file with the SEC, not later than July 30, 1999, a
registration statement on Form S-4 under the Securities Act for the purpose of
registering the shares of New Parent Stock to be issued pursuant to the Mergers
(the "Registration Statement") and a proxy statement to be included therein and
to be used in soliciting proxies of the Net stockholders with respect to the
Mergers (the "Proxy Statement"). Net shall cause the information about itself,
its subsidiaries and the New Parent Companies included in the Registration
Statement and the Proxy Statement, at the respective times the Registration
Statement is filed with the SEC and becomes effective, and the Proxy Statement
is mailed to stockholders, not to contain any untrue statement of a material
fact, or to omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading, or, in the case of the Proxy
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Statement or any amendment or supplement, at the time of the meeting of
stockholders of Net referred to in section 4.8 and at the Effective Time, to
contain any untrue statement of a material fact, or omit to state any material
fact required to be stated therein or necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for the
meeting in connection with which the Proxy Statement is mailed. Net shall
furnish to CP prior to filing with the SEC drafts of the Registration Statement
and Proxy Statement, shall furnish copies of the Registration Statement and
Prospectus to CP promptly after filing with the SEC, and shall use reasonable
efforts to cause the Registration Statement to become effective at the earliest
practicable date. Net shall use reasonable efforts to cause New Parent to comply
with applicable state law in connection with Registration Statement,
4.8 Stockholder Approval. Net shall use reasonable efforts to call a
meeting of its stockholders in accordance with law as promptly as practicable
and, in any event, no later than 30 days after the SEC declares the Registration
Statement effective, for the purpose of voting upon the Net Merger and related
matters and shall, through its board of directors, use all reasonable efforts to
solicit the requisite vote of approval. The board of directors of Net shall
recommend to the stockholders that they approve the proposed transactions.
4.9 CP Employees. Net shall offer all the individuals employed by CP
immediately before the Effective Time continued employment by CP immediately
after the Effective Time at the same salary and with the same title and
responsibilities as, and otherwise on terms that, taken as a whole, are no less
favorable to them than, in effect immediately before the Effective Time.
4.10 Further Assurances. Net shall (a) execute and deliver such
instruments and take such other action as CP may reasonably request to carry out
this agreement, (b) use all reasonable efforts to obtain the consents of all
parties to all agreements and other documents necessary for the consummation of
the transactions contemplated by this agreement and (c) use all reasonable
efforts, including, without limitation, causing New Parent to execute and
deliver the Agreements and other documents required by this agreement to be
executed and delivered by it, so that the conditions to the obligations of CP in
section 6 are satisfied. Prior to the Closing, Net shall provide CP with
reasonable "due diligence" access to information regarding Net and its
subsidiaries.
5. Covenants of CP
5.1 Regular Course of Business. CP shall (a) conduct its business in the
ordinary course, consistent with past practice; (b) use its best efforts to
preserve all present relationships with persons having business dealings with
it; and (c) use its best efforts to maintain, preserve and protect its assets
and goodwill.
5.2 Restricted Activities and Transactions. CP shall not engage in any of
the following activities or transactions without the prior written approval of
at least one Net representative on CP's board of managers:
(a) amend its certificate of formation or amended and restated
limited liability company agreement;
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(b) except for issuances of CP Common Units pursuant to outstanding
options, issue, sell or deliver, or agree to issue, sell or deliver, any CP
Common Units or any securities convertible into or exchangeable for CP Common
Units, or grant or issue, or agree to grant or issue, any options, warrants,
incentive awards or other rights to acquire any such securities;
(c) borrow or agree to borrow any funds or incur, or assume or
become subject to, whether directly or by way of guarantee or otherwise, any
obligation or liability (absolute or contingent), other than indebtedness for
borrowed money incurred in the ordinary course of business pursuant to existing
loan agreements or lines of credit and any other liability incurred in the
ordinary course of business, or issue, sell or deliver, or agree to issue, sell
or deliver, any bonds, debentures, notes or other debt securities;
(d) sell, transfer or acquire, or agree to sell, transfer or
acquire, any properties or assets, tangible or intangible, other than in the
ordinary course of business and for consideration at least equal to the fair
market value of the properties or assets transferred;
(e) except as specifically permitted by this agreement, enter into
any contract, agreement, lease or understanding, other than any contract,
agreement, lease or understanding entered into in the ordinary course of
business that is not material;
(f) grant any increase in compensation or enter into any employment
agreement, other than in the ordinary course consistent with past practice;
(g) become liable for or make any material change in any
profit-sharing, bonus, deferred compensation, insurance, pension, retirement or
other employee or executive benefit plan, payment or arrangement, except as
required by law;
(h) except as contemplated by this agreement, merge or consolidate
with any other entity, or acquire stock or, except in the ordinary course of
business, any business, property or assets of any other person or entity;
(i) except as required by law or by subsequently promulgated
generally accepted accounting principles, alter the manner of keeping its books,
accounts or records, or alter the accounting practices reflected in such books,
accounts or records; or
(j) take any other action that would cause any of CP's
representations and warranties in this agreement not to be true and correct in
all material respects on and as of the date of the Closing with the same force
and effect as if made on and as of the date of the Closing.
5.3 Dividends and Distributions. CP shall not declare or pay any dividend
or make any distribution on or in respect of CP Common Units, whether in cash,
stock or property or, directly or indirectly, redeem, purchase or otherwise
acquire any CP Common Units or make any other distribution of its assets to the
holders of CP Common Units, except that, with the prior written approval of at
least one Net representative on CP's board of directors, CP may redeem CP
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Common Units of any employee whose employment is terminated.
5.4 Access to Records and Properties; Opportunity to Ask Questions. CP
shall make available for inspection by Net or its representatives, during normal
business hours, the premises, corporate records, books of account, contracts and
all other documents of CP reasonably requested by Net and its authorized
employees, counsel and auditors in order to permit Net and such representatives
to make a reasonable inspection and examination of the business and affairs of
CP. CP shall cause its managerial employees, counsel and independent accountants
to be available upon reasonable notice to answer questions of Net's
representatives concerning the business and affairs of CP, and shall cause them
to make available all relevant books and records in connection with such
inspection and examination, provided that Net conducts these activities in a
manner that does not unreasonably interfere with CP's business. Except with CP's
consent, Net shall not contact CP's vendors or customers in connection with its
activities under this section 5.4.
5.5 Supplements to Written Disclosures and Financial Statements. CP shall
promptly deliver to Net any information concerning events subsequent to the date
of this agreement necessary to supplement the representations and warranties of
CP in this agreement in order that the information be kept current, complete and
accurate in all material respects, it being understood and agreed that the
delivery of such information shall not constitute a waiver by Net of any rights
as a result of a misrepresentation or breach of warranty in section 3.
5.6 Confidentiality. In the event of termination of this agreement, CP
shall return to Net all non-public documents, work papers and other material
(including, to the extent practicable, all copies) obtained pursuant to this
agreement or in connection with the transactions contemplated by this agreement.
CP shall use its best efforts to keep confidential and not use any information
obtained pursuant to this agreement or in connection with the transactions
contemplated by this agreement, unless such information is readily ascertainable
from public or published information or trade sources.
5.7 Public Announcements. CP shall not make, issue or release any public
announcement concerning the terms, conditions or status of the transactions
contemplated by this agreement, without the prior approval of Net with respect
to the contents of such announcement.
5.8 SEC Matters. CP shall from time to time at Net's request promptly
furnish Net with information about CP and its members that Net may reasonably
request for inclusion in the Registration Statement or the Proxy Statement. CP
shall cause the information about itself to be supplied to Net for inclusion in
the Registration Statement and the Proxy Statement to be, at the respective
times the Registration Statement is filed with the SEC and becomes effective,
and the Proxy Statement is mailed to stockholders, not to contain any untrue
statement of a material fact, or to omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances in which they are made, not misleading, or, in the case of
the Proxy Statement or any amendment or supplement, at the time of the meeting
of stockholders of Net referred to in section 4.8 and at the Effective Time, to
contain any untrue statement of a material fact, or omit to state any material
fact required to be stated therein or necessary to correct any statement in any
earlier communication with respect to the solicitation of
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any proxy for the meeting in connection with which the Proxy Statement is
mailed.
5.9 Further Assurances. CP shall (a) execute and deliver such instruments
and take such other action as Net may reasonably request to carry out this
agreement, (b) use all reasonable efforts to obtain the consents of all parties
to all agreements and other documents necessary for the consummation of the
transactions contemplated by this agreement and (c) use all reasonable efforts
so that the conditions to the obligations of Net in section 7 are satisfied.
6. Conditions to the Obligations of Net. The obligation of Net to consummate the
Mergers pursuant to this agreement is subject to the satisfaction (or waiver by
Net) of each of the following conditions on or before the Closing:
6.1 Representations and Warranties True as of Closing. The representations
and warranties of CP in this agreement shall be true and correct in all material
respects at the Closing with the same force and effect as if made at the
Closing, except for changes specifically permitted or contemplated by this
agreement.
6.2 Performance of Covenants. CP shall have performed and complied with
each covenant and agreement required by this agreement to be performed or
complied with by it prior to or at the Closing.
6.3 Litigation. No injunction shall be threatened by a governmental agency
to restrain, or shall be in effect restraining, the consummation of the Mergers
or the transactions contemplated by this agreement.
6.4 No Adverse Change. Since the date of this agreement, there shall have
occurred no material adverse change in the financial condition, results of
operations or business of CP taken as a whole.
6.5 Board of Directors and Stockholder Approval. The board of directors of
Net shall have approved this agreement and the transactions contemplated by it
on or before June 30, 1999, and holders representing not less than a majority of
the outstanding shares of Net Common Stock shall have adopted and approved this
agreement on or before November 30, 1999.
6.6 Consents and Approvals. All authorizations, consents, waivers,
approvals or other action required to be obtained by CP in connection with the
execution, delivery and performance of this agreement by CP and the consummation
by CP of the transactions contemplated by this agreement, or required to prevent
a conflict with, breach of, or default, right of termination or acceleration of
performance under, any term of any lease, contract, note or other document or
instrument to which it is a party or by which it is bound shall have been duly
obtained, except where the failure to obtain such authorization, consent, waiver
or approval would not have a material adverse effect on the business of CP taken
as a whole, and shall be in form and substance reasonably satisfactory to
counsel to Net, and copies shall have been delivered to Net.
6.7 Certificates. CP shall have delivered to Net a certificate, dated the
date of the
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Closing, of its chief executive officer confirming satisfaction of the
conditions set forth in sections 6.1, 6.2, 6.3, 6.4 and 6.6, and a certificate
of a duly authorized officer of CP setting forth the resolutions of the board of
managers and the approval of the members authorizing the execution and delivery
of this agreement and the consummation of the transactions contemplated by this
agreement, and certifying that such resolutions were duly adopted and have not
been rescinded or amended as of the Closing.
6.8 Registration Statement Effective. The Registration Statement shall
have become effective prior to the mailing of the Proxy Statement to the
stockholders of Net, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC.
6.9 Opinion of Hutchins, Wheeler & Dittmar. CP shall have delivered to Net
an opinion of Hutchins, Wheeler & Dittmar, dated the date of the Closing, to the
effect that:
(a) CP is a limited liability company validly existing and in good
standing under the law of the state of Delaware and has the limited liability
company power and authority to own and operate its properties and to carry on
its business as being conducted;
(b) CP has the limited liability company power and authority to
execute, deliver and perform this agreement and to consummate the transactions
contemplated by this agreement; all necessary limited liability company,
manager, member and other action has been taken on the part of CP to authorize
and approve this agreement and the transactions contemplated by this agreement;
and this agreement has been duly executed and delivered by CP and is valid and
binding on CP in accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting the enforcement of creditors' rights
generally and subject to general principles of equity (whether considered in a
proceeding in equity or at law); and
(c) the execution, delivery and performance of this agreement by CP
and the consummation by CP of the transactions contemplated by this agreement
will not result in a breach or a violation by CP of, or constitute a default by
CP under, the certificate of formation or amended and restated limited liability
company agreement of CP or any judgment, decree, order, or governmental permit
or license known to such counsel to which CP is a party or by which CP is bound.
6.10 Other Agreements. Benjamin Bassi, William Townsend and Mark Palmer
shall have executed and delivered a voting trust agreement, dated the date of
the Closing, in the form of exhibit 6.10(a) (the "Voting Trust Agreement") and a
stockholders agreement, dated the date of the Closing, in the form of exhibit
6.10(b) (the "Stockholders Agreement"), Benjamin Bassi shall have executed and
delivered an employment agreement, dated the date of the Closing, in the form of
exhibit 6.10(c) (the "Bassi Employment Agreement"), Benjamin Bassi, William
Townsend, Mark Palmer and each of the other individuals named in section 6.10 of
the Disclosure Letter shall have executed and delivered a letter, dated the date
of the Closing, in the form of exhibit 6.10(d) (the "Vesting Letter") and the
individuals to be mutually agreed upon by Peltz and Bassi (the "6.10
Individuals") shall have entered into employment agreements with Net or CP in
such form as Peltz
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and Bassi mutually agree.
6.11 Opinion of Investment Banker. Prior to the approval of this agreement
by the board of directors of Net referred to in section 6.5, Allen & Company
Incorporated shall have delivered its opinion to the board of directors of Net,
in form reasonably satisfactory to Net, stating that, in its opinion, the terms
of the Mergers are fair to the stockholders of Net from a financial point of
view, and, not more than five business days prior to the approval of this
agreement by the stockholders of Net referred to in section 6.5, Allen & Company
Incorporated shall have reconfirmed that opinion.
7. Conditions to the Obligations of CP. The obligation of CP to consummate the
Mergers pursuant to this agreement is subject to the satisfaction (or waiver by
CP) of each of the following conditions on or before the Closing:
7.1 Representations and Warranties True as of Closing. The representations
and warranties of Net in this agreement shall be true and correct in all
material respects at the Closing with the same force and effect as if made at
the Closing, except for changes specifically permitted or contemplated by this
agreement.
7.2 Performance of Covenants. Net shall have performed and complied in all
material respects with each covenant and agreement required by this agreement to
be performed or complied with by it prior to or at the of Closing.
7.3 Litigation. No injunction shall be threatened by a governmental agency
to restrain, or shall be in effect restraining, the consummation of the Mergers
or the transactions contemplated by this agreement.
7.4 No Adverse Change. Since the date of this agreement, there shall have
occurred no material adverse change in the financial condition, results of
operations or business of Net and its subsidiaries taken as a whole.
7.5 Stockholder Approval. The board of directors of Net shall have
approved this agreement and the transactions contemplated by it on or before
June 30, 1999, and holders representing not less than a majority of the
outstanding shares of Net Common Stock shall have adopted and approved this
agreement on or before November 30, 1999.
7.6 Consents and Approvals. All authorizations, consents, waivers,
approvals or other action required to be obtained by Net in connection with the
execution, delivery and performance of this agreement by Net and the
consummation by Net of the transactions contemplated by this agreement, or
required to prevent a conflict with, breach of, or default, right of termination
or acceleration of performance under, any term of any lease, contract, note or
other document or instrument to which it is a party or by which it is bound
shall have been duly obtained, except where the failure to obtain such
authorization, consent, waiver or approval would not have a material adverse
effect on the business of Net and its subsidiaries taken as a whole, and shall
be in form and substance reasonably satisfactory to counsel to CP, and copies
shall have been delivered to CP.
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7.7 Registration Statement Effective. The Registration Statement shall
have become effective prior to the mailing of the Proxy Statement to the
stockholders of Net, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC.
7.8 Certificates. Net shall have delivered to CP a certificate, dated the
date of the Closing, of its chief executive officer confirming satisfaction of
the conditions set forth in sections 7.1, 7.2, 7.3, 7.4, 7.5, 7.6 and 7.7, and a
certificate of a duly authorized officer of Net setting forth the resolutions of
the board of directors and stockholders of Net authorizing the execution and
delivery of this agreement and the consummation of the transactions contemplated
by this agreement, and certifying that such resolutions were duly adopted and
have not been rescinded or amended as of the Closing.
7.9 Opinion of Proskauer Rose LLP. Net shall have delivered to CP an
opinion of Proskauer Rose LLP, dated the date of the Closing, to the effect
that:
(a) each of Net and the New Parent Companies is a corporation
validly existing and in good standing under the law of the state of Delaware and
has the corporate power and authority to own and operate its properties and to
carry on its business as being conducted;
(b) each of Net and the New Parent Companies has the corporate power
and authority to execute, deliver and perform this agreement and to consummate
the transactions contemplated by this agreement; all necessary corporate,
stockholder and other action has been taken on the part of each of Net and the
New Parent Companies to authorize and approve this agreement and the
transactions contemplated by this agreement; and this agreement has been duly
executed and delivered by each of Net and the New Parent Companies and is valid
and binding on each of Net and the New Parent Companies in accordance with its
terms, subject to applicable bankruptcy, insolvency and similar laws affecting
the enforcement of creditors' rights generally and subject to general principles
of equity (whether considered in a proceeding in equity or at law);
(c) the execution, delivery and performance of this agreement by
each Net and the New Parent Companies and the consummation by each of Net and
the New Parent Companies of the transactions contemplated by this agreement will
not result in a breach or a violation by any of them of, or constitute a default
by any of them under, its certificate of incorporation or by-laws, or any
judgment, decree, order, or governmental permit or license known to such counsel
to which any of them is a party or by which any of them is bound;
(d) New Parent has full legal power and authority to issue and
deliver the shares of New Parent Common Stock in the manner contemplated by this
agreement, and, upon the issuance of such shares in accordance with this
agreement, such shares will be duly authorized, validly issued, fully paid and
nonassessable; and
(e) the Registration Statement has become effective pursuant to the
Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the
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Registration Statement has been issued and no proceedings for that purpose have
been initiated or threatened by the SEC.
7.10 Other Agreements. Harlan D. Peltz shall have executed and delivered
the Voting Trust Agreement, the Stockholders Agreement and an employment
agreement, dated the date of the Closing, in the form of exhibit 7.10(a) (the
"Peltz Employment Agreement"); New Parent shall have (a) executed and delivered
the Stockholders Agreement, the Bassi Employment Agreement, the Voting Letters
and the Peltz Employment Agreement, and (b) adopted a stock option plan in the
form of exhibit 1.9; and the 6.10 Individuals shall have entered into employment
agreements with Net or CP in such form, if any, as Peltz and Bassi mutually
agree.
7.11 Opinion of Investment Bankers. The condition to the obligation of Net
set forth in section 6.11 shall have been satisfied, and shall not have been
waived by Net.
8. Indemnification and Other Agreements
8.1 Indemnification
(a) From and after the Effective Time, New Parent shall cause all
rights to indemnification now existing in favor of the employees, agents,
directors or officers of Net, Net's subsidiaries and CP as provided in their
respective governing documents or otherwise in effect on the date of this
agreement to survive the Mergers and to continue in full force and effect for a
period of not fewer than six years from the Effective Time. New Parent shall
cause to be maintained in effect for not fewer than six years from the Effective
Time the current policies of the directors' and officers' liability insurance
maintained by Net, Net's subsidiaries and CP (provided that New Parent may
substitute therefor policies of at least the same coverage containing terms and
conditions that are not less advantageous to the beneficiaries) with respect to
matters occurring prior to the Effective Time.
(b) New Parent shall, in addition to any rights of the officers and
directors existing and assumed in accordance with section 8.1(a) or otherwise,
from and after the Effective Time, indemnify and hold harmless each person who
at the date of this agreement serves as a director or officer of Net or CP (the
"Indemnified Parties") against any losses, claims, damages, liabilities, costs,
expenses, judgments and amounts paid in settlement, as incurred, in connection
with any claim, action, suit, proceeding or investigation that arises from
actions taken or omission to act as officers or directors of Net or its
subsidiaries or of CP by such Indemnified Parties prior to the Effective Time or
that arises out of or pertains to any of the transactions contemplated by this
agreement, and, in the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) the
Indemnified Parties may retain counsel satisfactory to them, and New Parent
shall pay all reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received, and (ii) New Parent shall
use its best efforts to assist in the vigorous defense of any such matter;
provided, that New Parent shall not be liable for any such settlement effected
without its written consent, which consent shall not be unreasonably withheld.
The Indemnified Parties as a group may retain only one law firm to represent
them with respect to any such matter unless there is, under applicable standards
of
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<PAGE>
professional conduct, a conflict on any significant issue between the positions
of any two or more Indemnified Parties.
(c) This section 8.1 shall survive the Closing, is intended to
benefit Net, CP and each of the Indemnified Parties (each of whom shall be
entitled to enforce this section 8 against New Parent Company), and shall be
binding on all successors and assigns of New Parent.
8.2 Agreements of Harlan D. Peltz, Benjamin Bassi, William Townsend and
Mark Palmer
(a) At the Closing, (i) Harlan D. Peltz shall execute and deliver
the Voting Trust Agreement, the Stockholders Agreement and the Peltz Employment
Agreement, (ii) Benjamin Bassi shall execute and deliver the Voting Trust
Agreement, the Stockholders Agreement, the Bassi Employment Agreement and a
Vesting Letter, (iii) each of William Townsend and Mark Palmer shall execute and
deliver the Voting Trust Agreement, the Stockholders Agreement and a Vesting
Letter and (iv) Bassi shall use his best efforts to cause each of the
individuals named in section 6.10 of the Disclosure Letter to execute and
deliver a Vesting Letter.
(b) Each of Harlan D. Peltz, Benjamin Bassi, William Townsend and
Mark Palmer (i) shall vote all the shares of Net Common Stock in respect of
which he has, or hereafter acquires, voting control to be voted in favor of the
Mergers at the stockholders meeting referred to in section 4.8 and against any
other transaction or proposal that might conflict with the consummation of the
Mergers, and (ii) neither Harlan D. Peltz, Benjamin Bassi, William Townsend nor
Mark Palmer shall at any time prior to the date of that stockholders meeting (or
termination of this agreement pursuant to section 9) purchase, sell, exchange or
otherwise dispose of or encumber, any shares of Net Common Stock or CP Common
Units, or subject to any voting agreement or other restriction or agreement any
shares of Net Common Stock or any CP Common Units in respect of which he has
voting control on the date of this agreement.
(c)(i) Neither Harlan D. Peltz, Benjamin Bassi, William Townsend nor
Mark Palmer may at any time after the Effective Time disclose to anyone (except
in connection with the performance of services for, or otherwise on behalf of,
New Parent or any of its subsidiaries) or use in competition with New Parent or
any of its subsidiaries any confidential information or trade secrets with
respect to the business of New Parent or any of its subsidiaries; provided,
however, any such individual may disclose confidential information or trade
secrets to the extent required by applicable law.
(ii) Neither Harlan D. Peltz, Benjamin Bassi, William Townsend
nor Mark Palmer may, as long as he is an employee or stockholder of New Parent
or any of its subsidiaries and for a period of one year thereafter, directly or
indirectly, solicit for employment or hire any person who, during the 12-month
period preceding the date of solicitation or hiring, was an employee of New
Parent or any of its subsidiaries.
(iii) Neither Harlan D. Peltz, Benjamin Bassi, William
Townsend nor Mark Palmer may, as long as he is an employee or stockholder of New
Parent or any of its
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subsidiaries and for a period of 18 months thereafter, except through New Parent
or any of its subsidiaries, directly or indirectly, engage or be interested in
the business of developing and operating an Internet portal targeted primarily
to individuals between the ages of 16 and 25, any business directly competitive
with any business resulting from an expansion of the Internet portal business of
New Parent or any of its subsidiaries into other Internet businesses or any
other business New Parent or any of its subsidiaries is then engaged in (any
such business, a "Restricted Business"); provided, however, that nothing in this
paragraph shall limit the right of any such individual to be employed by a media
company whose businesses include a Restricted Business, as long as he does not
provide any services to that Restricted Business. For this purpose, a person
shall be deemed to be directly or indirectly engaged or interested in a business
or entity, if he is engaged or interested in that business or entity as a
stockholder, member, partner, individual proprietor, director, officer,
employee, agent, lender, consultant or otherwise, but not if his interest is
limited solely to the ownership of 5% or less of any class of the equity or debt
securities of a corporation as to which he has only a passive role.
(iv) Each of Harlan D. Peltz, Benjamin Bassi, William Townsend
and Mark Palmer acknowledges that the remedy at law for breach of the provisions
of this section 8.2(c) will be inadequate and that, in addition to any other
remedy New Parent or any of its subsidiaries may have, it will be entitled to an
injunction restraining any such breach or threatened breach, without any bond or
other security being required and without the necessity of showing actual
damages or economic loss.
(v) Notwithstanding anything to the contrary in this section
8.2(c), if Bassi's employment is terminated pursuant to section 6.2 of the Bassi
Employment Agreement and New Parent does not exercise the option referred to in
section 6.3 of the Bassi Employment Agreement, Bassi shall not be bound by the
provisions of this section 8.2(c) after such termination of employment.
8.3 Tax Matters. The parties intend that the Net Merger and the CP Merger
will be treated for federal income tax purposes as the transfer by the holders
of the shares of Net Common Stock of those shares, and the transfer by the
holders of the CP Common Units (other than Net) of those units, respectively, to
New Parent in exchange for shares of New Parent Common Stock, in which exchanges
no gain or loss will be recognized pursuant to section 351(a) of the Code. The
parties shall prepare all tax returns in a manner consistent with the
immediately preceding sentence and not take any position inconsistent therewith.
9. Termination, Amendment and Waiver
9.1 Termination. This agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the stockholders of Net:
(a) by mutual consent of the board of directors of Net, the board of
managers of CP and Bassi;
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<PAGE>
(b) by Net, CP or Bassi, if, without fault of the terminating party,
the Mergers shall not have been consummated on or before November 30, 1999,
which date may be extended by mutual agreement of the board of directors of Net
and the board of managers of CP.
(c) by CP and Bassi, if any event shall have occurred that renders
any condition set forth in section 7 incapable of fulfillment and such condition
is not waived by CP and Bassi;
(d) by Net, if any event shall have occurred that renders any
condition set forth in section 6 incapable of fulfillment and such condition is
not waived by Net;
(e) by Net, CP or Bassi, if (i) New Parent's Registration Statement
has not been filed on or before August 31, 1999, (ii) this agreement shall not
have been submitted for approval to Net's stockholders on or before November 30,
1999, or (iii) this agreement shall have been submitted for approval to Net's
stockholders and such stockholders shall have failed to grant such approval; or
(f) by Net, if there has been any material adverse change in the
business, condition (financial or otherwise) or operation of CP, or by CP or
Bassi, if there has been any material adverse change in the business, condition
(financial or otherwise) or operation of Net, in each case since the date of
this agreement.
In the event of termination or abandonment of the Mergers pursuant
to this section 9.1, written notice of termination shall promptly be given to
each other party to this agreement.
9.2 Effect of Termination. The termination of this agreement under section
9.1 shall not relieve any party of any liability for breach of this agreement
prior to the date of termination; provided, however, that, notwithstanding
anything to the contrary in this agreement, no party to this agreement shall
have any liability under this agreement for misrepresentation or breach of
warranty, and the termination of this agreement pursuant to this section 9 shall
be the sole and exclusive remedy of the parties under this agreement for any
misrepresentation or breach of warranty.
9.3 Amendment; Action by CP.
(a) This agreement may be amended by the parties by action taken by
their respective boards of directors or board of managers, as the case may be,
at any time before or after approval by the stockholders of Net, but, after any
such approval, no amendment shall be made that changes the ratio at which CP
Common Units are to be converted into shares of New Parent Common Stock pursuant
to this agreement or in any way materially and adversely affects the rights of
such stockholders, without the further approval of such stockholders. This
agreement may not be amended, except by an instrument in writing signed on
behalf of each of the parties.
(b) Any action, waiver, consent or approval of CP under this
agreement and any amendment of this agreement shall be taken, given or made,
only if a majority of CP's board of managers, which majority must include Bassi,
has approved of that action, waiver, consent,
30
<PAGE>
approval or amendment.
9.4 Waiver. Any term or provision of this agreement (other than the
requirement for stockholder approval) may be waived in writing at any time by
the party that is entitled to the benefits of that term or provision.
10. Miscellaneous
10.1 The representations and warranties in sections 2 and 3 shall not
survive beyond the Effective Time.
10.2 The parties agree that irreparable damage would occur in the event
any of the provisions of this agreement were not performed in accordance with
their specific terms or were otherwise breached. Accordingly, the parties agree
that they shall be entitled to an injunction to prevent breaches of this
agreement and to enforce specifically the terms and provisions of this agreement
in any federal or state court located in the Borough of Manhattan in the city of
New York (as to which the parties agree to submit to jurisdiction for the
purposes of such action), this being in addition to any other remedy to which
they are entitled at law or in equity.
10.3 Each of the parties shall bear its own expenses in connection with
the transactions contemplated by this agreement, and no party shall have any
liability to the others with respect to those expenses.
10.4 The invalidity or unenforceability of any provision of this agreement
shall not affect the validity or enforceability of any other provision of this
agreement, which shall remain in full force and effect, unless the invalidity or
unenforceability of such provision would (a) result in such a material change to
this agreement as to be unreasonable, or (b) materially or adversely frustrate
the obligations of the parties in this agreement as originally written.
31
<PAGE>
10.5 All notices, requests, claims, demands and other communications under
this agreement shall be in writing and shall be deemed to have been duly given
when delivered in person, by facsimile transmission with confirmation of
receipt, or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties as follows:
if to Net, a Net Parent Company or Harlan D. Peltz,
to it or him at:
c/o Network Event Theater, Inc.
529 Fifth Avenue, 7th Floor
New York, New York 10017
Attention: Bruce L. Resnik, Executive Vice President and Chief
Financial Officer
Fax No.: (212) 622-7370
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attention: Bertram A. Abrams, Esq.
Fax No.: (212) 969-2900
if to CP, to it at:
810 Memorial Drive
Cambridge, Massachusetts 02139
Fax No.: (617) 349-0791
if to Bassi, to him at:
24 Coventry Road
Atkinson, N.H. 03811
Fax No.: 617-349-0791
if to William Townsend, to him at:
7 Wingreen Loop
Austin, Texas 78738
Fax No.: 617-349-0791
if to Mark Palmer, to him at:
80 Patton Lane
North Andover, MA 01845
Fax No.: 617-349-0791
32
<PAGE>
with a copy to:
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, Massachusetts 02110
Attention: Jonathan R. Karis, Esq.
Fax No.: (617) 951-1295
or to such other address as the person or entity to whom notice is given may
have previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt of notice of the change).
10.6 This agreement shall be governed by and construed in accordance with
the law of the state of New York, regardless of the law that might otherwise
govern under principles of conflicts of laws applicable to this agreement,
except that the provisions of this agreement subject to the DGCL shall be
governed by and construed in accordance with the DGCL.
10.7 The headings in this agreement are for convenience of reference only
and are not intended to be part of or to affect the meaning or interpretation of
this agreement.
10.8 This agreement shall be binding upon and inure solely to the benefit
of each party to this agreement, and nothing in this agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature under or by reason of this agreement, except for section 8.1 (which
is intended to be for the benefit of the persons referred to in that section,
and may be enforced by such persons).
10.9 This agreement may be executed in counterparts, each of which shall
be deemed to be an original, but all of which together shall constitute one and
the same agreement.
10.10 Certain Definitions
(a) "Material Adverse Effect" means any adverse change in the
business or financial condition of a company or its subsidiaries that is
material to that company and its subsidiaries taken as a whole.
