<PAGE>
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
January 14, 2000
------------------------------------------------
Date of Report (Date of earliest event reported)
Commission file number: 0-27556
NETWORK EVENT THEATER, INC.
------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Delaware 13-3864111
- ------------------------------ ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation of 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)
================================================================================
<PAGE>
Item 2. Acquisition or Disposition of Assets
On January 14, 2000, Network Event Theater, Inc. (the "Registrant" or
the "Company) pursuant to a Merger Agreement dated December 14,
1999 with Sixdegrees Acquisition Corp., a wholly-owned subsidiary of the
Registrant (the "Subsidiary"), and sixdegrees, inc. ("sixdegrees"), acquired
sixdegrees through the merger (the "Merger") of the Subsidiary into sixdegrees.
Upon the Merger, the Registrant issued to the stockholders of sixdegrees
2,742,512 shares of the Registrant's common stock and 1,000,000 shares of the
Registrant's Convertible Preferred Stock (convertible into an equal number of
shares of Registrant's common stock) and issued its options and warrants in
exchange for outstanding options or warrants to purchase common stock of
sixdegrees. The aggregate purchase price is approximately $123,500,000.
Sixdegrees is engaged in the business of developing a network
database service, accessible from its website, that enables members of
sixdegrees' service to establish connections with other members through their
respective familial, professional and personal relationships.
Item 7. Financial Statements. Proforma Financial Information and Exhibits.
(a)-(b) Financial statements, Proforma Financial Information.
(1) Audited financial statements of sixdegrees inc. for the years
ended December 31, 1997 and 1998 and unaudited financial
statements for the nine months ended September 30, 1998 and
1999.
(2) Pro Forma financial statements.
(c) Merger Agreement dated December 14, 1999 among Registrant,
Sixdegrees Acquisition Corp. and sixdegrees, inc.
(d) Exhibits
Exhibit Index
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.33 Merger Agreement
10.35 1999 Stock Option Plan
10.36 1999 Special Stock Option Plan
10.37 1999 Special Incentive Stock Plan
10.39 Certificate of Designation
<PAGE>
sixdegrees, inc.
FINANCIAL STATEMENTS
As of December 31, 1997 and 1998
and for each of the two
years ended December 31, 1998
<PAGE>
sixdegrees, inc.
Index to Financial Statements
Page(s)
-------
Report of Independent Accountants 1
Balance Sheets at December 31, 1997 and 1998 2
Statements of Operations for the years ended December 31, 1997 and 1998 3
Statements of Cash Flows for the years ended December 31, 1997 and 1998 4
Statements of Stockholders' Equity for the years ended December 31,
1997 and 1998 5
Notes to Financial Statements 6-15
<PAGE>
[GRAPHIC OMITTED]
Report of Independent Accountants
To the Board of Directors of
sixdegrees, inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' equity, and cash flows present fairly, in all material
respects, the financial position of sixdegrees, inc. (the "Company") at December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. 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 conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered losses from operations that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ PricewaterhouseCoopers LLP
March 9, 1999
<PAGE>
sixdegrees, inc.
Balance Sheets
As of December 31, 1997 and 1998
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1998
---- ----
ASSETS:
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 339,734 $ 8,533,524
Accounts receivable 202 86,970
Interest receivable -- 37,378
Prepaid expenses and other current assets 17,127 8,727
----------- -----------
Total current assets 357,063 8,666,599
Fixed assets, net 107,871 683,634
Other assets 15,637 63,068
----------- -----------
Total assets $ 480,571 $ 9,413,301
=========== ===========
LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses $ 100,071 $ 434,418
----------- -----------
Total liabilities $ 100,071 $ 434,418
Commitments and contingencies (Note 4)
Stockholders'equity:
Convertible preferred stock, par value $.001 per share;
15,000,000 shares authorized; 8,000 shares Class A issued
and outstanding; 4,744 shares and 10,478 shares Class B
issued and outstanding at December 31, 1998 and 1997,
respectively; 13,418,831 shares Class C issued and
outstanding at December 31, 1998 $ -- $ 13,419
Common stock, par value $.001 per share; 64,000,000 shares
authorized, 10,200,000 shares issued and outstanding 102 102
Additional paid-in capital 2,126,778 12,964,899
Stock subscription receivable (102,828) --
Deferred compensation (3,282) (62,016)
Accumulated deficit (1,640,270) (3,937,521)
----------- -----------
Total stockholders'equity 380,500 8,978,883
Total liabilities and stockholders' equity $ 480,571 $ 9,413,301
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
sixdegrees, inc.
Statements of Operations
For the years ended December 31, 1997 and 1998
Year ended December 31,
--------------------------
1997 1998
---- ----
Revenue $ 202 $ 172,343
Operating expenses:
Product development (187,919) (666,141)
Sales and marketing (42,774) (119,050)
General and administrative (1,143,047) (1,718,880)
Depreciation and amortization (34,038) (102,925)
----------- -----------
Total operating expenses (1,407,778) (2,606,996)
----------- -----------
Interest and other income 18,578 137,402
----------- -----------
Net loss $(1,388,998) $(2,297,251)
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
sixdegrees, inc.
Statements of Cash Flows
For the years ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1997 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,388,998) $(2,297,251)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 24,194 66,472
Non cash compensation charges 9,844 78,953
Forgiveness of cash payment on legal fees 41,131
Changes in assets and liabilities:
Accounts receivable (202) (86,768)
Interest receivable (37,378)
Prepaid expenses & other current assets 57,918 8,400
Other assets (12,096) (47,431)
Accounts payable and accrued expenses (14,908) 334,347
----------- -----------
Net cash used in operating activities (1,283,117) (1,980,656)
Cash flows from investing activities:
Purchase of plant, property and equipment (128,824) (642,235)
----------- -----------
Net cash used in investing activities (128,824) (642,235)
Cash flows from financing activities:
Proceeds from issuance of preferred stock 1,139,795 10,708,853
Proceeds from issuance of common stock
Payment of subscription receivable 102,828
Proceeds from issuance of stock warrants 5,000
Proceeds from issuance (payment) of debt (3,157)
----------- -----------
Net cash provided by financing activities 1,136,638 10,816,681
Net increase in cash (275,303) 8,193,790
Cash, beginning of year 615,037 339,734
----------- -----------
Cash, end of year $ 339,734 $ 8,533,524
=========== ===========
</TABLE>
Non-cash transactions:
During the year ended December 31, 1997, the Company issued stock options with
strike prices below the then-fair market value resulting in a $13,126 credit to
Additional paid-in capital and a $13,126 debit to Deferred compensation, both
components of stockholders' equity. See Note 5.
During the year ended December 31, 1998, the Company issued stock options to
certain consultants and board members resulting in a $95,187 credit to
Additional paid-in capital and a $95,187 debit to Deferred compensation, both
components of stockholders' equity. See Note 5.
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SIXDEGREES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
CUMULATIVE PREFERRED STOCK
------------------------------------------
SHARES COMMON STOCK ADDITIONAL
------------------------------------------ ----------------------- PAID-IN
CLASS A CLASS B CLASS C AMOUNT SHARES AMOUNT CAPITAL
------- ------- ----------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996
(unaudited).......................... 8,000 -- -- $ 0 10,200,000 $ 102 $ 829,898
Sales of preferred stock - Series B
Preferred.......................... 4,592 1,242,623
Forgiveness of Indebtedness in return
for Series B Preferred Stock....... 152 41,131
Issuance of non-qualified stock
options below deemed fair value for
accounting purposes................ 13,126
Amortization of deferred
compsensation......................
Net loss.............................
------- ------- ----------- -------- ---------- ---------- ------------
Balance at December 31, 1997........... 8,000 4,744 0 0 10,200,000 102 2,126,778
Payment of Subscription Receivable...
Sales of preferred stock - Series B
Preferred.......................... 5,734 1,551,974
Conversion of promissory notes for
Series C Preferred Stock........... 13,418,831 13,419 9,143,460
Issuance of non-qualified stock
options to directors and
consultants........................ 95,187
Issuance of stock warrants........... 5,000
Issuance of warrants and warrant
purchase rights to consultant...... 42,500
Amortization of deferred
compensation.......................
Net loss.............................
------- ------- ----------- -------- ---------- ---------- ------------
Balance at December 31, 1998........... 8,000 10,478 13,418,831 $ 13,419 10,200,000 $ 102 $ 12,964,899
------- ------- ----------- -------- ---------- ---------- ------------
------- ------- ----------- -------- ---------- ---------- ------------
<CAPTION>
SUBSCRIPTIONS DEFERRED ACCUMULATED
RECEIVABLE COMPENSATION DEFICIT TOTAL
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996
(unaudited).......................... $ 0 $ 0 $ (251,272) $ 578,728
Sales of preferred stock - Series B
Preferred.......................... (102,828) 1,139,795
Forgiveness of Indebtedness in return
for Series B Preferred Stock....... 41,131
Issuance of non-qualified stock
options below deemed fair value for
accounting purposes................ (13,126)
Amortization of deferred
compsensation...................... 9,844 9,844
Net loss............................. (1,388,998) (1,388,998)
------------- ------------ ------------ ------------
Balance at December 31, 1997........... (102,828) (3,282) (1,640,270) 380,500
Payment of Subscription Receivable... 102,828 102,828
Sales of preferred stock - Series B
Preferred.......................... 1,551,974
Conversion of promissory notes for
Series C Preferred Stock........... 9,156,879
Issuance of non-qualified stock
options to directors and
consultants........................ (95,187) --
Issuance of stock warrants........... 5,000
Issuance of warrants and warrant
purchase rights to consultant...... 42,500
Amortization of deferred
compensation....................... 36,453 36,453
Net loss............................. (2,297,251) (2,297,251)
------------- ------------ ------------ ------------
Balance at December 31, 1998........... $ -- $ (62,016) $(3,937,521) $ 8,978,883
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an Integral part of these financial statements.
5
<PAGE>
sixdegrees, inc.
Notes to Financial Statements
1. Organization and Basis of Presentation:
sixdegrees, inc. ("sixdegrees" or the "Company") was incorporated in the
State of Delaware on September 24, 1998. Prior to this date, the Company
was operating under the name of MacroView Communications Corp.
("MacroView"), which was incorporated in the State of New York on May 3,
1996. On October 20, 1998, MacroView, as the owner of all the outstanding
shares of the stock of sixdegrees, was merged into sixdegrees, with
sixdegrees as the surviving corporation.
The Company develops World Wide Web-based tools which enable individuals to
build and administer their own personal virtual communities. The
accompanying financial statements have been prepared assuming the Company
will be able to meet its obligations in the ordinary course of its
business. The Company has sustained net losses and negative cash flow from
operations and expects these conditions to continue for the foreseeable
future. Continuance of the Company is dependent upon, among other things,
its ability to establish profitable operations or raise additional
financing to fund operations. There can be no assurance that such
additional financing, if at all available, can be obtained on terms
reasonable to the Company. In the event the Company is unable to raise
additional capital, operations may need to be scaled back or discontinued.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
The Company has a limited operating history and its prospects are subject
to the risks, expenses and uncertainties frequently encountered by
companies in the new and rapidly evolving markets for internet products and
services. These risks include the failure to develop and extend the
Company's online service brands, the rejection of the Company's services by
Web consumers, vendors and/or advertisers, the inability of the Company to
maintain and increase the levels of traffic on its online services, as well
as other risks and uncertainties. In the event that the Company does not
successfully implement its business plan, certain assets may not be
recoverable.
2. Significant Accounting Policies and Procedures
Revenue Recognition
Advertising revenues are derived from the sale of advertising space on the
Company's various online services. Advertising revenues are recognized over
the period in which the advertisements are displayed, provided that no
significant Company obligations remain and collection of the receivable is
reasonably assured. Company obligations typically include guarantees of a
minimum number of "impressions" (times that an advertisement is viewed by
users of the Company's online services over a specified period of time). To
the extent that minimum guaranteed impressions are not met, the Company
defers recognition of the corresponding revenues until the guaranteed
impressions are achieved.
Continued 6
<PAGE>
sixdegrees, inc.
Notes to Financial Statements, Continued
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Although cash
balances are maintained in high quality financial institutions, the
balances at times exceed insurable amounts.
Concentration of Credit Risk
Substantially all of the Company's excess cash has been invested in highly
liquid investments. The Company generally does not require collateral on
accounts receivable. The Company's services are provided to customers in
several industries worldwide.
Accounts Receivable
Accounts receivable are stated gross, and to date, no allowance has been
necessary. The Company has assessed the need for an allowance on a
continuous basis. At December 31, 1998, two customers accounted for 99% of
the accounts receivable balance. For the year ended December 31, 1998, one
customer accounted for 74% of revenues.
Financial Instruments
The recorded amounts of financial instruments approximate their fair
values.
Fixed Assets
Depreciation of equipment, furniture and fixtures and computer software is
provided for by the straight-line method over estimated useful life ranging
from three to seven years. Amortization of leasehold improvements is
provided for over the lesser of the term of the related lease or the
estimated useful life of the improvement. The cost of additions and
betterments is capitalized, and repairs and maintenance costs are charged
to operations in the periods incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
Long-Lived Assets
The carrying value of assets is reviewed on a regular basis for the
existence of facts or circumstances, both internally and externally, that
suggest impairment. To date no such impairment has been indicated. Should
there be impairment in the future, the Company will determine the
impairment based on a comparison of recorded amounts to the expected future
cash flows from the impaired assets. The cash flow estimates will contain
management's best estimates, using appropriate and customary assumptions
and projections at the time.
Continued 7
<PAGE>
sixdegrees, inc.
Notes to Financial Statements, Continued
Comprehensive Income
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income in 1998." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net
assets) during a period from non-owner sources. To date, the Company has
not had any transactions that are required to be reported in comprehensive
income.
Segment Information
The Company adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information in 1998." This statement
establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. The Company has determined that it does not have
any separately reportable business segments as of December 31, 1998.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1 ").
SOP 98-1 is effective for financial statements for years beginning after
December 15, 1998. SOP 98-1 provides guidance over accounting for computer
software developed or obtained for internal use including the requirement
to capitalize specified costs and amortization of such costs. The Company
does not expect the adoption of this standard to have a material effect on
the Company's financial position, result of operations or cash flows.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5, which is
effective for fiscal years beginning after December 15, 1998, provides
guidance on the financial reporting of start-up costs and organization
costs. It requires costs of start up activities and organization costs to
be expensed as incurred. As the Company has expensed these costs
historically, the adoption of this standard is not expected to have a
significant impact on the Company's results of operations, financial
position or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS 133"), which establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred
to as derivatives) and for hedging activities. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. As
the Company does not currently engage or plan to engage in derivative or
hedging activities there will be no impact to the Company's results of
operations, financial position or cash flows upon the adoption of this
standard.
Continued 8
<PAGE>
sixdegrees, inc.
Notes to Financial Statements, Continued
3. Fixed Assets
Property and equipment consist of the following:
December 31, December 31,
1997 1998
------------ ------------
Equipment $ 13,732 $ 20,678
Hardware 85,300 578,464
Computer software 33,681 170,806
Leasehold improvements -- 5,000
-------- --------
132,713 774,948
Less, accumulated depreciation and
Amortization 24,842 91,314
-------- --------
$107,871 $683,634
======== ========
Depreciation and amortization for the years ended December 31, 1997 and
1998 totaled approximately $24,000 and $66,000, respectively.
4. Commitments and Contingencies
Leases:
The Company leases office space in New York, under non-cancelable operating
leases expiring at various dates through July 2002. In addition, the
Company is a lessee, under several operating lease agreements, with third
parties for certain equipment. Future minimum lease payments under
non-cancelable operating leases as of December 31, 1998 are as follows:
Operating
Leases
------
1998 $ 109,455
1999 145,869
2000 142,894
2001 138,071
2002 48,480
---------
Total $ 584,769
=========
Rent expense was approximately $24,000, and $62,000, for the years ended
December 31, 1997 and 1998, respectively.
Continued 9
<PAGE>
sixdegrees, inc.
Notes to Financial Statements, Continued
5. Capital Stock
At December 31, 1998, the authorized capital stock of the Company consists
of 64,000,000 shares of Common Stock and 15,000,000 shares of Convertible
Preferred Stock. The authorized capital stock and the related par values
were adjusted as part of the Company's incorporation in the State of
Delaware on October 20, 1998 (see Note 1). During 1996, the Company's Board
approved a seventeen-for-one Common Stock split. Shareholders of record in
December 1996 received sixteen additional shares for each share held.
Further, during January 1997, the Company's Board of Directors approved a
six-hundred-for-one Common Stock split. Shareholders of record in April
1997 received 599 additional shares for each share held. All references to
the number of shares of common stock have been retroactively restated in
the financial statements to reflect the effect of these two stock splits.
Common Stock
In 1996, the Company issued 10,200,000 shares of Common Stock to the
Company's founders.
Convertible Preferred Stock
In December 1996, the Company issued 8,000 shares of Series A Convertible
Preferred Stock ("Series A") through a private placement, in consideration
of net proceeds to the Company of $820,000, inclusive of the conversion of
promissory notes in the aggregate amount of $75,000. The Series A shares
are convertible into common stock at the ratio of 1 to 600.
Between August 1997 and June 1998, the Company issued approximately 10,478
shares of Series B Convertible Preferred Stock ("Series B") through two
private placements, in consideration of net proceeds to the Company of
approximately $2,835,728, inclusive of conversion of an outstanding debt in
the amount of approximately $41,131. As part of this transaction, the
Company also issued Class A Warrants and Class B Warrants, as described in
footnote 6. The Series B shares are convertible into common stock at the
ratio of 1 to 600.
In October 1997, the Company issued 152 shares of Series B Convertible
Preferred Stock in return for the forgiveness of legal fees of $41,131.
On October 20, 1998, the Company issued 13,418,831 shares of Series C
Convertible Preferred Stock ("Series C") through a private placement, in
consideration of net proceeds to the Company of $9,156,879, inclusive of
conversion of five promissory notes in the aggregate amount of $10,000,000.
The Series C shares are convertible into common stock at the ratio of 1 to
1.
Continued 10
<PAGE>
sixdegrees, inc.
Notes to Financial Statements, Continued
6. Incentive Plans
Employee Stock Option Plan
During June 1997, the Company's Board of Directors adopted the 1997
Incentive Stock Plan (the "1997 Plan"), which was subsequently approved by
the Company's shareholders, under which incentive stock options or
non-qualified stock options to purchase common stock may be granted to
eligible employees, directors and consultants. The 1997 Plan was amended by
the Company's Board of Directors during February 1998, which was
subsequently approved by the Company's shareholders. The Company has
reserved 2,500,000 shares of Common Stock for issuance under the 1997 Plan.
Executive Stock Option Agreements
On October 19, 1998, the Company granted two employees non-qualified stock
options to purchase 350,000 shares of common stock, which have been
reserved. The option price per share of $.75 was above the fair market
value per share on the date of grant. Options expire ten years after the
date of grant.
Consultant Stock Option Agreement
In January 1998, the Company granted to RHL Ventures LLC, a consultant to
the Company, non-qualified options to purchase 160,000 shares of common
stock, which have been reserved. The option price per share of $.45 was
above the fair market value per share on the date of grant. Options expire
ten years after the date of grant.
The Company valued these options using the "Black-Scholes Option Pricing
Model" at $51,920 amortized over 2 years. The assumptions used for the
options were zero dividend yield, 90% volatility, a weighted average
risk-free interest rate of 4.64% and expected lives of 5 years.
Continued 11
<PAGE>
sixdegrees, inc.
Notes to Financial Statements, Continued
Information regarding the 1997 Plan, the Executive Stock Option Agreements,
the Consultant Stock Option Agreement, as of December 31, 1997 and 1998,
and changes during the years ended December 31, 1997 and 1998, is
summarized below:
<TABLE>
<CAPTION>
Weighted
Option Average
Shares Exercise Price
------ --------------
<S> <C> <C>
options outstanding - December 31, 1996 (unaudited)
Opening balance -- --
Granted 525,000 $.145
Granted 30,000 $.17
Granted 604,000 $.45
Exercised -- --
Forfeited (55,000) $.305
------- -----------
Options outstanding - December 31, 1997 1,104,000 $.297
Granted 1,160,000 $.45
Granted 62,500 $.55
Granted 818,000 $.75 - $.80
Granted 50,000 $.90
Exercised -- --
Forfeited (460,509) $.59
-------- -----------
Options outstanding - December 31, 1998 2,734,000 $.493
Options exercisable at December 31, 1997 375,000
Options exercisable at December 31, 1998 805,834
Weighted average fair value of options granted during 1997 $.305
Weighted average fair value of options granted during 1998 $.59
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
Options Outstanding
-------------------
Weighted Weighted
Average Average
Range of Shares Remaining Exercise
Exercise Prices Outstanding Contractual Life Price
--------------- ----------- ---------------- -----
$.145 to $.17 525,000 8.5 years $.145
$.45 to $.55 1,378,500 8.6 years $.452
$.75 to $.90 830,500 9.0 years $.834
Options generally vest over a period of three years.
Continued 12
<PAGE>
sixdegrees, inc.
Notes to Financial Statements, Continued
Restricted Stock Awards
The 1997 plan also provides for the issuance of restricted stock awards
under which shares of common stock may be issued to eligible employees. No
such awards have been made.
Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock-Issued to Employees" and related interpretations in accounting
for its stock option issuances. The Company has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Had
compensation cost for the Company's stock option issuances been determined
based on the fair value at the grant date for awards in 1997 and 1998
consistent with the provisions of SFAS No. 123, the Company's net loss
would have been adjusted to the pro forma amounts indicated below.
December 31, December 31,
1997 1998
------------ ------------
Net loss - as reported $ (1,388,998) $ (2,254,751)
Net loss - pro forma $ (1,417,899) $ (2,322,300)
The fair value of each option grant is estimated on the date of the grant
using the "Black-Scholes option-pricing model" with the following weighted
average assumptions used for grants for the years ended December 31, 1997
and 1998; zero dividend yield; no volatility; a weighted average risk-free
interest rate of 5.74% and 4.64%, respectively; and expected lives of 5
years.
During the year ended December 3l, 1997, the Company issued stock options
with strike prices below the then-fair market value and, as a result,
recorded deferred compensation of $13,126. During the year ended December
31, 1998, the Company issued stock options to certain consultants and board
members and, as a result, recorded deferred compensation of $95,187.
Deferred compensation is amortized over the vesting period of the options.
As of December 31, 1998, compensation cost of approximately $46,000 has
been recognized.
Stock Warrants
Between August 1997 and February 1998, the Company issued (i) Class A
Warrants to purchase approximately 662,154 shares of Common Stock at $.67
per share, and (ii) Class B Warrants to purchase approximately 1,986,463
shares of Common Stock, at $1.1O per share, through a private placement;
both classes of warrants contain repricing provisions in the event the
Company is to sell securities for less than the exercise price of those
warrants. (Due to subsequent issuance of stock and other securities, the
exercise price of those warrants was adjusted to $.663 and $.965,
respectively.) The warrants are immediately exercisable and will expire on
June 30, 2005.
In January 1998, Jonathan Cohen purchased from the Company for aggregate
consideration of $5,000 (i) warrants to purchase 50,000 shares of Common
Stock, at $.45 per share, and (ii) the right to purchase warrants to
purchase an additional 150,000 shares of Common Stock, at $.10 per warrant.
The warrants are immediately exercisable and will expire on January 31,
Continued 13
<PAGE>
sixdegrees, inc.