(b) A "subsidiary" of any entity is another entity a majority of the
outstanding voting securities of which are beneficially owned by the first
entity.
(c) "Tax" means all taxes or similar governmental charges, duties,
imposts or levies (including, without limitation, income taxes, franchise taxes,
gross receipt taxes, occupation taxes, real and personal property taxes,
transfer taxes or fees, stamp taxes, sales taxes, use taxes, excise taxes, ad
valorem taxes, withholding taxes, employee withholding taxes, worker's
compensation, payroll taxes, unemployment insurance, social security, minimum
taxes, customs
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<PAGE>
duties or windfall profits taxes), together with any related liabilities,
penalties, fines, additions to tax or interest, imposed by any country, any
state, county, provincial or local government or any subdivision or agency of
any of the foregoing.
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<PAGE>
10.11 Entire Agreement. This agreement and the Disclosure Letter and
exhibits to this agreement constitute the entire agreement among the parties
with respect to their subject matter and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to that
subject matter.
NETWORK EVENT THEATER, INC.
By: /s/ Harlan D. Peltz
----------------------------------------
Harlan D. Peltz
COMMON PLACES, LLC
By: /s/ Benjamin Bassi
----------------------------------------
Benjamin Bassi
YOUTHSTREAM MEDIA NETWORKS, INC.
By: /s/ Edward W. Kerson
----------------------------------------
Edward W. Kerson
NUNET, INC.
By: /s/ Edward W. Kerson
----------------------------------------
Edward W. Kerson
NUCOMMON, INC.
By: /s/ Edward W. Kerson
----------------------------------------
Edward W. Kerson
/s/ Harlan D. Peltz
----------------------------------------
Harlan D. Peltz, Individually
/s/ Benjamin Bassi
----------------------------------------
Benjamin Bassi, Individually
/s/ William Townsend
----------------------------------------
William Townsend, Individually
/s/ Mark Palmer
----------------------------------------
Mark Palmer, Individually
35
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. The Mergers............................................................1
1.1 The Mergers......................................................1
1.2 Consummation of the Mergers......................................1
1.3 Closing..........................................................1
1.4 Organizational Documents.........................................1
1.5 Directors, Officers and Managers.................................2
1.6 Conversions......................................................2
1.7 Exchange of Certificates Representing New Parent Common Stock....4
1.8 Adjustments......................................................6
1.9 New Parent Stock Option Plan.....................................6
2. Representations and Warranties of Net..................................6
2.1 Organization and Qualification...................................6
2.2 Capitalization...................................................6
2.3 Authority for this Agreement.....................................8
2.4 Absence of Certain Changes.......................................8
2.5 Reports..........................................................9
2.6 Consents and Approvals; No Violation.............................9
2.7 Litigation, etc.................................................10
2.8 Compliance with Law.............................................10
2.9 Required Vote of Net Stockholders...............................10
2.10 Absence of Defaults.............................................10
2.11 Permits and Licenses............................................10
2.12 Tax Matters.....................................................11
2.13 Certain Plans...................................................11
2.14 Representations and Warranties of CP............................11
2.15 Brokers.........................................................11
3. Representations and Warranties of CP..................................11
3.1 Organization and Qualification..................................11
3.2 Capitalization..................................................11
3.3 Authority for this Agreement....................................12
3.4 Absence of Certain Changes......................................12
3.5 Financial Statements and other Information......................13
3.6 Absence of Undisclosed Liabilities..............................13
3.7 Consents and Approvals; No Violation............................13
3.8 Employee Benefit Matters........................................14
3.9 Litigation, etc.................................................15
3.10 Tax Matters.....................................................16
3.11 Compliance with Law.............................................16
3.12 Contracts.......................................................16
3.13 Title to Assets.................................................17
3.14 Related Party Transactions......................................17
3.15 Permits and Licenses............................................17
3.16 Banks; Powers of Attorney.......................................17
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3.18 Software and Databases..........................................18
3.19 Insurance.......................................................18
3.20 Brokers.........................................................18
4. Covenants of Net......................................................18
4.1 Regular Course of Business......................................18
4.2 Restricted Activities and Transactions..........................18
4.3 Dividends and Distributions.....................................19
4.4 Supplements to Schedules and Financial Statements...............19
4.5 Confidentiality.................................................19
4.6 Public Announcements............................................19
4.7 SEC Matters.....................................................19
4.8 Stockholder Approval............................................20
4.9 CP Employees....................................................20
4.10 Further Assurances..............................................20
5. Covenants of CP.......................................................20
5.1 Regular Course of Business......................................20
5.2 Restricted Activities and Transactions..........................21
5.3 Dividends and Distributions.....................................22
5.4 Access to Records and Properties; Opportunity to Ask Questions..22
5.5 Supplements to Written Disclosures and Financial Statements.....22
5.6 Confidentiality.................................................22
5.7 Public Announcements............................................22
5.8 SEC Matters.....................................................22
5.9 Further Assurances..............................................23
6. Conditions to the Obligations of Net..................................23
6.1 Representations and Warranties True as of Closing...............23
6.2 Performance of Covenants........................................23
6.3 Litigation......................................................23
6.4 No Adverse Change...............................................23
6.5 Board of Directors and Stockholder Approval.....................23
6.6 Consents and Approvals..........................................24
6.7 Certificates....................................................24
6.8 Registration Statement Effective................................24
6.9 Opinion of Hutchins, Wheeler & Dittmar..........................24
6.10 Other Agreements................................................25
6.11 Opinion of Investment Banker....................................25
7. Conditions to the Obligations of CP...................................25
7.1 Representations and Warranties True as of Closing...............25
7.2 Performance of Covenants........................................25
7.3 Litigation......................................................25
7.4 No Adverse Change...............................................25
7.5 Stockholder Approval............................................26
7.6 Consents and Approvals..........................................26
7.7 Registration Statement Effective................................26
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7.8 Certificates....................................................26
7.9 Opinion of Proskauer Rose LLP...................................26
7.10 Other Agreements................................................27
7.11 Opinion of Investment Bankers...................................27
8. Indemnification and Other Agreements..................................27
8.1 Indemnification.................................................27
8.2 Agreements of Harlan D. Peltz, Benjamin Bassi, William Townsend
and Mark Palmer.................................................28
8.3 Tax Matters.....................................................29
9. Termination, Amendment and Waiver.....................................29
9.1 Termination.....................................................30
9.2 Effect of Termination...........................................30
9.3 Amendment; Action by CP.........................................31
10.1 Representations and Warranties..................................31
10.2 Enforcement of the Agreement....................................31
10.3 Expenses........................................................31
10.4 Validity........................................................31
10.5 Notices.........................................................32
10.6 Governing Law...................................................33
10.7 Headings........................................................33
10.8 Parties in Interest.............................................33
10.9 Counterparts....................................................33
10.10 Certain Definitions.............................................33
10.11 Entire Agreement................................................35
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RESTATED
CERTIFICATE OF INCORPORATION
OF
YOUTHSTREAM MEDIA NETWORKS, INC.
(Pursuant to Sections 242 and 243 of the
General Corporation Law of the State of Delaware)
It is hereby certified that:
1. The name of the corporation is YouthStream Media Networks, Inc. (the
"Corporation"). The name under which the Corporation was originally incorporated
was Nuparent, Inc., and the date of filing of the original certificate of
incorporation of the Corporation with the Secretary of State of the State of
Delaware was June 22, 1999.
2. The board of directors of the Corporation duly adopted a resolution
proposing and declaring it advisable that the certificate of incorporation of
the Corporation be amended and restated in its entirety to read as follows:
FIRST
The name of the corporation is YouthStream Media Networks, Inc. (the
"Corporation").
SECOND
The purpose for which the Corporation is formed is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "Delaware General Corporation
Law").
THIRD
The total number of shares of capital stock the Corporation shall have
authority to issue is 50,000,000 shares of common stock, $.01 par value per
share (the "Common Stock"), and 5,000,000, shares of preferred stock, $.01 par
value per share (the "Preferred Stock"). The Board of Directors may authorize,
without further stockholder approval, the issuance from time to time of the
preferred stock in one or more series with such designations and such powers,
preferences and rights, and such qualifications, limitations or restrictions
(which may differ with respect to each series) as the Board of Directors may fix
by resolution. Shares of capital stock of the Corporation may be issued for such
consideration, not less than the par value thereof, as shall be fixed from time
<PAGE>
to time by the Board of Directors, and shares issued for such consideration
shall be fully paid and nonassessable.
FOURTH
The registered office of the Corporation in the State of Delaware is to be
located at 1013 Centre Road, Wilmington, County of New Castle, Delaware 19905.
The name of its registered agent at that address is Corporation Service Company.
FIFTH
The duration of the corporation is to be perpetual.
SIXTH
Action required or permitted to be taken at a meeting of the stockholders
of the Corporation may not be taken by consent or consents in writing in lieu of
a meeting. The stockholders of the Corporation owning 80% of the outstanding
shares of Common Stock may, by a vote of stockholders present, in person or by
proxy, at a meeting in which a quorum is present, amend or repeal this Article
SIXTH. The stockholders of the Corporation may not otherwise amend or repeal
this Article SIXTH.
SEVENTH
A.
The Board of Directors shall be divided into three classes, as nearly
equal in number as the then total number of directors (which shall not be fewer
than three, unless otherwise determined by the Board of Directors) constituting
the whole board permits, with the term of office of one class expiring each
year. At the next election of directors, directors of the first class (which
shall initially be comprised of __________, ___________ and ____________) shall
be selected to hold office for a term expiring at the next succeeding annual
meeting, directors of the second class (which shall initially be comprised of
___________ and ___________) shall be elected to hold office for a term expiring
at the second succeeding annual meeting and directors of the third class (which
shall initially be comprised of ___________ and __________) shall be elected to
hold office for a term expiring at the third succeeding annual meeting. Subject
to the foregoing, at each annual meeting of stockholders, the successors to the
class of directors whose term shall then expire shall be elected to hold office
for at term expiring at the third succeeding annual meeting and each director so
elected shall hold office until his successor is elected and qualified, or until
his earlier resignation or removal. If the number of directors is changed, any
increase or decrease in the number of directors shall be apportioned among the
three classes to make all classes as nearly equal in number as possible, and the
Board of Directors shall decide which class shall contain an unequal number of
directors.
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<PAGE>
B.
(1) General. Nominations of persons for election to the Board of
Directors may be made at an annual meeting of stockholders or special meeting of
stockholders called by the Board of Directors for the purpose of electing
directors. Nominations may be made only (a) by or at the direction of the Board
of Directors or (b) by any stockholder of the Corporation entitled to vote for
the election of directors at such meeting who complies with the notice
procedures set forth in this section B. Such nominations, other than those made
by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not fewer than 50 days or more
than 80 days prior to the scheduled date of the stockholders' meeting,
regardless of any postponement, deferral or adjournment of that meeting to a
later date; provided, however, that, if fewer than 60 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so delivered or mailed and
received not later than the close of business on the tenth day following the
earlier of (a) the day on which such notice of the date of the meeting was
mailed or (b) the day on which such public disclosure was made.
(2) Notice. A stockholder's notice to the secretary shall set forth:
(a) as to each person whom the stockholder proposes to nominate for election or
reelection as a director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the Corporation beneficially
owned by such person on the date of such stockholder's notice and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934
or any successor statute (the "Exchange Act"), including, without limitation,
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected; (b) as to the stockholder giving
notice, (i) the name and address, as such information appears on the
Corporation's books, of such stockholder and any other stockholders known by
such stockholder to be supporting such nominee(s), (ii) the class and number of
shares of the Corporation beneficially owned by such stockholder and each other
stockholder known by such stockholder to be supporting such nominee(s) on the
date of such stockholder notice and (iii) a representation that the stockholder
is a holder of record of stock of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; and (c) a description of all
arrangements or understandings between the stockholder and each nominee and
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder.
(3) Determinations. No person shall be eligible for election as a
director of the Corporation, unless nominated in accordance with the procedures
set forth in this section B. The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by this section B, and, if the
chairman of the meeting should so determine, he shall so declare to the meeting
and the
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<PAGE>
defective nomination shall be disregarded.
C.
The stockholders of the Corporation owning 80% of the outstanding shares
of Common Stock may, by a vote of stockholders present, in person or by proxy,
at a meeting in which a quorum is present, amend or repeal this Article SEVENTH.
The stockholders of the Corporation may not otherwise amend or repeal this
Article SEVENTH..
EIGHTH
A.
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty by such director
as a director, provided that this Article EIGHTH shall not eliminate or limit
the liability of a director (1) for any breach of such director's duty of
loyalty to the Corporation or its stockholders, (2) for acts or omissions of
such director not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of the Delaware General
Corporation Law, or (4) for any transaction from which such director derived an
improper personal benefit, in respect of which such breach of fiduciary duty
occurred. If the Delaware General Corporation Law is amended after approval by
the stockholders of this Article EIGHTH to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended from
time to time.
B.
(1) Right of Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, (a) is or was a director or
officer of the Corporation or (b) is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans (whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent), shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) actually and reasonably incurred or suffered
by such person in connection therewith and such indemnification shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his or her
-4-
<PAGE>
heirs, executors and administrators; provided, however, that, except as provided
in paragraph (2) hereof, the Corporation shall indemnify any such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Article EIGHTH
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, if the Delaware General
Corporation law requires, the payment of such expenses incurred by a director or
officer in his or her capacity as such (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service with respect to an employee benefit plan)
in advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Article EIGHTH or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
(2) Right of Claimant to Bring Suit. If a claim under paragraph (1) of
this Article EIGHTH is not paid in full by the Corporation within 30 days after
a written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, its independent legal counsel or
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, its independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(3) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article EIGHTH shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
(4) Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, against any such
expense, liability or loss, whether or not the Corporation would have the power
to
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<PAGE>
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law.
(5) Expenses as a Witness. To the extent any director, officer, employee
or agent of the Corporation is by reason of such position, or a position with
another entity at the request of the Corporation, a witness in any action, suit
or proceeding, he shall be indemnified against all costs and expenses actually
and reasonably incurred by him or on his behalf in connection therewith.
(6) Indemnity Agreements. The Corporation may enter into an agreement with
any director, officer, employee or agent of the Corporation providing for
indemnification to the fullest extent permitted by the Delaware General
Corporation Law.
NINTH
The directors of the Corporation may, by a vote of a majority of directors
present at a meeting in which a quorum is present, adopt, amend or repeal any
By-law. The stockholders of the Corporation owning 80% of the outstanding shares
of Common Stock may, by a vote of stockholders present, in person or by proxy,
at a meeting in which a quorum is present, adopt, amend or repeal any By-law.
The stockholders of the Corporation may not otherwise adopt, amend or repeal any
By-law.
3. The foregoing amendment has been duly adopted by the sole stockholder
of the Corporation in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
4. This Restated Certificate of Incorporation shall be effective on and as
of the date of filing this Restated Certificate of Incorporation with the office
of the Secretary of State of the State of Delaware.
Date: _________, 1999
---------------------------
Edward W. Kerson
President
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<PAGE>
RIGHTS AGREEMENT
dated as of
____________________, 1999
between
YouthStream Media Networks, Inc.
and
----------------------------
as Rights Agent
<PAGE>
TABLE OF CONTENTS
Section 1. Certain Definitions..............................................1
Section 2. Appointment of Rights Agent......................................4
Section 3. Issue of Right Certificates......................................5
Section 4. Form of Right Certificate........................................6
Section 5. Countersignature and Registration................................7
Section 6. Transfer, Split-up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen
Right Certificate ...............................................7
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights....8
Section 8. Cancellation and Destruction of Right Certificates..............10
Section 9. Reservation and Availability of Common Shares...................10
Section 10. Common Shares Record Date.......................................11
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number Number of Rights.........................................11
Section 12. Certificate of Adjusted Purchase Price or Number of Shares......18
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power ..................................................19
Section 14. Fractional Rights and Fractional Shares.........................21
Section 15. Rights of Action................................................22
i
<PAGE>
Section 16. Agreement of Right Holders......................................22
Section 17. Right Certificate Holder Not Deemed a Stockholder...............23
Section 18. Concerning the Rights Agent.....................................23
Section 19. Merger or Consolidation or Change of Name of Rights Agent.......24
Section 20. Duties of Rights Agent..........................................24
Section 21. Change of Rights Agent..........................................26
Section 22. Issuance of New Right Certificates..............................27
Section 23. Redemption and Termination......................................28
Section 24. Exchange........................................................28
Section 25. Notice of Certain Events........................................29
Section 26. Notices.........................................................30
Section 27. Supplements and Amendments......................................30
Section 28. Determination and Actions by the Board of Directors of the
Corporation, etc................................................31
Section 29. Successors......................................................32
Section 30. Benefits of this Agreement......................................32
Section 31. Severability....................................................32
Section 32. Governing Law...................................................32
Section 33. Counterparts....................................................32
ii
<PAGE>
Section 34. Descriptive Headings............................................32
iii
<PAGE>
Defined Term Cross Reference Sheet
Acquiring Person............................................. Section 1(a)
Act.......................................................... Section 1(b)
Adjustment Shares............................................ Section 11(a)(ii)
Affiliate.................................................... Section 1(c)
Agreement.................................................... Preface
Associate.................................................... Section 1(c)
Beneficial Owner............................................. Section 1(d)
beneficially own............................................. Section 1(d)
Board of Directors........................................... Section 1(e)
Business Day................................................. Section 1(f)
common share equivalent...................................... Section 11(a)(iii)
Close of business............................................ Section 1(g)
Common Shares................................................ Section 1(h)
Corporation.................................................. Preface
Current per share market price............................... Section 11(d)
Current Value................................................ Section 11(a)(iii)
Distribution Date............................................ Section 1(i)
equivalent common shares..................................... Section 11(b)
Exchange Act................................................. Section 1(j)
Exchange Ratio............................................... Section 24(a)
Final Expiration Date........................................ Section 7(a)
Permitted Offer.............................................. Section 1(l)
Person....................................................... Section 1(m)
Principal Party.............................................. Section 13(b)
Proposing Person............................................. Section 1(n)
Purchase Price............................................... Section 4(a)
Record Date.................................................. Preface
Redemption Date.............................................. Section 7(a)
Redemption Price............................................. Section 23(a)
Right........................................................ Preface
Right Certificate............................................ Section 3(a)
Rights Agent................................................. Preface
Rights Agreement............................................. Section 3(c)
Qualified Person............................................. Section 1(o)
Section 11(a)(ii) Event...................................... Section 1(q)
Section 13 Event............................................. Section 1(r)
Security..................................................... Section 11(d)
Shares Acquisition Date...................................... Section 1(s)
Subsidiary................................................... Section 1(t)
Substitution Period.......................................... Section 11(a)(iii)
Summary of Rights............................................ Section 3(b)
then outstanding............................................. Section 1(d)
Trading Day.................................................. Section 11(d)
Transfer..................................................... Section 1(u)
Triggering Event............................................. Section 1(v)
Voting securities............................................ Section 13(a)
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<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of __________, 1999 (the "Agreement"),
between YouthStream Media Networks, Inc., a Delaware corporation (the
"Corporation"), and _________________ (the "Rights Agent").
The Board of Directors of the Corporation has authorized and
declared a dividend of one right (a "Right") for each Common Share (as
hereinafter defined) of the Corporation outstanding at the close of business on
__________________, 1999 (the "Record Date"), each Right representing the right
to purchase one one-tenth of a Common Share, upon the terms and subject to the
conditions herein set forth, and has further authorized and directed the
issuance of one Right with respect to each Common Share that shall become
outstanding between the Record Date and the earliest of the Distribution Date,
the Redemption Date or the Final Expiration Date (as such terms are hereinafter
defined); provided, however, that Rights may be issued with respect to Common
Shares that shall become outstanding after the Distribution Date and prior to
the earlier of the Redemption Date and the Final Expiration Date in accordance
with the provisions of Section 22 of this Agreement.
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the Beneficial Owner
of 15% or more of the then outstanding Common Shares (other than as a result of
a Permitted Offer (as hereinafter defined)) or was such a Beneficial Owner at
any time after the date hereof, whether or not such person continues to be the
Beneficial Owner of 15% or more of the then outstanding Common Shares.
Notwithstanding the foregoing, (A) the term "Acquiring Person" shall not include
(i) the Corporation, (ii) any Subsidiary of the Corporation, (iii) any employee
benefit plan of the Corporation or of any Subsidiary of the Corporation, (iv)
any Person or entity organized, appointed or established by the Corporation for
or pursuant to the terms of any such plan, or any Qualified Person, and (B) no
Person shall become an "Acquiring Person":
(i) as a result of the acquisition of Common Shares by the
Corporation which, by reducing the number of Common Shares outstanding,
increases the proportional number of shares beneficially owned by such Person
together with all Affiliates and Associates of such Person; provided that if (1)
a Person would be or become an Acquiring Person (but for the operation of this
subclause (i)) as a result of the acquisition of Common Shares by the
Corporation, and (2) after such share acquisition by the Corporation, such
Person, or an Affiliate or Associate of such Person, becomes the Beneficial
Owner of any additional Common Shares, then such Person shall be deemed an
Acquiring Person; or
(ii) if the Board of Directors determines in good faith that a
Person who
<PAGE>
would otherwise be an "Acquiring Person" has become such inadvertently, and such
Person (A) does not attempt to exercise any control over the business affairs or
management of the Corporation, including by means of a proxy solicitation, and
(B) divests as promptly as practicable a sufficient number of Common Shares so
that such Person would no longer be an "Acquiring Person", then such Person
shall not be deemed an "Acquiring Person" for any purposes of this Agreement.
(b) "Act" shall mean the Securities Act of 1933, as amended and as
in effect on the date of this Agreement.
(c) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act as in effect on the date of this Agreement.
(d) A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding, or upon the exercise of conversion rights,
exchange rights, rights (other than the Rights), warrants or options, or
otherwise, provided, however, that a Person shall not be deemed the Beneficial
Owner of, or to beneficially own, securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted for
purchase or exchange; or (B) the right to vote pursuant to any agreement,
arrangement or understanding; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to beneficially own, any security if the
agreement, arrangement or understanding to vote such security (1) is pursuant to
the voting trust agreement dated _______, 1999 among the Corporation, Benjamin
Bassi, William Townsend and Mark Palmer, and Harlan D. Peltz, as voting trustee,
or (2)(A) arises solely from a revocable proxy or consent given to such Person
in response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations promulgated under the
Exchange Act and (B) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which such Person
(or any of such Person's Affiliates or Associates) has any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities) relating to the acquisition, holding, voting (except to
the extent contemplated by the proviso to Section 1(d)(ii)(B)) or disposing of
any securities of the Corporation.
2
<PAGE>
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding", when used with
reference to a Person's Beneficial Ownership of securities of the Corporation,
shall mean the number of such securities then issued and outstanding together
with the number of such securities not then actually issued and outstanding
which such Person would be deemed to own beneficially hereunder.
(e) "Board of Directors" shall mean the Board of Directors of the
Corporation from time to time.
(f) "Business Day" shall mean any day other than a Saturday, Sunday,
federal holiday or day on which commercial banks are authorized or required to
close in New York City.
(g) "Close of business" on any given date shall mean 5:00 p.m., New
York time, on such date; provided, however, that if such date is not a Business
Day it shall mean 5:00 p.m., New York time, on the next succeeding Business Day.
(h) "Common Shares" when used with reference to the Corporation
shall mean the shares of Common Stock, par value $.01, of the Corporation or, in
the event of a subdivision, combination or consolidation with respect to such
shares of Common Stock, the shares of Common Stock resulting from such
subdivision, combination or consolidation. "Common Shares" when used with
reference to any Person other than the Corporation shall mean the capital stock
(or equity interest) with the greatest voting power of such other Person or, if
such other Person is a Subsidiary of another Person, the Person or Persons which
ultimately control such first-mentioned Person.
(i) "Distribution Date" shall have the meaning set forth in Section
3 hereof.
(j) "Exchange Act" shall mean the Securities and Exchange Act of
1934, as amended.
(k) "Final Expiration Date" shall have the meaning set forth in
Section 7 hereof.
(l) "Permitted Offer" shall mean a tender or exchange offer which is
for all outstanding Common Shares at a price and on terms determined, prior to
the purchase of shares under such tender or exchange offer, by the Board of
Directors to be adequate (taking into account all factors that such directors
deem relevant) and otherwise in the best interests of the Corporation and its
stockholders (other than the Person or any Affiliate or Associate thereof on
whose basis the offer is being made) taking into account all factors that such
directors may deem relevant.
(m) "Person" shall mean any individual, firm, partnership,
corporation, trust, association, joint venture or other entity, and shall
include any successor (by merger or otherwise) of such entity.
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<PAGE>
(n) "Proposing Person" shall mean any Person proposing or attempting
to effect a business combination, tender offer, exchange offer or similar
transaction with the Corporation or its stockholders, including, without
limitation, a merger, tender offer or exchange offer, sale of substantially all
of the Corporation's assets, or liquidation of the Corporation's assets.
(o) "Qualified Person" shall mean any Person who, together with all
Affiliates of such Person, as of the date hereof, is the Beneficial Owner of 20%
or more of the outstanding Common Shares or any Person (other than a Person who
is then an Acquiring Person) who acquires 15% or more of the then outstanding
Common Shares from such a Person who, immediately prior to such acquisition,
continues to be a Qualified Person; provided, however, that a Qualified Person
shall cease to be a Qualified Person if such Person ceases to be the Beneficial
Owner of at least 5% of the outstanding Common Shares.
(p) "Redemption Date" shall have the meaning set forth in Section 7
hereof.
(q) "Section 11(a)(ii) Event" shall mean any event described in
Section 11(a)(ii) hereof.
(r) "Section 13 Event" shall mean any event described in clause (x),
(y) or (z) of Section 13(a) hereof.
(s) "Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to the Exchange Act) by the Corporation or
an Acquiring Person that an Acquiring Person has become such; provided, that, if
such Person is determined not to have become an Acquiring Person pursuant to
Section 1(a)(ii) hereof, then no Shares Acquisition Date shall be deemed to have
occurred.
(t) "Subsidiary" of any Person shall mean any corporation or other
Person of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
(u) "Transfer" shall mean any sale, assignment, transfer or other
disposition.
(v) "Triggering Event" shall mean any Section 11(a)(ii) Event or any
Section 13 Event.
Section 2. Appointment of Rights Agent. The Corporation hereby
appoints the Rights Agent to act as agent for the Corporation in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Corporation may from time to time appoint such co-Rights Agents
as it may deem necessary or desirable, upon ten (10) days' prior written notice
to the Rights Agent. The Rights Agent shall have no duty to supervise, and shall
in no event be liable for the acts or omissions of any such co-Rights Agent. .
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<PAGE>
Section 3. Issue of Right Certificates. (a) Until the earlier of (i)
the Shares Acquisition Date or (ii) the close of business on the tenth day (or
such later date as may be determined by action of the Corporation's Board of
Directors) after the date of the commencement by any Person (other than the
Corporation, any Subsidiary of the Corporation, any Qualified Person, any
employee benefit plan of the Corporation or of any Subsidiary of the Corporation
or any Person or entity organized, appointed or established by the Corporation
for or pursuant to the terms of such plan) of a tender or exchange offer, the
consummation of which would result in any Person becoming an Acquiring Person
(including, in the case of both (i) and (ii), any such date which is after the
date of this Agreement and prior to the issuance of the Rights), the earlier of
such dates being herein referred to as the "Distribution Date", (x) the Rights
will be evidenced (subject to the provisions of Section 3(b) hereof) by the
certificates for Common Shares registered in the names of the holders thereof
(which certificates shall also be deemed to be Right Certificates) and not by
separate Right Certificates, and (y) the right to receive Rights Certificates
will be transferable only in connection with the transfer of the underlying
Common Shares (including a transfer to the Corporation); provided, however, that
if a tender offer is terminated prior to the occurrence of a Distribution Date,
then no Distribution Date shall occur as a result of such tender offer. As soon
as practicable after the Distribution Date, the Corporation will prepare and
execute, the Rights Agent will countersign and the Corporation will send or
cause to be sent by first-class, postage-prepaid mail, to each record holder of
Common Shares as of the close of business on the Distribution Date, at the
address of such holder shown on the records of the Corporation, a Right
Certificate, substantially in the form of Exhibit A hereto (a "Right
Certificate"), evidencing one Right for each Common Share so held. As of and
after the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) As promptly as practicable following the Record Date, the
Corporation will send a copy of a Summary of Rights to Purchase Common Shares in
the form of Exhibit B hereto (the "Summary of Rights"), by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the close of
business on the Record Date, at the address of such holder shown on the records
of the Corporation. With respect to certificates for Common Shares outstanding
as of the Record Date, until the Distribution Date, the Rights will be evidenced
by such certificates registered in the names of the holders thereof together
with a copy of the Summary of Rights attached thereto. Until the Distribution
Date (or the earlier of the Redemption Date or the Final Expiration Date), the
surrender for transfer of any certificate for Common Shares outstanding on the
Record Date shall also constitute the transfer of the Rights associated with
such Common Shares.
(c) Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in the last
sentence of this paragraph (c)) after the Record Date but prior to the earliest
of the Distribution Date, and the Redemption Date or the Final Expiration Date
shall be deemed also to be certificates for Rights, and shall bear the following
legend:
This certificate also evidences and entitles the holder hereof
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to certain rights as set forth in a Rights Agreement between
YouthStream Media Networks, Inc. and [RIGHTS AGENT], dated as of
__________ ____, 1999 (the "Rights Agreement"), the terms of which
are hereby incorporated herein by reference and a copy of which is
on file at the principal executive offices of YouthStream Media
Networks, Inc. Under certain circumstances, as set forth in the
Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate.
YouthStream Media Networks, Inc. will mail to the holder of this
certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor. Under certain circumstances
set forth in the Rights Agreement, Rights issued to, or held by, any
Person who is, was or becomes an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and certain
related persons, whether currently held by or on behalf of such
Person or by any subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legend,
until the Distribution Date, the Rights associated with the Common Shares
represented by such certificates shall be evidenced by such certificates alone,
and the surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Corporation purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed canceled and retired so that the Corporation shall
not be entitled to exercise any Rights associated with the Common Shares which
are no longer outstanding.
Section 4. Form of Right Certificate. (a) The Right Certificates
(and the forms of election to purchase and of assignment to be printed on the
reverse thereof) shall be substantially in the form set forth in Exhibit A
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Corporation may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Section 11 and Section 22 hereof, the Right
Certificates shall entitle the holders thereof to purchase such number of tenths
of a Common Share as shall be set forth therein at the price per Common Share
set forth therein (the "Purchase Price"), but the amount and type of securities
purchasable upon the exercise of each Right and the Purchase Price thereof shall
be subject to adjustment as provided herein.
(b) Any Right Certificate issued pursuant to Section 3(a) or Section
22 hereof that represents Rights which are null and void pursuant to Section
7(e) of this Agreement and any Right Certificate issued pursuant to Section 6 or
Section 11 hereof upon transfer, exchange, replacement or adjustment of any
other Right Certificate referred to in this sentence, shall
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contain (to the extent feasible) the following legend:
The Rights represented by this Right Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person
or an Affiliate or Associate of an Acquiring Person (as such terms
are defined in the Rights Agreement). Accordingly, this Right
Certificate and the Rights represented hereby are null and void.
The provisions of Section 7(e) of this Rights Agreement shall be
operative whether or not the foregoing legend is contained on any such Right
Certificate.
Section 5. Countersignature and Registration. The Right
Certificates shall be executed on behalf of the Corporation by its Chairman of
the Board, its Chief Executive Officer, its President, any of its Vice
Presidents, or its Treasurer, either manually or by facsimile signature, shall
have affixed thereto the Corporation's seal or a facsimile thereof, and shall be
attested by the Secretary or an Assistant Secretary of the Corporation, either
manually or by facsimile signature. The Right Certificates shall be
countersigned by the Rights Agent and shall not be valid for any purpose unless
so countersigned. In case any officer of the Corporation who shall have signed
any of the Right Certificates shall cease to be such officer of the Corporation
before countersignature by the Rights Agent and issuance and delivery by the
Corporation, such Right Certificates may nevertheless be countersigned by the
Rights Agent and issued and delivered by the Corporation with the same force and
effect as though the person who signed such Right Certificates had not ceased to
be such officer of the Corporation; and any Right Certificate may be signed on
behalf of the Corporation by any person who, at the actual date of the execution
of such Right Certificate, shall be a proper officer of the Corporation to sign
such Right Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause
to be kept, at its office designated as the appropriate place for surrender of
such Right Certificate or transfer, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the
certificate number and the date of each of the Right Certificates.
Section 6. Transfer, Split-up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificate. Subject to
the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any time
after the close of business on the Distribution Date, and at or prior to the
close of business on the earlier of the Redemption Date or the Final Expiration
Date, any Right Certificate or Right Certificates may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of Common Shares (or,
following a Section 13 Event, other securities, as the case may be) as the Right
Certificate or Right Certificates surrendered then entitled such holder (or
former holder in the case of a transfer) to purchase.
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Any registered holder desiring to transfer, split up, combine or exchange any
Right Certificate or Right Certificates shall make such request in writing
delivered to the Rights Agent, and shall surrender the Right Certificate or
Right Certificates to be transferred, split up, combined or exchanged at the
office of the Rights Agent designated for such purpose. Neither the Rights Agent
nor the Corporation shall be obligated to take any action whatsoever with
respect to the transfer of any such surrendered Right Certificate until the
registered holder shall have completed and signed the certificate contained in
the form of assignment on the reverse side of such Right Certificate and shall
have provided such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) or Affiliates or Associates thereof as the
Corporation shall reasonably request. Thereupon the Rights Agent shall, subject
to Section 4(b), Section 7(e) and Section 14 hereof, countersign and deliver to
the Person entitled thereto a Right Certificate or Right Certificates, as the
case may be, as so requested. The Corporation may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Right
Certificates.
Upon receipt by the Corporation and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Corporation's request,
reimbursement to the Corporation and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Corporation will make and deliver a new
Right Certificate of like tenor to the Rights Agent for countersignature and
delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. (a) Subject to Section 7(e) hereof, the registered holder of any Right
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to purchase
and the certificate on the reverse side thereof duly executed, to the Rights
Agent at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price for the total
number of Common Shares (or other securities, as the case may be) as to which
such surrendered Rights are exercised, at or prior to the earliest of (i) the
close of business on___________ ___, 2009 (the "Final Expiration Date"), or (ii)
the time at which the Rights are redeemed as provided in Section 23 hereof (the
"Redemption Date").
(b) The purchase price (the "Purchase Price") per whole Common Share
at which a holder of Rights may purchase Common Shares or (subject to Section 14
hereof) fractions thereof upon exercise of such Rights shall initially be
$____________, shall be subject to adjustment from time to time as provided in
Sections 11 and 13(a) hereof, and shall be payable in accordance with paragraph
(c) below.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
accompanied by payment of the Purchase Price for the Common Shares (or other
securities, as the case may be) to be
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purchased and an amount equal to any applicable transfer tax required to be paid
by the holder of such Right Certificate in accordance with Section 6 hereof by
certified check, cashier's check or money order payable to the order of the
Corporation, the Rights Agent shall thereupon promptly (i) (A) requisition from
any transfer agent of the Common Shares certificates for the number of Common
Shares to be purchased and the Corporation hereby irrevocably authorizes its
transfer agent to comply with all such requests, or (B) if the Corporation, in
its sole discretion, shall have elected to deposit the Common Shares issuable
upon exercise of the Rights hereunder into a depositary, requisition from the
depositary agent depositary receipts representing such number of Common Shares
as are to be purchased (in which case certificates for the Common Shares
represented by such receipts shall be deposited by the transfer agent with the
depositary agent) and the Corporation will direct the depositary agent to comply
with such requests, (ii) when appropriate, requisition from the Corporation the
amount of cash to be paid in lieu of issuance of fractional shares in accordance
with Section 14 hereof, (iii) after receipt of such certificates or depositary
receipts, cause the same to be delivered to or upon the order of the registered
holder of such Right Certificate, registered in such name or names as may be
designated by such holder, and (iv) when appropriate, after receipt thereof,
deliver such cash to or upon the order of the registered holder of such Right
Certificate. In the event that the Corporation is obligated to issue other
securities of the Corporation pursuant to Section 11(a) hereof, the Corporation
will make all arrangements necessary so that such other securities are available
for distribution by the Rights Agent, if and when appropriate.
In addition, in the case of an exercise of the Rights by a holder
pursuant to Section 11(a)(ii), the Rights Agent shall return such Right
Certificate to the registered holder thereof after imprinting, stamping or
otherwise indicating thereon that the rights represented by such Right
Certificate no longer include the rights provided by Section 11(a)(ii) of the
Rights Agreement and if less than all the Rights represented by such Right
Certificate were so exercised, the Rights Agent shall indicate on the Right
Certificate the number of Rights represented thereby which continue to include
the rights provided by Section 11(a)(ii).
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 14 hereof, or the
Rights Agent shall place an appropriate notation on the Right Certificate with
respect to those Rights exercised.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any Affiliate
or Associate thereof) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any Affiliate
or Associate thereof) who becomes a transferee prior to or concurrently with the
Acquiring Person becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring Person to holders
of equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has a continuing agreement,
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<PAGE>
arrangement or understanding regarding the transferred Rights or (B) a transfer
which the Board of Directors has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this
Section 7(e), shall become null and void without any further action and no
holder of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise. The
Corporation shall use all reasonable efforts to insure that the provisions of
this Section 7(e) and Section 4(b) hereof are complied with, but shall have no
liability to any holder of Right Certificates or other Person as a result of its
failure to make any determinations with respect to an Acquiring Person or its
Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Corporation shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Right Certificate surrendered for
such exercise, and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Corporation shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise (other than an
exercise pursuant to Section 11(a)(ii)), transfer, split up, combination or
exchange shall, if surrendered to the Corporation or to any of its agents, be
delivered to the Rights Agent for cancellation or in canceled form, or, if
surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Corporation shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Corporation otherwise than upon the exercise thereof. The Rights Agent shall
deliver all canceled Right Certificates to the Corporation, or shall, at the
written request of the Corporation, destroy such canceled Right Certificates,
and in such case shall deliver a certificate of destruction thereof to the
Corporation.
Section 9. Reservation and Availability of Common Shares. The
Corporation covenants and agrees that at all times after the occurrence of a
Section 11(a)(ii) Event it will, to the extent reasonably practicable, cause to
be reserved and kept available out of its authorized and unissued Common Shares
(and/or other securities), or any authorized and issued Common Shares (and/or
other securities) held in its treasury, the number of Common Shares (and/or
other securities, as the case may be) that will be sufficient to permit the
exercise in full of all outstanding Rights pursuant to this Agreement.
So long as the Common Shares (or other securities, as the case may
be) issuable upon the exercise of the Rights may be listed on any national
securities exchange, or admitted for quotation on any quotation system sponsored
by a registrant national securities association, the Corporation shall use its
best efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be listed on such exchange
or admitted for
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quotation on such system, as the case may be upon official notice of issuance
upon such exercise.
The Corporation covenants and agrees that it will take all such
action as may be necessary to ensure that all Common Shares (or other
securities, as the case may be) delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such shares or other securities
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and non-assessable shares or securities.
The Corporation further covenants and agrees that it will pay when
due and payable any and all U.S. federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of the Right
Certificates or of any Common Shares (or other securities, as the case may be)
upon the exercise of Rights. The Corporation shall not, however, be required to
pay any transfer tax which may be payable in respect of any transfer or delivery
of Right Certificates to a person other than, or the issuance or delivery of
certificates or depositary receipts for the Common Shares (or other securities,
as the case may be) in a name other than that of, the registered holder of the
Right Certificate evidencing Rights surrendered for exercise, or to issue or to
deliver any certificates or depositary receipts for Common Shares (or other
securities, as the case may be) upon the exercise of any Rights, until any such
tax shall have been paid (any such tax being payable by the holder of such Right
Certificate at the time of surrender) or until it has been established to the
Corporation's reasonable satisfaction that no such tax is due.
The Corporation shall use its best efforts to (i) file, as soon as
practicable following the Shares Acquisition Date (or, if required by law, at
such earlier time following the Distribution Date as so required), a
registration statement under the Act, with respect to the securities purchasable
upon exercise of the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as practicable after such filing, and
(iii) cause such registration statement to remain effective (with a prospectus
at all times meeting the requirements of the Act and the rules and regulations
thereunder) until the date of the expiration of the rights provided by Section
11(a)(ii). The Corporation will also take such action as may be appropriate
under the blue sky laws of the various states.
Section 10. Common Shares Record Date. Each Person in whose name any
certificate for Common Shares (or other securities, as the case may be) is
issued upon the exercise of Rights shall for all purposes be deemed to have
become the holder of record of the Common Shares (or other securities, as the
case may be) represented thereby on, and such certificate shall be dated, the
date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that, if the date of such surrender and
payment is a date upon which the Common Shares (or other securities, as the case
may be) transfer books of the Corporation are closed, such Person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next succeeding Business Day on which the Common Shares (or
other securities, as the case may be) transfer books of the Corporation are
open.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares
or Number of Rights. The Purchase Price, the number and kind of shares covered
by each Right
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and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
(a)(i) In the event the Corporation shall at any time after the date
of this Agreement (A) declare a dividend on the Common Shares payable in Common
Shares, (B) subdivide the outstanding Common Shares, (C) combine the outstanding
Common Shares into a smaller number of Common Shares or (D) issue any shares of
its capital stock in a reclassification of the Common Shares (including any such
reclassification in connection with a consolidation or merger in which the
Corporation is the continuing or surviving corporation), except as otherwise
provided in this Section 11(a) and Section 7(e) hereof, (x) the Purchase Price
in effect at the time of the record date for such dividend or of the effective
date of such subdivision, combination or reclassification, and (y) the number
and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Common Shares transfer books of the Corporation were
open, such holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the consideration to
be paid upon the exercise of any Rights be less than the aggregate par value of
the shares of capital stock of the Corporation issuable upon exercise of such
Rights. Notwithstanding anything to the contrary in the preceding sentence, in
the event that any time after the date of this Agreement and prior to the
Distribution Date the Corporation shall take any action described in clause (A),
(B) or (C) of the preceding sentence, then in any such case no adjustment shall
be made pursuant to the immediately preceding sentence and (i) the number of
Common Shares receivable after such event upon exercise of any Right shall be
adjusted by multiplying the number of Common Shares so receivable immediately
prior to such event by a fraction, the numerator of which shall be the number of
Common Shares outstanding immediately prior to such event and the denominator of
which shall be the number of Common Shares outstanding immediately after such
event (except that in the case of the declaration of a stock dividend the
denominator shall be the number of shares outstanding immediately after payment
of such dividend, excluding any shares issued after the record date other than
in connection with such dividend), and (ii) each Common Share outstanding
immediately after such event shall have associated with respect to it that
number of Rights that each Common Share outstanding immediately prior to such
event had associated with respect to it. If an event occurs which would require
an adjustment under both Section 11(a)(i) and Section 11(a)(ii), the adjustment
provided for in this Section 11(a)(i) shall be in addition to, and shall be made
prior to, any adjustment required pursuant to Section 11(a)(ii). If an event
occurs which would require an adjustment under both Section 11(a)(i) and Section
11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall be in
addition to, and shall be made prior to, any adjustment required pursuant to
Section 11(a)(ii).
(ii) In the event any Person, alone or together with its
Affiliates and Associates, shall become an Acquiring Person, then proper
provision shall be made so that each holder of a Right (except as provided below
and in Section 7(e) hereof) thereafter be entitled to receive, upon exercise
thereof at a price equal to the then current Purchase Price for a whole
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Common Share, in accordance with the terms of this Agreement, such number of
Common Shares as shall equal the result obtained by (x) multiplying the then
current Purchase Price per whole Common Share by the number of one-tenths of a
Common Share for which a Right was exercisable immediately prior to the first
occurrence of a Section 11(a)(ii) Event (e.g., if a Right was exercisable
immediately prior to a Section 11(a)(ii) Event for two one-tenths of a share of
Common Stock and the Purchase Price per whole Common Share was $[X], the product
would be [2X]), and dividing that product by (y) 50% of the then current per
share market price of the Common Shares (determined pursuant to Section 11(d)
hereof) on the date of such first occurrence (such number of shares being
referred to as the "Adjustment Shares"); provided, however, that if the
transaction that would otherwise give rise to the foregoing adjustment is also
subject to the provisions of Section 13 hereof, then only the provisions of
Section 13 hereof shall apply and no adjustment shall be made pursuant to this
Section 11(a)(ii).
(iii) In the event that the number of Common Shares that are
authorized by the Corporation's certificate of incorporation but not outstanding
or reserved for issuance for purposes other than upon exercise of the Rights are
not sufficient to permit the exercise in full of the Rights in accordance with
the foregoing Section 11(a)(ii), the Corporation shall (A) determine the excess
of (1) the value of the Adjustment Shares based on the "current per share market
price" determined pursuant to Section 11(d) (the "Current Value") over (2) the
Purchase Price (such excess being hereinafter referred to as the "Spread"), and
(B) in respect of each Right, make adequate provision to substitute for the
Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash, (2)
a reduction in the Purchase Price, (3) other equity securities of the
Corporation (including, without limitation, shares, or units of shares, of
preferred stock that the Board of Directors of the Corporation has determined to
have the same value as the Common Shares (such shares of preferred stock being
referred to herein as "common share equivalents")), (4) debt securities of the
Corporation, (5) other assets or (6) any combination of the foregoing, having an
aggregate value equal to the Current Value, where such aggregate value has been
determined by the Board of Directors of the Corporation based upon the advice of
a nationally recognized investment banking firm selected by the Board of
Directors of the Corporation; provided, however, that if the Corporation shall
not have made adequate provision to deliver value pursuant to clause (B) above
within 30 days following the first occurrence of a Section 11(a)(ii) Event, then
the Corporation shall be obligated to, deliver, upon the surrender for exercise
of a Right and without requiring payment of the Purchase Price, Common Shares
(to the extent available) and, if necessary, cash, that in the aggregate are
equal to the Spread. If the Board of Directors of the Corporation shall
determine in good faith that it is likely that sufficient additional shares of
Common Shares could be authorized for issuance upon exercise in full of the
Rights, the 30-day period set forth above may be extended to the extent
necessary, but not to more then 120 days following the first occurrence of a
Section 11(a)(ii) Trigger Date so that Corporation may seek stockholder approval
for the authorization of such additional shares of Common Shares (such period,
as it may be extended, being hereinafter referred to as the "Substitution
Period"). To the extent the Corporation determines that some action need be
taken pursuant to the first and/or second sentences of this Section 11(a) (iii),
the Corporation (x) shall provide, subject to Section 7(e) hereof, that such
action shall apply uniformly to all outstanding Rights and (y) may suspend the
exercisability of the Rights until the expiration of the Substitution Period to
seek any authorization of additional Common Shares and/or to decide the
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appropriate form of distribution to be made pursuant to such first sentence and
to determine the value thereof. In the event of any such suspension, the
Corporation shall deliver notice to the Rights Agent and issue a public
announcement stating that the exercisability of the Rights has been temporarily
suspended, as well as notice to the Rights Agent and a public announcement at
such time as the suspension is no longer in effect. For purposes of this Section
11(a)(iii), the value of the Common Shares shall be the current market price (as
determined pursuant to Section 11(d) hereof) per Common Share on the date of the
first occurrence of a Section 11(a)(ii) Trigger Date and the value of any common
share equivalent shall be deemed to have the same value as a Common Share on
such date.
(b) In case the Corporation shall fix a record date for the issuance
of rights (other than the Rights), options or warrants to all holders of Common
Shares entitling them (for a period expiring within 45 calendar days after such
record date) to subscribe for or purchase Common Shares (or shares having the
same rights and privileges as the Common Shares ("equivalent common shares")) or
securities convertible into Common Shares or equivalent common shares at a price
per Common Share or equivalent common share (or having a conversion price per
share, if a security convertible into Common Shares or equivalent common shares)
less than the then current per share market price of the Common Shares (as
determined pursuant to Section 11(d) hereof) on such record date, the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of Common Shares
outstanding on such record date plus the number of Common Shares which the
aggregate offering price of the total number of Common Shares and/or equivalent
common shares so to be offered (and/or the aggregate initial conversion price of
the convertible securities so to be offered) would purchase at such current per
share market price, and the denominator of which shall be the number of Common
Shares outstanding on such record date plus the number of additional Common
Shares and/or equivalent common shares to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible); provided, however, that in no event shall the
consideration to be paid upon the exercise of Rights be less than the aggregate
par value of the shares of capital stock of the Corporation issuable upon
exercise of such Rights. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be determined in good faith by the Board of
Directors, whose determination shall be described in a statement filed with the
Rights Agent and shall be binding on the Rights Agent. Common Shares owned by or
held for the account of the Corporation shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that such rights, options
or warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not been
fixed.
(c) In case the Corporation shall fix a record date for the making
of a distribution to all holders of the Common Shares (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Common Shares) or subscription rights or warrants (excluding
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those referred to in Section 11(b) hereof), the Purchase Price to be in effect
after such record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the then current per share market price (as determined pursuant
to Section 11(d) hereof) of the Common Shares on such record date, less the fair
market value (as determined in good faith by the Board of Directors, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Common Share and the denominator of which shall be such
current per share market price of the Common Shares; provided, however, that in
no event shall the consideration to be paid upon the exercise of any Rights be
less than the aggregate par value of the shares of capital stock of the
Corporation to be issued upon exercise of such Rights. Such adjustments shall be
made successively whenever such a record date is fixed; and in the event that
such distribution is not so made, the Purchase Price shall again be adjusted to
be the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)), including, without limitation the Common Shares, on any date
shall be deemed to be the average of the daily closing prices per share of such
Security for the thirty (30) consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date; provided, however, that in
the event that the current per share market price of the Security is determined
during a period following the announcement by the issuer of such Security of (A)
a dividend or distribution on such Security payable in shares of such Security
or securities convertible into such shares, or (B) any subdivision, combination
or reclassification of such Security and prior to the expiration of thirty (30)
Trading Days after the ex-dividend date for such dividend or distribution, or
the record date for such subdivision, combination or reclassification, then, and
in each such case, the current per share market price shall be appropriately
adjusted to reflect the current market price per share equivalent of such
Security. The closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Security
is not listed or admitted to trading on the New York Stock Exchange, as reported
in the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Security is listed or admitted to trading or, if the Security is not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then
in use, or, if on any such date the Security is not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Security selected by the Board
of Directors. If on any such date no such market maker is making a market in the
Security, the fair value of the Security on such date as determined in good
faith by the Board of Directors shall be used. The term "Trading Day" shall mean
a day on which the principal national securities exchange on which the Security
is listed or admitted to trading is open for the transaction of business or, if
the Security is not listed or admitted to trading on any
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national securities exchange, a Business Day.
(e) Notwithstanding anything herein to the contrary (except the last
sentence of this Section 11(e)), no adjustment in the Purchase Price shall be
required unless such adjustment would require an increase or decrease of at
least 1% in the Purchase Price; provided, however, that any adjustments which by
reason of this Section 11(e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 11 shall be made to the nearest cent or to the nearest
ten-thousandth of a Common Share or any other share or security as the case may
be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
(3) years from the date of the transaction which mandates such adjustment or
(ii) the Final Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a)(i) or 13(a) hereof, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock of the Corporation other
than Common Shares, thereafter the number of other shares so receivable upon
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Shares contained in Section 11(a) through (c), inclusive,
and the provisions of Sections 7, 9, 10, 13 and 14 with respect to the Common
Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Corporation subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Common Shares
purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.
(h) Unless the Corporation shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price that number of
Common Shares (calculated to the nearest ten-thousandth of a Common Share)
obtained by (i) multiplying (x) the number of Common Shares covered by a Right
immediately prior to this adjustment by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price and (ii) dividing the
product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Corporation may elect on or after the date of any adjustment
of the Purchase Price to adjust the number of Rights, in lieu of any adjustment
in the number of Common Shares purchasable upon the exercise of a Right. Each of
the Rights outstanding after such adjustment of the number of Rights shall be
exercisable for the number of Common Shares for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to the adjustment of the Purchase Price by the
Purchase Price in effect
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immediately after adjustment of the Purchase Price. The Corporation shall make a
public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least ten (10) days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Corporation shall, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Corporation, shall
cause to be distributed to such holders of record in substitution and
replacement for the Rights Certificates held by such holders prior to the date
of adjustment, and upon surrender thereof, if required by the Corporation, new
Right Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Right Certificates so to be distributed shall be
issued, executed and countersigned in the manner provided for herein and shall
be registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price
or the number of Common Shares issuable upon the exercise of the Rights, the
Right Certificates theretofore and thereafter issued may continue to express the
Purchase Price and the number of Common Shares which were expressed in the
initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the aggregate par value, if any, of the number of
Common Shares or other securities issuable in respect of the Purchase Price upon
exercise of a Right, the Corporation shall take any corporate action which may,
in the opinion of its counsel, be necessary in order that the Corporation may
validly and legally issue such number of fully paid and non-assessable Common
Shares or other securities at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Corporation may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the Common Shares or other securities of the Corporation, if any, issuable upon
such exercise over and above the Common Shares or other securities of the
Corporation, if any, issuable upon exercise on the basis of the Purchase Price
in effect prior to such adjustment; provided, however, the Corporation shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares upon the occurrence of the
event requiring such adjustment.
(m) Notwithstanding anything in this Section 11 to the contrary, the
Corporation shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that (i) any consolidation or subdivision of the Common Shares, (ii)
issuance wholly for cash of Common Shares at less than the current market price,
(iii) issuance wholly for cash of Common Shares or securities which by their
terms are convertible
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into or exchangeable for Common Shares, (iv) stock dividends, or (v) issuance of
rights, options or warrants referred to in this Section 11, hereafter made by
the Corporation to holders of its Common Shares shall not be taxable to such
shareholders.
(n) The Corporation covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other Person (other
than a Qualified Person or a Subsidiary of the Corporation in a transaction
which does not violate Section 11(o) hereof), (ii) merge with or into any other
Person (other than a Qualified Person or a Subsidiary of the Corporation in a
transaction which does not violate Section 11(o) hereof), or (iii) sell or
transfer (or permit any Subsidiary to sell or transfer), in one transaction, or
a series of related transactions, assets or earning power aggregating more than
50% of the assets or earning power of the Corporation and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the Corporation
and/or of its Subsidiaries and/or a Qualified Person in one or more transactions
each of which does not violate Section 11(o) hereof), if (x) at the time of or
immediately after such consolidation, merger, sale or transfer there are any
charter or by-law provisions or any rights, warrants or other instruments or
securities outstanding or agreements in effect or other actions taken, which
would materially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately after
such consolidation, merger or sale, the shareholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates. The Corporation shall not
consummate any such consolidation, merger, sale or transfer unless prior thereto
the Corporation and such other Person shall have executed and delivered to the
Rights Agent a supplemental agreement evidencing compliance with this Section
11(n).
(o) The Corporation covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section 27
hereof, take (or permit any Subsidiary to take) any action the purpose of which
is to, or if at the time such action is taken it is reasonably foreseeable that
the effect of such action is to materially diminish or otherwise eliminate the
benefits intended to be afforded by the Rights.
(p) The exercise of Rights under Section 11(a)(ii) shall only result
in the loss of rights under Section 11(a)(ii) to the extent so exercised and
shall not otherwise affect the rights represented by the Rights under this
Rights Agreement, including the rights represented by Section 13.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
the Corporation shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares a copy of such certificate and (c) mail a brief summary thereof to each
holder of a Right Certificate in accordance with Section 26 hereof, provided,
however, that in the event that at any time prior to the Distribution Date the
Company shall take any action described in clause (A), (B) or (C) of Section
11(a)(i), then the Company shall not be required to satisfy the obligations set
forth in clauses (a), (b) and (c) above. The Rights Agent shall be fully
protected
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in relying on any such certificate and on any adjustment therein contained and
shall not be deemed to have knowledge of such adjustment unless and until it
shall have received such certificate. Notwithstanding anything in the foregoing
to the contrary, prior to the earlier to occur of the Distribution Date and the
Share Acquisition Date, the Company may, in its discretion, satisfy the
obligation set forth in clause (c) above by including such summary in its next
regular report to shareholders.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power. (a) In the event that, on or following the Shares Acquisition
Date, directly or indirectly, (x) the Corporation shall consolidate with, or
merge with and into, any Person, (y) the Corporation shall consolidate with, or
merge with, any Person, and the Corporation shall be the continuing or surviving
corporation of such consolidation or merger (other than, in a case of any
transaction described in (x) or (y), a merger or consolidation which would
result in all of the securities generally entitled to vote in the election of
directors ("voting securities") of the Corporation outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into securities of the surviving entity) all of the voting securities
of the Corporation or such surviving entity outstanding immediately after such
merger or consolidation and the holders of such securities not having changed as
a result of such merger or consolidation), or (z) the Corporation shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one transaction or a series of related transactions, assets or
earning power aggregating more than 50% of the assets or earning power of the
Corporation and its Subsidiaries (taken as a whole) to any Person (other than
the Corporation or any Subsidiary of the Corporation in one or more transactions
each of which does not violate Section 11(o) hereof), then, and in each such
case, proper provision shall be made so that (i) each holder of a Right, except
as provided in Section 7(e) hereof, shall thereafter have the right to receive,
upon the exercise thereof at a price equal to the then current Purchase Price
for a whole Common Share, in accordance with the terms of this Agreement and in
lieu of Common Shares, such number of freely tradeable Common Shares of the
Principal Party (as hereinafter defined), not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as shall equal
the result obtained by (A) multiplying the then current Purchase Price for a
whole Common Share by the number of one-tenths of a Common Share for which a
Right is then exercisable (without taking into account any adjustment previously
made pursuant to Section 11(a)(ii)) and dividing that product by (B) 50% of the
then current per share market price of the Common Shares of such Principal Party
(determined pursuant to Section 11(d) hereof) on the date of consummation of
such Section 13 Event; (ii) such Principal Party shall thereafter be liable for,
and shall assume, by virtue of such Section 13 Event, all the obligations and
duties of the Corporation pursuant to this Agreement; (iii) the term
"Corporation" shall thereafter be deemed to refer to such Principal Party, it
being specifically intended that the provisions of Section 11 hereof shall apply
only to such Principal Party following the first occurrence of a Section 13
Event; and (iv) such Principal Party shall take such steps (including, but not
limited to, the reservation of a sufficient number of its Common Shares) in
connection with the consummation of any such transaction as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the Common Shares thereafter deliverable upon
the exercise of the Rights.
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(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause (x) or
(y) of the first sentence of Section 13(a), the Person that is the issuer of any
securities into which Common Shares of the Corporation are converted in such
merger or consolidation, and if no securities are so issued, the Person that is
the other party to such merger or consolidation (including, if applicable, the
Corporation if it is the surviving corporation); and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions; provided, however, that in any of the foregoing
cases, (1) if the Common Shares of such Person are not at such time and have not
been continuously over the preceding twelve (12) month period registered under
Section 12 of the Exchange Act, and such Person is a direct or indirect
Subsidiary of another Person the Common Shares of which are and have been so
registered, "Principal Party" shall refer to such other Person; (2) in case such
Person is a Subsidiary, directly or indirectly, of more than one Person, the
Common Shares of two or more of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the issuer of the
Common Shares having the greatest aggregate market value; and (3) in case such
Person is owned, directly or indirectly, by a joint venture formed by two or
more Persons that are not owned, directly or indirectly, by the same Person, the
rules set forth in (1) and (2) above shall apply to each of the chains of
ownership having an interest in such joint venture as if such party were a
"Subsidiary" of both or all of such joint venturers and the Principal Parties in
each such chain shall bear the obligations set forth in this Section 13 in the
same ratio as their direct or indirect interests in such Person bear to the
total of such interests.
(c) The Corporation shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of its authorized Common Shares which have not been issued or reserved
for issuance to permit the exercise in full of the Rights in accordance with
this Section 13 and unless prior thereto the Corporation and such Principal
Party shall have executed and delivered to the Rights Agent a supplemental
agreement providing for the terms set forth in paragraphs (a) and (b) of this
Section 13 and further providing that, as soon as practicable after the date of
any consolidation, merger, sale or transfer mentioned in paragraph (a) of this
Section 13, the Principal Party at its own expense shall:
(i) prepare and file a registration statement under the Act
with respect to the Rights and the securities purchasable upon exercise of the
Rights on an appropriate form, and use its best efforts to cause such
registration statement to (A) become effective as soon as practicable after such
filing and (B) remain effective (with a prospectus at all times meeting the
requirements of the Act) until the Final Expiration Date;
(ii) use its best efforts to qualify or register the rights
and the securities purchasable upon exercise of the Rights under the blue sky
laws of such jurisdictions as may be necessary or appropriate; and
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(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with the
requirements for registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers. The rights
under this Section 13 shall be in addition to the rights to exercise Rights and
adjustments under Section 11(a)(ii) and shall survive any exercise thereof.
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in subparagraph
(x) or (y) of Section 13(a) if: (i) such transaction is consummated with a
Person or Persons which acquired Common Shares pursuant to a Permitted Offer (or
a wholly owned Subsidiary of any such Person or Persons); (ii) the price per
Common Share offered in such transaction is not less than the price per Common
Share paid to all holders of Common Shares whose shares were purchased pursuant
to such Permitted Offer; and (iii) the form of consideration offered in such
transaction is the same as the form of consideration paid pursuant to such
Permitted Offer; or (B) such transaction is consummated with a Qualified Person.
Upon consummation of any such transaction contemplated by this Section 13(d),
all Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares. (a) The
Corporation shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors.
If on any such date no such market maker is making a market in the Rights, the
fair value of the Rights on such date as determined in good faith by the Board
of Directors shall be used.