Notes to Financial Statements, Continued
2006. The right to purchase the warrants to purchase additional 150,000
shares of common stock is immediately exercisable and will expire on
January 31, 2000. The company valued the warrants and the right to purchase
additional warrants using the "Black-Scholes Option Pricing Model" at
$42,500, which was expensed immediately. The assumption used for the option
model were zero dividend yield, 90% volatility, a weighted average
risk-free interest rate of 4.64% and expected lives of 5 years.
In March 1998, the Company issued warrants to purchase 103,692 shares of
Common Stock, at $.67 per share, to National Securities Corporation (or
certain employees or consultants associated with National Securities
Corporation), in connection with the equity financing activities between
August 1997 and February 1998, which warrants contain repricing provisions
in the event the Company is to sell securities for less than the exercise
price of those warrants. (Due to subsequent issuance of stock and other
securities, the exercise price of those warrants was adjusted to $.663.)
The warrants are immediately exercisable and will expire on June 30, 2005.
On October 20, 1998, the Company issued warrants to purchase 670,942 shares
of Common Stock, at $.89427 per share, to ABN AMRO Incorporated, in
connection with the equity financing activities that took place on the same
day. The warrants are immediately exercisable and will expire on December
31, 2003.
7. Income Taxes
The components of the net deferred tax asset as of December 31, 1997 and
1998 consists of the following:
1997 1998
---- ----
Operating loss carryforward $ 684,838 $1,825,015
Depreciation of fixed assets and R&E expense 18,293 31,132
--------- ----------
Net deferred tax asset 703,131 1,856,147
Less, Valuation allowance 703,131 1,856,147
--------- ----------
Deferred tax asset $ 0 $ 0
========= ==========
The difference between the Company's U.S. federal statutory rate of 35%, as
well as its state and local rate, net of a federal benefit of 12.5%, when
compared to its effective rate of 0% is principally comprised of its
valuation allowance.
As of December 31, 1998, the Company has a net operating loss carry forward
for Federal income tax purposes of approximately $3,842,138. The carry-
forward will begin to expire in 2011 if not used. The net deferred tax
asset has been fully reserved due to the uncertainty of the Company's
ability to realize this asset in the future.
Continued 14
<PAGE>
sixdegrees, inc.
Notes to Financial Statements, Continued
8. Related Party
The father of the CEO of the Company is an attorney at one of the law
firms which represents the Company. $55,237 and $1,404 was due to the
firm at December 31, 1997 and 1998, respectively. The Company incurred
expenses with that law firm of approximately $131,000 and $60,000 for the
years ended December 31, 1997 and 1998, respectively.
9. Subsequent Event
In March 1999, the Company sold various fixed assets in the form of a sale
leaseback transaction with GATX Technology Services Corporation for
$511,630. The Company leased these assets back from GATX under a capital
lease.
15
<PAGE>
sixdegrees, inc.
Balance Sheet
September 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 7,539,966
Restricted cash 1,348,806
Accounts receivable 390,670
Interest receivable 33,625
Prepaid expenses and other current assets 5,130,652
--------------
Total current assets 14,443,719
Fixed assets, net 1,887,831
--------------
Total assets $ 16,331,550
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 609,614
Accrued expenses 610,969
Current portion of capital lease obligations 160,160
--------------
Total Current liabilities 1,380,743
Capital lease obligations net of current portion 284,992
Deferred rent 175,996
--------------
Total liabilities 1,841,731
Stockholders' Deficit:
Convertible preferred stock, par value $.001 per share; 33,000,000 shares
authorized; 8,000 shares Class A issued and outstanding;
10,478 shares Class B issued and outstanding; 13,418,831 shares
Class C issued and outstanding, 9,000,000 shares Class D
issued and outstanding, and 1,815,716 shares Class E issued and outstanding 24,235
Common Stock, $.001 par value; 64,000,000 shares authorized
10,200,000 shares issued and outstanding 102
Additional paid-in capital 25,848,256
Deferred compensation (10,096)
Accumulated deficit (11,372,678)
--------------
Total stockholders' equity 14,489,819
--------------
Total liabilities and stockholders' equity $ 16,331,550
==============
</TABLE>
<PAGE>
sixdegrees, inc.
Statements of Operations
For the Nine Months Ended September 30,
(Unaudited)
1999 1998
---- ----
Revenue $ 750,691 $ 61,526
----------- -----------
Operating expenses:
Product development 2,582,881 488,140
Sales and marketing 278,096 28,886
General and administrative 5,241,640 243,501
Depreciation and amortization 407,132 40,094
----------- -----------
Total expenses 8,509,749 800,621
Loss from operations (7,759,058) (739,095)
Interest income 323,901 31,109
----------- -----------
Net loss (7,435,157) (707,986)
=========== ===========
<PAGE>
sixdegrees, inc
Statements of Cash Flows
For the Nine Months Ended September 30,
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss $ (7,435,157) $ (707,986)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation & amortization 407,132 40,094
Non-cash compensation 51,920 19,470
Deferred rent 175,996 --
Change in assets and liabilities (Increase) decrease in:
Accounts receivable (303,700) (46,009)
Prepaid expenses and other current assets (121,925) (18,019)
Interest receivable 3,753 (3,299)
Other assets 63,068 (46,453)
Accounts payable,accrued expenses and other liabilities 786,165 90,667
------------ ------------
Net cash used in operating activities (6,372,748) (671,535)
Cash flows from investing activities
Purchase of property and equipment (1,564,261) (102,799)
------------ ------------
Net cash used in investing activities (1,564,261) (102,799)
Cash flows from financing activities
Repayments under capital lease (113,546) --
Proceeds from Sale/Leaseback Arrangement 511,630 --
Payment of subscription receivable -- 102,828
Proceeds from issuance of stock warrants -- 5,000
Proceeds from issuance of debt -- 1,000,000
Proceeds from issuance of preferred stock 7,894,173 751,353
------------ ------------
Net cash provided by financing activities 8,292,257 1,859,181
Net (decrease) increase in cash 355,248 1,084,847
Cash - at beginning of period 8,533,524 339,734
------------ ------------
Cash - at end of period $ 8,888,772 $ 1,424,581
============ ============
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
In connection with the issuance of preferred stock during 1999 the Company
issued approximately 3.6 million shares of preferred stock in exchange for $5
million in future advertising credits.
During 1999 the Company entered into a capital lease for computer equipment
totalling approximately $511,000.
<PAGE>
sixdegrees, inc.
Notes to Unaudited Interim Financial Statement
September 30, 1999
1. Organization and Basis of Presentation:
sixdegrees, inc. ("sixdegrees" or the "Company") was incorporated in the State
of Delaware on September 24, 1998. Prior to this date, the Company was operating
under the name of MacroView Communications Corp. ("MacroView"), which was
incorporated in the State of New York on May 3, 1996. On October 20, 1998,
MacroView, as the owner of all the outstanding shares of the stock of
sixdegrees, was merged into sixdegrees, with sixdegrees as the surviving
corporation.
The Company develops World Wide Web-based tools which enable individuals to
build and administer their own personal virtual communities. The accompanying
financial statements have been prepared assuming the Company will be able to
meet its obligations in the ordinary course of its business. The Company has
sustained net losses and negative cash flow from operations and expects these
conditions to continue for the foreseeable future. Continuance of the Company is
dependent upon, among other things, its ability to establish profitable
operations or raise additional financing to fund operations. There can be no
assurance that such additional financing, if at all available, can be obtained
on terms reasonable to the Company. In the event the Company is unable to raise
additional capital, operations may need to be scaled back or discontinued. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
The Company has a limited operating history and its prospects are subject to the
risks, expenses and uncertainties frequently encountered by companies in the new
and rapidly evolving markets for internet products and services. These risks
include the failure to develop and extend the Company's online service brands,
the rejection of the Company's services by Web consumers, vendors and/or
advertisers, the inability of the Company to maintain and increase the levels of
traffic on its online services, as well as other risks and uncertainties. In the
event that the Company does not successfully implement its business plan,
certain assets may not be recoverable.
2. Preferred Stock
In June 1999, the Company issued 9,000,000 shares of Series D Convertible
Preferred Stock ("Series D") and 1,815, 716 shares of Series E Convertible
Preferred Stock ("Series E") in a private placement transaction. In
consideration for these shares, the Company received net proceeds of $13.0
million of which approximately $7.9 million, net of issuance costs, was received
in cash and $5.0 million was received in future advertising credits. The value
of the advertising credits received was based upon the fair value of the
preferred stock exchanged. The value of the advertising to be received in
exchange for the advertising credits will be equal to the fair value at which
the advertising would be sold to an independent third party. The Series D and E
shares are convertible into common stock at the ratio of one to one.
3. Commitments and Contingencies
Office Lease:
In February 1999 the Company entered into a seven-year lease for office space
located in New York City for its corporate office.
Equipment Leases:
In 1999 The Company entered into certain capital and operating leases for
office and computer equipment.
As of September 30, 1999, restricted cash totalling $1,300,000 represents
the collateral required by the Lessor of the office and equipment leases.
4. Subsequent event
On January 14, 2000 the Company was acquired by Youthstream Media Netorks, also
known as Network Event Theater, Inc. In a stock for stock transaction
Youthstream issued approximately 3.7 million shares of common and convertible
preferred stock, of which approximately 80 percent will be restricted from
transfer for one year. The aggregate purchase price is approximately $123.5
million.
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On January 14, 2000, Network Event Theater, Inc. (the "Registrant" or the
"Company) pursuant to a Merger Agreement dated December 14, 1999 with
Sixdegrees Acquisition Corp., a wholly-owned subsidiary of the Registrant
(the "Subsidiary"), and sixdegrees, inc. ("sixdegrees"), acquired
sixdegrees through the merger (the "Merger") of the Subsidiary into
sixdegrees. Upon the Merger, the Registrant issued to the stockholders of
sixdegrees 2,742,512 shares of the Registrant's common stock and 1,000,000
shares of the Registrant's Convertible Preferred Stock (convertible into an
equal number of shares of Registrant's common stock) and issued its options
and warrants in exchange for outstanding options or warrants to purchase
common stock of sixdegrees. The aggregate purchase price is approximately
$123,500,000.
The accompanying unaudited pro forma condensed consolidated financial
statements give effect to the sixdegrees acquisition and the following
transactions which have ocurred:
o The acquisition of Trent Graphics, Inc. ("Trent") on June 9, 1999,
o The acquisition of Invino Corporation ("Invino") on October 15, 1999, and
o The sale of 1,257,400 shares of the Company's common stock to certain
private investors on December 20, 1999 (the "Equity Sale"). The Company
realized net proceeds of approximately $29,517,000.
The unaudited pro forma condensed consolidated statements of operations for
the twelve months ended June 30, 1999 and the three months ended September
30, 1999 present the condensed consolidated statements of operations of the
Company as if the aforementioned acquisitions had occurred at the beginning
of the respective periods. The unaudited pro forma condensed consolidated
balance sheet at September 30, 1999 presents the balance sheet of the
Company as if the sixdegrees and Invino acquisitions and the Equity Sale
had occurred on September 30, 1999. The Company's historical balance sheet
at September 30, 1999 and statement of operations for the three months
ended September 30, 1999 includes the Trent acquisition.
The acquisitions have been accounted for using the purchase method of
accounting. The total cost of the acquisitions have been allocated to the
tangible and intangible assets acquired and liabilities assumed based on
their respective fair values. The allocation of the purchase price assumed
in the unaudited pro forma condensed consolidated financial statements is
preliminary. The Company does not expect the final allocation of the
purchase price will materially differ from the preliminary allocation.
The pro forma adjustments are based on available information and on certain
assumptions that the Company believes are reasonable under the circumstances.
The unaudited pro forma condensed consolidated financial statements should be
read in conjunction with the Company's financial statements and notes thereto,
as well as the financial statements and notes thereto of sixdegrees. The
unaudited pro forma condensed consolidated statements of operations are not
necessarily indicative of the results that would have occurred if the
acquisitions any Equity Sale had occurred on the dates indicated, nor are they
indicative of the Company's future results of operations.
<PAGE>
Network Event Theater, Inc.
Unaudited Pro Forma Condensed Statements of Operations
Year Ended June 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Network Event Trent Invino six-
Theater, Inc. Graphics, Inc(a) Corporation. (b) degrees,inc.(c)
------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net Revenues $ 13,266 $ 6,449 $ - 447
Operating Expenses:
Cost of goods sold - 1,804 - -
Selling, general and administrative expenses 14,005 4,186 350 3,562
Product development - - - 2,788
Corporate expenses 4,510 - - -
Depreciation and amortization 2,186 50 12 149
Impairment loss on equipment 825 - -
------------------- ------------------ ----------------- ------------------
Total operating expenses 21,526 6,040 362 6,499
------------------- ------------------ ----------------- ------------------
Income (loss) from operations (8,260) 409 (362) (6,052)
Equity loss in investment (51)
Interest Income 425 1 292
Interest Expense (1,119) (24) - -
------------------- ------------------ ----------------- ------------------
Loss before provision for income taxes (9,005) 385 (361) (5,760)
Provision for income taxes 185 34 - -
------------------- ------------------ ----------------- ------------------
Net income (loss) $ (9,190) $ 351 $ (361) (5,760)
=================== ================== ================= ==================
Net loss per basic and diluted common share $ (0.72)
===================
Weighted average basic and diluted common
shares outstanding 12,800
===================
<CAPTION>
Pro Forma Pro Forma
Adjustments Combined
----------- --------
<S> <C> <C>
Net Revenues $ - $ 20,162
Operating Expenses:
Cost of goods sold - 1,804
Selling, general and administrative expenses - 22,103
Product development 2,788
Corporate expenses - 4,510
Depreciation and amortization 41,332 (f) 43,729
Impairment loss on equipment 825
---------------- --------------
Total operating expenses 41,332 75,759
---------------- --------------
Loss from operations (41,332) (55,597)
Equity loss in investment (51)
Interest Income - 718
Interest Expense - (1,143)
---------------- --------------
Loss before provision for income taxes (41,332) (56,073)
Provision for income taxes - 219
---------------- --------------
Net loss $ (41,332) $(56,292)
================ ==============
Net loss per basic and diluted common share $ (3.06)
==============
Weighted average basic and diluted common
shares outstanding 5,598 (g) 18,398
================ ==============
</TABLE>
<PAGE>
Network Event Theater, Inc.
Unaudited Pro Forma Condensed Statement of Operations
Three Months ended September 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Network Event Invino six- Pro Forma
Theater, Inc. Corporation (b) degrees, inc. (c) Adjustments Pro Forma
------------- --------------- ----------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net Revenues $ 10,361 -- $ 525 $ -- $ 10,886
Operating Expenses:
Cost of goods sold 1,386 -- -- -- 1,386
Selling, general and administrative expenses 6,882 369 1,407 -- 8,658
Product development -- -- 2,101 2,101
Corporate expenses 873 -- -- -- 873
Depreciation and amortization 917 7 210 9,837(f) 10,971
-------- -------- -------- -------- --------
Total operating expenses 10,058 376 3,718 9,837 23,989
Income (loss) from operations 303 (376) (3,193) (9,837) (18,103)
Equity loss in investment (792) -- -- (792)
Interest Income 227 -- 117 -- 344
Other income 150 6 -- 156
Interest expense (249) -- -- -- (249)
-------- -------- -------- -------- --------
Loss before provision for income taxes (361) (370) (3,076) (9,837) (13,644)
Provision for income taxes 48 -- -- -- 48
-------- -------- -------- -------- --------
Net loss $ (409) (370) $ (3,076) $ (9,837) $(13,692)
======== ======== ======== ======== ========
Net loss per basic and diluted common share $ (0.03) $ (0.64)
======== ========
Weighted average basic and diluted common
shares outstanding 15,929 5,376(g) 21,305
======== ======== ========
</TABLE>
<PAGE>
Network Event Theater, Inc.
Unaudited Proforma Consolidated Balance Sheet
(In Thousands)
<TABLE>
<CAPTION>
September 30,1999
Newtwork
Event Invino six- Pro Forma
Theater Corporation degrees, inc. Adjustments Pro Forma
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash Equivalents $ 28,335 107 7,540 29,517 (e) 65,499
Restricted cash - - 1,349 - 1,349
Accounts receivable, net 4,247 - 391 - 4,638
Inventory 415 - - - 115
Prepaid expenses 1,078 - 5,006 - 6,084
Deposits and other current assets 713 9 158 880
------------- -------------- --------------- ------------- ------------
Total current assets 34,788 116 14,444 29,517 78,865
-
Property and equipment, net 5,802 54 1,888 - 7,744
-
Deferred financing costs, net 679 - - 679
-
Intangible assets, net 15,925 - - 118,046 (d) 133,971
------------- -------------- --------------- ------------- ------------
Total assets $ 57,194 170 16,332 147,563 221,259
============= ============== =============== ============= =============
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable $ 1,896 52 610 - 2,558
Accrued expenses 698 - 611 - 1,309
Other accrued expenses 1,542 144 - - 1,686
Deferred revenues 207 - - - 207
Current portion of long-term debt
and capital lease obligation 857 10 160 - 1,027
------------- -------------- --------------- ------------- -------------
Total current liabilites 5,200 206 1,381 - 6,787
Long-term debt and capital lease
obligations net of current portion 6,431 - 285 - 6,716
Deferred Rent - - 176 - 176
Commitments and contigencies
Invino Acquisition - - - 5,000 5,000
Stockholders Equity
Preferred stock - 700 24 (714) 10
Common stock 170 2 - 42 (d)(e) 214
Additional paid-in capital 73,760 - 25,849 131,124 (d)(e) 230,733
Deferred compensation - - (10) - (10)
Accumulated deficit (28,367) (738) (11,373) 12,111 (d)(e) (28,367)
------------- -------------- --------------- ------------- ------------
Total Stockholders equity 45,563 (36) 14,490 142,563 202,580
- - -
Total liabilities and stockholders equity 57,194 170 16,332 147,563 221,259
============= ============== =============== ============= =============
</TABLE>
<PAGE>
Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations and Balance Sheet
(a) Reflects the historical statement of operations of Trent from July 1, 1998
through its acquisition date of June 9, 1999. Operations subsequent to June
9, 1999 are included in the Company's historical balances. Trent operated
on a calendar year end. Trent's historical statement of operations included
in the unaudited pro forma condensed consolidated statement of operations,
however, has been prepared on a June 30th fiscal year end basis based on
the unaudited quarterly financial statements of Trent.
(b) Reflects the historical statement of operations of Invino for the twelve
months ended June 30, 1999 and the three months ended September 30, 1999.
Invino operated on a calendar year end. The historical statement of
operations included in the unaudited pro forma condensed consolidated
statements of operations, however, have been prepared on a June 30th fiscal
year end basis based on the unaudited quarterly financial statments of
Invino.
(c) Reflects the historical statement of operations of sixdegrees for the
twelve months ended June 30, 1999 and the three months ended September 30,
1999. Sixdegrees operated on a calendar year end. The historical statement
of operations included in the unaudited pro forma condensed consolidated
statements of operations, however, have been prepared on a June 30th fiscal
year end basis based on the unaudited quarterly financial statements of
sixdegrees.
(d) To reflect the additional goodwill and issuance of the consideration
related to the Trent, Invino and sixdegrees acquisitions.
Trent Invino sixdegrees Total
------- ------- ---------- -----
Consideration:
Cash $3,500,000 $ -- $ -- $ 3,500,000
Common Stock 3,500,000(1) 9,000,000(2) 78,850,000(3) 91,350,000
Preferred Stock -- -- 28,750,000(3) 28,750,000
Stock Options -- -- 15,900,000 15,900,000
---------- --------- ----------- ----------
7,000,000 9,000,000 125,500,000 139,500,000
Estimated Fair Value
of Net Assets
Acquired/(Liabilities
Assumed) 508,000 (36,000) 14,490,000 14,962,000
---------- --------- ---------- -----------
Goodwill $6,492,000 $9,036,000 $109,010,000 $124,538,000
========== ========= ========== ===========
(1) Reflects the issuance of 242,003 shares of common stock.
(2) Reflects the issuance of 167,358 shares on the closing date valued at
$4,000,000 and an additional $5,000,000 of common stock to be issued
in the future.
(3) Reflects the issuance of 2,742,512 shares of common stock and
1,000,000 shares of convertible preferred stock.
(e) To reflect the issuance of 1,257,400 shares of the Company's common stock
to certain private investors on December 20, 1999. The Company realized net
proceeds of approximately $29,517,000.
(f) To reflect increased amortization from goodwill related to the Trent,
Invino and sixdegrees acquisitions amortized over 3 years on a
straight-line basis.
(g) To reflect adjustments to the weighted average basis of common
shares outstanding based on equity consideration described in (d) and (e)
above.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
January 11, 2000 Network Event Theater, Inc.
By:/s/ Harlan D. Peltz
--------------------------------
Harlan D. Peltz
Chairman of the Board
<PAGE>
Exhibit Index
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.33 Merger Agreement
10.35 1999 Stock Option Plan
10.36 1999 Special Stock Option Plan
10.37 1999 Special Incentive Stock Plan
10.39 Certificate of Designation
<PAGE>
MERGER AGREEMENT
----------------
December 14, 1999
-----------------
The parties to this agreement are Network Event Theater,
Inc., a Delaware corporation ("NET"); Sixdegrees Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of NET ("Newco"); and sixdegrees,
inc., a Delaware corporation (the "Company").
The Company is engaged in the business of developing a
network database service, accessible from the Company's website, that enables
members of the Company's service to establish connections with other members
through their respective familial, professional and personal relationships (the
"Business"). The parties wish to provide for the acquisition of the Company by
NET through a tax-free reorganization by means of the merger of Newco into the
Company and the conversion of the Company's outstanding shares into common
stock and Convertible Preferred Stock of NET. Following the merger, the
Business will continue to be operated by the Company, as the surviving
corporation of the merger, and the Company will be a wholly-owned subsidiary of
NET.
It is agreed as follows:
1. Merger; Provisions Relating to Surviving Corporation.
1.1 Certificate of Merger. Contemporaneously with
the closing under this agreement, a duly executed certificate of merger
providing for the merger (the "Merger") of Newco into the Company shall be
delivered for filing to the Secretary of State of Delaware. The Merger shall
become effective upon the filing of the certificate of merger in Delaware (the
"Effective Time").
1.2 Merger. At the Effective Time, Newco shall be
merged into the Company pursuant to the Delaware General Corporation Law and
the separate existence of Newco shall cease. The Company shall be the surviving
corporation of the Merger and shall continue to be governed by the Delaware
General Corporation Law.
1.3 Certificate of Incorporation and By-Laws of the
Company. The certificate of incorporation and by-laws of Newco in effect at the
Effective Time shall become the Company's certificate of incorporation and
by-laws, and shall continue as such until amended.
1.4 Certificate of Designation of NET. NET shall
adopt and file with the Secretary of State of Delaware, on or before the
Effective Time, a certificate of designation (the "Certificate of Designation")
in the form of exhibit 1.4, which sets forth a description and
<PAGE>
designation of a new class of NET's Convertible Preferred Stock (the
"Convertible Preferred Stock").
1.5 Directors and Officers. Commencing at the
Effective Time, the persons then serving as the directors and officers of Newco
shall be the directors and officers of the Company and shall hold office for
the term provided in the Company's bylaws after the Merger.