(b) The Corporation shall not be required to issue fractions of
Common
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Shares upon exercise of the Rights or to distribute certificates which evidence
fractional Common Shares. In lieu of fractional Common Shares, the Corporation
shall pay to the registered holders of Right Certificates at the time such
Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one Common Share. For the purposes of
this Section 14(b), the current market value of a Common Share shall be the
closing price of a Common Share (as determined pursuant to Section 11(d) hereof)
for the Trading Day immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional share upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of
this Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Corporation to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holder of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Corporation and the Rights
Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such purpose,
duly endorsed or accompanied by a proper instrument of transfer and with the
appropriate form fully executed;
(c) subject to Section 6 and Section 7(f) hereof, the Corporation
and the Rights Agent may deem and treat the person in whose name the Right
Certificate (or, prior to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Right Certificate or the associated Common Shares certificate made by anyone
other than the Corporation or the Rights Agent) for all purposes whatsoever, and
neither the
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Corporation nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Corporation nor the Rights Agent shall have any liability to any
holder of a Right or a beneficial interest in a Right or other Person as a
result of its inability to perform any of its obligations under this Agreement
by reason of any preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, or any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining performance of such obligation;
provided, however, the Corporation must use its best efforts to have any such
order, decree or ruling lifted or otherwise overturned as soon as possible.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Common Shares or any
other securities of the Corporation which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Corporation or
any right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or other distributions or to exercise any preemptive or subscription rights, or
otherwise, until the Right or Rights evidenced by such Right Certificate shall
have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. The Corporation agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of it duties
hereunder. The Corporation also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
gross negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the premises. In no
event shall the Rights Agent be liable for special, indirect or consequential
loss or damage of any kind whatsoever (including but not limited to lost
profits), even if the Rights Agent has been advised of the likelihood of such
loss or damage and regardless of the form of action. The indemnity provided for
herein shall survive the expiration of the Rights, the resignation or removal of
the Rights Agent and the termination of this Agreement.
The Rights Agent shall be protected and shall incur no liability
for, or in respect of, any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Right
Certificate delivered to the Rights Agent pursuant to Sections 6 and 7 of this
certificate for Common Shares or for other securities of the Corporation,
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instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent. Any corporation into which the Rights Agent or any successor Rights Agent
may be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the stock
transfer or all or substantially all of the corporate trust business of the
Rights Agent or any successor Rights Agent, shall be the successor to the Rights
Agent under this Agreement without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor or in the name of the successor Rights Agent; and in all such cases
such Right Certificates shall have the full force provided in the Right
Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be changed at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes only
those duties and obligations imposed by this Agreement upon the following terms
and conditions, by all of which the Corporation and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Corporation), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to any
action taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of an Acquiring Person and the
determination of the current market price of any Security) be proved or
established by the Corporation prior to taking or suffering any
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<PAGE>
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Corporation and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any action taken
or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature on such Right Certificates) or be
required to verify the same, but all such statements and recitals are and shall
be deemed to have been made by the Corporation only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Corporation of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 7(e) hereof) or any
adjustment required under the provisions of Section 11 or Section 13 hereof or
responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Right Certificates
after receipt of the certificate described in Section 12 hereof); nor shall it
by any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Common Shares to be issued pursuant to this
Agreement or any Right Certificate or as to whether any Common Shares will, when
issued, be validly authorized and issued, fully paid and non-assessable.
(f) The Corporation agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Treasurer of the Secretary of the Corporation, and to
apply to such officers for advice or instructions in connection with its duties,
and shall not be liable for any action taken or suffered by it in good faith or
lack of action in accordance with instructions of any such officer or for any
delay in acting while waiting for those instructions. Any application by the
Rights Agent for written instructions from the Corporation may, at the option of
the Rights Agent, set forth in writing any action proposed to be taken or
omitted by the Rights Agent under this Rights Agreement and the
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<PAGE>
date on or after which such action shall be taken or such omission shall be
effective. The Rights Agent shall not be liable for any action taken by, or
omission of, the Rights Agent in accordance with a proposal included in any such
application on or after the date specified in such application (which date shall
not be less than five Business Days after the date any officer of the
Corporation actually receives such application, unless any such officer shall
have consented in writing to an earlier date) unless, prior to taking any such
action (or the effective date in the case of an omission), the Rights Agent
shall have received written instruction in response to such application
specifying the action to be taken or omitted.
(h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Corporation or become pecuniarily interested in any
transaction in which the Corporation may be interested, or contract with or lend
money to the Corporation or otherwise act as fully and freely as though it were
not Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Corporation or for any other
legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Corporation resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
it believes in good faith that repayment of such funds or adequate
indemnification against such risk or liability is not reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has not been
completed, the Rights Agent shall not take any further action with respect to
such requested exercise of transfer without first consulting with the
Corporation.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Corporation and
to the transfer agent of the Common Shares by registered or certified mail, and,
subsequent to the Distribution Date, to the holders of the Right Certificates by
first-class mail. The Corporation may remove the Rights Agent or any successor
Rights Agent upon sixty (60) days' notice in writing, mailed to the Rights Agent
or any successor Rights Agent, as the case may be, and to the transfer agent of
the Common Shares by registered or certified mail, and, subsequent to the
Distribution Date, to holders of the Right Certificates by first-class mail. If
the Rights Agent shall resign or be removed or shall otherwise become incapable
of acting, the Corporation shall appoint a successor to the Rights Agent. If the
Corporation shall fail to make such appointment within a period of thirty (30)
days after giving
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<PAGE>
notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Right Certificate (who shall, with such notice, submit his Right
Certificate for inspection by the Corporation), then the registered holder of
any Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Corporation or by such a court, shall be a corporation organized and
doing business under the laws of the United States or of the State of New York
(or of any other state of the United States so long as such corporation is
authorized to do business as a banking institution in the State of New York), in
good standing, having an office in the State of New York, which is authorized
under such laws to exercise corporate trust or stock transfer powers and is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50,000,000. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Corporation shall file
notice thereof in writing with the predecessor Rights Agent and the transfer
agent of the Common Shares, and, subsequent to the Distribution Date, mail a
notice thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the successor Rights Agent or the appointment of the Rights Agent, as
the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Corporation may, at its option, issue new Right Certificates evidencing Rights
in such form as may be approved by the Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable upon exercise of the Rights
made in accordance with the provisions of this Agreement.
In addition, in connection with the issuance or sale of Common
Shares following the Distribution Date and prior to the earlier of the
Redemption Date and the Final Expiration Date, the Corporation (a) shall with
respect to Common Shares so issued or sold pursuant to the exercise of stock
options or under any employee plan or arrangement, or upon the exercise,
conversion or exchange of securities, notes or debentures issued by the
Corporation, and (b) may, in any other case, if deemed necessary or appropriate
by the Board of Directors, issue Right Certificates representing the appropriate
number of Rights in connection with such issuance of sale, provided, however,
that (i) the Corporation shall not be obligated to issue any such Right
Certificates if, and to the extent that, the Corporation shall be advised by
counsel that such issuance would create a significant risk of material adverse
tax consequences to the Corporation or the Person to whom such Right Certificate
would be issued, and (ii) no Right Certificate shall be issued if, and to the
extent that, appropriate adjustment shall otherwise have been made in lieu of
the issuance thereof.
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Section 23. Redemption and Termination. (a) The Board of Directors
may, at its option, redeem all but not less than all the then outstanding Rights
at a redemption price of $0.01 per Right, as such amount may be appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the "Redemption Price"), at any time prior to the earlier of (x)
the time that any Person becomes an Acquiring Person, or (y) the Final
Expiration Date. The Corporation may, at its option, pay the Redemption Price
either in Common Shares (based on the "current per share market price," as
defined in Section 11(d) hereof, of the Common Shares at the time of redemption)
or cash; provided that if the Corporation elects to pay the Redemption Price in
Common Shares, the Corporation shall not be required to issue any fractional
Common Shares and the number of Common Shares issuable to each holder of Rights
shall be rounded down to the next whole share. The redemption of the Rights by
the Board of Directors may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to paragraph (a) of this
Section 23, and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price for each Right so held. The
Corporation shall promptly give notice of any such redemption to the Rights
Agent and the holders of Rights in the manner set forth in Section 26, provided,
however, that the failure to give, or any defect in, any such notice shall not
affect the validity of such redemption. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made. Neither the Corporation nor any of
its Affiliates or Associates may redeem, acquire or purchase for value any
Rights at any time in any manner other than that specifically set forth in this
Section 23 and other than in connection with the purchase of Common Shares prior
to the Distribution Date.
Section 24. Exchange. (a) Subject to Section 24(d), the Board of
Directors may, at its option, at any time after the time that any Person becomes
an Acquiring Person, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 7(e) and Section 11(a)(ii) hereof) for
Common Shares of the Corporation at an exchange ratio of one Common Share (or a
lesser ratio as determined by the Board of Directors, if the Corporation does
not have sufficient authorized and unreserved Common Shares) per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors shall not be empowered to effect such exchange at any
time after any Person (other than the Corporation, any Subsidiary of the
Corporation, any Qualified Person, any employee benefit plan of the Corporation
or any such Subsidiary, any entity holding Common Shares for or pursuant to the
terms of any such plan or any trustee, administrator or fiduciary of such a
plan), together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the Common Shares then outstanding.
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<PAGE>
(b) Immediately upon the action of the Board of Directors of the
Corporation ordering the exchange of any Rights pursuant to subsection (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of Common Shares equal to
the number of such rights held by such holder multiplied by the Exchange Ratio.
The Corporation shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Corporation promptly shall mail a
notice of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the Common Shares for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 7(e)) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued (and not reserved for
issuance other than upon exercise of the Rights) to permit any exchange of
Rights as contemplated in accordance with this Section 24, the (i) Corporation
shall take all such action as may be necessary to authorize additional Common
Shares for issuance upon exchange of the Rights, or (ii) the Board of Directors
may determine to exchange Common Shares for then outstanding and exercisable
Rights at such exchange ratio of less than one Common Share per Right,
appropriately adjusted as set forth in Section 24(a) above, so that all (and not
less than all) Common Shares issued but not outstanding or authorized but
unissued (and not reserved for issuance other than upon exercise of the Rights)
are issued in the exchange contemplated by this Section 24.
(d) In any exchange pursuant to this Section 24, the Corporation, at
its option, may substitute common stock equivalents (as defined in Section
11(a)(iii)) for shares of Common Stock exchangeable for Rights, at the initial
rate of one common stock equivalent for each share of Common Stock, as
appropriately adjusted to reflect adjustments in dividend liquidation and voting
rights of common stock equivalents pursuant to the terms thereof, so that each
common stock equivalent delivered in lieu of each share of Common Stock shall
have essentially the same dividend, liquidation and voting rights as one share
of Common Stock.
Section 25. Notice of Certain Events. (a) In case the Corporation
shall propose, at any time after the Distribution Date, (i) to pay any dividend
payable in stock of any class to the holders of its Common Shares or to make any
other distribution to the holders of its Common Shares (other than a regular
quarterly cash dividend), (ii) to offer to the holders of its Common Shares
rights or warrants to subscribe for or to purchase any additional Common Shares
or shares of stock of any class or any other securities, rights or options,
(iii) to effect any reclassification of its Common Shares (other than a
reclassification involving only the subdivision of outstanding Common Shares),
(iv) to effect any consolidation or merger into or with any other Person (other
than a Subsidiary of the Corporation in a transaction which does not violate
Section 11(o) hereof), or to effect any sale or other transfer (or to permit one
or more of
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its Subsidiaries to effect any sale or other transfer) in one or more
transactions, of 50% or more of the assets or earning power of the Corporation
and its Subsidiaries (taken as a whole) to any other Person or Persons (other
than the Corporation and/or any of its Subsidiaries in one or more transactions
each of which does not violate Section 11(o) hereof), or (v) to effect the
liquidation, dissolution or winding up of the Corporation, then, in each such
case, the Corporation shall give to each holder of the Right Certificate, in
accordance with Section 26 hereof, a notice of such proposed action to the
extent feasible and file a certificate with the Rights Agent to that effect,
which shall specify the record date for the purposes of such stock dividend, or
distribution of rights or warrants, or the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution or winding up is
to take place and the date of participation therein by the holders of the Common
Shares, if any such date is to be fixed, and such notice shall be so given in
the case of any action covered by clause (i) or (ii) above at least twenty (20)
days prior to the record date for determining holders of the Common Shares for
purposes of such action, and in the case of any such other action, at least
twenty (20) days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of the Common Shares, whichever
shall be the earlier.
(b) Notwithstanding anything in this Agreement to the contrary,
prior to the Distribution Date a filing by the Corporation with the Securities
and Exchange Commission shall constitute sufficient notice to the holders of the
securities of the Corporation, including the Rights, for purposes of this
Agreement and no other notice need be given to such holders.
(c) If a Triggering Event shall occur, then (i) the Corporation
shall as soon as practicable thereafter give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of the occurrence of
such event, which notice shall describe such event and the consequences of such
event to holders of Rights under Section 11(a)(ii) or Section 13 hereof, as the
case may be, and (ii) all references in the preceding paragraph (a) to Common
Shares shall be deemed thereafter to refer also, if appropriate, to capital
stock equivalents, as provided for in Section 11(a)(iii).
Section 26. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Corporation shall be sufficiently given or made if sent
by first-class mail, postage prepaid, addressed (until another address is filed
in writing with the Rights Agent) as follows:
YouthStream Media Networks, Inc.
529 Fifth Avenue, Seventh Floor
New York, New York 10017
Attention: Chief Executive Officer
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Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Corporation or by the
holder of any Right Certificate to or on the Rights Agent shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing with the Corporation) as follows:
[RIGHTS AGENT]
[ADDRESS]
Attention: President
Notices or demands authorized by this Agreement to be given or made by the
Corporation or the Rights Agent to the holder of any Right Certificate or, if
prior to the Distribution Date, to the holder of certificates representing
Common Shares, shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Corporation.
Section 27. Supplements and Amendments. Prior to the Distribution
Date, the Corporation and the Rights Agent shall, if the Board of Directors so
directs, supplement or amend any provision of this Agreement without the
approval of any holders of certificates representing Common Shares. From and
after the Distribution Date, the Corporation and the Rights Agent shall, if the
Board of Directors so directs, supplement or amend this Agreement without the
approval of any holders of Right Certificates in order (i) to cure any
ambiguity, (ii) to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provisions herein, (iii) to
shorten or lengthen any time period hereunder or (iv) to change or supplement
the provisions hereunder in any manner which the Board of Directors may deem
necessary or desirable and which shall not adversely effect the interests of the
holders of Right Certificates (other than an Acquiring Person or an Affiliate or
Associate of an Acquiring Person); provided, however, that this Agreement may
not be supplemented or amended to lengthen, pursuant to clause (iii) of this
sentence, (A) a time period relating to when the Rights may be redeemed at such
time as the Rights are not then redeemable; or (B) any other time period unless
such lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, and/or the benefits to, the holders of Rights. Upon the delivery of a
certificate from an appropriate officer of the Corporation which states that the
proposed supplement or amendment is in compliance with the terms of this Section
27, the Rights Agent shall execute such supplement or amendment, provided that
such supplement or amendment does not adversely affect the rights or obligations
of the Rights Agent under Section 18 or Section 20 of this Agreement. Prior to
the Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Shares.
Section 28. Determination and Actions by the Board of Directors of
the Corporation, etc. The Board of Directors shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board of Directors, or the Corporation, or as may be
necessary or advisable in the administration of this
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Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Agreement, and (ii) make all determinations deemed
necessary or advisable for the administration of this Agreement (including,
without limitation, a determination to redeem or not redeem the Rights or to
amend the Agreement and whether any proposed amendment adversely affects the
interests of the holders of Right Certificates). For all purposes of this
Agreement, any calculation of the number of Common Shares or other securities
outstanding at any particular time, including for purposes of determining the
particular percentage of such outstanding Common Shares or any other securities
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations
under the Exchange Act as in effect on the date of this Agreement. All such
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) which
are done or made by the Board of Directors in good faith, shall (x) be final,
conclusive and binding on the Corporation, the Rights Agent, the holders of the
Right Certificates and all other parties, and (y) not subject the Board to any
liability to the holders of the Right Certificates.
Section 29. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Corporation or the Rights Agents shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 30. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the
Corporation, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Shares) any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Corporation, the Rights Agent
and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Shares).
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 32. Governing Law. This Agreement, each Right and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested, all as of the date and year first above written.
YOUTHSTREAM MEDIA NETWORKS, INC.
By:
-----------------------------
Name:
Title:
[RIGHTS AGENT]
By:
---------------------------
Name:
Title:
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Exhibit A
[Form of Right Certificate]
No. R- _____________Rights
NOT EXERCISABLE AFTER THE EARLIER OF ___________________, 2009 AND THE DATE ON
WHICH THE RIGHTS EVIDENCED HEREBY ARE REDEEMED OR EXCHANGED BY THE COMPANY AS
SET FORTH IN THE RIGHTS AGREEMENT. AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR
AN AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY
SUBSEQUENT HOLDER, MAY BE NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHT
CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN
ACQUIRING PERSON OR AN AFFILIATE OR AN ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). THIS RIGHT CERTIFICATE AND THE
RIGHTS REPRESENTED HEREBY MAY BE OR MAY BECOME NULL AND VOID IN THE
CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT.]*
RIGHT CERTIFICATE
YOUTHSTREAM MEDIA NETWORKS, INC.
This Right Certificate certifies that , or registered assigns, is
the registered holder of the number of Rights set forth above, each of which
entitles the holder (upon the terms and subject to the conditions set forth in
the Rights Agreement dated as of _____________, 1999 (the "Rights Agreement")
between YouthStream Networks, Inc., a Delaware corporation (the "Company"), and
____________________________ (the "Rights Agent")) to purchase from the Company,
at any time after the Distribution Date and prior to the Expiration Date, one
one-tenth of a fully paid, nonassessable share of the Common Stock, par value
$0.01 (the "Common Shares"), of the Company at a purchase price of $______ per
whole Common Share (the "Purchase Price"), payable in lawful money of the United
States of America, upon surrender of this Right Certificate, with the form of
election to purchase and related certificate duly executed, and payment of the
Purchase Price at an office of the Rights Agent designated for such purpose.
Terms used herein and not otherwise defined herein have the meanings
assigned to them in the Rights Agreement.
The number of Rights evidenced by this Right Certificate (and the
number and kind of shares issuable upon exercise of each Right) and the Purchase
Price set forth above are as
* If applicable, insert this portion of the legend and delete the preceding
sentence.
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of _________________, 1998, and may have been or in the future be adjusted as a
result of the occurrence of certain events, as more fully provided in the Rights
Agreement.
Upon the occurrence of a Section 11(a)(ii) Event, if the Rights
evidenced by this Right Certificate are beneficially owned by (a) an Acquiring
Person or an Associate or Affiliate of an Acquiring Person, (b) a transferee of
a Acquiring Person (or any such Associate or Affiliate thereof) who becomes a
transferee after the Acquiring Person becomes such, or (c) under certain
circumstances specified in the Rights Agreement, a transferee of an Acquiring
Person (or any such Associate or Affiliate thereof) who becomes a transferee
prior to or concurrently with the Acquiring Person becoming such, such Rights
shall become null and void without any further action, and no holder hereof
shall have any rights whatsoever with respect to such Rights, whether under any
provision of the Rights Agreement or otherwise.
This Right Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Upon surrender at the principal office or offices of the Rights
Agent designated for such purpose and subject to the terms and conditions set
forth in the Rights Agreement, any Rights Certificate or Certificates may be
transferred or exchanged for another Rights Certificate or Certificates
evidencing a like number of Rights as the Rights Certificate or Certificates
surrendered.
Subject to the provisions of the Rights Agreement, the Board of
Directors of the Company may, at its option,
(a) at any time prior to the earlier of (i) the time that any
Person becomes an Acquiring Person or (ii) the Final Expiration
Date, redeem all but not less than all the then outstanding Rights
at a redemption price of $.01 per Right (subject to adjustment); or
(b) at any time after the time that any Person becomes an
Acquiring Person (but before such Person, together with all
Affiliates and Associates of such Person, becomes the Beneficial
Owner of 50% or more of the Common Shares then outstanding),
exchange all or part of the then outstanding Rights (other than
Rights held by the Acquiring Person and certain related Persons) for
Common Shares at an exchange ratio of one Common Share per Right
(subject to adjustment).
No fractional Common Shares will be issued upon the exercise of any
Right or Rights evidenced hereby, but in lieu thereof a cash payment will be
made, as provided in the
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Rights Agreement. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Certificates for the number of whole Rights not exercised, or the
Rights Agent shall place an appropriate notation on this Right Certificate with
respect to those Rights exercised.
No holder of this Right Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose the holder of the shares of
capital stock which may at any time be issuable on the exercise hereof, nor
shall anything contained in the Rights Agreement or herein be construed to
confer upon the holder hereof, as such, any of the rights of a shareholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to shareholders at any meeting thereof, or to give or withhold
consent to any corporate action, or, to receive notice of meetings or other
actions affecting shareholders (except as provided in the Rights Agreement), or
to receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by this Right Certificate shall have been exercised as provided
in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed under its corporate seal by its authorized officers.
Dated as of ____________, 199_ YOUTHSTREAM MEDIA NETWORKS, INC.
By:
-----------------------------
Chairman, President and
Chief Executive Officer
Countersigned:
- -------------------------------
as Rights Agent
By:
----------------------------
Authorized Signature
36
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed if the registered holder
desires to transfer the Right Certificate.)
FOR VALUE RECEIVED _____________________________________________________________
hereby sells, assigns and transfers unto _______________________________________
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ___________ Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.
Dated: _____________, 19__
--------------------------------
Signature
Signature Guaranteed:
<PAGE>
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate ___ are ___ are
not being assigned by or on behalf of a Person who is or was an Acquiring Person
or an Affiliate or Associate of any such Acquiring Person (as such terms are
defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it __ did __ did not acquire the Rights evidenced by this Right Certificate from
any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person;
(3) the action requested by the undersigned is not prohibited by the
provisions of the Rights Agreement, including, without limitation, the
provisions relating to the (i) transfer, split-up, combination and exchange of
rights which are null and void or (ii) exercise by an Acquiring Person or an
Affiliate or Associate of an Acquiring Person of any Right which by its terms is
null and void.
Dated: ___________, 19__
--------------------------------
Signature
--------------
The signatures to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
--------------
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if the registered holder desires to exercise Rights represented
by the Right Certificate.)
To: YouthStream Media Networks, Inc.
The undersigned hereby irrevocably elects to exercise ____________
Rights represented by this Right Certificate to purchase shares of Common Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such securities be issued in the name
of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights specified above shall not be all the Rights
evidenced by this Right Certificate, the Rights Agent shall place an appropriate
notation on this Right Certificate with respect to those Rights exercised or a
new Right Certificate for the balance of such Rights shall be registered in the
name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: ___________, 19__
--------------------------------
Signature
Signature Guaranteed:
<PAGE>
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate _ are _ are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it _ did _ did not acquire the Rights evidenced by this Right Certificate from
any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person;
(3) the exercise of the Rights evidenced by this Right Certificate
is not prohibited by the terms of the Rights Agreement, including, without
limitation, the provisions relating to the exercise by an Acquiring Person or an
Affiliate or Associate of an Acquiring Person of any Right which by its terms is
null and void.
Dated: ___________, 19__
--------------------------------
Signature
--------------
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Right Certificate
in every particular, without alteration or enlargement or any change whatsoever.
--------------
<PAGE>
Exhibit B
SUMMARY OF RIGHTS TO PURCHASE SHARES
On ____________, 1999, the Board of Directors of YouthStream Media
Networks, Inc. (the "Corporation") declared a dividend distribution of one right
(a "Right") to purchase one one-tenth of a share of the Common Stock, $.01 par
value, of the Corporation (the "Common Shares") for each outstanding share of
Common Stock, payable to the stockholders of record on ____________ __, 1999
(the "Record Date"). The Board of Directors also authorized and directed the
issuance of one Right with respect to each Common Share issued thereafter until
the Distribution Date (as defined below) and, in certain circumstances, with
respect to Common Shares issued after the Distribution Date. Except as set forth
below, each Right, when it becomes exercisable, entitles the registered holder
to purchase from the Corporation one one-tenth of a Common Share at a price of
$_______ per whole Common Share (the "Purchase Price"), subject to adjustment.
The description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Corporation and ___________________, as Rights
Agent (the "Rights Agent"), dated as of ______________ ___, 1999.
Initially, the Rights will be attached to all certificates
representing Common Shares then outstanding, and no separate Right Certificates
will be distributed. The Rights will separate from the Common Shares upon the
earliest to occur of (i) a person or group of affiliated or associated persons
having acquired beneficial ownership of 15% or more of the outstanding Common
Shares (except pursuant to a Permitted Offer, as hereinafter defined); other
than any Person who, as of the date hereof, beneficially owns 20% or more of the
outstanding Common Shares or any Person (other than a Person who is then an
Acquiring Person) who acquires 15% or more of the outstanding Common Shares from
such a Person who, immediately prior to such acquisition, continues to be a
Person who beneficially owns 20% or more of the outstanding Common Shares
("Qualified Persons"); provided that a Qualified Person shall cease to be a
Qualified Person if such Person ceases to beneficially own at least 5% of the
outstanding Common Shares; or (ii) or commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of which
would result in a person (other than a Qualified Person) or group becoming an
Acquiring Person (as hereinafter defined) (the earliest of such dates being
called the "Distribution Date"). A person or group whose acquisition of Common
Shares causes a Distribution Date pursuant to clause (i) above is an "Acquiring
Person." The date that a person or group becomes an Acquiring Person is the
"Shares Acquisition Date." A person who acquires Common Shares pursuant to a
tender or exchange offer which is for all outstanding Common Shares at a price
and on terms which a majority of the Board of Directors determines (prior to
acquisition) to be adequate and in the best interests of the Corporation and its
stockholders (other than such person, its affiliates and associates) (a
"Permitted Offer") will not be deemed to be an Acquiring Person and such
person's ownership will not constitute a Distribution Date.
B-1
<PAGE>
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date upon the transfer or new
issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Shares outstanding as of the Record Date, even without such notation or a
copy of this Summary of Rights being attached thereto, will also constitute the
transfer of the Rights associated with the Common Shares represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date (and to each initial record holder of certain Common Shares
issued after the Distribution Date), and such separate Right Certificates alone
will evidence the Rights.
The Rights are not exercisable until the Distribution Date, and will
expire at the close of business on ______________, 2009, unless earlier redeemed
by the Corporation as described below.
In the event that any person becomes an Acquiring Person, each
holder of Rights (other than Rights that have become void as described below)
will thereafter have the right (the "Flip-In Right") to receive, upon exercise
of such Rights, the number of Common Shares (or, in certain circumstances, other
securities of the Corporation) having a value (immediately prior to such
triggering event) equal to two times the aggregate exercise price of such
Rights. The Board, at its option, may exchange each Right (other than those that
have become void as described below) for one Common Share in lieu of the Flip-In
Right, provided no person is the beneficial owner of 50% or more of the Common
Shares at the time of such exchange. Notwithstanding the foregoing, following
the occurrence of the event described above, all Rights that are or (under
certain circumstances specified in the Rights Agreement) were beneficially owned
by any Acquiring Person or any affiliate or associate thereof will be null and
void.
In the event that, at any time following the Shares Acquisition
Date, (i) the Corporation is acquired in a merger or other business combination
transaction in which the holders of all of the outstanding Common Shares
immediately prior to the consummation of the transaction are not the holders of
all of the surviving corporation's voting power, or (ii) more than 50% of the
Corporation's assets or earning power is sold or transferred, then each holder
of Rights (except Rights which previously have been voided as set forth above)
shall thereafter have the right (the "Flip-Over Right") to receive, upon
exercise of such Rights, common shares of the acquiring company having a value
equal to two times the aggregate exercise price of the Rights; provided,
however, that the Flip Over Right shall not apply to (A) any transaction
described in clause (i) if (x) such transaction is with a person or persons (or
a wholly owned subsidiary of any such person or persons) that acquired Common
Shares pursuant to a Permitted Offer and (y) the price and form of consideration
offered in such transaction is the same as that paid to all holders of Common
Shares whose shares were purchased to the Permitted Offer or (B) any transaction
B-2
<PAGE>
described in clause (i) or clause (ii) if such transaction is with a Qualified
Person. The holder of a Right will continue to have the Flip-Over Right whether
or not such holder exercises or surrenders the Flip-In Right.
The Purchase Price payable, and the number of Common Shares or other
securities issuable, upon exercise of the Rights are subject to adjustment from
time to time to prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the Common Shares, (ii) upon
the grant to holders of the Common Shares of certain rights or warrants to
subscribe for or purchase Common Shares at a price, or securities convertible
into Common Shares with a conversion price, less than the then current market
price of the Common Shares, or (iii) upon the distribution to holders of the
Common Shares of evidences of indebtedness or assets (excluding regular
quarterly cash dividends) or of subscription rights or warrants (other than
those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Common Shares will be issued and, in lieu
thereof, an adjustment in cash will be made based on the market price of the
Common Shares on the last trading day prior to the date of exercise.
At any time prior to the earlier to occur of (i) a person becoming
an Acquiring Person or (ii) the expiration of the Rights, the Corporation may
redeem the Rights in whole, but not in part, at a price of $.01 per Right (the
"Redemption Price"), which redemption shall be effective at such time, on such
basis and with such conditions as the Board of Directors may establish in its
sole discretion. The Corporation may, at its option, pay the Redemption Price in
Common Shares.
All of the provisions of the Rights Agreement may be amended by the
Board of Directors prior to the Distribution Date. After the Distribution Date,
the provisions of the Rights Agreement may be amended by the Board in order to
cure any ambiguity, defect or inconsistency, to make changes which do not
adversely affect the interests of holders of Rights (excluding the interests of
any Acquiring Person), or, subject to certain limitations, to shorten or
lengthen any time period under the Rights Agreement.
Until a Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of the Corporation, including, without limitation,
the right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders of the Corporation, stockholders may,
depending upon the circumstances, recognize taxable income should the Rights
become exercisable or upon the occurrence of certain events thereafter.
B-3
<PAGE>
EXHIBIT 10.28
YOUTHSTREAM MEDIA NETWORKS, INC.
1999 STOCK INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I...................................................................1
ARTICLE II..................................................................1
ARTICLE III.................................................................5
ARTICLE IV..................................................................8
ARTICLE V..................................................................12
ARTICLE VI.................................................................12
ARTICLE VII................................................................15
ARTICLE VIII...............................................................17
ARTICLE IX.................................................................19
ARTICLE X..................................................................21
ARTICLE XI.................................................................23
ARTICLE XII................................................................24
ARTICLE XIII...............................................................27
ARTICLE XIV................................................................29
ARTICLE XV.................................................................30
i
<PAGE>
ARTICLE XVI................................................................30
ARTICLE XVII...............................................................33
ARTICLE XVIII..............................................................33
EXHIBIT A...................................................................1
ii
<PAGE>
YOUTHSTREAM MEDIA NETWORKS, INC.
--------------------------
1999 STOCK INCENTIVE PLAN
--------------------------
ARTICLE I
PURPOSE
The purpose of this YouthStream Media Networks, Inc. 1999 Stock Incentive
Plan is to enhance the profitability and value of the Company for the benefit of
its stockholders by enabling the Company to offer employees of and Consultants
to the Company and its Affiliates stock-based incentives and other equity
interests in the Company, thereby creating a means to raise the level of stock
ownership by employees and Consultants in order to attract, retain and reward
such individuals and strengthen the mutuality of interests between such
individuals and the Company's stockholders.
ARTICLE II
DEFINITIONS
For purposes of this Plan, the following terms shall have the following
meanings:
II.1 "Acquisition Event" has the meaning set forth in Section
4.2(d).