1.6 Closing. The closing under this agreement shall
take place at the offices of Proskauer Rose LLP, 1585 Broadway, New York, New
York 10036 (or at such other place as the parties may agree upon in writing) on
the third business day following the satisfaction of the conditions set forth
in sections 6.1 and 6.2 and immediately prior to the filing referred to in
section 1.1, but in any event no later than January 31, 2000. The date on which
the closing is held is referred to in this agreement as the "Closing Date." At
the closing, the parties shall execute and deliver the documents referred to in
section 7.
2. Conversion of Shares Upon the Merger.
2.1 Conversion of Shares.
(a) All of the Company's shares of common
stock and all of the Company's shares of Preferred Stock (including all accrued
dividends thereon) that are issued and outstanding at the Effective Time shall
then automatically cease to be outstanding and shall be converted into (x) an
aggregate number of shares of NET common stock equal to 3,400,000 less the
number of shares of NET common stock issuable upon the exercise of all options
and warrants to purchase shares of NET common stock to be issued upon the
Merger pursuant to sections 2.1(d) and (e), and (y) an aggregate number of
shares of Convertible Preferred Stock equal to (i) 766,667, plus (ii) a number
calculated by dividing the aggregate exercise price of all Company options and
warrants by $24 (which shares are convertible into an equal number of shares of
NET common stock, as provided in the Certificate of Designation) (collectively,
the "Merger Consideration"), plus (z) any additional shares of NET common stock
issuable pursuant to section 2.1(f).
(b) The number of shares of NET common
stock and NET preferred stock distributable to each Company stockholder under
sections 2.1(a)(x), 2.1(a)(y) and 2.1(a)(z) and upon distribution from escrow
pursuant to section 2.2(a) shall in each case be that portion of the amount
distributed determined by multiplying the total amount being distributed by a
fraction of which the numerator shall be the number of shares of Company common
stock such stockholder owns, or in the case of the Convertible Preferred Stock
is entitled to receive upon conversion (plus the number of shares of Company
common stock distributable as a dividend as contemplated by section
5.2(i)(iv)), and the denominator shall be the aggregate number of shares of the
Company's common stock the holders of the Company's common and preferred stock
own or are entitled to receive upon conversion of their preferred stock (plus
any dividend shares). Any fractional shares shall be paid in cash based on a
value of $24 per share. After the Effective Time, the holder of any shares of
common stock or preferred stock of the
<PAGE>
Company that were outstanding prior to the Effective Time shall have no rights
with respect to those shares except to receive the stock of NET into which
those shares have been converted in accordance with the terms of this
agreement.
(c) All of Newco's shares that are issued
and outstanding at the Effective Time shall then automatically be converted
into 100 duly authorized, validly issued, fully paid and non-assessable shares
of common stock of the Company.
(d) At the Effective Time, each option to
purchase shares of common stock of the Company issued to employees of the
Company ("Employee Options") that was outstanding at the Effective Time shall,
for each share of common stock which could be purchased upon exercise,
automatically be converted into an option to purchase .083 shares of NET common
stock, on the same terms and conditions and with the same vesting provisions as
the option to purchase shares in the Company held by such holder at the
Effective Time. These options will be issued pursuant to newly adopted stock
option plans of NET on the same terms and conditions as the existing Company
stock option plans (the "New NET Stock Option Plans"). On consummation of the
merger of NET with Common Places LLC referred to in section 5.6(c), the options
outstanding under the New NET Stock Option Plans will be converted into
comparable options outstanding under the YouthStream Media Networks Inc.
("YouthStream") Stock Incentive Plan, a copy of which has been delivered to the
Company.
(e) At the Effective Time, each option
(other than the Employee Options) and each warrant to purchase shares of common
stock of the Company that was outstanding at the Effective Time shall
automatically be converted into an option or warrant to purchase .083 shares of
NET common stock, on the same terms and conditions as the option or warrant to
purchase shares in the Company held by such holder at the Effective Time. There
are no options or warrants to purchase shares of preferred stock of the Company
outstanding.
(f) If prior to the Effective Time there is
a stock split or stock combination or other recapitalization of NET, the number
of shares of NET common stock and NET Convertible Preferred Stock distributable
hereunder shall be appropriately adjusted to reflect such split, combination or
recapitalization.
(g) Notwithstanding anything in this
agreement to the contrary, any shares of common stock or preferred stock of the
Company that are issued and outstanding immediately prior to the Effective Time
and which are held by stockholders who have not voted such shares in favor of
the Merger (or consented thereto in writing), who shall have delivered a
written objection to the Merger and a demand for appraisal of such shares in
accordance with Section 262 of the Delaware General Corporation Law (the
"DGCL") and who shall not have failed to perfect or shall not have effectively
withdrawn or lost their rights to appraisal and payment under the DGCL (the
"Dissenting Shares"), shall not be converted into the right to receive a
portion of the Merger Consideration, but shall instead entitle the holder
thereof to receive that consideration determined pursuant to section 262 of the
DGCL; provided, however, that if such holder shall have failed to perfect or
shall have effectively withdrawn such holder's right to appraisal and payment
under the DGCL, such holder's shares shall thereupon be deemed
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to have been converted, at the Effective Time, into the right to receive a
portion of the Merger Consideration, without any interest thereon. The
aggregate number of shares of NET Convertible Preferred Stock and common stock
issuable upon the Merger shall be reduced by the aggregate number of shares of
each class that the stockholders of the Company who validly perfected (and did
not withdraw) their dissenters' rights would but for their exercise of their
appraisal rights have been entitled to receive upon the Merger.
(h) The Company shall give NET prompt
notice of any demands for appraisal pursuant to the applicable provision of the
DGCL received by the Company, any withdrawals of such demands, and any other
instruments served pursuant to the DGCL and received by the Company and the
opportunity to participate in all negotiations and proceedings with respect to
demands for appraisal under the DGCL. The Company shall not, except with prior
written consent of NET, make any payment with respect to any such demands for
appraisal or offer to settle or settle any such demands.
(i) Within 15 days after the end of each
calendar year 2000-2002, NET shall issue to the stockholders of the Company, as
additional Merger Consideration, an aggregate number of shares of NET common
stock equal to (1) the excess of the value (at $24.00 per share) of all shares
of NET common stock issuable upon exercise of any options and warrants issued
pursuant to the Merger in exchange for options or warrants to purchase shares
of the Company's common stock or Preferred Stock that expired unexercised
during the prior calendar year over the aggregate exercise price of such
unexercised options or warrants, divided by (2) $24.00, adjusted to reflect any
split, combination or recapitalization of NET after the date hereof. Any
fractional shares shall be paid in cash based on a value of $24 per share.
2.2 Payment of Merger Consideration.
(a) Promptly after the Effective Time, (1)
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 2.2 (the "Escrow
Agreement"), 75,000 shares of the NET common stock distributable under section
2.1(a)(x) and all of the shares of Convertible Preferred Stock to which the
former stockholders of the Company are entitled, such shares to be held for one
year after the Effective Time as security for the indemnification obligations
of the Company pursuant to section 8, and (2) NET shall issue to the former
holders of Company common stock or Company preferred stock the remaining shares
of NET common stock distributable under section 2.1(a)(x), plus in each case
any applicable shares distributable pursuant to section 2.1(a)(z). At any time
after the Effective Time, each former holder of Company common stock or Company
preferred stock may surrender to NET the certificate or certificates for that
holder's shares and shall receive in exchange the shares of common stock of NET
and Convertible Preferred Stock to which such holder is entitled by virtue of
the Merger (other than the shares delivered and held pursuant to the Escrow
Agreement). The Escrow Agent's fee shall be paid by NET.
(b) At the closing provided for in section
1.6, the Company shall deliver to NET a list, certified as true and complete by
the Company's chief financial officer,
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setting forth the names and addresses of all of the record holders of the
Company's common stock and preferred stock and all record holders of the
Company's options and warrants to purchase common stock and Convertible
Preferred Stock, if any, and the number of shares of common stock of NET and
Convertible Preferred Stock that each stockholder of record is entitled to
receive on the Merger (which shall aggregate to the Merger Consideration) and
the number of shares of NET common stock each option or warrant holder of
record is entitled to receive upon exercise of the option or warrant. In making
any payments to the former holders of the Company's common stock or preferred
stock, NET shall be entitled to rely on that list and shall not have any
liability of any kind arising out of any payment made in accordance with the
list or the failure to make any payment to any holder whose name and holdings
of common stock or preferred stock or options or warrants is omitted from, or
is not accurately stated on, that list.
3. Representations and Warranties by the Company. The Company
represents and warrants to NET and Newco as follows:
3.1 Organization and Authority of the Company. The
Company is a corporation duly organized, validly existing and in good standing
under the law of Delaware and has the full corporate power and authority to
own, lease and operate its properties as it now does and to carry on its
business as it is presently being conducted. The Company is duly qualified and
in good standing in New York, which is the only jurisdiction in which the
Company owns or leases real property. Except as set forth on schedule 3.1, the
Company does not directly or indirectly own any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for, any equity
or similar interest in, any corporation, partnership, joint venture or other
business association or entity.
3.2 Authorization of Agreement. The execution,
delivery and performance of this agreement by the Company have been duly
authorized by all requisite corporate action of the Company, other than
approval by the stockholders of the Company. The Voting Agreements referred to
in section 5.10 cover the requisite number of shares of common stock of the
Company and preferred stock of the Company required to approve the Merger. This
agreement constitutes a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except that the Company's
obligation to consummate the Merger is subject to approval of the Merger by the
Company's stockholders and except as may be limited by bankruptcy, insolvency
or other similar laws affecting the enforcement of creditors' rights in general
and subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3.3 Consents of Third Parties. Except as set forth
on schedule 3.3, the execution, delivery and performance of this agreement by
the Company do not and will not (i) conflict with the certificate of
incorporation or by-laws of the Company or conflict with, result in the breach
or termination of, constitute a default under, or increase or accelerate any
obligation under, any lease, agreement, commitment or other instrument, or any
order, judgment or decree, to which the Company is a party or by which the
Company or any of the assets of the Company is bound; (ii) constitute a
violation by the Company of any law, regulation, order, writ, judgment,
injunction or decree applicable to it; or (iii) result in the creation of any
claim, lien, security
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interest, charge or encumbrance ("Liens") upon any of the assets of the
Company. Except as set forth on schedule 3.3, no consent, approval or
authorization of, or designation, declaration or filing with, any court or
governmental authority or any other person or entity is required on the part of
the Company in connection with the execution, delivery and performance of this
agreement.
3.4 Ownership of the Company. As of the close of
business on December 13, 1999, there were issued and outstanding 10,212,666
shares of the Company's common stock, 8,000 shares of the Company's Series A
Preferred Stock, 10,478.08595 shares of the Company's Series B Preferred Stock,
13,418,831 shares of the Company's Series C Preferred Stock, and an aggregate
of 10,815,716 shares of the Company's Series D Preferred Stock and Series E
Preferred Stock; and there were outstanding options and warrants to purchase an
aggregate of 5,187,585 shares of the Company's common stock. Since December 13,
1999, except as set forth on schedule 3.4, the Company has not (i) issued any
common stock, other than upon the exercise of stock options or warrants or the
conversion of Convertible Preferred Stock then outstanding, (ii) granted or
issued any options, rights or warrants to purchase common stock (under the
Company's 1997 Incentive Stock Plan, 1999 Stock Plan or otherwise) or options,
rights or warrants to purchase preferred stock, or (iii) split, combined or
reclassified any common stock. Except as set forth on schedule 3.4, all the
outstanding common stock and preferred stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable and are free
of preemptive rights and free and clear of any Liens granted pursuant to any
agreement in which the Company is a party. Except as set forth on schedule 3.4,
there are no outstanding options, warrants, rights or other agreements or
commitments to acquire from the Company, or obligations of the Company to
issue, any shares of common stock or preferred stock of the Company or
securities convertible into or exchangeable for shares of common stock of the
Company, or obligations of the Company to grant, extend or enter into any
subscription, warrant, right, convertible or exchangeable security or other
similar agreement or commitment (collectively, "Company Securities"). Except as
set forth on schedule 3.4, there are no outstanding obligations of the Company
to repurchase, redeem or otherwise acquire any Company Securities and there are
no other outstanding equity related awards. Except as set forth on schedule
3.4, there are no voting trusts or other agreements or understandings to which
the Company is a party with respect to the voting of capital stock of the
Company. The Company does not own or have any liability or obligation to
acquire any securities or other interest in any other business or entity. The
aggregate exercise price of all outstanding options and warrants to purchase
shares of the Company's common stock is $5,672,416.
3.5 Financial Statements. The following financial
statements, copies of which have been delivered to NET, have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis and fairly present in all material respects the financial
position of the Company as of the dates indicated and the results of operations
for the periods indicated (subject, in the case of interim financial
statements, to normal year-end audit adjustments):
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(a) Balance sheets of the Company as of
December 31, 1998 and 1997, and related statements of income and cash flows for
the years then ended, reviewed by PricewaterhouseCoopers LLP; and
(b) Unaudited balance sheets of the Company
as of September 30, 1999 and 1998, and related statements of income for the 9
month period then ended.
All such financial statements have been prepared in
accordance with the books and records of the Company. All of the books of
account of the Company have been exhibited or made available to NET and those
books of account have been maintained in accordance with good business practice
on a consistent basis and accurately record all transactions of the Company
during the periods covered by them. All of the Company's accounts receivable
outstanding as of the date of this agreement arose from bona fide transactions
in the ordinary course of the business and, to the best knowledge of the
Company, none of them is subject to any defense, counterclaim or setoff, and
the Company has no reason to believe that any of them will not be collected in
full when due.
3.6 Absence of Undisclosed Liabilities. The Company does not
have any material liability or obligation of any kind, whether accrued,
absolute, contingent or otherwise, other than (a) the liabilities reflected on
the balance sheet of the Company as of September 30, 1999, (b) liabilities and
obligations under leases, commitments and other agreements entered into in the
ordinary course of business (which, to the extent required by section 3.13, are
listed on schedule 3.13), (c) trade accounts payable and accrued expenses
incurred in the ordinary course of business since September 30, 1999, and (d)
the liabilities set forth on schedule 3.6. The Company does not know of any
basis for the assertion against the Company of any material liability other
than those described in the preceding sentence.
3.7 Absence of Certain Changes. Since October 1, 1999, the
Company has operated its business in the ordinary course and consistent with
past practice, and, except as set forth on schedule 3.7:
(a) the Company has not entered into any transaction
or incurred any liability or obligation other than in the ordinary course of
business;
(b) there has been no material adverse change in the
condition (financial or otherwise), business, operations or assets, or, to the
best of the Company's knowledge, except for changes resulting from general
economic conditions and general conditions in the internet industry, in the
prospects of the Company;
(c) the Company has not sold or transferred any
assets other than in the ordinary course of business and other than assets that
have been replaced with other assets of equal or greater value;
(d) the Company has not incurred any liability that
was unusual in nature or amount or any indebtedness other than indebtedness to
trade creditors incurred in the ordinary course of business;
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(e) except for compensation and expense
reimbursements paid in the ordinary course of business and legal fees payable
to Morse, Zelnick, Rose and Lander LLP, the Company has not made any
distribution on or acquired any of its stock or, directly or indirectly, made
any other payment of any kind or any loan to or on behalf of any holder of 5%
or more of the Company's common stock or preferred stock (the "Significant
Stockholders"), any member of any Significant Stockholder's family, or any
entity controlled by any of the Significant Stockholders or any member of their
families;
(f) the Company has not granted or agreed to grant
any general increase in any rate or rates of salaries or compensation or in
benefits of any kind to its employees, or any specific increase in the salary
of or compensation to any employee whose total salary and compensation after
such increase would be at an annual rate in excess of $50,000;
(g) the Company has not made any change in its
accounting methods or principles (or the application of those methods or
principles) or introduced any material new method of management, operations or
accounting;
(h) the Company has not established any new employee
benefit plan (as defined in section 3.24), amended or modified any existing
employee benefit plan, or incurred any obligation or liability under any
employee benefit plan materially different in nature or amount from obligations
or liabilities incurred during similar periods in prior years; and
(i) the Company has not entered into any employment,
bonus or deferred compensation agreement with any of its directors, officers or
other employees other than agreements entered into with employees hired since
October 1, 1999 in the ordinary course of business.
3.8 Taxes. Except as set forth on schedule 3.8, the Company
has timely filed all foreign, federal, state and local income, gross receipts,
personal property, commercial rent, sales and use and other tax returns,
reports and information returns (including any related or supporting
information) required by law to be filed by it; each of those tax returns is
correct and complete in all material respects and the Company has paid all
taxes shown as due on such returns. None of the Company's tax returns has been
audited by any tax authority. There exist no pending or, to the best of the
knowledge of the Company, proposed tax assessments, suits, actions, claims,
audits, investigations or inquiries by any tax authority with respect to the
business or assets of the Company or against the Company or, with respect to
the operations of the Company, against any of its directors, officers,
employees or independent contractors. There are no tax liens on any of the
Company's assets. The Company (including any person acting on behalf of the
Company) has not given nor been requested to give waivers or extensions of any
statute of limitations relating to payment of taxes of the Company or for which
the Company may be liable and no other party has given or been requested to
give such waivers or extensions with respect to taxes for which the Company may
be liable. All taxes that are or were required by law to be withheld or
collected by the Company have been duly withheld or collected and paid to the
proper tax authority. The Company does not have any tax liability of any kind
that could result in a Lien on any of its assets other than taxes not yet due
and payable.
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3.9 Title to Assets. Except as set forth on schedule 3.9 and
except for the lien, if any, of current taxes not yet due and payable, the
Company has valid title, free and clear of any Liens, to all the assets,
tangible and intangible, used in or needed to conduct the Business, and those
assets will be sufficient to enable the Company to continue after the Effective
Time to operate all aspects of the Business in the manner in which it has been
operated by the Company. Except as set forth in Schedule 3.9 and except for
compensation and expense reimbursements for services rendered by employees of
the Company payable in the ordinary course of the Company's business, the
Company does not owe any amount to, or have any contract with or commitment to,
or use any property (real or personal) in its business owned or leased by, any
of the Significant Stockholders or any director, officer, employee, agent or
representative of the Company, or any of their respective affiliates.
3.10 Personal Property. Schedule 3.10 lists all of the
equipment, machinery, computers, furniture, leasehold improvements, vehicles
and other personal property having an individual value greater than $25,000
owned or leased by the Company and all interests therein. All equipment and
other tangible assets owned or used by the Company are in good operating
condition and in good condition of maintenance and repair, ordinary wear and
tear excepted, are suitable for their present uses and purposes, and conform in
all material respects with all applicable ordinances, rules and regulations and
all building, zoning and other laws.
3.11 Real Property. The Company does not own any real
property. Schedule 3.11 contains a list and brief description of all real
properties used or leased by the Company and all structures located on those
real properties. To the best knowledge of the Company, all improvements on the
real properties used by the Company are in accordance with all applicable laws,
ordinances, regulations and orders, including, but not limited to, those
applicable to zoning, environment and the establishment and maintenance of
working conditions for labor (other than immaterial violations), and all of the
buildings and structures on those properties are in good condition of
maintenance and repair and are adequate, sufficient and suitable for their
present uses and purposes. The transactions contemplated by this agreement will
not adversely affect the Company's right to use those properties after the
Effective Time for the same purpose and to the same extent as they were being
used by the Company prior to the Effective Time.
3.12 Litigation; Compliance with Laws. Except as set forth on
schedule 3.12, there is no claim, litigation, proceeding or governmental
investigation pending or, to the best knowledge of the Company, threatened, or
any order, injunction or decree outstanding, against the Company or any of its
properties or assets. The Company does not know of any basis for future claims,
litigations, proceedings or investigations against the Company or any of its
properties or assets. The Company is not in violation of any law, regulation or
ordinance which is material to the operation of the business of the Company, or
any other requirement of any governmental body or court which is material to
the operation of the business of the Company, and no notice has been received
by the Company or any of its officers or directors alleging any such violation.
3.13 Lists of Agreements, etc. Schedule 3.13 contains a true
and complete list of (a) all of the Company's commitments and other agreements
for the future purchase of
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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 the Company of less than $25,000 for any one
commitment or two or more related commitments; (b) all notes and agreements
relating to any indebtedness for borrowings of the Company; (c) all real estate
leases and all personal property leases or other rental agreements under which
the Company is either lessor or lessee involving payments by or to the Company
of more than $25,000 individually; and (d) all of the Company's other
agreements, commitments and understandings (written or oral) that require
payment by the Company of more than $50,000 individually. True and complete
copies of the agreements, commitments and leases referred to on schedule 3.13
have been delivered to NET.
3.14 Status of Agreements. Except as set forth on schedule
3.13, each of the agreements, commitments and orders referred to in section
3.13 is presently in full force and effect in accordance with its terms and the
Company is not in default in any material respect, and, to the best of the
knowledge of the Company, (i) no other party is in default in any material
respect under any of the provisions of any of those agreements and (ii) no
condition exists that, with notice or lapse of time or both, would constitute a
material default by the Company or any other party to any of those agreements.
Each of the agreements, commitments or orders referred to in section 3.13 is
valid and binding upon and enforceable against each of the parties thereto in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general. Except as set forth on schedule 3.13, no party to
any of the agreements, commitments or orders referred to in section 3.13 has
made, asserted or, to the best of the Company's knowledge, has any defense,
setoff or counterclaim under any of those agreements, commitments or orders or
has exercised any option granted to it to cancel or terminate its agreement, to
shorten the term of its agreement, or to renew or extend the term of its
agreement.
3.15 Employees.
(a) The Company has provided to NET a true and
complete list of the names and addresses, social security numbers, positions,
hire dates and annual or hourly compensation of all employees of the Company.
Schedule 3.15(a) sets forth a description of vacation policies, sick leave
policies, and bonus, incentive compensation and group insurance plans for the
benefit of those employees. No employee of the Company is owed any wages,
benefits or other compensation for past services, other than wages and benefits
accrued in the ordinary course of business during the current pay period and
accrued vacation. Except as set forth on schedule 3.15(a), the Company does not
have any severance policy and no employee of the Company is entitled to any
severance payment, either by law or by agreement, upon the termination of his
or her employment. To the best knowledge of the Company, the transactions
provided for in this agreement will not give rise to any liability of the
Company for severance pay or termination pay to any employee of the Company or
trigger any payments of any kind to any employee of the Company. No employee of
the Company is represented by any union or other collective bargaining agent
and there are no collective bargaining or other labor agreements with respect
to those employees.
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(b) Schedule 3.15(b) contains a true and complete
list of the names and addresses, social security or tax identification numbers,
the annual, weekly or hourly compensation, and the job descriptions, of all
persons that the Company has engaged as independent contractors since December
31, 1998. To the best knowledge of the Company, all such persons are properly
characterized as independent contractors. Neither the Internal Revenue Service
nor any other governmental agency has asserted any claim to the contrary and,
to the best of the knowledge of the Company, there is no pending investigation
by any governmental agency relating to the Company's practice of engaging
independent contractors.
(c) Schedule 3.15(c) contains a true and complete
copy of the Company's employee handbook, which contains accurate summaries of
the Company's employee benefit plans and human resources policies.