II.2 "Affiliate" means each of the following: (i) any Subsidiary;
(ii) any Parent; (iii) any corporation, trade or business (including,
without limitation, a partnership or limited liability company) which is
directly or indirectly controlled 50% or more (whether by ownership of
stock, assets or an equivalent ownership interest or voting interest) by
the Company or one of its Affiliates; and (iv) any other entity in which
the Company or any of its Affiliates has a material equity interest and
which is designated as an "Affiliate" by resolution of the Committee.
II.3 "Award" means any award under this Plan of any: (i) Stock
Option; (ii) Stock Appreciation Right; (iii) Restricted Stock; (iv)
Performance Share; (v) Performance Unit; (vi) Other Stock-Based Award; or
(vii) other award providing benefits similar to (i) through (vi) designed
to meet the requirements of a Foreign Jurisdiction.
II.4 "Board" means the Board of Directors of the Company.
II.5 "Cause" means, with respect to a Participant's Termination of
Employment or Termination of Consultancy: (i) in the case where there is
no employment agreement, consulting agreement, change in control agreement
or similar agreement in effect between the Company or an Affiliate and the
Participant at the time of the grant of the Award (or where there is such
an agreement but it does not define "cause" (or words of like import)),
termination due to a Participant's insubordination, dishonesty,
incompetence, moral turpitude, other misconduct of any kind or the refusal
to perform his or her duties or responsibilities for any reason other than
illness or incapacity; or (ii) in the case where there is an employment
agreement, consulting agreement, change in control agreement or similar
agreement in effect between the Company or an
<PAGE>
Affiliate and the Participant at the time of the grant of the Award that
defines "cause" (or words of like import), as defined under such
agreement; provided, however, that with regard to any agreement that
conditions "cause" on occurrence of a change in control, such definition
of "cause" shall not apply until a change in control actually takes place
and then only with regard to a termination thereafter.
II.6 "Change in Control" has the meaning set forth in Article XIII.
II.7 "Code" means the Internal Revenue Code of 1986, as amended. Any
reference to any section of the Code shall also be a reference to any
successor provision.
II.8 "Committee" means: a committee or subcommittee of the Board
appointed from time to time by the Board, which committee or subcommittee
shall consist of two or more non-employee directors, each of whom is
intended to be, to the extent required by Rule 16b-3, a "non-employee
director" as defined in Rule 16b-3 and, to the extent required by Section
162(m) of the Code and any regulations thereunder, an "outside director"
as defined under Section 162(m) of the Code; provided, however, that if
and to the extent that no Committee exists which has the authority to
administer this Plan, the functions of the Committee shall be exercised by
the Board and all references herein to the Committee shall be deemed to be
references to the Board.
II.9 "Common Stock" means the common stock, $.01 par value per
share, of the Company.
II.10 "Company" means YouthStream Media Networks, Inc., a Delaware
corporation, and its successors by operation of law.
II.11 "Consultant" means any advisor or consultant to the Company or
its Affiliates.
II.12 "Disability" means, with respect to an Eligible Employee or
Consultant, a permanent and total disability as defined in Section
22(e)(3) of the Code. A Disability shall only be deemed to occur at the
time of the determination by the Committee of the Disability.
II.13 "Effective Date" means the effective date of this Plan as
defined in Article XVII.
II.14 "Eligible Employee" means each employee of the Company or an
Affiliate.
II.15 "Exchange Act" means the Securities Exchange Act of 1934, as
amended. Any references to any section of the Exchange Act shall also be a
reference to any successor provision.
II.16 "Fair Market Value" means, unless otherwise required by any
applicable provision of the Code or any regulations issued thereunder, as
of any date, the last sales price for the Common Stock on the applicable
date: (i) as reported on the principal national securities exchange on
which it is then traded or the Nasdaq Stock Market, Inc. or (ii) if not
traded on any such national securities exchange or the Nasdaq Stock
Market, Inc. as quoted on an automated quotation system sponsored by the
National Association of Securities Dealers, Inc. If the Common Stock is
not readily tradable on a national securities exchange, the Nasdaq Stock
Market, Inc. or any automated quotation system sponsored by the National
Association of Securities Dealers, Inc., its Fair Market Value shall be
set in good faith by the Committee. Notwithstanding anything herein to the
contrary, "Fair Market Value" means the price for Common Stock set by
2
<PAGE>
the Committee in good faith based on reasonable methods set forth under
Section 422 of the Code and the regulations thereunder including, without
limitation, a method utilizing the average of prices of the Common Stock
reported on the principal national securities exchange on which it is then
traded during a reasonable period designated by the Committee. For
purposes of the grant of any Stock Option, the applicable date shall be
the date for which the last sales price is available at the time of grant.
For purposes of the conversion of a Performance Unit to shares of Common
Stock for reference purposes, the applicable date shall be the date
determined by the Committee in accordance with Section 10.1. For purposes
of the exercise of any Stock Appreciation Right, the applicable date shall
be the date a notice of exercise is received by the Committee or, if not a
day on which the applicable market is open, the next day that it is open.
II.17 "Foreign Jurisdiction" means any jurisdiction outside of the
United States including, without limitation, countries, states, provinces
and localities.
II.18 "Incentive Stock Option" means any Stock Option awarded to an
Eligible Employee under this Plan intended to be and designated as an
"Incentive Stock Option" within the meaning of Section 422 of the Code.
II.19 "Limited Stock Appreciation Right" means an Award of a limited
Tandem Stock Appreciation Right or a Non-Tandem Stock Appreciation Right
made pursuant to Section 7.5 of this Plan.
II.20 "Non-Qualified Stock Option" means any Stock Option awarded
under this Plan that is not an Incentive Stock Option.
II.21 "Non-Tandem Stock Appreciation Right" means a Stock
Appreciation Right entitling a Participant to receive an amount in cash or
Common Stock (as determined by the Committee in its sole discretion) for
each such right equal to the excess of: (i) the Fair Market Value of the
Common Stock covered by such right as of the date such right is exercised,
over (ii) the aggregate exercise price of such right.
II.22 "Other Stock-Based Award" means an Award of Common Stock and
other Awards made pursuant to Article XI that are valued in whole or in
part by reference to, or are payable in or otherwise based on, Common
Stock, including, without limitation, an Award valued by reference to
performance of an Affiliate.
II.23 "Parent" means any parent corporation of the Company within
the meaning of Section 424(e) of the Code.
II.24 "Participant" means any Eligible Employee or Consultant to
whom an Award has been made under this Plan.
II.25 "Performance Criteria" has the meaning set forth in Exhibit A.
II.26 "Performance Cycle" has the meaning set forth in Section 10.1.
II.27 "Performance Goal" means the objective performance goals
established by the Committee in accordance with Section 162(m) of the Code
and based on one or more Performance Criteria.
II.28 "Performance Period" has the meaning set forth in Section 9.1.
II.29 "Performance Share" means an Award made pursuant to Article
3
<PAGE>
IX of this Plan of the right to receive Common Stock or, as determined by
the Committee in its sole discretion, cash of an equivalent value at the
end of the Performance Period or thereafter.
II.30 "Performance Unit" means an Award made pursuant to Article X
of this Plan of the right to receive a fixed dollar amount, payable in
cash or Common Stock (or a combination of both) as determined by the
Committee in its sole discretion, at the end of a specified Performance
Cycle or thereafter.
II.31 "Plan" means this YouthStream Media Networks, Inc. 1999 Stock
Incentive Plan, as amended from time to time.
II.32 "Reference Stock Option" has the meaning set forth in Section
7.1.
II.33 "Restricted Stock" means an Award of shares of Common Stock
under this Plan that is subject to restrictions under Article VIII.
II.34 "Restriction Period" has the meaning set forth in Section
8.3(a) with respect to Restricted Stock.
II.35 "Retirement" means a Termination of Employment or Termination
of Consultancy without Cause by a Participant at or after age 65 or such
earlier date after age 50 as may be approved by the Committee with regard
to such Participant.
II.36 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the
Exchange Act as then in effect or any successor provisions.
II.37 "Section 162(m) of the Code" means Section 162(m) of the Code
and any Treasury regulations thereunder.
II.38 "Securities Act" means the Securities Act of 1933, as amended.
Any reference to any section of the Securities Act shall also be a
reference to any successor provision.
II.39 "Stock Appreciation Right" or "SAR" means the right pursuant
to an Award granted under Article VII.
II.40 "Stock Option" or "Option" means any option to purchase shares
of Common Stock granted to Eligible Employees or Consultants under Article
VI.
II.41 "Subsidiary" means any subsidiary corporation of the Company
within the meaning of Section 424(f) of the Code.
II.42 "Tandem Stock Appreciation Right" means a Stock Appreciation
Right entitling the holder to surrender to the Company all (or a portion)
of a Stock Option in exchange for an amount in cash or Common Stock (as
determined by the Committee in its sole discretion) equal to the excess
of: (i) the Fair Market Value, on the date such Stock Option (or such
portion thereof) is surrendered, of the Common Stock covered by such Stock
Option (or such portion thereof), over (ii) the aggregate exercise price
of such Stock Option (or such portion thereof).
II.43 "Ten Percent Stockholder" means a person owning stock
possessing more than 10% of the total combined voting power of all classes
of stock of the Company, its Subsidiaries or its Parent.
II.44 "Termination of Consultancy" means, with respect to a
Consultant, that the Consultant is no longer acting as a consultant to the
Company or an Affiliate. In the event an entity shall cease to be an
4
<PAGE>
Affiliate, there shall be deemed a Termination of Consultancy of any
individual who is not otherwise a Consultant to the Company or another
Affiliate at the time the entity ceases to be an Affiliate. In the event
that a Consultant becomes an Eligible Employee upon the termination of his
consultancy, the Committee, in its sole and absolute discretion, may
determine that no Termination of Consultancy shall be deemed to occur
until such time as such Consultant is no longer a Consultant or an
Eligible Employee.
II.45 "Termination of Employment" means: (i) a termination of
employment (for reasons other than a military or personal leave of absence
granted by the Company) of a Participant from the Company and its
Affiliates; or (ii) when an entity which is employing a Participant ceases
to be an Affiliate, unless the Participant otherwise is, or thereupon
becomes, employed by the Company or another Affiliate. In the event that
an Eligible Employee becomes a Consultant upon the termination of his
employment, the Committee, in its sole and absolute discretion, may
determine that no Termination of Employment shall be deemed to occur until
such time as such Eligible Employee is no longer an Eligible Employee or a
Consultant.
II.46 "Transfer" means anticipate, alienate, attach, sell, assign,
pledge, encumber, charge, hypothecate or otherwise transfer and
"Transferred" has a correlative meaning.
ARTICLE III
ADMINISTRATION
III.1 The Committee. The Plan shall be administered and interpreted
by the Committee. If for any reason the appointed Committee does not meet
the requirements of Rule 16b-3 or Section 162(m) of the Code, such
noncompliance with the requirements of Rule 16b-3 and Section 162(m) of
the Code shall not affect the validity of Awards, grants, interpretations
or other actions of the Committee.
III.2 Grants of Awards. The Committee shall have full authority to
grant to Eligible Employees and Consultants, pursuant to the terms of this
Plan: (i) Stock Options; (ii) Tandem Stock Appreciation Rights and
Non-Tandem Stock Appreciation Rights; (iii) Restricted Stock; (iv)
Performance Shares; (v) Performance Units; (vi) Other Stock-Based Awards;
and (vii) other awards providing benefits similar to (i) through (vi)
designed to meet the requirements of Foreign Jurisdictions. All Awards
shall be granted by, confirmed by, and subject to the terms of, a written
agreement executed by the Company and the Participant. In particular, the
Committee shall have the authority:
(a) to select the Eligible Employees and Consultants to whom
Awards may from time to time be granted hereunder;
(b) to determine whether and to what extent Awards, including
any combination of two or more Awards, are to be granted hereunder
to one or more Eligible Employees or Consultants;
(c) to determine, in accordance with the terms of this Plan,
the number of shares of Common Stock to be covered by each Award
granted hereunder;
(d) to determine the terms and conditions, not inconsistent
with the terms of this Plan, of any Award granted hereunder
(including, but not limited to, the exercise or purchase price (if
any), any restriction or limitation, any vesting schedule or
5
<PAGE>
acceleration thereof and any forfeiture restrictions or waiver
thereof, regarding any Award and the shares of Common Stock relating
thereto, based on such factors, if any, as the Committee shall
determine, in its sole discretion);
(e) to determine whether and under what circumstances a Stock
Option may be settled in cash, Common Stock and/or Restricted Stock
under Section 6.3(d);
(f) to determine whether, to what extent and under what
circumstances to provide loans (which shall bear interest at the
rate the Committee shall provide) to Eligible Employees and
Consultants in order to exercise Stock Options under this Plan or to
purchase Awards under this Plan (including shares of Common Stock);
(g) to determine whether a Stock Option is an Incentive Stock
Option or Non-Qualified Stock Option, whether a Stock Appreciation
Right is a Tandem Stock Appreciation Right or Non-Tandem Stock
Appreciation Right or whether an Award is intended to satisfy
Section 162(m) of the Code;
(h) to determine whether to require an Eligible Employee or
Consultant, as a condition of the granting of any Award, not to sell
or otherwise dispose of shares of Common Stock acquired pursuant to
the exercise of an Option or an Award for a period of time as
determined by the Committee, in its sole discretion, following the
date of the acquisition of such Option or Award;
(i) to modify, extend or renew an Award, subject to Article
XIV herein, provided, however, that if an Award is modified,
extended or renewed and thereby deemed to be the issuance of a new
Award under the Code or the applicable accounting rules, the
exercise price of an Award may continue to be the original exercise
price even if less than the Fair Market Value of the Common Stock at
the time of such modification, extension or renewal; and
(j) to offer to buy out an Option previously granted, based on
such terms and conditions as the Committee shall establish and
communicate to the Participant at the time such offer is made.
III.3 Guidelines. Subject to Article XIV hereof, the Committee shall
have the authority to adopt, alter and repeal such administrative rules,
guidelines and practices governing this Plan and perform all acts,
including the delegation of its administrative responsibilities, as it
shall, from time to time, deem advisable; to construe and interpret the
terms and provisions of this Plan and any Award issued under this Plan
(and any agreements relating thereto); and to otherwise supervise the
administration of this Plan. The Committee may correct any defect, supply
any omission or reconcile any inconsistency in this Plan or in any
agreement relating thereto in the manner and to the extent it shall deem
necessary to effectuate the purpose and intent of this Plan. The Committee
may adopt special guidelines and provisions for persons who are residing
in, or subject to, the taxes of, Foreign Jurisdictions to comply with
applicable tax and securities laws and may impose any limitations and
restrictions that it deems necessary to comply with the applicable tax and
securities laws of such Foreign Jurisdictions. To the extent applicable,
this Plan is intended to comply with Section 162(m) of the Code and the
applicable requirements of Rule 16b-3 and shall be limited, construed and
interpreted in a manner so as to comply therewith.
III.4 Decisions Final. Any decision, interpretation or other action
made or taken in good faith by or at the direction of the Company,
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the Board or the Committee (or any of its members) arising out of or in
connection with this Plan shall be within the absolute discretion of all
and each of them, as the case may be, and shall be final, binding and
conclusive on the Company and all employees and Participants and their
respective heirs, executors, administrators, successors and assigns.
III.5 Reliance on Counsel. The Company, the Board or the Committee
may consult with legal counsel, who may be counsel for the Company or
other counsel, with respect to its obligations or duties hereunder, or
with respect to any action or proceeding or any question of law, and shall
not be liable with respect to any action taken or omitted by it in good
faith pursuant to the advice of such counsel.
III.6 Procedures. If the Committee is appointed, the Board shall
designate one of the members of the Committee as chairman and the
Committee shall hold meetings, subject to the By-Laws of the Company, at
such times and places as it shall deem advisable. A majority of the
Committee members shall constitute a quorum. All determinations of the
Committee shall be made by a majority of its members. Any decision or
determination reduced to writing and signed by all the Committee members
in accordance with the By-Laws of the Company, shall be fully as effective
as if it had been made by a vote at a meeting duly called and held. The
Committee shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it shall deem advisable.
III.7 Designation of Consultants/Liability.
(a) The Committee may designate employees of the Company and
professional advisors to assist the Committee in the administration
of this Plan and may grant authority to officers to execute
agreements or other documents on behalf of the Committee.
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(b) The Committee may employ such legal counsel, consultants
and agents as it may deem desirable for the administration of this
Plan and may rely upon any opinion received from any such counsel or
consultant and any computation received from any such consultant or
agent. Expenses incurred by the Committee in the engagement of any
such counsel, consultant or agent shall be paid by the Company. The
Committee, its members and any employee of the Company designated
pursuant to paragraph (a) above shall not be liable for any action
or determination made in good faith with respect to this Plan. To
the maximum extent permitted by applicable law, no officer of the
Company or member or former member of the Committee shall be liable
for any action or determination made in good faith with respect to
this Plan or any Award granted under it. To the maximum extent
permitted by applicable law or the Certificate of Incorporation or
By-Laws of the Company and to the extent not covered by insurance,
each officer and member or former member of the Committee shall be
indemnified and held harmless by the Company against any cost or
expense (including reasonable fees of counsel reasonably acceptable
to the Company) or liability (including any sum paid in settlement
of a claim with the approval of the Company), and advanced amounts
necessary to pay the foregoing at the earliest time and to the
fullest extent permitted, arising out of any act or omission to act
in connection with this Plan, except to the extent arising out of
such officer's, member's or former member's own fraud or bad faith.
Such indemnification shall be in addition to any rights of
indemnification the officers, directors or members or former
officers, directors or members may have under applicable law or
under the Certificate of Incorporation or By-Laws of the Company or
any Affiliate. Notwithstanding anything else herein, this
indemnification will not apply to the actions or determinations made
by an individual with regard to Awards granted to him or her under
this Plan.
ARTICLE IV
SHARE AND OTHER LIMITATIONS
IV.1 Shares.
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(a) General Limitation. The aggregate number of shares of
Common Stock which may be issued or used for reference purposes
under this Plan or with respect to which Awards may be granted shall
not exceed 2,500,000 shares of Common Stock (subject to any increase
or decrease pursuant to Section 4.2) which may be either authorized
and unissued Common Stock or Common Stock held in or acquired for
the treasury of the Company or both. If any Stock Option or Stock
Appreciation Right granted under this Plan expires, terminates or is
canceled for any reason without having been exercised in full or,
with respect to Stock Options, the Company repurchases any Stock
Option, the number of shares of Common Stock underlying such
unexercised or repurchased Stock Option or any unexercised Stock
Appreciation Right shall again be available for the purposes of
Awards under this Plan. If any shares of Restricted Stock,
Performance Shares or Performance Units awarded under this Plan to a
Participant are forfeited or repurchased by the Company for any
reason, the number of forfeited or repurchased shares of Restricted
Stock, Performance Shares or Performance Units shall again be
available for the purposes of Awards under this Plan. If a Tandem
Stock Appreciation Right is granted or a Limited Stock Appreciation
Right is granted in tandem with a Stock Option, such grant shall
only apply once against the maximum number of shares of Common Stock
which may be issued under this Plan. In determining the number of
shares of Common Stock available for Awards other than Incentive
Stock Options, if Common Stock has been delivered or exchanged by a
Participant as full or partial payment to the Company for payment of
the exercise price, or for payment of withholding taxes, or if the
number shares of Common Stock otherwise deliverable has been reduced
for payment of the exercise price or for payment of withholding
taxes, the number of shares of Common Stock exchanged as payment in
connection with the exercise or for withholding or reduced shall
again be available for purposes of Awards under this Plan.
(b) Individual Participant Limitations. (i) The maximum number
of shares of Common Stock subject to any Award of Stock Options,
Stock Appreciation Rights, Performance Shares or shares of
Restricted Stock for which the grant of such Award or the lapse of
the relevant Restriction Period is subject to the attainment of
Performance Goals in accordance with Section 8.3(a)(ii) herein which
may be granted under this Plan during any fiscal year of the Company
to each Participant shall be 300,000 shares per type of Award
(subject to any increase or decrease pursuant to Section 4.2),
provided that the maximum number of shares of Common Stock for all
types of Awards does not exceed 300,000 during any fiscal year of
the Company. If a Tandem Stock Appreciation Right is granted or a
Limited Stock Appreciation Right is granted in tandem with a Stock
Option, it shall apply against the Participant's individual share
limitations for both Stock Appreciation Rights and Stock Options.
(ii) There are no annual individual Participant share
limitations on Restricted Stock for which the grant of such Award or
the lapse of the relevant Restriction Period is not subject to
attainment of Performance Goals in accordance with Section
8.3(a)(ii) hereof.
(iii) The maximum value at grant of Performance Units
which may be granted under this Plan during any fiscal year of the
Company to each Participant shall be $300,000. Each Performance Unit
shall be referenced to one share of Common Stock and shall be
charged against the available shares under this Plan at the time the
unit value measurement is converted to a referenced number of
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shares of Common Stock in accordance with Section 10.1.
(iv) The individual Participant limitations set forth in
this Section 4.1(b) shall be cumulative; that is, to the extent that
shares of Common Stock for which Awards are permitted to be granted
to a Participant during a fiscal year are not covered by an Award to
such Participant in a fiscal year, the number of shares of Common
Stock available for Awards to such Participant shall automatically
increase in the subsequent fiscal years during the term of the Plan
until used.
IV.2 Changes.
(a) The existence of this Plan and the Awards granted
hereunder shall not affect in any way the right or power of the
Board or the stockholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the
Company's capital structure or its business, any merger or
consolidation of the Company or any Affiliate, any issue of bonds,
debentures, preferred or prior preference stock ahead of or
affecting Common Stock, the dissolution or liquidation of the
Company or any Affiliate, any sale or transfer of all or part of the
assets or business of the Company or any Affiliate or any other
corporate act or proceeding.
(b) Subject to the provisions of Section 4.2(d), in the event
of any such change in the capital structure or business of the
Company by reason of any stock split, reverse stock split, stock
dividend, combination or reclassification of shares,
recapitalization, or other change in the capital structure of the
Company, merger, consolidation, spin-off, reorganization, partial or
complete liquidation, issuance of rights or warrants to purchase any
Common Stock or securities convertible into Common Stock, or any
other corporate transaction or event having an effect similar to any
of the foregoing and effected without receipt of consideration by
the Company, then the aggregate number and kind of shares which
thereafter may be issued under this Plan, the number and kind of
shares or other property (including cash) to be issued upon exercise
of an outstanding Stock Option or other Awards granted under this
Plan and the purchase price thereof shall be appropriately adjusted
consistent with such change in such manner as the Committee may deem
equitable to prevent substantial dilution or enlargement of the
rights granted to, or available for, Participants under this Plan,
and any such adjustment determined by the Committee in good faith
shall be final, binding and conclusive on the Company and all
Participants and employees and their respective heirs, executors,
administrators, successors and assigns.
(c) Fractional shares of Common Stock resulting from any
adjustment in Options or Awards pursuant to Section 4.2(a) or (b)
shall be aggregated until, and eliminated at, the time of exercise
by rounding-down for fractions less than one-half and rounding-up
for fractions equal to or greater than one-half. No cash settlements
shall be made with respect to fractional shares eliminated by
rounding. Notice of any adjustment shall be given by the Committee
to each Participant whose Award has been adjusted and such
adjustment (whether or not such notice is given) shall be effective
and binding for all purposes of this Plan.
(d) In the event of a merger or consolidation in which the
Company is not the surviving entity or in the event of any
transaction that results in the acquisition of substantially all of
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the Company's outstanding Common Stock by a single person or entity
or by a group of persons and/or entities acting in concert, or in
the event of the sale or transfer of all or substantially all of the
Company's assets (all of the foregoing being referred to as
"Acquisition Events"), then the Committee may, in its sole
discretion, terminate all outstanding Stock Options and Stock
Appreciation Rights, effective as of the date of the Acquisition
Event, by delivering notice of termination to each Participant at
least 30 days prior to the date of consummation of the Acquisition
Event, in which case during the period from the date on which such
notice of termination is delivered to the consummation of the
Acquisition Event, each such Participant shall have the right to
exercise in full all of his or her Stock Options and Stock
Appreciation Rights that are then outstanding (without regard to any
limitations on exercisability otherwise contained in the Stock
Option or Award Agreements), but any such exercise shall be
contingent upon and subject to the occurrence of the Acquisition
Event, and, provided that, if the Acquisition Event does not take
place within a specified period after giving such notice for any
reason whatsoever, the notice and exercise pursuant thereto shall be
null and void.
If an Acquisition Event occurs but the Committee does not terminate
the outstanding Stock Options and Stock Appreciation Rights pursuant to
this Section 4.2(d), then the provisions of Section 4.2(b) shall apply.
IV.3 Minimum Purchase Price. Notwithstanding any provision of this
Plan to the contrary, if authorized but previously unissued shares of
Common Stock are issued under this Plan, such shares shall not be issued
for a consideration which is less than as permitted under applicable law.
IV.4 Assumption of Awards. Options that were granted prior to the
Effective Date under the Network Event Theater, Inc. 1996 Stock Option
Plan, the Network Event Theater, Inc. 1997 Stock Option Plan and the
Common Places, LLC 1999 Unit Plan that were outstanding immediately prior
to the Effective Date shall be assumed under the Plan by the Company as of
the Effective Date and converted into Stock Options hereunder based on the
Company's Common Stock in a manner determined by the Committee and in
accordance with section 1.6(e) of the Agreement and Plan of Merger dated
June 28, 1999 among the Corporation, Common Places, LLC and certain other
parties. The terms of such Stock Options shall be governed by the terms of
this Plan as of the Effective Date. Notwithstanding the foregoing, such
Stock Options shall continue to be governed by the terms of the applicable
agreement in effect prior to the Effective Date, except as adjusted to
reflect the appropriate number of shares of Common Stock and the
appropriate exercise price.
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ARTICLE V
ELIGIBILITY
V.1 General Eligibility. All Eligible Employees and Consultants and
prospective employees of and Consultants to the Company and its Affiliates
are eligible to be granted Non-Qualified Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Shares, Performance Units, Other
Stock-Based Awards and awards providing benefits similar to each of the
foregoing designed to meet the requirements of Foreign Jurisdictions under
this Plan. Eligibility for the grant of an Award and actual participation
in this Plan shall be determined by the Committee in its sole discretion.
The vesting and exercise of Awards granted to a prospective employee or
Consultant are conditioned upon such individual actually becoming an
Eligible Employee or Consultant.
V.2 Incentive Stock Options. All Eligible Employees of the Company,
its Subsidiaries and its Parent (if any) are eligible to be granted
Incentive Stock Options under this Plan. Eligibility for the grant of an
Award and actual participation in this Plan shall be determined by the
Committee in its sole discretion.
ARTICLE VI
STOCK OPTIONS
VI.1 Stock Options. Each Stock Option granted hereunder shall be one
of two types: (i) an Incentive Stock Option intended to satisfy the
requirements of Section 422 of the Code; or (ii) a Non-Qualified Stock
Option.
VI.2 Grants. The Committee shall have the authority to grant to any
Eligible Employee one or more Incentive Stock Options, Non-Qualified Stock
Options or both types of Stock Options (in each case with or without Stock
Appreciation Rights). To the extent that any Stock Option does not qualify
as an Incentive Stock Option (whether because of its provisions or the
time or manner of its exercise or otherwise), such Stock Option or the
portion thereof which does not qualify, shall constitute a separate
Non-Qualified Stock Option. The Committee shall have the authority to
grant any Consultant one or more Non-Qualified Stock Options (with or
without Stock Appreciation Rights). Notwithstanding any other provision of
this Plan to the contrary or any provision in an agreement evidencing the
grant of a Stock Option to the contrary, any Stock Option granted to an
Eligible Employee of an Affiliate (other than an Affiliate which is a
Parent or a Subsidiary) shall be a Non-Qualified Stock Option.
VI.3 Terms of Stock Options. Stock Options granted under this Plan
shall be subject to the following terms and conditions, and shall be in
such form and contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as the
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Committee shall deem desirable:
(a) Exercise Price. The exercise price per share of Common
Stock shall be determined by the Committee, but shall not be less
than 100% of the Fair Market Value of the share of Common Stock at
the time of grant; provided, however, that if an Incentive Stock
Option is granted to a Ten Percent Stockholder, the exercise price
shall be no less than 110% of the Fair Market Value of the Common
Stock.
(b) Stock Option Term. The term of each Stock Option shall be
fixed by the Committee; provided, however, that no Stock Option
shall be exercisable more than 10 years after the date such Stock
Option is granted; and further provided that the term of an
Incentive Stock Option granted to a Ten Percent Stockholder shall
not exceed 5 years.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be
determined by the Committee at grant. If the Committee provides, in
its discretion, that any Stock Option is exercisable subject to
certain limitations (including, without limitation, that such Stock
Option is exercisable only in installments or within certain time
periods), the Committee may waive such limitations on the
exercisability at any time at or after grant in whole or in part
(including, without limitation, waiver of the installment exercise
provisions or acceleration of the time at which such Stock Option
may be exercised), based on such factors, if any, as the Committee
shall determine, in its sole discretion.
(d) Method of Exercise. Subject to whatever installment
exercise and waiting period provisions apply under subsection (c)
above, Stock Options may be exercised in whole or in part at any
time and from time to time during the Stock Option term by giving
written notice of exercise to the Committee specifying the number of
shares to be purchased. Such notice shall be accompanied by payment
in full of the purchase price as follows: (i) in cash or by check,
bank draft or money order payable to the order of the Company; (ii)
if the Common Stock is traded on a national securities exchange, the
Nasdaq Stock Market, Inc. or quoted on a national quotation system
sponsored by the National Association of Securities Dealers, through
a "cashless exercise" procedure whereby the Participant delivers
irrevocable instructions to a broker to deliver promptly to the
Company an amount equal to the purchase price; or (iii) on such
other terms and conditions as may be acceptable to the Committee
(including, without limitation, the relinquishment of Stock Options
or by payment in full or in part in the form of Common Stock owned
by the Participant for a period of at least 6 months (and for which
the Participant has good title free and clear of any liens and
encumbrances) based on the Fair Market Value of the Common Stock on
the payment date as determined by the Committee). No shares of
Common Stock shall be issued until payment therefor, as provided
herein, has been made or provided for.
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(e) Incentive Stock Option Limitations. To the extent that the
aggregate Fair Market Value (determined as of the time of grant) of
the Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by an Eligible Employee during any
calendar year under this Plan and/or any other stock option plan of
the Company, any Subsidiary or any Parent exceeds $100,000, such
Options shall be treated as Non-Qualified Stock Options. In
addition, if an Eligible Employee does not remain employed by the
Company, any Subsidiary or any Parent at all times from the time an
Incentive Stock Option is granted until 3 months prior to the date
of exercise thereof (or such other period as required by applicable
law), such Stock Option shall be treated as a Non-Qualified Stock
Option. Should any provision of this Plan not be necessary in order
for the Stock Options to qualify as Incentive Stock Options, or
should any additional provisions be required, the Committee may
amend this Plan accordingly, without the necessity of obtaining the
approval of the stockholders of the Company.
(f) Form, Modification, Extension and Renewal of Stock
Options. Subject to the terms and conditions and within the
limitations of this Plan, Stock Options shall be evidenced by such
form of agreement or grant as is approved by the Committee, and the
Committee may (i) modify, extend or renew outstanding Stock Options
granted under this Plan (provided that the rights of a Participant
are not reduced without his consent), and (ii) accept the surrender
of outstanding Stock Options (up to the extent not theretofore
exercised) and authorize the granting of new Stock Options in
substitution therefor (to the extent not theretofore exercised).