3.16 Labor Disagreements. Except as set forth on schedule
3.16, (a) to the best knowledge of the Company, the Company is in compliance
with all applicable laws and regulations respecting employment and employment
practices, terms and conditions of employment and wages and hours, and is not
engaged in any unfair labor practice; (b) there is no (and has never been any)
unfair labor practice charge or complaint against the Company pending before
the National Labor Relations Board, any state labor relations board or any
court or tribunal and, to the best of the knowledge of the Company, none is or
has been threatened; (c) there is no labor strike, dispute, request for
representation, slowdown or stoppage actually pending against or affecting the
Company and, to the best of the knowledge of the Company, none is or has been
threatened; and (d) to the best of the Company's knowledge, no grievance which
might have an adverse effect on the conduct of the operations of the Business
or any arbitration proceeding arising out of or under any collective bargaining
agreement is pending or is or has been threatened.
3.17 Restrictive Documents, etc. The Company is not subject
to, or a party to, any lease, license, permit, agreement or other commitment,
instrument, law, rule, ordinance, regulation, order, judgment or decree, or any
other restriction of any kind, that materially and adversely affects its
business practices or operations or any of the assets of the Company or that
would prevent its compliance with the terms, conditions and provisions of this
agreement or the continued operation of the Business by the Company after the
Effective Date on substantially the same basis as it has been operated.
3.18 Environmental Matters. To the best of the Company's
knowledge, the Company is not in violation of any federal, state or local law,
regulation, rule, order, decree, ordinance or common law relating to pollution,
the protection of human health or the environment.
3.19 Permits and Licenses. The Company has all permits,
licenses, franchises and other authorizations ("Licenses") necessary for the
conduct of the Business and all such Licenses are valid and in full force and
effect. All Licenses held by the Company that are material to the Company are
listed on schedule 3.19.
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3.20 Banks; Powers of Attorney. Schedule 3.20 sets forth (a)
the names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which the Company maintains
safe deposit boxes or accounts of any nature and the names of all persons
authorized to draw thereon, make withdrawals therefrom or have access thereto
and (b) the names of all persons to whom the Company has granted a power of
attorney, together with a description thereof. The Company has provided NET
with true and complete copies of all bank statements received by it twenty-four
months prior to the date of this agreement.
3.21 Intangible Property. Schedule 3.21 contains a complete
list of the trademarks, trade names, copyrights, logos and internet URLs used
by the Company. The Company owns, free and clear of any Liens, each of the
trademarks, trade names, copyrights and logos (including registrations and
applications for registration of any of them) and internet URLs listed on
schedule 3.21, and they constitute all of the trademarks, copyrights, trade
names and logos and internet URLs necessary for the continued operation of the
Business in a manner consistent with past practices. To the best of the
Company's knowledge, the Company is not infringing upon any trademark, trade
name, copyright or other rights of any third party; no proceedings are pending
or threatened; and no claim has been received by the Company alleging any such
violation. Except as set forth in schedule 3.21, to the best knowledge of the
Company, there is no violation by others of any right of the Company with
respect to any trademark, trade name or copyright.
3.22 Software and Databases. Schedule 3.22 contains a list of
all software used by the Company in its operations that is material to the
operations of the business of the Company. The Company owns or possesses
adequate licenses or other rights to use all computer software listed on
schedule 3.22. Any license of the Company to use any software is valid and, to
the best of the Company's knowledge, does not infringe on the property rights
of any third party. The Company has not granted to any person or entity any
interest, as licensee or otherwise, in any of its owned software or databases
or in any of its mailing lists, advertiser lists or member lists.
3.23 Insurance. Schedule 3.23 contains a complete list of all
of the insurance policies held by the Company, specifying with respect to each
policy the policy limit, type of coverage, location of the property covered,
annual premium, premium payment date and expiration date. True and complete
copies of all of those policies have been delivered to NET.
3.24 ERISA. Except as set forth on schedule 3.24, the Company
is not a party to or bound by or liable with respect to any "employee benefit
plan," within the meaning of section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA"). The Company is in compliance in all material
respects with the applicable provisions of ERISA.
3.25 Expenses Related to this Agreement. Except for the fees
of counsel and accountants to the Company in connection with the negotiation
and execution of this agreement and the consummation of the Merger, the Company
has not paid any expenses related to the negotiation or preparation of this
agreement or any broker's, finder's or similar fee relating to the
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transactions contemplated by this agreement, and no such payment of broker's
fees will be payable after execution of this agreement.
3.26 Transactions with Affiliates. Except as set forth on
schedule 3.26 and except for compensation and expense reimbursements paid in
the ordinary course of business and legal fees payable to Morse, Zelnick, Rose
and Lander LLP, during the twelve months preceding the date of this agreement
the Company has not engaged in any transaction with any of the Significant
Stockholders or any of their respective affiliates.
3.27 Year 2000 Compliance. The Company's proprietary software
described on schedule 3.22 is able to accurately process dates and date-related
data (including, without limitation, in calculation, comparison, manipulation
and sequencing processes) with dates prior to, through, and subsequent to
January 1, 2000, and all manipulations of time-related data (for example,
dates, durations, weekdays, time zones, leap years, etc.) will produce
reasonably expected and accurate results, provided, however, that this
representation assumes that all other products (including, without limitation,
hardware, software and firmware) used with such software properly exchange date
data with such software ("Y2K Compliant").
3.28 Business Relationships. Except as set forth on schedule
3.13 to this agreement, the Company currently enjoys good relationships with
all material suppliers of goods or services to the Company and all other
parties, including advertisers, with which it has material business relations,
and the Company does not know of any intention on the part of any such vendor
or other party to substantially change its relationship with the Company and
the Company has not received any notice to the effect that its relationship
with any such vendor or other party will change after the consummation of the
Merger under this agreement.
3.29 Website Information.
(a) As of December 1, 1999, the Company had enrolled
not less than 2,850,000 members of which 1,590,000 had completed registration.
Not less than 40% of those members who had completed registration described
their principal occupation as "student."
(b) The Company's website (www.sixdegrees.com) (the
"Website") had monthly page-views (including chat and degreemail bot page views
refreshed every thirty seconds) for August, September, October and November
1999 in the amount of 24,100,000, 19,500,000, 19,800,000, and 18,900,000,
respectively.
(c) The Website is currently able to handle not less
than 800 users concurrently, where concurrently references a number that
appears on the "who's-on" page of the Website.
3.30 No Misrepresentation. No representation or warranty by
the Company in this agreement (including the schedules and exhibits to this
agreement) contains any untrue statement of material fact or omits to state a
material fact necessary to make the statements
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contained in this agreement (including the schedules and exhibits to this
agreement) not misleading.
40 Representations and Warranties by Newco and NET. Newco and
NET jointly and severally represent and warrant to the Company as follows:
4.1 Organization. Each of Newco and NET is a
corporation duly organized, validly
existing and in good standing under the law of the State of Delaware and has
the full corporate power to enter into and to perform this agreement and NET is
duly qualified and in good standing in each jurisdiction in which NET owns or
leases real property.
4.2 Authorization of Agreement. The execution,
delivery and performance of this agreement by Newco and NET have been duly
authorized by all requisite corporate action of each of them. This agreement
constitutes a valid and binding obligation of Newco and NET, enforceable
against each of them in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights in general and subject to general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
4.3 Consents of Third Parties. The execution,
delivery and performance of this agreement by each of Newco and NET will not
(a) conflict with Newco's or NET's certificate of incorporation or by-laws and
will not conflict with, result in the breach or termination of, or constitute a
default under, any lease, agreement, commitment or other instrument, or any
order, judgment or decree, to which either of them is a party or by which
either of them is bound, or (b) constitute a violation by it of any law,
regulation, order, writ, judgment, injunction or decree applicable to it. No
consent, approval or authorization of, or designation, declaration or filing
with, any court or governmental authority is required on the part of Newco or
NET in connection with the execution, delivery and performance of this
agreement.
4.4 Validity of Shares. All of the issued and
outstanding shares of common and preferred stock of NET have been duly
authorized, are validly issued, fully paid and non-assessable. The shares of
NET common stock and NET Convertible Preferred Stock, when issued upon the
Merger, will be duly authorized, validly issued, fully paid and non-assessable.
4.5 NET Financials and SEC Reports. The "SEC
Documents" shall mean (a) each final prospectus and definitive proxy statement
filed by NET with the Securities and Exchange Commission (the "SEC") from
January 1, 1998 through the Effective Time, and (b) each report on Form 10-K or
Form 10-Q (and any amendments thereto) filed by NET with the SEC from January
1, 1998 through the Effective Time. None of the SEC Documents referred to in
the preceding sentence, as of the date they were filed with the SEC, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements of NET and its subsidiaries
for the fiscal years ended December 31, 1998 and 1999 and as of September 30,
1999 included the SEC Documents (the "NET Financials") (including any
related notes thereto) fairly present in
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all material respects the consolidated financial position and the consolidated
operations, shareholders' equity and changes in financial position, as the case
may be, of NET and its consolidated subsidiaries as of its date or for the
respective periods set forth therein (subject, in the case of unaudited
statements, to normal recurring year-end audit adjustments), in each case, in
accordance with generally accepted accounting principles consistently applied
during the periods involved (in the case of audited statements) or applicable
accounting requirements of the SEC (in the case of unaudited statements),
except as set forth therein.
4.6 Capitalization. The authorized capital stock of
NET consists of 32,000,000 shares of common stock and 1,000,000 shares of NET
preferred stock. As of the close of business on November 30, 1999, 17,419,447
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 stock options to purchase an
aggregate of 850,000 shares of NET common stock under NET's Stock Option Plans
and other options and warrants to purchase an aggregate of 340,707 shares of
NET common stock under option and warrant agreements. Since November 30, 1999,
except as set forth on schedule 4.6, NET 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 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 4.6 or on schedule
4.6, 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.
Upon the completion of the Common Places Merger (as
defined in section 5.6(c)) YouthStream will issue an aggregate of 4,715,312
shares of common stock to the members of Common Places LLC and options to
acquire approximately 1,100,000 shares of YouthStream common stock.
4.7 Absence of Certain Changes. Since September 30,
1999, except as set forth in schedule 4.7, there has not been the commencement
of an investigation, lawsuit or proceeding against it or Common Places LLC
seeking to enjoin the Common Places Merger or seeking damages in excess of
$5,000,000, or injunctive relief which, if granted, would have a material
adverse effect on any of NET's business operations.
50 Further Agreements of the Parties.
5.1 Access to Information. Prior to the closing, NET
and its representatives may make such investigation of the property, assets and
businesses of the
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Business as they may desire, and the Company shall give to NET and to its
counsel, accountants and other representatives, upon reasonable notice, full
access, during normal hours throughout the period prior to the closing, to all
of the assets, books, commitments, agreements, records and files of the Company
relating to the Company and the Company shall furnish to NET during that period
all documents and copies of documents and information concerning the Company as
NET reasonably may request. NET shall hold, and shall cause its representatives
to hold, all such information and documents and all other information and
documents delivered pursuant to this agreement confidential and, if the
purchase and sale contemplated by this agreement is not consummated for any
reason, shall return to the Company all such information and documents and any
copies as soon as practicable, and shall not disclose any such information
(that has not previously been disclosed by a party other than NET) to any third
party, unless required to do so pursuant to an order under applicable laws and
regulations or pursuant to a subpoena or other legal process. NET's
confidentiality obligations under this section shall survive the termination of
this agreement.
Prior to the closing, the Company and its
representatives may make such reasonable investigation of the financial
condition and business of NET as they may desire, and NET shall give to the
Company and to its counsel and representatives, upon reasonable notice,
reasonable access during normal business hours throughout the period prior to
the closing to the books and records of NET. The Company shall hold, and shall
cause its representatives to hold, all such information and documents and all
other information and documents delivered pursuant to this agreement
confidential and, if the purchase and sale contemplated by this agreement is
not consummated for any reason, shall return to NET all such information and
documents and any copies as soon as practicable, and shall not disclose any
such information (that has not previously been disclosed by a party other than
the Company) to any third party, unless required to do so pursuant to an order
under applicable laws and regulations or pursuant to a subpoena or other legal
process. The Company's confidentiality obligations under this section shall
survive the termination of this agreement.
5.2 Conduct of the Business Pending the Closing.
Until the closing, the Company shall operate the Business in the ordinary
course in a manner consistent with past practices and shall:
(a) promptly notify NET in writing of, and
furnish any information that NET reasonably may request with respect to, (i)
any claim, litigation, proceeding or governmental investigation threatened by
or against the Company relating to the Business or any material development
with respect to any such claim, litigation, proceeding or governmental
investigation, (ii) the occurrence of any event or the existence of any state
of facts that would result in any of the Company's representations and
warranties not being true as of the Closing Date, and (iii) any other
occurrence of any kind adversely affecting the Business;
(b) duly comply with all laws, ordinances,
orders, injunctions and decrees applicable to the operation of the Business,
and pay all income, payroll, franchise and other taxes when due;
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(c) maintain all of the tangible assets of
the Company in good repair, maintenance and condition, except to the extent of
normal wear and tear, and replace any items of equipment at time intervals
consistent with past practices;
(d) maintain all insurance policies set
forth on schedule 3.23;
(e) except as otherwise requested by NET,
use reasonable efforts, consistent with its past practices, (i) to preserve the
business organization of the Company intact and to preserve the goodwill and
business of the advertisers, suppliers, subscribers and others having business
relations with the Company, (ii) to retain the services of the employees of the
Company, and (iii) to preserve all trademarks, trade names, logos and
copyrights and related registrations of the Company;
(f) not grant or agree to grant any general
increase in the rates of salaries or compensation of its employees, or any
specific increase to any such employee whose total salary or compensation after
the increase would be at an annual rate in excess of $50,000, other than in
each case regularly scheduled annual increases to employees (other than
officers) in the ordinary course of business in amounts consistent with past
practices, or any increase in the pension, retirement or other employment
benefits of the employees of the Company;
(g) except with NET's prior written
approval, not (i) enter into or renew any agreement, commitment or lease which,
if entered into prior to the date of this agreement, would have been required
to be included in schedule 3.13, or (ii) cause or take any action to allow any
lease, agreement or commitment of the Company to lapse (other than in
accordance with its terms), to be modified in any material adverse respect or
otherwise to become impaired in any manner;
(h) except in the ordinary course of
business and substantially consistent with past practice, not (i) enter into
any transaction or incur any liability or obligation that is material to the
Company or (ii) sell or transfer any of the assets of the Company, other than
assets that have worn out or been replaced with other assets of equal or
greater value or assets that are no longer needed in the operation of the
Company; and
(i) not (i) issue any capital stock or
other securities except upon the conversion of outstanding Convertible
Preferred Stock or the exercise of outstanding stock options or warrants, (ii)
amend its certificate of incorporation or by-laws, (iii) take any other action
affecting the capitalization or corporate organization of the Company, (iv)
except for payment of stock dividends on its Convertible Preferred Stock as
required pursuant to the terms of the Convertible Preferred Stock, declare, set
aside or pay any dividend or other distribution in respect of its capital
stock, and not redeem, purchase or otherwise acquire any such stock, or (v)
engage in any transaction with or make any direct or indirect payment of any
kind to or on behalf of the Significant Stockholders or any of the Company's
directors or officers or any of their respective affiliates (other than
payments of compensation to employees hired by the Company in the ordinary
course of business consistent with past practice).
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5.3 Consents and Approvals. The Company shall use
its best efforts to obtain, at the earliest practicable date, in form and
substance reasonably satisfactory to NET, all consents and approvals required
for the consummation of the transactions contemplated by this agreement,
without any condition adverse to NET or the operation of the Company after the
Effective Time. NET shall cooperate with the Company in obtaining the consents.
5.4 Interim Financial Statements. The Company shall
promptly deliver to NET copies of any monthly or quarterly financial statements
or other reports of the Company that may be prepared by the Company during the
period from the date of this agreement to the Closing Date. All such financial
statements shall be prepared from the books and records of the Company, shall
show all income and expenses attributable to the Company and shall fairly
present in all material respects the financial position and results of
operations of the Company as of and for the periods indicated (subject, in the
case of interim financial statements, to normal year-end audit adjustments).
The Company shall also furnish to NET any other information concerning the
financial and operating condition of the Company as NET from time to time
reasonably may request.
5.5 Other Action. No party to this agreement shall
take any action that would result in any of its or their representations and
warranties not being true as of the Closing Date. Each of the parties to this
agreement shall use its best efforts to cause the fulfillment at the earliest
practicable date of all of the conditions to the obligations of the parties to
consummate the transactions contemplated by this agreement.
5.6 Securities Act Matters.
(a) The Company recognizes that the
issuance of shares of NET common stock and Convertible Preferred Stock under
section 2 is intended to be exempt from registration under the Securities Act
of 1933, as amended (the "Securities Act"), by virtue of section 4(2) of the
Securities Act. In that connection, the Company acknowledges that sales or
transfers of shares of NET common stock and Convertible Preferred Stock to be
acquired by the stockholders of the Company are restricted by the Securities
Act and by certain state securities laws and that a legend referring to that
restriction and the restrictions pursuant to this agreement will be placed on
the certificates representing the shares.
(b) None of the stockholders of the Company
may sell or otherwise transfer the shares acquired by them pursuant to this
agreement unless the transaction is registered under the Securities Act and
applicable state securities laws or an exemption from registration is
available.
(c) NET intends to file a Registration
Statement on Form S-4 (the "S-4") in connection with its proposed merger with
Common Places, LLC (the "Common Places Merger"). All of the outstanding shares
of NET at the time of the filing of the S-4, including all shares of common
stock to be issued under this agreement and the shares of common stock of NET
issuable upon conversion of the shares of Convertible Preferred Stock to be
issued under this agreement, shall be exchanged for shares of YouthStream, as
successor to
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NET, and shall thereafter be freely tradeable. If the S-4 does not
become effective by April 30, 2000, the Company shall promptly thereafter file
a Registration Statement on Form S-3 registering the resale of the shares of
common stock of NET issued to the Company stockholders in the Merger (the "Form
S-3"), including the shares of common stock issuable upon conversion of the
Convertible Preferred Stock (any resale to be limited by the terms of the
Lock-Up Agreements referred to in section 5.8). The Company shall use
reasonable efforts to cause the Form S-3 to become effective as promptly as
practicable after the filing and to keep the S-3 effective until June 30, 2001.
If the S-4 does not become effective and if for any reason the Form S-3 is not
then effective and within two years after the Effective Time NET proposes to
file a registration statement (other than a registration statement on Form S-4
or S-8 or any form substituting therefor or the equivalent thereof) on which
securities of NET are to be registered for sale by NET, NET shall give written
notice of such proposed filing to each of the stockholders of the Company at
least 30 days before the anticipated filing date of such registration statement
and such notice shall offer each of the stockholders the opportunity to have up
to 10% of the shares of NET common stock issued to him on the Closing Date
(including the shares issuable upon conversion of the Convertible Preferred
Stock) included in the registration statement. Each stockholder of the Company
desiring to have any of his shares of NET common stock included in the
registration statement shall so advise NET in writing within 20 days after the
date such notice is given by NET (which request shall set forth the number of
shares of NET common stock for which registration is requested). NET shall
include in the registration statement all such securities requested to be
included therein unless, if the registration statement is filed pursuant to an
underwritten offering, the managing underwriter delivers a written opinion that
the inclusion of such requested securities would likely have an adverse effect
on the offering, in which event NET shall include only so many shares as the
managing underwriter indicates may be included without having an adverse effect
on the offering.
Notwithstanding the foregoing, NET shall not have any
obligation to include any of a stockholder's shares in a registration statement
other than the S-3 if, in the opinion of NET's counsel (a copy of which shall
be addressed and delivered to the stockholder), the stockholder is then
permitted by law to sell, in a single transaction pursuant to the provisions of
Rule 144 under the Securities Act, all of the shares of common stock of NET
then held by him. NET shall not have any obligation to notify any of the
stockholders of the filing of a registration statement if he has received a
copy of the opinion referred to in the preceding sentence.
Each stockholder of the Company shall furnish to NET such
information and other material as NET or its counsel may reasonably request
with respect to the public offering of the shares of common stock of NET and
the stockholder shall take any other action which NET may reasonably request in
connection with the registration statement.
(d) NET shall deliver to the Company, no
later than 10 days after the date of this agreement, disclosure materials to be
delivered by the Company to its stockholders in connection with their vote on
the Merger.
5.7 Stockholder Approval. NET shall use reasonable
efforts to obtain approval of its stockholders of the YouthStream Stock
Incentive Plan at the meeting at which the
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merger with Common Places LLC is approved by the stockholders of NET. If the
merger with Common Places LLC is not approved by the stockholders of NET by
April 30, 2000, NET shall call a meeting of its stockholders in accordance with
law as promptly as practicable thereafter to approve the issuance to the
stockholders of the Company of the common stock of NET issuable upon conversion
of the Convertible Preferred Stock and to approve the New NET Stock Option
Plans and shall use best efforts to obtain the requisite vote of approval. If
the stockholders of NET do not approve the New NET Stock Option Plans or the
YouthStream Stock Incentive Plan within one year after adoption by the board of
directors of NET, NET shall indemnify and hold harmless any holder who
exercises an option from any tax consequences of exercise and sale of the
underlying shares of NET common stock that are more adverse than those tax
consequences had the NET Stock Option Plans been so approved by the
stockholders of NET (and NET shall lend to any option holder, without interest,
an amount equal to the taxes payable upon exercise of such options, to be
repaid upon sale of the underlying shares). Upon such stockholder approval, the
Convertible Preferred Stock shall immediately convert into common stock of NET
in accordance with the terms of the Convertible Preferred Stock.
5.8 Lock-Up Agreements. The Company shall use
reasonable efforts to cause stockholders of the Company holding at least 95% of
the sum of the Company's common stock and the Company's common stock issuable
upon conversion of the Company's Convertible Preferred Stock to enter into
Lock-Up Agreements (the "Lock-Up Agreements") with NET in substantially the
form of exhibit 5.8, prohibiting each stockholder from selling 90% of the
shares of common stock of NET issuable to him pursuant to this agreement
(including the shares of common stock of NET issuable upon conversion of the
Convertible Preferred Stock) and 90% of any shares of common stock issuable to
him upon exercise of any option or warrants for a period of nine months after
the Effective Time and 80% of those shares for a period of one year after the
Effective Time. For purposes of each Lock-Up Agreement, shares issued to the
Escrow Agent which would otherwise have been issued to any holder shall be
deemed shares owned by that holder.
5.9 Non-Competition Agreements. The Company shall
use reasonable efforts to cause the management and other key employees of the
Company listed on schedule 5.9 to enter into Non-Competition Agreements in
substantially the form of exhibit 5.9.
5.10 Voting Agreement. Each of the stockholders of
the Company listed on schedule 5.10 has entered into a Voting Agreement with
NET, substantially in the form of exhibit 5.10, agreeing to vote all of the
shares of the Company owned by that stockholder in favor of the Merger and the
transactions contemplated by the agreement.
5.11 S-8. NET shall cause the options to be issued
to employees of the Company pursuant to the New NET Stock Option Plans or the
YouthStream Stock Option Plan to be included in the Registration Statement on
Form S-8 filed by NET with respect to its existing stock option plans or in the
Registration Statement on Form S-8 to be filed by YouthStream with respect to
its stock option plans after the merger with Common Places LLC.
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5.12 D&O Insurance. NET shall cause the Company to
maintain its existing directors and officers liability insurance for a period
of one year after the Effective Time. After the Merger, NET shall not amend the
certificate of incorporation of Newco to limit or eliminate the indemnification
of officers and directors as currently provided for in article ___ of Newco's
certificate of incorporation.