(g) Deferred Delivery of Common Shares. The Committee may in
its discretion permit Participants to defer delivery of Common Stock
acquired pursuant to a Participant's exercise of an Option in
accordance with the terms and conditions established by the
Committee.
(h) Other Terms and Conditions. Stock Options may contain such
other provisions, which shall not be inconsistent with any of the
terms of this Plan, as the Committee shall deem appropriate
including, without limitation, permitting "reloads" such that the
same number of Stock Options are granted as the number of Stock
Options exercised, shares used to pay for the exercise price of
Stock Options or shares used to pay withholding taxes ("Reloads").
With respect to Reloads, the exercise price of the new Stock Option
shall be the Fair Market Value on the date of the "reload" and the
term of the Stock Option shall be the same as the remaining term of
the Stock Options that are exercised, if applicable, or such other
exercise price and term as determined by the Committee.
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ARTICLE VII
STOCK APPRECIATION RIGHTS
VII.1 Tandem Stock Appreciation Rights. Stock Appreciation Rights
may be granted in conjunction with all or part of any Stock Option (a
"Reference Stock Option") granted under this Plan ("Tandem Stock
Appreciation Rights"). In the case of a Non-Qualified Stock Option, such
rights may be granted either at or after the time of the grant of such
Reference Stock Option. In the case of an Incentive Stock Option, such
rights may be granted only at the time of the grant of such Reference
Stock Option. Consultants shall not be eligible for a grant of Tandem
Stock Appreciation Rights granted in conjunction with all or part of an
Incentive Stock Option.
VII.2 Terms and Conditions of Tandem Stock Appreciation Rights.
Tandem Stock Appreciation Rights shall be subject to such terms and
conditions, not inconsistent with the provisions of this Plan, as shall be
determined from time to time by the Committee, including Article XII and
the following:
(a) Term. A Tandem Stock Appreciation Right or applicable
portion thereof granted with respect to a Reference Stock Option
shall terminate and no longer be exercisable upon the termination or
exercise of the Reference Stock Option, except that, unless
otherwise determined by the Committee, in its sole discretion, at
the time of grant, a Tandem Stock Appreciation Right granted with
respect to less than the full number of shares covered by the
Reference Stock Option shall not be reduced until and then only to
the extent the exercise or termination of the Reference Stock Option
causes the number of shares covered by the Tandem Stock Appreciation
Right to exceed the number of shares remaining available and
unexercised under the Reference Stock Option.
(b) Exercisability. Tandem Stock Appreciation Rights shall be
exercisable only at such time or times and to the extent that the
Reference Stock Options to which they relate shall be exercisable in
accordance with the provisions of Article VI and this Article VII.
(c) Method of Exercise. A Tandem Stock Appreciation Right may
be exercised by a Participant by surrendering the applicable portion
of the Reference Stock Option. Upon such exercise and surrender, the
Participant shall be entitled to receive an amount determined in the
manner prescribed in this Section 7.2. Stock Options which have been
so surrendered, in whole or in part, shall no longer be exercisable
to the extent the related Tandem Stock Appreciation Rights have been
exercised.
(d) Payment. Upon the exercise of a Tandem Stock Appreciation
Right, a Participant shall be entitled to receive up to, but no more
than, an amount in cash and/or Common Stock (as chosen by the
Committee in its sole discretion at grant,
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or thereafter if no rights of a Participant are reduced) equal in
value to the excess of the Fair Market Value of one share of Common
Stock over the option price per share specified in the Reference
Stock Option, multiplied by the number of shares in respect of which
the Tandem Stock Appreciation Right shall have been exercised.
(e) Deemed Exercise of Reference Stock Option. Upon the
exercise of a Tandem Stock Appreciation Right, the Reference Stock
Option or part thereof to which such Stock Appreciation Right is
related shall be deemed to have been exercised for the purpose of
the limitation set forth in Article IV of this Plan on the number of
shares of Common Stock to be issued under this Plan.
VII.3 Non-Tandem Stock Appreciation Rights. Non-Tandem Stock
Appreciation Rights may also be granted without reference to any Stock
Option granted under this Plan.
VII.4 Terms and Conditions of Non-Tandem Stock Appreciation Rights.
Non-Tandem Stock Appreciation Rights shall be subject to such terms and
conditions, not inconsistent with the provisions of this Plan, as shall be
determined from time to time by the Committee, including Article XII and
the following:
(a) Term. The term of each Non-Tandem Stock Appreciation Right
shall be fixed by the Committee, but shall not be greater than ten
(10) years after the date the right is granted.
(b) Exercisability. Non-Tandem Stock Appreciation Rights shall
be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee at grant. If the
Committee provides, in its discretion, that any such right is
exercisable subject to certain limitations (including, without
limitation, that it is exercisable only in installments or within
certain time periods), the Committee may waive such limitation on
the exercisability at any time at or after grant in whole or in part
(including, without limitation, waiver of the installment exercise
provisions or acceleration of the time at which rights may be
exercised), based on such factors, if any, as the Committee shall
determine, in its sole discretion.
(c) Method of Exercise. Subject to whatever installment
exercise and waiting period provisions apply under subsection (b)
above, Non-Tandem Stock Appreciation Rights may be exercised in
whole or in part at any time and from time to time during the option
term, by giving written notice of exercise to the Company specifying
the number of Non-Tandem Stock Appreciation Rights to be exercised.
(d) Payment. Upon the exercise of a Non-Tandem Stock
Appreciation Right a Participant shall be entitled to receive, for
each right exercised, up to, but no more than, an amount in cash
and/or Common Stock (as chosen by the Committee in its sole
discretion at grant, or thereafter if no rights of a Participant are
reduced)
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equal in value to the excess of the Fair Market Value of one share
of Common Stock on the date the right is exercised over the Fair
Market Value of one share of Common Stock on the date the right was
awarded to the Participant.
VII.5 Limited Stock Appreciation Rights. The Committee may, in its
sole discretion, grant a Tandem Stock Appreciation Right or a Non-Tandem
Stock Appreciation Right as a Limited Stock Appreciation Right. Limited
Stock Appreciation Rights may be exercised only upon the occurrence of a
Change in Control or such other event as the Committee may, in its sole
discretion, designate at the time of grant or thereafter. Upon the
exercise of limited Stock Appreciation Rights, except as otherwise
provided in an Award agreement, the Participant shall receive in cash or
Common Stock, as determined by the Committee, an amount equal to the
amount (i) set forth in Section 7.2(d) with respect to Tandem Stock
Appreciation Rights, or (ii) set forth in Section 7.4(d) with respect to
Non-Tandem Stock Appreciation Rights, as applicable.
ARTICLE VIII
RESTRICTED STOCK
VIII.1 Awards of Restricted Stock. Shares of Restricted Stock may be
issued to Eligible Employees or Consultants either alone or in addition to
other Awards granted under this Plan. The Committee shall determine the
eligible persons to whom, and the time or times at which, grants of
Restricted Stock will be made, the number of shares to be awarded, the
price (if any) to be paid by the recipient (subject to Section 8.2), the
time or times within which such Awards may be subject to forfeiture, the
vesting schedule and rights to acceleration thereof, and all other terms
and conditions of the Awards. The Committee may condition the grant or
vesting of Restricted Stock upon the attainment of specified performance
goals, including established Performance Goals in accordance with Section
162(m) of the Code, or such other factors as the Committee may determine,
in its sole discretion.
VIII.2 Awards and Certificates. An Eligible Employee or Consultant
selected to receive Restricted Stock shall not have any rights with
respect to such Award, unless and until such Participant has delivered to
the Company a fully executed copy of the applicable Award agreement
relating thereto and has otherwise complied with the applicable terms and
conditions of such Award. Further, such Award shall be subject to the
following conditions:
(a) Purchase Price. The purchase price of Restricted Stock
shall be fixed by the Committee. Subject to Section 4.3, the
purchase price for shares of Restricted Stock may be zero to the
extent permitted by applicable law, and, to the extent not so
permitted, such purchase price may not be less than par value.
(b) Acceptance. Awards of Restricted Stock must be accepted
within a
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period of 90 days (or such shorter period as the Committee may
specify at grant) after the Award date by executing a Restricted
Stock Award agreement and by paying whatever price (if any) the
Committee has designated thereunder.
(c) Legend. Each Participant receiving shares of Restricted
Stock shall be issued a stock certificate in respect of such shares
of Restricted Stock, unless the Committee elects to use another
system, such as book entries by the transfer agent, as evidencing
ownership of shares of Restricted Stock. Such certificate shall be
registered in the name of such Participant, and shall bear an
appropriate legend referring to the terms, conditions, and
restrictions applicable to such Award, substantially in the
following form:
"The anticipation, alienation, attachment, sale, transfer,
assignment, pledge, encumbrance or charge of the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) of the YouthStream Media Networks, Inc. (the
"Company") 1999 Stock Incentive Plan (the "Plan") and an Agreement
entered into between the registered owner and the Company dated .
Copies of such Plan and Agreement are on file at the principal
office of the Company."
(d) Custody. The Committee may require that any stock
certificates evidencing such shares be held in custody by the
Company until the restrictions thereon shall have lapsed and that,
as a condition to the grant of such Award of Restricted Stock, the
Participant shall have delivered a duly signed stock power, endorsed
in blank, relating to the Common Stock covered by such Award.
VIII.3 Restrictions and Conditions on Restricted Stock Awards.
Shares of Restricted Stock awarded pursuant to this Plan shall be subject
to Article XII and the following restrictions and conditions:
(a) Restriction Period; Vesting and Acceleration of Vesting.
(i) The Participant shall not be permitted to Transfer shares of
Restricted Stock awarded under this Plan during the period or
periods set by the Committee (the "Restriction Period") commencing
on the date of such Award, as set forth in the Restricted Stock
Award agreement and such agreement shall set forth a vesting
schedule and any events which would accelerate vesting of the shares
of Restricted Stock. Within these limits, based on service,
attainment of Performance Goals pursuant to Section 8.3(a)(ii) below
and/or such other factors or criteria as the Committee may determine
in its sole discretion, the Committee may provide for the lapse of
such restrictions in installments in whole or in part, or may
accelerate the vesting of all or any part of any Restricted Stock
Award and/or waive the deferral limitations for all or any part of
any Restricted Stock Award.
(ii) Objective Performance Goals, Formulae or Standards.
If the grant of shares of Restricted Stock or the lapse of
restrictions is based on the
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attainment of Performance Goals, the Committee shall establish the
Performance Goals and the applicable vesting percentage of the
Restricted Stock Award applicable to each Participant or class of
Participants in writing prior to the beginning of the applicable
fiscal year or at such later date as otherwise determined by the
Committee and while the outcome of the Performance Goals are
substantially uncertain. Such Performance Goals may incorporate
provisions for disregarding (or adjusting for) changes in accounting
methods, corporate transactions (including, without limitation,
dispositions and acquisitions) and other similar type events or
circumstances. With regard to a Restricted Stock Award that is
intended to comply with Section 162(m) of the Code, to the extent
any such provision would create impermissible discretion under
Section 162(m) of the Code or otherwise violate Section 162(m) of
the Code, such provision shall be of no force or effect. The
applicable Performance Goals shall be based on one or more of the
Performance Criteria set forth in Exhibit A hereto.
(b) Rights as Stockholder. Except as provided in this
subsection (b) and subsection (a) above and as otherwise determined
by the Committee, the Participant shall have, with respect to the
shares of Restricted Stock, all of the rights of a holder of shares
of Common Stock of the Company including, without limitation, the
right to receive any dividends, the right to vote such shares and,
subject to and conditioned upon the full vesting of shares of
Restricted Stock, the right to tender such shares. The Committee
may, in its sole discretion, determine at the time of grant that the
payment of dividends shall be deferred until, and conditioned upon,
the expiration of the applicable Restriction Period.
(c) Lapse of Restrictions. If and when the Restriction Period
expires without a prior forfeiture of the Restricted Stock subject
to such Restriction Period, the certificates for such shares shall
be delivered to the Participant. All legends shall be removed from
said certificates at the time of delivery to the Participant except
as otherwise required by applicable law.
ARTICLE IX
PERFORMANCE SHARES
IX.1 Award of Performance Shares. Performance Shares may be awarded
either alone or in addition to other Awards granted under this Plan. The
Committee shall, in its sole discretion, determine the Eligible Employees
and Consultants to whom and the time or times at which such Performance
Shares shall be awarded, the duration of the period (the "Performance
Period") during which, and the conditions under which, a Participant's
right to Performance Shares will be vested and the other terms and
conditions of the Award in addition to those set forth in Section 9.2.
Each Performance Share awarded shall be referenced to one share of
Common
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Stock. Except as otherwise provided herein, the Committee shall condition
the right to payment of any Performance Share Award upon the attainment of
objective Performance Goals established pursuant to Section 9.2(c) below
and such other non-performance based factors or criteria as the Committee
may determine in its sole discretion.
IX.2 Terms and Conditions. A Participant selected to receive
Performance Shares shall not have any rights with respect to such Awards,
unless and until such Participant has delivered a fully executed copy of a
Performance Share Award agreement evidencing the Award to the Company and
has otherwise complied with the following terms and conditions:
(a) Earning of Performance Share Award. At the expiration of
the applicable Performance Period, the Committee shall determine the
extent to which the Performance Goals established pursuant to
Section 9.2(c) are achieved and the percentage of each Performance
Share Award that has been earned.
(b) Payment. Following the Committee's determination in
accordance with subsection (a) above, shares of Common Stock or, as
determined by the Committee in its sole discretion, the cash
equivalent of such shares shall be delivered to the Participant, in
an amount equal to such Participant's earned Performance Share
Award. Notwithstanding the foregoing, except as may be set forth in
the agreement covering the Award, the Committee may, in its sole
discretion and in accordance with Section 162(m) of the Code, award
an amount less than the earned Performance Share Award and/or
subject the payment of all or part of any Performance Share Award to
additional vesting and forfeiture conditions as it deems
appropriate.
(c) Objective Performance Goals, Formulae or Standards. The
Committee shall establish the objective Performance Goals for the
earning of Performance Shares based on a Performance Period
applicable to each Participant or class of Participants in writing
prior to the beginning of the applicable Performance Period or at
such later date as permitted under Section 162(m) of the Code and
while the outcome of the Performance Goals are substantially
uncertain. Such Performance Goals may incorporate, if and only to
the extent permitted under Section 162(m) of the Code, provisions
for disregarding (or adjusting for) changes in accounting methods,
corporate transactions (including, without limitation, dispositions
and acquisitions) and other similar type events or circumstances. To
the extent any such provision would create impermissible discretion
under Section 162(m) of the Code or otherwise violate Section 162(m)
of the Code, such provision shall be of no force or effect. The
applicable Performance Goals shall be based on one or more of the
Performance Criteria set forth in Exhibit A hereto.
(d) Dividends and Other Distributions. At the time of any
Award of Performance Shares, the Committee may, in its sole
discretion, award an Eligible Employee or Consultant the right to
receive the cash value of any dividends and
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other distributions that would have been received as though the
Eligible Employee or Consultant had held each share of Common Stock
referenced by the earned Performance Share Award from the last day
of the first year of the Performance Period until the actual
distribution to such Participant of the related share of Common
Stock or cash value thereof. Such amounts, if awarded, shall be paid
to the Participant as and when the shares of Common Stock or cash
value thereof are distributed to such Participant and, at the
discretion of the Committee, may be paid with interest from the
first day of the second year of the Performance Period until such
amounts and any earnings thereon are distributed. The applicable
rate of interest shall be determined by the Committee in its sole
discretion; provided, however, that for each fiscal year or part
thereof, the applicable interest rate shall not be greater than a
rate equal to the four-year U.S. Government Treasury rate on the
first day of each applicable fiscal year.
ARTICLE X
PERFORMANCE UNITS
X.1 Awards of Performance Units. Performance Units may be awarded
either alone or in addition to other Awards granted under this Plan. The
Committee shall, in its sole discretion, determine the Eligible Employees
to whom and the time or times at which such Performance Units shall be
awarded, the duration of the period (the "Performance Cycle") during
which, and the conditions under which, a Participant's right to
Performance Units will be vested and the other terms and conditions of the
Award in addition to those set forth in Section 10.2.
Performance Units shall be awarded in a dollar amount determined by
the Committee and shall be converted for purposes of calculating growth in
value to a referenced number of shares of Common Stock based on the Fair
Market Value of shares of Common Stock at the close of trading on the
first business day following the announcement of the annual financial
results of the Company for the fiscal year of the Company immediately
preceding the fiscal year of the commencement of the relevant Performance
Cycle, provided that the Committee may provide that the minimum price for
such conversion shall be the Fair Market Value on the date of grant.
Each Performance Unit shall be referenced to one share of Common
Stock. Except as otherwise provided herein, the Committee shall condition
the right to payment of any Performance Unit Award upon the attainment of
objective Performance Goals established pursuant to Section 10.2(a) and
such other non-performance based factors or criteria as the Committee may
determine in its sole discretion. The cash value of any fractional
Performance Unit Award subsequent to conversion to shares of Common Stock
shall be treated as a dividend or other distribution under Section 10.2(e)
to the extent any portion of the Performance Unit Award is earned.
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X.2 Terms and Conditions. The Performance Units awarded pursuant to
this Article X shall be subject to the following terms and conditions:
(a) Performance Goals. The Committee shall establish the
objective Performance Goals for the earnings of Performance Units
based on a Performance Cycle applicable to each Participant or class
of Participants in writing prior to the beginning of the applicable
Performance Cycle or at such later date as permitted under Section
162(m) of the Code and while the outcome of the Performance Goals
are substantially uncertain. Such Performance Goals may incorporate,
if and only to the extent permitted under Section 162(m) of the
Code, provisions for disregarding (or adjusting for) changes in
accounting methods, corporate transactions (including, without
limitation, dispositions and acquisitions) and other similar type
events or circumstances. To the extent any such provision would
create impermissible discretion under Section 162(m) of the Code or
otherwise violate Section 162(m) of the Code, such provision shall
be of no force or effect. The applicable Performance Goals shall be
based on one or more of the Performance Criteria set forth in
Exhibit A hereto.
(b) Vesting. At the expiration of the Performance Cycle, the
Committee shall determine and certify in writing the extent to which
the Performance Goals have been achieved, and the percentage of the
Performance Units of each Participant that have vested.
(c) Payment. Subject to the applicable provisions of the Award
agreement and this Plan, at the expiration of the Performance Cycle,
cash and/or shares of Common Stock (as the Committee may determine
in its sole discretion at grant, or thereafter if no rights of a
Participant are reduced) shall be delivered to the Participant in
payment of the vested Performance Units covered by the Performance
Unit Award. Notwithstanding the foregoing, except as may be set
forth in the agreement covering the Award, the Committee may, in its
sole discretion, and to the extent applicable and permitted under
Section 162(m) of the Code, award an amount less than the earned
Performance Unit Award and/or subject the payment of all or part of
any Performance Unit Award to additional vesting and forfeiture
conditions as it deems appropriate.
(d) Accelerated Vesting. Based on service, performance and/or
such other factors or criteria, if any, as the Committee may
determine, the Committee may, at or after grant, accelerate the
vesting of all or any part of any Performance Unit Award and/or
waive the deferral limitations for all or any part of such Award.
(e) Dividends and Other Distributions. At the time of any
Award of Performance Units, the Committee may, in its sole
discretion, award an Eligible Employee or Consultant the right to
receive the cash value of any dividends and other distributions that
would have been received as though the Eligible Employee or
Consultant had held each share of Common Stock referenced by the
earned
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Performance Unit Award from the last day of the first year of the
Performance Cycle until the actual distribution to such Participant
of the related share of Common Stock or cash value thereof. Such
amounts, if awarded, shall be paid to the Participant as and when
the shares of Common Stock or cash value thereof are distributed to
such Participant and, at the discretion of the Committee, may be
paid with interest from the first day of the second year of the
Performance Cycle until such amounts and any earnings thereon are
distributed. The applicable rate of interest shall be determined by
the Committee in its sole discretion; provided, however, that for
each fiscal year or part thereof, the applicable interest rate shall
not be greater than a rate equal to the four-year U.S. Government
Treasury rate on the first day of each applicable fiscal year.
ARTICLE XI
OTHER STOCK-BASED AWARDS
XI.1 Other Awards. Other Stock-Based Awards may be granted either
alone or in addition to or in tandem with Stock Options, Stock
Appreciation Rights, Restricted Stock, Performance Shares or Performance
Units.
Subject to the provisions of this Plan, the Committee shall have
authority to determine the persons to whom and the time or times at which
such Awards shall be made, the number of shares of Common Stock to be
awarded pursuant to such Awards, and all other conditions of the Awards.
The Committee may also provide for the grant of Common Stock under such
Awards upon the completion of a specified performance period.
XI.2 Terms and Conditions. Other Stock-Based Awards made pursuant to
this Article XI shall be subject to the following terms and conditions:
(a) Non-Transferability. Subject to the applicable provisions
of the Award agreement and this Plan, shares of Common Stock subject
to Awards made under this Article XI may not be Transferred prior to
the date on which the shares are issued, or, if later, the date on
which any applicable restriction, performance or deferral period
lapses.
(b) Dividends. Unless otherwise determined by the Committee at
the time of Award, subject to the provisions of the Award agreement
and this Plan, the recipient of an Award under this Article XI shall
be entitled to receive, currently or on a deferred basis, dividends
or dividend equivalents with respect to the number of shares of
Common Stock covered by the Award, as determined at the time of the
Award by the Committee, in its sole discretion.
(c) Vesting. Any Award under this Article XI and any Common
Stock covered by any such Award shall vest or be forfeited to the
extent so provided in
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the Award agreement, as determined by the Committee, in its sole
discretion.
(d) Waiver of Limitation. The Committee may, in its sole
discretion, waive in whole or in part any or all of the limitations
imposed hereunder (if any) with respect to any or all of an Award
under this Article XI.
(e) Price. Common Stock or Other Stock-Based Awards issued on
a bonus basis under this Article XI may be issued for no cash
consideration; Common Stock or Other Stock-Based Awards purchased
pursuant to a purchase right awarded under this Article XI shall be
priced as determined by the Committee. Subject to Section 4.3, the
purchase price of shares of Common Stock or Other Stock-Based Awards
may be zero to the extent permitted by applicable law, and, to the
extent not so permitted, such purchase price may not be less than
par value. The purchase of shares of Common Stock or Other
Stock-Based Awards may be made on either an after-tax or pre-tax
basis, as determined by the Committee; provided, however, that if
the purchase is made on a pre-tax basis, such purchase shall be made
pursuant to a deferred compensation program established by the
Committee, which will be deemed a part of this Plan.
ARTICLE XII
NON-TRANSFERABILITY AND TERMINATION OF
EMPLOYMENT/CONSULTANCY
XII.1 Non-Transferability. No Stock Option, Stock Appreciation Right,
Performance Unit, Performance Share or Other Stock-Based Award shall be
Transferable by the Participant otherwise than by will or by the laws of descent
and distribution. All Stock Options and all Stock Appreciation Rights shall be
exercisable, during the Participant's lifetime, only by the Participant. Tandem
Stock Appreciation Rights shall be Transferable, to the extent permitted above,
only with the underlying Stock Option. Shares of Restricted Stock under Article
VIII may not be Transferred prior to the date on which shares are issued, or, if
later, the date on which any applicable restriction, performance or deferral
period lapses. No Award shall, except as otherwise specifically provided by law
or herein, be Transferable in any manner, and any attempt to Transfer any such
Award shall be void, and no such Award shall in any manner be liable for or
subject to the debts, contracts, liabilities, engagements or torts of any person
who shall be entitled to such Award, nor shall it be subject to attachment or
legal process for or against such person. Notwithstanding the foregoing, the
Committee may determine at the time of grant or thereafter that a Non-Qualified
Stock Option that is otherwise not transferable pursuant to this Section 12.1 is
transferable to a "family member" in whole or in part and in such circumstances,
and under such conditions, as specified by the Committee. A Non-Qualified Stock
Option that is transferred to a family member pursuant to the preceding sentence
may not be subsequently transferred otherwise than by will or by the laws of
descent and distribution. For purposes hereof, a "family member" shall mean any
child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former
spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law,
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brother-in-law, or sister-in-law, including adoptive relationships, any person
sharing the employee's household (other than a tenant or employee), a trust in
which these persons have more than 50% of the beneficial interest, a foundation
in which these persons (or the employee) control the management of assets, and
any other entity in which these persons (or the employee) own more than 50% of
the voting interests."
XII.2 Termination of Employment or Termination of Consultancy. The
following rules apply with regard to the Termination of Employment or
Termination of Consultancy of a Participant:
(a) Rules Applicable to Stock Options and Stock Appreciation
Rights. Unless otherwise determined by the Committee at grant or, if
no rights of the Participant are reduced, thereafter:
(i) Termination by Reason of Death, Disability or
Retirement. If a Participant's Termination of Employment or
Termination of Consultancy is by reason of death, Disability or
Retirement, all Stock Options and Stock Appreciation Rights held by
such Participant may be exercised, to the extent exercisable at the
Participant's Termination of Employment or Termination of
Consultancy, by the Participant (or, in the case of death, by the
legal representative of the Participant's estate) at any time within
a period of one year from the date of such Termination of Employment
or Termination of Consultancy, but in no event beyond the expiration
of the stated terms of such Stock Options and Stock Appreciation
Rights; provided, however, that, in the case of Retirement, if the
Participant dies within such exercise period, all unexercised Stock
Options and Non-Tandem Stock Appreciation Rights held by such
Participant shall thereafter be exercisable, to the extent to which
they were exercisable at the time of death, for a period of one year
from the date of such death, but in no event beyond the expiration
of the stated term of such Stock Options and Non-Tandem Stock
Appreciation Rights.
(ii) Involuntary Termination Without Cause. If a
Participant's Termination of Employment or Termination of
Consultancy is by involuntary termination without Cause, all Stock
Options and Stock Appreciation Rights held by such Participant may
be exercised, to the extent exercisable at Termination of Employment
or Termination of Consultancy, by the Participant at any time within
a period of 90 days from the date of such Termination of Employment
or Termination of Consultancy, but in no event beyond the expiration
of the stated term of such Stock Options and Stock Appreciation
Rights.
(iii) Voluntary Termination. If a Participant's
Termination of Employment or Termination of Consultancy is voluntary
(other than a voluntary termination described in Section
12.2(a)(iv)(B) below), all Stock Options and Stock Appreciation
Rights held by such Participant may be exercised, to the extent
exercisable at Termination of Employment or Termination of
Consultancy, by the Participant at any time within a period of 30
days from the date of such Termination
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of Employment or Termination of Consultancy, but in no event beyond
the expiration of the stated terms of such Stock Options and Stock
Appreciation Rights.
(iv) Termination for Cause. If a Participant's
Termination of Employment or Termination of Consultancy (A) is for
Cause or (B) is a voluntary termination (as provided in subsection
(iii) above) at any time after an event which would be grounds for a
Termination of Employment or Termination of Consultancy for Cause,
all Stock Options and Stock Appreciation Rights held by such
Participant shall thereupon terminate and expire as of the date of
such Termination of Employment or Termination of Consultancy.
(b) Rules Applicable to Restricted Stock. Subject to the
applicable provisions of the Restricted Stock Award agreement and
this Plan, upon a Participant's Termination of Employment or
Termination of Consultancy for any reason during the relevant
Restriction Period, all Restricted Stock still subject to
restriction will vest or be forfeited in accordance with the terms
and conditions established by the Committee at grant or thereafter.
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(c) Rules Applicable to Performance Shares and Performance
Units. Subject to the applicable provisions of the Award agreement
and this Plan, upon a Participant's Termination of Employment or
Termination of Consultancy for any reason during the Performance
Period, the Performance Cycle or other period or restriction as may
be applicable for a given Award, the Performance Shares or
Performance Units in question will vest (to the extent applicable
and to the extent permissible under Section 162(m) of the Code) or
be forfeited in accordance with the terms and conditions established
by the Committee at grant or thereafter.
(d) Rules Applicable to Other Stock-Based Awards. Subject to
the applicable provisions of the Award agreement and this Plan, upon
a Participant's Termination of Employment or Termination of
Consultancy for any reason during any period or restriction as may
be applicable for a given Award, the Other Stock-Based Awards in
question will vest or be forfeited in accordance with the terms and
conditions established by the Committee at grant or thereafter.
ARTICLE XIII
CHANGE IN CONTROL PROVISIONS
XIII.1 Benefits. In the event of a Change in Control of the Company,
except as otherwise provided by the Committee upon the grant of an Award
the Participant shall be entitled to the following benefits:
(a) Except to the extent provided in the applicable Award
agreement, the Participant's employment agreement with the Company
or an Affiliate, as approved by the Committee, or other written
agreement approved by the Committee (as such agreement may be
amended from time to time), (i) Awards granted and not previously
exercisable shall not become exercisable upon a Change in Control,
(ii) restrictions to which any shares of Restricted Stock granted
prior to the Change in Control are subject shall not lapse upon a
Change in Control, and (iii) the conditions required for vesting of
any unvested Performance Units and/or Performance Shares shall not
be deemed to be satisfied upon a Change in Control.
(b) The Committee, in its sole discretion, may provide for the
purchase of any Stock Option by the Company or an Affiliate for an
amount of cash equal to the excess of the Change in Control Price
(as defined below) of the shares of Common Stock covered by such
Stock Options, over the aggregate exercise price of such Stock
Options. For purposes of this Section 13.1, Change in Control Price
shall mean the higher of (i) the highest price per share of Common
Stock paid in any transaction related to a Change in Control of the
Company, or (ii) the highest Fair Market Value per share of Common
Stock at any time during the sixty (60) day period preceding a
Change in Control.
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(c) Notwithstanding anything to the contrary herein, unless
the Committee provides otherwise at the time a Stock Option is
granted hereunder or thereafter, no acceleration of exercisability
shall occur with respect to such Stock Options if the Committee
reasonably determines in good faith, prior to the occurrence of the
Change in Control, that the Stock Options shall be honored or
assumed, or new rights substituted therefor (each such honored,
assumed or substituted stock option hereinafter called an
"Alternative Option"), by a Participant's employer (or the parent or
a subsidiary of such employer) immediately following the Change in
Control, provided that any such Alternative Option must meet the
following criteria:
(i) the Alternative Option must be based on stock which
is traded on an established securities market, or which will
be so traded within 30 days of the Change in Control;
(ii) the Alternative Option must provide such
Participant with rights and entitlements substantially
equivalent to or better than the rights, terms and conditions
applicable under such Stock Option, including, but not limited
to, an identical or better exercise schedule; and
(iii) the Alternative Option must have economic value
substantially equivalent to the value of such Stock Option
(determined at the time of the Change in Control).
For purposes of Incentive Stock Options, any assumed or
substituted Stock Option shall comply with the requirements of
Treasury Regulation ss. 1.425-1 (and any amendments thereto).
(d) Notwithstanding anything else herein, the Committee may,
in its sole discretion, provide for accelerated vesting of an Award
or accelerated lapsing of restrictions on shares of Restricted Stock
at any time.