5.13 Company Stockholder Approval. The Company shall
call a meeting of its stockholders in accordance with law as promptly as
practicable and, in any event, no later than 25 days after the date of this
agreement, to approve the Merger and related matters and shall, through its
board of directors, use reasonable efforts to solicit the requisite vote of
approval. The board of directors of the Company shall recommend to the
stockholders of the Company that they approve the Merger.
5.14 Tax Free Reorganization. The Merger is a tax
free reorganization pursuant to the Internal Revenue Code, and the parties
shall so characterize the Merger and the transactions contemplated by this
agreement for tax and all other purposes.
5.15 Common Places Merger. NET shall use reasonable
efforts to cause the merger with Common Places LLC to be effected as promptly
as practicable after the Effective Time; provided, however (a) the board of
directors of NET may make any determination to delay or not to consummate the
merger with Common Places LLC that the board of directors of NET determines to
be in the best interests of the stockholders of NET, and (b) NET shall have no
liability to the Company or its stockholders as a result of any delay or
abandonment of the merger with Common Places LLC as a result of any
determination by the board of directors of NET pursuant to clause (a) above.
5.16 Securities Act Covenants. NET shall promptly
deliver to the Representatives copies of all filings with the SEC, including
the S-4, in connection with the Common Places Merger, and all correspondences
to and from the SEC with respect to that Merger. NET shall file all reports
required under the Securities Exchange Act of 1934 on a timely basis to permit
sales of shares of NET common stock by the Company's stockholders pursuant to
Rule 144 under the Securities Act of 1933.
5.17 Accountants Consent. The Company shall use
reasonable efforts to cause PricewaterhouseCoopers LLP to deliver to NET its
consent to the inclusion of the audited financial statements of the Company for
the years ended December 31, 1997, 1998 and 1999 in any filing by NET or
YouthStream with the SEC.
5.18 Listing on NASDAQ. NET shall cause the shares
of NET common stock to be issued at the Effective Time to be listed on NASDAQ
by the Effective Time and the shares of NET common stock (or YouthStream common
stock) to be issued upon conversion of the Convertible Preferred Stock to be
listed on NASDAQ by the time of the conversion of the Convertible Preferred
Stock.
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5.19 Expenses. Except as expressly provided in this
agreement, the parties shall bear their own expenses incurred in connection
with the negotiation and preparation of this agreement and in connection with
the transactions contemplated by this agreement.
5.20 Further Assurances. At any time and from time
to time after the date of this agreement, each party shall, without further
consideration, execute and deliver to the other parties such other instruments
and take such other action as the others may reasonably request to carry out
the transactions contemplated by this agreement.
60 Conditions to Closing.
6.1 Conditions Precedent to Obligations of Newco and
NET. The obligations of Newco
and NET to consummate the transactions contemplated by this agreement are
subject to the fulfillment, prior to or at the closing, of each of the
following conditions (any or all of which may be waived by Newco or NET):
(a) all representations and warranties of
the Company to Newco and NET shall be true and correct in all material respects
as of the time of the closing, with the same effect as though those
representations and warranties had been made again at and as of that time;
(b) the Company shall have performed and
complied with all obligations and covenants required by this agreement to be
performed or complied with by them, respectively, prior to or at the closing;
(c) NET shall have been furnished with a
certificate (dated the Closing Date and in form and substance reasonably
satisfactory to NET) executed by the president of the Company, certifying to
the fulfillment of the conditions specified in sections 6.1(a) and 6.1(b);
(d) NET shall have been furnished with an
opinion of Morse, Zelnick, Rose & Lander, LLP, counsel to the Company, in the
form of exhibit 6.1(d);
(e) the holders of the requisite percentage
of the Company's common stock and preferred stock shall have approved the
Merger;
(f) the requisite Lock-Up Agreements
required pursuant to section 5.8 and the Non-Competition Agreements required
pursuant to section 5.9 shall have been executed and delivered to NET;
(g) the Company shall have duly received
all consents and approvals required for the consummation of the transactions
contemplated by this agreement, including any required consents from the
holders of all options (other than Employee Stock Options) and warrants to the
conversion of their options or warrants as provided in section 2.1(e);
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(h) the Company shall have delivered to NET
evidence reasonably satisfactory to NET that the issuance of NET common stock
and Convertible Preferred Stock upon the Merger is exempt from registration
under the Securities Act;
(i) there shall not be in effect any
injunction or restraining order issued by a court of competent jurisdiction in
an action or proceeding against the consummation of the transactions
contemplated by this agreement; and
(j) the holders of not more than 5% of the
stock of the Company shall have validly exercised appraisal rights with respect
to the Merger.
6.2 Conditions Precedent to Obligations of the
Company. The obligations of the Company to consummate the transactions
contemplated by this agreement are subject to the fulfillment, prior to or at
the closing, of each of the following conditions (any or all of which may be
waived by the Company):
(a) all representations and warranties of Newco
and NET shall be true and correct in all material respects as of the time of
the closing, with the same effect as though those representations and
warranties had been made again at and as of that time;
(b) Newco and NET shall have performed and
complied with all obligations and covenants required by this agreement to be
performed or complied with by them, respectively, prior to or at the closing;
(c) since the date of this agreement there shall
not have occurred: (i) the death or disability or resignation or other
termination of employment of Harlan Peltz or Benjamin Bassi; (ii) the
suspension of trading on NASDAQ of NET's stock for a period of two consecutive
days; (iii) the commencement of an investigation, lawsuit or proceeding against
NET or Common Places LLC seeking to enjoin the Common Places Merger or seeking
damages in excess of $5,000,000, or injunctive relief which, if granted, would
have a material adverse effect on any of NET's business operations, unless
counsel for NET or Common Places LLC delivers a written opinion to the Company
that, in its judgment, the investigation, lawsuit or proceeding is not likely
to result in injunctive relief or an award of damages material to NET or Common
Places LLC; or (iv) a decision to terminate or abandon the Common Places
Merger.
(d) the Representatives (as defined in Section
8.5) shall have been furnished with a certificate (dated the Closing Date and
in form and substance reasonably satisfactory to the Representatives) executed
by the president of NET, certifying to the fulfillment of the conditions
specified in sections 6.2(a), 6.2(b) and 6.2(c);
(e) the Representatives shall have been
furnished with an opinion of Proskauer Rose LLP, counsel to Newco and NET, in
the form of exhibit 6.2(e);
(f) the holders of the requisite percentage of
the Company's common stock and preferred stock shall have approved the Merger;
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(g) there shall not be in effect any injunction
or restraining order issued by a court of competent jurisdiction in an action
or proceeding against the consummation of the transactions contemplated by this
agreement; and
(h) there shall have been listed on NASDAQ the
shares of NET common stock issuable to the stockholders of the Company at the
Effective Time.
70 Documents to be Delivered at Closing.
7.1 Documents to Be Delivered by the Company. At the closing,
the Company shall deliver to NET and Newco the following:
(a) the certificate referred to in section
6.1(c);
(b) the opinion referred to in section
6.1(d);
(c) a copy of resolutions of the board of
directors and the stockholders of the Company approving the Merger, and a
certificate of its secretary or assistant secretary, dated the Closing Date,
that such resolutions were duly adopted and are in full force and effect;
(d) the Lock-up Agreements referred to in
section 5.8; and
(e) the Non-Competition Agreements referred
to in section 5.9.
7.2 Documents To Be Delivered by Newco and NET. At
the closing, Newco and NET shall deliver to the Representatives the following:
(a) certificates representing the number of
shares of common stock and Convertible Preferred Stock of NET as determined in
accordance with section 2.1(a) issued in the names of the stockholders of the
Company;
(b) the certificate referred to in section
6.2(d);
(c) the opinion referred to in section
6.2(e);
= (d) a copy of resolutions of the boards of directors
of NET and Newco, and a certificate of the secretary or assistant secretary of
NET or Newco, as the case may be, dated the Closing Date, that such resolutions
were duly adopted and are in full force and effect;
(e) the Lock-up Agreements referred to in section
5.8; and
(f) the Non-Competition Agreements referred to in
section 5.9.
80 Survival of Representations and Warranties;
Indemnification.
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8.1 Survival. All representations, warranties and
agreements by the Company shall survive the closing under this agreement for a
period of one year notwithstanding any investigation at any time by or on
behalf of Newco or NET, and shall not be considered waived by Newco's or NET's
consummation of the transactions contemplated by this agreement with knowledge
of any breach or misrepresentation by the Company. All representations,
warranties and agreements by Newco and NET shall survive the closing under this
agreement for a period of one year except for the representations covered by
the certification under section 6.2(d) relating to the conditions in section
6.2(c) which shall survive the closing for three months, notwithstanding any
investigation at any time by or on behalf of the Company, and shall not be
considered waived by the Company's consummation of the transactions
contemplated by this agreement with knowledge of any breach or
misrepresentation by Newco or NET.
8.2 Indemnification.
(a) The Company and NET shall be
indemnified and held harmless, solely out of the shares of NET common stock and
Convertible Preferred Stock held pursuant to the Escrow Agreement, against all
loss, liability, damage or expense (including reasonable fees and expenses of
counsel, whether involving a third party or between the parties to this
agreement) (collectively, "Losses") the Company or NET may suffer, sustain or
become subject to as a result of any breach of any representation, warranty,
covenant or other agreement of the Company contained in this agreement, or any
misrepresentation by the Company, or any claim by a third party which without
regard to the merits of the claim would constitute such a breach or
misrepresentation.
(b) NET shall indemnify and hold harmless
the stockholders of the Company against all Losses the stockholders of the
Company may suffer, sustain or become subject to as a result of any breach of
any representation, warranty, covenant or other agreement of Newco or NET
contained in this agreement, or any misrepresentation by Newco or NET, or any
claim by a third party which, without regard to the merits of the claim, would
constitute such a breach or misrepresentation.
8.3 Limitations on Liability. Notwithstanding
anything to the contrary in this agreement, (a) no party shall be entitled to
indemnification for misrepresentation or breach of warranty unless the aggregate
Losses incurred as a result of all such misrepresentations and breaches of
warranty exceeds the sum of $500,000, in which event such party shall be
entitled to indemnification for all such Losses in excess of $500,000, (b) the
only recourse of NET and the Company for indemnification under this agreement
shall be to the shares of NET common stock and Convertible Preferred Stock held
pursuant to the Escrow Agreement and NET and the Company shall have no other
recourse against the stockholders of the Company with respect to such
indemnification obligations, and (c) for purposes of indemnification by the
stockholders of the Company, each share of NET common stock and Convertible
Preferred Stock held in escrow shall be valued at $24.00.
8.4 Defense of Claims. If any third-party claim is
made against any party that, if sustained, would give rise to a liability of
the other party, the party against whom
25
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the claim is made shall promptly cause notice of the claim to be delivered to
the other party and shall afford the other party and its counsel, at the other
party's sole expense, the opportunity to join in defending or compromising the
claim.
8.5 Representatives. For purposes of any
indemnification claim, Andrew Weinreich and Matthew Cowan (or if either of them
ceases to act, a successor designated by the holders of a majority of the
shares of the Company's common stock) shall act as representatives (the
"Representatives") of the stockholders of the Company, and shall have full
authority, on behalf of all of the stockholders of the Company, to make any
determination or to settle any claim pursuant to this section 8. By approving
the Merger, the stockholders of the Company shall be deemed to have confirmed
the appointment and authority of the Representatives, and NET shall be entitled
to rely on the Representatives' authority. The Representatives in acting for
the stockholders of the Company shall have no liability unless they are guilty
of gross negligence or willful misconduct in performing their responsibilities
as Representatives. The Representatives may instruct the Escrow Agent to sell
up to 25,000 shares of the NET common stock held in escrow to pay any expenses
of defending any claims for indemnification pursuant to this section 8.
90 Termination.
9.1 This agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
stockholders of the Company:
(a) by mutual consent of the boards of directors
of NET and the Company;
(b) by NET or the Company, if, without fault of
the terminating party, the Merger shall not have been consummated on or before
January 31, 2000, which date may be extended by mutual agreement of the boards
of directors of NET and the Company;
(c) by the Company, if any event shall have
occurred that renders any condition set forth in section 6.2 incapable of
fulfillment and such condition is not waived by the Company; or
(d) by NET, if any event shall have occurred
that renders any condition set forth in section 6.1 incapable of fulfillment
and such condition is not waived by NET.
9.2 Notice of Termination. In the event of
termination of the Merger pursuant to this section 9, written notice of
termination shall promptly be given to each other party to this agreement.
9.3 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.
26
<PAGE>
100 Miscellaneous.
10.1 Finders. The parties represent and warrant that
they have not employed or
utilized the services of any broker or finder in connection with this agreement
or the transactions contemplated by it, except that NET has employed Allen &
Company, and shall be responsible for the fees payable to Allen & Company.
10.2 Entire Agreement. This agreement (together
with the Lock-up Agreements referred to in section 5.8, the Employment
Agreements referred to in section 5.9, and the Voting Agreements referred to in
section 5.10 and the Escrow Agreement referred to in section 2.2) contains, and
is intended as, a complete statement of all of the terms of the arrangements
among the parties, supersedes any previous agreements and understandings among
the parties with respect to those matters, and cannot be changed or terminated
orally and there are no representations or warranties by any party except as
provided in this agreement.
10.3 Governing Law. This agreement shall be
governed by and construed in accordance with the law of the State of New York
applicable to agreements made and to be performed entirely in New York, except
that the provisions relating to the merger of Newco into the Company shall be
governed by Delaware law to the extent appropriate.
10.4 Headings. The section headings of this
agreement are for reference purposes only and are to be given no effect in the
construction or interpretation of this agreement.
10.5 Notices. All notices and other
communications under this agreement shall be in writing and shall be deemed
given when delivered personally or by facsimile (receipt confirmed), one day
after being sent by recognized overnight courier or four days after being
mailed by registered mail, return receipt requested, to the parties at the
following addresses (or to such other address as a party may specify by notice
given to the other pursuant to this provision):
(a) If to the Company, addressed to it at:
c/o sixdegrees, inc.
28 West 23rd Street
New York, NY 10010
Attention:
Thea A. Winarsky, Esq.
Vice President & General Counsel
with a copy to:
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York
Attention: Howard L. Weinreich, Esq.
(b) If to Newco or NET, addressed to either
or both of them at:
Network Event Theater, Inc.
529 Fifth Avenue
New York, New York 10017
Attention: Bruce Resnik,
Executive Vice President and
Chief Financial Officer
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attention: Bertram A. Abrams, Esq.
10.6 Waiver. Any party may waive compliance by another with
any of the provisions of this agreement. No waiver of any provision shall be
construed as a waiver of any other provision. Any waiver must be in writing and
must be signed by the party waiving the provision.
10.7 Separability. If any provision of this agreement is
invalid or unenforceable, the balance of this agreement shall remain in effect
unless such invalidity or unenforceability shall materially impair the purpose
or objectives of this agreement.
10.8 Assignment. No party may assign any of its or her rights
or delegate any of its or her duties under this agreement without the consent
of the other parties.
10.9 Publicity. No party shall issue any press release or
other public statement regarding the transactions contemplated by this
agreement, except as required by applicable law and except that the Company and
NET may issue a press release approved in writing by both parties and either
party may thereafter disclose such information as it determines necessary or
appropriate.
10.10 Definitions. As used in this agreement, the term
"affiliate" means any person or entity directly or indirectly controlled by,
controlling, or under common control with, any other person or entity. As used
in this agreement, the term "subsidiary" of a person means any corporation or
other legal entity of which that person (either alone or through or together
with any other subsidiary) owns, directly or indirectly, more than 50% of the
stock or other equity interests that are ordinarily and generally, in the
absence of contingencies and understandings, entitled to vote for the election
of the board of directors or other governing body of such entity.
10.11 No Third Party Beneficiaries. This agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this agreement.
10.12 Specific Performance. The Company acknowledges that the
Company is of a special, unique and extraordinary character, and that any
breach of this agreement by the Company could not be compensated for by
damages. Accordingly, if the Company breaches its obligations under this
agreement NET shall be entitled, in addition to any other remedies that it
28
<PAGE>
may have, to enforcement of this agreement by a decree of specific performance
requiring the Company to fulfill its obligations under this agreement, and no
bond or other security shall be required.
29
<PAGE>
10.13 Counterparts. This agreement may be executed in one or
more counterparts.
sixdegrees, inc.
By: /s/ Andrew Weinreich
--------------------------------------
Andrew Weinreich
President & Chief Executive Officer
SIXDEGREES ACQUISITION CORP.
By: /s/ Bruce L. Resnik
--------------------------------------
Bruce L. Resnik
Executive Vice President and
Chief Financial Officer
NETWORK EVENT THEATER, INC.
By: /s/ Bruce L. Resnik
--------------------------------------
Bruce L. Resnik
Executive Vice President and
Chief Financial Officer
30
<PAGE>
Exhibit 10.35
NETWORK EVENT THEATER, INC.
--------------------------
1999 STOCK OPTION PLAN
--------------------------
ARTICLE I
PURPOSE
The purpose of this Network Event Theater, Inc. 1999 Stock Option 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:
2.1 "Acquisition Event" has the meaning set forth in Section
4.2(d).
2.2 "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.
2.3 "Board" means the Board of Directors of the Company.
2.4 "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,
<PAGE>
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 Option (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 Affiliate and
the Participant at the time of the grant of the Option 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.
2.5 "Change in Control" has the meaning set forth in Article
VIII.
2.6 "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.
2.7 "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.
2.8 "Common Stock" means the common stock, $.01 par value per
share, of the Company.
2.9 "Company" means Network Event Theater, Inc., a Delaware
corporation, and its successors by operation of law.
2.10 "Consultant" means any advisor or consultant to the
Company or its Affiliates.
2.11 "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.
2.12 "Effective Date" means the effective date of this Plan as
defined in Article XII.
2
<PAGE>
2.13 "Eligible Employee" means each employee of the Company or
an Affiliate.
2.14 "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.
2.15 "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 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.
2.16 "Foreign Jurisdiction" means any jurisdiction outside of
the United States including, without limitation, countries, states,
provinces and localities.
2.17 "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.
2.18 "Non-Qualified Stock Option" means any Stock Option
awarded under this Plan that is not an Incentive Stock Option.
2.19 "Parent" means any parent corporation of the Company
within the meaning of Section 424(e) of the Code.
2.20 "Participant" means any Eligible Employee or Consultant
to whom an Option has been granted under this Plan.
2.21 "Plan" means this Network Event Theater, Inc. 1999 Stock
Option Plan, as amended from time to time.
3
<PAGE>
2.22 "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.
2.23 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the
Exchange Act as then in effect or any successor provisions.
2.24 "Section 162(m) of the Code" means Section 162(m) of the
Code and any Treasury regulations thereunder.
2.25 "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.
2.26 "Stock Option" or "Option" means any option to purchase
shares of Common Stock granted to Eligible Employees or Consultants
under Article VI.
2.27 "Subsidiary" means any subsidiary corporation of the
Company within the meaning of Section 424(f) of the Code.
2.28 "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.
2.29 "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 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.
2.30 "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.
4
<PAGE>
2.31 "Transfer" means anticipate, alienate, attach, sell,
assign, pledge, encumber, charge, hypothecate or otherwise transfer and
"Transferred" has a correlative meaning.
ARTICLE III
ADMINISTRATION
3.1 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 Options,
grants, interpretations or other actions of the Committee.
3.2 Grants of Options. The Committee shall have full authority
to grant to Eligible Employees and Consultants, pursuant to the terms
of this Plan, Stock Options. All Stock Options 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 Stock Options may from time to time be granted
hereunder;
(b) to determine whether and to what extent Stock
Options 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 Stock Option granted hereunder;
(d) to determine the terms and conditions, not
inconsistent with the terms of this Plan, of any Stock Option
granted hereunder (including, but not limited to, the exercise
or purchase price, any restriction or limitation, any vesting
schedule or acceleration thereof and any forfeiture
restrictions or waiver thereof, regarding any Stock Option 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 and/or Common 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;
5
<PAGE>
(g) to determine whether a Stock Option is an
Incentive Stock Option or Non-Qualified Stock Option or
whether a Stock Option 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
Stock Option, not to sell or otherwise dispose of shares of
Common Stock acquired pursuant to the exercise of a Stock
Option for a period of time as determined by the Committee, in
its sole discretion, following the date of the acquisition of
such Stock Option;
(i) to modify, extend or renew a Stock Option,
subject to Article IX herein, provided, however, that if a
Stock Option is modified, extended or renewed and thereby
deemed to be the issuance of a new Stock Option under the Code
or the applicable accounting rules, the exercise price of a
Stock Option 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 a Stock 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.
3.3 Guidelines. Subject to Article IX 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 Option 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.
3.4 Decisions Final. Any decision, interpretation or other
action made or taken in good faith by or at the direction of the
Company, 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.
6
<PAGE>
3.5 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.
3.6 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.
3.7 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.
(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 Option 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
7
<PAGE>
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 Options
granted to him or her under this Plan.
ARTICLE IV
SHARE AND OTHER LIMITATIONS
4.1 Shares. 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 Stock Options may be granted shall not exceed
475,000 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 granted under this Plan
expires, terminates or is canceled for any reason without having been
exercised in full or the Company repurchases any Stock Option, the
number of shares of Common Stock underlying such unexercised or
repurchased Stock Option shall again be available for the purposes of
Options under this Plan. In determining the number of shares of Common
Stock available for Non-Qualified 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 Non-Qualified Stock
Options under this Plan.
4.2 Changes.
(a) The existence of this Plan and the Options
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,
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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 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 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 Option 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 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, 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 that are
then outstanding (without regard to any limitations on
exercisability otherwise contained in the Stock Option
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.
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If an Acquisition Event occurs but the Committee does not
terminate the outstanding Stock Options pursuant to this Section
4.2(d), then the provisions of Section 4.2(b) shall apply.
4.3 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.
4.4 Assumption of Options. Stock 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 sixdegrees, inc. 1997 Incentive Stock 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
2.1(c) of the Merger Agreement dated December 14, 1999 among the
Company, Sixdegrees Acquisition Corp. and sixdegrees, inc. 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.
ARTICLE V
ELIGIBILITY
5.1 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 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 Option and actual participation
in this Plan shall be determined by the Committee in its sole
discretion. The vesting and exercise of Options granted to a
prospective employee or Consultant are conditioned upon such individual
actually becoming an Eligible Employee or Consultant.
5.2 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 Option and actual participation in this Plan shall be
determined by the Committee in its sole discretion.
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ARTICLE VI
STOCK OPTIONS
6.1 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.
6.2 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. 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. 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.
6.3 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 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
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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.
(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
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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.
ARTICLE VII
NON-TRANSFERABILITY AND TERMINATION OF
EMPLOYMENT/CONSULTANCY
7.1 Non-Transferability. No Stock Option shall be Transferable by the
Participant otherwise than by will or by the laws of descent and distribution.
All Stock Options shall be exercisable, during the Participant's lifetime, only
by the Participant. No Stock Option shall, except as otherwise specifically
provided by law or herein, be Transferable in any manner, and any attempt to
Transfer any such Stock Option shall be void, and no such Stock Option 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 Stock Option,
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 7.1 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,
brother-in-law, or sister-in-law, including adoptive relationships, any person
sharing the employee's household (other than a tenant
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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.
7.2 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, 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 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; provided, however, that, in the case of
Retirement, if the Participant dies within such exercise
period, all unexercised Stock Options 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.
(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 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.