XIII.2 Change in Control. A "Change in Control" shall be deemed to
have occurred:
(a) upon any "person" as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than the Company, any trustee
or other fiduciary holding securities under any employee benefit
plan of the Company, or any company owned, directly or indirectly,
by the stockholders of the Company in substantially the same
proportions as their ownership of Common Stock of the Company), is
or becomes the owner (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the
Company's then outstanding securities;
(b) during any period of two (2) consecutive years,
individuals who at the
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beginning of such period constitute the Board of Directors, and any
new director (other than a director designated by a person who has
entered into an agreement with the Company to effect a transaction
described in paragraph (a), (c), or (d) of this section) or a
director whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such term is
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a person other than the Board of
Directors of the Company whose election by the Board of Directors or
nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the two-year
period or whose election or nomination for election was previously
so approved, cease for any reason to constitute at least a majority
of the Board of Directors;
(c) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the
voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation;
provided, however, that a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction)
in which no person (other than those covered by the exceptions in
(a) above) acquires more than 30% of the combined voting power of
the Company's then outstanding securities shall not constitute a
Change in Control of the Company; or
(d) upon the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets other than the sale or disposition of all or
substantially all of the assets of the Company to a person or
persons who beneficially own, directly or indirectly, at least 50%
or more of the combined voting power of the outstanding voting
securities of the Company at the time of the sale.
ARTICLE XIV
TERMINATION OR AMENDMENT OF PLAN
Notwithstanding any other provision of this Plan, the Board or the
Committee may at any time, and from time to time, amend, in whole or in
part, any or all of the provisions of this Plan (including any amendment
deemed necessary to ensure that the Company may comply with any regulatory
requirement referred to in Article XVI), or suspend or terminate it
entirely, retroactively or otherwise; provided, however, that, unless
otherwise required by law or specifically provided herein, the rights of a
Participant with respect to Awards
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granted prior to such amendment, suspension or termination, may not be
impaired without the consent of such Participant and, provided further,
without the approval of the shareholders of the Company in accordance with
the laws of the State of Delaware, solely to the extent required by the
applicable provisions of Rule 16b-3 or Section 162(m) of the Code, or,
solely to the extent applicable to Incentive Stock Options, Section 422 of
the Code, no amendment may be made which would (i) increase the aggregate
number of shares of Common Stock that may be issued under this Plan; (ii)
increase the maximum individual Participant limitations for a fiscal year
under Section 4.1(b); (iii) change the classification of Participants
eligible to receive Awards under this Plan; (iv) decrease the minimum
option price of any Stock Option or Stock Appreciation Right; (v) extend
the maximum option period under Section 6.3; or (vi) materially alter the
Performance Criteria for the Award of Restricted Stock, Performance Units
or Performance Shares as set forth in Exhibit A. In no event may this Plan
be amended without the approval of the stockholders of the Company in
accordance with the applicable laws of the State of Delaware to increase
the aggregate number of shares of Common Stock that may be issued under
this Plan, decrease the minimum exercise price of any Stock Option or
Stock Appreciation Right, or to make any other amendment that would
require stockholder approval under the rules of any exchange or system on
which the Company's securities are listed or traded at the request of the
Company.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but, subject to Article IV above or as
otherwise specifically provided herein, no such amendment or other action
by the Committee shall impair the rights of any holder without the
holder's consent.
ARTICLE XV
UNFUNDED PLAN
XV.1 Unfunded Status of Plan. This Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to
any payments as to which a Participant has a fixed and vested interest but
which are not yet made to a Participant by the Company, nothing contained
herein shall give any such Participant any rights that are greater than
those of a general creditor of the Company.
ARTICLE XVI
GENERAL PROVISIONS
XVI.1 Legend. The Committee may require each person receiving shares
pursuant to an Award under this Plan to represent to and agree with the
Company in writing that the Participant is acquiring the shares without a
view to distribution thereof. In addition to any legend required by this
Plan, the certificates for such shares may include any legend
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which the Committee deems appropriate to reflect any restrictions on
Transfer.
All certificates for shares of Common Stock delivered under this
Plan shall be subject to such stock transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Stock is then listed or any national securities association
system upon whose system the Stock is then quoted, any applicable Federal
or state securities law, and any applicable corporate law, and the
Committee may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions.
XVI.2 Other Plans. Nothing contained in this Plan shall prevent the
Board from adopting other or additional compensation arrangements, subject
to shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases.
XVI.3 No Right to Employment/Consultancy. Neither this Plan nor the
grant of any Award hereunder shall give any Participant or other employee
or Consultant any right with respect to continuance of employment or
Consultancy by the Company or any Affiliate, nor shall they be a
limitation in any way on the right of the Company or any Affiliate by
which an employee is employed or a Consultant is retained to terminate his
employment or Consultancy at any time.
XVI.4 Withholding of Taxes. The Company shall have the right to
deduct from any payment to be made to a Participant, or to otherwise
require, prior to the issuance or delivery of any shares of Common Stock
or the payment of any cash hereunder, payment by the Participant of, any
Federal, state or local taxes required by law to be withheld. Upon the
vesting of Restricted Stock, or upon making an election under Code Section
83(b), a Participant shall pay all required withholding to the Company.
Any such withholding obligation with regard to any Participant may
be satisfied, subject to the consent of the Committee, by reducing the
number of shares of Common Stock otherwise deliverable or by delivering
shares of Common Stock already owned. Any fraction of a share of Common
Stock required to satisfy such tax obligations shall be disregarded and
the amount due shall be paid instead in cash by the Participant.
XVI.5 Listing and Other Conditions.
(a) As long as the Common Stock is listed on a national
securities exchange or system sponsored by a national securities
association, the issue of any shares of Common Stock pursuant to an
Award shall be conditioned upon such shares being listed on such
exchange or system. The Company shall have no obligation to issue
such shares unless and until such shares are so listed, and the
right to exercise any Stock Option with respect to such shares shall
be suspended until such listing has been effected.
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(b) If at any time counsel to the Company shall be of the
opinion that any sale or delivery of shares of Common Stock pursuant
to an Award is or may in the circumstances be unlawful or result in
the imposition of excise taxes on the Company under the statutes,
rules or regulations of any applicable jurisdiction, the Company
shall have no obligation to make such sale or delivery, or to make
any application or to effect or to maintain any qualification or
registration under the Securities Act or otherwise with respect to
shares of Common Stock or Awards, and the right to exercise any
Stock Option shall be suspended until, in the opinion of said
counsel, such sale or delivery shall be lawful or will not result in
the imposition of excise taxes on the Company.
(c) Upon termination of any period of suspension under this
Section 16.5, any Award affected by such suspension which shall not
then have expired or terminated shall be reinstated as to all shares
available before such suspension and as to shares which would
otherwise have become available during the period of such
suspension, but no such suspension shall extend the term of any
Stock Option.
XVI.6 Governing Law. This Plan shall be governed and construed in
accordance with the laws of the State of Delaware (regardless of the law
that might otherwise govern under applicable Delaware principles of
conflict of laws).
XVI.7 Construction. Wherever any words are used in this Plan in the
masculine gender they shall be construed as though they were also used in
the feminine gender in all cases where they would so apply, and wherever
any words are used herein in the singular form they shall be construed as
though they were also used in the plural form in all cases where they
would so apply.
XVI.8 Other Benefits. No Award payment under this Plan shall be
deemed compensation for purposes of computing benefits under any
retirement plan of the Company or its subsidiaries nor affect any benefits
under any other benefit plan now or subsequently in effect under which the
availability or amount of benefits is related to the level of
compensation.
XVI.9 Costs. The Company shall bear all expenses included in
administering this Plan, including expenses of issuing Common Stock
pursuant to any Awards hereunder.
XVI.10 No Right to Same Benefits. The provisions of Awards need not
be the same with respect to each Participant, and such Awards to
individual Participants need not be the same in subsequent years.
XVI.11 Death/Disability. The Committee may in its discretion require
the transferee of a Participant to supply it with written notice of the
Participant's death or Disability and to supply it with a copy of the will
(in the case of the Participant's death) or such other
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evidence as the Committee deems necessary to establish the validity of the
transfer of an Award. The Committee may also require that the agreement of
the transferee to be bound by all of the terms and conditions of this
Plan.
XVI.12 Section 16(b) of the Exchange Act. All elections and
transactions under this Plan by persons subject to Section 16 of the
Exchange Act involving shares of Common Stock are intended to comply with
any applicable exemptive condition under Rule 16b-3. The Committee may
establish and adopt written administrative guidelines, designed to
facilitate compliance with Section 16(b) of the Exchange Act, as it may
deem necessary or proper for the administration and operation of this Plan
and the transaction of business thereunder.
XVI.13 Severability of Provisions. If any provision of this Plan
shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions hereof, and this
Plan shall be construed and enforced as if such provisions had not been
included.
XVI.14 Headings and Captions. The headings and captions herein are
provided for reference and convenience only, shall not be considered part
of this Plan, and shall not be employed in the construction of this Plan.
ARTICLE XVII
EFFECTIVE DATE OF PLAN
The Plan shall become effective upon adoption by the Board, subject to the
approval of this Plan by the stockholders of the Company in accordance with the
requirements of the laws of the State of Delaware or such later date as provided
in the adopting resolution.
ARTICLE XVIII
TERM OF PLAN
No Award shall be granted pursuant to this Plan on or after the tenth
anniversary of the earlier of the date this Plan is adopted or the date of
stockholder approval, but Awards granted prior to such tenth anniversary may
extend beyond that date.
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EXHIBIT A
PERFORMANCE CRITERIA
Performance Goals established for purposes of conditioning the grant
of an Award of Restricted Stock based on performance or the vesting of
performance-based Awards of Restricted Stock, Performance Units and/or
Performance Shares shall be based on one or more of the following performance
criteria ("Performance Criteria"): (i) the attainment of certain target levels
of, or a specified percentage increase in, revenues, income before income taxes
and extraordinary items, net income, earnings before income tax, earnings before
interest, taxes, depreciation and amortization, or a combination of any or all
of the foregoing; (ii) the attainment of certain target levels of, or a
percentage increase in, after-tax or pre-tax profits including, without
limitation, that attributable to continuing and/or other operations; (iii) the
attainment of certain target levels of, or a specified increase in, operational
cash flow; (iv) the achievement of a certain level of, reduction of, or other
specified objectives with regard to limiting the level of increase in, all or a
portion of, the Company's bank debt or other long-term or short-term public or
private debt or other similar financial obligations of the Company, which may be
calculated net of such cash balances and/or other offsets and adjustments as may
be established by the Committee; (v) the attainment of a specified percentage
increase in earnings per share or earnings per share from continuing operations;
(vi) the attainment of certain target levels of, or a specified increase in
return on capital employed or return on invested capital; (vii) the attainment
of certain target levels of, or a percentage increase in, after-tax or pre-tax
return on stockholders' equity; (viii) the attainment of certain target levels
of, or a specified increase in, economic value added targets based on a cash
flow return on investment formula; (ix) the attainment of certain target levels
in the fair market value of the shares of the Company's common stock; and (x)
the growth in the value of an investment in the Company's common stock assuming
the reinvestment of dividends. For purposes of item (i) above, "extraordinary
items" shall mean all items of gain, loss or expense for the fiscal year
determined to be extraordinary or unusual in nature or infrequent in occurrence
or related to a corporate transaction (including, without limitation, a
disposition or acquisition) or related to a change in accounting principle, all
as determined in accordance with standards established by Opinion No. 30 of the
Accounting Principles Board.
In addition, such Performance Criteria may be based upon the attainment of
specified levels of Company (or subsidiary, division or other operational unit
of the Company) performance under one or more of the measures described above
relative to the performance of other corporations. To the extent permitted under
Code Section 162(m), but only to the extent permitted under Code Section 162(m)
(including, without limitation, compliance with any requirements for stockholder
approval), the Committee may: (i) designate additional business criteria on
which the Performance Criteria may be based or (ii) adjust, modify or amend the
aforementioned business criteria.
A-1
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EXHIBIT 10.29
VOTING TRUST AGREEMENT
Dated ____________, 1999
The parties to this agreement are YouthStream Media Networks, Inc.,
a Delaware corporation (the "Company"), Benjamin Bassi, William Townsend and
Mark Palmer (collectively, the "Stockholders"), and Harlan D. Peltz, as voting
trustee (in that capacity, the "Trustee").
The Company has today acquired, in exchange for shares of the
Company's common stock, $.01 par value ("Shares"), all of the membership
interests (other than membership interests owned by Network Event Theater, Inc.)
of Common Places, LLC, a Delaware limited liability company of which the
Stockholders were members. Bassi, Townsend and Palmer acquired in the
transaction ______, _____ and _______ Shares, respectively. This agreement
provides for the transfer by each of the Stockholders to the Trustee of 50% of
the Shares acquired by him in exchange for his membership interests in Common
Places, LLC. Simultaneously with the execution of this agreement, the
Stockholders are executing and delivering a stockholders agreement
("Stockholders Agreement") among the Company, Bassi, Townsend, Palmer, and
Peltz, individually and as voting trustee.
Accordingly, the parties agree as follows:
1. Shares Held in Trust.
1.1 Transfer of Shares to Voting Trustee. Simultaneously with
the execution of this agreement, (a) Bassi, Townsend and Palmer are delivering
to the secretary of the Company, for cancellation, stock certificates (together
with stock powers executed in blank) for ____, ____, and ____ Shares,
respectively, free and clear of any claim, lien, security interest or other
encumbrance (a "Lien"), and (b) the Company is issuing and delivering to the
Trustee three stock certificate for the respective number of Shares delivered by
Bassi, Townsend and Palmer, each of which is registered in the name of the
Trustee, in his capacity as such, and legended to indicate those Shares are
subject to this agreement (which fact also shall be stated in the stock ledger
of the Company). (The Shares so issued to the Trustee, together with any
additional securities referred to in section 3, are referred to collectively as
the "Trust Shares.") The Trustee shall hold and vote (including, for all
purposes of this agreement, the giving of consent) the Trust Shares in
accordance with this agreement and may not transfer any of the Trust Shares
except as provided in this agreement. The legend on all certificates evidencing
Trust Shares shall read:
"The shares of stock represented by this certificate are
subject to a certain Voting Trust Agreement dated _____, 1999
among the Company, the Trustee and the beneficial owners of
the shares. A copy of that agreement will be provided without
charge upon request."
<PAGE>
1.2 Voting Trust Certificates. Simultaneously with the
execution of this agreement, the Trustee is issuing and delivering to each
Stockholder a trust certificate (a "Trust Certificate") for the number of Shares
delivered by that Stockholder under section 1.1(a). The Trustee shall cause
accurate records to be kept setting forth the name and address of each holder of
Trust Certificates, the number of Trust Shares represented by each Trust
Certificate, any dividends or other payments or distributions made in respect of
the Trust Shares and transfers of the Trust Shares. That list and record shall
be open at all reasonable times to inspection by the Company's stockholders and
the holders of Trust Certificates. Each Trust Certificate shall be in the form
of exhibit A.
2. Authority of Trustee to Vote the Trust Shares
2.1 Authority. The Trustee shall have full and exclusive power
and authority to vote the Trust Shares in person or by proxy (or to refrain from
voting) at all meetings of the stockholders of the Company or by written consent
in lieu of such meetings with respect to all matters for which the Shares are
entitled to vote, including, without limitation, for the election of directors.
The Trustee shall inform the Stockholders in writing of the manner in which he
votes the Shares promptly after each vote, and shall see to it that copies of
all material sent by the Company to its stockholders are sent to the
Stockholders.
2.2 Other Matters. Subject to sections 5.1 and 5.2, the
Trustee's power to vote (or refrain from voting) the Trust Shares at any meeting
or by the execution of a written consent shall be irrevocable. The Trustee also
shall have the right to waive notice of any meeting of the Company's
stockholders and to take all other action associated with the exercise of the
voting power of the Trust Shares. The Trustee may exercise any power or perform
any act under this agreement by proxy or through an agent or attorney.
2.3 No Disqualification. Nothing in this agreement shall be
deemed to prevent the Trustee from serving the Company or any of its
subsidiaries as an officer, director, employee or in any other capacity and
receiving compensation for that service or from engaging in any transaction
with, or providing any service to, the Company or any of its subsidiaries.
2.4 No Authority to Transfer Shares. The Trustee shall have no
power or authority to transfer the Trust Shares, except in accordance with
section 6, and any other transfer or attempted transfer shall be void and of no
effect.
3. Additional Securities. Any stock certificates for any voting
securities of the Company (or of any successor to all or substantially all of
the business of the Company by merger or otherwise) issued by way of dividend,
stock split, recapitalization, reorganization, merger (other than a Terminating
Merger), consolidation, conversion or any other change or adjustment in respect
of the Trust Shares shall be delivered by the Company to the Trustee, who shall
hold those securities in accordance with this agreement, and the Trustee shall,
immediately following receipt, issue and deliver, or cause to be issued and
delivered, Trust Certificates for such changed or additional securities to the
appropriate holders of the Trust Certificates.
4. Dividends; Preemptive Rights. Except as otherwise provided in
section 3
2
<PAGE>
with respect to voting securities, if the Company pays any dividend on, or
distributes any other securities or property in respect of, the Trust Shares,
the Company shall pay or distribute such securities or property to the Trustee,
who shall collect and receive such securities or property, and shall promptly
deliver such securities or property, without offset or deduction of any kind, to
the holders of the then outstanding Trust Certificates in proportion to their
interest in the Trust Shares as shown on the books of the Trustee, so that such
dividend or distribution is identical to the dividend or distribution each
holder of a Trust Certificate would have received if the holder had been the
holder of record of the securities represented by that Trust Certificate. If the
Company offers to all of its stockholders the right to buy stock in the Company,
the Stockholders shall be given the opportunity to exercise that right in their
sole discretion; upon any such purchase of stock, 50% of the shares acquired in
the purchase shall be deposited with the Trustee and held by the Trustee
pursuant to the terms of this agreement.
5. Termination
5.1 Termination Date. Subject to section 5.2, this agreement
shall terminate (the "Termination Date") on the earliest of (a) the effective
date of a Terminating Merger or of the dissolution of the Company, (b) the date
that Harlan D. Peltz ceases to own of record or beneficially at least 10% of the
number of Shares he so owns on the date of this agreement (excluding any Shares
owned of record pursuant to this agreement), (c) the death of Harlan D. Peltz or
(d) Harlan D. Peltz ceasing to serve as at least one of the following: the
chairman of the board, president, chief executive officer or chief operating
officer of the Company (or any office performing analogous functions) . For the
purpose of this agreement, the term "Terminating Merger" means a merger,
consolidation or combination of the Company with another business, if, as a
result of that transaction, Harlan D. Peltz does not hold the position of
chairman of the board, president, chief executive officer or chief operating
officer (or any office performing analogous functions) of the merged,
consolidated or combined entity.
5.2 Termination Upon Transfer of Shares. Notwithstanding
anything in this agreement to the contrary, this agreement shall terminate with
respect to any Trust Shares transferred in accordance with section 6 at the time
of the transfer (except that this agreement shall not terminate with respect to
any Trust Shares transferred pursuant to section 3.2(a) of the Stockholders
Agreement until those Trust Shares are transferred by the transferee in
accordance with section 6).
5.3 Transfer of Shares from Voting Trustee. Upon the
termination of this agreement in accordance with section 5.1, (a) each holder of
Trust Certificates shall promptly deliver to the Trustee any outstanding Trust
Certificates held by that holder, (b) promptly thereafter the Trustee shall
deliver to the secretary of the Company or, at the direction of the Company, to
the Company's transfer agent, for cancellation, stock certificates (together
with stock powers executed in blank and any requisite stock transfer stamps) for
all the Trust Shares then held by the Trustee, and (c) the Company shall cause
to be issued to each holder of Trust Certificates stock certificates for a
number of Shares equal to the number of Trust Shares represented by the Trust
Certificates delivered pursuant to clause (a) above, free and clear of any Lien
(other than any Lien imposed by the Stockholders Agreement, by operation of law
or by the holder of the Trust Certificates
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(collectively, "Permitted Liens")) and without any legend (except any legend
relating to transfer restrictions arising under any applicable securities laws
(an "Applicable Securities Law Legend")). The Trustee and the Company shall take
such actions as the holders of the Trust Certificates may reasonably request to
effect such issuances.
5.4 Death or Incompetence of Holder. The death, disability or
incompetence of a holder of a Trust Certificate shall not affect the validity or
enforceability of this agreement.
6. Transfers of Trust Shares and Trust Certificates
6.1 Transfer of Trust Shares. Each holder of Trust
Certificates may, by notice given to the Trustee (a "Transfer Request"), direct
the Trustee to transfer any Trust Shares represented by that holder's Trust
Certificates in accordance with, and to the extent permitted under, the
Stockholders Agreement. No transfer of Trust Shares pursuant to section 3.2(a)
of the Stockholders Agreement shall be permitted (and any transfer in
contravention of this provision shall be void and of no effect), unless, prior
to the transfer, the proposed transferee executes and delivers to the Trustee a
copy of this agreement, the signature page of which shall specify that the
transferee is bound by and takes the Trust Shares subject to all the terms of
this agreement applicable to the transferor (it being understood that,
notwithstanding anything to the contrary in this agreement, the Trustee shall
retain possession of any Trust Shares so transferred and shall issue to the
transferee appropriate Trust Certificates in respect of those Trust Shares).
Each Transfer Request (other than a Transfer Request relating to a transfer to a
Permitted Transferee) shall be accompanied by evidence reasonably satisfactory
to the Trustee that the number of Trust Shares subject to the Transfer Request
equals 50% of the total number of Shares then being transferred by the
Stockholder (other than pursuant to section 3.2(a) of the Stockholders
Agreement).
6.2 Transfer Mechanics. In order to effect a transfer of Trust
Shares at the request of a holder of Trust Certificates pursuant to section 6.1,
(a) the holder shall deliver to the Trustee, together with the Transfer Request,
any Trust Certificates representing the Trust Shares to be transferred, (b) the
Trustee shall promptly thereafter deliver to the secretary of the Company or, at
the direction of the Company, to the Company's transfer agent, for cancellation,
stock certificates (together with stock powers executed in blank and any
requisite stock transfer stamps) representing the number of Trust Shares to be
transferred and (c) the Company shall cause to be issued to the transferee(s)
specified in the Transfer Request stock certificates for a number of Shares
equal to the number of Trust Shares represented by the Trust Certificates
delivered pursuant to clause (a) above, free and clear of any Lien (except
Permitted Liens) and without any legend (except any Applicable Securities Law
Legend). The Trustee and the Company shall take such actions as the holders of
Trust Certificates may reasonably request to effect such issuances.
6.3 Transfer of Trust Certificates. The Trust Certificates may
be transferred only as permitted by this agreement or in the same manner and to
the same extent as the Trust Shares may be transferred in accordance with the
Stockholders Agreement, and only if, in the case of a transfer pursuant to
section 3.2(a) of the Stockholders Agreement, the transferee executes and
delivers to the Trustee a copy of this agreement, the signature page of which
shall specify that the Transferee is bound by and takes the Trust Certificates
subject to all the terms of this agreement
4
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applicable to the transferor.
7. Compensation and Expenses. The Trustee shall not be entitled to
any compensation or other consideration for performance of his duties or acting
as voting trustee under this agreement. No holder of Trust Certificates shall be
liable or obligated for payment of any such expenses.
8. Miscellaneous
8.1 Governing Law. This agreement shall be governed by and
construed in accordance with the law of the state of Delaware applicable to
agreements made and to be performed wholly in Delaware.
8.2 Notices. The Company shall give each Stockholder and
others who are holders of Trust Certificates copies of any notice given
generally to stockholders of the Company. Any notice or other communication
under this agreement shall be in writing and shall be considered given when
delivered personally or mailed by registered mail, return receipt requested, at
the following addresses (or at such other address as a party may designate by
notice given to the others) or at such addresses as holders of Trust
Certificates may designate by notice given to the others:
if to the Company or the Trustee, to it or him at:
529 Fifth Avenue, 7th Floor
New York, New York 10017
Attention: Bruce L. Resnik, Executive Vice President and
Chief Financial Officer and Harlan D. Peltz
if to Benjamin Bassi, to him at
24 Coventry Road
Atkinson, N.H. 03811
Fax No.: (617) 349-0791
if to William Townsend, to him at
7 Wingreen Loop
Austin, Texas 78738
Fax No.: (617) 349-0791
if to Mark Palmer, to him at:
80 Patton Lane
North Andover, MA 01845
Fax No.: (617) 349-0791
5
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with a copy to:
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, Massachusetts 02110
Attention: Jonathan R. Karis, Esq.
Fax No.: (617) 951-1295
8.3 Counterparts. This agreement may be executed in
counterparts, each of which shall be considered an original, but all of which
together shall constitute the same instrument.
8.4 Equitable Relief. The parties acknowledge that the remedy
at law for breach of this agreement would be inadequate and that, in addition to
any other remedy a party may have for a breach of this agreement, that party
shall be entitled to an injunction restraining any such breach or threatened
breach, or a decree of specific performance, without the necessity of showing
actual damages and without any bond or other security being required. The remedy
provided in this section 8.4 is in addition to, and not in lieu of, any other
rights or remedies a party may have.
8.5 Separability. If any provision of this agreement is
invalid or unenforceable, the balance of this agreement shall remain in effect,
and, if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
8.6 Entire Agreement; Amendments. This agreement contains a
complete statement of all the arrangements among the parties with respect to its
subject matter, supersedes all existing agreements among them with respect to
that subject matter and may not be changed or terminated except by written
agreement signed by the Company, the Trustee, and holders of Trust Certificates
representing a majority of the Trust Shares, provided that no such amendment or
modification may adversely affect the rights or obligations of any holder of
Trust Certificates without that holder's prior written consent, unless the
amendment or modification similarly affects all holders of Trust Certificates.
6
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8.7 Assignment. The Trustee may not assign any of his rights
under this agreement.
YOUTHSTREAM MEDIA NETWORKS, INC.
By:________________________________
___________________________________
Benjamin Bassi, Individually
___________________________________
William Townsend, Individually
___________________________________
Mark Palmer, Individually.
___________________________________
Harlan D. Peltz, As Voting Trustee
7
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No. ___ EXHIBIT A
VOTING TRUST CERTIFICATE
YOUTHSTREAM MEDIA NETWORKS, INC.
This is to certify that _______________________________ is entitled
to receive, on the terms set forth in the Voting Trust Agreement referred to
below, a certificate or certificates representing ________________ shares of
common stock of YouthStream Media Networks, Inc., a Delaware corporation (the
"Company"), or such other securities, if any, as may be deliverable in respect
of such shares of common stock of the Company in accordance with the Voting
Trust Agreement, and, in the meantime, is entitled to receive payment of any
dividends or distributions, other than those in the form of voting securities of
the Company, received by the Trustee in respect of such shares of common stock
of the Company.
On the terms set forth in the Voting Trust Agreement, the Trustee
shall have full and exclusive power and authority to vote in person or by proxy
(or to refrain from voting) at all meetings of the stockholders of the Company
and to execute consents with respect to all shares of capital stock of the
Company held by the Trustee, for any purpose.
This certificate is issued pursuant to the Voting Trust Agreement
dated___________, 1999, among the Company, Benjamin Bassi, William Townsend,
Mark Palmer, and Harlan D. Peltz, as voting trustee. A copy of the Voting Trust
Agreement is on file at the principal office of the Company at 529 Fifth Avenue,
7th Floor, New York, New York 10017. The holder of this certificate, by the
acceptance of this certificate, agrees to all the terms of the Voting Trust
Agreement.
This certificate is transferable only on the books of the Trustee
upon delivery of this certificate at the office of the Trustee properly endorsed
for transfer by the registered holder of this certificate, either in person or
by attorney duly authorized, in accordance with the Voting Trust Agreement. The
Trustee shall not be obligated to recognize any person as the owner of this
certificate, other than the person in whose name this certificate is registered
on the books of the Trustee.
In witness whereof, the Trustee has executed this instrument this
___ day of ______, 1999.
___________________________________
Harlan D. Peltz, As Voting Trustee
<PAGE>
EXHIBIT 10.30
STOCKHOLDERS AGREEMENT
Dated _______, 1999
The parties to this agreement are YouthStream Media Networks, Inc.,
a Delaware corporation (the "Company"), Benjamin Bassi ("Bassi"), William
Townsend ("Townsend"), Mark Palmer ("Palmer"), Harlan D. Peltz, individually
("Peltz"), and Harlan D. Peltz, as voting trustee (the "Trustee") under a voting
trust agreement dated this date (the "Voting Trust Agreement") among the
Company, Bassi, Townsend and Palmer and the Trustee. Bassi, Townsend and Palmer
are collectively referred to as the "CP Stockholders" and the CP Stockholders
and Peltz are collectively referred to as the "Stockholders."
The Company has today acquired, in exchange for shares of the
Company's common stock, $.01 par value ("Shares"), all of the outstanding shares
of Network Event Theater, Inc., a Delaware corporation of which Peltz was a
shareholder, and all of the membership interests of Common Places, LLC (other
than membership interests owned by Network Event Theater, Inc.), a Delaware
limited liability company of which the CP Stockholders were members. Peltz
acquired in the transaction _____ Shares, and Bassi, Townsend and Palmer
acquired in the transaction ________, ______ and __________ Shares,
respectively. Peltz owns of record and beneficially all of the Shares acquired
by him in the transaction. Each of the CP Stockholders has transferred to the
Trustee pursuant to the Voting Trust Agreement record ownership and voting
rights to 50% of the Shares acquired by him in the transaction and has retained
record and beneficial ownership of the balance of the shares acquired by him in
the transaction.
The parties agree as follows:
1. Directors
1.1 Election.
(a) During the period commencing on this date and ending
on the third anniversary of this date (or any earlier date upon which Bassi
ceases to beneficially own more than 10% of the number of Shares he so owns on
the date of this agreement), Peltz, individually and as the Trustee, shall vote
all Shares owned by him of record or beneficially, and shall take all other
action incidental to that vote that Bassi reasonably requests, to cause the
election to the Company's board of directors of Bassi and one other individual
nominated by Bassi.
(b) During the period commencing on this date and ending
on the third anniversary of this date (or any earlier date upon which Peltz
ceases to beneficially own more than 10% of the number of Shares he so owns on
the date of this agreement (excluding any Shares owned of record pursuant to the
Voting Trust Agreement)), each of the CP Stockholder shall vote all Shares owned
by him of record or beneficially (to the extent such Shares are not subject to
the Voting Trust Agreement), and shall take all other action that Peltz
reasonably requests, to cause
<PAGE>
the election to the Company's board of directors of Peltz and all such other
individuals as Peltz may nominate (so that, subject to election by the Company's
stockholders, Peltz and his nominees shall constitute at least a majority of the
Company's board of directors).
For the purpose of this provision, beneficial ownership shall be
determined in accordance with the rules under the Securities Exchange Act of
1934 (the "Exchange Act").
1.2 Removal; Vacancies.
(a) If, during the period any party is entitled to
nominate directors pursuant to section 1.1, Bassi or Peltz gives notice to the
other parties to this agreement of his wish to remove a director previously
nominated by him and elected in accordance with section 1.1, each of the other
parties shall vote all Shares owned by him of record or beneficially in favor of
removing that director and shall take all other action incidental to that vote
as Bassi or Peltz, as the case may be, reasonably requests to cause that
director to be removed.