(iii) Voluntary Termination. If a
Participant's Termination of Employment or Termination of
Consultancy is voluntary, all Stock Options 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 terms of such Stock Options.
(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
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for Cause, all Stock Options held by such Participant shall
thereupon terminate and expire as of the date of such
Termination of Employment or Termination of Consultancy.
ARTICLE VIII
CHANGE IN CONTROL PROVISIONS
8.1 Benefits. In the event of a Change in Control of the
Company, except as otherwise provided by the Committee upon the grant
of a Stock Option the Participant shall be entitled to the following
benefits:
(a) Except to the extent provided in the applicable
Stock Option 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), Options granted and not previously exercisable shall
not become exercisable 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 8.1, 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.
(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;
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(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 Option.
8.2 Change in Control. A "Change in Control" shall be deemed
to have occurred:
(a) at the time 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 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
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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) at the time 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 IX
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 XI), 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 Options 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 stockholders 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) change the classification of Participants eligible to
receive Stock Options under this Plan; (iii) decrease the minimum
option price of any Stock Option; or (iv) extend the maximum option
period under Section 6.3. 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 to make any
other amendment that would require stockholder approval under the rules
of any exchange
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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 Option 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 X
UNFUNDED PLAN
10.1 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 XI
GENERAL PROVISIONS
11.1 Legend. The Committee may require each person receiving
shares pursuant to a Stock Option 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 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 Common Stock is then
listed or any national securities association system upon whose system
the Common 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.
11.2 Other Plans. Nothing contained in this Plan shall prevent
the Board from adopting other or additional compensation arrangements,
subject to stockholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases.
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11.3 No Right to Employment/Consultancy. Neither this Plan nor
the grant of any Option 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
there 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.
11.4 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 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.
11.5 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 Option 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.
(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 Option 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 Stock Options, 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 11.5, any Stock Option affected by such
suspension which shall not then have expired or terminated
shall be reinstated as to all shares available before such
suspension and
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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.
11.6 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).
11.7 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.
11.8 Other Benefits. No grant of an Option 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.
11.9 Costs. The Company shall bear all expenses included in
administering this Plan, including expenses of issuing Common Stock
pursuant to any Options hereunder.
11.10 No Right to Same Benefits. The provisions of Options
need not be the same with respect to each Participant, and such Options
to individual Participants need not be the same in subsequent years.
11.11 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
evidence as the Committee deems necessary to establish the validity of
the transfer of an Option. The Committee may also require that the
agreement of the transferee to be bound by all of the terms and
conditions of this Plan.
11.12 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.
11.13 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
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hereof, and this Plan shall be construed and enforced as if such
provisions had not been included.
11.14 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 XII
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 XIII
TERM OF PLAN
No Option 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 Options granted prior to such tenth anniversary may
extend beyond that date.
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Exhibit 10.36
NETWORK EVENT THEATER, INC.
1999 SPECIAL STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I PURPOSE.....................................................1
ARTICLE II DEFINITIONS.................................................1
ARTICLE III ADMINISTRATION..............................................5
ARTICLE IV SHARE AND OTHER LIMITATIONS.................................8
ARTICLE V ELIGIBILITY................................................10
ARTICLE VI STOCK OPTIONS..............................................11
ARTICLE VII NON-TRANSFERABILITY AND TERMINATION OF
EMPLOYMENT/CONSULTANCY.....................................13
ARTICLE VIII CHANGE IN CONTROL PROVISIONS...............................15
ARTICLE IX TERMINATION OR AMENDMENT OF PLAN...........................17
ARTICLE X UNFUNDED PLAN..............................................18
ARTICLE XI GENERAL PROVISIONS.........................................18
ARTICLE XII EFFECTIVE DATE OF PLAN.....................................21
ARTICLE XIII TERM OF PLAN...............................................21
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NETWORK EVENT THEATER, INC.
1999 SPECIAL STOCK OPTION PLAN
1. PURPOSES. The purposes of this Stock Option Plan are to attract and
retain the best qualified personnel for positions of substantial responsibility,
to provide additional incentive to the Employees and directors of the Company or
its Subsidiaries, if any (as defined in Section 2 below), as well as other
individuals and consultants who perform services for the Company or its
Subsidiaries, who contribute to the Company's success by their ability,
ingenuity and industry, and to enable such persons to participate in the
long-term success and growth of the Company by giving them an equity interest in
the Company.
The Options offered pursuant to this Plan are a matter of separate
inducement and are not in lieu of any salary or other compensation for the
services of any Employee or any other individual.
Options granted hereunder may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"non-qualified stock options," at the discretion of the Board and as reflected
in the terms of the written instrument evidencing an Option, although the
Company makes no warranty as to the qualification of any Option as an Incentive
Stock Option.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Cause" shall mean (i) an act or acts or personal
dishonesty of a Participant at the expense of the Company or any of its
Subsidiaries, (ii) a willful act of misconduct which is materially injurious to
the Company, monetarily or otherwise, including but not limited to engaging in
any conduct which constitutes a felony under federal, state or local laws (other
than traffic violations); (iii) violation of the management responsibilities by
the Participant which is demonstrably willful and deliberate on the
Participant's part and which is not remedied within a reasonable period of time
after receipt of written notice from the Company or a Subsidiary; or (iv) the
conviction of the Participant of a felony involving moral turpitude.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Common Stock" shall mean the Common Shares of the Company
(par value $.01 per share).
(e) "Company" shall mean Network Event Theater, Inc., a
Delaware corporation.
<PAGE>
(f) "Committee" shall mean the Committee appointed by the
Board of Directors in accordance with Section 4(a) of the Plan, if one has been
appointed, or the Board if no Committee has been appointed.
(g) "Continuous Status as an Employee" shall mean the absence
of any interruption or termination of service as an Employee. Continuous Status
as an Employee shall not be considered interrupted in the case of sick leave,
military leave, or any other leave of absence approved by the Board; provided,
however, in the event an Employee's status shall change from that of a full-time
employee (defined as working, on average, 30 or more hours per week) to that of
a part-time employee or consultant, or if Employee shall take an approved leave
of absence from the Company for any reason, Employee's Continuous Status as an
Employee shall be deemed suspended during such period of time and the accrual of
Employee's vesting rights to any affected portion of the Option shall also be
suspended during such period. When and if Employee's status shall revert to that
of a full-time employee not on leave of absence, Employee shall be deemed again
to be in Continuous Status as an Employee and his/her vesting rights shall
continue to accrue from such reversion date. When and if it is determined or the
Company is notified that Employee's status will not revert to that of a
full-time employee not on leave of absence, Employee shall forfeit any unvested
portion of the Option and, for purposes of exercising any unexercised portion of
the Option, if any, the date on which the Company determined or is notified that
reversion shall not occur shall be considered the date upon which Employee's
Continuous Status as an Employee shall be deemed to have terminated.
(h) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(i) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(j) "Incentive Stock Option" shall mean a stock option
intended to qualify as an incentive stock option within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended.
(k) "Non-qualified Stock Option" shall mean a stock option not
intended to qualify as an Incentive Stock Option.
(l) "Option" shall mean a stock option granted pursuant to the
Plan (whether an Incentive Stock Option or Non-qualified Stock Option).
(m) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(n) "Optionee" shall mean an Employee or other person who
receives an Option.
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(o) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 425(e) of the Internal Revenue Code of
1986, as amended.
(p) "Participant" shall mean an individual designated by the
Committee to receive the grant of an Option.
(q) "Plan" shall mean this 1999 Stock Option Plan of the
Company.
(r) "Plan Year" shall mean each calendar year that is the
anniversary of the Effective Date (as defined below) of this Plan, with the
first such Plan Year commencing on the Effective Date of this Plan.
(s) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(t) "SEC" shall mean the Securities and Exchange Commission.
(u) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 11 of the Plan.
(v) "Subsidiary" shall mean a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 425(f) of the Internal
Revenue Code of 1986, as amended.
3. STOCK.
(a) Maximum Number of Shares. Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of shares which may be
issued pursuant to Options granted hereunder shall be ____________ Shares. If an
Option should expire or become unexercisable for any reason without having been
exercised in full, the unissued Shares which were subject thereto shall, unless
the Plan shall have been terminated, become available for further grant under
the Plan. Similarly, Shares which have been issued, but which the Company
retains or which the Participant tenders to the Company in satisfaction of
income and payroll tax withholding obligations or in satisfaction of the
exercise price of any Option shall remain authorized and shall again be
available for the purposes of the Plan, provided, however, that any such
previously issued Shares shall not be the subject of any grant under this Plan
to any officer of the Company who, at the time of such grant, is subject to the
short-swing trading provisions of Section 16 of the Exchange Act.
(b) Plan Year Limitations. The maximum number of Shares with
respect to which Options may be granted in any Plan Year to any Optionee will be
_____________.
(c) Source of Shares. Shares which may be acquired under the
Plan may be either authorized but unissued Shares, Shares of issued stock held
in the Company's treasury, or both, at the discretion of the Company.
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<PAGE>
(d) No Rights as Stockholder. A Participant under this Plan
shall have no rights as a stockholder with respect to any Shares subject to such
Option until such Shares have been issued.
4. ADMINISTRATION.
(a) Procedure. The Company's Board of Directors may appoint a
Committee to administer the Plan. The Committee shall consist of not less than
two (2) members of the Board of Directors who shall administer the Plan on
behalf of the Board of Directors, subject to such terms and conditions as the
Board of Directors may prescribe. The Committee shall be comprised of at least
two disinterested persons (the term "disinterested" having the meaning ascribed
to it by Rule 16b-3 of the Exchange Act). Any member of the Committee must
recuse him or herself from any vote or discussion of Options that have been or
may be granted to such member under the Plan. A majority of the Committee shall
constitute a quorum, and the act of a majority of the members of the Committee
shall be the act of the Committee. Once appointed, the Committee shall continue
to serve until otherwise directed by the Board of Directors. From time to time
the Board of Directors may increase the size of the Committee and appoint
additional members thereof, remove members (with or without Cause), and appoint
new members in substitution therefor, fill vacancies, however caused, or remove
all members of the Committee and thereafter directly administer the Plan. If the
Board of Directors fails to appoint a Committee or if the Board of Directors so
chooses, then the Board of Directors shall assume the responsibilities of the
Committee.
(b) Powers of the Committee. Subject to the provisions of the
Plan, the Committee shall have the authority, in its discretion: (i) to grant
Incentive Stock Options, in accordance with Section 422 of the Code, or to grant
Non-qualified Stock Options; (ii) to determine, upon review of relevant
information and in accordance with Section 8(b) of the Plan, the fair market
value of the Common Stock; (iii) to determine the exercise price per share of
Options to be granted which exercise price shall be determined in accordance
with Section 8(a) of the Plan; (iv) to determine the vesting period for any
Options granted hereunder in accordance with Section 9(a) of the Plan; (v) to
determine the persons to whom, and the time or times at which, Options shall be
granted and the number of shares to be represented by each Option; (vi) to
interpret the Plan; (vii) to prescribe, amend and rescind rules and regulations
relating to the Plan; (viii) to determine the terms and provisions of each
Option granted (which need not be identical) and, with the consent of the holder
thereof, modify or amend each Option; (ix) to accelerate or defer (with the
consent of the Participant) the exercise date of any Participant; (x) to
authorize any person to execute on behalf of the Company any instrument required
to effectuate the grant of an Option previously granted by the Board; and (xi)
to make all other determinations deemed necessary or advisable for the
administration of the Plan. Any determination of the Committee under the Plan
may be made without notice of meeting of the Committee by a writing signed by a
majority of the Committee members.
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<PAGE>
(c) Employment of Agents. The Committee may employ such legal
counsel, consultants and agents it may deem desirable for the administration of
the Plan and may rely upon any opinion received from any such counsel or
consultant and any computation received from any such consultant or agent. The
Board of Directors shall determine the budget for the Committee. Expenses
incurred by the Committee in the engagement of such counsel, consultant or agent
shall be paid by the Company to the extent they do not exceed the budget
established by the Board of Directors. No member or former member of the
Committee or the Board of Directors shall be liable for any action or
determination made in good faith with respect to the Plan or any Option.
(d) Effect of the Committee's Decision. All decisions,
determinations, and interpretations of the Committee shall be final and binding
on all Participants and any other holders of any Options granted under the Plan,
although the full Board of Directors may, in its discretion, overrule the
decisions of the Committee.
5. ELIGIBILITY; NON-DISCRETIONARY GRANTS.
(a) General. Incentive Stock Options may be granted only to
Employees. Non-qualified Stock Options may be granted to Employees as well as
non-Employee directors and consultants, as determined by the Committee. A
director of the Company or of a Subsidiary who is not also an officer or
Employee of the Company or of such Subsidiary will not be eligible to receive an
Incentive Stock Option. Any person who has been granted an Option may, if s/he
is otherwise eligible, be granted an additional Option or Options. The Plan
shall not offer upon any Participant any right with respect to continuation of
employment by the Company, nor shall it interfere in any way with his/her right
or the Company's right to terminate his/her employment at any time.
The Committee shall consider such factors as it deems
pertinent in selecting Participants and in determining the type and amount of
their respective Options, including without limitation (a) the financial
condition of the Company, (b) anticipated financial results for the current or
future years, including return on invested capital, (c) the contribution by the
Participant to the profitability and development of the Company through the
achievement of strategic objectives, and (d) other compensation provided to
Participants.
(b) Limitation on Incentive Stock Options. No Incentive Stock
Option may be granted to an employee if, as the result of such grant, the
aggregate fair market value (determined at the time each Option was granted) of
the Shares with respect to which such Incentive Stock Options are exercisable
for the first time by such Employee during any calendar year (under all such
plans of the Company and any Parent and Subsidiary) shall exceed One Hundred
Thousand Dollars ($100,000). Any Options granted in excess of that amount shall
be deemed Non-qualified Stock Options. In addition, if for any reason any
Options (or any portion of any Options) granted or labeled as Incentive Stock
Options do not qualify as Incentive Stock Options, such Options shall be deemed
to be Non-qualified Stock Options to the extent they do not qualify as Incentive
Stock Options.
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6. TERM OF THE PLAN. The Plan shall become effective on the date (the
"Effective Date") of its adoption by the Board of Directors. The Plan shall
continue in effect until the tenth anniversary of its Effective Date unless
sooner terminated under Section 14 of the Plan.
7. TERM OF THE OPTION. The term of each Option shall be ten (10) years
from the date of grant thereof or such shorter term as may be provided in the
instrument evidencing the Option.
8. EXERCISE PRICE AND CONSIDERATION.
(a) General. The per Share exercise price for the Shares to be
issued pursuant to the exercise of an Incentive Stock Option shall be such price
as is determined by the Board, but shall be no less than one hundred percent
(100%) of the fair market value per Share on the date of grant; provided,
however, in the case of an Incentive Stock Option granted to an Employee who,
immediately before the grant of such Incentive Stock Option, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per Share exercise price
shall be no less than 110% of the fair market value per Share on the date of
grant, as the case may be, and the term of such Incentive Stock Option may not
exceed five (5) years. The per Share exercise price for the Shares to be issued
pursuant to the exercise of Non-qualified Stock Option shall be such price as is
determined by the Board, but shall be no less than eighty-five percent (85%) of
the fair market value per Share on the date of grant.
(b) Fair Market Value. The fair market value shall be
determined by the Committee in its discretion, which determination shall be
conclusive; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid and
asked prices or, if applicable, the closing price of the Common Stock on the
date of grant, as reported by the National Association of Securities Dealers
Automated Quotation (NASDAQ) System (although if there are no bid or asked
prices on such date, or no closing price, the prices on the closest date
preceding the date of grant shall be used); in the event the Common Stock is
listed on a stock exchange, the fair market value per Share shall be the closing
price on such exchange on the date of grant of the Option, as reported in the
Wall Street Journal.
(c) Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option or in payment of any withholding taxes
on any Option, including the method of payment, shall be determined by the
Committee and may consist entirely of (i) cash, check or promissory note; (ii)
other Shares of Common Stock owned by the Employee having a fair market value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised; (iii) an assignment by the Employee of the
net proceeds to be received from a registered broker upon the sale of the Shares
or the proceeds of a loan from such broker in such amount; (iv) any combination
of such methods of payment; or (v) such other consideration and method of
payment for the issuance of Shares to the extent permitted under
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Delaware Law and meeting the rules and regulations of the SEC concerning plans
satisfying the requirements of Section 16(b)(3) of the Exchange Act. The cash
proceeds of the sale of Shares subject to Options are to be added to the general
funds of the Company and used for its general corporate purposes as the Board of
Directors shall determine.
9. EXERCISE OF OPTION.
(a) Procedure or Exercise; Rights as a Stockholder. Any
Incentive Stock Option granted hereunder shall be exercisable at such times and
subject to such conditions as may be determined by the Committee, including
performance criteria with respect to the Company and/or the Optionee, and as
shall be perishable under the terms of the Plan, but in no event earlier than
one year after the date of the grant and not later than 10 years after the date
if the grant. Any Non-qualified Stock Option granted hereunder shall be
exercisable at such times and subject to such conditions as maybe determined by
the Committee, including performance criteria with respect to the Company and/or
the Optionee, and as shall be perishable under the terms of the Plan, but in no
event later than 10 years after the date of the grant.
(b) Fractional Shares. An Option may not be exercised for a
fraction of a Share.
(c) Notice of Exercise. An Option shall be deemed to be
exercised when written notice of such exercise has been given to the Company in
accordance with the terms of the instrument evidencing the Option by the person
entitled to exercise the Option and full payment for the Shares with respect to
which the Option is exercised has been received by the Company. Full payment
may, as authorized by the Board, consist of any consideration and method of
payment allowable under Section 8(c) of the Plan; it being understood that the
Company shall take such action as may be reasonably required to permit use of an
approved payment method. Until the issuance, which in no event will be delayed
more than thirty (30) days from the date of the exercise of the Option, (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive dividends
or any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. No adjustment will be made
for a dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in the Plan.
(d) Effect of Exercise. Exercise of an Option in any manner
shall result in a decrease in the number of Shares which thereafter may be
available, both for purposes of the Plan and for sale under the Option, by the
number of Shares as to which the Option is exercised.
(e) Termination of Status as an Employee. If any Employee
ceases to serve as an Employee for a any reason, s/he may, but only within
ninety (90) days (or such other period of time as is determined by the
Committee, but not to exceed ninety (90) days in the case of Incentive Stock
Options, or ten (10) years in the case of Non-qualified Stock Options) after the
date s/he ceases to be an Employee of the Company, exercise his/her Option to
the extent that
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s/he was entitled to exercise it as of the date of such termination. To the
extent that s/he was not entitled to exercise the Option at the date of such
termination, of if s/he does not exercise such Option (which s/he was entitled
to exercise) within the time specified herein, the Option shall terminate.
(f) Disability. Notwithstanding the provisions of Section 9(e)
above, in the event an Employee is unable to continue his/her employment with
the Company as a result of his/her total and permanent disability (as defined in
Section 105(d)(4) of the Internal Revenue Code of 1986, as amended), s/he may,
but only within three (3) months (or such other period of time not exceeding
twelve (12) months as is determined by the Committee) from the date of
disability, exercise his/her Option to the extent s/he was entitled to exercise
it at the date of such disability. To the extent that s/he was not entitled to
exercise it at the date of such disability, or if s/he does not exercise such
Option (which s/he was entitled to exercise) within the time specified herein,
the Option shall terminate.
(g) Death of Optionee. Notwithstanding the provisions of
Section 9(e) of the Plan, in the event of the death of an Optionee who was at
the time of his/her death an Employee of the Company and who shall have been in
Continuous Status as an Employee since the date of grant of the Option, the
Option may be exercised at any time within twelve (12) months following the date
of death by the Optionee's estate or by a person who acquired the right to
exercise that would have accrued had the Optionee continued living one (1) month
after the date of death.
(h) Continuous Status as Employee. Except as set forth in
Sections 9(e-g) of the Plan, no Optionee may exercise an Incentive Stock Option
unless between the time of the grant of the Option and the time of exercise
thereof s/he has been in Continuous Status as an Employee.
10. NON-TRANSFERABILITY OF INCENTIVES. An Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Participant, only by the Participant.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to
any required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split or the payment of a stock dividend with
respect to the Common Stock or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been
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"effected without receipt of consideration." Such adjustment shall be made by
the Committee, whose determination in that respect by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company,
or in the event of a proposed sale of all or substantially all of the assets of
the Company, or the merger of the Company with or into another corporation, the
Board of Directors of the Company shall, as to outstanding Options, either (i)
make appropriate provision for the protection of any such outstanding Options by
the substitution on an equitable basis of appropriate stock of the Company or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect to one share of Common Stock of the Company; or (ii) upon
written notice to an Optionee, provide that all unexercised Options must be
exercised within a specified number of days of the date of such notice or they
will be terminated. In any such case, the Board of Directors may, in its
discretion, advance the lapse of any waiting or installment periods and exercise
dates.
12. TIME FOR GRANTING OPTIONS. The date of grant of an Option shall,
for all purposes, be the later of (a) the date on which the Committee makes the
determination granting such Option, (b) the date upon which the Optionee begins
employment or working for the Company, (c) the date upon which the management of
the Company shall offer such Option to the Optionee, or (d) the Effective Date
of this Plan. Notice of the determination shall be given to each person to whom
an Incentive is so granted within a reasonable time after the date of such
grant.
13. INTENTIONALLY OMITTED.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Board Action. The Board may amend or terminate the Plan
from time to time in such respects as the Board may deem advisable; provided,
however, that the following revisions or amendments shall require approval of
the holders of a majority of the outstanding shares of the Company entitled to
vote:
(i) any change in the designation of the class of
persons eligible to be granted options; or
(ii) any material increase in the benefits accruing
to participants under the Plan.
(b) Solicitation of Stockholder Approval. If any amendment
requiring stockholder approval under Section 14(a) of the Plan is made, such
stockholder approval shall be solicited.
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(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
mended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act,
the Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares and that such
person will not transfer or otherwise dispose of any Shares acquired by exercise
of the Option unless the transfer or disposition of such shares is covered by a
registration statement under the Securities Act of 1933, as amended, or an
exemption therefrom, if in the opinion of counsel for the Company, such a
representation is required by, or appropriate under, any of the aforementioned
relevant provisions of law.
16. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
17. OPTION AGREEMENT. Options shall be evidenced by written agreements
in such form as the Committee shall approve.
18. INTENTIONALLY OMITTED.
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19. OTHER PROVISIONS. The Option agreements authorized under the Plan
shall contain such other provisions, including, without limitations,
restrictions upon the exercise of the Option, as the Board of Directors of the
Company shall deem advisable. Any Option agreement shall contain such
limitations and restrictions upon the exercise of the Incentive Stock Option as
shall be necessary in order that such option will be an incentive Stock Option
as defined in Section 422A of the Internal Revenue Code of 1986, as amended.
20. INDEMNIFICATION OF BOARD. In addition to such other rights of
indemnification as they may have as directors or as members of the Board, the
members of the Board shall be indemnified by the Company against the reasonable
expenses, including attorneys' fees actually and necessarily incurred in
connection with the defense of any action suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection without the Plan or
any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding that such Board member is liable for
negligence or misconduct in the performance of his/her duties, provided that
within sixty (60) days after institution of any such action, suit or proceeding
a Board member shall, in writing, offer the Company the opportunity, at its own
expense, to handle and defend the same.
21. WITHHOLDING TAX. Each Participant shall, no later than the date as
of which the value of a Option first becomes includible in the Participant's
gross income for applicable tax purposes, pay to the Company, or make
arrangements satisfactory to the Committee regarding payment of, any federal,
state, local or other taxes of any kind required by law to be withheld with
respect to the Option (or portion thereof). The obligations of the Company under
the Plan shall be conditional on such payment or arrangements, and the Company
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the Participant. Alternatively, in
the sole discretion of the Company, to the extent permitted by applicable laws
including regulations promulgated under the Exchange Act, such federal, state or
local income, the payroll tax withholding liability may be satisfied prior to
the delivery of any certificate or certificates for the shares by an adjustment,
equal in value to such liability, in the number of shares to be transferred to
the Participant. Whenever under the Plan payments are to be made in cash, such
payments shall be net of an amount sufficient to satisfy any federal, state or
local income and payroll tax withholding liability.
22. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Company or any Subsidiary, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees
and directors of the Company or any Subsidiary.
23. COMPLIANCE WITH EXCHANGE ACT RULE 16b-3. With respect to persons
subject to Section 16 of the Exchange Act, transactions under the Plan are
intended to
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comply with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the Board
fails to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Board.
24. SINGULAR, PLURAL, GENDER. Whenever used herein, nouns in the
singular shall include the plural, and the masculine pronoun shall include the
feminine gender.
25. HEADINGS, ETC., NO PART OF PLAN. Headings of Articles and Sections
hereof are inserted for convenience and reference; they constitute no part of
the Plan.
26. GOVERNING LAW. The Plan, such Options as may be granted thereunder
and all related matters shall be governed by, and construed in accordance with,
the laws of the State of Delaware from time to time in effect.
27. PARTIAL INVALIDITY. The invalidity or illegality of any provision
herein shall not be deemed to affect the validity of any other provision.
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Exhibit 10.37
NETWORK EVENT THEATER, INC.
1999 SPECIAL INCENTIVE STOCK PLAN
1. PURPOSES. The purposes of this Incentive Stock Plan are to attract
and retain the best qualified personnel for positions of substantial
responsibility, to provide additional incentive to the Employees of the Company
or its Subsidiaries, if any (as defined in Section 2 below), as well as other
individuals who perform services for the Company or its Subsidiaries, and to
promote the success of the Company's business.
The Incentives offered pursuant to this Plan are a matter of separate
inducement and are not in lieu of any salary or other compensation for the
services of any Employee or any other individual.
Options granted hereunder may be either "incentive stock options," as
defined in Section 422A of the Internal Revenue Code of 1986, as amended, or
"non-qualified stock options," at the discretion of the Board and as reflected
in the terms of the written instrument evidencing an Option, although the
Company makes no warranty as to the qualification of any Option as an Incentive
Stock Option.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Cause" shall mean (i) an act or acts or personal
dishonesty of a Participant at the expense of the Company or any of its
Subsidiaries, (ii) a willful act of misconduct which is materially injurious to
the Company, monetarily or otherwise, including but not limited to engaging in
any conduct which constitutes a felony under federal, state or local laws (other
than traffic violations); (iii) violation of the management responsibilities by
the Participant which is demonstrably willful and deliberate on the
Participant's part and which is not remedied within a reasonable period of time
after receipt of written notice from the Company or a Subsidiary, or (iv) the
conviction of the Participant of a felony involving moral turpitude.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Common Stock" shall mean the Common Shares of the Company
(par value $.01 per share).
(e) "Company" shall mean Network Event Theater, Inc., a
Delaware corporation.
(f) "Committee" shall mean the Committee appointed by the
Board of Directors in accordance with Section 4(a) of the Plan, if one has been
appointed, or the Board if no Committee has been appointed.
(g) "Continuous Status as an Employee" shall mean the absence
of any interruption or termination of service as an Employee. Continuous Status
as an Employee shall not
<PAGE>
be considered interrupted in the case of sick leave, military leave, or any
other leave of absence approved by the Board.
(h) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(i) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(j) "Incentive Stock Option" shall mean a stock option
intended to qualify as an incentive stock option within the meaning of Section
422A of the Internal Revenue Code of 1986, as amended.
(k) "Incentives" shall mean any incentive under this Plan,
including Options and Restricted Stock Awards.
(l) "Non-qualified Stock Option" shall mean a stock option not
intended to qualify as an Incentive Stock Option.
(m) "Option" shall mean a stock option granted pursuant to the
Plan (whether an Incentive Stock Option or Non-qualified Stock Option).
(n) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(o) "Optionee" shall mean an Employee or other person who
receives an Option.
(p) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 425(e) of the Internal Revenue Code of
1986, as amended.
(q) "Participant" shall mean an individual designated by the
Committee to receive the grant of an Incentive.
(r) "Plan" shall mean this 1999 Incentive Stock Plan of the
Company.
(s) "Plan Year" shall mean each calendar year that is the
anniversary of the Effective Date of this Plan, with the first such Plan Year
commencing on the Effective date of this Plan.
(t) "Restricted Stock Award" shall mean the Incentive defined
in Section 10 of this Plan.
(u) "Securities Act" shall mean the Securities Act of 1933, as
amended.
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(v) "SEC" shall mean the Securities and Exchange Commission.
(w) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 12 of the Plan.
(x) "Subsidiary" shall mean a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 425(f) of the Internal
Revenue Code of 1986, as amended.
3. STOCK.
(a) Maximum Number of Shares. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of shares which may be issued pursuant
to Options granted hereunder shall be _________ Shares, and the maximum number
of shares which may be issued in the form of Restricted Stock Awards granted
hereunder shall be ________. If an Incentive should expire or become
unexercisable for any reason without having been exercised in full, the unissued
Shares which were subject thereto shall, unless the Plan shall have been
terminated, become available for further grant under the Plan. Similarly, Shares
which have been issued, but which the Company retains or which the Participant
tenders to the Company in satisfaction of income and payroll tax withholding
obligations or in satisfaction of the exercise price of any Option shall remain
authorized and shall again be available for the purposes of the Plan, provided,
however, that any such previously issued Shares shall not be the subject of any
grant under this Plan to any officer of the Company who, at the time of such
grant, is subject to the short-swing trading provisions of Section 16 of the
Exchange Act.
(b) Plan Year Limitations. The maximum number of Shares with respect to
which Options may be granted in any Plan Year to any Optionee will be
__________. The maximum number of Shares with respect to which Restricted Stock
Awards may be granted in any Plan Year to any Participant will be ____________.
(c) Source of Shares. Shares which may be acquired under the Plan may
be either authorized but unissued Shares, Shares of issued stock held in the
Company's treasury, or both, at the discretion of the Company.
(d) No Rights as Stockholder. A Participant under this Plan shall have
no rights as a stockholder with respect to any Shares subject to such Incentive
until such Shares have been issued.
4. ADMINISTRATION.
(a) Procedure. The Company's Board of Directors may appoint a Committee
to administer the Plan. The Committee shall consist of not less than two (2)
members of the Board of Directors who shall administer the Plan on behalf of the
Board of Directors, subject to such terms and conditions as the Board of
Directors may prescribe. The Committee shall be comprised of at least two
disinterested persons (the term "disinterested" having the meaning ascribed to
it by Rule 16b-3 of the Exchange Act). Any member of the Committee must recuse
him or herself from any vote or discussion of Incentives that have been or may
be granted to such member under the Plan.
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A majority of the Committee shall constitute a quorum, and the act of a majority
of the members of the Committee shall be the act of the Committee. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board of Directors. From time to time the Board of Directors may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without Cause), and appoint new members in substitution therefor, fill
vacancies, however caused, or remove all members of the Committee and thereafter
directly administer the Plan. If the Board of Directors fails to appoint a
Committee then the Board of Directors shall assume the responsibilities of the
Committee.
(b) Powers of the Committee. Subject to the provisions of the Plan, the
Committee shall have the authority, in its discretion: (i) to grant Incentive
Stock Options, in accordance with Section 422A of the Code, or to grant
Non-qualified Stock Options; (ii) to grant Restricted Stock Awards; (iii) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (iv) to determine
the exercise price per share of Options to be granted which exercise price shall
be determined in accordance with Section 8(a) of the Plan; (v) to determine the
vesting period for any Options granted hereunder in accordance with Section 9(a)
of the Plan; (vi) to determine the Restriction Period for any Restricted Stock
Award; (vii) to determine the persons to whom, and the time or times at which,
Incentives shall be granted and the number of shares to be represented by each
Incentive; (viii) to interpret the Plan; (ix) to prescribe, amend and rescind
rules and regulations relating to the Plan; (x) to determine the terms and
provisions of each Incentive granted (which need not be identical) and, with the
consent of the holder thereof, modify or amend each Incentive; (xi) to
accelerate or defer (with the consent of the Participant) the exercise date of
any Participant; (xii) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Incentive
previously granted by the Board; and (xiii) to make all other determinations
deemed necessary or advisable for the administration of the Plan. Any
determination of the Committee under the Plan may be made without notice of
meeting of the Committee by a writing signed by a majority of the Committee
members.
(c) Employment of Agents. The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the administration of the
Plan and may rely upon any opinion received from any such counsel or consultant
and any computation received from any such consultant or agent. The Board of
Directors shall determine the budget for the Committee. Expenses incurred by the
Committee in the engagement of such counsel, consultant or agent shall be paid
by the Company to the extent they do not exceed the budget established by the
Board of Directors. No member or former member of the Committee or the Board of
Directors shall be liable for any action or determination made in good faith
with respect to the Plan or any Incentive.
(d) Effect of the Committee's Decision. All decisions, determinations,
and interpretations of the Committee shall be final and binding on all
Participants and any other holders of any Incentives granted under the Plan,
although the full Board of Directors may, in its discretion, overrule the
decisions of the Committee.
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5. ELIGIBILITY; NON-DISCRETIONARY GRANTS.
(a) General. Incentive Stock Options may be granted only to Employees.
Non-qualified Stock Options and Restricted Stock Awards may be granted to
Employees as well as non-Employee directors and consultants, as determined by
the Committee. A director of the Company or of a Subsidiary who is not also an
officer or Employee of the Company or of such Subsidiary will not be eligible to
receive an Incentive Stock Option or Restricted Stock Award. Any person who has
been granted an Incentive may, if s/he is otherwise eligible, be granted an
additional Incentive or Incentives. The Plan shall not offer upon any
Participant any right with respect to continuation of employment by the Company,
nor shall it interfere in any way with his/her right or the Company's right to
terminate his/her employment at any time.
The Committee shall consider such factors as it deems pertinent in
selecting Participants and in determining the type and amount of their
respective Incentives, including without limitation (a) the financial condition
of the Company, (b) anticipated financial results for the current or future
years, including return on invested capital, (c) the contribution by the
Participant to the profitability and development of the Company through the
achievement of strategic objectives, and (d) other compensation provided to
Participants.
(b) Limitation on Incentive Stock Options. No Incentive Stock Option
may be granted to an Employee if, as the result of such grant, the aggregate
fair market value (determined at the time each Option was granted) of the Shares
with respect to which such Incentive Stock Options are exercisable for the first
time by such Employee during any calendar year (under all such plans of the
Company and any Parent and Subsidiary) shall exceed One Hundred Thousand Dollars
($100,000). Any Options granted in excess of that amount shall be deemed
Non-qualified Stock Options.
6. TERM OF THE PLAN. The Plan shall become effective on the date (the
"Effective Date") of its adoption by the Board of Directors. The Plan shall
continue in effect until the tenth anniversary of its Effective Date unless
sooner terminated under Section 14 of the Plan.
7. TERM OF THE OPTION. The term of each Option shall be ten (10) years
from the date of grant thereof or such shorter term as may be provided in the
instrument evidencing the Option.
8. EXERCISE PRICE AND CONSIDERATION.
(a) General. The per Share exercise price for the Shares to be issued
pursuant to the exercise of an Incentive Stock Option shall be such price as is
determined by the Board, but shall be no less than one hundred percent (100%) of
the fair market value per Share on the date of grant; provided, however, in the
case of an Incentive Stock Option granted to an Employee who, immediately before
the grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the fair market value per Share on the date of grant, as the case may be, and
the term of such Incentive Stock Option may not exceed five (5) years. The per
Share exercise price for the Shares to be issued pursuant to the exercise of
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Non-qualified Stock Option shall be such price as is determined by the Board,
but shall be no less than eighty-five percent (85%) of the fair market value per
Share on the date of grant.
(b) Fair Market Value. The fair market value shall be determined by the
Committee in its discretion, which determination shall be conclusive; provided,
however, that where there is a public market for the Common Stock, the fair
market value per Share shall be the mean of the bid and asked prices or, if
applicable, the closing price of the Common Stock on the date of grant, as
reported by the National Association of Securities Dealers Automated Quotation
(NASDAQ) System (although if there are no bid or asked prices on such date, or
no closing price, the prices on the closest date preceding the date of grant
shall be used); in the event the Common Stock is listed on a stock exchange, the
fair market value per Share shall be the closing price on such exchange on the
date of grant of the Option, as reported in the Wall Street Journal.
(c) Consideration. The consideration to be paid for the Shares to be
issued upon exercise of an Option or in payment of any withholding taxes on any
Incentive, including the method of payment, shall be determined by the Committee
and may consist entirely of (i) cash, check or promissory note; (ii) other
Shares of Common Stock owned by the Employee having a fair market value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised; (iii) an assignment by the Employee of the
net proceeds to be received from a registered broker upon the sale of the Shares
or the proceeds of a loan from such broker in such amount; (iv) any combination
of such methods of payment; or (v) such other consideration and method of
payment for the issuance of Shares to the extent permitted under Delaware Law
and meeting the rules and regulations of the SEC concerning plans satisfying the
requirements of Section 16(b)(3) of the Exchange Act. The cash proceeds of the
sale of Shares subject to Options are to be added to the general funds of the
Company and used for its general corporate purposes as the Board of Directors
shall determine.
9. EXERCISE OF OPTION.
(a) Procedure or Exercise; Rights as a Stockholder. Any Incentive Stock
Option granted hereunder shall be exercisable at such times and subject to such
conditions as may be determined by the Committee, including performance criteria
with respect to the Company and/or the Optionee, and as shall be perishable
under the terms of the Plan, but in no event earlier than one year after the
date of the grant and not later than 10 years after the date of the grant. Any
Non-qualified Stock Option granted hereunder shall be exercisable at such times
and subject to such conditions as may be determined by the Committee, including
performance criteria with respect to the Company and/or the Optionee, and as
shall be perishable under the terms of the Plan, but in no event later than 10
years after the date of the grant.
(b) Fractional Shares. An Option may not be exercised for a fraction of
a Share.
(c) Notice of Exercise. An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the instrument evidencing the Option by the person entitled to
exercise the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company. Full payment may,
6
<PAGE>
as authorized by the Board, consist of any consideration and method of payment
allowable under Section 8(c) of the Plan; it being understood that the Company
shall take such action as may be reasonably required to permit use of an
approved payment method. Until the issuance, which in no event will be delayed
more than thirty (30) days from the date of the exercise of the Option (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive dividends
or any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. No adjustment will be made
for a dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in the Plan.
(d) Effect of Exercise. Exercise of an Option in any manner shall
result in a decrease in the number of Shares which thereafter may be available,
both for purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised.
(e) Termination of Status as an Employee. If any Employee ceases to
serve as an Employee for any reason, s/he may, but only within thirty (30) days
(or such other period of time as is determined by the Committee, but not to
exceed ninety (90) days in the case of Incentive Stock Options, or ten (10)
years in the case of Non-qualified Stock Options) after the date s/he ceases to
be an Employee of the Company, exercise his/her Option to the extent that s/he
was entitled to exercise it as of the date of such termination. To the extent
that s/he was not entitled to exercise the Option at the date of such
termination, or if s/he does not exercise such Option (which s/he was entitled
to exercise) within the time specified herein, the Option shall terminate.
(f) Disability. Notwithstanding the provisions of Section 9(e) above,
in the event an Employee is unable to continue his/her employment with the
Company as a result of his/her total and permanent disability (as defined in
Section 105(d)(4) of the Internal Revenue Code of 1986, as amended), s/he may,
but only within three (3) months (or such other period of time not exceeding
twelve (12) months as is determined by the Committee) from the date of
disability, exercise his/her Option to the extent s/he was entitled to exercise
it at the date of such disability. To the extent that s/he was not entitled to
exercise it at the date of such disability, or if s/he does not exercise such
Option (which s/he was entitled to exercise) within the time specified herein,
the Option shall terminate.
(g) Death of Optionee. Notwithstanding the provisions of Section 9(e)
of the Plan, in the event of the death of an Optionee who was at the time of
his/her death an Employee of the Company and who shall have been in Continuous
Status as an Employee since the date of grant of the Option, the Option may be
exercised at any time within twelve (12) months following the date of death by
the Optionee's estate or by a person who acquired the right to exercise that
would have accrued had the Optionee continued living one (1) month after the
date of death.
(h) Continuous Status as Employee. Except as set forth in Sections
9(e-g) of the Plan, no Optionee may exercise an Incentive Stock Option unless
between the time of the grant of the Option and the time of exercise thereof
s/he has been in Continuous Status as an Employee.
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10. RESTRICTED STOCK AWARDS.
(a) General. A Restricted Stock Award shall entitle the Participant, if
s/he has been in Continuous Status as an Employee during the Restriction Period
determined by the Committee and subject to his/her complete satisfaction of any
other conditions, restrictions and limitations imposed in accordance with the
Plan, to the unconditional ownership of the Shares covered by the grant without
payment therefor. Until the contingency occurs by which the Participant is
entitled to unconditional ownership of the Shares covered by the grant, such
Shares shall not be considered issued. Until such issuance, which in no event
will be delayed more than thirty (30) days from the date of the contingency has
occurred (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Shares. No adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in the Plan.
(b) Granting. The Committee may grant Restricted Stock Awards at any
time or from time to time to a Participant selected by the Committee in its sole
discretion. A Restricted Stock Award may be granted only to a new or prospective
officer, employee or consultant as an inducement to such person's employment by
the Company. The Committee shall establish at the grant of each Restricted Stock
Award a fixed period of time (the "Restriction Period") during which the
Participant performs service for the Company and, at the discretion of the
Committee, during which certain performance objectives (the "Performance
Objectives") set by the Committee must be achieved. At the time of grant, the
Restriction Period and, if applicable, the Performance Objectives, shall be set
forth in agreements or guidelines communicated to the Participant in such form
consistent with this Plan as the Committee shall approve from time to time.
(c) Termination. Except as hereinafter provided, if, during the
Restriction Period applicable to such grant, the Participant has not been in
Continuous Status as an Employee for any reason other than death, disability, or
involuntary termination of the Participant for other than Cause, all Shares
covered by such grant shall be forfeited to the Company automatically. If the
Participant's separation from employment is because of death, disability,
retirement, or involuntary termination for other than Cause, the Participant or
his/her successor in interest shall be entitled to unconditional ownership of a
fraction of the total number of Shares covered by such grant, of which the
numerator is the number of whole calendar months in the period commencing with
the first whole calendar month following the date of grant and ending with the
whole calendar month including the date of death, disability or termination, and
of which the denominator is the number of whole calendar months in the
applicable Restriction Period, unless the Committee, in its discretion,
determines that the Participant shall be entitled to receive all of the Shares
subject the grant. Any fractional Shares shall be disregarded. If the
Participant's separation from employment is because of voluntary termination or
involuntary termination for Cause, the Participant shall forfeit all rights to
any and all Restricted Stock Awards previously granted to such Participant.
(d) Deferment. A Participant entitled to the unconditional ownership of
the Shares covered by the grant of a Restricted Stock Award may request in
writing, within thirty (30) days after the Participant has become so entitled,
to defer the Participant's right to unconditional ownership of
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such Shares for a period of up to six (6) months, but in the event such
extension lasts beyond the date on which the Participant's status as an Employee
is terminated, the extension shall be deemed to be the date on which the
Participant's status as an Employee is terminated. If applicable law permits,
the Participant's obligation to remit to the Company an amount sufficient to
satisfy any federal, state or local income and payroll tax withholding liability
corresponding to such Shares shall be deferred for the same amount of time, if
any.
11. NON-TRANSFERABILITY OF INCENTIVES. An Incentive may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Participant, only by the Participant.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to
any required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split or the payment of a stock dividend with
respect to the Common Stock or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Committee, whose
determination in that respect by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company,
or in the event of a proposed sale of all or substantially all of the assets of
the Company, or the merger of the Company with or into another corporation, the
Board of Directors of the Company shall, as to outstanding Options, either (i)
make appropriate provision for the protection of any such outstanding Options by
the substitution on an equitable basis of appropriate stock of the Company or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect to one share of Common Stock of the Company; or (ii) upon
written notice to an Optionee, provide that all unexercised Options must be
exercised within a specified number of days of the date of such notice or they
will be terminated. In any such case, the Board of Directors may, in its
discretion, advance the lapse of any waiting or installment periods and exercise
dates.
13. TIME FOR GRANTING INCENTIVES. The date of grant of an Incentive
shall, for all purposes, be the date on which the Committee makes the
determination granting such Incentive. Notice of the determination shall be
given to each person to whom an Incentive is so granted within a reasonable time
after the date of such grant.
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14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Board Action. The Board may amend or terminate the Plan from time
to time in such respects as the Board may deem advisable; provided, however,
that the following revisions or amendments shall require approval of the holders
of a majority of the outstanding shares of the Company entitled to vote:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 12 of the Plan;
(ii) any change in the designation of the class of persons
eligible to be granted options; or
(iii) any material increase in the benefits accruing to
participants under the Plan.
(b) Solicitation of Stockholder Approval. If any amendment requiring
stockholder approval under Section 14(a) of the Plan is made, such stockholder
approval shall be solicited.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Incentive unless the exercise of such Incentive
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act, the Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Incentive, the Company may require
the person exercising such Incentive to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if in the
opinion of counsel for the Company, such a representation is required by, or
appropriate under, any of the aforementioned relevant provisions of law.
16. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale
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of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17. INCENTIVE AGREEMENT. Incentives shall be evidenced by written
agreements in such form as the Committee shall approve.
18. INTENTIONALLY OMITTED.
19. OTHER PROVISIONS. The Incentives agreement authorized under the
Plan shall contain such other provisions, including, without limitations,
restrictions upon the exercise of the Incentive, as the Board of Directors of
the Company shall deem advisable. Any Incentive agreement shall contain such
limitations and restrictions upon the exercise of the Incentive Stock Option as
shall be necessary in order that such option will be an Incentive Stock Option
as defined in Section 422A of the Internal Revenue Code of 1986, as amended.
20. INDEMNIFICATION OF BOARD. In addition to such other rights of
indemnification as they may have as directors or as members of the Board, the
members of the Board shall be indemnified by the Company against the reasonable
expenses, including attorneys' fees actually and necessarily incurred in
connection with the defense of any action suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection without the Plan or
any Incentive granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding that such Board member is liable for
negligence or misconduct in the performance of his/her duties, provided that
within sixty (60) days after institution of any such action, suit or proceeding
a Board member shall, in writing, offer the Company the opportunity, at its own
expense, to handle and defend the same.