(b) If, during the period any party is entitled to
nominate directors pursuant to section 1.1, any director previously nominated
and elected pursuant to section 1.1 ceases to hold office, the party that
nominated the director who ceased to hold office promptly shall nominate an
individual to fill the vacancy so created for the unexpired term, and each of
the other parties shall vote all Shares owned by him of record or beneficially
to cause the individual so nominated to be elected to fill the vacancy and shall
take all other action incidental to that vote that Bassi or Peltz, as the case
may be, reasonably requests.
1.3 Classified Board. At any time the Company's board of
directors is divided into two or more classes, the members nominated by Bassi
shall, to the extent practicable, be included in the respective classes in the
same manner as are the members nominated by Peltz. The classification of the
board of directors shall not change the number of directors a party otherwise is
entitled to nominate pursuant to this agreement.
2. Stockholder Action. It is contemplated that Bassi and the other
CP Stockholders and Peltz will consult with each other and act cooperatively in
seeking to maximize the value of their interests as stockholders of the Company,
and that prior to voting on any matter submitted to shareholder vote, and prior
to taking any other action as shareholders, they will consult with each other
with respect to the matter and seek to develop a common position. Nevertheless,
Bassi and the other CP Stockholders and Peltz each shall have the right to vote
the shares of which he is the record owner and take other action as a
shareholder in the manner he determines in his sole discretion (other than with
respect to the election of directors, as to which section 1 of this agreement
shall apply), except that, other than in cooperation with Peltz and with his
prior written consent, neither Bassi nor either of the other CP Stockholders
shall, either alone or acting together with anyone else, (a) seek to place
designees on the Company's board of directors, seek the removal of any member of
the Company's board of directors, or otherwise participate in any election
contest with respect to the Company, except in accordance with section 1, or (b)
make, or announce an intent to make, any tender offer or exchange offer for any
equity securities of the Company or any assets of the Company or any of its
subsidiaries (or solicit, participate in, facilitate or support any effort or
attempt by anyone else to do so) or try to effect any sale, business combination
or other similar transaction involving the Company or any of its subsidiaries
(or
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negotiate or participate with any third party with respect to any such
transaction or with respect to any employment arrangement involving Bassi or
either of the other CP Stockholders).
3. Transfers of Shares
3.1 Transfers to be Made Only as Permitted by This Agreement.
During the period from the date of this agreement through the third anniversary
of the date of this agreement, the Stockholders may not, directly or indirectly,
sell, assign, transfer, pledge or otherwise encumber or dispose of
(collectively, "transfer") any Shares, except as specifically permitted by this
agreement and the Voting Trust Agreement. Any purported transfer in violation of
this agreement shall be void and of no effect.
3.2 Permitted Transfers. The Stockholders may transfer Shares
as follows:
(a) Any Stockholder may at any time transfer some or all
of his Shares to his spouse, to any of his children or grandchildren, to a trust
for the benefit of any one or more of them, or to his estate or other legal
representative (any such person, trust or estate being referred to below as a
member of a "Family Group"), provided that prior to the transfer the proposed
transferee agrees in a writing satisfactory in form and substance to Bassi and
to Peltz to be bound by all the terms of this agreement and, in the case of the
CP Stockholders and their respective transferees, the Voting Trust Agreement, as
if the transferee were the transferring Stockholder.
(b) Subject to section 3.2(c), any stockholder may at
any time transfer Shares (i) in a sale pursuant to Rule 144 under the Securities
Act of 1933 (the "1933 Act"), (ii) in a transaction pursuant to another
exemption from registration under the 1933 Act to any purchaser who, together
with the purchaser's affiliates, associates and Family Group members, owns fewer
than 1% of the outstanding Shares immediately prior to that transfer, and (iii)
pursuant to a tender offer, merger or other transaction that has been approved
by the Company's board of directors.
(c) No transfer of Shares may be made by any Stockholder
pursuant to section 3.2(a) or (b) unless (i) the number of Shares that would be
transferred, when aggregated with the number of Shares previously transferred by
that Stockholder and all persons to whom he has transferred shares pursuant to
sections 3.2(a) and 3.2(b) during the six-month period ending on the date of the
proposed transfer does not exceed 10% of the number of Shares beneficially owned
by that Stockholder on the date of this agreement, as set forth in the second
paragraph of this agreement, and (ii) prior to the transfer, the transferor
shall have provided the Company with an opinion of counsel, in form and
substance reasonably satisfactory to the Company, that an exemption from
registration under the 1933 Act applies to the transfer, and (iii) at least 15
days prior to the transfer, the transferor shall have given notice to Peltz and
Bassi of the proposed transfer.
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3.3 Legend. As long as any provision of this agreement remains
in effect, each certificate representing Shares shall bear a legend
substantially as follows:
"The shares represented by this certificate are subject to a
stockholders agreement dated ____________, ___, 1999 that
restricts the voting and transfer of the shares, a copy of
which is on file at the office of the Company."
4. Purchase of Shares. During the period from the date of this
agreement through the third anniversary of the date of this agreement, except as
otherwise agreed by Peltz and Bassi in writing or as contemplated or permitted
by this agreement, neither Peltz nor any of the CP Stockholders shall, directly
or indirectly, purchase or otherwise acquire any of the Company's shares, and
none of them shall permit any of his affiliates or associates (as those terms
are defined in the rules under the Exchange Act) to do so.
5. Miscellaneous
5.1 Termination. Notwithstanding anything to the contrary in
this agreement, the provisions of sections 1, 2, 3 and 4 shall terminate upon a
Change of Control of the Company. For this purpose, the term "Change of Control"
means (a) any transaction or series of related transactions in which the
Company's stockholders sell or otherwise transfer their Shares for cash or other
consideration, by merger or otherwise, as a result of which the stockholders of
the Company immediately prior to such transaction or series of related
transactions do not own at least 50% of the outstanding equity securities of the
surviving or resulting entity, or (b) the sale of all or substantially all the
assets of the Company.
5.2 Governing Law. This agreement shall be governed by and
construed in accordance with the laws of the state of New York applicable to
agreements made and to be performed wholly in New York.
5.3 Notices. Any notice or other communication under this
agreement shall be in writing and shall be considered given when delivered
personally or mailed by registered mail, return receipt requested, at the
following address (or at such other address as a party may designate by notice
given to the others):
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if to the Company, the Trustee or Peltz, to it or him
at: 529 Fifth Avenue, 7th Floor
New York, New York 10017
Attention: Bruce L. Resnik, Executive Vice President and
Chief Financial Officer and Harlan D. Peltz
if to Benjamin Bassi, to him at
24 Coventry Road
Atkinson, N.H. 03811
Fax No.: (617) 349-0791
if to William Townsend, to him at
7 Wingreen Loop
Austin, Texas 78738
Fax No.: (617) 349-0791
if to Mark Palmer, to him at:
80 Patton Lane
North Andover, MA 01845
Fax No.: (617) 349-0791
with a copy to:
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, Massachusetts 02110
Attention: Jonathan R. Karis, Esq.
Fax No.: (617) 951-1295
5.4 Counterparts. This agreement may be executed in
counterparts, each of which shall be considered an original, but all of which
together shall constitute the same instrument.
5.5 Equitable Relief. The parties acknowledge that the remedy
at law for breach of this agreement would be inadequate and that, in addition to
any other remedy a party may have for a breach of this agreement, that party
shall be entitled to an injunction restraining any such breach or threatened
breach, or a decree of specific performance, without the necessity of showing
actual damages and without any bond or other security being required. The remedy
provided in this section 4.4 is in addition to, and not in lieu of, any other
rights or remedies a party may have.
5.6 Separability. If any provision of this agreement is
invalid or unenforceable, the balance of this agreement shall remain in effect,
and, if any provision is
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inapplicable to any person or circumstance, it shall nevertheless remain
applicable to all other persons and circumstances.
5.7 Entire Agreement; Amendments. This agreement contains a
complete statement of all the arrangements among the parties with respect to its
subject matter, supersedes all existing agreements among them with respect to
that subject matter and may not be changed or terminated orally. Any amendment
or modification must be in writing and signed by the Company, Peltz and Bassi,
provided that no such amendment or modification may adversely affect the rights
or obligations of any CP Stockholder without that party's prior written consent,
unless the amendment or modification similarly affects all CP Stockholders.
YOUTHSTREAM MEDIA NETWORKS, INC.
By:________________________________
___________________________________
Harlan D. Peltz, Individually
___________________________________
Benjamin Bassi, Individually
___________________________________
William Townsend, Individually
___________________________________
Mark Palmer, Individually.
___________________________________
Harlan D. Peltz, As Voting Trustee
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EMPLOYMENT AGREEMENT
Dated ____, 1999
The parties to this agreement are Benjamin Bassi, residing at 24
Coventry Road, Atkinson, N.H. 03811 ("Bassi"), and YouthStream Media Networks,
Inc., a Delaware corporation with its principal office at 529 Fifth Avenue, New
York, New York 10017 (the "Company").
The Company has today acquired (directly and indirectly) all of the
outstanding membership interests in Common Places, LLC, a Delaware limited
liability company of which Bassi was a member and the President and Chief
Executive Officer. The Company desires to secure the services of Bassi as its
President, and Bassi has agreed to serve the Company, on the terms set forth in
this agreement.
It is therefore agreed as follows:
1. Employment. During the term of Bassi's employment under this
agreement, the Company shall employ Bassi, and Bassi shall serve the Company, as
the President of the Company and of Common Places, LLC. Bassi shall report to
the Company's Chairman of the Board and Chief Executive Officer. Bassi shall
have the responsibility of managing the day-to-day operations of the Company's
Internet business (including all decisions regarding hiring and firing of
employees), the Company's sales and marketing and the Company's campus
relations, and he shall perform his services in accordance with annual budgets
(which shall be proposed by him and shall be subject to approval of the
Company's board of directors) and in accordance with the direction of the
Company's board of directors and its Chief Executive Officer. It is contemplated
that Bassi will take a leading role in the development of the business of Common
Places, LLC and the other aspects of the Company's business within his
responsibility and that he will have significant input in connection with
acquisitions and divestitures, subject to the ultimate authority of the board of
directors and the Chief Executive Officer and recognizing also that all
decisions relating to substantial acquisitions and other matters relating to the
allocation of the Company's resources shall be determined by the Company's board
of directors and Chief Executive Officer. Bassi shall devote substantially all
his business time to the performance of his duties under this agreement.
2. Term of Employment. The term of Bassi's employment under this
agreement shall commence on the date of this agreement and, subject to earlier
termination upon Bassi's death or disability pursuant to section 5.1 or pursuant
to section 6, shall continue until the third anniversary of the date of this
agreement.
3. Compensation. As full consideration for his services under this
agreement and subject to section 6.3, Bassi shall be entitled to a salary at the
rate of $250,000 a year, payable in equal installments in accordance with the
Company's customary payroll practices for its employees.
<PAGE>
Following the end of each fiscal year during the term, the Company's board of
directors may increase (but not decrease) Bassi's salary or grant Bassi a bonus
of up to $40,000 based on his performance during that year.
4. Reimbursement of Expenses; Fringe Benefits.
4.1 Expenses. The Company shall reimburse Bassi for all
reasonable expenses incurred by Bassi in connection with the performance of his
duties, upon presentation of appropriate vouchers covering the expenses.
4.2 Fringe Benefits. Bassi (and his immediate family) shall be
entitled to participate in medical, dental, disability, life insurance and other
fringe benefits and executive perquisites generally provided to senior
executives of the Company.
5. Disability or Death.
5.1 Disability. If, as the result of any physical or mental
disability, Bassi shall fail or be unable to perform his duties for a total of
180 days in any 12-month period, the Company may, by notice to the Bassi,
terminate his employment under this agreement as of the date of the notice.
5.2 Payments on Disability. If Bassi's employment is
terminated pursuant to section 5.1, Bassi shall be paid, in full discharge of
all the Company's obligations to Bassi, Bassi's full salary under section 3 for
one year following the date of termination (or, if a shorter period, the
remainder of the term), less the amount of any disability payments received by
him under any disability insurance coverage provided to him by the Company. If
Bassi shall request, for that one-year period (or the balance of the term), the
Company shall, at Bassi's expense, keep Bassi and his immediate family on all
medical, dental and other plans they previously enjoyed under this agreement.
5.3 Payments on Death. Bassi's employment under this agreement
shall be terminated upon his death and Bassi's estate shall be paid, in full
discharge of all the Company's obligations to the Bassi, Bassi's full salary
under section 3 for one year following the date of termination (or, if a shorter
period, the remainder of the term), plus the proceeds of any life insurance
policy purchased by the Company on Bassi's life and payable to Bassi's heirs and
estate. If Bassi's immediate family shall request, for that one-year period (or
the balance of the term), the Company shall, at the expense of Bassi's immediate
family, keep them on all medical, dental and other plans they previously enjoyed
under this agreement.
6. Termination.
6.1. Payments Upon Termination for Cause or Voluntary
Termination. The Company may terminate Bassi's employment under this agreement
for cause (as defined in section 6.4). If Bassi's employment under this
agreement is terminated for cause pursuant to section 6.1 or by Bassi
voluntarily (other than for Good Reason, as defined in section 6.4), the Company
shall pay
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Bassi, in full discharge of its obligations to Bassi under this agreement, (a)
the accrued amount of the salary and benefits due to him through the date of
termination and the amount of all expense reimbursements due for periods prior
to termination, and (b) the amounts, if any, payable pursuant to section 6.3.
6.2. Payments Upon Termination for Other Reasons. If Bassi's
employment under this agreement is terminated by the Company for any reason
other than for cause pursuant to section 6.1 or death or disability pursuant to
section 5, or if Bassi's employment under this agreement is terminated by Bassi
for Good Reason, the Company shall pay Bassi (a) to the extent not previously
paid (and not subject to proration, offsets or claims of any kind), if, as and
when otherwise payable, all compensation payable pursuant to section 3 through
the remainder of the term, (b) to the extent not previously paid (and not
subject to proration, offsets or claims of any kind), all bonuses previously
authorized by the Company's board of directors and (c) the amounts, if any,
payable pursuant to section 6.3. In addition, upon the request of Bassi, the
Company shall, at Bassi's expense, keep Bassi and his immediate family on all
medical, dental and other plans they have enjoyed under this agreement through
the remainder of the term. None of the payments provided for in this section 6.2
shall be reduced by any amounts earned or received by Bassi from any third party
at any time. Without limiting the generality of the foregoing, in the case of
any termination of employment for any reason other than pursuant to section 6.1,
there shall be no requirement on the part of Bassi to mitigate damages.
6.3 Option to Invoke Section 8. If Bassi's employment is
terminated under section 6.2, the Company may, at its option (exercisable by the
Company by notice given to Bassi within 30 days after termination of
employment), determine that Bassi shall be bound by the provisions of section
8.1. If the Company exercises this option, Bassi shall be bound by section 8.1,
and during the 18-month period referred to in section 8 the Company shall make
payments to Bassi, in addition to any amounts otherwise payable to him under
this agreement, at the rate of his annual basic salary in effect as of the date
of termination, in equal installments in accordance with the Company's customary
payroll practices for its employees.
6.4 Definitions. As used in this agreement:
(a) the term "cause" shall be limited to mean: (i) the
conviction of Bassi of a felony, (ii) the conviction of Bassi of a crime
involving any financial impropriety or that would materially interfere with
Bassi's ability to perform his services required under this agreement or
otherwise be materially injurious to the Company or (iii) the willful breach by
Bassi in a material respect of his obligations under this agreement after ten
days notice and an opportunity to cure and after a hearing before the board; and
(b) the term "Good Reason" shall be limited to mean the
occurrence, without the express written consent of Bassi, of any of the
following circumstances: (i) a significant adverse alteration in Bassi's status
in the Company, in the nature of Bassi's responsibilities, or in the material
conditions of Bassi's employment; (ii) a reduction by the Company in Bassi's
annual basic salary or benefits as provided for in this agreement; (iii) the
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Company requiring that Bassi be based at a location more than 100 miles from his
residence on the date of this agreement, except for required travel on the
Company's business; and (iv) the Company's breach of any of its material
obligations under this agreement and the continuation of that breach for 30 days
after written notice by Bassi to the Company.
7. Confidential Information. Bassi shall not, directly or
indirectly, either during his employment by the Company or at any time
thereafter, disclose to anyone or use (except as authorized in the regular
course of the Company's business) any information acquired by him during his
employment with respect to any of the Company's trade secrets or other
confidential information. For this purpose, information generally known to the
public shall not be considered a trade secret or confidential information.
8. Non-Competition, etc
8.1 Non-Competition. For a period of 18 months after
termination of his employment under this agreement, Bassi shall not, directly or
indirectly, engage or be interested in any business or entity that engages in
(a) the business of developing and operating an Internet portal targeted
primarily to individuals between the ages of 16 and 25, (b) any business
directly competitive with any business resulting from an expansion of the
Internet portal business of the Company or any of its subsidiaries into other
Internet businesses, or (c) any other business the Company or any of its
subsidiaries is then engaged in (any such business, a "Restricted Business");
provided, however, that nothing in this paragraph shall limit Bassi's right to
be employed by a media company whose businesses include a Restricted Business,
as long as he does not provide any services to that Restricted Business. For the
purpose of this provision, Bassi shall be deemed to be directly or indirectly
engaged or interested in a business or entity if he is engaged or interested in
that business or entity as a stockholder, member, partner, individual
proprietor, director, officer, employee, agent, lender, consultant or otherwise,
but not if his interest is limited solely to the ownership of 5% or less of any
class of the equity or debt securities of a corporation as to which he has only
a passive role.
8.2 Non-Solicitation. Bassi shall not, for a period of 18
months after termination of his employment (regardless of the reason for
termination), directly or indirectly employ or retain, solicit the employment or
retention of, or be associated with any entity that employs or retains or
solicits the employment or retention of, any person who was an employee of the
Company or any of its subsidiaries at any time during the twelve months
preceding the termination of Bassi's employment.
8.3 Injunction. Bassi acknowledges that the remedy at law for
breach of the provisions of sections 8.1 or 8.2 will be inadequate and that, in
addition to any other remedy the Company may have, it shall be entitled to an
injunction restraining any breach or threatened breach, without any bond or
other security being required and without the necessity of showing actual
damages.
8.4 Inapplicability. If Bassi's employment is terminated under
section 6.2, Bassi shall have no obligations under section 8.1 if the Company
does not exercise the option
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referred to in section 6.3.
9. Miscellaneous.
9.1. Headings. The section headings of this agreement are for
reference purposes only and are to be given no effect in the construction or
interpretation of this agreement.
9.2. Notices. All notices and other communications under this
agreement shall be in writing and shall be deemed given when delivered
personally or mailed by registered mail, return receipt requested, to the
parties at their respective addresses set forth above (or to such other address
as a party may have specified by notice given to the other party pursuant to
this provision).
9.3. Separability. The invalidity or unenforceability of any
provision of this agreement shall not affect the validity or enforceability of
any other provision of this agreement, which shall remain in full force and
effect.
9.4. Waiver. Either party may waive compliance by the other
party with any provision of this agreement. The failure of a party to insist on
strict adherence to any term of this agreement on any occasion shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this agreement. No waiver of
any provision shall be construed as a waiver of any other provision. Any waiver
must be in writing.
9.5. Assignment. Neither party may assign any of its rights or
delegate any of its duties under this agreement (other than as contemplated by
this agreement) without the prior consent of the other and any assignment or
delegation in violation of this prohibition shall be void.
9.6. Governing Law. This agreement shall be governed by and in
accordance with the substantive law of the state of New York applicable to
agreements made and to be performed in New York.
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8.7. Entire Agreement. This agreement contains, and is
intended as, a complete statement of all the terms of the arrangements between
the parties with respect to the matters provided for, supersedes any previous
agreements and understandings between the parties with respect to those matters
and cannot be changed or terminated orally.
YOUTHSTREAM MEDIA NETWORKS, INC.
By:
-----------------------------------
Harlan Peltz, Chairman of the Board
--------------------------------------
Benjamin Bassi
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EMPLOYMENT AGREEMENT
Dated ____, 1999
The parties to this agreement are Harlan D. Peltz, residing at
____________ ("Peltz"), and YouthStream Media Networks, Inc., a Delaware
corporation with its principal office at 529 Fifth Avenue, New York, New York
10017 (the "Company").
The Company has today acquired (directly and indirectly) all of the
outstanding membership interests in Network Event Theater, Inc., a Delaware
corporation of which Peltz was the Chairman of the Board and Chief Executive
Officer. The Company desires to secure the services of Peltz as its Chairman of
the Board and Chief Executive Officer, and Peltz has agreed to serve the
Company, on the terms set forth in this agreement.
It is therefore agreed as follows:
1. Employment. During the term of Peltz's employment under this
agreement, the Company shall employ Peltz, and Peltz shall serve the Company, as
the Chairman of the Board and Chief Executive Officer of the Company. Peltz
shall report to the Company's board of directors (and not to any other officer
of the Company. Peltz shall have the responsibility for overall company
management, management of all non-Internet business lines, finance and
administration, public and investor relations, and mergers and acquisitions
(subject to input from the President of the Company's Common Places subsidiary
with respect to Internet-related acquisitions). Peltz shall devote substantially
all his business time to the performance of his duties under this agreement.
2. Term of Employment. The term of Peltz's employment under this
agreement shall commence on the date of this agreement and, subject to earlier
termination upon Peltz's death or disability pursuant to section 5.1 or pursuant
to section 6, shall continue until the third anniversary of the date of this
agreement.
3. Compensation. As full consideration for his services under this
agreement and subject to section 6.3, Peltz shall be entitled to a salary at the
rate of $250,000 a year, payable in equal installments in accordance with the
Company's customary payroll practices for its employees. Following the end of
each fiscal year during the term, the Company's board of directors may increase
(but not decrease) Peltz's salary or grant Peltz a bonus of up to $40,000 based
on his performance during that year.
<PAGE>
4. Reimbursement of Expenses; Fringe Benefits.
4.1 Expenses. The Company shall reimburse Peltz for all
reasonable expenses incurred by Peltz in connection with the performance of his
duties, upon presentation of appropriate vouchers covering the expenses.
4.2 Fringe Benefits. Peltz (and his immediate family) shall be
entitled to participate in medical, dental, disability, life insurance and other
fringe benefits and executive perquisites generally provided to senior
executives of the Company.
5. Disability or Death.
5.1 Disability. If, as the result of any physical or mental
disability, Peltz shall fail or be unable to perform his duties for a total of
180 days in any 12-month period, the Company may, by notice to the Peltz,
terminate his employment under this agreement as of the date of the notice.
5.2 Payments on Disability. If Peltz's employment is
terminated pursuant to section 5.1, Peltz shall be paid, in full discharge of
all the Company's obligations to Peltz, Peltz's full salary under section 3 for
one year following the date of termination (or, if a shorter period, the
remainder of the term), less the amount of any disability payments received by
him under any disability insurance coverage provided to him by the Company. If
Peltz shall request, for that one-year period (or the balance of the term), the
Company shall, at Peltz's expense, keep Peltz and his immediate family on all
medical, dental and other plans they previously enjoyed under this agreement.
5.3 Payments on Death. Peltz's employment under this agreement
shall be terminated upon his death and Peltz's estate shall be paid, in full
discharge of all the Company's obligations to the Peltz, Peltz's full salary
under section 3 for one year following the date of termination (or, if a shorter
period, the remainder of the term), plus the proceeds of any life insurance
policy purchased by the Company on Peltz's life and payable to Peltz's heirs and
estate. If Peltz's immediate family shall request, for that one-year period (or
the balance of the term), the Company shall, at the expense of Peltz's immediate
family, keep them on all medical, dental and other plans they previously enjoyed
under this agreement.
6. Termination.
6.1. Payments Upon Termination for Cause or Voluntary
Termination. The Company may terminate Peltz's employment under this agreement
for cause (as defined in section 6.4). If Peltz's employment under this
agreement is terminated for cause pursuant to section 6.1 or by Peltz
voluntarily (other than for Good Reason, as defined in section 6.4), the Company
shall pay Peltz, in full discharge of its obligations to Peltz under this
agreement, (a) the accrued amount of the salary and benefits due to him through
the date of termination and the amount of all expense reimbursements due for
periods prior to termination, and (b) the amounts, if any, payable pursuant to
section 6.3.
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6.2. Payments Upon Termination for Other Reasons. If Peltz's
employment under this agreement is terminated by the Company for any reason
other than for cause pursuant to section 6.1 or death or disability pursuant to
section 5, or if Peltz's employment under this agreement is terminated by Peltz
for Good Reason, the Company shall pay Peltz (a) to the extent not previously
paid (and not subject to proration, offsets or claims of any kind), if, as and
when otherwise payable, all compensation payable pursuant to section 3 through
the remainder of the term, (b) to the extent not previously paid (and not
subject to proration, offsets or claims of any kind), all bonuses previously
authorized by the Company's board of directors and (c) the amounts, if any,
payable pursuant to section 6.3. In addition, upon the request of Peltz, the
Company shall, at Peltz's expense, keep Peltz and his immediate family on all
medical, dental and other plans they have enjoyed under this agreement through
the remainder of the term. None of the payments provided for in this section 6.2
shall be reduced by any amounts earned or received by Peltz from any third party
at any time. Without limiting the generality of the foregoing, in the case of
any termination of employment for any reason other than pursuant to section 6.1,
there shall be no requirement on the part of Peltz to mitigate damages.
6.3 Option to Invoke Section 8. If Peltz's employment is
terminated under section 6.2, the Company may, at its option (exercisable by the
Company by notice given to Peltz within 30 days after termination of
employment), determine that Peltz shall be bound by the provisions of section
8.1. If the Company exercises this option, Peltz shall be bound by section 8.1,
and during the 18-month period referred to in section 8 the Company shall make
payments to Peltz, in addition to any amounts otherwise payable to him under
this agreement, at the rate of his annual basic salary in effect as of the date
of termination, in equal installments in accordance with the Company's customary
payroll practices for its employees.
6.4 Definitions. As used in this agreement:
(a) the term "cause" shall be limited to mean: (i) the
conviction of Peltz of a felony, (ii) the conviction of Peltz of a crime
involving any financial impropriety or that would materially interfere with
Peltz's ability to perform his services required under this agreement or
otherwise be materially injurious to the Company or (iii) the willful breach by
Peltz in a material respect of his obligations under this agreement after ten
days notice and an opportunity to cure and after a hearing before the board; and
(b) the term "Good Reason" shall be limited to mean the
occurrence, without the express written consent of Peltz, of any of the
following circumstances: (i) a significant adverse alteration in Peltz's status
in the Company, in the nature of Peltz's responsibilities, or in the material
conditions of Peltz's employment; (ii) a reduction by the Company in Peltz's
annual basic salary or benefits as provided for in this agreement; (iii) the
Company requiring that Peltz be based at a location more than 100 miles from his
residence on the date of this agreement, except for required travel on the
Company's business; and (iv) the Company's breach of any of its material
obligations under this agreement and the continuation of that breach for 30 days
after written notice by Peltz to the Company.
3
<PAGE>
7. Confidential Information. Peltz shall not, directly or
indirectly, either during his employment by the Company or at any time
thereafter, disclose to anyone or use (except as authorized in the regular
course of the Company's business) any information acquired by him during his
employment with respect to any of the Company's trade secrets or other
confidential information. For this purpose, information generally known to the
public shall not be considered a trade secret or confidential information.
8. Non-Competition, etc
8.1 Non-Competition. For a period of 18 months after
termination of his employment under this agreement, Peltz shall not, directly or
indirectly, engage or be interested in any business or entity that engages in
(a) the business of developing and operating an Internet portal targeted
primarily to individuals between the ages of 16 and 25, (b) any business
directly competitive with any business resulting from an expansion of the
Internet portal business of the Company or any of its subsidiaries into other
Internet businesses, or (c) any other business the Company or any of its
subsidiaries is then engaged in (any such business, a "Restricted Business");
provided, however, that nothing in this paragraph shall limit Peltz's right to
be employed by a media company whose businesses include a Restricted Business,
as long as he does not provide any services to that Restricted Business. For the
purpose of this provision, Peltz shall be deemed to be directly or indirectly
engaged or interested in a business or entity if he is engaged or interested in
that business or entity as a stockholder, member, partner, individual
proprietor, director, officer, employee, agent, lender, consultant or otherwise,
but not if his interest is limited solely to the ownership of 5% or less of any
class of the equity or debt securities of a corporation as to which he has only
a passive role.
8.2 Non-Solicitation. Peltz shall not, for a period of 18
months after termination of his employment (regardless of the reason for
termination), directly or indirectly employ or retain, solicit the employment or
retention of, or be associated with any entity that employs or retains or
solicits the employment or retention of, any person who was an employee of the
Company or any of its subsidiaries at any time during the twelve months
preceding the termination of Peltz's employment.
8.3 Injunction. Peltz acknowledges that the remedy at law for
breach of the provisions of sections 8.1 or 8.2 will be inadequate and that, in
addition to any other remedy the Company may have, it shall be entitled to an
injunction restraining any breach or threatened breach, without any bond or
other security being required and without the necessity of showing actual
damages.
8.4 Inapplicability. If Peltz's employment is terminated under
section 6.2, Peltz shall have no obligations under section 8.1 if the Company
does not exercise the option referred to in section 6.3.
4
<PAGE>
9. Miscellaneous.
9.1. Headings. The section headings of this agreement are for
reference purposes only and are to be given no effect in the construction or
interpretation of this agreement.
9.2. Notices. All notices and other communications under this
agreement shall be in writing and shall be deemed given when delivered
personally or mailed by registered mail, return receipt requested, to the
parties at their respective addresses set forth above (or to such other address
as a party may have specified by notice given to the other party pursuant to
this provision).
9.3. Separability. The invalidity or unenforceability of any
provision of this agreement shall not affect the validity or enforceability of
any other provision of this agreement, which shall remain in full force and
effect.
9.4. Waiver. Either party may waive compliance by the other
party with any provision of this agreement. The failure of a party to insist on
strict adherence to any term of this agreement on any occasion shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this agreement. No waiver of
any provision shall be construed as a waiver of any other provision. Any waiver
must be in writing.
9.5. Assignment. Neither party may assign any of its rights or
delegate any of its duties under this agreement (other than as contemplated by
this agreement) without the prior consent of the other and any assignment or
delegation in violation of this prohibition shall be void.
9.6. Governing Law. This agreement shall be governed by and in
accordance with the substantive law of the state of New York applicable to
agreements made and to be performed in New York.
5
<PAGE>
8.7. Entire Agreement. This agreement contains, and is
intended as, a complete statement of all the terms of the arrangements between
the parties with respect to the matters provided for, supersedes any previous
agreements and understandings between the parties with respect to those matters
and cannot be changed or terminated orally.
YOUTHSTREAM MEDIA NETWORKS, INC.
By:
------------------------------
Benjamin Bassi, President
---------------------------------
Harlan Peltz
6
<PAGE>
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.
Trent Graphics, Inc.
CollegeWeb.com, Inc.
<PAGE>
CONSENT OF INDENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-71445) pertaining to the 1996 and 1997 Stock Option Plans and
(Form S-3 No. 333-36113) pertaining to 2,947,753, shares of Common Stock of
Network Event Theater, Inc. of our report dated August 30, 1999, with respect to
the consolidated financial statements of Network Event Theater, Inc. included in
the Annual Report (Form 10-K) for the year ended June 30, 1999.
Ernst & Young LLP
/s/ Ernst & Young LLP
New York, New York
September 23, 1999
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<RECEIVABLES> 2,811,000
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