21. WITHHOLDING TAX. Whenever the Company proposes or is required to
issue or transfer shares of Common Stock under the Plan, a Participant shall
remit to the Company an amount sufficient to satisfy any federal, state or local
income and payroll tax withholding liability prior to the delivery of any
certificate or certificates for such shares. Alternatively, in the sole
discretion of the Company, to the extent permitted by applicable laws including
regulations promulgated under the Exchange Act, such federal, state or local
income and payroll tax withholding liability may be satisfied prior to the
delivery of any certificate or certificates for the shares by an adjustment,
equal in value to such liability, in the number of shares to be transferred to
the Participant. Whenever under the Plan payments are to be made in cash, such
payments shall be net of an amount sufficient to satisfy any federal, state or
local income and payroll tax withholding liability.
22. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Company or any Subsidiary, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees
and directors of the Company or any Subsidiary.
11
<PAGE>
23. COMPLIANCE WITH EXCHANGE ACT RULE 16b-3. With respect to persons
subject to Section 16 of the Exchange Act, transactions under the Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provision of the Plan or
action by the Board fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Board.
24. SINGULAR, PLURAL; GENDER. Whenever used herein, nouns in the
singular shall include the plural, and the masculine pronoun shall include the
feminine gender.
25. HEADINGS, ETC., NO PART OF PLAN. Headings of Articles and Sections
hereof are inserted for convenience and reference; they constitute no part of
the Plan.
26. GOVERNING LAW. The Plan, such Incentives as may be granted
thereunder and all related matters shall be governed by, and construed in
accordance with, the laws of the State of Delaware from time to time in effect.
27. PARTIAL INVALIDITY. The invalidity or illegality of any provision
herein shall not be deemed to affect the validity of any other provision.
12
<PAGE>
Exhibit 10.39
NETWORK EVENT THEATER, INC.
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE
PREFERRED STOCK
(Pursuant to Section 151 of the Delaware General
Corporation Law)
We, Harlan D. Peltz and Bruce L. Resnik, the Chairman and the
Secretary, respectively, of Network Event Theater, Inc., a Delaware corporation
(the "Corporation"), in accordance with the provisions of Section 103 of the
Delaware General Corporation Law (the "DGCL") do hereby certify that, in
accordance with Section 141(c) of the DGCL, the following resolution was duly
adopted by the Board of Directors of the Corporation on December 10, 1999:
RESOLVED, that a series of Preferred Stock, par value $.01 per
share, of the Corporation is hereby created and the designation, number of
shares, powers, preferences, rights, qualifications, limitations and
restrictions thereof (in addition to any provisions set forth in the Certificate
of Incorporation of the Corporation which are applicable to the preferred stock
of all classes and series) are as follows:
SERIES A CONVERTIBLE PREFERRED STOCK
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Convertible Preferred Stock" (the "Series A
Convertible Preferred Stock"), and the number of shares constituting the Series
A Convertible Preferred Stock shall be 1,000,000.
Section 2. Stated Capital. The amount to be represented in
stated capital at all times for each share of Series A Convertible Preferred
Stock shall be $.01.
<PAGE>
Section 3. Dividends. The holders of shares of Series A
Convertible Preferred Stock shall be entitled to receive dividends, prior and in
preference to any declaration or payment of any dividend on the Common Stock of
this Corporation, at the annual rate of $1.92 per share of Series A Convertible
Preferred Stock (as adjusted for any stock dividends, splits or combinations
with respect to such shares), to accrue quarterly (and prorated for periods of
less than a calendar quarter) on the last day of each calendar quarter,
commencing with the quarter beginning on October 1, 2000. Such dividends shall
accrue ("Accrued Dividends") on each share from October 1, 2000, and shall
accrue from day to day, whether or not earned or declared. Such dividends shall
be cumulative for all periods so that if such dividends in respect of any
previous or current annual dividend period, at the annual rate specified above,
shall not have been paid, the deficiency shall first be fully paid before any
dividend or other distribution shall be paid on or declared and set apart for
the Common Stock.
Section 4. Liquidation Preference. In the event of a
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of Series A Convertible Preferred Stock shall be
entitled to receive out of the assets of the Corporation, whether such assets
constitute stated capital or surplus of any nature, a sum equal to $24.00 per
share plus accrued and unpaid dividends (the "Liquidation Preference"), and no
more, before any payment shall be made or any assets distributed to the holders
of common stock, par value $.01 per share, of the Corporation ("Common Stock")
or any other class or series of the Corporation's capital stock ranking junior
as to liquidation rights to the Series A Convertible Preferred Stock
(collectively, the "Junior Liquidation Stock"); provided, however, that such
rights shall accrue to the holders of Series A Convertible Preferred Stock only
if the Corporation's payments with respect to the liquidation preference of the
holders of any capital stock of the Corporation ranking senior as to liquidation
rights to the Series A Convertible Preferred Stock (the "Senior Liquidation
Stock") are fully met. After the liquidation preferences of the Senior
Liquidation Stock are fully met, the entire assets of the Corporation available
for distribution shall be distributed ratably among the holders of the Series A
Convertible Preferred Stock and any other class or series of the Corporation's
capital stock which may hereafter be created having parity as to liquidation
rights with the Series A Convertible Preferred Stock in proportion to the
respective preferential amounts to which each is entitled (but only to the
extent of such preferential amounts). Neither a consolidation or merger of the
Corporation with another corporation nor a sale or transfer of all or part of
the Corporation's assets for cash, securities or other property will be
considered a liquidation, dissolution or winding up of the Corporation.
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<PAGE>
Section 5. Redemption.
(a) If by October 1, 2000 the transactions contemplated by the
agreement and plan of merger dated June 28, 1999 among the Corporation, Common
Places, LLC, YouthStream Media Networks, Inc., Nunet, Inc., Nucommon, Inc.,
Harlan D. Peltz, Benjamin Bassi, William Townsend and Mark Palmer (the "Merger
Agreement") are not consummated and if approval by the stockholders of the
Corporation of the issuance of shares of Common Stock in connection with the
conversion of shares of Series A Convertible Preferred Stock has not been
obtained, then, at any time after October 1, 2000 the Corporation may redeem for
cash, out of funds legally available therefor, all of the shares of Series A
Convertible Preferred Stock then outstanding at a price equal to the greater of
(i) the average Closing Price per share of Common Stock for the last 10 trading
days before the day the Corporation gives notice of redemption of the shares of
Series A Convertible Preferred Stock or (ii) $24.00 per share, subject to
adjustment for any stock dividends, splits or combinations with respect to such
shares (the "Redemption Price").
(b) Not more than 60 nor less than 30 days prior to any
redemption date, notice by first class mail, postage prepaid, shall be given to
the holders of record of the Series A Convertible Preferred Stock to be
redeemed, addressed to such stockholders at their last addresses as shown on the
books of the Corporation. Each such notice of redemption shall specify the date
fixed for redemption, the redemption price, the place or places of payment, and
that payment will be made upon presentation and surrender of the shares of
Series A Convertible Preferred Stock.
(c) Any notice which is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the holder of the
Series A Convertible Preferred Stock receives such notice; and failure to give
such notice by mail, or any defect in such notice, to the holders of any shares
designated for redemption shall not affect the validity of the proceedings for
the redemption of any other shares of Series A Convertible Preferred Stock. On
or after the date fixed for redemption as stated in such notice, each holder of
the shares called for redemption shall surrender the certificate (or
certificates) evidencing such shares to the Corporation at the place designated
in such notice and shall thereupon be entitled to receive payment of the
Redemption Price. If, on the date fixed for redemption, funds necessary for the
redemption shall be available therefor and shall have been irrevocably deposited
or set aside, then, notwithstanding that the certificates evidencing any shares
so called for redemption shall not have been surrendered, the shares shall no
longer be deemed outstanding, the holders thereof shall cease to be
stockholders, and all rights whatsoever with respect to the shares so called for
redemption (except the right of the holders to receive the Redemption
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<PAGE>
Price, without interest, upon surrender of their certificates therefor) shall
terminate. Any monies deposited by the Corporation pursuant to the foregoing
provision and unclaimed at the end of one year from the date fixed for
redemption shall, to the extent permitted by law, be returned to the
Corporation, after which the holders of shares of Series A Convertible Preferred
Stock so called for redemption shall look only to the Corporation for the
payment thereof. Shares of Series A Convertible Preferred Stock redeemed by the
Corporation shall be restored to the status of authorized but unissued shares of
preferred stock of the Corporation, pursuant to Section 243 of the DGCL, without
designation as to series, and may thereafter be reissued, but not as shares of
Series A Convertible Preferred Stock.
Section 6. No Sinking Fund. The shares of Series A Convertible
Preferred Stock shall not be subject to the operation of a purchase, retirement
or sinking fund.
Section 7. Conversion.
(a) Upon the consummations of the transactions contemplated by
the Merger Agreement or the approval by the stockholders of the Corporation of
the issuance of shares of Common Stock in connection with the conversion of
shares of Series A Convertible Preferred Stock, the Series A Convertible
Preferred Stock shall automatically convert into fully paid and nonassessable
shares of Common Stock and such other securities and property as hereinafter
provided. Each share of Series A Convertible Preferred Stock shall be
convertible at the office of any transfer agent for the Series A Convertible
Preferred Stock, and at such other office or offices, if any, as the Board of
Directors may designate, into that number of fully paid and nonassessable shares
of Common Stock (calculated as to each conversion to the nearest 1/100th of a
share) as shall be equal to the Conversion Rate, determined as hereinafter
provided, in effect at the time of conversion. Shares of Series A Convertible
Preferred Stock may initially be converted into full shares of Common Stock at
the rate of one share of Common Stock for each share of Series A Convertible
Preferred Stock subject to adjustment as hereinafter provided (the "Conversion
Rate"). Notwithstanding anything in this Section 7 to the contrary, no change in
the Conversion Rate shall actually be made until the cumulative effect of the
adjustments called for by this Section 7 since the date of the last change in
the Conversion Rate would change the Conversion Rate by more than 1%. However,
once the cumulative effect would result in such a change, the Conversion Rate
shall actually be changed to reflect all adjustments called for by this Section
7 and not previously made.
(b) Upon conversion, the holders of Series A Convertible
Preferred Stock shall surrender for conversion to the Corporation or its agent,
as provided above, certificates representing shares to be converted, duly
endorsed in blank or
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<PAGE>
accompanied by proper instruments of transfer. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery upon conversion of shares of Common
Stock or other securities or property in a name other than that of the holder of
the shares of the Series A Convertible Preferred Stock being converted, and the
Corporation shall not be required to issue or deliver any such shares or other
securities or property unless and until the person or persons requesting the
issuance thereof shall have paid to the Corporation the amount of any such tax
or shall have established to the satisfaction of the Corporation that such tax
has been paid.
(c) The Corporation (and any successor corporation) shall take
all action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series A Convertible Preferred
Stock outstanding upon the basis hereinbefore provided are at all times reserved
by the Corporation (or any successor corporation), free from preemptive rights,
for such conversion, subject to the provisions of Section 7(d). If the
Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series A Convertible Preferred Stock shall be convertible as
herein provided, the Corporation shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series A Convertible Preferred Stock on the new
basis.
(d) In case of any consolidation or merger of the Corporation
with any other corporation (other than a wholly-owned subsidiary of the
Corporation and other than pursuant to the Merger Agreement) in which the
Corporation is not the surviving corporation, or in case of any sale or transfer
of all or substantially all of the assets of the Corporation, or in the case of
any share exchange pursuant to which all of the outstanding shares of Common
Stock are converted into other securities or property, the Corporation shall
make appropriate provision or cause appropriate provision to be made so that
each holder of shares of Series A Convertible Preferred Stock then outstanding
shall have the right thereafter to convert such shares of Series A Convertible
Preferred Stock into the kind and amount of shares of stock and other securities
and property receivable upon such consolidation, merger, sale, transfer or share
exchange by a holder of the number of shares of Common Stock into which such
shares of Series A Convertible Preferred Stock could have been converted
immediately prior to the effective date of such consolidation, merger, sale,
transfer or share exchange. If, in connection with any such consolidation,
merger, sale, transfer or share exchange, each holder of shares of Common Stock
is entitled to elect to receive either securities, cash or other assets upon
completion of such transaction, the Corporation shall provide or cause
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<PAGE>
to be provided to each holder of Series A Convertible Preferred Stock the right
to elect the securities, cash or other assets into which the Series A
Convertible Preferred Stock held by such holder shall be convertible after
completion of any such transaction on the same terms and subject to the same
conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made and the effect of failing to exercise the election).
The Corporation shall not effect any such transaction unless the provisions of
this Section 7(d) have been complied with. The above provisions shall similarly
apply to successive consolidations, mergers, sales, transfers or share
exchanges.
(e) Upon the surrender of certificates representing shares of
Series A Convertible Preferred Stock, the person converting shall be deemed to
be the holder of record of the Common Stock issuable upon such conversion, and
all rights with respect to the shares surrendered shall forthwith terminate
except the right to receive the Common Stock or other securities, cash or other
assets as herein provided.
(f) No fractional shares of Common Stock shall be issued upon
conversion of Series A Convertible Preferred Stock but, in lieu of any fraction
of a share of Common Stock which would otherwise be issuable in respect of the
aggregate number of such shares surrendered for conversion at one time by the
same holder, the Corporation shall pay in cash an amount equal to the product of
(i) the Closing Price (as hereinafter defined) of a share of Common Stock on the
last trading day before the conversion date and (ii) such fraction of a share.
The "Closing Price" for each day shall be the last reported sales price regular
way or, in case no sale takes place on such day, the average of the closing bid
and asked prices regular way on such day, in either case as reported on The New
York Stock Exchange Composite Tape, or, if the Common Stock is not listed or
admitted to trading on such Exchange, on the principal national securities
exchange on which the Common Stock is listed or admitted to trading, or, if not
listed or admitted to trading on any national securities exchange, on the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
National Market System, or, if not admitted for quotation on the NASDAQ National
Market System, the average of the high bid and low asked prices on such day as
recorded by the National Association of Securities Dealers, Inc. through NASDAQ,
or, if the National Association of Securities Dealers, Inc. through NASDAQ shall
not have reported any bid and asked prices for the Common Stock on such day, the
average of the bid and asked prices for such day as furnished by any New York
Stock Exchange member firm selected from time to time by the Corporation for
such purpose, or, if no such bid and asked prices can be obtained from any such
firm, the fair market value of one share of Common Stock on such day as
determined in good faith by
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<PAGE>
the Board of Directors. Such determination by the Board of Directors shall be
conclusive.
(g) The Conversion Rate shall be adjusted from time to time
under certain circumstances, subject to the provisions of the last two sentences
of Section 7(a), as follows:
(i) In case the Corporation shall (A) pay a dividend or make a
distribution on its Common Stock in shares of its capital stock, (B)
subdivide its outstanding Common Stock into a greater number of shares,
(C) combine the shares of its outstanding Common Stock into a smaller
number of shares, or (D) issue by reclassification of its Common Stock
any shares of its capital stock, then in each such case the Conversion
Rate in effect immediately prior thereto shall be proportionately
adjusted so that the holder of any Series A Convertible Preferred Stock
thereafter surrendered for conversion shall be entitled to receive, to
the extent permitted by applicable law, the number and kind of shares
of capital stock of the Corporation which it would have owned or have
been entitled to receive after the happening of such event had such
Series A Convertible Preferred Stock been converted immediately prior
to the record date for such event (or if no record date has been
established in connection with such event, the effective date for such
action). An adjustment pursuant to this Section 7(g)(i) shall become
effective immediately after the record date in the case of a stock
dividend or distribution and shall become effective immediately after
the effective date in the case of a subdivision, combination, or
reclassification.
(ii) In case the Corporation shall issue rights or warrants to
all holders of the Common Stock entitling such holders to subscribe for
or purchase Common Stock on the record date referred to below at a
price per share less than the average daily Closing Prices of the
Common Stock on the 30 consecutive business days commencing 45 business
days before the record date (the "Current Market Price"), then in each
such case the Conversion Rate in effect on such record date shall be
adjusted in accordance with the formula
c/1 = c x O + N
---------
O + N x P
-----
M
where
c/1 = the adjusted Conversion Rate.
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<PAGE>
C = the current Conversion Rate.
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock issuable
pursuant to the exercise of such rights or warrants.
P = the offering price per share of the additional shares.
M = the Current Market Price per share of Common Stock on the
record date.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Conversion Rate then in effect shall be readjusted
appropriately.
(iii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined)
evidences of its indebtedness or assets (including securities, but
excluding any warrants or subscription rights referred to in Section
7(g)(ii) above, any dividend or distribution paid in cash out of the
retained earnings of the Corporation and any dividend or distribution
referred to in Section 7(g)(i) above), then in each such case the
Conversion Rate then in effect shall be adjusted in accordance with the
formula
c/1 = c x M
---
M-F
where
c/1 = the adjusted Conversion Rate.
C = the current Conversion Rate.
M = the Current Market Price per share of Common Stock with
respect to the record date mentioned below.
F = the aggregate amount of such cash dividend and/or the fair
market value on the record date of the assets or securities to
be distributed divided by the number of shares of Common Stock
outstanding on the
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<PAGE>
record date. The Board of Directors shall determine such fair
market value, which determination shall be conclusive.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this Section 7(g)(iii), "Junior Stock" shall include any class
of capital stock ranking junior or pari passu as to dividends or upon
liquidation to the Series A Convertible Preferred Stock.
(iv) All calculations hereunder shall be made to the nearest
cent or to the nearest 1/100 of a share, as the case may be.
(v) If at any time as a result of an adjustment made pursuant
to Section 7(g)(i), the holder of any Series A Convertible Preferred
Stock thereafter surrendered for conversion shall become entitled to
receive securities, cash, or assets other than Common Stock, the number
or amount of such securities or property so receivable upon conversion
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 Stock contained in Section 7(g)(i) to (iv),
inclusive, above.
(h) Except as otherwise provided above in this Section 7, no
adjustment in the Conversion Rate shall be made in respect of any
conversion for share distributions or dividends theretofore declared
and paid or payable on the Common Stock.
(i) Whenever the Conversion Rate is adjusted as herein
provided, the Corporation shall send to each transfer agent for the Series A
Convertible Preferred Stock and the Common Stock, and to the principal
securities exchange, if any, on which the Series A Convertible Preferred Stock
and the Common Stock is traded, or the NASDAQ National Market System if the
Series A Convertible Preferred Stock or Common Stock is admitted for quotation
thereon, a statement signed by the Chairman of the Board, the President, or any
Vice President of the Corporation and by its Treasurer or its Secretary or
Assistant Secretary stating the adjusted Conversion Rate determined as provided
in this Section 7, and any adjustment so evidenced, given in good faith, shall
be binding upon all stockholders and upon the Corporation. Whenever the
Conversion Rate is adjusted, the Corporation will give notice by mail to the
holders of record of Series A Convertible Preferred Stock, which notice shall be
made within 45 days after the effective date of such adjustment and shall state
the adjustment and the Conversion Rate. Notwithstanding the foregoing notice
provisions, failure by the Corporation to give such notice or a defect in such
notice shall not affect the binding nature of such corporate action of the
Corporation.
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<PAGE>
(j) Whenever the Corporation shall propose to take any of the
actions specified in Section 7(d) or in Section 7(g)(i), (ii) or (iii) which
would result in any adjustment in the Conversion Rate under this Section 7, the
Corporation shall cause a notice to be mailed at least 30 days prior to the date
on which the books of the Corporation will close or on which a record will be
taken for such action, to the holders of record of the outstanding Series A
Convertible Preferred Stock on the date of such notice. Such notice shall
specify the action proposed to be taken by the Corporation and the date as of
which holders of record of the Common Stock shall participate in any such
actions or be entitled to exchange their Common Stock for securities or other
property, as the case may be. Failure by the Corporation to mail the notice or
any defect in such notice shall not affect the validity of the transaction.
(k) Notwithstanding any other provision of this Section 7, no
adjustment in the Conversion Rate need be made (i) for a transaction referred to
in Section 7(g)(i), (ii) or (iii) if holders of Series A Convertible Preferred
Stock are to participate in the transaction or distribution on a basis and with
notice that the Board of Directors determines such transaction to be fair to the
holders of the Series A Convertible Preferred Stock and appropriate in light of
the basis on which holders of Common Stock or, in the case of a transaction
referred to in Section 7(g)(iii), holders of Junior Stock participate in the
transaction; (b) for sales of Common Stock pursuant to a plan for reinvestment
of dividends and interest, provided that the purchase price in any such sale is
at least equal to the fair market value of the Common Stock at the time of such
purchase, or pursuant to any plan adopted by the Corporation for the benefit of
its employees, directors or consultants; (c) for a change in par value of the
Common Stock not involving a subdivision or combination described in Section
7(g)(i)(B) or 7(g)(i)(C); or (d) after the Series A Convertible Preferred Stock
becomes convertible into cash (no interest shall accrue on the cash).
Section 8. Voting Rights. Except as otherwise expressly
provided herein or as required by law, the holders of Series A Convertible
Preferred Stock and the holders of Common Stock shall vote together and not as
separate classes. The holder of each share of Series A Convertible Preferred
Stock shall have the right to one vote for each share of Common Stock into which
such share of Series A Convertible Preferred Stock could then be converted, and,
with respect to such vote, such holder shall have full voting rights and powers
equal to the voting rights and powers of the holders of Common Stock, and shall
be entitled, notwithstanding and provisions hereof, to notice of any
stockholders' meeting in accordance with the By-Laws of the Corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question on which holders of Common Stock have the right to vote.
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The affirmative vote or consent of the holders of at least a
majority of the outstanding shares of the Series A Convertible Preferred Stock,
voting separately as a class, will be required for any amendment, alteration or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation if the amendment, alteration, or repeal materially
and adversely affects the powers, preferences or special rights of the Series A
Convertible Preferred Stock; provided, however, that any increase in the
authorized preferred stock of the Corporation or the creation and issuance of
any other capital stock of the Corporation ranking senior to, on a parity with,
or junior to the Series A Convertible Preferred Stock shall not be deemed to
affect materially and adversely such powers, preferences, or special rights.
Such right of the holders of Series A Convertible Preferred Stock to vote as
hereinabove provided may be exercised at any annual meeting or at any special
meeting called for such purpose as hereinafter provided or at any adjournment
thereof.
Section 9. Outstanding Shares. For purposes of this
Certificate of Designation, all shares of Series A Convertible Preferred Stock
shall be deemed outstanding except (i) from the date fixed for redemption
pursuant to Section 5 hereof, all shares of Series A Convertible Preferred Stock
which have been so called for redemption under Section 5, if funds necessary for
the redemption of such shares are available; (ii) from the date of automatic
converstion, all shares of Series A Convertible Preferred Stock converted into
Common Stock; and (iii) from the date of registration of transfer, all shares of
Series A Convertible Preferred Stock held of record by the Corporation or any
subsidiary of the Corporation.
IN WITNESS WHEREOF, Network Event Theater, Inc. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
Harlan D. Peltz, its Chairman, and attested by Bruce L. Resnik, its Secretary,
this ____ day of December, 1999.
NETWORK EVENT THEATER, INC.
By
-----------------------------------
Harlan D. Peltz
Chairman
Attest:
By _________________________________
Bruce L. Resnik
Secretary
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<PAGE>
Each of the undersigned, the Chairman and the Secretary,
respectively, of Network Event Theater, Inc., a Delaware corporation, declares
under penalty of perjury that the matters set forth in this certificate are true
and correct of his own knowledge.
Executed at _______________ on December ___, 1999.
-----------------------------------
Harlan D. Peltz
Chairman
-----------------------------------
Bruce L. Resnik
Secretary
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